TheChek News Flow

Watchdog imposes landmark restrictions on influencers’ promotion of cryptocurrencies amid concerns for investors in unregulated sector

Spain is imposing restrictions on influencers’ promotion of cryptocurrencies as European authorities struggle to get to grips with the unregulated sector.

In an apparent first for the EU, Spain’s national securities market commission has been given the power to regulate crypto advertising.

The measures, set out in the country’s official journal on Monday, take effect in a month’s time. They require influencers and their sponsors to pre-notify authorities of some posts and to warn of crypto’s risks or face fines.

“We are very excited about how this will bring some order to how crypto is promoted, not just through traditional media but also through influencers,” Rodrigo Buenaventura, the watchdog’s head, said in an interview with the Financial Times.

“If influencers weren’t covered there would be a backdoor to avoid regulation. This is new terrain, for us and for them, and there will be moments of friction but that always happens when you bring in rules for something that wasn’t regulated before.” 

The new powers for the Spanish watchdog come after its November clash on Twitter with Spanish footballing legend Andrés Iniesta over his paid promotion of Binance, the world’s biggest cryptocurrency exchange, when the commission told the World Cup winner it was his responsibility to inform followers of crypto’s risks.

Proposed EU-wide regulations on the sector are not yet agreed and do not attempt to harmonise rules for advertisers such as influencers.

As a result, Madrid and other European capitals are seeking to at least regulate promotion of crypto products. France late last year gave a unit supervised by its finance ministry the role of investigating online crypto advertising.

A French reality TV star was fined €20,000 in July for “misleading commercial practices” after posting a Bitcoin trading site advertisement on Snapchat.

“Like Spain has now done, other countries are deciding not just to wait a couple of years for the EU regulation to decide everything but to take on areas like publicity,” said Buenaventura.

Under the new Spanish rules, influencers will have to disclose if they are remunerated for promoting crypto, whether monetarily or otherwise.

If so, the watchdog will require their posts to include prominent “clear, balanced, impartial and non-misleading” statements about the risks of investment in crypto and a warning that crypto-investment is not regulated, potentially unsuited for retail investors and could lead to loss of all the assets invested.

Influencers or outlets with more than 100,000 followers in Spain will have to notify the watchdog of the content of their crypto promotions with at least 10 days of notice. Fines for non-compliance could reach €300,000.

The new Spanish publicity rules apply to crypto groups themselves and to PR companies they hire, as well as to influencers.

A European Commission official said Brussels had “no principled objection” to member states regulating ahead of the EU crypto regime — dubbed Mica — coming into force, as long as national and EU-level rules are compatible. “Depending on the specific situation, once Mica enters into force rules may have to be adjusted,” the official added.

In parallel, the UK Treasury is studying a proposal to tighten rules on crypto advertising. The new British regulations would probably require crypto adverts to receive prior approval from a company authorised by the Financial Conduct Authority, with possible fines for serious breaches.

Private markets and infrastructure gain allure for conservative investors after jump in inflation

The majority of insurers intends to back away from the low-yielding bond market and head into less liquid assets, as a burst of inflation since the outbreak of Covid-19 builds on longer-term pressures, according to a survey.

The study by investment consultancy bfinance found that 61 per cent of insurers intended to cut fixed-income allocations over the next year-and-a-half, while the same proportion planned to boost exposure to “unfamiliar” assets including emerging-market debt, private debt, private equity and infrastructure. The survey covers 90 insurers with more than $5tn in combined assets under management.

The shift away from low-yielding public debt and into more specialised and generally more opaque markets highlights the inflationary pressure long-term investors are facing while consumer prices are rising at their fastest pace in the US in almost 40 years.

“The rise in investment diversification . . . is not a pandemic story, in that the low-yield decade that followed the [2008 financial crisis] has placed all traditionally conservative investors under growing pressure,” said Kathryn Saklatvala, who co-authored the report. “Yet the pandemic and its impact on inflation, rates and systemic risk have produced a distinct change in the pace . . . speeding up the shifts towards new asset classes and portfolio illiquidity.”

