convertible weekly volatility returns

Convertible Bond Research4 February 2013

Convertible Weekly

Volatility returns Revisiting financial convertibles: After a buoyant period for returns and issuance, today’s selloff follows some jitters and profit-taking last week. We now ask whether this bout of volatility will be sustained or transient. Although our strategists remain constructive on risky assets and recommend the financials sector in both equities and credit, albeit mostly for core euro area subordinated debt, last week’s SNS REAAL nationalisation also raises concerns. We take the opportunity to survey financial convertibles, which offer a variety of equity, credit and structure risks. Our preferences include the Ageas FRESH, BES - Bradescos, Fortis CASHES, and Temasek - Standard Chartered.

Also in this Weekly: Our equity strategist believes Oil & Gas is well positioned to benefit in a shift from bonds to equities; we provide a screen of these bonds. The convexity profile of Parpublica – Galp ‘17 makes it preferable to ENI – Galp ‘15. However, we believe there is merit in diversifying between the bonds but recommend a slightly higher allocation towards the former.

Upcoming action dates: Altran ’15 and Clariant ’14 are very close to becoming callable; KfW --- Deutsche Post ’14, Atos ‘16, Subsea 7 ‘13 and Eurazeo --- Danone ‘14 remain just below their triggers.

Chart of the Week: Our equity strategists’ sector quality metrics.

FIGURE 1 Chart of the Week: What sectors could benefit from bond investors shifting into equities? Chart recreated from European Strategy Elements: Sectors that benefit from Yieldfall, 30 Jan 2013

SXAP SX7P

SXPPSX4P

SXOP SXFP

SX3P

SXDP

SXNP

SXIPSXMP

SXEP

SXQP

SXRP

SX8P

SXKP

SXTP

SX6P

SX86P*

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2 4 6 8 10 12 14 16

Div

iden

d Yi

eld

(12m

fwd)

Sector dividend quality score (payout ratio + leverage)

Good mix of dividend yield and quality

Source: Barclays Research. *Quality score for Real Estate could be considered invalid given the nature of the sector

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by equity research analysts based outside theUS who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 18.

CB InsightTM

https://live.barcap.com/keyword/ CBINSIGHT Our online convertibles portal, providing interactive analytical tools, market data and research Angus Allison +44 (0) 20 7773 5379 [email protected] Barclays, London Luke Olsen +44 (0) 20 7773 8310 [email protected] Barclays, London Kim Berg +44 (0)20 3555 0289 [email protected] Barclays, London www.barclays.com

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Barclays | Convertible Weekly

4 February 2013 2

Market movers

FIGURE 2 Global equity indices (rebased as of 25 January 2013)

FIGURE 3 Cumulative change in global government bond yields (bp)

94

95

96

97

98

99

100

101

102

103

104

25-Jan 28-Jan 29-Jan 30-Jan 31-Jan 01-Feb

S&P 500 €STOXX 50FTSE 100 Hang SengNikkei

-4

-2

0

2

4

6

8

10

12

14

16

25- Jan 28- Jan 29- Jan 30- Jan 31- Jan 01- Feb

Gilt 5 yr UST 5 yr

Bund 5 yr HK 5 yr

Source: Bloomberg, Barclays Research Source: Bloomberg, Barclays Research

FIGURE 4 Global currency moves over the past week (vs. USD)

FIGURE 5 Commodity price moves over the past week

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

EUR GBP SGD INR JPY

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Oil Gold Aluminium Copper Palm Oil Zinc

Source: Bloomberg, Barclays Research Source: Bloomberg, Barclays Research

FIGURE 6 Global credit spreads (bp)

FIGURE 7 Term structure of €STOXX – implied volatility

415

420

425

430

435

440

445

450

455

460

150

160

170

180

190

200

210

220

25-Jan 28-Jan 29-Jan 30-Jan 31-Jan 01-Feb

€BBB z-spreads (left)

JACI Quasi-Sov spread (left)

iTraxx Xover (right)

10%

15%

20%

25%

30%

1M 3M 6M 1YR 3YR 5YR

Min (6M) Max (6M)

Week ago Current

Source: Bloomberg, Barclays Research Source: Barclays Research


4 February 2013 3

FIGURE 8 EMEA weekly cross asset performance

FIGURE 9 Asia weekly cross asset performance

-1.4%

-1.2%

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

CB IG HY Eq CB u/l

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

CB IG HY Eq CB u/l

Source: Barclays Research Source: Barclays Research

FIGURE 10 EMEA weekly convertible performance by profile

FIGURE 11 Asia weekly convertible performance by profile

-1.8%-1.6%-1.4%-1.2%-1.0%-0.8%-0.6%-0.4%-0.2%0.0%

Com

posi

te

Typi

cal

Bust

ed

Equi

ty S

ensi

tive IG HY

NR

-0.8%-0.6%-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%

Com

posi

te

Typi

cal

Bust

ed

Equi

ty S

ensi

tive IG HY

NR


FIGURE 12 EMEA convertible rich/cheap and total return year-to-date

FIGURE 13 Asia convertible rich/cheap and total return year-to-date

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Dec-12

Rich/-Cheap (Left) Total return (Right)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

Dec-12

Rich/-Cheap (Left) Total return (Right)



4 February 2013 4

Market analysis and views January saw a continuation of the earlier trend for rising equity indices, tightening credit benchmarks and a recovery of the euro currency. Against this backdrop it is not surprising that convertible valuations continued to richen and new issuance volumes remained high. However, the past week has seen a growing uncertainty: EMEA new issuance was absent, equity markets suffered some missteps and valuations of longer-dated or volatility-sensitive names came under pressure. Today saw a worrying worsening of this condition, with European equity benchmarks down 1.5-2.5% at the time of writing. For our chart of the week, we take a snapshot of key index levels.

FIGURE 14 Summary of market measures

Field 31 Jan 2013 31 Dec 2012 Chg % / index units

3y min % or units above

3y max % or units below

30 Jan 2008 % or units above/ below

EMEA Converts ex-mandos

161 161 0.1% 133 21.0% 163 -1.4% NA NA

EURUSD 1.357 1.320 2.9% 1.195 13.6% 1.487 -8.7% 1.479 -8.2%

Stoxx 600 289 280 3.2% 215 34.3% 291 -0.9% 322 -10.4%

MSCI Asia ex-Japan 558 548 1.9% 416 34.1% 596 -6.4% 532 4.9%

Nikkei 11114 10395 6.9% 8160 36.2% 11339 -2.0% 13345 -16.7%

5y iTraxx Xover 439 482 -44 352 87 874 -436 446 -7

5y iTraxx Main 111 117 -6 74 38 208 -97 73 38 Source: Bloomberg, Barclays Research

Looking at the rich-cheapness measure the market has retraced somewhat in EMEA moving from c.0.5% rich to cheapness of c.0.1%. In Asia ex-Japan the richening has continued, reaching a level of 0.1% cheap compared with -0.4% cheap last week, this was achieved on the back of strong equity performance.

EMEA Focus on Financials Our credit and equity strategists each cite the policy-driven benign backdrop for risky assets and the hunt for yield and value as drivers for financials, which are still recovering.

