Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Lloyds investors take bond row to court

Posted on 31 March 2015 by

The Lloyds' prancing horse logo sits on a sign outside a Lloyds Bank branch, a unit of Lloyds Banking Group Plc, in London, U.K., on Tuesday, Feb. 24, 2015. The U.K. government sold a further 500 million pounds ($769 million) of Lloyds Banking Group Plc shares this week as part of a plan to reduce its stake in the country's largest mortgage lender in the run-up to May's general election. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Hundreds of retail investors holding special high-income bonds in Lloyds Banking Group have succeeded in taking the bank to court over its plans to buy back the debt at face value.

The state-backed lender said on Tuesday that it had received permission from the Prudential Regulation Authority to redeem certain “enhanced capital notes” — hybrid bonds that pay coupons as high as 16 per cent a year.

    The special debt instruments, launched by the bank after the financial crisis, pay bond-like income but switch into equity if the lender’s capital buffer falls below a certain level.

    Lloyds had issued about £8.3bn of these types of bonds to both retail and institutional investors in 2009 following the financial crisis, as a way to shore up capital buffers.

    But the bank decided in December to redeem about £700m of the bonds at par value after the lender passed the regulator’s tough stress test on its capital buffers.

    Investors who believe the bonds are worth far more than par value and are reliant on the income have lobbied politicians, the regulator, the bank and the trustee Bank of New York Mellon against the decision over the past few months.

    As a result, BNY Mellon has notified Lloyds that it is seeking a “declaratory judgment”, meaning the issue will be taken to court to clarify particular points within the bond contract.

    Rita Baskeyfield, a bondholder, said: “My husband and I are elderly, being 94 years and 89 years of age respectively, so are not an age when we are able to battle the complex issues involved with the Lloyds ECNs.

    “As you can imagine, we rely on the regular income from the investment and, as we understood it was valid until 2024, were happy to continue with the arrangement as it suited our needs.”

    Mark Taber, who has campaigned on behalf of bondholders against the proposed redemption, believes the declaratory judgment is a step in the right direction for investors.

    “The verdict of the declaratory judgment will bind all ECN bondholders, so I suspect other funds might come out of the woodwork,” he said.

    Mr Taber said taking the issue to court is “the best way” of attempting to resolve the situation. “If you have a dispute of a contract, the answer should come from court, in a controlled manner.”

    He estimates that there are about 20,000 retail investors who will be affected, although he believes many are not yet aware of this situation.

    For Lloyds, the move to redeem the bonds comes after changes to the regulatory landscape for banks’ capital requirements have rendered them an expensive and obsolete form of funding.

    In the latest set of stress tests on UK banks in December, the ECNs were not included in the bank’s buffers because the point at which they converted into equity — based on Lloyds’ capital falling below a certain level — was too low.

    The bonds, which do not count as “core tier one capital”, would convert only if the bank’s buffer dropped to as low as 2 per cent, according to people familiar with the situation.

    As a result, the bonds no longer contribute to bolstering the bank’s regulatory capital requirements, which was the original thinking behind the creation of such instruments.

    Lloyds maintains this triggers a clause in the contract that allows the bank to redeem the bonds at par, in what is dubbed a “disqualification event”.

    Meanwhile, the PRA’s role is to measure the capital impact of redeeming the bonds. As these bonds essentially no longer count as core tier one capital therefore mitigating any impact on the bank’s buffers, the regulator has given the green light for the bonds to be bought back.

    But Mr Taber and other investors are arguing the exact wording in the terms and conditions that allow Lloyds to claim a “disqualification event”.

    “It relates to the stress tests at the time in 2009 and is not based on future stress tests,” said Mr Taber. “The wording was specific to stress tests of 2009, but they are using it for future ones to call the bonds.”

    The other issue, Mr Taber said, is how the main risk was portrayed as the bonds converting into equity, rather than the fact the bank could call the bonds in before maturity.

    “They’re using this stress test as a catalyst to do this,” he said. “So they say if we struggle, you lose bonds; but if we do well, then we can buy your bonds back on the cheap.”

    Lloyds last year offered to swap many of its retail ECNs at market value for cash, while institutions were offered AT1 notes. However, only 12 per cent of retail investors took up the cash offer.

