Financial Times UK - 18.09.2019

©The Financial Times Limited 2019 Week 38

Companies / Sectors / People

E R I C P L AT T A N D

J O E R E N N I S O N— NEW YORK

JA M E S F O N TA N E L L A- K H A N— LONDON

Adam NeumanntoldWeWorkemploy-

ees he was “humbled” by the aborted

initial public offering of his lossmaking

property group, admitting he needed

to learn lessons about running a public

company.

In a webcast yesterday, hours after

WeWork shelved its listing, the chief

executive offered contrition over the

handling of the IPO process, according

to people who saw the presentation.

The co-founder said he believed he

knew how to run a private company but

he had since received feedback on the

role he needed to play as a leader of a

soon-to-be public group. Amid recrimi-

nations over the derailed process, a per-

son who worked closely with Mr Neu-

mann said his outsized personality

played a “huge role”.

The poor trading of other tech groups,

including ride-hailing apps Uber and

Lyft, contributed to Mr Neumann’s

decision to delay the IPO, according to

people close to him. Staff have watched

on the sidelines as WeWork’s advisers

slashed the group’s $47bn valuation in

their bid to drum up investor interest.

He was joined for the webcast by

Miguel McKelvey, co-founder and chief

culture officer, andArtie Minson, chief

financial officer, with the three execu-

tives promising employees that the IPO

would be completed this year.

But, according to people briefed on

the matter, it was unclear if WeWork

would be forced to postpone the listing

until 2020 or later. WeWork declined to

comment. The decision to postpone the

IPO on Monday sent shockwaves across

the venture capital world and sparked a

sell-off in WeWork’s bonds yesterday.

In a sign of the financial strain on the

company, the yield on its $702m of junk

debt surged to 8.9 per cent, according to

bond trading platform MarketAxess.

The company borrowed the money last

year, at 7.875 per cent.

Potential investors raised a range of

concerns, including over the scale of

WeWork’s losses, its complex corporate

structure and the sway Mr Neumann

has over the company.

WeWork founder Neumann ‘humbled’

amid recriminations over failed listing

Companies
3G Capital..............................................12,
AIB...................................................................26AT&T...............................................................
Aldi .................................................................
Alibaba........................................................9,
Amazon.......................................9,12,14,17,
American Airlines....................................12Anheuser-Busch InBev........................
Ant Financial..............................................
Apple.........................................................12,
Arm Holdings............................................
Asahi...............................................................25Avito................................................................
Aviva...............................................................
Axa...................................................................
BHP Billiton.................................................
BMW................................................................16BPCE...............................................................
Bank of America......................................
Bank of China............................................
Bank of East Asia...................................
Bank of Ireland........................................26Bank of Scotland.......................................
Bankia............................................................
Barnes & Noble Education...............
Beyond Meat................................................
BlackRock................................................11,18Boeing............................................................
Bpifrance......................................................
Brewin Dolphin.........................................
Budweiser....................................................
Burberry.......................................................26CBS...................................................................
CLSA................................................................
Canon..............................................................

Caterpillar.....................................................

Cathay Pacific......................................14,

Chevron.........................................................12Citic Securities..........................................

Citigroup.......................................................

Cobham.........................................................

Colgate-Palmolive...................................

Corning.........................................................26Danone..........................................................

Danske Bank..............................................

DeepMind....................................................

Deloitte ........................................................

Delta................................................................12Destination Maternity..........................

Didi Chuxing...............................................

Drone Defence............................................

Early Light Group ..................................

Facebook................................................2,9,15Foxconn.........................................................

French Connection.................................

Funko.............................................................

GFG Alliance..............................................

GIC...................................................................25GKN.................................................................

Google...........................................2,9,10,16,

Greensill Capital......................................

Gulf Keystone Petroleum...................

HBO.................................................................15HKEX.........................................................10,

HSBC...............................................................

Halifax..............................................................

Hitachi............................................................

