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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Spain Is Doing Enough to Put Its House in Order: Elena Salgado

April 29 (Bloomberg) — I should start by going over some of the facts regarding the current Spanish economic situation.

It is true that Spain faces a large fiscal deficit reduction — from 11.2 percent of gross domestic product in 2009 to less than 3 percent in 2013. It’s also true that part of the deficit comes from structural vulnerabilities in the Spanish economy. But it’s equally important to emphasize some strengths in our economy that are often overlooked.

First, our levels of public debt are quite low compared with European standards. With a current debt-to-GDP ratio of 53 percent, 20 percentage points lower that the euro-area average, we aren’t expecting the debt levels to exceed 75 percent of GDP at any time in the future. Second, Spain has an institutional framework characterized by stability. Third, Spain has a dynamic and diversified economy, with large companies that in the past 15 years have become dominant global players in growth areas, such as infrastructure, telecommunications, financial services and renewable energies.

The first step to convince global investors of our fiscal sustainability is to show them we have the right diagnosis for the current situation. The second one is to prove that we have put forward the right set of policies. We firmly believe both steps are being taken, so let me elaborate on these two points.

We believe that due to the domestic imbalances built in the last decade and as the result of the crisis, Spain needs to:

Bristol-Myers, Cameron, Dendreon, Kellogg: U.S. Equity Movers

April 29 (Bloomberg) — Shares of the following companies are having unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 1:45 p.m. in New York.

Education stocks dropped after the Web site Inside Higher Ed reported that U.S. Education Department official Robert Shireman criticized the agencies that handle accreditation of for-profit colleges.

DeVry Inc. (DV US) declined 5.6 percent to $62.99. Apollo Group Inc. (APOL US) fell 5.2 percent to $58.28. ITT Educational Services Inc. (ESI US) slipped 5.6 percent to $104.53. Career Education Corp. (CECO US) retreated 9.6 percent to $30.20. Corinthian Colleges Inc. (COCO US) slid 4.9 percent to $16.08.

Akamai Technologies, Inc. (AKAM US) rose 19 percent to $39.38, after surging to $39.39 earlier, the highest intraday price since June 2008. The largest supplier of software and services to make Web sites load faster posted first quarter earnings that beat analyst estimates and authorized a $150 million extension of its share buyback program. Its rating was raised to “buy” from “hold” at Citigroup Inc. and its price estimate raised to $40 from $30 at JMP Securities LLC.

Assurant Inc. (AIZ US) rose 6.9 percent to $36, after climbing to $36.50 earlier, the highest intraday price since October 2008. The provider of homeowner and health insurance posted first-quarter profit excluding some items of $1.32 a share, topping the average analyst estimate by 27 percent.

ATS Medical Inc. (ATSI US) had the biggest gain in Russell 2000 Index, surging 54 percent to $3.98. The maker of mechanical heart valves agreed to be bought by Medtronic Inc. (MDT US) for $4 a share in cash.

Baidu Inc. (BIDU US) climbed 14 percent to $708.20, after jumping to $718 earlier, the highest intraday price since it went public in August 2005. The operator of China’s biggest search engine forecast sales growth that exceeded analysts’ estimates after customer gains accelerated on Google Inc.’s (GOOG US) decision to move its Chinese site offshore.

Bristol-Myers Squibb Co. (BMY US) rose 5 percent to $25.56 after climbing 6.5 percent, the most intraday since March 12. The drugmaker posted first-quarter profit that beat the average estimate of analysts surveyed by Bloomberg. The company also said quarterly results were better than its own expectations.

Cameron International Corp. (CAM US) declined 13 percent to $38.49 after dropping 22 percent earlier, the most intraday since October 2008. The second-largest U.S. maker of oilfield equipment provided the so-called blowout preventers for the Transocean Ltd. rig in the Gulf of Mexico that caught fire and sank last week.

Covance Inc. (CVD US) fell 4.6 percent to $57.75 after sinking as much as 7.8 percent, the most intraday since July 22. The contract research organization for pharmaceutical companies forecast second-quarter profit of 50 cents a share, trailing the 65-cent average analyst estimate compiled by Bloomberg, and said it was cutting 200 jobs.

