The Wall Street Journal - 22.02.2020 - 23.02.2020

B12| Saturday/Sunday, February 22 - 23, 2020 **** THE WALL STREET JOURNAL.

A conglomerate backed by

an elite Beijing university

missed a key debt payment in

China, potentially triggering

defaults on $3 billion of inter-

national bonds.

The failure to repay on-

shore bondholders came days

after a team of regulators and

other senior officials was ap-

pointed to restructure Peking

University Founder Group.

Late on Friday, the Shang-

hai Clearing House said it

hadn’t received payment for

the 2 billion yuan ($284 mil-

lion) of onshore notes from

Peking Founder, and so it

couldn’t handle payments to

creditors.

Such a failure to pay by Pe-

king Founder could trigger a

cross-default of its $3 billion

of offshore bonds, according

to a prospectus for one of

those securities.

Sandra Chow, head of Asia

Pacific at research firm Credit-

Sights, said that would typi-

cally require offshore bond-

holders to formally call an

event of default.

If that happens this would

be the third international de-

fault by a state-backed Chi-

nese company in just months,

after more than two decades

in which no state-owned en-

terprises inflicted losses on

offshore investors.

In December, holders of

dollar bonds issued by Tianjin-

based commodity trader

Tewoo Group were offered

new debt or cash for their se-

curities, at steep haircuts to

the debt’s face value.

A similar discounted debt

purchase was offered this

month to creditors of alumi-

num maker Qinghai Provincial

Investment Group.

Peking Founder has been

experiencing financial difficul-

ties since last year. It first

failed to repay the 2 billion

yuan of bonds when they ma-

tured on Dec. 1. It later said it

would repay the debt within a

15-day grace period and then

persuaded bondholders to ex-

tend the deadline to this Fri-

day.

However, Peking Founder

said on Wednesday that a Bei-

jing court had approved an ap-

plication to restructure the

company, made by an onshore

creditor. The court appointed

a team including representa-

tives of the central bank, other

financial regulators, the local

government and the ministry

of education, to handle the re-

organization.

In a note on Thursday,

CreditSights analysts said the

presence of heavyweight state

institutions could speed up the

restructuring, which could in-

flict financial pain on some

creditors.

Peking Founder’s offshore

bonds were already trading far

below face value, indicating

investors doubt they will be

repaid in full.

Peking University Founder

Group, majority-owned by the

school, for years used its re-

search prowess, elite connec-

tions and implicit state back-

ing to expand in industries

from electronics to commodi-

ties trading and health-care

services. International inves-

tors helped fund the rapid

growth by buying up the

group’s debt as recently as

last summer.

BYXIEYU

Chinese

Bond Issuer

On Brink

Of Default

most valuable startups. But

since then the e-cigarette

maker has been battered by

lawsuits, regulatory crack-

downs and investigations into

whether it marketed its prod-

ucts to underage children and

teenagers.

Blamed for a surge in un-

derage vaping, the startup vol-

untarily pulled most of its fla-

vors from the U.S. market and

scaled back its international

expansion.

The SEC has issued subpoe-

nas to Altria and Juul and

both companies have re-

sponded, some of the people

said. Juul has turned over doc-

uments including correspon-

dence with Altria and financial

projections Juul shared with

Altria before the deal, one of

the people said.

The SEC is a civil regulator

that enforces U.S. investor-

protection laws and account-

ing rules. Its enforcement arm

has questioned whether public

companies adequately dis-

closed the risks of big invest-

ments and moved quickly

enough to reduce the value of

impaired assets.

Announcing the second

write-down in January, Altria

Chief Executive Howard Wil-

lard said he was “highly disap-

pointed in the performance of

our Juul investment.”

He was pressed on the wis-

dom of the deal this week by

shareholders and analysts in a

private session at an analyst

conference in Florida, accord-

ing to a person who attended

the event. Mr. Willard said Al-

tria had recently revised its

agreement with Juul and the

new deal had the full support

of Altria’s board, this person

said.

Securities regulators have

opened a probe related toAl-

tria GroupInc.’s investment in

controversial e-cigarette

startupJuul LabsInc., accord-

ing to people familiar with the

matter.