Home Depot...............................................17Huawei...........................................................

Hulu.................................................................

Husqvarna...................................................

Impossible Foods.......................................

Ineos................................................................

InfraBuild......................................................25InterContinental Hotels......................

Internet Archive.......................................

J Sainsbury.................................................

JCB...................................................................

JPMorgan.........................................12,18,25Kinnevik..................................................14,

Komatsu........................................................

Kone................................................................

Kraft Heinz...........................................14,

Kroger ...........................................................18LG Chem.......................................................

LG Display...................................................

Lidl...................................................................

Lloyds.............................................................

Lloyds Banking Group......................3,18London Stock Exchange...............10,

M3.....................................................................

Marks and Spencer................................

Melrose Industries..................................

Metro Bank.................................................18Microsoft..........................................................

Monzo.............................................................

Moody’s.........................................................

MyBank..........................................................

Natixis............................................................14Nestlé.............................................................

Netflix.............................................................

Nokia...............................................................

Ocado.............................................................

Olympus........................................................17PPHE..............................................................

Prada...............................................................

PrivatBank.....................................................

Prysmian......................................................

RBS .................................................................

Rocket Internet.........................................14SAIC ...............................................................

Samsung.......................................................

Samsung Display.....................................

Saudi Aramco...................................6,12,

Schindler.......................................................14Schroders.....................................................

Schroders Personal Wealth...............

Seibu Holdings.........................................

Sirius Minerals...............................12,13,

SoftBank.............................................10,13,14Sony.................................................................

Sony Financial...........................................

Southwest Airlines..................................

Spotify.......................................................14,

St James’s Place......................................18Standard Chartered...............................

State Street..................................................

Swedbank.....................................................

Swire Group................................................

TBS...................................................................15TPD ................................................................

Tata Steel.....................................................

Tele2................................................................

Tencent.......................................................9,

Tesco Bank....................................................3Third Point..................................................

Thomas Cook............................................

Thyssenkrupp............................................

Total.................................................................

TransferWise..............................................18Twitter..............................................................

Uber.................................................................

Ukrnafta..........................................................

United Airlines..........................................

United Technologies.............................

Vanguard.......................................................11Waitrose........................................................

Walmart .......................................................

WarnerMedia..............................................

WeBank..........................................................

WeWork....................................................13,

White Oak....................................................

Whole Foods...............................................12Wm Morrison.............................................

YouTube........................................................

Zalando...................................................14,

Sectors

Airlines...........................................12,14,17,

Automobiles..........................................10,

Banks................................3,4,10,16,18,25,26Financials.....................10,12,14,16,17,18,

Food & Beverage........................14,25,

Industrial Goods................................25,

Industrials........................................14,18,

Insurance.....................................................

Media........................................................15,

Mining............................................12,13,17,26Oil & Gas......................................6,12,25,

Personal & Household Goods........

Property........................................................

Retail...............................................12,17,18,

Retail & Consumer..................................

Support Services..................................2,13Technology..........................2,13,14,15,17,

Transport........................................................

Travel & Leisure................................18,

People

Allen, Nick....................................................

Boom, Steve...............................................

Chung, Ho-young....................................

Craps, Jan....................................................25Ehrnrooth, Henrik...................................

Fraser, Chris................................................

Ganev, Georgi............................................

Gates, Bill........................................................

Goto, Takashi.............................................18Graham, Mark............................................

Greenblatt, Bob........................................

Gupta, Sanjeev.........................................

Han, Sang-beom......................................

Hinrikus, Taavet.......................................18Kaarmann, Kristo.....................................

Kahle, Brewster.........................................

Kirby, Scott..................................................

Kolomoisky, Igor........................................

Lemann, Jorge Paulo............................14Loeb , Daniel..............................................

Mackenzie, Andrew................................

Marks, Stephen.........................................

McKelvey, Miguel.....................................

