Colonel Sanders Devouring Little Sheep in China Signals 69% Gain: Real M&A

By Bloomberg News - Oct 31, 2011 12:18 PM GMT+0700

Anti-monopoly regulators are turning Yum! Brands Inc.’s acquisition of a chain of Mongolian hot-pot restaurants into the most profitable bet in China.

Little Sheep Group Ltd. has tumbled after saying last week that China’s Ministry of Commerce extended a review of Yum’s HK$4.4 billion ($573 million) takeover by two months. Little Sheep, which rose to within 25 cents of Louisville, Kentucky- based Yum’s HK$6.50-a-share bid, has now fallen 18 percent below that price, according to data compiled by Bloomberg.

Yum, the owner of the KFC fried chicken chain founded by Colonel Harland Sanders, is facing increased scrutiny from Chinese regulators as it attempts its biggest acquisition. While Little Sheep would extend Yum’s lead among restaurant chains in China, independently owned eateries would still control more than 90 percent of sales. That means the Ministry of Commerce, which has blocked only one of the more than 250 takeovers it has reviewed since China’s anti-monopoly law began three years ago, is unlikely to reject Yum’s bid, DBS Vickers Hong Kong Ltd. said.

“People are just too nervous,” Alick Wong, an analyst at Louis Capital Markets in Hong Kong, said in a telephone interview. “If an American company wants to buy in China, it makes investors cautious. Any bad news will move the stock.”

Wong expects the deal to close by March, which implies an annualized 69 percent return based on last week’s closing price of HK$5.30, data compiled by Bloomberg show. Little Sheep dropped 3.2 percent to HK$5.13 as of the midday break in Hong Kong trading today.

Jonathan Blum, a spokesman at Yum, didn’t immediately respond to telephone or e-mail messages requesting comment on whether it expects the transaction to gain approval.

Mongolian Hot Pot

Zhang Zhanhai, chief operating officer at Baotou, Inner Mongolia-based Little Sheep, declined to comment. The Ministry of Commerce, known as Mofcom, didn’t respond to a faxed request for comment on Yum’s bid for Little Sheep.

Founded in 1999, Little Sheep has more than 400 Mongolian hot-pot restaurants, where diners cook a variety of thinly sliced meats such as pork, mutton and beef in a simmering broth. The restaurant operator, whose Chinese name translates to Little Fat Sheep, agreed in May to an all-cash deal that would give Yum 93 percent of the company, data compiled by Bloomberg show.

The acquisition would strengthen Yum’s presence in China, where it generates more sales than in the U.S., by enabling the fast-food chain operator to offer a local specialty in the world’s most populous nation.

Little Sheep has posted annual sales growth of more than 20 percent since 2006 and analysts project the company will extend that streak through at least 2013, according to data compiled by Bloomberg. Yum’s sales haven’t increased by more than 10 percent since 2002, the data show.

Local Specialty

“They want to be a leading brand in all the major markets,” Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview. “Little Sheep is how they’re going to do that.”

Right now, Yum doesn’t “have an Asian or Chinese full- service, and Chinese food is still many, many times bigger as a market than the market for Western food,” she said.

Little Sheep, which had climbed as high as HK$6.26 after the announcement, plunged by the most in three years on Oct. 26 after Yum notified the hot-pot chain of the 60-day extension by the Ministry of Commerce. The decision came four months after it first acknowledged the application. The regulator now has until December to decide on Yum’s acquisition.

With the gap to the deal offer widening to HK$1.20 based on last week’s closing price, buying shares of Little Sheep would translate into a 23 percent gain if the deal closes -- without accounting for how long it will take to complete the transaction, data compiled by Bloomberg show.

Spooked

That’s a bigger potential windfall than any other takeover target based in China, data compiled by Bloomberg show.

While investors dumped shares of Little Sheep because of the possibility the deal will be blocked by antitrust regulators, the concern is unwarranted because China is dominated by independently owned eateries, said Titus Wu, a Hong Kong-based analyst at DBS Vickers.

Under China’s anti-monopoly law, an acquisition that allows the companies involved to reach certain market share and sales levels needs the approval of the commerce ministry.

The ministry has reviewed 267 mergers under the anti- monopoly law and rejected only one -- Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. in 2009, said Marc Waha, Hong Kong-based partner at law firm Norton Rose LLP.

The deal would have combined China’s largest and third- largest juicemakers and given Coca-Cola a 17.5 percent share of the market that year, according to Euromonitor International.

‘Finger Lickin’ Good’

In China’s restaurant industry, independent operators garnered 92 percent of sales last year, while restaurant chains including Yum controlled just 8 percent, Euromonitor said.

Yum, which opened its first KFC outlet in China in 1987 and has more than 3,300 fried chicken outlets across the country, still accounted for less than a fifth of the sales within the smaller chain market. Little Sheep had a 2.1 percent share.

“This case is more likely to be approved because it’s hard to standardize Chinese food,” said Mei Xinyu, a researcher at the Ministry of Commerce’s Chinese Academy of International Trade and Economic Cooperation. “There are many local restaurants which have the capability to compete.”

Nevertheless, political objections to non-Chinese companies acquiring local businesses can’t be ruled out, according to James McGregor, senior counselor in China for APCO Worldwide, a public-affairs consulting firm.

Overreacting

“On a pure business level, there’s no reason to reject it,” said McGregor, who wrote the book ‘One Billion Customers: Lessons from the Front Lines of Doing Business in China.’ Still, “the government is worried about getting criticized for allowing foreigners to buy into Chinese brands. We never know what the politics are behind this.”

Traders may still have more to gain from buying shares of Little Sheep now -- even if the deal ultimately unravels, according to DBS Vickers’ Wu.

Before Yum made its takeover announcement in May, analysts covering Little Sheep had an average share-price estimate of HK$6.09, according to data compiled by Bloomberg. That’s 15 percent higher than its closing price last week.

“The market may have overreacted,” said Christina Lie, an analyst at First Shanghai Securities in Hong Kong.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Bloomberg News at swong139@bloomberg.net

Read more...

