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Jones has stepped down at the Italian brand, which is said to be in talks with several potential successors, including Pierpaolo Piccioli.

PARIS — Yet another high-profile design vacancy opened Friday when Fendi revealed that Kim Jones would step down after four eventful years as artistic director of haute couture, ready-to-wear and fur collections for women.

He will “now concentrate fully on his role of artistic director at Dior Men’s,” the Roman house said in a brief statement issued late Friday.

The development comes amid fevered — and often spurious — speculation about the vast game of musical chairs playing out at the highest echelons of European fashion.

There was no mention of the succession plan, only that “a new creative organization for Fendi” would be announced “in due time.”

According to market sources, Fendi has recently held discussions with designers including Pierpaolo Piccioli, previously creative director of Valentino.

In Friday’s statement, the focus was on Jones’ tenure, which brought collaborations and destination shows into the mix.

“Kim Jones made significant contributions to the brand’s creative legacy, seamlessly integrating his modern and cross-cultural aesthetics with Fendi’s historical heritage,” it said. “Under his leadership, the maison reinvented its ready-to-wear and couture collections, offering an inclusive and innovative approach to fashion that constantly renewed Fendi’s Italian codes. Throughout his four years, Jones’ work was wholly guided by passion and creativity.”

Bernard Arnault, chairman and chief executive officer of LVMH Moët Hennessy Louis Vuitton, lauded Jones as “a highly talented designer who has brought his unique and multicultural vision to Fendi over the past four years. I would like to thank him for his contribution and look forward to continuing to witness his creativity for Dior Men’s.”

Jones was one of the rare designers to straddle two luxury brands in two countries.

Still, his exit from Fendi adds to the creative upheaval roiling the industry, currently grappling with a slowdown in luxury consumption and consumer caution.

As reported, the employment contracts of John Galliano at Maison Margiela, Jonathan Anderson at Loewe, and Lucie and Luke Meier at Jil Sander are coming to term before the end of the year or in early 2025, according to market sources. There are also creative vacancies at Chanel, Dries Van Noten and Jean Paul Gaultier.

During his tenure at Fendi, Jones frequently referenced ready-to-wear designed by Karl Lagerfeld, who had famously created furs and women’s rtw for the Roman house from 1965 until his death in 2019.

Jones also collaborated closely with Silvia Venturini Fendi, artistic director of accessories and menswear collections, and her daughter Delfina Delettrez Fendi, jewelry creative director, whom he considered a key muse.

Over the past year he spoke enthusiastically about preparations for Fendi’s centenary in 2025, while stopping short of detailing specific plans.

When he joined Fendi, Jones became the latest acclaimed menswear specialist to broaden his fashion universe to womenswear, following on the heels of Hedi Slimane and Raf Simons.

For his first crack at Fendi, he took a client-focused approach centered on real clothes and the lifestyle needs of his close circle of female friends, which includes the likes of Kate Moss, Naomi Campbell, Ronnie Cooke Newhouse and Victoria Beckham.

He told WWD in an interview ahead of his Fendi rtw debut in February 2021 that he simply wanted to make “clothes that women will want to buy. I’m not gonna lie — I think that’s what my job is. I want all my friends to go, ‘I want that straight away.’”

He took pride in commercial success, and frequently boasted that Fendi revenues grew during his tenure to surpass 2 billion euros.

His collections received mostly positive, though hardly ecstatic, reviews, and it is understood some LVMH insiders looked dimly on some of his projects at Fendi.

In September 2021, he surprised the fashion world by pioneering a full creative swap: Donatella Versace designed a Fendi collection and Jones a Versace lineup for pre-fall 2022 retailing. They were known collectively as the Fendace collections and were sold at pop-ups across the globe, in addition to the Versace and Fendi websites and boutiques.

In 2022, Jones tapped Marc Jacobs to create a collection within Fendi’s spring 2023 women’s collection that was shown during New York Fashion Week, and also teamed with Tiffany & Co. for special Baguette handbags. He followed up in 2023 with a Stefano Pilati collaboration under the new “Friends of Fendi” banner.

Jones also endured some management turmoil during his four-year stint.

Last May, Pierre-Emmanuel Angeloglou was appointed CEO of the Italian luxury company, which he took on in addition to his role as managing director of LVMH Fashion Group.

He succeeded Serge Brunschwig, who served for six years as chairman and CEO of Fendi, building the brand’s retail network, investing in its industrial infrastructure, and forging a joint venture with Design Holding, forming Fashion Furniture Design (FF Design) to develop the Fendi Casa business.

A veteran of LVMH, Jones came on board in 2011 as men’s artistic director at Louis Vuitton, parlaying his zest for exotic travel into ultra-luxurious collections with understated cool and sly functionality. He helped ignite the luxury streetwear phenomenon with the landmark 2017 collaboration with Supreme, the cult New York skatewear brand.

Since joining the men’s division of Dior in 2018, Jones has stepped up the pace of collaborations, mostly with fine artists including Daniel Arsham, Kaws and Amoako Boafo, but also the surfwear maven Shawn Stussy, and the Jordan brand. The latter yielded one of the most sought-after sneakers of 2020, the Air Jordan 1 OG Dior limited-edition.

Jones has had a storied fashion career, with Galliano snapping up his graduate collection from Central Saint Martins.

