TheChek News Flow

* Current processes likely to be cancelled or delayed

* Brexit facilitates EDF withdrawal from Hinkley

* Cheaper sterling creates attractive entry points for investors

The UK's vote to leave the EU creates a bleak outlook for M&A and investment in the power and utilities sectors, while renewables will see little immediate effect , according to sector advisers and executives.

In the short term, power and utilities processes in the UK will be delayed or cancelled, several dealmakers said.

Bank and debt capital funding for deals has got a lot more expensive, a sector lawyer and the head of EMEA power and utilities at a US-bulge bracket bank said.

National Grid [LON:NG] is set to launch the sale process for a majority stake in its gas networks this summer. SEE [LON:SSE] is looking to sell its stake in gas network SGN, while Mitsui & Co [TYO:8031] is looking to unload its 25% interest in a UK power generation joint venture with Engie [EPA:ENG].

Macquarie [ASX:MQG] is looking to sell its 26.3% stake in the country’s largest water utility, Thames Water, however the initial bids for this were submitted today despite Brexit uncertainty, Mergermarket's sister publication InfraNews reported earlier today.

All of these processes have primarily attracted the interest of foreign investors, mainly Australian, Canadian and Chinese, as reported by this news service.

In the short term, most of these processes will be pausing, the banker said. Though, because it is almost summer, this can be dressed up as the normal holiday hiatus and things will shift into September, he added. Frankly, what happens then is crystal ball gazing, he added.

The other short term risk is of course what will happen to the EDF [EPA:EDF] led GBP 18bn Hinkley Point C project, he added. Almost certainly EDF will withdraw as it is now politically easier for it to do so, and politically necessary, a second sector lawyer said. EDF is set to meet with France’s Works Council on 4 July to discuss the project with union representatives, according to a company statement.

Initial planning for the 3,900 MW Hinckley Point began in 2009 and was initially set to become operational in 2023, but delays involving financing the project have pushed the opening of the project to 2025, according to EDF’s website. EDF did not respond immediately to requests for comment.

The EU referendum vote added to an already unsteady outlook for the UK power and utilities, said Matthew Williams, co-head of Orrick Sutcliffe & Herrington’s European energy group.

The Brexit vote means that foreign capital investments intended for the UK could be deployed in other geographies, he said.

However, it’s difficult to say if mid-to-long interest in the UK will be muted, the first lawyer said. There has been such a high level of demand for infrastructure type assets of which there are plenty in the UK. This combined with a weaker sterling and perceived lower competition for assets, may attract bidders, he added.

Equity in UK energy and infrastructure assets has just got a lot cheaper and British utilities such as SSE, Drax [LON:DRX] and potentially Centrica [LON:CAN] could be attractive to overseas bidders, the first sector banker said. Although, infrastructure deals have complex leverage structures, so the cost of financing may make transactions difficult, he added.

The other issue is that all power and utility deals are highly influenced by governments and regulators, the second banker said. The policy position of ministers coming in with the new government will be very important to the sector outlook, the first banker said.

Patrick Lemcke-Braselmann, head of acquisition and financing at German asset management firm AREAM Renewable Energy, was also cautious over the lack of visibility. Impacts on purchase prices, and mid-term Forex effects were among the issues where clarity was required before the market could stabilise.

Renewables – growth beyond Europe

The solar market in the UK was already limited before the Brexit vote, said John Dunlop MD at British solar park developer Countryside Renewables.

British, as well as other, project developers are looking at other markets such as the US, Latin America, Asia and the Middle East to grow their business, Dunlop said. So, the impact of the Brexit will be limited as the attractive countries for solar are no longer in Europe, he explained.

EU renewable targets would cease to apply, which is clearly negative for new investments in the UK, although the Climate Change Act would remain in place, said Jens Rosebrock director at renewable energy advisor Ikarus Capital.

Increased exchange rate uncertainty probably does not help incoming investors, and some may get cold feet, Rosebrock said. Volatility from the British pound makes overseas ownership of UK-based solar and wind projects less attractive going forward, agreed a renewables sector advisor.

