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The downturn in discretionary spending in North America has dented the sales of fashion and luxury brands and taken a toll on U.S. department stores. Saks Fifth Avenue is one of several multi-brand retailers that are slashing orders, closing stores and delaying cash payments to fashion and luxury brands for which they act as wholesalers. That is disrupting the whole fashion and luxury retail ecosystem, industry sources have said.

While trends are expected to improve and industry specialists predict the summer should be a low point for North American retailers, such measures are a bad omen for the industry in general. Delaying or stopping payments put huge financial pressure on small fashion, leather goods and shoe brands for which business with U.S. department stores represents a major source of income.

If orders are cut and brands not paid on time -- or not at all which can happen – they cannot in turn pay their suppliers. They even risk running out of cash themselves.

“This put the whole fashion ecosystem under huge pressure,” explained the founder of a small fashion brand that champions artisans in France. She did not wish to be identified as she had just completed a fund-raising and did not want her brand to look vulnerable. “If we do not get paid, we cannot pay our suppliers, and our suppliers cannot pay their own staff, and so on.”

She said some U.S. department stores had stopped payments or argued that delivery was not complete in order to avoid having to settle the balance. “You would think that U.S. department stores are solid and established, but in reality, they are fragile and many small brands like ours depend on them. Everyone is reducing orders due to the spectre of recession.”

Saks Fifth Avenue, the department store that is owned by the Canadian retail business group Hudson’s Bay Company (HBC), confirmed that it had delayed some payments to supplying brands. It stressed that this did not concern Saks.com, the online business which was spun off two years ago and in which HBC is a shareholder alongside private equity firm Insight Partners.

“Any payment delays are the result of HBC’s careful cash management in this difficult period,” a spokesperson for HBC told Miss Tweed in an email. “It is part of the normal course of business.” To save cash, Saks, the department store, has also delayed the payment of bonuses to staff from the spring to the autumn. It is also selling a lot of stock at a discount.

Talking about U.S. department stores, Gary Wassner, CEO of Hilldun Corporation told Miss Tweed: “We have seen some scattered slowness in payments.” Based in New York, Hilldun provides financing and back-office services to more than 400 brands including Marc Jacobs and Isabel Marant.

Some fashion brands such as the popular Coperni, which is backed by the investment company Tomorrow, try to show some understanding and flexibility with those retailers that are having cash issues. “Our approach has always been to grant our clients the same flexibility and understanding that we sometimes request from our vendors and suppliers,” said Tim Ryan, chief brand officer at Tomorrow told Miss Tweed. “It is important that everyone, from the designers to the retailers, works together to ensure future growth and success.”

When Barneys New York collapsed in 2019, many brands suffered from the business they lost with the iconic department store. Barneys went bankrupt due to skyrocketing rent and competition from e-commerce that led to lower footfall, woes that continue to affect its peers.

Saks Fifth Avenue is not the only major fashion and luxury retailer with financial difficulties. Neiman Marcus, America’s other major distributor, is also in trouble. It went bankrupt in 2020 and is now in the hands of a consortium of financial and investment companies. The American retailer owns the famous Bergdorf Goodman store on New York’s Fifth Avenue.

Industry sources say that Neiman Marcus’s new financial owners are unhappy with the company’s current management and may push for a leadership change. There is also talk that they may force Neiman Marcus to sell Bergdorf Goodman to raise cash. The department store’s building itself, however, does not belong to Neiman Marcus but to the Goodmans, the family that bought the store from the Bergdorfs in the early 20th century. “This is not going to be an easy sale if it happens,” the former CEO of a major US fashion group told Miss Tweed on condition of anonymity. “Any buyer would have to renegotiate the lease.” But maybe European, Japanese or Middle Eastern department stores in better financial shape than their U.S. rivals may be interested, industry sources said.

Farfetch, which agreed to invest $200 million in Neiman Marcus last year, is in the process of re-platforming the Bergdorf Goodman website and mobile application. As part of the deal, Neiman Marcus committed to using some of Farfetch’s technology for international services and Bergdorf Goodman and Neiman Marcus are to join the Farfetch marketplace. It’s not clear how Neiman Marcus’s troubles will affect Farfetch as the online retailer is itself struggling to boost growth and profitability in the current tough retail environment.

BARGAINING POWER

Some brands part of luxury groups such as LVMH and Kering have already imposed more stringent payment terms on U.S. department stores to avoid finding themselves suffering payment delays or non-payments, industry sources said.

Brands that are part of a group can afford to demand guaranteed payments but smaller brands without a big group do not have that bargaining power. “Retail is jungle, a fierce and brutal business,” the former head of a major U.S. department store told Miss Tweed. “Retailers always try to impose tough payment terms on small brands.” Also, much depends on the strength and momentum a brand enjoys. If a fashion label is popular and attracts traffic, it will have more bargaining power with a department store than if a brand is weak and is not much in demand.

Megabrands such as Hermès, Chanel and LVMH’s Louis Vuitton and Dior have concession deals with U.S. department stores. That means they rent space from them. They do not sell them stock on a wholesale basis. But some smaller brands sell stock to department stores wholesale and these in turn can do what they wish with it. They can sell excess clothes and accessories at major discounts which can harm their image.

The reason why there are so many discounts right now is that department stores and other multi-brand retailers did not foresee the downturn and how severe it would be. They were over-optimistic when they bought stock in 2021 and 2022, at a time when consumers were in a “revenge spending” mode after the pandemic. Last year, sales in the U.S. were booming. In 2022, as business was brisk, they continued placing big orders.

