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Interesting article on TheStreet: Goldman Sachs: Still a Buy?

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Interesting article on TheStreet: Spot Gold Prices: Cooking With Greece

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Canadian Stocks Rise as Gold Companies Advance for Eighth Day

April 30 (Bloomberg) — Canadian stocks rose for a second day, led by gold producers, as prices of the precious metal rose to the highest since December on concern sovereign risk may erode the value of currencies.

Barrick Gold Corp., the world’s largest producer of the metal, increased 3.5 percent as Canadian gold companies advanced for an eighth day. Open Text Corp., the largest software company based in Canada, plunged 9.8 percent after missing analysts’ earnings estimates. Suncor Energy Inc., Canada’s biggest oil and gas company, climbed 2.5 percent as oil futures rallied to their highest price in two weeks.

The Standard & Poor’s/TSX Composite Index rose 68.56 points, or 0.6 percent, to 12,268.88 at 3:02 p.m. in Toronto. For the month, the index has gained 1.9 percent, led by a 6.1 percent surge in raw materials producers.

“It truly signals that gold is now possibly becoming the currency of last resort,” said Derek Webb, president of Webb Asset Management Inc. (USA), which manages C$40 million ($39 million) for U.S. and Canadian clients.

Gold has gained 5.9 percent this month as European leaders struggled to control a debt crisis that has led to S&P downgrades of Greek, Portuguese and Spanish credit ratings.

Greek bond yields fluctuated today as European officials said a decision on a bailout of the country will happen in the forthcoming days.

“The sovereign issue has been brought back front and center, and people are realizing there’s going to be no easy solutions,” Webb said.

Gold’s Streak

Gold futures rallied 1 percent to $1,180.70 an ounce. The S&P Gold Index’s eight-day streak of gains is the longest since 1994.

Barrick climbed 3.5 percent to a 2010 high of C$44.54. Iamgold Corp., which mines in South America, Canada and Africa, surged 4.2 percent to C$18.19. Aurizon Mines Ltd., which operates in Quebec, soared 6.9 percent to a 12-month high of C$5.88 to lead the S&P/TSX.

Goldcorp Inc., Canada’s second-largest gold producer, rose 2.8 percent to C$44.25 as Royal Bank of Canada analyst Michael D. Curran increased his 12-month price estimate on the company’s U.S.-listed shares to $52 from $48.

Crude futures increased 1.1 percent to $86.09 a barrel after the U.S. Commerce Department said the country’s economy grew at an annual rate of 3.2 percent last quarter, capping the biggest six-month gain since 2003.

Energy Shares

Suncor advanced 2.5 percent to C$34.95. EnCana Corp., Canada’s largest natural gas producer, climbed 3.1 percent to C$33.95.

Open Text, the Waterloo, Ontario, maker of business software, tumbled 9.8 percent to C$42.69 after its third-quarter profit of 70 cents a share missed the average of 17 analyst estimates by 5.4 percent. The shares plunged as much as 12 percent, the most intraday since 2006. At least four analysts reduced their 12-month price forecasts on the stock.

Sierra Wireless Inc., which makes wireless-communications products, sank 12 percent to C$8.35 after estimating it will earn 5 cents a share to 12 cents a share in the second quarter, compared with the average analyst forecast of 14 cents a share.

To contact the reporters on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net

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Chicago Purchasing Managers Index Exceeds Forecasts

April 30 (Bloomberg) — Business activity in the U.S. expanded in April at the fastest pace in five years, indicating the manufacturing rebound accelerated entering the second quarter. The Institute for Supply Management-Chicago Inc. said today that its business barometer rose to 63.8 this month, the highest level since April 2005, from 58.8 in March. Figures greater than 50 signal expansion.

Companies including General Electric Co. are experiencing greater demand as business investment picks up. Production gains have encouraged factories to add workers and helped lift the economy out of the worst recession since the 1930s.

