TheChek News Flow

EnergyRe, startup backed by real-estate executives, raises $1.2 billion for transmission projects

U.S. cities racing to cut their emissions are facing a roadblock: They can’t access the wind and solar power being developed in remote sites hundreds of miles away.

Now a group of investors is betting on a startup that builds massive transmission lines to carry renewable electricity to urban areas.

EnergyRe, launched by executives at real-estate company Related Cos., said Monday that it raised $1.2 billion from a group of European investors to build more projects across the U.S.

The deal comes as the Biden administration is pushing to modernize the national power grid, which isn’t equipped to handle the growing amounts of renewable energy that the country is hoping to produce to wean itself off fossil fuels. Already, surging electricity demand has strained the grid and led to more frequent outages in recent years.

“If we want to have reliable power, we need to have a new grid,” Miguel Prado, energyRe’s chief executive and an industry veteran, said in an interview.

The high-voltage transmission lines needed to carry clean energy long distances are notoriously difficult to get permitted, in part because of fierce resistance from local residents, and have become a major obstacle for the country’s climate goals. Last year, wind- and solar-generating projects accounted for roughly 90% of power projects waiting to join electric grids, according to the Lawrence Berkeley National Laboratory.

The backlog is pushing more companies to launch transmission projects. Among them is a 175-mile underground transmission line to bring power from a cluster of upstate wind and solar projects to New York City. It is part of a roughly $11 billion collaboration that includes energyRe, a Blackstone-backed renewable developer and the state of New York.

The funding announced by energyRe on Monday will go toward such projects and is made up of $800 million in equity and $400 million in debt. The investors include European transmission firm Elia Group ELI 0.15%increase; green up pointing triangle, Denmark-based funds Glentra Capital and PKA and the investment manager of the Novo Nordisk Foundation, the controlling shareholder of drugmaker Novo Nordisk NVO -1.41%decrease; red down pointing triangle.

Such overseas investors have been pouring money into U.S. companies to capitalize on the climate law, which included billions of dollars in clean-energy subsidies.

Other projects are springing up around the country, too. A 339-mile transmission line to carry hydropower from Quebec to New York City is being backed by Blackstone. Three proposed transmission lines from companies including Grid United, Berkshire Hathaway and National Grid recently got a $1.3 billion commitment from the Energy Department.

EnergyRe is applying for similar government funding and said it is giving priority to projects it thinks can avoid permitting snarls. Its New York transmission line, for example, spans land controlled by the state. Another 350-mile transmission line to carry power from Iowa to the Chicago area will be built along railroad tracks.

Still, energyRe will have to contend with the higher interest rates and costs that have hit other clean-energy businesses this year. The company, which is also developing an offshore wind project near New York and New Jersey, said tax credits from the climate law should help absorb expenses.

The startup was created in 2020 with initial backing from executives at Related, who saw the need for clean power in cities to comply with local regulations and meet demand from big companies.

Founded by Miami Dolphins owner Stephen Ross, Related is a developer of splashy properties such as New York’s Hudson Yards as well as condos and affordable housing. The company took advantage of low-income housing tax credits for years before new clean-energy credits and transmission-funding programs were created.

“It is such an evident problem and huge opportunity,” said Jeff Blau, Related’s CEO and chairman of energyRe.

Giant gambles against Israel on the markets in Tel Aviv and Wall Street days before Hamas’ attack made billions. Somebody seems to have known about the plan in advance

Hamas’ attack on Israel on October 7 caught the Israeli army unprepared. But somebody seemingly knew in advance and made billions betting against Israeli shares traded locally and on Wall Street five days before the attack.

Short-selling Israeli shares – betting that they will fall – spiked in the days before October 7, far exceeding the short selling during “numerous other periods of crisis,” Robert J. Jackson, Jr., Joshua Mitts and colleagues wrote in a paper titled “Trading on Terror?” published Sunday on SSRN.

'Our findings suggest that traders informed about the coming attacks profited from these tragic events.'

While the source of the putative information leading to the short selling isn’t known, it plausibly originated in Hamas circles: “Our findings suggest that traders informed about the coming attacks profited from these tragic events,” they wrote.