He initially launched a signature menswear label. Known for its sporty, streetwear edge, the Kim Jones brand lasted for eight seasons and attracted the attention of Dunhill, where he was creative director from 2008 to 2011.

Challice Ltd. has rejected a new bid proposal by Frasers Group, saying it remains "very supportive" of Mulberry, and that it's not the right time to sell.

LONDON — Mulberry’s majority owner Challice Ltd. has asked Frasers Group to cease its pursuit of the accessories brand, and said any attempt at a takeover will fail.

Challice was responding to Frasers’ updated offer for the company, which was lodged after the market closed on Friday. Frasers has increased its proposed cash offer to about 111 million pounds from 83 million pounds, equivalent to 1.50 pounds for each Mulberry share.

In response, Challice reiterated its support for Mulberry, argued that it was an “inopportune time” for the company to be sold, and asked Frasers to walk away.

Challice, which is controlled by the Singapore-based Ong Beng Seng and his wife Christina Ong, described Frasers as a “supportive minority shareholder,” but said it has “no interest” in either selling its Mulberry shares to Frasers, or providing Frasers with any undertakings with regard to its possible offer.

It was the second time in less than two weeks that Challice has rebuffed Frasers, which made its first play for the loss-making Mulberry in late September.

Per stock exchange rules, Frasers has to deliver a firm and final offer to the Mulberry board, or announce that it does not intend to make an offer, by no later than 5 p.m. London time on Oct. 28.

In its statement, Challice described Frasers’ advances as “distracting” both to the company and its management.

Challice also noted that Frasers would need to secure control of more than 50 percent of the issued Mulberry shares for any offer to be successful. Challice, which holds a 56.4 percent stake in Mulberry, argued that without its support, any offer would fail.

“Challice hopes that by making its position clear, Frasers will be encouraged to announce that it does not intend to make an offer for Mulberry,” the statement said.

Challice, which has been a majority shareholder in Mulberry since 2002, has been down this road before with Frasers. This is the second time in four years that Frasers, which was founded and is ultimately controlled by retail tycoon Mike Ashley, has made a run at Mulberry.

In 2020, Ashley built up a stake so high that he was forced to make a bid or leave the company. He eventually walked away.

Ashley specializes in buying stakes in distressed companies, or in companies such as Mulberry, which sell through his retail chains.

On Friday, Frasers said it was flummoxed as to why its original offer was rejected.

Frasers described Mulberry’s latest financial results as “catastrophic,” and said it strongly believes it can provide the “appropriate insulation and investment to support a much-loved British brand. As part of the Frasers portfolio, the Mulberry brand would be provided with the platform to ensure its long-term survival and success.”

Frasers hasn’t exactly proven itself as a great caretaker of luxury brands.

Late last year, it purchased Matches at a knockdown price of 52 million pounds, and then placed it into administration shortly afterward. Frasers bought back the IP, and administrators sold off millions of pounds of fashion stock, leaving many of Matches’ designers and brands trying to recoup their losses.

Having originally touted the Matches purchase and positioned itself as the troubled company’s savior, Frasers quickly concluded that Matches was too expensive to bankroll against a backdrop of dwindling luxury demand, and a cost-of-living crisis.

In the last fiscal year, Mulberry reported a 4 percent decline in sales, and swung to a loss before tax of 34.1 million pounds.

Challice has acknowledged the challenges it is facing with Mulberry, and has also underwritten a capital raise of 10.75 million pounds to help restore the brand’s fortunes and deliver value to shareholders.

Frasers has challenged Challice’s strategy, saying it has “significant reservations” that the new capital raised would be enough to support the business through the near to medium-term.

“It is Frasers’ belief that this will lead likely to another capitalization event … unless there is immediate and very real change at the company,” it said.

The luxury resale pioneer will release 250 luxury items for just $15, as it moves to take a more active role in helping to shape fashion circularity and policy.

PARIS — With 15 years under its stylish belt, luxury resale pioneer Vestiaire Collective is celebrating its anniversary with a curated drop of 250 pieces priced at under $15.

It will be a treasure hunt for buyers, with a Fendi Baguette bag, a Dior Saddle belt pouch, a Louis Vuitton Neverfull tote and a Bottega Veneta bag on offer, alongside items from brands including Gucci, Chloé and Burberry.

The move comes as the company continues to expand its work in growing the resale and circular fashion sector. The latter three brands are long-standing partners of Vestiaire Collective, which has helped to build the resale game over its decade-and-a-half in business as one of the first movers in the online resale market.

“We made circular fashion a big thing, and that’s what I’m very proud of,” cofounder and president Fanny Moizant claimed. “We’ve seen interest and desire for people to consume differently.”

Launched in 2009, Vestiaire Collective’s growth bears that out: revenue in 2023 was up 25 percent to 157 million euros, on 824 million euros of gross merchandise value. Moizant chalked up the increase to new memberships more than an increase in basket value.

The U.S. is now the French company’s largest market, representing more than 20 percent of its activity, and sales there were up 57 percent year-over-year since 2019. With chief executive officer Maximilian Bittner based in the U.S. since last September, the company is focused on continued growth in the region.

