TheChek News Flow

Exposure to renminbi securities surpasses $1.1tn despite crackdown and market tumult

Global holdings of Chinese stocks and bonds have jumped by about $120bn in 2021 as foreign investors chase returns in the country’s markets despite recent volatility and regulatory crackdowns by Beijing.

International investors held Rmb7.5tn ($1.1tn) of equity and fixed income securities priced in renminbi as of the end of September, up about Rmb760bn from the end of 2020, according to Financial Times calculations.

The climb highlights how investors are reaching in to mainland Chinese markets directly, rather than through financial instruments listed in global financial hubs such as New York and Hong Kong. It comes at a time when some analysts and investors worry that strong returns in developed markets may be exhausted, leading them to pursue opportunities elsewhere.

China’s offshore listings have had a tumultuous year, with a succession of regulatory crackdowns knocking investor confidence in sectors ranging from technology to education. A liquidity crisis at property developer Evergrande, meanwhile, has prompted a round of heavy selling for internationally traded, high-yield dollar bonds from Chinese issuers.

But global capital has grown ever more intertwined with domestic Chinese finance in pursuit of greater diversification and higher returns.

Investors have long relied heavily on New York and Hong Kong-listed companies such as Alibaba and Tencent to gain exposure to China, in part thanks to the greater regulatory certainty offered by offshore markets.

But since July, big Chinese tech groups listed abroad have been hit by a barrage of regulatory restrictions from Beijing, delivering substantial losses to prominent shareholders including SoftBank’s Vision Fund and Baillie Gifford.

“Now, the regulation is the other way round. [US-listed stocks] are not as investable because of the policy overhang,” said a fund manager at a large global asset manager in Hong Kong. Investors were looking for interesting stories in so-called A-shares listed in Shanghai and Shenzhen, the manager added.

Michelle Lam, greater China economist at Société Générale, said buying in China’s onshore bond market had been supported by FTSE Russell’s decision last year to add Chinese government debt to its influential World Government Bond index, paving the way for more than $140bn in mostly passive inflows.

She added that the Chinese currency’s resilience despite recent economic disruptions had “boosted people’s confidence in buying renminbi assets”.

Widespread buying of Chinese assets has prompted criticism from high-profile investors, including George Soros, who in September called on the US Congress to pass legislation enabling the Securities and Exchange Commission to limit the flow of funds to China stocks.

But immense demand means that such calls to action have had limited impact. Inflows in the 12 months to the end of September have taken foreign holdings of renminbi-denominated bonds to more than Rmb3.9tn, according to central bank figures, while foreign shareholdings have climbed to almost Rmb3.6tn — both reflecting a rise of about 30 per cent from a year ago.

The increase in foreign holdings in 2021 has not matched the outsize rise in 2020, partly because a recent property sector downturn and energy supply disruptions have weighed on growth. Yet share buying through Hong Kong’s Stock Connect programme, in particular, has been intense, with record net purchases of more than $50bn this year.

Chinese officials have welcomed foreign investment in hopes of countering volatility stoked by fast-trading retail investors, particularly in equities. Over the past decade, amateur investors’ share of the stock market’s free float has dropped from 66 per cent to about 30 per cent, while foreign holdings have risen to 6 per cent, according to estimates from investment bank China Renaissance.

Analysts said that overseas traders were already creating trends in onshore equities. “People are taking more signals from foreign investors,” said Bruce Pang, head of research at China Renaissance.

Foreign trading of onshore stocks and bonds has increased as western banks including Goldman Sachs and JPMorgan have pushed to acquire licences and wholly-owned subsidiaries in mainland China, which has led to a greater research effort on Chinese companies. HSBC and Fidelity recently turned positive on Chinese assets for the first time since the regulatory crackdown began in July.

But overseas fund managers face unique challenges trading onshore stocks, including a 30 per cent foreign ownership limit on Chinese companies. At least nine Shanghai-listed large-cap companies have almost reached foreign ownership limits, according to brokers and stock exchange data.

Heavy buying of companies can also backfire for offshore investors when local traders catch on. “When domestic investors find out that foreigners are buying it, they front-run it,” the Hong Kong-based fund manager said. “The foreigners are always going to be late to the party in China.”

Real estate groups including Evergrande rush to sell assets as contagion reaches higher-rated debt

Chinese property developer Kaisa has asked investors for “more time and patience” as it rushes to raise cash from asset sales amid signs that market turmoil is spreading to higher-rated businesses in the real estate sector.

