Corona Capital, March 17: Boeing, AB InBev, Retail (updated)

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17/03/2020 16:01

(The authors are Reuters Breakingviews columnists.  The
opinions expressed are their own.)
    By Breakingviews columnists
    LONDON/NEW YORK, March 17 (Reuters Breakingviews) - Concise
views on the pandemic’s financial fallout from Breakingviews
columnists across the globe.
    
    LATEST
    - Boeing
    - AB InBev
    - U.S. retail

    BOEING, AIRBUS FLY IN SYNC AGAIN. The U.S. aircraft maker
may join customers like United Airlines  UAL.O  in getting
taxpayer help to overcome the Covid-19 fallout. U.S. President
Donald Trump said as much on Tuesday – a day after Standard &
Poor’s downgraded the company’s credit rating. The
coronavirus-related hits have compounded the problems Boeing
 BA.N  already had with its grounded 737 MAX jet, leading its
shares to plummet more than 60% so far this year.
    Its European rival has suffered too, of late, as virus fears
halved its market value. But Airbus  AIR.PA  now has an
advantage: It’s hard for aircraft producers to ramp up
production quickly. So if airlines buy fewer planes, Airbus will
not be so stretched, which may make it easier for customers to
switch from Boeing. No wonder, perhaps, that the worse damage to
Boeing’s stock has taken its market value closer to Airbus than
in a long time. (By Richard Beales)

    WOULD YOU CREDIT IT? Some companies are being “relatively
irrational” in drawing down bank credit lines. So said Société
Générale  SOGN.PA  Chief Executive Frederic Oudea on Tuesday.
The French lender was one of several firms that had to hand over
their share of a $9 billion credit facility that Anheuser Busch
InBev  ABI.BR  decided to draw in full, according to the
Financial Times. But the move is entirely logical for the beer
company. The brewer of Budweiser and the now unfortunately named
Corona faces lower sales as cities and entire countries ask
citizens to stay away from bars and the like. Ensuring it has
enough cash makes sense. 
    The same applies to hotels, airlines and other industries
hit by Covid-19. But it’s hard to blame executives in more
resilient sectors if they decide to load up on cash, too. They
need to be as ready as possible for everything from a sharp rise
in employee sickness to banks having too few people in seats to
process payments. That might seem unlikely, but right now it
doesn’t feel irrational. (By Antony Currie)
    
    SOCIAL DISTANCING SPEEDS RETAIL SHAKEOUT. Amazon.com
 AMZN.O  wants to hire 100,000 warehouse and delivery workers in
the United States to keep up with e-commerce orders that are
increasing thanks to Covid-19. Grocery chain Costco Wholesale
 COST.O , whose shares are up 8% over the past five days, has
pulled off a rare feat for a country in lockdown – a deal. On
Tuesday it bought logistics company Innovel Solutions for $1
billion. That’s illustrative of the times: Innovel belonged to
the operator of the troubled Sears department stores which have
been in long-term decline.
    Struggling retail chains like Sears will be in for darker
times as they try to cope with the coronavirus. Gap  GPS.N , L
Brands  LB.N , Nordstrom  JWN.N  and Macy’s  M.N  are among
those temporarily shutting their stores or reducing hours. That
doesn’t bode well for the long term. All in, there could be more
than 15,000 U.S. store closures this year, double the number in
2019, according to Coresight Research. That may yet spiral. (By
Jennifer Saba)

    U.S. BAILOUT REQUESTS LACK SELF-HELP BASICS. Airlines are
asking for a $50 billion Covid-19 aid package. Meanwhile
America’s Chamber of Commerce, a lobby group for big companies,
has issued a laundry list of handout requests. Perhaps
unsurprisingly, basics like a commitment to cutting share
buybacks and limits on bosses’ pay are lacking. Those should be
at the front of governments’ minds when doling out taxpayer
cash. (By Richard Beales)
    