Yen Drops on Intervention; Aussie Weakens

By Bloomberg News - Oct 31, 2011 2:04 PM GMT+0700

Play Video

Oct. 31 (Bloomberg) -- Naomi Fink, head of Japan strategy at Jefferies Japan Ltd., discusses Japan's intervention in markets to weaken its currency and the impact of the yen's appreciation on Japanese corporations and trade. Fink speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Oct. 31 (Bloomberg) -- Nick Maroutsos, who oversees about $3 billion at Kapstream Capital, discusses the outlook for global markets after euro-area leaders last week persuaded bondholders to write down 50 percent of Greek debt holdings. Maroutsos speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The yen dropped from a post-World War II record against the dollar after Japan intervened in currency markets. Asian stocks sank as companies reported lower- than-estimated earnings and commodities declined.

The yen sank 4.2 percent to 79.01 per dollar at 4:03 p.m. in Tokyo after climbing to a record 75.35 earlier today. The Australian dollar dropped 1.4 percent. The dollar-denominated MSCI Asia Pacific Index fell 3 percent. Standard & Poor’s 500 Index futures slipped 0.8 percent and Euro Stoxx 50 contracts lost 1 percent. Copper slid as much as 3.7 percent in London, gold dropped 1.6 percent, and oil dipped 0.8 percent in New York.

Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen, which strengthened even as stocks rallied globally this month on optimism that Europe will contain its debt crisis. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest- rate policy meetings this week.

“You wouldn’t want to be buying yen here,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “At least for the next few weeks, the Japanese might have just created better levels to be buying yen or for exporters to effectively do the same.”

The yen weakened 3.4 percent to 110.88 per euro after Azumi said he will act against speculation and plans to continue intervention until he is “satisfied.” The currency climbed last week even as the Bank of Japan unveiled measures that Governor Masaaki Shirakawa said were intended to respond to the appreciation and fallout from the European debt crisis.

Protecting Exports

The weaker yen bolstered shares of Japanese exporters. Canon Inc., a camera maker that gets more than 80 percent of its revenue outside Japan, rose 1 percent. Nintendo Co., the maker of the Wii game console, rallied 1.5 percent.

Thailand’s baht dropped 0.6 percent to 30.72 per dollar, trimming its monthly gain to 1.2 percent. Indonesia’s rupiah fell 0.7 percent to 8,853, taking losses in October to 0.5 percent. Taiwan’s dollar fell 0.1 percent to NT$29.909.

“After the spike in the yen, traders worry that other Asian central banks will follow their Japanese counterpart to protect their exports,” said Henry Lin, a Taipei-based foreign- exchange trader at Taiwan Shin Kong Commercial Bank.

The Australian dollar slipped 1.4 percent to $1.0556. The central bank is forecast to cut interest rates by a quarter- percentage point to 4.5 percent, according to economists surveyed by Bloomberg before tomorrow’s policy meeting.

ECB, FOMC

European Central Bank officials will meet to decide on rates on Nov. 3, with data today forecast to show inflation eased in October. The Federal Open Market Committee is scheduled to meet on Nov. 2. The euro fell 1 percent to $1.4008. The Dollar Index, which tracks the U.S. currency against those of six trading partners, jumped 1.5 percent.

Today’s losses pared the MSCI Asia Pacific Index’s October gain to 7 percent. The regional index was headed for its largest monthly advance since December 2010. Australia’s S&P/ASX 200 Index decreased 1.3 percent, South Korea’s Kospi Index slid 1.1 percent and Hong Kong’s Hang Seng Index retreated 1.2 percent.

Among the 324 companies on the MSCI regional index that have released earnings since Oct. 11, 175 have missed analysts’ profit estimates, compared with 104 that have beaten forecasts, according to data compiled by Bloomberg. China Railway Group Ltd. sank 13 percent in Hong Kong after the company said net income dropped 49 percent last quarter. Tohoku Electric Power Co. slumped 6.4 percent after the Japanese utility reported a wider- than-expected first-half loss.

‘Sobering’

Futures on the S&P 500 indicate the U.S. stocks gauge may pare its 14 percent rally this month. The S&P 500 jumped 3.8 percent last week after European leaders agreed to boost its rescue fund and investors agreed to a voluntary writedown of 50 percent of Greek debt.

“As a result of the European Union announcement, risk assets performed exceptionally well” last week, Nick Maroutsos, who oversees the equivalent of about $3 billion at Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “As with any big party, the day after can be a bit sobering. We’re certainly not ready to sound the all clear yet.”

U.S. data this week may show nonfarm payrolls increased 95,000 in October, less than the 103,000 jobs added the previous month, according to the median forecast of economists surveyed by Bloomberg. Treasury 10-year yields declined three basis points to 2.29 percent.

Bond Risk

The cost of protecting Asia-Pacific bonds from default rose, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing six basis points to 171 basis points, according to Royal Bank of Scotland Group Plc. The index is headed for its biggest daily advance since Oct. 20, according to data provider CMA, after falling 35.4 basis points last week.

Copper in London dropped 2.8 percent to $7,950 a metric ton, leading a decline among industrial metals, after Chinese Premier Wen Jiabao said the government will maintain property curbs. Copper is still set for a 13 percent advance this month, the most since December 2010. Zinc retreated 2.2 percent to $1,942 a ton and lead dropped 3.6 percent to $2,014.75 a ton.

Gold for immediate-delivery declined 1.6 percent to $1,715.35 an ounce, paring its monthly rally to 5.6 percent. December-delivery oil lost 0.8 percent to $92.61 a barrel, trimming its October gains to 17 percent.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

Read more...

MF Global Faces Pivotal Days as Firm Mulls Sale

By Matthew Leising - Oct 31, 2011 12:12 PM GMT+0700

MF Global Holdings Ltd., the company run by Jon Corzine that last week reported a record loss, had two of its credit ratings cut to junk and drained bank lines, faces a pivotal few days as the futures broker pitches itself to potential buyers to avert failure.

The firm’s board met through the weekend in New York to consider options, according to a person with direct knowledge of the situation. MF Global has hired Weil, Gotshal & Manges LLP for a London affiliate, another person said. The law firm currently represents Lehman Brothers Holdings Inc., which in 2008 filed the biggest bankruptcy in U.S. history.

Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign-debt. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person, who asked not to be identified because the talks are private.

