Inside the world of business

No need to feel blue with bonds

NOT THAT the Germans are willing to go there politically but the idea of eurobonds – debt issued centrally by the EU on behalf of struggling governments – sounds like a terribly sensible idea.

Minister for Finance Michael Noonan has said that US treasury secretary Timothy Geithner thought that EU guarantees on bond issuances by individual states might be a less risky way to go.

It would certainly ease Ireland’s path back into the bond markets, which still seems like some time away despite the notional borrowing cost for the Government dropping below 10 per cent for the first time since April.

Ireland has Jean-Claude Trichet and the European Central Bank to thank for what was described by one market commentator as a “bazooka” approach to stemming the sovereign debt crisis.

The ECB purchase of Italian and Spanish debts, the third and fourth largest bond markets in the euro zone yesterday, helped, but this can only be a temporary solution given that Italy has €1.8 trillion of debt to roll over. Frankfurt cannot afford to take on huge risk.

One novel idea involving the use of European bonds was floated last year where each country would put debt not exceeding 60 per cent of GDP into a pool, the upper limit allowed under euro club rules.

This debt would become “blue bonds” and would be underwritten by the EU. Governments could still issue debt beyond the 60 per cent limit but these would carry a higher risk and would be known as “red bonds”. Blue EU bonds would be senior to the red so, in a default, the blue would be repaid first.

Germany’s fear is that bonds issued centrally by the EU would raise its own borrowing costs. However, given the parameters of the debt issued, blue bonds would carry a low risk for investors.

The EU bailout fund, the European Financial Stability Facility, is already a type of centralised lending pool so some form of centrally issued bonds seems like an plausible, longer-term solution.

Uniq acquisition to taste of Greencore investors

FOR SEASONED egm watchers, gatherings of Greencore shareholders tend to be among the more boisterous on the calendar.

Yesterday’s meeting, which took place next door to Greencore’s Santry headquarters in the Crowne Plaza hotel, was a relatively subdued affair.

Compared to the more robust questioning that faced the Greencore board in January when shareholders gathered to discuss the Northern Foods deal, shareholders appeared to be relatively happy with their lot yesterday.

It seems that, having been left high and dry by would-be partner Northern Foods, Greencore investors are glad to have a new plan in place.

Greencore’s acquisition of Uniq and intention to move its listing to the London Stock Exchange, is the inevitable culmination of a strategy that has seen the company transform itself from a sugar producer to a successful convenience food manufacturer.

While the £113 million price tag has raised some eyebrows, it’s not every day a fully-formed complementary business comes your way, and Uniq’s leading role in the sandwich market is not to be sniffed at.

For all its difficulties over the last year in terms of MA strategy, and the perennial problem of its lacklustre share price, Greencore has been performing extremely well in its sphere.

To this extent, Greencore’s decision to acquire Uniq makes commercial sense. How it handles Uniq’s more problematic dessert business, which accounts for about half of the British company’s revenues, will determine how successful Greencore’s latest refashioning will be.

TODAY

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