But there can be a lapse of six to 12 months between the time an order is placed with a brand and the moment the items arrive in a store and consumers buy them. For example, a department store usually receives fall products in June or July and shoppers won’t buy them until September or October. Usually, a deposit of 30 percent is paid to the brand when the order is placed and the balance is due before delivery.

The current meltdown among U.S. department stores is affecting not only brands that work with them but every major online multi-brand retailer. Farfetch, MatchesFashion and Mytheresa have publicly said that such an extended period of heavy discounts – which began in earnest in December – is making it difficult for them to remain competitive and sell items at full price.

Richemont’s Yoox-Net-A-Porter online fashion retailer reported an 8 percent drop in revenue in the three months to June 30. Farfetch, the world’s leading online fashion retailer and marketplace, reported flattish growth for the first months of the year. Mytheresa, which sells curated looks to high spenders, reported continued sales growth but lower margins as aspirational consumers chase discounts and deals on fashion and luxury goods. For Saks, gross merchandising value (the value of goods sold online) during the first quarter fell 8% compared to the same quarter last year. The GMV of Saks, the department store, fell 15 percent during the period.

LEAVING CANADA

Several major U.S. department stores have also been pulling out of Canada. In June, the U.S. department store chain Nordstrom shut down all of its 13 stores, putting more than 2,500 people out of a job. The company said it was exiting Canada because it did not see a realistic path to profitability for the business in the country. The Seattle-based retailer had six Nordstrom and seven Nordstrom Rack stores in Canada. They closed together with its online operations. The news may have stunned the world, but it is part of a general restructuring and downsizing that the North American retail landscape has been undergoing for many years now. Nordstrom, which reported a 12 percent drop in sales in the three months to April 29, did not reply to requests for comment.

Hudson Bay’s Company, which owns the department store The Bay, is going to close two stores in Canada this year and another one next year. “This is all normal course of business,” the retailer said. HBC denied reports that a major refurbishment program of La Baie department store (The Bay in French) in downtown Montreal was put on hold. It said the project remained on track and it was in discussion with potential tenants. Saks, the department store, for its part said it remained committed to its three stores in Canada, two in Toronto and one in Calgary.

ONLINE COMPETITION

Online shopping and other specialized retailers have been eating into department stores’ business model from all sides, a trend that began way before the pandemic. As people have grown used to shop online, having a large and expensive portfolio of department stores and boutiques does not make sense anymore. It’s cheaper to ship a product stored in a warehouse than to display and stock it in a store. Nordstrom, Macy’s and its sister company Bloomingdale’s are testing smaller store formats that have much smaller assortments and allow customers to collect products ordered on the Internet.

In Europe, department stores are also testing smaller formats. However, their core business is doing much better as they have benefited from a significant influx of tourists, many of them actually coming from America and from South-East Asia. Chinese tourists are not back yet, European retailers and luxury brands have said. In Paris, the Galeries Lafayette and Printemps department stores have seen their sales bounce back to levels above their pre-pandemic peak in 2019. “We have not seen a drop in spending on the part of Americans. When they travel, Americans like to indulge and spend,” Stephane Roth, Group General Manager Marketing, Communication and Architecture at Printemps, told Miss Tweed.

Along with Chinese customers, Americans are Printemps' most important customers. The Netflix film series Emily in Paris has played a role and boosted Paris’ appeal to Americans, Roth said. The department store has also benefited from partnerships with travel agencies working with North American tourists. Printemps, which opened a store in Qatar last year, is still planning to open a store in New York on Wall Street in Sept. 2024.

If the U.S. retail meltdown has not yet really affected major European department stores and multi-brand retailers, it could nevertheless trigger the much-awaited consolidation among online fashion and luxury players, industry analysts predict. There are too many online retailers chasing the same customers, they say. Some may go out of business as they run out of cash while others may become takeover targets. This topic needs to be high on luxury investors’ radar screen as it affects the industry’s entire ecosystem and the global balance of power between retailers and brands.

Shipping companies have urged international maritime regulators to create safety rules for transporting electric vehicles after a spate of fires aboard freighters carrying EVs, including one last week near the Netherlands that killed a crew member and injured seven others.

In the latest accident, the 650-foot Fremantle Highway caught fire July 26 en route from Bremerhaven, Germany, to Singapore with 3,783 vehicles aboard, including 498 EVs. It took until Sunday for the fire and smoke to subside sufficiently for tugboats to pull the freighter out of shipping lanes. Authorities do not know how the fire started, but shipping operators “are calling for acceleration [of new regulations] after this new incident,” Nathan Habers, spokesperson for the Royal Association of Netherlands Shipowners, told me in a message.

Shipowners are concerned because the fire was the fifth involving a ship carrying EVs since 2018. Last year, a ship called the Felicity Ace went down in the Atlantic while transporting some 4,000 vehicles made by Audi, Bentley, Lamborghini, Porsche and Volkswagen, including some EVs. Norwegian freighter operator Havila Kystruten responded by saying it would no longer ship EVs, and Mitsui OSK Lines, the owner of 110 car transporters, said it would no longer ship used EVs. Mitsui said older batteries are typically in poorer condition than those in new vehicles.

Whether or not EV batteries are at fault in any of the incidents, they can make a fire more intense because of the high temperatures at which they burn, reaching as much as 2,700 degrees Celsius (4,892 Fahrenheit), more than twice as hot as a gasoline fire. A lithium-ion battery can catch fire from a short circuit; because of the flammability of the electrolyte, the short-circuited cell will ignite neighboring cells and the entire battery in a chain reaction called thermal runaway. In June, for instance, four people were killed in New York when fire broke out in an e-bike shop and spread through apartments in the building. But fire on car-carrying ships is particularly problematic because the vehicles are parked just inches apart, with up to 13 low-ceilinged decks, making the blaze almost impossible to contain.

