TheChek News Flow

BlackRock attacks Volkswagen’s post-Dieselgate governance

World’s biggest fund manager concerned at lack of independent leadership in wake of emissions scandal

BlackRock, the world’s biggest fund manager, has criticised Volkswagen’s management and supervisory boards, saying the carmaker still suffers from a lack of independent governance five years after Dieselgate.

The US group, which is the fourth-largest VW shareholder, revealed it had voted against members of both boards at the German group’s annual meeting on Wednesday.

It said the company had not addressed problems that played a “major role” in the Dieselgate scandal, adding that it was concerned about the composition of the company’s ownership, in which just three shareholders hold more than 90 per cent of the voting rights.

The fund manager also criticised the fact that individuals who were VW executives at the time of the discovery of so-called “cheat devices” were still in charge.

Through VW’s unique two-tier capital structure, Porsche SE, the investment vehicle of the Porsche-Piëch families, holds 53.1 per cent of VW’s voting rights, while the state of Lower Saxony holds 20 per cent, and Qatar 17 per cent.

All three are entitled to nominate representatives to VW’s 20-person supervisory board, which is led by the company’s former chief executive Hans Dieter Pötsch, who also runs Porsche SE.

“We have on numerous occasions encouraged the company to improve the number of independent directors on the supervisory board to enhance the level of independent oversight of management,” BlackRock said, disclosing that it had voted against certain executives since 2016, the first annual meeting following the diesel emissions scandal in 2015.

“In our assessment, the insufficient independent oversight provided by VW’s supervisory board played a major role in the events, which led to the company employing what has become known as a ‘defeat device’ in some of its diesel engine cars,” the US investor added.

Both Mr Pötsch, and chief executive Herbert Diess, were executives at VW when the Dieselgate scandal was revealed. The affair has cost the carmaker €32bn — almost the same amount as its entire electric vehicle investment package.

However, Larry Thompson, a US court appointed monitor who spent three years at VW overseeing the overhaul of its corporate culture, said this month he was confident the company was a “better organisation” than when he arrived at its Wolfsburg headquarters in 2017.

“There will be other problems, but I am absolutely convinced that Volkswagen will handle those problems differently than they handled the Dieselgate problem,” the former Enron prosecutor told the Financial Times.

BlackRock was joined by German asset manager DWS in not voting to approve the actions of members of the management board, and by institutional investors Deka and Union in refusing to ratify the entire supervisory board.

Norway’s oil fund, the sixth largest VW investor and the world’s biggest sovereign wealth fund, also voted against both boards.

In addition, BlackRock criticised the voting process at VW, in which shareholders are usually required to complete individual proxy forms to exercise their rights, due to a German law that has governed the company since it was privatised in 1960.

The fund manager said this “serves to further limit the ability of minority shareholders . . . as it makes it unusually difficult for shareholders to voice their concerns”.

Despite BlackRock’s misgivings, 94.33 per cent of VW’s preferential shareholders voted to approve the actions of the management and supervisory boards in the 2019 fiscal year.

Spac ETF marks high-water mark in the US; Halfords defies Haldane; Renewi wastes

Cash shells and Spacs sound innocuous enough. Blind pools less so. Call them what you will. They are all the rage, at least in the US where an exchange traded fund is being launched to invest in these special purpose acquisition companies. That must mark a high water level for spacs. 

So far this year, tens of billions have been raised stateside by shells that have no assets and are designed to circumvent the arduous disclosure hurdles that go with a bog-standard initial public offering. All a Spac needs is a big-name entrepreneur or financier to back it and a hot topic to pique investors’ interest — autotech, agtech, meditech or fintech works. Raise the money, list the company and find a target later. 

Last year, Richard Branson backed his Virgin Galactic tourism venture into a blank cheque company. He liked it so much he has just launched another one. One of 2019’s most successful cash shells is DraftKings, the online sports betting group now worth $20bn.

The recipe works better in the US than the UK, where investors are warier about writing blank cheques. British-born Martin Franklin, a veteran blind-pool engineer in the US, has been touting plans for a $750m London-listed version for a while. It has yet to happen and there haven’t been any others. 

Perhaps the IPO process works more smoothly in the UK. More likely British backers are nursing the scars from a long line of blank cheque duds. Who doesn’t recall Vallar, the shell brought to us by Nat Rothschild that turned into the doomed Bumi? And who does remember Gloo, which listed in the UK five years ago, raised £30m and vanished in 2018 without landing a deal.

Some UK spacs are stayers. Melrose is one. WPP another. A lot sink without trace.