Jackson served as commissioner of the U.S. Securities and Exchange Commission and Mitts is an expert on short selling, where the investor is betting against the security. He is also familiar with the Israeli market.

The ex-commissioner and the team examined transactions in EIS, which is a security traded on the New York Stock Exchange through which investors can gain exposure to Israeli shares (MSCI Israel Exchange-Traded Fund, or NYSE: EIS).

EIS is an exchange-traded fund that tracks Israeli shares in New York. It’s a way to bet on Israeli shares without buying any. EIS tracks the main indices on the Tel Aviv Stock Exchange, including giant Israeli companies such as Nice, Teva, the banks, Elbit Systems and Israel Chemicals.

Investing in EIS is equivalent to investing in the Israeli economy. Betting against EIS means you are betting against the Israeli economy.

Jackson and the team found strong indications that, in early October, somebody in U.S. stock market circles anticipated catastrophe in Israel, leading stocks to crash.

On October 2, that somebody or somebodies carried out an enormous volume of short transactions on the EIS – meaning they bet against Israel.

In fact, the volume of short transactions on October 2 was so huge – 227,000 units, compared with a few thousand on any given day – that it didn’t seem like a gamble. Whoever was behind the transactions apparently harbored confidence that disaster would strike Israel.

Shorting involves profiting from securities you do not own. If you are confident that a given company’s shares are going to fall, you borrow them from somebody, sell them, and later (sometimes just within days) you buy them on the market (at the lower price, if you were right), give them back to the lender and pocket the difference.

So, if you short a stock and it falls, you win. People shorting Israeli shares on October 2 did well. The value of EIS fell by 7.1 percent on October 11 (the first day the American market was open for business after the massacre) and over the 20 days following that terrible weekend, EIS lost 17.5 percent of its value.

'Moreover, it indicates that the short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the [2008] financial crisis.'

Specifically, if a trader borrowed a unit of EIS and sold it for $54, after the crash the trader could buy the unit for $44.50, return it to the lender and make $9.50 per unit.

The paper by Jackson and colleagues was based on data officially reported to the U.S. Financial Industry Regulatory Authority. The researchers identified two huge transactions selling borrowed units of EIS on October 2. Based on the volumes, the short sellers seem to have made millions of dollars.

To examine how unusual the gamble against Israel was, the researchers checked the volume of short transactions in EIS units from 2009 to 2023, during which Israel experienced plenty of crises. There were 3,570 trading days throughout that period. The volume of shorts on EIS on October 2 was in the top 99 percent percentile. The “short ratio” for EIS was also extraordinary on October 2: “It is extremely unlikely that the volume of short selling on October 2 occurred by random chance,” they wrote.

“Moreover, it indicates that the short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the [2008] financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic,” they added.

Other grounds for their suspicion are the fact that the short transactions were carried out during the Sukkot Jewish holiday, when nothing unusual was happening in Israel and nothing dramatic was expected.

Jackson and Mitts even checked for correlation between the shorting and the Netanyahu government’s plans to overhaul the judiciary, where the greatest drama was on July 24 – the day the Knesset voted to revoke the reasonableness standard. The date of the vote was known in advance, though its results were not. In fact, EIS units lost 5 percent of their value following that vote, attesting that the market hadn’t anticipated the outcome. There was no unusual volume in shorts.

Also, shorting is risky. If you bet against a share and it rises, you lose. The bigger the short, and the longer it lasts (until you have to return the security), the bigger the risk. The giant gamble against EIS (meaning, against the Israeli economy) was done when the market was trending upward. Betting against a market trend just increases the risk. Also, the shorts were unusually long, strengthening the theory that the investor knew of the attack in advance.

Interestingly, Mitts and Jackson identified similar patterns in EIS in April, when rumors were circulating that Hamas was planning to launch an attack. “Specifically, short volume in EIS peaked on April 3 at levels very similar to those observed on October 2,” they stated. There, too, coincidence beggars belief and suggests the information originated in Hamas. Terrorists caught in Israel related that the attack had been planned for April 5, Passover eve, but was canceled at the last minute – whether because Iran ordered it so, according to some media sources, or because the Israeli army was on high alert at the time.