However, with the pound coming down, the entry level for the investment is now more attractive than a week ago, Rosebrock said. Inbound investment into solar may dry up, the first sector banker said, but offshore wind should stay strong, with the primarily Danish and Dutch investors in the sector unlikely to spurn the UK.

China’s HNA group aims to do more deals - http://on.ft.com/29jjqes

Conglomerate has launched several takeovers this year

The chairman of HNA group, the acquisitive Chinese conglomerate, is looking to do more deals because he is confident about the growth of tourism in spite of the country’s economic slowdown.

“Of course!” Chen Feng says when asked in an interview with the Financial Times whether mergers and acquisitions will continue.

HNA owns Hainan Airlines, China’s fourth-largest airline. This year, in a flurry of dealmaking, it has unveiled transactions to buy Ingram Micro, a US information technology group, Carlson Hotels, the US owner of the Radisson brand, and a 13 per cent stake in Virgin Australia, the Australian airline.

Another HNA deal this year to buy Gategroup hit a snag on Monday after the conglomerate said in a preliminary statement that investors holding 61 per cent of the Swiss aviation catering company’s stock had tendered their shares. HNA, which had said its offer was conditional on a 67 per cent acceptance level, is due to issue a final statement on Thursday.

HNA’s deals have helped boost Chinese M&A to a record $121.1bn in the first six months of 2016 — a record for a single year.

“With such a good opportunity now in M&A if we’re provided the chance of global good quality assets that benefit our core business, of course we have to do M&A,” says Mr Chen. “Otherwise it’s a lost opportunity.”

HNA is considering more deals to expand its aviation and leisure assets because of its belief that Chinese tourism will continue to flourish, even though the country’s economic growth has been slowing since 2011.

“The more money Chinese have, they go all around the world. Any country that doesn’t have Chinese tourists, then that country has a problem,” says Mr Chen, speaking on the 34th floor of London’s Shard building during a visit to the UK capital.

“So the development of aviation has a big potential. There will be an impact [from China’s economic slowdown] but it won’t be that big. So we’re very confident.”

HNA, based on China’s tropical island of Hainan, entered the Fortune 500 list of the world’s largest companies by revenue in 2014 at number 464.

In addition to Hainan Airlines, HNA has assets worth more than $80bn including 33 overseas companies. Last year the group’s revenue surpassed $25.6bn.

If the Ingram Micro deal goes through, Mr Chen says it could turn HNA into one of the world’s top 100 companies, with revenue exceeding 700bn to 800bn yuan.

Mr Chen says President Xi Jinping’s policy of One Belt One Road, which aims to rebuild the ancient Silk Road trade routes between China and Europe, will lead to more overseas deals by Chinese companies.

Meanwhile, Mr Chen shows no alarm about Britain’s vote to leave the EU.

Last year HNA acquired the Thomson Reuters building in London’s Canary Wharf district, and he says he will not be put off by the Brexit decision.

“I don’t think [Brexit] will impact [our decision to invest],” adds Mr Chen. “London is an international financial city, UK is a mature market. So no matter if the UK leaves or stays in Europe, it might have some impact on the bigger picture, but it won’t be too big a change.”

Born in the northern Shanxi province in 1953, Mr Chen began work at China’s civil aviation administration, which regulates the country’s civil aviation, and went to Germany to study at a Lufthansa flight school in Germany.

After working for the World Bank in Hainan, in 1990 he was recruited by the island’s local government to establish Hainan Airlines.

The company started operations in 1993 with just two aircraft. In 1995, after China allowed foreign investors to buy shares in its airlines, Mr Chen persuaded hedge fund manager George Soros to invest $25m in Hainan Airlines.

In 1997, Hainan Airlines listed on the Shanghai stock exchange. It now has a market cap of 39.15bn yuan, almost half of Air China’s 78.49bn, and a fleet of 161 aircraft.

Mr Chen also credits the company’s development to a unique corporate culture at HNA that blends Buddhism and traditional Chinese culture including philosophy. HNA’s headquarters and surrounding buildings in Hainan’s Haikou city are shaped like Buddha’s hand.

A vegetarian, Mr Chen follows Buddhist doctrine but is adamant he’s not a Buddhist.