The London Stock Exchange boasts that 30 spacs have been listed in London in the past five years. More than $2bn has been raised since 2017. But few of us will ever have heard of the shells or the targets, with the exception perhaps of Derriston, which Martin Sorrell used to launch S4Capital, a WPP mark-2. The performance since listing has been equally forgettable. UK investors have long complained that the British versions are blind pools with massive management fees attached. 

In that, the UK is not alone. US spacs tend to be structured differently. But managers extract “founder shares”, which can be hefty and dilutive. Note to would-be investors in the spac ETF, FT research this summer showed that of the cash shells launched in the past four years to 2019, more than half trade below their IPO price.

MEans it was not the case????

Banks cut exposure by half because of concerns over pandemic and volatility in run-up to US election

The leading advisers on Rolls-Royce’s deeply discounted £2bn rights issue radically scaled back their underwriting commitments to the aero-engine maker’s cash call on concerns about the pandemic and market volatility in the run-up to the US election.

Goldman Sachs and Morgan Stanley, two of the top banks advising the board on the £5bn debt and equity fundraising unveiled on Thursday, cut their exposure by up to half late last week, several sources said.

The timing of the rights issue was “not ideal”, said one person close to the situation, alluding to President Donald Trump’s recent refusal to commit to a peaceful transfer of power if he loses the US presidential election. “It's clearly a major risk if this guy [President Donald Trump] is going to go mad.” 

The outlook for aviation — and in particular the long-haul market served by Rolls-Royce — had deteriorated in recent months. “It’s clear no one is going to fly long-haul for three to four years,” he added.

Rolls-Royce, along with the rest of the aerospace sector, has suffered a collapse in revenues and a substantial outflow of cash because of a virtual shutdown in global aviation as a result of the pandemic.

The banks, together with house broker Jefferies, had pledged to underwrite 60 per cent of the 6.4bn new shares to be issued in the 10-for-three cash call. The total is now closer to 30 per cent, two sources said. 

However, Rolls-Royce is still guaranteed to raise the funds after BNP Paribas, HSBC and Citi, all involved in the £3bn debt package also announced on Thursday, stepped in to join as lead underwriters to make up the shortfall. 

Rolls-Royce said: “We are very happy with the support we have received from a strong consortium of banks for our debt funding and fully underwritten rights issue.”

BNP, which has ambitious plans to become the dominant force in European investment banking, has leapfrogged Goldman Sachs to become the largest underwriter with about 20 per cent of the underwriting, sources said.

The underwriters stand to earn up to £55m in fees, out of total estimated cost for the rights issue of £80m. Morgan Stanley, Goldman Sachs and BNP declined to comment.

In addition to the rights issue, in which new shares will be priced at 32p each, Rolls-Royce announced plans for a bond issue of at least £1bn, a new two-year term loan facility of £1bn, and agreement in principle from the UK Export Finance agency to guarantee a further £1bn loan on top of £2bn granted in July. The rights issue must be approved by shareholders later this month.

About £3.2bn of the company’s existing debt falls due next year, which has put it under pressure to refinance. 

Warren East, chief executive, said the measures represented a “comprehensive package which will take the liquidity question off the table during this crisis. This is a final step to fixing the damage done to the balance sheet.”

Investors welcomed the debt and equity combination, saying it was the right structure to get Rolls-Royce through an extended downturn. 

Nevertheless, some were discomfited by the timing of the cash call, with the shares having fallen 84 per cent since February. They closed down 10 per cent to 116.8p on Thursday compared with just under £7 in mid-February.

“They should have done [the recapitalisation] either much earlier or much later,” said one leading long-term investor. “I am disappointed with the timing.” Still, the investor remained confident in the group’s business model in the medium term and would be supporting the rights issue, he said. 

Bankers said the delay had increased the pricing discount on the shares, as the process would now drag through the volatile US election period.

Another leading shareholder said the steep fall in the shares in recent months meant there was now a gap between the value of Rolls-Royce’s non aerospace divisions and market perception, even after the fundraising. He also intends to take up his rights. 

Mr East defended the timing of the cash call. “We could have launched a rights issue back in April,” he told the Financial Times. “But the discussion was we cannot go directly to shareholders; we need to show some self help. I couldn’t turn up with a bunch of powerpoints saying we are going to restructure.”

The group had moved quickly to conserve cash, raising billions in extra liquidity in the depth of the crisis and taking steps to deliver £1.3bn in cost savings by mid-2021 through 9,000 job cuts to shrink its civil aerospace business by a third.