Dendreon Corp. (DNDN US) gained as much as 19 percent to $47.32 before trading was halted, pending incoming news. The Seattle-based drug company won approval for its first product, a vaccine to fight prostate cancer, after a three-year battle with U.S. regulators.

Eastman Kodak Co. (EK US) dropped 12 percent to $7.36, after slumping as much as 15 percent, the most intraday since April 2009. The photography company forecast a full-year loss after posting first-quarter profit that missed the average analyst estimate by 7.1 percent.

E*Trade Financial Corp. (ETFC US) declined 5.7 percent to $1.74, after sinking as much as 8.4 percent, the most intraday since Nov. 2. Citadel Investment Group LLC plans to reduce its stake in the online brokerage by about one-fifth, 2 1/2 years after the hedge-fund operator injected funds to help the company avoid bankruptcy.

First Solar Inc. (FSLR US) gained 17 percent to $150.43 for the second-biggest rally in the Standard & Poor’s 500 Index. The world’s largest manufacturer of thin-film solar power modules raised its full-year profit forecast to as much as $7.30 a share, topping the average analyst estimate of $6.12. The company was upgraded to “buy” at Bank of America Merrill Lynch and Deutsche Bank and to “outperform” at Robert W. Baird & Co.

FMC Technologies Inc. (FTI US) rose 11 percent to $74.99, after increasing to $76.54 earlier, the highest intraday price since June 2008. The Houston-based provider of technology for oil and natural gas fields boosted its full-year forecast after posting higher first-quarter profit that analysts estimated.

Geomet Inc. (GMET US) jumped 7.8 percent to $1.39, after rising 19 percent earlier, the most intraday since April 5. The Houston-based natural gas producer reported first-quarter profit of 2 cents a share excluding some items, compared with the average analyst estimate of a loss of 2 cents.

GrafTech (GTI US) surged 27 percent to $17.14, after surging as much as 31 percent, the most intraday since October 2008. The maker of products used in steel and aluminum production said it agreed to acquire Seadrift Coke LP and C/G Electrodes for $692 million and reported first-quarter profit of 25 cents excluding some items, topping the 20-cent average analyst estimate compiled by Bloomberg.

Green Mountain Coffee Roasters Inc. (GMCR US) fell 10 percent to $78.03, after tumbling as much as 12 percent, the most intraday since Nov. 12. The company forecast third-quarter profit of as much as 54 cents a share excluding some items, trailing the 57-cent average analyst estimate.

Harman International Industries Inc. (HAR US) had the biggest retreat in the S&P 500, tumbling 19 percent to $41.50. The maker of audio systems for homes and vehicles forecast operating profit margin of 7 percent to 10 percent in fiscal 2013, “weaker than elevated market expectations,” JPMorgan Chase & Co. said in a note.

IStar Financial Inc. (SFI US) rallied 15 percent to $6.53 after jumping 17 percent, the most intraday since Sept. 16. The commercial real estate lender whose shares have more than doubled this year said repayments by borrowers improved. The company lowered the amount set aside to cover bad loans and increased cash in the first quarter.

Kellogg Co. (K US) advanced 5 percent to $55.21 after rising as much as 5.3 percent, the most intraday in a year. The largest U.S. breakfast-cereal maker posted first-quarter profit that exceeded analysts’ estimates after sales climbed in North America.

Motorola Inc. (MOT US) rose 2.6 percent to $7.10, after gaining 8.5 percent earlier, the most intraday since Feb. 12. The handset maker that’s rebuilding its mobile-phone business around Google Inc.’s (GOOG US) Android software forecast second- quarter earnings of as much as 9 cents excluding some items, topping the 4-cent average analyst estimate compiled by Bloomberg. The company also reported first-quarter profit of 2 cents a share excluding some items, compared with the average analyst estimate of a loss of 1 cent.

Openwave Systems Inc. (OPWV US) slumped 14 percent to $2.34, after dropping as much as 17 percent, the most intraday since Oct. 30. The maker of software for mobile phones reported a third-quarter loss of 2 cents a share excluding some items, compared with the average analyst estimate of a profit of 1 cent a share.

O’Reilly Automotive Inc. (ORLY US) climbed 7.3 percent to $49.73, after rising as much as 8.1 percent, the most intraday since Oct. 29. The third-biggest U.S. auto-parts chain posted first-quarter profit excluding some items of 70 cents a share, exceeding the average analyst estimate by 19 percent.