Milner, Yuri...................................................11Minson, Artie..............................................

Moltke, James von.................................

Musk, Elon....................................................

Neumann, Adam......................................

Persson, Goran..........................................16Rainbow, James........................................

Ratcliffe, Jim...............................................

Slosar, John.................................................

Smith, Melanie...........................................

Stenbeck, Cristina...................................14Stenbeck, Hugo........................................

Stenbeck, Jan............................................

Yoshida, Kenichiro...................................

been a “commercially sensitive” matter,

adding: “When examining any request

for financing we have to assess the

potential of a profit against the need to

protect taxpayers’ money.”

Sirius is hoping to find a strategic

partner to allow it to issue a bond and

secure the funding to complete the

mine. Hancock Prospecting, the miner

owned by Australian billionaire Gina

Rinehart, is unlikely to increase its

exposure.

In spite of the setback, Mr Fraser was

confident the mine, due to start produc-

tion in 2021, would be developed.

Additional reporting by Jim Pickard

Lexpage 12

headded. “Anything to do with the UK

and major capital projects is a big chal-

lenge for any financing at the moment.”

Sirius said the government had

turned down a request to guarantee

$1bn of bonds, which “would have ena-

bled the company’s financing to be

delivered as planned”.

But Mr Fraser suggested the govern-

ment was still supportive. “We made a

very specific ask in a short period of

time after we postponed the bond offer-

ing in August,” he said. “That didn’t

work for them. Does that mean we can’t

go back to them and continue a dia-

logue? No.”

Downing Street said the decision had

financing package, because of “ongoing

poor bond market conditions”. Sirius’s

shares fell 60 per cent to 4p.

The project involves sinking two

1.5km shafts below a national park on

the North York Moors to access a huge

deposit of polyhalite, a mineral that can

be used as fertiliser but is not commer-

cially proven. It has boosted the local

economy, with more than $1.5bn spent.

“If we go all the way to March and we

have not brought additional funding

into the project, then obviously at that

point in time we will be down to a mini-

mal number of staff,” Mr Fraser said.

Uncertainties around Brexit had

hampered its ability to issue the bond,

N E I L H U M E A N D C H R I S T I G H E

A $5bn project to build a huge potash
mine under the North York Moors was
plunged deeper into doubt after devel-
operSirius Mineralswas forced to pull a
$500m bond issue and admit it had
failed to secure government backing.
The company, which lost more than
half its value yesterday, has six months
to find fresh funding before it runs out of
money. It warned that 1,200 jobs were at
risk if the UK’s biggest mining project in
a generation came to a halt.
Chris Fraser, chief executive, said it
was not possible to issue the junk bond,
which was needed to unlock a $2.5bn

Sirius woe deepens as bond pulled

3 $5bn Yorkshire potash mine plunged into doubt 3 Developer in race to secure backing

‘Anything to

do with the

UK is a big

challenge

[to finance]

at the

moment’

Chris Fraser,

chief executive

W e d n e s d a y 1 8 S e p t e m b e r 2 0 1 9 A 1 3

Robin

Wigglesworth

Tail

Risk

Last week financial markets were rattled by a “factor”

shock that sent hot stocks plummeting while boosting

many of the biggest losers. The question now is whether it

will it prove a minor disturbance, or usher in a new regime?

Factors are the big, fundamental drivers of market

performance that financial academics have identified. In

theory they are extra returns that investors can harvest for

accepting a certain risk. For example, smaller company

stocks are riskier than bigger ones but historically they

have offered greater returns. Other factors focus on qual-

ity — the tendency for safer, more defensive companies to

do well over time — or value, which focuses on high-quality

stocks trading at unusually low prices.

There are many ways to measure these factors, and they

may seem obscure to investors, who still largely think of

the stock market in terms of individual companies, indus-

tries or countries. But as the money management industry

becomes quantitative, reliant on algorithms, understand-

ing factors becomes more important if investors want to

dissect market behaviour.