“While the pieces are attractive, figuring out potential buyers is a lot harder,” Robert Rutschow, an analyst with CLSA Credit Agricole Securities in New York, said in an Oct. 28 note to clients. “In the current environment, banks can’t even go to the bathroom without permission from their regulator, let alone buy a brokerage firm that was looking to grow proprietary trading and expand risk-taking activities.”

Interactive Brokers

The most attractive part of the New York-based firm is its retail futures brokerage, which could fetch $500 million to $600 million, he said.

MF Global may file for Chapter 11 bankruptcy protection as soon as today and sell assets to Interactive Brokers Group Inc., the Wall Street Journal reported on its website, citing a person familiar with the matter it did not identify. Interactive Brokers would likely make an initial bid of about $1 billion during a court-supervised auction after the company files for Chapter 11, the newspaper cited the person as saying.

Jeremy Skule, a New York-based spokesman at MF Global, did not immediately respond to an e-mailed request for comment on the Wall Street Journal article or answer his telephone outside of normal business hours.

Moody’s, Fitch Downgrades

MF Global is getting advice from Evercore Partners Inc. as it seeks buyers. In addition to Weil Gotshal, MF Global hired Skadden, Arps, Slate, Meagher & Flom LLP to plan for restructuring that may include bankruptcy, the Wall Street Journal reported yesterday.

MF Global reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 11.9 cents to 50 cents on the dollar on Oct. 28, for a yield of 25.2 percent, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. Its shares fell 16 percent to $1.20 on the same day after reaching a low of 99 cents.

Corzine, who served as co-chief executive officer of Goldman Sachs Group Inc., reached out to his former firm about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Goldman Sachs may be interested in acquiring futures positions or other financial assets at the right price, said the people, who asked not to be named because the discussions were private.

Macquarie Examined

Macquarie Group Ltd. has examined MF Global’s books, though Australia’s largest investment bank wasn’t working toward getting a deal done over the weekend, according to a person with knowledge of the situation. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc is among banks that have looked at MF Global, another person said. Kerrie Cohen, a bank spokeswoman in New York, declined to comment.

State Street Corp., which is also reported to be a potential bidder, doesn’t comment on rumors, Hannah Grove, a spokeswoman for the Boston-based firm, said in an e-mail.

Corzine was recommended for the position at MF Global by former Goldman Sachs banker Christopher Flowers, the chairman and CEO of JC Flowers & Co. At the same time he took the job, Corzine became an operating partner of Flowers’s buyout firm, which in 2008 bought as much as $300 million of preferred stock in the firm at a conversion price of $12.50 a share.

Increased Sovereign Debt

JC Flowers, which controls one of the eight board seats at MF Global, is also a potential buyer, a person familiar with the matter said.

Diana DeSocio, an MF Global spokeswoman, declined to comment.

MF Global’s futures unit earns interest income from the collateral it holds to back its customers’ trades. That revenue has been cut as the Federal Reserve target interest rate on overnight loans has been between zero and 0.25 percent since late 2008. The firm reported interest income of $113.2 million in the quarter ended in September. When rates were at 5.25 percent in 2007, the company earned $1.77 billion in the quarter ended in March. MF Global also makes money by charging fees for brokering trades at futures and options exchanges.

Since Corzine, 64, arrived at MF Global in March 2010, he increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that have rattled markets.

Tap Bank Lines

MF Global, which has a market value of $198 million, owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation.

The company’s eight-member board consists of Corzine, MF Global’s chairman and CEO; Edward Goldberg, managing member of Dix Hills Partners LLC; David Gelber, chairman of Walker Crips Group Plc; Robert Sloan, managing partner of S3 Partners LLC; Martin Glynn, the former CEO of HSBC Bank USA; David Schamis, managing director at JC Flowers; David Bolger, former chief financial officer of Aon Corp.; and Eileen Fusco, vice chairman, Pro Mujer International, according to data compiled by Bloomberg.

The company tapped the entirety of two bank lines, three people with knowledge of the matter said last week. MF Global said in an Oct. 25 investor presentation that it had $1.3 billion in unused credit facilities, without giving a date for the tally.

Sale Proceeds

MF Global’s lenders include Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., Bloomberg data show.

“We believe MF could generate proceeds from sale of its customer asset portfolio or FCM which frees up capital,” Niamh Alexander, an analyst at KBW Inc. in New York, wrote in an Oct. 27 note to clients, referring to a so-called futures commission merchant, or futures brokerage. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”

Alexander estimated MF Global could get about $765 million for the futures unit. A sale would also free up as much as $1.3 billion in regulatory capital MF Global is required to hold against its $12.7 billion in customer collateral, Alexander said.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Read more...

Fukushima Plant Released Record Amount of Radiation

By Beth Thomas - Oct 31, 2011 12:07 PM GMT+0700

The destroyed Fukushima nuclear plant in Japan was responsible for the biggest discharge of radioactive material into the ocean in history, a study from a French institute said.

The radioactive cesium that flowed into the ocean from the Fukushima Dai-Ichi nuclear plant was 20 times the amount estimated by its owner, Tokyo Electric Power Co., according to the study by the Institute for Radiological Protection and Nuclear Safety, which is funded by the French government.

It’s the second report released in a week calling into question estimates from Japan’s government and the operator of the plant that was damaged in the March earthquake and tsunami. Tokyo Electric’s Fukushima station may have emitted more than double the company’s estimate of atmospheric release at the height of the worst civil atomic crisis since Chernobyl in 1986.

The oceanic study estimates 27,000 terabecquerels of radioactive cesium 137 leaked into the sea from the Fukushima plant, north of Tokyo.

Tepco is aware of the estimate from the institute through media reports and has no comment, spokesman Hajime Motojuku said today by phone.

Cesium 137 is a source of concern for public health because the radioactive isotope has a half-life of 30 years.

A becquerel represents one radioactive decay per second and involves the release of atomic energy, which can damage human cells and DNA. Prolonged exposure to radiation can cause leukemia and other forms of cancer, according to the World Nuclear Association. A terabecquerel is 1 million times 1 million becquerels.