“It’s a problem of belief,” he says. “I’m a Communist party member, so I definitely believe in Communism. But Communist party members can’t be separate from human culture, and as a Chinese it’s even more important to understand our own rich culture.”

it's on the video at 8'20

04-JUL-2016 16:19:28

Aramco disputing size of cash payment -sources

Breakup of giant refining JV expected in October

Aramco rapidly expanding Houston trading business

By Ron Bousso and Erwin Seba

LONDON/HOUSTON, July 4 (Reuters) - Royal Dutch Shell RDSa.L has asked Saudi Aramco for up to $2 billion as part of the breakup of their giant Motiva Enterprises refining joint venture in the United States, the latest stumbling point in a partnership fraught with tension.

The payment would be compensation for the Saudi company retaining a larger share of the nearly two decade-old JV. Its split was announced in March and is expected to be completed in October but disagreements over the payment could postpone the final date, sources close to the talks told Reuters.

Under the agreement announced in March, Aramco will take control of Motiva's largest U.S. refinery in Port Arthur, Texas, and retain 26 distribution terminals.

That underscored Aramco's strategy to expand its global refining footprint in order to secure markets for its crude oil and could also be part of its ambitious public offering plan. (Full Story) (Full Story)

Shell will become the sole owner of Motiva's Louisiana refineries in Convent and Norco, where it also operates a chemicals plant, as well as Shell-branded gasoline stations in Florida, Louisiana and the northeastern United States.

Shell is focusing on developing its global chemicals business but also plans to sell $30 billion of its assets by 2018 to finance its $54 billion acquisition of BG Group in February, which will include several refining assets.

The Anglo-Dutch company is seeking 1 billion to 2 billion dollars from Aramco to compensate for the Saudi company keeping a bigger stake in the JV, two sources close to the talks said. Aramco nevertheless believes the fee should be significantly lower, they added.

A Shell spokesman declined to comment. An Aramco spokesperson said the company does not comment on speculation.

Shell has indicated in the past it will receive a cash payment from Aramco as part of the deal, but the size of the cash consideration has not been disclosed before.

ACRIMONY

The payment is primarily due to Aramco retaining a larger refining capacity than Shell -- the Port Arthur plant can process 603,000 barrels per day (bpd) while the two Louisiana plants jointly have a combined 473,000 bpd capacity.

The Texas refinery is also considered more advanced after extensive upgrading in recent years.

Additional infrastructure such as storage tanks and pipelines will also be included in the payment.

Refineries are generally valued according to the quality of the units as well as the outlook for its profit margins.

"It is a little bit of an awkward time for Shell to be holding out their hand for a lot of money because refining margins have come off recently," said Neil Earnest, President of Dallas-based consultancy Muse Stancil.

"The margin climate has shifted away from Shell towards Aramco in terms of any cash consideration that needs to be exchanged. Aramco will be saying that the cash consideration today should be lower because the short and medium term outlook for U.S. refining margins is not as robust as it was."

Aramco has rapidly expanded its corporate headquarters in Houston and has hired several new traders in recent months, according to several sources. Motiva's refined product trading business was separated from Shell's trading business in Houston in June 2015 after disagreements between the sides, and it has hired several new traders in recent months, trading sources said. (Full Story)

The Motiva JV was set up in 1998. Relations between the partners started to sour during a huge upgrade of the Shell-operated Port Arthur refinery, which suffered several setbacks and cost overruns which doubled the initial plan of $5 billion.

In 2012, the main refining unit at the heart of the expansion was damaged by a release of caustic chemicals, keeping the unit out of production for eight months and leading to acrimony between the partners as costs ballooned.

"The Motiva Port Arthur upgrade cost overruns were received very badly by Saudi Aramco and put the relation under a lot of stress," said Earnest.

Shell and Aramco continue to cooperate in two major joint ventures: the 50:50 Saudi Aramco Shell Refinery Co (SASREF) in Jubail, Saudi Arabia, and the Showa refining venture in Japan.

Steven Cohen’s comeback plan has already seen his family office restructure incentives, shuffle management and attempt to reshape its culture. Now Point72 Asset Management, the sequel to his hedge fund SAC Capital, is making a move into social media.