“The manufacturing recovery continues in earnest,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “Things obviously are turning and that is a benefit for the manufacturing sector.”

Economists forecast the gauge would rise to 60, according to the median of 55 projections in a Bloomberg News survey. Estimates ranged from 57 to 63.

Other reports today showed the economy grew in the first quarter as consumer spending picked up and consumer sentiment this month was higher than estimated.

Economy Expands

The world’s largest economy expanded at a 3.2 percent pace in the first quarter and household purchases climbed at a 3.6 percent rate, the biggest in three years, figures from the Commerce Department showed.

The Reuters/University of Michigan’s sentiment gauge fell to 72.2 from 73.6 in March, beating the median forecast of economists surveyed which called for a reading of 71.

Stocks were down following the reports on concern over the federal investigation of Goldman Sachs Group Inc. The Standard & Poor’s 500 Index fell 0.5 percent to 1,200.44 at 10:11 a.m. in New York. Treasury securities rose, pushing the yield in the benchmark 10-year note down to 3.70 percent from 3.73 percent late yesterday.

The Chicago group’s measure of new orders climbed to 65.2 from 61.8 the prior month. The index of backlogs increased to 61.4 from 54.3.

The employment index rose to 57.2 from 53.1.

Payroll Gains

The Labor Department is scheduled to release its monthly employment report on May 7. Manufacturers added to their payrolls the first three months of this year, the longest string of gains since 2006.

The Chicago Purchasers index of production increased to 63.1 from 60.5 in March. The gauge of inventories fell to 50.1 from 52.4.

Economists watch the Chicago index for an early reading on the outlook for manufacturing. The group says its membership includes both manufacturers and service providers, making the gauge a measure of overall growth. Its members have operations across the country as well as abroad.

The Institute for Supply Management earlier this week boosted its projections for sales, spending and employment this year. Factory executives forecast investment in new equipment will rise 2 percent in 2010, while sales will increase 6.3 percent, according to the group’s semiannual survey issued April 27.

Factory Rebound

The ISM is scheduled to release its monthly national factory index on May 3. The measure climbed to 59.6 in March, the highest level in five years.

“The businesses are definitely getting better,” General Electric Chief Executive Officer Jeffrey Immelt said April 28 at the company’s annual shareholder meeting. Growth at the Fairfield, Connecticut-based company will be driven by emerging markets as well as recovery in developed economies, he said.

GE, the world’s biggest maker of jet engines, power-plant turbines and medical-imaging equipment, repeated that earnings may improve enough later in the year that the company can raise its dividend in 2011. It had cut its dividend for the first time since the Great Depression in the first quarter of 2009.

3M Co., the maker of 55,000 products from dental implants to Post-It notes, said April 27 that first-quarter profit topped analysts’ estimates and raised its full-year forecast. All of the Minneapolis-based company’s divisions had “double digit sales growth,” Chief Executive Officer George Buckley said on a conference call.

“The momentum built as the quarter unfolded, and in March we had 16 countries across the world where sales growth was 50 percent or better,” he said. The “United States was no slouch either in this gold press. Sales were up over 11 percent in the quarter and up 18 percent in March.”

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net .

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Brazil Trades A-Rated as Growth Makes Debt Safer

April 30 (Bloomberg) — Brazil’s credit rating, raised to investment grade two years ago, is poised to increase as the economy grows at the fastest pace since 2007, trading in credit- default swaps shows. The cost to protect Brazil bonds, ranked BBB- by Standard & Poor’s, from default for five years fell seven basis points this month to 123 basis points, or 1.23 percentage points, according to data compiled by CMA DataVision. In Europe, where Greece’s spreading debt crisis led to downgrades this week, swaps on Portugal almost doubled this month to 2.78 points, even though its debt is rated A-, three levels higher than Brazil.

