Democratic Climate Plan Would Cut Greenhouse Emissions by 17%

By Lorraine Woellert and Daniel Whitten

May 13 (Bloomberg) -- Democrats on the House Energy and Commerce Committee agreed on a compromise measure to cut greenhouse gas emissions by 17 percent by 2020, Chairman Henry Waxman said.

The agreement, reached yesterday, exceeds the target sought by President Barack Obama.

Waxman, a California Democrat who is leading the effort in Congress to craft legislation addressing climate change, in March proposed a 20 percent reduction in emissions from 2005 levels. He called the agreed-upon figure “smack in the middle” of the 14 percent to 20 percent range recommended by an industry and environmental coalition, the U.S. Climate Action Partnership.

Obama had recommended a 14 percent reduction target.

The energy committee will release more details of the agreement today and begin considering the legislation on May 18, Waxman said.

“We will have the votes” for passage, Waxman told reporters in Washington last night. “We have resolved a good number of the issues.”

Obama plans to meet with Waxman and House Democratic leaders today at the White House.

Committee Democrats also agreed to a provision in the climate-change bill requiring that one-fifth of all electricity come from renewable sources and improved efficiencies by 2020, said Representative Bart Gordon, a Tennessee Democrat.

Utilities in each state would be required to obtain 15 percent of their electricity from renewable sources and demonstrate annual energy savings of 5 percent. Governors of states unable to reach the renewable goal could lower it to 12 percent if their utilities demonstrate an 8 percent reduction in energy use.

Free Credits

Lawmakers spoke outside a closed meeting where Democrats on the committee worked on the legislation to create a cap-and- trade system to limit greenhouse gas emissions. As part of the bill, free pollution credits would be provided to cut business costs while companies find ways to reduce their emissions. The free permits would be phased out and eventually they would be sold at auction.

The Democratic plan would give free permits to heavy manufacturers, the automobile industry, research and development, utilities and others. Allocations for refineries “have yet to be worked out,” Waxman said, and the total number of allocations hasn’t been decided.

Buying Permits

Utilities would get 35 percent of the program’s allocations free. That should cover “90 percent of their needs,” said Representative G.K. Butterfield, a North Carolina Democrat. “They will still have to purchase a portion” of the permits they would need to comply with the law, he said.

The free pollution allowances are meant to ease the transition to a system that eventually would require polluters to buy a limited number of emissions permits. The giveaways were necessary to win support from a key bloc of committee Democrats. They are at odds with Obama’s goal of selling permits to raise an estimated $646 billion to fund middle-class tax cuts.

The 59-member energy committee requires 30 votes to pass legislation, and 14 Democrats on the panel come from states that generate more than half of their electricity from coal, according to the U.S. Energy Information Administration.

Representative Gene Green, a Texas Democrat who represents an oil-refining area, said he was concerned about a provision to require oil companies to pay for allowances if they haven’t developed carbon-free car and truck fuel by 2014.

Unrealistic Deadline

That deadline is unrealistic “if we don’t have the technology” to produce non-carbon fuel,” Green said. If oil companies can’t produce the fuel, “all they are going to do is pass that on” to consumers in higher gasoline prices, he said.

Green said yesterday that lawmakers were considering giving oil refineries free credits worth 1 percent to 5 percent of all emissions that would be regulated under the program.

An additional percentage of allowances may go to a strategic reserve that could be used to increase the supply of pollution credits if prices get too high.

Republicans on the committee also held a strategy session. Their leader, Representative Joe Barton of Texas, said he plans to offer amendments to the “economic disaster plan” Democrats were negotiating. He didn’t provide details.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Daniel Whitten in Washington at dwhitten2@bloomberg.net

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Ospraie’s Anderson to Give Commodities Hedge Funds Another Try

By Katherine Burton

May 13 (Bloomberg) -- Dwight Anderson, the commodities investor who liquidated his main Ospraie Fund last year after losing 39 percent, is planning a comeback with two new hedge funds set to open July 1.

The Ospraie Equity Fund will buy and sell stocks of commodity and basic-materials companies in industries such as chemicals, mining, paper and natural resources, Anderson said in a May 12 letter to investors. The Ospraie Commodity Fund will invest in commodities and related derivatives, according to the letter, a copy of which was obtained by Bloomberg News.

“After much reflection and with a number of lessons learned, we see a set of opportunities today that we believe could create significant value for investors in the coming years,” the New York-based manager wrote. “That opportunity set is as compelling as I have seen in my 15 plus years of investing in the basic industry space.”

Anderson’s former fund invested in commodities and related stocks. It was the world’s largest such hedge fund at its peak, with more than $3.5 billion in assets after averaging annual gains of about 15 percent from 2000 through 2007. He decided in September to shutter the eight-year-old fund and sell assets after losses of more than 30 percent triggered a clause enabling investors to withdraw their money by the month’s end. About 1,441 funds, or 15 percent of those worldwide, closed last year, according to Chicago-based Hedge Fund Research Inc.

Ospraie’s clients have gotten 82 percent of their money back. The remaining portion, invested in private companies, might take as long as three years to return, Anderson told investors at the time of the closure. Anderson also runs a $1 billion Special Opportunities Fund, which holds private-equity stakes.

Fee Discount

Jonathan Gasthalter, a spokesman for Ospraie Management LLC, declined to comment.

Ospraie Fund clients who invest in either new fund will pay reduced fees of 1 percent of assets and 10 percent of any gain, the letter said. Funds typically charge 2 percent of assets and 20 percent of gains.

Unlike Anderson’s previous offering, which normally locked up investors for three to five years, the new funds will allow them to exit quarterly. Assets will be capped, the letter said, without providing details.

The Hedge Fund Research Energy/Basic Materials Index jumped 13 percent this year through April 30. The Reuters/Jefferies CRB Index of commodity-futures prices climbed 6 percent this year through yesterday.

Personal Investment

Anderson, 42, said in the letter that he and his partners will invest “significant capital” in both funds. Anderson also said he recently repurchased the 20 percent stake in Ospraie Management that now-bankrupt Lehman Brothers Holdings Inc. bought from him in 2005.

Anderson graduated from Princeton University with a degree in history and earned a master’s in business administration at the University of North Carolina at Chapel Hill. He joined Julian Robertson’s Tiger Management LLC in 1994 and soon took over the New York-based hedge fund’s basic-industries group.

He moved to Tudor Investment Corp., the Greenwich, Connecticut-based hedge-fund firm run by Paul Tudor Jones, five years later. Anderson started the Ospraie Fund, named for the marine bird of prey, the osprey, while at Tudor, and spun it out at the end of 2003.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

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Santos Says Share Sale to Institutions Oversubscribed

By Ben Sharples

May 13 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, said it raised A$1.75 billion ($1.3 billion) in the “heavily oversubscribed” institutional portion of its A$3 billion share sale.

The allocation to institutions was expanded from A$1.65 billion to meet demand, while the component for individual investors of A$1.25 billion is now fully underwritten, Santos said today. The sale is the country’s largest since National Australia Bank Ltd. raised A$3 billion in November.

Santos plans to use A$1.05 billion of the proceeds to help fund spending at the $12.5 billion Exxon Mobil Corp.-led Papua New Guinea liquefied natural gas project, in which it has a 17.7 percent stake. The Adelaide-based company expects a “step-change” increase in production in 2014 once the venture and a proposed gas-export project in Queensland with Petroliam Nasional Bhd. come online.