    Lloyds said: “We welcome the fact that PRA has granted permission for us to redeem our ECNs in accordance with regulatory requirements, and will work together with the Trustee on the declaratory judgment in order to provide certainty for all involved.”

    UK brokers cautious ahead of election

    Posted on 31 March 2015 by

    A stockbroker gestures while monitoring financial data on his computer screens at Shore Capital Group Ltd. brokerage in London, U.K., on Thursday, March 28, 2013. Cyprus's banks opened for the first time in almost two weeks, with new rules curbing access to cash preventing an initial panic to withdraw deposits. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

    UK brokers Cenkos Securities and Shore Capital reported strong full-year results this week but warned that next month’s general election is likely to dampen capital markets activity.

    Secondary commissions are also continuing to come under pressure from regulatory changes, the brokers said.

      Cenkos Securities’ role as sole adviser on the flotation of the AA, Britain’s largest roadside recovery service, drove an overall increase in revenues by 72 per cent to £88.5m during the year to December 31, the company said on Monday. Profits before tax increased 152 per cent to £27m, largely because of the £30m fee that Cenkos netted when it helped the AA raise £1.385bn at its initial public offer in June. The company proposed a final dividend of 10p.

      Jim Durkin, CEO of Cenkos, said: “My overall sense of the market is that it is OK but I wouldn’t be at all surprised if there was some flatness running into the election.” He said he was confident about Cenkos’ pipeline of deals: “The IPO market is always open for good ideas.”

      Earlier this month, Cenkos was sole adviser on a £1.2bn reverse takeover of British Car Auctions by Haversham Holdings. Cenkos bought back 9 per cent of its shares in January 2014 and has now returned £76.4m of cash to shareholders (equivalent to 118p per share) since it was floated in 2006.

      On Tuesday, rival broker Shore reported that revenue increased 13.4 per cent to £40.58m in the year to December 31 and profit before tax was up 53.6 per cent to £8.31m.

      Its equity capital markets business, which worked on IPOs such as retailers Poundland and N Brown Group, increased pre-tax profits by more than 60 per cent to £9.8m. This was partly offset by a small pre-tax loss of £0.32m from Shore’s proprietary position in Spectrum/DBD, a German telecoms company.

      Howard Shore, Shore chairman, said: “The momentum and pipeline shows that we’re making major penetration in winning business that was once the domain of the bulge-bracket banks [ . . .] Capital markets have started the year with more caution pending the outcome of the general election.”

      Secondary trading commissions paid to brokers are coming under pressure because of a push by European regulators to separate the payment for research from trading commissions.

      Mr Shore said: “There’s no question that secondary commissions are under pressure in terms of an adverse secular trend. The regulatory changes are not helpful in the context of commission revenues.”

      Mr Durkin said: “It will be very difficult to pay for research. Less research is being made available in SME markets. I think that will be a bad thing.”

      As the business models have come under pressure, consolidation has been taking place. Earlier this month it emerged that Charles Stanley Group has entered into exclusive talks to sell its securities division to Stifel Financial, a US financial services group that also bought UK broker Oriel Securities last year.

      Last week City stockbroker Panmure Gordon said it would pay its first dividend in eight years after pre-tax profits increased 84 per cent during 2015 to £2.15m.

      Bullring owner buys plot next to HS2 site

      Posted on 31 March 2015 by

      Analysts say Hammerson is protecting its investment in Birmingham's Bullring shopping centre©Bloomberg

      Analysts say Hammerson is protecting its investment in Birmingham’s Bullring shopping centre

      The company that owns Birmingham’s Bullring shopping centre has taken over one of the biggest development sites in the city centre, next to the location of the proposed High Speed 2 rail station.

      Hammerson, which opened the remodelled Bullring in 2003, has taken control of the six-acre Martineau Galleries site for an undisclosed sum, believed to be about £28m.

        The site, in the rundown Eastside part of the city centre, first received outline planning consent in 2006 for a £550m mixed use development. Today it comprises a group of dowdy 1970s buildings, including shops, offices and multistorey car parks.

        Hammerson was already a part-owner alongside Land Securities and the Pearl Group, but decided to buy out their interests after putting the property up for sale in May.

        By buying out its partners, Hammerson protects its Bullring investment, analysts say.

        “There’s consented planning for 85,000 sq m, 915,000 sq ft of retail, and that’s really why Hammerson didn’t want anyone spoiling their party at the Bullring,” says David Smeeton, director with Colliers International.

