TheChek News Flow

Liquidators had been in talks to sell a 29% stake to an unnamed buyer

Shares in the electric-vehicle unit of defaulted property developer China Evergrande Group EGRNF 900.00%increase; green up pointing triangle fell sharply after talks for a stake sale in the company fell through.

China Evergrande New Energy Vehicle’s stock was 10% lower at 30 Hong Kong cents, or 4 U.S. cents, by midday Monday.

The company, also known as Evergrande Auto, said late Friday that liquidators have ceased discussions with an unidentified potential buyer for a stake sale. It said the liquidators will continue to seek possible buyers and opportunities to divest the shares in the company, though there is no certainty that such a transaction will occur.

In late May, the EV startup said liquidators were in talks to sell a 29% stake in the company to an unnamed buyer, with an option to sell an additional 29.5% stake.

Evergrande Auto once had ambitions of competing with Tesla and becoming a top EV maker in China. It had a market capitalization of more than $80 billion at its peak in April 2021.

In the first half of 2024, the company nearly tripled its net loss to 20.25 billion yuan, equivalent to $2.84 billion, from a year earlier.

Shares in Evergrande Auto have declined 41% this year, compared with the benchmark Hang Seng Index’s 21% gain.

Parent company Evergrande Group was ordered to liquidate in late January by a Hong Kong court after the developer failed to reach a restructuring plan with creditors.

Japan plunged into political turmoil after voters punish ruling LDP

Coalition led by Prime Minister Shigeru Ishiba’s Liberal Democratic party loses parliamentary majority

Japan has been plunged into political uncertainty after voters delivered a harsh rebuke to the ruling coalition led by the Liberal Democratic party, stripping it of its parliamentary majority for the first time in 15 years.

The result leaves the LDP struggling to govern and put Prime Minister Shigeru Ishiba under pressure to resign just weeks after he took office. The yen fell almost 1 per cent against the dollar on Monday on speculation that political paralysis would delay further interest rate rises in Japan.

The loss of the coalition’s previously comfortable majority was a much more damaging outcome than most analysts had forecast and reflects surging discontent in Japan after years of stagnant wage growth and recent sharp increases in the cost of living.

“Looking at results, it is true voters have handed us a harsh verdict and we have to humbly accept this result,” Ishiba, who had called the snap poll in an effort to draw a line under a slush-fund scandal, told broadcaster NHK.

The LDP and its much smaller coalition partner Komeito fell well short of the 233 seats needed to control Japan’s lower house in Sunday’s poll. Official results showed the LDP had secured only 191 seats, while Komeito had 24.

The main opposition Constitutional Democratic party, led by former prime minister Yoshihiko Noda, made big gains, taking 148 seats, up from 98 seats previously. The party had focused its campaign on public revulsion at the slush-fund scandal.

Japanese equities rose on Monday, with the Nikkei 225 index up 1.7 per cent, driven partly by expectations that the yen would continue to weaken.

But in the longer term, equity strategists warned that the result would prove negative for stocks. While the LDP will remain the largest party, parliamentary gridlock could put a halt to its tentative pro-growth structural reform agenda.

“The attempts by the LDP to find a coalition partner, and the potential difficulty that will cause, means that it will not be able to implement policy, so the market will be cautious in coming weeks,” said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.

Ishiba and his party will now begin a potentially weeks-long process of securing one or more coalition partners to form a government. Analysts said the LDP could be forced to compromise with several small, populist parties with fundamentally different policy agendas.

It could also consider readmitting a handful of parliamentarians whom it did not endorse because of their involvement in the slush-fund scandal.

Political analysts have said the loss would almost certainly force Ishiba, who was elevated just weeks ago and surprised many in his own party with the early poll, to resign. Were he to quit, Ishiba would become Japan’s shortest-serving leader of the modern era.

The scale of the LDP’s setback, its worst result since it lost power in 2009 to the Democratic party, a Constitutional Democratic party forerunner, is set to usher in a new episode for Japanese politics and mark the end of an era dominated by the policies of late prime minister Shinzo Abe.