Around the world, $10tn of debt carries a negative yield, with prices so high and regular interest payments so low that buyers are guaranteed a loss if they hold the debt to maturity. Already, 55 per cent of the survey respondents said they had cut fixed-income exposure during the pandemic period.

Hedge fund Bridgewater’s chief executive officer Ray Dalio is among the well-known investors to have made the case for avoiding bonds recently. “[Central banks’] printing of money and buying of debt assets has driven interest rates so low that cash and bonds are stupid to own,” he wrote in a LinkedIn post this January.

The tally of negative-yielding debt has shrunk in recent weeks, reaching the lowest point since April 2020, as central banks prepare to scale back asset-buying schemes and push up interest rates, unpicking the economic support they provided when the pandemic first struck and denting bond prices in the process.

Still, yields remain low, posing a challenge to often long-term investors such as insurers and pension funds, which must look elsewhere for returns. The survey said slightly more than half of insurers now invest in infrastructure equity, up from 36 per cent in March 2020. The figure is expected to rise further from here, with a similar pattern also in emerging market debt.

Core government bond markets are very low yielding, but they provide smooth liquidity; it is easy for investors to hop in and out of the market and to find buyers or sellers of the assets they want at will. That liquidity is not always available in private markets and infrastructure.

The survey suggests that 74 per cent of insurers expect their portfolios to become less liquid over the next 18 months. Some fear that in the event of a market shock in future, that may force more selling into more liquid public markets. “Such behaviour may become a liquidity drag for public equities and cause future market corrections to be even more severe,” said Tancredi Cordero, chief executive and founder of investment advisory boutique Kuros Associates.

Alban de Mailly Nesle, group chief financial officer of Axa, said the insurer had in 2018 set a target to allocate 25 per cent of its portfolio to alternatives by 2023. “They provide much higher profitability in a low credit spread context, and strong resilience to challenging economic contexts and crisis compared to other asset classes,” he said, adding that this was particularly true of private equity.

Analysts express concern over potential deal as GSK investors hold out for £60bn

Unilever defended its £50bn bid for the consumer health unit of GlaxoSmithKline as the ambitious plan drew scepticism from some analysts and sent the group’s shares down 6 per cent in early trading on Monday.

The maker of Dove soap, Hellmann’s mayonnaise and Domestos bleach said the GSK business was a “strong strategic fit”, as it set out plans to increase its presence in health, beauty and hygiene.

“The acquisition would create scale and a growth platform for the combined portfolio in the US, China, and India, with further opportunities in other emerging markets,” it said, adding that it would sell off “intrinsically lower growth brands and businesses”.

Unilever’s approaches for GSK Consumer Healthcare, home to brands including Aquafresh toothpaste and Panadol painkillers, have so far been rebuffed, but the group still hopes to pursue a deal, according to people familiar with the situation.

Shares in Unilever fell 6 per cent in early trading to 3707p, while GSK stock rose 5 per cent to 1727p.

GSK and Pfizer, which holds a 32 per cent stake in the consumer health unit, are holding out for an improved bid of at least £60bn. GSK has said that Unilever’s £50bn offer “fundamentally undervalued” a business that it intends to spin off later this year.

The revelation of the bid over the weekend prompted Unilever to bring forward an announcement of plans to overhaul its sprawling portfolio. Chief executive Alan Jope, who has led the group since early 2019, is under pressure to improve a performance — and share price — that has lagged that of rivals.

However, analysts were quick to voice reservations about a potential acquisition of the GSK business, as well as the debt with which it would saddle Unilever.

James Edwardes-Jones, analyst at RBC Capital Markets, said: “We see little justification for such a deal strategically, operationally or financially. Even seriously contemplating such a bid raises questions in our mind about management’s confidence in the current business.”

Bruno Monteyne, analyst at Bernstein, said the transaction would entail “£10bn of shareholder value destruction”. 

