TheChek News Flow

Nikkei -3.53% Hang Seng -3.81% CSI -1.73% Shanghai -1.34% Shenzen -1.76%

Eur$ 1.1293 CNH 6.9844 CNY 6.9780 JPY 103.75 GBP 1.2810 CHF 0.9348 RUB 73.6949 TRY 6.2303 WTI$ 31.56 -4.24%

S&P -3.86% Nasdaq -4.02% EuroStoxx -6.08% FTSE -4.85% Dax -5.64% SMI -0.9%

Macro :

- Bernstein Upgrades U.S. Stocks, Cuts Europe on Virus Response

- PointState Hedge Fund Falls 9.5% This Year With February Loss

- Trump Says He’s Restricting Travel From Europe for 30 Days

- Italy Shuts Down All Non-Essential Services as Virus Toll Rises

- Denmark Is at Risk of Recession Due to Virus, Danske Bank Says

- *SWITZERLAND MAY SOON DECLARE STATE OF EMERGENCY, SRF REPORTS

Keep an eye on :

- AED BB : Aedifica to Join BEL20 Index, Replacing Ontex as of March 23

- AR4 GY : Aurelius Full Year Oper Ebitda EU168.9 Mln, +64% Y/y

- BSLN SW : Baloise Full Year Dividend Per Share CHF6.40 Vs. CHF6 Y/y

- BNB BB : Belgian Bank Supervisor Suspends Countercyclical Buffer

- BEN FP : Beneteau Says Coronavirus Impact ‘Marginal’ So Far

- BKG LN : Berkeley Sees Earnings in Line With Market Expectations

- BC IM : Brunello Cucinelli Full Year Ebitda EU106.1 Mln

- ALDEI FP : Deinove Passes Agir Milestone, Gets EU1.5m From Bpifrance

- DTY LN : Dignity’s Equity Value Effectively Worthless, Quest Says

- DNB NO : DNB Ends Share Buy-Back Program as AGM Approaches

- ECON BB : Econocom Sees EU150m Proceeds From Sale of Jade, Rayonnance, EBC

- EDPR PL : EDP Renovaveis Moves Shareholder Meeting to Oviedo From Madrid

- RF FP : Eurazeo SE Full Year Net Asset Value Per Share EU80.30

- FFARM NA : ForFarmers Full Year Adjusted Ebitda Beats Estimates

- GBLB BB : Parjointco Starts Public Exchange Offer for All Pargesa Shares

- JUVE IM : Juventus Says Player Rugani Tested Positive for Coronavirus

- LNZ AV : Lenzing Full Year Net Income 4.3% Below Estimates, Slashes Dividend, Expects 2020 Profit to Decline

- MBTN SW : Meyer Burger Full Year Sales 1.0% Above Estimates

- MDM FP : Maisons du Monde 2Q Rev. ‘Most Likely to Be Down’ on Coronavirus

- ONTEX BB : Aedifica to Join BEL20 Index, Replacing Ontex as of March 23

- ORA FP : Orange Is Said to Invite Initial Bids for French Fiber Project

- PARG SW : Parjointco Starts Public Exchange Offer for All Pargesa Shares

- RIO LN : Rio Directed to Pay Ex-CEO A$6.8 Million Withheld Amid Probes

- SAL IM : Salini Impregilo Full Year Adjusted Ebitda Meets Estimates

- SGL GY : SGL Carbon FY Recurring Ebit -25% Y/y

- SNH GY : Steinhoff Is Said to Delay Pepco Sale as Unit’s CEO Takes Leave

- SPOR SS : Sportamore Board Recommends Footway’s Offer

- TSLA US : Tesla Car Sales Estimate Cut 10% by Morgan Stanley on Virus Woes

- TRN LN : Trainline Says Performance is Ahead of Expectations

- TLW LN : Tullow Reports Loss After Taking $2b of Writeoffs, Impairments

- VIFN SW : Vifor Pharma Full Year Ebitda 2.7% Above Estimates

- VOW3 GY : VW’s Spain Unit Cuts Operations on Supply Shortage: Expansion

- SMWH LN : WH Smith Sees Earnings in Line With Market Expectations

Most of the outflows have been from equities rather than bonds

Outflows from emerging market stocks and bonds since the onset of the coronavirus outbreak have dwarfed the amount that left EM assets at the start of the global financial crisis, highlighting the strength of risk aversion among global investors.