International regulations cover the shipment of gasoline-powered combustion vehicles, but the International Maritime Organization, the U.N. body that regulates global shipping, currently has only voluntary guidelines for the transportation of EVs or lithium-ion batteries, spokesperson Natasha Brown told me. In March, an IMO subcommittee is scheduled to consider a proposal by China to either tighten the guidelines or establish mandatory EV shipping regulations. In the proposal, China said that when researchers extinguished lithium-ion fires in tests, the EVs reignited, feeding a gas explosion. The document explained that thermal runaway generates gas, which the flames from the battery then ignite.

Among proposals are better segregation of EVs from each other and the development of new fire-fighting chemicals. A key issue is how much charge is permitted in the EV batteries while they are shipped, because that feeds a fire. The international maritime guidelines recommend no more than a 30% state of charge. When you buy a new EV, it is often delivered to you fully charged. But Jeff Dahn, a leading battery scientist who advises Tesla, recommended limiting shipped EVs to a 10% charge, which he said “would be safe under almost all conditions, I believe.”

This is a weekly feature that runs down the week’s top 10 announced funding rounds in the U.S. Check out last week’s biggest funding rounds here.

There were lots of big rounds this week as August roared in after a kind of sleepy July. The big rounds went to all different types of companies — from networking to biotech to sustainability. However, while there were five nine-figure rounds, none topped $200 million. Still, not a bad start to the final full month of summer.

1. Nile, $175M, networking: Enterprise networking can be a hard sector for a startup to break into, as it has long been dominated by tech giants. Nevertheless, San Jose, California-based networking startup Nile was able to catch investors’ eyes with a $175 million Series C less than a year after emerging from stealth. The company was co-founded by former Cisco Systems executives John Chambers and Pankaj Patel. Chambers served as CEO of the networking giant for two decades. The round was co-led by March Capital and Saudi Arabia sovereign wealth fund Sanabil Investments. Nile is attempting to disrupt the networking industry by offering network-as-a-service with more secure wired and wireless services enhanced with monitoring, analytics and automation. The idea is to help companies simplify their modern networking needs and offer optimum security while going head-to-head with goliaths such as Cisco and Juniper Networks. The startup did not offer a valuation. The round brings Nile’s total amount of capital raised to $300 million since being founded in 2018, per the company.

2. Newlight Technologies, $125M, sustainability: Converting greenhouse gasses into something usable is big business right now. Newlight Technologies locked up $125 million led by GenZero to do just that. The Huntington Beach, California-based startup uses natural microorganisms to convert greenhouse gas into a material the company calls “AirCarbon,” which can substitute for a variety of other materials to build products in sectors such as fashion, foodservice and others. Newlight plans to use the new cash to expand the production of AirCarbon at both its existing California facility as well as a new production facility being built in Ohio. Founded in 2003, the company has raised nearly $232 million, per Crunchbase.

3. Jerry, $110M, auto insurance: While we all like to drive, no one enjoys car insurance. The Jerry app tries to make the whole insurance thing a little easier by finding better rates, and it can even find loans for a new ride. This week it raised $110 million in equity and debt for new features — GarageGuard, like WebMD for cars, and DriveShield, a safe-driving feature. The financing was led by existing investor Park West Asset Management. Hopefully, the new GarageGuard feature doesn’t turn everyone into an at-home mechanic. Founded in 2017, the company has raised $242 million, per Crunchbase.

4. CG Oncology, $105M, biotech: With recent weeks being so biotech heavy, it almost seems like this is low on the list for our first biotech company of the week. CG Oncology locked up a $105 million round co-led by new investors Foresite Capital and TCGX. The Irvine, California-based firm will use the new cash to advance late-stage clinical programs for its bladder cancer treatment. Founded in 2010, the company has raised nearly $318 million.

5. Healthmap Solutions, $100M, health care: Tampa, Florida-based Healthmap Solutions, a health management company focused on kidney disease, raised a $100 million round led by funds managed by WindRose Health Investors. The company has seen significant growth, as it’s contracted to manage more than $3 billion in health care spend and currently serves more than 160,000 individuals living with kidney disease. Founded in 2016, the company has raised nearly $226 million, per Crunchbase.

6. Tisento Therapeutics, $81M, biotech: Cambridge, Massachusetts-based Tisento Therapeutics, a biotech firm looking to treat mitochondrial diseases, raised an $81 million Series A that included investment from Invus, Peter Hecht, Polaris and others. The round is the company’s first outside funding, per Crunchbase.

7. LightForce Orthodontics, $80M, dental: Burlington, Massachusetts-based LightForce Orthodontics, a maker of personalized 3D-printed braces, closed an $80 million Series D led by Ally Bridge Group. Founded in 2015, the company has raised $150 million, per Crunchbase.

8. (tied) Endor Labs, $70M, security: Palo Alto, California-based Endor Labs, an open-source security startup, raised a $70 million Series A that included investment from Lightspeed Venture Partners and Coatue. Founded in 2021, the company has raised $95 million, per Crunchbase.

8. (tied) Tradeshift, $70M, fintech: San Francisco-based Tradeshift, a cloud-based business network connecting buyers and suppliers, agreed to a $70 million investment from HSBC as part of a joint venture. Founded in 2009, the company has raised $1.1 billion, per Crunchbase.

