Tuesday18 February 2020 ★ 11
The Financial Times Limited 2020© Week 8
A wave of investment is driving a
surge in US solar farms that combine
generation with big battery packs to
allow daytime power surpluses to be
saved for peak demand. ‘Solar-plus-
storage’ deals are paving the way for
a sharp rise in renewable generation.
Solar poweri AGE 14PInvestors take a shine to
solar farm battery dealsJ O E M I L L E R— FRANKFURT
K AY E W I G G I N S— LONDONThyssenkrupp as shortlisted two pri-h
vate equity bidders in the €16bn battle
for its profitable elevators unit, snub-
bing a higher bid from a rival that was
overshadowedbyantitrustconcerns.The ailing German industrial conglom-
erate will prioritise talks with a group
led byBlackstone nda Carlyle, and
another led byAdvent nda Cinven, set-
ting the stage for the final round of what
is likely to be Europe’s biggest-ever pri-
vateequitydeal.
Finnish rival liftmakerKone, which
haditssightssetonthebusinessfordec-
ades, had submitted a bid in excess of
€17bn in partnership with buyout firmCVC, say people familiar with the nego-
tiations. It withdrew its bid, which was
more than €1bn higher than the other
offers, after yesterday’s decision, send-
ingitssharesdownalmost5percent.
Rival bidderBrookfield sset Man-A
agementisalsonowoutoftherace.
Thyssenkrupp has been haemorrhag-
ing cash and was relegated from the
blue-chip Dax index last year. It desper-
ately needs thesale to shore up its
remaining steel, auto and materials
businesses, and to fund billions of euros
worthofpensionliabilities.
The beleaguered German group’s
shares fell almost 5 per cent in Frank-
furt yesterday after its debt was down-
graded by Moody’s. The rating agency
cited a “reduced likelihood of a materialrecovery over the next quarters” among
thereasonsforitsdecision.
People close to Thyssenkrupp, whose
mooted tie-up with India’sTata Steel
was blocked byBrussels last year, said
management was concerned at the
prospect that Kone’s higher bid would
be caught up in prolonged antitrust
probes in Brussels and Washington.
Schindler, another competitor of the
elevators business, had also threatened
legalactionifaKonedealwentahead.
Henrik Ehrnrooth, chief executive of
Kone, said the debt downgrade was “the
straw that broke the camel’s back”,
causingKonetopulloutoftheprocess.
Kone had offered a €2.5bn downpay-
ment andto take “all the risk” involved
inanyregulatoryprobe,hesaid.Ailing Thyssenkrupp shortlists two
bids in €16bn battle for lifts business
attempt with Siemens, emphasising
thatitwasnotprimarilyaboutsize.
“This transaction will reinforce us in
geographies and technology, it’s not just
about synergies of scale,” said the
Alstom boss, even though he promises
€400m in synergies in year four to five
of the deal. t is likely that the Alstom-I
Bombardier deal will face close crutinys
from competition officials, said ana-
lysts. Alstom expects the deal to close in
thefirsthalfofnextyear.
The deal will continue to cutBombar-
dier’sdebtpileofcloseto$9bnandseeit
retrenching to “to focus exclusively on
businessaviation,”itsaid.
Lex age 10pthat it could increase costs for signalling
and next-generation high-speed trains
and dismissing a view that a tie-up was
necessary if Europe was to compete
withstate-backedChineserivals.
TheFranco-Germanmergerhadbeen
billed as an opportunity to create a
group with the power to challenge
China’sCRRC, the world’s largest train-
maker. CRRC accounts for a two-thirds
share of all fast train lines in the world
and was last week linked with the build-
ingofBritain’shigh-speedrailway,HS2.
While admitting that Alstom is still
looking to build scale to compete with
CRRC, Mr Poupart-Lafarge sought to
differentiate this deal from the failednot the nationalities of the companies
thatexplainsthedeal.”
The deal with Bombardier will create
a group with revenues of €15.5bn that
becomesthesecond-largestintheworld
inrailequipment.
Bombardier said that Alstom was
paying €7.45bn, including debt, while
Alstom put the acquisition price at
€5.8bn-€6.2bn, with advisers explain-
ing that the difference was made up of
working capital and pension liabili-
ties. Alstom will pay with a mix of cash
andshares.