Credit agencies, which downgraded Rolls-Royce debt to junk earlier this year, welcomed the fundraising but warned it was still a long way from returning to investment grade.

Martin Hallmark, a senior vice-president and lead analyst for Rolls-Royce at Moody’s, said there were still “downside risks around future cash flows including its delivery of cost-savings and the evolution of market recovery, [which] mean liquidity headroom remains uncertain”.

Swedish carmaker also launches €500m ‘green bond’ to invest in electric vehicles

Volvo Cars has sold so many hybrid models in Europe that the Swedish carmaker is open to selling environmental credits to rivals that are struggling to meet new emissions rules.

As the group announced its first €500m “green bond” to fund electric car development, Volvo said almost one in three of its cars sold across Europe this year had been a hybrid, as well as a smaller number of pure battery cars under its Volvo and Polestar brands.

Carmakers with sales in Europe have to reduce their average CO2 emissions to 95g/CO2 per km this year, or face large fines. The new rules are a steep drop from the 130g required in 2015.

Under the EU emissions rules, carmakers generate credits by selling electric or some hybrid cars. Those credits can be used to help the company meet the new CO2 rules, or can be sold to rivals.

Fiat Chrysler aims to meet the rules this year by buying credits from Tesla, while VW entered a deal with MG to give it access to credits because of delays to its electric car programme.

“We are in a good position. We will definitely not pay fines. In fact, we actually can support our competitors if they want,” Volvo Cars’ chief financial officer Carla de Geyseleer told the Financial Times

While the company was open to selling its excess credits, it was not in talks with any current competitors, she added.

Volvo on Thursday announced it sold €500m through a green bond, with the money set aside for investment into electric — not hybrid — cars.

The Swedish company became the third European carmaker to issue a green bond after Daimler and Volkswagen both entered the market last month. 

Volvo’s first battery-only model, the XC40, was launched this year, but the group is planning for a quarter of all its cars to be pure electric by 2025.

The projects earmarked as “green investments” account for about a quarter of its annual spending of SKr20bn ($2.2bn). In time, Volvo planned to phase out all bonds other than its “green” bonds, Mrs de Geyseleer said.

Volvo's inaugural green bond offered investors a coupon of 2.5 per cent for an issue set to mature in 2027.

The company received €2.5bn orders, five times more than it sold, highlighting the strength of demand for green debt, even at a time of great economic uncertainty. 

Vivek Bommi, portfolio manager at Neuberger Berman, said the interest in green finance helped junk-rated Volvo launch and price the deal on the same day, a move more typical of investment-grade than high-yield deals.

“This showed investors’ appetite for green bonds, driven to a large extent by increased demand for green/ESG funds,” he added.

Richard J Evans’s book demolishes the myth of Hitler’s postwar life in South America and other Nazi theories

Modern societies are awash in conspiracy theories. This year a tidal wave of pseudoscientific and paranoid nonsense about the coronavirus pandemic has swept the world. Some of it has merged with the disturbingly bizarre QAnon fantasy, according to which President Donald Trump is fighting a secret war against a caste of devil-worshipping paedophiles.

For more than 70 years, various tenacious myths have swirled around the Third Reich — in particular, the groundless theory that Adolf Hitler did not commit suicide in Berlin in 1945 but made his way to South America. “Despite all the evidence to the contrary, more book-length arguments for the survival of Hitler in Argentina have appeared in the 21st century than in the whole of the 55 previous years,” writes Richard J Evans, a renowned historian of modern Germany.

The problem goes beyond books, Evans reminds us. From 2015 to 2018 the History Channel broadcast a three-season television series, Hunting Hitler, based on speculation about the dictator’s survival. Shamefully, the series made no effort to address the hard evidence of Hitler’s death compiled by investigators in 1945, expanded upon and established as fact by a West German court in the 1950s and eventually available to historians. Instead, the series was full of “innuendo, suggestion and invention”. It is a comment on our times that each episode attracted on average 3m viewers.

In The Hitler Conspiracies, Evans recounts the history of five theories, demolishes their credibility and assesses their lasting importance. They include the Protocols of the Elders of Zion, an early-20th-century forgery alleging a worldwide Jewish conspiracy; the “stab in the back” legend, which blames Germany’s defeat in the first world war on domestic traitors; the myth that the Nazis caused the 1933 Reichstag fire; Rudolf Hess’s flight to Scotland in 1941, falsely depicted as a genuine Nazi peace bid or a plot concocted by British intelligence; and, lastly, Hitler’s supposed postwar life in South America.