“The PNG project is a pretty solid one and I think investors see it as a good reason to take up the offer,” said David Taylor, market analyst at CMC Markets in Sydney. “Everyone realizes that LNG is the way to go.”

Santos offered investors two shares for every five they own at A$12.50 apiece. Santos dropped 6.6 percent to $14.74 at 11:29 a.m. in Sydney trading, poised for the biggest decline since Dec. 5. The market’s benchmark index dropped 0.7 percent.

Project Costs

The retail component of the offer opens on May 15 and closes on June 5. The new shares issued under this portion of the sale will start trading June 17, Santos said today in a statement to the Australian stock exchange.

Exxon and its partners aim to give the go-ahead to build the project, Papua New Guinea’s largest investment, by the year- end.

Oil Search Ltd., the second-biggest partner in project, said yesterday speculation it will raise capital to help fund its portion of venture costs was “inaccurate.” Discussions with lenders are advanced and there has been no indication from potential lenders that Oil Search requires cash to cover debt, the Port Moresby-based company said.

Oil Search expects its funding requirements for the project to be about $4.8 billion, Managing Director Peter Botten said yesterday. Future equity needs at year-end are expected to be about $1.2 billion, depending on final capital costs, he said.

The capital cost estimate for the venture doesn’t include $2.6 billion for financing, a debt service reserve and start-up cash of $1.4 billion, or spending on LNG tanker ships, Santos said May 11.

LNG is natural gas that has been chilled to liquid form for transportation by ship to destinations not connected by pipeline. Exxon owns 41.5 percent of the Papua New Guinea project. Nippon Oil Corp. has a 5.4 percent stake.

To contact the reporter on this story: Ben Sharples in Melbourne bsharples@bloomberg.net

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Cnooc Parent Agrees to Buy Australian LNG From BG for 20 Years

By John Duce and Ben Sharples

May 13 (Bloomberg) -- China National Offshore Oil Corp. agreed to buy liquefied natural gas from BG Group Plc’s planned $6 billion Australian project as demand for cleaner fuels rises in the second-largest energy-consuming nation.

China National will buy 3.6 million metric tons annually from the Queensland Curtis LNG project for 20 years, the companies said in statements today. Beijing-based China National will acquire 5 percent of BG’s reserves in Queensland’s Surat Basin, the U.K.’s third-biggest gas producer said.

BG’s first accord to sell Queensland LNG may be worth as much as $600 million a year, or $12 billion over two decades, said Gordon Kwan, an energy analyst at Mirae Asset Securities. Oil prices have slumped almost 60 percent from the July record of $147.27 a barrel, cutting the cost of gas in supply contracts.

“The move by China National reflects its ambition to secure reserves overseas at the bottom of the price cycle,” Hong Kong-based Kwan said in e-mailed comments.

Cnooc Ltd., China National’s listed unit, rose as much as 9 percent to HK$10.56 in Hong Kong after the agreement was announced, the highest since Sept. 8. The benchmark Hang Seng index gained 0.7 percent. BG, which has gained 29 percent in London in the last six months, fell 0.6 percent to 1,097 pence yesterday.

China wants to boost the use of gas to 10 percent of total energy consumption by 2020 from about 3 percent to reduce reliance on more-polluting coal. State-controlled China National has signed term contracts to buy LNG from Australia, Malaysia and Indonesia for terminals in Dapeng, Putian and Shanghai on Chinese coast.

LNG Tankers

PetroChina Co. signed a 25-year agreement in April last year to buy 3 million tons of LNG from Qatar starting 2011.

China National will acquire a 10 percent stake in one of the two liquefaction trains, or units, that will form the first phase of the Queensland Curtis project, said BG.

The companies will be part of a group to build two LNG tankers to transport the fuel, BG said, without giving any figures for the transaction.

Australia’s coal-seam gas industry attracted about A$22 billion ($17 billion) in investment last year and BG, Santos Ltd. and ConocoPhillips are among companies with stakes in rival ventures aiming to convert gas extracted from coal beds in Queensland into LNG for export.

“It is a really good result, it underpins the project, and we’re really glad to have brought it out,” said Hedley Thomas, a spokesman for BG in Australia. “The terms for the Cnooc deal, when they’re executed, will be highly attractive.”

Environmental Impact

BG will submit a draft environmental impact statement on the project, near the central Queensland coastal city of Gladstone, to the state government “in the coming weeks,” he said. Santos and Petroliam Nasional Bhd. submitted the draft environmental report on their Gladstone LNG project during the first quarter.

Arrow Energy Ltd. said April 16 that the Queensland government approved the environmental impact statement for its proposed coal-seam gas to LNG plant at Gladstone. Queensland may export about 20 million tons a year of LNG by 2020, equal to Australia’s total existing output, according to Brisbane-based Bow Energy Ltd.

Asia’s LNG demand may drop by as much as 10 percent this year because of reduced energy consumption, New York-based consultant Poten & Partners said on March 27.

The China National deal will allay concerns in Australia over whether there is a viable market for the country’s LNG, John Wilson, an analyst at Wilson HTM Investment Group, said by telephone from Melbourne.

‘Buyers Market’

“It shows that people are willing to sign up,” he said. “There has been concern about whether it is going to become a buyers market again and whether there’s going to be too much LNG around.”

BG and China National aim to complete negotiations for the transaction, which needs government and regulatory approval, next year, the Reading, England-based gas producer said in its statement. The companies signed a memorandum of understanding in 2008 under which they agreed to explore opportunities for strategic cooperation.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 258 degrees Fahrenheit) for transportation by ships to destinations not connected by pipeline.

To contact the reporter on this story: John Duce in Hong Kong at jduce1@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net

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Dollar May Depreciate to 95 Yen on ‘Nervous’ Market, RBC Says

By Justin Carrigan

May 13 (Bloomberg) -- The dollar may weaken to 95 yen after first strengthening to 97 yen, RBC Capital Markets said.

“The market is getting very nervous about a breakdown to the downside with 95 barriers in focus,” Sue Trinh, senior currency strategist at RBC in Sydney, wrote in an e-mailed report today. “In the near term however, the deviation from the U.S. 10-year yield, which has been a very good intraday directional cue for dollar-yen, has blown out sharply. Based on a 10-year yield of 3.20 percent, we estimate dollar-yen could correct back to 97 first.”

The dollar was little changed at 96.50 yen as of 7:06 a.m. in London. The 10-year Treasury note yielded 3.20 percent.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Dollar Declines to 7-Week Low on Optimism Global Slump Easing

By Yasuhiko Seki and Ron Harui

May 13 (Bloomberg) -- The dollar fell to a seven-week low against the euro and the yen weakened after Chinese reports added to signs the worst of the global economic slump is over, sapping demand for the U.S. and Japanese currencies as a refuge.

The Dollar Index declined to a four-month low after former U.S. comptroller general David Walker wrote in a Financial Times opinion piece that the nation’s AAA credit rating may be cut because the government can’t control spending. Australia’s dollar strengthened after better-than-expected Chinese retail sales data spurred optimism the world’s third-largest economy is improving, boosting demand for higher-yielding assets.