A key distinction between our credit and equity views is a preference for subordinated financial credits in the “core” euro area given their likely outperformance versus the “periphery” in any spread widening, while our equity strategists prefer peripherals, on more compelling CAPE (cyclically adjusted price earnings) valuations.

For details, please see European Credit Alpha: The shine comes off a little, 18 January 2013, pp.4-8 (the view has not changed in recent “Alpha” credit weeklies) and European Strategy Elements: Sectors that benefit from Yieldfall, 30 January 2013.

Our financial credit analysts have also published on the Netherlands’ nationalisation of SNS REAAL, via the expropriation of the group’s equity and subordinated liabilities, and its implications for subordinated and senior debt holders. The resolution process involves zero recovery for equity and, probably, for sub holders while senior holders would bear any burden. This reinforces the post-financial crisis bank resolution precedents already set in, for example, Denmark, Ireland, Spain and the UK. For details please see European Banks: SNS Reaal nationalisation highlights eroding bondholder protection, 1 February 2013. For convertible investors, this event mainly serves to sharpen our focus on the potential for similar actions on other banks with relatively weak or weakening profiles.

Our strategists prefer core euro area sub financials in credit, while peripherals equities generally seem to have more compelling valuations

SNS REAAL expropriation reinforces bank resolution precedents, with subordinated debt holders bearing losses while senior holders do not







4 February 2013 5

For convertible investors, we provide a summary of financials convertibles in Figure 15 (EMEA) and Figure 16 (Asia Pacific), below. In our opinion, most are driven by idiosyncratic name-, structure- and security-specific factors rather than by broad strategic sector trends. Notwithstanding this, our comments and views on these convertibles are outlined below.

• Ageas FRESH: The 3m euribor + 135bp coupon implies a running yield of only 3.6%, but the EUR swaps curve implies this would climb to above 4% at end-2013, nearly 5% at end-2014 and 6-7% at end-2015. The cash price of the FRESH is close to an 18-month high. The AGSBB 5.125% straight tier 1, callable from June 2016, was last indicated at 83, a yield-to-first-call of 11.5% or YTM 5.9%. In this context the YTM of the FRESH at 8.8% seems relatively reasonable. We usually find the convertible perps mid-way between the call and maturity yields of the respective tier 1s. In terms of relative yields and ratio of cash prices, the FRESH looks compelling versus history. This said, the EUR curve implies that the straight tier 1 would provides a better running yield than the FRESH until 2015. We recommend a holding in the FRESH, on balance. Ageas has recently put behind it much of the accounting impact (and P&L volatility) arising from its legacy transactions with BNP Paribas, eg, relating to the CASHES.

• BCP - Portugal Telecom 2.75% 2015: In our view the YTM to Jan 2015 of 4.6% is unspectacular, with minimal value for the equity option. BCPPL straight € bonds to Apr and Oct 2014 yield 4.1% and 4.5%, respectively, ie, approximately in line. The straight bonds are larger with higher coupons (5.625% and 9.25%) however. Also, z-spreads of all three BCP bonds have compressed by around 100bp per month for the past eight months; we do not expect that pace to persist.

• BES - Bradesco 1.625% 2013: The exchangeable is at the money, following an exceptional return for Bradesco. Parity has climbed from in the 70s as recently as November to over 100 now. With two months until final conversion, the bond looks cheap to us at only a small premium to parity. We think this may relate to practical considerations around potential cash settlement of exchanges, notably the potential basis risk when hedging with Bradesco ADRs.

• BES - Bradesco 3.5% 2015: The relatively new issue to refinance the 2013 bond has a similar parity level but higher cash price owing to its longer maturity, almost three years. The bond has an attractive upside/downside convexity profile. We estimate its 12m total returns for +/-25% equity moves would be 20%/-7%, allowing (conservatively) for a 150bp credit widening on the downside but only 50bp of tightening on the upside. In the case of a 0% equity return, we model a c.3% total return for the exchangeable.

• BES - EDP 3% 2015: The bond becomes puttable in May this year and barring a rally in EDP stock before then, we expect holders to put. Although the yield is parsimonious, we see only limited downside, even in a moderate retreat in senior bank or Portuguese credit. If EDP does rally say 20% from current then the put could become interesting. Very few equity analysts’ price targets are at such a level, however (source: Bloomberg).

• Banca Monte dei Paschi Siena FRESH 2099: In our view the bond has now become very difficult to analyse traditionally, given daily headlines around the bank’s disclosures, potential rescue actions and the risk of loss absorption for FRESH holders. We think Friday’s nationalisation of SNS REAAL (see above) in the Netherlands does not help.

• EFG Eurobank 1.7% 2014: Having come from a price in the 50s as recently as four months ago, we believe that the majority of the potential positive returns may have passed with the news around its merger with National Bank. This said, it remains one of the highest-yielding senior bonds in the EMEA convertible market, which we believe may entice yield-seeking investors with constructive market views.

Financial convertibles are more driven by idiosyncratic factors than sector trends


4 February 2013 6

• Fortis Bank CASHES: Like the Ageas FRESH, we believe the rate curve trajectory will make the bond competitive. The now smaller size of the bond (post the tender for approx. two-thirds of the issue one year ago) makes it arguably less prone to a broader sell-off in our view. The coupon is 3m euribor + 200bp and the running yield is currently 4.7%. The swap curve-implied running yield rises to above 5% at end-2014 and to 6-7% by end-2015. The cash price is, like the Ageas FRESH, at an 18-month high. The YTM looks competitive versus the straight Fortis Bank 4.625% tier 1, which is callable from Oct 2014. It was last indicated at 91, a yield-to-first-call of 10.6% or YTM 4.8%. Fortis Bank is a subsidiary of BNP Paribas, and our constructive CASHES view aligns with our credit team’s Overweight on core euro area sub-bank debt, and its positive fundamental view on BNP Paribas. We recommend holdings in both perps.

• National Bank of Abu Dhabi FRNs: National Bank of Abu Dhabi (NBAD) has previously given notice to exercise its call option on its subordinated convertible notes due 2018 (see 29 January press release). The outstanding principal amount was AED 809mn as of 7 January, 2013. Unconfirmed reports in Bloomberg last week reported that NBAD will seek the sale of $500mn in convertible bonds at a 12 March EGM. NBAD’s subordinated 2018 convertible yielded between four and six percent for the past two years, providing a consistent income, and parity has rallied back hard enough to reach 86 at Friday’s close; the final conversion date is 18 February. However, the past week’s news that the nationalisation of SNS Reeal would result in the expropriation of subordinated debt holders is a stark reminder of the additional risks of subordinated securities.

• Opus - OTP 3.95% perp: We remind investors that the security is backed by a mirroring swap from OTP Bank, hence we view the credit risk as subordinated OTP ranking junior to everything except equity and any similar securities. The coupon changes to 3m euribor plus 3% from October 2016, when the conversion option lapses and the bond becomes callable at par. The current premium equates to 2.5 years of coupon. For the past two years the company has paid ordinary dividends and for as long as it does so (or executes buybacks), cannot omit the coupon. Further, post the financial crisis it paid the coupons even while omitting its dividend, although we are not confident that this scenario would be repeated given the now greater scrutiny on loss absorption in hybrids. At the current bond price and with the current EUR yield curve, the floating coupon could imply a running yield of more than 8% from 2016. Until then the coupon recoups the premium well before the call date. One of our concerns is whether and how the bond would find the new ownership in the straight credit (sub debt) market when it ceases to become convertible in Oct 2016, but as long as it breaks even before then, we consider that this floors the relative valuation (absent dividend and coupon omission). We see the convertible as c.1-2 points cheap. We see the convertible as c.1-2 points cheap and suggest holding delta-hedged.

