Halister News

Economic Release Details: {HKGDQOQ Index ECOD} --KYUNG BOK CHO

(Bloomberg) -- Executive Director Daujda Lawal “cooperating fully” w/ Economic and Financial Crimes Commission, lender says in statement on Nigerian Stock Exchange website.

• NOTE: Questioning part of investigation into funds allegedly distributed by ex-Petroleum Minister Diezani Allison-Madueke

(Bloomberg) -- Any setbacks in EGBs caused by supply announcements or rebound in oil prices are likely to prove short-lived and should be seen as an opportunity to enter outright long positions, BNP Paribas strategists including Laurence Mutkin write in client note.

• Enter EUR 1y 10s30s conditional bull-flattener struck at the money (43bp), cost 4bp, target 30bp, stop -5bp, carry -4bp over 6-mo.
• Expect flattening pressures at the long end to strengthen in 2H 2016 with DV01 of PSPP purchases to increase in the months ahead, especially in the case of Germany
• 1y30y/1y10y vol ratio could rise substantially when the 10y bund yield enters negative territory
• Risk is a steepening of the curve in a bullish environment, which has not been the trend since 2H 2014

Economic Release Details: {CNLNNEW Index ECOD} --LI LIU

Economic Release Details: {CNLNSFIN Index ECOD} --LI LIU

(Bloomberg) -- Bayer extends May 12’s declines, falling as much as 1.4% before coming back to trade down 0.9% as of 9:35am in Frankfurt; shares fell 4.9% Thursday after a Bloomberg report that co. is exploring a potential bid for Monsanto.

• Bayer said to discuss bid internally and with advisers; financing, including potential asset sales, also discussed
• Another report also mentioned potential interest for Monsanto from BASF
• Monsanto street wrap here

BANKHAUS LAMPE (buy on Bayer)

• Says can’t find fully convincing answer to why Bayer should buy Monsanto, expects co.’s management to come to similar conclusion
• Rates chances of Monsanto deal as “close to zero,” expects Bayer share price to recover
• Recommends buying in the dip

JPMORGAN (neutral on Bayer)

• Analysis indicates limited accretion even with asset sales to reduce equity component of possible deal
• Bayer very unlikely to be able to finance deal purely on cash
• Estimates deal enterprise value of EU61b, assuming price of $135 per Monsanto share (50% premium to May 11 close of $90)
• Any acquisition of Monsanto likely to require capital increase
• Investors likely to be “relatively lukewarm” on potential deal given limited accretion, investor desire for Bayer to strength Pharma pipeline post recent setbacks
• Acquisition of Monsanto seems unlikely

BARCLAYS (equal weight on Bayer)

• Agrochemicals environment significantly changed recently with ChemChina/Syngenta, DuPont/Dow; notes structural trend toward combination of agrochemicals with seeds
• Says struggles with financials of potential Bayer/Monsanto deal
• “Bayer simply doesn’t seem to have the financial muscle to use a lot of cash at the moment for major deals”
• Deal of this size would require a big chunk of equity
• Notes Bayer’s Crop Protection portfolio relatively weak in seeds, deal to boost it would be strategically sensible

SABADELL (under review)

• Interesting transaction for concentration of business and synergies that could result from deal
• Has “serious doubts” about deal viability, cites large size of potential transaction; many divestitures required for purchase; complex approval process at regulatory level (global share of resulting co. would be ~35%); high Monsanto multiples
• Has doubts on deal value creation

DZ BANK (hold on Bayer, buy on BASF)

• Full-scale Monsanto takeover from Bayer or BASF highly unlikely
• Both companies have significant debt levels, ruled out transforming acquisitions lately
• Deal not possible without raising equity capital
• Possible that Monsanto approached both cos. on cooperation, JVs and asset deals
• Full-scale takeover/merger would be highly critical in relation to antitrust regulators in Europe, U.S., China

COMMERZBANK (hold on Bayer)

• Bayer acquiring Monsanto would make strategic sense, substantially strengthen seeds business within Crop Science
• However deal would be costly, require portfolio and/or capital measures

MORNINGSTAR

• Takeover by either Bayer or BASF not “all that likely”
• Expects Monsanto’s management to resist being acquired
• Monsanto sees itself as acquirer in current consolidation phase, not a target
• Possibility that talks may end up in partnership or JV rather than purchase
• Doesn’t see regulatory concerns as big hurdle if talks were to go ahead

DATA

• Of 34 analyst ratings, 18 are buy, 14 hold and 2 sell, with an average PT of EU121.6 implying ~29% upside
• Bayer is trading on 11.8x next year’s earnings vs 14.2x for the Stoxx 600 Chemicals index, according to Bloomberg data

(Bloomberg) -- Nomura closes its long 5-year CNH CGB position, given possible new CNH CGB auctions and CNH sentiment has deteriorated this week, Albert Leung, rates strategist, writes in note today.

• While still positive on China’s fixed-income instruments, yield advantage of 5-year CNH CGBs over onshore bonds is less significant now as spread narrowed to 75 bps from 125 bps in March; NOTE: Yield on 3.4% CNH CGB due Nov. 2020 steady at 3.566%, while yield on 2.58% CNY CGB due April 2021 little changed at 2.70%
• Positive carry remains on long CNH CGBs on FX-hedged basis: HK-based Leung; however, it’s also possible that latest deterioration in CNH sentiment feeds through to CNH assets, including CNH CGBs, especially with new CNH CGB supply (possibly around RMB15b) coming soon
• Sees no clarity yet on exact timing of potential inclusion of CNH CGBs in major bond market indices

--ROBERT FENNER