10. Kyverna Therapeutics, $60M, biotech: Emeryville, California-based Kyverna Therapeutics, a clinical-stage cell therapy startup focusing on therapies for autoimmune diseases, closed a $60 million Series B extension. The new cash brings the Series B total to $145 million. Investors in the round include Bain Capital Life Sciences and GordonMD Global Investments. Founded in 2018, the company has now raised $170 million, per Crunchbase.

Despite all the large raises in the U.S., the biggest occurred across the Pacific.

RTX’s bet on powering single-aisle jetliners runs into quality and durability concerns

Airlines in the U.S., Europe and Asia are temporarily reducing some flights and routes to inspect aircraft affected by the recall of hundreds of Pratt & Whitney jet engines, leaving the unit of the aerospace and defense company RTX facing a potential multibillion-dollar bill.

Some 137 engines used on Airbus EADSY -0.34%decrease; red down pointing triangle single-aisle jets will need to be inspected over the next several weeks, RTX said Friday. That is fewer than the 200 originally expected but still a problem for carriers that were already dealing with staffing shortages and air-traffic control congestion.

The ability of RTX to contain and fix the problems has major ramifications for one of the world’s biggest aerospace and defense companies. It will also help decide whether Airbus can continue efforts to boost the production of its single-aisle jetliners. Airbus said that the engine problems won’t affect production this year, but that it will be watching for any impact after that.

Spirit Airlines said Thursday it would pull seven Airbus A320neo-family jets from service in the fall for inspection. More than 40 of Spirit’s fleet of around 200 jets are affected, and the airline said the engine problems could reduce its ability to add more flights next year.

Hawaiian Airlines said it would suspend some routes and reduce its number of flights to deal with engine inspections in the coming months. Other carriers including Germany’s Lufthansa, Mexico’s Volaris and JetBlue Airways in the U.S. have said they are evaluating whether to cut flights.

Pratt said recently that a fresh analysis following the discovery in 2021 of contaminated metal parts uncovered the need for more-immediate inspection of engines. The company said around 1,200 engines could suffer cracks faster than expected.

The company said Friday that it told customers which engines would have to be inspected over the next few weeks and which could wait to be checked over the next year.

What started as a minor quality concern escalated in recent weeks to require hundreds of engines to be removed from Airbus A320neo aircraft for inspection and possible repair. The recall adds to durability problems that have dogged Pratt since it introduced its fuel-efficient geared turbofan, or GTF, to airlines in 2016. The engines have been popular because they cut fuel consumption by around 15% and have low emissions.

RTX has sold more than 10,000 GTF engines. Compensating customers for inspections and repairs that take planes out of service could delay profitability for the program. Some analysts estimate that it will be 2030 before RTX starts to recoup its investment in the engine. It has taken an initial $500 million charge to cover the cost of new inspection, repair and compensation for the first batch of GTF engines being checked.

The company, formerly known as Raytheon Technologies, already has to pay compensation to airlines for older problems with GTF engines used on Airbus jets. These include oil-leak and vibration concerns that have required extra servicing.

With more than 100 Pratt-powered Airbus jets—around 10% of the A320neo and A220 fleet—already grounded by durability problems and spare-parts shortages that have dragged on for years, RTX Chief Executive Greg Hayes in late July embarked on a round of customer calls.

“No one is happy,” Hayes said in an interview last month.

Decades ago, Pratt engines powered the original Boeing 737s, but the manufacturer lost out to General Electric and French partner Safran’s rival turbine for the jet and the Airbus A320 in the 1980s. That left Pratt reliant on making engines for larger jets and military aircraft, as well as propeller planes.

The introduction of the geared turbofan to airliners provided Pratt a way back to that market, using technology developed for propeller planes over the previous two decades.

Plane makers were initially reluctant to try the new type of engine as existing turbines continued to improve fuel efficiency and reliability. Canada’s Bombardier signed up for the GTF in 2007 for its new CSeries jet. The plane was designed to challenge Airbus and Boeing in the single-aisle market.

The pivotal moment for the GTF came in 2010, when Airbus launched the A320neo, a revamped version of its A320, with the option to configure the plane with the new Pratt engine.

Airbus eventually bought control of the Bombardier CSeries program, renaming it A220 and expanding its fleet of GTF-powered planes.

Airbus sales exploded. Boeing accelerated the development of the 737 MAX, with new engines from GE and Safran, to compete with the A320neo.

The Airbus decision to launch the A320neo gave Pratt a way back to the single-aisle jetliner market. Pratt also had a first-mover advantage over GE and Safran, which produce engines through a 50/50 joint venture called CFM International.

Airbus offered both the GTF and a CFM engine called Leap for the A320neo. Boeing kept its exclusive relationship with CFM to provide only the Leap on the 737 MAX.

Both engine types have delivered better fuel efficiency and suffered from durability problems requiring frequent repairs. CFM has been quicker to resolve the concerns, helping it win a larger share of the market.

Gas mogul who redrew energy map clings to Aspen ranch after loans come due

Charif Souki pioneered the American LNG boom but now warns of homelessness in battle with UBS

He has been hailed as the architect of the US liquefied natural gas industry, a man whose brash vision reconfigured global energy markets and once made him the best-paid executive in America.

Now Charif Souki says he is battling Swiss bank UBS to keep a roof over his head.

Souki founded Cheniere Energy, the company that invented the business of shipping chilled US shale gas overseas. The trade has blossomed since Cheniere’s first cargo left port in 2016, turning the US into a critical LNG supplier to allies facing an energy crunch.