Foreign investors have withdrawn $41.7bn from EM stocks and bonds since global markets woke up to the Covid-19 outbreak on January 21, according to the Institute of International Finance. That was double the amount of outflows in the same 51-day period after September 8, 2008.

“It is a very large number,” said Robin Brooks, chief economist at the IIF. “This means another big tightening in financial conditions for emerging markets, because that’s what outflows are, a sudden stop.”

Most of the outflows have been from equities rather than bonds, as investors fear that companies in emerging economies will be hit particularly hard in the global slowdown expected this year.

Before the outbreak, Mr Brooks and colleagues at the IIF had warned that many emerging economies had fallen into secular stagnation, as they struggled to find new drivers of growth after the fall in global commodity prices from 2013.

The Covid-19 has hit such economies at a time of weakness, Mr Brooks said. “There have been so many bumps in the road in recent years for EMs that the urge to run to safety is so much greater this time around.”

EM stocks and currencies have fallen steeply along with risk assets in developed markets since the start of the outbreak. But EM sovereign and corporate bonds initially fell only slightly in relation to developed market bonds, giving them a previously unaccustomed status as haven assets.

Analysts said efforts by central banks and governments to control inflation and reduce currency volatility had made investors willing to take the “carry” from higher interest rates on EM bonds and reduced their aversion to EM risk.

The IIF’s data show that foreign investors increased their exposure to EM bonds during the first month of the outbreak.

But those flows have reversed since the end of February and bond prices have fallen in the past few days. Sovereign EM bonds in the benchmark JPMorgan EMBI Global Diversified index rose 1.7 per cent in value from January 21 to March 4 but have since fallen 5.2 per cent.

The IIF monitors cross-border flows from emerging markets that supply data on a daily basis, which it says capture 80-90 per cent of the investible universe. Its data do not capture flows into and out of mutual funds or exchange traded funds that entail no cross-border transactions.

Distressed investment specialist knocked by heavy redemptions and sub-par performance

Solus Alternative Asset Management, one of the best known specialists in distressed investments, is closing its flagship fund after suffering a combination of heavy redemptions and poor performance.

The hedge fund, which as recently as November managed $4.3bn in assets, is one of the first casualties of a collapse in the price of riskier assets this week. In a letter to investors in its Sola vehicle on Tuesday, the firm offered them the option to transfer their investments into new funds or face “an orderly liquidation” that would return their funds “as soon as practicable”.

“Due to the evolving state of the markets, this has left our flagship fund Sola with a high concentration of less liquid assets,” the letter said.

The Financial Times reported in December that Sola had suffered big losses after making a number of ill-fated bets on companies including satellite operator Intelsat and Pacific Gas and Electric. The fund finished the year down more than 8 per cent, after a 15 per cent drop in 2018. It had assets of about $4bn at the turn of the year.

Solus’s letter to investors said that “unexpected withdrawal requests” had followed reports of the firm’s difficulties in the financial press.

The company declined to comment.

Solus emerged as one of the most high-profile distressed investment firms in the US after its skirmish with Toys R Us employees in 2018 and a legal battle over derivatives with a Blackstone-owned hedge fund, GSO Capital Partners.

Now, though, it has become a victim of a string of corporate collapses that have tripped up US distressed investment funds, which look to profit from buying stocks and bonds of struggling companies at bargain prices.

Shares in Intelsat, a heavily indebted satellite group popular with hedge funds, collapsed as much as 75 per cent in November after a US regulator rejected its plans to raise money by selling off its airwaves. Some of the company’s bonds are now trading at about one-third of face value, as bondholders are braced for a potential wipeout.

