Global Market Notes From the Energy, Pharma and Financial Sectors

by: Global Investing Editor

Our correspondent, Frida Ghitis writes:

Shares of the Colombian oil giant Ecopetrol (NYSE:EC) soared more than 60 % last year, but in the last few months investors look like they’re having some “Guayabo” – a hangover after the party. Why EC stock has faltered is no secret: many more shares are coming to market.

About 90% of EC belongs to the Colombian government. EC announced it would sell another 10% of its shares to help fund investment of $80 bn in an ambitious expansion plan. EC would hit the accelerator to step up exploration, upgrade infrastructure and boost production and profits. The money would come from new debt, earnings, and new share issuances After that sale the government would own 80% of EC.

That was expected. But then what Colombians call “winter” arrived with a vengeance. Temperatures did not fall, but rain did, catastrophically, with landslides and floods that killed hundreds and left millions homeless. The government decided to cash in more EC shares to pay for what it called a “state of economic, social and ecological emergency”. Dec. 29, Colombia's Congress approved a law permitting the additional sale.

Investors are understandably concerned about a sharp rise in the number of shares available for sale. But there is also confusion and misunderstanding. People mistakenly believe that the funds from shares sold under the expansion plan will now be spent to rebuild bridges and highways, with no benefit to Ecopetrol. That is incorrect. Nothing has changed in the EC 10-year plan. The “winter” funding will come from more government share sales. The planned investments are still on schedule.

As the timetable is unclear, the downdraft will continue until the market absorbs the increased amount of EC stock for sale. Colombian authorities say they will be careful in the rollout to avoid harming existing shareholders.

When it's over, private investors will own a bigger piece of Ecopetrol than originally planned. That is good. All the reasons we had for liking the stock remain in place. Take an aspirin for your Guayabo and hold.

EC and its existing partner, Petrobras (NYSE:PZE), have admitted Repsol (REP), a Spanish company, into the consortium developing offshore oil fields off Colombia's Caribbean coast.

*Transocean (NYSE:RIG) won teflon points when the USG tried to assign more blame over the Macondo oil disaster last year. The wider the net of blame the smaller each villain's share of the damages will be.

*Dr. Reddy's (NYSE:RDY) will counter the patent suit by Pfizer (NYSE:PFE) over the Atorovastatin (avastin) patent; I am not sure they have the lawyerly clout that fellow-generics-maker Teva (NASDAQ:TEVA) can bring to bear. RDY is Indian.

*Teva bought from Merck (NYSE:MRK) Kga of Germany the Teramex women's health operation for an undisclosed amount.

*Schlumberger Ltd (NYSE:SLB) issued $1.6 bn in debt, $600 mn in 5-yr debt at 2.65%, and the rest in 10-yr debt at 4.2%, half of the latter proteced by a make-whole call based on rates of 15 basis points over Treasury bonds.

*[[BCE]] myseriously is offering a Motorola (NYSE:MMI) Atrix cellphone which is supposed to enable you to operate on the web with 1 gigaByte of memory. Canadians deserve the best just as we do. I am not sure if this means they are being shortchanged, or if there is a future for Motorola after all.

*Posco's (NYSE:PKX) future Indian partners from SAIL are working on a cost-benefit analysis and will decide if the $3.5 bn 3 mn tonne/year steel mill the South Koreans want to build makes sense. Of course it does. But Mother India has to convince the locals in the area where it will go up. SAIL stands for Steel Authority of India Ltd, a state entity. PKX is being given a hard time by Indian politics.

*Intertek Group (OTCPK:IKTSF) was downrated to neutral by Exane which earlier had called it an outperformer. IKTSF, an off-market financial deal firm, promptly fell because Exane has information as a customer and market participant which may give it better insight.

*Goldman Sachs raised Coca Cola Hellenic (CCH) to buy. CCH is Greek and operates mostly in eastern Europe and the 'Stans, with a few extras in Africa, Ireland, part of Italy, and Switzerland. It is not really Greek except to the extent that its dividend outlay was prevented last year by the land of its ethnicity and incorporation.

*Barclays (NYSE:BCS) successfully won a US lawsuit claiming it had misled investors in its stock in 2006-8 by how it valued its real estate loans. The judge threw out the suit ruling that BCS believed its own estimates. It was stupid, not wicked.

*After the 60-Minutes program blackening its name, GlaxoSmithKline (NYSE:GSK) also faced a downrating by Royal Bank of Scotland analysts. Their new target for GSK stock is GBP16.10 vs 17.60 earlier. The earnings estimate dor this year is now 11.8.8 pence/sh, off 6%. But then RBS also cut its profits estimates for 2012 (by 4%); for 2013 (by 2%); and for 2014 (by 0.14%). Frankly this is ridiculous. There is no way to forecast this far forward. A former contributor calls people doing this kind of projection “analists”.

*Your editor bought the Morgan Stanley Frontier Markets Fund, FFD, at $14.52/sh and the New Ireland Fund, IRL, at $6.95.