Cash-rich Asian countries who's governments can see the resource need of their countries well in to the next couple of decades will continue to scoop up cheap Canadian resource companies.
Canada's oil patch & mines tempt Asian giants (Thomson Reuters)
* More deals seen as Asian economies grow
* Squeezed Canadian balance sheets make for bid targets
* State-owned firms can take long-term view
By Jeffrey Jones and Pav Jordan
Canada's energy and mining sectors are riding a wave of acquisitions by Asian companies that are flush with cash and hungry for resources to fuel rapidly expanding economies, a trend not expected to let up soon.
Deals such as Korea National Oil Corp's C$1.8 billion ($1.7 billion) bid for Harvest Energy Trust on Thursday are aided by difficulties some Canadian companies have in funding their operations because of the financial crisis.
"We've been saying that the sectors which are the most susceptible to such M&A are the resource and energy sectors, and I still believe this to be the case," said Alain Auclair, head of investment banking for UBS Securities Canada.
"You still see the Asian countries with access to capital or strong balance sheets that can deploy cash quickly to seize opportunities.
"I think it's a trend that we're going to keep seeing, especially for companies who might be under pressure from a balance sheet perspective."
That is the case with debt-heavy Harvest, known for its Western Canadian oil and gas operations and a refinery on the East Coast, one it could not afford to expand by itself.
Last week, China's No. 2 nickel miner, Jilin Jien Nickel Industry <600432.SS>, and Canada's Goldbrook Ventures offered to buy mining developer Canadian Royalties Inc for nearly C$200 million to help feed China's appetite for metals.
The number of such deals will only increase as China, Korea and other Asian nations seek to own the production of resources such as nickel or oil, instead of having to buy them on international markets.
South Korea, for example, aims to pump 300,000 barrels of oil a day by 2012 as it expands its manufacturing economy. It is currently the world's fifth-largest oil importer.
In August, state-owned PetroChina paid C$1.9 billion for a 60 percent stake in two planned oil sands projects owned by Athabasca Oil Corp. That was China's largest Canadian oil acquisition to date.
The deal helped fuel the shares of small developers such as Opti Canada Inc and UTS Energy Corp , as investors wagered they might be the next to be absorbed by the Asian wave. Both are minority partners in large projects in Western Canada.
CASH IS KING
At a time when publicly traded businesses are struggling under the weight of a global economic crisis, state-owned oil companies can deploy cash for multibillion-dollar projects without having to seek shareholder approval.
"They couldn't care less about the balance of this year, or next year, even the year after," FirstEnergy Capital Corp analyst William Lacey said. "They're looking at the next 10-20 years, and the internal demands and they are going to meet those demands."
Bob Schulz, a professor of strategy and global management at the University of Calgary's Haskayne School of Business, said big, but not blockbuster deals will continue to be the order of the day in Canada's oil patch.
"Big, positive and probably in C$1 billion to C$2 billion bite-size chunks," said Schulz.
Those transactions are large enough to give new companies a a foothold in long-term projects like oil sands developments, but not of a scale to cause alarm in the United States, Canada's largest energy and minerals export market, Schulz said.
Canada has been coveted as a storehouse for natural resources for hundreds of years, and investors in oil, gas and minerals enjoy minimal political risk.
In energy circles, it is best known for Alberta's oil sands, the largest deposits of crude outside the Middle East.
Developing the unconventional oil using mining or underground steam techniques is costly, and numerous small players have been culled to make way for major companies with deep pockets.
Harvest is not an oil sands developer, but KNOC made a foray into that part of the business in 2006 by acquiring an oil sands property from Newmont Mining Corp .
Analysts say buyers will get a boost from legal changes in Canada that force most Canadian income trusts to convert to traditional corporations by 2011, when their favored tax status terminates.
The changes will force many, sometimes highly leveraged, trusts to either become corporations, merge or get squeezed financially, making many into attractive targets.
Source: Thomson Reuters
Saverio Manzo
Monday, October 26, 2009
Tuesday, October 20, 2009
The Canadian Dollar; a recipe for success
I love it when a plan comes together.
Nearly two years ago we wrote about the Canadian Dollar being on a long-term ascent when compared to the US Dollar and most other developed nation’s currencies. We talked about the fundamentals transpiring around the world that would push our loonie towards the $2.00 CAD per greenback. The fundamental uptrend in the Canadian dollar is likely to remain intact, notwithstanding the prospect that a technically oversold greenback may enjoy at nice countertrend rally at some point in the near-term. But that is what we refer to as a bump along the long road up.
We all know the story about the BRIC, and especially about the growth in the world’s two most populous countries: China and India, “Chindia”. As they grow, and the rest of the world does with it.
The world needs energy – oil, gas and uranium: Canada has energy to go.