Martin Deboo, analyst at Jefferies, said that “initial feedback on the deal from investors over the weekend has been almost uniformly negative”, reflecting low confidence in Unilever management and the potential of the deal to boost growth, together with concerns about debt levels.

Unilever said that after any acquisition “the company would target a return to current levels of gearing over the short to medium term”.

The FTSE 100 group said it would set out a “major initiative to enhance our performance” later this month, including changes to its structure. That follows an earlier strategic update last year, which met with a lukewarm response.

Unilever has faced rising discontent from investors over its existing strategy to boost growth, including an attack from top-10 shareholder Terry Smith last week.

Watchdog to investigate defence contractor’s accounts of 2019 and 2020 as well as 2017 and 2018

The UK accounting regulator has extended its investigation into PwC over its audits of Babcock International to include the defence company’s accounts for 2019 and 2020.

The Financial Reporting Council said the decision to investigate the audits was made last month following Babcock’s announcement of a review into contract profitability and its balance sheet.

The review resulted in about 140 adjustments totalling about £2bn that related to a combination of errors in previous accounts, changes in estimates and an updated accounting policy.

Britain’s second biggest defence contractor had announced the review last January as part of a sweeping overhaul under new chief executive David Lockwood. The company in July revealed a £1.6bn annual loss as it wrote down the profitability of its contracts.

About £1.3bn of the £2bn charge came from write-offs in goodwill from acquisitions made by the previous management, notably the purchase of Avincis, the search and rescue helicopter group.

The sea of red ink appeared to bear out previous criticisms of the group’s accounting and governance by a little-known group, Boatman Capital Research, which had consistently been rejected by Babcock’s then management.

Babcock said last year it was replacing PwC as auditor with Deloitte after almost two decades.

Babcock declined to comment on Monday.

PwC was already under investigation over its audits of Babcock’s financial statements for the years ended March 2017 and March 2018.

The investigation comes on top of existing FRC probes into PwC’s audits of collapsed minibond company London Capital and Finance and Wyelands Bank, the finance vehicle owned by industrialist Sanjeev Gupta.

Kevin Ellis, UK chair and senior partner at PwC, said in December that criticism of the audit industry from politicians and regulators was harming the profession and risked making it more difficult to attract new recruits.

Retaining qualified auditors also “becomes much harder, if there’s a current of external negativity”, he said.

PwC announced record average profits of £868,000 per partner in the UK last year as it capitalised on a boom in corporate dealmaking. Its 22,000 staff were handed increased bonuses and extra time off during the coronavirus pandemic.

The firm said on Monday that it would co-operate fully with the FRC’s investigation into its audits of Babcock, one of the crucial contractors for the UK’s Ministry of Defence.

“Audit quality is of paramount importance and we remain committed to our ongoing programme to enhance audit quality and to the delivery of consistently high quality audits,” PwC said.

“The FRC’s annual reviews of our audit work, policies and procedures show a continued trend of improvement in our work and we use their insights, together with our own reviews, to continuously improve how we deliver high quality audits,” it added.

Sands China, MGM China and Wynn Macau jump after authorities maintain number of operating licences

Macau casino stocks shot higher after officials said they would maintain the number of licences available to gaming operators in the territory, ending years of uncertainty for US companies in the Asian gambling hub.

The shares of US casino operators, which investors had feared could lose out if the number of licensees was reduced, were among the biggest gainers in Asian markets on Monday, with Sands China jumping 14.6 per cent, MGM China rising 11 per cent and Wynn Macau up 9 per cent.

On Friday, officials revealed that as part of the territory’s revised gaming law, authorities would offer six casino licences for up to 13 years by public tender when the previous 20-year licences expire in June.

With six large casinos already operating in Macau, analysts expect all of the city’s dominant players to retain their presence in the only Chinese city where casino gambling is legal.

Macau also did not raise its gaming tax as feared, introduce a licensing fee or station a government observer inside big casinos with the capacity to attend board meetings, a relief to beleaguered operators in the territory.