Palm Inc. (PALM US) surged 25 percent to $5.78, after climbing as much as 25 percent, the most intraday since January 2009. The maker of the Pre smartphone agreed to be bought by Hewlett-Packard Co., the world’s biggest maker of personal computers, for $5.70 a share, or $1.2 billion, representing a 23 percent premium over Palm’s closing price yesterday. Hewlett- Packard (HPQ US) lost 0.8 percent to $52.85.

IRobot Corp. (IRBT US) jumped 31 percent to $20, after rallying as much as 32 percent, the most intraday since November 2005. The maker of Roomba home vacuums and battlefield bomb- disposers boosted its earnings forecast for the year and reported first-quarter profit of 24 cents a share, topping the 6-cent average analyst estimate compiled by Bloomberg.

Illumina Inc. (ILMN US) gained 12 percent to $42.29, after increasing to $43.11 earlier, the highest intraday price since Oct. 20. The maker of DNA analysis equipment reported first- quarter profit of 21 cents a share excluding some items, topping the 19-cent average analyst estimate compiled by Bloomberg.

Vanda Pharmaceuticals Inc. (VNDA US) slid 8.8 percent to $8.76, after dropping to $8.75 earlier, the lowest intraday price since May 11. The biopharmaceutical company’s shares were downgraded to “reduce” from “buy” at Madison Williams by equity analyst David Moskowitz. The 12-month price estimate is $7.00 per share.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net .

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Goldman Sachs Champion Buffett Draws on 69-Year Past With Firm

April 29 (Bloomberg) — Warren Buffett, who called Goldman Sachs Group Inc. an “exceptional institution” when he invested $5 billion in the firm, will have his biggest platform to discuss the bank after it was sued for fraud by regulators and pilloried in Congress.

Buffett, who will host shareholders of his Berkshire Hathaway Inc. at the May 1 annual meeting, was a satisfied Goldman Sachs client when he extended capital and credibility to the firm during the credit crisis in 2008. Buffett has since defended the bank amid public outrage about its pay and conduct, drawing on a relationship that dates to a visit with a Goldman Sachs executive in New York at the age of 10.

“That’s more than 60 years of experience with Goldman Sachs that’s talking,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of the hedge fund Ram Partners LP. “Buffett is not going to be turning around selling his Goldman Sachs.”

Buffett said people who feel cheated by the recession have unfairly lashed out at Wall Street when regulators, mortgage lenders and politicians should share the blame.

“They’re going to rewrite Genesis and have Goldman Sachs offering the apple,” Buffett said in a March 1 interview with CNBC.

The billionaire has “great confidence” in his investment, according to Berkshire Director Thomas Murphy, who told Bloomberg Television that he spoke with Buffett after the Securities and Exchange Commission sued Goldman Sachs on April 16. Goldman Sachs Chief Executive Officer Lloyd Blankfein said he also spoke privately with Buffett after the lawsuit.

Shareholder Questions

Buffett will take about five hours of shareholder questions at the meeting and, according to Murphy, should expect inquiries about Goldman Sachs, which was accused of misleading clients on the sale of mortgage-related investments. About 35,000 people attended last year’s meeting at Omaha’s Qwest Center arena. Buffett’s comments from the gathering and subsequent press conference are read throughout the world.

Buffett, a critic of Wall Street greed and corruption, has supported a firm that’s been a lightning rod for criticism. Public regard for Goldman Sachs plunged in the year and a half since Buffett, Berkshire’s chairman and chief executive officer, bought preferred securities paying 10 percent interest.

Berkshire makes $500 million a year in interest on the Goldman Sachs perpetual preferred stock, which the bank may call at any time by paying a 10 percent premium. The warrants Buffett negotiated as part of the deal give Berkshire the option to buy $5 billion of common stock for $115 a share. Berkshire’s paper profit on the warrants was about $1.8 billion as of yesterday, down from $3 billion before the SEC lawsuit was announced.

Goldman Shares

Goldman Sachs advanced $3.97, or 2.6 percent, to $157.01 yesterday in New York trading. The bank closed at $184.27 on April 15. Berkshire rose $675 to $115,625.

