TheChek News Flow

Shortfall flagged in stocks underpinning depositary receipts

Problems follow forced conversion process allowed by Moscow

LONDON/NEW YORK, June 26 (Reuters) - Deutsche Bank (DBKGn.DE) has told clients it can no longer guarantee full access to Russian stocks that belong to them, underlining the challenges global investors face to recover stranded investments in the country's companies.

Germany's largest bank said in a note dated June 9 and viewed by Reuters that it had uncovered a shortfall in the shares that back the depositary receipts (DRs) the bank had issued before the Ukraine invasion. The shares have been held in Russia by a different depositary bank.

In the circular, Deutsche attributed the shortfall to a decision by Moscow to allow investors to convert some of the DRs into local stock. The conversion was carried out without the German bank's "involvement or oversight" and Deutsche was unable to reconcile the company shares with the depositary receipts.

It is the first major bank to formally inform depositary receipt holders that they may not get take ownership of precisely all the shares they are entitled to, two sources advising investors who continue to hold Russian DRs told Reuters.

DRs are certificates issued by a bank representing shares in a foreign company traded on a local stock exchange. Swapping DRs for shares in the Russian company is a first step towards an effort to recover their money.

Shares affected include those in national airline Aeroflot (AFLT.MM), construction firm LSR Group (LSRG.MM), mining and steel firm Mechel (MTLR.MM) and Novolipetsk Steel (NLMK.MM). Mechel declined to comment, while the remaining companies did not immediately respond to a Reuters request for comments.

Western sanctions and Russian countermeasures have stranded assets held by citizens and companies on both sides of the political divide. Moscow is also demanding a 10% contribution to the federal budget, termed an "exit tax" by Washington.

The Kremlin has also taken assets under temporary control, seizing the Russian subsidiaries of two European energy firms in April, underscoring a strategy to lessen foreign influence on companies critical of its economic and political interests.

A significant number of investors ranging from small hedge funds to big global asset managers still hold depositary receipts, investor sources said.

Most investors have marked down Russian assets to zero but some still harbour hopes of recovering value in the future.

Irina Tsukerman, president at geopolitical risk consultancy Scarab Rising, said the news should come as no surprise.

"Literally everything in Russia has been vulnerable, whether its these DRs, equities, real estate or any other form of financial asset," she told Reuters.

The Central Bank of Russia did not immediately comment on the matter.

Russia's National Settlement Depository said the conversion of shares had been carried out in accordance with Russian legislation and that it was not the accounting institution responsible for implementing this mechanism.

'COMPLETE CHAOS'

Lawyers and other advisers have described the conversion process as "complete chaos".

"To a certain extent, this resulted in double counting because, without a reconciliation between Russia and foreign banks, an investor could get Russian shares and still hold the DRs at the foreign bank," said Grigory Marinichev, a partner at law firm Morgan Lewis.

Deutsche Bank is now allowing investors to swap DRs for shares as part of its plans to exit all Russia business, one source said.

The bank also determined that clients could be in a better position if they could convert their DRs at least partially, this person added.

JPMorgan & Chase (JPM.N), Citigroup (C.N) and BNY Mellon (BK.N) act as depositary banks for most other Russian depositary receipt programs, according to Clearstream.

All three banks declined to comment on whether they had also identified shortfalls, but their books remain closed due to the challenges with reconciliation, according to statements on their websites.

Deutsche said in its circular that if it was able to reconcile its books at a later date, then it would look to return more shares to their rightful owners.

But it cautioned that the net proceeds from sales of shares it was able to return to investors would likely be "substantially lower" than the current market price.

The bank said it understood Russia's Government Commission for Control over Foreign Investments required that such shares be sold "at a discount of at least 50% from their appraised market value," the circular said.

DAX:

MDAX:

SDAX:

SES-imagotag refutes in the strongest possible terms each of the allegations made against it in the report produced by Gotham City Research on Thursday, June 22, 2023, under the title “SES-imagotag: The Circular Dance with a Chinese Twirl.”

The present document provides factual, precise, and verifiable answers which shed light on the errors contained in the report. The fraud that is alluded to in the report does not exist; there is no double counting of circular revenues with BOE; the consolidation of the Group's subsidiaries and parent company's revenues is consistent with the consolidated revenue, which is generated exclusively by sales to external customers. The capitalization of SES-imagotag's R&D investments is compliant with IFRS accounting standards. Consequently, there is no over-statement of the company's revenue or profit.SES-imagotag faces this new chapter calmly, true to its approach which emphasizes transparency and respect for rules and standards. But the company is also conscious of the gravity of the consequences of such a maneuver for the entirety of its ecosystem: employees, customers, partners, and shareholders. That is why SES-imagotag reserves the possibility to exercise all rights for future legal action if need be.