A recent storyline on Netflix’s “Emily in Paris” that involved Vestiaire is poised to further boost business. The episode resulted in a 30 percent increase in search. That was accompanied by “big, big spikes” of new registrations and listings, which jumped 30 percent in Europe and 42 percent in the U.S.

“We are very hopeful that maybe the hardest job has been done, and we are on the path to conquer that market and to be even more successful in the future,” Moizant said.

Globally the used clothing market hit $43 billion in 2023, up from $23 billion in 2018, and grew about seven times faster than the overall retail industry according to a recent study by platform ThredUp. With consumers increasingly aware of and open to resale, Vestiaire aims to continue to shift the sustainability conversation around fashion.

“The first 10 years were dedicated to growing the business, and at some point, we really focused on making sure the house was clean,” Moizant said. The company gained B Corp status and partnered with nonprofit The Or Foundation, among other milestones. Now Vestiaire’s bold mission is to change the industry itself.

Moizant and cofounder Sophie Hersan started with listing just 3,000 items, mostly sourced from friends and family — now the company has sold more than 12 million. Much of that haul is handbags, with Vestiaire tallying more than 2.6 million handbags sold over the years.

The company’s research indicates that 80 percent of secondhand purchases on Vestiaire are instead of a firsthand purchase, which means about 10 million new items not purchased. Their data shows that model has saved more than 300,000 tons of carbon emissions, and diverted more than 4,800 tons of raw materials and 2.9 billion gallons of water from use.

Kering’s investment in the company in 2021 was a “critical, massive step” toward industry acceptance, Moizant said, and represented a new way of thinking about the fashion system. If a luxury conglomerate can see the value in secondhand, brands and buyers could, too, the reasoning went.

Big names jumped on board as partners, including Gucci, Burberry, Chloé and Courrèges. Vestiaire also attracted high-profile, self-professed fans with Jessica Chastain, Jessica Alba and Kim Kardashian touting their use of the site.

Last year’s AI-generated ad campaign featuring piles of clothing in front of global landmarks including the Eiffel Tower and Times Square has been among the biggest successes in communicating the company’s message, Moizant said.

“The campaign was basically putting the problem of over-consumption and the waste [it creates] on your doorstep,” she said. It was a turning point for the company and more effective than showing mountains of waste in the dumps of the global south. Sustainability messaging walks a fine line between promoting your business without greenwashing, and educating without admonishing, she said.

“It was another step to touch them personally, and almost physically, to imagine, what if that waste was on my doorstep? That campaign went completely nuts, in a good way,” she said of its viral reach.

The next iteration will be the company’s continued forays into policy making, pushing to decrease the value added tax on commissions, which increases the prices for buyers of secondhand fashion, at the French and European Commission level. With affordability being top-of-mind for consumers, this is an increasingly important topic for Vestiaire.

“We’ve also involved lobbying in our thinking and to be even closer to our mission. In the last five years, while we were scaling, we were going even deeper into our mission and vision, while not forgetting who we are,” said Moizant.

The company is now planning an additional program with The Or Foundation, which works on changing the current fashion business model and focuses on clothing waste. Moizant said the next project will include bringing “another piece of the industry” to Ghana, which imports about 15 million items of secondhand clothing each week, causing extreme environmental impacts.

The third round of the company’s “fast fashion ban” — which included Asos, Boohoo, Shein and Topshop in its initial round in 2022, and expanded to H&M, Gap Inc., Mango, Uniqlo and Zara last year — will be revealed in early November.

The company signed on to a petition launched by American Circular Textiles group addressing taxation on resale earlier this summer, and is working on publishing an open letter on the topic of fast fashion before the end of the year.

“We are trying to move the needle…to make sure we have the biggest impact,” Moizant said about the company moving into more political action.

The new drop is intended to keep Vestiaire’s unique balance. “We really keep it in our DNA to be activist, but at the same time quite playful and quite engaging in the way we operate the business,” she said. “Vestiaire is very playful as a platform. This campaign is hitting both of those values.”

The drop will feature dedicated items for the Asia, Europe and U.S. markets. The selection will be available for under $15 (or pounds, or euros, depending on the region) and will go live worldwide at noon CET on Tuesday.

Pfizer has problems an activist can’t fix

Not quickly, anyway

Pfizer and Starboard

The FT coverage of the Starboard Value-Pfizer affair has been a lot of fun to read. A week ago we learned that the activist investor had built up a $1bn stake in the drug company — market cap $165bn — and that former Pfizer CEO Ian Read and former CFO Frank D’Amelio had pitched current CEO Albert Bourla and several board members on the activists’ plan. Last Tuesday it came out that Bourla was set to meet with Starboard, and it looked like the activists had Pfizer on the back foot. But then on Thursday it turned out that Read and D’Amelio had had second thoughts and were “fully supportive” of Bourla and the board. 

The final morsel to drop was the fact that Bourla had found out that Starboard was circling from what appeared to be a fat finger email from D’Amelio — with no message — that cc’d a representative of Starboard. Starboard had planned to announce its investment at a conference later this month. Oopsie. 

Over in the Lex column, my colleague Pan Yuk has already pointed out the reason why Pfizer might look like a target for activists. The share price has been falling since Pfizer’s blockbuster Covid vaccines stopped bringing in big revenues. The stock is cheap compared to peers’. The company spent much of the vaccine windfall on the $44bn acquisition of Seagen in March last year, which has yet to pay off. Yuk also points out, however, that while Pfizer is in need of a turnaround, it is not at all clear what can be done. She’s right — but there may be one thing that would work for Starboard. 