Shares in two of Solus’s other equity investments, US coalminer Contura Energy and offshore drilling services group Hornbeck, both dropped about 90 per cent last year.

An investor report from January showed that 22 per cent of Sola’s exposure was to “energy equipment and services” companies: a sector that has been hit by a growing distaste among investors towards fossil fuels and, more recently, a sharp fall in the oil price.

Many other distressed specialists are smarting from bets on energy-related companies turning sour. Blackstone’s GSO faced ruptures in its distressed investment unit last year, for example, due in part to bad bets on ailing oil and gas groups, such as Oklahoma-based Tapstone Energy.

Investors who stick with Solus face two options.

They can switch over to what the firm calls a “long-term opportunities” fund that looks to invest in thinly traded assets. Alternatively, they can lock up their investments until 2021, by which time Solus will sell its illiquid holdings and reinvest the proceeds in more easily tradeable assets.

Pontegadea has remit to invest €2bn a year from the Spanish retail powerhouse

In an unassuming side street in central London sits the UK office of a low-profile Spanish company that owns Amazon’s Seattle headquarters, a large chunk of Oxford Street and most of Inditex, the retail powerhouse.

Pontegadea is the personal investment company of Amancio Ortega, the founder and majority shareholder of Inditex, which is best known as owner of the Zara chain. Mr Ortega started out running a small family business making dresses and dressing gowns in 1963 but is now the world’s sixth-richest man, according to Forbes, and Pontegadea, founded in 2001 to invest his dividends from Inditex, has become a property buyer on a very big scale.

When the company started off, it had an annual pot of about €50m. Today, by contrast, “each year we have to invest around €2bn”, Roberto Cibeira, Pontegadea’s chief executive, told the Financial Times in a rare interview. “That’s what we get from our real estate and other investments plus the Inditex dividend.”

Pontegadea, which, like Inditex, is based near the north-western Spanish city of A Coruña, says it now owns more of London’s Oxford Street than anybody else. As well as Amazon’s Seattle HQ, it is also landlord of Facebook offices in the same city and properties on the Champs-Élysées, Madrid’s Castellana Avenue and Rome’s Via del Corso.

Late last year, it took advantage of the Brexit discount in the UK property market to make the most recent in a series of acquisitions in London — the headquarters of consultancy McKinsey for about £600m, one of five property investments it made across the world in 2019.

And yet Pontegadea has a dedicated investment staff of just seven, who are increasingly stretched as competition for property heats up, with investors on the hunt for returns.

According to Mr Cibeira, Pontegadea’s real estate portfolio has an acquisition value of about €13bn, making it by far the biggest operator in the Spanish market and outranking direct European competitors as well.

José Arnau, a close colleague of Mr Ortega’s who is vice-president of both Inditex and Pontegadea, acknowledges that the company needs to grow — the total headcount at Pontegadea and at Mr Ortega’s associated companies is barely more than 70. At the same time he adds that, with around 175,000 people working at Inditex, the 83-year-old Mr Ortega has little interest in creating a much larger organisation.

Pontegadea, which buys only freeholds and almost never sells, generates income from its investments of about €800m a year and has less than €1bn in debt.

Although it makes other investments, its biggest holding remains Inditex. Between them, Pontegadea and Partler, another Ortega company with the same management, own 60 per cent of the group, with a value of about €58bn. That yielded about €1.6bn in dividends last year. Mr Cibeira puts the overall value of the Pontegadea group of companies, which make charitable donations of some €100m a year, at about €70bn.

“The fact that our portfolio is so concentrated in Inditex has a big impact on the other kinds of investments we can make from a risk management [point of] view,” he said.

“We are not looking for enormous returns; we are looking for investments that protect us, that produce a constant cash flow and which maintain the value of the capital. We are also looking for investment that avoids a conflict of interest with Inditex — that means keeping a low profile.”

At present, he says, about 35 per cent of the group’s real estate portfolio is in the US, with another 30 per cent in the UK — essentially London — and 25 per cent in Spain.

