14 ★ FINANCIAL TIMES Tuesday4 February 2020

company by half to $19bn at the end of

September. It said in a letter to its inves-

tors at the time that Juul faced “increas-

ing uncertainty on the regulatory

front”.

Tiger Global declined to comment on

Altria’s latest writedown.

Lenders to Juul, including the world’s

largest asset managerBlackRock, could

also face hits to their investments.

BlackRock’sTCP Capital business

development company loaned $35m to

Juul in early August, its chief executive

Howard Levkowitz aid during a third-s

quarter earnings call. A separate Black-

Rock business development company

invested another $17.5m, which was

part of the same deal, one person

briefed on the transaction said.

Mr Levkowitz told analysts the invest-

ment had “a very low loan-to-value

[ratio], cash well in excess of our debt

and successful business operations in

multiple locations”, but would be moni-

toredafter Juul’s recent controversies.

BlackRock declined to comment on

the status of the investments.

As well as writing down the value of its

stake, Altria said last week t would stopi

providing sales and distribution serv-

ices to Juul. The amended “relationship

agreement” between the companies will

also allow Altria to develop its own

e-cigarettes in some circumstances.

M I L E S K R U P PA— SAN FRANCISCO

US tobacco groupAltria’s decision to
write down its stake inJuul as raisedh
the spectre of further revaluations at
the venture groups, mutual funds and
lenders with stakes in the private
e-cigarettecompany.

Fidelity, the fund heavyweight, and
Tiger Global Management, he $36.2bnt
investmentgroup, are among the inves-
tors facing potential markdowns after
Altria disclosed a $4.1bnimpairment
charge nd said it would alter the termsa
of its partnership with Juul.
“My guess is they’re all remarking this
position, and a lot of them have also
taken material capital off the table,” said
Barrett Cohn, chief executive ofScenic
Advisement, an investment bank serv-
ing private companies.
Juul has faced mounting problems
since Altria’s $12.8bninvestment ni
December 2018 valued the company at
$38bn, including the new cash. Altria’s
purchase price implied it paid more
than $300 per share.
The Marlboro maker attributed the
latest writedown to mounting litigation
against Juul, which is under pressure
from lawmakers and regulators follow-
ing a rise in teenage vaping. The change
gave Juul a new valuation of about
$12bn.
That estimate is lower than where
several other large investors — and
Juul’s own executives — have recently
marked the company, adding to ques-
tions about the reliability of valuations
in private markets.
KC Crosthwaite, Juul chief executive,
told employees the company’s most
recent quarterly internal valuation
stood at $20bn, down from $24bn at the
end of the third quarter.
Juul’s common shares changed hands
at $90 in private secondary markets late
last year, however, one person briefed
on the matter said, implying the inves-
tors had valued the company nearer
Altria’s new estimate.
Fidelity last valued Juul’s shares at
about $143 apiece at the end of Novem-
ber — implying a valuation of about
$19bn — down from near $273 at the end
of May, according todocuments ostedp
on its website.
Tiger Global, one of Juul’s earliest
investors,reducedits valuation of the

COMPANIES

T

aking an Uber has entered the lexicon as

surely as doing the hoovering or making a

Xerox. Along with US rivalLyft, and China’s

Didi Chuxing, Uber nd other tech-enableda

taxi services — or ride-sharing operators, as

they like to be known — are transforming urban transport.

One thing they have failed to do — so far at least — is to

make a profit. Hopes are pinned on the economics of

autonomous cars. Eliminating the overhead of paying peo-

ple to drive vehicles could boost profitability significantly.

But there is a snag. Without car-owning drivers, the

transition to autonomous vehicles could also blow up the

companies’ balance sheets by lumbering them with the

cost of owning millions of vehicles — unless financial inno-

vation intervenes. And that is just whatDara Khosrow-

shahi, Uber’s chief executive, is dreaming of.

For early-stage tech companies to make money is, of

course, deeply unfashionable. Faithful investors cling to

the theory that revolutionising an industry is a costly busi-

ness that will pay off in the long run.

Scaling up should normally help. But when it comes to

ride-sharing, the numbers often do not add up. Disclo-

sures last year by Didi Chuxing showed that it was losing $

on every $100 taxi fare. The bigger it gets, the moremoney

it loses.

Uber’s profit trend is more encouraging. The group lost

$1.2bn in thequarter to September, up 18 per cent, but that

was owing to non-taxi activities, such as food delivery.

