PM Tsipras seeks “positive completion” of Greece bailout programme

BY Fraser Tennant

Greek prime minister Alexis Tsipras has called for the completion of a review of his country’s bailout programme so that the nation can begin the major task of restoring its struggling economy.  

Mr Tsipras’s call, made during a visit to Thessaloniki where he set out the economic priorities of the Syriza government, followed hot on the heels of a second review of Greece’s bailout programme on 9 September, which found that the Greek government needs to do more to release €2.8bn of funding ($3.1bn).

Specifically, eurozone ministers observed that requested Greek economic reforms had failed to materialise, announcing that of the 15 requirements laid down by EU officials last year as a prerequisite for the receipt of financial aid, only 2 of the 15 conditions had thus far been fulfilled by the Greek government.  

Eurozone finance ministers had stated that all 15 of the conditions are required to be met before Greece can be considered in the frame for debt relief talks – something prime minister Tsipras sees as essential. And despite the failure to meet the requirements that would unlock the tranche of funding, Greek finance minister Euclid Tsakalotos has urged his EU counterparts to reach a decision on short-term and medium-term debt relief for Greece by the end of the year.  

Recognising that debt relief is a crucial issue not only for Greece but for Europe and the entire eurozone, and one that affects big markets and economies such as Italy, France and Spain, Dimitris Papadimoulis, vice president of the European Parliament and head of the Syriza party delegation, said: “From the creditors’ side, mid and long-term measures of debt relief have to be concrete, based on what was agreed on May 2016 [the first tranche of funding] with the so-called 'roadmap' on the Greek public debt – the conclusion of specific measures by the end of December 2016.

“In the same context, it is vital for the creditors to acknowledge the need for realistic primary surpluses after 2019, meaning 2.5 percent for 2019 and 2 percent for 2020. Lowering primary surplus targets can facilitate and improve government’s economic policy mix, reach sustainable levels of growth and ameliorate burden-sharing of taxes among the social groups.”   

Overall, the second review of Greece’s bailout programme sent a clear message that it needs to be completed as soon as possible so that enough time is left for the Greek government to implement further reforms, oversee a steady return to growth, combat unemployment and reinstate social justice in all levels of public life.

On a positive note, prime minister Tsipras told his audience in Thessaloniki that Greece was “turning the corner” and that despite creditors making things more difficult, the country would see economic growth of 2.7 percent in 2017.

News: Greece’s Tsipras Calls for Prompt Completion of Bailout Review

FTSE 100 executive pay provokes revolt among investors

BY Fraser Tennant

FTSE 100 executive remuneration is now a major cause for concern, with investors increasingly disapproving of salaries, bonuses and long-term incentives, according to a new report by Deloitte, which is being previewed this week.

Deloitte’s annual ‘FTSE 100 remuneration report’ covers constituents of the FTSE 100 index and provides a detailed analysis of their remuneration policies. The headline findings of the report include the disclosure that eight companies received a vote below 75 percent in favour of their remuneration report, with two failing to secure a majority. Furthermore, just 26 percent of the top 30 companies had their report approved by 95 percent of shareholders or more. This compares to 52 percent last year.

The report also notes that with FTSE companies receiving less than three-quarters of votes in support of their remuneration report so far this year, this is already higher than in the ‘shareholder spring’ of June 2012 - a so-called rebellion by investors over excessive executive pay packages.

“So far this year we have seen a higher proportion of companies receiving less than three quarters of votes in support of their remuneration report,” said Stephen Cahill, a partner in Deloitte’s remuneration team. “While we’re still talking about a relatively small number of companies this is rightly a cause for concern. The 2016 AGM season has been bruising for a number of companies, perhaps even more so than the shareholder spring of 2012.”

Partially addressing concerns over executive pay, the report does suggest that, due to new disclosure regulations introduced in 2013, the total pay received by chief executives in FTSE 100 companies has been broadly flat year on year, with the median salary increase remaining at around 2 percent. That said, the report does reveal that bonus payments have increased. The median bonus payout as a percentage of the maximum possible is 77 percent, compared with 73 percent in 2015.

“Median bonus payouts have consistently been between 70 percent and 80 percent of the maximum every year for the last ten years,” confirms Mr Cahill. “We believe there needs to be much more rigour in the way the targets for these plans are determined, more discretion used to ensure payouts reflect overall performance, and greater scrutiny by investors once the targets are disclosed.

“When we look back at 2016 it may turn out to be a pivotal moment for executive pay.”

The full Deloitte ‘FTSE remuneration report’ will be published at the end of September 2016.

News: Investor revolts over executive pay 'double since shareholder spring'

Enbridge/Spectra Energy join forces to create global energy infrastructure leader

BY Fraser Tennant

In a combination that will create a “true North American and global energy infrastructure leader”, Enbridge and Spectra Energy are to join forces in a deal with an enterprise value of C$37bn (US$28bn). 

Under the terms of the definitive merger agreement, which creates the largest energy infrastructure company in North America and one of the largest globally, Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own.

The combined company will control a diverse set of best-in-class assets comprised of crude oil, liquids and natural gas pipelines, terminal and midstream operations, a regulated utility portfolio and renewable power generation.

“Over the last two years, we’ve been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019,” said Al Monaco, president and chief executive of Enbridge Inc. “We are accomplishing that goal by combining with the premier natural gas infrastructure company to create a true North American and global energy infrastructure leader.  This transaction is transformational for both companies and results in unmatched scale, diversity and financial flexibility with multiple platforms for organic growth.”