“Charif has been at the forefront, the pioneer, the person who in the face of scepticism delivered the proof of concept on a massive scale,” historian Daniel Yergin said when Souki was honoured with the United States Energy Award in 2021.

But Souki, sacked from Cheniere after a bruising clash with the investor Carl Icahn, has so far failed to repeat his success with a second gas export venture named Tellurian. Recent financial struggles with UBS have only complicated his plans.

This year his bankers stripped him of much of his Tellurian shareholdings in a dispute over a defaulted loan. His prized sailboat, the Tango, has been seized. UBS is seeking to liquidate more of his assets including Aspen Valley Ranch, an 813-acre luxury compound in Colorado that includes several residences in addition to his own. Last week two of his personal investment vehicles filed for bankruptcy protection in order to stave off an auction.

Forced sales would “strip my family of its privately held business”, “cause my children . . . to become unemployed”, and “render me homeless”, Souki wrote in an affidavit submitted in a lawsuit seeking to stop them.

Tellurian plans to construct Driftwood LNG on 1,200 acres along Louisiana’s Calcasieu river. If fully built it would become one of the largest single export projects in the US, costing $25bn.

The site has a contentious history. Souki began discussing the location with former BG Group executive Martin Houston in 2014, when he still led Cheniere. Cheniere advanced Houston’s company $46mn to begin buying land.

Icahn bought a stake in Cheniere in 2015 and promptly put a stop to a development that he viewed as risky and expensive. When Souki was fired that December, Icahn issued a statement to “thank and congratulate the board for having the ‘guts’” to let him go.

The Icahn camp was displeased when, a few months later, the former Cheniere chief announced he was going into business with Houston to build a liquefaction plant at the very same site.

In duelling lawsuits, Cheniere demanded repayment of the $46mn that Houston had used to buy the land, while Houston’s company sought damages from Cheniere for walking away from their joint venture. The litigation was settled in 2020, leaving the pair free to pursue, under the auspices of Tellurian, the scheme that had been thwarted at Cheniere.

The venture began auspiciously. French oil major Total made an investment in 2016, later promising to buy 2.5mn tonnes a year from Driftwood. By 2017 Tellurian, with few assets besides the still-unconstructed terminal, commanded a stock market valuation of nearly $3bn.

At around that time Souki, looking to raise cash, says he called a childhood friend and longtime financial adviser who had recently arrived at the wealth management arm of UBS. By 2018, the bank had lent $90mn to Souki via a lending fund attached to its UBS O’Connor asset management unit, secured against his Tellurian shares and other collateral. A year later, the UBS fund followed up with a $60mn loan to Tellurian, where Souki was chair. Souki has said in an affidavit that he made an introduction but “was not involved in the negotiations of the Tellurian loan”.

Soon after the loans were funded, Tellurian hit the rocks. In 2020, with pandemic-hit economies shutting down and the price of gas in freefall, potential customers including Indian importer Petronet walked away from their tentatively agreed deals. Total backed out the following year. Collecting the money it had advanced against an LNG project on the Calcasieu river was to prove no easier for UBS than it had for Cheniere.

Unlike Cheniere, which had fired and then sued Souki, UBS tried at first to court him. Souki says that UBS O’Connor’s co-head of capital solutions, Baxter Wasson, asked him to “right the ship” at Tellurian, promising in return that the bank would take a “holistic approach” that would allow “time and flexibility” for Souki to repay his own loans.

Tellurian said in a securities filing this year that it had not been aware of any such arrangement, which “may have created a conflict of interest”. Souki, who took on extra responsibilities with a new title of executive chair, declined to comment on whether there had been any conflict.

After Tellurian repaid its loans in 2021, UBS turned its attention to the money it had lent Souki, putting the two sides at loggerheads. Souki sold some parts of Aspen Valley Ranch and says he tried to sell others but was blocked by the bank, a claim UBS denies.

Two days before last Christmas Eve, UBS notified Souki it was seizing the Tango, which has since been sold in a process that Souki claims was also botched. Earlier this year UBS liquidated the Tellurian shares that Souki had pledged while they traded near two-year lows; Souki says the sales were poorly timed and drove the stock even lower.

“You can tell who is not very competent when things start not going well,” Souki said in an interview. “They [UBS O’Connor] have taken a group of assets that had a lot of value. And by simply being bad about everything, they managed to destroy a lot of value.”

UBS countered in a court filing last month that it was not required to exercise “clairvoyance”. The bank declined further comment.

Souki is now trying to reassert control over the sale of his ranch and his real estate brokerage in the Colorado ski town of Aspen, the remaining collateral for loans on which UBS says tens of millions of dollars are still outstanding. A New York court refused his request for an injunction that would have barred UBS from conducting a planned auction of his assets.

But after last week’s bankruptcy protection filing for two of his personal investment vehicles, any decisions on a sale could be put in the hands of a federal judge. “I don’t think there’s going to be an auction any more,” Souki said.

Last year Driftwood lost two more high-profile buyers in Shell and Vitol and was forced to abandon a $1bn bond sale. Tellurian’s shares have lost 80 per cent of their value since 2019.

Two independent directors stepped down earlier this year, citing personal reasons and time commitments. Tellurian said in a subsequent filing that it believed neither had ever been “comfortable with the risk profile and strategic direction” of the company.

Yet Souki is optimistic that he can defy sceptics and obtain the billions of dollars he needs to complete the project as global trade in LNG reaches new records.

“Out of the $12bn or $13bn we’re going to need [for Driftwood’s first phase], we’re now sure that we have nine of them,” he told the Financial Times. “We’re highly confident that there’s other mezzanine financiers who will come in. So $2bn from equity partners. It’s not going to be very hard.”

