1 4 A FINANCIAL TIMES W e d n e s d a y 1 8 S e p t e m b e r 2 0 1 9

CO M PA N I E S

D

uringHongKong’sgreatboutofunrestin1967,

when the then British colony was wracked by

leftist riots that left 51 people dead, the terri-

tory’s business leaders appealed to the mer-

cantilespiritofitspeople.

“In Hong Kong, we do not want politics of any kind, nei-

ther of the left nor the right,” Li Fook-shu, who was chair-

man of Hong Kong’s Bank of East Asia, told the territory’s

de facto parliament. “What we need is to continue to build

upoureconomy.”

Today,however,asHongKongentersitsfourthmonthof

mass protests, the myth that its people are apolitical and

obsessed with making money has been exploded, with

potentiallyprofoundresultsforriskperception.

What started as popular outrage against a bill to allow

the extradition of people to mainland China has grown

into a movement to demand greater democracy. The cycle

ofever-increasingviolence—andthegovernment’sinabil-

ity to respond to protesters’ demands — threatens to

undermine the Asian financial hub’s reputation for stabil-

ityinaregionbesetbypoliticalrisk.

For one of the biggest centres for capital-raising, the

costs are apparent. On Monday, rating agency Moody’s

changedtheoutlookofitsAa2ratingonHongKongtoneg-

ative from neutral. The agency cited “the rising risk that

the ongoing protests reveal an erosion in the strength of

Hong Kong’s institutions... and undermine Hong Kong’s

credit fundamentals by damaging its attractiveness as a

tradeandfinancialhub”.

TheMoody’sactionfollowedadowngradethismonthby

fellow rating agency Fitch, which said the crisis was caus-

ing “long-lasting damage to international perceptions of

the quality and effectiveness of Hong Kong’s governance

systemandruleoflaw”.

More than anything, the crisis has exposed the fragility

of the “one country, two systems” formula by which Bei-

jing is supposed to guarantee the territory’s legal auton-

omy and civic freedoms. These are considered vital to

Hong Kong’s success in building some of the largest open

capitalmarkets.

Hong Kong’s chief executive Carrie Lam has by her own

admission had her hands

tied from adopting even the

smallest measures to allevi-

atethecrisiswithoutconsent

fromBeijing.Thishasfuelled

growing scepticism over the

autonomy of the territory’s

administration.

The starkest example is

the snub by the London

Stock Exchange of a £32bn takeover bid from Hong Kong

Exchanges and Clearing. The plan has compelling ele-

ments, promising a markets group spanning Asia and

Europe. But the Hong Kong government approves the

appointment of seven of HKEX’s 13 board members,

including its chief. Critics say that since Ms Lam is

appointed by a pro-Beijing committee, China’s Commu-

nist party would virtually have a seat on the board of Lon-

don’s bourse if the deal went ahead. HKEX insists it is free

ofpoliticalmeddling,butLSE’sboardisnotbuyingthat.

“There is no doubt that your unusual board structure

and your relationship with the Hong Kong government

willcomplicatematters,”theLSEsaidasitrejectedthebid.

Even private sector Hong Kong businesses unconnected

to the state are vulnerable to Beijing’s whims. When

China’s aviation regulator accused the city’s main airline

Cathay Pacific of violating safety standards after one of its

staff was arrested in the protests, the company’s chief

executive,chairmanandotherseniorexecutivesresigned.

As in 1967, the city’s tycoons have also begun running

scared. To please Beijing, they have been publishing ads

condemning the violence. Unappeased, Beijing has

responded by starting a propaganda campaign accusing

the tycoons, many of whom grew rich from property, of

hoarding land while their fellow citizens are forced to live

inflatsthesizeoftoiletcubicles.

Buteveninitiativesostensiblyaimedathelpingordinary

Hong Kong people will only make things worse if they are

comingfromBeijing.

As Moody’s said, Hong Kong enjoys a rating two notches

higher than China’s A1 classification because of the “very

high strength” of the city’s governing and judicial institu-

tionsanditsseparationfromthemainland.

“The closer the institutional and economic linkages

between Hong Kong and China become, the more closely

thetworatingswillconverge,”Moody’ssays.

In the end, if Beijing really wants to do Hong Kong

a favour, it should leave the territory alone to solve its

ownproblems.

[email protected]

See Lex

INSIDE BUSINESS

ASIA

Joseph

Leahy

Hong Kong’s unrest

has started to dent its

reputation for stability

HKEX says it is

free from political

meddling but

LSE’s board is not

buying that

H A R R I E T AG N E W —PARIS

President Emmanuel Macron
announced yesterday that France had
drummed up €5bn of capital from
institutionalinvestorstopourintotech
companiesoverthenextthreeyears,as
the country tries to grow more billion-
eurostart-ups.

France has tapped asset managers and
insurers includingAxa,Natixis,Aviva
andAllianz, and is courting interna-
tionalinvestors,tohelpaddressalackof
growth capital for start-ups to expand
intomultibillion-eurocompanies.
Speaking ahead of France Digitale
Day, Mr Macron said in a speech at the

Elysée Palace yesterday evening that

€2bn would be invested in France-

based venture capital funds focusing on

late-stageinvestments.