Jesper Koll, an economist and long-term Japan watcher, said the result would intensify internal infighting and rivalries, making progress on reform almost impossible.

“In the world of money and investment, a key pillar to the bullish Japan thesis has been that Japan is a bastion of political and policy stability. After today’s election, this will become more difficult to argue,” Koll said.

Ishiba told NHK earlier on election night that it was premature to discuss whether he would step down and take responsibility for the loss.

But he told a rally on Saturday that the LDP, which has been in government for most of the past 70 years, was facing its “first major headwind” since it returned to power in 2012.

Ishiba’s unusually frank admission highlighted the risk of the snap election, which was intended to catch opposition parties off guard but instead gave voters a forum to vent dissatisfaction.

Constitutional Democratic party leader Noda had stressed that the election represented a chance to punish the LDP, which he said showed “no sign of remorse” for the scandal. He had called on voters to end an era of politics in which “the general public are made to look like fools”. 

Overall turnout was low, reflecting in part disillusionment among many younger Japanese with mainstream politics. Kyodo News put voter turnout at 53.8 per cent, one of the lowest on record.

Kimihiro Okuma, a 79-year-old retiree and longtime LDP supporter, said on Sunday that he was planning to shift his vote to another party.

“As a capitalist country, we have been safe under the Liberal Democratic party, and I think that was good, but recently things have become outrageous,” he said. “I basically support them, but . . . they have not changed the fundamental nature of the party, and they should be punished.”

Policymakers need a fresh approach on capital gains tax increases

Governments should consider lower rates for investment activities that drive innovation

On both sides of the Atlantic, governments are considering increasing taxes, especially those faced by investors. Among the proposals are increases to capital gains tax — the taxes that accrue on increases in the value of investments when they are realised. Added to that are proposed changes in the tax treatment of carried interest — rewards to investors who successfully invest funds entrusted to them by large institutions.

Not surprisingly, these suggestions have caused concern in the venture capital community. Moreover, evidence suggests that taxing the investors and entrepreneurs who are funding the next generation of start-ups is a counterintuitive move by policymakers who are also seeking to drive innovation and economic growth. Based on US evidence, when capital gains goes up, investment in start-ups declines.

That said, political reality suggests that capital gains increases are almost inevitable. So a different question is how this moment might be used to drive venture capital towards outcomes that matter most for our societies. What if we maintain lower rates for investment activities that drive innovation?

By focusing on the underlying behaviours we want to incentivise, we can structure taxes more effectively. When we provide tax breaks to companies for spending on R&D, we do it to spur behaviour we know is good for the overall health of the economy. For example, tax relief for energy storage batteries is an attempt to incentivise not just the rate of innovation but its direction. Why not capital gains too?

One of the criticisms of venture capital investing is that it focuses too much on supporting the sort of “quick win” ventures that use software to solve business or consumer needs. A handful of these extraordinary companies have provided exponential returns for their founders and investors. Naturally, investors have been laser-focused on the software sector to generate rapid returns. 

In response, governments have encouraged the venture community (and their pension fund backers) to increase investment in deep tech companies; from those designing next generation quantum computers to teams building novel space launch capabilities. Such ventures are capital intensive and importantly, take more time. Tax changes could be used to tip the scales.

For example, capital gains on investments in companies that are built on intellectual property from universities or national labs could be lower than the standard rate. And those who hold investments for a long period or invest in funds with longer time horizons could be rewarded.

Of course, the details matter and there are opportunities for gaming the system, but simply increasing all capital gains tax is too blunt an approach when some surgical reductions might have a positive impact.

This idea is not new: governments have a track record of changing investment tax rules to promote behaviours they value for our economy and society. The UK’s Enterprise Investment Scheme was created in 1994 to encourage private investment in young businesses by exempting capital gains tax. A later Seed Enterprise Investment Scheme was launched in 2012 to boost increase investment in start-ups to shift capital towards more innovation-driven ventures in hopes of encouraging the next Arm or Deepmind. The schemes have been demonstrably effective with more than 4,400 firms using EIS and 2300 start-ups using SEIS in the most recently reported tax year. Today, it could be targeted or expanded towards ventures that support other government priorities from health and clean energy to defence and security.  

