Tuesday tips round-up: RBS, Premier Oil

26th Nov 2013 08:42

Royal Bank of Scotland came under fire from all sides on Monday. One report accused it of lending too little to small businesses, while yet another accused it of treating those businesses badly when it does lend to them. The reports pose difficult questions about RBS's future. Simply put, left out of the debate are the rights of the bank's owners. One of the reports says that return on equity in lending to small and medium-sized enterprises is between 3% to 7%. Is that sufficient compensation for investors for the risks of putting their money into RBS? One must not forget that the rescue for RBS was carried out to avoid the shock waves which its collapse would have provoked, rather than with any long-term aim in mind. Should it be nationalised. It still basically is and politicians of all sides can give themselves a popularity boost by firing accusations at it. "Little surprise that investors have voted with their feet - RBS shares are flat this year; those in local rival Lloyds are up 50%. Selling it back to the stock market will be a tough job," says the Financial Times' Lex column. Premier Oil's offer on Monday of a seven-year retail bond with a 5% coupon is not particularly attractive, unless one believes that interest rates are set to stay at virtually nil for a couple of years. Furthermore, other outfits such as Enquest, which have recently tapped the market did so at higher rates (at 5.5%%), albeit for a larger amount of funds. Enquest raised £145m in financing while Premier Oil hopes to obtain between £100m and £150m. Eddie Stobart, on the other hand, recently had to pull a relatively small issue, partly because the coupon, of 5.5%, was not seen as generous enough. The above comes as the company must take some tough decisions in the next few weeks on how to progress? Sea Lion, an oil field in the North Falklands Basin, the licence for which Premier was last year farmed in for 60% of by Rockhopper Exploration. The transaction was completed in October 2012 and Premier assumed operatorship of the Sea Lion area development in November 2012. In the next twelve months the company needs to find a partner to share some of the expense of developing the Sea Lion field, off the Argentinean coast, $2bn just for first oil production. "Most bonds issued after the Orb platform was launched in? February 2010 are trading at a premium to their issue price.? This may not be the case forever, if inflation and interest rates tick up again. Investors should be aware of the risk," says The Times' Tempus. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB