Investors check out of InterContinental and Sirius pulls bond issue

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“The continuing war of words between Washington and Beijing did little to reassure investors although at least this morning’s damage was less significant than that seen earlier this month,” says AJ Bell Investment Director Russ Mould.

“Only a handful of trading days into August and the FTSE 100 has fallen around 5% and there appears little on the horizon to lift equities in the near term.”

Intercontinental Hotels

“Given its shares had risen like a high-speed elevator so far in 2019 it is perhaps no surprise to see InterContinental Hotels descend a little on the publication of its first half results.

“Elevated market expectations left the owner of the Holiday Inn and Crowne Plaza brands with a high bar to clear and while there was nothing in today’s statement which would necessarily make investors want to check out entirely, there was cause for a few grumbles.

“Revenue per room is under pressure and the US market in particular is stagnating, albeit against a tough comparison with last year when the damage wrought by hurricane season drove demand for rooms.

“And although the company is looking to Asia for growth, the recent disruption in Hong Kong and the impact on Chinese corporate travel of the ongoing trade war with the US are not helping on this front.

“The company has won a lot of fans thanks to its business model. Instead of owning its hotels, it operates on a franchise basis, which means it does not have to invest huge amounts of capital to expand.

“However, demand for its rooms is still linked to the performance of a global economy over which there is mounting concern.”

Sirius Minerals

“The news this morning that prospective potash producer Sirius Minerals has pulled its $500 million bond issue is a reflection of increasing investor nervousness across the board but also raises questions about the viability of its project in Yorkshire.

“The company needs to get the fundraise away by the end of September, as that is a crucial term and condition of getting the additional $2.5 billion in lending via a revolving credit facility (RCF) that JPMorgan will initially provide, which in turn is vital to being able to build the mine.

“This deadline feels uncomfortably close and the company’s insistence that it will return to the bond market later in the quarter is likely to do little to reassure investors. After all what happens if market conditions deteriorate rather than getting better.

“With big upfront capital requirements, bringing a mining project into production is a massive challenge and it is one which the company has been tackling for years at this point, following lengthy attempts to secure planning approval and now financing for the project.”

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