Thu 0919881955

Australia's Foster's Credit Risk Rises on Buyout Speculation
Thu 0919881955

By Oliver Biggadike
Nov. 24 (Bloomberg) -- The perceived risk of owning debt sold by Australian beverage-maker Foster's Group Ltd. rose 22 percent this week to the highest since September on speculation the company is a takeover target.
Inbev NV, the maker of Beck's beer, is currently considering a bid, the Herald Sun newspaper reported yesterday, without identifying sources. Australia's largest producer of beer and wine said today it can't explain why its share price surged yesterday to a record high.
``When a leveraged buyout happens, the buyers are generally going to put more debt into the company,'' said Tony Adams, portfolio manager in Sydney at Colonial First State, Australia's largest money manager. ``What's potentially changed is the amount of leverage.''
Five-year contracts based on $10 million of Foster's debt rose to $49,300 from $40,300 last week, according to data compiled by Bloomberg. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on changes in a borrower's ability to repay.
An increase in the cost of credit-default swaps based on $2.1 billion of Foster's bonds signals the companies' credit quality fell.
Qantas Takeover Approach
Foster's shares rose 1.3 percent to A$6.89 at the 4:10 p.m. close of trading in Sydney, giving it a market value of A$14 billion ($11 billion). The stock rose 4.1 percent yesterday and traded as high as A$6.97.
Qantas Airways Ltd., Australia's biggest airline, on Nov. 22 said it received a takeover approach from Macquarie Bank Ltd. and Texas Pacific Group. Concerns about rising indebtedness pushed up the price of credit-default swaps based on the airline's bonds to $70,000 from $65,000 yesterday, according to prices from JPMorgan Chase & Co.
Credit-default swaps are the fastest growing market for derivatives, which are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.
The amount of outstanding credit-default swap contracts jumped to $20.3 trillion from $13.9 trillion at the end of last year, the Basel, Switzerland-based bank said on Nov. 17.