In a statement late on Monday, Kaisa, which last week said payments had been missed on wealth management products it guarantees, apologised and said it was taking various measures to address its liquidity pressures, including sales of projects in Shenzhen and Shanghai.

Kaisa, which is a major borrower on international bond markets and faces about $3bn in bonds coming due in the next year, is the latest developer to find itself caught in a property sector liquidity crisis that has engulfed its peer Evergrande.

Evergrande, the world’s most indebted property developer, shocked global markets after it missed payments on its international bonds in late September, and is also rushing to sell assets. Late on Monday, it confirmed that it had sold a $145m stake in a Hong Kong internet-media group over recent days.

Weakness in China’s real estate sector, which has fuelled broader concerns over the health of the country’s economy, including a warning this week from the US Federal Reserve, has primarily affected riskier borrowers, such as Evergrande.

A host of other high-yield developers, including Sinic, Fantasia and China Modern Land, defaulted in October, and yields on Chinese high-yield debt hit 27 per cent on Monday, their highest level since 2009, according to an ICE index.

But against the backdrop of a worsening crisis at Kaisa, which on Friday cited the coronavirus pandemic to cancel an investor meeting scheduled for this week, negative market sentiment has begun to spill over into higher-rated, investment-grade debt. Bonds at Country Garden, China’s biggest developer by sales, and state-backed Sino-Ocean fell sharply this week.

A Country Garden bond maturing in 2024, which is rated as investment grade, is trading at 92 cents on the dollar, its lowest level since March last year, while a Sino-Ocean Land bond is trading at 91 cents on the dollar, down from more than 100 cents last month.

Leonard Law, a senior analyst at Lucror Analytics, noted that Country Garden had been a “more resilient name” owing to its “manageable financial risk profile”. Sales at the company fell 15 per cent in October compared with the same month a year earlier but were flat over the first 10 months of the year.

Law added that Evergrande, which narrowly avoided default in October by transferring interest payments it owed before 30-day grace periods expired, had missed more payments due over the weekend. The real estate group faces significant repayment deadlines for offshore bonds early next year.

Yields on an ICE index tracking Chinese investment-grade issuers this week hit 2.86 per cent, the highest level in almost six months, and about 60 basis points higher than at the start of September.

Kaisa, whose shares were suspended in Hong Kong on Friday, was the first Chinese developer to default on offshore debt in 2015. Its bonds maturing next year are trading at 32 cents on the dollar.

Unlike its historic London stablemates, the Maybourne Riviera is a modernist ‘experiment in freshness’

Bling ambitions

Loeb is no stranger to taking on big and entrenched European companies. In 2017, he took a stake in Swiss consumer giant Nestlé. Last month he urged oil giant Royal Dutch Shell to break itself up to better face the challenge of climate change. At Richemont, he may team up with Artisan Partners, which has a 1.2% stake in the Swiss company and earlier this year helped oust Danone boss Emmanuel Faber.

Investors have reason to grumble. Though Richemont has generated a total return of 100% for shareholders in the past five years, luxury rivals such as LVMH, Kering and Hermès International have returned 300% or more. Including debt, the Swiss group is valued at 11 times expected EBITDA for 2022, against an average of 15 times for its top European luxury peers. Richemont’s inability to turn to a profit at digital arm Yoox Net-a-Porter (YNAP) years after acquiring full ownership is a particular sore point.

Yet, brute force won’t work. Rupert’s special B shares give him just over 50% of Richemont’s voting rights even though they account for just around 10% of the company’s equity. That means he can veto any change proposed by investors, and resist unwanted takeovers.

To unlock value, therefore, investors will need to come up with a plan the 71-year-old will support. One idea is to sell YNAP or merge it with a rival online marketplace like $14 billion Farfetch. That would immediately remove an operating loss likely amounting to around 200 million euros a year. A more ambitious plan would be to contemplate a tieup with Kering to create a luxury conglomerate able to rival sector leader LVMH.

But any changes will depend on Rupert’s approval. For activist investors, coaxing rather than conflict will be the key.

Compared to over-indebted China Evergrande, teetering on the verge of collapse, state-controlled developer China Vanke is a model of financial propriety. With peers racing to acquire distressed rivals and home sales falling, the country’s third-largest real estate company is finally listing its property management unit, which could raise some $2 billion according to IFR.