The three melted reactors and at least one damaged spent- fuel pool may have emitted 35,800 terabecquerels of cesium 137 into the atmosphere at the height of the disaster, according to a study in the Atmospheric Chemistry and Physics journal. Japan’s nuclear regulator in June said 15,000 terabecquerels of cesium 137 was discharged.

The estimated amount is about 42 percent of that released into the atmostphere in the Chernobyl explosion in 1986, according to the study.

To contact the reporter on this story: Beth Thomas in Hanoi at bthomas1@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net

Read more...

Tencent Seeks Social Games, E-Commerce Applications From Third Parties

By Bloomberg News - Oct 31, 2011 8:53 AM GMT+0700

Tencent Holdings Ltd. (700), China’s biggest Internet company by sales, is seeking more social games and e-commerce applications from third-party developers. The company is “marching to open” its site to external developers, Tencent Chief Executive Officer Ma Huateng said at the TechCrunch conference in Beijing today.

To contact the reporter on this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Lena Lee at llee42@bloomberg.net

Read more...

Thai ‘Credibility’ at Stake as Factories Soak

By Daniel Ten Kate - Oct 31, 2011 12:00 AM GMT+0700

Hana Microelectronics Pcl is among the thousands of Thai companies with factories swamped by record floods calling on the government to help ensure it never happens again as waters slowly recede north of Bangkok.

“Thailand’s credibility is on the line here,” said Hana Chief Executive Richard Han, whose Bangkok-based company makes parts used in digital music players and mobile phones. “A complete review of how to protect these industrial estates needs to be conducted and it needs government support.”

More than 9 billion cubic meters of water released this month from dams filled to capacity have swept down a river basin the size of Florida, inundating seven industrial parks that helped transform Thailand from an agriculture-based economy to a manufacturing hub since the first one was built four decades ago. The worst floods since 1942 have shuttered 10,000 factories, put 660,000 jobs at risk and caused damage of 140 billion baht ($4.6 billion), government figures show.

Factory owners are concerned the disaster may repeat itself as water defenses fail to keep pace with the development of roads, housing estates and business complexes in Bangkok and its vicinity, which accounts for about half of Thailand’s industrial output. Prime Minister Yingluck Shinawatra must now convince companies such as Honda Motor Co. and Canon Inc. that the flood plain remains a reliable production base.

‘Main Challenges’

“One of the main challenges to whether Thailand can develop into a high-income country is how we can mitigate the economic impact of natural disasters that are likely to continue to occur more frequently with greater intensity over the next several years,” Korn Chatikavanij, a former finance minister with the opposition Democrat party, said in an interview. “If we don’t learn lessons and don’t find ways to control the impact, then we will remain a poor country.”

Slowing export growth and flood costs that Moody’s Investors Service estimates at 200 billion baht, equivalent to 2 percent of gross domestic product, may compel Thailand to cut interest rates. The disaster may wipe as much as 3 percentage points off GDP growth this year, according to Credit Agricole CIB strategist Frances Cheung.

Thai stocks this month have climbed 6.2 percent and the baht advanced 1.5 percent, mirroring gains in the region after European leaders agreed to expand a bailout fund to stem the region’s debt crisis. Thai Reinsurance Pcl and Muang Thai Insurance Pcl, both Bangkok-based insurance providers, fell more than 20 percent in that time.

Rising Temperatures

Rising temperatures and sea levels in the coming decade will increase the risk of floods in Bangkok four-fold by 2050, the World Bank said in a report last year. The capital sits on the bottom of the Chao Phraya River Basin, which has an average elevation of less than two meters (6.6 feet) above sea level.

Southeast Asia’s second-biggest economy may expand 2.6 percent in 2011, down from an earlier forecast of 4.1 percent, and 4.1 percent next year, the Bank of Thailand said Oct. 28.

A growing insurance industry in Asia will create “a market-based incentive for redirecting construction away from areas that are flood prone,” said David McCauley, lead climate change specialist at the Asian Development Bank. "Many across the region will be paying closer attention to Bangkok’s experience and will incorporate climate change risks in future urban planning."

Location and Access

In 1971, Thailand built its first industrial park in Pathum Thani, a province on Bangkok’s northern border. The location seemed ideal given its access to the river and railways to transport goods, said Praipol Koomsup, who served as executive board director of the Industrial Estate Authority of Thailand in the early 1990s.

“At the time it never occurred to us that flooding was going to be a major risk,” said Praipol, now a professor at Bangkok’s Thammasat University. “We were caught unprepared.”

Over the next two decades, more estates popped up in Pathum Thani and further up the Chao Phraya in the former capital of Ayutthaya province, 76 kilometers (47 miles) north of Bangkok. Annual floods helped the city, now a United Nations World Heritage Site, repel Burmese invasions in the 16th century.

Thailand offered greater tax incentives to invest in Ayutthaya and other provinces outside Bangkok, helping to attract Japanese manufacturers such as Nikon Corp., Sony Corp. and Hitachi Ltd., particularly after the 1985 Plaza Accord strengthened the yen against the dollar. The country makes about a quarter of the world’s hard-disk drives and serves as the Southeast Asian production hub for Japanese carmakers.

Water Demand

Increased demand for water to grow crops during the dry season prompted authorities to keep more water in upstream dams this year, said Chaiyut Sukhsri, a water resources engineering professor at Bangkok’s Chulalongkorn University. Since the 1950s, more than 300 dams have been built to hold water from Thailand’s monsoon rains from July to October for use the rest of the year.

The largest of these, Bhumibol and Sirikit, can irrigate 400,000 hectares (1,544 square miles) in the Chao Phraya basin, an area six times bigger than Singapore. The added production has helped Thailand remain the world’s top rice exporter each year since 1981, according to the U.S. Department of Agriculture.

“Normally there is always a lack of water to distribute to all parties,” Chaiyuth said. “It’s a difficult balancing act.”

Rainfall about 42 percent more than average this year filled upstream dams to capacity, prompting authorities to release large amounts of water earlier this month. Government efforts to reinforce dikes protecting the estates proved futile against a wall of water as high as 3 meters (9.8 feet).

