FT : Investors seek niche property assets in hunt for better returns

Investors seek niche property assets in hunt for better returns
With interest rates at their highest in years, entrepreneurs are looking for real estate with a higher risk-reward profile

The 47-year-old Bollywood film star Vivek Oberoi is not a typical property investor — and his latest venture, building a luxury hotel on an island in the Ganges River in India, is not a typical property investment.

Combining his own capital with that of other wealthy Indians, Oberoi has raised $40mn of the $160mn he needs for the spa resort, in the state of Uttarakhand.

This may be a riskier prospect than the city centre office blocks and shopping malls that form the bedrock of commercial real estate, but Oberoi is after bigger-than-average returns.

On his last property investment, a series of large-scale housebuilding projects for low-income workers, he says he achieved a profit margin of around 20 per cent per year, between 2011 and 2017. This time, by tapping into the fashion among the wealthy for wellness, Ayurvedic medicine and sustainable travel, he hopes to make even more.

“There is a huge demand for luxury right now’’, he says. And this investment fits in the sexy part of my portfolio,” — a reference to the roughly 40 per cent of his investment pot comprising high-risk, high-return investments, including private equity and venture-capital deals sourced in India.

Uncertainties over the future of the office, and the continued poor prospects for retail on the high street, have combined with the higher cost of borrowing to push wealthy investors around the world further into niche property sectors. As well as luxury hospitality, commercial housing, industrial warehouses and self-storage buildings are all popular. So is hunting for unusual properties, such as, in one case, an American whiskey distillery.

Globally, total investor allocations to property fell 21 per cent last year to $1.12tn, as rising interest rates began to bite and uncertainty about the post-pandemic future of office blocks mounted, according to data from Knight Frank. But, while institutions such as pension funds scrambled to get out, cutting exposure by 28 per cent to $440bn, and holdings by trusts and other sources dropped 29 per cent to $222bn, private investment by individuals — rich people and their families — dropped only 8 per cent to $455bn.

This shift is remarkable. Knight Frank says it is the first time on record that rich investors have allocated more than institutions to property.

The $195bn allocation that rich investors made to the residential sector last year (which is separate from spending on their own luxury homes) was double the 10-year average. Popular projects include building new apartments to rent out and — in particular today — converting offices to housing.

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“The lion’s share is going into living,” says Nancy Curtin, chief investment officer of AlTi Tiedemann Global. She is talking about the property allocations she makes for the company’s wealth clients, comprising typically between 5 per cent and 15 per cent of their total portfolio, which can be anything from $25mn and $1bn in size. The majority of the company’s wealth clients, who represent a total of $49bn in assets, are based in the US or Europe.

“Build-to-rent, build-to-own, residential apartments for sale, student accommodation: the overriding secular tail wind is that there isn’t enough supply to meet demand,” she says.

To get these deals off the ground, rich individuals are relying less on loans in today’s high-interest-rate markets and instead digging deeper into their own pockets.

“A couple of years ago, with rates on loans at 2 or 3 per cent, any real estate deal was profitable,” says Randy Nichols, a developer in Denver, in the US. He has just completed a $55mn project — the conversion of a downtown vacant office building into 190 micro apartments for rent — with money raised from a group of local high-net-worth investors (and the rest borrowed from the bank). “But, today, you can’t sell the conventional deals. Investors have changed their strategy: you have to reach for the returns,” he says.

Michael Sonnenfeldt, founder and chairman of Tiger 21, a network of 1,300 super-rich people, based mainly in the US, with a combined net worth of $150bn, says that residential deals like Nichols’s are particularly attractive to the group’s members right now.

America accounted for $302bn of the total $455bn spent by wealthy individuals and families in property last year, according to Knight Frank.

Private investors in the US especially like converting office buildings bought at a discount from developers unable to service loans, due to rising interest rates, or properties from hotel and motel companies that have failed to recover from travel restrictions following the start of the pandemic.

“Rising interest rates mean you have a wave of forced sellers,” Sonnenfeldt says. As institutions have left the market, Tiger 21 members are well placed to find bargains that can generate big returns. “Today, we stock pickers are at an advantage over institutions,” Sonnenfeldt says. “If you can find an unfinished project and buy it out of distress, this is a great time.”

But it’s not only about housing, as Oberoi’s example shows. Since the start of the pandemic, Tiger 21 members have also shown a growing interest in logistics and self-storage, high-tech and biotech parks, and sites for renewable energy plants, Sonnenfeldt says.

Last year, property developer Darek Bell bought a whiskey distillery and storage site in Kentucky, with $25mn raised from three wealthy local entrepreneurs, alongside some of his own money.

The three made their money in fintech, food and beverage and banking (Bell made his fortune in property). Once the site’s first building has been renovated, revenue from storing and producing whiskey there will finance the renovation of another four. Investors will exit in 2027, when the site and the business is sold for, Bell hopes, $100mn.

The four warehouses provide a handy insurance policy, he notes: if something goes wrong with the whiskey business, they can be used as standard industrial warehouses, a thriving sector. The returns exceed those available from downtown offices or the retail sector, according to Bell.

“At a time when you can get Treasuries at 5 per cent, everyone wants a better rate of return on property. You have to have something compelling for investors today,” he says.

Investment approaches, and amounts, vary. While Bell raised his $25mn from three investors for his whiskey project, Nichols needed 14 high-net-worth investors — each of whom contributed between $100,000 and $2mn — to find the $15mn for his office conversion. All Denver locals, their fortunes have been made in sectors as diverse as technology, truck-trailer manufacturing and supplying sand and grit to de-ice roads.

The US trend applies across the globe, as rich investors look for a niche. Without the lengthy approvals required from lenders or the exhaustive due diligence process common at institutions, they can move fast on opportunities that institutional investors are now avoiding.

One in three rich Europeans who invest in property have an allocation to the build-to-rent sector (36 per cent), and just under half invest into the hotel and leisure sector (48 per cent), according to Knight Frank.

