TheChek News Flow

Low price is due to a 'mandatory discount' enforced by Russian government

Yandex N.V., the Dutch parent company of the eponymous Russian internet giant, is selling the last of its remaining Russian businesses at a steep discount, following geopolitical pressures that emerged from Russia’s invasion of Ukraine two years ago.

The value of the transaction, which will include the sale of all Yandex N.V. businesses in Russia and a handful of neighboring markets, will amount to around 475 billion rubles ($5.2 billion) — roughly half of its market capitalization as per the average share price in the three months ending January 31, 2024. The reason for this markdown is due to a rule imposed by the Russian Government, which stipulates that any sale of Russian assets by parent companies incorporated in countries deemed “unfriendly” by Russia, will be subject to a “mandatory discount” of at least 50 percent. And the Netherlands, as a member of an EU bloc that has imposed sanctions on Russia, falls into that “unfriendly” category.

“Google of Russia”

For context, Yandex was founded way back in 1997 and eventually became known as “The Google of Russia,” given that it sold products broadly similar to its U.S. counterpart including search, e-commerce, advertising, maps, transportation and more. But while Yandex’s primary market was Russia, the company went public on the Nasdaq in 2011 via a holding company called Yandex N.V. registered in the Netherlands, followed by a secondary listing three years later on the Moscow Exchange.

Yandex had been performing well as a public company, hitting a peak market cap of $31 billion in November, 2021. However, in the months that followed, Yandex’s shares nosedived as Russia invaded neighboring Ukraine, with the Nasdaq putting a temporary halt on trading before delisting Yandex (alongside several other Russian-affiliated companies) last March.

Fast-forward to today, and it’s not much of a surprise that Yandex N.V. — the parent holding company — is now offloading all remaining assets linked to Russia. Indeed, many Western companies suspended operations in Russia due to sanctions, and Yandex CEO and founder Arkady Volozh was forced out of the company after he was placed on a list of sanctions issued by the European Union.

Subsequently, Yandex has already been divesting some of its properties, including selling its news service to a rival with close ties to the Russian State, and the company announced plans for a corporate restructuring to further distance itself from its Russian roots. Yandex had also said previously that it would re-brand its Dutch holding company, though this had yet to happen — but once this deal concludes, Yandex N.V. has confirmed that it will no longer use the Yandex brand, as that will be kept by the new Russian owners.

“We expect that our international businesses will develop their own branding going forward,” Yandex wrote in a press release. “We intend to seek shareholder approval to change the legal name of YNV in due course.”

Consortium

Breaking down the terms of the transaction, Yandex N.V. will be paid “at least” 230 billion rubles ($2.5 billion) in cash, which will be paid in Chinese Yuan (CNH) — presumably because the buyers, who are all Russia-based, aren’t able to transact in dollars or euros.

In terms of who the buyers are, well, Yandex says it will be a consortium led by senior managers from Yandex’s Russian businesses, who will provide some of the acquisition capital via a special purpose limited liability company called “FMP.” Other investors include an entity called Argonaut, which Yandex says is a closed-end mutual investment combined fund owned by Russian oil company PJSC Lukoil; “Infinity Management,” a special purpose joint stock company owned by venture capitalist and entrepreneur Alexander Chachava; “IT.Elaboration,” a special purpose joint stock company owned by Pavel Prass, CEO of investment manager Infinitum Asset Services; and “Meridian-Servis,” a special purpose limited liability company owned by businessman and former politician Alexander Ryazanov.

Notably, the businesses that Yandex N.V. is selling represent “more than 95%” of the Yandex Group’s revenues for the first nine months of 2023, and roughly the same portion of its entire assets and employee headcount. Put simply, Yandex N.V. will be a much trimmer outfit once this transaction closes — its remaining “non-Russian assets,” as it puts it, will include four early-stage technology businesses. These include an autonomous vehicle company called Avride; an AI cloud platform called Nebius AI; a generative AI and LLM company called Toloka AI; and edtech platform TripleTen.

Elsewhere, Yandex N.V. will also retain ownership of a data center in Finland, plus some other investments in various technology companies.