        But the deal also gives it a key role in the regeneration of the HS2 site, centred on the old Curzon Street station, where work is due to start in 13 months.

        The announcement is another boost for Birmingham, which last week saw HSBC choose to move its retail bank headquarters to the city — a decision also driven in part by HS2.

        “Birmingham can’t seem to keep itself out of the news at the moment. But this is the most exciting opportunity, and such a key site. Strategically it’s right on the doorstep of HS2,” says Mr Smeeton.

        The city council’s master plan for the 140 acre Curzon Street regeneration area published last year envisages prime mixed use development for Martineau Galleries, including “grade A office space immediately opposite Birmingham Curzon station”.

        Liz Peace, recently appointed chairman of the Birmingham Curzon Urban Regeneration company, says: “We’re looking to make sure it turns into a real area with character, not a soulless regeneration project.”

        A lot of cities talk but Birmingham has actually done what they said they were going to do

        – Robin Dobson, Hammerson

        The district was once known as a poor Irish neighbourhood — indeed Scruffy Murphy’s public house is one of the Martineau Galleries assets. Ms Peace, a former head of the British Property Federation industry group, recalls as a child in Birmingham “it was not an area a nice girl went”.

        But she says: “In a funny sort of way the recession has done us a favour because it meant that bits of the Eastside site were not developed. So we’ve actually now got an extraordinary piece of land where you can put the station and you can look at what you can put around it.”

        Hammerson, by far Birmingham city centre’s biggest private sector investor, credits the council with pushing infrastructure such as the city tram system.

        Robin Dobson, the company’s director of retail development, says the city has been prepared to make risky investments, including buying the Pallasades shopping centre site at New Street station, now redeveloped as Grand Central, with John Lewis as its anchor tenant.

        “Particularly in the recession, public authorities have an increasingly important role to show confidence in their cities and towns,” says Mr Dobson.

        “Birmingham council has demonstrated that very well — putting your money where your mouth is, so to speak. A lot of cities talk but Birmingham has actually done what they said they were going to do.”

        Euro leveraged loans take on US flavour

        Posted on 31 March 2015 by

        “Debating future demand in the teen market made him feel like a drug pusher,” the late Ted Forstmann, a titan of private equity, mused when bidding for RJR Nabisco in 1988. It made Camel cigarettes. He lost, KKR won, and their story was told in Barbarians at the Gate.

        What he was doing is how buyout companies, an industry that runs on debt, have usually won credit from syndicates of banks for corporate takeovers or refinancings: generating projections to show companies can pay it back.

          More than a quarter of a century later US regulators are taking a close, and sceptical, interest in this process.

          The conundrum is whether their reach will extend to European leveraged loan markets, which are aping their US cousins in other ways.

          As of this year, guidance from the Federal Reserve and other agencies aims to dissuade banks from arranging private equity loans of more than six times a buyout target’s earnings before interest, tax, amortisation and depreciation. This will apply “for most industries”, unless projections for business are very, very good.

          The guidance has already cast a chill on US private equity activity.

          US leveraged loan issuance more than halved to $119bn in the first quarter versus $295bn during the same period last year, Dealogic data show.

          US buyouts also fell to less than $13bn in the first three months of this year versus $33bn a year earlier, according to Thomson Reuters data.

          Lending in Europe also ebbed, although to a lesser extent, falling by a third to $44bn (€40bn). The eurozone should be a debtor’s paradise with a weakening currency, low rates leaving investors desperate for yield and signs of a budding economic recovery.

          Regulators in the UK and Europe have also not cracked their knuckles over leveraged loans in the same way.

          Last week, after a review of UK banks’ underwriting, the Bank of England’s Financial Policy Committee judged that: “At present no action is necessary to mitigate risks in this market.”

          That market remains relatively small. Less than a tenth of UK company financing comes from leveraged lending.

          Meanwhile across Europe, traditionally few buyouts breach the six-times threshold. Large takeovers (which demand more leverage) are relatively rare events for the region’s private equity companies.

          Nevertheless, US forays for European issuers, or tapping US banks in syndicates, may become more difficult.

          Last year “saw a huge spike in European borrowers accessing the US market” to finance deals concentrated in Europe, says Stephen Gillespie, a partner at Gibson Dunn.

