Financial Times Europe - 20.02.2020

Thursday20 February 2020 ★ 11

The Financial Times Limited 2020© Week 8

Although coronavirus infections have

been limited only to two liners, the

$45bn cruise sector faces a fight to

regain customer trust. More than 50

cruises have been cancelled and seven

ports closed as authorities scramble to

prevent the spread of the coronavirus.

Analysisi AGE 14P

Virus outbreak leaves

cruise sector foundering

D E R E K B R OW E R— NEW YORK

Bankruptcy risks in the US shale sector

are rising, with weak oil prices and

tightening access to credit worsening

the outlookjust as a “staggering”

$86bn in debtstarts to come due.

Speculative-grade, or subinvestment,

debt makes up more than 60 per cent of

the total to be repaid between now and

2024, “implying a higher degree of

default risk for the industry”, said

Moody’s, the rating agency,yesterday.

Such maturities will peak in 2022,

dwarfing investment-grade debt by

almost two to one that year, it said.

But weakening oil and gas prices, and

bearish market sentiment — caused by

expectations of a global oil-supply over-

hang in the first half of 2020 — will hurt

producers’ efforts to raise more money

this year, in turn threatening to starve

them of capital to invest in production

to keep cash flow intact, said analysts.

Companies already rated at subin-

vestment level, and those focused on

natural gas, are especially exposed and

will face investors that have developed a

“risk aversion” to shale, saidMoody’s.

Natural gas-fo cuse d Antero

Resources,EQT nda Chesapeake, which

between them hold debt of more than

$5bn due to mature between now and

2024, were among 12 companies

Moody’s said would face a “particularly

challenging” refinancing outlook.

Oil prices have fallen ore than 15 perm

cent since early January, reflecting

worries aboutoversupply that have

been exacerbated by the weakness of

Chinese demand since the coronavirus

outbreak. Meanwhile,US natural gas

prices lunged to their lowest Februaryp

close in 20 years last week, amid unsea-

sonably warm weather.

But US shale producershave contrib-

uted to their own problems, with natu-

ral gas output almost doubling since

2005 and crude oil productionrising

nearly 160 per cent since 2008.

US natural gas production, which hit a

recordin 2019, willgain 2 per cent this

year, according tothe Energy Informa-

tion Administration, a division of the US

Department of Energy. Crude oil pro-

duction would increase almost 8 per

cent, to 13.2m barrels a day, it said.

US shale sector’s looming $86bn debt

wave brings rising bankruptcy threat

year following the publication of leaked

club documents and emails obtained by

German magazine Der Spiegel.

They appeared to show that the

£67.5m annual sponsorship of the club’s

shirt, stadium and academy by Abu

Dhabi-based airlineEtihad as paid inw

the past with a large financial “contribu-

tion” by a company owned by Sheikh

Mansour bin Zayed al-Nahyan, amem-

ber of the Abu Dhabi ruling family who

owns Manchester City.

According to the leaks, the efforts to

skirt FFP rules appear to have been

directed by Manchester City officials.

The club has never confirmed or denied

the authenticity of the leaked emails.

Mr Sorianosaid the club would press

ahead with an appeal against the ruling

at the Court of Arbitration for Sport, the

ultimate arbiter of global sports dis-

putes, and that he expected a decision

“before the beginning of the summer”.

He also criticised Uefa’s club financial

control body, a division that polices FFP

regulations, arguing that it had run an

“unfair process”.

Manchester City’s leadership has pre-

viously been resistant to speaking pub-

licly about thecase, consistently

describing claims that it had broken

FFP rules as part of a campaign against

the club that was “organised and clear”.

Uefa investigators began a probe last

times by auditors, by regulators, by

investors and this is perfectly clear,” Mr

Soriano said yesterday in a video

released by the club. “The owner has not

put money in this club that has not been

properly declared.”

The comments are the first rom thef

club’s leadership since Uefa, European

football’s governing body, banned Man-

chester City from continental competi-

tions for two years and fined it €30m for

“serious breaches” of so-called financial

fair play rules.