Some context first. Below is a list of the 15 largest pharma companies in the world, along with their price/earnings valuations, and expected revenue and earnings per share growth for the next 3 years:

The reason Pfizer is cheap is clear. It isn’t growing. Revenues are expected to grow at a sub-inflation 1 per cent rate over the next three years; earnings per share growth (supported by some cost cutting and share buybacks, presumably) are expected to average 5 per cent, among the very lowest in the group.

Low growth is not an easy problem to fix in pharma. Most of the time, pharma companies grow because their drugs work, and that depends on science, not corporate finance. Maybe the Seagen acquisition will pay off in the end, or maybe other pipeline candidates will come good. But Starboard can’t control clinical trials. 

It is worth remembering that 15 years ago, Lilly, now the biggest pharma company in the world and still growing fast, was struggling mightily to grow as patents expired and one clinical program after the other went wrong. It had a P/E ratio of 8. Ten years ago, on the other hand, Bristol-Meyers’ cancer drug portfolio was the envy of the industry, its stock was on a rip, and it had a P/E ratio over 40. Now Bristol is looking at falling revenues and is the cheapest big pharma stock (and was, not coincidentally, the target of an unsuccessful Starboard activist campaign in 2019). Fortunes change slowly in pharma, and in unpredictable ways. 

With that said, what can Starboard ask for that might help? A few ideas:

Even a new management team and (say) some turnover on the board might not move Pfizer’s stock a ton. But if Starboard could move the shares, say, 10 per cent, they might take their $100mn gain and go home.

$10mn? $30mn? $100mn? The redefinition of the super-rich

The rapid rise in billionaires has disrupted what it means to be part of the moneyed elite

Talk to 10 different wealth industry professionals about when you become super-rich (an ultra-high-net worth individual, or UHNW, in industry parlance) and you will get 10 different answers. For a law firm, it can mean having investable assets — spare cash not tied up in property — of $10mn; for a wealth manager, it can mean having at least $30mn; for an exclusive private members’ club, the hurdle can be as high as $100mn.

What they do agree on, however, is that the base figure is rising, and quickly. The monetary definition has shifted significantly, reflecting not just the growth in wealth globally, but also the changing expectations of what it takes to be considered part of this elite group.

David Gibson-Moore, president of consultancy Gulf Analytica, says the traditional $30mn level “allows for significant investments across multiple asset classes — stocks, bonds, real estate, private equity” — while also furnishing luxuries such as private-jet travel. But, over time, as the financial world has expanded and the accumulation of wealth has accelerated in certain sectors, particularly technology, “the bar for what it means to be ultra-wealthy has risen” he observes. “The $30mn threshold . . . doesn’t carry the same weight or exclusivity it once did. In today’s world, $30mn might secure you a luxurious lifestyle but, in the realms of the ultra-rich, it’s increasingly viewed as just the starting point,” Gibson-Moore adds.

“The ultra-rich today are being measured by new standards, with some financial commentators now suggesting $100mn is the new yardstick for anyone who wants to keep their head held high at private equity parties.”

Charlie Wells, managing director of high-end property buying agency Prime Purchase, agrees: “The dial keeps ticking upwards when it comes to defining ‘UHNW’. Forty years ago, a millionaire with a Rolls-Royce may have been the epitome of wealth. But, thanks to inflation, the numbers are constantly growing. Only recently, someone worth £20mn-plus would have been considered very wealthy but now you need £50mn-plus to be truly UHNW.”

This shift is driven by several factors. First, says Gibson-Moore, is the explosion of new wealth in technology and entrepreneurship. “Over the past two decades, we’ve seen the rise of tech billionaires, cryptocurrency pioneers and venture capitalists who have amassed fortunes at an unprecedented pace,” he says. “The ability to build companies worth billions seemingly overnight has compressed the time it takes to reach UHNW status and these new wealth holders often operate in a different financial universe than the more traditional wealthy class.”

Dominic Volek, group head of private clients at Henley & Partners, which advises wealthy individuals on citizenships and residencies, says: “There has been a jump in wealth creation — and one only needs to look at the tech sector, where billionaires are now common. The diversification into asset classes like cryptocurrencies and NFTs [non-fungible tokens] has also created UHNW individuals almost instantaneously.”

If you take $30mn as the accepted definition for what it takes to be a UHNW, data from consulting group Capgemini shows the number jumped from 157,000 in 2016 to 220,000 last year.

The scope of what super-rich individuals invest in has broadened, too. It is no longer just about having a diversified portfolio; today they might have stakes in disruptive tech start-ups, sustainable ventures or even space exploration. This new frontier of investment requires much larger sums of capital and comes with greater risks — but also offers the potential for exponential returns.

Inflation in luxury assets — such as property, fine art and collectibles — also means it takes far more to maintain a lifestyle traditionally associated with super-rich status. Volek says: “$30mn just doesn’t stretch as far as it did a decade ago.”

