TheChek News Flow

China seeks to ease video game industry’s fears of another crackdown

Beijing fires prominent regulatory official and fast-tracks consultations on proposed measures

Beijing is acting quickly to ease fears of another regulatory crackdown on China’s video game industry, including firing a prominent official and convening consultations on new measures at short notice, according to people familiar with the matter.

Shares in the leading online gaming companies Tencent and NetEase fell sharply last month after the National Press and Publication Administration proposed guidelines that suggested much tighter controls on the world’s largest gaming market.

The stocks staged a partial recovery at the end of December after the regulator approved the release of 105 games, the most in 17 months, and said it would support “healthy development” of the industry and study responses to its plans.

Beijing also ousted the head of the publication bureau of the Communist party’s propaganda department, responsible for the country’s gaming regulatory body, at the end of the month, according to four people familiar with the matter.

Feng Shixin was a senior figure who had been seen at events discussing video game approvals and real-name verification requirements for gamers. He was removed from his position for not consulting top economic supervisors or incorporating the opinions of key gaming companies before releasing the draft, said two people close to the regulator. The propaganda department did not respond to a request for comment.

“Although the rising regulatory power was widely anticipated in the gaming industry, this proposal was still shocking because there was insufficient prior communication and the terms were extremely stringent,” said a person with direct knowledge of the matter. Reuters first reported Feng’s firing.

“We were told before that most of the regulation would be focused on minors. However, many of the strict measures in the final draft turned out to control all users, making us really nervous,” said an executive from a gaming start-up who did not wish to be named.

The proposed regulations aim to curb spending and engagement on online games. The draft had been in the works for several years and was first presented to game companies and industry experts at the beginning of 2021.

According to two people familiar with the 2021 draft, the version released last month differed substantially from the previous one, with a significant increase in supervision and more detailed directives. Its release sparked an $80bn stock market sell-off and led to widespread criticism of the government’s handling of the situation.

Leading game developers have now been summoned by Beijing and provincial regulators for closed-door seminars to discuss the feasibility and impact of the draft regulations, according to four people familiar with the situation.

The process normally takes three to six months, but this one is expected to be completed as early as the end of January, said two people close to the regulators.

Tencent and NetEase shares are still 6 per cent and 8 per cent lower, respectively, from where they were immediately before last month’s announcement. The numbers reflect Huatai Securities’ research suggesting Tencent’s top 20 mobile games and NetEase’s top 15 mobile games would suffer revenue declines of 6 per cent and 8 per cent, respectively, if user spending were strictly limited.

“Multiple provisions of this regulatory draft are like targeted explosions, accurately and brutally hitting the monetisation and market models of game companies,” said the gaming start-up executive. “The panic caused by this draft requires actual government action to alleviate it truly.”

China’s video game market had been slowly recovering from rules that authorities implemented in 2021 to limit the time minors could spend on gaming. Game approvals had been put on hold, and the NPPA only began granting licences for new video games in April 2022.

“The industry is prepared to face another wave of regulatory crackdown, and some have already reacted to tweak their games according to the draft,” said a senior product manager at a gaming company who wished to remain anonymous.

Chris Weston starts as utility has to persuade investors and watchdogs over its turnaround plan

Thames Water’s new chief executive, Chris Weston, takes the helm of Britain’s largest privatised water company on Monday, facing the daunting task of persuading investors, lenders and regulators to support plans to turn around the debt-laden business.

Weston, a former executive at power supply firm Aggreko and at British Gas, has to convince investors nursing multimillion-pound losses that he has the management expertise and vision to put the water monopoly on a stable footing, despite ongoing regulatory uncertainty and the threat of penalties and legal fines for leakage and sewage outflows. 

He takes over after the former chief executive, Sarah Bentley left the company last June, following a boardroom bust-up that sparked fears over Thames Water’s financial viability, forcing the government to draw up plans for the utility’s temporary nationalisation.

Thames Water’s overarching group is burdened with a consolidated debt mountain of £18.3bn as of March 31, up from £15.4bn the year before. It needs to refinance £1bn of debt by the end of 2024 as well as raising £3.25bn of new equity by 2030, which is needed to continue to operate and maintain the business.