SES-imagotag is a fast-growing, innovative company, and the world leader of a sector which is developing rapidly. 2023 represents a new year of growth and improving profitability.Hereunder, the Group presents the following clarifications and denials set out in this document which address in detail the topics listed below:

1. The consolidation of the revenues of the subsidiaries and the parent company (forgotten in the Gotham City report), which is an operating company, net of intercompany flows, is equal to the consolidated Group revenue.
2. Sales of components to BOE are neutralized in consolidation and do not enter into the revenues of the Group. Therefore, there is no round-trip double-counting between SES-imagotag and BOE. The Group revenue is only generated with external customers.
3. The consolidation of the subsidiary in China (the “JV”), which was majority-owned and controlled by the Group until September 2022, is compliant with IFRS accounting standards.
4. Capitalized expenses are consistent with R&D and IP investments and compliant with IFRS accounting standards.
5. Financial statements are not misstated. Revenue and EBITDA are not overstated.
6. The relationship with BOE is performed at arm's length basis and subject to strict governance and supervision rules.
7. SES-imagotag follows a strict multi-sourcing policy. Purchase prices from BOE have not evolved differently than from other EMS.
8. SES-imagotag does never present itself as a « SaaS company » but as the leading Retail IoT platform, with a large majority (85%) of its revenues coming from ESL hardware, and 15% of its revenues comes from “Software, services and non-ESL solutions (VAS)”.

- Agreement to include access to Lucid's industry-leading technologies and long-term relationship whereby Lucid will supply Aston Martin with select powertrain components for initial and certain future BEV models

- Under the terms of the proposed agreement, Aston Martin would issue 28,352,273 new ordinary shares to Lucid and make phased cash payments to Lucid, with the aggregate value of shares issued and cash payments totalling approximately $232m (£182m)

- Lucid Group would become a c. 3.7% shareholder in Aston Martin Lagonda Global Holdings plc

- Agreement subject to shareholder approval, with irrevocable commitments to vote in favour received from Yew Tree Consortium, Mercedes-Benz and Geely representing 48.1% of issued share capital. As PIF, controlling shareholder of Lucid, cannot vote on the resolution approving entry into the agreement with Lucid, 58.5% of the votes in respect of that resolution are in fact secured

Renault-backed racing outfit draws in €200mn stake from group of 5 investors as part of Luca de Meo plans

Hollywood actor Ryan Reynolds and AC Milan owners Redbird Capital Partners are among investors taking a stake in the Alpine Formula One racing team, valuing the Renault-backed group at $900mn as it seeks more championship breakthroughs.

Deadpool star Reynolds and Rob McElhenney, one of the co-writers behind the sitcom It’s Always Sunny in Philadelphia, have already notched up sports investments with the purchase of Wrexham FC, a small Welsh football club they propelled into the limelight with a reality TV show.

McElhenney, actor Michael B Jordan and Reynolds’ Maximum Effort Investments group will invest €200mn in the Alpine team alongside US-based Otro Capital and Redbird, Alpine said on Monday. They will jointly have a 24 per cent equity stake, it added.

The investment comes two years after Renault rebranded its team as Alpine and also outlined plans to reboot its sportscar brand of the same name.

That marked not only an attempt to get the F1 operation back to the front of the grid but also an effort by the wider French carmaker to put behind it years of scandals and setbacks.

Under chief executive Luca de Meo, who took over in mid-2020, the Renault group has returned to profit after a turbulent period marked by the arrest of former boss Carlos Ghosn.

Renault is now seeking to improve profitability at some of its brands, while De Meo has also sought to give the racing team more prominence and is trying to push it back on to the podium, after many lacklustre years. In 2022 Alpine finished fourth in the constructors’ world championship behind Red Bull, Ferrari and Mercedes.

Owned by US group Liberty Media since 2017, F1 is set to add a grand prix in Las Vegas in November to the calendar, following the addition of a race in Miami last year.

The popularity of Drive to Survive, a behind-the-scenes series on Netflix, has powered the sport’s latest attempt to expand in the US from its origins in Europe.

The Huntsman family and Main Street Advisors, the financial advisers to basketball player LeBron James, participated in Otro and Redbird’s investments, Alpine said, highlighting the growing appeal of the sport in North America and the potential to boost Alpine’s profile.