• Axa 3.75% 2017: This subordinated bond trades in line with Axa’s 2020 straight bond, on a z-spread basis and accounting for the credit curve. Last year it traded in line with Axa 5y sub CDS also, and in recent weeks it has, appropriately, shifted more in line with 4y CDS. Despite its large, investment grade status, it has in the past performed poorly in times of market stress – eg, its yield reached 8% in late-2011 and 5.7% in Jun 2012.

• Baloise 1.5% 2016: We find the profile unappealing albeit with very little downside risk. In a more negative market scenario (than we expect), this bond could outperform.

• BNP Paribas - Pargesa 0.25% 2015: The exchangeable now offers decent delta following the rise in Pargesa shares since the bond was issued five months ago. However, we value it c.1pt rich, theoretically, and note that it could be vulnerable if


4 February 2013 7

Pargesa were to decide to refinance with another convertible (its next maturity is its CHF540mn convertible due Apr 2013).

• Temasek - Standard Chartered 0% 2014: Temasek – Standard Chartered 0% 2014 offers an attractive risk-reward profile, in our view. Our concern is rather with the scale of the potential returns. To the upside, the relatively low conversion premium of 16% (at a price of 105.7 versus parity of 90.9) combines with the Overweight stock rating of our equity analysts. All else equal, a 25% increase in the share price on a one-year horizon would provide a bond return of 10%. To the downside, the strength of the bond floor in an uncertain environment is compelling though the bond price still leaves a potential six point loss all else equal, should the shares retrace significantly. A lightly hedged position would reduce the potential loss, though also the potential upside, and also expose the holder to the dividend; the protection threshold being 3.5%. Despite the limited magnitude of returns, the convexity of them is nonetheless appealing, we think, the more so for those concerned by the recent broad-based rally. Implied volatility on the convertible is 27% which though above the current 100d realised level of 22%, is not excessive given for example the 260d realised volatility of 32%. Realised volatility itself has been trending down for some time, and a rebound in this could provide support to the bond. Further to the theme of trend reversals, the recent strengthening of the euro leaves scope for the SGD denomination to bolster returns on the bond, though this is clearly a risk that could apply both ways.

FIGURE 15 Financial sector active convertibles, EMEA

Bond Country Ccy Amt (mn) Price Parity Prem (%) YTP/M (%) Quality Delta (%)

Ageas FRESH Belgium EUR 1,250 43.3 7.8 451 8.8 HY 6

Axa 3.75% 2017 France EUR 1,098 261.5 60.9 330 3.2 IG 0

Baloise 1.5% 2016 Switzerland CHF 243 102.9 68.2 51 0.7 NR 14

BCP - Port Tel 2.75% 2015 Portugal EUR 186 96.5 47.0 105 4.6 HY 1

BES - Bradesco 1.625% 2013 Brazil USD 950 103.3 104.0 -1 -14.3 HY 61

BES - Bradesco 3.5% 2015 Brazil USD 450 109.2 102.7 6 0.2 HY 52

BES - EDP 3% 2015 Portugal EUR 500 99.9 64.4 55 3.4 HY 14

BMPS FRESH 2099 Italy EUR 1,000 17.9 6.8 162 34.2 HY 42

BNP - Pargesa 0.25% 2015 Switzerland EUR 325 105.1 90.5 16 -1.6 IG 44

EFG Eurobank 1.7% 2014 Greece EUR 250 82.0 4.3 1,821 14.2 HY -0

ESFG 5.05% 2025 Luxembourg EUR 182 60.0 25.7 134 11.0 HY 14

ESFG 9.75% 2025 Luxembourg EUR 130 92.0 32.1 187 10.9 HY 18

Fortis Bank CASHES Belgium EUR 1,112 53.3 10.3 416 8.4 HY 8

NBAD FRN 2016 UAE AED 1,050 94.3 47.0 101 3.8 IG 0

NBAD FRN 2018 UAE AED 809 99.0 85.5 16 4.9 IG 0

Opus - OTP 3.95% perp Hungary EUR 514 52.9 44.9 18 10.1 HY -0

Temasek - Stan Chart 0% 2014 UK SGD 790 105.7 90.8 16 -3.2 IG 34 Note: Data as of 1 February 2013. For perps, yield is to first hard-call date if applicable. Source: Barclays Research.


4 February 2013 8

FIGURE 16 Financial sector active convertibles, Asia Pacific

Bond Country Ccy Amt (mn) Price Parity Prem (%) YTP/M (%) Quality Delta (%)

Aeon Credit 0% 2016 Japan JPY 15,000 134.9 134.8 0 -9.1 NR 81

Aeon Credit 0% 2017 Japan JPY 15,000 138.1 138.3 -0 -7.5 NR 91

Bank Of Kyoto 0% 2014 Japan JPY 29,953 99.1 65.4 51 0.8 IG 11

Cathay Financial 0% 2014 Taiwan USD 254 106.7 91.8 16 -3.9 IG 45

Far Eastern Intl Bank 0% 2018 Taiwan USD 150 100.4 79.3 27 0.3 NR 43

Orix 1% 2014 Japan JPY 149,988 143.7 144.8 -1 -26.4 IG 95

QBE Insurance 0% 2030 Australia USD 850 65.2 29.7 120 2.5 IG 0 Note: Data as of 1 February 2013. Source: Barclays Research.

The Oil & Gas sector (Overweight by our equity strategist) is likely well positioned for outperformance should there be a shift from bonds to equities; this on the back of a good mix of dividend yield and quality. The sector has lagged in the recent rally first highlighted by our derivatives strategy team in Position for potential SXEP upside going into 2013, 29 Nov 2013. In Figure 17, readers can see the Oil & Gas sector (SXEP) standing out with the highest combination of dividend yield and sector dividend quality score.

FIGURE 17 What sectors could benefit from bond investors shifting into equities? Chart recreated from European Strategy Elements: Sectors that benefit from Yieldfall, 30 Jan 2013

SXAP SX7P

SXPPSX4P

SXOP SXFP

SX3P

SXDP

SXNP

SXIPSXMP

SXEP

SXQP

SXRP

SX8P

SXKP

SXTP

SX6P

SX86P*

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2 4 6 8 10 12 14 16

Div

iden

d Yi

eld

(12m

fwd)

Sector dividend quality score (payout ratio + leverage)

Good mix of dividend yield and quality

Source: Barclays Research. *Quality score for Real Estate could be considered invalid given the nature of the sector

FIGURE 18 Sector code exlplanation

SX3P Food And Beverage

SXAP Autos SXMP Media

SX4P Chemicals SXDP Healthcare SXNP Industrial Goods and Services

SX6P Utilities SXEP Oil and Gas SXOP Construction

SX7P Banks SXIP Insurance SXPP Basic Resources

SX8P Technology SXKP Telecoms SXQP Personal and Household

SXRP Retail Source: Barclays Research

We favor sectors with a high enough yield that offers good quality. Oil & Gas stand out on this analysis




4 February 2013 9

In Figure 19 we provide a screen of convertibles in the Oil & Gas sector with parity above 50, delta above 25% and amount outstanding greater than €100mn. We pick Premier Oil 2.5% 2018, Subsea 7 ’14 and ‘17s, Siem – Subsea 7 1% 2019 (put Sep 2016) as well as ENI – Galp 0.25% 2015 and Parpublica – Galp 5.25% 2017 from the screen on the back of their Overweight ratings and potential upside to price target above 40% for the next 12 months.

