Financial Times Europe - 19.09.2019

(Jacob Rumans) #1

16 ★ FINANCIAL TIMES Thursday19 September 2019


COMPANIES


Y UA N YA N G A N D N I A N L I U —BEIJING


Chinese technology groupHuawei si
spending $1.5bn to recruit software
developers for its computing platforms
and offering to share 5G technology, as it
seeks new partners in the face of US
sanctions that cut it off from suppliers
includingGoogle.
Huawei’s search for more developers
is made urgent by the fact that its new
series of smartphones, to be launched
later this week, will not have licensed
access to Google’s apps.
As part of its outreach Huawei has
also offered to sell its 5G technology to
foreign companies — a move that rotat-
ing chief executiveKen Husaid yester-
day was meant to “lessen people’s secu-
rity concerns”.
The US government views Huawei as
a potential spy on behalf of the Chinese
government, an allegation the company
denies.
Washington has put Huawei on a
blacklist that has largely blocked US
suppliers from selling to the company,
and has lobbiedallies to cut thegroup
out of their 5G mobile networks.
Last week, in interviews with The
New York Times and The Economist,
Huawei’s founderRen Zhengfei aids the
company hadoffered to license its 5G
technology to foreigngroups that could
then manufacture 5G telecoms
equipment and install it in networks
outside China, competing with Huawei
abroad.
Such a proposal would “make the
international 5G supply chain more
competitive, and would certainly bene-
fit consumers”, Mr Hu said at the tele-
coms company’s annual conference in
Shanghai.
Herevealed that Huawei had won
more than 50 5G contractsinternation-
ally, and that although the new ones did
not feed through to increased sales this
year, he expected a revenue bump next
year when 5G technology is expected to


roll out on a commercial scale in China.
Despite being cut off from US
suppliers that provide the company
with crucial chips for its smartphones
and telecoms equipment, Huawei’s
self-reported sales increased 23 per cent
in the first half of the year.
But pressure on the company to
resolve the US sanctions issue is grow-
ing, because new smartphones — such
as the Mate 30 series, due out later this
week — will not have access toGoogle’s
licensed apps nder the current USu
Entity List restrictions.
Whether Huawei could continue to
use Google’s apps has been up in the air
since the Entity List came into effect in
May.
Google is one of a large number of US
suppliers that have been waiting
months for a result on their applications
for exemptions to the ban. President

Donald Trump said in July that the
applications would be processed
quickly, but none has yet been granted.
For Huawei, the worst-case scenario
for its international customers already
accustomed to the Google app ecosys-
tem would be having to give up Google’s
apps, such as the PlayStore.
Analysts expect the Mate 30 series
smartphones to ship with an open-
source version of Google’s Android
operating system without Google apps
pre-installed.
Huawei is also preparing its own ver-
sion of the Android operating system,
called HarmonyOS, although admits it
will be difficult to build a new ecosystem
and that it will need to convince devel-
opers to write apps forthe operating
system.
The company will spend $1.5bn to
expand its pool of 1.3m existing partners
in its “Fertile Soil” developer pro-
gramme — launched in 2015 with a $1bn
payout — to 5m, Mr Hu said.

Technology


Huawei in $1.5bn


push to attract


developer talent


Smartphones set for


launch lack licensed


access to Google apps


Ren offered to share the


company’s 5G tech with
foreigngroups to ‘lessen

people’s security concerns’


F T R E P O RT E R S
When Saudi fficials outlined plans too
restore output to maximum capacity
after attacks that set twooil facilities
ablaze on Saturday, they were also
tasked with persuading the world that
Saudi Aramco, the national oil com-
pany, was investable.
Prince Abdulaziz bin Salman, the
energy minister, told reporters that
Saudi Aramco ad “come out like ah
phoenix from the ashes”.
Amin Nasser, chief executive,said
that the group’s swift recovery showed
it to be “the most reliable company in
the world”.
The message was aimed at potential
investors in the long-awaited Saudi
Aramco initial public offering, with Riy-
adh determined to float shares even
after the largest attack on the country’s
infrastructure.
Despite optimistic forecasts about
when production will resume, the epi-
sode has laid bare the vulnerability of
thebiggest exporter nd called intoa
question the country’s reputation as a
reliable producer andits ability to pro-
tectprized assets.
Riyadh is very much aware. One
adviser briefed on Saudi Aramco’s
thinking said that there were fears
among officials about weaker invest-
ment interest that could hit the $2tn val-
uation target sought byMohammed bin
Salman, the crown prince.