The deal came after EU competition
chiefs shut down the mooted merger
between Alstom and Siemens, arguingDAV I D K E O H A N E —PARIS
French high-speed rail supplierAlstom
has agreed to buy CanadianBombar-
dier’s train unit in a deal worth close to
€7.5bn as it looks to bulk up in the face
of Chinese competition and growing
demandinEurope.
One year after his attempt to build a
European rail champion with Ger-
many’sSiemens ivisionwasblockedbyd
regulators, Alstom’s chief executivewas
adamant that the “market is in a differ-
entplacenow”.
“This is just a transaction to make
Alstom stronger,” Henri Poupart-
Lafarge old the Financial Times. “It’st
Alstom buys Bombardier train unit
3 Deal for Canadian business worth €7.5bn 3 French group looks to take on China’s CRRC
‘This is
just atransaction
to makeAlstom
stronger’Henri Poupart-
LafargeCompanies / Sectors / People
Companies
Adani................................................................ 4
Advent............................................................ 11
Airbus..........................................................2,
Alcatel-Lucent............................................. 2
Allen & Overy............................................ 10
Alstom............................................2,10,11,
Amazon......................................................7,
Apple................................................................ 9
Arthur Andersen........................................ 9
Ashmore........................................................ 13
Audemars Piguet...................................... 9
BASF.............................................................. 20
Barclays......................................................... 10
Bayer.............................................................. 20
Bear Stearns................................................. 9
Berkshire Hathaway Energy............ 14
BlackRock..................................................... 13
Blackstone.................................................... 11
BlueOrchard Finance............................. 13
Bombardier......................................10,11,
Bristol-Myers Squibb.......................12,
Brookfield...................................................... 11
Bumi................................................................ 10
CME................................................................. 19
CRRC..........................................................10,
CVC................................................................... 11
Cambridge Analytica............................... 7
Capital Dynamics.................................... 14
Carlyle............................................................. 11
Cathay Pacific............................................ 12
Celgene.......................................................... 12
Charoen Pokphand Group................... 3
Chevron........................................................... 4
Cinven............................................................. 11
Clifford Chance......................................... 10
Cobham........................................................ 20
Colonial Bank............................................... 9
Corteva......................................................... 20
Cosco............................................................... 11
Crux Asset Management.................... 13
Dechert.......................................................... 12
Deloitte............................................................ 9
Deutsche Bank......................................... 10
ENRC.............................................................. 10
EY.................................................................9,
Electrocomponents............................... 20
English Premier League.................... 12
Etihad............................................................. 12
Facebook......................................1,2,7,10,
Faurecia........................................................ 20
Fiat Chrysler............................................... 19
Fidelity........................................................... 19
Fidelity International............................. 13
Finablr............................................................ 10
Fitbit.................................................................. 9
Fitz Partners............................................... 13
Ford................................................................. 19
Garmin............................................................. 9
General Motors...................................14,
George Soros................................................ 1
Goldman Sachs......................................... 19
Google.................................................1,7,9,
Great Wall Motors.................................. 14
Guinness Asset Management.......... 13
Hargreaves Lansdown......................... 13Hexcel........................................................... 20
Huawei............................................................. 9
IMI.................................................................... 20
Impax Asset Management................. 13
Imperial Brands....................................... 20
Innefu Labs................................................... 7
Instagram....................................................... 7
Interpump................................................... 20
Invesco........................................................... 13
JPMorgan..................................................... 10
Janus Henderson..................................... 13
Jinghai Poultry Industry Group........ 3
Jio........................................................................ 7
Jupiter Fund Management.........13,
KPMG................................................................ 9
King & Spalding....................................... 12
Kirkland & Ellis......................................... 12
Kone..........................................................11,
Kraft Heinz................................................... 11
LS Power...................................................... 14
Laura Ashley............................................. 20
Legal & General....................................... 13
Lehman Brothers...................................... 9
Liontrust....................................................... 13
M&G................................................................. 13
MF Global....................................................... 9
MUI Asia...................................................... 20
Manchester City....................................... 12
Mastercard..................................................... 7
Meggitt......................................................... 20
Merian Global Investors...............13,
Meritage Group........................................ 19
Morgan Stanley Invest’t Man’t........ 13NMC Health................................................ 10
