Financial Times 09Apr2020

6 ★ FINANCIAL TIMES Thursday9 April 2020

S I M E O N K E R R— D U B A I

NMC Health is set to collapse into ad-

-ministration after the group failed to

secure support from its creditors to

opposethemove,whichisbeingsought

byabigAbuDhabilender.

The embattled healthcare provider said

yesterday that, despite efforts to

address creditor concerns, it had failed

“to secure their alignment” and had

been advised that it would not be “in a

position to oppose the application suc-

cessfully”. It expects to be placed in

administration “in due course”.

Last week the Abu Dhabi Commercial

Bank, which has $981m in debt expo-

sure to NMC,applied to the UK high

court o place the group into adminis-t

tration citing its suspected financial

misrepresentations and debt defaults. It

demanded action to bring greater trans-

parency to the management of the larg-

est healthcare provider in the United

Arab Emirates. A hearing was sched-

uled for today.

NMC challenged the move and sought

the application’s withdrawal. Faisal Bel-

houl, NMC’s new executive chairman,

argued that the appointment of admin-

istrators would not be in the interests of

“stakeholders as a whole”.

He called for the suspension of any

action that might be taken against the

company over a default on its debt, say-

ing destabilising the hospital operator

could hamper the UAE’s efforts to com-

batcoronavirus. The number of cases

has risen there to more than 2,600, with

a dozen deaths.

NMC, which wasthrown into turmoil

in December when a shortseller ques-

tioned its finances, has been forced into

a series of humiliating announcements

on undisclosed debt since it appointed

an independent investigator. Its net

debt hasballooned to $6.6bn, several

times higher than previously reported.

NMC was founded by Indian entre-

preneurBR Shetty, who sed to controlu

it with two Emiratis, Saeed al-Qebaisi

and Khalifa al-Muhairi, known locally

as the bin Buttis. Mr Belhoul’s Ithmar

Capital recently disclosed that it has

acquired the bin Buttis’ 9 per cent stake.

Some creditors have expressed con-

cern at Mr Belhoul’s apparent proximity

to the bin Buttis, as well as reports that

NMC was seeking to sell assets. Mr Bel-

houl saidhe had no previous association

with the bin Buttis and had purchased

their shares in a transparent manner.

he ADCB declined to comment.T

NMC on brink

after failure to

win support

of creditors

P E G GY H O L L I N G E R
I N T E R N AT I O N A L B U S I N E S S E D I TO R

Airbus is cutting aircraft production by
a third in a move expected to trigger job
losses across the global aerospace sup-
ply chain as customers struggle with a
near halt to international air travel.
The European group has confirmed it
will cut production of its A320 single-
aisle from 60 to 40 a month. It will also
cut production of the A350 midsized
twin-aisle from about 10 a month to six,
and produce only 24 of the A330 family
of widebody aircraft per year against
previous expectations of 40.
Investors watch production rates as a
guide to future profits and cash flow.

The move comes as airlines try to
defer or cancel orders for aircraft as
attempts to contain the spreading coro-
navirus have grounded the majority of
the world’s passenger jets.
Airbus’s decision to cut production so
substantially suggests it expects future
demand to remain subdued for several
years, bringing to an end more than a
decade of ever increasing production.
Analysts estimate that over the next
four years the industry may have com-
mitted to buy 20 per cent more aircraft
than will be needed for an aviation mar-
ket now expected to shrink substan-
tially in the aftermath of the crisis.
Boeing, Airbus’s US rival, which has
already had to halt production of its 737
Max single-aisle after two fatal crashes,
is expected to follow with its own pro-
duction rate cuts in the coming weeks,

according to several suppliers.

Both manufacturers have already

closed factories temporarily to imple-

ment safety measures. The US company

had indicated before the crisis that it

would cut production of its 787 Dream-

liner as the wide-body market slowed,

while the expected production of the

new 777X is also likely to be scaled back.

Several big suppliers said that they

would begin looking at factory closures

and job cuts as soon as both aircraft

makers had indicated their expecta-

tions for future production rates.

But many suppliers will be wary of

announcing job cuts while governments

are providing payroll support to compa-

nies that furlough workers. “It will take

a few months,” the supplier said. “We

will have to wait for a time where we will

not be seen as the bad guys.”

Airbus said the new rates would

“meet customer demand while protect-

ing its ability to further adapt as the glo-

bal market evolves”.