The transaction is reminiscent of a 1987 deal with Salomon Inc. in which Buffett invested $700 million.

Buffett was named interim chairman of Salomon in 1991 after the firm was accused of misconduct in the Treasury debt auction market, and he worked with regulators to restore the company’s credibility. In testimony to Congress, he summarized his message for Salomon employees:

“Lose money for the firm, and I will be understanding,” Buffett said. “Lose a shred of reputation for the firm, and I will be ruthless.”

Senate Hearing

Goldman Sachs executives endured more than 10 hours of grilling before the Senate’s Permanent Subcommittee on Investigations on April 27 about their duty to clients and the ethics of betting against the housing market as the bank sold mortgage-linked securities. Michigan Democrat Carl Levin said he was “troubled” that the company doesn’t seem to understand conflicts of interest.

Goldman Sachs has said the SEC suit is unfounded.

“What clients or customers are buying is they are buying an exposure,” Blankfein told the committee. “The thing we are selling to them is supposed to give them the risk they want. They are not coming to us to represent what our views are.”

Goldman Sachs posted a record $13.4 billion profit in 2009, a year after receiving $10 billion in a taxpayer bailout. It repaid the funds with interest in June.

Buffett told television interviewer Charlie Rose in November that the bank didn’t need the bailout. As politicians railed about bonuses, Buffett, the world’s third-richest person, praised Blankfein and said, “I don’t mind paying for performance.”

Finding a Target

“You’ve got to expect vilification of banks,” Buffett said in a January interview. “If I lost my job I’d be mad at somebody, I’d probably be mad at everybody. And that’s human nature. And it sometimes gets fanned by people to whom it’s to their advantage to have a target.”

The Goldman Sachs case is the SEC’s first contested lawsuit against a major investment bank in more than a decade, and comes as the regulator seeks to restore a reputation tarnished by its failure to detect Bernard Madoff’s Ponzi scheme.

Buffett, who has ridiculed investment bankers for the size of their fees, relied on Goldman Sachs for some of his biggest deals, including the $4.5 billion acquisition of Marmon Holdings Inc. in 2008 and the $1.45 billion takeover of McLane Co. Those deals were facilitated by Byron Trott, the former Goldman Sachs managing director of whom Buffett said “I trust him completely.”

An Investing Icon

At last year’s meeting, Buffett praised Wells Fargo & Co. and dismissed the importance of government analysts who were reviewing banks in an industrywide stress test. The San Francisco-based bank jumped 44 percent the following week.

“Warren Buffett is certainly an icon in terms of picking the right companies and investing with a long-term strategy,” said Jeff Resnick of Opinion Research Corp., a specialist in brand and reputation consulting. A good reputation “will give you a reservoir of goodwill among your most important stakeholders.”

Berkshire rose to first place this month in Harris Interactive’s annual survey of corporate reputations. Goldman Sachs came in 56th out of 60.

“He’s an important client as well as an investor,” Blankfein said of Buffett in the April 27 Bloomberg Television interview. “I can’t speak for Warren.”

Buffett said last year in Omaha that almost everyone associated with finance, from bankers to regulators to insurers, contributed to the crisis.

“Some of it stemmed from greed, some from stupidity, some from people saying the other guy was doing it,” Buffett said.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

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PZU to Price at Top of Range in Biggest Polish IPO

April 29 (Bloomberg) — Shares of insurer PZU SA will price at the top of the proposed range as demand for Europe’s biggest initial public offering since 2007 outweighs the effect of Greece’s debt crisis, according to Poland’s Treasury Ministry.

More than 250,000 individual investors applied for about 7 million shares in Poland’s biggest insurer and will pay 312.5 zloty apiece or the maximum price, Treasury Minister Aleksander Grad told reporters today at a press conference in Warsaw. The price for institutional investors, whose portion was more than four times oversubscribed, will be announced tomorrow, he said.

“People now look at different equity stories, they are no longer in the sell-them-all mode,” Herbert Perus, Vienna-based head of global equities at Raiffeisen Capital Management, whose team helps oversee about $36 billion. Even following this week’s downgrades to Greece, Portugal and Spain, “IPOs from less affected countries like PZU should be successful,” he said.