          You might, if you’re cynical, say that [bank] credit officers see the leveraged loan guidance as the best thing since sliced bread

          – Stephen Gillespie, partner, Gibson Dunn

          The dollar’s rise against the euro will have put paid to many such borrowers returning this year. But they may also be wary of Answer 22.

          In one response in a FAQ published last year, regulators clarified that the location of loans was “irrelevant” for US banks being subject to the guidance. Foreign banks with US charters would also be subject if they sold leveraged loans to US-based investors.

          “When you have a large European transaction with a dollar tranche . . . that is going to be distributed in the US” and subject to the guidance, even if a European bank led the loan, according to Pierre Maugüé, a partner at Debevoise & Plimpton.

          This has pushed issuers to reconsider the structure and modelling of deals even when borrowing rates are benign.

          “It’s brought leverage levels front and centre in people’s thinking,” Mr Maugüé says.

          “You might, if you’re cynical, say that [bank] credit officers see the leveraged loan guidance as the best thing since sliced bread,” for controlling the pricing of credit, Mr Gillespie adds.

          But the uncertainty may also reinforce another paradoxical trend in European leveraged credit. This is a boom in US-style covenant-lite loans, which are being sold to purely European investors for the first time.

          Last year, European cov-lite issuance topped $20bn. The nearly $5bn issued so far this year has already surpassed annual sales in 2011, 2012 or 2013.

          Traditional European leveraged loans typically contain around three or four financial clauses, such as debt-to-ebitda ratios, to corral borrowers.

          That long made the products more conservative (though quicker to arrange) than high-yield bonds in the region.

          This is changing as European bankers respond to the US market. A £435m loan currently in the market from the European buyout company Apax, tied to its portfolio company Top Right (formerly Emap), has tranches as cov-lite as a recent US dollar loan arranged for another holding, Exact.

          That may give European buyout companies an advantage over time.

          Private equity owners “obviously prefer not to be lumbered with hair-trigger maintenance covenants,” Mr Gillespie says.

          Large currency movements especially could cause sudden spikes in the leverage ratio terms of cross-border deals.

          As the US dollar rises, possibly with US interest rates following it, and US regulators keep a tight grip on lending, that means Europe’s leveraged loan renaissance may have more room to run.

          How Goldman taught me entrepreneurship

          Posted on 31 March 2015 by

          Jason Gissing while still working at Ocado, the online grocer he co-founded©Charlie Bibby

          Jason Gissing while still working at Ocado, the online grocer he co-founded

          In 1992, my class of Goldman Sachs trainees returned to London from our induction in New York. Our reputation preceded us.

          “You arrive with a billing that puts you somewhere between Police Academy and Animal House,” were the opening words of Jon Aisbitt, the then Goldman partner who welcomed us back and who now chairs the UK’s Man Group. “Now let’s channel that energy into your work, shall we?”

            I rarely met such charismatic management again. I switched to trading, where the moneymakers were typically promoted on the strength of their profit and loss statement rather than their ability to lead.

            The great rewards on offer meant it was in some ways a snake pit, but the trading floor nevertheless instilled fierce professional discipline and a strong sense of integrity (“my word is my bond”) that shaped my entire working life.

            Ten years after Mr Aisbitt’s address, Tim Steiner, a fellow Goldman trader, and I had raised almost £50m to fund Ocado, the online grocer. We had spent more than £12m of this money on a monorail system to pick and pack orders. We waxed lyrical about taking technology from the car industry and cleverly applying it to supermarket retailing. But it soon became evident that it just did not work.

            In more established businesses, the sponsors of projects rarely admit failure but Tim and I were accustomed to the culture of the Goldman trading floor, where every trader had a P&L published every night for management to see. There was nowhere to hide.

            We knew that “the first cut is the cheapest”: that when facts change you must change course swiftly and suffer the loss early. Ocado’s partner, John Lewis, was horrified when we said we were going to scrap the monorail and take what we had learned to develop a different solution. But being decisive saved us from an almost inevitable death.

            The discipline of those early trading years actually helped us in many ways. We were often asked if being bond traders had any relevance whatsoever to building Ocado. But what is at the core of running any business, other than constant decision-making and problem-solving?

            It is an exercise in deciding “what next” based on the information available. That is exactly what we were doing as young traders, and the rigour of the daily P&L and constant scrutiny from above proved to be invaluable as we juggled shareholders, the board, staff and customers.

