Greece’s talks stall, bonds rise, vedanta plans a merger

A last ditch negotiation meeting between Greece, its international creditors and the EU Member States failed after only 45 minutes according to a statement released by EU officials. On Sunday, the creditors’ demands and what Greece was prepared to accept and commit to resulted unbridgeable, leaving the Mediterranean country in a critical position without a financing deal and almost no time to implement a contingency plan. Most analysts and people familiar with the ongoing negotiations consider the next EU Finance Ministers meeting, scheduled for June 18, the point of non-return where the long threatened Euro exit procedure might actually be put into action as the Greek Government has so far refused to move forwards to its creditors’ requests in complete defiance of the rest of EU Member States and the International Monetary Fund. Greece, which is likely to run out of money by the end of the month unless an agreement to unlock as much as €7.2 billion is reached, maintained its hard stance that further pensions’ cuts and additionally taxes are politically and economically unattainable. The position taken by the Greek Government is therefore diverging from the demands of the European creditors and the IMF that wish to see additional money been raised by Greece through cuts to its already precarious welfare system.

The breakdown of the Greek’s negotiations on Sunday has proven somehow beneficial for the bond markets that after weeks of weakness and rising yields, may find in the fly to safety an uptrend catalyst. “Safe haven” government bonds such as the German Bunds and the US Treasuries have been rising on Friday, extending gains after the announcement that the last negotiations’ attempt between Greece and its creditors had failed within the hour from its beginning. German Bunds, which are consider the benchmark for all other Euro sovereign bonds, rose for a third consecutive day, highlighting that investors are now pricing in a relatively high probably of a Greek exit from the Euro and have started to buy back into “safe assets”. This morning the German 10 Years Bund’s yield was around 0.816%, while the US 10 Years Treasuries traded at around 2.35% in London.

On the other side of the world, Vedanta Ltd., India’s biggest aluminum and copper producer, announced its intention to merge with one of its subsidiary, Crain India Ltd, to create a resources powerhouse. The newly combine entity, which is proposing to fully combine metal focused Vedanta Ltd with oil focused Crain India Ltd, will have a market capitalization of USD 11 billion and will create an Indian conglomerate in the oil and basic resources sectors. The move was celebrated by Tom Albanese, CEO of Vedanta Ltd.’s parent company Vedanta Resources Plc, who left Rio Tinto Group in 2013 to join the Indian company. The merger is seeing as an attempt to increase the size of Vedanta Ltd. which operates in a sector where economic of scale and a large “critical mass” are essential to cost management and long term profitability. At the same time, Vedanta will be able to more easily access the cash surplus of Crain India Ltd., which boasts almost USD 3 billion in cash and not debt. The increased size and diversification of assets, as well as the availability of cash will likely allow the newly formed entity to be better positioned to win international projects and negotiate financing deals, which ultimately will contribute to substantially reduce the company’s cost of debt. Although the largest shareholders supports the merger, the consolidation process is still pending the approval of minority shareholders of both companies.