Poland and Dutch-based Eureko BV are selling 25.8 million shares, or 30 percent, of PZU to institutional and individual investors with funds paying at least as much as individuals, based on PZU’s sale prospectus. The price of 312.5 a share, the highest end of the range to institutions, values the deal at 8.1 billion zloty ($2.7 billion), or 10.3 times 2010 net income, according to Bank Zachodni WBK SA. That’s below the 11.9 times for Vienna Insurance Group, which PZU will overtake as central Europe’s largest publicly traded insurer.

PZU shares may be priced for institutional investors at no more than 312.50 zloty apiece, according to three people familiar with the sale. The terms have yet to be finalized.

Market Turbulence

The WIG20 Index rose 1.9 percent in Warsaw, snapping its biggest back-to-back slump in more than two months. Stocks fell in emerging markets after Standard & Poor’s cut its rating for Greece to junk, Portugal by two steps and Spain by one level this week, driving investors from riskier assets.

“Poland stands out in the region and ironically, the situation in Greece has helped us,” Chris Walenczak, chief adviser to the Treasury minister, told reporters today. “The capital that could have been invested there moved to Poland.”

Even after the equity market’s two-day slump, stocks are up 17 percent from this year’s low in February, and the zloty had its best quarterly rally in the first quarter since 2004, as the only European Union country to avoid recession in 2009 attracted investors. Poland’s economy is likely to accelerate to 3 percent growth this year, from 1.8 percent in 2009, the government said.

‘Heavy’ Demand

PZU’s likely ranking as the sixth-biggest stock in Poland’s main stock index and dividend prospects make the IPO attractive, according to Ryszard Trepczynski, chief investment officer at Pioneer Pekao Investment Management SA in Warsaw, which runs the country’s largest mutual fund at $5.7 billion and planned to buy shares in the offering.

Individual investors opened at least 35,000 brokerage accounts, buying more than 2 billion zloty of shares, said Treasury Ministry’s Walenczak.

PZU will start trading close to May 14 after book building ends today, according to its prospectus. Poland extended the subscription period for individual investors by eight hours to midnight yesterday to accommodate “heavy” demand, Grad said yesterday. Brokerages including Zachodni kept their doors open an extra two hours to 8 p.m. to serve individuals lining up at their branches, according to Piotr Gajdzinski, a spokesman for the Polish unit of Allied Irish Banks Plc in Poznan.

PZU is Poland’s biggest IPO since the Warsaw bourse was created in 1991, and Europe’s biggest since Spanish wind-park operator Iberdrola Renovables SA raised about $6.55 billion in December 2007, according to Bloomberg data.

The Polish company will have a total market value of about $9.1 billion based on the price of 312.5 zloty a share, beating Vienna Insurance Group, which has a market capitalization equivalent to about $6 billion, according to Bloomberg data.

PZU will probably join the WIG20 Index “several” days after its debut, Warsaw Stock Exchange Chief Executive Officer Ludwik Sobolewski said yesterday.

To contact the reporters on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net ; Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

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Cocoa Futures Rise in N.Y. on Supply Shortfall; Coffee Gains

April 29 (Bloomberg) — Cocoa rose for the first time in three days on speculation that output will trail demand after exports fell from Cameroon, the fifth-biggest producer of the beans. Coffee gained for a second session.

Cocoa shipments from Cameroon dropped 35 percent in March, the Cocoa and Coffee Interprofessional Council said yesterday. World output will lag behind demand in the 2009-2010 season, Fortis Bank Nederland NV and VM Group said last week. Grindings, an indication of demand, will advance 3.3 percent from a year earlier, they said. Cocoa gained 30 percent in the past year.

“The fundamentals are strong,” said Tom Mikulski, a senior market strategist at Lind-Waldock, a broker in Chicago. “There is a lot of fund-buying.”

Cocoa for July delivery gained $18, or 0.6 percent, to $3,211 a metric ton on ICE Futures U.S. in New York. The commodity should rise to $3,250, Mikulski said, without giving a timeframe.

In the week ended April 20, hedge-fund managers and other large speculators increased their net-long position in New York cocoa futures by 15 percent from a week earlier, government data.

On London’s Liffe exchange, cocoa for July delivery rose 13 pounds, or 0.5 percent, to 2,396 pounds ($3,670) a ton.