A painting by Jean-Michel Basquiat, for example, sold for $57.3mn at an auction in 2016 then again for $85mn six years later. Likewise, the price of entry into exclusive property markets such as Monaco, Mayfair or Aspen in Colorado has soared, with the average price of a house in London’s Grosvenor Square, for example, stretching to around £20mn. The costs of maintaining private aircraft, yachts and other luxury assets have similarly grown, making it far costlier to maintain the hallmarks of ultra-wealth. Experts suggest the annual running cost of a $10mn superyacht can now easily be as much as $1.5mn.

For the owners of R360, an invitation-only private members club, it is clear what the number should be to be considered ultra-rich and eligible for membership: $100mn. Barbara Goodstein, managing partner and chair of the New York chapter of R360, which offers members exclusive investment opportunities, confidential support groups and private getaways, says: “We focus on serving centimillionaires.”

She says, at that level, they get people who are “less focused on short-term investment opportunities and more interested in becoming stewards of wealth”. Goodstein notes that the $100mn threshold has been the criteria for membership at R360 since inception in 2021. “While we don’t anticipate an increase in the near future, we recognise that the average wealth of our members has steadily increased over the past few years and is now more than $400mn.”

The age of members ranges from 28 to 84 but Goodstein adds that R360 is seeing a notable rise in younger members, “with many recently successful entrepreneurs joining in their late twenties and early thirties”.

The question that follows — irrespective of the definition — is why it is so important to the very wealthy to be classified as such. What extra doors does it open?

UHNW individuals receive significantly different treatment because of the scale and complexity of their wealth, Volek adds. “Not only do they have access to better investment opportunities and more diversified portfolios, but they also have dedicated relationship managers who look after them and are available 24/7.”

They often get access to pre-initial public offering deals, private placements and other high-return opportunities that the “broader market doesn’t even know exist”, says Gibson-Moore. For example, Stripe, a fintech payment company, has conducted several rounds of private financing, most notably raising $600mn in 2021 at a valuation of $95bn. This funding round was only available to a select group of institutional investors and the super-rich.

Lifestyle perks can vary. One of the most lavish examples seen by Samuel Wu, chief investment officer of Hong-Kong-based Tridel Capital and co-founder of Chartwell Family Partners, was a European trip given to a super-rich family by a bank in return for their custom.

“More commonly, perks include invitations to concerts, meetings with celebrities [and] successful figures as well as economic leaders,’’ says Wu. ‘‘This is a form of marketing, and these costs are often reflected in the prices being charged. One particular Swiss bank is humorously known to run its entertainment programme better than its banking.” Wu says.

On the flipside, Volek at Henley & Partners says that he also knows of banks “off-boarding” private banking clients with less than $5mn in assets because they were deemed not profitable enough to have as customers. He says it shows that size now really matters in the world of the ultra-rich and that, while the definition might still be up for debate, the level at which you can be classified as UHNW is only going one way: up.

Russia’s shadow fleet grows despite western crackdown

Moscow’s capacity to transport oil on old underinsured ships has increased by 70% since last year, says report

Russia has expanded the capacity of its shadow fleet of oil tankers by almost 70 per cent year-on-year despite a recent crackdown on insurers and shipping companies enabling Moscow to circumvent western sanctions, new research has shown.

The volume of Russian oil transported by poorly maintained and underinsured tankers has increased from 2.4mn barrels per day in June 2023 to 4.1mn in June 2024, according to a report published by the Kyiv School of Economics (KSE) on Monday.

The trend comes as the US, Canada, Japan and European allies increasingly targeted global insurers and ship owners in a bid to crack down on Moscow’s ability to generate revenues for its war in Ukraine. They also added to the sanctions list companies and individual vessels associated with the Russian shadow fleet. 

“Sanctions on tankers have been quite effective but the designation campaign has been too limited to actually rein in Russia’s shadow fleet,” said Benjamin Hilgenstock, one of the authors of the KSE report.

He added that sanctions should be used “systematically” to enforce a requirement for adequate oil spill insurance and, thereby, “address the serious and urgent environmental threat stemming from the shadow fleet”.

Many of these vessels regularly navigate busy European waters, including the Baltic Sea, the Danish Straits and the Strait of Gibraltar, increasing the risk of environmental disasters for the EU and neighbouring countries.

KSE proposes the establishment of “shadow-free” zones in European waters to mitigate those risks. Otherwise a disaster is just “waiting to happen on Europe’s doorstep,” the report argues. “The weak link in the regulatory framework, together with the dramatically expanded role of shadow tankers in the Russian oil trade, means that a major environmental disaster is only a question of time.”

In June 2024, 70 per cent of Russia’s seaborne oil was transported by the shadow fleet, which Russia is estimated to have spent $10bn assembling, according to the KSE. This included 89 per cent of Russia’s total crude oil shipments, most of which traded above the $60 per barrel price cap since mid-2023, and 38 per cent of Russia’s oil product exports.

By assembling this fleet, Moscow severed ties with price cap coalition countries that pressured global insurance companies to comply with the sanctions regime, reducing Russia’s options to primarily domestic insurers.

This raised significant concerns about such coverage's quality, reliability, and scope. The combination of the tankers’ age — which averages 18 years — and lack of adequate insurance makes these vessels extremely hazardous, the KSE report argues.