F1 teams were historically known as money pits but Liberty Media put limits on expenditure in place to increase competition and make them more financially sustainable.

The investments will help Alpine’s “media and marketing strategy, essential to support our sporting performance over the long term”, chief executive Laurent Rossi said in a statement, adding that the team would also avail itself of the sports industry expertise of Redbird.

Reynolds has begun to forge a reputation as a savvy investor in recent years, maximising the appeal of brands and sporting teams, including through social media campaigns. In 2020 he sold his Aviation American Gin brand to Diageo for $610mn.

Wrexham FC, meanwhile, is fresh from winning promotion to League Two, the fourth tier of English football.

The Welcome to Wrexham show as well as Reynolds’ regular appearances in the stands have helped it build buzz.

Alongside the F1 announcements on Monday, Renault outlined new goals for its Alpine sportscar brand, which is set to have an line-up of electric models from 2024. The brand, relaunched in 2017 with the A110 sports coupé, aims to reach €2bn in revenue in 2026 and break even by then, before hitting €8bn in revenue and an operating margin of above 10 per cent in 2030.

It does not currently break out its revenues, though by numbers of units sold these reached 3,546 in 2022, up 33 per cent from a year earlier. Alpine plans to launch seven new models by 2030, it said. It added that it had nearly doubled its sales points in two years to around 140, and was planning a push into the US as well as China.

Nikkei -0.23% Hang Seng -0.14% CSI -0.72% Shanghai -0.74% Shenzen -0.80%

Eur$ 1.0905 CNH 7.2225 CNY 7.2191 JPY 143.42 GBP 1.2734 CHF 0.8961 RUB 84.4532 TRY 25.2361 WTI$ 69.37 +0.30% Gold 1,925 +0.17% BTC 30,244 -0.46% ETH 1,877 -0.90%

S&P +0.15% Nasdaq +0.20% EuroStoxx +0.16% FTSE +0.04% Dax +0.13% SMI -0.22%

Macro :

- Ardian Raises $20b to Buy Stakes in Buyout Funds: FT

Keep an eye on :

- ABF LN : AB Foods 3Q Retail Revenue Misses Estimates

- AIR FP : Airbus Can’t Make Planes Fast Enough Amid Demand, CEO Says: WSJ

- AF FP : Putin increases charges for flying over Russia in scramble to raise cash

- BNP FP : BNP, Barclays €5 Billion FICC Face 2Q Dip, as Equity, Deals Drag

- DANSKE DC : Infosys gets Five-Year Contract From Danske Bank Worth $454M

- EDF FP : EDF to Sign New 10-Year Contract With Aluminum Maker Trimet

- ENX FP : Euronext Sells LCH SA Stake to LCH Group Holdings for €111M

- LEON SW : Leonteq Cuts FY Pretax Profit Forecast to CHF40M to CHF70M

- META US : Meta Is Well-Prepared to Meet Europe Content Rules, Breton Says

- NOVOB DC : Novo Nordisk Plans to Introduce Wegovy in Germany in July: FAS

- NOVOB DC : Novo CagriSema Impresses on Weight Loss; Key to Long-Term Growth

- RNO FP : Renault Sells €200m Stake in UK Formula 1 Unit to PE Group

- SFL IM : Safilo in Advanced Talks With LVMH’s Thelios Over Italy Plant

- SBBB SS : Sweden’s SBB in Exclusive Talks to Sell 51% of SBB EduCo

- SDRL NA : Seadrill in Active Talks to Sell Qatar Jack-Ups, Gulfdrill Stake

- SKAB SS : Skanska Gets Contract Worth SEK9.1b for Work at US Airport

The kingdom’s fashion industry holds the largest projected growth rate of any large, high-income market, according to a report to be unveiled Monday in Paris.

In its first “State of Fashion in Saudi Arabia” report, the Saudi Fashion Commission has laid out a vision to develop a full fashion ecosystem in the next 10 years, with a shift toward more local product development and manufacturing as a key pillar for the sector’s growth.

Can “Made in Saudi Arabia” sell? The commission is betting big that it will.

Saudi Arabia imports more than $7 billion of fashion products annually, according to data provided by the fashion commission. Manufacturing “even just a small fraction of this amount” would open significant opportunities for the local value chain, explained Burak Çakmak, chief executive officer of the commission.

Çakmak, who previously was the dean of fashion at Parsons School of Design in New York, leads the Saudi Fashion Commission, tasked with enabling the development of the industry.

