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Capital Calls

15 June 2021 By Breakingviews columnists


– SEC rules

Hear that sound? The drumbeat to overturn Donald Trump-era rules that favored corporate America has started. High equity prices, which typically keep investors silent, are small solace for the country’s biggest chieftains.

On Tuesday a group of investors sued the U.S. Securities and Exchange Commission over changes that make it harder for individual investors to call for corporate reforms. The SEC was already taking another look at regulations that made it more difficult for proxy advisors to do their jobs, and in March then-acting Chair Allison Herren Lee outlined steps to revisit shareholder-unfriendly regulations.

It puts companies like Exxon Mobil and JPMorgan on the back foot. Shareholder returns, including dividends, for both companies have outperformed the S&P 500 Index in the past year. Yet a relatively small group of investors at Exxon won board seats last month, landing a blow to head Darren Woods. Though a proposal to vote against executive pay failed at JPMorgan, managers including Chief Executive Jamie Dimon were on guard after proxy advisor Institutional Shareholder Services urged shareholders to oppose the company.

For now, investors are having their cake and eating it, too. (By Lauren Silva Laughlin)

Level plane-field. Shelving a 17-year spat over Boeing and Airbus subsidies speaks volumes about U.S. and European concerns over China. Tuesday’s agreement between Washington and Brussels stops short of a full-blown peace deal. But a five-year tariff truce, based on their reaching a common understanding of “acceptable” levels of state support for aviation, means both sides can focus on the growing commercial threat from the Middle Kingdom.

Boeing’s 737 MAX problems opened a narrow window to state-backed Commercial Aircraft Corporation of China. Its main rival is helping close it. The deal, announced during U.S. President Joe Biden’s first visit to Europe, puts more cement in the cracks opened in the transatlantic relationship by his predecessor. It also throws a lifeline to everything from the European cheese- to American suitcase-makers who faced retaliatory levies just as economies emerge from the pandemic. Specific to aviation, both sides will work harder to prevent “non-market actors” pilfering technology. It’s not hard to guess who they mean. (By Ed Cropley)

Who you know. SoFi Technologies’ four new equity underwriting gigs reflect a convenient connection. The online finance company’s shares only started trading on June 1 after the completion of a merger with a special-purpose acquisition company. Just a day later, it was listed as co-manager on a series of new healthcare-focused SPAC offerings jointly launched by prolific blank-check writer Chamath Palihapitiya.

Like getting internships, sometimes it’s about who you know. The SPAC that merged with SoFi, effectively taking it public, was one of Palihapitiya’s, too. As part of its underwriting gig in the four planned $200 million initial public offerings, up to 5% of each SPAC’s shares may go to retail investors through SoFi’s online brokerage, according to regulatory filings.

The mentor for the 10-year-old fintech will be Morgan Stanley, the IPOs’ sole bookrunning manager. The Wall Street firm is itself debuting as the top bank for Palihapitiya, who has relied on Credit Suisse for six previous blank-check floats, according to data from SPAC Research. Everyone has to start somewhere. (By Richard Beales)

Flying low. Emirates has joined an unfortunate elite club. The Gulf airline, owned by the government of Dubai, on Tuesday posted a $6 billion loss for 2020. That puts it on a par with London-based International Airlines Group, parent of British Airways, and is only marginally healthier than European rivals Air France-KLM and Deutsche Lufthansa, which lost $7.5 billion and $8.1 billion respectively. Aggressive cost-cutting by Emirates’ state backers averted a worse financial disaster.

For a state-owned company, the airline’s job-cutting zeal stands out. Staff numbers went from 109,000 to 75,000 in a year, a swingeing 31% drop. That may only be possible because of the large numbers of non-Emirati citizens on its payroll. Lufthansa, by contrast, shed 26,000 positions, a 19% drop. It plans more cuts as part of a long-term overhaul. Strong unions and Berlin’s weak hand on the Lufthansa joystick, courtesy of a 9 billion euro government bailout, mean they’re not set in stone. (By Ed Cropley)

Homecoming. Technology companies based in the city-state are feeling the heat. New York-listed conglomerate Sea, ride-hailing-to-payments app Grab – a target of a U.S. special-purpose acquisition vehicle – and Hong Kong-listed gaming company Razer have considered or been approached to trade their shares at home, per the FT citing sources.

It’s a tough sell given Singapore Exchange’s limited liquidity pool. With a market capitalisation of $145 billion, Sea is already more than twice as large as the FTSE Straits Times Index’s top constituent, lending group DBS. Nor does the staid market popular with real-estate trusts offer the kind of hot valuations startups and tech giants crave. That dynamic will be hard to change even if blank-cheque companies are allowed to list.

Singapore might persuade heavily regulated companies, especially those dabbling in payments, that they ought to plant a flag at home. It’s less attractive though than for the likes of Alibaba whose partial homecoming to Hong Kong benefitted from access to giant pools of liquidity. (By Sharon Lam)

Upping the ante. Oaktree Capital Management has revised its offer to lend Crown Resorts money to buy back some or all of founder James Packer’s stock, the casino company said on Tuesday. The package consists of a A$2 billion ($1.5 billion) loan and A$1.1 billion in convertible debt that could give Oaktree up to a 9.99% stake. Assuming the $3.1 billion covered the full 37% stake, it equates to roughly A$12.40 per share.

That’s higher than the bids from buyout shop Blackstone and rival casino operator Star Entertainment’s. They’re vying to take control of the entire company and may now have to improve their own offers.

Even so, Blackstone could win out. If it can pass muster with casino regulators quickly, as it has hinted, the deal delivers all shareholders a timely exit from a troubled company. On Friday, the state of Victoria extended its inquiry into Crown – a reminder that regulatory risk is still very much alive and kicking. (By Katrina Hamlin)

Beyond perfection. Gautam Adani’s rollercoaster ride is an expensive lesson in the cost of clumsy disclosure in frothy markets. Investors knocked as much as $13 billion and up to 25% off shares in five of the Indian tycoon’s Mumbai-listed companies on Monday, including the flagship Adani Enterprises and Adani Ports.

The crash was triggered by a report noting that some foreign funds which own single-digit stakes of the tightly held companies had been frozen. By the end of the day, it emerged that the suspended accounts weren’t actually the ones that held Adani stakes. Adani’s aggressive dismissal of the story undid only part of the damage; the stocks closed $6 billion lighter.

The speed at which the market dumped the shares underscores doubt in a market near record highs. Shares in the tycoon’s companies have risen as much as 1,000% in one year, and some are much more pricey than peers like ReNew Power, recently acquired by a SPAC. Adani Enterprises itself trades on over 100 times earnings. That leaves no room for error. (By Una Galani)

Fuzzy on the details. Hong Kong government plans for curbing access to its corporate registry are moving forward. The measures will bar all but select groups such as due diligence experts from access to details on directors and private company particulars, by removing address details and partially obscuring identity numbers. In an experiment, independent investor David Webb searched the registry and found 16 directors with identical names that shared visible ID numbers with at least one namesake.

If officials wanted simply to protect individuals’ privacy, they could drop the residential address requirement for a business, or correspondence, address as London’s Companies House does. As they stand, the changes will render the database virtually useless to anyone without full access, a group which will include small business owners and journalists. Hong Kong’s international standing is already suffering as Beijing tightens its grip. With governments around the world pushing transparency on low-tax jurisdictions, this looks shady. (By Jennifer Hughes)


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