Tough task for Portugal to match Irish bond success
Tough task for Portugal to match Irish bond success
Its first post-bailout venture — a bond swap — was right out of the Irish playbook. But further down the road subdued attempts to woo investors and deeper fiscal woes stand in Lisbon's way.
Portugal last month carried out the bond swap in an identical manner to the one Ireland ran in January. The Irish move later kicked off a flurry of bond activity in Dublin which included another swap, a first amortizing issue and the pinnacle — the raising of new long-term debt.
It was a clear success for Ireland, which like other countries bailed out by European Union peers had been locked out of capital markets because of fears it could not repay its debt.
Dublin credits the success to a strict implementation of its bailout program, the return last year to economic growth and a punishing schedule of investor road shows that started back in May 2011 when bond yields were approaching record highs.
Unlike Ireland, Portugal has had to grapple with recession, angry demonstrations, emergency budget cuts and — according to the head of Dublin's debt agency — a self-imposed exile from the investor roadshow circuit.
"Portugal has sort of disappeared from the international circuit," John Corrigan, chief executive of Ireland's National Treasury Management Agency (NTMA) said in a speech earlier in the year.
He contrasted this with Ireland's action after getting a bailout from the EU, European Central Bank and International Monetary Fund, known as the troika of lenders.
"With Ireland's entry into the troika program, we took the view that we needed to actually redouble our investor relation efforts... It is a slow, deliberate process but one which I believe is starting to pay dividends," Corrigan said.
The NTMA met more than 200 institutional investors from Europe to North America, Asia and the Middle East between May 2011 and the early part of this year, putting forward the case for an Irish recovery at a time when most analysts saw a second bailout as virtually unavoidable.
More recently Corrigan's team have held meetings in China, the United States and Europe as it mulls a syndicated issue in dollars, euros or both that would start 2013 off with a bang and make the need for more help seem almost inconceivable.
Portugal's journey has been far more downbeat. It only recently kicked off a series of road shows where it invited international investors to Lisbon to explain its strategy for an Irish-style return.
"The NTMA is more active and more transparent in talking to investors, but it could be a bit of an unfair comparison. The Irish really have to do it now," said David Schnautz, strategist at Commerzbank in New York, referring to a steep post-bailout funding cliff that Dublin has almost fully tackled.
"But just being open to be contacted is not enough. Ireland for example has flagged the types of clients it plans to target. We would not mind getting more information out of Portugal."
HOW WILL PORTUGAL GROW?
It is not just a question of timing and style, however. The traditional foreign-heavy holding of Irish debt — just 17 percent was in domestic hands at end-June — left Dublin with a relatively untapped buyer base at home when it began to plot a market return.
The NTMA detailed plans to diversify its funding in July to attract that group, saying it would issue staged payment, or amortized bonds and inflation-linked paper for the first time. It raised the first 1 billion euros of an expected 3-5 billion euros from the two types of bond a month later.
With the domestic, foreign-owned split in Portugal much closer to 50/50, fewer avenues would appear open to them.
"Portuguese banks and investors have been more involved in its bond market, so there's less low hanging fruit," said Danske Bank's Owen Callan, a Dublin-based primary dealer of Irish bonds.
Ultimately, however, the successful full return to the bond markets will depend on the economy. Again, Ireland is a better sell.
Despite relentless austerity, stubbornly high unemployment and growing numbers struggling to pay their mortgages, Ireland's export-orientated economy managed to eke out growth last year and avoid joining most of the euro zone in recession.
Portugal, by contrast, is one of those countries feeling the strain most, kicking off a debate that has appeared only on the sidelines in Ireland, whether bailout medicine — which recently included the sharpest tax rises in living memory — will only serve to push it into a recessive Greek-like spiral.
Popular patience and political consensus has begun to fray in Portugal — there is a general strike on Wednesday — whereas Ireland, who voted in a centre-right led coalition with a record majority last year has enjoyed industrial peace disturbed only by the occasional, relatively small protest.
That would explain why while both have witnessed big bond market rallies in recent months, the yield on 10-year Portuguese debt is still almost twice that of Ireland's at 8.89 percent.
"Ireland is seen as (one) who had been doing terribly well and suffered a setback, but it is an open, growing economy that has largely capped its bank problem," said Luca Jellinek, head of European Rates Strategy at Credit Agricole in London.
"But with Portugal the question of a second bailout will not go away. One can't help noticing the quality of their fiscal work is deteriorating as is the political situation.
"Basically, investors are asking, how the hell will Portugal grow."
Intel CEO resigns after probe of relationship with employee
- Corporations are under increasing pressure to “walk the walk” on executive behavior with the rise of the #MeToo movement
- The board named Chief Financial Officer Robert Swan as interim CEO
Intel Corp. Chief Executive Brian Krzanich resigned on Thursday after an investigation found he had a consensual relationship with an employee in breach of company policy.
