Riyadh to seek $12bn in bank loans after Saudi Aramco IPO stalls
Sovereign wealth fund aims to fill hole left by postponed blockbuster listing
Saudi Arabia’s sovereign wealth fund is primed to choose international banks to lend it up to $12bn, filling the hole left by the delayed listing of state energy group Saudi Aramco and providing financing for crown prince Mohammed bin Salman’s ambitious economic reforms.
The loans will be the first made to the Public Investment Fund, the vehicle used to drive the young prince’s vision for an economy less dependent on oil, which has placed bold bets on electric car maker Tesla, ride-hailing app Uber and space travel company Virgin Galactic.
The loans are particularly important for the fund as plans to list Saudi Aramco, from which it was due to receive proceeds, have been postponed indefinitely. Riyadh’s focus has shifted away from the blockbuster IPO, which had been expected to raise in the region of $100bn, in favour of other means of financing for the PIF.
Some of the most senior names in international banking, including JPMorgan Chase’s Jamie Dimon, Morgan Stanley’s Franck Petitgas and Goldman Sachs’s Dina Powell, the former official from the Trump administration, have been actively pitching for the deal.
Banks who have spent the past few years courting the kingdom and counting on fees from the Saudi Aramco IPO are jostling to secure favour for other transactions.
The PIF had originally hoped to raise up to $8bn from loans, but people with knowledge of the process said it was likely to reach as much as $12bn. “They should easily reach that target,” said one banker involved. “Everyone has gone in fairly aggressively.”
As many as 16 banks are expected to participate in the loan, with the lead banks to be selected later on Thursday, the people said.
Several senior bankers said it was critical to be seen as involved in the loans to the PIF because the state fund is also planning to sell a $70bn stake in Sabic, the Saudi chemicals group, to Saudi Aramco, in one of 2018’s largest deals. The deal, which moves money from one state coffer to another, will have implications for league table rankings that banks use to measure their performance against rivals.
While work on the Saudi Aramco IPO has dramatically slowed amid concerns about legal exposure and an inability to generate a $2tn valuation, some bankers have shifted their focus to the Sabic deal, said one adviser.
They are also assessing how the Sabic transaction might impact the viability and timing of a future Saudi Aramco flotation, the adviser said. The kingdom insists the IPO has not been called off despite mounting signs it is unable or unwilling to execute a listing.
Banks are vying for a chance to participate in a potential $40bn-$60bn debt financing that Saudi Aramco will need to finance any deal to buy the Sabic stake from the PIF.
One adviser had previously told the Financial Times that a large bond issuance for Saudi Aramco would achieve some of the same objectives as a listing, in terms of raising funds and requirements for disclosure. Although it could be a substitute for a flotation, this person said, a decision to list later would raise “extra” PIF funds.
The PIF, led by Yasir al-Rumayyan who is a close ally of Prince Mohammed, has more than $250bn of assets under management that it plans to expand to $400bn by 2020. To finance deals, the fund has received cash from the Saudi central bank, sought to sell stakes in companies it owns, issue debt and draw on proceeds from the privatisation of state assets.
It is expected to rely increasingly on bond and bank loan funding as finance ministry handouts have diminished and big-ticket investments, including tens of billions of dollars pledged to funds run by SoftBank and Blackstone, have yet to yield returns.
Earlier this month, the FT revealed that the PIF had quietly built close to 5 per cent stake in Elon Musk’s electric car company Tesla. Mr Musk later posted a tweet saying he was considering taking the company private and that he had the “funding secured”.
Mr Musk then clarified his comments, saying that his discussions with the PIF had led him to believe that it was only a matter of finalising their support for a deal. However, people close to the PIF have given no indication that the state fund is any serious discussions about putting more money into Tesla to allow Mr Musk to take his company private.
Syndicated loans to sovereign wealth funds are unusual, with large Middle Eastern funds such as the Qatar Investment Authority typically borrowing against specific investments instead.
Law firm Latham & Watkins is helping the PIF on the loan process, while White & Case, the law firm who was leading the Saudi Aramco IPO work, is set to work with the banks, according to the loan documents.
Bayer's Monsanto sued by 8,000 plaintiffs on glyphosate ---> Link : https://reut.rs/2LjZclb
FRANKFURT (Reuters) - Bayer said the number of U.S. lawsuits brought against newly acquired Monsanto has risen to about 8,000 from 5,200 previously, after Monsanto was ordered to pay damages for not warning of alleged cancer risks of glyphosate-based weedkillers.
