While you were sleeping: GM bond offer, swine flu

Tuesday 28th April 2009

General Motors made its final offer to exchange bonds for equity to cut US$27 billion of debt and avoid bankruptcy in a plan that would leave the automaker in the hands of the Treasury and the United Auto Workers.

GM will cut 21,000 factory jobs, wind down its Pontiac brand and possibly sell its Hummer SUV brand, leaving the company with four core brands - Chevrolet, Cadillac, Buick and GMC.

Investors say the proposal is doomed to fail as bondholders are being asked to accept just 10% of GM’s stock in exchange for the debt, while the UAW’s retiree-medical fund, known as a Voluntary Employee Beneficiary Association would own 39%.

Shares of GM jumped 21% to US$2.04 as the automaker increased efforts to reduce liabilities by a total of US$44 billion.Chrysler, owned by buyout firm Cerberus Capital Management, is trying to complete an alliance with Italy’s Fiat SpA and negotiating with Daimler AG to divest its 19.9% stake. Chrysler must strike a deal to slash debt and formed the tie-up with Fiat before a deadline of the end of this month, if it is to continue receiving government aid.

US stocks fell as the prospects of a swine flu pandemic weighed on airlines and hotel companies.

The Standard & Poor’s 500 slipped 1% to 857.51 and the Dow Jones Industrial Average fell 0.6% to 8025. The Nasdaq Composite declined 0.9% to 1679.41.

Host Hotels & Resorts, the nation’s largest real estate investment trust specialising in hotels, tumbled 15% to US$6.63. Cruise and vacation company Carnival Corp., which operates the Cunard line, dropped 14% to US$24.59 and Starwood Hotels slipped 11% to US$18.55. Delta Air Lines fell 14% to US$6.75.

Health-care companies gained. Humana Inc., the second-biggest U.S. medical benefits group, gained 6.9% to US$29.25 and Coventry Health rose 3.6% to US$14.21. Citigroup fell 3.8% to US$3.07 and American Express declined 4.2% to US$24.23 as Federal Deposit Insurance Corp. chairwoman Sheila Bair sought increased powers to close “systemically important” financial companies.

The new powers would allow the FDIC to take over an institution and shut it down, forcing investors and creditors to absorb the costs rather than put the burden on taxpayers. She urged the US to toss “into the dustbin” the notion of firms being too big to fail.

“The FDIC is up to the task, and whether alone or in conjunction with other agencies, the FDIC is central to the solution,” Bair said. “Given our many years of experience resolving banks and closing them, we’re well-suited to run a new resolution program.”

The US dollar and the yen strengthened as markets digested the possibility of a pandemic of swine flu and investors sought the relative safety of the world’s biggest currencies. The Mexican peso tumbled against the dollar as the death toll from the virus topped 100 and cases were confirmed in Europe and Canada.

The dollar rose to $1.3039 against the euro from $1.3242. The yen strengthened to 126.19 per euro from 128.66. The yen gained to 96.76 per dollar from 97.17.

In Europe, the Dow Jones Stoxx 600 rose 0.4% to 196.53, with drugmakers advancing on the prospects of increased demand for flu vaccines and related products. GlaxoSmithKline climbed 5.7%, AstraZeneca rose 3.7%, Roche advanced 3.5% and Sanofi-Aventis gained 2.4%.

British Airways dropped 7.3%, Lufthansa declined 9% and Air France-KLM dropped 6.3%. French hotel chain Accor fell 3.7%.

The FTSE 100 edged up 0.3% to 4167.01, Germany’s DAX Index climbed 0.4% to 4694.07 and France’s CAC 40 slipped 0.01% to 3102.43.

Fears about swine flu also rattled commodity markets, with copper, aluminium and zinc falling.

Copper for delivery in three months fell 2.2% to US$4,370 a metric ton on the London Metal Exchange. Gold fell from a three-week high as concern about swine flu pushed the US dollar higher and sapped demand for the precious metal as an alternative investment.

Gold futures for June delivery slipped 0.6% to US$908.20 an ounce on the New York Mercantile Exchange.Crude oil for June delivery fell 5.7% to US$48.62 a barrel on the New York Mercantile Exchange.

Businesswire.co.nz

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