We might also take inspiration from the other side of the Atlantic where the 2017 Jobs Act was used to spur investment in specific locations referred to as opportunity zones. Capital gains was deferred from investments in new businesses (or funds) in these zones and were tax free if held for more than a decade.

A similar approach in the UK’s Investment Zones could provide an added boost for investments in R&D-focused businesses essential to these regional innovation ecosystems. Without making the tax code impossibly complex, now is a time for fresh thinking. 

Leaders have an opportunity to carefully consider the investment attributes valued by our nations and use these as a road map to shape aspects of capital gains tax in ways that drive the key innovations that matter to our future.

The three cousins leading the $660bn Swedish business empire want more family members involved and, for the first time, women

The Wallenberg family of industrialists has begun its transition to a sixth generation as the power behind companies worth $700bn such as Ericsson, ABB, AstraZeneca and Saab breaks with tradition and considers 30 relatives for its succession planning.

Cousins Jacob and Marcus Wallenberg, both 68, who together with fellow 65-year-old cousin Peter represent the fifth generation, told the Financial Times that they had started offering observer roles on their foundation and corporate boards to the next generation, whose members are aged 12 to 45.

“At the end of the day, we are not growing younger. What we are doing is trying to prepare for the future, trying to prepare for the next generation. Exactly how and when that happens, time will tell. But we are clearly taking steps by giving them these roles,” said Jacob.

Marcus added, in a rare double interview: “One reflection is that the earlier we can give responsibilities that resonate with the individual, the better it is. There’s no wish to hold them back.”

Marcus added that, for the first time in the family’s 168-year corporate history, women were likely to be involved in its leadership, something he and his cousins “would welcome very, very much”.

The Wallenbergs are one of Europe’s leading family of industrialists, with large stakes in companies ranging from industrial groups Atlas Copco and Electrolux to private equity firm EQT and stock market operator Nasdaq.

In an unusual structure, the family themselves do not own the stakes, which instead are run by family foundations providing billions of Swedish krona annually to basic scientific research.

The foundations own assets of more than $30bn but have stakes, often controlling ones, in listed businesses with a combined market capitalisation of more than SKr7tn ($660bn)

That explains why the three cousins do not appear on Sweden’s rich lists. They are, however, each drawing an annual salary of SKr12.8mn ($1.2mn) as well as board fees.

Each of the first five generations of the Wallenbergs have provided just one, two or three members to oversee the companies they own through corporate boards as well as the foundations and their research projects.

But Jacob and Marcus said there were likely to be more than three people in the next generation. They believe they need to share the responsibility more broadly as the complexity of business and regulations has increased.

“Yes. It will be a team,” Jacob said, when asked if it was likely to be more than three.

Marcus added that he and his cousins had worked hard to divide the Wallenberg ecosystem into three different “buckets” that the sixth generation could choose between depending on their interests: business, foundations, or family.

“The activities that the family is involved with have expanded quite significantly over the years, and so that requires probably more people . . . Our hope and wish is that they would work as a team because we believe that this is going to be the most powerful outcome. The environment has changed drastically over those years in terms of regulatory issues, the size of the businesses,” he added.

The Wallenbergs have built up a vast network of corporate and political contacts across the globe, and the cousins said they had started taking members of the sixth generation with them on business trips.

Some of the 30 members of that generation work in the Wallenberg ecosystem, but most do not. They include an interior designer, a lawyer specialising in French environmental law, a credit analyst at a bank, and a vice-president at a US start-up. Two-thirds of them have observer roles, mostly on the 16 family foundations but also in some of the investment companies.

