14 ★ FINANCIAL TIMES Tuesday 3 March 2020

COMPANIES

G

oose herds, rendered redundant by the 19th

century switch from quills to metal-nibbed

pens, were an early example. So were the

whaling ships no longer needed when electric

light replaced oil lamps.

So-called stranded assets have long existed. Today, their

incarnation as coal mines, oilfields and gas reserves in an

unsustainably warming world is a growing cause of finan-

cial stability concern.

Last Thursday 500 men and women packed into Lon-

don’s Guildhall to hear the Bank of England’s outgoing gov-

ernor Mark Carney, and Christine Lagarde, president of

the European Central Bank.

Launching the finance agenda of the UN’s COP26 cli-

mate summit, Mr Carney and Ms Lagarde spoke of how

important it is that companies — especially the banks and

insurers they supervise — are transparent about their

exposure to climate change risks.

As the world moves towards a target of net zero carbon

emissions companies will find themselves with a range of

fossil fuel assets that will never be tapped. They could face

large losses as a result. But so could the banks that lend to

them, the insurers that underwrite them and the asset

managers that invest in them.

Analysis by the Financial Times’ Lex team concluded

that meeting the terms of the UN’s Paris Agreement — to

limit global warming to 2C — would leave 29 per cent of oil

reserves stranded and wipe about $360bn from the value

of the top 13 international oil companies by reserves. That

is well over a sixth of their total enterprise value. Meeting a

stricter warming target of 1.5C would more than double

the figures to nearly $890bn.

Financial regulators are most worried about the expo-

sure of banks, which provided about $654bn in financing

to fossil fuel companies in 2018, according to the latest

data available from the Rainforest Action Network.

The pressure for change is not just coming from regula-

tors.Christopher Hohn, founder of $28bn activist hedge

fund firm TCI, has written to the chairmen of Barclays,

HSBC and S tandard Chartered warning them of a possible

legal challenge if the trio do not stop lending money to coal

mining companies. Barclays

has also faced pressure from

some of its shareholders to

stop financing fossil fuel

companies. It is expected to

pledge significant cuts in an

appeasement effort.

Specialist funds have led

the investor drive for change

in corporate and bank

behaviour. But drawn by public interest in buying green

funds, even the world’s biggest asset managers are now

joining the fold. BlackRock chief executiveLarry Fink

recently pledged to stop financing significant thermal coal

companies.

Fossil fuel companies are themselves beginning to

change, amid louder protests from campaigners and inves-

tors. BP, under new chief executiveBernard Looney,

recently promised to be net zero by 2050.

Last week Norwegian oil company Equinor abandoned a

A$200m ($132m) plan to drill for oil and gas in the deep

waters of an Australian marine park. In Canada, Teck

Resources walked away from a $15bn oil sands project. UK

energy generator Drax said it would stop burning coal at

Britain’s biggest power plant by 2022.

It is unclear what role financing played in any of these

decisions, but certainly banks’ sharpened focus on miti-

gating hydrocarbon exposures won’t have helped.

In the US, Peabody Energy and D evon Energy are among

companies to have experienced or warned of the risk of

shrinking access to finance.

So far financial regulators’ contribution to the pressure

has been largely verbal. But bank stress testing is set to be

adapted to incorporate climate risk scenarios. Some regu-

lators are also openly debating whether bank capital rules

should be redesigned to spur a more rapid shift from fossil

fuels — either by cutting regulatory capital risk weightings

on greener finance or raising it on brown finance.

Mainstream thinking holds that this is dangerous terri-

tory — using financial stability regulation for policy ends

could be a slippery slope. But the argument for change will

be stronger once stranded asset risk can be quantified. In

time, financing fossil fuels may become taboo for main-

stream regulated banks.

It would be tempting to hail this as a victory for the

planet. But that would be premature. Private capital inves-

tors are showing growing interest in parts of the fossil fuel

industry. As long as the cash flow is attractive, they will

back coal, oil and gas, whether the traditional banks and

big asset managers are there or not.