The deal, which is still subject to regulatory and shareholder approval, is touted to close in two stages — the first part will see Yandex N.V. sell a 68 percent stake of the Russian businesses within the first half of 2024 in a mixture of cash and shares in the Dutch entity. The second part is expected to close within seven weeks of that first stage closing.

The company says that it plans to use a chunk of its cash proceeds from the sale to further develop its remaining businesses, and deliver a return to its shareholders.

“Since February 2022, the Yandex group and our team have faced exceptional challenges. We believe that we have found the best possible solution for our shareholders, our teams and our users in these extraordinary circumstances,” said Yandex N.V. chairman John Boynton in a press release. “The proposed transaction will allow shareholders to recover some value for the businesses that we are divesting, while unlocking new growth potential for the international businesses we will retain and enabling the divested businesses to operate under new ownership.”

Group of creditors to René Benko’s property empire seek urgent investigation into collapsed group

Creditors of René Benko’s Signa have filed a criminal complaint with Austrian anti-fraud prosecutors, calling for an urgent investigation into the collapsed property group.

The complaint was filed with Austria’s State Prosecutor for Economic Crime and Corruption (WKStA) late last week by a Viennese law firm on behalf of a group of international, institutional investors who are long-term lenders to Signa.

Signa Development, one of the three main holding companies of the Signa Group, engaged in “unlawful transactions” before its insolvency filing on December 29, the creditors allege in the complaint, a copy of which has been seen by the Financial Times.

The failure of Signa, a property empire built over the past two decades by its politically connected, billionaire founder Benko, has been the highest-profile casualty of the strains across Europe’s commercial property market following a rise in interest rates over the past 18 months.

Its assets include stakes in New York’s Chrysler building, London’s Selfridges and KaDeWe, Germany’s famous department store.

In the 22-page submission, the creditors say they have identified “a considerable outflow of assets of more than €662mn from Signa Development to (indirect) shareholders and sister companies and that there is no economic or operational justification for this”.

Signa Development was the arm of the Signa conglomerate responsible for developing lucrative properties and selling them quickly. It was also the most cash-generative part of the Signa Group.

The claim alleges a “presumably deliberate” lack of transparency from Signa Development in the run-up to its insolvency. “No substantial information was disclosed” to creditors in the prior months, it states, adding that a “total loss” is now expected on the missing funds.

A spokesperson for the WKStA said prosecutors had received “several” criminal complaints relating to Signa in recent weeks. They declined to comment on specific allegations.

The body had not yet decided whether to formally open a criminal inquiry and was still assessing the merits of the claims, they said.

Erhard Grossnigg, a Signa Development board member who has been put in charge of restructuring the company, declined to comment on creditors’ suspicions of criminal activity.

The company is currently in “self-administration” — a situation in Austrian law where existing management may attempt to restructure a company, with only arms-length supervision by a third-party administrator.

The FT last month reported on two of the large transactions creditors detailed in their complaint last week, including the transfer of more than €300mn from Signa Development to two entities connected to the family trusts of Benko.

Following the FT’s report, Signa Development’s external administrator, Andrea Fruhstorfer, said transactions had been “used for Signa real estate projects” and had not occurred immediately prior to the company’s insolvency.

Contacted by the FT on Monday, Fruhstorfer said claims about the purpose of the payment flows had not yet been fully checked by her. “The process will take time,” she said.

The creditors’ complaint alleges that the transactions were not lawful, citing regulations imposed as a condition of Signa Development’s borrowing that limited the entities to which it could transfer money. The two entities controlled by Benko’s family trusts were not part of this group, the complaint asserts.

“It is suspected that the asset transactions described were carried out in wilful violation of the mandatory capital maintenance regulations [of the company] and to the detriment of SDS [Signa Development] and its creditors,” the complaint states.

Creditors are struggling to come to terms with the complexity of the 46-year-old Benko’s empire. In total Signa is made up of more than 1,000 different corporate entities, many of which now find themselves pitted against each other in the race to recover assets on behalf of separate creditor and shareholder groups.

Benko did not hold any formal managerial role at Signa after a 2013 bribery conviction. But he maintained a tight grip on almost all aspects of the decision-making process through a complicated shareholding structure.