The head of the largest US chipmaker is the latest in a line of men in business and politics to lose their jobs or resign over relationships viewed as inappropriate, a phenomenon highlighted by the #MeToo social media movement.
Krzanich led Intel as rival chipmakers ate away at its dominance in the technology over several decades and he also presided over a series of high-level executive departures.
The change in leadership comes as Intel expands beyond personal computers and servers into areas such as artificial intelligence and self-driving cars, where smaller competitors including Nvidia Corp. are strong. Qualcomm Inc. leads in the mobile chip market.
The board named Chief Financial Officer Robert Swan as interim CEO and said it has begun a search for a permanent CEO, including internal and external candidates.
“An ongoing investigation by internal and external counsel has confirmed a violation of Intel’s non-fraternization policy, which applies to all managers,” Intel said in a statement, declining to give any further information about the probe. Its shares fell 2.4 percent.
The company’s board was informed a week ago that Krzanich had a mutual relationship with an employee in his chain of command in the past, according to a source familiar with the matter who asked not to be named. The relationship began before Krzanich became CEO in 2013 and ended several years ago, the person said.
Krzanich, who did not have an employment contract, is entitled to a $38 million “walk-away” payment in the event of a voluntary termination, according to Intel’s regulatory filings.
Of that, $31 million is in the form of accelerated stock awards and $4.1 million in the form of deferred compensation, based on Intel’s share price on Dec. 29.
An Intel spokesman declined to say whether the walk-away payment applied to Krzanich’s resignation, but said the investigation into Krzanich’s conduct continued and that the board reserved the right to take further action.
Corporations are under increasing pressure to “walk the walk” on executive behavior with the rise of the #MeToo movement, said Ivan Feinseth, chief investment officer at Tigress Financial Partners.
In the last few months Martin Sorrell, founder of advertising giant WPP Plc, and casino mogul Steve Wynn of Wynn Resorts Ltd. resigned after accusations of impropriety. Wynn has denied the accusations and Sorrell has denied any wrongdoing.
Krzanich, 58, an engineer and Intel veteran known at the company as “BK,” was appointed CEO in May 2013. Intel shares more than doubled during his tenure as the company expanded into new markets.
He was recently credited with containing the fallout from the discovery of security flaws in the company’s chips that could allow hackers to steal data from computers, although his sale of much of his Intel stock before the flaws were disclosed to investors attracted some criticism.
Time for an outsider?
His temporary replacement, Robert Swan, has been Intel’s CFO since October 2016 and previously spent nine years as CFO of eBay Inc. Given his short tenure and lack of experience in manufacturing, he is not likely to be named permanent CEO, Cowen analyst Matthew Ramsay said.
While Intel dominates in processors for servers and data centers, global competitors are catching up with its manufacturing technology, said Bernstein analyst Stacy Rasgon.
“BK will go down in history as the CEO that let Intel’s process leadership advantage slip away,” he said, adding that a change at the top could bring in fresh ideas.
Kevin Cassidy, an analyst at Stifel, said that Intel would take the change in stride.
“Although we respect Krzanich’s efforts in redirecting Intel’s strategy from a computer-centric to a data-centric company, we view Intel as a process-driven company with a deep bench of CEO candidates that can continue to drive the corporate strategy,” he said.
In its 50-year history, Intel has never appointed a permanent CEO who did not come up through the company’s ranks.
But those ranks are thinner than they used to be, with prominent Intel executives such as former CFO and manufacturing chief Stacy Smith, former president Renee James, ex-architecture chief Dadi Perlmutter and Dianne Bryant, who headed the data center group, leaving in recent years.
Instead, Krzanich’s replacement could end up being one of the outsiders he brought into the company’s executive ranks, a sort of “insider outsider” such as Murthy Renduchintala, Intel’s chief engineering officer who joined Intel in 2015 after helping lead Qualcomm’s chip business.
“They’ve got some very good people they’ve brought in,” said Dan Hutcheson, CEO of VLSI Research Inc, who “know the company, know the new direction. It’s not a turnaround story.”
UBS analyst Tim Arcuri wrote to clients that “the door is open to hire from the outside.”
Intel on Thursday raised its second-quarter revenue and profit forecast, saying it expects quarterly revenue of about $16.9 billion and adjusted profit of about 99 cents per share, up from a previous forecast of $16.3 billion in revenue and adjusted earnings per share of 85 cents.
Analysts on average were expecting revenue of $16.29 billion and adjusted profit of 85 cents per share.
“There are no new payments as part of his departure,” a source familiar with the company told Reuters.