“We need to develop the technical back end of the industry as the retail front-end grows. That includes everything from what material we produce here and how much of it is circular and sustainable, to what products we design, develop and even manufacture here,” said Çakmak.

The kingdom’s bid to rapidly scale up capabilities in the next decade represents an opportunity for manufacturers, logistics providers and specialist machinery suppliers globally. Bringing back even 20 percent of fashion imports could generate additional local manufacturing sales of $1.3 billion, according to the report. The commission is courting foreign direct investors to support this growing consumer demand. Fashion, an integral element of Saudi Arabia’s cultural economy, is part of controversial Saudi Crown Prince Mohammed bin Salman Al Saud’s ambitious Vision 2030 plan aimed at diversifying the economy away from petroleum.

“We are starting from scratch in creating this,” Çakmak told WWD. “While that has its challenges, it also is an opportunity. A real advantage that the Saudi fashion sector has, being so new, is that we have a chance to do things differently and be more sustainable.”

The lack of any large-scale legacy manufacturing operations, combined with young, tech-savvy designers, is the ideal environment for advanced technology adoption. “We are investing in innovation in a big way in the kingdom. Key focus areas for us are sustainable material solutions, from recycled materials to other alternative products,” he said.

The fashion commission is going deep into advanced materials science, leveraging the kingdom’s expertise in the global petrochemicals sector to create parallel opportunities for synthetic fibers and associated yarn and fabric production, as well as dyeing and printing operations. They are supporting the setup of a sustainable materials research center at King Abdulaziz University’s Science and Technology Center. The long-term goal, said Çakmak, is to make more sustainable materials not just for the benefit of Saudi Arabia but potentially for the rest of the world.

Regionally made fashion could account for up to 30 percent of the ready-to-wear fashion market by 2025, according to the report. Modest wear continues to be a key driver within the regional fashion industry. “The vision is to ideate, create and develop a full array of fashion products in Saudi Arabia,” Çakmak said.

Already, a first-of-its-kind product development studio will open by the end of 2023 in Riyadh. Supported by the commission, the space is equipped with the latest cutting-edge technology, including 3D knitting and laser-cutting machines. The production space will enable designers to produce prototypes and samples to speed up market entry.

“Designers have not been able to access the full fashion value chain — meaning there has been little opportunity to turn creativity into actual fashion products,” said Çakmak. “Quick response manufacturing would serve the local burgeoning design scene who struggle with manufacturing given long production lead times and large minimum purchase orders for factories in Europe and China.”

Manufacturing will offer local consumers the right mix of quality, agility and price to make them less dependent on international imports and more eager to purchase locally made garments. The commission is also setting up a content development studio, to be launched next month, which will include photo studios and content editors to help develop brand stories.

“We hope to attract international attention to what is happening in Saudi Arabia.

The international partnerships and investment will be an important factor in our success,” said Çakmak.

Designers say fashion’s obsession with technical outerwear like hiking boots and cargo vests may have peaked. Noah’s Brendon Babenzien is the latest to abandon the trend in an upcoming collaboration with Puma.

Brendon Babenzien — co-founder of Noah, creative director of J.Crew menswear and all-around streetwear aficionado at large — never heard the term “gorpcore” until recently.

“What core?” He said, when asked about the moniker given to the technical outerwear category for which brands like Arc’teryx and Patagonia are known. “I’ve made a conscious effort to keep my life completely separate from the fashion world,” Babenzien added.

Consciously or not, Babenzien is in fact familiar with gorpcore’s biggest markers — or at least familiar enough to eschew the trend for his latest project, a collaboration between Noah and German sportswear giant Puma.

Pieces in this collection will be a deliberate “departure from the ultra-technical clothing of today,” Puma and Noah said in a joint press release shared with BoF ahead of the tie-up’s announcement on Monday. Instead, the collaboration’s key products include a rugby shirt, a retro Puma tennis sneaker and a velour vest top.

The considered wording in this statement points to a wider retreat from the gorpcore category, which emerged in the mid-2010s as pieces like fleece vests and nylon windbreakers began to infiltrate the streetwear scene. But half a decade later, menswear designers say the hype may be already over.

“Hype around technical clothing and sneakers has got to a place where it’s too heavy,” Babenzein said.

Others, meanwhile, call attention to the advent of “quiet luxury,” a new trend of understated formal dressing exemplified by cashmere knitwear, structured jackets and classic button-downs.