There is a risk that investors — including private equity, sovereign wealth and pension funds — could object to injecting fresh equity.

There was “no certainty” that the conditions for any additional shareholder funding would be met, Thames Water warned in a prospectus issued to bondholders in October. In addition, any funding “could be vetoed by a shareholder or shareholders”, it added.

The company, which provides water and sewerage services to around a quarter of the population in England, is also facing operational pressures including poor performance on leakage and sewage discharges and an increase in maintenance costs, which is sucking up cash.

The average water trunk main — some of which are large enough to require scuba divers for repairs — is over a century old in London, or 78 years old across the region, while around 14 per cent of the oldest cast-iron pipes have been buried in the ground for 150 years, according to Thames Water.

Colm Gibson, managing director at Berkeley Research Group, said there were all the hallmarks of a “particularly eventful year for Weston, who would need to demonstrate early successes to win over stakeholders”.

The task of persuading investors to inject equity is difficult after Thames Water’s largest shareholder, the Canadian pension fund Omers, took a 28 per cent writedown on the value of its holdings in the year to March 2023. Thames Water’s second-largest investor, the USS — which represents the retirement savings of academics in the UK — has written down the value of its holding by almost two-thirds. 

The USS said last week that it views its stake in the water utility as a “long-term investment” and that it has “shown willingness to commit more [funds] in the future”.

Its writedown implies that the value of Britain’s biggest water company may have fallen from almost £5bn in 2022 to around £1.9bn last year, according to Gibson, meaning that the company is seeking more in equity than it is currently worth.

Investors are waiting on a draft ruling from regulator Ofwat in June as to whether it will allow Thames Water to increase customer bills by more than 40 per cent by 2030 before they agree to inject new equity. They are also seeking limits on regulatory penalties handed down for performance failures such as sewage outflows or leakage.

Additional hurdles faced by Weston include potential court fines as a result of Environment Agency and Ofwat investigations into whether it and other water companies breached permits on sewage outflows that could cost it tens of millions of pounds. Class action claims against five companies — Anglian, Northumbrian, Yorkshire, United Utilities and Severn Trent — have been filed to the Competition Appeal Tribunal. Thames Water is expecting a similar claim, the company says in its prospectus.

One person close to an investor said they increasingly fear “any equity injection could be wiped out by inflationary cost pressures and fines for missing environmental and other performance targets”.

Another more immediate task facing Weston is the renegotiation of a £190mn loan facility held at its parent company, Kemble Water, that is due in April, and that the company is hoping lenders will agree to extend.

That loan has already led credit rating agency Fitch to downgrade Kemble Water Finance Ltd further into junk territory and may diminish capital market appetite for Thames Water debt, making it even more expensive, experts said.

Thames Water said that its regulated entity “is in a solid financial position and has supportive shareholders”. It added: “Our shareholders have also confirmed the expected need for additional equity funding”.

A Democratic senator faces more charges and a former Trump adviser admits wrongdoing over pushing Gulf state’s interests in Washington

Tiny Qatar has managed to punch above its weight in mediating some of the world’s biggest disputes, including the war in Gaza. Yet as it raised its profile in Washington, the Gulf state has landed some of its American advocates in legal troubles of their own.

In recent years, Qatar has ramped up its lobbying operations in the U.S., a key military ally and commercial partner, to better position itself in relation to its bigger neighbors Saudi Arabia and the United Arab Emirates.

Federal prosecutors in Manhattan alleged this month that Qatari officials gave a relative of New Jersey Democratic Sen. Bob Menendez tickets to the Formula One Grand Prix in Miami the past two years and invested tens of millions of dollars in a real-estate venture of a friend of Menendez’s. As chair of the Senate Foreign Relations Committee, Menendez was in a position to promote Qatar’s interests, and prosecutors say he did so. The Qatari officials aren’t accused of wrongdoing, and Menendez, who was already charged with being an illegal agent of Egypt, has denied the allegations against him.