“Euphoria-driven price action is at work as economic data at home and abroad support the view that the worst of the global recession may be over,” said Kengo Suzuki, manager of the foreign bond trading department at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “Safe-haven currencies will stay out of favor, reflecting an improvement in risk appetite.”

The dollar fell to $1.3679 per euro at 7:19 a.m. in London from $1.3648 yesterday in New York. It earlier touched $1.3722, the weakest level since March 23. The yen dropped to 132.02 per euro from 131.63. The U.S. currency traded at 96.52 yen from 96.45. It earlier weakened to 95.79, the lowest since April 28.

China’s retail sales rose 14.8 percent in April from a year earlier, after climbing 14.7 percent in March. That compared with economists’ median estimate of a 14.5 percent gain. Industrial output rose 7.3 percent from a year earlier after gaining 8.3 percent in March.

The Nikkei 225 Stock Average gained 0.5 percent and the MSCI Asia Pacific index of regional shares added 0.5 percent.

‘Crucial’

Australian dollar rose for a second day against the U.S. currency, climbing to 76.87 U.S. cents from 76.50 cents yesterday. It advanced to 74.19 yen from 73.78 yen.

Developments in emerging Asia “will be crucial” for the Australian dollar, analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy for BNP Paribas SA, wrote in a note to clients yesterday. “The Australian dollar is likely to remain an outperformer.”

Australia’s currency rose more than 20 percent against the yen in the past three months on speculation investors resumed carry trades, in which they get funds in countries with low borrowing costs and buy assets where rates are higher. The risk is that currency fluctuations can wipe out gains. Japan’s 0.1 percent target lending rate compares with 3 percent in Australia.

The U.S. government should create a “fiscal future commission” to rein in the country’s finances because its AAA credit rating may be lowered, Walker wrote in the Financial Times today. The commission should consider every option including budget controls and tax hikes, he said.

‘Underlying Risk’

“The FT article came as a reminder of the biggest underlying risk for the dollar,” said Osamu Takashima, chief foreign exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s biggest bank. “If people start to question seriously the U.S.’s ability to sell swelling debt smoothly, the dollar may be sold to 90 yen and $1.40 per euro.”

The Dollar Index, which the ICE uses to track the U.S. currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, fell to 82.096 from 82.306 yesterday. It earlier reached 81.871, the lowest since Jan. 9.

“There’s a developing backlash against the dollar,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. “There has been some chatter about its fundamentals with a Financial Times editorial talking about it maybe losing its AAA rating. That’s set people off on a negative bent.”

When the Daily Telegraph on April 24 carried an article warning of the downgrade risk for U.K.’s sovereign debt rating, Britain’s pound slumped more than 1 percent against the dollar and the yen.

Standard & Poor’s

Standard & Poor’s cut Ireland’s credit rating to AA+ from AAA in March as financial turmoil drove up borrowing costs and swelled the nation’s budget deficit. S&P lowered the ratings of Spain, Portugal and Greece in January. Moody’s placed Ireland’s Aaa rated government bonds on review for a possible downgrade on April 17, citing the nation’s “severe economic adjustment.”

The euro gained for a second day against the dollar before a European Union report today that may show the contraction in industrial production slowed in March, adding to signs the recession in the 16-nation region is easing.

European Central Bank governing council member Nout Wellink said in an interview with Dutch public television VARA yesterday the deterioration of the European economy seems to be slowing.

‘Slump Is Waning’

“Investors are putting funds in higher-yielding, emerging- market assets including those in Europe amid the view that the worldwide slump is waning,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This is why the euro and the Australian dollar are being bought.”

Industrial output in the euro area fell 17.6 percent in March from a year earlier, after a 18.4 percent decrease in February, according to a Bloomberg survey of economists. The report is due at 11 a.m. in Luxembourg.

Individual investors in Japan increased bets to the highest in six months that the yen will weaken as the economy stabilizes, jumping back into a trade that was all but wiped out last year.

Businessmen, housewives and pensioners held 153,326 margin contracts at the end of last month that will make money if the yen declines against currencies ranging from the euro to the Australian and New Zealand dollars, according to the Tokyo Financial Exchange. All told, they may have as much as $125 billion in yen so-called short positions, RBC Capital Markets strategists said.

“Investors believe the worst of the global recession is over and higher-yielding currencies are bottoming out,” said Yoshisada Ishide, who oversees $1.8 billion as a Tokyo-based fund manager at Daiwa SB Investments Ltd., a unit of Japan’s second-biggest investment bank.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Inpex Forecasts 61% Drop in Net on Oil-Price Outlook

By Shigeru Sato and Yuji Okada

May 13 (Bloomberg) -- Inpex Corp., Japan’s largest energy explorer, said profit may drop 61 percent this year as the global recession reduces oil prices, which peaked in 2008.

Net income may fall to 56 billion yen ($580 million) in the year ending March 2010, from 145.1 billion yen in the previous period, the Tokyo-based company said in a statement to the stock exchange today. That compares with the 80 billion yen profit median estimate of 16 analysts surveyed by Bloomberg. Revenue may decline 38 percent to 669 billion yen.

Inpex expects Brent crude oil, a benchmark for Europe, to average $52.50 a barrel this financial year. Brent has retreated 60 percent from a record $147.50 in London on July 11, leading investors including Japanese trading house Itochu Corp. to withdraw from overseas energy projects. Inpex and partner Total SA are moving ahead with their proposed $20 billion Ichthys natural gas venture in Australia.

“With a slew of distressed oil and gas project assets abroad because of the recession, the question now is whether Inpex will take advantage of the opportunity to buy out some of those stakes before their major Australian project comes on stream,” Futoshi Usui, an analyst at Credit Suisse in Tokyo, said before the announcement. Usui has a “neutral” rating on Inpex’s stock.

Inpex’s profit fell 16 percent in the year ended March 31 and missed the 150 billion yen median estimate of 16 analysts. Revenue decreased 11 percent.

Shares Gain

The shares have gained 59 percent over the last six months compared with a 3.3 percent rise in the benchmark Topix index. They rose 0.8 percent to 726,000 yen on the Tokyo Stock Exchange before the earnings announcement as oil in New York rose for a second day.

Brent, the benchmark for the Caspian Sea oil Inpex produces, averaged $86.22 a barrel on London’s ICE Futures Europe Exchange last year, according to Bloomberg data. It traded at $58.83, up 1.5 percent, at 3:11 p.m. in Tokyo.

Inpex and partner Total SA are moving ahead with the proposed $20 billion Ichthys natural gas venture in Australia. Gas from the project will be transported to Darwin through a proposed 850-kilometer (528-mile) pipeline, with the first shipment of liquefied natural gas scheduled in 2015.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.

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E.ON Adjusted Profit Falls 2% on Energy Price Slump

By Nicholas Comfort

May 13 (Bloomberg) -- E.ON AG, Germany’s largest utility, said first-quarter profit fell 2 percent on the global slump in energy prices.

Adjusted net income, which excludes writedowns on assets and hedging derivatives, declined to 1.8 billion euros ($2.5 billion) from 1.84 billion euros in the same period a year earlier. That beat the 1.49 billion-euro median estimate of 11 analysts surveyed by Bloomberg.