[email protected]

INSIDE BUSINESS

FINANCE

Patrick

Jenkins

In our warming world,

stranded energy assets

are a growing concern

In time, financing

fossil fuels may

become taboo

for mainstream

regulated banks

O RT E N C A A L I A J A N D E R I C P L AT T
N E W YO R K

GileadSciences has agreed to buy bio-
techForty Sevenfor $4.9bn in cash,
joining the list of major US drugmakers
trying to strengthen their range of can-
cer treatments.

The deal will hand Gilead magrolimab, a
treatment developed by Forty Seven
that is designed to help the body’s own
immune system combat a range of can-
cers, including leukaemia.
In a statement yesterday, Gilead said
it would pay $95.50 a share for Forty
Seven, a 96 per cent premium to the
group’s closing share price on Thursday

when talks between the two companies

leaked. Shares in Forty Seven, which

was founded in 2015 and is based in

Menlo Park, California, surged 61 per

cent after the deal was announced.

“This agreement builds on Gilead’s

presence in immuno-oncology and adds

significant potential to our clinical pipe-

line,” said Daniel O’Day, Gilead’s chief

executive. “With a profile that lends

itself to combination therapies,

magrolimab could potentially have

transformative benefits for a range of

tumour types.”

Gilead is not alone in turning to M&A

to bolster its portfolio of cancer drugs.

Early last yearBristol-Myers Squibb

purchasedCelgenefor $93bn, while

Pfizersnapped upArray BioPharmafor

$11bn in June. RivalsEli Lilly andGlaxo-

SmithKlinehave also bet billions of dol-

lars on cancer treatments over the past

18 months.

Best known for HIV and hepatitis C

treatments, Gilead has come under

pressure following a drop in sales for

some of its blockbuster drugs and a legal

fight with the US government over

alleged patent infringements.

The capture of Forty Seven shares

many of the hallmarks of other big can-

cer deals, where a recently listed

start-up is acquired after its treatments

show good progress in clinical trials.

Pharmaceuticals

Gilead and Forty Seven in $4.9bn cancer tie-up

N E I L H U M E

N AT U R A L R E S O U R C E S E D I TO R

Commodity trader Trafigurahas

reached an agreement to buy and then

sell on a stake inPuma Energyfrom a

retired Angolan general, aiding the

efforts of the debt-laden fuel supplier

to attract more lenders and investors.

Under a complex deal announced yes-

terday,Cochan Holdings, an investment

vehicle controlled by Leopoldino Fra-

goso do Nascimento — widely known as

“General Dino” — will reduce its stake in

Puma from 15 per cent to less than 5 per

cent. Trafigura, which already owns 49

per cent of Puma, will buy the shares

from Cochan and immediately sell them

back to Puma. Trafigura will also

finance the purchase by providing

Puma with a seven-year-term loan. In

that way, Trafigura will be able to keep

its holding below 50 per cent and not

have to consolidate debt-laden Puma in

its accounts.

The deal values the 11 per cent stake

Cochan is selling at $400m, according to

people with knowledge of the transac-

tion — the same level it is carried in

Trafigura’s books. By cutting General

Dino’s stake to less than 5 per cent,

Trafigura is betting that Puma will be

able widen its pool of lenders and ulti-

mately find a new equity investor.

In December, Trafigura reduced the

value of its stake in Puma by $200m to

$1.75bn, valuing the company at almost

$3.6bn. General Dino was an adviser to

Angola’s former president José Eduardo

dos Santos and served on the winning

side in the civil war that ended in 2002.

The Cochan share sale comes as Isabel

dos Santos, the daughter of Mr dos San-

tos, has been charged in Angola with

money laundering. She has repeatedly

denied all allegations of wrongdoing.

“Today’s shareholding restructuring

reflects the third pillar of a plan, which

will facilitate future access to capital,”

saidEmma FitzGerald, Puma’s chief

executive.

Energy

Trafigura agrees deal over Puma Energy stake

ST E P H E N M O R R I S

Activist investorEdward Bramsonhas
called onBarclays’ board to withdraw
its “extremely ill-advised” support for
chief executiveJes Staleyafter UK regu-
lators started a probe into his relation-
ship with Jeffrey Epstein.
In a public letter yesterday, Mr Bram-
son said he “strongly recommends” that
chairmanNigel Higginsrescind a pro-
posal for Mr Staley’s re-election at its
annual meeting in May, “to draw a line
under this destabilising situation, which
has become a circus, as soon as possi-
ble”.
Last month Barclays revealed Mr Sta-
ley was being investigated over the char-

acterisation of his relationship with

Epstein, the deceased paedophile finan-

cier. When Mr Staley ran private bank-

ing at JPMorgan, he once visited Epstein

— a client of the US bank — who was

serving time in 2008-09 for soliciting

prostitution from a minor. Then in 2015,

Mr Staley and his wife sailed to Epstein’s

private island for lunch.