Vanke Chairman Yu Liang has been predicting a real estate correction since 2018, and therefore steered clear of costly land grabs. His balance sheet held $22 billion in non-restricted cash as of June, per Fitch estimates, comfortably covering short-term debt. Such prudence has helped its bonds retain their investment-grade rating.

Yet the $32 billion company has dragged its feet in bringing its subsidiary Onewo public; most of its major competitors have listed their property services businesses already. It’s an attractive asset, pocketing 18 billion yuan in annual revenue. Operating profit soared 67% in the first half.

At one point a lofty valuation was possible. Online property brokerage Ke, for example, made a big splash listing in New York in August 2020, pricing above the target range.

Unfortunately much has changed since then, with Evergrande and other developers missing bond and loan payments while Beijing holds down property prices¸ depressing transaction volumes. Vanke managed to grow sales by 10% in the three months to September, but net profit attributable to shareholders plunged 23% year-on-year, after rising 7% in 2020. Operating cash inflow contracted over 150%.

Spinning Onewo off would add financial padding and give Vanke an M&A war chest to compete with rivals like Country Garden Services, which has begun snapping up smaller players to gain share. But it’s a tough time to be asking for a premium.

Onewo could be seeking a valuation of around $13 billion, equivalent to 28 times forecast earnings estimated by Jefferies analysts. By comparison Ke, which has lost 70% of its value this year as profit tumbles, trades at 26 times; Country Garden Services trades at 23 times. When it comes to cash, it’s better late than never, but Vanke may regret having waited so long to tap markets.

Leading textile and materials firms in Italy have joined forces by way of acquisitions and nuanced collaborative ventures to safeguard the fashion supply chain.

MILAN — There’s a brisk M&A activity blossoming in Italy since the inception of the COVID-19 pandemic and much of it is meant to support the know-how and craftsmanship of the country’s fashion supply chain.

The sector is facing declining sales, shortages of financial resources and more difficult access to credit lines, as well as increased costs for raw materials, the latter worrying industry association Sistema Moda Italia. As such, leading textile and materials firms in the country have joined forces with acquisitions and collaborative ventures to safeguard the supply chain, providing manufacturing backup for one another and sharing information.

Evidence that Italian entrepreneurs are increasingly understanding the importance of preserving the local pipeline, several players including private equity firms, fashion moguls, industrialists and investors are coming to the rescue of small and medium-sized enterprises, dragging them out of the quagmire experienced in the past 20 months.

“We see the integration of different companies and M&A activities as a positive and encouraging sign,” said Claudia D’Arpizio, a partner at Bain & Co. in Milan. “They help companies evolve and get managerial structures, which are crucial to face present and future challenges.”

Luigi Feola, managing partner at L Catterton, noted that “business owners are increasingly seeking operative partners, helping them dodge uncertainties and take business on a global scale.”

While it is estimated that 70 percent of high-end fashion manufacturing is globally concentrated in the key fashion districts spread across Italy, these have been hit the hardest by the COVID-19 pandemic, with performances starting to pick up in the first half of 2021 after a negative first quarter.

In the six months ended June 30, textile production rose 17.3 percent and exports jumped 18.5 percent compared to 2020, though that’s still significantly below pre-pandemic levels.

The sector seems to be acknowledging that size matters, especially with the realization that the fallout of the pandemic will be much more challenging to weather solo — leading to unexpected and nuanced ventures and partnerships.

Among the first companies to exemplify the new collaborative mind-set that has been gaining steam over the past year-plus, cotton firm Albini Group linked with Prato, Italy-based Beste to create synergies and develop shared projects aimed at making the two companies more competitive in international markets.

Biella, Italy-based wool mills Reda also partnered with Lanificio Fratelli Cerruti for a shared platform dedicated to showcasing collections digitally. Silk specialists Ratti Group and Mantero Seta, both located in the textile district of Como, formed an alliance to maintain production and guarantee the quality of services at the onset of the pandemic. Earlier this year, they also joined forces to each acquire a 20 percent interest in Foto Azzurra, which specializes in the production of silk-screen printing supports.

In that vein, and in an unexpected venture of sorts, Prada and Ermenegildo Zegna each bought a 40 percent stake in Filati Biagioli Modesto SpA, which specializes in the production of cashmere and other precious yarns. The acquisition came a few weeks after Zegna bulked up its textile division with the takeover of Tessitura Ubertino.

“We have always aimed at producing the highest-quality fabrics while also safeguarding Italy’s supply chain,” chief executive officer Gildo Zegna said at the time. Likewise, Patrizio Bertelli, co-CEO of Prada, said directly controlling one’s supply chain “ensures uncompromising quality at every stage of the production process.”

