Oil slump rubs salt into Caltex’s wound as takeover tanks

Caltex acting CEO Matt Halliday. Illustration: John Tiedemann.

Couche-Tard left it till the day oil prices fell to 20-year lows to tell Caltex chairman Steven Gregg it wasn’t interested in spending the proposed $8.8bn for his business.

Word came as oil prices fell below $US15 a barrel for the first time since 1999 as global markets face a deep global recession.

In as many words, that underlined Gregg’s predicament.

He has brought forward his circa $55m shutdown of his Lytton refinery, hoping to bring it back online in August with the restrictions lifted and hopefully an accompanying increase in demand.

That is more hope than reality at this stage of the game.

Refineries are big consumers of capital and while Couche-Tard says its due diligence stacks up the extent of the capital, it obviously does not need an early acquisition timetable while Caltex is still there waiting.

Few could blame Couche chief Brian Hannasch for his decision, and having walked down the length of the business, the obvious conclusion is Caltex is easy prey when and if someone knocks on the door again.

The good news for acting chief Matt Halliday is, having been installed as an interim boss to replace the departed Julian Segal, the job is his for the taking.

Possession is nine-tenths of the law and over the next few months at least the company will be fully engaged staying alive.

The latest quarterly numbers told the story well, with fuel and infrastructure earnings down from $109m a year ago to $53m, in part because markets like jet fuel from its Lytton refinery have simply disappeared with the shutdown.

In the first quarter retail fuel went gangbusters, with refinery margins doubling and boosting earnings to $102m from $40m a year ago.

Sales now have also quickly stopped, with retail consumers confined to virtual home duties, which suggests earnings this quarter will also be down sharply.

Halliday said he would proceed with the planned partial sales of his own retail network but this is obviously subject to market soundings.

An industry buyer like Charter Hall would be among the obvious players, given it now controls the BP and Viva sites.

More cream for Mac

Metcash chairman Rob Murray was scratching his head trying to work out why he needed to raise $330m and in the process join the rush of corporates lining investment banker pockets.

Macquarie was the beneficiary again and this equity raising season has seen it lead the pack in a somewhat inglorious race.

Metcash has a troubled corporate structure, with a separate wholesale arm supplying to separately housed IGA supermarkets.

This means its working capital costs are higher because it tends to have a slower stock turnaround than Coles and Woolworths, which often deliver direct to stores.

The first 20 equity raisings totalled $9bn, at discounts to the last traded price, and since have traded at an average 31 per cent premium.

This tells you the stock was given away cheaply and this time Murray at least managed a discount of just 8 per cent.

He has increased shares on issue by about 13 per cent and plans to devote $292m of the money raised to pay down bank debt, which means earnings per share are diluted by circa 13 per cent to pay down cheap debt — which doesn’t make much sense.

Net debt as at October 31 was just $95.3m, with a gearing ratio of 8.5 per cent.

Given supermarket sales are booming post-crisis and are expected to stay strong, with people eating at home rather than restaurants, if you took a poll of which companies needed to raise equity, no one would include Metcash.

Maybe Rob Murray knows something we don’t but either way it’s more cream for Macquarie Bank, which has led the fee gouge for the investment banking industry this season.

Loans slow to move

The banks are coming to the party with their 50 per cent-backed unsecured small business loans but let’s also remember the banks want to make more loans. That, after all, is how they make money.

The headline yesterday said “Suncorp backs business impacted by COVID-19”, which made it look like the bank was doing a favour by lending money at circa 4.5 per cent, against the circa 0.5 per cent at which it is raising funds.

The federal government is guaranteeing 50 per cent of the loan, in the hope of helping capital go to those who need it.

Under the term funding scheme, for every $1 lent the RBA makes available another $5 at 25 basis points as against normal bank funding costs of a little above 50 basis points.

CBA was quick out of the blocks but at last count had lent just $300m from a loan book of just over $1 trillion and compared to its home loan book of $425bn.

NAB, the self-proclaimed business bank, has yet to release details of its loans under the scheme.

It would be fair to conclude the money is not exactly racing out the door at this stage.

The banks met on Monday with the ACCC to discuss the planned July 1 start to the open-banking regime, which will give newcomers access to your bank details on request.

The regime was deferred from February until July but then COVID-19 hit and it would not surprise to see the start date delayed further. This will help the laggard banks finally get their systems ready.

Cartel co-ordinators

The Australian Retailers Association is the latest to line up at the newly named Australian Cartel Co-ordination Commission, seeking authorisation of plans to negotiate on behalf of small shopkeepers for better rent deals from the shopping centre owners.

Funny thing was that the shopping centre owners gained clearance earlier this month to negotiate jointly with the retailers.

The two industry groups then want to negotiate with each other.

The danger with this rush to grant interim authorisations is it helps consolidate industries in a way that doesn’t boost competition.

ACCC chief Rod Sims has argued the interim authorisations are only short term and are designed to clear supply lines or have public benefit.

Arguably better rental deals for small business fits this criteria, but the combination with earlier clearance to the shopping centre giants raises questions.

Separately, the ACCC now has all guns blazing against Google and Facebook as it prepares a code of conduct to govern how the platforms compensate media companies for their content.

In September the ACCC is due to release a paper updating last year’s report on how the platforms work. In July it will have a draft code of conduct and in December the draft of its adtech report.

When Spain tried to impose levies on Google for using media content the company simply shut Google Media in Spain.

The ACCC says this code of conduct will be broader and noted that with 8-14 per cent of searches based on other people’s content the base is wide open.

Google has many angles covered, like its ownership of Android phones which means any apps on the phone help boost its data collection. This will include the government’s upcoming COVID-19 tracking devices.