Ride-sharing made an “underlying” operating profit of

more than $600m, up by more than a half on a year earlier.

Investors seem unconvinced. Since its float last year, the

stock is down 20 per cent. Mr Khosrowshahi, who replaced

maverick co-founderTravis Kalanick n 2017, is continu-i

ing with a margin-boosting strategy, including a pro-

gramme to trim some of its

more extravagant punts.

But more radical change

may depend on driverless

cars. Ride-sharing operators

give their drivers 75-80 per

cent of a fare. Without driv-

ers, margins would jump.

But how to solve the prob-

lem that no drivers means no

cars? The last thing Uber would want is to see its relatively

capital-light balance sheet — a mere $32bn at the last count

— expand into one that owned all 4m of the vehicles in its

network. Even with modest price forecasting, that would

imply a sextupling of the balance sheet.

No wonder, then, that Uber executives are toying with

radical new ideas. Under one model, autonomous vehicles

could be established as a new asset class. Vehicles would be

owned via what some are nicknaming “Fleits” — or car

fleet investment trusts — a new twist on the concept of

Reits, the real estate investment trusts that own $3tn of

property assets in the US alone.

Investors in a Fleit would get a share of a fast-growing

sector nd a return of, say, 6 per cent, funded from the casha

flow generated by rides. So far, so neat.

But just like Uber’s current shareholder base, investors

in a Fleit would have to take a big leap of faith. A Fleit,

though similar conceptually to a Reit in comprising a port-

folio of assets, woulddiffer incrucial ways. Most obviously,

a car s likely to decline in value as it ages, rather thani

appreciate in value as property ends to.t Tesla ounderf

Elon Musk nsists an autonomous car would bei “an appre-

ciating asset”. That sounds implausible. But whatever the

truth, it would be challenging to value the assets and create

investable funds.

Another complication would come with the liability

stemming from accidents — again a key difference

between a Fleit and a Reit. Buildings, as a rule, do not

knock people over and kill them.

Broader operating risks are quite different, too. A 25-

year lease on a property is a lot more secure than an hour-

by-hour flow of money from taxi rides.

Some finance experts believe that if Uber and its like do

indeed shift their taxi model to fully autonomous vehicles

at some point over the next decade or two, a more likely

financing model would be for car manufacturers to keep

fleets on their own books and lease them to operators.

Then again, the longer our ultra-loose monetary policy

persists — and investors’ hunger for returns intensifies —

the more likely it may become that financial wizards, with

some encouragement from Uber et al, overcome the chal-

lenges and build those Fleits after all.

[email protected]

INSIDE BUSINESS

FINANCE

Patrick

Jenkins

Uber seeks ways to

share the costs of its

bet on driverless cars

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

Danish prosecutors have seized a £15m
property near Hyde Park in central
London as part of a sprawling pan-
European investigation into a multibil-
lion-eurotaxscandal.

The property belongs to Sanjay Shah, a
London-born investor, who is a suspect
in the Danish arm of the investigation
into the so-calledcum-ex, or dividend
stripping, scandal that prosecutors
allege cost the Nordic country $1.8bn.
Denmark, Germany, France and Italy
are amongEuropean countries hardest
hit by the scandal, which could have cost
their tax authorities tens of billions of
euros by reimbursing a dividend tax
that had not actually been paid.
The schemes involved trading shares
repeatedly around their dividend pay-

ment days to give the appearance of

multiple owners, each of whom could

claim their own tax refund.

Tax authorities in Copenhagen have

demanded that Mr Shah pay back bil-

lions of krone in a lawsuit brought in the

UK against his company, Solo Capital.

A spokesperson for Mr Shah, who is

now based in Dubai, said: “Sanjay con-

tinues to maintain his innocence and his

position was that he had two sets of legal

advice that the trades were legal.”

He confirmed that the London prop-

erty belonged to his client, adding that it

had been frozen by Danish tax authori-

ties for more than a year.

Mr Shah’s lawyers have claimed that

what he did was legal and that he had

merely exploited a loophole.

“Prosecutors are working extremely

hard to return as many funds as possible

to the Danish Treasury,” Kirsten Dyr-

man, a lawyer at the Danish state prose-

cutor for serious economic and interna-

tional crime, said in a statementyester-

day. “It is very extensive work, which is

not yet finished.”