The investigation by the Financial

Conduct Authority and the Bank of Eng-

land’s Prudential Regulation Authority

is focused on whether Mr Staley down-

played his relationship with Epstein by

characterising it as professional, the

Financial Times has reported.

“The management of a financial insti-

tution that provides services to a client

engaged in child prostitution not only

potentially violates the rules, but is an

enabler of that act, whether unwittingly

or not,” Mr Bramson said in the letter.

He added: “A board that tolerates

such conduct, whether occurring in the

present or in the past, is also an enabler

of that act. Any shareholder that votes

for a director in these circumstances

would also be an enabler.”

The latest missive from Mr Bramson’s

Sherborne Investors — which says it is

Barclays’ largest shareholder with a 5.

per cent stake — follows a similar pri-

vate letter to investors last week.

In it, Mr Bramson called on Mr Hig-

gins to end the “cycle of disruption” and

“governance weakness” at the UK bank.

Barclays declined to comment.

In yesterday’s letter, Mr Bramson

referred to an FT story last month that

said Barclays was preparing to start the

search for a successor to Mr Staley, who

plans to step down next year.

“Recent media coverage suggests that

Mr Staley is on a path to a graceful and

protracted exit ending in retirement,

which would, conveniently, remove any

requirement for the board to take deci-

sive action,” Mr Bramson said.

“If true, we believe that would be a

mistake and would set a terrible prece-

dent.”

Mr Bramson also said the board

should review whether executive search

firmSpencer Stuartperformed suffi-

cient due diligence on Mr Staley when

he was recruited in 2015, considering

the public knowledge of his relationship

with Epstein, as well as references pro-

vided by the bank’s corporate broker,

JPMorgan.

“If the advice is found to have been

deficient, we believe that the Barclays

board should terminate all future com-

mercial relationships with these firms,”

the letter said.

JPMorgan declined to comment and

Spencer Stuart did not immediately

respond to a request for comment.

See Lombard

Banks

Bramson attacks ‘circus’ at Barclays

Activist urges board to

end support for Staley

amid Epstein probe

K AY E W I G G I N S— B E R L I N

As stock markets suffered their worst
week since 2008, and companies rushed
to cancel events and reduce travel, there
was one part of the economy that it
seemed even coronavirus couldn’t stop:
private equity.
Thousands of dealmakers and inves-
tors, includingBlackstone Group’sSteve
Schwarzman andCarlyle Group’sDavid
Rubenstein, spent last week at the
SuperReturn conference in Berlin.
The mood at the industry’s annual
get-together was buoyant — even as sim-
ilar events such as the Geneva Motor
Show and Baselworld were cancelled
amid virus fears.
Attendees dashed between suites
turned into makeshift meeting rooms at
the InterContinental Hotel, sat in

packed halls for panel sessions, and
then headed to the city’s top restau-
rants. There was a crowded karaoke
night on Thursday; but the hottest
ticket in town was Wednesday’s party in
a train-station-turned-event-space
where R&B singer Usher and magician
David Blaine performed.
Meanwhile, in a much quieter setting
some 300 miles west of Berlin, there was
an even stronger sign of the industry’s
apparently boundless enthusiasm as
Europe’s biggest-ever buyout deal
entered its final stages.
On Thursday evening — the confer-
ence’s final night — Essen-basedThys-
senkruppannounced it had agreed to
sell its elevator division toAdventand
Cinvenin a €17.2bn deal.
News of the deal’s record size raised
eyebrows. Some rival buyout managers
wondered whether the sale — and that
year’s glitzy SuperReturn conference as
a whole — might later be seen as the
symbol of a market at its peak.
“I think it might,” said one attendee.
“Everyone says we’re late in the cycle.”
Private equity groups spent more on
deals in 2019 than at any time since the
financial crisis, according to data from
Refinitiv, as dealmaking grew for a third
consecutive year.
Even with public markets in turmoil,
“what was clear was how strong the pri-
vate equity marketplace continues to
be”, said Jonathan Blake, head of inter-

national private funds strategy at law

firm Herbert Smith Freehills. “The

theme that developed over the week

was whether the coronavirus [will cause

a] correction.”