‘No System at All’

Unlike Bangkok, which is protected by a series of canals and dikes, “there is no system at all” in Ayutthaya and Pathum Thani to divert water flowing through rice fields, said Bhichit Rattakul, a former Bangkok governor who helped develop the city’s flood defenses. “When the water comes, it just flows into the industrial estates.”

Yingluck said Oct. 29 that waters in Nakhon Sawan and Ayutthaya provinces have started to recede. The government will start pumping out water from flooded industrial parks on Nov. 10, and expects plants to resume operations around the middle of December, Industry Minister Wannarat Charnnukul said on Oct. 28 after meeting with companies affected by floods.

Building Walls

The government will seek to build walls around industrial estates that are 50 percent higher than the top water level this year to protect them from flooding before next year’s rainy season, Energy Minister Pichai Naripthaphan, who is advising Yingluck on recovery efforts, said by phone.

“That way even if more water comes, there won’t be any problem,” Pichai said. “Investors can be sure they don’t need to move out.”

About 100 billion baht will need to be spent in the next 12 months to renovate flooded industrial estates, he said. A second project to solve long-term water-management problems will cost as much as 800 billion baht, he said.

The cost of helping companies recover and build new infrastructure to divert water could be as much as 500 billion baht, according to Pongsak Assakul, vice chairman of the Thai Chamber of Commerce.

“All investors are asking how can we be sure this will not happen next year or the year after,” he said by phone. “That assurance has to be given.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Read more...

Colonel Sanders Devours Little Sheep in China

By Bloomberg News - Oct 31, 2011 4:00 AM GMT+0700

Anti-monopoly regulators are turning Yum! Brands Inc.’s acquisition of a chain of Mongolian hot-pot restaurants into the most profitable bet in China.

Little Sheep Group Ltd. has tumbled after saying last week that China’s Ministry of Commerce extended a review of Yum’s HK$4.4 billion ($573 million) takeover by two months. Little Sheep, which rose to within 25 cents of Louisville, Kentucky- based Yum’s HK$6.50-a-share bid, has now fallen 18 percent below that price, according to data compiled by Bloomberg.

Yum, the owner of the KFC fried chicken chain founded by Colonel Harland Sanders, is facing increased scrutiny from Chinese regulators as it attempts its biggest acquisition. While Little Sheep would extend Yum’s lead among restaurant chains in China, independently owned eateries would still control more than 90 percent of sales. That means the Ministry of Commerce, which has blocked only one of the more than 250 takeovers it has reviewed since China’s anti-monopoly law began three years ago, is unlikely to reject Yum’s bid, DBS Vickers Hong Kong Ltd. said.

“People are just too nervous,” Alick Wong, an analyst at Louis Capital Markets in Hong Kong, said in a telephone interview. “If an American company wants to buy in China, it makes investors cautious. Any bad news will move the stock.”

Wong expects the deal to close by March, which implies an annualized 69 percent return, data compiled by Bloomberg show.

Jonathan Blum, a spokesman at Yum, didn’t immediately respond to telephone or e-mail messages requesting comment on whether it expects the transaction to gain approval.

Mongolian Hot Pot

Zhang Zhanhai, chief operating officer at Baotou, Inner Mongolia-based Little Sheep, declined to comment. The Ministry of Commerce, known as Mofcom, didn’t respond to a faxed request for comment on Yum’s bid for Little Sheep.

Founded in 1999, Little Sheep has more than 400 Mongolian hot-pot restaurants, where diners cook a variety of thinly sliced meats such as pork, mutton and beef in a simmering broth. The restaurant operator, whose Chinese name translates to Little Fat Sheep, agreed in May to an all-cash deal that would give Yum 93 percent of the company, data compiled by Bloomberg show.

The acquisition would strengthen Yum’s presence in China, where it generates more sales than in the U.S., by enabling the fast-food chain operator to offer a local specialty in the world’s most populous nation.

Little Sheep has posted annual sales growth of more than 20 percent since 2006 and analysts project the company will extend that streak through at least 2013, according to data compiled by Bloomberg. Yum’s sales haven’t increased by more than 10 percent since 2002, the data show.

Local Specialty

“They want to be a leading brand in all the major markets,” Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview. “Little Sheep is how they’re going to do that.”

Right now, Yum doesn’t “have an Asian or Chinese full- service, and Chinese food is still many, many times bigger as a market than the market for Western food,” she said.

Little Sheep, which had climbed as high as HK$6.26 after the announcement, plunged by the most in three years on Oct. 26 after Yum notified the hot-pot chain of the 60-day extension by the Ministry of Commerce. The decision came four months after it first acknowledged the application. The regulator now has until December to decide on Yum’s acquisition.

With the gap to the deal offer widening to HK$1.20 based on last week’s closing price of HK$5.30, buying shares of Little Sheep would translate into a 23 percent gain if the deal closes -- without accounting for how long it will take to complete the transaction, data compiled by Bloomberg show.

Spooked

That’s a bigger potential windfall than any other takeover target based in China, data compiled by Bloomberg show.

While investors dumped shares of Little Sheep because of the possibility the deal will be blocked by antitrust regulators, the concern is unwarranted because China is dominated by independently owned eateries, said Titus Wu, a Hong Kong-based analyst at DBS Vickers.

Under China’s anti-monopoly law, an acquisition that allows the companies involved to reach certain market share and sales levels needs the approval of the commerce ministry.

The ministry has reviewed 267 mergers under the anti- monopoly law and rejected only one -- Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. in 2009, said Marc Waha, Hong Kong-based partner at law firm Norton Rose LLP.

The deal would have combined China’s largest and third- largest juicemakers and given Coca-Cola a 17.5 percent share of the market that year, according to Euromonitor International.

‘Finger Lickin’ Good’

In China’s restaurant industry, independent operators garnered 92 percent of sales last year, while restaurant chains including Yum controlled just 8 percent, Euromonitor said.

Yum, which opened its first KFC outlet in China in 1987 and has more than 3,300 fried chicken outlets across the country, still accounted for less than a fifth of the sales within the smaller chain market. Little Sheep had a 2.1 percent share.

“This case is more likely to be approved because it’s hard to standardize Chinese food,” said Mei Xinyu, a researcher at the Ministry of Commerce’s Chinese Academy of International Trade and Economic Cooperation. “There are many local restaurants which have the capability to compete.”