In a separate case, a Republican lobbyist and onetime unpaid campaign adviser to former President Donald Trump admitted to illegally failing to register an advocacy group he set up on Qatar’s behalf to tarnish Saudi Arabia. The Gulf kingdom, along with the U.A.E., had cited Qatar’s alleged support for Iran and its proxies in the region, including U.S.-designated terror groups Hamas and Hezbollah, as grounds for imposing a full-scale blockade on Qatar from 2017 to early 2021. The lobbyist, Barry Bennett, agreed to settle charges with

Documents reviewed by The Wall Street Journal show that in a third instance, Qatari lobbyists worked to kill U.S. legislation that would hurt its interests by secretly tainting the bill as a product of its rivals’ “unsavory lobbying.” Those efforts led to a thicket of civil litigation still under way.

“Part of foreign-influence operations is to expose the foreign-influence operations of other countries,” said Ben Freeman, a director at the Quincy Institute for Responsible Statecraft, a Washington think tank. “In the last few years, especially, everyone is using the same playbook of exposing the dirty deeds of your rivals.”

Qatari officials have said their lobbying efforts were necessary to counter those of the country’s regional antagonists. Qatar’s embassy in Washington didn’t respond to requests for comment on the new cases.

The new details have emerged as Qatar has taken on a high-profile role as mediator in some of the world’s most challenging conflicts, including Afghanistan and Gaza. It has helped to negotiate the return of Ukrainian children from Russia and of Americans detained in Venezuela.

The emirate has long walked a tightrope between the U.S. and its adversaries. It hosts the largest U.S. military base in the Middle East as well as Hamas’s political leadership and, for years, that of the Taliban. It has purchased billions of dollars in arms from the U.S. and Europe, while also providing hundreds of millions of dollars in annual aid for Gaza, in coordination with Israel and the U.S.

The Gulf state has acted like many others by pouring money into a range of campaigns in Washington to further its national interests. “If they have any issue, it’s that they have a hard time saying no,” said Jim Moran, a former Democratic representative who has lobbied for Qatar since 2017.

Prosecutors say some of those lobbying activities weren’t properly disclosed. Bennett, the Republican lobbyist, admitted in an agreement with prosecutors filed last week that he had secretly run an advocacy group on behalf of Qatar in 2017 called Yemen Crisis Watch, designed to tarnish Saudi Arabia and the U.A.E., which at the time were enmeshed in a military campaign against Houthi rebels in Yemen. That war left thousands dead and fueled what the United Nations described as the world’s worst humanitarian crisis.

The Journal reported in 2021 that Yemen Crisis Watch’s activities had come under scrutiny by prosecutors.

Bennett was charged with violating a law requiring lobbyists for foreign governments to register all of their work, but prosecutors said they would defer the charges for 18 months and drop them if he acknowledged wrongdoing, paid a fine and abided by the other terms of the deal.

Neither Bennett nor a lawyer for him responded to requests for comment.

In 2017, as the blockade took effect, Qatar embarked on a $200 million lobbying campaign to influence Trump by winning over his friends and associates with trips to Doha. One aim of that effort was to kill legislation that would impose sanctions on Hamas’s supporters, according to emails reviewed by the Journal. As a host for Hamas’s political leadership, Qatar was singled out for punishment in the bill.

“This is top priority and should be the sole matter everyone is working on for the next two days,” a Qatari official told a team of lobbyists in November 2017, as the bill moved through Congress.

The lobbyists planned to discredit the bill’s supporters in Washington, namely those aligned with Qatar’s rival, the U.A.E.

“If we can taint that bill as being the product of unsavory lobbying, we can stop it in the House,” one lobbyist, Nick Muzin, wrote to another. If they could link the bill to Republican fundraiser Elliott Broidy, whose security business was developing contracts with the U.A.E., they might have some success, he wrote. Broidy had sponsored conferences in Washington examining whether Qatar was supporting terrorists. A representative for Broidy didn’t respond to a request for comment.

The lobbying feud became intensely personal and lasted for years. Hackers obtained access to Broidy’s emails and anonymously distributed them to reporters. Broidy accused Qatar’s agents of orchestrating the hack, which they have denied.

The bill ultimately didn’t advance.

More recently, as Qatar in 2021 was helping the U.S. evacuate its troops and local supporters from Afghanistan, its officials turned to Menendez, who prosecutors allege did favors for them.