Rich investors from mainland China increased their allocations to property by a quarter last year, to $6.3bn, helping the total allocation to Asia by rich investors to 30 per cent, despite wider flows into Asia’s property market falling by 21 per cent, according to the agency.

“With borders reopened, mainland China and Hong Kong clients have now started to travel again, triggering more interest in real estate debt,” says Jyrki Rauhio, regional head of credit advisory, Asia Pacific, for HSBC Global Private Banking. He adds that allocations by rich Asians have grown most rapidly in Singapore, Australia and Hong Kong.

“[Rich investors] do not need to go through a lengthy investment committee process,” says Henry Chin, global head of investor thought leadership, Asia Pacific for estate agency CBRE. “We have seen some [rich investors] do 100 per cent equity deals,” he says, adding that many plan to refinance when interest rates fall.

Bell’s previous property deals used some bank finance to boost returns; this time he relied entirely on the cash from his investors. The shift to less or no borrowing is also typical among the developers that Nichols knows, all of whom have had to switch to more exotic, higher returning deals, to attract investors.

“A couple of years ago, cheap money boosted profits, meaning that offerings sold out in a day or two,” he says. “Today, the conventional deals just don’t sell any more, there aren’t the returns.”

The case of Cal Simmons, a super-rich serial entrepreneur based in Virginia, US, indicates why high-net-worth investors are cooling to conventional property sectors.

Five years ago, he invested $150,000 with a local developer to renovate a tired five-storey office building in downtown Alexandria. The idea was that the building would increase in value — thanks to the improvements and rising prices in the wider market. This would allow the investors to refinance, pay themselves back their initial investments, and then draw a secure long-term income from renting the building out to commercial tenants.

But, today, Simmons says, the bank thinks the building is worth less than the investors paid for it — he disagrees — and there is no prospect of refinancing with a larger loan.

He is much more focused on early-stage equity investing than on property: recently he has funded two local entrepreneurs to build a pickleball centre, and put up early-stage finance for a dating app.

So, when the same developer approached him this year for a similar project, he passed. “It’s a terrific building, he is a great operator and five years ago I would have happily gone in. But, today, the risk reward doesn’t work: now that my cash can earn me 5 per cent risk-free, it just doesn’t make sense,” he says. 

FT : The Russians returning home from self-imposed exile

The Russians returning home from self-imposed exile
More than 800,000 people fled Russia after last year’s invasion of Ukraine. Now, some have changed their minds

One week after Russia invaded Ukraine last year, Egor Gazarov packed his bags.

A fluent English speaker who received an MBA from Insead in Paris and spent the first decade of his career climbing the ranks of Boston Consulting Group and Procter & Gamble, Gazarov left for Armenia to wait out the situation and seek out career opportunities in either the west or Middle East.

Less than six months had passed, however, before he decided to return to Russia, disheartened by the jobs available to someone with his experience.

“I came to understand that actually the job opportunities outside the country are not as good as they could be,” he said in a telephone interview from Moscow.

While hundreds of thousands of Russians left the country last year, some, such as Gazarov, have chosen to return to Moscow — a sign of the degree to which the Kremlin has managed to maintain a vestige of normality in the capital and contain some of the biggest economic shockwaves from the war. 

More than 820,000 people have left Russia since February 2022, according to a study by Re:Russia, a website run by exiled academics. That exodus represents one of the biggest waves of emigration from Russia since at least the early 1990s, after the fall of the Soviet Union.

The émigrés include dissidents opposed to the war and upwardly mobile young professionals, such as Gazarov, who left for economic reasons or to escape the draft. Some departed in the initial days and weeks of the full-scale invasion, while others left six months later, when the Kremlin ordered a mass mobilisation of men to fight in Ukraine.

While many dissidents have stayed in the countries to which they fled, some young professionals are choosing to return to Russia, either temporarily or indefinitely, after Vladimir Putin said the Kremlin had no plans for another mass mobilisation. The academics at Re:Russia said it was “highly likely” that some of those who had left Russia to avoid mobilisation had already returned.

Recent turmoil in Israel and Armenia has further complicated matters for the thousands of Russians who had moved to those countries.

More than 35,000 Russians left for Israel last year, according to the Jewish Agency for Israel, the largest Jewish non-profit. Many are staying, and for those planning to return, lawmakers in Moscow have vowed a frosty reception in Siberian prisons.

Armenia, a small republic in the Caucasus traditionally aligned with Moscow, has received more Russians than any other country besides Kazakhstan and Serbia. But after Azerbaijan took back the Armenian enclave of Nagorno-Karabakh last month despite Russian peacekeepers stationed there, anti-Russian sentiment has grown.

Emil Kamalov and Ivetta Sergeeva, two researchers at the European University Institute in Florence, have been studying the outflow of Russian émigrés in surveys since the start of the invasion.

Respondents, they noted, were largely highly educated, politically engaged and young, compared with the overall Russian population. Yet more than 15 per cent of those surveyed had returned to Russia — some to settle their affairs, others more permanently.

“It’s definitely not an economic migration in the classical sense,” Sergeeva said. “These are people who have been very competent specialists in Russia and are now losing the money, the status . . . For many people, the quality of life is declining [abroad].”

The Kremlin has seized upon the trend. In June, Putin claimed that half of the Russians who had left since the war broke out had already come back. “I don’t see anything wrong here,” he said.

Other officials have asserted that many chose to return because of hostility and suspicion towards Russian immigrants, citing Czech president Petr Pavel, who called for all Russians living in western countries to be “monitored” by security services, alluding to the much-criticised treatment of the Japanese in the US during the second world war.

Vyacheslav Volodin, chair of the Russian state Duma, or legislative assembly, subsequently claimed that Pavel wanted to put Russian émigrés into “concentration camps”. 