Nevertheless, political objections to non-Chinese companies acquiring local businesses can’t be ruled out, according to James McGregor, senior counselor in China for APCO Worldwide, a public-affairs consulting firm.

Overreacting

“On a pure business level, there’s no reason to reject it,” said McGregor, who wrote the book ‘One Billion Customers: Lessons from the Front Lines of Doing Business in China.’ Still, “the government is worried about getting criticized for allowing foreigners to buy into Chinese brands. We never know what the politics are behind this.”

Traders may still have more to gain from buying shares of Little Sheep now -- even if the deal ultimately unravels, according to DBS Vickers’ Wu.

Before Yum made its takeover announcement in May, analysts covering Little Sheep had an average share-price estimate of HK$6.09, according to data compiled by Bloomberg. That’s 15 percent higher than its closing price last week.

“The market may have overreacted,” said Christina Lie, an analyst at First Shanghai Securities in Hong Kong.

--Debra Mao, Penny Peng and Michael Wei. With assistance from Stephanie Wong and Jing Yang in Shanghai, Weiyi Lim in Singapore and Devin Banerjee in New York. Editors: Mohammed Hadi, Michael Tsang.

To contact Bloomberg News staff for this story: Debra Mao in Hong Kong at +852-2977-6425 or dmao5@bloomberg.net; Penny Peng in Beijing at +86-10-6649-7719 or ppeng18@bloomberg.net; Michael Wei in Shanghai at +86-21-6104-3044 or mwei13@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Stephanie Wong at swong139@bloomberg.net.

Read more...

U.S. Stock Futures Drop as S&P 500 Index Heads for Best Month Since 1974

By Joanna Ossinger - Oct 31, 2011 7:20 AM GMT+0700

U.S. stock futures fell, following a fourth straight weekly advance that left the Standard & Poor’s 500 Index poised for the biggest monthly rally since 1974.

Futures on the S&P 500 expiring in December fell 0.5 percent to 1,274.70 at 9:15 a.m. Tokyo time. The benchmark measure for U.S. stocks advanced 3.8 percent last week and has climbed 14 percent this month.

Stocks gained last week after the European rescue fund was boosted to 1 trillion euros ($1.4 trillion) and investors agreed to a voluntary writedown of 50 percent on Greek debt. The S&P 500 had fallen five consecutive months, driven lower by concern the debt crisis would curb global growth, before starting to rebound on Oct. 3. The stock index recovered as better-than- estimated U.S. reports pushed the Citigroup Economic Surprise Index above zero for the first time since April.

Equities have also climbed this month after the U.S. economy expanded in the third quarter at the fastest pace in a year, as gains in consumer spending and business investment helped support a recovery on the brink of faltering. Separate data showed that consumer confidence unexpectedly rose in October, while fewer Americans filed for unemployment assistance last week.

To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

Sarkozy Criticized for Seeking China’s Help

By Vidya Root - Oct 31, 2011 6:01 AM GMT+0700

French President Nicolas Sarkozy came under fire from opposition leaders for seeking China’s help to resolve the euro area’s debt crisis.

“It’s shocking,” Martine Aubry, the general secretary of the Socialist Party, said in the Sunday newspaper, Journal du Dimanche. “The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?”

Sarkozy reached out last week to his Chinese counterpart Hu Jintao to build support for an enlarged rescue fund designed to solve the region’s sovereign-debt crisis. The leaders talked just hours after a euro-region summit on Oct. 27 ended with an agreement to boost the European Financial Stability Facility to about 1 trillion euros ($1.4 trillion), leveraging existing guarantees by as much as five times.

French opposition party objections to a Chinese role come six months before the country’s presidential election, and amid growing concern about public debt in France and in Europe. France’s public debt, which is more than 80 percent of gross domestic product, and its budget deficit are considered by a third of the French as the most important issues confronting the economy, above purchasing power and unemployment, according to an Ifop poll published yesterday in Ouest-France newspaper.

Sarkozy went on national television on Oct. 27 to explain the plan hatched in Brussels to end the two-year long sovereign debt crisis. He said China has “a major role to play,” pointing out that global growth and stability is in the Asian economic giant’s interest. China has the world’s largest foreign-exchange reserves at more than $3.2 trillion.

G-20 Summit

Sarkozy’s China outreach preceded a Group of 20 summit he will host on Nov. 3 and 4 with Europeans, seeking to bolster the role of the International Monetary Fund in overcoming the euro- region’s woes.

The response to the problems in Europe “should have been European,” Aubry said in Journal du Dimanche, concurring with Francois Hollande, the Socialist Party candidate in the April- May 2012 elections, who called reaching out to China “an admission of weakness.”

“The financial stability fund should have been strengthened by transforming it into a bank or by giving it the possibility of issuing euro bonds or through the European Central Bank,” Aubry said. “Incapable of doing that, they turned to China.”

Nicolas Dupont-Aignan, a presidential candidate from the “Debout la Republique” Party, went further, calling it “dirty money.”

China Willingness

On France 3 television, he said China “has cheated on all the rules of the game: social slavery, pollution, environment, copying… It is now, after having cheated, telling us ‘we are going to buy you.’”

Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China’s biggest market.

“The Europeans have their back against the wall and China is the lender of last resort,” Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong, said in a Bloomberg Television interview before Sarkozy’s call on Oct. 27.

The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread.

“It is a normal round of discussion with important buyers of EFSF bonds,” Christof Roche, spokesman for the Luxembourg- based facility, said on Oct. 26.

Premier Wen said last month that while China was willing to help, developed nations also needed to put “their own houses in order.”

To contact the reporters on this story: Vidya Root in Paris at vroot@bloomberg. Net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net.

Read more...

Corzine’s MF Global Board Said to Meet to Consider Options

By Matthew Leising - Oct 31, 2011 12:42 AM GMT+0700

Jon Corzine’s MF Global Holdings Ltd. was working through the weekend to consider options for the sale of the futures broker, according to a person with direct knowledge of the situation.

The firm’s board is meeting today in New York after convening yesterday, said the person, who asked not to be identified because the talks are private. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, a person with knowledge of the matter said on Oct. 28.

Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week, its bonds started trading at distressed levels and it drew down on its credit lines. The New York-based firm reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk.

“It’s like they’re pulling the fire alarm,” Craig Pirrong, a finance professor at the University of Houston, said Oct. 28 on Bloomberg Television’s “Taking Stock” with Pimm Fox. “These kinds of companies, frequently when they run into this kind of trouble, they do spiral down.”

Corzine, who served as co-chief executive officer of Goldman Sachs Group Inc., reached out to his former firm about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Goldman Sachs may be interested in acquiring futures positions or other financial assets at the right price, said the people, who asked not to be named because the discussions were private.

Macquarie, Barclays

Macquarie Group Ltd. has examined MF Global’s books, though Australia’s largest investment bank isn’t working toward getting a deal done this weekend, according to a person with knowledge of the situation. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc is among banks that have looked at MF Global, another person said. Kerrie Cohen, a bank spokeswoman in New York, declined to comment.

State Street Corp., which the Wall Street Journal reported is also a potential bidder, doesn’t comment on rumors, Hannah Grove, a spokeswoman for the Boston-based firm, said in an e- mail.

Flowers Recommends Corzine

Corzine was recommended for the position at MF Global by former Goldman Sachs banker Christopher Flowers, the chairman and CEO of JC Flowers & Co. At the same time he took the job, Corzine became an operating partner of Flowers’s buyout firm, which in 2008 bought as much as $300 million of preferred stock in the firm at a conversion price of $12.50 a share.

JC Flowers, which controls one of the eight board seats at MF Global, is also a potential buyer, a person familiar with the matter said.

Diana DeSocio, an MF Global spokeswoman, declined to comment.

MF Global’s futures unit earns interest income from the collateral it holds to back its customers’ trades. That revenue has been cut as the Federal Reserve target interest rate on overnight loans has been between zero and 0.25 percent since late 2008. The firm reported interest income of $113.2 million in the quarter ended in September. When rates were at 5.25 percent in 2007, the company earned $1.77 billion in the quarter ended in March. MF Global also makes money by charging fees for brokering trades at futures and options exchanges.

Increased Sovereign Debt

Since Corzine, 64, arrived at MF Global in March 2010, he increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that have rattled markets.

MF Global, which has a market value of $198 million, owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation.

The company’s eight-member board consists of Corzine, MF Global’s chairman and CEO; Edward Goldberg, managing member of Dix Hills Partners LLC; David Gelber, chairman of Walker Crips Group Plc; Robert Sloan, managing partner of S3 Partners LLC; Martin Glynn, the former CEO of HSBC Bank USA; David Schamis, managing director at JC Flowers; David Bolger, former chief financial officer of Aon Corp.; and Eileen Fusco, vice chairman, Pro Mujer International, according to data compiled by Bloomberg.

The company tapped the entirety of two bank lines, three people with knowledge of the matter said last week. MF Global said in an Oct. 25 investor presentation that it had $1.3 billion in unused credit facilities, without giving a date for the tally.

MF Global’s lenders include Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., Bloomberg data show.

Evercore Advice

The firm is getting advice from Evercore Partners Inc. as it seeks buyers.

“We believe MF could generate proceeds from sale of its customer asset portfolio or FCM which frees up capital,” Niamh Alexander, an analyst at KBW Inc. in New York, wrote in an Oct. 27 note to clients, referring to a so-called futures commission merchant, or futures brokerage. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”

Alexander estimated MF Global could get about $765 million for the futures unit. A sale would also free up as much as $1.3 billion in regulatory capital MF Global is required to hold against its $12.7 billion in customer collateral, Alexander said.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Read more...

Qantas to Resume Flights as Regulator Blocks Strikes

By Robert Fenner - Oct 31, 2011 6:54 AM GMT+0700

Play Video

Oct. 31 (Bloomberg) -- Richard Woodward, vice president of the Australian and International Pilots Association, talks about labor disputes at Qantas Airways Ltd. Qantas plans to resume flights as early as today after Australia's labor regulator barred work stoppages that had prompted the nation’s biggest carrier to ground its fleet, stranding about 80,000 passengers. Woodward speaks from Sydney with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg)

Qantas Airways Ltd. plans to resume flights as early as today after Australia's labor regulator barred work stoppages that had prompted the nation’s biggest carrier to ground its fleet, stranding about 80,000 passengers.

Fair Work Australia handed down the order at about 2 a.m. in Melbourne, following more than 12 hours of hearings spread over two days. The ruling, which paves the way for binding arbitration, was opposed by unions who were instead seeking a temporary halt to stoppages.

“The only option that we had in response to the union action was to take our own action,” Chief Executive Officer Alan Joyce said today at a televised news conference in Sydney, adding that passengers can now book flights without the threat of future strikes. “The clouds have gone. Qantas will get back to where it was before this activity.”

Joyce grounded the carrier’s main unit with no notice Oct. 29 after weeks of sporadic strikes disrupted flights and caused sales to plunge. Keeping the 108 planes out of the skies would have cost A$20 million ($21 million) a day, the airline estimated, and bolstered Virgin Australia’s attempts to break Qantas’s grip on the lucrative corporate travel market.

“It’s been a public relations disaster but the status quo for Qantas was not sustainable,” said Matt Williams, who helps manage A$17 billion of assets at Sydney-based Perpetual Ltd. “The share price was telling you how tough it is. In the fullness of time, people will be back and they’ll recover from the public relations side of things.”

Binding Arbitration

Qantas shares rose 4.9 percent to A$1.62 as of 10:49 a.m. in Sydney, the biggest advance since Oct. 6, paring their decline this year to 36 percent. Virgin Blue Holdings Ltd., Virgin Australia’s parent, jumped 6.9 percent to 38.5 cents and the country’s benchmark S&P/ASX 200 index dropped 0.6 percent.

Sydney-based Qantas plans to add supplementary flights to clear the backlog of customers and expects to return to “business as usual” over the next 24 hours, according to a regulatory filing today.

The labor regulator may wait 21 days or 42 days before imposing binding arbitration, Justice Geoffrey Giudice said at the hearing. The agency also banned Qantas from starting a lockout against three unions that was set for 8 p.m.