The Securities and Ex-

change Commission is investi-

gating whether Altria ade-

quately disclosed to

shareholders the risks when it

spent $12.8 billion in 2018 to

take a 35% stake in Juul, the

people said.

The tobacco giant in Janu-

ary took a $4.1 billion charge

on its Juul stake, following a

$4.5 billion write-down in Oc-

tober.

Altria’s investment initially

valued Juul at $38 billion,

making it one of the country’s

BYJENNIFERMALONEY

ANDDAVEMICHAELS

SEC Probes Altria’s Juul Stake

case is about “bribery, pure

and simple."

Specifically, he said, Mr.

Lindberg promised $2 million

in campaign money for the re-

placement of a senior regulator

who was overseeing Mr. Lind-

berg’s insurers with someone

he deemed more favorable. He

needed “a clean bill of health”

for his life insurers so he could

make more acquisitions to fur-

ther expand his conglomerate,

Mr. Mann said in his opening

statement.

A self-proclaimed billionaire,

Mr. Lindberg bought life insur-

ers in the U.S. and abroad be-

ginning in 2014 and lent at

least $2 billion of their assets

to entities he controlled. North

Carolina regulators took con-

trol of four of the insurers last

June, and those insurers have

since asked a state court to ap-

point a receiver over hundreds

of Mr. Lindberg’s private enti-

ties that owe them money.

Mr. Lindberg’s insurance

empire was the focus of a Feb-

ruary 2019 investigative article

in The Wall Street Journal. A

separate federal probe is con-

tinuing to investigate potential

fraud in Mr. Lindberg’s busi-

ness dealings, filings show.

The bribery trial began

Tuesday with selection of ju-

rors, in a case that could bring

up to 20 years of jail on one

charge, and 10 years on an-

other.

This week, Mr. Lindberg has

spent hours quietly sitting at a

table flanked by lawyers. Two

co-defendants are at adjacent

tables, each with at least three

attorneys.

In another sign of the large

amount of money being spent

on defense, four mock jurors

are sitting in the courtroom to

give feedback to Mr. Lindberg’s

team.

The setting is a wood-pan-

eled, high-ceilinged courtroom

rich in history, but it lacks big

screens and other modern

technology for viewing and lis-

tening to the dozens of secretly

recorded videos and phone

calls that form the core of the

government’s case. Those vid-

eos and phone calls were re-

corded in 2018 by Mr. Causey,

under the direction of federal

officials.

With prosecutors, defen-

dants, their lawyers and jurors

focused on small screens, the

government has played about a

dozen recordings so far. De-

fense lawyers are expected to

question Mr. Causey Monday,

seeking to persuade jurors that

he overstepped boundaries pro-

hibiting authorities from induc-

ing people into wrongdoing, so-

called entrapment.

The recordings came about

after Mr. Causey, who was

elected in November 2016, ap-

proached federal officials in

late 2017 with concerns about

the Lindberg insurers’ unortho-

dox investment strategy. He

was also unnerved because Mr.

Lindberg’s consultant, John D.

Gray, who is a co-defendant,

had told him that Mr. Lindberg

wanted to aid his 2020 re-elec-

tion, he testified this week.

So far in the recordings, ju-

rors have heard Messrs.Lind-

berg and Gray repeatedly criti-

cize the deputy commissioner

who was overseeing the Lind-

berg insurers. They told the

commissioner they supported

robust and stringent regula-

tion, but the deputy was un-

qualified to understand the in-

surers’ investments. She

was “ruining my reputation”

with other state regulators

with malicious statements, Mr.

Lindberg asserted.

Mr. Causey has said publicly

that the deputy, Jackie Obusek,

is a knowledgeable and able

regulator. In the recordings, Mr.

Causey defended Ms. Obusek as

well-intentioned as she pushed

for more detail about Mr. Lind-

berg’s investments. But he told

the businessman he was open

to replacing her—and thus

came the question about how

he would benefit.

From then on, Mr. Causey

repeatedly asked Messrs. Lind-

berg and Gray about the size

and nature of contributions to

aid his 2020 re-election.

At first, Mr. Lindberg sug-

gested Mr. Causey hire one of

his employees, a former Inter-

national Business Machines

Corp. executive named John V.

Palermo Jr., now the third co-

defendant. Some weeks later,

Messrs. Lindberg and Causey

deemed Mr. Palermo’s hiring

problematic, and discussed

transferring oversight of his in-

surers to another insurance-de-

partment deputy commissioner.