Failure to overturn the ban would

result in the loss of income from broad-

casting, prize money, sponsorship and

ticketing worth up to £100m a season.

M U R A D A H M E D— LONDON

Manchester City ash irmly rejectedf
charges that it iedl about its finances,
with the club’s chief executive labelling
its Champions League ban as the result
of an“unfair process”.
In the English Premier League side’s
most robust defence yet,Ferran Soriano
launched a fightback against claims that
Manchester City had not declared fund-
ing from its billionaireowner to the
sport’s regulators, describing the allega-
tions as “simply not true”.
“We are a sustainable football club, we
are profitable, we don’t have debt, our
accounts have been scrutinised many

Manchester City rejects Uefa ruling

3 Football club denies sponsor finance claims 3 European cup ban to be challenged

German sportswear rivalsAdidas nda

Puma ave warned ofh disruption ni

China, with the coronavirus forcing store

closures and a sharp drop in sales in one

of their most important markets.

Adidas saidyesterday that sales in the

country had plummeted 85 per cent

since January 25 compared with yeara

ago. The world’s second-largest

sportswear group added that it had

closed a “significant number” of outlets.

Puma said that more than half its

stores in the country were closed.

“[Business] has, of course, been

negatively affected by the outbreak,”

saidBjorn Gulden, chief executive.

China’s economy has ground to a near-

halt amid the rapid spread of the

coronavirus. The Puma and Adidas

updates offer some of the first details on

its impacton the sportswear industry,

which has about $250bn in annual sales

and is heavily reliant on Asia or growth.f

The regionis also key for

manufacturing. Almost a fifth of the

409m pairs of shoes and trainers Adidas

made in 2018 were produced in China.

Investors shrugged off the news, with

shares in Puma rising8 per cent to €77,

while those in Adidas increased .6 per 2

cent to €293. hilip GeorgiadisP

Lex age 10p

Running on empty

Puma and Adidas

feel China sales hit

‘We are a

sustainable

football

club, we are

profitable,

we don’t

have debt’

Ferran Soriano

Companies / Sectors / People

Companies
1MDB................................................................. 9
AT&T.............................................................. 19
Adidas.......................................................10,
Advanced Micro Devices................... 20
Aer Lingus................................................... 13
Air Italy.......................................................... 13
Airbus............................................................. 13
Altek................................................................ 13
Altria................................................................ 12
Alvance.......................................................... 12
Amazon............................................................ 1
Analog Devices........................................ 20
Anglo American..................................10,
Anheuser-Busch InBev........................ 19
Antero Resources.................................... 11
Apollo............................................................. 19
Appaloosa Management..................... 19
Apple................................................................. 1
ArcelorMittal............................................... 12
Ashmore........................................................ 11
BHS................................................................6,
BMW................................................................ 12
BP....................................................................... 4
Baidu............................................................... 19
Bank of America........................................ 9
Banyan Tree.............................................. 10
Barilla.............................................................. 12
Berkeley....................................................... 20
BigOne Lab................................................. 19
BlackRock.................................................... 10
Blackstone................................................... 10
Bloomberg LP........................................... 10
Blue Apron................................................. 20

Boeing...................................................9,13,

British Airways.......................................... 13

Burberry.......................................................... 5

Campari...................................................12,

CapitaLand.................................................. 10

Carnival Corporation............................. 14

Cathay Pacific............................................ 13

Chanel............................................................... 5

Chesapeake.................................................. 11

China Southern......................................... 13

City Developments.................................

Collins Aerospace.................................... 13

Concho Resources................................. 20

DP World...................................................... 10

Databricks.................................................... 12

David Solomon........................................... 9

Deutsche Telekom................................. 20

Dubai World............................................... 10

EQM Midstream Partners.................. 19

EQT.............................................................11,

Etihad.............................................................. 11

Exor.................................................................. 12

Facebook..............................................1,2,8,

Ferrari............................................................. 12

Ferrero........................................................... 12

GE....................................................................... 9

GFG Alliance............................................... 12

Garmin...........................................................

