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Samarco may offer creditors chance to become shareholders

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Samarco may offer creditors chance to become shareholders

TOP NEWS

Samarco may offer creditors chance to become shareholders

Samarco Mineração SA could offer its creditors the chance to become shareholders to reverse the financial crisis that forced it to halt production following the Samarco iron ore tailings spill in Brazil in November 2015, sources told Valor Econômico. The company's management and equal shareholders Vale SA and BHP Billiton Group are reportedly discussing with banks and bondholders alternatives to repay its debt, which amounts to US$2 billion. A two-year grace period and a debt cut would be among the proposed solutions.

Echo, Metaliko in A$38.9M merger

Echo Resources Ltd. and Metaliko Resources Ltd. agreed to merge in a A$38.9 million deal, in which Echo will acquire all of the issued shares of Metaliko by way of an off-market takeover offer of one new Echo share for every 2.5 Metaliko shares held.

Tata Steel receives £100M bid for specialty steel, pipe divisions

Metals trader Liberty House Group put forward a bid of almost £100 million for Tata Steel Ltd.'s specialty steel and pipe businesses, Reuters reported, citing an industry source.

BASE METALS

* The Brisbane Supreme Court dismissed Clive Palmer's bid against the liquidators of Queensland Nickel Inc. for not returning the assets of the failed company, saying that accepting the case will be a "startling affront to justice," The Sydney Morning Herald with the Australian Associated Press reported.

* The Santiago Court of Appeals restricted Cochilco, the Chilean Copper Commission, from releasing any information regarding Codelco's investment projects in Ecuador, which include the Enami EP and exploration joint venture Llurimagua. The ruling states that this information is confidential and that its public disclosure would violate the interests of the Chilean State, La Tercera reported.

* Production at OZ Minerals Ltd.'s Prominent Hill copper-gold mine has been suspended due to electricity supply disruptions following severe storms that continue in South Australia.

* KAZ Minerals PLC started commissioning works at the Bozshakol plant in Kazakhstan. The clay plant has an annual processing capacity of 5 million tonnes and is expected to start production of salable copper concentrate this year.

* BHP Billiton restarted operations at its Olympic Dam copper-uranium mine after a temporary shutdown following a power outage in South Australia, Reuters reported, citing an emailed statement from the company. The company is running the operations on backup power generators.

* Lundin Mining Corp. further extended the period to exercise its right of first offer for Freeport-McMoRan Inc.'s indirect stake in the Tenke Fungurume copper-cobalt mine in the Democratic Republic of the Congo, until Oct. 20. According to Mining.com, Lundin's previous extension could indicate a bigger deal in the making involving China Molybdenum Co. Ltd. and the DRC's state-owned Gecamines SARL, which has a 20% direct ownership in the project.

* Separately, Freeport CFO Kathleen Quirk indicated that the company will proceed with the US$2 billion sale of its deepwater Gulf of Mexico assets to Anadarko Petroleum Corp. without bondholders' approval, as some of them are demanding more money and changes to existing lender agreements.

* The Indian government will sell a 7% stake in state-run miner Hindustan Copper Ltd. through a two-day offer for sale beginning Sept. 29, Mint reported. The government set a floor price of 62 Indian rupees per share, a 5.12% discount to the Sept. 28 closing price.

PRECIOUS METALS

* Banks agreed to restructure Petropavlovsk PLC's US$530 million debt, extending its maturity until 2022. The deal is to be approved in October, the same deadline set for the company's purchase of gold miner Amur Zoloto LLC.

* Jaxon Minerals Inc. signed a letter of intent to acquire CJL Enterprises Ltd.'s Price Creek silver-zinc-lead-gold property in British Columbia.

* Alt Resources Ltd. inked a binding term sheet deal to fully acquire the Chameleon gold deposit in Western Australia from Minotaur Exploration Ltd. subsidiary Minotaur Gold Solutions Ltd.

* A Chilean court ruled that former President Ricardo Lagos must testify in an ongoing civil land dispute involving the property of Barrick Gold Corp.'s suspended Pascua Lama gold-silver-copper project on the border of Chile and Argentina, Diario Financiero reported.

* According to San Juan province Mining Minister Alberto Hensel, Barrick Gold's Veladero mine in Argentina, which was recently suspended by the provincial government due to a cyanide spill, could reopen in the coming days if a technical report confirms repairs, Reuters reported.

* Kingsgate Consolidated Ltd.'s board recommended shareholders take no action in relation to Northern Gulf Petroleum International Pte. Ltd.'s offer for the acquisition of a controlling stake in the company, dubbing the offer as "opportunistic" and "proportional." The Singaporean firm on Sept. 16 forwarded an offer of 4.2 Australian cents per share to Kingsgate shareholders for 50.1% of the shares held.

* Armadale Capital Plc entered into a binding heads of agreement with African Mining Services to form a joint venture to develop and operate the Mpokoto gold project in the Democratic Republic of Congo's Katanga province.

BULK COMMODITIES

* After Samarco Mineração missed an interest payment due Sept. 26, S&P Global Ratings downgraded the company's corporate credit ratings to D from CCC on the global scale and from brCCC on the Brazilian national scale. S&P Global Ratings anticipates that Samarco Mineração likely to miss paying the interest on its US$500 million bond during the 30-day remedy period and fail to make payments on other financial obligations.

* The Public Prosecutor's Office of Brazil's Minas Gerais state and the Public Ministry of Labor filed a claim against Samarco Mineração and its parent companies, Vale SA and BHP Billiton, for the re-employment of workers who were laid off due to the shutdown of operations following the Samarco iron ore mine tailings spill in November 2015, Notícias de Mineração reported.