            Rather less helpful was the Goldman association with Webvan, the California-based online grocer, early ecommerce darling and recipient of almost $100m in investment from the bank. Webvan blew up spectacularly in 2001, after raising close to $1bn.

            Imagine us calling prospective Ocado investors in the early 2000s after the Nasdaq bubble had burst: “What? You worked for Goldman and you’re starting an online grocer? Are you nuts?” Hank Paulson, a former Goldman chief executive, had been a cheerleader for Webvan and that haunted us for years. Coming from the straightforward world of trading (where you are either a buyer or seller) we were also surprised that there was much more leeway in other fields between what is said and what is done.

            Service companies in particular often promised to perform then failed. Without shame they would then ask for more fees to do exactly what they had initially committed to do. Our training helped us suppress the constant temptation to indulge in sharp practice.

            Others from that Goldman Sachs trading floor of the 1990s have gone on to great success.
            Michael Sherwood, then our immediate boss, is now co-chief executive of Goldman Sachs International and is (arguably) the most influential financier in the City of London. Our former colleague Mark Carney is now helping steer the UK economy as governor of the Bank of England.

            Shaped as they were by the culture of constant risk evaluation and expectations of professional integrity, they now hold high office. Having endured the trials of life on the trading floor for many years, we also had a solid and invaluable grounding to start our own business.

            No institution is flawless, and we all suffer from the foibles of personal ambition. But despite the sniping and slurs Goldman Sachs has attracted, it proved to be the best introduction to working life I could have asked for.

            The writer co-founded Ocado in 2000 and left the company last year

            Pru’s Thiam gets 36% pay rise to £11.9m

            Posted on 31 March 2015 by

            Tidjane Thiam, chief executive officer of Prudential Plc, reacts during a Bloomberg Television interview on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 21, 2015. World leaders, influential executives, bankers and policy makers attend the 45th annual meeting of the World Economic Forum in Davos from Jan. 21-24. Photographer: Simon Dawson/Bloomberg *** Local Caption *** Tidjane Thiam©Bloomberg

            Tidjane Thiam, the outgoing Prudential chief executive, received a 36 per cent pay rise in 2014, taking home £11.9m after the UK insurer enjoyed a strong year.

            Lord Turnbull, chairman of the Pru’s remuneration committee, justified the increase on the grounds that the remuneration policy was aligned to the company’s performance, saying that £100 invested in Prudential on January 1 2012 was worth £257 on December 31 2014.

              “This performance outstripped that of other international insurance companies; this measure of total returns was the performance condition attached to the group performance share plan awards made in 2012, therefore the committee determined that these awards should be released in full in spring 2015,” he wrote.

              Mr Thiam, who is replacing Brady Dougan as chief executive of Credit Suisse in June, was paid a salary of £1.06m. The largest component of his package was £8.25m from his long-term incentive plan. He also received the maximum possible bonus of double his salary — or £2.12m — £265,000 in pension benefits and £132,000 in taxable benefits.

              In 2013, Mr Thiam received £8.7m, which was less than Mike Wells, the head of Jackson, Prudential’s US operations, who was paid £11.88m. In 2014, Mr Wells, who is expected to replace Mr Thiam, was paid £11.39m.

              Since Mr Thiam became chief executive, Prudential’s share price has risen 185 per cent, compared to a 35 per cent gain in the FTSE 100. In the last year it has risen 32 per cent.

              Prudential further justified the pay rises by saying in the annual report that total shareholder return since December 2008 has increased 413 per cent, compared to 120 per cent for unspecified “international insurers” and 91 per cent for the FTSE 100.

              Mr Thiam’s pay package in 2010, his first full year in charge, was £5.29m.

              Mr Thiam could well take a significant pay cut when he moves to Credit Suisse. Mr Dougan received SFr9.7m (£6.75m) in 2014, his final year in charge.

              Michael McLintock, chief executive of M&G, Prudential’s European investment management arm, was the next highest paid executive, receiving £5.58m, down from £6.49m in 2013.

              The insurer’s eight executive directors received £48.58m between them, 11 per cent more than the £43.8m the seven executive directors Prudential employed in 2013.

              Fellow insurer Old Mutual also published its annual report on Tuesday. Julian Roberts, chief executive since September 2008, was paid £4.2m, including £910,000 in base pay, £1.8m in long-term incentives and £1.08m in short-term incentives.