“Official propaganda is trying its best to make us believe that [émigrés], especially IT specialists, have returned to Russia en masse,” said Alexandra Arkhipova, a Russian anthropologist.

The reality was more nuanced, she said. “Work is very bad, visas are bad too, so some people come back and some don’t.”

Grigory, a 31-year-old industrial designer living in Moscow, said he had crossed the border into Kazakhstan on foot last September to avoid being sent to the front in Ukraine, after being deployed to Syria during his mandatory military service. Grigory, who refused to give his last name for fear of retaliation, said his stay in Kazakhstan ended after a few weeks as he and his wife could not keep up with the cost of living.

After a few more months in India, the couple returned to Moscow to come up with a better plan on where to move and build up enough savings to live there. “We decided we wouldn’t just jump from place to place,” Grigory said.

Being back home in some ways felt comfortable, he admitted, but not in the most important way. “When you can’t express your point of view honestly because there’s a likelihood . . . I know I’m being listened to, in this sense it’s not safe.”

Others who decided to return, however, said they were surprised by the degree of apparent normality in Moscow, where restaurants and bars remain lively; western outfits — such as McDonald’s, Starbucks and Domino’s pizza — have reopened under Russian ownership with barely altered names and logos after their western owners quit the country. Barbie is being shown on the Russian big screen in bootleg versions, despite a lack of official showings since its producer pulled out of Russia.

Nikita Kiktenko, a 29-year-old who works in financial technology in Russia, left Moscow for Kyrgyzstan in 2022. This spring he decided to return to Moscow to visit friends and family. He thought he would stay for a month. In the end, he never left.

“When you’re outside the country, you have very limited communications . . . you think that the situation is very difficult, that all the people you know left the country,” said Kiktenko. “But when you come back you understand that it’s not true. Life goes on, business continues to develop.”

Some young professionals said they had come back to find a more lucrative job market with senior vacancies and high salaries at some of the country’s biggest tech firms, as they seek to replace talent lost to emigration.

One former consultant at global group BCG, who relocated to the firm’s office in Azerbaijan after it closed down its Moscow operations, said he ultimately decided to return for a job at Yandex — Russia’s biggest search engine — in a management role that offered more than double his former salary.

Another former BCG partner who moved with the firm to Latin America decided to come back to Moscow and set up his own business, lured by the relatively low cost of living. He said he was now paying just $2,000 a month in rent for a prime flat in the city centre, with fine dining and drinks costing much less than in western Europe.

Maria Snegovaya, a senior fellow at the Center for Strategic and International Studies, said she had acquaintances who, despite claiming to oppose the regime, had decided to stay in Russia.

Their alleged reasons for staying ranged from the need to care for a sick family member to influencing Russia’s geopolitical trajectory from within, and a sense of moral duty to stay and resist, she said.

“Unfortunately, it looks like there was a first moment of shock and then essentially now we see the adjustment. People are making long-term choices about . . . where they want to be and [whether] they really hate Putin so much they’re willing to undergo some personal sacrifices for it — or not.”

FT : Ferrexpo chair urges Kyiv to spare miner in anti-oligarch campaign

Ferrexpo chair urges Kyiv to spare miner in anti-oligarch campaign
UK-listed group caught in Ukrainian authorities’ efforts to recover assets from billionaire founder Kostyantin Zhevago

The chair of UK-listed Ukrainian miner Ferrexpo has urged Kyiv to spare the company as Ukrainian prosecutors seek damages from its largest shareholder who is wanted in the country for alleged embezzlement involving a now-collapsed bank.

Speaking in London, Ferrexpo chair Lucio Genovese said the legal actions risked undermining investor confidence in Ukraine, just when the war-torn country needs to attract foreign capital.

“Ferrexpo is caught up in a dispute that has nothing to do with us,” Genovese said in an interview. “Ultimately, the Ukrainian authorities risk penalising British and American ordinary citizens whose pensions are invested in Ferrexpo.”

Genovese said the company planned to invest $3bn in Ukraine “over the coming years”.

Ferrexpo, which turns iron ore into pellets for steelmakers across the globe and was listed on the London Stock Exchange in 2007, has been hit by several court cases or investigations by Ukrainian authorities seeking to recover assets from Kostyantin Zhevago, its billionaire founder, who together with his family holds a 49.5 per cent stake.

Shares in Ferrexpo have fallen 52 per cent in London this year, bringing its market capitalisation to £464mn. The company’s output has tumbled 58 per cent in the first nine months of this year compared with the same period in 2021 because of energy, logistical and other constraints related to Russia’s full-scale invasion of Ukraine.

Zhevago was arrested in the French ski resort of Courchevel last year following a request from Ukrainian prosecutors seeking his extradition relating to the collapse of Finance and Credit bank in 2015. They have also taken action in Ukrainian courts to obtain more than $1bn in damages from Zhevago and have frozen shares held by Ferrexpo in its three Ukrainian subsidiaries.

Ferrexpo believes it is the victim of an orchestrated campaign to punish its largest shareholder. It says the legal swoop against its subsidiaries is illegal, that it was never party to the loans agreements Zhevago made with the collapsed bank’s creditors and that any attempt to seize Ferrexpo’s assets would penalise other shareholders.

Other large investors in Ferrexpo include BlackRock, Schroder Investment Management, Acadian Asset Management, HSBC and Vanguard Group.

President Volodymyr Zelenskyy is under pressure from the Ukrainian public, the EU, US and IMF to clamp down on the country’s oligarchs.

Zhevago, now 49, became post-Soviet Ukraine’s youngest billionaire and served as an MP for two decades. He also owns a TV station.

Ukrainian prosecutors say Finance and Credit made fraudulent loans to companies ultimately owned by Zhevago. The bank collapsed in 2015, inflicting losses on its creditors including the National Bank of Ukraine and on the country’s Deposit Guarantee Fund.

“We are confident that President Zelenskyy is committed to the rule of law,” Genovese said. “It is important that he upholds the rights of Ferrexpo’s international investors in Ukraine.”