The world’s worst recession since 1945 has chopped energy use as manufacturers curb production to counter lower consumer demand. That’s prompted Dusseldorf-based E.ON to cut its growth outlook until 2011 and warn investors that profit before writedowns may decline 10 percent this year.

Crude oil plunged more than $100 from its July record. That cut the value of the natural gas E.ON produces in the North Sea, as tariffs for the fuel are pegged to crude.

Net income rose 18 percent to 2.5 billion euros, reflecting the marking to market of derivatives used to guard against price fluctuations. Sales increased 14 percent.

Colder weather in the quarter as a whole increased consumer demand for heating, Energie Baden-Wuerttemberg AG, Germany’s third-largest utility, said last week.

Arctic conditions gripped Central Europe as temperatures in Germany and Poland plunged below minus 25 degrees Celsius (minus 13 degrees Fahrenheit) in January.

Lower Consumption

Still, a drop in power and gas consumption by industrial clients forced the Karlsruhe, Germany-based E.ON rival to sell electricity at a lower price on the spot market after customers were unable to take the volumes they ordered.

E.ON vice chairman Johannes Teyssen said March 10 that power consumption in “some areas” such as carmakers has fallen by up to 20 percent since the recession in Europe’s largest economy began. He didn’t provide further details or an outlook.

The company uses adjusted net income to calculate its dividend as the profit gauge isn’t affected by volatility. Accounting rules state that net income has to reflect the value of contracts for fuel and power at the end of the quarter, which fluctuate from one day to the next.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

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Rubber Gains for First Day in Four as Oil Boosts Rival’s Costs

By Aya Takada

May 13 (Bloomberg) -- Rubber advanced for the first time in four days after oil jumped to a six-month high, boosting the cost of making the competing synthetic product used in tires.

Futures in Tokyo increased after dropping 5.8 percent in the previous three sessions. Crude oil in New York reached the highest settlement since Nov. 11 yesterday on increased imports by China and as a weak dollar bolstered investor demand for commodities as an alternative investment.

“Rubber chased a rally in oil and other commodities,” Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd., said in a telephone interview today.

Natural rubber for October delivery, the most-active contract, gained 1.4 percent to 170.3 yen a kilogram ($1,772 a metric ton) on the Tokyo Commodity Exchange at 11:48 a.m. local time. The futures often move in the same direction as oil as synthetic rubber is made from naphtha, distilled from petroleum.

Gains were limited as Toyota Motor Corp., the world’s biggest automaker, expects to cut global vehicle production 28 percent this year as the recession hammers demand.

Output will fall to 6.68 million vehicles from 9.24 million in 2008, Hideaki Homma, a company spokesman, said today by phone. Sales will drop 18 percent to 7.34 million vehicles, he said. The figures include the carmaker’s Daihatsu Motor Co. and Hino Motors Ltd. subsidiaries.

“A rally in rubber prices won’t be sustained until we see evidence of a recovery in raw material demand,” Sugata said.

Rubber for September delivery on the Shanghai Futures Exchange, the most-active contract, added 1 percent to 15,505 yuan ($2,272) a ton at 11:08 a.m. local time.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

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Rio Shares Drop After $10 Billion Share Sale Report

By Rebecca Keenan

May 13 (Bloomberg) -- Rio Tinto Group, the world’s third-largest mining company, fell in Sydney trading after the Telegraph reported it may drop an investment deal with Aluminum Corp. of China for a 5 billion pound ($10 billion) share sale.

The shares declined 4.4 percent to A$65.50 at 2:25 p.m. Sydney time on the Australian stock exchange. That was its biggest slump since April 21. Rio’s London stock fell 6.9 percent yesterday.

Rio may have drawn up plans for a rights issue to be underwritten by JPMorgan Cazenove Ltd. and Credit Suisse Group AG, the Telegraph newspaper in London reported on its Web site, without citing anyone. The $19.5 billion deal with Chinalco, as state-owned Aluminum Corp. is known, is “teetering on failure”, Citigroup Inc. said in a report this week.

“It’s all to do with rumors in London last night regarding the five billion pound raising,” said Anthony Anderson, a trader at MF Global Ltd. in Sydney. “That would be done at quite a discount and there would be more stock on issue. It makes the market a bit nervous.”

The probability of Chinalco completing the investment in Rio, which includes a bond sale as well as buying stakes in Rio’s mines, is less than 50 percent, Liberum Capital Ltd. said last month, citing a rebound in financial and commodity markets. Rio will consider selling shares, bonds, assets and or reschedule its debt should the deal fail, Chief Financial Officer Guy Elliott has said.

‘Strategic Options’

“We do not comment on market rumor and speculation,” Rio’s Melbourne-based spokeswoman Amanda Buckley said today by phone. She referred Bloomberg to a Rio statement to the exchange on Feb. 12 stating “the Rio Tinto boards have extensively considered a range of strategic options” and decided the Chinalco proposal was superior.

Rio could raise up to $15 billion from a rights issue because of the demand globally for share sales, Citigroup analysts led by Clarke Wilkins said in a May 11 report.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.

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China Resumes 1.4 Million Tons of Aluminum Capacity

By Richard Dobson

May 13 (Bloomberg) -- China, the world’s largest aluminum producer, may have restarted as much as 1.4 million metric tons of capacity in April, according to an analyst at Aluminum Corp. of China Ltd.

The country may produce as much as 12.6 million tons of the metal this year, Ru Xiaojie, an analyst at the company’s Henan branch, said today in Beijing at a conference. Ru said after her speech that the analysis represented her own views.

Alcoa Inc., the largest U.S. aluminum producer, this week said there is still “significant oversupply” in the global market and restarts by Chinese smelters aren’t needed. Chinese smelters may resume output at too many smelters in April and May, which will depress prices, the China Nonferrous Metals Industry Association also said this week.

“Due to a quick restart of idled aluminum smelters in April, the demand for the raw material alumina has increased, leading to restarts of alumina refineries as well,” Ru said.

Aluminum futures in Shanghai rose 0.2 percent to 12,860 yuan a ton at 9:48 a.m. local time. Prices have rallied 12 percent this year after the government bought excess metal to support domestic producers.

The country may have a surplus output of between 570,000 tons and 680,000 tons of alumina this year, Ru said. Domestic production of alumina may reach 22 million tons, and imports may be 4 million tons, she said.

Bauxite is a raw material refined into alumina, which is then smelted into the aluminum metal.

China has about 9 million tons of alumina-making capacity under construction or in planning stages, the China Nonferrous Metals Industry Association also said today.

The country already has 33 million tons of existing alumina capacity, said Lang Dazhan, deputy head of the aluminum division at the association.

To contact the reporter on this story: Richard Dobson in Shanghai at rdobson4@bloomberg.net

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Copper Advances as Chinese Imports Drive Investor Confidence

By Glenys Sim

May 13 (Bloomberg) -- Copper climbed for a second day in Asia as investors deemed April’s record Chinese imports a sign of improving demand in the world’s top metals consumer.

China’s purchases of copper and copper products reached a record 399,833 metric tons last month, compared with 374,957 tons in March. Still, a deepening slump in the nation’s exports, which declined 22.6 percent in April from a year earlier, capped the metal’s gains.

“Investors are looking at the positive,” Li Jingyuan, an analyst at Haifu Futures Co., said from Shanghai today. “Last year was an unusually good year for exports, so the numbers look weak, but if you look at the aggregate through the past few years, the numbers were actually not bad at all.”