Shesaid hat authorities had nowt

seized back items with a value of about

DKr3bn ($444m) out of more than

DKr12bn they allege was swin-

dled. Prosecutors, who have not charged

anybody in the case, said that a local

court approved confiscating the UK

property and English authorities had

“finally confirmed the seizure has been

accomplished”.

If Danish authorities bring a criminal

case against suspects and win a confisca-

tion order, they can sell the assets.

German prosecutors are probing

about60 cases ith 400 suspects.w The

German government has said cum-ex

trades cost taxpayers €5.5bn in total.

Financials

London property seized in euro tax probe

SA M J O N E S— ZURICH

Julius Baer as reported more thanh

SFr250m ($259m) in writedowns or

legal provisions and unveiled a further

round of job cuts, as its hief executivec

signalled an era of breakneck expan-

sionfortheSwissprivatebankisover.

The Zurich-headquartered group

reported a 37 per cent year-on-year

drop in net profit to SFr465m (£370m)

in 2019, largely driven by the inclusion

of exceptional writedowns.

The bank will become more active in

the coming months at ending relation-

ships with wealthy clients who are no

longer profitable enough, chief execu-

tivePhilipp Rickenbacher old thet

Financial Timesyesterday.

“We have to address situations where

the client relationship is no longer prof-

itable,” he said, adding he intended to

oversee “a shift from an asset gathering

mentality to sustainable profit growth”.

Julius Baer, as with other Swiss lend-

ers, has come under pressure following

five years ofnegative interest rates ni

Switzerland. A review of clients last year

already resulted in Julius Baer deciding

to pass on negative rates to customers

with significant cash holdings and less

active portfolios. The bank’s new

approach will go even further in

attempting to scale back relationships

with less wealthy clients.

Mr Rickenbacher, whotook over as

chief executive n September, unveiled ai

plan for 10 per cent annual growth in

profits at the bank over the next few

years driven by deeper-than-expected

cost cuts and a greater focus on higher

margin in-house products and services.

About 300 jobs, or 5 per cent of the

bank’s workforce, will be cut.

Julius Baer also abandoned its long-

held asset gathering target of an annual

4 to 6 per cent increase in net new allo-

cations from clients. It missed this in

2019 with just 2.8 per cent growth.

The sharesfell 3.3 per centyesterday.

The shift in strategy will be seen as a

litmus test for the Swiss private banking

world, with institutions of all sizes grap-

pling with ultra-low interest rates as

geopolitical concerns weigh heavily on

their wealthy clients’ appetite for risk.

Overall assets under management

rose 12 per cent to SFr426bn last year,

driven mainly by SFr44bn market-re-

lated gains for client portfolios.

The lender said it was putting aside a

provision of SFr153m to settle a historic

legal case relating to the misappropria-

tion of East German assets in the 1990s

following the fall of the Berlin Wall.

See Lex

Banks

ulius Baer to cut 300 jobs as profit slides 37%J

ST E FA N I A PA L M A— SINGAPORE

Tony Fernandes, theAirAsia wner, haso
stepped aside as chief executive after
the Malaysian airline was pulled into a
bribery investigation targetingAirbus,
which is to pay €3.6bn in penalties to
regulators in France, Britain and the US.
In a statement to the Malaysian stock
exchange esterday, the airline said thaty
Mr Fernandes andKamarudin Mera-
nun, his longtime business partner and
executive chairman, would “relinquish
their executive positions within the
group, effective immediately, for a
period of two months or such other
period that the company may deem fit”.

Prior to the announcement, AirAsia

shares slid more than 10 per cent in

Kuala Lumpuron their first day of trad-

ing since the UK’s Serious Fraud Office

published details of its probe in which

individuals associated with Airbus were

found to have paid bribes to secure deals

with AirAsia and its long-haul arm Air-

Asia X.

They included a $50m sponsorship

for a “sports team” jointly owned by two

unnamed executives at the Malaysian

airline but that was “legally unrelated to

AirAsia and AirAsia X”, according to

documents relating to the UK probe.

The carrier on Sunday said that it

“vigorously rejects and denies any and

all allegations of wrongdoing” related to

the Airbus bribery probe, adding that it

was neither involved in the UK inquiry

nor “given any opportunity to provide

any information or clarification”.

The Malaysian Anti-Corruption Com-

mission said that it was in touch with

authorities in Britain and also investi-

gating the allegations.