Zelenskyy’s office declined to comment.

Ukrainian authorities tried to recover assets from Zhevago relating to the bank’s collapse in England’s high court. The court ruled that while there was a “good arguable case” of fraud, it did not have jurisdiction.

Contacted in Paris, Zhevago denied the embezzlement charge against him and said the bank collapsed because of the economic slump after Russia’s invasion of Crimea and eastern Ukraine in 2014.

“It has no kind of merit or any basis in truth,” Zhevago told the FT. He blamed the “complete incompetence” of the banking regulator for the collapse of Finance and Credit, one of 180 lenders to be declared insolvent in the mid-2010s.

Ferrexpo is facing several legal actions at once. The Deposit Guarantee Fund is seeking to recover 46bn hryvnia ($1.26bn) in assets from Zhevago and the central bank 1.5bn hryvnia.

Last month, the country’s State Enforcement service, issued an order to freeze a 50.3 per cent stake in two of Ferrexpo’s Ukrainian subsidiaries on behalf of the central bank. In March, the Deposit Guarantee Fund obtained a similar freezing order against stakes in all three of Ukraine’s subsidiaries. Ferrexpo says the asset freezes have not affected its operations but could ultimately lead to their confiscation.

The central bank said Zhevago was the ultimate beneficial owner of the three Ukrainian mining subsidiaries through his shares in Ferrexpo and so their seizure is “lawful and is relevant to Ferrexpo”.

The Deposit Guarantee Fund did not respond to a request for comment.

Ferrexpo says its corporate rights are being violated and that previous attempts to freeze its assets were cancelled by the Ukrainian courts three years ago.

The company is also in a dispute with the Ukrainian government over royalty payments. Lastly, Ukraine’s State Bureau of Investigation launched a probe into suspected illegal extraction and sale of minerals known as “rubble”, which is used for road building.

The company says it is a byproduct of turning iron ore rock into pellets and its production has been officially certified for years. However, one of its employees has been detained in relation to the case — with a court setting bail at 999mn hryvnia ($34mn), an extraordinarily high figure in Ukraine.

FT : Campaigners warn EU over funds for hydrogen infrastructure

Campaigners warn EU over funds for hydrogen infrastructure
Environmental NGOs say special treatment of projects to upgrade existing gas pipelines favours fossil fuel majors

Environmental campaigners have attacked a critical part of the EU’s plans to green its energy supply, describing a register of almost 150 projects proposed for special treatment as a “wish list” for oil and gas majors.

The “Projects of Common Interest” draft document, which features 149 activities earmarked for better access to billions of euros of funding and prioritisation by policymakers, is set to be debated by officials from the European Commission and EU member states later on Wednesday.

However, while almost half of the projects involve seemingly low-emission hydrogen energy, campaigners claim that many of those that made the list risk keeping existing fossil fuel pipelines in place.

Frida Kieninger, director of EU affairs at Food & Water Action Europe, an environmental group, described the selection as a “wish list coming true” for the fossil fuel industry.

“A fossil gas pipeline going from A to B with a certain size and a certain route is designed for transporting gas via a certain route,” Kieninger said. “It’s not necessarily what would work for hydrogen.”

Dominic Eagleton, senior campaigner at Global Witness, echoed her remarks, saying that subsidies could be “handed to rich fossil fuel companies to maintain polluting gas infrastructure”.

The document, which has been seen by the Financial Times, must still be signed off by the European Commission, which will make a final decision in November.

New projects are selected for Projects of Common Interest, or PCI, status every two years. The schemes, which are entitled to apply for a pot of €5.4bn worth of EU funds, must be deemed as crucial to the bloc’s energy security and decarbonisation goals.

Hydrogen energy is created through breaking water particles apart in a process known as electrolysis. The process can be powered by renewable energy — dubbed green hydrogen — or fossil fuels.

The process is seen as a crucial to decarbonising sectors such as chemical and steel production. But its use is contested by some environmentalists who believe that it is an inefficient way to transfer energy.

They also argue that it offers an opportunity for gas companies to continue producing fossil fuels with the promise that the infrastructure can be used for hydrogen in future.

Ghassan Wakim, production and export director for zero-carbon fuels at the NGO Clean Air Task Force, said claims that gas pipelines could be made “hydrogen ready” were unproven.

“The material that you need to line the pipe varies a lot between what you need for natural gas and what you need for hydrogen,” he said, adding that compressors that pressure gas through the pipes would need to be reconfigured or “completely replaced”.

But Minh Khoi Le, head of hydrogen research at Rystad Energy, a consultancy, said building hydrogen pipelines from the ground up would “take time and cost a lot more money compared to refurbishing existing infrastructure”.

The European Network of Transmission System Operators for Gas, which is involved in the selection of the projects, said that schemes had been chosen to help meet EU hydrogen targets and to “enable cross-border flows”.

The commission declined to comment on the PCI list.

This year’s selection comes after a revision of PCI criteria in 2022 to focus on projects that “contribute to the EU’s energy and climate goals” and “facilitate the integration of energy from renewable energy sources”, according to the commission.

Maroš Šefčovič, the EU’s Green Deal climate law chief, said the EU’s first auction of €800mn of subsidies to hydrogen producers would take place in November.

The auction, which is distinct from the PCI list, would “have an impact on how to adjust the infrastructure and where to direct the eventual production [of hydrogen] in the EU or import from third countries”, he said.

Other PCIs selected on the draft focus on grids, electricity connections and offshore interconnectors.

The discussion of PCIs follows the publication of several reports by the European Commission on Tuesday showing that the EU has cut greenhouse gas emissions by a third since 1990.

But the reports warned that current emissions projections from member states showed that the bloc “needs to significantly pick up the pace of change” and particularly cut emissions in the transport, buildings and agriculture sectors.