“The government would rather
delay than take a big hit on the valua-
tion,” he said.
Some of the nine banks, including
big Wall Street names, selected as global
co-ordinators for the Saudi Aramco
IPO gave a valuation of at least $2tn, far
higher than the $1tn-$1.5tn assumed
to be fair value by independent analysts.
Jonathan Waghorn, co-manager of
the £168m Guinness Global Energy
fund, said: “The company-specific risk
for Aramco trumps the effect of higher
oil prices [which have risen after the
attack] on its valuation.”
The geopolitical risk associated
with an investment in Saudi Aramco
is increasing, with officials concerned
about the ramifications of possible
retaliatory action by Saudi Arabia or
the US precipitating wider conflict in
the region.
Steffen Hertog, a Gulf expert at the
London School of Economics, said a geo-
political risk premium linked to
Saudi Arabia was rarely reflected fully
in asset pricing.
He said: “The vulnerability was
always there, but no one ever took it
very seriously.Now they are.”
Otherssaid Riyadh was pursuingthe
listing at all costs.
Yasir Rumayyan, the oilcompany’s
new chairman, said “the IPO will con-
tinue as is”.It could come “anytime in
the coming 12 months” depending on
market conditions.
Saudi officials had hoped for a domes-
tic listing as early as the end of 2019,
followed by a potential international
flotation. This timeframehad already
been deemed optimistic, with early
2020 more likely, and the company

is now focused primarily on listing
in Riyadh.
Bankers and other advisers have been
instructed to move ahead with IPO
plans, including daily conference calls
and other meetings with the company.
A banker who is working on the
process said: “There is a lot that could
still happen, but we are still going full
steam ahead.”
The listing is at the heart ofplans led
by Prince Mohammed to diversify the
Saudi economy, using the IPO proceeds
to invest in sectors beyond oil and to
bolster government coffers at a time of

large-scale spending on big projects.
The governmentwas encouraging
the country’s wealthiest families to
makebig investments in the IPO,
according to the advisers. It is hoped
that their backing — which has become
more urgent after the attacks —will
encourage Saudi retail investors to buy
into the offering and secure healthy
oversubscription.
Other global institutionshad also
promised to buy shares, one of the
advisers said, channelling their
investment via the international finan-
cial groups operating on Riyadh’s
Tadawul exchange.
Prince Mohammed has sought to
accelerate IPO plans in recent weeks,
giving more influence to country’s sov-
ereign Public Investment Fund over the

process and appointing his half-brother
energy minister.
People working on the IPO said that
there had been no slowdown in
preparations since Saudi Aramco’s
kick-off meeting with bankers, advisers
and lawyers last week at the ballrooms
of the Ritz-Carlton hotel in Dubai’s
financial centre.
Bankers were given a timetable for
the listing onthe Tadawulbourse.
Next week, Saudi Aramco executives
are scheduled to give a presentation of
the company’s investment narrative to
analysts linked to the nine banks
appointed joint global co-ordinators,
several people said.
Theywould then write research
reports thatwould be used to market
the stock to institutional clients,due to
happen in October.
The roadshow to meet potential
investors is planned for November,
before pricing discussions later in the
month, ahead of bookbuilding and the
close in early December.
Each bank has been assigned lead
responsibility for different work — from
valuation to distribution. Although
Moelis nda Lazard re responsible fora
project-managing the flotation from the
Saudi Aramco side, Michael Klein, the
former Citigroup banker, is helping
advise the PIF andmarshalling banks.
Amid all this planned activity, some
are more cautious.
“All that could end up being some-
what academic right now,” said the
adviser. “We just need to see how this
pans out.”
Reporting by Simeon Kerr in Dubai, Anjli
Raval, Arash Massoudi and Chris Flood in
London, and Andrew England in Jeddah

Oil & gas. loat planF


Attacks expose Saudi Aramco weak point


Riyadh’s competence to guard


prized assets and reliability of


its output called into question


Plumes of
smoke darken
the skies over a
Saudi Aramco
installation in
Abqaiq, Eastern
Province, on
Saturday Reuters—

‘Company-
specific risk

trumps the
effect of

higher oil
prices on its

valuation’


Jonathan
Waghorn,
Guinness
energy fund

L E I L A A B B O U D —LONDON

UK sandwich makers are changing
their recipes, stockpiling ingredients
and lining up alternative suppliers to
Brexit-proof Britain’s favourite lunch.

