Concerns over a major Portuguese lender continued to reverberate
Friday, with one of the country's industrial conglomerates shelving
the stock listing of its African arm and some higher risk bond
issues being put on ice, but global markets were broadly
calmer.
Mota-Engil Africa said on Friday that it had postponed plans for
its initial public offering in London citing "recent significant
deterioration in market conditions and the resultant impact on
investor sentiment."
Much further afield, Trade & Development Bank of Mongolia,
was also forced to pull its planned dollar-denominated bond sale
due to market shocks, following concerns over Banco Espírito Santo
SA, demonstrating how the ructions have affected investor
sentiment. It had started marketing the paper to investors in the
previous day.
Already on Thursday Rottapharm SpA had delayed its Milan stock
listing while Spanish construction group Actividades de
Construccion y Servicios and Banco Popular Español SA postponed
bond deals.
But following abrupt losses Thursday, broader Portuguese and
other European markets picked up. The Stoxx Europe 600 added 0.2%
in early trade Friday, as did the major indexes in the U.K.,
Germany and France.
In Southern Europe Portugal's PSI 20 rose a little less than
0.1% having dropped more than 4% in the previous session. Spain's
IBEX added 0.1%.
"While [events in Portugal] may well represent an excuse to book
profits, we stress that this is an idiosyncratic event," Steven
Saywell, a currency strategist at BNP Paribas, wrote in a note.
"Sure peripheral spreads in euro zone are wider and the Eurostoxx
banking index has come off hard. But by contrast, U.S. banking
stocks are holding in pretty well," he said.
Yields on Portuguese 10-year debt were steady at 3.91%.
The selloff on Thursday originated from Banco Espírito Santo
SA.
Shares in the Portuguese lender had been under heightened
pressure since May, when the bank disclosed that an audit ordered
by Bank of Portugal into Espírito Santo International SA, the
conglomerate that indirectly holds a stake in the bank, had found
Espírito Santo International was in a "serious financial condition"
and had uncovered accounting irregularities.
But the declines mounted drastically this week after investors
learned Espírito Santo International had delayed coupon payments
relating to some short-term debt securities.
Trading in Banco Espirito Santo's controlling shareholder,
Espirito Santo Financial Group SA, listed in Luxembourg and Lisbon,
was also suspended earlier Thursday and remained suspended in early
trade Friday.
"The unfolding story about the liquidity concerns at Espirito
Santo International are having implications well beyond the credit
asset classes within Portugal, including a broader selloff in other
periphery markets," Barclays economists wrote in a note. They added
however, that "from the point of view of the banking system as a
whole, notwithstanding any further bad news' the sovereign
financial implications are likely to remain limited.
The market stabilization was reflected in assets perceived to be
safe investments in times of stress too.
After hitting a near fourth-month high Thursday, gold edged 0.1%
lower to trade at 1,338.10 a troy ounce. The yield on the 10-year
German bund rose to above the 1.2% mark, having hit 1.17% Thursday
marking a two-year low. Yields rise as bond prices fall.
Currency markets were steady Friday too, with the euro trading
at 1.3604 against the U.S. dollar, reversing Thursday's marginal
weakness. Japan's yen was broadly unchanged against the dollar too,
at 101.29.
Write to Josie Cox at josie.cox@wsj.com
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