A privately-held tech company is desperate for cash.
In this age of “decacorns“, you might think it would raise equity from overeager venture investors. But Jawbone, which competes with, among others, Apple, decided to borrow $300 million from Blackrock. Dan Primack thinks this financing choice creates value:
Structuring this deal as debt instead of as equity also allows the San Francisco-based company to maintain a $3 billion valuation it reportedly received last fall. That means it needn’t reprice existing employee stock options, and gives it upside flexibility when recruiting new employees. Plus, Jawbone doesn’t take the kind of ‘falling unicorn’ PR hit that could cause potential customers to purchase from more stable vendors.
This flies in the face of standard corporate finance theory. Franco Modigliani and Merton Miller both won Nobel prizes in economics for arguing that the underlying value of a company doesn’t depend on its capital structure. Read more
A Macquarie update, on their previous free floats and nutty Chinese markets work, has landed. With our emphasis:
Margin positions in the Chinese equities market have continued to rise in the past month, since we wrote our first Twilight Zone note on April 20. Since then, margin positions have risen by 9.2% MoM to RMB1.9 trillion, or an unprecedented 8.9% of the market capitalization of the combined free float of Shanghai-Shenzhen stock markets. This could already be the highest level of margins vs free float in market history…
We’ll share this prime piece of pre-nuttiness, if only for those who don’t know what “AOL” is or was.
DULLES, VIRGINIA and NEW YORK, NEW YORK January 10, 2000 – America Online, Inc. [NYSE:AOL] and Time Warner Inc. [NYSE:TWX] today announced a strategic merger of equals to create the world’s first fully integrated media and communications company for the Internet Century in an all-stock combination valued at $350 billion. Read more
It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.
It took just 15 days after that to jump back to 68bp again.
That fact, and many more on our favourite nutty asset, European sovereign debt, via Bank of America’s credit strategists (with our emphasis):
In the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly. Higher yields mean fewer negative yields. Chart 5 shows that the peak of negative yielding Eurozone government debt was just over €2.8tr at the end of March. But this has now declined to €2tr. In other words, Europe has “lost” almost €1tr of negative yielding assets in the last month.
Exclusive to All Newspapers
In the last few weeks, in common with all other financial media, we may have given the impression that inflation had died forever and that it was in some way entirely rational for an investor to purchase Austrian government bonds at €220 per €100 of value.
We may further have led readers to believe that Bund yields would never stop falling that there were, officially, no more sellers of bonds…
We now realise, in light of the past few day’s events, that this is bunkum and the market does, for the moment, in fact resemble a New York rooftop bar at closing time. Read more
We asked the same question in April last year, when US tech went through what, with hindsight, was a small correction before greater enthusiasm returned.
Of course, there have been several mini corrections since, making the last year merely a bumpier ride upwards than that which preceded it.
What may be different this time are downward moves for some of the larger tech stocks prompted by disappointment around earnings, indicating genuine reassessment of the potential for these companies to take over the world. Read more
Consider the chart to the right. Beijing Baofeng Technology, an online video group, listed in Shenzen just over a month ago.
To begin with, we thought there had to be something fishy going on. Surely the staircase can’t be the product of humans trading with each other.
But then James Mackintosh discovered the answer. The stock has just traded limit-up every single day. Read more
The company in question is called 21 Inc. Its business plan has hitherto been a closely guarded Silicon Valley secret. But we can now reveal how it plans to monetise the future of money. Welcome to the world claiming to exist beyond the Internet of Things…
The current economic woes, brought on by the collapse of the so-called “housing bubble,” are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.
[...] Read more
Credit pricing, yeah?
From a rather good Bloomberg piece:
Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
From Blackrock on Monday:
BlackRock launches its first China A share ETF for international investors London, 13 April 2015 – BlackRock has today listed the iShares MSCI China A UCITS ETF on the London Stock Exchange, giving its international institutional and retail clients direct access to China’s A share equity market. A shares are mainland China incorporated companies listed on the Shanghai and Shenzhen Stock Exchanges and represent the largest single segment of the Chinese equity market.
They were amongst the best performing equities in the world in 2014, when the Shanghai Composite Index rose 58%. However the direct purchase of A shares is open only to Chinese nationals plus foreign investors able to access a limited number of tightly controlled and regulated channels, restricting access to the market for many.
The iShares MSCI China A UCITS ETF provides investors with exposure to China A shares through BlackRock’s own Renminbi Qualified Foreign Institutional Investor (RQFII) quota. The ETF is the only UCITS fund to track the MSCI China A International Index. This index represents a broad and diversified basket of over 300 large and mid cap stocks.
But you know what they say about ETFs… Read more
The China stock bubble is getting more and more bonkers. This from Deutsche Bank:
Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times!
It seems everyone in the country is racing to open a brokerage account – 1.67m new accounts in the latest week, according to the China Securities Depository and Clearing Co. That sounds a lot, although it is growth of only about 1 per cent a week in the total of new accounts: China, remember is big.
But a quick bit of Excel work shows just how silly the bubble in Chinese domestic stocks, known as A shares, has become. Read more
Yes, dot-com comparisons are flung about all too easily. But it’s quite hard to argue with the fairness of this one from Bloomberg:
The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look tame by comparison.
The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156…
Valuations in China are now higher than those in the U.S. at the height of the dot-com bubble just about any way you slice them.