“If you look at the European economies, they’re clearly credits in decline and this is a credit on the rise,” Sebastian Briozzo, an S&P analyst, said in a phone interview from Boston. Investors are growing more bullish as President Luiz Inacio Lula da Silva’s stimulus measures pushed quarter-over-quarter growth to 2 percent in the October-to-December period, Brazil’s fastest since a 2.4 percent expansion in the final quarter of 2007, according to government data. Growth will quicken to 6 percent this year, the second-fastest pace in two decades, according to a central bank survey of analysts.

Brazil’s credit-default swaps are less expensive than Bahrain, which is rated A, or four levels higher, as well as South Africa, two steps higher, and Russia, one level. Brazilian swaps point to a ratings increase of as many as two levels, according to Donato Guarino, an analyst with Barclays Plc in New York.

‘Near Future’

At 1.23 points, it costs $123,000 to protect $10 million of Brazilian debt against default for five years. That compares with a cost of $432,000 on March 2, 2009, when the global credit crisis eroded demand for emerging-market assets.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government of company fail to adhere to its debt agreements.

The swap prices show traders expect Brazil to be upgraded “in the near future,” said Jim Craige, who helps manage $12 billion of emerging-market debt at Stone Harbor Investment Partners in New York. “It’s a very good fundamental story.”

The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries widened three basis points to 1.88 percentage points at 10:26 a.m. in New York, according to JPMorgan. That gap is down from 3.55 points a year ago. The average spread for emerging-market dollar debt shrank one basis point to 2.58 points. A basis point is 0.01 percentage point.

Real’s Rally

The real strengthened 1.4 percent this week after central bank President Henrique Meirelles raised the benchmark interest rate to 9.5 percent from a record-low 8.75 percent on April 28 to stem inflation as the expansion accelerates. The rate increase was Brazil’s first since 2008 and the first in Latin America since the region emerged from the global recession.

The real has gained 9.4 percent in the past three months, the best performance among all currencies tracked by Bloomberg. Brazil’s Treasury may double dollar purchases in the currency market, Treasury Secretary Arno Augustin told reporters in Brasilia yesterday.

The nation’s foreign reserves have climbed 26 percent to a record $247 billion over the past two years as the central bank bought dollars to slow the real’s rally.

The yield on the overnight interest-rate futures contract due in January climbed six basis points to 11.06 percent, the highest intraday level since March 2009.

Narrowing Deficit

Brazil’s credit-default swaps have tumbled by more than half in the past year as the economy’s recovery bolstered tax revenue, helping trim the budget gap to 3.2 percent of gross domestic product from 4.6 percent in October. That compares with projected deficits of 9.4 percent in the U.S., 6.2 percent in South Africa and about 6 percent in Russia.

S&P’s Briozzo said Brazil is a “strong” credit within its rating group. For the country to keep wining rating increases, it has to continue displaying “macroeconomic soundness” and the government needs to pare back stimulus measures implemented amid the crisis, he said.

Rating upgrades are constrained by Lula’s failure to push tax reform legislation through congress and a decline in public investment, said Henry Stipp, an emerging-market fund manager at Threadneedle Asset Management in London, which has $98 billion of assets under management.

‘Clear Deterioration’

“There’s a lack of structural reforms,” Stipp said. “There’s a clear deterioration.”

He said Brazil’s swaps are “fairly priced” with its BBB- rating because Russia’s swaps market is distorted by “technical issues.” Russian five-year credit default swaps trade at 1.42 percentage points.

S&P’s upgrade of Brazil to investment grade in April 2008 was followed by Fitch Ratings a month later and Moody’s Investors Service last September.

When asked for comment on Brazil, Moody’s sent a March 31 report that said the positive outlook on the rating suggests “the chances that the country will stay on a multiyear path of improved creditworthiness are reasonably high.”

Fitch analyst Shelly Shetty wasn’t available to comment.