>>> Europe : Brokers Upgrades & Downgrades - 25th of October 2023

>>> Up
* AB Dynamics Raised to Hold at Jefferies; PT 1,220 pence
* BNP Paribas Bank Polska Raised to Buy at Citi; PT 78 zloty
* DSV Raised to Hold at HSBC; PT 1,150 kroner
* Munters Raised to Buy at ABG; PT 145 kronor
* Norsk Hydro Raised to Neutral at SpareBank; PT 60 kroner
* Paccar Raised to Buy at Deutsche Bank; PT $115
* PKO Bank Polski Raised to Buy at Citi; PT 50 zloty
* Ponsse Raised to Hold at Nordea
* Santander Bank Polska Raised to Buy at Citi; PT 464 zloty
* SIG Group Raised to Neutral at BNPP Exane; PT 18.70 Swiss francs
* Verizon Raised to Overweight at Barclays
* XP Power Raised to Buy at Berenberg; PT 1,400 pence

>>> Down
* Atria Cut to Reduce at Inderes; PT 11.50 euros
* UPM-Kymmene Cut to Reduce at Inderes; PT 32 euros

>>> Initiation
* AT&S Reinstated Buy at Deutsche Bank; PT 34 euros
* Oxford Instruments Rated New Outperform at Davy; PT 2,200 pence
* Spectris Rated New Neutral at Davy; PT 3,300 pence
* Xaar Rated New Outperform at Davy; PT 200 pence
* XP Power Rated New Outperform at Davy; PT 1,940 pence

>>> Call
* AB Dynamics Upgraded at Jefferies on More Supportive Valuation

>>> What to look at today - 25th of October 2023

Shares in Asia pushed higher after the government stepped up support for China’s economy and stock trading, buoying optimism. Metals rallied. Mainland China shares advanced while the Hang Seng Tech Index jumped by the most since the end of August, on the government’s support plans that include issuing additional sovereign debt and raising the budget deficit ratio. At the same time, Hong Kong is reversing an emergency increase in the stamp duty on stock trades as officials seek to revive the city’s status as a hub for finance and initial public offerings. In a speech Wednesday, Hong Kong Chief Executive John Lee detailed the policy and announced a plan to cut home purchase tax to 7.5% from 15% for non-residents as well as halving the tax for residents buying a second home. Property stocks climbed. A gauge of Asian equity benchmarks headed for the highest close in a week, as Japanese and Korean stocks related to China consumer and manufacturing demand rose. The equities, however, have since pared their gains. Benchmark indexes also traded higher in Japan, where shares of semiconductor-equipment company Kokusai Electric Corp. opened 15% above initial public offering price. Contracts for US equities slipped after the S&P 500 halted a five-day slide on Tuesday and followed mixed earnings that saw Microsoft Corp. climb and Alphabet Inc. drop in late US trading. In foreign exchange, the Thai baht advanced for a second day on the back of China’s plans, while aluminum, copper and iron ore all rose. Elsewhere, the Australian dollar extended its gain on higher-than-expected inflation data. Expectations the Reserve Bank of Australia will hike Nov. 7 pushed up the currency and sent the three-year government bond yield as high as 4.28%, a level last seen in 2011. Rates on two-year Treasuries were down five basis points and the dollar was weaker against most of its Group-of-10 peers. Bank of Japan officials are likely to monitor bond yield movements until the last minute before making a decision on whether to adjust the yield curve control program at a policy meeting next week, according to people familiar with the matter. The yen was little changed Wednesday. Investors looking to the US earnings season for a dose of good news are hanging their hopes on Big Tech. The five largest companies in the S&P 500 account for about a quarter of the benchmark’s market capitalization. Their earnings were projected to jump 34% from a year earlier on average, according to analyst estimates compiled by Bloomberg Intelligence. US business activity picked up in October after back-to-back months of stagnation, helped by a rebound in factory demand and an easing in service-sector inflation.  Oil steadied on signs the Israel-Hamas war will remain contained for the time being. Gold edged higher. US After Hours MSFT +3.5% higher on earnings; GOOG -6.4%, MANH -5.6%, TXN -4.9%, V -1.6% lower on earnings.

Nikkei +1.15% Hang Seng +1.06% CSI +0.51% Shanghai +0.41% Shenzen +0.89%

Eur$ 1.0601 CNH 7.3130 CNY 7.3113 JPY 149.82 GBP 1.2170 CHF 0.8928 RUB 93.6129 TRY 28.1231 WTI$ 83.53 -0.25% Gold 1,972.35 +0.07% BTC 34,045 +1.17% ETH 1,786 +0.80%