Some energy executives say Souki himself has become the project’s biggest obstacle, making Tellurian a possible target for an activist hedge fund. “If you took him out, then I think those contracts get signed and people come back,” said Ben Dell, managing partner of private equity group Kimmeridge.

Souki said that if new shareholders did come on board, he was confident he could convince them to back his strategy.

As for losing the ranch in a forced sale, he offered a milder version of the fears expressed in court papers. “I would be homeless in Aspen for a short period of time,” he said. “But I do have other properties around the world.”

Federal laboratory experiment produces more energy than during landmark test last year

US government scientists have achieved net energy gain in a fusion reaction for the second time, a result that is set to fuel optimism that progress is being made towards the dream of limitless, zero-carbon power.

Physicists have since the 1950s sought to harness the fusion reaction that powers the sun, but until December no group had been able to produce more energy from the reaction than it consumes — a condition also known as ignition.

Researchers at the federal Lawrence Livermore National Laboratory in California, who achieved ignition for the first time last year, repeated the breakthrough in an experiment on July 30 that produced a higher energy output than in December, according to three people with knowledge of the preliminary results.

The laboratory confirmed that energy gain had been achieved again at its laser facility, adding that analysis of the results was underway.

“Since demonstrating fusion ignition for the first time at the National Ignition Facility in December 2022, we have continued to perform experiments to study this exciting new scientific regime. In an experiment conducted on July 30, we repeated ignition at NIF,” it said. “As is our standard practice, we plan on reporting those results at upcoming scientific conferences and in peer-reviewed publications.”

Fusion is achieved by heating two hydrogen isotopes — usually deuterium and tritium — to such extreme temperatures that the atomic nuclei fuse, releasing helium and vast amounts of energy in the form of neutrons.

Although many scientists believe fusion power stations are still decades away, the technology’s potential is hard to ignore. Fusion reactions emit no carbon, produce no long-lived radioactive waste and a small cup of hydrogen fuel could theoretically power a house for hundreds of years.

The most widely studied approach, known as magnetic confinement, uses huge magnets to hold the fuel in place while it is heated to temperatures hotter than the sun.

The NIF uses a different process, called inertial confinement, in which it fires the world’s largest laser at a tiny capsule of the fuel triggering an implosion.

US energy secretary Jennifer Granholm in December described the achievement of ignition as “one of the most impressive science feats of the 21st century”. In that experiment, the reaction produced about 3.15 megajoules, which was about 150 per cent of the 2.05MJ in the lasers.

Initial data from the July experiment indicated an energy output greater than 3.5MJ, two of the people with knowledge of the preliminary results said. That energy would be roughly sufficient to power a household iron for an hour.

Achieving net energy gain has been seen for decades as a crucial step in proving that commercial fusion power stations are possible. However, there are still several hurdles to overcome.

Energy gain in this context only compares the energy generated to the energy in the lasers, not to the total amount of energy pulled off the grid to power the system, which is much higher. Scientists estimate that commercial fusion will require reactions that generate between 30 and 100 times the energy in the lasers.

The NIF also makes a maximum of one shot a day, whereas an internal confinement power plant would probably need to complete several shots a second.

However, the improved result at NIF, coming “only eight months” after the initial breakthrough, was a further sign that the pace of progress was increasing, said one of the people with knowledge of the results.

Moscow not invited to forum but Beijing positive on engaging in future negotiations on finding a resolution to war

China has signalled it is willing to attend further international talks on resolving the conflict in Ukraine, according to European officials who hailed its “constructive” participation in a Saudi Arabian forum that excluded Moscow.

The weekend talks in Jeddah, which were attended by dozens of countries and focused on a 10-point peace plan proposed by Kyiv, were expected to conclude on Sunday without concrete developments. But the presence of Beijing, which weeks earlier declined to attend similar talks in Copenhagen, was seen as a coup for Kyiv and became the focus of the event among participants.

China unveiled a “no limits” partnership with Russia prior to Moscow’s February 2022 full-scale invasion of its neighbour, which Beijing has not condemned, and its release of a peace plan earlier this year had overlapped with the Kremlin’s talking points.

One European diplomat said China “appeared constructive” and “keen to show that [it] is not Russia”. The “mere presence of China shows Russia is more and more isolated”, the person said.

They added that China had indicated it would attend the next such meeting.

[The] mere presence of China shows Russia is more and more isolated

European diplomat

Another European official said China “participated actively and was positive about the idea of a third meeting at this level”.

President Xi Jinping visited Russian president Vladimir Putin in March in one of his first official trips after China’s three-year anti-Covid regime was lifted. However, Beijing has remained guarded on the trajectory of relations between the two powers. Last month, the FT reported that Xi had warned Putin against using nuclear weapons.

Beijing had made no comment on the meeting by Sunday evening.

Dozens of countries from the developing and developed world, including Brazil, Turkey, South Africa and the US, as well as the EU, attended the forum, which was at the level of national security advisers.

Western countries and Ukraine hoped the gathering would help isolate Russia and win backing for Ukraine among developing countries that had yet to declare a position on the invasion. Some view the conflict as between a US-led Nato and Moscow.

Host Saudi Arabia has close ties with China, its main trading partner, and has sought to expand its diplomatic presence globally.

Another European diplomat said there was “broad, general support” from all delegates that “respect of territorial integrity and sovereignty of Ukraine needs to be at the heart of any peace settlement”.

The participants agreed to set up working groups on the themes in Ukrainian president Volodymyr Zelenskyy’s 10-point peace plan, which include global food security, nuclear safety, environmental security, humanitarian aid and prisoner release.