Brazil swap costs are higher than their fair value because buyers of the country’s corporate bonds have purchased government default swaps to hedge their risk, said Barclays’s Guarino. Marfrig Alimentos SA, the world’s fourth-largest meatpacker, and pulp producer Fibria Celulose SA sold $1.25 billion of bonds yesterday, bringing Brazilian corporate debt issuance in overseas markets this year to $14.7 billion, according to data compiled by Bloomberg.

“If the technical effects get out of the way, Brazil CDS should be tighter,” Guarino said. “Brazil’s credit outlook remains intact. The growth is still strong.”

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net

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Pemex May Need to Invest More Than $25 Billion Yearly

April 30 (Bloomberg) — Petroleos Mexicanos, Latin America’s largest crude producer, may need to boost spending by about a third to more than $25 billion a year as it seeks to meet long-term output targets, Mexico’s Energy Minister said.

Higher investment in the state-owned company will help ensure “gradual growth” in production to a goal of 3.3 million barrels a day by 2024, Energy Minister Georgina Kessel said yesterday in an interview at Bloomberg’s headquarters in New York. She’s also chairwoman of the Mexico City-based company, which currently produces about 2.6 million barrels a day.

Chief Executive Officer Juan Jose Suarez Coppel is seeking Pemex’s first production gains in six years as he arrests slumping output at the Cantarell field and spends about $19 billion on projects such as the onshore Chicontepec field. The company’s board expects to complete a review within two months of the “appropriate” level of spending, Kessel said.

“It’s in our best interest to increase investment,” she said. “As long as we have the right project, Pemex will be getting the money that is necessary for investment. We have to maximize the value of Pemex.”

Mexico’s finance ministry last year cut its output forecast for Pemex to 2.5 million barrels a day in 2010. Then Finance Minister Agustin Carstens said output would fall through 2012. Oil provides about 30 percent of the government’s revenue and Pemex had about $49 billion of debt last year.

Fiscal Load

Pemex “cannot afford an investment increase with the current level of oil prices and the current fiscal load,” Enrique Gomez, a Standard & Poor’s analyst in Mexico City, said yesterday in a telephone interview. “For us it would be an area of concern if the government doesn’t cut Pemex’s taxes.”

Pemex reported its first quarterly profit in three quarters today. The company posted net income of 1.4 billion pesos ($114 million) compared with a loss of 27 billion pesos in the year- earlier period, Pemex said in a statement to the Mexican Stock Exchange. Sales climbed 36 percent to 308 billion pesos.

Pemex is creating performance-based contracts to reward private contractors that produce the most at its fields after failing to meet production targets at fields such as Chicontepec. Suarez Coppel, 50, last month met executives from companies including Exxon Mobil Corp., Total SA and Statoil ASA to discuss how the company can maximize its oil production and is seeking about $6 billion in external financing this year.

Debt Leverage

“So far, Pemex has no problems to raise money in the markets,” S&P’s Gomez said. “However, the company debt leverage is high and its labor liabilities are high.”

Suarez Coppel, in a March 31 interview, said that he expects production at Cantarell, the largest oilfield in the Americas when it was discovered in 1976, to be “stable” at between 590,000 and 620,000 barrels a day for at least the next two years. Pemex is injecting gas and using other recovery methods to stabilize the field, he said.

Production at the Ku-Maloop-Zaap project “has probably reached its peak” after output of 856,120 barrels in February, he said.

Mexico will increase investment at Ku-Maloop-Zaap by 28 percent to 38 billion pesos, according to a document posted earlier this week on Mexico’s Hydrocarbons Commission website.

Pemex plans to sell peso-denominated bonds on May 12 in a reopening of a debt offering from earlier this year. The company has registered with the Mexican stock exchange to sell as much as 140 billion pesos in bonds during the next five years.

Crude oil for June delivery rose 89 cents, or 1 percent, to $86.06 a barrel at 11:58 a.m. on the New York Mercantile Exchange. Futures reached $86.17, the highest level since April 15.

