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Corona Capital

15 April 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Airbnb’s pricey loan

Priced to perdition. Airbnb is getting another lifeline: a $1 billion five-year loan from a group including Silver Lake and Sixth Street Partners, just after the two inked its $1 billion bond deal. It’s not cheap, though, at 7.5 percentage points over a benchmark rate. Throw in the discount the paper was sold at, and lenders get about a 12% return, Reuters reported. Online travel firm Booking Holdings, meanwhile, looked to borrow five-year money recently for just over 4%.

That doesn’t mean Airbnb is getting a raw deal. It has few assets, even by travel-industry standards, that can be liquidated in bankruptcy to pay creditors – not least compared to a cruise operator like Carnival, which recently paid double-digits for three-year paper. And post-pandemic, it’s probably going to have to pay up to instill confidence in properties’ cleanliness. Even then, travelers might be hesitant. The unicorn isn’t getting fleeced. (By Anna Szymanski)

Bacon bonus. It’s not just President Donald Trump who is mailing out cheques this week. Smithfield Foods, a subsidiary of Hong Kong-listed WH Group, the world’s largest pork company, said on Wednesday it would pay a $100 million “Responsibility Bonus” to hourly production and distribution team members as a thank-you for putting meat on tables across America.

The pay-out amounts to an average $2,500 for each of Smithfield’s 40,000 workers. That’s more than double the sum the U.S. Congress approved as a direct cash payment to Americans who make up to $75,000 a year. Smithfield is not alone among companies showing their financial appreciation for workers braving the pandemic. Still, the fact that a Chinese-owned group is topping up the government handout will not be lost on Smithfield’s employees – or their pork-loving customers. (By Una Galani)

Sooner or later. Companies left and right are slashing 2020 earnings estimates because of the Covid-19 pandemic. It might seem surprising that UnitedHealth, America’s largest health insurer, hasn’t. The $266 billion company’s first-quarter earnings were better than analysts had hoped on Wednesday, and it affirmed earnings for the year. Today’s good news might be problems stored up for later.

Doctors and hospitals have emptied their practices and beds to prepare for the onslaught and prevent the spread of the disease. For insurers like UnitedHealth, that means fewer expenses to pay. Meanwhile, Covid-19-related costs have yet to really hit. The disease was ramping up rapidly into the end of the quarter, and bills to insurers will lag treatments.

Chief Executive David Wichmann warned employer layoffs may mean less premiums flowing in down the road. And people won’t put off the cavities or curious looking moles forever. Insurers may soon be tripped up. (By Robert Cyran)

Adidas adds up. Securing a 3 billion euro loan should be cause for celebration amid the coronavirus pandemic. That’s not how it feels to Adidas shareholders who have had to sacrifice future dividends so the 43 billion euro athleisure maker can take funds from the German government.

Fitting for a maker of running shoes, speed was the determining factor. Chief Executive Kasper Rorsted warned last month that sporting goods were likely to lose out as customers prioritise filling their fridges. The company was shedding around $100 million a week in revenue even before its fast-expanding U.S. market announced lockdown measures.

Normally, it would be better to sell bonds. But Adidas is short of fitness in the debt markets. It has only issued four bonds in eight years and doesn’t have the credit rating required to perform a swift fundraising. Luckily Germany’s KfW agency was on hand for a fundraising boot camp. (By Aimee Donnellan)

Chinese convertible bond bubble. Clever retail investors, worried about equity markets destabilised by the coronavirus outbreak, have discovered a safer toy to play with. Convertible bonds, which can be exchanged for shares at a pre-set price, have become the preferred instrument of mainland day traders, according to a Reuters report. Issuance tripled to 270 billion yuan ($38 billion) in 2019, as Chinese firms cashed up, and some adroit traders noticed. Monthly trading in the securities quadrupled in March from February to over $140 billion. The market is liquid, and not restrained by intraday trading rules that govern stock exchanges. The bonds can be held to maturity, limiting losses.

Turnover is tame compared to stock exchanges, but impressive nevertheless considering there are only around 220 tradeable instruments. In the past, bubbles have formed in exotic markets like carved walnuts and egg futures, then collapsed, embarrassing regulators. If Beijing takes notice of this one, the market may cool off in a jiffy. (By Pete Sweeney)

Pixel party. Credit Suisse Chairman Urs Rohner may be about to learn that shareholder democracy works just as well via video chat. Proxy advisor Glass Lewis is recommending that investors reject the $21 billion bank’s compensation report ahead of an April 30 virtual shareholder meeting, questioning the board’s decision to award a “good leaver” status to former Chief Executive Tidjane Thiam.

It’s a valid question. If, as Thiam and the bank have claimed, he knew nothing about a recent spying scandal, why leave? If he’s in any way accountable, even just by being inexcusably ignorant of the affair, why pay him $11 million for 2019 and let him keep roughly the same amount again in unvested deferred share awards? True, investors’ vote on the wider compensation report is merely “consultative”, but they can block 2019 executive bonuses, including Thiam’s $3.4 million sweetener. Rohner may want to hit the escape button to avoid an embarrassing virtual defeat. (By Liam Proud)

Flog on the Tyne. Not content with splashing out on bombed-out European oil equities and cruise operator Carnival, Mohammed bin Salman is set to acquire another serial underperformer, Newcastle United Football Club. The Public Investment Fund, which the Saudi Arabian crown prince controls, has agreed a 300 million pound deal to acquire the team from UK retailer Mike Ashley, according to the Financial Times.

At less than 2 times sales the valuation looks relatively cheap, and as Breakingviews wrote in January there’s some logic in MbS trying to echo what neighbouring Abu Dhabi managed with Manchester City. Still, the price tag is only 12% less than what was mooted in January – compared to a 37% fall in the shares of similarly black-and-white-attired Juventus – and Covid-19 has left football stadiums empty. As with the other purchases, the PIF could yet be grabbing a falling knife. (By George Hay)


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