Copper for three-month delivery on the London Metal Exchange rose as much as 0.5 percent to $4,620 a ton and traded at $4,615 at 10:16 a.m. Singapore time. The contract gained as much as 3.3 percent yesterday.

September-delivery metal on the Shanghai Futures Exchange, the most-active contract, added as much as 1.2 percent to 37,160 yuan ($5,447) a ton, before trading up 0.8 percent at 37,020 yuan.

The dollar fell for a fourth day to a two-week low against the yen and declined for a second day versus the euro after the former U.S. comptroller general David Walker wrote in the Financial Times that the U.S. AAA credit rating may be at risk. Dollar-denominated commodities tend to move in the opposite direction to the currency as investors seek alternative holdings.

“Dollar weakness is helping the entire commodities complex move higher,” Li said. “Individually, industrial metals like copper are benefiting from falling inventories and investors buying back their short positions.”

Among other LME-traded metals, zinc gained 0.3 percent to $1,550 a ton and nickel added 0.4 percent to $13,100 a ton. Aluminum was little changed at $1,545 a ton and lead dropped 1 percent to $1,460 a ton. Tin hadn’t traded as of 10:14 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Oil Gains for Second Day on API Stockpile Drop, Weaker Dollar

By Christian Schmollinger and Ben Sharples

May 13 (Bloomberg) -- Oil rose for a second day after an industry group reported U.S. crude stockpiles dropped for the second week in a row and the dollar declined.

Oil supplies fell 3.13 million barrels to 370.7 million last week, the American Petroleum Institute said late yesterday. Additional support for crude prices came as the dollar fell to the lowest level against the euro since March, bolstering demand for commodities as an alternative investment.

“We saw some gains in the price in reaction to the API decrease,” said Ken Hasegawa, a commodity derivative sales manager at brokers Newedge in Tokyo. “$60 is the main resistance so it may be tough to go higher.”

Crude oil for June delivery rose as much as 95 cents, or 1.6 percent, to $59.80 a barrel, and traded at $59.57 on the New York Mercantile Exchange at 1:30 p.m. in Singapore. Yesterday, it climbed as much as 2.7 percent to $60.08 a barrel before closing at $58.85, the highest settlement since Nov. 11.

Oil has climbed from $32.40 on Dec. 19 as the stock market recovery spurred optimism of an economic recovery.

“The major play seems to be the weakening dollar,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “If the dollar continues to weaken to $1.40 euro or worse, oil will be pressured to go higher.”

The dollar fell to $1.3675 per euro at 6:05 a.m. in London from $1.3648 yesterday in New York. It earlier touched $1.3722, the weakest level since March 23.

China Refining

Refiners in China, the world’s second-biggest energy- consuming country, increased crude-oil processing volume by 6 percent last month, the China Mainland Marketing Research Co. said in a faxed statement today.

Gasoline output in April gained 20 percent to 5.76 million tons while diesel production rose 0.7 percent to 10.6 million tons, it added.

The U.S. Energy Department report on inventories is expected to show a 1 million barrels gain, according to an analysts’ survey. Totals from the API and the government moved in the same direction 75 percent of the time over the past four years, Bloomberg data shows.

Supplies rose to 375.3 million barrels in the week ended May 1, the highest since September 1990, the Energy Department said on May 6.

API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Gasoline Demand

Analysts were split over whether gasoline stockpiles rose or fell last week. Supplies of distillate fuel, a category that includes heating oil and diesel, probably increased 1.25 million barrels, according to the Bloomberg News survey. The department is scheduled to release its weekly petroleum inventory report today at 10:30 a.m. in Washington.

Gasoline demand in the U.S. is forecast to average 9.07 million barrels a day during the summer, 0.7 percent higher than the same period in 2008, the Energy Department said yesterday in its Short-Term Energy Outlook.

U.S. travel during the Memorial Day holiday will rise about 1.5 percent from last year as lower pump prices encourage vacationers, AAA, the nation’s biggest motoring organization, said yesterday.

Gasoline futures for June delivery rose 2.40 cents, or 1.4 percent, to $1.6919 a gallon at 1:16 p.m. in Singapore on the Nymex. The contract yesterday dropped 1.23 cents, or 0.7 percent, to settle at $1.6679 a gallon.

Brent crude oil for June settlement gained as much as $1.10, or 1.9 percent, to $59.04 a barrel on London’s ICE Futures Europe exchange. It was at $58.67 a barrel at 1:29 p.m. in Singapore. It declined 0.8 percent to end the session at $57.94 a barrel yesterday.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net.

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Compass, Land Securities, Sainsbury: U.K., Irish Equity Preview

By Jonathan Browning

May 13 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index fell 9.96, or 0.2 percent, to 4,425.54. The FTSE All-Share Index dropped 0.2 percent, and Ireland’s ISEQ Index rose 0.4 percent.

Amlin Plc (AML LN): The largest Lloyd’s of London insurer by market value is scheduled to publish a trading update. The shares rose 14.75 pence, or 4.2 percent, to 370.5 pence.

BP Plc (BP/ LN): Europe’s second-largest oil company agreed to delay the appointment of a new chief executive at its joint venture TNK-BP International Ltd. after holding talks in Moscow with its Russian partners, the London-based Times reported. The stock rose 2.5 pence, or 0.5 percent, to 517 pence.

Compass Group Plc (CPG LN): The world’s largest catering company is scheduled to publish earnings. The shares rose 2.75 pence, or 0.8 percent, to 332.75 pence.

Dimension Data Holdings Plc (DDT LN): Africa’s largest computer services company is scheduled to publish earnings. The shares were unchanged at 46.25 pence.

Firstgroup Plc (FGP LN): The U.K.’s biggest train operator is scheduled to publish earnings. The stock rose 5.25 pence, or 1.5 percent, to 359.25 pence.

Glanbia Plc (GLB ID): The producer of a third of Ireland’s milk and cheese is scheduled to publish a trading update. The stock fell 20 cents, or 8.9 percent.

Greggs Plc (GRG LN): The U.K.’s largest bakery chain is scheduled to publish a trading update. The shares fell 23 pence, or 0.6 percent, to 3550 pence.

ICAP PLC (IAP LN): LCH.Clearnet Group Ltd. will respond to a takeover offer from a group of banks and ICAP Plc by suggesting joint discussions aimed at reconciling some parts of the bid with its own plans for a new structure, the Financial Times reported, citing Chairman Chris Tupker. ICAP shares declined 22.25 pence, or 5.4 percent, to 387.5 pence.

Johnston Press Plc (JPR LN): The publisher of the Yorkshire Post and The Scotsman is scheduled to publish a trading update. The shares fell 2.75 pence, or 8.2 percent, to 31 pence.

Land Securities Group Plc (LAND LN): The U.K.’s second- largest real estate investment trust by market value is scheduled to publish a trading update. The stock declined 11 pence, or 2 percent, to 539 pence.

Legal & General Group Plc (LGEN LN): The U.K.’s third- biggest insurer is scheduled to publish a trading statement. The shares fell 2.5 pence, or 3.7 percent, to 65.5 pence.