The world needs food – wheat, fertilizer and nutrients to grow, Canada’s got food.
The world needs base metals – copper, nickel, moly and more - they can be found in abundance in Canada.
The world needs a safe, reliable place to do business, one that will honour it’s contracts - Canada seems to be a pretty safe bet.
The world likes to do business with others it likes; Canada seems to be a pretty friendly place, having good relations with nearly all other nations.
What a recipe for success!
Saverio Manzo
Nearly two years ago we wrote about the Canadian Dollar being on a long-term ascent when compared to the US Dollar and most other developed nation’s currencies. We talked about the fundamentals transpiring around the world that would push our loonie towards the $2.00 CAD per greenback. The fundamental uptrend in the Canadian dollar is likely to remain intact, notwithstanding the prospect that a technically oversold greenback may enjoy at nice countertrend rally at some point in the near-term. But that is what we refer to as a bump along the long road up.
We all know the story about the BRIC, and especially about the growth in the world’s two most populous countries: China and India, “Chindia”. As they grow, and the rest of the world does with it.
The world needs energy – oil, gas and uranium: Canada has energy to go.
The world needs food – wheat, fertilizer and nutrients to grow, Canada’s got food.
The world needs base metals – copper, nickel, moly and more - they can be found in abundance in Canada.
The world needs a safe, reliable place to do business, one that will honour it’s contracts - Canada seems to be a pretty safe bet.
The world likes to do business with others it likes; Canada seems to be a pretty friendly place, having good relations with nearly all other nations.
What a recipe for success!
Saverio Manzo
Thursday, October 15, 2009
A good time to look for a retirement home?
Canadian Seniors' Residences: average vacancy rate of 9.2%
The Canada Mortgage and Housing Corporation conducted a recent survey revealing an average vacancy rate of 9.2% in seniors' residences across Canada. The survey polled 2464 Canadian seniors' residences to gather vacancy rates, rental costs, and the types of housing available to older adults throughout the country.
Bob Dugan, the Canada Mortgage and Housing Corporation's chief economist says that the anticipation of a spike in the demand for seniors' housing because of our aging population, has spawned the new construction of many new residences which in turn, has led to a much higher average vacancy rate in the interim.
The 2464 residences surveyed inhabited 176,845 seniors, and of this number, 81% of them lived alone. Most rental prices per month were inclusive of all meals and the average national rental price for a bachelor unit was $1774 per month. Prices varied from residence to residence given the difference in services and amenities offered at each location from a high in Ontario of $2519 per month, to a low in Quebec of $1271 per month.
Not to much surprise, the survey found that rental rates were significantly higher in Canadian seniors' residences offering heavy care - as opposed to those housing units with a more independent style of living and less intensive care.
Source: seniorservicedirectory
Saverio Manzo
The Canada Mortgage and Housing Corporation conducted a recent survey revealing an average vacancy rate of 9.2% in seniors' residences across Canada. The survey polled 2464 Canadian seniors' residences to gather vacancy rates, rental costs, and the types of housing available to older adults throughout the country.
Bob Dugan, the Canada Mortgage and Housing Corporation's chief economist says that the anticipation of a spike in the demand for seniors' housing because of our aging population, has spawned the new construction of many new residences which in turn, has led to a much higher average vacancy rate in the interim.
The 2464 residences surveyed inhabited 176,845 seniors, and of this number, 81% of them lived alone. Most rental prices per month were inclusive of all meals and the average national rental price for a bachelor unit was $1774 per month. Prices varied from residence to residence given the difference in services and amenities offered at each location from a high in Ontario of $2519 per month, to a low in Quebec of $1271 per month.
Not to much surprise, the survey found that rental rates were significantly higher in Canadian seniors' residences offering heavy care - as opposed to those housing units with a more independent style of living and less intensive care.
Source: seniorservicedirectory
Saverio Manzo
Friday, October 9, 2009
Bonds or Stocks: a rare occurance
When designing a portfolio of investments, one usually chooses amongst different asset classes so as to diversify – with the intent of an overall increased rate of return and reduced risk. This is a form of asset allocation.
The investment choices usually range from cash and money markets, bonds and bond funds, stocks, and stock funds, commodities and gold. In almost any given time frame, history has shown us, that we very rarely see these asset classes move in tandem – all going up or all decreasing together – at the same time. That is the whole point of asset allocation, that whist one asset class does well in a given environment, another will likely falter, hence diversification.
So what asset classes are doing well in the current environment?
More specifically, normally bonds and stocks move inversely, commodities and bonds move inversely, and commodities and equities (at least in the U.S.A. and less so in Canada) tend to move inversely and yet, all these asset classes are rallying at the same time. This makes for one very strange market table setting and at some point, with 200 years of history as a guide; something is going to have to give.