Benko “had the reins in his hands”, said Signa Development’s biggest external investor, the Austrian construction tycoon Hans Peter Haselsteiner, in an interview last month.

Benko’s lawyer did not respond to a request for comment on his client’s role at Signa or the allegations of criminal activity.

Creditors have been taken by surprise by the scale of Signa’s borrowing. Last week Signa Holding revealed it had debts of more than €8.6bn — €3.5bn more than disclosed in November.

The Swiss bank Julius Baer has been a prominent casualty. Last week, its chief executive Philipp Rickenbacher resigned after the lender wrote off the entirety of a SFr600mn ($690mn) loan it had made to Signa. Senior executives at the bank have told the FT they are also exploring legal action

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German defence contractor Renk revives IPO plans

Trading of company’s shares expected to commence in Frankfurt this week

German defence contractor Renk has revived plans to list in Frankfurt with the Franco-German military consortium KNDS stepping in as an investor, just four months after a last-minute cancellation of its initial public offering in October.

The Bavarian maker of gear boxes, slide bearings and transmissions for tanks and frigates said on Monday that its owner, private equity group Triton Partners, would offer 30 per cent of its shares up for a free float.

Trading of shares in Renk, which have been priced at €15 and value the company at €1.5bn, would commence on the Frankfurt Stock Exchange as soon as Wednesday, the company added.

KNDS — the joint venture between German Krauss-Maffei Wegmann and French Nexter that is developing a future tank system — and Boston-based asset management group Wellington Management Company, have pledged to subscribe to shares worth €100mn and €50mn respectively. Triton will remain Renk’s largest shareholder.

The news is a positive sign for European markets, after Triton in October pulled the plug on the listing just hours before the planned start of trading, which Renk at the time attributed to the weak outlook for markets.

Renk postponed its plans just days before Hamas launched its attack on Israel, which triggered the war in Gaza that has already killed more than 25,000 people and has spurred tensions across the Middle East.

Growing geopolitical instability has been a boon to defence contractors, which had largely been shunned by investors until war broke out in Europe in 2022 with Russia’s invasion of Ukraine. The hostilities prompted German chancellor Olaf Scholz to announce a historic reversal of the country’s decades-long pacifist policies.

Renk in November reported that its order intake in the first nine months of the year had jumped by nearly a quarter, compared with the same period in 2022, with revenues climbing 6 per cent to €653mn. Earnings before interest and taxes grew 6 per cent in the same period, reaching €104mn.

Chief executive Susanne Wiegand at the time said Renk’s order book was a sign of “the relevance of and demand for our products in both the defence and civil domain”.

The 151-year-old Renk was taken private by Triton in 2021, when the private equity group attained full control of the defence contractor after it acquired the majority of shares from automotive company Volkswagen the year earlier.

The company, which employs 3,400 people, also makes components for electric motors and wind turbines. Although Renk’s military business accounts for roughly 70 per cent of sales it has said it is well positioned to benefit from the German industry’s efforts to transition away from fossil fuels.

The revival of Triton’s plans to list Renk will add momentum to the reopening of Europe’s IPO market, after a dramatic slowdown in activity over the past couple years.

Private equity groups in particular are expecting a surge in activity this year as investors in buyout funds increase pressure to sell investments and return cash. EQT is reviving plans for an IPO of dermatology company Galderma that could come as soon as the first half of this year.

Hertz pauses plans to buy electric vehicles from Polestar this year

Decision by car rental group comes as resale value of EVs has collapsed

Hertz has paused plans to buy tens of thousands of battery-driven cars from Polestar this year, the head of the electric vehicle brand said, after a collapse in resale values last year caused the rental giant to taper its electric ambitions.

In 2022, Hertz agreed to buy 65,000 Polestar cars over five years in a deal likely worth $3bn as part of its ambition for EVs to make up a quarter of its rental fleet by the end of 2024. It also struck a deal to buy 100,000 Tesla cars.

But late last year, following a collapse in the resale value of EVs and citing higher repair costs than expected, Hertz said it would sell some of the Tesla cars it purchased and that it would not meet the 25 per cent EV target. It did not comment on the state of its relationship with Polestar at the time.