In another ICE market, arabica-coffee futures for July delivery rose 0.7 cent, or 0.5 percent to $1.346 a pound in New York. Yesterday, the price gained 2.3 percent.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net .

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Credit Agricole, SocGen Face Greek Risks as Debt Crisis Deepens

April 29 (Bloomberg) — Credit Agricole SA and Societe Generale SA may be among European banks with the most at risk from the Greek crisis because of unprofitable units in the country.

French banks have the biggest exposure to Greece among European lenders, accounting for $78.8 billion of the $193.1 billion of total claims European banks have on Greece, according to the Bank for International Settlements. They also have the second-largest claims on Portugal and Spain, after German banks, and are the biggest holders of Italian debt, BIS figures show.

Bond prices from Italy to Ireland slumped after Standard & Poor’s cut Greece’s credit rating below investment grade on April 27 and lowered Portugal as well. A day later the rating company downgraded Spain’s debt. Contagion from the Greek crisis is “threatening the stability of the financial system” like the Ebola virus, Organization for Economic Cooperation and Development Secretary General Angel Gurria said.

Credit Agricole’s Emporiki Bank of Greece SA has 1.4 million clients and 22.7 billion euros ($30 billion) of loans. The French bank’s main risk in Greece comes from possible loan losses as the economy shrinks, said Jaap Meijer, an analyst at Evolution Securities Ltd. in London. Paris-based Credit Agricole also has stakes in Banco Espirito Santo SA, Portugal’s biggest publicly traded bank by market value, and in Spain’s Bankinter SA.

“The main French banks have direct exposures on Greek sovereign debt and Credit Agricole has the biggest exposure all in all, when including possible losses on its domestic loan book,” Meijer estimated. He and other analysts said a lack of precise data from banks makes it hard to pinpoint who holds what.

For a table of European financial institutions’ stated exposure to Greece and Portugal, click here. The figures were provided to Bloomberg News in interviews and e-mails, or culled from company reports and presentations.

Contagion Concern

Credit Agricole, France’s biggest bank by branches, said yesterday it has 850 million euros at risk from Greek government debt, including 600 million euros at Emporiki. A company spokeswoman declined to provide further detail.

Societe Generale, France’s No. 2 bank by market value, owns 54 percent of Greece’s Geniki Bank SA, which has 4 billion euros of loans and advances, according to the Athens-based lender’s Web site. Geniki’s customer deposits stood at 2.7 billion euros at the end of 2009. A Societe Generale spokeswoman declined to comment on the bank’s risks in Greece.

Banks in Greece face worsening asset quality, pressure on profitability, negative lending growth and rising loan losses as the economy contracts and the state tries to curb the country’s budget deficit. Geniki has made losses every year since 2003, while Emporiki’s 2009 net loss widened to 583 million euros.

Financial shares tumbled in European trading yesterday, pushing the 52-company Bloomberg Europe Banks and Financial Services Index down 1.2 percent, on concern the Greek debt crisis will spread. Portugal’s Banco BPI SA slumped 8.3 percent. Credit Agricole dropped 3.4 percent, bringing its decline since the start of this week to 10 percent.

Portugal, Spain

Fortis, the owner of Belgium’s biggest life insurer, lost 7.4 percent. The insurer, based in Brussels and the Dutch city of Utrecht, had holdings of Greek and Portuguese government bonds totaling 7.2 billion euros at the end of last year, according to a March 10 presentation.

The cost of insuring against a default on government bonds of Greece, Portugal and Spain rose to records on April 28.

BNP Paribas SA, France’s biggest bank by assets, has “negligible” risks tied to Greek banks, Chief Executive Officer Baudouin Prot told French radio BFM yesterday. Natixis SA, based in Paris, also said it has “negligible” risk tied to Greek government debt and “insignificant” exposure to Portugal.

Banks have more at risk in Portugal and Spain than Greece. Claims on Portugal by European lenders amount to $240.5 billion, including $47.4 billion by German banks and $44.9 billion by French firms, according to BIS figures from the end of 2009.

European banking claims on Spain stand at $832.3 billion, with German financial institutions accounting for $238 billion and French companies $211.2 billion.