SAC ballooned from $25m in assets in 1992 to a $15bn enterprise with returns of 30 per cent a year. That record caught the attention of regulators, who spent a decade investigating allegations that SAC’s success was fuelled by an unfair advantage. In 2013 the hedge fund pleaded guilty to insider trading and paid $1.8bn in fines. Mr Cohen was not charged with any offence, but he is banned from overseeing client money until 2018.

“Steve Cohen’s brand was hurt a lot during the insider trading investigations, and he is working very hard to improve his image,” said Don Steinbrugge, founder of Agecroft Partners in Richmond, Virginia.

Mr Cohen is having to compete harder for talent, as the “war” to attract the best traders has intensified with the industry’s expansion and the decline of average returns. Hedge funds grow by generating performance or by gathering assets, or some combination — but because it cannot manage client money, Point72 only has one of those options.

Point72 is now marketing itself in a more public fashion, as part of efforts to overhaul the SAC image. After first setting up a website in February 2015, Point72 has since April been honing its presence on LinkedIn, Facebook, Google+, Glassdoor and soon Twitter.

“We have to reach the talent where the talent is,” said Jonathan Jones, Point72’s head of investment talent development. “As an employer today, if you're not active and present on social media, then you’re doing it wrong.”

As part of its recruitment efforts, the company has started “Point72 Academy” for new college graduates, hosted the undergraduate-focused non-profit Smart Woman Securities in April, and in May had a one-day “Sophomore Summit”.

“There was persistent residue of the idea that we are a cut-throat culture,” said Point72 spokesman Mark Herr. “The good news is the reputation is getting better.”

Until the 2012 Jobs Act, US hedge funds were restricted from marketing themselves to the public. Since the regulations were loosened, however, many have relaxed tight-lipped traditions to actively manage their media presence.

A few including Citadel, Bridgewater, and Balyasny Asset Management have posted their own videos on their websites.

While Point72’s 70 portfolio managers have an average tenure of 7.5 years, 80 per cent of managers are “homegrown” — compared with 80 per cent in 2008 that were “imported”.

Those figures have put pressure on Point72 to hire young talent.

“Social media gives us an opportunity to provide a window into Point72 in a way that we haven’t in the past,” said Becca Beacham, who heads the group’s digital efforts.

The established order in any society can sometimes be wrong-footed, but they are usually not wrong-footed for long. Genuine revolutionaries know this, and they act quickly to take full advantage of any temporary advantage. Soon, however, the established order will regroup and refocus, with renewed determination.

The generally pro-EU political class in the United Kingdom has certainly had a fright. They were not expecting to lose the EU referendum. British political leaders were so confident of victory they even casually said that the people’s decision would be implemented “straight away”. And now there is a crisis, but only for a while.

Already the un-codified (and some would say “unwritten”) constitution may be saving the pro-EU political class from their own folly and complacency. The referendum was never binding in law (as this law and policy blog pointed out nine days before the vote). Indeed, the referendum had little legal – as opposed to political – significance. It was a glorified consultation exercise. The real decision has to be made afterwards, as a distinct legal act. This is the decision envisaged by the now-famous “Article 50″ – the EU treaty provision which deals with member states wanting to leave the EU.

The prime minister David Cameron was expected to make that decision immediately, on the day of the result. But he did not. He has left it to his successor to make. This deft uncoupling of the referendum result from the formal decision to quit the EU was significant. In my view, it will become the first of three steps the still pro-EU UK government will take to delay Brexit – and perhaps will delay it so long that it never happens.

The reason the government may get away with this manoeuvre is because the leaders of the Leave campaign either did not expect to win or naively thought winning a referendum would be enough. In either case there was no plan: no notion of any follow-through. And so when the government became wrong-footed nothing was done. They had won the Referendum Battle, but they did not act swiftly to also win the Brexit War.

Unless a sincere Brexit campaigner wins the Conservative leadership election and becomes the next prime minister, the UK government can be expected to now take three steps to slow down the Brexit process in the hope (and perhaps expectation) that it does not happen.

The first step has already happened: Mr Cameron snapped the tie between the referendum result and the Article 50 notification.