The combined company will be called Enbridge Inc.

“The combination of Enbridge and Spectra Energy creates what we believe will be the best, most diversified energy infrastructure company in North America, if not the world," said Greg Ebel, president and chief executive of Spectra Energy, who will become chairman of Enbridge following the closing of the transaction.

He added: “This is an incredible opportunity for both companies and we at Spectra Energy could not be more excited about what it means going forward. Together, the merged company will have what we believe is the finest platform for serving customers in every region of North America and providing investors with the opportunity for superior shareholder returns.”

The Enbridge/Spectra Energy transaction has been unanimously approved by the boards of directors of both companies and is expected to close in the first quarter of 2017 - subject to shareholder and certain regulatory approvals, as well as other customary conditions.

Mr Monaco concluded: “Bringing Enbridge and Spectra Energy together makes strong strategic and financial sense, and the all-stock nature of the transaction provides shareholders of both companies with the opportunity to participate in the significant upside potential of the combined company.”

News: Enbridge buying Spectra in $28 billion deal

Hanjin Shipping files for Chapter 15 protection

BY Richard Summerfield

South Korean shipping firm Hanjin Shipping Co Ltd has filed for Chapter 15 bankruptcy protection in the US, in an attempt to stop the company’s creditors seizing its fleet of vessels.

Hanjin, the seventh biggest shipping company in the world, filed for protection on Friday in a court in New Jersey after receiving word that its creditor banks had decided to end the financial support they were providing the company. The creditors also rejected Hanjin’s proposed restructuring deal.

The $896m worth of financial assistance Hanjin had received from its creditors had proved insufficient as the company tried to stay afloat amid volatility in the global shipping industry.

Overcapacity has had a significant impact on shipping companies the world over. In the days running up to its US filing, the company also moved to protect its assets elsewhere, filing for receivership in South Korea on Wednesday. In an attempt to secure legal protection for its ships, Hanjin has plans to pursue legal action in around 10 countries over the course of this week and later expand that to 43 jurisdictions.

As a result of the company’s bankruptcy filings, Hanjin’s vessels have been denied access to ports at a variety of locations. The number of ships that have been denied port access around the world, including in the US, has risen to 79, comprising 61 container ships and 18 bulk carriers, according to South Korea’s financial regulator. That figure includes one vessel seized in Singapore by a creditor, a company spokeswoman said. Hanjin has 141 ships, 128 of which are currently operating. In China, Japan, Singapore and India ,the company has seen 45 vessels denied access to ports. Several of Hanjin’s vessels have also been seized by creditors, including state-run Korea Development Bank.

Hanjin’s ships are currently carrying cargo worth $14.5bn belonging to some 8300 cargo owners, according to the Korea International Trade Association. The bankruptcy of a company of Hanjin’s status is notable, as it accounts for 7.8 percent of trans-Pacific trade volume for the US market. The company’s collapse marks the largest ever bankruptcy filing for a container shipper.

Hanjin’s stock has fallen around 34 percent since the company’s creditors said they were no longer supporting the firm. Given that the company’s collapse has coincided with the high seasonal demand for the shipping industry ahead of the year-end holidays, Hanjin’s bankruptcy is likely to cause a ripple effect throughout the global supply chain, and in the US retail space.

News: Hanjin Shipping filed for U.S. bankruptcy protection: WSJ

Dealmaking drives shareholder returns

BY Richard Summerfield

Organisations that regularly buy and sell companies as part of their wider corporate strategy often outperform less active acquirers in terms of shareholder returns, according to a new report from the Boston Consulting Group (BCG).

According to the firm's 2016 M&A report 'Masters of the Corporate Portfolio', over a 25 year period up to 2015, the average annual shareholder return for companies that make at least five acquisitions or divestitures in a five-year period was 10.5 percent. One time dealmakers, however, saw returns of just 5.3 percent.

"Portfolio masters use active portfolio management via M&A to boost shareholder return," said Jens Kengelbach, BCG's global head of M&A and co-author of the report. "These companies buy and sell in order to fine-tune, refocus, or diversify their portfolios. They understand that growth is the primary driver of TSR, almost regardless of whether growth is organic or inorganic. They estimate synergies and postmerger integration costs accurately, and they deliver on their projections. They create value."

The report compares three types of dealmakers: ‘portfolio masters’, ‘strategic shifters’ and ‘one-timers’. The company’s data shows that portfolio masters accounted for just 6 percent of the 1339 companies surveyed, but were responsible for around 25 percent of global deal volume since 1991. In that time, portfolio masters completed nearly 14,000 transactions. By comparison, so called ‘one-timers’ made, on average, one acquisition or divestiture each over a five-year period. But, with a combined count of 18,891 deals since 1991, they represent 35 percent of total M&A deals globally.

"Investors like one-time dealmakers -- at least in the short term," said Georg Keienburg, a BCG principal and report co-author. "Capital markets tend to buy into the story of a once-in-a-lifetime opportunity for acquirers. They are also appreciative when a company sheds a noncore asset that it may have held onto for too long. As a result, the initial capital market reaction in a narrow time window around the transaction is distinctly more positive (an average increase of 5.5 percent) for one-time dealmakers than for their more active counterparts."

Companies can improve their shareholder returns by improving their standing in the M&A market, according to BCG. Indeed, the classifications of companies can be fluid, and by evolving from being considered a one-timer to strategic shifter or portfolio master, companies can drive shareholder value.

Report: The 2016 M& Report – Masters of the Corporate Portfolio