Tag Archives: Exclude stories from RNP

Breakingviews – The Italian sovereign fund is a force to be reckoned with | Instant News


MILAN (Reuters Breakingviews) – When Cassa Depositi e Prestiti (CDP) was founded 170 years ago this week, Italy didn’t exist as a nation yet. The main task of the agency was to finance basic infrastructure such as roads and waterways for the King of Sardinia-Piedmont, Victor Emmanuel II, who later became Italy’s first king. Fast forward to 2020 and the once sleepy nation’s lender has turned itself into a nervous deal-making machine, leveraging 474 billion euros in total assets to build corporate champions in sectors ranging from telecommunications to financial technology.

An Italian flag flies in front of Piazza Navona, as Italians remain in isolation to prevent the spread of the Corona virus (COVID-19), in Rome, Italy, April 4, 2020.

Such activism has arguably a lot to do with the ambitions of its chief executive, Fabrizio Palermo, and to the desire of Prime Minister Giuseppe Conte’s government to reshape Italy’s industrial landscape. Since taking the top spot in 2018, former deputy general manager of shipbuilder Fincantieri and banker Morgan Stanley has worked to transform CDP’s mission. In just the last few months, the sovereign wealth fund has secured a deal to build a huge stake on the pan-European exchange Euronext, rising payments star Nexi and domestic developer Webuild.

Rome-based CDP is also working to combine the ruling Telecom Italia broadband network and the challenger to Open Fiber, both of which claim CDP as a shareholder. Responding to a government dictate following the fatal bridge collapse in 2018, the CDP is also vying to replace the humiliated Benetton dynasty’s control of domestic highway operator Autostrade per l’Italia. These endeavors are on top of pre-existing holdings in local heavyweights such as oil group Eni and mail-and-package player Poste Italiane.

“We decided to rationalize our portfolio but also to shore up the companies within it with a strategy of trying to create champions on the one hand and continue to develop infrastructure on the other,” Palermo told Breakingviews on the eve of the group’s 170th anniversary. CDP’s invested capital is “permanent, patient and dynamic,” he said.

This focus on infrastructure – albeit by an expanded definition – is at the root of CDP. The group, which is 83% owned by the Italian treasury with the remainder in the hands of a banking foundation, finances itself primarily through postal savings and bonds. This helped build Italy’s first telegraph network and its first highways; it still costs one day of schooling, said Palermo.

Today, however, the focus on equity investment is a priority. With an estimated 23 billion euros holdings in listed companies – or 5% of the June FTSE MIB blue-chip index – CDP is already Italy’s biggest stock picker. That compares to the French state’s investment in both listed and unlisted companies, at more than 100 billion euros at the end of June, according to data provided by the CDP. With its cheap funding providing a greater tolerance for lower returns than, say, private equity funds, CDP wants to become a bigger actor of the Italian economy, explained Palermo.

CDP arguably filled the void. Excluding state-backed groups, most of the listed Italian companies are dwarves compared to European or American rivals. Local entrepreneurs often do not have the capital or courage to increase the global scale through acquisitions. On the other hand, well-known brands such as Bulgari jewelery shop and tyremaker Pirelli have been caught by foreign predators. With Covid-19 likely to shrink Italy’s economy by about 10% this year, the need for cash will be even more acute, and the role of the state is expanding.

With a 10% average return on equity, CDP’s past track record looks impressive to country-related investors. But taking bigger stakes carries an element of risk. These funds, according to the law, are prohibited from investing in companies that are financially fragile. And the banking foundation can de facto veto the deal. But political pressure to shore up losing companies such as Alitalia airline has increased. Rome’s decision to create a 44 billion euro fund to inject capital into the Italian company, which will be managed by the CDP but remain separate from its accounts, has raised concerns that state money could be funneled to keep the politically connected zombie company alive.