Bertelli reiterated his position last month remarking that acquisitions will increasingly define the industry’s landscape in the future, especially for smaller players in need of the tools and investments required to grow and expand their global reach.

These partnerships nod to a common practice among international fashion powerhouses, which have been on a buying spree for the past decade securing continuity and support to manufacturers they rely on.

For instance, Chanel through its Paraffection division, has invested in Italian manufacturing companies including shoemaker Ballin, tannery Gaiera and the manufacturing branch of the yarn company Vimar 1991. In August, the French brand further consolidated its Italian holdings, taking a majority stake in knitwear specialist Paima, which focuses on outerwear developments.

Elsewhere, investment and industrial vehicles are crafting their dreams of aggregation, mindful that manufacturers at the top end of the supply chain represent the true hotbed of innovation and R&D.

That is the rationale behind Gruppo Florence, the luxury production pole established in 2020 by industry veteran Francesco Trapani through private equity fund VAM Investments together with Fondo Italiano d’Investimento and Italmobiliare. The goal is to supply high-quality Made in Italy products to major luxury fashion brands by acquiring family-owned Italian SMEs.

Trapani expects the pole to quickly become the primary point of reference for Made in Italy production, with sales in 2021 expected to reach 170 million euros, and has been building a rich portfolio currently counting seven businesses, after the recent acquisition of knitwear manufacturer Metaphor.

Despite all of the tie-ups, there’s growing competition in this field, as other players have been scooping up manufacturers to form conglomerates with production prowess.

Holding Industriale, or Hind, a private investment company helmed by Claudio Rovere recently bulked up its Holding Moda fashion division — currently controlling five other businesses — with the acquisition (for an undisclosed sum) of Project Srl, a Vicenza, Italy-based denim and sportswear garments manufacturer with 2021 revenues expected in the region of 5 million euros.

Matteo Lavezzo, founder of Project, underscored that “the evolution of the market and current [post-COVID-19] rebound proved that SMEs cannot face the global and complex market on their own, all the while dealing with clients’ new needs.”

Rovere touted Project’s business vision, rooted in responsible production.

To be sure, sustainability is a hot-button topic and at the center of investors’ scrutiny when it comes to M&A activities. Italian manufacturers are most often well prepared and viewed as the ones helping fashion brands to advance their ESG-oriented and eco-friendly journeys.

Publicly listed Tamburi Investment Partners pointed to Limonta SpA’s sustainable achievements explaining the reasoning for its first acquisition in the fashion manufacturing sector last month, when it submitted a binding agreement to acquire 25 percent of the textile and coating specialist founded in 1893 and based in Lecco, Italy, for 89 million euros.

Last month, Limonta announced a joint venture called BioFabbrica LLC with U.S.-based biotechnology company Modern Meadow, which develops biofabrication to create sustainable materials.

“Our role of long-term investors has not changed,” said Alessandra Gritti, TIP’s CEO. “Short-term acquisitions are nonsensical these days….Our goal is to support companies in a healthy manner and create an ecosystem for the textile sector that’s so fragmented.”

To this end, the investment company, which works with a shorter exit time frame compared to private equity firms, has agreed with the founding family for a mid-term listing of the Limonta company, which is also viewed as a potential aggregator for other high-end textile companies.

“This sector at the top-end of the spectrum is an invaluable interlocutor for luxury brands, and through the acquisition Limonta will have enough muscles to develop and anticipate fashion trends with its R&D activities,” Gritti added.

Well before the pandemic mayhem, Pattern Group — a publicly listed leader in patternmaking, engineering, grading, prototyping and production for the most prestigious luxury brands — had started building the Italian Hub of Luxury Fashion Engineering.

Its latest acquisition revealed last month of a 54 percent interest in Tuscany-based Idee Partners, which specializes in design, development and production of luxury leather goods, for 4 million euros further consolidates the group’s presence in key fashion districts and segments.

“We have always courted companies that didn’t necessarily have production prowess but rather the ability to invest in development and sustainability,” said Pattern Group CEO Luca Sburlati. “Our aggregation is industrial and stems from the understanding that smaller players cannot survive alone,” he added, noting that when production volumes increase companies ought to be prepared and equipped.

Other companies in Pattern’s portfolio include knitwear specialist S.M.T. (Società Manifattura Tessile) acquired in 2019 and Roscini Atelier acquired in 2017.