The family is keen not to single out any individuals as taking a leading role in the sixth generation. All the observer roles — including positions on the main family council — are on a rotating basis to allow the sixth generation to see what interests them: investing, helping with research and the foundations, or running the family side.

Currently, the three cousins are all involved in each aspect, although Jacob has the lead for the family, Peter for the foundations and Marcus for business.

Asked if it would be relief for the trio to get help from the sixth generation, Marcus answered: “Yes. I think not only relief, but also if we do this in the right way, I think it would make us very proud. The last thing we want to do is just to stand up from the chair and walk out the door. I mean, we really want to be there for them.”

Succession planning is one of the hardest aspects of any family business with dynasties from the Murdochs in media to the Arnaults in luxury goods grappling with it. Experts say that it tends to get more difficult with successive generations as the number of people involved multiplies.

But the Wallenbergs said their unusual structure, in which they themselves do not own the companies, helped take away one factor that led to problems in other family businesses.

“If you look at a number of the bad examples it’s frequently about money. In our case, it cannot be about the money or the capital in the companies as we are not the legal owners of it, we are just managing it. Hence there is nothing to quarrel about or fight about there,” Jacob said.

The sixth generation of the Wallenbergs should look at investing in asset classes other than equities, even if corporate ownership will remain the core of the family, the cousins added.

Marcus conceded that the family had not paid “much attention” to different asset classes in the past, other than helping set up the private equity firm EQT.

But he added: “We are now digging a bit deeper into that to see how it can complement our current asset classes. However, we do not see those replacing our interest in equities or the engaged owner concept.”

Proposal to impose value added tax in the Budget risks damaging diplomatic ties, ambassadors say

France and Germany have hit out at Sir Keir Starmer’s plan to levy value added tax on private school fees, saying the policy risks forcing hundreds of children out of international schools and damaging diplomatic relations with the UK.

Hélène Duchêne and Miguel Berger, French and German ambassadors to London, told the Financial Times that fee-paying international schools in the UK, which are part-funded by overseas governments, were not “conventional” independent schools and should not be subject to the levy.

The prime minister plans to remove the VAT exemption on private school fees from January, meaning an additional 20 per cent charge. The government says the policy will raise £1.5bn for investment in state schools, including recruiting 6,500 teachers.

Duchêne said it was for the UK to determine its own policies but warned that applying VAT to international schools was “not in line with the reset to our relationship which the British government has instigated”, referring to Starmer’s push to improve post-Brexit ties with European countries.

Diplomats in London said 25-30 per cent of the 6,300 pupils enrolled in French schools in the UK could be forced to leave as a result of the incoming charge, which other schools are passing on to parents in full.

Parents of 20-25 per cent of 900 students enrolled in The German School in London might no longer be able to afford fees, they said.

Both Duchêne and Berger also said the move risked deterring employees of European businesses from taking postings in the UK, because many wanted their children to follow their state curriculum while they were overseas.

There are 11 French schools in the UK overseen by the French government, including the Lycée Français Charles de Gaulle, in west London, which charges annual fees of up to £16,923.

These schools receive significant public funding from Paris, follow the French national curriculum and prepare pupils for French national exams.

Duchêne said: “We are not asking for an exemption to the rule; we are not the target of this VAT measure. Our schools are different from the target ones, since we follow special courses preparing for French exams.”  

VAT “could also be an issue for our companies, as they need these schools for employees coming to work here for a few years”, she said. “These parents don’t have a plan B because other schools don’t follow the French curriculum.” 

Commenting on the estimated 25-30 per cent of pupils enrolled in French schools whose parents might struggle to cope with the rise in fees in January, Duchêne said it was an accurate figure. 

The German school in Richmond, south-west London, where yearly fees are £10,400, is partly funded by Berlin. Berger said such schools were “totally distinct from British private schools. They serve as a cultural bridge between our two countries and as a possibility for people of the business community and other areas who want their children to continue in our national curriculum.

“We would really like to see the British government recognise the importance of these schools — not only for our political and cultural relations but also for the people this will affect,” he added.