“The term gorpcore can be extremely limiting for outdoors brands who have a lot more to offer like soft tailoring or knitwear,” said Patrick Stangbye, creative director of fashion-forward hiking brand Roa, which is owned by Italian fashion group Slam Jam. “There’s something very aspirational about investing in clothing made out of highly technical fabrics and consumers will buy into this with or without the gorpcore trend.”

Accordingly, for brands like Noah and others that thrive at the intersection of fashion and performance wear, it may be time to move on from the shell jackets and cargo pants. Consumers are increasingly looking to their favourite performance-wear brands for more elevated styles that benefit from the same technical fabrics, such as soft tailoring and overcoats.

Babenzien’s collection for Puma, the first of a multi-season collaboration, will lean into his signature preppy look, with styles including a pink and blue striped rugby shirt and his take on the Puma Star, an updated version of a tennis shoe the brand released for Wimbledon in 1970. Emphasising the light-hearted nature of the collection — as opposed to the typical serious tenor of technical apparel — photos promoting the tie-up feature a pitch invader charging across a tennis court to the anger of the two players, security guards in pursuit and the spectators, who are all in the nude.

“Back before all clothing got super technical, when you used to play sport you’d just put on whatever you want and get on with it,” said Babenzien. “I just wanted to create a collection that is fun and easy for regular people to wear.”

The End of an Era

Gorpcore entered the popular lexicon of fashion in 2017, coined by New York Magazine writer Jason Chen noting the sudden appearance of hiking and camping apparel on celebrities like A$AP Rocky and Drake.

Gorp, in fact, stands for “good ol’ raisins and peanuts,” a popular snack among hikers.

Chen noted that this will likely be the successor to normcore, another influential trend in the fashion zeitgeist of the 2010s, characterised by plain articles of clothing of white T-shirts and tube socks.

Soon, gorpcore became ubiquitous. Trail and hiking footwear from brands like Salomon or Nike’s ACG line became the hottest sneakers on StockX. Adidas’ Terrex, a dedicated line of technical footwear and apparel for activities like hiking, now generates nearly €500 million ($543.5 million) in annual sales, per CEO Bjørn Gulden. Arc’teryx — once a niche climbing strap manufacturer — became an unlikely coveted collaborator to brands such as Jil Sander and Japanese luxury retailer Beams.

For now, the trend is still driving sales and dividends. Amer Sports, the owner of Salomon and Arc’teryx, has plans to reach €5 billion in total revenue, up from €3.4 million in 2022.

Tastemakers, nonetheless, are noting the over-saturation and mass exposure of gorpcore staples.

In May, when London-based designer Kiko Kostadinov announced the expansion of his long-running collaboration with Asics with a new apparel line, he told BoF he intentionally designed each item without the multiple panels, pockets and zips that consumers have come to expect from gorpcore-heavy tie-ups with sports brands.

“It’s very important to me that we’re not just adding something to the current trend of very male-focused technical wear, you know, guys going around saying: ‘Hey, I have more Arc’teryx stuff than you,’” he said.

Meanwhile, genuine sportswear shoppers are being turned off by gorpcore precisely because of the way in which it has been co-opted by mainstream fashion, turning the practical and accessible nature of outdoor clothing and activities into a competitive, male-dominated and clout-chasing fad.

“The thought of someone seeing me wear the Salomon XT-6s [trail sneakers] and knowing how much money they cost makes me cringe a bit,” said one user in a gorpcore forum on Reddit. “I just hate the idea of people knowing I’m wearing a hyped-up expensive shoe.”

Gorp x Quiet Luxury

Experts agree that while gorpcore as a fashion trend will likely recede, demand for high-end technical wear is here to stay. Some brands have even merged components of gorp to accommodate the quiet luxury craze.

Arc’teryx CEO Stuart Haselden said in April the Canadian outerwear giant is investing in its sub-label called Veilance, in light of growing sales among consumers looking for everyday clothing made from technical fabrics without the typical hallmarks of gorpcore clothing. Veilance is focused on fashion-forward, minimal pieces, including down jackets, wool blazers and trousers, and accessories like bucket hats and backpacks.

Japanese technical outerwear label Goldwin, meanwhile, has found success in introducing minimalistic and loose suiting made from ultra-lightweight wool and bamboo fibre.

Like any trend, gorpcore will inevitably fade from fashion’s public consciousness, today or months from now. Luckily, the solution is simple: To adapt, brands will have to continue making high quality and durable clothing.

“True technical clothing will always have a place in the culture as an aspirational product, especially for consumers in cities who want to show people what they’re about,” Babenzien said.