The other €3bn has been pledged to

global tech funds that invest in listed

companies and are managed by France-

based asset managers. France is seeking

to encourage global investors to set up

teamsinParisinordertodothis.

“Our desire is to make France the

leading ecosystem in Europe,” said

Cédric O, French minister for the digital

economy, in an interview. “We want to

create many more unicorns [start-ups

with a value of more than €1bn] in the

next few years. Today there are seven

and we are targeting 25 unicorns by

2025 and companies that are worth

€5bn,€10bn,€15bn.”

The amount raised by French start-

ups has doubled from €1.8bn in 2015 to

€3.6bn last year and is on track to

exceed €5bn this year, according to CB

Insights. This puts France ahead of Ger-

manybutbehindtheUK.

France’s public investment bankBpi-

francehas played an important role

over the past few years in providing

finance. Now the government is turning

to the private sector and has mobilised

French institutional investors, who are

typically underinvested in venture

capital.

Technology

France reveals €5bn cash push for start-ups

A L I STA I R G R AY— NEW YORK

3G Capital, the Brazilian-US invest-

ment group, has reduced its stake in

Kraft Heinzas the food company grap-

ples with multibillion-dollar write-

downsandfallingsales.

Securities filings show that 3G, which

created the food business in a 2015

merger of Kraft and Heinz that was

backed by Warren Buffett, sold $713m

worthofstockthisweek.

The sale of 3G’s shares, at $28.

apiece, reduced its stake from about 22

per cent to 20 per cent. At the same

time, individual 3G partners bought

about $200m of stock. They were led by

3GCapital founding partnerJorge Paulo

Lemann, who purchased about $100m

ofsharesat$28.60.

Mr Lemann said in a statement: “I am

increasing my investment in Kraft

Heinz because I believe in its potential

for a turnaround, and plan to hold this

investmentforthelongrun.”

The transactions pushed shares in

Kraft Heinz down close to 4 per cent in

early trading yesterday at $28.50. The

stock has lost more than a third of its

value this year, one of the hardest hit in

the consumer staples sector as a result

ofchangingshoppertastes.

3G Capital declined to comment. The

shares were being sold by investors in a

3G investment fund in an “annual

liquidity window”, which means they

are permitted to sell down their stakes

only at particular times, said Bryan

Spillane, analyst at Bank of America.

The investors had held their stakes for

aboutsevenyears,headded.

The share dealings come at a time

of concern on Wall Street about the

prospects for Kraft Heinz as consumers

shunitsbrands.

The Chicago-based company, whose

products include Heinz ketchup, HP

Sauce and Kraft macaroni and cheese,

took another $1.2bn accounting charge

in August after a $15bn writedown ear-

lierintheyear.

Food & beverage

3G slashes Kraft Heinz stake on falling sales

JAV I E R E S P I N OZ A A N D M I C H A E L P O O L E R
LONDON
J O E M I L L E R— FRANKFURT

Advent International, Cinven and the
Abu Dhabi Investment Authority are
teaming up to bid forThyssenkrupp’s
lifts business, setting the stage for a
multibillion-euro battle, said people
familiarwiththematter.
Thyssenkrupp is examining options
for its most profitable business
amid pressure from activist investors,
including Cevian and Elliott, who have
been pushing for the German conglom-
erate to slim down after several profit
warnings.
A joint bid from Advent, Cinven and
the Abu Dhabi Investment Authority is
likely to face competition fromKone,

the Finnish maker of elevators, and

Japan’sHitachi,forabusinessthatcould

fetch more than $20bn, the people said.

Sweden’sEQThasdroppedout.

Thyssenkrupp, whose businesses

span steel and submarines, said this

year that it was considering a partial flo-

tation of its elevators business after an

attempt to merge its steel division with

Tata Steel’s European division was

blocked by Brussels, and plans to split

the group were shelved. However, this

month the German group confirmed it

hadstartedabiddingprocess.

With the private equity industry

buoyant after a period of record fund-

raising, Carlyle, CVC, KKR, and Black-

stone are exploring bids, with some of

them seeking to team up with rivals,

sovereign wealth funds or trade buyers,

according to several people familiar

withthematter.

If private equity wins, it would be one

of the largest transactions for buyout

groups this year, ahead of EQT’s $10bn

acquisitionofNestlé’sskincareunit.

The private equity groups declined to

comment. Hitachi said: “No formal

decisionhasbeenmadeinthisregard.”

Thyssenkrupp said it was following a

structured process and would “evaluate

offersfromstrategicandfinancialinves-

tors” in the best interests of its stake-

holders.

Henrik Ehrnrooth, chief executive of

Kone,said:“Itmakessenseforustolook

intothisopportunity.”

A merger between the two suppliers

of elevators, escalators and mainte-

nance services has been periodically

mooted in the industry for many years,

but in the past both sides’ reluctance to

give up control proved an insurmounta-

blebarrier.

Kone has floated the possibility of a

joint shareholding structure that would

allow Thyssenkrupp to share the bene-

fitsstemmingfromacombination.