S&P -0.32% Nasdaq -0.53% EuroStoxx -0.22% FTSE -0.05% Dax -0.09% SMI -0.22%

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- ELK NO : Elkem 3Q Ebitda Misses Estimates
- ENEL IM : Shareholder Yield of 6% Last Line of Soggy EU Utilities' Defense
- FORN SW : Forbo Cuts FY Guidance Amid Negative Currency Effects, Markets
- FDJ FP : French Gambling Firm Mulls Payment Offering in Diversification
- GRF SM : Grifols’ Araclon: ‘Encouraging’ Final Results From ABvac40 Trial
- GTT FP : GTT 9M Revenue EU300.0M Vs. EU222.0M Y/y
- HEI NA : Heineken 3Q Total Beer Volume Misses Estimates
- HOLMB SS : Holmen 3Q Net Sales Meets Estimates
- IBE SM : Shareholder Yield of 6% Last Line of Soggy EU Utilities' Defense
- INTRUM SS : Intrum 3Q Revenue Beats Estimates
- IG IM : Italgas 3Q Revenue Beats Estimates
- KER FP : Kering Slows Beyond Gucci to Force Consensus Margin Cut: React
- KNEBV FH : Kone Reports 3Q as Construction Slowdown Weighs: Preview
- KCR FH : Konecranes 3Q Adjusted Ebita Beats Estimates
- KNIN SW : Kuehne + Nagel 3Q Net Revenue Misses Estimates
- KPN NA : KPN 3Q Adjusted Ebitda After Leases Meets Estimates
- LAGRB SS : Lagercrantz 2Q Net Revenue Misses Estimates
- LAND SW : Landis + Gyr 1H Ebitda $99.8M Vs. $51.0M Y/y
- MELE BB : Melexis 3Q Gross Margin Beats Estimates
- ML FP : Michelin’s Price/Mix Helps Offsets Volume Declines: Street Wrap
- MSFT US : Microsoft Rallies on Results, Lifting Cloud Software Stocks
- MTGB SS : MTG Boosts FY Adjusted Ebitda Margin Forecast
- NEOEN FP : Neoen, Alight Launch Construction of 100 MWp Sweden Solar Farm
- NEX FP : Nexans 3Q Revenue Misses Estimates
- TYRES FH : Nokian 3Q Miss, Lowered View Could Spur 15% Consensus Cut: React
- NYKD NO : Nykode Therapeutics Offering Prices at NOK17.10/Share
- OVH FP : OVH FY Adjusted Ebitda Meets Estimates
- PAH3 GY : Porsche AG 9M Operating Profit EU5.5B Vs. EU5.05B Y/y, High-Margin Models Offset Deliveries Drop in China
- RKT LN : Reckitt 3Q Like-for-Like Sales Misses Estimates, ANNOUNCES SHARE BUYBACK OF £1B OVER THE NEXT 12 MONTHS
- RILBA DC : Ringkjoebing Landbobank 9M Total Income DKK2.79B
- SAF FP : GE, Safran Find More Jet Engines With Bogus Parts in AOG Probe
- SFQ GY : SAF-Holland Rises; Analyst Cites Positive Data on Trailer Orders
- SAN SM : Santander 3Q Net Income Beats Estimates
- SEBA SS : SEB 3Q Net Interest Income Meets Estimates, SEB to Initiate New Program to Buy Back SEK1.25B Shares
- SNAP US : *SNAP SHARES DOWN 6% POSTMARKET AFTER REVERSING EARLIER JUMP
- GLE FP : BNP, SocGen Need 3Q Retail Boost, as 10% FICC, Equity Cuts Loom
- STLAM IM : Stellantis to Lay Off 525 More Workers Due to UAW Strike Action
- SUN SW : Sulzer Backlog CHF2.2B
- SY1 GY : Symrise 3Q Organic Sales Beats Estimates
- TTK GY : Takkt 3Q Ebitda EU30.2M
- TEMN SW : Temenos Boosts FY Non-IFRS Ebit Forecast
- TXN US : Texas Instruments Falls as Revenue Guidance Misses: Snapshot
- 8TRA GY : Traton Boosts FY Adjusted Operating Margin Forecast
- UN01 GY : Germany’s Uniper Raises Profit Estimate as Hedging Pays Off
- VIV FP : Vivendi Prepares to Challenge TIM Grid Sale in Court:Reuters
- VIV FP : Vivendi Publishing M&A Merits Consensus-Profit Lift: BI Focus
- VPK NA : Vopak FY Adjusted Ebitda Forecast Meets Estimates
- WLN FP : Worldline Cuts FY Organic Revenue Forecast

FT : Oil megadeals usher in an age of energy uncertainty

Oil megadeals usher in an age of energy uncertainty
Those betting transactions by Chevron and ExxonMobil signal robust demand growth may want to think twice

Saudi Arabia’s energy minister Prince Abdulaziz bin Salman thinks that the return of the oil mega-deal is “testament” that “hydrocarbons are here to stay”.

His view, echoed by many in the oil sector, is why would Chevron and ExxonMobil drop $120bn-plus combined on buying Hess and Pioneer if they thought oil demand was at risk of heading into decline?

“I don’t think anybody would buy an asset they will have to freeze and not make use of it,” Prince Abdulaziz told a conference in Saudi Arabia on Tuesday.

Mike Wirth, Chevron’s chief executive, certainly says that he sees no imminent peak in oil demand, painting himself as a realist among what he suggests are a growing band of environmental ideologues.

The International Energy Agency, the west’s oil watchdog, is not “remotely right” that all fossil fuels, including oil and gas, will see a peak in demand before the end of this decade, according to Wirth.

“You can build scenarios, but we live in the real world, and have to allocate capital to meet real world demands,” he told the Financial Times last month.

Opec, which Saudi Arabia increasingly dominates, forecast two weeks ago that, rather than peaking, oil demand would rise by about 15 per cent between now and 2045 to reach 116mn barrels a day.

The group’s members accuse the IEA of having become politicised, and have claimed that it has stoked up volatility in oil markets.

For an industry that has been hammered on all sides in recent years, from environmental activists to uncertain investors unsure about its long-term future, it is certainly tempting to believe that oil has got its swagger back.

Peak demand? Maybe not in your lifetime, they say. Just look where the big oil companies are putting their money. Better fire up the rigs unless you want to read about Greta Thunberg’s latest arrest by candlelight.

But it might be a good idea to pause, and think about who the messengers are. Opec energy ministers and oil executives may not, whisper it, be entirely free of bias themselves.

The opposing view is that Chevron and Exxon’s spending spree is not ushering in an extended oil age, but instead reflects what might be dubbed “the new age of energy uncertainty”.

Building scale in the face of a questionable future can be a defensive posture for the oil majors. The smaller independents seem happy to sell. The biggest producers won’t necessarily be badly damaged by a decline in demand if they can pump the barrels that are needed more efficiently than their rivals.

But uncertainty creates fear. And the IEA — once viewed as the gold standard in oil forecasting — has been turned on by many devout believers in the sector.

Fatih Birol, its executive director — who himself once worked for Opec — has been portrayed by some as a turncoat ever since arguing in 2021 that no new oil and gas developments were needed if the world wants to limit global warming to 1.5C under the Paris agreement.