“The number of plaintiffs in both state and federal litigation is approximately 8,000 as of end-July. These numbers may rise or fall over time but our view is that the number is not indicative of the merits of the plaintiffs’ cases,” Chief Executive Werner Baumann told analysts in a conference call on Thursday.
Bayer shares have lost more than 10 percent since Monsanto was ordered on Aug. 10 to pay $289 million in damages in the first of possibly thousands of U.S. lawsuits over glyphosate-based weedkillers such as Roundup and Ranger Pro.
He reiterated the jury’s verdict was inconsistent with the science-based conclusions of regulators and added that demand for glyphosate-based products remained strong.
When asked whether Bayer would consider settling cases out of court, he said: “We will vigorously defend this case and all upcoming cases.”
Second-quarter results, due on Sept. 5, would include provisioning for legal defense costs but no money would at that point be set aside for any possible future damages, finance chief Wolfgang Nickl added.
Saudi Aramco IPO: the Empty Quarter
The elusive deal is now unlikely to list before the end of the year
Bankers working on the blockbuster flotation of Saudi Arabia’s national oil company are familiar with mirages, even if they have never visited a desert. That lush oasis on the horizon never gets any closer. Finally, it evaporates.
The initial public offering of Saudi Aramco has the same elusive quality. The group promised a deal this year. It is now unlikely to list before the end of the fourth quarter. Political obstacles mean it may never do so.
Gossip that Aramco had stood down at least one underwriting bank prompted the energy minister to express “commitment” to the IPO. Was the implicit message the reverse, as when a football club owner publicly backs a doomed manager?
There are reasons to think so. Mohammed bin Salman is the main one. The Crown Prince, known as MbS, seems touchy for a guy who aspires to world statesmanship. After Canada criticised human rights abuses, Saudi Arabia dumped assets and expelled the Canadian ambassador.
If Lex had an ambassador in Riyadh, MbS would probably kick them out too. Saudi Arabia has staked its reputation on a $2tn valuation for Aramco. The highest number we could get to was half that, albeit when oil was $10 per barrel cheaper.
A listing in London or New York would involve scrutiny currently irksome to the Saudis, even if legal threats are overplayed. No wonder a bond issue appeals more. Equity involves full-on cohabitation with investors. Debt resembles a flat share.
Aramco plans to buy a 70 per cent stake in another state-owned business, Sabic, the refiner and chemicals group. This, with curious symmetry, is valued at around $70bn on the Saudi stock market. The vendor, Saudi sovereign wealth fund PIF, would then have more to spend on the latest high-tech stock tip from Softbank’s Masayoshi Son.
More usefully, a deal with Sabic would increase Aramco’s vertical integration. Cost savings should result. The transaction would chime with MbS’s worthy aim of building up Saudi industries that can outlast demand for oil-based fuels.
But a mooted $50bn bond financing for the Sabic acquisition would be dauntingly large. US telecoms group Verizon completed a $49bn offering in 2013. Many participants would be precluded from investing in an emerging markets quasi-sovereign. That is how Aramco would be seen. Debt syndicate bosses may face their own trek through the desert.
TPG Telecom/VHA: Post-deal structure expected to be key focus of merger talks
23 AUG 2018
Deal structure and the division of control will be key questions in the merger discussions between Australian telecom companies TPG Telecom [ASX:TPM] and Vodafone Hutchison Australia (VHA), while competition issues aren’t currently viewed to be an obstacle, according to a source familiar with the matter and a minority shareholder in TPG.
TPG, an AUD 7.2bn (USD 5.3bn) market cap company, announced yesterday (22 August) that it has engaged in “exploratory discussions” with VHA regarding a potential “merger of equals” of the two companies.
The final deal structure will depend on the intent of various shareholders involved, according to the first source. VHA is a 50:50 joint venture between Vodafone Group [LON:VOD] and Hutchison Telecommunications (Australia) Ltd. (HTA) [ASX:HTA], which is in turn majority-owned by Hong Kong conglomerate CK Hutchison Holdings Ltd [HKG:0001].
One potential structure could be to combine the underlying businesses of VHA and TPG, with VHA holding an interest in the combined entity, the source said. Alternatively, the deal could combine the listed Hutchison vehicle (HTA) with TPG and have Vodafone as a shareholder in that new entity, the source suggested.
TPG’s reference to a “merger of equals” would point to a scenario along those lines, although this news service notes that HTA in its short statement confirming the exploratory talks between VHA and TPG referred only to a “potential merger”.
Another possibility is that Vodafone might exit as part of the merger process and that TPG steps in as a joint venture partner in VHA alongside HTA, the source continued. In such a scenario, the VHA business could still be combined into the listed TPG entity, the source said.