Greencore Group, which makes three
out of every five sandwiches sold in the
UK and supplies supermarkets such as
Marks and Spencer nd thea Co-op, has
prepared extensive contingency plans
for a no-deal departure from the EU.
“We’re trying to plan for port disrup-
tion and mitigate it by changing recipes
and looking for local suppliers where
they exist,” chief executivePatrick Cov-
eneysaid.
“About one-quarter of our products
would have a different no-deal Brexit
recipe if needed.”
Pret A Manger as been working withh
its wholesalerReynolds o expand thet
list of approved growers it can turn to in
countries such as Spain for fresh items
including lettuce, cucumber, tomatoes,
onions and spinach.
Chilled packaged sandwiches have

become a staple of British diets since
M&S started selling them in 1980, with
£8bn spent on them a year, according to
the British Sandwich Association.
But the simplest of lunch options
relies on complex, just-in-time cross-
border supply chains.
Bread is baked domestically, but
many of the fillings, from cheese and
ham to rocket and tomatoes, are
imported from Europe by road, making
them vulnerable to shortages and price
rises if there are delays at ports.
Greencore alone makes 7,500 deliver-
ies to UK retailers per day, while Pret A
Manger runs more than 400 stores,
each with its own kitchen. Like the
entire food and drink sector, they rely
heavily on workers from the EU.
Although Greencore sources about 70
per cent of ingredients from the UK, it
relies on imports from Europe for items
such as lettuce and tomatoes that are
found in nearly all its sandwiches.
Similar challengeswere likely to crop
up at Pret, according to incoming chief
executivePano Christou.

Food & beverage


Sandwich makers draw up


plans to avert Brexit pickle


CA M I L L A H O D G S O N— LONDON

Orsted, the Danish energy company,
saidyesterday it had sold its domestic
utility business for more than $3bn,
months after being forced tohalt the
divestment amid politicalresistance.

The company said it had sold its power
grid and residential distribution busi-
ness toSEAS-NVE, the customer-owned
Danish energy group, for DKr21.3bn
($3.2bn) on an all-cash and debt-free
basis. It expected the deal to close in the
first half ofnext year.
Orsted announced plans to sell the
unit more than a year ago as part of an
effort to facilitate its transition to
renewables and become a key player in
offshore wind power.
But in January Orsted, which is major-
ity owned by the government, said it
was halting the sale process because
political support was lacking. Den-
mark’s premier said at the time it was
important to ensure that thepower net-
work was sold to a company that was
customer or majority state-owned.

The sale, which includes Orsted’s dis-
tribution business, residential customer
business and City Light street light busi-
ness, has close to 2m customers. It
accounted for 8 per cent ofoperating
profit in the first half of the year.
Henrik Poulsen, chief executive, said:
“The agreement ensures an attractive
transaction for Orsted’s shareholders
and provides a good future home for the
customers and for our highly skilled
employees. We’ll use the proceeds from
the divestment to continue our global
investments in green energy.”
The deal represents an 87 per cent
premium to the value of the business in
the first half of the year. Orsted said it
expected a gain of between DKr11bn-
DKr12bn once the transaction closes.
SEAS-NVE aid it would reduce itss
stake in Orsted from about 10 per cent
to 5 per cent during the next 12 months.
John Musk, an analyst at RBC, said:
“The successful conclusion of this
drawn-out disposal process.. .further
simplifies the business model.”
Shares in Orsted edged up 2 per cent.

Energy


Denmark’s Orsted sells utility


arm to SEAS-NVE for $3bn


‘Vulnerability was always


there, but no one took it
seriously. Now they are’

Steffen Hertog, LSE professor

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