TheChek News Flow

Saudi telecoms group follows in footsteps of Gulf rivals as it seeks to spread its wings internationally

Spain’s culture is richly rooted in the period when it had Muslim rulers. Saudi Arabian telecoms group STC has just added a modern link. It has bought a 9.9 per cent exposure in Spanish counterpart Telefónica worth €2.1bn.

An ambivalent Spanish reaction has little to do with heroic myths surrounding the Christian reconquista. Instead, it reflects the purchase of a meaningful stake in a national asset by a business controlled by an authoritarian foreign government.

Acting economy minister Nadia Calviño said Spain was reviewing the purchase to check strategic interests would not be compromised. Telefónica does business with defence groups in Spain.

Foreign investment laws mean any increase in voting rights above 4.9 per cent would trigger a national security review. Spanish eyebrows will arch at the fact that STC’s precise cash equities stake is 4.9 per cent, with the balance held via derivatives.

STC says it has no intention of taking control of Telefónica. Its aim is to spread its wings internationally. Saudi Arabia is diversifying its risks out of oil and gas.

The two sides already know each other. They announced a strategic partnership in February in areas such as the internet of things.

Telefónica churns out money. Free cash flows should average €3.6bn annually through to 2025. They easily cover dividends and share buybacks. Telefonica’s net debt-to-ebitda leverage ratio (including leases) should peak this year at about 2.5 times, according to S&P CIQ.

STC spent €1.2bn on tower infrastructure in eastern Europe in April. Telefónica would add to these not only in Spain but in Brazil, Germany and the UK. However, 79 per cent of the group’s value comes from Spain and Brazil, points out James Ratzer at New Street Research.

STC is following in the footsteps of rival e&. Last month, the United Arab Emirates business announced it wanted to increase its stake in UK group Vodafone to 20 per cent. It may influence a restructuring of the telecoms company.

STC will lack that pivotal role at Telefónica, which is a more stable business. And it is debatable whether Spain would allow Saudi Arabia to take a one-fifth stake.

There is an element of soft power in even a smaller, passive stake. But Spain has seen other Gulf investors come and go, notably Kuwait in the nineties. It can afford to remain sanguine.

Company calls rental costs ‘dramatically out of step with current market conditions’

WeWork is seeking to renegotiate nearly all of its leases around the world, weeks after the SoftBank-backed office space group warned that there was “substantial doubt” about its ability to continue as a going concern. 

The New York-based company’s drive to cut lease costs it described as “dramatically out of step with current market conditions” threatens a commercial real estate industry that is already suffering from the excess capacity that followed a coronavirus pandemic-driven surge in working from home.

As of June, WeWork was in 777 locations in 39 countries, with long-term lease obligations of more than $13bn, most of which come due in or after 2028. 

WeWork announced the plan after telling its landlords they were “strongly advised” to join a listen-only call on Wednesday morning New York time at which it would share an important business update.

David Tolley, chief executive, told landlords that dialled in that WeWork expected to exit some “unfit and underperforming locations” but would remain in most of its buildings.

In a statement after the call, he said WeWork was “taking immediate action to permanently fix our inflexible and high-cost lease portfolio” that he described as a legacy of a “period of unsustainable hypergrowth”.

WeWork has already spent several years seeking to cut its long-term lease liabilities, which exceeded $18bn at the time Adam Neumann stepped down as chief executive after a failed initial attempt at going public in 2019.

At the same time, landlords have been looking to reduce their exposure to a company that has an outsized share of the office market in cities from New York to London and has appointed a series of bankruptcy experts in recent weeks.

“We’ve been approached by about 70 landlords since 2020 and have ended up taking over eight or nine [WeWork spaces]. The approaches are accelerating right now,” said Jamie Hodari, the chief executive of Industrious, another flexible office space company.

Hodari said his company had also been “inundated” with calls from WeWork customers since its going concern warning in August.

Real estate executives have said that many of WeWork’s New York sites are in lower-quality buildings, so its troubles may contribute to a widening divide between the most modern properties and more dated ones.

As recently as the first quarter of this year, WeWork accounted for almost a quarter of new leasing activity in New York, but several industry members have sought to play down the impact of a potential bankruptcy.

“It’s a small part of the market,” one said. The company occupies about 6.4mn sq ft in a Manhattan office market that is 414mn sq ft.

Even so, some landlords have moved to protect themselves. Last year, for example, the Spanish bank Santander took 160,000 sq ft of space at 437 Madison Ave that had previously belonged to WeWork. The rent was a bit lower, according to a person familiar with the transaction, but it let the building’s owner, Sage Realty, reduce its exposure to the co-working company. 