NV Energy................................................... 14
NextEra Energy........................................ 14
Numis............................................................. 10
Old Mutual................................................... 13
Oyo.............................................................10,
PGIM................................................................ 13
Patek Philippe............................................. 9
Petra Diamonds...................................... 20
Peugeot......................................................... 14
Prudential Financial............................... 13
Puma............................................................... 12
PwC.................................................................... 9
Quant Insight............................................. 19
Quinbrook Infrastructure................... 14
Quinn Emanuel......................................... 12
Reliance Industries................................... 7
Renaissance Technologies................ 19
Rolex................................................................. 9
Schindler........................................................ 11
Schroders...................................................... 13
Segro.............................................................. 20
Seven Investment................................... 13
Siemens....................................................10,
SoftBank..................................................10,
St James’s Place....................................... 13
Standard Life Aberdeen..................... 13
State Street Global Investors.......... 13
TA Associates............................................ 13
Tag Heuer..................................................... 9
Tata Steel..................................................... 11
Tesla................................................................ 19
Thyssenkrupp......................................11,TikTok.............................................................. 7
Total.................................................................. 2
Travelex........................................................ 10
Turk Telekom.............................................. 2
Turkish Airlines.......................................... 2
Vanguard...................................................... 13
Visa.................................................................... 7
WeWork......................................................... 10
Wells Fargo................................................ 20
WhatsApp...................................................... 7
Woodside....................................................... 4
Woodward................................................... 20
Sectors
Aerospace & Defence......................2,
Airlines........................................................... 12
Automobiles...................................14,19,
Banks........................................................10,
Chemicals..............................................19,
Energy............................................................ 14
Financial Services....................9,10,12,
Financials..............................10,12,13,19,
Food & Beverage..................................... 11
Healthcare................................................... 10
Industrials........................................10,11,
Media..........................................................7,
Mining.......................................................4,
Personal & Household Goods....9,
Property.................................................12,
Rail..............................................................10,
Retail................................................................. 9
Support Services...................................... 12
Technology...........................1,2,7,10,12,Tobacco........................................................ 20
Travel & Leisure................................10,
People
Agarwal, Ritesh........................................ 10
Ambani, Mukesh........................................ 7
Barra, Mary................................................. 14
Block, Carson............................................. 10
Buffett, Warren......................................... 14
Buxton, Richard........................................ 13
Chanos, Jim................................................. 19
Ehrnrooth, Henrik.................................... 11
Einhorn, David........................................... 19
Formica, Andrew...................................... 13
Gillibert, Hugues...................................... 13
Gregory, Mark............................................ 13
Jobs, Steve.................................................... 9
Liu, Xianshang.......................................... 14
Musk, Elon................................................... 19
Poupart-, Henri.......................................... 11
Sandberg, Sheryl....................................1,
Scaysbrook, David.................................. 14
Sharma, Abhishek..................................... 7
Shetty, BR.................................................... 10
Simons, Jim................................................. 19
Simons, Nathaniel................................... 19
Skeoch, Keith............................................. 13
Son, Masayoshi......................................... 12
Soriano, Ferran.......................................... 12
Soros, George...........................................1,
Tang, Augustus........................................ 12
Wig, Tarun..................................................... 7
Woodford, Neil.......................................... 13
Zuckerberg, Mark.........................1,2,8,City assaultUS active asset managers
conquer UK investment market— PAGE 13
Housing crisisHow QE shaped Ireland’s
shock election result— PATRICK JENKINS, PAGE 12
oeJ
Rennison
Tail
Risk
The $1.2tn junk bond market just got about $23bn bigger.
Kraft Heinz ecame the largest high-yield bond issuer lastb
week,afteritwasdowngradedbytwoofthebigthreecredit
ratingagencies.
The company’s relaxed approach to its sizeable debts
met with agency ire after it reported fourth-quarterearn-
ings nThursday.BothFitchandS&PGlobalcutitfromtri-o
ple-B minus to double-B plus, pushing it below the thresh-
old that separates investment-grade from high-yield. That
makes Kraft Heinz the largest “fallen angel” in almost 15
years,accordingtoindexdatafromIceDataServices.
Bond investors had been waiting for such a scenario:
where big companies that rushed to borrow cheap money
after the 2008 financial crisis fail to reduce their debt bur-
dens, and are punished by the rating agencies. That fall
into junk territory then forces some investors — bound by
strictrequirementstoholdonlytop-qualitybonds—tosell
outofthecompany,sendingpricestumblingfurther.