The short spike on April 3 was about a week after Prime Minister Benjamin Netanyahu tried to fire his defense minister, Yoav Gallant, triggering mass protests by Israelis. By April 3, however, it was clear that Netanyahu had reversed course on ousting Gallant – indicating that whoever was shorting Israel wasn’t doing so because of that rumpus, but because of the planned (albeit canceled) terror attack.

Very short in Tel Aviv

The researchers also looked into shorts on the TASE and found a significant spike in the days before October 7.

In fact, shorting on the TASE began to increase from August, but peaked in the week before the attack. There was no obvious reason for the behavior; Israel was on holiday, the public sector was shuttered and a lot of Israelis were on vacation. There is no reason to associate the shorting spike with the judicial overhaul, the researchers said, noting there was no particular shorting activity following the “reasonableness” vote in July.

Again, the suspicion arises that somebody had prior knowledge of the Hamas attack.

In addition, Jackson and Mitts didn’t identify an increase in short-selling shares in Israeli companies traded in New York (as opposed to short selling the index tracking Israeli shares). That could be because investors figured the military industries would do well from hostilities and many of the other companies operate in the international markets, so the terror attack on Israel shouldn’t hurt their business.

They noted that while the volume of additional trading in EIS was absolutely abnormal in New York, it wasn’t large in absolute terms – probably because there just isn’t that much trading in its units. But they definitely did observe spikes in short selling on the Tel Aviv Stock Exchange.

Shorting the TASE from mid-September to October would have been enormously lucrative, the researchers calculate. In just Bank Leumi alone, “4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or approximates avoided losses) of 3.2 billion NIS [nearly $900 million] on that additional short selling.”

They couldn’t identify whether there was any connection between traders short selling in New York and Tel Aviv.

Note that Jackson and Mitts do not claim the information originated in Hamas. But the information they collated suggests as much. Hamas had planned the attack for months and its leader, Yahya Sinwar, seems to have planned not just the tactical aspect but logistical and financial aspects as well.

If one believes Hezbollah leader Hassan Nasrallah that he didn’t know about the Hamas attack in advance, then Hezbollah wasn’t the one shorting Israel. Nor Iran, by the same logic. Only investigation by law enforcement, in Israel and the United States, may uncover who benefited from the short transactions.

Note that shorting isn’t illegal, and U.S. securities law apparently doesn’t prohibit exploiting preknowledge of a terror attack. Nor is it some kind of insider-trading violation in Israel. But Israeli sources said Hamas has financially savvy people and it isn’t implausible that they lay behind these shorts. Furthermore, if the short selling was done by Hamas or on its behalf, then they are violations of the U.S. law prohibiting the financing of terror, and the United States could freeze the ill-gotten gains.

News:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

Worldwide ad spending excluding U.S. political campaigns will reach $936 billion next year, GroupM said in a new forecast

The growth in global ad spending is poised to slow in 2024 to 5.3%, excluding U.S. political advertising, according to a new forecast from media investment group GroupM.

That would mark a deceleration from the 5.8% increase that GroupM anticipates for this year, the forecast said.

GroupM, part of advertising holding giant WPP, said growth might be adversely affected next year by potential factors such as high interest rates’ effect on consumer and business spending. It also said that a spate of China-based companies, which have spent heavily to acquire international consumers, might become less of a force for advertising growth in 2024 as U.S. household savings ebb and Europe potentially sees economic contraction.

Global ad spending excluding political activity is expected to reach $889 billion this year and $936 billion in 2024, according to the forecast. Despite fears about economic uncertainty in 2023, GroupM’s new forecast for this year is just 0.1 percentage points lower than a previous prediction for 2023 issued in December 2022.

“We’ve been through quite a bit of volatility over the last five years or so,” said Kate Scott-Dawkins, president of business intelligence at GroupM and author of the report. “We had been expecting more of a deceleration out in the future. I think we’re looking now at innovation through AI and digitalization of these channels—that has pushed us to expect a bit more stable, rather than more sharply decelerating, growth out over the next five years.”

Another closely watched forecast also suggested a slowdown in ad growth was approaching. Excluding cyclical events such as political elections and sports, global advertising spending in 2024 is poised to grow 5.8%, down from an expected 6.5% in 2023, according to Magna, a media investment firm that is part of Interpublic Group’s Mediabrands and conducts industry research.

Including cyclical events, however, Magna expects ad spending growth to rise to 7.2% next year from 5.5% in 2023, driven by economic stabilization, lower inflation, digital innovation and the return of those major cyclical events.

Most advertising growth is landing in the hands of major digital players, according to the GroupM forecast. The top five global sellers of ads, according to GroupM— Alibaba, Amazon.com, Bytedance, Meta Platforms and Alphabet’s Google—increased their ad revenue 25.4% on a compound annual basis from 2016 to 2022, beating the 9.3% pace of the total advertising market. That growth has come as advertisers sought out those players’ artificial intelligence tools, their ability to target messages to specific users and their self-service ad-buying platforms.

By 2028, spending on digital advertising will be larger than spending on the entire advertising industry in 2022, GroupM said.

“We seem to have reached a significant inflection point in the realization that linear TV is well and truly in decline, growth in advertising is dominated by a handful of large media and commerce companies, and the economics of this industry are predicated on this new world order, where large advertisers and agencies make up a minority of revenue for some of their largest partners,” the report said.

Signs of indigestion in China’s money markets are an ominous sign—particularly given shadow-bank troubles and enormous government debt

Plumbing is something most of us take for granted—until there’s a problem, at which point things can get messy fast. Likewise for the “plumbing” of modern financial systems: the money markets, where banks and other financial institutions make short-term loans to each other.

So given the strains China’s economy is already laboring under—including a slow-motion property sector implosion and the “serious” insolvency of Zhongzhi Enterprise Group, a large asset manager, in its own words—it isn’t a great sign that China’s money markets have recently been throwing off little blips of distress too.

There is little sign of an immediate crisis such as the one that erupted in the wake of regulators’ sudden takeover of Baoshang Bank, a midsize lender, in 2019. But unusual rate movements in recent weeks—and, reportedly, actions by authorities behind the scenes to strong-arm lenders—are still worrying. For one, they come in the wake of a big rebound in short-term interbank lending, particularly to nonbank borrowers—a category which includes funds, asset managers and “shadow banking” trusts such as the one owned by Zhongzhi that defaulted on its obligations in August.

Climbing rates after a period of rapidly rising borrowing is always a potentially combustible situation—especially when the real economy is already struggling.

China’s money-market rates often spike at month-end, but the last day of October saw overnight rates briefly rise as high as 50%: a high driven by a scramble for cash by some nonbank financial institutions, according to state media. Both benchmark interbank rates and rates for negotiable certificates of deposit, an important funding instrument for small banks, have marched higher since mid-August. Cash injections by the central bank through its medium-term lending facility have increased—with the outstanding balances rising by 600 billion yuan, equivalent to $84 billion, in November, the most since 2016. And in mid-November regulators asked some lenders to cap rates on an interbank debt instrument, according to Reuters.

The unease appears to be partly the result of massive new debt issuance by the government itself, which is making life difficult for some other borrowers: official government bond debt rose by 3.7 trillion yuan from end-July to end-October, according to figures from data provider CEIC. That was the largest three-month increase since at least early 2016.

But jumpy money markets also come on top of an enormous rebound in short-term money market borrowing through bond repurchase agreements, or repos, since mid-2021—primarily by nonbank financial institutions. On net, such borrowing by nonbank financial institutions, excluding brokerages and insurers, has roughly tripled to around 150 trillion yuan on a quarterly basis since mid-2021, central bank data shows. Moreover, if some of that cash has been used for leveraged bets on bonds to juice returns, then the recent rebound in Chinese rates could be squeezing some borrowers too.

The falling U.S. dollar—and slower capital outflows—could take off some of the pressure in the weeks ahead. But China now finds itself balancing enormous new government obligations, which the bond market needs to finance, against highly leveraged nonbank financial institutions, some of which probably still have significant exposure to the nation’s teetering real-estate sector. No wonder money markets are twitchy.

Puzzle: find Black’s hidden win

Hans Niemann, the most controversial player in international chess, is competing in England at the London Classic, this week. The US 20-year-old made headlines last year when the world No1 Magnus Carlsen refused to play him. He later launched a $100mn lawsuit against Carlsen and others. Niemann has been in constant action since their out-of-court settlement three months ago.