—Mark Maremont

contributed to this article.

CHARLOTTE, N.C.—Lawyers
for insurance mogul Greg Lind-
berg this past week began their
fight in court against federal
bribery charges by telling ju-
rors that the executive believed
he was staying within elections
law as he made political contri-
butions to counter what he per-
ceived as overly tough regula-
tion.
A lawyer for Mr. Lindberg,
Brandon McCarthy, said in an
opening statement that the
businessman’s donations were
prompted by a question from
North Carolina Insurance Com-
missioner Mike Causey at one
early meeting: “What’s in it for
me?”
But U.S. government lawyer
James C. Mann told jurors the

BYLESLIESCISM

Insurance Tycoon’s Bribery Trial Gets Started

derlines its growing reputa-

tion as a forceful and some-

times unconventional investor.

The fund manages $256 bil-

lion of pension savings, rank-

ing as the country’s second-

largest pension manager after

Canada Pension Plan Invest-

ment Board.

A spokeswoman for the

Caisse declined to comment.

Other Bombardier investors

haven’t fared as well. Bombar-

dier’s stock has plunged to

1.25 Canadian dollars

(US$0.95) since the stock hit a

five-year peak in 2018 on the

Toronto Stock Exchange.

There was so much disap-

pointment with Alstom’s offer

on Monday to pay as much as

$4.5 billion in mostly cash

and shares to Bombardier’s

remaining holders that Bom-

bardier’s stock has since

dropped about 32%, lowering

its market value to $2.58 bil-

lion.

The Caisse has agreed to

invest about $755 million to

acquire an 18% stake in the

French train maker, when the

takeover closes. The stake will

make it the largest investor in

a combined train company

that will be more than twice

the size of Bombardier.

“This is a big win for the

Caisse. It invested directly in

the train business and got

guarantees,” said Dan Fong,

an analyst with Veritas Invest-

ment Research.

Until recently the fund had

mixed results investing in lo-

cal businesses. Critics long

saw the Caisse as the financial

arm of the Quebec govern-

ment. The Caisse adopted a

more global and disciplined

investment strategy after the

financial crisis, when the pen-

sion manager was rocked by a

$40 billion decline in net as-

sets after its bets on asset-

backed securities soured.

Today, nearly a quarter of

its net assets are invested in

infrastructure projects and

private-equity deals, most of

them outside of Canada.

Closer to home, it is financing

about half a nearly $5 billion

project to build and operate a

42-mile commuter-rail system

in Montreal, the city’s biggest

transit project in more than

half a century.

BUSINESS & FINANCE

Quebec’s giant pension-
fund manager is poised to
earn a $1 billion profit from
AlstomSA’s planned takeover
of Bombardier Inc.’s train
business, thanks to an unusual
deal it struck four years ago.
TheCaisse de dépôt et
placement du Québecowes
its big gain to terms it de-
manded in 2016 when it paid
$1.5 billion for what is now a
32.5% stake in the train divi-
sion. At the time, Bombardier
was so stretched for cash to
finance plane and train orders
delayed by production issues
that the Caisse was one of the
few institutions willing to
back the company.
As part of the investment,
the pension-fund manager ne-
gotiated a guaranteed 15% an-
nual compounded return on
its investment to be paid if
control of the company
changed hands. Alstom has
agreed to buy the Caisse’s
stake as part of a planned
purchase of the Bombardier
unit, which is set to close next
year. The Caisse stands to
earn a return of nearly 70% on
its investment, or a total of
$2.5 billion from the sale of
its stake, the guarantee and
dividends.
“It was a very expensive
debt,” said Alain Bellemare,
Bombardier’s chief executive.
The Caisse’s investment
gain from the struggling
transportation company un-

BYJACQUIEMCNISH

Quebec Fund Set for Big Payday

The Caisse, a pension

fund, is poised to reap

$1 billion from Alstom-

Bombardier deal

Alstom’s planned takeover of Bombardier’s train division is a boon for pension-fund manager the Caisse de dépôt et placement du Québec.

DENIS BALIBOUSE/REUTERS

Greg Lindberg made

contributions to the

campaign of a North

Carolina regulator.

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