Ukraine is hoping for an international peace summit that would adopt its plan. One European official said on Saturday that a meeting attended by heads of states was still not decided on but could take place by the end of the year.

In an address on Saturday evening, Zelenskyy referred to the Jeddah conference, saying there were “different continents, different political approaches to global affairs, but everyone is united by the priority of international law”.

Andriy Yermak, head of Zelenskyy’s office, said on Sunday the talks had been positive. “We had very productive consultations on the principles on which a just and lasting peace should be built,” he said.

“All the participants demonstrated their countries’ commitment to the principles of the UN Charter, international law and respect for the sovereignty and inviolability of the territorial integrity of states.”

Dmitry Medvedev, deputy head of Russia’s national security council and a former president, said on Sunday that Moscow had to be included in talks for any proposal to work.

“This was not there,” he said in a post on Telegram in which he said occupied Ukrainian territories belonged to Russia.

Russian-installed officials in Crimea, which Russia annexed in 2014, said Ukraine’s armed forces had on Sunday conducted a missile strike on the Chongar bridge, which connects the Crimean peninsula to Ukraine’s Kherson region and another nearby crossing, damaging the roadway.

Ukraine said its air defences had intercepted 57 of the 70 missiles and drones that Russia had fired overnight across the country.

Chinese economists told not to be negative as rebound falters

Authorities struggling to restore confidence in post-Covid recovery want analysts to avoid mention of deflation risk

Chinese authorities are putting pressure on prominent local economists to avoid discussing negative trends such as deflation, as concerns mount about Beijing’s ability to boost a flagging recovery in the world’s second-biggest economy.

Multiple local brokerage analysts and researchers at leading universities as well as state-run think-tanks said they had been instructed by regulators, their employers and even domestic media outlets to avoid speaking negatively about topics ranging from fears of capital flight to softening prices.

Seven well-regarded economists told the Financial Times that their employers had told them some topics were off-limits for public discussion. The China Securities and Regulatory Commission, the stock regulator, has accused brokerage analysts of playing up risks facing the economy, which is suffering from weak consumer demand, declining exports and an ailing property sector.

Two think-tank scholars and two brokerage economists, all of whom serve as government advisers, said there was pressure to present economic news positively in order to increase public confidence. “The regulator doesn’t want to hear negative comments about the economy in public,” said an adviser to the central bank. “They wanted us to interpret bad news from a positive light.”

Analysts said growing self-censorship among economic research professionals, on whom investors often rely in a market where reliable data is difficult to come by, underscored Beijing’s efforts to control the flow of information.

“You’ve got an economic slowdown that would worry any country, coupled with a China that always likes to put on a brave face to the world and a leadership that is particularly image-conscious,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “Put those three factors together and it’s the recipe for a very non-transparent economy.”

The clampdown on economic commentary follows a drumbeat of disappointing data that has undermined investor confidence and hindered Beijing’s efforts to spur a robust post-Covid rebound. Gross domestic product expanded just 0.8 per cent in the second quarter against the previous three months. Last month, the Communist party’s politburo admitted the recovery was making “tortuous progress”.

But as Beijing seeks to restore faith with limited stimulus measures, certain subjects are taboo, such as deflation.

China’s producer price index has declined for eight straight months since October, while annual consumer inflation hit a two-year low of zero growth in June. Citigroup economists said core goods prices, which strip out volatile food and energy costs, had already entered a “deflationary zone” thanks to weak consumer demand.

Yet senior officials from the country’s official statistics bureau and the central bank have ruled out the possibility of deflation. “Deflation does not and will not exist in China,” Fu Linghui, a National Bureau of Statistics spokesperson, said last month.

One Shanghai-based economist at a major financial institution said local television networks had made it clear that only positive comments would be tolerated. “There was no problem talking about deflation or other economic risks last year,” said the economist. “Now such comments won’t appear on TV at all, even if I make them in pre-recorded interviews.”

Some analysts said Beijing was seeking to tighten control over negative commentary in an effort to boost confidence, which is critical to jump-starting a recovery but is in short supply. “Confidence plays a bigger role than government stimulus in rescuing the Chinese economy,” said Dan Wang, chief economist at Hang Seng Bank China.

The Shenzhen Securities Regulatory Bureau in June issued a warning letter to China Merchants Securities, a Shenzhen-based brokerage, and accused it of failing to conduct “rigorous analysis” in a February report that forecast China’s stock market would lose momentum in the coming years, citing cyclical patterns.

The pressure has prompted many economists to refrain from sensitive topics or resort to euphemisms such as “subdued inflation” in research reports and on investor calls.

“As the entire market is aware, there is no such thing as deflation in China,” a prominent economist told a closed-door conference in Beijing in response to a question about deflationary risks. “We could, however, talk about low inflation [risks],” they added, asking the audience to be prudent in choosing which part of his remarks to report.

“It will be bad if you don’t see me tomorrow,” the economist said.

But in private, many economists, even those firmly within the establishment, have continued to question the party line.

Shortly after Beijing released second-quarter economic growth figures, Fan Jianping, former chief economist of the State Information Center, a top government think-tank, said in a closed-door conference that he did not trust the official statistics and warned that China was heading towards deflation, according to two attendees. Fan did not respond to request for comment.

“We were a bit shocked,” one person said. “But he said it out loud.”

Biggest Chinese mutual funds near limits on offshore investment

Institutions seek higher returns elsewhere as growth slows at home

China’s biggest mutual funds are nearing government limits on offshore investment, as they seek higher returns elsewhere against a backdrop of slower growth at home.