Among the convertibles with non-rated underlying stocks Gulf Keystone 6.25% 2017 (callable Nov 2015 with a 130% trigger) and Petrominerales 3.25% 2017 stand out with a higher yield to maturity than the other bonds. Further, Petrominerales has a dividend yield of c.6% combined with the full dividend protection on the bond.

Below Figure 19 we provide a more detailed comparison of ENI – Galp 0.25% 2015 and Parpublica – Galp 5.25% 2017.

FIGURE 19 Convertible bonds in the Oil & Gas sector sorted on stock rating

Name Bond Price ParityDelta (%)

Conv Prem (%)

YTP/M (%)

Dividend Yield (%)

Stock Rating

Upside to PT (%)

Premier Oil 2.5% 2018 121.2 87.6 65 38.4 -1.2 0 OW 54

Siem - Subsea 7 1% 2019 105.4 84.8 61 24.3 0.2 0 OW 46

Subsea 7 1% 2017 103.6 81.7 58 26.7 0.2 0 OW 46

Subsea 7 2.25% 2013 117.7 114.2 71 3.1 -19.6 0 OW 46

Subsea 7 3.5% 2014 156.8 151.3 85 3.6 -21.2 0 OW 46

ENI - Galp 0.25% 2015 102.5 77.9 34 31.5 -0.6 2.5 OW 41

Parpublica - Galp 5.25% 2017 108.1 80.0 34 35.1 3.3 2.5 OW 41

Lukoil 2.625% 2015 113.9 95.0 51 19.9 -3.0 3.5 OW 10

ENI - Snam 0.625% 2016 99.8 85.8 27 16.3 0.7 6.75 OW 4

Technip 0.25% 2017 106.8 81.0 46 31.8 -2.4 2 EW 43

Technip 0.5% 2016 97.1 81.0 54 19.9 -4.8 2 EW 43

Magnolia Finance - MOL 4% perp 77.9 62.8 80 24.1 9.4 0 EW 21

CGGVeritas 1.25% 2019 33.7 21.8 61 54.4 0.4 0 UW 15

CGGVeritas 1.75% 2016 30.7 22.8 45 34.4 -1.7 0 UW 15

Gulf Keystone 6.25% 2017 104.8 77.1 60 35.9 5.2 0

Maurel et Prom 7.125% 2014 19.3 17.1 51 12.5 -5.4 2.75

Maurel et Prom 7.125% 2015 18.7 16.7 77 11.7 -7.9 2.75

Petrominerales 3.25% 2017 88.5 51.1 46 73.3 6.4 0

Seadrill 3.375% 2017 141.3 126.2 78 12.0 -4.4 0

Ship Finance 3.25% 2018 100.3 77.4 64 29.7 3.2 0 Note: Dividend yield of 0% means that the bond has full dividend protection. Source: Barclays Research

Backed by our equity analyst’s strong conviction on Galp we feel that the convexity profile of the Parpublica – Galp 5.25% 2017 exchangeable makes it preferable to ENI – Galp 0.25% 2015. However, we believe there is merit in diversifying between the bonds but recommend a slightly higher allocation towards Parpublica – Galp ’17. In Figure 20 we provide a scenario analysis based on a 12-month horizon of the total return on the bonds.

When modeling the bonds in an uncalibrated exchangeable model for a 25% upside/downside the Eni – Galp exchangeable stands out with a slightly better convexity. However, due to our equity analysts’ strong conviction on the stock, with an expected net income of €91mn (up 15% y/y) when the company reports on 11 February, an estimate c.18% above consensus, we believe

Premier Oil ‘18, Subsea 7 ’14 and ‘17s, Siem – Subsea 7 ’19, ENI – Galp ‘15 and Parpublica – Galp ‘17 might provide interesting opportunities due to the OW rating and potential %-upside to price target of above 40%. Petrominerales ’17 and Gulf Keystone ’17 stand out with their YTM.

Convexity profile of Parp – Galp ‘17 makes it preferable to ENI – Galp ‘15. However, we believe there is merit in diversifying between the bonds but recommend a slightly higher allocation towards Parpublica – Galp ’17


4 February 2013 10

that it is more interesting to look at the convexity with a flat return as the downside scenario and the potential upside as the upside scenario. When doing this the Parpublica – Galp exchangeable comes out on top and also gives a total return of 3.4% in a flat scenario compared with -0.7% for the Eni exchangeable, owing to its higher yield. For details on the equity view see European Integrated Oil: Wanting it all, 30 January 2013.

Both bonds are modeled using an uncalibrated exchangeable model with zero equity credit spread and parity recovery rate. For the Eni bond we use a credit spread of 75bp (allowing it to change as if it had a k-factor of 1), volatility of 27.3%, dividend yield of 2.5% and a borrow of 0.5%. The Parpublica bond is modeled with a credit spread of 425bp, volatility of 28%, dividend yield of 2.5% and borrow of 0.5%.

FIGURE 20 Scenario analysis highlighting the convexity of the bonds

Scenario analysis

Bond Total Return (%)

Stock Up 25% Stock Flat Stock Down 25% Stock to

Price Target

Parpublica - Galp 5.25% 2017 13.1 3.4 -3.3 20.0

Eni - Galp 0.25% 2015 6.8 -0.7 -4.2 13.8 Source: Barclays Research

APAC ENN Energy, the HKD41bn ($5.3bn) market cap Chinese gas distributor (formerly Xinao Gas), last week issued the region’s first USD-denominated convertible of the year, a 500mn 5y bond with a 0% coupon, 0.5%YTM/P, 30% premium, puttable at year 3 and callable after year 3 with a 130% trigger. It also provides dividend protection for the excess above a 0.97% yield in a financial year, and a change of control put. Use of proceeds was stated as refinancing existing debt and general corporate purposes. The company is rated Baa3/BBB- (both Stable Outlook). The bond was indicated earlier today at 104.0 versus HKD38.00, or parity 78.2. This represents an impressive delta-neutral gain of more than 3.5pts since issuance based on the reference stock price. The stock skidded 3.3% to the next day VWAP, in line with our historical average over hedgeable deals in the past few years. This was appropriate in our view, given the bond would convert into 7.4% of the equity, 10.6% of the float and 42 days of average volume in the stock. Taking the initial skid into account, the delta-neutral gain was c.2.5pts.

Far Eastern International Bank, the TWD27bn ($0.9bn) Taiwanese bank, also issued a new 0% 5y convertible last week, bringing the region’s total to 6 deals raising $2.0bn, in a healthy return to form. FEIB’s $150mn bond offers a 0.375% YTM/P, a 27.5% premium, is puttable at 2.5 years, callable from 2.5 years with a 130% trigger. It provides full dividend protection and a change of control put, and the company said proceeds would enhance operating capital. The deal is not only the issuer’s debut (to our knowledge) but also Taiwan’s first convertible issue since TPK back in Sep 2012.