Just going to leave these few charts here for a second…
That’s from BNP Paribas, this is via Tom Orlik and a few others: Read more
From the Wall Street Journal’s picture of the Danish housing market:
“People will often put in an offer even before they see the apartment,” said Christopher Christiansen, a property broker at Danish real estate agency Home A/S. “Sometimes they will even sign before they see it.”
A cost of debt close to zero for house buyers seems to be having some sort of effect. Read more
Sentences to remind us of the nuttiness of Chinese equities over the past few months from BNP Paribas’ Richard Iley (and yeah, the Shanghai Comp fell 0.8 per cent today we have to admit, but that just broke “a 10-session winning streak — the longest in 23 years, according to Bloomberg data — that had taken the index to its highest since May 2008″):
Against all odds, the best performing asset class on the planet over the last nine months or so has been Chinese equities. After languishing for the first seven months of 2014, Chinese stocks have since been on an incredible tear, ending 2014 up a remarkable 49% in USD terms, even outstripping the c.28% annual return posted by Bunds (Chart1). And the strong gains have continued so far in early 2015. Up almost 12% in USD year-to-date at time of writing, Chinese equities continue to sit atop the heap of global asset returns. All told, the Shanghai and Shenzhen markets have surged almost 80% in local currency terms since mid-2014 (Chart 2).
Yes, yes… “必有牛市” – “There must be a (dynastic) bull market”. Read more
Chase Crawford of Gossip Girl has been tapped to lead ABC’s Boom, in which one of the largest oil discoveries in American history leads to an economic explosion in a North Dakota town, our sister site Deadline reports. Read more
As long as the music’s playing…
Citi’s credit strategist Hans Lorenzen adds to our euro-nuttiness questions of yesterday. He’s in a more… pragmatic frame of mind. Which doesn’t preclude the use of “frenzied”, but there you go. With our emphasis and his puns throughout:
Is it a bubble? With clear signs of overvaluation, inflows concentrated on return-sensitive investors, spreads largely desensitized to external shocks and fundamentals moving in the opposite direction, the recent and expected further tightening certainly has all the typical hallmarks of one.
But that’s almost beside the point, as we think it will last longer than most people’s investment horizons, leaving them with little choice but to participate. As we see it, the time to exit is the day that the market starts to doubt the ECB’s commitment to buying more.
“It’s official, there are no more sellers of bonds.” An investor told us yesterday, and he’s not alone. Bond buying on ECB QE, the Greek loan extension and recent growth data in the periphery has transformed itself into bond hoarding.
- RBS’ Alberto Gallo and team Read more
Rocket Internet, the German-listed ecommerce investment group, has opportunistically raised about €600m in fresh equity at €49 per share.
In case you had forgotten, the collection of investments in more than 140 loss making businesses is valued by the market at about €7.6bn. Read more
Over in Mac McQuown’s Sonoma Valley workshop, courtesy of Bloomberg Markets…
McQuown says his eBond will enable investors to jettison their credit risk because the swap, which is essentially a form of insurance, will cover their losses should the debtor fail. To garner such protection now, an investor must purchase a swap separately to cover a bond. Read more
Box Inc, just another cloud storage company out of Silicon Valley, looked to be just another SV mania company hitting Wall St when it priced it’s IPO last week. Against an allegedly cautious pricing at $14 a share (one dollar above the indicative range, natch) the market price surged to a day one high of $24.73. But look at the price chart since then…
Over in Russia:
This is illegal interference with my personal life, with my information,” Yakunin told state television. “We are a natural monopoly, we live according to decisions taken by the state, so we make as much as the state allows us to make. Read more
Japan turns even more Japanese:
This is an urgent Alphaville appeal: kill this trend now.
Bloomberg Businessweek already wrote the definitive profile of OnDeck Capital, the latest hot initial public offering for a business with some boiler room characteristics. Check it out to see the company Peter Thiel is keeping these days.
From our perspective, the market valuation of about $1.3bn seems nuts for a far simpler reason, which requires reading 15 words in the prospectus:
We have a history of losses and may not achieve consistent profitability in the future.
Never mind the business partners with colourful backgrounds, hope and fairy dust is what you, dear investor, were invited to buy. Read more
A news story lands, from Bloomberg, entitled “Goldman Sachs outdoes itself…”
Like Meryl Streep at the Oscars, Goldman Sachs Group Inc. isn’t lacking acclaim for its merger and acquisition advisory business. It’s finished first in deal volume for five consecutive years and in nine of the last 10.
Even so, Goldman Sachs outdid itself this year. No top firm has had a larger market-share spread over its nearest competitor since 1998…
As the longtime publisher of this news-paper, it is my duty and unrestrained pleasure to inform you spittle-soaked readers that I have sold The Onion and all of its various holdings to a syndicate of industrious China-men from the deepest heart of the Orient. One of their representatives oozed and crawled from his dank hut to visit me in person at my bedside last week, and make known his superiors’ desire to expand their clammy clutch into the Western world…
Oh, how heavenly it shall be to never again hear the ungodly shriek of a printing press, or breathe the insufferable stench of a news-room full of unwashed scribes churning out mindless pap on the subject of photo-play actresses and their adopted African brood. And as far as the whimpering clods who have the temerity to call themselves “readers” are concerned, I do not suppose I shall miss their ilk in the slightest. Why, just imagining their pallid, toothless faces fills me with such colossal rage that at this very moment my nurse-maid is administering to me a near-lethal dose of laudanum just so I may find the composure to reach the end of this missive.
– “Well, I’ve Sold The Paper To The Chinese,” The Onion, July 20, 2009 Read more