Joyce halted flights to confront engineers and baggage handlers seeking higher pay and job-security measures. Long-haul pilots have also staged protests in a bid to get the same employment conditions whether they fly for the Qantas-branded unit or budget arm Jetstar. The low-cost subsidiary, regional carrier QantasLink and a carrier that flies to New Zealand weren’t affected by the grounding.

‘Extreme Approach’

“Qantas took an extreme approach,” Prime Minister Julia Gillard said today in a television interview on Channel 7. The airline “had other options available to it on Saturday than grounding planes without any effective notice to passengers. It’s a question of the grand inconvenience for passengers and the impact for the national economy that’s concerning me,” she said.

The unions have stepped up action since Joyce announced plans in August to eliminate 1,000 jobs, reduce routes and establish new ventures in Southeast Asia and Japan in a bid to end losses at international operations. Stoppages have cost the carrier A$68 million this year and caused bookings to “dive,” Joyce said Oct. 28.

Qantas has about 65 percent of Australia’s domestic market and less than 20 percent of international travel. Separately, Air France has also canceled flights in Europe because of a strike by cabin crew.

Virgin Australia

Virgin Australia, the nation’s No. 2 carrier, has added extra flights to help stranded Qantas passengers, including plans for an additional 3,000 seats today. Partners Singapore Airline Ltd., Etihad Airways and Air New Zealand Ltd. may also add services, Virgin said on its website. Jetstar was also working on adding flights.

The dispute may help Singapore Air Ltd. win long-haul traffic from Australia and aid the carrier’s budget arm Tiger Airways Holdings Ltd. in winning back passengers after its Australia unit was ordered to halt flights earlier this year because of safety concerns, said Robert Bruce, an aviation analyst at CLSA Ltd. in Hong Kong. Virgin Australia is also trying to lure business travelers after rebranding itself from a budget carrier.

“This grounding could not have come at a better time” for Virgin, Bruce said. “In the medium term, corporate procurement departments are more likely to allocate a greater portion to Virgin.”

Passengers affected by the grounding included 17 heads of state and other delegates attending an inter-governmental conference in Perth. Most of the heads of state had arranged alternative travel home by yesterday, Australian Prime Minister Gillard said.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Read more...

Berlusconi Defiant as EU’s Focus Shifts to Italy

By Patrick Donahue and Armorel Kenna - Oct 31, 2011 7:00 AM GMT+0700

Italian Prime Minister Silvio Berlusconi said he alone can deliver the country’s promised deficit cuts as European leaders ramp up demands that his government do its part to combat the region’s debt crisis.

Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013, according to an interview published yesterday in Corriere della Sera. He said the European Central Bank’s support will only be maintained if his administration follows through on the pledged measures.

“Only I and my government can achieve this reform program for 18 months, which is why there is no way for me to stand aside,” the Italian leader told the newspaper.

The European Union’s latest package of measures failed to staunch a rise in Italian borrowing costs, with an Oct. 28 bond sale sending yields to a euro-era record and damping the euphoria unleashed after the summit that ended the day before. Luxembourg Prime Minister Jean-Claude Juncker insisted that Italy should deliver “substantial structural reform.”

“We’re watching very closely,” Juncker said in an interview yesterday on Germany’s ARD. “Italy can’t simply do what suits it, but rather act as we’ve agreed together.”

Leaders from the Group of 20 largest economies will convene in Cannes, France, this week after European leaders agreed to bolster the region’s rescue fund to 1 trillion euros ($1.4 trillion), persuaded bondholders to incur 50 percent losses on Greek debt and agreed on a plan shore up banks.

Not ‘Conclusive’

Juncker said that European leaders hadn’t yet delivered a “conclusive answer” to the crisis last week, while German Finance Minister Wolfgang Schaeuble warned in Der Spiegel against inflated expectations.

Berlusconi will present commitments made to European leaders on Nov. 9 and 10, he told Corriere. He also said there was “no deal” with Umberto Bossi, leader of the Northern League party, to resign and hold early elections in return for an agreement to increase the retirement age, as reported on Oct. 26 in newspaper La Repubblica.

The Rome-based Treasury on Oct. 28 sold 3.08 billion euros of 2014 bonds to yield 4.93 percent, the highest since November 2000. The same day, the euro retreated 0.3 percent to $1.4147 after jumping 2 percent the previous day. The Euro Stoxx 50 Index slid 0.6 percent following a 6 percent surge the day euro leaders reached their agreement.

Crisis Response

European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy wrote to the G-20 “to summarize and explain Europe’s comprehensive crisis response” ahead of their summit in Cannes this week.

“We will implement these measures rigorously and in a timely manner, and we are confident that they will contribute to the swift resolution of the crisis,” according to their letter, issued yesterday. “Whilst we in Europe will play our part, this cannot alone ensure global recovery and rebalanced growth. There is a continued need for joint action by all G-20 partners in a spirit of common responsibility and common purpose.”

European officials began to seek contributions to a prospective fund from countries with bulging reserves such as China, Brazil and Japan. Chinese Vice Finance Minister Zhu Guangyao said Oct. 28 that his government wants more details about the “technicalities” before making any decision on investing in the European Financial Stability Facility.

China as ‘Savior’

China can’t play the role of “savior” to Europe, nor provide a “cure” for the region’s malaise, the official Xinhua news agency said in an English-language commentary. The rescue package announced Oct. 27 is just the start of a long and difficult process to solve Europe’s debt crisis for good and more concerted efforts are needed, the commentary said.

Juncker said the euro area would still be able to resolve the crisis even without investments from countries such as China, even if Chinese participation “makes sense.”

“If China and other investors were not to invest in the end, the decisions that we’ve made are substantial enough alone to master the debt crisis,” Juncker told ARD.

The success of European measures also depends on the Greek debt writedown. Charles Dallara, managing director of the Institute of International Finance and chief negotiator for the lenders, said he’s “very optimistic that more than 90 percent will participate,” he told Welt am Sonntag newspaper yesterday.

Germany’s Schaeuble issued a warning to the banks, saying in Der Spiegel that while the EU prefers a “voluntary” agreement on Greek debt, a “less consensual path is also possible.”

To contact the reporters on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Armorel Kenna in Milan at akenna@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Read more...