Read All About It, Then Get Trading

Sydney Morning Herald

Friday July 13, 2007

Edited by Stuart Washington xchange@smh.com.au

Papers strive to be first with the news. Sometimes they even beat companies to it.

A BIG thanks to the impeccable international corporate governance demonstrated by Rio Tinto yesterday, when shares in the mining behemoth were able to trade on the local exchange for more than an hour after explicit details of its deal with Alcan were revealed in The Wall Street Journal.

The missive from the Journal, containing details such as a likely price of around $100 a share paid all in cash, with an announcement due shortly, landed in the inboxes of keen traders at 2.35pm yesterday afternoon.

Of course, the deal ended up being all cash, for a price of $101.

Not that this was regarded as market sensitive information by Rio. The stock was not stopped from trading on the bourse until 3.50pm, and a formal announcement was made at 4.30pm.

The word from the ASX yesterday was that Rio would have to do something soon.

Not soon enough, judging by the spike in Alumina's shares suspiciously after 2.30pm yesterday. Traders piled in on the expectation of a take-out bid by BHP Billiton for alternative aluminium assets - the results of which can be seen in the graph at right.

Floods good for some

And talking about spikes in shares, Australian uranium miners received good news in the form of bad tidings from major uranium mine Cigar Lake in Canada, operated by Cameco Corp.

Turns out flooding problems for the mine on one of the world's biggest uranium deposits is worse than previously announced in October last year.

Start dates are being pushed back from initial hopes of early 2008 to as late as 2011.

Which helps explain why Australian uranium poster child Paladin Resources finished up 7 per cent yesterday.

Chocks away

Virgin Blue's plans to launch flights to North America have been given a superficial boost, after the Richard Branson minority-owned Virgin America Airlines was finally given permission to fly domestically within the US.

The San Francisco-based airline had initially applied for rights to fly in December 2005. It was originally knocked back over concerns its part-owner Richard Branson (a non-US citizen) would hold too much sway over the airline's management.

But with Virgin America convincing the US authorities it is indeed "controlled" by US citizens, it has been given the all clear to launch flights next month. It hopes to fly to New York, Las Vegas, Los Angeles, San Diego and Washington DC within the next few months.

Aside from providing Virgin Blue a possible partner in the US, Virgin America could help indirectly spread the Virgin Blue name. Well sort of.

The problem will be that Virgin Blue will have to ditch the Virgin name when it flies to the US. Virgin Atlantic's 49 per cent owner, Singapore Airlines, has the right to veto Virgin Blue using the Virgin brand name outside Australia. Hence the current naming "competition" for Virgin Blue's US bound carrier, which is expected to launch services late next year.

The other problem is that Virgin Blue's success will weigh hugely on capturing corporate passengers. It will need a US partner with far more connections and frequencies than the fledgling Virgin America.

Grand DSLAM

Optus boldly announced with much fanfare yesterday that it was taking on Telstra on all fronts, with a combined mobile, fixed-line and broadband cap plan.

This is new territory for Optus, which to date has been largely absent from fixed line telephony except as a buyer of wholesale services from providers such as, um, Telstra.

It's a pity Optus's deal is only boldly covering less than 50 per cent of the Australian population. And it only reaches the target of covering 50 per cent of all homes when it rolls out its 366th DSLAM (don't ask - it's a thingy that helps turn a Telstra fixed line into an Optus fixed line) in mid 2008.

So Pos, as Optus boss Paul O'Sullivan is known to the troops, gets six out of 10. Full marks for finally pushing the button on the full abilities of the DSLAM network he is rolling out to challenge Telstra's monopoly. But marks deducted for being so slow to install the DSLAMs in the first place.

Same old junk

And a few figures on the car crash that was once known by its fancy titles of "collateralised debt obligations" and "collateralised loan obligations".

Bloomberg cites Credit Suisse Group as estimating investors in collateralised debt obligations, which effectively pool debt securities, as being likely to lose $US52 billion. And Deutsche Bank AG in Frankfurt estimates as much as $US90 billion will be lost. Perhaps these same multi-faceted investment banks should not have spent large amounts of time and money pushing what surely are the noughties version of junk bonds.

This is from a presentation made about this style of products by ING in April: "Failures were generally limited to high yield bonds and static balance sheet deals. The reality is recent growth [in structured credit] reflects increased market maturity and investor confidence."

And this is from Bloomberg, following Moody's downgrading ratings on Tuesday in subprime debts that are commonly held within structured credit products. "The goldilocks scenario for credit markets is definitely over," Jochen Felsenheimer, an analyst at Italy's biggest bank Unicredit Group, said in a note to investors.

"These rating actions, the biggest ever in the subprime market, have the potential to trigger an even more substantial move in credit markets."

It looks like increased market maturity and increased investor confidence is going to take a little bit longer to ensure as this one plays out.

© 2007 Sydney Morning Herald

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