International Financing Review April 4 2020 1

Upfront

„ OPINION INTERNATIONAL FINANCING REVIEW

Ship of fools?

C

arnival’s surprising success in raising US$6.25bn of fresh

capital via a debt-and-equity recap suggests that reports

of the death of the cruise industry may be exaggerated.

The world’s largest cruise line operator, a dubious

distinction in the time of Covid-19, was able to bridge its

SHAKYûlNANCESûWITHûAûCAPITALûMARKETSûSOLUTIONûTHATûPROVIDESû

breathing space over the coming months while it tries to lure

back passengers.

Of course, Carnival didn’t have much choice.

Though just about every company seems to be getting

some form of emergency relief from the virus crisis, the idea

of the US government bailing out cruise lines had become

politically toxic.

The industry pays little US tax (Carnival is dual-listed in New

York and London, and actually comprises two companies, one

incorporated in Panama and the other in the UK), employs

mostly non-US workers and, for good measure, is taking a

certain share of the blame for helping spread the virus.

With its operations in suspension and investors therefore

having zero visibility into the near-term outlook, Carnival’s

recap was a predictably expensive exercise.

The stock sale was priced more than 80% below levels at

the start of the year, while the bonds needed double-digit

coupons even with Carnival’s ships as collateral.

Still, it is tempting to think that if Carnival can access

capital markets in the middle of the virus crisis then there’s

hope for any company whose survival is threatened by the

effects of the pandemic, whether that be an airline, a plane-

maker, a hotelier or a restaurant chain.

Outside of the US, UK airport concessionaire SSP already

raised equity last month, while Australian travel agency

Flight Centre Travel was stitching together its own stock sale

late last week.

Bankers remain wary of predicting a wave of equity recaps

in the travel industry or elsewhere, partly because there is

still so much uncertainty about how this crisis will unfold.

CEOs also have to consider whether the stigma of taking

government aid and the strings attached are worth it.

But the Carnival deal does highlight the under-appreciated

ability of capital markets to solve political headaches, in

particular the massive unpopularity of bailouts. Inevitably,

these sorts of solutions will play a big role in getting the

global economy back on its feet.

Political dividends

E

arlier this year, HSBC’s army of loyal shareholders in

Hong Kong were probably thankful the bank had decided

in 2016 to remain headquartered in London, rather than

MOVEûTOû(ONGû+ONGû0ROTESTSûATû#HINASûINmUENCEûOVERûTHEû

territory had dragged on for months, and Hong Kong

investors could comfort themselves that the bank’s bosses

were 6,000 miles away and somewhat detached from the

politics.

Many Hong Kong investors may have taken a different

view last week, however, when the Bank of England forced

UK-headquartered banks including HSBC to scrap their

DIVIDENDSûFORûû)TûALSOûSTOPPEDûTHEMûPAYINGûOUTûlNALû

dividends for 2019, which had already been promised. The

latter was a US$4.2bn cheque for HSBC investors due on April

14, of which US$1.7bn was destined for Hong Kong retail

shareholders.

HSBC prides itself on the stability of payouts, and

generations of Hong Kong retail investors have bought into

that concept. They own over a third of the bank’s shares. The

shares often stay in the family for years, providing valuable

income every three months, or accumulating thanks to a

healthy scrip uptake (26% of the dividend was taken as shares

last year).

Investors, understandably, have directed their anger at the

distant regulator. Did it not know the bank made 35% of its

revenues in Hong Kong last year, and a whopping 55% of its

PROlTSû3OMEûCALLEDûFORûTHEûBANKûTOûRETHINKûITSûDOMICILE

)NSIDERSûHAVEûALSOûmOATEDûTHEûSUGGESTIONûTHROUGHûCAREFULû

leaks to newspapers, that HSBC is once again considering

moving back to Hong Kong. The people spinning that line

SHOULDûREMEMBERûWHYûTHEûBANKûMOVEDûTOûTHEû5+ûINûTHEûlRSTû

place.

Surrendering the bank to the control – and that is what it

would eventually be – of the Chinese Communist Party is not

the legacy that any HSBC CEO should want to be

remembered for.

It is just 27 more years before Hong Kong is due to be fully

re-absorbed into mainland China – and yes, for a bank that

traces its origins back to 1865 and makes much of its storied

history, “just” is exactly the right word. A bank that looks

DOWNûONûmY

BY

NIGHTûNEWCOMERSûSHOULDûNOTûBEûMAKINGûmY

by-night decisions.

HSBC bosses can be forgiven for feeling aggrieved that they

have been forced to let down their investors over the

dividend but there are bigger issues at stake just at the

moment. Rather than re-igniting the debate about the right

place for its headquarters, HSBC top brass should be putting

their energy into supporting the real economy, making a

success of its latest restructuring and ensuring that when the

CRISISûISûOVERûITSûINVESTORSûBENElTûFROMûSOMEûACTUALûGROWTHûINû

the share price and not just dividend payouts.

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2 IFR Upfront 2327 p 1 .indd 1 03 / 04 / 2020 19 : 52 : 34