              This was 12.5 per cent less than the £4.8m he was paid in 2013, due mainly to a £624,000 cut in the long term incentive part of his package.

              DPI closes Africa fund at $725m

              Posted on 31 March 2015 by

              ©Bloomberg

              The city skyline from Table mountain in Cape Town, South Africa

              Development Partners International, the private equity house, has closed its second Africa fund at $725m, 45 per cent above target, reflecting growing investor appetite to tap the continent’s expanding consumer class.

              Although Africa’s share of global private equity remains tiny, a decade of high growth and increasing record of returns is attracting more and new types of money. Investors said consumer-facing industries from private education and insurance to retail offer the chance of high returns.

                “We invest in industries that benefit from the emerging middle class — these are industries that are growing at 20 per cent a year; a rising tide lifts all ships,” said Runa Alam, DPI’s chief executive and co-founder. She said the London-based private equity group’s first fund, also Africa-focused, has so far made two full exits of its nine investments, with internal rates of return higher than 30 per cent.

                Such results are also changing the structure of investment into the continent, bringing greater backing from big-hitting institutional investors which have previously shirked Africa. Nearly a third of the total value of DPI’s second fund comes from eight pension funds, up from only 12 per cent and two pension funds including the Missouri State Employee’s Retirement System in the first fund, which raised $400m in 2008.

                “What is really gratifying is that pension funds are now coming into Africa . . . they have the biggest amount of private capital in the world — they’re chasing returns,” said Ms Alam.

                The African Private Equity and Venture Capital Association said private equity deal value reached a seven-year high for Africa last year, at $8.1bn, just shy of the 2007 $8.3bn peak before the global financial crisis.

                Global asset management companies such as Carlyle and KKR have also recently made their first forays into Africa, including a $200m investment from KKR into an Ethiopia rose farm last year. Carlyle also raised its first Africa-focused fund in 2014, surpassing its target by 40 per cent with $698m.

                Abraaj raises $1.3bn for African investment funds

                A Gautrain passenger train travels through the outskirts of Pretoria, South Africa, on Tuesday, Aug. 23, 2011. South Africa expanded its rapid-rail line, connecting Johannesburg's main business district with the capital, Pretoria, in a bid to ease traffic congestion in the country's richest province. Photographer: Nadine Hutton/Bloomberg

                further investor interest in the continent as private equity groups bet on strong growth

                Full story

                This year private equity on the continent also promises to be “exceptionally positive”, according to AVCA, which predicted “a bumper year” for fundraising. Dubai-based private equity group Abraaj has just raised more than $1.3bn for two funds investing in Africa; Helios raised $1.1bn for its third Africa fund in January.

                While some private equity investors complain it is hard to find big enough deals in Africa to match large-scale investors, or secure suitable exit strategies, Ms Alam said the key is to pay the right price for a fast-growing African blue-chip with proven record and management team.

                “Car insurance is a standard emerging middle class product, as is pharma, as is sending your child to university — once you’re in the middle class you will want this product,” she said of the types of companies in which DPI is already invested, arguing low valuations pay off for the seller so long as growth is strong.

                She said another draw is that while growing Asian companies tend to turn themselves into holding companies and spin off new products or industries, African companies are expanding their regional or even pan-continental reach, helped by government-backed efforts to boost cross-border integration. For example, Letshego, a Botswanan finance services provider that offers unsecured loans to civil servants and is among DPI’s existing investments from its first fund, now operates in 10 African countries.

                European bourses mixed as US futures dip

                Posted on 31 March 2015 by

                Tuesday 08:30 BST. Equity markets are suffering patchy end-of-quarter profit-taking even as analysts welcome signs Beijing will take monetary and fiscal action to support the world’s second-biggest economy.

                Those hopes got the week off to a good start for US, European and Chinese benchmarks, but investors have turned more cautious, made wary perhaps by concerns over Greece as the euro slips back.

                  US index futures show the S&P 500 opening at 2,080, shedding six of the 25 points recovered on Monday, while across the Atlantic the FTSE Eurofirst 300 is starting the session up just 0.2 per cent as Germany’s Dax retreats 0.1 per cent.