The risks are further heightened by the fleet’s use of grey-listed flag states anonymous ownership structures. They often include multiple intermediaries such as British accountants and Dubai-based companies hidden through layers of corporate entities, the FT's recent investigation found.

KSE report authors argued that in the event of trouble, European states could face clean-up costs running into billions of euros.

Several accidents involving shadow ships associated with Russia have already occurred. This March, a 15-year-old shadow tanker Andromeda Star collided with another vessel near Denmark. No oil was spilt as it was on the way to Russia, unloaded.

Over the past two years, four Russian shadow fleet vessels have lost engine power, including incidents in the Dardanelles and the Danish Straits.

Shadow fleet vessels used to carry oil from other sanctioned sellers also experienced engine breakdowns, highlighting maintenance issues and explosions. In May 2023, a 27-year-old Gabon-flagged ship with 700,000 barrels capacity used to transport Iranian oil suffered a large explosion near Indonesia. It was empty at the time.

Several shadow fleet vessels have been involved in oil spills, with some fleeing the scene after causing environmental damage. In 2019, the 23-year-old Ceres I, previously involved in the Iran oil trade, collided with another tanker near Singapore, turned off its signal, and tried to flee before being caught by Malaysia’s coastguard.

Europe searches for scale in race to boost ammunition production

Efforts to supply Ukraine and replenish inventories are hampered by bottlenecks and under-investment, say industry experts

The war in Ukraine has an unlikely new frontline. A new munitions factory in Queensland, Australia, jointly owned by Germany’s Rheinmetall and a local contractor NIOA, is churning out tens of thousands of artillery shells for Kyiv. 

Work at the Maryborough factory, the first such facility to be built in Australia since the second world war, has barely stopped since it opened two years ago. Although it took time to secure the workforce, “now we are flying,” said Robert Nioa, chief executive of NIOA. 

The company, which exports the shells to Germany where they are then filled with explosives by Rheinmetall, plans to increase annual production at the facility by 25 per cent to around 55,000 shells next year. Nioa says it could produce more than 100,000 shells a year with more capital investment. 

Like NIOA, other defence companies globally have boosted output of everything from ammunition to rocket motors and missiles to replenish national stockpiles which have been depleted as governments have shipped arms to Ukraine.

Some European arms producers have made progress over the past two and a half years, often investing ahead of securing government contracts. Tom Waldwyn, research associate for defence procurement at the International Institute for Strategic Studies, said in some instances European companies had expanded artillery ammunition production “by as much as 10 times what they were producing before the war”. 

Rheinmetall has plans to increase output of Nato-standard 155mm ammunition from around 100,000 rounds before February 2022 to 1.1mn rounds per year from 2027. Sweden’s Saab said the capacity of its ground combat business, which includes ammunition, had doubled to 200,000 units a year in recent years — and it is on course to double that again to 400,000 in the near future. 

Thales UK, the British subsidiary of the French defence and technology group, has similarly increased capacity at its facilities in Belfast, Northern Ireland where it builds the Starstreak short-range air defence system and assembles the Saab NLAW anti-tank system. The company plans to double capacity over the next two years and then double again by 2028. 

But overall, efforts are still being hampered by supply chain constraints, and industry stakeholders say that much greater investments are needed if Europe is to be able withstand Russia’s aggression while also refilling depleted stockpiles.

Some key bottlenecks remain, notably for raw materials such as cotton linters which are needed to produce nitrocellulose used in artillery shells and other explosives. 

There are “significant supply chain issues with munitions supply for Australia and the Allied effort,” said Nioa, including “nitrocellulose . . . which goes into propellant”. 

Rheinmetall said it had increased the “safety stock” for certain raw materials such as “cotton linters and armoured steel to around three years of annual production” in order to de-risk its supply chains. 

Norway’s government said last week it would invest close to NKr1bn (£70mn) to boost production of critical explosives and rocket motors as part of a plan for its defence industry.

It will co-finance a feasibility study with Chemring Nobel, the Norwegian subsidiary of Britain’s Chemring, to assess the development of an explosives facility. The funding also includes plans for a new rocket motor production line for Nammo, co-owned by the Norwegian and Finnish governments. The company produces rocket motors for air defence missiles among other things. 

Rocket motors, said Vegard Sande, director of large calibre systems at Nammo, “are not the only bottleneck for increasing the number of missiles for air defence but it’s one of the critical components where we have to increase capacity”.

Although companies have now secured contracts from governments to boost capacity, ramping up production takes time. “It takes two to three years from an investment decision before you see a production increase,” said Sande. 

And as Ukraine confronts its third winter of war, the industry says more needs to be done to make up the gulf between supply and demand.

Jan Pie, secretary-general of ASD, the industry trade body, said that production levels were still short of what was required, especially following decades of under-investment in Europe’s industrial base.

“If the objective is to provide adequate support to Ukraine to withstand Russia’s aggression and to build up sufficient military capacities to deter Russia from further aggression, we have to procure and to produce in Europe much more and much faster,” he said.

Russia, on the other hand, is operating on a war footing. Thanks to support from North Korea, Moscow can currently expend around 10,000 rounds of ammunition per day with no fear of depleting its stockpiles, according to a recent report by the Kiehl Institute for the World Economy. At a similar rate of fire, Germany would use up a year’s worth of its entire ammunition production within 70 days, it said. 