Playtech Ltd. (PTEC LN): The U.K. developer of gambling software for PartyGaming Plc and Paddy Power Plc is scheduled to publish a trading update. The stock rose 2.5 pence, or 0.5 percent, to 474.75 pence.

J Sainsbury Plc (SBRY LN): Britain’s third-largest supermarket chain is scheduled to publish earnings. The shares rose 1.25 pence, or 0.4 percent, to 340.25 pence.

Trinity Mirror Plc (TNI LN): The publisher of the U.K.’s Daily Mirror newspaper is scheduled to publish a trading update. The stock fell 1.25 pence, or 1.7 percent, to 74.5 pence.

VT Group Plc (VTG LN): The U.K. warship builder is scheduled to publish earnings. The shares rose 16.75 pence, or 3.9 percent, to 449.75 pence.

To contact the reporters on this story: Jonathan Browning in London jbrowning9@bloomberg.net

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Adecco, Dexia, Enel, E.ON, MLP, Vinci: Europe Equity Preview

By Nadja Brandt

May 13 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 fell 0.2 percent to 206.18. The Dow Jones Stoxx 50 Index was little changed at 2,090.60. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, declined 0.4 percent to 2,424.34.

Acciona SA (ANA SM): The Madrid-based builder is scheduled to report first-quarter earnings before markets open. The shares rose 2.95 euros, or 3.7 percent, to 83.70 euros.

Adecco SA (ADEN VX): The world’s largest supplier of temporary workers holds a shareholder meeting. Shares fell 96 centimes, or 2.1 percent, to 44.8 francs.

Air France-KLM Group (AF FP): Europe’s largest airline reported a 2.8 percent drop in passenger traffic for April, while cargo traffic fell 6.4 percent. The shares lost 6.5 cents, or 0.7 percent, to 9.97 euros.

Allianz SE (ALV GY): Europe’s biggest insurer plans to report final first-quarter results. The company in April said first-quarter operating profit fell 41 percent, hurt by the financial crisis and natural disasters, citing preliminary figures. The shares fell 0.4 percent to 75.61 euros.

Assicurazioni Generali SpA (G IM): Europe’s third-biggest insurer plans to report first-quarter earnings. The insurer may say profit fell 89 percent to 100 million euros ($135 million) on writedowns caused by global market turbulence and weaker life insurance sales, according to the median estimate of 10 analysts surveyed by Bloomberg. The shares rose 1.4 percent to 16.93 euros.

Bouygues SA (EN FP): The world’s second-biggest construction company reports first-quarter revenue after the market close in Paris. The shares dropped 89 cents, or 2.7 percent, to 31.91 euros.

Bulgari SpA (BUL IM): The world’s third-largest jeweler reported after markets closed that it had a first-quarter loss of 29.3 million euros compared with net income of 22.8 million euros a year earlier. That was worse than the median estimate of five analysts surveyed by Bloomberg of a loss of 7 million euros. Sales fell 23 percent to 178.1 million euros, missing the median estimate of 212 million euros. The stock fell 2.4 percent to 4.15 euros.

CNP Assurances SA (CNP FP): France’s biggest life insurer reports first-quarter revenue before the market opens in Paris. The shares added 52.5 cents, or 0.9 percent, to 61.99 euros.

Dexia SA (DEXB BB): The world’s largest lender to local governments reports first-quarter earnings before the market opens in Paris. Net income probably fell 70 percent to 88 million euros, according to the median of seven analyst estimates, on asset markdowns. The shares lost 38 cents, or 8.3 percent, to 4.22 euros.

Electricite de France SA (EDF FP): Europe’s biggest power producer reported a 15 percent increase in first-quarter sales to 21.1 billion euros, after colder weather boosted demand for power. The shares rose 13.5 cents, or 0.4 percent, to 34.54 euros.

Enel SpA (ENEL IM): Italy’s largest utility said first- quarter profit more than doubled to 1.908 billion euros. Excluding a one-time 970 million-euro gain, Enel’s earnings slipped 1 percent to 938 million euros after demand in Italy fell amid a recession. That was less than the 981 million-euro median estimate of eight analysts surveyed by Bloomberg. Shares rose 2.4 percent to 4.31 euros.

E.ON AG (EOAN GY): Germany’s largest utility plans to post first-quarter results. The company may say profit fell 19 percent on the global slump in energy prices and a stronger euro, according to analysts surveyed by Bloomberg News. The shares added 0.1 percent to 24.40 euros.

K+S AG (SDF GY): Europe’s largest producer of potash used in fertilizers plans to report first-quarter results. The company may say profit declined as demand for crop nutrients fell, according to analysts surveyed by Bloomberg News. The shares climbed 0.4 percent to 48.45 euros.

Kuehne & Nagel International AG (KNIN VX): the world’s largest sea-freight forwarder by tonnage holds its shareholder meeting. The stock fell 1.75 francs, or 2.1 percent, to 82.35.

Lagardere SCA (MMB FP): The publisher of Car & Driver and Elle magazine reports first-quarter revenue before the market opens in Paris. The shares gained 69 cents, or 3 percent, to 23.80 euros.

Mediaset SpA (MS IM): The television company controlled by Italian Prime Minister Silvio Berlusconi said after markets closed that first-quarter net income fell to 60 million euros from 121 million euros a year earlier. Revenue dropped 12 percent to 967.2 million euros. Analysts in a Bloomberg survey had predicted profit of 50 million euros on sales of 962 million euros. The stock fell 1.6 percent to 4.43 euros.

MLP AG (MLP GY): Germany’s third-biggest financial-services broker plans to release first-quarter results. The company may say profit declined as the financial markets crisis weighs on sales of financial products, according to analysts surveyed by Bloomberg News. The shares fell 4.7 percent to 10.01 euros.

Puma AG (PUM GY): The athletic-shoe maker controlled by PPR SA is scheduled to hold its annual shareholders meeting. The company earlier this month said profit was almost wiped out as the company incurred costs to close stores and that the sportswear market will “remain difficult” in 2009. The shares advanced 1.8 percent to 155.24 euros.

Renault SA (RNO FP): France’s second-largest carmaker said its share of earnings from Japanese affiliate Nisson Motor Co. will reduce its own earnings by 1.15 billion euros. The shares fell 28.5 cents, or 1.2 percent, to 24.60 euros.

Telefonica SA (TEF SM): Europe’s second-largest telephone company is scheduled to report first-quarter earnings and may say profit rose 7.9 percent to 1.66 billion euros, according to the median estimate of nine analysts Bloomberg News surveyed by e-mail. The shares rose 31 cents, or 2.1 percent, to 14.83 euros.

UniCredit SpA (UCG IM): Italy’s biggest bank plans to report first-quarter earnings. The company may say first-quarter profit fell 59 percent to 438 million euros, based on the average estimate of eight analysts surveyed by Bloomberg. The stock fell 0.9 percent to 2.11 euros.

Vinci SA (DG FP): The world’s biggest construction company reported a 2.5 percent decline in first-quarter revenue to 7.07 billion euros and said its outlook for the full year is unchanged. The shares rose 27 cents, or 0.8 percent, to 34 euros.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

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Japan Camera, Watch Maker Stocks Rise on Targets; Hitachi Drops

By Masaki Kondo

May 13 (Bloomberg) -- Japan’s makers of precision instruments advanced in Tokyo trading after Olympus Corp. and Citizen Holdings Co. forecast returns to profit. Hitachi Ltd. tumbled after posting a record loss.