The aircraft makers are concerned to

keep production flowing through the

supply chain to support many of the

small but critical suppliers that have

invested for growth and will be under

pressure from the collapse in demand.

The group also hinted that job cuts

could be in the offing as a result of the

new production rates.

“Airbus is working in co-ordination

with its social partners to define the

most appropriate social measures to

adapt to this new and evolving situa-

tion,” it said in a statement.

uillaume Faury, who took over asG

chief executive a year ago, said the

impact of the crisis was unprecedented.

“We are in constant dialogue with our

customers and supply chain partners as

we are all going through these difficult

times together,” he added.

Airbus forced

to slash aircraft

output a third

as crisis bites

3 Production cuts by Boeing expected

3 Supply-chain job losses to follow

‘It will take a few months.

We will have to wait for a

time where we will not be

seen as the bad guys’

Henny SenderLuckin Coffee’s fraud will be another nail in the coffin of the growth-without-profits business modelyMARKETS INSIGHT

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

The price of uranium, the radioac-

tive material used to fuel nuclear

power stations, has entered a bull

market after another substantial hit

tosupply.

On Tuesday, the Kazakh miner

Kazatomprom slashed its 2020 pro-

duction forecast by up to 10.4m

pounds, equivalent to 8 per cent of

global supply, because of govern-

ment-imposed measures to mitigate

the spread of coronavirus.

This propelled the price of uranium

to $28.70 per pound yesterday, up

more than 20 per cent from a low in

March. Such a rise since a recent low

is the common definition of a bull

market. The last time that the metal

traded at more than $30 came in Feb-

ruary 2019.

“The supply hits keep coming,” said

Numis analyst Justin Chan, who esti-

mates that 30-35 per cent of uranium

production has now been affected by

virus shutdowns, prompting miners

to draw further on their inventories.

Kazatomprom said it would continue

to fulfil its contractual obligations for

2020 by depleting its stockpiles.

The curtailment of its operations

follows the closure of the world’s big-

gest uranium mine, Cigar Lake, for a

month and the decision of Namibia, a

supplier to China’s huge nuclear

industry, to halt all mining. Analysts

expect these disruptions to further

tighten conditions in the market.

The industry has been burdened by

large stockpiles since the 2011 Fuku-

shima disaster, which upended the

sector as Japan and other countries

such as Germany closed sites and can-

celled plans to build new ones. A

reduction in stocks should provide a

further boost to sentiment, according

to analysts and investors.

“Prior to Kazatomprom’s ann-

ouncement, we were forecasting a

30m pound deficit in [the] uranium

supply/demand balance, which now

looks as though it could be as much as

40m pounds,” said Alexander Pearce,

analyst at BMO Capital Market.

He added that the additional short-

fall will “only accelerate” the deple-

tion of inventories.

Kazatomprom’s decision to reduce

production will also be felt by

Canadian producer Cameco, which

had expected to purchase almost 5m

pounds of uranium from Inkai, a

mine that it jointly owns with the

Kazakh company in southern Kaza-

khstan.

The country accounted for more

than 40 per cent of the world’s ura-

nium production last year.

If supplies from Inkai are hit, that

could force Cameco to source replace-

ment metal directly from the cash

market or from Kazatomprom’s

stockpile.

Bright spotUranium enters bull market after

supply warning from virus-hit Kazakh miner

The global uranium industry has been hit by stockpiling since the 2011 Fukushima disaster —Martin Divisek/Blooombereg

A N J L I R AVA L

S E N I O R E N E R GY C O R R E S P O N D E N T

Global oil producers are scrambling to

secure a “supply cuts” deal to counter an

unprecedented drop in demand trig-

gered by the coronavirus pandemic. But

for oil industry veteran Andrew Gould it

is a fruitless endeavour.

“I don’t think a deal between Opec

and other producers like Russia makes

any difference because of the severity of

the drop in demand,” the 73-year-old

executive said. “Opec, as the so-called

central bank of oil, has disappeared.”

Mr Gould’s comments come just

weeks after he stepped down from the

board of Saudi Aramco, the state energy

giant of Saudi Arabia, which is Opec’s

largest producer. Speaking from lock-

down in Florida, he said that the

chances of an greement between Saudia

Arabia, Russia and the US — the top

three producers — were slim.

“Could the three unite? I’m sceptical,”

he said.