Although nuanced partnerships and acquisitions are booming, some players have had a harder time weathering the havoc wrought by the pandemic.

Among the casualties, cotton specialist Tessitura Monti was forced to apply for the special administration procedure and is now up for sale. It is understood that some parties have expressed informal interests for the Maserada sul Piave, Italy-based firm’s assets before the deadline of June 8, 2021, although a deal has still yet to materialize.

On the contrary, Como-based silk specialist Canepa found its white knight in the Muzinich Group, which acquired a majority interest in the company through its investment vehicles Capital Solution ELTIF Azimut and Muzinich & Co. SGR for an undisclosed sum. Invitalia, an Italian governmental company, is also part of the deal with a minority stake and was involved to secure that no jobs were lost.

Michele Canepa — who returned to the company in 2019, fully acquiring it and subsequently filing a restructuring plan with the Court of Como — retained a minority interest but handed his CEO role to Virginia Filippi, appointed last month.

The acquisition marked a turning point for the troubled company, covering existing debts and setting in motion its relaunch, which Canepa has spearheaded in the past two years.

Selloff in high-yield Chinese bonds shaves about a third of bondholders’ wealth in six months

HONG KONG—The biggest selloff that China’s international junk-bond market has ever seen has wiped out around a third of bondholders’ wealth in just six months.

The steep and rapid decline shows how regulatory curbs on borrowing, extremely dislocated credit markets, and slowing home sales have combined to pressure more Chinese property developers, which account for most of China’s high-yield issuance.

What began early this summer as a confidence crisis around industry giant China Evergrande Group EGRNF -0.22% has spread to numerous real-estate firms that are now at much higher risk of reneging on their debt. At least four developers have defaulted on dollar bonds since September.

The market endured another wave of selling late last week and on Monday, as investors even dumped bonds issued by financially stronger developers. On Friday, the yield on an ICE BofA index of Chinese junk bonds topped 25% for the first time since March 2009, near the height of the global financial crisis, and on Monday it rose further, to 26.6%.

The bonds in the index are collectively valued by the market at nearly $39 billion below their combined face value of $112 billion, the data shows. Six months earlier there was little difference between the market and face values of bonds in the index. Bond yields rise as prices fall.

“Market sentiment is still very weak,” said Jenny Zeng, co-head of Asia Pacific fixed income at AllianceBernstein.

“The key question is, who has sufficient liquidity to muddle through this?” she added—meaning which companies can repay near-term maturities until the market revives due to new inflows, or the Chinese government introduces supportive measures.

The surging yields imply very high default risks, and are themselves adding to developers’ problems, by making it hard or impossible for companies to refinance by issuing new debt.

“It is a surprise how much even high-quality companies are being impacted,” said Jim Veneau, head of fixed income for Asia at AXA Investment Managers. “There’s no doubt that market distress is starting to become a factor in and of itself for companies,” he added.

In total, Chinese junk borrowers have about $197 billion of dollar debt outstanding, Goldman Sachs analysts have estimated. That means the ICE BofA index covers a little more than half of that total debt, implying the full losses for investors are considerably larger.

Including cash from bond interest payments, the index has generated a total return of minus 28% so far this year, putting it on course for its worst performance since 2008. But this year’s selloff is much bigger in dollar terms, affecting far more investors. The total face value of the ICE BofA Asian Dollar High Yield Corporate China Issuers Index was just $3.2 billion at the end of 2008.

Kaisa Group Holdings Ltd. 1638 -15.13% , one of the property industry’s biggest borrowers in international bond markets, is one of the recent casualties, with its bonds and shares both selling off since the end of September. The company defaulted in 2015, when defaults by Chinese companies were much rarer, but had since regained access to international markets.

Kaisa said last week that a wealth-management product that it guaranteed had missed a payment, and it was working on a payment plan for that investment vehicle. Kaisa said it was facing unprecedented liquidity pressure, amid credit-rating downgrades and a “harsh environment in the property market.” It halted its stock from trading as of Friday morning, and its dollar bonds due in 2024 were recently bid at about 29 cents on the dollar.

Mr. Veneau at AXA said investors were concerned that other developers could also be on the hook to repay similar debts. “It seems some of these wealth-management products haven’t previously been disclosed or properly communicated. The impression is that there have been surprises, that there could still be new revelations that there have been WMP commitments,” he said.