Nonetheless, professional investors appear relatively comfortable with the CDP’s new role. The Blackstone and Macquarie purchase fund has joined forces with Palermo to possibly offer 9 billion euros for Autostrade per l’Italia. And Euronext’s € 4.3 billion in cash purchase of Borsa Italiana, which is supported by the CDP, is highly valued despite a potential conflict of interest in Rome wanting the offer to work. The Italian fund paid the market price when it agreed to inject 700 million euros into the exchange operator registered in Paris, along with Milan bank Intesa Sanpaolo. And while Euronext provided CDP board representatives in exchange for its support in the Borsa deal, CDP’s request to dominate the pan-European stock exchange headquarters in Italy was rejected, according to someone with direct knowledge of the deal.

Senior Italian and foreign executives who have dealt with CDP said that CDP is run professionally, with many financial executives from international banks such as Citigroup and Deutsche Bank. They also note that Palermo is highly skilled at cultivating political support, particularly of the 5 Star Movement, an anti-establishment but pro-state party that is the government’s largest coalition partner. Such a relationship is sure to raise questions about Palermo’s ability to withstand political interference when choosing investments or choosing company directors.

It’s up to Palermo, 49, to allay those concerns if he gets Roma’s backing for another three-year term next year. Board reforms at state-backed companies including Telecom Italia and Eni, and institutions such as CDP, sparked an intense political horse trade. Palermo, however, is clear about wanting to stay: “In my career I haven’t changed many jobs,” he said. “I hope I can stay here for a long time because this institution can do a lot for the country.”

Breakingview

Reuters Breakingviews is the world’s leading source of agenda setting financial insights. As the Reuters brand for financial commentary, we dissect the big business and economic stories that are scattered around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides real-time expert analysis.

Register for our full service free trial at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and on www.breakingviews.com. All opinions expressed are those of the authors.

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Brazil’s Petrobras posted solid margins, but a one-time fee hit the advantage | Instant News


RIO DE JANEIRO (Reuters) – Petrobras Brazil posted unexpected losses thanks to non-recurring fiscal costs, even as operating income was supported by a recovery in fuel sales and oil revenues.

FILE PHOTO: The logo of Brazil’s state-owned Petrobras oil company is seen at their headquarters in Rio de Janeiro, Brazil October 16, 2019. REUTERS / Sergio Moraes / File Photo

In Wednesday’s securities filing, Petroleo Brasileiro SA PETR4.SA, the official title of the state-owned oil company, recorded a third-quarter loss of 1.546 billion reais ($ 275 million). Income before interest, tax, depreciation and amortization (EBITDA), adjusted for one-time items, was 33.4 billion reais, above Refinitiv’s estimate of 29.7 billion reais.

Among the one-time charges the company highlighted were a 1.9 billion reais payment to two state governments to settle unpaid tax disputes, as well as a significant bond buyback program. The decline in the Brazilian real against the US dollar helped amplify some of the losses, the company added.

Petrobras said that, excluding one-time items, the company will post a net profit of 3.2 billion reais, beating Refinitiv’s estimate of 736 million reais.

Among the positives for the company is significant sales growth, especially gasoline and diesel. Net revenue was 70.7 billion reais in the quarter, up 39% from the previous period.

“The recovery in sales of diesel and gasoline is prominent,” the company said. “These products were severely affected by COVID-19 in the second quarter and the recovery is the strongest in our portfolio, both in terms of volume and price.”

Crude oil exports to China – which have skyrocketed in recent quarters as production increased as the worst pandemic passed – slowed to pre-pandemic levels. Meanwhile, exports to other markets such as the United States, Spain and Indonesia have grown significantly since the second quarter.

Even Chinese demand may have recovered later in the quarter.

Brazil jumped to become China’s third-largest crude supplier in September, import data showed on Sunday, as independent Chinese refiners scooped up cheap supplies of relatively high-quality South American exporter oil.

Petrobras said that average production costs fell from $ 7.90 per barrel of oil equivalent in the second quarter to $ 4.50 in the third, thanks in part to increased efficiency and partly due to real depreciation.