The Russians, said Guntram Wolff, senior fellow at Bruegel think-tank and co-author of the study, “have large factory lines . . . massive assembly lines, where the numbers that are churned out are frighteningly high”. 

The west needed to step up, he added. “This is about building industrial capacities at scale and being able to produce for years at scale.”

But in order to deliver at scale — and over time — executives said the industry needs much longer contracts to invest. 

“If we are going to raise the necessary capital and do heavy investments based on order intake we need a 10-year perspective,” said Nammo’s Sande. 

Micael Johansson, chief executive of Saab, echoed the point. Industry, he said, “needs more long-term commitment from nations as it is taking on risk ramping up capacity without guaranteed long-term contracts”.

Use of payment-in-kind loan terms is growing as companies struggle with heavy leverage and high interest rates

A growing list of cash-strapped companies have turned to their lenders at private credit funds for relief in recent months, seeking to conserve capital by delaying payments on their debt.

The rate at which companies are opting to increase their principal balance instead of paying cash, known as “payment-in-kind” or PIK, edged higher during the second quarter, according to a recent report from rating agency Moody’s. These types of loans have a catch: while they provide temporary relief, they often come with a higher interest rate on a mounting debt load as the deferred payments pile up. 

The publicly traded private credit funds that the rating agency keeps tabs on reported the highest levels of PIK income since it began tracking the data in 2020 — though the income is paper profit and it is not clear how much of the gains will actually be realised.

The growth in these types of loans is one signal of stress in corporate America even as the broader economy expands, particularly for businesses that were leveraged to the hilt by their private equity owners and are now struggling with those interest burdens.

“PIK was born out of necessity and is something that people in the market viewed as a temporary situation,” said Sheel Patel, a partner at King & Spalding, referring to recent high interest rates. “Even though the interest rate environment has changed, I think that sponsors will continue . . . trying to keep it in their documents.”

While the Federal Reserve’s move to cut interest rates in September is the first step in alleviating pressure on borrowers, rates are expected to remain far higher than the rock-bottom level they hit in the immediate aftermath of the Covid-19 pandemic, when private equity firms went on a debt-fuelled buyout binge.

Companies could afford the interest burden then. But as rates surged above 5 per cent, interest costs for many highly levered businesses began to eat up most of their cash. That financial distress is showing up, in part, through the swell of PIK income reported by credit funds, fuelling worries that some borrowers are wrestling to stay afloat.

The shift to PIK borrowing is just one risk being borne by the burgeoning private credit industry, where asset managers lend directly to businesses. The loans — while risky — can generate lucrative returns to the lenders who are willing to provide the capital.

Moody’s estimated that 7.4 per cent of the income reported by private credit funds was in the form of PIK during the most recent quarter. Analysts at Bank of America pegged the figure at 9 per cent and said its analysis showed that these funds had gone one step further: 17 per cent of the loans they hold give the borrower an option to pay at least part of their interest with more debt going forward, even if they are not doing so now.

In the second quarter, Blue Owl’s technology fund reported that 23.6 per cent of the income it was earning was in the form of PIK. It was followed closely by Prospect Capital at 18.6 per cent, New Mountain Finance at 17.7 per cent and Ares Management’s ARCC — one of the largest of the funds — at 15.4 per cent.

Prospect did not respond to a request for comment. New Mountain declined to comment.

Beauty Industry Group, a maker of hair extensions backed by private equity group L Catterton, was among the companies seeking to reduce its cash interest burden this year. Its lender, Blue Owl, agreed to take roughly a fifth of its interest payments in PIK. In exchange for the option, the company’s overall interest bill went up.

The same was true for Avalign Technologies, which sought flexibility from Ares this year. The manufacturer of medical implants amended its loan so that, while it would pay more over time, it could put off roughly 30 per cent of its interest payments.

While PIK income is counted as income each quarter, the funds do not receive cash payments until the loan is refinanced or matures. That can create a liquidity crunch for funds, which are required to pay out 90 per cent of their income to investors, even when they have not received cash on those debts.

The uptick in PIK income itself can make investment income at these funds look more attractive, even though the companies bearing the debts are struggling — and the funds are not yet getting paid in full.

PIK is not always a worrying sign, said Clay Montgomery, a Moody’s analyst. Some funds offer PIK to allow healthy businesses to direct their cash towards expansion plans. But it can be difficult for investors to discern when PIK is being extended to give a lifeline during a time of financial stress, or ambition.

For investors, understanding the difference is crucial. Lenders said that if built into a loan at the start, PIK did not indicate stress. Ares said that more than 90 per cent of second quarter PIK income at one of its funds was structured at the start of the investment. Blue Owl said more than 90 per cent of the loans in its technology fund that can defer payment were structured that way from the start.

Because PIK income compounds at a higher rate than cash interest payments, it can be a boon to lenders. But by the same token, once it starts rising, it can become too onerous for some companies to pay back. It can also be used as a tool to avoid impairing debt until a later date, with some investors worried it allows companies to kick the can on what will still end with a default and resulting loss.

Khoros, a software company owned by Vista Equity Partners, is one such company that struggled to repay its PIK interest bill as its business deteriorated. Earlier this year it began to defer the entirety of its debt payments — at an interest rate of more than 16 per cent — and several lenders marked it as a troubled loan.