Mr Fernandes ought AirAsia fromb

the Malaysian government for less than

$1 in 2001 and built it into one of the

region’s biggest carriers. He and Mr

Meranun nce owned the now-defuncto

Caterham Formula One racing team,

which counted Airbus among its spon-

sors. The pair, who are also majority

owners of London football clubQueens

Park Rangers, will remain at the airline

in advisory roles.

Airbus’s admission of a string of brib-

ery and corruption offences — which

spanned countries from China and Tai-

wan to Indonesia and Malaysia — con-

cluded a nearly four-year investigation

into the European aerospace group.

UK investigators said that AirAsia and

AirAsia X ordered 406 Airbus aircraft

between 2005 and 2014, 180 of which

were “secured by way of improper pay-

ments, and the offer of a further

improper payment”.Airbus offered an

additional $55m following the $50m

sponsorship for the sports team but

payment was not finalised.

AirAsia saidAirbus’s sports ponsor-s

ship was “a well-known and widely pub-

licised matter” and that AirAsia’s own

sponsorship “went through due internal

assessment” before being approved by

the board. The Malaysian airline

declined to comment on the identity of

the executives mentioned in the probe.

his is not the first time AirAsia hasT

facedcontroversy. Indian law enforcers

in 2018 opened a money laundering

case claiming a“criminal conspiracy”

between the Malaysian carrier, which

denies wrongdoing, and Indian officials.

Airlines

AirAsia owner Fernandes steps aside

Chief and chairman

cede roles in fallout from

Airbus bribery probe

The carrier

‘vigorously

rejects and

denies any

and all

allegations’

Ride-sharing

operators face

the cost of

owning millions

of vehicles

Tobacco

Investors in

Juul braced

to suck up

markdowns

Japan Tobacco, the maker of Camel

cigarettes outside the US, has

launched a cigarette-sized menthol

cigar in the UK that campaigners say

is an attempt to evadean impending

ban on flavoured cigarettes.

The Sterling Dual Capsule cigarillo is

thesizeof acigarette but isclassed as

a cigar-type product as it is wrapped

in tobacco leaf. The cigarillo, which is

also marketed under thenameof one

of JTI’s cigarette brands, will be sold at

half the price of normal cigarettes.

“The tobacco manufacturers pay

vast sums of money to delay

implementation of anti-tobacco laws

and, once legislation is in place, to try

to find loopholes. This is just the latest

example, and the government must

act quickly to put a stop to it,” said

Deborah Arnott, chief executive of the

anti-tobacco campaign group Action

on Smoking and Health.

The UK is due to outlaw the sale of

menthol cigarettes n May under thei

EU Tobacco Directive as part of efforts

to cut youth smoking. Authorities in

the US are considering a similar ban

after health authorities found that

more than half of 12 o 17-year-oldt

smokers chosementhol cigarettes.

Rules for cigar products in the UK

are less stringent than for cigarettes

as they havebeen categorised as a

luxury item. While cigarettes must be

sold in plain packaging and in

minimum pack sizes of 20, cigars can

be sold in smaller, branded packs

making them more affordable.

“The idea with menthol is that it’s

more pleasant for those trying out

cigarettes for the first time,” said

Rosemary Hiscock, a partner at the

tobacco industry watchdog STOP.

This month,Imperial Brands

launched a mint-infused card that fits

inside a pack of cigaretteswhich

flavours the cigarettes with menthol.

Chris Street, Imperial marketing

manager, said that thecards meant

“retailers can provide shoppers with

options to help them stick with their

flavour preference post ban and

protect their sales as a result”.

Tobacco companies have been

looking for ways to shore up profits as

numbers of smokers decline.JTI and

Imperial control about 80 per cent of

the UK’s £11bn cigarette market, with

menthola quarter of the market.

Dean Gilfillan, managing director of

JTI UK, saidits products “always

comply with all relevant legislation”.

Alice Hancock

Menthol

sales ban

JTI under

fire over

cigarillo

solution to

crackdown

Altria attributed its $4.1bn

Juul writedown to litigation

against the e-cigarette group,

which is under pressure after

a rise in teenage vaping

Gabby Jones/Bloomberg

FEBRUARY 4 2020 Section:Companies Time: 3/2/2020- 19:21 User:sanjay.gohil Page Name:CONEWS1, Part,Page,Edition:LON, 14, 1