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Capital Calls

22 Oct 2021 By Breakingviews columnists


-Green transition

-Liquor groups

– Climate laws

– Fed ethics

Poor haul. When the picks-and-shovels providers start departing, it’s usually a bad sign. That’s not the case with Aurizon’s attempt to extricate itself from coal. The A$7.2 billion ($5.4 billion) Australian goods-train operator has unveiled two deals to reduce its reliance on transporting the fossil fuel.

The first is an agreed A$2.35 billion purchase of One Rail Australia, which will increase the amount Aurizon’s so-called bulk division ships of commodities crucial to the global energy transition like copper and rare earths. Boss Andrew Harding is paying 10.5 times the target’s EBITDA, a lower multiple than plenty of recent deals. Second is a plan to offload a coal-freight unit, East Coast Rail.

Trouble is, the net result only reduces coal revenue by around 7 percentage points to at least 50%. That comes at the expense of a couple of percentage points off the EBITDA margin, and takes the net debt load to 3.1 times EBITDA at the end of June, a fivefold increase. Meanwhile, Harding reckons bulk earnings will need a decade to double. That’s one slow-moving climate M&A train. (By Antony Currie)

High spirits. After pandemic lockdowns, bumper household savings will help fund a boozy holiday season, provided new variants don’t usher in fresh restrictions. Cognac maker Rémy Cointreau on Friday said sales for the quarter to September were 352 million euros – a like-for-like rise of 24% compared to analysts’ expectations of 21%. Finance boss Luca Marotta said the brandy maker is optimistic about Chinese New Year, too. On Thursday, pastis producer Pernod Ricard also beat analysts’ quarterly sales expectations with strong demand ahead of the festive season.

Pricy liquor, like the luxury cosmetics which helped L’Oréal boost sales by a stronger-than-expected 13% in the third quarter, is more protected from inflation too. Rising costs like freight are a relatively smaller proportion of expensive goods like aged whiskey. Unlike Unilever, which has to agonise over how much cost inflation to pass onto consumers, premium alcohol companies can crack open a bottle. (By Dasha Afanasieva)

Class act. Antipodean climate-change politics are on different paths. Australia has been distracted by the pantomime of whether Prime Minister Scott Morrison will attend the imminent Glasgow summit (he will) and whether he’ll lay out new emissions-reduction targets  (probably not). New Zealand is offering more substance: Its parliament just mandated corporate disclosures on global warming.

It’s a world first that will force all financial firms in the country with more than NZ$1 billion ($719 million) in assets, and all listed companies with stocks and bonds, to disclose how the risks and opportunities presented by climate change will affect their operations. It has strong teeth: Directors of businesses failing to comply face up to five years in jail and a NZ$500,000 fine, about $360,000.

It’s a smart way to clue in executives and investors on how to better prepare for rising temperatures. That’s crucial in a state where methane-belching cattle generate 43% of its emissions and fossil fuels provide 60% of its energy. Other countries would do well to follow the Kiwis’ lead. (By Antony Currie)

Your move. New Federal Reserve ethics rules are a step in the right direction. The U.S. central bank said on Thursday it would ban senior officials from owning individual securities, among other changes – a belated but sensible move. Yet there are simpler ways to ensure perceived conflicts can’t arise.

Fed Chair Jerome Powell was under pressure to take action. Two regional bank presidents recently retired early amid a furore over trades in individual stocks. This week, Powell himself was dragged in: He sold a stock index fund holding valued at more than $1 million in October last year, attracting unwanted scrutiny.

The new measures are tougher than before, but also more complicated. For example, they require providing 45 days’ notice of sales or purchases and obtaining prior approval. A more straightforward and watertight approach would be to put all holdings in a blind trust. Powell, who is up for re-nomination as Fed chair, could one-up the new rules by going in that direction himself. (By Gina Chon)


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