($ 1 = 5.62 reais)

Reporting by Gram Slattery and Sabrina Valle; Edited by Christian Plumb and Sam Holmes

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Brief Review – Corona Capital: W-shaped recovery, British investors | Instant News


The deserted Colosseum is described as a curfew imposed by the Lazio region from midnight to 5 a.m. to curb coronavirus disease (COVID-19) infection in Rome, Italy, October 24, 2020.

LONDON (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with brief insights related to the pandemic.

NEWEST

– Eurozone economy

– Increase in retail investment

FROM V TO W. Europe’s economic recovery falters under a new wave of coronavirus restrictions. Italy and Spain on Sunday became the latest countries to reimpose lockdown measures to stop the spread of Covid-19. The government in Rome ordered bars and restaurants to close at 6 p.m., while Spanish Prime Minister Pedro Sanchez declared a state of emergency that included curfews and travel bans.

As in other European countries, the new measures are a setback for the pandemic-hit service industry. They could also encourage some European economies to shrink again. The European Central Bank is projecting in September here that eurozone GDP will still increase in the fourth quarter, even in the event of a serious new outbreak. But economists at RBC now think the euro area will shrink a little. Their counterparts at Nomura expect economic results in the UK to contract in the next two quarters. The expected V-shaped recovery is starting to look more like W. (By Peter Thal Larsen)

PROMOTION FOR PUNTERS. British retail investors have the support of the London Stock Exchange. The stock exchange’s holding company on Monday said it was investing in financial technology startup PrimaryBid. The UK-based group provides a way for retail investors carrying smartphones to know about imminent cash calls by companies they own shares, enabling them to buy in if the company has made arrangements.

The solution proved popular during the pandemic as many under-funded companies rushed to raise capital quickly, bypassing the time-consuming process of offering retail shareholders the opportunity to buy. Companies including Ocado, Taylor Wimpey, William Hill, and Compass are using PrimaryBid to access smaller investors.

Monday’s $ 50 million funding round, which also includes Fidelity and ABN Amro Ventures, will help PrimaryBid grow further. But retail investors still need to be persuaded. Only 1% of Compass’ small shareholder participates in the catering group offering. LSE attestation will help. (By Karen Kwok)

Breakingview

Reuters Breakingviews is the world’s premier source of agenda-setting financial insights. As the Reuters brand for financial commentary, we dissect the big business and economic stories that are scattered around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides real-time expert analysis.

Register for our full service free trial at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and on www.breakingviews.com. All opinions expressed are those of the authors.

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Breakingviews – The UK housing crisis needs a well-aimed bazooka | Instant News


British Prime Minister Boris Johnson leaves Downing Street to deliver virtual keynote address for the Conservative Party Conference, in London, England, 6 October 2020.

LONDON (Reuters Breakingviews) – The UK housing market could benefit from a well-aimed bazooka. Prime Minister Boris Johnson wants to help 2 million Britons buy their first home, he said in his speech on Tuesday. The danger is that he makes property more expensive while leaving the taxpayer at a loss.

Almost every British prime minister in recent decades has tried to fix the country’s tilted housing market. The UK is building too few new properties – the number of homes completed last year was nearly the same as 2007 – and is out of reach for younger buyers. Those problems are now exacerbated by the Brexit shock, and the Covid-19 crisis. Tinkering with the mortgage market is a relatively quick place to start.

Perhaps the least expensive solution, hinted at by Johnson in a recent interview, is to undo post-crisis reforms that require banks to test borrowers’ ability to repay home loans even at much higher interest rates. That in turn will allow banks to make larger loans – Johnson suggests 95% of the property value – making it easier for new buyers to climb the housing ladder.

Removing the affordability check seems like a risky move altogether. During the financial crisis, the government was forced to rescue banks that provided large mortgage loans. In addition, changing the rules may not be enough to persuade banks to return 95% of the mortgage. These products also incur higher costs of capital because they would incur greater losses in a crisis.

A more subtle idea is to persuade banks to create very long-dated, fixed-rate mortgages, and then sell those loans to investors looking for long-term returns, such as pension funds. However this market is untested.