San Miguel Corp’s partial tender should return $281mn to investors on 7 February (see ‘Looking Ahead’ below). As only some of the bonds were accepted for tender, investors wishing to take exposure to the Philippines will now have a choice between San Miguel and SM Investments 1.625% 2017.




4 February 2013 11

FIGURE 21

Corporate actions

Date Company/issue Action Details

29 Jan CapitaCommercial Trust 2.5% 2017

Conversion adjustment The conversion ratio has been changed from 148359.1478 (conversion price 1.6851) to 152494.8125 (conversion price 1.6394).

29 Jan CapitaCommercial Trust 2.7% 2015

Conversion adjustment The conversion ratio has been changed from 197347.6476 (CP 1.2668) to 202856.21875 (CP 1.2324).

29 Jan Soho China 3.75% 2014 Buyback Company buys back HK$183 million. Source: Bloomberg, Reuters, listing exchanges

FIGURE 22

Ratings actions

Date Company/issue Agency Details

1 Feb Banca Monte Paschi S&P Downgraded from BB+ to BB, put on watch negative.

30 Jan Banca Monte Paschi Moody’s Put on review for downgrade.

29 Jan GDF Suez S&P Ratings put on creditwatch negative.

29 Jan Kawasaki Kisen S&P Rating cut to BB- from BB, outlook stable. Source: Bloomberg, Reuters, listing exchanges

Looking ahead 5 February – Qiagen 1.5% 2024: First call announcement date. The prospectus indicates that the bond is callable at the option of the issuer if the average of 20 consecutive dealing days’ closing share prices exceeds 120% of the conversion price. Parity closed last week at 147. The next coupon is on 18 February.

Should a call be announced, a minimum of 30 calendar days’ notice is required before the redemption date, and the last conversion date for holders is then five business days prior to this.

We note separately that Qiagen’s change-of-control protection is a stepped ratchet, the ratio boost from which has amortised to zero; Qiagen 2026 faces similar in May 2013. Shire 2014 also shares this feature, both amortising to the put date as opposed to the maturity date.

5 February – Asia Cement – Far East Textiles 0% 2013: Final conversion date, ahead of maturity, 20 February. Parity is currently 87.6 versus the redemption price of 104.5.

7 February – San Miguel Corp 2% 2014: Settlement date for tender offer. San Miguel Corp announced the results of its tender offer: $259.2mn of principal amount was accepted at a price of 107.75%. Hence, $280.6mn will be returned to investors on the settlement date, Thursday 7 February, and $332mn of the principal amount will remain outstanding.

11 February – First Gen Corp 2.5% 2013: Maturity date. There is $57mn outstanding of the original $260mn; hence, we expect c.$73mn to be returned to investors.

20 February – Asia Cement – Far East Textiles 0% 2013: Maturity date. There is $74.1mn outstanding of the original $210mn; hence, we expect c.$77mn to be returned to investors.

22 February – Country Garden 2.5% 2013: Maturity date. There is CNY781mn outstanding of the original CNY4.314mn; hence, at the current FX we expect c.$152mn to be returned to investors.

10 March – Altran Technologies 6.72% 2015: First call redemption date. For the bond to be called, the average opening share price over 20 dealing days must exceed 130% of the bond’s nominal amount. The share price has opened slightly below the €5.694 trigger for the past couple of weeks. The 20-day average share price is €5.639, 1% below the trigger

Qiagen ’24 remains potentially callable

San Miguel Corp: $280.6mn is due to be returned to investors on Thursday

Altran stock is just below its average-price call trigger


4 February 2013 12

level. The issuer must provide 30 calendar days’ notice; we take 10 February as an approximation to the first possible call redemption date.

27 February – AREIT 1.6% 2017: Effective date of dividend adjustment. The company confirmed on 15 January that the dividend of SGD0.0362 would result in an excess distribution of SGD0.0351, resulting in a new conversion price of SGD2.2392. The prevailing conversion price is SGD2.2727, hence the adjustment is c.-1.47%.

28 February – Aegis 2.5% 2015: Dentsu and Aegis Long Stop Date.

7 March – Clariant 3% 2014: First call redemption date. The trigger requires the closing share price to breach 150% of the conversion price for 20 dealing days within a period of 30. The share price closed above the CHF12.435 trigger for six trading days (3-10 Jan) fell below for four (11-16 Jan) but then rose above again for the past thirteen (17 Jan-4 Feb). Hence, one more triggering day is required for the issuer to call. It must then provide at least 30 calendar days’ notice once the trigger is satisfied. Hence, we calculate a first potential call redemption date of 7 March, with a corresponding first notice date of 5 February.

19 March – KfW - Deutsche Post 1.5% 2014: First call redemption date. The 130% trigger is based on 20 dealing days within a period of 30, and 15-30 calendar days of notice is required. Parity closed on Friday at 126.9.

3 April – Atos 2.5% 2016: First call redemption date. Parity closed Friday at €56.25, 7% below the call trigger. For the bond to be called, the average opening share price over 20 dealing days must exceed 130% of the bond’s nominal amount, ie, €60.02. The issuer must provide 30 calendar days’ notice; we take 20 March as the first call redemption date.

3 April – Hochschild 5.75% 2014: First call redemption date. The trigger requires the share price to breach 130% of the conversion price for 20 dealing days within a period of 30. The share price closed Friday at 17% below the 507p trigger.

The issuer must provide at least 30 days’ notice once the trigger is satisfied. The final conversion date on call is set seven business days prior to the redemption date. The next coupon date is on 28 January 2012.

3 April – Subsea 7 2.25% 2013: First call redemption date. The trigger requires parity to breach 130% of par for 20 dealing days within a period of 30. Parity closed on Friday at 114.2, 14% below the 130 trigger. The issuer must provide at least 30 calendar days’ notice once the trigger is satisfied. The next coupon date is 11 April 2013. The final conversion date on call is set seven calendar days prior to the redemption date.

3 April – Eurazeo - Danone 6.25% 2014: First call redemption date, assuming that past days do not contribute to the average. The 130% trigger is based on an average over 20 dealing days, and 30-60 calendar days of notice is required. Parity closed Friday 8% below the trigger. The next coupon date is 10 June 2013.

Cost of convertible issuance (CCITM) The cost of convertible issuance, as measured by our CCITM, closed the end of last week at 2.29%, 0.89%, 2.92% and 2.91% for the euro area, US, UK and Hong Kong, respectively. The interest saving relative to issuing a straight bond remains c.1% across regions. The euro area CCI is still close to its all-time low, indicating that in absolute theoretical value terms, conditions for euro-area ‘BBB’ convertible issuance have rarely been better. The theoretical interest saving versus equivalent straight bonds is also near historical lows however – as for all regions – evidencing the competition from straight bond issuance.