* China's state-owned Sinosteel Corp. gained approval from the State Council to restructure its debt. The 21st Century Business Herald, citing separate anonymous sources, estimated that of Sinosteel's total debts worth about 60 billion Chinese yuan, about 27 billion yuan will be replaced by multiple tranches of a six-year convertible bond.

* Anglo American Plc has come under fire from unions over its plans to lay off about 90 workers at its Capcoal operation in Queensland, Australia, following two months of industrial action. The Construction, Forestry, Mining and Energy Union labeled the move a "hostile ambush."

* Compass Minerals International Inc. issued a new US$450 million senior secured term loan, which matures July 1, 2021, and carries an interest rate of LIBOR plus 2%. Proceeds are earmarked to purchase the remaining 65% stake in Produquímica Indústria e Comércio SA and to retire a portion of the debt it expects to assume from Produquímica at closing.

* United Co. RUSAL Plc secured 300 million rubles, out of a total of 5 billion rubles, for the start of production of anodes at the 104,000-tonne-per-annum Volgograd aluminum plant, which will be launched in the second quarter of 2018, Vedomosti reported.

* The administrator of Arrium Ltd. warned that South Australia's statewide power outage will cause "critical" damage at the Whyalla steelworks if power is not restored soon, The Australian wrote.

* Despite several reports suggesting that Usinas Siderúrgicas de Minas Gerais SA controlling shareholders Techint Group and Nippon Steel & Sumitomo Metal Corp. are looking to cut ties and split the assets, no formal talks are currently under way to end the partnership, Bloomberg wrote, citing sources. Sources added that even if the companies decide to pursue any such action, the split would take as long as two years to complete.

* U.S. aluminum industry group Aluminum Association is seeking a "meaningful dialogue" with Chinese authorities to end incentives and subsidies that are contributing to the global oversupply and squeezing U.S. producers out of the market, Bloomberg wrote.

* Vale expects the balance in supply and demand in the iron ore market to continue, with Brazil adding about 28 million tonnes of iron ore to the seaborne market in 2017, Reuters reported, citing CEO Murilo Ferreira.

* ArcelorMittal unit ArcelorMittal South Africa Ltd. made a deal, worth about 2.2 billion South African rand, to give a 17% stake in the company to its partner Likamva Resources Pty. Ltd., a specially formed, black-owned company.

* The Australian Fair Work Commission ordered mining major BHP Billiton to reinstate a worker who was sacked at the Saraji coal mine in Queensland over an expletive-laden exchange with a colleague, The Australian reported.

* As India aims to boost domestic sales, the government raised the cap on the purchase of coal by small and medium-sized companies to 10,000 tonnes per annum, from 4,200 tonnes set almost nine years ago, Bloomberg reported, citing a notice from the coal ministry.

SPECIALTY

* Codelco CEO Nelson Pizarro said the company will begin receiving bid offers between February and March 2017 from potential investors to develop its vast lithium reserves, which would be then reviewed by the board in April. The plan is for the company to sign the contract with the winning bidder by June, Diario Financiero reported.

* Ocean Minerals LLC secured the exclusive rights to explore the seabed in the exclusive economic zone surrounding the Cook Islands in the hopes of uncovering rare earth elements and scandium.

* Data compiled by Bloomberg showed that the prices of the smallest diamonds decreased by 15% this year, a reversal of the average 7% increase for all stones yet to be cut and polished.

* Low prices continue to weigh down on Lynas Corp. Ltd., with the rare earth miner warning that it might be unable to pay back debts on the current schedule, The Australian reported.

* Chinese firm Sichuan Tianqi Lithium Industries Inc. is vying for the controlling stake in Chile's Sociedad Quimica y Minera de Chile SA in a bid to expand its presence in the lithium industry, the Financial Times reported. Earlier this week, Tianqi purchased a 2% interest in the Chilean firm and is now seeking to purchase a separate 23% stake controlled by a vehicle of Julio Ponce Lerou.

* AREVA SA is facing legal action from Finnish utility Teollisuuden Voima as the latter tries to avoid further delays at its Olkiluoto 3 nuclear reactor in Finland, Reuters reported, citing a company statement. The utility firm wants assurances that AREVA's restructuring will not result in further delays and that the plant would be ready to begin production in 2018 as scheduled.

* Resolve Ventures Inc., Nevada Sunrise Gold Corp. and Advantage Lithium Corp. reached a new deal to allow Advantage to earn up to a 50% working interest in the early-stage Neptune lithium property in Nevada.

INDUSTRY NEWS

* The London Metal Exchange finalized its warehouse reform program, with plans to introduce caps on maximum rates charged by LME-registered warehouses effective Dec. 28. The LME said Sept. 28 that it will introduce an initial schedule of maximum rates for warehouse rents and free-on-truck charges, and the rates will be frozen for five years, after which the charges will be updated annually.

* South Australia's Mineral Resources and Energy Minister Tom Koutsantonis urged the community and stakeholders to provide their input for the comprehensive review of mining laws in the state, adding that the Leading Practice Review of Mining Acts will enable communities to play a key role in shaping improvements to the state's framework of mining laws, Mining Weekly reported.

* According to Mexico's economy ministry data, foreign direct investment in Mexico's metallic mining industry reached US$491 million in the first half of the year compared to negative US$119 million in the corresponding year-ago period, Business News Americas reported.

S&P Global Ratings and SNL Metals and Mining, an offering of S&P Global Market Intelligence, are both owned by S&P Global Inc.

The Daily Dose is updated as of 7 a.m. London time, and scans news sources published in Chinese, English, Indonesian, Malay, Portuguese, Russian, Spanish, Thai and Ukrainian. Some external links may require a subscription.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

Learn more about Market Intelligence
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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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