Polestar’s chief executive Thomas Ingenlath told the Financial Times that he had been contacted by Hertz’s chief executive Stephen Scherr last autumn to ask whether he could pause their agreement to buy a certain number of EVs throughout 2024. Between 2022 and 2023, Polestar sold 20,000 battery-run cars to the group.

Some car rental groups operate a “buyback” model, where the manufacturer agrees to repurchase the vehicle at a set price. Hertz, however, largely operates an “at risk” model where it owns the vehicles outright, exposing it if the vehicles it holds depreciate significantly.

Polestar agreed to waive Hertz’s requirement to buy its allocated number of cars this year, in return for the rental group agreeing not to sell its current Polestar vehicles early or too cheaply, Ingenlath said.

The two companies agreed that Hertz “keep the cars longer than a year, we work with them, and we have the right to first refusal whenever they want to take them out of the fleet”, he said.

Hertz, which reports earnings on Tuesday, declined to comment.

There is a “clear intention” to restart large-scale sales to Hertz in the future, but the two companies would “have to review at the time” whether sales restart in earnest in 2025, Ingenlath said.

Hertz’s 2022 deal was seen as a sign that EVs were on the cusp of mainstream appeal, something that gives the rental group’s latest criticism of the vehicles added weight. The group filed for bankruptcy in 2020 after a collapse in the value of its fleet and when all travel halted in the early months of the pandemic.

EV sales growth has slowed around the world, as mass market consumers display more scepticism about the technology and higher prices than had been expected.

The slowdown has seen carmakers delaying investment plans, and Renault canning a stock market listing of its EV unit, partly citing weak demand.

Polestar last year sold about 54,000 cars worldwide, although it remains heavily lossmaking.

Last week, Volvo Cars said it would sell its 48 per cent stake in Polestar to Geely, and would not inject any more funding into the brand. Polestar is seeking about $1.3bn of fresh funding.

Indian owner’s share price is starting to reflect SUV’s price-insensitive following

Land Rover as a brand has managed to strike a successful balance between high-priced luxury and rugged off-road capability.

The sport utility vehicle brand has developed a certain cult following, with its limited edition Range Rovers models — which can go for £300,000 — especially popular around the world. The share price of Tata Motors, the owner of the Jaguar Land Rover unit, has started reflecting that price-insensitive following.

Shares of Tata, India’s largest carmaker, rose 6 per cent to a record high on Monday. Net profit more than doubled in the three months to December, beating expectations, driven by strong sales in its wholly-owned subsidiary British car unit, Jaguar Land Rover. 

Unlike rivals that battled a slowdown in sales growth last year, JLR — which accounts for about two-thirds of its parent’s sales — posted a 22 per cent rise in sales during the quarter.

Strong demand for JLR’s output, which are Tata’s most profitable models, has meant less of a need to participate in the price wars among global automakers, which have become especially fierce among electric-vehicle makers. Tata Motors’ stock has more than doubled over the past year, far outpacing the Indian market — quite a feat for a company with a market value of more than $40bn. 

Tata has long had a focus on sports utility vehicles. Despite concerns about climate and congested city centres, cars have been getting bigger as consumer demand for large SUVs increases. The risks are that the backlash to these outsized vehicles grows: Parisians this weekend voted to raise parking fees for SUVs. On average, SUVs also consume about a fifth more oil than an average medium-sized car, according to the International Energy Agency.

But the Indian company is working on catching up in the shift to electric by launching three of its own electric SUVs this year. A waiting list for pre-order for the fully electric Range Rover is open.

Meanwhile, Tata is also set to reap the benefits from a strong home market. Indian carmakers’ sales hit a record in January as dealers built up inventory of new models and as consumption growth is set to accelerate in the country.

Like its most successful cars, Tata Motors now comes at a price: the shares trade at 12 times forward earnings, a premium to global peers including Toyota and Volkswagen. That reflects expectations that higher production of top Land Rover models in the coming quarters will keep sales volumes strong. The brand’s loyal fan base should, for the moment, keep this off-roader on track.