An industry source said he had been informed, before yesterday’s announcements, that Vodafone Group has indicated to both VHA and TPG that it intends to exit Australia. If so, it could mean that TPG would take over Vodafone’s 50% stake in VHA, the same source said.
Vodafone declined to comment, but according to a person familiar the UK-based telecom operator remains committed to Australia and any post-merger entity will include Vodafone as a stakeholder.
The minority TPG shareholder said he would potentially be worried about being diluted, but would need to see the deal details the management is to propose before drawing any firm conclusions.
Shareholders’ intentions
The shareholder added that TPG would want to run the merged entity since it is seen viewed as a “better operator” than VHA.
Echoing the shareholder’s view, the industry source said that TPG’s founder David Teoh would want to control the combined business given his record of acquisitions.
In addition to having founded TPG in 1992 together with his wife, Teoh is also the largest shareholder with a 34.4% stake.
HTA’s primary objective in Australia would be to create a viable business going forward, said the first source. Being backed by CK Hutchison, the conglomerate founded by Hong Kong tycoon Li Ka-shing, HTA has plenty of funding capacity to put more in more money, if it believes there will be good returns, the source noted.
The industry source agreed about the funding capacity, but also pointed out that HTA has so far not been active in managing and operating VHA.
Competition issues
Irrespective of the structure, the potential merger makes strategic sense for TPG, which has a solid core fibre network but is just starting to push into the mobile market, according to both the TPG minority shareholder and the industry source.
Since VHA is the third largest in Australia’s mobile market after Telstra Corp [ASX:TLS] and Optus, the potential combination of VHA and TPG is not likely to pose competition issues, according to the first source and the shareholder.
“The No. 1 and No. 2 are so much bigger and stronger. This (merger) potentially makes the combined business more viable,” said the first source. “It’s potentially pro-competition if you can make that happen.”
A spokesperson for ACCC, Australia’s competition regulator, said the regulator is aware of the reports of discussions between the parties and will conduct a public review if any transaction progresses.
HTA’s share of VHA’s total revenues was AUD 884.4m for the half-year ended 30 June, while its share of VHA’s net loss was AUD 14.9m, according to HTA’s latest half-year results.
TPG is advised by Macquarie and Herbert Smith Freehills, according to local media. It is also reported that Bank of America Merrill Lynch (BAML), Deutsche Bank, UBS and Norton Rose Fulbright are advising VHA.
TPG shares have jumped 23.2% in the two days since the announcement to AUD 7.75, while shares in thinly-traded HTA have rallied 133.3% over the same period to AUD 0.14. Vodafone Group shares fell in London trading yesterday by 0.2% to 175.7 pence.
TPG, VHA and HTA would not comment beyond the public statements.
Alibaba misses by $0.02, beats on revs (177.85)
- Reports Q1 (Jun) earnings of $1.22 per share, excluding non-recurring items, $0.02 worse than the S&P Capital IQ Consensus of $1.24; revenues rose 61.2% year/year to $12.23 bln vs the $12.02 bln S&P Capital IQ Consensus.
- Revenue from core commerce increased 61% year-over-year to RMB69,188 million (US$10,456 million).
- Revenue from cloud computing increased 93% year-over-year to RMB4,698 million (US$710 million).
- Revenue from digital media and entertainment increased 46% year-over-year to RMB5,975 million (US$903 million).
- Revenue from innovation initiatives and others increased 64% year-over-year to RMB1,059 million (US$160 million).
- Annual active consumers on the co's China retail marketplaces reached 576 million, an increase of 24 million from the 12-month period ended March 31, 2018.
- Mobile MAUs on the co's China retail marketplaces reached 634 million in June 2018, an increase of 17 million over March 2018.
- Adjusted EBITDA achieved growth of 17% to RMB29,359 million (US$4,437 million) in the quarter ended June 30, 2018, compared to RMB25,124 million in the same quarter of 2017, despite adjusted EBITDA margin decreasing from 50% in the quarter ended June 30, 2017 to 36% in the quarter ended June 30, 2018. Adjusted EBITA achieved growth of 13% to RMB26,502 million (US$4,005 million) in the quarter ended June 30, 2018, compared to RMB23,518 million in the same quarter of 2017, despite adjusted EBITA margin decreasing from 47% in the quarter ended June 30, 2017 to 33% in the quarter ended June 30, 2018. Adjusted EBITDA and EBITA margins are lower mainly because of strategic investments in New Retail (revenue of which is primarily recorded on a gross basis), the consolidation of Cainiao Network and Ele.me and investments in Lazada. Reconciliations of net income to adjusted EBITDA and adjusted EBITA are included at the end of this results announcement.