As the Berlin event kicked off a criti-

cal report on private equity returns

dominated conversations. The report,

byBain & Companyand a Harvard

economist, found investors did better

from tracking the S&P 500 over the past

decade than investing in US buyout

funds.

However, as it became clear that pub-

lic markets were on course for their

worst week in more than a decade, some

private equity figures noted with smug-

ness that their returns weren’t looking

so bad.

Asset prices have been high for years

as money has flooded into private

equity, creating competition for deals.

The industry has a huge amount of so-

called dry powder — money that inves-

tors have committed to hand over for

deals but that buyout firms haven’t yet

spent.

Dry powder hit a record high of $2.5tn

in December across all fund types,

according to the report by Bain & Com-

pany. Purchase price multiples reached

a fresh high in the US of 11.5 times earn-

ings, it found.

“With the stock market correction

and the virus concerns, you will likely

see an adjustment of prices,” said Nikos

Stathopoulos, a partner at private

equity firm BC Partners. “There’s gener-

ally still a positive mood around private

equity as an asset class.”

Buyout groups have spent much of

the past year in the crosshairs of Demo-

cratic presidential candidate Elizabeth

Warren, who has accused them of “loot-

ing” and proposed to rein them in.

Now, as Ms Warren struggles to break

through in the early stages of the prima-

ries, many dealmakers have settled on a

consensus that Donald Trump will win a

second term — an outcome they are

more relaxed about.

Many executives put a brave face on

deteriorating markets. Dry powder

could be used to snap up bargains if con-

ditions worsen. And some private

equity groups with credit operations

stand to benefit if coronavirus continues

to hurt the economy. “A downturn

would not be a bad thing forApollo,” the

firm’s founderLeon Blacksaid on stage

at SuperReturn. “If you’re not prepared,

you’re going to miss the opportunity.”

In quieter corners, however, concerns

could be heard about how the industry

would fare in a downturn.

“We see red flags emerging” such as

“leverage ticking up”, Blair Jacobson,

co-head of European credit at Ares, said

in a panel discussion on private credit.

Rob Lucas, a managing partner at the

private equity firm CVC, said: “Whilst

the mood was certainly buoyant, we

must avoid complacency.

“Whether it be coronavirus, techno-

logical disruption or a market correc-

tion, there is potential for material vola-

tility. This is not necessarily a bad thing

for private equity, as we are often at our

best in volatile times, but it is a time

when as investors we should be cau-

tious.”

Meanwhile, coronavirus fears grew as

the week-long event drew to a close. Pri-

vate equity groupHarbourVestemailed

staff members after they arrived in Ber-

lin to say they were free to leave if they

feared being exposed to the virus. A sec-

tion of the conference dedicated to Ital-

ian private equity was cancelled.

In a packed elevator, one delegate

spoke Italian on the telephone before

joking about flu symptoms — to which a

fellow attendee responded that he’d

returned from China just a week ago.

Cue “brave smiles all round”, tweeted

Dörte Höppner, former chief executive

of lobby group Invest Europe.

Financials.Robust returns

Buyout groups’ spirits prove irrepressible

Private equity has spent more

on deals in 2019 than at any

time since the financial crisis

The mood at

the industry’s

conference in

Berlin, attended

by thousands

of dealmakers

and investors,

was buoyant

Andreas Schoellhorn

Many dealmakers have

settled on a consensus

that the US president

will win a second term

‘Media

coverage

suggests

Staley is on a

path to a

graceful and

protracted

exit... That

would be a

mistake’

€17.2bn

Thyssenkrupp

deal to sell lifts

unit to Advent

and Cinven

$2.5tn

Dry powder

across all fund

types, according

to Bain & Co

MARCH 3 2020 Section:Companies Time: 2/3/2020 - 19: 15 User: jon.wright Page Name: CONEWS1, Part,Page,Edition: LON, 14 , 1