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Corona Capital

1 Sep 2020 By Breakingviews columnists

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


– Zoom

Zooming faster. Zoom Video Communications keeps calling in extraordinary growth because of the pandemic. Revenue for the quarter to July 31 more than quadrupled compared to last year, and earnings rose more than 30-fold. These figures, and projections for even higher sales this quarter, easily blew past analyst estimates compiled by Refinitiv.

The next few quarters should offer more of the same. Most people use Zoom’s free service, so the company only needs to convert a small chunk to paying users to benefit. International markets aren’t nearly as tapped out, and grew over 600% year-on-year. And widespread vaccination and a return to in-person gatherings probably won’t occur for a year or so.

Yet Zoom’s market value – which has risen sixfold since the start of the year to $130 billion, including a 40%-plus surge on Tuesday morning – faces risks in the form of competition from bigger firms like Microsoft and a return to something closer to normal once Covid-19 is controlled. What zooms up can zoom down. (By Robert Cyran)

Shot down. Struggling Chinese aviation-to-finance conglomerate HNA will cede control of baggage handler Swissport in a debt-for-equity swap with senior secured creditors that will extinguish or convert 1.9 billion euros of debt into equity. That’s unsurprising given the whack the pandemic dealt to travel, but a brutal sting for the Hainan-based travel firm. HNA forked out $2.8 billion for Swissport in 2016 – part of a wave of pricey, leveraged offshore acquisitions that included a senseless 10% stake in Deutsche Bank – then quickly found itself struggling to make repayments after Beijing clipped its wings. In March HNA, with nearly $50 billion in debt per Dealogic data, was made a ward of its provincial government.

Swissport’s new owners, including SVP Global and Barclays Bank, have provided 800 million euros of credit to keep the operation afloat, and now plan to poach business from struggling rivals. Their success will be of scant comfort to HNA. (By Pete Sweeney)

M&A head-fake. The second half of 2020 kicked off with a bang by one measure. Mega-deals worth more than $5 billion hit a record in August with nine announced, Refinitiv says. That’s 21 such transactions since July began, marking the best semester ever, worth $256 billion, a value exceeded only in 2015. So, it’s back to the races for consolidation?

Not so fast. Many deals were iced in March, when the world went into lockdown. A summer respite, with stock prices rebounding, helped push a few over the finish line, such as Seven & i’s $21 billion purchase of Marathon Petroleum’s service stations and Johnson & Johnson’s $6.5 billion punt on Momenta Pharmaceuticals. And while bankers say animal spirits are high, the so-called pipeline isn’t robust. Autumn brings too many uncertainties, they say: an expected Covid-19 spike when the weather cools, the U.S. election, a rise in nationalistic barriers to foreign ownership, disbelief in super-high stock prices and a question over who will pay for all the virus-related stimulus. To paraphrase George Gershwin, it’s summertime and the living is easy. (By Rob Cox)

Red carpet. Cineworld’s future comes with a Chinese twist. Tycoon Liu Zaiwang’s company Jangho Group snapped up a 5% stake in the UK cinema chain in August. It makes sense to take advantage of Cineworld’s depressed share price, down 71% this year, but Liu’s stake is still worth 43 million pounds and cinemas’ future after Covid-19 remains uncertain.

Cineworld is in a battle with landlords over rents as more people switch to streaming services. And Liu’s businesses in China are related to construction and health, not entertainment. Still, last year reports circulated that Cineworld’s main shareholder and Chief Executive Mooky Greidinger might want to take the business private. Liu’s punt may be more of a bet on that happening. (By Karen Kwok)

African risks. Old Mutual has given a worrying glimpse of Covid-19’s economic impact on the poorest continent. Even though Africa has recorded around a million cases, a fraction of the 25 million confirmed globally, the South African insurer’s difficult six months suggest businesses have been hit hard by lockdowns. And the coronavirus’s relatively late arrival on the continent means its recovery is likely to lag elsewhere.

Direct costs from Covid-19 amounted to 2.8 billion rand ($168 million), nearly two-thirds of last year’s first-half operating profit. Suspending the interim dividend helps new Chief Executive Iain Williamson defend the Africa-focused group’s buffers – at 182%, its solvency ratio looks robust. He may need the extra headroom. Under Old Mutual’s worst-case scenario, African GDP fails to bounce back from this year’s expected double-digit contraction. (By Ed Cropley)


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