Vista and L Catterton declined to comment. Linden Capital Partners, the owner of Avalign, did not respond to a request for comment.

Sharp drop in the value of preowned electric vehicles stands in contrast to the broader used-car market

Electric cars have gone from pricey purchases to some of the biggest bargains on the used-car lot, as resale values for the vehicles have tumbled.

Two years ago, some used electric-car models were selling for as much or more than new ones, because of a supply-chain crisis that resulted in a broader car shortage.

Now, the dynamic has flipped. Dealer lots are full of unsold EVs, and car companies—largely led by Tesla—have slashed prices on new models in an effort to sell them.

The discounts on new EVs have helped prop up flagging sales. Financing deals elevated Tesla’s global deliveries in the third quarter, reversing declines earlier in the year.

But the flood of discounts has caused prices for previously owned electric vehicles to plunge, adding to the challenges confronting the auto industry as its big bet on battery technology continues to sputter.

In September, the average selling price of a three-year-old electric vehicle was about $28,400, less than that of a gas-engine vehicle of the same age and a 25% drop from the start of 2023, according to car-shopping website Edmunds. The sharp fall in the price of preowned EVs stands in contrast to the broader used-car market, where values have stayed steady during the same period, according to the firm’s data.

The sharp decline in prices of used EVs could potentially broaden their appeal to budget-conscious buyers, analysts say. At the same time, many current owners who paid a premium for their cars are now upside down on their loans, owing more than the car is worth.

Among the hardest hit are some Tesla owners.

The world’s top seller of EVs last year cut prices by as much as one-third on some new models in the U.S., leading other automakers to respond with their own markdowns. On top of that, rental-car company Hertz in January dumped a large chunk of its Tesla fleet into the used-car market, further depressing values, analysts and dealers say.

Within the past year, the average list price for a used Model 3 and Model Y—Tesla’s most popular models—dropped about 25%, according to data from car-listing website CarGurus.

“They kept reducing the price of the cars, which killed the used-EV market,” said Christian Lange, the owner of a 2018 Tesla Model 3, which he had purchased brand new. In early 2023, the vehicle was valued at around $35,000, roughly equivalent to what he owed on his loan.

Normally, buyers gradually build equity in their vehicles as they make payments. But the reverse happened to Lange, because sharp price reductions on new Teslas made his vehicle worth less as well. At the start of this year, the value of Lange’s Tesla had dropped so much it was worth $10,000 less than what he owed on his loan.

Frustrated with Tesla, Lange said he traded his Model 3 for a Kia EV9. Tesla didn’t return a request for comment.

As buyer interest in EVs has continued to subside this year, automakers have become more aggressive with their sales promotions for new models, offering cheap leases and low-interest-rate financing deals that are sapping demand from the used-car lot.

Some brands are lowering payments on new EVs by applying a $7,500 tax credit available for such purchases directly to the lease deal.

As a result, the average monthly payment on an electric-car lease has fallen from $950 at the start of last year to $582 in August, according to Edmunds. That figure would be roughly comparable to what one would pay each month on a loan for a $28,000 used EV, said Ivan Drury, the firm’s director of insights.

“The biggest competition for one- or two-year-old used vehicles is across the lot. It is the brand-new version,” Drury said, referring to previously owned EVs.

Leasing has quickly become the most popular method of buying a new EV. At the start of last year, 16% of electric-vehicle sales at dealerships were leases, according to Edmunds. Today, the figure is nearly 80%.

Auto executives admit they misjudged the market, and that miscalculation is taking a toll on the used-EV prices. To limit supplies, car companies are pulling back on their ambitions, including reducing production and delaying expansion plans. Some are also taking precautions with their EV leases to preserve resale values.

“We don’t want to end up in a situation where we’re just producing to a target, and the demand isn’t there,” said General Motors Chief Financial Officer Paul Jacobson on a call with analysts in July. “You’ve got residual value implications which stay with you for a long, long time.”

Prices in the preowned market have also been hurt by a new federal tax credit for used-EV purchases. The $4,000 credit, introduced early last year, only applies to electric cars selling for under $25,000, a requirement that has led some dealers to cut the price to get under that amount, analysts say.

Dave Katarski, operations chief for Feldman Automotive Group, a large dealer group in Michigan, said his stores have been selling more than 200 used electric cars a month, a significant increase from a year ago.

The used-EV tax credit has helped stimulate interest among consumers, along with an influx of cheap Teslas previously owned by Hertz, he added. “We’re seeing a ton of people flock to them when they can afford them,” Katarski said.

There are also some troubling signs. An Edmunds study of EV trade-in values showed that in August, owners on average owed about $10,000 more than the car was worth—up from about $8,000 at the start of 2023.

The abrupt rise in electric-car leasing could also have longer-term implications, said Kevin Roberts, head of industry insights at CarGurus.

While helping to alleviate inventory buildups now, it is likely to result in a flood of gently used EVs returning to the market in two to three years. This potential wave could put more downward pressure on prices, Roberts said. Automakers and lenders, who own the leased vehicles, would be on the hook for any losses incurred by steeper-than-expected drops in resale values.

“There’s no positive way to put this,” said Edmunds’s Drury, adding that 77% of EVs from dealerships were leased. “The problem is those are coming back.”