“If we want companies to come here to invest, to send their executives, they must know they can send their children to a German school. For the whole relationship, I think it is a very important element.”

Diplomatic officials said just under 20 European schools in the UK would be subject to the new levy, with most unable to absorb it because their financial position had already been weakened by Brexit.

The Treasury said: “We want to ensure all children have the best chance in life to succeed. Ending tax breaks on private schools will help to raise the revenue needed to fund our education priorities for next year.”

Groups such as Hyatt and Marriott target region with upscale versions of all-inclusive holidays

A race to launch luxury, all-inclusive resorts has begun in Europe with Marriott and Hyatt, two of the world’s biggest hotel groups, vying to capitalise on demand from wealthy tourists as the package holiday goes upmarket.

The popularity of top resorts offering package breaks which include haute cuisine, champagne on tap and butler services is spreading from Mexico and the Caribbean to a region where all-inclusive has more typically been associated with all-you-can-eat buffets and cheap alcohol.

Hyatt earlier this month opened the 366-room Dreams Madeira resort on the Portuguese island, whose packages include à la carte restaurants, a 24-hour room and concierge service and premium spirits in the price. A five-night stay for a couple in June next year starts from just over €1,800.

The US operator expects to be able to offer all-inclusive luxury packages at multiple sites across Europe within a few years, including a location in the Canary Islands, and is hunting for hotel owners with which to develop these.

“We have a vibrant resort pipeline, with highly anticipated openings planned for the next few years,” said Javier Águila, group president overseeing Europe, Africa and the Middle East at Hyatt.

Hyatt already operates the world’s largest portfolio of high-end all-inclusive resorts with over 120 properties following its $2.7bn acquisition of resort provider Apple Leisure Group in 2021. However the most luxurious properties are in the Americas, while the majority of the near-50 resorts in Europe located in Spain, Greece and Bulgaria are in a more modest upscale category.

Marriott, which currently only has one luxury all-inclusive resort — the Sanctuary Cap Cana in the Dominican Republic, whose packages start at around $2,700 for five nights — is looking for a site in Turkey as well as others in Europe to launch similar packages.

“Competition [in luxury travel] is more fierce today than it has ever been before, and I don’t see that abating,” said Tina Edmundson, president of luxury at Marriott. “We’re obviously seeing a lot of demand from developers who want to build these new and unique locations.”

The company has also signed 10 contracts with hotel owners and developers to open new all-inclusive luxury sites in Mexico and Brazil.

The package holiday “has definitely reinvented itself,” pushed by families who want everything to be taken care of, said Ana Ivanovic, executive vice-president at property group JLL. “The majority of the big brands don’t have much exposure in Europe yet, so I think it’s definitely a way for them to grow and expand.”

The concept of luxury, all-inclusive breaks in Europe is not entirely new but the rollout has been limited. Sani/Ikos Group, a Greek resort chain backed by Singapore’s GIC, began offering such breaks almost a decade ago and now owns seven resorts in locations such as Marbella and Corfu. Ikos Odisia in Corfu provides a five-night stay from about €3,200 next June.

Chief executive Andreas Andreadis said he “would love the competition” with larger rivals such as Hyatt and Marriott. The group is spending €700mn for its all-inclusive Ikos Resorts brand to add three new venues in the region and extend existing properties. It also plans to open its first site in the Caribbean by 2028.

Interest comes amid predictions that the global luxury market is expected to surge. McKinsey, which defines luxury travellers as those who spend at least $500 per night on accommodation, predicted in a May report that global spending will increase by 64 per cent to $391bn in the five years to 2028, faster than for any other travel industry segment.

Demand is being driven by the rising number of high net-worth individuals but also by young “aspiring luxury travellers”, McKinsey said, who are willing to spend a larger share of their income on upscale options.

Such travellers are increasingly keen on all-inclusive stays, said Ivanovic. “It used to have this negative connotation when you think about the history of all-inclusive, [because] it was for students who were on a spring break who wanted to . . . manage their travel costs.”