According to the most recent indictment, the then-chair of the Senate foreign relations panel introduced his friend Fred Daibes to a member of the Qatari royal family who ran an investment company tied to the Qatari government. Daibes was looking for investors for a real-estate project and was giving gold bars, cash and other bribes to Menendez and his wife for a range of favors, prosecutors have alleged.

Two months later, Menendez shared with Daibes a draft of a press release in which Menendez said allies in Qatar were serving as “moral exemplars.” That nod from a powerful American lawmaker for accepting U.S.-bound Afghan refugees was a boon for the Gulf state.

“You might want to send to them. I am just about to release,” Menendez texted Daibes.

In January 2022, before Daibes was to meet with the Qatari investor in London, Menendez texted both men, according to the indictment. “Greetings. I understand my friend is going to visit with you on the 15th of the month,” he wrote. “I hope that this will result in the favorable and mutually beneficial agreement that you have been both engaged in discussing.”

A lawyer for Menendez said the lawmaker acted appropriately, dismissing the allegations as a “string of baseless assumptions and bizarre conjectures.” A lawyer for Daibes declined to comment.

The conditions are ripe for shareholder agitation

The Scottish writer and poet Robert Louis Stevenson once wrote that “to travel hopefully is a better thing than to arrive”. While Stevenson was referring to the hunt for El Dorado, he could easily have been reflecting on 21st-century investing in the European bank sector.

For much of the decade up to 2022, the standard playbook for a European bank presenting its strategy to its investors was some version of “our current levels of profitability are rubbish, but over the next few years it will improve and so will our valuation”.

Today, management has delivered. The key profit metric — return on equity — has almost doubled from about 7 per cent in the decade to 2022, to nearer 13 per cent. This is thanks to the ending of the zero interest rate era, continued good asset quality and decent cost control despite high inflation.

Yet while the banks have honoured their promises, the equity market hasn’t delivered on its side of the bargain. Share prices of banks have increased, yet in most cases by much less than the upgrade to their profits. Put another way, the valuation has got cheaper, which is not what management might have reasonably expected when it made its commitments. Today, banks in Europe are trading on 6x price earnings multiple, compared with a two-decade average of nearer 10x.

This is of course deeply frustrating for banks. It is also disappointing for any investors who bought into the promised improvement. But perhaps it could prove the catalyst for something more dramatic.

The European bank sector has long looked like fertile terrain for activist shareholders. Many banks are in effect conglomerates, owning businesses across loosely connected parts of financial services and often in disparate countries. They have high cost bases, fragmented market shares and low valuations. Most so-called “sum of the parts” valuation measures conclude that a division or two of the bank is in effect available “for free”.

So where are the activists? There have been occasional flickers of interest. In the mid-2000s, Knight Vinke tried to force HSBC to exit its US business, but had to retire defeated. More recently, the global private equity firm Cerberus tried to force the merger of two German banks that it owned — Deutsche Bank and Commerzbank. Again, that proved unsuccessful. Among the factors holding back activists in the past were low levels of profitability.

But in a world of higher profits and consistently low valuations, 2024 might be ripe for a fresh wave of bank activism. Indeed, the conditions for activists might even improve further. With most analysts expecting bank returns on equity to modestly decline as rates start to fall, investors might get scared off, leaving valuations looking even more enticing.

In late December 2023, Cevian — a more behind-the-scenes activist — disclosed a €1.2bn stake in UBS. Publicly it remains supportive of UBS management as the bank integrates Credit Suisse, but it has clearly seen something that it finds attractive.

However, it’s not just rubbish returns that have put activists off. Regulators must approve anyone who seeks “control” of a bank — typically interpreted as owning 10 per cent or more — and historically regulators have been nervous of activists. The fact that these investors often agitate for large corporate change can be seen by regulators as introducing unwelcome instability.

But that attitude may be changing, as regulators appear increasingly open to the role such activists might play. This is evidenced in part by their apparent willingness to allow such investors to start joining the shareholder register of banks and their recognition that better-run banks are healthier for the economy.

With the treacherous journey to higher profits now complete, and valuations still depressed, 2024 may be the year that activists may finally drive the European bank sector out of its slumber.

A Russian oligarch said to be worth more than $6 billion is taking Sotheby’s to court after claiming the famed auction house helped his art dealer dupe him into buying more than a dozen rare works of art for $1 billion more than what they were actually worth.