Goldman Sachs........................................... 9

Goodyear...................................................... 12

Google.......................................................1,8,

Groupon....................................................... 20

Gucci.................................................................. 5

H&M.................................................................. 6

HelloFresh................................................... 20

IAG.................................................................... 13

Iberia............................................................... 13

IndiGo............................................................. 13

Instagram....................................................... 8

Intelsat........................................................... 19

JPMorgan....................................................... 9

Juul................................................................... 12

Kering............................................................... 5

Kirin................................................................ 20

Klinger IGI.................................................... 13

Kraft Heinz.................................................. 19

Lagfin............................................................ 20

Latam.............................................................. 13

Liberty Steel............................................... 12

London Stock Exchange.................... 10

Louis Vuitton............................................... 5

Luckin Coffee............................................. 19

Macy’s............................................................. 19

Maersk........................................................... 10

Man Group................................................. 20

Manchester City........................................ 11

Mediaset........................................................ 12

Meituan-Dianping................................... 19

Michelin......................................................... 12

Nike................................................................. 10

Norwegian Cruise Line........................ 14

Nvidia............................................................ 20

Odey..........................................................10,

PDVSA............................................................. 4

Pictet Asset Management................. 19

Pimco............................................................... 11

Pirelli............................................................... 12

Plus500........................................................ 20

PointState.................................................... 19

Porsche........................................................ 12

Precision Castparts................................ 13

PrivatBank..................................................... 2

Puma...................................................10,11,

Qatar Airways............................................ 13

Refinitiv......................................................... 10

Renault........................................................... 12

Rio Tinto....................................................... 12

Rosneft.....................................................4,

Rosneft Trading......................................... 4

Royal Caribbean...................................... 14

Royal Mail................................................... 20

RwandAir...................................................... 13

SCM.................................................................... 2

Sirius Minerals.....................................10,

SoftBank........................................................ 12

Solus................................................................ 19

Sony................................................................... 6

Spirit AeroSystems...........................13,

Starbucks...................................................... 19

Stripe............................................................... 12

T-Mobile........................................................ 19

TXU................................................................. 10

Tesla............................................................... 20

Thomson Reuters................................... 10

Tiger Global Management................. 12

TomTom....................................................... 19

Topshop.......................................................... 6

Triumph Group......................................... 13

Turquoise Hill............................................ 12

Twitter..........................................................2,

UOL Group.................................................. 10

Uber................................................................. 12

UiPath............................................................. 12

Verizon.......................................................... 19

Victoria Beckham...................................... 5

WPP................................................................... 3

Wall Street Journal................................... 3

Waltz Bros................................................... 13

WeWork......................................................... 12

WhatsApp...................................................... 8

Zara................................................................... 6

Sectors

Aerospace & Defence.....................13,

Airlines........................................................... 13

Automobiles.........................................12,

Banks............................................................8,

Construction.............................................. 20

Energy............................................................ 19

Financial Services.............................19,

Financials................................3,10,12,19,

