Including: a reader’s digest story: when private equity deals go bad, the world’s water crisis and how desalination may solve global warming (not), and Greece may just have reached a primary surplus.

Good morning

The headlines:

  1. Reader’s Digest.

    Link: chronic indigestion.

    RDA Holding Company, publisher of Reader’s Digest, has filed for bankruptcy for the second time in less than four years.

    The reason I find this interesting: RDA was bought out by private investors in 2007. There was a Private Equity firm that helped. But the basic summary is that they bought the company for $1.6 billion, and took on $0.8 billion in debt in order to do it. That is: the company was 50% leveraged. 50%!! It’s no wonder that they’ve filed for bankruptcy protection twice.

    And then when you think what the business does… I mean – print media is today’s anachronism. It’s like an appendix. Or a gall bladder. You rather have it for completeness’ sake; but if we’re honest, it doesn’t really do very much. And you can, and do, happily live without it. And, well, the only time you think about it is when it’s inflames inflamed.

    The suggested restructuring agreement that was included in the filing suggests that $0.47 billion of the debt remaining be converted into equity. The CEO made this statement:

    “We have had an ongoing process to simplify and rationalise our international business by licensing our local markets to third parties, to other publishers, to other investors and that has been a big part of our effort to streamline the company and bring in proceeds to bring down debt.”

    So if I’ve read that correctly, they’re not going to be doing any business themselves. They’re going to get other people to do it, and then collect a fee. And they’re going to bring down debt with those fees. And, also, by converting 80% of the debt into equity.

    Sounds. Like. A fail.

  2. Greece has a primary surplus.

    Link: not really.

    Greece announced this month that it had reached an unconsolidated primary budget surplus for 2012*. The original article is linked here, but it’s in Greek – so you may want to trip along to Google Translate if you’d like to read it in English**. But the main point is that there was an unconsolidated surplus of €434 million.

    On consolidation, however, Greece was back in deficit. And the calculation doesn’t take into account the unpaid debts (the primary budget is worked out on a cash basis – so if Greece’s government just unilaterally extended its credit terms for the last few months of the year, which it did, then that would distort the figures a bit too positively…).

    But either way, the unconsolidated deficit in 2011 was €3.5 billion. So for 2012, Greece is owed her self-congratulation. And the IMF has agreed that primary budget surpluses are expected for 2013.

    Anyone keen to do some Greek investing?

    If you read the bloomberg article linked to this – there is some discussion around the political implications of the news. Which is particularly interesting because it suggests that this might all work out in Syriza’s favour (the opposition). And Syriza is not a fan of austerity – so the IMF could yet be proven wrong.

    *Primary surplus: collected more in revenue that paid out in expenditure before taking into account interest payments on debt. 

    **For the record: Google Translate is amazing. I mean – the english translation flowed like it was done by a native speaker. Magnificent.

  3. Desalination.

    Link: it cometh.

    The world’s water crisis is not getting enough attention. We are a planet of 7 billion people. We’re projected to reach 8 billion by 2025/2027 (depending on which organisation you’re quoting), and 9 billion before 2050.

    The World Bank is predicting that global demand for water will exceed supply by 40% in 2030. 40%! I have this image in my mind of being thirsty after a run, and ony able to drink half a glass of water. Said image is suffocating.

    The primary solution is desalination. And I say it because that is what is happening empirically – in all those countries where water supply is already sporadic. But desalination is expensive, and ecologically-damaging, and it requires energy. Facts which are entirely irrelevant when a country’s population is desperate.

    On the other hand: removing the sea water could help those rising sea levels, right?


That’s all for now.

Have a good day.