“If the world economy recovers as everyone seems to be expecting, you can expect the price of oil to be in the ranges that we have seen lately,” Kessel said.

To contact the reporter on this story: Carlos M. Rodriguez in New York at carlosmr@bloomberg.net

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Chrysler May Lift Industry in Biggest Gain Since 2005

April 30 (Bloomberg) — U.S. auto sales strengthened a year after bankruptcies began to batter the auto industry, with Chrysler Group LLC forecast to post its biggest monthly gain since 2005.

Industrywide deliveries in April may have risen to an annualized rate of 11.4 million light vehicles, the average of 8 analysts’ estimates compiled by Bloomberg, compared to a year earlier. Chrysler, which entered Chapter 11 a year ago today before emerging controlled by Turin, Italy-based Fiat SpA, may have climbed 15 percent, 6 projections show.

The yearly rate of domestic sales in April may be less than the 11.8 million seasonally adjusted annualized pace in March, when Toyota Motor Corp. offered its biggest incentives to counter global recalls, spurring competitors to add discounts.

“The automotive industry is in full-blown recovery,” said Jesse Toprak, vice president of industry trends and insight for TrueCar.com in Santa Monica, California. “Toyota’s generous incentives in April continue to bring consumers back into dealerships; however, the impact of its incentive programs in the marketplace appears to have diminished slightly in April.”

General Motors Co., which entered bankruptcy on June 1, and emerged in July, may post a 7.2 percent increase when industry sales are announced on May 3, while Dearborn, Michigan-based Ford Motor Co. may report a jump of 28 percent. Chrysler’s last double-digit increase was 27 percent in July 2005 when the Auburn Hills, Michigan-based carmaker was part of DaimlerChrysler AG.

Zero-Percent Financing

Asia-based automakers also benefited from incentives. Toyota sales may have risen 34 percent, the average of 5 analysts. The Toyota City, Japan-based automaker extended the no-interest loans and discount leases it offered in April, and competitors followed.

Honda Motor Co., Japan’s second-largest automaker after Toyota, may say sales rose 15 percent, the average of 4 analysts, while No. 3 Nissan Motor Co. may have a 57 percent gain. Seoul-based Hyundai Motor Co. may increase 35 percent, according to Santa Monica, California-based Edmunds.com.

“Honda sales in April got a boost from the uncharacteristically large offers it made available to prospective buyers, including zero-percent financing,” said Brian Johnson, a Barclays Capital analyst in Chicago.

Manufacturers, dealers and investors use the annualized rate to account for seasonal buying patterns when comparing monthly totals. The average estimate for an industry sales pace of 11.4 million vehicles would be a 23 percent increase from the 9.3 million of a year earlier, according to Autodata Corp.

Consumer Confidence Climbs

Automakers were buoyed by consumer confidence that rose in April to its highest since September 2008, as measured by the Conference Board’s monthly index.

“U.S. industry sales of light vehicles appear to have slowed down in April from the 11.8 million level achieved last month, as the initial boost from the large incentives offered since March by manufacturers across the board tapered off, and as automakers likely sold fewer cars to fleet customers,” Johnson said in an April 28 note to investors.

Ford fell 42 cents, or 3.1 percent, to $13.16 at 12:42 p.m. in New York Stock Exchange composite trading. Toyota’s American depositary receipts, each worth 2 ordinary shares, dropped 81 cents, or 1 percent, to $77.30. Ford has gained 32 percent in 2010, and Toyota’s ADRs have declined 8.2 percent.

‘Feeling Better’

Toyota began offering incentives on March 2 such as subsidized leases after worldwide recalls of more than 8 million vehicles to fix defects linked to unintended acceleration and to adjust brakes. The company probably spent an average $2,416 on incentives on each vehicle this month, according to forecaster TrueCar.com.

The industry average is about $2,798, TrueCar.com said. Incentives are down 4 percent from March 2009, when Detroit- based GM and Chrysler boosted spending ahead of their bankruptcy filings.

John McEleney, who has a Toyota and a Buick, GMC and Cadillac dealership in Clinton, Iowa, said sales were up 30 percent at his Toyota store and increased about 20 percent among his GM brands.

“Sales were really pretty good, but not quite as good as March,” McEleney said, adding that sales may keep gaining this year. “We’re seeing a lot more showroom traffic and a lot more Internet activity. People are feeling better about their jobs, too.”

The following table shows estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from March 2009. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.

April had 26 selling days, the same as a year earlier.
GM Ford Chrysler SAAR Rod Lache 4% 25% 22% 11.3 (Deutsche Bank) Jesse Toprak 3.4% 32.1% 11% 11.5 (TrueCar.com) Joseph Barker NA NA NA 11.3 (CSM Worldwide) Jessica Caldwell 4.1% 26% 19% 11.2 (Edmunds.com) Jeff Schuster NA NA NA 11.5 (J.D. Power) Christopher Hopson 13% 17% 9% 11.2 (IHS Global Insight) Himanshu Patel 14% 36% 20% 11.9 (JPMorgan) Brian Johnson 5% 30% 11% 11.4 (Barclays Capital) Average 7.2% 28% 15% 11.4
To contact the reporters on this story: Katie Merx in Southfield, Michigan, at kmerx@bloomberg.net ;
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Stocks Retreat, Led by Banks, as Euro Advance on Greece Bailout

April 30 (Bloomberg) — Stocks fell in the U.S. and Europe, led by banks, as criminal prosecutors scrutinized Goldman Sachs Group Inc. and Barclays Plc reported a drop in investment- banking revenue. The euro rose against the dollar on speculation a bailout for Greece is imminent. Treasuries gained.

The Standard & Poor’s 500 Index slid 1.2 percent at 2:54 p.m. in New York as Goldman Sachs tumbled 8.9 percent, while the Stoxx Europe 600 Index slumped 0.7 percent, with Barclays declining 6.4 percent in London. The euro extended its rebound from a one-year low earlier this week. The yield on the benchmark 10-year Treasury note fell 6 basis points to 3.67 percent. Oil rose to a two-week high on a weaker dollar.

Concern over potential criminal charges against Goldman Sachs and skepticism about continued growth at Barclays overshadowed reports showing 3.2 percent growth in the U.S. economy last quarter and better-than-estimated consumer confidence. Energy and technology shares also slumped as the White House’s chief strategist said offshore drilling will be banned while the Gulf of Mexico oil spill is investigated and MEMC Electronic Materials Inc. slid following a quarterly loss.

“There’s just a lot going on,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The GDP number was pretty much in line with expectations. It didn’t add much. And there’s Goldman. Whether they are going to bring a criminal suit or not, if you just come up with the idea or the possibility, that will keep the pressure.”

Euro Gains

The euro rose for the third consecutive day against the dollar and the yen, climbing 0.6 percent to $1.3306 and 0.5 percent to 125.06 yen.

The two-year Treasury yield slipped 3 basis points to 0.96 percent and the 30-year yield lost 5 basis points to 4.54 percent. Treasury 10-year notes headed for their first monthly gain since January as Greece’s fiscal crisis renewed demand for the safest government securities even as the U.S. economic recovery showed signs of accelerating.

“Investors are very quick to pull the trigger and buy Treasuries in this risk-averse atmosphere,” said Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas, one of 18 primary dealers that are required to bid at Treasury auctions. “Now there is a flight-to-quality bid in the market as stocks fell off a cliff. Worried fixed income investors are preparing for another massive flight to quality.”

Goldman Sachs Group Inc. led a jump in the cost to protect bank bonds from default. Credit-default swaps on Goldman Sachs increased the most since the Securities and Exchange Commission’s civil lawsuit filing on April 16, as a federal review begins by the U.S. attorney in Manhattan, said two people familiar with the matter, who weren’t authorized to comment and spoke on condition of anonymity.