    TURKEY'S 1% RATE CUT IS ONLY A START IN VIRUS FIGHT. Central
bank Governor Murat Uysal slashed the country’s main interest
rate to 9.75% from 10.75% at an emergency meeting on Tuesday.
Uysal is doing just what he was hired to do by President Tayyip
Erdogan, who thinks tighter monetary policy causes inflation. 
    Unlike past cuts, this one actually makes sense, with
central banks worldwide easing monetary policy to help contain
the economic effects of Covid-19. Turkey’s heavy reliance on
tourism, which accounts for 12% of GDP, is an acute concern. But
Erdogan’s economic response needs to go much further than
cheaper borrowing: tax breaks and government-mandated rent
relief are probably required. With the budget deficit already
expected to be 2.9% of GDP, the next step may be trickier. (By
Dasha Afanasieva)    
    
    FLOUNDERING AMS  AMS.VI  RIGHTS ISSUE PUTS UBS  UBSG.S  AND
HSBC  HSBA.L  IN THE FIRING LINE. The Austrian sensor maker’s
4.6 billion euro takeover of Germany’s Osram Licht  OSRn.DE  has
entered another circle of financial hell. With AMS shares
trading at around 9 Swiss francs on Tuesday, below the 9.2 Swiss
francs offer price for a 1.7 billion euro rights issue meant to
pay for the deal, there’s every chance of the deal imploding.
    That points to two outcomes. If underwriters UBS and HSBC
stick to the script, AMS will get its cash. But the banks will
then be 46% owners of the enlarged AMS. The alternative is the
duo pulling the ripcord, citing market turmoil. Coronavirus
certainly ticks that box. Less certain is how AMS would then
repay the 4.4 billion euro bridging loan to Bank of America –
and UBS and HSBC. (By Ed Cropley)
    
    ITALIAN IPO SHOWS FLIP SIDE OF LOCKDOWN ECONOMY. Europe’s
virus quarantines are suffocating sectors including travel,
tourism and hospitality. But the pandemic is a business
opportunity for some. Tiny broadband provider Unidata  UD.MI 
defied a market rout by listing in Milan on Monday and saw its
stock rise nearly 7% on Tuesday. Manufacturer GVS, which
produces masks and kits to protect against biohazards like
viruses, is also going ahead with a market debut.
    Such listings benefit from a lockdown-induced surge in
demand for internet and health services. This may be temporary.
But while the war-footing economy won’t last forever, more
widespread flexible working and a need for better health
equipment to fight future diseases may stay. (By Lisa Jucca)
    
    EXXON MOBIL  XOM.N  WAKES UP TO OIL'S SCARY NEW WORLD. The
biggest U.S. crude producer on Monday said it will make
“significant” cuts to spending, after oil prices dropped below
$30 a barrel for the first time since 2016. One analyst told
Breakingviews that the hit to oil demand could in April be as
high as 10% – a drop to around 90 million barrels per day.
    Exxon had planned on investing $30 billion to $33 billion in
new projects this year, even more than the much-bigger Saudi
Aramco  2222.SE . The latter has in part prompted the current
slump by pledging to pump at full capacity, sending global oil
supply way above 100 million barrels per day. Something had to
give. (By George Hay)
    On Twitter https://twitter.com/breakingviews 
    
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Exxon pledges 'significant' spending cuts amid coronavirus, oil
slide     urn:newsml:reuters.com:*:nL1N2B968L
AMS falls below rights issue price in fresh challenge to Osram
takeover     urn:newsml:reuters.com:*:nL8N2B97HM
Italian broadband company Unidata bucks Milan virus rout with
IPO     urn:newsml:reuters.com:*:nL8N2B94HD
Graphic: Wrong issue     https://tmsnrt.rs/2IRBrlL
Graphic: Wrong issue    https://tmsnrt.rs/39YOIVs 
Nosedive Image    https://tmsnrt.rs/3d92oPV
Graphic: Nosedive    https://tmsnrt.rs/3b6Ywx1
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Rob Cox, Liam Proud, Karen Kwok and Amanda Gomez)