Yet individually they are unable to

exert influence over the market either,

he added, pointing to President Donald

Trump of the US, Saudi Arabia’s Crown

Prince Mohammed bin Salman and

Russia’s President Vladimir Putin. “No

matter how much of a strongman you

are, in front of a pandemic your power is

limited.

“You have to go back to the Great

Depression to find a time when the mar-

ket behaved as freely as it does now,” he

said, referring to a plunge in demand —

by as much as a third in April — coincid-

ing with a Saudi-led pump-at-will pro-

duction strategy over the past month.

Oil and gas companies were already

struggling to reconcile how to sustain

hydrocarbon businesses for a future

where fossil fuels are shunned. Mr

Gould said the new market dynamics

were unparalleled, particularly if the

demand destruction was permanent,

adding new layers of complexity for the

oil executives he interacts with.

Mr Gould was reluctant to talk about

his nearly seven years on the board of

Saudi Aramco — a secretive company

with a reputation as a beacon of opera-

tional excellence but which often falls

victim to the whims of Saudi royals. He

said he had “immense admiration” for

Amin Nasser, the chief executive who

has had tomanage competing demands.

Mr Gould, a chartered accountant by

training, held several financial and

operational roles at oilfield services

company Schlumberger before rising to

be its chief executive and then chairman

three decades later. In 2012 he left to

head the board at oil company BG

Group until its sale to Royal Dutch Shell

in 2016.

One industry executive said of Mr

Gould: “He’s good humoured, and his

decades of experience have enabled him

to possess an immense breadth and

depth of knowledge.”

Today he is an investor in energy data

start-up Kayrros and was recently

elected to the board of US shale group

Occidental Petroleum.

For Mr Gould the current crisis is

starting to echo the aftermath of the

2014 plunge, when company share

prices took a hit, balance sheets were

battered and huge job losses followed.

“Volatility like this doesn’t help any-

body,” he said. Stability was not only

essential to meet world energy needs

but also for continued investment

in low-carbon energies of the future, he

said. To bolster their finances, the big-

gest companies are securing multibil-

lion-dollar credit facilities, suspending

share buybacks, cutting capital spend-

ing and issuing new debt — all so that

they can carry on paying out dividends.

“This is one of the reasons people still

invest in the majors and they know

that,” he said. “But I don’t know how

long they can sustain this situation.”

Occidental is among a string of less

financially secure, often smaller compa-

nies that have taken drastic steps. It

slashed its dividend 90 per cent as con-

cerns mounted about its debt load and

cash flows, already in focus following its

$38bn acquisition last year of rival Ana-

darko Petroleum. Mr Gould declined to

comment on the company’s bitter battle

with activist investor Carl Icahn other

than to say that while such shareholders

can “accelerate necessary change”,

activism had to be “done in the right

way”.

Mr Gould believes Occidental, the big-

gest oil producer in the US, will survive

because of its high-quality asset base

and eventual cash generation from dis-

posals. But smaller companies may not.

“The capacity of the shale industry to

access capital has been dramatically

reduced and this latest coronavirus situ-

ation will accelerate this trend,” he said.

“You’ll see a sector that is more con-

solidated, stronger and more disci-

plined,” he added, acknowledging that

he underestimated the shale industry’s

capabilities in the early years, prevent-

ing Schlumberger from benefiting. “The

supermajors will be there, and the big

independent players will still be there.

But all the marginal money going into

this, all the junk financing, won’t be.”

Mr Gould expects financial strains

from the coronavirus pandemic to spur

scrutiny of business models in a sector

already under investor pressure to act

against climate change.

“The oil and gas industry would do

better to put behind them this whole

message about how they’ve lifted bil-

lions of people out of poverty. That is the

past. People, at least in the west, don’t

want to hear this. They want solutions

for the future.”

Meanwhile, uncertainty hangs over

whether oil demand will rebound.

“Coronavirus might force massive

behavioural change. We’ve all learnt

that what used to be done face-to-face

can be done remotely,” he said. “What if

demand never recovers?”

Interview. ndrew GouldA

Opec’s role as oil’s central bank has ‘disappeared’

Sector veteran says the cartel’s

three biggest producers lack the

unity needed to halt price slide

Andrew Gould says the energy

sector faces an uncertain future

APRIL 9 2020 Section:Companies Time: 8/4/2020- 19:04 User:joe.russ Page Name:COMP&MKTS1, Part,Page,Edition:USA, 6, 1