Oil Prices drops Below $30 a Barrel

Since  the new year, the price of oil has surprised even the most bearish punters, plunging  below $30 a barrel, its lowest level since 2003.  ( Lost almost 70% in last eighteen months) Turmoil in Chinese markets and the expected increase in Iranian crude exports added to concerns that a global glut will linger.

The trouble is that apart from India and a shaky China ( consumes about 12% and second only after US of total  global oil demand), demands are not looking promising anywhere  else this year.  Europe is unlikely to see  strong oil-demand.  Although America’s economy continues to grow, tightening fuel-efficiency standards,  caps the upside.  In  Middle East, where fuel use rose last year,  however citizens are more likely to keep their cars off the road after their governments raised petrol prices/ eliminated fuel subsidies altogether to shore up  their public finances.

Selective  oil  & allied  industries  has began  big cutbacks. But as of now they are not yet enough to reduce the glut. Global inventories are at record highs. An estimated 2,50,000 oil workers have lost their jobs,  manufacturing of drilling and production equipment has also fallen sharply. About 40 companies in North America have gone into bankruptcy protection.

Goldman Sachs said this week, it is sticking to its call that oil prices could fall to $20 a barrel but added that it is still not the bank’s base-case forecast.  Such low prices  seems possible as we   expect  a  surge  in Iranian  oil ( likely to add about 500,000 barrels within weeks of the sanctions relief)  to the already oversupplied global market.

Largest U.S. chemical companies to combine in megamerger. Could spark more deals!!

Two American  Chemical giants and possibly among the oldest,  DuPont and Dow Chemical  have agreed to combine in an all-stock merger valued at $130 billion  which  would be the 18th largest deal ever.

 

Dow Chemical Co. and Dupont Co. that are 118 and 213 years old, respectively, announced the blockbuster, tax free  deal that would take two years to complete.  Following the completion of the deal's in 2016, the  merged entity  would eventually    will  break up  into  3 separate, publicly-traded entities focusing on Agricultural products, Material sciences, and Specialty products.

The deal, the fifth-largest corporate merger of 2015, would certainly receive scrutiny from federal regulators, especially regarding the new companies  place in global agricultural production, including seeds, insecticides, and pesticides. Executives from both companies  however said the agrochemicals businesses have little overlap and any asset sales would likely be minor.

By revenue, the material sciences company – which makes products for the packaging, transportation, and infrastructure industries, to name a few – will be the largest. Its combined revenue in 2014 was around $51B on an adjusted basis. It will compete with the likes of corporate titans BASF, Honeywell, and 3M.

The specialty products company, with a combined revenue of $13B in 2014, would sell materials to the electronics and communications industries, among others.

The agriculture company, focusing on seeds and chemicals, would have a combined adjusted revenue of $19B overtaking BASF as the leader in agrochemicals. In the seed industry, DowDupont is pitted against behemoth Monsanto.

Dow shareholders would own 52 percent of the new company after preferred shares are converted, the companies said. The agreement includes a $1.9 billion termination fee under specified circumstances, such as rejection by shareholders.

The biggest impact will certainly be in the agriculture market, where the seeds and crop chemical industries are to undergo rapid consolidation

Prior to the merger, Dupont said in a statement it will slash $700 million in costs, with ten percent of its workforce "impacted" by the move, while Dow is expected to drop $300 million in costs.

As per Dealogic , this   merger would represent the 18th largest corporate deal of all-time. It would trail the 2015 deals made by Allergan and Pfizer, Anheuser-Busch InBev and SABMiller, BG Group and Royal Dutch Shell and Time Warner Cable and Charter Communications.

Dow and Dupont have a combined annual revenue of around $83 billion, with operating profit of about $15 billion.

Marriott books Starwood to create biggest hotel company !!!!!!

US-based Marriott International announced Monday that it will acquire Starwood Hotels & Resorts Worldwide in a $12.2 billion deal that will  catapult it to become the world’s largest hotelier by a wide margin.

The two companies had combined revenues of nearly $19 billion in 2014 and currently have 5,500  properties  and about 1.1 million rooms worldwide. The combined company will dwarf number-two global hotelier Hilton, which has 4,500 hotels and 735,000 rooms.

The agreed merger unites Marriott brands, which include Ritz-Carlton, Renaissance,JW Marriott, Fairfield Inn and Starwood marks like Westin, St. Regis, W and Sheraton. The merger will give Marriott 30 brands and more leverage with corporate travel departments. Frequent business travelers will also be closely watching the deal. Starwood has a beloved frequent guest program with partnerships with American Express, Delta Air Lines and Uber. Marriott has a much larger programme with partnerships with Chase, United Airlines and several others.

Starwood shareholders will receive 0.92 shares of Marriott International, Class A common stock and $2.00 in cash for each share of Starwood common stock, a joint statement from the companies read.

Starwood shareholders will separately receive about $7.80 per share from a transaction set to close prior to the Marriott-Starwood merger closing — the spin-off of the Starwood timeshare business and its merger with Interval Leisure Group, which has an estimated value of approximately $1.3 billion.

Marriott said it expected one-time transaction costs of $100 million-$150 million related to the deal. The company expects to deliver at least $200 million in annual savings in the second full year after closing.

Currency war

There is a growing consensus  that an unspoken currency war has broken out. Countries from Australia,  Japan, China, South Korea, Singapore, Thailand, New Zealand, Israel,  Sweden, Switzerland, Denmark, Norway &  to those that are part of the European Union are now  trying to  stabilize prices or gain competitiveness, simply by  easing the monetary policies  to weaken their currencies.

Many countries, earlier  used tools like  rate cuts,  quantitative easing ( QE)  or direct interventions on the  currency markets  to export deflationary problems to others and gain growth . With out much of success,   now they seems to  apply the other  mechanism available to generate demand  is  the  monetary policy.

But this is ultimately   a zero-sum game,  as someone gains only because someone else will lose.  A weak currency might provide a short-term boost to the countries engaging in currency devaluation. However, if everyone is playing the same game,  we will end up with  more and higher FX volatility. This in turn likely exact a toll on global trade and capital flows.

Grey market Blues - Rpower

The debut of Reliance Power (RPL) shares on the Mumbai Stock Exchange (BSE) and the National Stock Exchange (NSE) was one of the most spectacular fiascos in recent times in the Indian primary market. It was hyped up so much that when the stock crashed below its offer price, even grey market investors felt the tremors.

Scores of investors are believed to have refused to pay up after buying RPL shares shelling out double the Rs 450 offer price as premium. Usually, operators do not lose money because shares invariably list at a premium to the last traded price in the grey market. Sometimes, if there is a marginal loss, the difference is settled through cash and the show carries on to the next IPO. However, the RPL stock is believed to have spawned a Rs 2,000-2,500 crore payment crisis in the unofficial bucket (dabba) shops most of which are in Gujarat centres such as Ahmedabad and Rajkot. That is because, it debuted at a 21 per cent premium to its offer price of Rs 450 but soon sank below it. It now trades at a discount of Rs 175 to the issue price.

With the other two big IPOs —Wockhardt and Emaar MGF —bowing out due to poor investor response, the below-the-ground operators are stuck for a while.

That brings us to the point, how to regulate this when-issued market. It’s difficult, but then, sources say that it is tough for that market to function without the connivance of the issuers and their investment bankers. Regulating them better could be the answer.