Olympus, the world’s top endoscope maker, and watchmaker Citizen jumped 12 percent. Nissan Motor Co. surged 6.5 percent after projecting a narrower-than-expected loss. Hitachi, which makes nuclear reactors and home appliances, tumbled 10 percent. Mitsui O.S.K. Lines Ltd., Japan’s No. 2 shipping line, dropped 5.1 percent after Nomura Holdings Inc. lowered its rating.

“Cost cuts make it possible for some companies to forecast better earnings but a recovery will be limited unless demand picks up,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees about $6.1 billion in Tokyo. “A possible earnings rebound is already fully reflected in current valuations.”

The Nikkei 225 Stock Average drifted between gains and losses and was up 66.99, or 0.7 percent, to 9,365.60 as of 12:43 p.m. in Tokyo. The broader Topix index added 4.75, or 0.5 percent, to 890.18, with three stocks advancing for every two that slumped.

Stocks on the Nikkei traded at 44 times average estimated profit for fiscal 2009, compared with the Standard & Poor’s 500 Index’s 16 times, Bloomberg data show. Through yesterday, 28 percent of Nikkei companies had soared by at least half since March 10 when the stock gauge reached a 26-year low.

Olympus, Citizen

Olympus leapt 12 percent to 1,921 yen, poised for the sharpest climb since Oct. 30, after projecting a profit for the year to March 2010. Analysts had anticipated a loss forecast. Citizen, the world’s biggest maker of mechanical watches by volume, surged 12 percent to 525 yen after saying it will return to profit.

Nipro Corp., a maker of medical equipment, jumped 5.2 percent to 1,553 yen after saying in preliminary results that profit for last fiscal year was more than double its estimate. A gauge of precision-instrument makers, which includes the three companies, was the biggest gainer among the Topix’s 33 industry groups.

Nissan soared 6.5 percent to 543 yen. The company forecast a net loss for fiscal 2009 that was almost half the amount analysts had expected. The carmaker plans to slash 20,000 jobs in response to the industry-wide slump in the U.S., traditionally Nissan’s most profitable market.

“The key is how much companies are reducing costs,” said KBC Securities analyst Andrew Phillips in an interview with Bloomberg Television. Following Nissan’s cost reductions, the carmaker “could well be breakeven in the second half.”

Rising Oil

Hitachi dived 10 percent to 343 yen, set for the steepest plunge since Feb. 2. The company projected a loss of 270 billion yen ($2.81 billion) for this year after posting a record 787.3 billion yen deficit for the 12 months ended March 31.

Mitsui O.S.K. lost 5.1 percent to 614 yen after Nomura cut its rating on the stock to “neutral” from “buy,” citing falling demand for car transportation. Smaller rival Kawasaki Kisen Kaisha Ltd. dropped 2.5 percent to 383 yen. A gauge of shipping companies fell the most among Topix groups.

Inpex Corp., Japan’s largest oil and gas explorer, added 2.9 percent to 741,000 yen. Closest domestic rival Japan Petroleum Exploration Co. rose 2.4 percent to 4,300 yen.

Crude oil for June delivery rose as much as 1.6 percent today after climbing 0.6 percent to $58.85 a barrel in New York yesterday, the highest settlement since Nov. 11.

Nikkei futures expiring in June rose 0.4 percent to 9,360 in Osaka and added 0.5 percent to 9,360 in Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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FRM Unit Plans $300 Million Investments in Hedge Fund Managers

By Bei Hu

May 13 (Bloomberg) -- FRM Capital Advisors Ltd., a unit of London-based asset manager Financial Risk Management Ltd., plans to make as much as $300 million of strategic investments in hedge funds this year, including its first in Asia.

FRM Capital may invest in six more managers in 2009, with two expected by June and its first Asian deal in the third quarter, Chief Operating Officer Patric de Gentile-Williams said. The London-based company makes strategic investments in hedge funds for two to four years in exchange for a share of their fee incomes for as long as 10 years.

Record losses and redemptions have cut hedge funds’ assets and fee revenue, making them more reliant on so-called seeders like FRM Capital. Some investment banks, insurers and private equity houses have exited the hedge fund seeding business amid the credit crisis, said de Gentile-Williams.

“Many of our top 10 competitors from a year ago have got out of the seeding space for reasons entirely unrelated to seeding but entirely related to their own organizational complications,” de Gentile-Williams said in a phone interview May 12 from London. “The pricing of deals has improved in favor of the seeders. You really get your complete choice of deals. We’re seeing lots and lots of very talented people.”

Investors redeemed a record $155 billion out of hedge funds last year and another $103 billion in the first quarter, according to Chicago-based Hedge Fund Research Inc. The withdrawals contributed to a 31 percent decline in global industry assets to $1.33 trillion by March from a mid-2008 peak.

Better Terms

In late 2006, seeders on average had to invest nearly $4 million in hedge fund managers in exchange for 1 percent of their revenue because fundraising from investors that paid fees was easy and competition was intense among seeding companies. The ratio has since dropped to “well below” $2 million for 1 percent of fee income, said de Gentile-Williams.

FRM Capital’s first investment was $60 million in August in Victory Park Capital Advisors, a Chicago-based hedge fund manager that finances small- and medium-sized companies using their assets as collateral.

It also invested in Beechbrook Capital LLP, a London-based manager of leveraged loans, at the end of last year, de Gentile- Williams said, declining to give the size of the investment.

“We expect on average to make six investments a year,” said de Gentile-Williams. “In 2008, we deliberately slowed the process. We didn’t like the market so we were very cautious. Now we’ve found managers whose strategies are robust to the current environment.”

FRM Capital was established in December 2007 as a division of the $10 billion fund of funds manager FRM. FRM Capital oversees more than $300 million and is seeking to increase the money available to seed hedge funds, said de Gentile-Williams.

Investment Size

Its investments in funds will range from $20 million to $100 million in size, he said. It expects to get 10 percent to 30 percent of the fee income in return, he added.

FRM Capital is in talks with funds run by stock pickers and equity traders that don’t bet on the overall direction of the market, and credit funds. In Asia, it may invest in a manager of Asian stock funds, de Gentile-Williams said, without giving more details.

This year, FRM Capital is looking at profitable funds that have lost assets as investors redeem out of the most liquid pools, he said. It also is seeing more opportunities to give money to hedge fund managers who have been in operation for a few years rather than in startups, de Gentile-Williams added.

“There are plenty of people who’ve done a good job for a couple of years but they’re running $20 million and haven’t managed to get traction with institutional investors,” he added. “They need institutional validation and momentum in their asset raising to get them through some psychological threshold.”

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

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Allianz, E.ON, K+S, Metro, MLP, Puma: German Equity Preview

By Nadja Brandt

May 13 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

The X-DAX Index advanced 0.9 percent to 4,879.39. The measure, derived from trading in DAX Index futures, provides an estimate of Germany’s benchmark index. The DAX fell 0.3 percent to 4,854.11.

Allianz SE (ALV GY): Europe’s biggest insurer plans to report final first-quarter results. The company in April said first-quarter operating profit fell 41 percent, hurt by the financial crisis and natural disasters, citing preliminary figures. The shares fell 0.4 percent to 75.61 euros.

