TheChek News Flow

CFC aims to block offer from copper group’s chairman and Kazakh tycoon

A top-10 shareholder in Kaz Minerals is seeking help from other investors to oppose a £3bn buyout of the London-listed copper producer by its chairman and a Kazakh metals tycoon.

CFC Management, a Russia-based investment adviser that represents shareholders with a 3.6 per cent stake, has hired proxy adviser Georgeson to gauge opinion on the bid from other investors.

“CFC Management would welcome the opportunity to exchange views on the . . . offer for Kaz Minerals as well as hear what you have to say on the subject,” Georgeson said in email sent to minority shareholders.

Kaz chairman Oleg Novachuk and billionaire Vladimir Kim have offered to buy out the 61 per cent of the company they do not already own for 640p a share in cash via a bidding vehicle called Nova Resources.

An independent committee of Kaz directors has said it plans to recommend their bid because it offers investors an opportunity to realise their investment “at a premium in cash in the near term”.

However, CFC and RWC Partners, another top-10 Kaz investor with a stake of just under 3.3 per cent, have said they intend to vote against the bid.

CFC believes the offer does not reflect the company’s “fair value and growth potential”, while RWC has said it “materially undervalues the company’s existing and future projects”.

Kaz declined to comment.

Because of the deal’s current structure, traders reckon it would only take a small group of minority shareholders with a collective holding of about 12 per cent to scupper the buyout — assuming a 75 per cent turnout at a special meeting scheduled for December.

Investors will be able to raise any concerns they have about the proposed buyout before a judge in the Companies Court, London, on November 23.

This meeting has been convened because Kaz wants a judge to rule that a group of shareholders including Chelsea Football Club owner Roman Abramovich have the same status as other investors and can vote on the deal. 

The Abramovich group in total controls about 6 per cent of Kaz Minerals and stands to receive $225m in cash if the deal goes ahead. This payment is related to the Baimskaya, a huge copper deposit in one of the most remote parts of Russia.

Kaz bought Baimskaya from Mr Abramovich and his business partners in 2018 for around $900m in cash and shares. Under the terms of the deal, payment of the outstanding amount can be accelerated and paid in cash in the event of takeover.

Baimskaya, whose budget has already blown out to $7bn from $5.5bn, has divided Kaz shareholders.

Some investors would like to see the company release a detailed report on the project, known as a bankable feasibility study, before they vote on the deal. They are likely to raise this point with the judge at the hearing on November 23.

Kaz has already provided two updates on the project over the summer to keep investors appraised of its progress. In August, chief executive Andrew Southam told investors that the study was scheduled to be completed by the end of the year.

He said discussions with the Russian government on infrastructure would be a key factor in determining the release data for the study. “The finalisation of that feasibility study will be dependent on when we conclude those discussions,” he said.

In statement CFC said: “CFC Management continues to review the terms of the proposed transaction and is working on its statement and arguments in anticipation of the court hearing on November 23rd.”

Austrian activist files complaints with German and Spanish data protection authorities

Apple is breaking EU law by enabling iPhone users to be tracked without their consent, said the privacy activist Max Schrems in a complaint to German and Spanish regulators.

Mr Schrems’ campaign group, noyb, said the unique tracking code generated by each iPhone, called IDFA (Identifier for Advertisers), lets Apple and all iPhone app developers see how users behave without their knowledge or agreement.

“Just like a licence plate this unique string of numbers and characters allows Apple and other third parties to identify users across applications and even connect online and mobile behaviour (“cross device tracking”),” said noyb in a statement.

“Tracking is only allowed if users explicitly consent to it,” said Stefano Rossetti, a privacy lawyer at noyb. “While Apple introduced functions in their browser to block cookies, it places similar codes in its phones, without any consent by the user.”

Noyb filed the complaint under the EU’s e-privacy directive, rather than the General Data Protection Regulation (GDPR). As a result, the national data regulators could directly fine Apple without needing the co-operation of EU data protection authorities, if any unlawfulness is found. “We are trying to avoid endless procedures like the ones we are facing in Ireland,” said Mr Rossetti.

Apple said in June that apps would have to ask for permission before accessing a phone’s IDFA in its latest operating system, iOS 14. In addition, the new system offers a privacy dashboard to let users understand the information that their phone’s apps are gathering.

However, Apple then said in September that it would delay the changes, “to give developers the time they need” until “early next year”.

Mr Schrems has already won one landmark case this year, when the European Court of Justice in July passed judgment on the legal protections that previously allowed European data to be relatively freely transferred to the US.

Last week, the European Data Protection Board released updated guidance on data transfers. It emphasised that data exporters had to consider risks such as intelligence services’ access to data objectively — whether they could examine information, rather than whether they were likely to.

Apple didn’t immediately reply for a request for comment.

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If you build it, will they buy? That’s the big question facing China’s manufacturers as they are being told by the highest levels of government to embrace an inward-facing model of domestic consumption.