Last week was a prime

example. Global equities

climbed 1.2 per cent over the

five days, led by a bounce in

financial stocks. But beneath

the surface, there was a vio-

lent upheaval. Value stocks

enjoyed a renaissance, while

stocks with strong momen-

tum — or the best recent

record — were pummelled. Since the financial crisis, that

momentum has been most often associated with high-

growth companies, especially in the technology sector. But

this year investors have herded into high-quality, low-

volatility stocks, attracted by their supposed steadiness at

times of economic distress. That sucked in money follow-

ing the momentum strategy, pushing the rally to extreme

levels. But many of these defensive companies — especially

real estate trusts and utilities, or consumer staples such as

Colgate-Palmolive — benefit from falling bond yields,

which make their dividends look more attractive. When

this summer’s fixed income rally began to ease, low-vola-

tility, quality and especially momentum took a beating.

The factor quake has abated but there could be after-

shocks. The quality and low-volatility factors still look

expensive, while value remains in the doldrums after a

decade of poor performance. That means there is scope for

a further repricing — perhaps even a renaissance for value.

Moreover, Morgan Stanley’s Michael Wilson points out the

past two times markets experienced a momentum break-

down this severe, it preceded or coincided with a recession.

But momentum crashes are not uncommon, even if this

was an exceptionally bad one. To bet on a lasting upswing

for value, investors have to believe the current pessimism

is overdone and bond yields are heading higher. That still

feels like a risky wager.

[email protected]

Momentum

crashes are not

uncommon,

even if this was

an exceptionally

bad one

Indian rupee traders have suspected for a
while that London has outpaced India in
trading the currency. The latest triennial
survey of currency markets by the Bank
for International Settlements has
confirmed that hunch, showing that while
India sees some $35bn of rupee trades
every day, London handles $47bn.
The Reserve Bank of India established a
task force in February to address the
surge in activity abroad, responding to
fears that the central bank had, in effect,
lost control of the rupee’s exchange rate.
“The sharp growth in the offshore
trading volumes... have raised concerns
around the forces that are determining
the value of the rupee and the ability of
authorities to ensure currency stability,”
the RBI said in July. While the Indian
currency is not physically deliverable
outside the domestic market, foreign
investors can make bets in the currency
using non-deliverable forward contracts.
The RBI’s task force found that
London’s location, straddling time zones
between Asia and the US, gave it a key
advantage. The BIS’s report said London
had strengthened its grip on the overall
foreign exchange market over the past
three years, increasing its share of the
$6.6tn-a-day market to 43 per cent, up
6 percentage points from the last survey.
“In line with the fact that there are
more dollars traded in London than in
New York and more euros than in the EU,
it makes sense that rupee trades here as
well,” said Jon Vollemaere, chief executive
of trading platform R5FX.Eva Szalay

Out of IndiaJump in London rupee trades rings alarms

London becomes the largest

trading hub for Indian rupee

Source: Bank for International Settlements

Daily average (bn)







UK

India

Singapore

US

Hong

Kong

 

Oshore trading in

rupee booms

m









Spot Forwards

 

Dhiraj Singh/Bloomberg

Mario Draghi’s swansong, cutting the

ECB’s main deposit rate by 10 basis

points and revealing a tiering system,

disappointed EU banks that had hoped

for a respite from negative rates. The

relief from tiering will barely offset lost

earnings from lower rates, say analysts.

AnalysisiPAGE 16

ECB piles more pressure on

banks to generate returns

Set in stoneInternet Archive’s odyssey

to catalogue 60tn web pages— ANALYSIS, PAGE 15

On the brinkThe anomaly of rising debt

and falling rates is doomed— JOHN PLENDER, PAGE 26

SEPTEMBER 18 2019 Section:2Front Time: 17/9/2019 - 20:15 User: nick.miller Page Name: 2FRONT, Part,Page,Edition: LON, 17, 1