George Choi, an analyst with Citi, said the announcement “should remove most investors’ key concerns” about the revised gaming law, calling the clarity from officials was “the important positive catalyst that we are looking for.”

Among other changes, the revised law will require executive directors who are Macau permanent residents to hold at least 15 per cent of the share capital of the licence holder, up from 10 per cent. But analysts said this was unlikely to directly impact Hong Kong-listed stocks of operators.

“We were surprised the government’s stance on some contentious topics has become far less onerous, if not surprisingly accommodative,” analysts at JPMorgan wrote in a note following the announcement. “We think this should help normalise multiples to some extent and make this space — finally — investable for a wider swath of investors.”

The law, introduced by the Chinese government, has dragged significantly on the shares of casino operators, compounding a severe downturn caused by the Covid-19 pandemic.

Even after Monday’s rally, a Bloomberg index tracking the six big Macau casino operators listed in Hong Kong was down about 50 per cent since the end of 2019.

“This new draft law provides some clarity in the short term, however it does not necessarily mean we will return to the [industry’s] heyday,” said Ben Lee, an Asian gaming expert and managing partner at Macau-based IGamiX Management and Consulting.

Cheong Weng Chon, Macau’s secretary for administration and justice, said during the law’s announcements on Friday that a limit of six licences was decided after factoring in the city’s economy and a “suitable scale of development” for the gaming industry.

Lee said that “leads one to wonder if they are implying that the gaming revenue we have seen over the past two years is more or less what we will be permitted to have”.

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The private equity giant raised some more money to spend and has new incentives to grow.

Private equity giant TPG Inc. landed on Wall Street with a bang Thursday, raising $835 million for its coffers in the first big IPO of 2022 and logging a 15.3 percent increase in first-day trading.

The San Francisco and Fort Worth, Tex.-based company plans to use 40 percent of the proceeds to buy back stock from existing investors and the rest to support its operations, pursuing new lines of business or new markets.

TPG, which has been an active dealmaker for 30 years and has $109 billion in assets under management, now joins other big private equity companies such as KKR, Blackstone and The Carlyle Group in the public market. The company trades on the Nasdaq under the symbol “TPG” and saw its shares rise $4.50 to $34 during its opening day.

Being public has its perks. TPG now has an easily tradable stock that can be used to compensate executives and corporate leadership, but it also boosts the pressure on the investor to produce results and keep growing.

That could ultimately lead to more wheeling and dealing.

TPG’s highest-profile fashion deal was its $5.1 billion acquisition of Neiman Marcus with partner Warburg Pincus in 2005. The luxury department store eventually was flipped — to Ares Management and the Canada Pension Plan Investment Board for $6 billion in 2013. (The legacy debt from two consecutive private equity takeovers was ultimately too much for the department store to bear, prompting a bankruptcy filing in the early days of the pandemic from which it has since emerged).

But that is just a slice of TPG’s work in the consumer space.

The company also previously invested in disruptive beauty brand Beautycounter, E.l.f. Cosmetics, Australian department store Myer and Indian discount merchant Vishal Retail.

TPG’s portfolio includes investments in:

• APM Monaco: A silver jewelry brand founded by Ariane Prette in 1982.

• Campus Activewear: India’s largest casual sports and footwear name.

• BFA Industries: The online makeup subscription service that sends out more than 1.5 million Glam Bags monthly.

• Reliance Retail: The Mumbai, India-based retailer with 27 million square feet of retail space across more than 12,000 stores.

• Rodan + Fields: A skin care brand distributed by independent consultants.

Like other private equity firms, TPG uses its view into the business world, dealmaking experience and network of professionals to chase themes in the market, spotting companies or sectors that are poised for growth, swooping in with an investment and then selling for a premium.

According to the company’s initial public offering registration statement, it has about 912 employees across eight countries keeping tabs on its more than 280 active portfolio companies employing more than 500,000 people.

It works across five “platforms,” which it describes as Capital, Growth, Impact, Real Estate and Market Solutions.