Critics and supporters of Birol’s view alike tend to gloss over the nuance, which is that the view only applied if governments acted to curb fossil fuel demand sufficiently to cut emissions — which, to date, they have not.

Unswayed, this week the IEA released its annual “scenarios” for where they think oil demand is going. While attempting to reflect the huge uncertainty in how energy markets might look in three decades time, it should nevertheless be a sobering read for oil investors.

The agency says that if governments stick with their current policies, oil demand still peaks this decade, thanks to the rapid rise of electric vehicles in China. But consumption won’t fall significantly, instead largely flatlining over the next 30 years.

But in the scenario where governments follow through on environmental pledges already made — but not yet fully implemented as policy — the picture changes dramatically. Oil demand will almost half by 2050, to just 55mn barrels a day.

Going one step further, in the IEA’s most ambitious “net zero” scenario, if governments get serious about the 1.5C target, then oil demand will practically collapse over the next 25 years, falling to roughly a quarter of its current level.

You can of course believe that the IEA have got this wildly wrong. Or that governments will grow tired of addressing climate change, if their populations deem it too complicated or expensive.

But within the wide ranges and uncertainty of the IEA scenarios is a glimpse into what the likely path is for the oil sector. Investors should be careful about swaggering blindly towards it.

FT : Lessons to learn from the CAB Payments debacle

Lessons to learn from the CAB Payments debacle
An IPO crash course in equity, transparency and accountability

“I need a hero,” sings Bonnie Tyler. “I’m holding out for a hero ‘til the end of the night.”

The embattled London market has been looking for an IPO to validate its place as a key listing venue. The flotation of Turkish soda ash producer We Soda was reckoned to be a “ray of light”, but it foundered over valuation. I wrote in June that “it seems absurd for City champions to have invested so much hope in [the We Soda] IPO”.  

Just a few weeks later another hero came along to burnish London’s credentials. “London Stock Exchange welcomes CAB Payments,” posted the LSE on July 6. It was “a very special moment for the company and the fintech sector,” according to FINTECH Circle. The company boasted high growth and high margins, and the offering had the support of a powerhouse investment banking syndicate, led by JPMorgan Cazenove and Barclays, with STJ hired as financial adviser to make sure the deal was a success.

But London’s “newest tech unicorn” has become the latest puny-corn. As MainFT writes:

Shares in CAB Payments plunged as much as 74 per cent on Tuesday after the fintech warned on profits less than four months after listing in London. The company, which specialises in foreign exchange and payment services for businesses that send money to emerging markets, slashed its revenue forecast for the year by 17 per cent. It blamed changes to market conditions in some of its key currency markets, including the Nigerian naira, for hitting margins and denting volumes.

Happily for the private equity firm Helios Investment Partners, it escaped much of the carnage by selling 40 per cent of its stake at 335p to raise nearly £300mn. But with CAB shares closing yesterday at 60.80p, investors who didn’t sell out can hear only the whistling sound of wind passing through their ears as they tumble through the trapdoor.

Like every equity capital markets banker, I’ve worked on my share of duds and disappointments, but never anything quite like this — an 82 per cent fall from the offer price, making it “the world’s worst major initial public offering this year”, according to Bloomberg.

There’s a lot one can say about this fiasco, but as FT Alphaville is a family-friendly forum, I will highlight just a few issues.

The first is that stock market flotations have evolved from providing growth capital to enabling insiders to take money off the money. This vitiates the public benefit that robust and functional IPO markets are supposed to provide. As the New Financial think-tank wrote in 2021: “Private equity firms in the UK sell a significantly higher chunk of their investment in the IPO than they do in the US, and a high proportion of new shares is used to pay down high levels of debt.”

There’s not much point in reviving London as an IPO market if it entails only the transfer of wealth from fund managers and retail punters to privileged insiders. And if the fundraising is designed only to enable insiders to reap a bonanza, it’s not really a surprise that investors aren’t buying what’s on offer. 

Second, it’s impossible to know from CAB Payments’ cryptically vague announcement whether the 22 pages of “Risk Factors” in the IPO prospectus had provided adequate disclosure. The company said yesterday (emphasis added):

In recent weeks, the Company has seen a number of changes to the market conditions in some of its key currency corridors, on top of the ongoing uncertainties surrounding the Naira, which are impacting both volumes and margins; most notably, the Central African franc (XAF) and West African franc (XOF). At the present time, these market conditions are compressing margins and reducing trading volume. These challenges are recent but continuing.

So the stock, which had already fallen 35 per cent below IPO price, dropped another 72 per cent yesterday because of . . . ch-changes”? 

One broker attributed the profit warning to the mandate from African central banks that firms in West Africa should transact with local banks, and not with intermediaries such as CAB Payments. The implication is that much of CAB Payments’ growth and high margins derived from trading offshore in African currencies subject to exchange controls. If local authorities intervene to stifle the alternative trading venues, trade volumes and margins get crushed.

If this accurately summarises what happened, I don’t think it has been conspicuously disclosed in the Risk Factors. Here’s the summary of the Risk Factors; decide for yourself:


The prospectus does say that recent changes to the Nigerian Naira may hurt spreads, but that the company had already reflected this contingency in its financial targets (emphasis added):

On 9 June 2023, the Nigerian president suspended the governor of the Central Bank of Nigeria and on 14 June 2023 the Central Bank of Nigeria issued a press release indicating a change of policy to move towards a more free-floating Naira. While . . . it is too soon to determine the impact this change in policy has on the Group’s current trading, the Directors believe that it is likely that the gap between the onshore bank rates and offshore parallel market rates which have historically existed in Naira FX trading may narrow in the short term. Furthermore, the Directors believe the policy change may result in a decline in the take rate the Group can obtain on the Naira-related FX transactions it performs to pre-mid-2021 levels. As the Group’s total income targets assumed unrestricted trading in Naira, the change in policy announced by the Central Bank of Nigeria on 14 June 2023 is in line with the Group’s assumptions for its total income targets for 2023 and for the mid-term.