E.ON AG (EOAN GY): Germany’s largest utility plans to post first-quarter results. The company may say profit fell 19 percent on the global slump in energy prices and a stronger euro, based on the median estimate in a survey of analysts by Bloomberg News. The shares added 0.1 percent to 24.40 euros.

Gagfah SA (GFJ GY): The largest publicly traded owner of German apartments plans to release first-quarter results. The shares climbed 2.2 percent to 5.47 euros.

K+S AG (SDF GY): Europe’s largest producer of potash used in fertilizers plans to report first-quarter results. The company may say profit declined as demand for crop nutrients fell, according to analysts surveyed by Bloomberg News. The shares climbed 0.4 percent to 48.45 euros.

Metro AG (MEO GY): Germany’s largest retailer plans to hold its annual shareholders meeting. The company earlier this month reported a wider first-quarter loss as slumping consumer spending and weaker eastern European currencies hurt revenue. The shares climbed 0.9 percent to 34.87 euros.

MLP AG (MLP GY): Germany’s third-biggest financial-services broker plans to release first-quarter results. The company may say profit declined as the financial markets crisis weighs on sales of financial products, according to analysts surveyed by Bloomberg News. The shares fell 4.7 percent to 10.01 euros.

Puma AG (PUM GY): The athletic-shoe maker controlled by PPR SA is scheduled to hold its annual shareholders meeting. The company earlier this month said profit was almost wiped out as the company incurred costs to close stores and that the sportswear market will “remain difficult” in 2009. The shares advanced 1.8 percent to 155.24 euros.

Tognum AG (TGM GY): The diesel-engine maker partly owned by Daimler AG plans to release first-quarter results. The shares decreased 1.6 percent to 9.20 euros.

TUI AG (TUI1 GY): The owner of Europe’s largest travel company plans to hold its annual shareholders meeting. TUI this week reported a first-quarter profit on a gain from the sale of the Hapag-Lloyd shipping line. The shares dropped 2.2 percent to 6.80 euros.

United Internet AG (UTDI GY): Germany’s third-largest Web- access provider is scheduled to report final first-quarter results. The company last month said earnings before interest and tax were almost unchanged at 70.7 million euros ($96.5 million) in the first quarter, as sales rose. The shares added 3.7 percent to 7.28 euros.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

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Asian Stocks Rise as Olympus, Nissan Forecasts Stoke Optimism

By Patrick Rial and Masaki Kondo

May 13 (Bloomberg) -- Asian stocks rose, resuming a two- month rally, as forecasts from Olympus Corp. and Nissan Motor Co. boosted confidence corporate earnings are recovering from the global recession.

Olympus, the world’s biggest maker of endoscopes, soared 11 percent in Tokyo after unexpectedly forecasting a return to profit this year. Nissan, Japan’s third-largest automaker, rallied 7.1 percent after predicting a narrower loss than analysts estimated. Cnooc Ltd., China’s biggest offshore oil producer, gained 6.9 percent as crude oil rose for a second day. Toyota Motor Corp., the world’s biggest automaker, fell 2.4 percent after saying it expects to cut vehicle production.

“We’ll see a difference in the pace of recovery between businesses that are carrying out deeper cost reduction and those that don’t,” said Naoki Fujiwara, chief fund manager at Tokyo- based Shinkin Asset Management Co., which oversees about $6.1 billion. “A possible earnings rebound is already fully reflected in current valuations.”

The MSCI Asia Pacific Index rose 0.7 percent to 98.57 as of 1:01 p.m. in Tokyo. The benchmark dropped yesterday, ending a six-day winning streak. The gauge has climbed 40 percent from a five-year low on March 9 on speculation the worst of the financial crisis is over.

Japan’s Nikkei 225 Stock Average added 0.6 percent to 9,353.96, while Hong Kong’s Hang Seng Index climbed 0.7 percent. All markets in Asia advanced except Australia and Vietnam.

Hitachi Ltd., Japan’s third-largest chipmaker, sank 9.7 percent on a loss forecast. Santos Ltd., Australia’s third- biggest oil and gas producer, slumped 7.5 percent in Sydney on concern a share sale will dilute the value of existing holdings. China Construction Bank Corp., the nation’s second largest, lost 1.8 percent after an investor sold stock in the company.

Record Loss

Futures on the U.S. Standard & Poor’s 500 Index added 0.4 percent even as David Walker, the former U.S. comptroller general, wrote in the Financial Times that the government should rein in the country’s finances because its AAA debt rating may be cut. The S&P 500 lost 0.1 percent yesterday.

The dollar weakened against Asian currencies today after the FT report. The yen strengthened to as much as 95.79 against the U.S. currency, the strongest level since April 28. A stronger local currency cuts the value of repatriated sales for Japanese exporters.

Olympus jumped 11 percent to 1,919 yen. The company forecast net income of 40 billion yen ($416 million) for the year ending March 2010, the company said yesterday after markets in Japan closed. Analysts expected a net loss of 9.3 billion yen, based on the median of 10 estimates compiled by Bloomberg.

Toyota Production

Nissan rose 7.1 percent to 546 yen after projecting a net loss for fiscal 2009 that was almost half the amount analysts had expected. The carmaker plans to slash 20,000 jobs in response to an industry wide slump in the U.S., traditionally Nissan’s most profitable market.

The rally in stocks in the past two months has driven the average valuation of companies on the MSCI Asia Pacific Index to 31 times reported profit, the highest level since March 30, 2004, according to data compiled by Bloomberg. Analyst estimates for earnings of companies on the stock gauge climbed in April after declining the previous year, the data show.

Toyota slumped 2.4 percent to 3,650 yen. The company expects to cut global vehicle production by 28 percent this year as the recession hammers demand, according to figures provided by Hideaki Homma, a company spokesman.

Cnooc gained 6.9 percent to HK$10.36 in Hong Kong. PetroChina Co., Asia’s biggest crude producer, gained 5.1 percent to HK$8.52. Inpex Corp., Japan’s No. 1 oil company, rose 2.8 percent to 740,000 yen.

South Korea Housing

Crude oil futures rose 0.6 percent to $58.85 a barrel in New York yesterday, after earlier climbing above $60 for the first time since Nov. 11. Oil prices climbed 1.4 percent in after-hours trading.

Hitachi lost 9.7 percent to 344 yen, the biggest slide since Feb. 2, after forecasting a net loss of 270 billion yen for this fiscal year. That was worse than the median loss predicted by analysts in a Bloomberg survey.

Santos slumped 7.5 percent to A$14.59 following a two-day trading halt. The company raised A$3 billion ($2.3 billion) in Australia’s largest share sale since November to help fund a liquefied natural gas project.

Construction Bank lost 1.8 percent to HK$4.89 after an unidentified institution sold shares worth HK$3.6 billion ($465 million), according to a document sent to fund managers. The notice came a day after news that Bank of America Corp. sold part of its stake in the Chinese bank for $7.3 billion to a group of investors.

South Korea’s GS Engineering & Construction Corp. climbed 4.6 percent to 78,100 won. Hyundai Engineering & Construction Co. added 1.9 percent to 69,400 won. BNP Paribas boosted its view on builders to “positive” from “neutral” on optimism for a recovery in South Korea’s housing market.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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