Kraft’s bond due in 2046 had been trading above par
before results day but fell
sharply by the end of the
week, dropping from above
102centsonthedollarto91.
cents.
By itself, the downgrade
should not disturb the
broader market. Demand for
high-yield bonds remains
high. Kraft’s bonds may have
been hard hit because much
of its debt has a maturity longer than 10 years, which is
uncomfortably long for many high-yield investors. After
thebigfallinprice,thecompany’sdebtwillprobablyfinda
homeamonginvestorsmoretolerantofrisk.
But is the downgrade a sign of more to come? Bonds on
the lowest rung of the investment-grade ladder have more
than doubled over the past decade, to almost $3.4tn, and
nowaccountforaroundhalfofthemarket,accordingtoan
index run by Ice Data Services. Last month the Federal
Reserve Bank of New York reiterated itsconcerns ver theo
amountoftriple-Brateddebtoutstanding.
There are reasons to be sanguine. Support from central
bankshaspushedoutexpectationsofarecessionintheUS.
Despite corporate debt levels rising to a record 47 per cent
of gross domestic product, UBS analysts note that interest
coverageratios—ameasureofinterestbillsasapercentage
of operating profit — are above historical averages. Many
companies have embarked ondebt reduction plans, in
contrasttoKraftHeinz,whichstillcarriesmuchofthedebt
takenontofinancethe2015mega-deal hatcreatedit.t
Even so, UBS expects around $80bn of debt will topple
from investment grade into high yield this year, a number
that could rise rapidly, if the next recession arrives sooner
than expected. Its analysts predict $215bn to $235bn of
fallen angel debt in the next downturn but warn that if
thingsgetreallybad,thatrangecould“almostdouble”.[email protected]Kraft Heinz’s
slide into junk
bond statusmakes it the
largest ‘fallenangel’ in 15 years
Thecoronavirusoutbreakhasstunned
commoditymarkets,sendingoilprices
loweranddisruptingtheglobalshipping
industry.Weakerdemandforraw
materialsinChinahascausedBrent
crude,theinternationalbenchmark,to
fall morethan10percentinlessthana
monthtoabout$57abarrel.
Ithasalsopushedratesforoil-carrying
supertankersdownbythree-quartersto
about$23,000aday.
Spotmarketpricesforoilfellsomuch
inFebruarythattheybrieflybecame
cheaperthancontractsfordeliveryinsix
months’time,aphenomenonknownas
“contango”thatusuallyindicatesa
heavilyoversuppliedmarket.
Thatcancreateatradingopportunity
forcommodityhouses,whichhave
reportedlyinquiredwithshipowners
abouthiringvesselstouseasfloating
storage.
Butmarket-watchersthinkabiguptick
inthenumberofshipsusedforfloating
storagebythoseseekingtradingprofitsis
unlikely,unlesscoronavirusfearssend
spotpricesevenlower romhere.f
Instead,brokerssay,tradersarenow
moreinterestedinship-to-shiptransfers,
movingoilfromtankerscharteredathigh
ratestocheaperones.
TankerpricessurgedbetweenOctober
andJanuary,becauseofUSsanctions
levelledagainstunitsofCosco,China’s
largesttankerowner.Traderswere
charteringsupertankers—verylarge
crudecarriers(VLCC)thatcancarry2m
barrelsofoil—for$100,000adayatthe
heightofthemarket. arry DempseyH
Slow boatCoronavirus creates oil ‘contango’ as supertanker rates dive
Running idle: vessels used
for storage to rise?* Very large crude carriers ** Mainly fuel oil
storage in Asia
Sources: EA Gibson Shipbrokers; Poten &
Partners; Bloomberg Iranian VLCC storage (suspected)Non-Iranian crude VLCC storageVLCC* in other non-trading activities**Stormy market: extreme
volatility in tanker rates
VLCC Ras Tanura, Saudia Arabia to
Ningbo, China (’ per day) Feb
Feb Store to sell: oil cheaper
now than for delivery
in six months
Dierential ( per barrel)- Number of vesselsRates for oil-carrying supertankers have fallen to about $23,000 per day— Huang Zongzhi/Xinhua/Alamy Live NewsFEBRUARY 18 2020 Section:2Front Time: 17/2/2020- 19:04 User:nick.miller Page Name:2FRONT USA, Part,Page,Edition:EUR, 11, 1