Commerzbank AG holds 3.1 billion euros in Greek sovereign debt, while Deutsche Postbank AG owns 1.3 billion euros of Hellenic government instruments. Hypo Real Estate AG, the German lender taken over by the state following the credit crunch, has 7.9 billion euros in Greek government bonds and 1.7 billion euros in Portuguese state debt, according to a March presentation on the company’s Web site.

To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net ; Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net .

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BlackRock Joins Blackstone in Loan Fund Frenzy: Credit Markets

April 29 (Bloomberg) — BlackRock Inc., the world’s largest asset manager, and Blackstone Group LP’s GSO Capital Partners LP are forming mutual funds to invest in loans as the London interbank offered rate rises to the highest level since August.

The firms have joined Goldman Sachs Group Inc. in announcing funds investing in leveraged loans pegged to short- term interest rates. Investors poured more than $2.5 billion into bank-loan mutual funds in March and the first three weeks of April, more than triple the amount for March and April last year, according to Lipper FMI data.

The Federal Reserve will likely raise its target rate for overnight loans between banks to 0.75 percent by the end of this year, up from 0.25 percent, according to the median estimate of 67 analysts surveyed by Bloomberg. The S&P/LSTA U.S. Leveraged Loan 100 Index has returned 5.68 percent this year, building on last year’s record 52 percent as lending continues to open up.

New money “will provide financing, which will help” mergers and acquisitions, said Tom Ewald, a New York-based money manager who runs the Invesco Floating Rate Fund at Invesco Ltd., which has about $11 billion of leveraged loans under management. “That is a positive for all markets and the economy.”

Leveraged loans total $91.8 billion this year, more than four times the amount underwritten in the same period of 2009, according to data compiled by Bloomberg. The interest charge on leveraged loans is typically tied to Libor and as rates rise, the overall coupon increases. Three-month Libor rose to 0.344 percent today, the highest since Aug. 28, and up from a low of 0.249 percent on Feb. 4, according to Bloomberg data.

‘Natural Hedges’

“This is one asset class that should perform well when short-term rates start to rise,” said Jeff Bakalar, co-head of the senior loan group at ING Investment Management. “It is one of a few natural hedges available to retail investors.”

Elsewhere in credit markets, the extra yield investors demand to own company debt instead of Treasuries rose 2 basis points to 149 basis points, or 1.49 percentage points, down from 176 at the end of 2009, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Average yields rose 5.4 basis points to 3.95 percent.

Toyota Motor Corp. sold $1.25 billion of bonds backed by auto loans, according to a person familiar with the transaction. The top-rated portion maturing in about 1.85 years yields 15 basis more than a benchmark interest rate, said the person, who declined to be identified because terms aren’t public.

GMAC Inc.’s Ally Bank sold $703 million of bonds backed by payments from auto dealers, according to a person familiar with the transaction. Ally earlier marketed $350 million of the debt, said the person, who declined to be identified because terms aren’t public.

Commercial Paper

U.S. commercial paper outstanding jumped the most in five months, the Federal Reserve said today on its Web site. The market for short-term IOUs without seasonal adjustment $19.7 billion to $1.1 trillion in the week ended April 28, the biggest jump since the week ended Nov. 18 and the highest level since March 10, according to data compiled by Bloomberg. With seasonal adjustment, commercial paper outstanding rose $32.9 billion to $1.11 trillion, the highest since the period ended March 31.

GSO is marketing a floating-rate fund, the firm’s first product for individual investors, in which 80 percent of its managed assets are senior loans rated below investment grade, according a prospectus filed with the Securities and Exchange Commission on March 8.

Heather Lucania, a Blackstone spokeswoman, declined to comment.

BlackRock’s Fund

BlackRock’s fund will most likely invest 80 percent of its assets in a mix of senior secured floating-rate loans and debt, second lien or other subordinated or unsecured floating-rate loans and fixed-rate loans, or debt in which the fund has entered into a derivatives contract to convert them into floating-rate payments, according to an April 14 regulatory filing. Goldman Sachs Asset Management LP has also filed a prospectus to be the investment adviser on a new loan mutual fund.

Lauren Trengrove, a BlackRock spokeswoman, and Melissa Daly, of Goldman Sachs, declined to comment.

New funds will “bring normal liquidity back to the market,” said ING’s Bakalar, whose group has more than $10 billion of loans under management, with about 25 percent of that in mutual funds.

