(Alliance News) - The following is a summary of top news stories Monday.
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COMPANIES
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Fears of contagion from the potential collapse of battered Chinese real estate giant Evergrande sent property shares plunging in Hong Kong, with the firm expected to default on upcoming interest payments this week. Evergrande, one of the country's biggest developers, is on the brink of collapse as it wallows in debt of more than USD300 billion. With the property sector accounting for more than a quarter of Chinese gross domestic product, there are concerns of a spillover into the domestic and global economy. The crisis has triggered rare protests outside the company's offices in several Chinese cities by investors and suppliers demanding their money – some of whom claim they are owed as much as USD1 million. Adding to the anger, it emerged at the weekend that six top executives would face "severe punishment" for redeeming financial products before telling retail investors that the firm could not pay them on time. The firm said they must return the cash they redeemed "within a time limit", adding that its investment arm must "strictly follow the announced repayment plan to ensure fairness and impartiality".
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Prudential said it plans to raise up to around USD2.89 billion on the Hong Kong Stock Exchange. The London-based insurer is planning a share offer of up to 5% of its issued share capital, or around 130.8 million shares, at a price of no more than HKD172 each, equivalent to around USD22.09. The offer will consist of a international share placing and a public offer available only to residents of Hong Kong, both at the same price. The public portion will be for up to 32.7 million of the total shares on offer. Prudential said it wants to increase its Asian shareholder base and the liquidity of its shares in Hong Kong. Prudential last week completed the spinoff of US arm Jackson Financial Inc and declared a demerger dividend. The company still owns 20% of Jackson, and plans to cut its stake to less than 10% over the next 12 months.
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SSE noted a report in the Telegraph that said the energy firm was close to being split into two separate blue-chip companies, following pressure from US activist investor Elliott Management. Elliott has been in talks with SSE's board to split the company's legacy wholesale networks business from its growing renewable energy operations for more than a year, according to the Telegraph, citing sources close to the situation. In response, SSE said "there has been no decision to break up" the company. SSE remains fully focused on strategic choices which will "drive shareholder value from the wealth of net zero opportunities", it insisted. SSE said its strategic focus was on renewables and regulated electricity networks, supported by "carefully chosen" businesses.
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Deutsche Lufthansa announced a capital increase worth EUR2.14 billion on Sunday as part of an effort to repay German state aid during the pandemic. Germany's largest airline, emerging from a crisis in the airline sector during the pandemic, is set to use the proceeds from the new shares to pay back the EUR9 billion put up by four countries to see it through the crisis. The price is set at EUR3.58 per new share, with new shares expected to be offered to shareholders at a subscription period from September 22 to October 5. Lufthansa intends to use the net proceeds to repay EUR1.5 billion to the German Economic Stabilisation Fund, followed by a further 1 billion euros in full by the end of the year.
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Two takeover targets, Wm Morrison Supermarkets and aerospace firm Meggitt, joined the FTSE 100 index in London on Monday, replacing Just Eat Takeaway.com and engineer Weir Group. Just Eat was removed for being too Dutch a year and a half after its acquisition by Takeaway.com. Meanwhile, In Germany, ten companies joined the DAX, as the blue-chip stock market index underwent its biggest facelift in its 33-year history. The new entrants, amongst them European aerospace firm Airbus and online shopping company Zalando, turned the DAX 30 into the DAX 40. In turn the mid-cap MDAX was reduced to 50 members from 60.
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MARKETS
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European stocks and Wall Street index futures were trading lower amid worries about contagion from the expected debt default of Hong Kong-listed property firm Evergrande, which sent the Hang Seng index tumbling more than 3%. Tokyo and Shanghai were spared the day's carnage by local holidays.
"This is particularly bad news for miners," AJ Bell's Russ Mould said of Evergrande's potential collapse. "Any downturn in China would have significant implications for commodities demand given its status as the world’s largest consumer of many minerals and metals. The situation also has uncomfortable echoes of 2015 when fears about Chinese debt prompted a big and broad-based market correction."
In London, miners Anglo American, Rio Tinto and BHP were down 8.4%, 5.8% and 5.2%, respectively.
