TheChek News Flow

Norway’s wealth fund buoyed by equities to post second-best year

Strong stock market performance drives 20 per cent return on $1.1tn oil fund

The world’s largest sovereign wealth fund enjoyed its second-best annual performance last year as buoyant equity markets boosted Norway’s $1.1tn oil fund’s return to 20 per cent.

Equities returned 26 per cent, bonds 8 per cent and unlisted property 7 per cent as the fund recorded its largest ever gain in krone terms, rising NKr1.7tn ($180bn) in 2019.

“2019 has been a great year in the fund’s history, driven by positive equity returns in all of the fund’s principal markets and in all equity sectors,” said Yngve Slyngstad, the fund’s chief executive, who announced his resignation late last year days after the fund reached NKr10tn.

Favourite to replace him is his deputy, Trond Grande, who was the lead candidate on the list of applicants released by Norway’s central bank this week. The change in chief executive after 12 years of Mr Slyngstad occurs at a crucial time for the fund with growing worries about political interference and concerns about how the Norwegian public and politicians would tolerate a big fall in the fund’s value.

The equities that contributed most towards the fund’s return in 2019 were Apple, Microsoft, and Nestlé while the worst performers were Nokia, Pfizer and Swedbank.

Scientists Discover HIV-Like "Mutation" Which Makes Coronavirus Extremely Infectious

Other highly contagious viruses, including HIV and Ebola, target an enzyme called furin, which works as a protein activator in the human body. Many proteins are inactive or dormant when they are produced and have to be “cut” at specific points to activate their various functions.

When looking at the genome sequence of the new coronavirus, Professor Ruan Jishou and his team at Nankai University in Tianjin found a section of mutated genes that did not exist in Sars, but were similar to those found in HIV and Ebola. -SCMP

The mutation could not be found in Sars, Mers or Bat-CoVRaTG13, a bat coronavirus that was considered the original source of the new coronavirus with 96 per cent similarity in genes, it said.

This could be “the reason why SARS-CoV-2 is more infectious than other coronaviruses”, Li wrote in a paper released on Chinarxiv on Sunday.

Meanwhile, a study by French scientist Etienne Decroly at Aix-Marseille University, which was published in the scientific journal Antiviral Research on February 10, also found a “furin-like cleavage site” that is absent in similar coronaviruses.

Shares in NMC Health suspended following accounting scandal

Healthcare provider has fired its chief executive after finding bank discrepancies

Shares in NMC Health, the struggling healthcare provider, have been suspended after it was forced to reveal unauthorised off-balance sheet financing, raising fresh concerns about a mounting accounting scandal that has sparked a boardroom clearout.

After the market closed on Wednesday, the company said its chief executive had been fired and it had suspended a member of its treasury team amid worries that an internal investigation of its finances was being obstructed.

All executives have now been removed from the board, leaving just the five non-executives in charge of the UAE-focused hospital owner, which is facing regulatory scrutiny over its financial position, management and ownership.

On Thursday morning, the UK’s Financial Conduct Authority said that it had agreed to a request by NMC for the temporary suspension of its shares “to ensure the smooth operation of the market”. The company said it was focused “on providing additional clarity to the market as to its financial position and to restoring its admission to trading”.

NMC Health commissioned an independent review into the company’s finances led by former FBI director Louis Freeh after short seller Muddy Waters raised concerns over its balance sheet and management in a report in December.

Interim findings published on Wednesday night flagged potential discrepancies and inconsistencies in its cash position and uncovered a supply chain financing arrangement apparently used by its founder as well as a major shareholder that was guaranteed by NMC, but not approved by the board or disclosed to the market.

The FCA has already said that it was looking at NMC following earlier disclosures over financial arrangements and questions about stakes held by its major shareholders, and to what extent these have been used to raise debt.

Carmaker takes hit as it pushes back electric vehicle plans and parts ways with CFO

Aston Martin’s losses deepened to more than £100m in 2019, the group said on Thursday as it announced plans to part ways with its financial chief following a turbulent year which culminated in a £500m rescue deal last month.

The carmaker on Thursday reported a pre-tax loss of £104m for 2019, up from £68m the previous year. The loss was accentuated by a £49m impairment charge as it pushes back its electric vehicle plans as part an arrangement with Formula 1 billionaire Lawrence Stroll, who led the equity injection.

It also said chief financial officer Mark Wilson would be leaving by mutual agreement.