In the world’s second-largest economy, built in good part on the back of exports and investment, it is a sea change that is being driven by propaganda and a growing sense of national pride among the public that China has done the best job of dealing with the coronavirus outbreak, particularly as deteriorating relations with some Western countries show little sign of improving.

President Xi Jinping called on the nation in May to rely more on domestic demand for future growth – dubbing it a dual circulation strategy – and his directive requires significant changes in both internal supply and demand.

“The pandemic has made it difficult for us to sell abroad, but we do feel as though Chinese customers are less … enthusiastic for foreign brands, especially mid-level products,” said a sales manager at a fashion jewellery brand with shops all over the country.

“Frankly, it may be becoming fashionable and more politically correct to make and consume good-quality Chinese goods,” he added, asking not to be identified.

That sentiment seems to be felt by a growing number of Chinese export manufacturers, some of whom say they have started shifting investments to the domestic market even as their exports have seen a huge resurgence recently.

Orders have been returning to China as other producing countries are still being ravaged by the pandemic, but manufacturers know the trend is most likely unsustainable.

“In the long run, it is inevitable that the supply chain of home appliances will move out of China,” said Liu Sui, a senior executive at Guangdong Xinbao Electrical Appliances, which ships household items mainly to Europe, America and the Asia-Pacific region, but is now looking inward.

Liu is also general manager of KCB, a newly created brand under Xinbao that is focusing exclusively on the domestic market.

“We had been focusing on the export trade, which [in the past] exceeded 80 per cent of our total sales,” Liu said, adding that they have begun “to invest heavily in developing products for the domestic market”, particularly as they have noticed that the appeal of domestic brands is growing among the younger generation of Chinese consumers.

“We hope that, by 2025, domestic sales will account for 80 per cent of our sales,” he added. “Even though we are very optimistic about exports for the whole of next year, once the pandemic eases, orders will quickly relocate back to other emerging manufacturing countries.”

KCB has also invested nearly 10 million yuan (US$1.5 million) this year in live-streaming to promote products, as Liu believes this is an increasingly important avenue for developing the domestic market.

“We used a lot of big data to understand the habits of domestic consumers in developing an electric baking pan. It has sold 420,000 units since September last year after being launched through China’s e-commerce platforms,” he said.

Another manufacturer embracing live-streaming to boost domestic sales is Li Zhiguang, the founder of Guangzhou-based Looksee, whose programmes focus on selling men’s underwear almost exclusively to Chinese consumers. In the first half of the year, Li was worried as he watched nearby clothing factories shut down due to the coronavirus’ impact on foreign demand.

In a desperate bid to survive, he and his team got creative. They came up with a bold campaign to attract domestic consumers – and it paid off. Looksee invited its regular customers to serve as brand ambassadors by posing for selfies in their underwear and posting pictures on social media.

“At the very beginning, we were worried that this idea would be too bold for Chinese consumers,” Li said. But the outreach effort quickly attracted hundreds of participants, many with tens of thousands of social media followers or more. Other marketing efforts followed, and business has boomed, with Li’s factory now operating at full capacity.

“We have launched more than 100 new styles this year alone, all specially designed to attract Chinese middle-class white-collar men aged 20 to 35. It’s a big group with strong spending power, who love fashion, even for their underwear.”

For his part, KCB’s Liu conceded that while domestic sales opportunities exist, transforming his company from an export-oriented model has been very challenging.

“European and American households own more than 20 types of small appliances, on average, while a Chinese household owns only four or five,” he said. “The penetration rate for domestic small appliances is still low.

“One key factor that determines the success of Chinese brands is whether the purchasing power of Chinese consumers can keep up with the pace of European and American consumers to consume more.”

For all the talk about China recovering from the pandemic-induced recession faster than other major economies, there are still uncertainties surrounding China’s growth outlook, according to Yukon Huang, a senior fellow at the Carnegie Endowment for International Peace.

In an article published late last month, he noted that growth has been slowing steadily over the past decade, and prospects have been further dampened by the trade and tech wars with the United States.

“Growth comes from investment and productivity increases; consumption is the consequence of economic growth, not its engine,” he added.

As both Li and Liu embrace the new domestic-centric business model, they remain optimistic about the economic outlook, with Liu in particular pointing to projected growth figures from the International Monetary Fund (IMF).

“The IMF said China’s economic growth could bounce back [to 8.2 per cent] next year,” he said.

China’s economy looks to grow 1.9 per cent this year, an upgrade of 0.9 percentage points from the IMF’s forecast in June. And the world’s second-largest economy is still expected to grow 8.2 per cent next year, unchanged from the IMF’s projection in June.

Fitch Ratings also predicted last week that the growth rate for retail sales, year on year, will rise to the mid- to high single digits in the fourth quarter, narrowing the full-year sales drop to the low single digits.

It still remains to be seen whether the shift among manufacturers to rely primarily on home-grown consumption pays off in the long run, but in the current geopolitical climate, particularly with the pandemic still raging in much of the world, manufacturers are hoping the purchasing power of Chinese consumers indeed pays off.

“I support the internal circulation strategy very much because it will be very helpful for domestic brands of our kind,” Li said.

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Macro :

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