                  The dollar index is up 0.3 per cent to 98.72 and 10-year Treasury yields are easing 1 basis point to 1.95 per cent as traders jostle ahead of crucial US jobs data due at the end of the week, when markets will be closed for Good Friday.

                  The euro is down 0.6 per cent to $1.0765, shrugging off better than expected German retail sales, as investors wait to see if Greece and its lenders can reach agreement on Athens’ reform proposals that will allow for the release of emergency funding.

                  Pressure on the common currency also comes from the European Central Bank’s ongoing €60bn-a-month stimulus programme, a strategy that sees Berlin’s 10-year implied borrowing costs at just 0.21 per cent, barely changed on the day.

                  The firmer buck is putting downward pressure on commodity prices, with gold off $6 to $1,180 an ounce, copper retreating 0.1 per cent to $6,088 in a generally weak base metals sector and Brent crude sliding 1.2 per cent to $55.60 a barrel.

                  In China, the Shanghai Composite initially rose 1.3 per cent to 3,836, its best level since March 2008, before falling back to register a loss of 1 per cent to 3,749. The index’s 14-day relative strength index, a momentum gauge, had moved above 80 and deep into “overbought” territory, a sign that may have encouraged more technically focused traders to pare bullish positions.

                  At the high point the mainland barometer had surged 18.6 per cent for the first three months of the year, boosted by expectations Beijing will continue to loosen monetary policy to ensure growth can match the government’s 7 per cent target.

                  The authorities have taken measures to revive the flagging housing market and also are more active on the fiscal front, over the weekend announcing two regional initiatives aimed at shoring up trade and investment with China’s neighbours.

                  The support from policy makers is providing a strong fillip to the market, said analysts at Capital Economics.

                  “This will most likely push equities even higher this year and we now think the Shanghai Composite is set to hit 4,000 by year end,” they added.

                  More impressively still, China’s $3tn Shenzhen Composite, which has outperformed every major index on the globe this year, is up 38 per cent for the quarter.

                  Known for its “new economy” stocks — internet, high-technology and software start-ups — the index rose a further 0.5 per cent on Tuesday, a 12th gain in 13 sessions that took it to a record high on a trailing price/earnings ratio of 47.

                  Still, the problems facing the Chinese economy have been highlighted by the suspension of trading in shares of Kaisa in Hong Kong, after the beleaguered property developer delayed publication of full-year earnings, saying auditors needed more time.

                  Kaisa bonds due in 2018, which were already trading at just 31 cents on the US dollar, fell further. The company is trying to restructure more than $10bn of onshore and offshore debts. The Hang Seng index rose 0.2 per cent to its best close this year.

                  Elsewhere in Asia-Pacific, Australia’s S&P/ASX 200 added 0.8 per cent after figures showed private sector lending at its highest in six years and the property market still booming.

                  Private sector lending — which encompasses home, personal and business loans — rose 6.2 per cent year-on-year, according to the Reserve Bank of Australia.

                  The data suggest the RBA’s move to cut its benchmark rate to a fresh historic low of 2.25 per cent in February is helping revitalise the economy as the mining boom abates. But the Aussie dollar is succumbing to broad greenback strength, easing 0.2 per cent to US$0.7630.

                  Tokyo’s Nikkei 225 was on for an 11 per cent gain for the first quarter, but investors decided to take some gains off the table, leaving the Tokyo benchmark down 1.1 per cent on the day.

                  Additional reporting by Jennifer Thompson in Hong Kong

                  CBRE buys JCI real estate arm for $1.5bn

                  Posted on 31 March 2015 by

                  Fully assembled electrode sit on the production line at the Johnson Controls Inc and Saft Groupe SA joint venture Lithium-ion battery for electric and hybrid cars factory, in Nersac, France, on Wednesday, May 26, 2010. Johnson Controls Inc. and Saft Groupe SA will supply the battery for Ford Motor Co.Õs all-electric Transit Connect van that goes into production in late 2010. Photographer: Fabrice Dimier/Bloomberg©Bloomberg

                  CBRE, the world’s largest property services company by revenue, agreed to acquire Johnson Controls’ real estate management unit for $1.48bn, the two companies said on Tuesday.

                  Johnson Controls, best known as an auto-industry supplier, decided to sell its Global WorkPlace Solution business, which manages 1.2bn square feet of real estate in 55 countries, to focus on developing high-tech equipment for corporate offices.