Dmitry Rybolovlev, who made his wealth as head of Russian fertilizer producer Uralkali, alleged in court documents that he was defrauded by Yves Bouvier, an art dealer who helped him buy 38 artworks for about $2 billion over 12 years.

Between 2002 and 2014, Bouvier helped the Russian businessman amass an art collection that included classic pieces such as a depiction of Christ attributed to Leonardo da Vinci, and works by Gustav Klimt, Rene Magritte and Amedeo Modigliani.

But the relationship ended when Rybolovlev heard from an art adviser who represented a previous owner of a Modigliani painting that he overpaid for the work by millions of dollars.

Bouvier allegedly passed himself off to Rybolovlev as a go-between who would facilitate the sale between the oligarch and the owner of the sculpture — when in reality Bouvier was the owner who sold the piece at an inflated price, it was alleged in the lawsuit.

In 2013, Rybolovlev bought Leonardo da Vinci’s “Christ as Salvator Mundi” for $127.5 million at the insistence of Bouvier, who pocketed a 1% commission, according to court papers.

Rybolovlev alleged that Bouvier bought the artwork for $83 million and marked up the price.

The da Vinci piece is the most expensive painting ever sold at auction.

In 2017, Saudi Prince Badr bin Abdullah Al Saud paid $450 million for it at an auction held by Christie’s in Manhattan.

Rybolovlev also alleged in the lawsuit that in 2013 he paid Bouvier $83 million for “Tête,” a sculpture by Amedeo Modigliani — even though Bouvier paid half that sum for the statue just months earlier.

Two years prior, Bouvier was tasked to acquire Modigliani’s famous painting “Nu Couché au Coussin Bleu” on Rybolovlev’s behalf, according to the lawsuit.

The oligarch alleged that Bouvier paid $95 million for the painting and then turned around and sold it to him for $118 million, according to the complaint.

Bouvier is then alleged to have paid a $5 million kickback to Tania Rappo, the godmother of one of Rybolovlev’s daughters who was working in tandem with the Swiss art dealer to acquire pieces for the Russian businessman, without him ever knowing about it.

In all, Bouvier is alleged to have covertly marked up the prices of 15 works of art by an aggregate value of more than $1 billion in his dealings with Rybolovlev.

The lawsuit that he filed against Sotheby’s is scheduled to go to federal trial in Manhattan next week.

“Sotheby’s strictly adhered to all legal requirements, financial obligations, and industry best practices during the transactions of these artworks,” Sotheby’s said in a statement. “Any suggestion that Sotheby’s was aware of the buyer’s alleged misconduct or intention to defraud Mr. Rybolovlev is false.”

Daniel Kornstein, an attorney for Rybolovlev, told The Post that his client is “looking forward to the trial.”

“For the first time, all the evidence will be presented,” Kornstein told The Post.

“For the first time in nine years, Mr. Rybolovlev will speak publicly and provide a detailed account of the truth about this case.”

Rybolovlev’s lawsuit will also “show the world how the art market sometimes operates.”

“It can warn other collectors and art enthusiasts to protect themselves,” Kornstein said.

Bouvier is not named in the lawsuit as a defendant.

He has denied the allegations against him. The Post has sought comment from attorneys for Bouvier.

Rybolovlev, who owns an oceanfront Florida property that was once home to Donald Trump, has already sued Bouvier in several European and Asian jurisdictions.

Those disputes ended in a settlement that was reached last year.

Despite the US Treasury Department’s claim that he is an oligarch who enjoys “closeness to the Russian regime,” he has thus far avoided US sanctions which were imposed following the invasion of Ukraine in February 2022.

Rybolovlev made the allegations in a lawsuit filed last year against Sotheby’s auction house, which is being accused of facilitating the fraudulent sales.

Sotheby’s is being accused in the lawsuit of knowingly advancing the fraud on the art works that it handled — an allegation that the auction house has denied.

---> We could see some news in Healthcare sector thisq week

Tracy Palandjian, founder and CEO of Social Finance, was until recently a director at the billionaire’s investment fund

Billionaire hedge-fund manager Bill Ackman spent months publicly pressuring Harvard to cut ties with its embattled president, Claudine Gay. Meanwhile, a friend of his on Harvard’s governing board was among a small group pushing for change.