Shares fell 12 per cent in early London trade.

The group — whose cars are a staple of the James Bond film franchise — hopes the equity injection will allow it to move forward following a turbulent year which ultimately forced it to seek new money less than 18 months after an initial public offering.

“Having significant strength in our balance sheet we find puts us in a very different position — almost a different position than we have ever been in our history,” said Andy Palmer, chief executive. “I would say there is not only relief but also optimism in our ability to do the right thing.”

The group has shelved plans to launch the Rapide E, the first all electric Aston Martin vehicle. The relaunch of the Lagonda brand, which it plans to make the world’s first zero emission luxury car, has been pushed to 2025 from 2022 previously.

Mr Stroll’s consortium will inject £182m for a 16.7 per cent stake in Aston at a price of £4 per share. Aston will raise a further £317m through a rights issue backed by two of its largest shareholders, Italian group Investindustrial and the Kuwaiti investment fund.

Mr Wilson is expected to leave by the end of April. Mr Palmer said he had not been fired and that the decision had been mutual to allow him to “detox” after a tough year.

Aston on Thursday reported that 2019 revenues had fallen 9 per cent to £997m as sales to dealers tumbled. Adjusted earnings before interest, tax, depreciation and amortisation were down 46 per cent at £134m, in line with the profit warning the company issued in January — its second in a year.

Looking ahead to 2020 Aston expects sales to dealers to be “materially lower” again as it focuses on cutting down dealer inventories. “I’m not expecting 2020 to be an easy ride,” said Mr Palmer. “We’re going to be taking some heavy medicine.”

Mr Stroll, who takes on the role of executive chairman told the Financial Times last month that Aston was a “gem that needs love” and that he wanted to return “lustre” to the brand.

He said the business would take “one step back before taking five steps forwards” as its sales efforts were refocused on the level of customer demand rather than on sending more cars to dealerships.

Businesses struggle as travel restrictions, protective gear shortages weigh on workforce, productivity, survey finds

Some American companies say they could lose as much as half their annual revenue from China if the coronavirus epidemic extends through the summer, as businesses struggle to get boots back on the ground amid travel restrictions and shortages of basic protective gear.

Nearly half of U.S. companies in China said they expect revenue to decrease this year if business can’t return to normal by the end of April, according to a survey conducted Feb. 17 to 20 by the American Chamber of Commerce in China, or AmCham, to which 169 member companies responded. One fifth of respondents said 2020 revenue from China would decline more than 50% if the epidemic continues through Aug. 30.

Work-from-home policies had been implemented by 94% of the responding companies, but businesses that require workers on-site said travel restrictions had created burdensome delays.

On Tuesday, China imposed restrictions on travelers arriving from abroad, requiring quarantines for those traveling from outside the country amid rising infections in Europe, South Korea and Japan.

American companies cited global travel disruption as their biggest obstacle to business and said reduced productivity and employees’ inability to get to work are among their greatest challenges. Inside China, travel-restriction policies and mandatory quarantines aimed at preventing the spread of the virus have left many migrant workers homebound even as China tries to restart its labor force.

“The crisis is real, and people are prioritizing the virus first and resumption of the economy second. Getting protective gear and getting it in the quantities necessary to keep the workforce safe is a challenge for a lot of companies,” AmCham Chairman Greg Gilligan said in an interview.

While many white-collar employees in China have been able to work from home, the country’s 291 million migrant workers who live in rural areas but work in cities—typically in jobs that require their physical presence—have struggled to return to work. Fewer than one-third have done so, China’s transport minister said recently, estimating that the last migrant workers could return in March. China’s State Council has called on regions with lower incidence of the virus to resume full production.

More than half of companies in the AmCham survey said they are prioritizing staff safety over business performance, but that a lack of supplies caused by global panic-buying of masks—required for many factory jobs—hand sanitizer and other protective gear has made that difficult.

About 40% of the companies said they were revising annual budgets, with 33% cutting costs. While most respondents said it was too soon to determine the loss to revenues as a result of the delays, 10% of the businesses estimated they were incurring losses of at least 500,000 yuan ($71,000) a day.

In China’s Hubei province, the epicenter of the outbreak, problems are more acute. Workers attempting to move across provincial and city boundaries face several layers of checkpoints and paperwork to commute to work. They also are required to have protective gear and coverings in sufficient quantities throughout their commutes at a time of persisting shortages. Some employees from the province are dealing with several regulatory bodies daily, including party-appointed neighborhood committees tasked with determining who is safe to leave and enter their homes.