                    The Milwaukee-based company produces York-branded air-conditioners and heaters, as well as centralised control systems to regulate energy usage, fire safety and security.

                    The sale is part of an effort by JCI to focus on the highest-margin parts of the business, which is one of the world’s largest manufacturers of car seats and batteries, as well as building systems.

                    JCI announced the business was for sale in September last year.

                    “Even if the building parts of our business is highly important, where we are creating value is in product technology,” Alex Molinaroli, chairman and chief executive of Johnson Controls, told the Financial Times.

                    The Global Workplace Solutions business produced segment income of $26m, on sales of $1.04bn for the three months to December 31.

                    “As a manufacturing and product business . . . the type of energy and effort, where we are going to be the most acquisitive, will be around manufactured products from a technology view point,” Mr Molinaroli said.

                    As part of the deal, the two companies are forming a 10-year strategic relationship. Johnson Controls will become the preferred supplier of heating, ventilation and air conditioning equipment, building automation services and related services to the new, expanded CBRE portfolio of buildings.

                    “The agreement provides Johnson Controls with new channels for its offerings and when fully operational is expected to generate up to $500 million of annual incremental revenue for the Johnson Controls building efficiency business,” Johnson Controls said.

                    CBRE, meanwhile, will provide corporate real estate services to 50m sq ft of Johnson Controls properties.

                    Mr Molinaroli said the agreement was “much more than a transaction”.

                    “It reflects our commitment to grow our buildings business, and is a long-term arrangement with significant mutual value and a strategic partnership that will drive sustainable growth for both companies.”

                    Bob Sulentic, president and chief executive officer of CBRE, said: “With GWS, we further our ability to create advantages for occupier clients by aligning every aspect of how they lease, own, use and operate real estate to enhance their competitive position.”

                    China to launch deposit insurance in May

                    Posted on 31 March 2015 by

                    China Renminbi©Bloomberg

                    China will launch a long-awaited deposit insurance system next month, the central bank said on Tuesday, a crucial step towards deregulating domestic interest rates and promoting market-based capital allocation.

                    Zhou Xiaochuan, the central bank governor, told reporters last month that China could remove the cap on bank deposit rates — the last remaining domestic interest rate subject to administrative regulation — by the end of this year.

                      Deposit insurance lays the foundation for freeing up rates by ensuring that savers are protected even if competition for deposits leads to excessive risk-taking and bank failure. The People’s Bank of China said deposits up to Rmb500,000 ($80,600) would be insured.

                      “Deposit insurance is a precondition for interest-rate liberalisation. The implementation of the system means rate liberalisation is speeding up,” said Tao Wang, greater China economist at UBS in Hong Kong.

                      Economists say lifting the cap on bank deposit rates will lead to higher interest rates as banks compete for funds. That should improve capital allocation as lenders seek out more productive borrowers able to afford higher rates, including small, privately owned businesses that have long struggled to obtain bank loans.

                      The PBoC was widely expected to launch deposit insurance last year but bankers say behind the scenes wrangling led to delays. Larger banks resisted a structure that would have forced them to pay a disproportionate share of insurance premiums, in effect subsidising smaller lenders that are most likely to fail.

                      The details of the system largely match those of a draft plan released in late November last year. Analysts said at the time that the Rmb500,000 limit would fully cover about 98 per cent of Chinese depositors, though the large share of deposit funds held by wealthy savers means that would still leave a significant chunk of the banking system’s Rmb126tn in deposits uninsured.

                      Citing the experience of other countries, the International Monetary Fund has previously said that the rollout of deposit insurance could lead to deposit outflows from smaller banks, as it highlights bank failure as a realistic possibility and explicitly defines some deposits as unprotected.

                      Almost all Chinese banks are state-owned, and domestic savers have traditionally viewed all bank deposits as carrying an implicit government guarantee.

                      In reality, even with deposit insurance in place, analysts remain sceptical that China’s government — with its focus on financial and social stability — would allow a bank failure. A series of technical defaults on risky high-yield debt has been permitted in recent years, but in each case the government ended up bailing out retail investors.

                      The PBoC added that it could adjust the insurance limit if economic conditions change. The central bank will manage the deposit insurance fund, which can invest in government bonds, central bank bills, and other high-rated bonds.

                      Additional reporting by Ma Nan in Shanghai

                      Twitter: @gabewildau