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CAC 40: down 1.9% at 6,444.91
DAX 40: down 2.1% at 15,171.54
FTSE 100: down 1.7% at 6,846.48
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Hang Seng: closed down 3.3% at 24,099.14
Nikkei 225: Tokyo closed for Respect for the Aged Day holiday
S&P/ASX 200: closed down 2.1% at 7,248.20
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DJIA: called down 1.6%
S&P 500: called down 1.3%
Nasdaq Composite: called down 1.1%
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EUR: down at USD1.1709 (USD1.1734)
GBP: down at USD1.3676 (USD1.3752)
USD: down at JPY109.70 (JPY109.92)
GOLD: up at USD1,756.80 per ounce (USD1,754.70)
OIL (Brent): down at USD74.24 a barrel (USD75.06)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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The US and Britain sought to smooth tensions with Paris over a new security pact with Australia, with US President Joe Biden requesting early talks with his French counterpart Emmanuel Macron. The announcement of the defence alliance, and Australia's related decision to tear up a deal to buy French submarines in favour of American nuclear-powered vessels, sparked outrage in Paris, with Macron recalling France's ambassadors to Canberra and Washington in an unprecedented move. But on Sunday, UK Prime Minister Boris Johnson tried to downplay France's concerns about the deal, saying the pact was "not meant to be exclusionary...it's not something that anybody needs to worry about and particularly not our French friends". Biden has requested a phone call with Macron, French government spokesman Gabriel Attal said, which would happen "in the coming days".
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Meanwhile, UK PM Johnson said "we'll have to do everything we can" to prevent energy companies going under as wholesale gas prices surge in the UK. OGUK, representing the offshore oil and gas industry, reported wholesale prices for gas have surged 250% since January – with a 70% rise since August alone. The rise in gas prices has been blamed on a number of factors, including a cold winter which left stocks depleted, high demand for liquefied natural gas from Asia, and a reduction in supplies from Russia. Speaking to broadcasters on the tarmac of New York's JFK airport, Johnson said: "I think people should be reassured in the sense that yes there are a lot of short-term problems not just in our country, the UK, but around the world caused by gas supplies and shortages of all kinds." It comes with UK Business Secretary Kwasi Kwarteng due to hold a fresh round of crisis talks with the energy industry. The Financial Times reported the industry wants the creation of a so-called "bad bank" to absorb unprofitable customers from firms that fail.
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The average price tag on a UK home hit a new record high of GBP338,462 in September. The new asking price peak across Britain is just GBP15 higher than a previous record set in July, Rightmove said. The average asking price for a home increased by 0.3%, or GBP1,091, month-on-month in September. Five nations or regions – Wales, South West England, the East Midlands, the East of England and the South East – are experiencing annual asking price growth of more than 8%.
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Thousands of workers in Ireland on Monday returned to the office for the first time in more than 18 months, as restrictions on working from home are eased. From Monday, staff go back to offices throughout the country in a phased and staggered basis, marking a big step in Ireland's exit out of lockdown restrictions. In guidelines published by the Dublin government, employers have been urged to develop a long-term return to work policy, which will allow for workplaces to open for "specific business requirements". For many workers, it will be the first time they will step back into an office since March 2020, marking an end of full-time working from home. Other restrictions will lift from Monday including an increase in the number of people allowed to attend indoor dance, yoga, pilates studios, art classes and indoor sports and fitness classes, provided people are immune from the disease.
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US Treasury Secretary Janet Yellen pleaded on Sunday for Congress to raise the debt ceiling in order to avoid a "historic financial crisis". In an editorial published in the Wall Street Journal, Yellen points out that the US has always raised the debt ceiling before exceeding its limit. "The US has never defaulted. Not once. "Doing so would likely precipitate a historic financial crisis," Yellen wrote. The debt ceiling, which only Congress can increase, came back into force on August 1 after it had been suspended for two years. It prohibits the US from borrowing more than the current USD28.4 trillion limit if not raised.
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By Tom Waite; thomaslwaite@alliancenews.com
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