One can debate, Aquinas-like, whether the risks were clearly disclosed or buried in a pile of turgid legalese. Suffice it to say that investors, including Fidelity and BlackRock, didn’t see it coming — and so soon after the IPO. 

Third, the “CABastrophe” highlights, awkwardly, an advantage to listing in London or elsewhere abroad over the US: the lack of class action lawsuits when newly floated companies miss their numbers. If CAB Payments had listed on Nasdaq or the NYSE, it and its underwriters would already have been served with papers. But outside the US it’s a different story, and class action suits are extremely rare.

But with the lack of (sometimes frivolous) lawsuits comes a lack of accountability. In theory, the company and its directors can be held liable, but in practice “no one ever is to blame.” As for the advisers, it’s unlikely any of them will be summoned to explain their decision-making.


The UK tries to enforce standards via the “sponsors regime”. Acting as IPO sponsor is an onerous responsibility, requiring detailed work on the working capital statement and business model, and most relevantly a determination “whether the admission of the shares would be detrimental to investors’ interests.”

The sponsor on the CAB Payments IPO is JPMorgan Cazenove, probably the most experienced and blue-chip name in UK corporate broking. Its recent track record, however, isn’t unblemished, as it has acted as Sponsor for such disastrous IPOs as Finablr (another emerging markets fintech company), Aston Martin Lagonda, and Made.com.

And there’s a legitimate question not only whether the relevant risks were adequately disclosed, but also whether this company should have been taken public in the first place. A company may not be fit for listing if an important business line can be halted from one week to the next by government fiat. If (as seems the case) CAB Payments’ business model was acutely vulnerable to unpredictable intervention by African central banks, it would make forecasts almost impossible.

So will the UK Financial Conduct Authority weigh in? After all, its remit is to ensure that IPO sponsors (and arguably global coordinators) are vetting companies to protect against investor detriment. 

Don’t count on it. Yes, the FCA conducts periodic reviews of the work that sponsors carry out, and it’s painful paperwork preparation for all involved. But it is difficult to expect the FCA to crack down on advisers for bringing companies to the market when it is under pressure to attract new listings. Indeed, in a bizarre intervention from a watchdog, the FCA’s director of regulatory oversight recently said that the UK media are “very negative” about homegrown issuers, insinuating it should be more supportive of issuers and entrepreneurs.

The FCA has a fit-and-proper test for employees and senior managers at financial firms, but do they have one for underwriters and advisers? Five years ago the Hong Kong regulator SFC banned UBS — the strongest IPO house at the time in the Greater China market — from sponsoring IPOs for 18 months after a series of major mishaps. It also fined several other banks. Not a perfect remedy, but it focused minds. No bank wanted to follow UBS into the penalty box and to miss out on dealflow.

The list of London flops is long, and if this debacle can happen under the aegis of the top-ranked bank in the business, what hope do investors have? After all, they have worse information than the insider sellers. They can kick the tires and take a peek under the bonnet. But even the biggest institutional investors can’t perform the kind of due diligence of a private buyer or even IPO global co-ordinator. They have to be able to trust something about the process or it breaks down.

The CAB Payments IPO should be a “teachable moment” for the regulator to require accountability from advisers to incentivise clear disclosure and careful screening. The gatekeepers must have skin in the game.

>>> US After Hours Summary: MSFT +3.5% higher on earnings; GOOG -6.4%, MANH -5.6

After Hours Summary: MSFT +3.5% higher on earnings; GOOG -6.4%, MANH -5.6%, TXN -4.9%, V -1.6% lower on earnings

After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: LRN +11.7%, WFRD +4.2%, BDN +3.7%, MSFT +3.5%, HIW +2.9%, RNST +2.2%, NBHC +2%, WM +1.1%, MTDR +0.8%, ADC +0.7%, CB +0.4%, RHI +0.4%, CNI +0.1% (also increases buyback auth by C$500 mln)
Companies trading higher in after hours in reaction to news: MASS +4.7% (wins USAF purchase orders), KGS +3.7% (initiates dividend), ABT +2.5% (presents data on devices for people with leaky heart valves), MWA +0.8% (increases dividend), QCOM +0.3% (MU now shipping production samples for QCOM's latest flagship mobile platform), TDY +0.1% (names new CEO and new COO; Robert Mehrabian to become Exec Chairman)

After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CHX -12.3%, VICR -10.1%, CSGP -9.1%, TDOC -8.1%, ATEC -8% (also $150 mln stock offering), HA -7.9%, ENVA -7.4%, GOOG -6.4%, MANH -5.6%, BYD -4.9%, TXN -4.9%, ROIC -4.5%, USNA -3.7%, RUSHA -2%, TRMK -2%, V -1.6% (also authorizes new $25 bln share repurchase program; also increases dividend), RRC -1.4%, JBT -1.2%, NTB -1.1%, FFIV -0.5%, SNAP -0.3%, EGP -0.2%, WIRE -0.2%
Companies trading lower in after hours in reaction to news: SPWR -8.7% (discloses material weakness in internal control; to restate select financials), IDYA -8.6% ($125 mln stock offering), ERII -2.3% (CEO to step down), MARA -1.8% (files $750 mln mixed shelf securities offering), WOLF -0.7% (names new chairman), MU -0.5% (MU now shipping production samples for QCOM's latest flagship mobile platform), AFRM -0.4% (Apple Pay Later now available in US according to Apple Insider), AAPL -0.2% (Apple Pay Later now available in US according to Apple Insider), PYPL -0.2% (Apple Pay Later now available in US according to Apple Insider), GTY -0.1% (increases dividend), CACI -0.1% (wins NASA contract worth up to $150 mln), SQ -0.1% (Apple Pay Later now available in US according to Apple Insider), ROL -0.1% (increases dividend)