Clariant stock is currently above its trigger, one more triggering day is required for issuer to call

CCI™ remains at an all-time low in euro area


4 February 2013 13

FIGURE 23

Global CCI performance for the past year

Euro area US

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

01-Feb 30-Apr 01-Aug 01-Nov 01-Feb

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


UK HK

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%


Cost of issuing convertible bond Cost of issuing equivalent straight debt Interest savingCost of issuing convertible bond Cost of issuing equivalent straight debt Interest savingCost of issuing convertible bond Cost of issuing equivalent straight debt Interest savingCost of issuing convertible bond Cost of issuing equivalent straight debt Interest saving Source: Bloomberg, Barclays Research

INTELLECTUAL PROPERTY NOTICE: The Convertible Cost Index (CCI) contains intellectual property rights of Barclays Bank PLC, including database rights and copyright. Barclays Bank PLC reserves all rights in the Convertible Cost Index. Redistribution of the Convertible Cost Index is prohibited. ‘Convertible Cost Index’ is a trade mark of Barclays Bank PLC.


4 February 2013 14

New issues EMEA new issuance YTD remains at €5.1bn ($6.9bn) from eight deals.

Asia Pacific new issuance YTD is now $2.0bn from six deals, following three deals last week.

FIGURE 24

New convertible issuance 2013 YTD

Size Senior unsecured

issuer rating Issue rating

Date Issuer-underlying Country Ccy Coupon Maturity Yield Premium (mn) S&P Moody’s S&P Moody’s

31 Jan Far Eastern Intl Bank Taiwan USD 0.00% 07 Feb 2018 0.38% 27.5% 150 NR NR NR NR

29 Jan ENN Energy Hong Kong USD 0.00% 26 Jan 2018 0.50% 30.0% 500 BBB- Baa3 NR NR

28 Jan China Precious Metals Hong Kong HKD 7.25% 04 Feb 2018 7.25% 25.0% 1,028 NR NR NR NR

25 Jan Ship Finance Bermuda USD 3.25% 01 Feb 2018 3.25% 33.0% 350 BB- B1 NR NR

24 Jan Astaldi Italy EUR 4.50% 31 Jan 2019 4.50% 35.0% 115 NR NR NR NR

24 Jan GBL - GDF France EUR 1.25% 07 Feb 2017 1.25% 20.0% 1000 NR NR NR NR

17 Jan GVM - Obrascon Spain EUR 5.75% 14 Feb 2018 5.75% 30.0% 125 NR NR NR NR

16 Jan Shanghai Ind. Hldgs Hong Kong HKD 0.00% 18 Feb 2018 1.000% 30.0% 3900 NR NR NR NR

16 Jan Lotte - Himart Korea KRW 0.00% 24 Jan 2018 0.000% 27.5% 321,200 NR Baa1 NR NR

15 Jan Eni - Snam Italy EUR 0.63% 18 Jan 2016 0.63% 20.0% 1250 A A3 A NR

9 Jan ArcelorMittal (MCS) Luxembourg USD 6.00% 15 Jan 2016 6.00% 25.0% 2250 BB+ Ba1 B+ NR

9 Jan Abengoa Spain EUR 6.25% 17 Jan 2019 6.25% 25.0% 400 B+ B1 NR NR

8 Jan Beni Stabili Italy EUR 3.38% 17 Jan 2018 3.38% 32.0% 175 NR NR NR NR

Note: Ratings at time of issue. Source: Bloomberg, Barclays Research

FIGURE 25

Monthly (left) and cumulative monthly (right) convertible issuance

EMEA (€ bn) Asia Pacific ($ bn)

0

2

4

6

8

10

12

14

16

18

0.00.51.01.52.02.53.03.54.04.55.0

Jan Feb* Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2012

2013 Cumulative (RHS) 2012 Cumulative (RHS)

012345678910

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan Feb* Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2012

2013 cumulative (right) 2012 cumulative (right)

Source: Barclays Research


4 February 2013 15

FIGURE 26

Top and bottom EMEA convertible performers

Top convertible performers Closing

price Weekly %

chg Weekly

DN % chg Parity Weekly %

chg Conversion

premium Weekly

chg Crncy Amount out (mn)

Sacyr 6.5% 2016 57.50 6.5 6.5 15.79 -12.3 264.24 64.1 EUR 200 Opus - OTP Bank 3.95% perp 52.88 6.3 6.3 44.88 3.5 17.82 3.1 EUR 514 Qiagen 1.5% 2024 168.28 5.2 0.0 166.94 5.2 0.80 -0.0 USD 145 Drillisch - freenet 3.375% 2017 116.09 3.5 0.3 115.96 4.8 0.12 -1.3 EUR 125 Infineon 7.5% 2014 311.26 2.9 0.0 304.38 2.9 2.26 -0.1 EUR 113 Magnolia Finance - MOL 4% perp 77.93 2.8 1.2 62.77 2.5 24.15 0.4 EUR 610 WPP 5.75% 2014 173.02 2.8 -0.1 171.77 3.1 0.73 -0.3 GBP 450 Emaar Properties 7.5% 2015 121.20 2.5 -1.2 109.19 8.7 10.99 -6.7 USD 500 TUI 5.5% 2014 85.66 2.4 0.4 80.09 2.5 6.96 -0.2 EUR 218 Ingenico 2.75% 2017 55.16 2.3 -0.3 48.26 4.1 14.28 -2.0 EUR 250

Bottom convertible performers Closing

price Weekly %

chg Weekly


chg Conversion

premium Weekly


Lufthansa - JetBlue 0.75% 2017 113.49 -4.5 0.6 85.50 -9.3 32.74 6.7 EUR 234 Shoprite 6.5% 2017 (listedD) 11,759.19 -3.9 -0.3 10,125.4 -6.0 16.13 2.5 ZAR 4,700 Technip 0.25% 2017 106.77 -3.8 -2.1 81.00 -4.5 31.81 1.0 EUR 498 Abengoa 6.25% 2019 91.89 -3.8 1.7 57.98 -13.4 58.49 15.9 EUR 400 Clariant 3% 2014 152.63 -3.4 -0.5 152.83 -3.4 -0.14 -0.1 CHF 300 Neopost 3.75% 2015 84.75 -3.4 -3.4 44.27 3.6 91.44 -13.7 EUR 300 Nokia 5% 2017 136.16 -3.4 -0.2 111.81 -5.2 21.78 2.3 EUR 750 International Airlines 5.8% 2014 125.55 -2.8 -0.2 113.02 -4.2 11.09 1.6 GBP 350 SGL Carbon 3.5% 2016 116.19 -2.6 0.2 107.18 -4.9 8.41 2.6 EUR 137 Subsea 7 3.5% 2014 156.82 -2.6 -0.1 151.35 -2.9 3.62 0.4 USD 275

Note: Based on closing prices between 25 January and 1 February 2013. Source: Barclays Research