Analysts at Danske Bank suggested

this month that Kone could justify pay-

ing more than €21bn for Thyssenk-

rupp’s elevator unit, once the value of

possible synergies calculated at about

€7bnweretakenintoaccount.

The Finnish group believes that there

is little geographic overlap between the

two companies’ operations and that a

tie-up would not face insurmountable

regulatoryhurdles.

Globally the elevators business is

dominated by a quartet of companies

thatalsoincludeOtis,whichisownedby

United Technologies, and the Swiss

groupSchindler,whiletherearesmaller

partiesfromJapan,GermanyandSpain.

Hitachi entered Europe’s lifts market

with the acquisition of a UK-based com-

panyin2017.

A deal could come in the next few

months but people following the auc-

tion warned a successful outcome was

notguaranteed.

Industrials

Thyssenkrupp’s lifts unit in spotlight

Abu Dhabi Investment

Authority, Advent and

Cinven team up to bid

Amazon has launched a premium

high-definition music streaming

service as it tries to differentiate itself

in a competitive landscape

dominated by Spotify and Apple.

Amazon Music HD, which the

company says will deliver songs to

smartphones at CD-quality sound or

better, is priced at $13 a month for

members of its Prime shipping

programme, and $15 a month for

others. This is $5 a month more than

the price of Amazon Music, its

standard streaming service.

“Quality audio started as a niche

audiophile thing. But we think this is

going to move into a mass market

phenomenon,” saidSteve Boom,

head of music for Amazon.

Spotify pioneered the streaming

model but several ha ve mimicked its

service, providing consumers with

roughly the same product: about 50m

songs for $10 a month.

Amazon trails Spotify and Apple

but had 32m music users by April

this year, more than 70 per cent up

on a year earlier, the FT has reported.

In a statement released by

Amazon, the singer-songwriter Neil

Young said that “earth will be

changed forever when Amazon

introduces high-quality streaming to

the masses”.Anna Nicolaou, New York

See Lex

Sound check

Amazon aims

for high end

of streaming

R IC H A R D M I L N E
NORDIC AND BALTIC CORRESPONDENT

Kinnevik, Europe’s largest listed tech-
nology investor, is selling stock market
holdings in Zalando and Millicom to
investinhigh-growthstart-ups.

TheSwedishgroupsaidyesterdaythatit
would give its entire SKr19bn ($2bn)
shareholding in emerging market tele-
comsgroupMillicomtoKinnevikshare-
holders, just hours after it sold a sixth of
its stake in Europe’s leading online
clothesretailerZalando.
Kinnevik said it would also stop pay-
ing ordinary dividends, preferring
instead to channel money from its listed
Swedish telecoms groupTele2into what
itterms “challenger” start-ups in

healthcare, financial services, and food

andfashion.

Georgi Ganev, Kinnevik’s chief execu-

tive, said he understood the decision to

stop paying regular dividends might

upset some shareholders, but added

thatithelpedclarifythegroup’sfocuson

backing“tomorrow’swinners”.

He rejected a comparison to Soft-

Bank’sVisionFund,whichhastakenbig

bets on private companies such asUber

andWeWork, arguing that Kinnevik

was different toSoftBankand to private

venturecapitalfirms.

“For our shareholders, we offer that

unique exposure to unlisted growth

companies but yet with liquidity and

transparent corporate governance. We

are the must-own public stock if you

want to have access to these growth

companies,”hesaid.

Kinnevikisstartingitsthirdbigtrans-

formation of the past four decades. It

revolutionised the Swedish telecoms

industry in the 1980s by using the cash

flow from its paper and pulp assets to

build up Tele2 as a rival to the state

monopoly.

In the 2000s, it sold out of paper and

pulp and invested in digital companies

suchasZalando,Germany’scontentious

Rocket Internetand Russia’sAvito. It

now wants to use the cash flow from

Tele2toexpandintomorestart-ups.

Cristina Stenbeck, daughter of Tele

founderJan Stenbeckand granddaugh-

ter of Kinnevik founderHugo Stenbeck,

stepped down from Kinnevik’s board

thisyeartospendmoretimeseekingout

investments and talking to start-up

founders. The Swedish group has

recentlyinvestedinVillageMDandBab-

ylon,twohealthcarestart-ups.

MrGanevsaidKinnevikhadnointen-

tion of selling further shares in Zalando,

where it remains the largest share-

holder after selling a €558m stake on

Monday.Headdedthatthegroupwould

pay special dividends when it generated

excess capital from investments. Kinne-

vik’ssharesfell3percentonthenews.

Mr Ganev said: “We have an ambition

to increase our exposure to unlisted

assets... because we know it’s of value

when we can find these companies that

arenotavailabletoinvestors.”

See Markets

Financials

Kinnevik’s entire Millicom stake handed to shareholders

Notable: Neil Young, pictured at Live

Aid in 1985, says the Amazon launch

will change the world ‘forever’

Ebet Roberts/Getty

Cristina

Stenbeck

stepped down

from the board

to spend more

time seeking out

investments

If private

equity wins,

it would be

one of the

largest

transactions

for buyout

companies

this year