Bank Default Swaps Gain

Credit swaps on Goldman Sachs climbed 25.8 basis points to 157.4 basis points, according to CMA DataVision. Swaps on other banks, including Morgan Stanley to Bank of America, also rose.

The S&P 500 extended its weekly decline to 2.2 percent, its biggest slide since January. Stocks fell this week as credit- ratings downgrades of Greece, Portugal and Spain fueled concern Europe’s sovereign debt crisis is worsening. The benchmark gauge of U.S. stocks was still poised for a 1.5 percent gain in April, its third-straight monthly advance.

Financials Lead Declines

Financial shares led losses in the S&P 500 today, dropping 2 percent as a group. Energy stocks declined as the White House banned new offshore drilling until an investigation of a Gulf of Mexico oil spill determines what happened to the rig. Technology shares slumped after MEMC Electronic Materials Inc. posted a quarterly loss, sending shares of the silicon-wafer producer down 18 percent.

D.R. Horton Inc. and Newell Rubbermaid Inc. rose at least 1.9 percent after posting better-than-estimated earnings. About 78 percent of companies in the S&P 500 that reported first- quarter results beat analysts’ estimates for per-share earnings, according to Bloomberg data.

National Bank of Greece SA, the nation’s largest lender, rallied 2.9 percent in Athens, extending yesterday’s 18 percent surge. The benchmark ASE Index of stocks rallied 2.2 percent in Athens and Greek bonds surged, with the two-year yield dropping 17 basis points to 12.72 percent.

‘Savage’ Cuts

Greek Prime Minister George Papandreou said the country’s survival was at stake in talks to win a potential $159 billion European Union-led bailout in exchange for budget cuts denounced by unions as “savage.”

Investors demanded less than 6 percentage points extra in yield to buy Greek 10-year bonds rather than German bunds after the premium, or spread, had widened to more than 8 points earlier this week on concern about a default. The deal with the EU and the International Monetary Fund, which may impose 24 billion euros of budget cuts in exchange for the aid, could be closed as soon as tomorrow, EU spokesman Amadeu Altafaj said.

The MSCI Asia Pacific Index climbed 1.1 percent, its first gain in four days. Samsung Electronics Co. Ltd. added 2.9 percent in Seoul after reporting record net income. Baoshan Iron & Steel Co. Ltd., China’s largest publicly traded steelmaker, gained 6 percent in Shanghai after saying its profit may surge 10-fold. Macquarie Group Ltd., Australia’s largest investment bank, rose 4 percent as earnings doubled.

The MSCI Emerging Markets Index climbed 0.6 percent. Poland’s benchmark WIG20 Index climbed 0.5 percent as insurer PZU SA raised 8.1 billion-zloty ($2.7 billion) in Europe’s biggest initial public offering since 2007. Emerging-market equity funds attracted $1.5 billion of net inflows in a week, taking year-to-date gains to $15.2 billion, EPFR Global said.

Crude oil for June delivery rose or 1.2 percent to $86.15 a barrel.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Cordell Eddings in New York at ceddings@bloomberg.net .

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Mexico’s 22-Month IPO Drought to End on Chedraui Sale

April 29 (Bloomberg) — The 22-month drought in Mexican initial public offerings is coming to an end.

Supermarket operator Grupo Comercial Chedraui SAB may raise as much as 4.8 billion pesos ($391.3 million) in Mexico’s first IPO since June 2008, according to regulatory filings and data compiled by Bloomberg. Six companies may offer shares this year, said Jose Miguel Garaicochea, a money manager for Banco Santander SA, making it the busiest year for sales since 1997.