FIGURE 27

Top and bottom Asia Pacific convertible performers

Top convertible performers Closing

price Weekly %

chg Weekly


chg Conversion

premium Weekly


Bakrieland Development 8.625% 2015 73.00 17.7 17.7 20.40 -0.5 257.81 55.5 USD 155 United Labs 7.5% 2016 100.58 15.0 15.6 56.78 -5.7 77.13 32.0 CNY 790 Softbank 1.5% 2013 158.38 13.7 -0.3 159.16 13.9 -0.49 -0.2 JPY 49,998 China Power Int 2.25% 2016 136.76 12.1 1.3 137.69 13.0 -0.68 -0.8 CNY 982 Hanjin Shipping 4% 2016 92.51 10.9 11.9 45.70 -9.4 102.45 37.1 USD 150 China Overseas Grand Oceans 2% 2017 125.91 8.8 4.2 133.59 6.3 -5.75 2.2 HKD 2,200 China Huiyuan Juice 4% 2016 95.00 8.6 8.6 40.14 -0.1 136.68 18.8 USD 150 China Power Int 2.75% 2017 120.53 6.6 -0.1 112.33 13.0 7.29 -6.4 CNY 1,140 YTL Corp 1.875% 2015 112.37 6.4 10.0 98.26 -6.5 14.36 13.9 USD 400 Orix 1% 2014 143.73 5.7 -0.1 144.83 6.2 -0.75 -0.5 JPY 149,988

Bottom convertible performers Closing

price Weekly %

chg Weekly


chg Conversion

premium Weekly


SM Investments Corp 1.625% 2017 131.76 -8.9 -9.7 128.72 1.2 2.36 -11.3 USD 250 Tata Motors 4% 2014 194.18 -8.4 0.0 195.19 -8.4 -0.52 -0.0 USD 75 Suntec REIT 3.25% 2013 105.62 -5.7 -5.8 101.61 0.6 3.95 -7.0 SGD 270 Jaiprakash 5.75% 2017 110.59 -4.8 -0.5 108.85 -5.9 1.59 1.2 USD 150 Sharp 0% 2013 84.50 -4.0 -4.0 13.00 0.6 550.06 -31.1 JPY 199,997Anritsu Corporation 0% 2015 179.35 -3.9 -0.0 179.79 -3.9 -0.24 -0.0 JPY 3,900 COHL - COLI 0% 2014 153.25 -2.4 -0.2 148.55 -2.9 3.17 0.6 USD 500 Kadokawa Holdings 1% 2014 109.11 -1.7 0.2 98.32 -3.9 10.98 2.5 JPY 11,000 China Precious Metals 7.25% 2018 98.40 -1.6 HKD 1,028 Hengdeli 2.5% 2015 102.88 -1.3 -0.2 55.33 -12.2 85.94 20.5 HKD 2,500 Note: Based on closing prices between 25 January and 1 February 2013. Source: Barclays Research


4 February 2013 16

CALENDAR Monday, 4 February 2013 GMT Data/event Previous Market F/C Barclays F/C

Banco Bradesco Ex-Dividend

Dana Gas PJSC FY (Est)

Hitachi Q3

IHI Q3

E17 10:00 PPI, % m/m (y/y) -0.2 (2.1) -0.2 (2.2) -

Germany - Chancellor Merkel meets Spanish PM Rajoy

UK 09:30 Construction PMI, index 48.7 49.6 48

US 15:00 Factory orders, %m/m 0 2 1.7

France 13:50 BTF 09May2013, 11Jul2013, 09Jan2014 € 3.4/4; 1.5-1.9;1.1-1.5 bn

Tuesday, 5 February 2013 GMT Data/event Previous Market F/C Barclays F/C

Vinci FY

Bumi Resources 9.25% 2014 - NEW Coupon

Mitsubishi Chemical Holdings C Q3

Sato Holdings Q3

Square Enix Holdings Co Q3

E17 08:58 Final services PMI, index 48.3 P 48.3 48.3

E17 10:00 Retail sales, % m/m (y/y) 0.1 (-2.6) -0.4 (-1.3) -1

France 08:48 Final services PMI, index 43.6 P 43.6 43.6

Germany 08:55 Final services PMI, index 55.3 P 55.3 55.3

Italy 08:43 Services PMI, index 45.6 45.8 46

Italy 10:00 Preliminary HICP, % m/m (y/y) 0.3 (2.6) -1.8 (2.6) -2.1 (2.2)

Italy 10:00 Preliminary CPI, % m/m (y/y) 0.2 (2.3) 0.2 (2.2) -0.1 (1.9)

US 15:00 ISM non-manufacturing, index 55.7 55.2 56

Greece 10:00 26-week t-bill € 0.625 bn

Greece 10:00 4-week & 26-week t-bill € 2.125+1.25 bn

UK 10:30 2024 Linker Auction £ 1.1 bn

Wednesday, 6 February 2013 GMT Data/event Previous Market F/C Barclays F/C

ArcelorMittal FY

Industrivarden AB FY

Marine Harvest FY

Nokian Renkaat OYJ FY

United Microelectronics FY

Welspun Corp Q3 (Est)

Germany 11:00 Factory orders, %m/m (y/y) -1.8 (-1.0) 0.6 (-1.2) 1

Japan 23:50 Core machinery orders, % m/m 3.9 -0.9 -2.6

Germany 10:30 5y OBL Auction € 4 bn

Thursday, 7 February 2013 GMT Data/event Previous Market F/C Barclays F/C

Ageas FRESH Coupon

Alcatel-Lucent/France FY

Daimler FY

Nexans FY

Nyrstar FY

Richter Gedeon Nyrt FY (Est)

TUI Travel Q1

Lotte Shopping Co FY


4 February 2013 17

Olam International Q2

Asahi Glass Co FY

Fukuyama Transporting Co Q3

Sony Q3

Suzuki Motor Q3

Toray Industries Q3

Yamada Denki Co Q3

E17 12:45 ECB Interest rate announcement, % 0.75 0.75 0.75

E17 13:30 ECB Press Conference

Germany 11:00 Industrial production, % m/m (y/y) 0.2 (-2.9) 0.1 (-0.5) 0.3

UK 12:00 BoE Bank rate decision, % 0.5 0.5 0.5

UK 12:00 BoE asset purchase decision, £ bn 375 375 375

UK 09:30 Industrial output, % m/m (y/y) 0.3 (-2.4) 0.7 (-2.2) 0.7 (-2.2)

UK 09:30 Manufacturing output, % m/m (y/y) -0.3 (-2.1) 0.6 (-2.6) 0.8 (-2.3)

US 13:30 Initial jobless claims, k (4wma) 368 (352) 360 360 (348)

US 13:30 Non-farm productivity-p, % q/q 2.9 -1 -1.6

France 09:50 8y, 10y & 15y OAT Auctions € 8.0 bn

Spain 09:30 2y, 3y & 7y SPGB Auctions € 4.75 bn

Friday, 8 February 2013 GMT Data/event Previous Market F/C Barclays F/C

Aquarius Platinum H1

Cofinimmo FY

Graubuendner Kantonalbank FY

PetroBakken 3.125% 2016 Coupon

Renewable Energy Corp FY

Disco Q3

Nagoya Railroad Co Q3

Sawai Pharmaceutical Co Q3

Temp Holdings Co Q3

China - M2 growth, % y/y (to 15/02) 13.8 14.3 14

China 05:30 CPI, % y/y 2.5 2.1 2.2

China 05:30 PPI, % y/y -1.9 -1.6 -1.4

Italy 09:00 Industrial production, % m/m (y/y) -1.0 (-7.0) 0.2 0.3

US 13:30 Trade balance, $ bn -48.7 -46 -46 Source: Bloomberg, Reuters, Barclays’ Global Traders' Guide, 1 February 2013.