The quickest fix is ​​for the government to step in by providing a guarantee. Under Johnson’s predecessors, David Cameron and Theresa May, the British government guaranteed more than 270,000 “Help to Buy” mortgage loans in which the government took the risk on the most vulnerable portion of 95% of the mortgage.

Like all government interventions, “Help to Buy” can raise house prices. Therefore, any new mortgage subsidies must go hand in hand with a substantial home building program. Ideally, cheap loans are only available for new properties. That will make it harder for Johnson to hit his 2 million target, but it could still be a step forward.

Breakingview

Reuters Breakingviews is the world’s premier source of agenda-setting financial insights. As the Reuters brand for financial commentary, we dissect the big business and economic stories that are scattered around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Register for our full service free trial at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and on www.breakingviews.com. All opinions expressed are those of the authors.

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Breakingviews – Corona Capital: British retailer, Pearson, buys China | Instant News


LONDON / HONG KONG (Reuters Breakingviews) – Corona Capital is a daily column that is updated throughout the day by Breakingviews columnists around the world with brief and sharp insights related to pandemics.

People wear protective masks as they walk along Oxford Street, in the midst of a coronavirus (COVID-19) outbreak in London, England, June 29, 2020.

LATEST

– British retail

– Pearson

– Chinese purchases

SELECTIVE ASSISTANCE. The UK retail recovery looks uneven. Data released on Friday showed June sales rose to 0.6% from February levels, confounding analysts’ expectations, as buyers appeared to return to force after a three-month locking period. Disarming fuel, sales are actually higher than before the pandemic struck.

Below the surface, however, the weakening sectors are suffering. Stone-and-mortar clothing and footwear sales fell by almost 35% in June compared to pre-locking activities. The Covid-19 crisis has actually pushed the highway brands Laura Ashley, Oasis and Warehouse into administration, while department stores like John Lewis have announced closures. Meanwhile, sales of music and video recordings continued to decline which began before being locked. Despite the apparent rebound, it is still too early to call for a V-shaped recovery in the UK. (By Aimee Donnellan)

CHALLENGE UNIVERSITY. John Fallon might have ended his career at Pearson. The chief executive of the combated education group will step down once a successor is found. However, meanwhile, he led a difficult first half when a $ 5 billion group business was hit by Covid-19. Underlying revenue fell 17% to 1.5 billion pounds, dragging the company to an operating loss that underlies 23 million pounds.

Pearson did point to some bright spots. Sales in the online learning business rose 5% when students received virtual schools. And testing centers in the United States, Britain and other places have reopened after being closed due to widespread locking. Fallon was able to convince investors, including Cevian Capital activists, that operating profit would be “broadly consistent with market expectations”. He might not be present to present the figures. Pearson said the search for a successor – who was also plagued by a pandemic – was “advancing”. (By Peter Thal Larsen)

CROSS-LIMIT FAIL. Chinese investors in Western companies cannot rest. Virginia-based WorldStrides, a student-focused travel outfit supported by Primavera Capital, filed for bankruptcy this week after a pandemic hit orders and forced him to issue refunds. The Beijing-based fund, led by former Goldman Sachs Greater China Chair Fred Hu, invested in WorldStrides three years ago. The hope is to launch its services throughout the People’s Republic and beyond.

Over the years, the idea of ​​expanding Western companies in the Middle Kingdom has captivated Chinese buyers abroad, adding to the frenzy of outgoing deals. The track record doesn’t look promising: the state-owned conglomerate Bright Food sold British cereal maker Weetabix in 2017 after failing to grow business in China; Hony Capital’s acquisition of PizzaExpress turned into disaster. Even Fosun International is struggling with its investment in the Canadian acrobatics group, Cirque du Soleil. With Covid-19 influencing Western and Chinese consumers, expect more causality. (By Alec Macfarlane)

Breakingviews

Reuters Breakingviews is the world’s leading source of insight into financial agenda setting. As a Reuters brand for financial commentary, we dissect big business and economic stories as they spread throughout the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Register for our free, full-service trial at https://www.breakingviews.com/trial and follow us on Twitter @ Breakingviews and at www.breakingviews.com. All opinions expressed are those of the author.

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