The second step will be when the government says that the form of the decision will require some form of parliamentary vote: either a resolution or a motion, or even a fresh statute. Views vary among legal pundits on whether this is strictly necessary — my view is that it is not, and if the prime minister and cabinet decided on referendum day to make an immediate notification, no court would have quashed the decision or injuncted him from making the notification. But it is a convenient view for a procrastinating government to adopt, and the result of any parliamentary vote cannot be taken for granted by leave supporters. Few members of parliament or peers support Brexit.

The third step will be the proposal of preconditions before further action. Many will remember Gordon Brown’s “five tests” for UK to join the euro (which were never tests in any real sense, but that detail was not important). Already contenders for the Tory leadership, such as Theresa May, the home secretary, are talking of situations being right and that things will be done when they are good and ready. This vagueness will no doubt shortly convert into more formal terms. After all, this would only what any responsible government would do before taking ever such an important action.

None of this is to say Brexit is impossible – any pundit who claims an event will not happen will usually be wrong – but it certainly becomes less likely as time passes. And unless Leave create another moment of opportunity – another wrong-footing of the established order – so as to force through the required Article 50 notification, then it may not happen at all.

David Allen Green writes the law and policy blog at FT.com

Italian luxury leather goods group Tod’s is weighing up plans to scrap its six-monthly collections and instead release new products more frequently in the latest sign of the internet’s impact on the luxury sector.

Diego Della Valle, billionaire owner and chief executive of the Italian group, made the comments as Tod’s unveiled the completion of the first stage of a €25m restoration of Rome’s Colosseum, funded by the tycoon and his family, at the weekend.

Mr Della Valle said he expected the €250bn luxury sector to experience “another year of uncertainty”. Bain has predicted the industry will grow just 1 per cent amid plummeting sales to Chinese consumers and slower global tourist flows, due to geopolitical tensions and economic pessimism.

“Every brand needs to change the way in which it is thinking. We are thinking about instead of a collection every six months, to have new products every month or two months,” Mr Della Valle added.

Tod’s review of its sales strategy follows moves by big brands Burberry and Gucci to offer one-off, online-only, capsule collections, as well as instant catwalk sales available to buy online. The changes are in response consumers’ demand for swifter accessibility to luxury products as the internet fuels a taste for “buy now, wear now”.

Mr Della Valle described Tod’s as taking a “pit stop” 20 years after listing on Milan’s stock exchange to ready itself for the next 20 years.

He said he expected all of Tod’s brands, which also include Roger Vivier, Fay and Hogan, to be “growing again by the end of the year”. Tod’s, which makes 93 per cent of its revenues from leather goods, saw like-for-like sales fall 12 per cent with overall sales falling 3 per cent to €250m in the first three months of this year.

Mr Della Valle said did not envisage any long-term negative impact from the Brexit vote. Tourism to London could be hit “for three months”, he said, but added that London “is a global city, tourists will come back”.

Part of the transformation under way in the luxury industry, as it grapples with changing consumer sentiment, has involved a wider embrace for sustainability and philanthropy.

A recent report from consultants BCG for Italian luxury industry lobby group Altagamma showed that sustainability is particularly important among sought after 25- to 35-year-old consumers.

Mr Della Valle is one of Italy’s best-known business leaders who also owns Fiorentina football club and a stake in national newspaper Corriere della Sera. His company’s Colosseum donation, which has funded the restoration of 31 arches and 110,000 square feet of Travertine marble returned to a creamy white, paved the way for a wider trend in the “Made in Italy” luxury industry.

The Ferragamo family have since gifted almost €1m to the Uffizi Museum. The Zegna family behind luxury group Ermenegildo Zegna recently undertook a massive clean up of the Cinque Terre on the Italian Riviera. Brunello Cucinelli donated €1bn towards the restoration an Etruscan arch in Perugia.

“There is a real cultural change,” said Mr Della Valle of both the private funding push and the demand for ethical business practices, particularly from younger consumers.

But he argued the onus on business to give back to has become more urgent amid rising populism in Europe, including Italy, and anti-establishment sentiment.

“The real message here is: It is time to ask everyone in the business world to give a hand. It is not only about practical help but an overall help for the credibility of the country,” he said. “Today is a time to stop talking and get stuff done.”