4 February 2013 18

ANALYST(S) CERTIFICATION(S)

We, Angus Allison and Luke Olsen, hereby certify (1) that the views expressed in this research report accurately reflect our personal views aboutany or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com orcall 212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities.

Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’s account.

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The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differfrom recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.

Materially Mentioned Stocks (Ticker, Date, Price)

CGGVeritas (GEPH.PA, 01-Feb-2013, EUR 21.82), Underweight/Positive

Clariant (CLN.VX, 01-Feb-2013, CHF 12.67), Overweight/Positive

Galp Energia (GALP.LS, 01-Feb-2013, EUR 12.08), Overweight/Neutral

LUKOil (LKOHyq.L, 01-Feb-2013, USD 67.50), Overweight/Neutral

MOL (MOLB.BU, 01-Feb-2013, HUF 18560.00), Equal Weight/Neutral

Premier Oil (PMO.L, 01-Feb-2013, GBP 3.89), Overweight/Positive

Snam (SRG.MI, 01-Feb-2013, EUR 3.71), Overweight/Neutral

Standard Chartered PLC (STAN.L, 01-Feb-2013, GBp 1688.0), Overweight/Neutral

Subsea 7 SA (SUBC.OL, 01-Feb-2013, NOK 134.00), Overweight/Positive

Technip (TECF.PA, 01-Feb-2013, EUR 81.00), Overweight/Positive

Risk Disclosure(s)

The convertible valuations are based on the Barclays Research proprietary convertible valuation model, under which key assumptions relate to credit spread and equity volatility metrics. Material changes in any of these variables can have a significant impact on valuation. Upside/downside analysis takes into consideration likely future valuation and expected trading patterns, among others. It is based on a total return participation of the convertible relative to a +/- 25% (unless otherwise specified) change in the common stock's price over a one-year investment horizon. A material change in the company's financial situation can significantly alter this assessment.

Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage universe").

In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month


4 February 2013 19


investment horizon.

Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.

Industry View

Positive - industry coverage universe fundamentals/valuations are improving.

Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

Negative - industry coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "industry coverage universe":

CEEMEA Oil & Gas

Alliance Oil (AOILsdb.ST) Bashneft (BANE.RTS) Gazprom Neft (SIBNq.L)

Gazprom OAO (GAZPq.L) LUKOil (LKOHyq.L) Novatek (NVTKq.L)

Rosneft (ROSNq.L) Sasol Limited (SOLJ.J) Surgutneftegas (SNGSyq.L)

Tatneft (TATNxq.L)

European Banks

Banco Bilbao Vizcaya Argentaria S.A. (BBVA.MC) Banco Popular (POP.MC) Banco Sabadell (SABE.MC)

Banco Santander SA (SAN.MC) BNP Paribas (BNPP.PA) Commerzbank AG (CBKG.DE)

Credit Agricole SA (CAGR.PA) Credit Suisse Group AG (CSGN.VX) Danske Bank (DANSKE.CO)

Deutsche Bank AG (DBKGn.DE) Deutsche Postbank AG (DPBGn.DE) DNB (DNB.OL)

HSBC Holdings PLC (HSBA.L) ING (ING.AS) Intesa Sanpaolo (ISP.MI)

Julius Baer (BAER.VX) KBC (KBC.BR) Lloyds Banking Group PLC (LLOY.L)

Nordea (NDA.ST) Royal Bank of Scotland Group PLC (RBS.L) Skandinaviska Enskilda Banken AB (SEBa.ST)

Société Générale (SOGN.PA) Standard Chartered PLC (STAN.L) Svenska Handelsbanken (SHBa.ST)

Swedbank AB (SWEDa.ST) UBS AG (UBSN.VX) UniCredit (CRDI.MI)

European Chemicals

Air Liquide (AIRP.PA) Akzo Nobel (AKZO.AS) Arkema SA (AKE.PA)

BASF (BASFn.DE) Clariant (CLN.VX) Croda (CRDA.L)

DSM (DSMN.AS) Elementis (ELM.L) Givaudan (GIVN.VX)

K+S AG (SDFGn.DE) KWS Saat AG (KWSG.DE) Lanxess (LXSG.DE)

Linde (LING.DE) Solvay SA (SOLB.F) Syngenta (SYNN.VX)

Synthomer plc (SYNTS.L)

European Integrated Oil

BG Group (BG.L) BP (BP.L) Eni (ENI.MI)

Galp Energia (GALP.LS) MOL (MOLB.BU) OMV (OMVV.VI)

Repsol (REP.MC) Royal Dutch Shell A (RDSa.L) Royal Dutch Shell B (RDSb.L)

Statoil ASA (STL.OL) Total (TOTF.PA)

European Oil & Gas: E&P

Afren Plc (AFRE.L) Bowleven PLC (BLVN.L) Cairn Energy (CNE.L)

Enquest (ENQ.L) Premier Oil (PMO.L) Rockhopper Exploration (RKH.L)

Salamander Energy (SMDR.L) Soco International (SIA.L) Tullow Oil (TLW.L)

European Oil Services & Drilling

Aker Solutions (AKSO.OL) AMEC plc (AMEC.L) CGGVeritas (GEPH.PA)

Dockwise (DOCKW.AS) Hunting (HTG.L) Maire Tecnimont (MTCM.MI)

Petrofac (PFC.L) Petroleum Geo-Services (PGS.OL) Polarcus (PLCS.OL)

Saipem (SPMI.MI) SBM Offshore (SBMO.AS) Subsea 7 SA (SUBC.OL)

Technip (TECF.PA) Tecnicas Reunidas (TRE.MC) TGS (TGS.OL)


4 February 2013 20


Wood Group (WG.L)

European Utilities

Centrica (CNA.L) Drax Group (DRX.L) E.ON (EONGn.DE)

EDF (EDF.PA) EDP Renovaveis S.A. (EDPR.LS) Enagas SA (ENAG.MC)

Endesa S.A. (ELE.MC) Enel Green Power SpA (EGPW.MI) Enel SpA (ENEI.MI)

Fortum (FUM1V.HE) Gas Natural SDG SA (GAS.MC) GDF Suez SA (GSZ.PA)

Iberdrola SA (IBE.MC) National Grid Plc (NG.L) Pennon Group Plc (PNN.L)

Red Electrica Corporacion SA (REE.MC) Redes Energeticas Nacionais (RENE.LS) RWE (RWEG.DE)

Seche Environnement (CCHE.PA) Severn Trent Plc (SVT.L) Snam (SRG.MI)

SSE (SSE.L) Suez Environnement (SEVI.PA) Terna SpA (TRN.MI)

United Utilities Group Plc (UU.L) Veolia Environnement (VIE.PA) Verbund (VERB.VI)

Distribution of Ratings:

Barclays Equity Research has 2536 companies under coverage.

43% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 54% ofcompanies with this rating are investment banking clients of the Firm.

41% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 47% of companies with this rating are investment banking clients of the Firm.

14% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 45% of companies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period.

Barclays offices involved in the production of equity research:

London

Barclays Bank PLC (Barclays, London)

New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Securities Japan Limited (BSJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCCI, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Securities (India) Private Limited (BSIPL, Mumbai)


4 February 2013 21


Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

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