Saverio Manzo
The investment choices usually range from cash and money markets, bonds and bond funds, stocks, and stock funds, commodities and gold. In almost any given time frame, history has shown us, that we very rarely see these asset classes move in tandem – all going up or all decreasing together – at the same time. That is the whole point of asset allocation, that whist one asset class does well in a given environment, another will likely falter, hence diversification.
So what asset classes are doing well in the current environment?
More specifically, normally bonds and stocks move inversely, commodities and bonds move inversely, and commodities and equities (at least in the U.S.A. and less so in Canada) tend to move inversely and yet, all these asset classes are rallying at the same time. This makes for one very strange market table setting and at some point, with 200 years of history as a guide; something is going to have to give.
Saverio Manzo
Wednesday, October 7, 2009
Next shoe to drop
Many gurus have been forecasting that the next serious problem that the North American economies will face will be the deterioration – and possible outright collapse – of the commercial property and REIT sector. Many have been hopeful of a steady and continued economic recovery so that this commercial smattering may not actually happen. Today, in the WSJ, we see signs that things are not getting better.
OFFICE REAL ESTATE STILL IN DEEP TROUBLE
The U.S. office sector vacancy rate rose to a five-year high of 13.7% in Q3 from 10.5% a year ago, and as is the case now in the apartment sector, rental rates are deflating and deflating fast. Net effective rents nationwide have fallen 8.5% YoY, which is the steepest deflation rate since 1995.
Saverio Manzo
OFFICE REAL ESTATE STILL IN DEEP TROUBLE
The U.S. office sector vacancy rate rose to a five-year high of 13.7% in Q3 from 10.5% a year ago, and as is the case now in the apartment sector, rental rates are deflating and deflating fast. Net effective rents nationwide have fallen 8.5% YoY, which is the steepest deflation rate since 1995.
Saverio Manzo
Tuesday, October 6, 2009
Billionaire Math: Nine Children + No Will = One Legal Mess
Nearly one-half of Canadian adults do not have an estate plan which includes a will. As a financial planner, I can't stress enough of it's importance in a complete financial plan. Here is one interesting, real-life story...
Lesson to billionaires: get a will. Especially if you have fathered nine children with mistresses.
That sounds blindingly obvious, of course. But a nasty estate fight breaking out in New Jersey demonstrates that even multibillionaires can sometimes neglect the most basic of wealth-management issues.
The fight concerns the fortune of the late Wang Yung-ching, a plastics magnate who lived in new Jersey and Taiwan and was widely known in business circles as the “god of management.” His wealth was once estimated at $7 billion. Yet he didn’t leave a will when he died last year at age 91.
Oh, and he fathered at least nine children–with women other than his wife.
One question is whether the court battle will take place in New Jersey or Taiwan. A New Jersey Superior Court Judge ruled this week that Mr. Wang’s estate will have to open up certain financial records to figure out how much it holds in New Jersey.
Mr. Wang’s wife of 70 years, Wang Yueh Lan, who lives in Taiwan, is his legal widow. His oldest son, the 58-year-old Winston Wong, says he has power of attorney, granted by Ms. Wang, who, by the way, isn’t Mr. Wong’s mom.
Rest assured, this is just the beginning. Just sorting out how to divide up the estate among the widow and the nine children will be a difficult process. Image what will happen if any of the various mistresses/mothers emerge seeking funds.
And we thought Michael Jackson’s estate was complicated.
Posted by Robert Frank
Saverio Manzo
Lesson to billionaires: get a will. Especially if you have fathered nine children with mistresses.
That sounds blindingly obvious, of course. But a nasty estate fight breaking out in New Jersey demonstrates that even multibillionaires can sometimes neglect the most basic of wealth-management issues.
The fight concerns the fortune of the late Wang Yung-ching, a plastics magnate who lived in new Jersey and Taiwan and was widely known in business circles as the “god of management.” His wealth was once estimated at $7 billion. Yet he didn’t leave a will when he died last year at age 91.
Oh, and he fathered at least nine children–with women other than his wife.
One question is whether the court battle will take place in New Jersey or Taiwan. A New Jersey Superior Court Judge ruled this week that Mr. Wang’s estate will have to open up certain financial records to figure out how much it holds in New Jersey.
Mr. Wang’s wife of 70 years, Wang Yueh Lan, who lives in Taiwan, is his legal widow. His oldest son, the 58-year-old Winston Wong, says he has power of attorney, granted by Ms. Wang, who, by the way, isn’t Mr. Wong’s mom.
Rest assured, this is just the beginning. Just sorting out how to divide up the estate among the widow and the nine children will be a difficult process. Image what will happen if any of the various mistresses/mothers emerge seeking funds.
And we thought Michael Jackson’s estate was complicated.
Posted by Robert Frank
Saverio Manzo
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