Last week in Zagreb, the American scored a career-best result, winning first prize by a three-point margin over his nearest rival. His 8/9 total was assessed as a performance rating of 2946, the highest of 2023 and not far off the top three in modern tournaments: Fabiano Caruana at St Louis 2014, Magnus Carlsen at Pearl Springs 2008, and Anatoly Karpov at Linares 1994.

The magnitude of his achievement was not lost on Niemann, who posted a message on X comparing himself to Bobby Fischer (who also won at Zagreb, in 1970) and quoting Friedrich Nietzsche.  

There were sceptics. Ivan Sokolov, a former Yugoslav and Netherlands champion, who coached the young Uzbek team to gold at the 2022 Chennai Olympiad, took to X after his defeat and posted: “It is hard to fight 98 accuracy. There are (apart from delay) no anti-cheating measures. Not even a scan.”

A more balanced view came from the former British champion and chess author, Jacob Aagaard, who wrote that Niemann had made some errors but “no gross blunders. These are the types of mistakes that get you into trouble at 2750. He is a 2700 player, facing 2600 average and having a good run”.

One day after Zagreb, Niemann began play at the London Classic, which continues all this week (2.15pm start, live coverage and commentary on the website). Fatigue was an obvious danger, and the American drew his first three games. The Classic has full anti-cheating measures in place, including body scans and checks on the toilet area.

The four English players have had mixed results. At 52, Michael Adams is the oldest in the field, but the eight-time British and reigning World Over-50 champion has been in fine form, sharing the lead with India’s Dommaraju Gukesh. 

Shreyas Royal, at 14 by far the youngest player, is aiming for his second grandmaster norm (of three needed for the title) and scored in mature style in the third round against Iran’s No2, Amin Tabatabaei.

--> Solution : https://www.ft.com/content/2c5c0899-7b6c-4e5b-9c1c-af26b6b0cffd

Offshore creditors have shown little enthusiasm for the group’s debt restructuring proposals, and one cannot blame them

Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.

https://www.ft.com/content/066bd692-d01d-4a1b-8e92-096845020b79

An abrupt turn of events has bought yet more time for China Evergrande Group. A Hong Kong judge has postponed a court hearing into a liquidation petition until January. That gives the embattled property developer longer to finalise a debt restructuring plan.

Offshore creditors, such as petitioner Top Shine Global, may not realise quite how much power they now wield over China’s property and banking sector. 

Evergrande is the world’s most indebted developer. It has been working for about two years on a debt restructuring it hopes will stave off liquidation. Fresh breathing space lifted battered shares more than 9 per cent on Monday.

Offshore creditors have shown little enthusiasm for the debt restructuring proposals. One cannot blame them. A brutal haircut is a likely outcome. Beyond that, prospects for the developer look bleak.

The payouts from a court-approved liquidation are hardly appealing either. Analysts anticipate a recovery rate of below 5 per cent. Evergrande has more than $300bn in liabilities.

For Beijing however, getting offshore creditors to agree to a restructuring is of paramount importance.

The biggest risk comes from an estimated 1.5mn homebuyers that have already paid Evergrande for unfinished homes. These dwellings are estimated to have an original value of $90bn. Beijing may have to cope with social discontent if Evergrande is liquidated and the projects cannot be completed.

A restructuring would also alleviate pressure to support state-owned banks. Their returns are eroding amid slowing economic growth and a falling property market.

The impact on lenders is growing. Banks do not just have direct exposure through mortgages and loans to developers. They are also exposed to the country’s shadow banks. These non-bank financial institutions often lend to higher-risk industries such as real estate. The financings are frequently through wealth management products that are held off balance sheet.

Zhongzhi, one of the biggest shadow banks, may have a shortfall of $36bn. It has warned that it is “severely insolvent”.

The liquidation of Evergrande would set a dangerous precedent for struggling peers. Evergrande had always been outlier. But a domino standing at the extreme end of a line tumbles most peers through indirect impacts. Foreign investors have yet to comprehend the full extent of that danger.