Thirty-five percent of companies surveyed said they had facilities in Hubei—including manufacturing, distribution and research-and-development facilities—with another 36% with facilities in surrounding provinces affected by the virus.

“Anyone who survives and gets through this will have encouragement from the government to not reduce wages and employment,” AmCham’s Mr. Gilligan said. “It’s really a matter of who can make it through.”

Japanese banks are financing conglomerate founder’s precarious tech vision

When Alibaba raised almost $13bn in a Hong Kong share listing late last year, nowhere were the sighs of relief more audible than in Tokyo, from the sleek head offices of Japan’s major banks in Marunouchi to those of SoftBank, close to Tokyo bay.

Alibaba doesn’t really need the money: the Chinese ecommerce group is performing strongly. But the listing boosted its share price. And thereby lifted the value of SoftBank’s 25 per cent stake in Alibaba, which provides the collateral for much of its nearly $140bn in net debt. Alibaba’s stock performance is critical not only to the health of SoftBank and that of many of its portfolio firms, but also to the health of the Japanese group’s lenders — especially Mizuho.

SoftBank’s debt position is improving in other ways. Earlier this month, the telecoms merger between SoftBank-owned Sprint and T-Mobile US cleared the final regulatory hurdles in the US. It will allow SoftBank to shift $38bn from its balance sheet. But leverage still remains an issue both for it and for its lenders.

Years ago, SoftBank founder Masayoshi Son was widely regarded as an outsider in the eyes of Japan Inc, in part because of his Korean roots. Yet today he is embraced, whether out of love or necessity. At a time when there is virtually no demand for corporate loans in Japan, it seems SoftBank is just about the only company with any desire to borrow. Moreover, the fees it paid to its financiers have totalled more than $2bn in the past five years, according to data from Refinitiv.

Mr Son’s transformation from pariah to paragon of the business community is due to the paradoxical fact that he has become too big to fail. Banks that are already so heavily exposed are signing off on the financing for more transactions, some of them questionable. Does the general lack of concern make sense?

Mizuho Financial Group, for example, officially has something like $5.5bn in loans outstanding to the SoftBank group. But analysts at Hong Kong credit and macro funds claim that in fact the number is far closer to $30bn if total exposures to all units in the group from various pockets at the bank are included. A spokesman at Mizuho declined to comment.

Regulators are showing no sign of intervening, professing little concern for the exposures of their bank charges to SoftBank. “There are lots of assets,” says one recently retired senior official. “And there are the Ali shares. We are very comfortable.”

SoftBank itself says that is “in a solid financial position” with “enormous unrealised value” from its Alibaba position. It also prefers investors to focus not on its consolidated debt but on a narrower definition that excludes some non-recourse loans to its portfolio companies.

Credit rating agencies are not as sanguine. “The portfolio’s concentration in large assets makes its value and quality susceptible to its largest asset, Alibaba. Alibaba shares account for more than 40 per cent of the portfolio’s value. The three largest assets, including Alibaba, account for a high proportion of over 70 per cent of the portfolio. This high concentration is the largest risk in the portfolio,” note analysts at Standard & Poor’s, adding that if Mr Son sold shares in Alibaba the overall credit quality of his investment portfolio would probably drop.

Among the most iffy transactions is the loan Mizuho provided to Ritesh Agarwal, the founder of Oyo, to enable him to buy out virtually all of the shareholdings in his young hotel chain of Lightspeed Capital and Sequoia Capital. That led the two venture capital firms, in turn, to make 11 and 10 times their money respectively. The loan was collateralised by the Oyo shares while the whole transaction was guaranteed by Mr Son himself.

That meant the transaction was far more risky for the lenders than for the borrower.

The valuation of Mr Son’s companies has always depended on a belief that he has endless capital to support dizzying valuations. Until recently all the private markets cared about was growth at all costs. But Wall Street cares about profitability and Wall Street usually has the last laugh. If Mr Son is to actually cash in on his investments, listing will be the main route and that requires profits not just revenues.

In the past few months, some people at the three big Japanese banks that have financed SoftBank’s adventures have begun to be concerned about their concentrated exposure to the group and all its units.

It is late for such reservations, however. If the debt-laden edifice topples, it won’t be the first time that the Japanese banks are left holding the bag.