That will create demand for new loans from issuers that are strategic or private-equity driven, he said. “We’ll likely see more LBO and more M&A activity take place as a result.”

To contact the reporter on this story: Kristen Haunss in New York at khaunss@bloomberg.net

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Citigroup’s Return to Saudi Arabia May Need More Than Alwaleed

April 29 (Bloomberg) — Citigroup Inc. is aiming to open for business in Saudi Arabia six years after selling its stake in a bank there. Returning might not be as easy as departing.

Since leaving the country in 2004, the company has said it would like to regain a foothold. Saudi officials, though, are protecting banks from new competition, according to Jean- Francois Seznec, visiting associate professor at Georgetown University’s Center for Contemporary Arab Studies.

“They’re not as in love with U.S. banks as they used to be,” Seznec said by telephone from Riyadh, the Saudi capital. “The competitive environment is really key to this. Citibank was very successful here in the past.”

Billionaire shareholder Prince Alwaleed Bin Talal, Saudi Arabia’s richest businessman, said on April 27 in an interview with Bloomberg Television that the country “welcomes the presence of a Citibank office.” He said in an interview last month he’s helping New York-based Citigroup and its chief executive officer, Vikram Pandit, set up in Saudi Arabia.

The U.S. company, in which filings show Alwaleed held 218 million shares as of November 2008, first started a business in Saudi Arabia in 1955.

Citigroup sold its 20 percent holding in Saudi American Bank, now known as Samba Financial Group, to a state investment group in 2004, netting $760 million. The previous year, it had ended its management contract with the bank after first selling a 2.83 percent stake. A fifth of Samba’s market value today equates to about $2.9 billion, according to Bloomberg data.

Under Control

The company, then the largest financial services company in the world, said its strategy was to invest in countries where it could have majority control of the banks it ran. Citigroup currently is the fourth-largest bank in the U.S.

“The franchise that Citibank led in Saudi Arabia was very robust and prosperous for many years and they decided at that point to exit,” said John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi. The Saudi Arabian Monetary Agency, the central bank, “has temporarily halted the issuance of new bank licenses in order to evaluate the many licenses issued so far,” he said.

The central bank, known as SAMA, did not respond to questions sent by Bloomberg News, and neither did the Capital Markets Authority, the country’s regulator. Citigroup’s Dubai- based spokesman, Karim Seifeddine, declined to comment.

William Rhodes, the Citigroup senior vice-chairman stepping down this month, said in 2006 that the bank was interested in returning to Saudi Arabia. Charles Prince, then chief executive officer, met in April that year with government officials in Riyadh at an event hosted by Alwaleed, the Saudi investor’s Kingdom Holding Company said in a statement at the time.

‘Mistake’

A year later, Mohammed al-Shroogi, the Middle East managing director, called the exit a “mistake” and said the bank was reapplying for a license to operate.

Competitors such as Tokyo-based Nomura Holdings Inc., New York’s Goldman Sachs Group Inc. and Deutsche Bank AG meanwhile have expanded in the Arab world’s largest economy.

Frankfurt-based Deutsche Bank announced April 12 the formation of Deutsche Gulf Finance, a joint Shariah-compliant home financing company owned 40 percent by the bank’s Riyadh branch and 60 percent by Saudi investors.

The government forecast the Saudi Arabian economy to grow more than 4 percent this year, after 0.2 percent last year. The world’s largest oil exporter is spending $400 billion on infrastructure to stimulate the economy.

Lending Slowdown

Bank lending to private companies rose 1.6 percent in February. That growth averaged 27 percent between 2004 and 2008, according to Riyadh-based Jadwa Investment Co.

Twenty banks have full banking licenses and branches operating in the kingdom, according to the central bank’s February monthly statistics bulletin. More than 100 investment companies have licenses to conduct securities business, according to the Capital Markets Authority Web site.

Previously, in the 1970s, the Saudi government forced foreign banks such as Citigroup, HSBC Holdings Plc and ABN Amro Holdings NV to sell majority stakes in their local operations to Saudi nationals. A law in 2003 opened the door for foreign banks to apply for licenses.

To contact the reporters on this story: Camilla Hall in Abu Dhabi at chall24@bloomberg.net

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