Food & Beverage..............................19,

Industrial Goods....................................... 19

Industrials.........................................10,12,

Media.............................................2,3,9,10,

Mining............................................................. 12

Oil & Gas............................................4,11,

Personal & Household Goods........ 20

Property........................................................ 10

Retail.............................................10,11,19,

Support Services.................................... 20

Technology...........................1,2,8,12,19,

Telecoms................................................19,

Tobacco......................................................... 12

Transport..................................................... 10

Travel & Leisure............4,10,11,13,14,

People

Al Baker, Akbar........................................ 13

Beckham, Victoria..................................... 5

Bizzarri, Marco............................................ 5

Bloomberg, Michael...........................3,

Chen, Mu...................................................... 19

Coleman, Chase........................................ 12

Dassler, Adolf............................................ 10

Dassler, Rudolf......................................... 10

Fain, Richard.............................................. 14

Gallego, Luis............................................... 13

Green, Philip.............................................6,

Gulden, Bjorn.............................................. 11

Gupta, Sanjeev.......................................... 12

Kolomoisky, Igor........................................ 2

Kozlowski, Linda..................................... 20

Low, Jho.......................................................... 9

Moody, Pat.................................................. 13

Murdoch, Rupert........................................ 6

Odey, Crispin............................................. 10

Orteg, Amancio.......................................... 6

Paulson, Henry........................................... 9

Persson, Stefan........................................... 6

Smith, Greg................................................. 13

Soriano, Ferran.......................................... 11

Steel, Henry..........................................10,

Tepper, David............................................ 19

Tronchetti Provera, Marco................ 12

Walsh, Willie................................................ 13

Waltz, Larry................................................. 13

Zayed al-Nahyan, Mansour bin.......

Zuckerberg, Mark...................................1,

BlockedBoeing’s suppliers share the

pain of 737 Max grounding— ANALYSIS, PAGE 13

Family mattersItaly’s dynastic groups

put public rivals to shame— INSIDE EUROPE, PAGE 12

Tommy

Stubbington

Tail

Risk

For the past few months, a Lebanese debt default has

seemed a matter of when, not if. The market appears to

have decided it will come sooner rather than later.

The price of Lebanon’s March 2020 bond plunged to

57 cents on the dollaryesterday. That is a massive discount

for a bond due to be repaid in just 19 days.

Debate over whether the government shouldpay back

the money is raging in Beirut’s financial circles. On one

side, Lebanese banks — themselves big holders of the bond

— argue that the country’s pristine record of honouring its

obligations is worth defending. But opponents say there is

little point handing over $1.2bn on March 9 that could be

used to import food or fuel, only to face a similar crunch in

April and June when more dollar debt falls due.

Foreign bondholders are similarly divided.Ashmore,

theUK asset manager that owns $300m of the March bond

as part of a $1bn bet on short-dated Lebanese debt, has

drawn criticism from other investors by pushing for full

repayment. Those critics — among themPimco, the global

investment house — say that

repaying in March would

merely delay the inevitable,

and result in bigger losses for

holders of longer-dated debt.

Crucially, Ashmore has

built a stake of more than a

quarter in the bonds due in

March, April and June —

above the threshold required

to block a debt restructuring.

The Lebanese government may yet decide to pay off

Ashmore and other creditors next month. The price of the

March bond has undergone some wild swings in recent

weeks: it traded above 90 cents as recently as two weeks

ago. But this week’s moves suggest the anti-payment camp

is gaining the upper hand as IMF staff arrive in Beirut to

advise on a potential restructuring of the country’s debts.

Buyers of the dollar bonds had hoped that they might

escape any restructuring partly because they collectively

account for less than half of Lebanon’sborrowings, which

amount to 160 per cent of GDP. As one fund manager who

was buying in November said: “We think they’ll muddle

through and repay. There’s not much point in defaulting

.. for the sake of a very small amount of debt relief.”.
Such arguments carry less weight now that the market
has, in effect, priced in a default. The importance of an
unblemished record of repayment has also been over-
stated, judging from how markets have been willing to lend
to “serial defaulters”, such as Ecuador, in recent years,
according to Nafez Zouk of Oxford Economics.
Ultimately, whether or not to repay next month is a
political decision. A weeks-old government may bow to the
pressures of a slowing economy, yawning budget deficit
and popular protests and opt to restructure its debt. But
Ashmore and its fellow creditors will be hoping that Beirut
holds out for a few months yet.

[email protected]

This week’s moves

in the March

bond suggest the

anti-payment

camp is gaining

the upper hand

Nicolas Asfouri/AFP via Getty

FEBRUARY 20 2020 Section:2Front Time: 2/202019/ - 19:05 User:nick.miller Page Name:2FRONT USA, Part,Page,Edition:EUR , 11, 1