There can be no more authoritative guide to these conspiracy theories than Evans, a former Regius professor of history at the University of Cambridge and author of numerous works on Germany, including a three-volume history of the Third Reich. Still, the uncompromising common sense that typifies Evans was on display more than 80 years ago in Portraits of Mean Men, a short, sharp book on the Protocols by John Gwyer, a now mostly forgotten British historian. “It saves so much thinking to think like this, to survey the world and know that all its disorders are due to the malignity of a single group of mysterious plotters,” Gwyer wrote, in words that ring today as true as ever.

The Protocols played only a small part in Nazi anti-Semitism, Evans shows. The forgery was “rambling, chaotic and unstructured” and lacked the fanatical biological racism that drove the Nazis towards genocide. As for the “stab in the back” myth, Evans says it was largely an obsession of fringe rightwing nationalists during the 1919-1933 Weimar Republic. Nonetheless the allegation that socialists and Jews had brought about Germany’s defeat was dangerous, because it associated the new, fragile democracy with national humiliation.

The legend about the Reichstag fire was communist in origin. Ignoring evidence that the fire took Hitler and his inner circle by surprise, it contended that Nazi stormtroopers had entered the Reichstag through a secret tunnel, set the building ablaze and left Marinus van der Lubbe, the Dutchman who was the actual perpetrator, to take the rap. Like various theories about Hess, it was all based on totally unreliable testimony and unsubstantiated guesswork.

Hannah Arendt argued in her classic The Origins of Totalitarianism (1951) that it is important not simply to disprove conspiracy theories but to ask why people fall for them. For Evans, some individuals cannot accept the role of chance in major world events. “The puzzling complexities of politics and society are reduced to a simple formula that everyone can understand,” he adds. In the internet age, “anyone can put out their views into the public sphere, no matter how bizarre they might be”.

It is becoming a deadly serious matter. The more conspiracy theories spread, the harder it is to organise society on a rational basis and to protect our freedoms.

The Hitler Conspiracies: The Third Reich and the Paranoid Imagination, by Richard J Evans, Allen Lane, RRP£20, 288 pages

Offering could value company at $3 billion to $5 billion, as the coronavirus boosts e-commerce platforms by spurring more people to shop online

Ozon Group, one of Russia’s biggest online retailers, is preparing for an initial public offering of stock in the U.S. later this year or beginning of next, according to people familiar with the company’s plans, as the pandemic has boosted e-commerce platforms by spurring more people to shop online.

Ozon, which began in 1998 as an online bookstore and is often called Russia’s Amazon, could be valued at $3 billion to $5 billion, the people said. Ozon has confidentially filed paperwork with the Securities and Exchange Commission for the IPO, the people said. Goldman Sachs Group Inc. and Morgan Stanley have been chosen as the global coordinators of the possible listing.

The retailer would be the first Russian IPO in the U.S. since Russian online job search portal HeadHunter listed shares on Nasdaq in May 2019.

Ozon is jockeying against competitors, including Russian internet giant Yandex NV, as more Russian consumers shift to online commerce from bricks-and-mortar shopping. Ozon had nearly 200% sales growth in the second quarter as Russians boosted online purchases of everyday products like foods and household items.

Even before the pandemic, the Russian e-commerce has grown fast. With over 100 million users, Russia has Europe’s largest internet market by users. The Russian e-commerce market grew 23% last year to $31 billion, on par with India’s and slightly larger than Canada’s, according to Russian research agency Data Insight. Analysts expect even faster growth this year due to the boost in demand from the coronavirus pandemic.

The sector’s growth has spread from Moscow to the country’s vast hinterland, with regions outside the capital recording more than 55% of total Ozon sales. Sales in the Siberian city of Novosibirsk grew by nearly 300% in the second quarter, according to the company’s results.

Earlier this year, Ozon raised $150 million in funding to expand its distribution footprint and speed up deliveries.

The funding round was led by Ozon’s major shareholders: funds advised by Moscow-based private-equity firm Baring Vostok Capital Partners and Moscow-based conglomerate Sistema PJSFC. San Francisco-based venture-capital firm Princeville Capital participated in the round as a new investor.

Within the next several years, Ozon plans to spend more than $300 million on logistics, add roughly 2.7 million square feet of distribution space across Russia and open at least five fulfillment hubs, the company has said.

- Sherman tweets: "Speaker Pelosi sounded VERY skeptical about a deal with @stevenmnuchin1 just now on a Dem whip call. Said Republicans and democrats don’t share the same values. She cited the child income tax credit. Dems have gone down significantly and republicans are at 0, she said."