The IPO market is reviving as the economy recovers from its worst recession since 1932 and the benchmark Mexico IPC index posts the best rally among benchmark indexes in the Americas over the past 12 months with a gain of 50 percent. Mexico’s economy is forecast to grow 3.8 percent this year, the fastest pace since 2006, according the median estimate in a Bloomberg survey of 13 economists.

“Companies are starting to see opportunities because of a panorama of better economic growth,” said Garaicochea, who helps manage 10 billion pesos. “They want to start taking advantage of this growth and want to offer shares so they can get resources to expand.” Garaicochea’s Santander Balanceado A fund returned 68 percent last year, making it the fifth-best performing stock fund in Mexico, Bloomberg data show.

Four companies have announced plans to sell shares this year and may raise more than 5.7 billion pesos, according to data compiled by Bloomberg. Along with Chedraui, they are Mexico City-based investment brokerage Groupo Actinver SA; Michoacan, Mexico-based real estate company Corporativo Tres Marias and Wimberley, Texas-based ProTeak Uno, a forestry company.

Bolsa’s Value

Mexico’s IPC is trading at 18.8 times 2010 earnings, compared with 16.7 times for Brazil’s Bovespa and 18 times for the Standard & Poor’s 500 Index. The benchmark IPC index reached a record 34,224 on April 15.

The Mexican Stock Exchange trails the Bovespa in Latin America in terms of value of the stocks traded. The total market capitalization of Mexican stocks is $396 billion, or 32 percent of Brazilian equities, according to Bloomberg data. Mexican stocks are worth about 23 percent of the nation’s gross domestic product, the least among the eight-biggest markets in the Americas.

“Without a doubt, company value levels are relatively high right now and that has caused share offerings to be more attractive,” said Hector Chavez Rios, an equity derivatives trader at Santander Investment in Mexico City. “Strong demand from investors right now opens the door for more offerings.”

Chedraui’s Expansion

Chedraui, based in Xalapa, Veracruz, may use the proceeds to expand in northern Mexico. The retailer, which operates 163 stores in Mexico and the U.S., competes with Wal-Mart de Mexico SAB, Controladora Comercial Mexicana SAB and Organizacion Soriana SAB.

The company has reported at least three consecutive years of profit through 2009 and increased sales an average of 18 percent annually during that period, according to filings with the Mexican stock exchange. Revenue in 2009 was 47.9 billion pesos.

The company may price the shares at 32 pesos to 40 pesos, according to a regulatory filing. That’s comparable to competitor Soriana, whose shares closed at 37.96 pesos yesterday. Soriana, the second-largest supermarket operator in Mexico, has a market capitalization of 68 billion pesos. Chedraui, the fourth-largest operator of supermarkets, abandoned an initial public offering in 1998 after demand for Mexican equities fell. A Chedraui spokesman didn’t respond to a request for comment.

1997 Peak

The Mexican IPO market peaked in 1997, when 17 companies went public and raised $499.2 million. Mexico grew for a second year in 1997 as the economy rebounded from the worst recession in six decades in 1995. Foreign direct investment rose 48 percent to a then-record $12.1 billion in 1997.

The last Mexico sale share was Genomma Lab Internacional SA, a Mexico City-based producer of over-the-counter drugs, which raised $203.2 million in June 2008. The stock is up 154 percent since the offering through yesterday’s close of 40.64 pesos.

Brokerage Grupo Actinver SA may sell shares in May, according to documents filed with the Mexican Stock Exchange. The company plans to sell as much as 900 million pesos in shares as it seeks to increase its underwriting business, Chief Executive Officer Hector Madero said Oct. 6.

Actinver Casa de Bolsa SA is managing the offering for Grupo Actinver. Citigroup Inc. and Credit Suisse Group AG are handling the Chedraui sale abroad. Citigroup’s Banamex unit and BBVA Bancomer SA are managing the offering in Mexico for Chedraui.

To contact the reporters on this story: Jonathan Roeder in Mexico City at jroeder@bloomberg.net ; Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

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