China’s so-called Qualified Domestic Institutional Investor scheme, introduced in 2006, allows banks, brokerages and asset managers to bypass the country’s strict capital controls and buy securities abroad.

Beijing has steadily increased the total quota from $87bn a decade ago to its current level of $166bn across 184 institutions but has only made small additions since late 2021.

While no official data is provided on the use of the quota, several investors and legal representatives across the asset management industry said rising appetite for overseas-targeted funds was pressuring individual allowances.

An analysis of public fund data shows fund management companies Guangfa, E Fund and China Asset Management are close to the limits published by the State Administration of Foreign Exchange, which administers the scheme.

The rising demand offers insight into how yield-hungry funds across China’s nascent but rapidly growing asset management industry are navigating Beijing’s strict capital control regime in order to participate in overseas market rallies. It also comes as Beijing grapples with slower economic growth, weak financial returns and a wider loss of confidence.

“There’s a huge demand for outbound investment funds this year,” said Ding Wenjie, investment strategist of global capital investment at China Asset Management, who pointed to the “relatively high returns” on overseas stocks.

Across the fund management industry, incomplete figures make gauging total use difficult. Data from consultancy Z-Ben Advisors shows mutual funds held $44.5bn in QDII funds at the end of July, up from $33bn at the end of 2021. This is against a total available quota of $75bn for the fund management industry. Some small funds may not have the resources to use their quota, while certain fund investments may not be included in available totals.

The rest of the $166bn quota is held by banks, insurers and trust companies.

“Many of the top players are running low or tight with their QDII quota . . . and we do see a lot of demand from retail investors,” said Ivan Shi, head of research at Z-Ben Advisors.

One person in the industry in mainland China suggested higher yields in the US were behind the rise in demand, noting that Beijing had made only small increases in the quota in recent years. Last month the State Administration of Foreign Exchange added $2.7bn in a move seen as a response to high demand.

The QDII scheme is part of a wider policy of controlling flows of money in and out of China. The controls limit each individual’s outbound expenditure to $50,000 a year, excluding education and tourism expenses. When investors in China exit QDII funds, they receive the proceeds domestically in renminbi.

Industry participants pointed to high appetite for Japan’s Topix and Nikkei indices, which have rallied this year compared with Chinese counterparts. The combined fund size of the four exchange traded funds in mainland China that target Japanese securities increased nearly fivefold to $1.65bn from March to July, according to data from financial information provider Wind.

A mutual fund manager at one the four ETFs said it was considering adding more offshore portfolios through a Hong Kong subsidiary, a move that would allow it to bypass the QDII quota.

The website of the China Securities Regulatory Commission lists dozens of funds currently awaiting approval for QDII-related products. A legal adviser for one mutual fund house said while mutual funds and securities companies had in many cases almost reached their limits, they were saving some for bets on “possible year-end rallies in offshore shares”.

E Fund, Guangfa Fund and the State Administration of Foreign Exchange did not immediately respond to requests for comment.

Dubai property developer Damac to buy London office space for first time

Group known for luxury hotels aims to buy at bargain prices in bet struggling market will bounce back

Dubai-based property developer Damac plans to buy London office space for the first time in a bet the struggling market will bounce back.

The luxury group, known for developing Donald Trump’s golf course in the Middle East, aims to snap up the offices at bargain prices and turn them into plush places to work that meet ESG standards.

“London is still a cosmopolitan city,” Damac chair Hussain Sajwani told the Financial Times.

“Demand is there if you find the right asset, the right price, fix it, change the tenant mix, make it more friendly environmentally and push it to a higher end.”

Sajwani did not disclose how much he was planning to spend overall, but said he would look at property on a case-by-case basis with the intention of paying £100mn or £500mn per office, depending on location.

The company will target prime areas, including Mayfair, Victoria and Canary Wharf and favours locations where planning permits are easier to secure.

It will be the first time the group, which also owns Italian luxury fashion house Roberto Cavalli, has bought office space in Europe.

It chose London because of the bargain prices in a sluggish market with vacancy rates rising due to a combination of hybrid working and higher debt costs undermining demand and depressing prices.

Central London office investment volumes were £1.4bn in the second quarter or 60 per cent below the long-term average — the weakest on record except for the second quarter of 2020 at the height of the Covid-19 pandemic, according to CoStar data.

Damac, founded in 1982 and known for its focus on luxury residences and hotels having developed more than 75 towers including the Paramount in Dubai, did not rule out repurposing some of the office space into flats.

It has already dipped its toes into the residential market in London, developing the luxury Nine Elm tower near Battersea, which was furbished by fashion house Versace and opened to residents last year.

Although demand has fallen for many London offices, analysts say it has held up for high-end, green buildings in top locations, which are in short supply.

Some owners are likely to be forced by lenders to dispose of their offices in the coming months as loans mature and they struggle to refinance their debt because of rising rates, analysts add.

“When it comes to the refinancing point, if there’s just no availability to refinance at the level they are looking for, it might not be your decision anymore,” said Jackie Bowie, head of Europe at Chatham Financial.

Sajwani said he hoped to take advantage of the “softened” market and an upcoming wave of refinancing in order to buy assets that owners can no longer afford to keep.

There was, however, still “a bit more time [to go] for sellers to accept the new reality”, he said, adding that many were not ready to dispose of their assets at market price yet. 

“It takes time for people,” he said. “But as time goes by, some of them will find a solution and keep their assets and some of them will have to give up their assets.”

He concluded: “For us from the Middle East, London is like a second home: the culture, the language, the rules, the regulation.”