Tracy Palandjian is a member of the Harvard Corporation, the insular 12-person group with broad authority to manage the university. Though the group stood by Gay—it accepted her resignation last Tuesday “with sorrow”—Palandjian is one of a handful of its members who had privately questioned whether she could continue as president, people familiar with the matter said. Others who lost faith in her leadership included private-equity executive Paul Finnegan and investor Timothy Barakett.

An alumnus of Harvard’s economics program and its business school, Palandjian, 52 years old, is co-founder and CEO of Social Finance, a nonprofit that raises money from investors for projects meant to reduce government spending. Until last month, she also sat on the board of Pershing Square Holdings, the publicly traded arm of Ackman’s investment firm.

The two met years ago through Harvard’s alumni network. Palandjian launched Social Finance in 2011, modeling it on a similar business her co-founders had built in the U.K. Ackman’s charitable foundation was one of its earliest backers, contributing $1.5 million soon after it launched. His foundation has given millions more in the years since.

After the New York Times reported in late December that Palandjian told a group of academics replacing Gay might not go far enough to get the university back on track, Ackman tweeted a link to the article.

“Now that’s the Tracy Palandjian I know,” he said.

Palandjian joined the board of Ackman’s publicly traded investment fund, known for taking stakes in companies including Chipotle and Hilton, in 2021.

She was added to the Harvard Corporation in April 2022, after serving on the board of overseers—Harvard’s other, larger governing board—from 2012 to 2018. She was also part of the search committees that selected former Harvard President Lawrence Bacow in 2018 and Gay in 2022.

Ackman, a fellow Harvard alum, made his name as an activist investor before morphing into a social crusader in recent years, mainly through lengthy diatribes posted on his X account. He began zeroing in on Gay’s handling of antisemitism on campus soon after the Oct. 7 attack on Israel and sent a handful of open letters that became increasingly critical of her leadership when she was accused of plagiarism.

Ackman called Palandjian a handful of times to rant during his quest to get Gay removed. He tweeted in early December one of his “friends” on the Harvard board had ghosted him and the two haven’t spoken about Harvard since early November, people familiar with the matter said.

While it isn’t unusual for members of the corporation to be in contact with other alumni and stakeholders, critics have accused Harvard of appeasing wealthy donors like Ackman.

On Dec. 13, Pershing Square said Palandjian decided to retire from its board, effective Jan. 1, due to increased demands of her work and other board positions, which include the publicly traded asset-management investment firm AMG. Her departure was also to avoid conflicts as Ackman amped up pressure on Gay to resign, people familiar with the matter said.

People who have worked closely with Palandjian say she is an expert networker who is politically adept in the boardroom, soliciting a range of opinions before making her own known.

“She stays in a safe place until she understands where the chips are going to fall,” one of the people said. “She doesn’t want to be on the losing side of any discussion.”

Another person said she tries to hear everyone out to best steer the group.

Palandjian was raised in Hong Kong and came to the U.S. as a teenager.

While an undergraduate at Harvard, she met her future husband, Leon Palandjian, a doctor who worked and invested in life sciences before becoming chief risk officer of his family’s company, Intercontinental Real Estate Corp. His brother Peter, a former professional tennis player who is married to actress Eliza Dushku, is CEO of the $14 billion real-estate conglomerate.

Tracy Palandjian completed a stint at consultant giant McKinsey & Co. before receiving an MBA from Harvard Business School and working at asset manager Wellington Management. She worked for over a decade at the Parthenon Group, a consulting firm that is now part of EY.

With the help of two fellow Harvard Business School alumni, she launched Social Finance, which raises money from investors for social programs, aiming to improve efficiency in government spending. If the programs are deemed successful, governments pay the investors back, with a profit. Former Massachusetts Gov. Deval Patrick, now a Harvard professor, is a member of its board.

Some of the firm’s work has focused on education, promoting results-based jobs training. In 2022, Social Finance partnered with a $100 million Google fund to help train students for high-tech jobs.

The Palandjians live in a Boston suburb and spend time at a ski condo in the Park City, Utah, area. They have three grown daughters, all of whom have attended Harvard.