“Because we come from retail, we know the importance of good location and 95 per cent of our properties are in prime areas,” he said. Pontegadea owned the sites of six flagship Apple stores, he added, more than any other landlord if stores in shopping centres were excluded.

But finding property that can produce the returns Pontegadea wants is becoming ever more difficult, largely because of the influx of institutional investors looking for yield in a world of ultra-low interest rates.

The retail sector is also struggling as never before — although Pontegadea insists this has caused it few problems, because it focuses more on prime retail and on offices.

Rising property prices in Spain and France have deterred Pontegadea from making real estate purchases in both countries for the past three years. But it has made some Spanish transactions in that time — in 2018 and 2019, the group bought minority stakes in Telxius, Telefónica’s telecoms infrastructure business, and Enagas, which operates Spain’s gas grid, for €379m and €282m respectively.

Meanwhile Pontegadea has continued to invest in property in the UK, partly because prices have been limited by Brexit.

“The financial industry in London is going to last,” said Mr Cibeira. “London has certain things no other city has.”

But he considers that the US and parts of the Asia-Pacific region — particularly Australia, Singapore and South Korea — are the most promising growth areas.

Pontegadea says its lack of debt and tiny size make decision-making and transactions much faster — its five-person board consists of Mr Ortega, his wife Flora Pérez, Mr Arnau, Mr Cibeira and the company secretary.

Mr Ortega remains executive chairman of Pontegadea, a post he has given up at Inditex, and is fully involved in strategic if not day-to-day decisions. But Mr Cibeira and Mr Arnau maintain the group will endure, despite the age of its owner.

“We have an enormous quantity of dividends that we have to reinvest and therefore we have a size that we never thought we were going to have,” said Mr Arnau. “Life has taken us here.”

Danone dips into sour debt markets with new deal

French yoghurt producer issues new 7-year bond

French yoghurt producer Danone breathed fresh life into an ailing global debt market on Wednesday, taking advantage of a period of relatively favourable conditions to issue the first European corporate bond of the week.

The company issued an €800m seven-year bond, attracting €5.8bn in orders, suggesting appetite for new deals can still be found after a broad decline in risky assets triggered by fears over the spread of coronavirus and a sharp drop in the oil price.

Danone is “the kind of name you’d expect to reopen the market”, said Souhail Mahjour, a managing director at HSBC, one of the banks running the deal.

The company has an investment-grade rating from rating agencies S&P and Moody’s, and is in a classically defensive sector. In times of market volatility, investors tend to huddle in industries such as utilities and consumer staples, which are seen to provide reliable returns.

Turbulence in global markets has forced many companies to shelve their fundraising plans in recent weeks. But Danone’s deal shows that some transactions can still find support from investors.

The Bank of England’s decision to cut interest rates on Wednesday, coupled with a call from European Central Bank president Christine Lagarde for stimulus measures the day before, were both “extremely helpful” in creating welcoming conditions for Danone, said Mr Mahjour.

The syndicate desks of international banks in New York, Europe and Hong Kong have been calm over the past month. In the last week of February, there was one corporate bond issued in the US and six in Europe, according to data from Dealogic — an unusually quiet spell outside of the year-end and summer lulls. Globally, just $5.5bn of debt has been sold this week, one-ninth of the prior week’s total.

In equity markets, too, listings have dropped off from a peak of almost $5bn in the first week of February, to $900m in the final week of the month.

“Well-rated and well-known names from the first row of companies have an advantage,” said Armin Peter, global head of the debt syndicate at UBS.

Deal volumes picked up a little last week, with paint company Sherwin-Williams announcing its first investment-grade bond sale in the US. A flurry of debt deals in Europe included a €1bn bond for US industrial company Honeywell.

A backlog of deals has built up in “very challenging market conditions,” said Mr Mahjour. Opportunities to launch deals in benign conditions have “been rare and sometimes non-existent”, he added.

Danone dips into sour debt markets with new deal

French yoghurt producer issues new 7-year bond