Shares in WeWork, which ultimately gained a public listing through a merger with a blank-cheque company in 2021, have fallen by 98 per cent in the past year. Having once commanded a private market valuation of $47bn, its equity is now valued below $200mn. WeWork’s shares were 3 per cent lower at midday on Wednesday.

The lease renegotiations would have “no impact” on WeWork’s day-to-day operations, Tolley said. “Let me finish by making one thing clear,” his statement said. “WeWork is here to stay.”

Ministers will not immediately enforce online safety bill powers to scan apps after WhatsApp threatened shutdown

The UK government has conceded it will not use controversial powers in the online safety bill to scan messaging apps for harmful content until it is “technically feasible” to do so, postponing measures that critics say threaten users’ privacy.

In a statement to the House of Lords on Wednesday afternoon, junior arts and heritage minister Lord Stephen Parkinson sought to mark an eleventh-hour effort to end a stand-off with tech companies, including WhatsApp, that have threatened to pull their services from the UK over what they claimed was an intolerable threat to millions of users’ privacy and security.

Parkinson said that Ofcom, the tech regulator, would only require companies to scan their networks when a technology was developed that was capable of doing so. Many security experts believe it could be years before any such technology is developed, if ever.

“A notice can only be issued where technically feasible and where technology has been accredited as meeting minimum standards of accuracy in detecting only child sexual abuse and exploitation content,” he said.

The online safety bill, which has been in development for several years and is now in its final stages in parliament, is one of the toughest attempts by any government to make Big Tech companies responsible for the content that is shared on their networks.

Social media platforms have railed against provisions in the bill that would allow the UK regulator to force them to allow their encrypted messages to be monitored for harmful content, including child sexual exploitation material.

WhatsApp, owned by Facebook’s parent Meta, and Signal, another popular encrypted messaging app, are among those that have threatened to exit the UK market should they be ordered to weaken encryption, a widely used security technology that allows only the sender and recipient of messages to view a message’s contents.

Meredith Whittaker, the president of Signal, described the government’s move as “a victory, not a defeat” for the tech companies.

“Of course, this isn’t a total victory,” she wrote on X, formerly known as Twitter. “We would have loved to see this in the text of the law itself. But this is nonetheless huge, and insofar as the guidance for implementation will have the force to shape Ofcom’s implementation framework, this is, again, very big and very good.”

Will Cathcart, head of WhatsApp, said the company “remains vigilant against threats” to its encryption. He posted on X: “The fact remains that scanning everyone’s messages would destroy privacy as we know it. That was as true last year as it is today.”

Officials have privately acknowledged to tech companies that there is no current technology able to scan end-to-end encrypted messages that would not also undermine users’ privacy, according to several people briefed on the government’s thinking.

Critics have long argued such a technology does not exist and that current scanning technologies have been found to make errors, wrongly identifying safe content as harmful, and requiring flagged material to be checked by human monitors, therefore exposing private content.

The government said on Wednesday that its position on the issue “has not changed”.

“As has always been the case, as a last resort, on a case-by-case basis and only when stringent privacy safeguards have been met, [the legislation] will enable Ofcom to direct companies to either use, or make best efforts to develop or source, technology to identify and remove illegal child sexual abuse content — which we know can be developed,” the government said.

Parkinson added in the Lords: “It is right that Ofcom should be able to require technology companies to use their considerable resources and their expertise to develop the best possible protections for children in encrypted environments.” But he did not give any details.

Child safety campaigners have spent years pushing the government to be tougher on tech companies over abuse material that is shared on their apps.

Richard Collard, head of child safety online policy at the National Society for the Prevention of Cruelty to Children, said: “Our polling shows the UK public overwhelmingly support measures to tackle child abuse in end-to-end encrypted environments. Tech firms can show industry leadership by listening to the public and investing in technology that protects both the safety and privacy rights of all users.”

BERLIN, Sept 6 (Reuters) - German Chancellor Olaf Scholz on Wednesday called on the ruling coalition and democratic opposition to pull together to overcome the "mildew of red tape, risk averseness and despondency" that has weighed down Europe's largest economy in recent years.

This was also key, he said, to fend off "those who want to draw political profit from decline scenarios and panic-mongering" amid a sharp rise in support for Germany's far-right.

"The citizens are fed up with this standstill, and I am too," Scholz said in a speech to the Bundestag lower house of parliament during a session on the 2024 budget, sporting a black eye patch following a jogging accident.

The chancellor announced a new "Germany pact" with a bundle of measures aimed at streamlining the country's notoriously slow bureaucracy and speeding up the digitalization of the economy.