Shimao Group Holdings Ltd. 813 -8.18% has also come under market pressure. Late Friday, the company denied reports that it was overdue in repaying debt due to a nonbank lender. Shimao said reports that a subsidiary was in talks with a nonbank lender, Lujiazui International Trust Co., to extend its payment schedule were untrue.

Shimao’s management told an investor conference call that it would be a big problem for the industry if restrictive policies continue and refinancing remains closed, according to Leonard Law, a senior credit analyst at Lucror Analytics. Shimao also cut its target for this year’s contracted sales, Mr. Law wrote in a note to clients, to about 290 billion yuan, the equivalent of about $45.3 billion, from an earlier target of 330 billion yuan.

Shimao’s $1 billion, 5.6% bond due 2026 was quoted at less than 65 cents on the dollar on Monday afternoon in Hong Kong, according to Tradeweb, down from about 88 cents a week earlier.

Recent company data has shown that a brutal downturn in sales, already evident in September, extended into October for many developers. In recent years, contracted sales, which reflect the value of contracts signed with new home buyers, have typically been brisk in both months thanks to holiday promotions offered around China’s Oct. 1 National Day.

Industry heavyweight Sunac China Holdings Ltd. 1918 -1.58% , for example, said on Friday that contracted sales in October fell to about 51 billion yuan, the equivalent of $8.0 billion—a drop of nearly 28% from a year earlier.

In some cases, the declines moderated. China Vanke Co. reported a nearly 20% fall in October sales, less steep than a slide of almost 34% in September.

Consortium led by UK engineering group and government to pump £405m into development of small modular reactors

An industry consortium led by Rolls-Royce, the UK aero-engine maker, and the British taxpayer will jointly pump £405m into the development of a fleet of mini-reactors as part of a new push into nuclear power designed to help the government meet its net zero carbon targets.

Rolls-Royce said it had secured funding from US energy company Exelon Generation and privately held BNF Resources, an investment vehicle backed by members of France’s wealthy Perrodo family and owner of oil group Perenco. The three partners will invest a total of £195m in a new business, Rolls-Royce Small Modular Reactor, over three years.

The funding will trigger a commitment of £210m from the government, which is due to be announced by business secretary Kwasi Kwarteng on Tuesday.

Kwarteng said: “This is a once in a lifetime opportunity for the UK to deploy more low-carbon energy than ever before and ensure greater energy independence.”

UK Prime Minister Boris Johnson backed the new technology under development, known as small modular reactors (SMRs), as part of his 10-point plan for a “green industrial revolution” last year.

The technology is viewed within the government as a way to strengthen Britain’s energy security, create manufacturing jobs and help deliver on Johnson’s “levelling up” agenda designed to ensure wealth and jobs are more evenly spread across the UK.

The government’s backing for Rolls-Royce comes three years after the UK engineering group threatened to shut the SMR programme unless it received a long-term commitment to the technology.

Other western nations, including the US and France, are also pursuing their own SMR technologies for use in their domestic markets as well as a new source of exports.

SMR developer NuScale of the US announced at the COP26 conference in Glasgow last week that it had struck a deal to build small-scale reactors in Romania. Emmanuel Macron, president of France, allocated €1bn of government funds last month to help the state-backed utility EDF develop its own SMRs by early next decade.

Rolls-Royce and its partners will use the initial funding to put its SMR design through the UK’s rigorous nuclear regulatory regime. The process is expected to take up to four years but would keep the consortium on track to complete its first 470MW plant by the early 2030s. Each mini-power station would be capable of generating enough low-carbon electricity for about 1m homes.

In contrast to full-scale nuclear power stations, the SMR would have a footprint of just two football pitches. But the key difference is that the small, modular design would allow the parts to be built in factories ready for quick assembly at the chosen location, making them much cheaper than the traditional large reactors.

Rolls-Royce estimates at least 16 SMRs could be installed at operational and mothballed nuclear sites in Britain. As part of the development phase it will also identify possible manufacturing sites for SMR modules.

The company has previously said it expects the first five SMR reactors to cost £2.2bn each, falling to £1.8bn for subsequent units. It estimates that the programme could create as many as 40,000 jobs in the UK regions by 2050.

The group said the new venture will continue to seek further backers. It said it was in talks with a potential fourth investor, which would raise the consortium’s commitment from £195m to £250m. Other companies, including Jacobs of the US and the UK’s Laing O’Rourke, which were previously named as part of the consortium, would become supply chain partners, Rolls-Royce said.