“American shale drillers are still spending more money than they are making, even as oil prices rise.”
“Of the top 20 U.S. oil companies that focus mostly on fracking, only five managed to generate more cash than they spent in the first quarter, according to a Wall Street Journal analysis of FactSet data.”
“Shale companies have helped propel U.S. oil output to all-time highs, surpassing 10 million barrels a day and rivaling Russia and Saudi Arabia. But the top 20 companies by market capitalization collectively spent almost $2 billion more in the quarter than they took in from operations, largely due to bad bets hedging crude prices, as well as transportation bottlenecks, labor and material shortages that raised costs.”
Cryptocurrency / ICOs
FT – Tax havens take the ICO lead – Don Weinland 5/21
“China’s insurance regulatory agency Friday took control of hard-charging, acquisitive Anbang Insurance Group Co., saying the action is needed to avoid a collapse of the firm following suspected illegal activity and the downfall of its once-highflying chairman.”
“The China Insurance Regulatory Commission published a letter to Anbang management saying duties of the board and management will now be overseen by a working group of regulators from various agencies for one year. ‘All transactions of your company, asset trading, information dissemination, contract signing other than traditional insurance business are subject to the consent of the working group,’ said the statement dated Feb. 12.”
“Separately, Wu Xiaohui, who led Anbang until he was detained eight months ago, has been indicted on charges of fraudulent fundraising and abusing his position, according to a one-sentence notice by prosecutors in Shanghai on Friday. The insurance regulator’s statement refers to Mr. Wu as Anbang’s former chairman.”
“The Waldorf Astoria purchase ushered in the rise of a new breed of Chinese deal makers. The companies, which also included Dalian Wanda Group, HNA Group and Fosun International, bought up everything from hotels to banks to movie production companies. Though the companies are privately owned, their leaders often benefited from their political connections, and they were often backed by cheap debt provided by China’s state-run banks.”
“The deals made the companies truly global players. For example, in a financial disclosure last spring, shortly before the police detention of its chairman, Anbang said that nearly three-fifths of the assets of its main business, life insurance, were overseas.”
“Property was a big focus for Anbang. In 2016, it spent more than $6 billion for a group of hotels in the United States, buying it from Blackstone Group, a private equity giant. That gave it marquee properties including the Westin St. Francis hotel in San Francisco, the Loews Santa Monica hotel in California and the Fairmont Chicago hotel.”
“Anbang also offered more than $13 billion for Starwood Hotels and Resorts before abandoning its bid in 2016, without explanation. By then, the Chinese deal makers had hit a wall.”
“China was shaken three years ago by a surge of money out of the country and concerns that its economy had been layering on too much debt. Anbang and the other Chinese deal makers, which had borrowed heavily to fund their shopping sprees, soon drew attention from officials. State media labeled them ‘gray rhinoceroses‘ — big problems that are ignored until they start moving fast.”
“The Chinese government’s takeover of Anbang Insurance and criminal prosecution of founder Wu Xiaohui marks the biggest step yet in an official crackdown on risky financing by ambitious conglomerates that has prompted a severe decline in China’s overseas dealmaking.”
“But on the same day as the Anbang seizure was announced, Chinese company Fosun said it would buy a controlling stake in Lanvin, France’s oldest couturier. The move underlines the diverging fates of the four largest private conglomerates — the others are HNA and Dalian Wanda — that Beijing identified last year as borrowing too aggressively to fund offshore deals.”
“All have captured headlines over the past few years with a series of audacious foreign acquisitions. These include Anbang’s $2bn purchase of New York’s Waldorf Astoria, Dalian Wanda’s takeover of Hollywood studio Legendary Entertainment for $3.5bn, and HNA’s $40bn splurge on stakes in companies including Deutsche Bank and Hilton Worldwide.”
“Beijing stepped in last year to curb the spree, worried that companies were overpaying for foreign assets and draining China’s foreign currency reserves, while relying on risky financing methods to fund acquisitions.”
“Analysts say the government’s treatment of the groups differs depending on their sources of financing, and whether they have co-operated in the government’s campaign to slow capital outflows and cut leverage.“
“Wanda has co-operated with official directives by unloading more than $4bn in overseas assets over the past nine months and promising to “refocus” on the domestic economy. Last week it sold its 17% stake in Spanish football club Atlético Madrid.”
“HNA, meanwhile, has appeared to win back support as it regroups amid a liquidity crunch. Last week, the debt-laden company announced the HK$15.8bn ($2bn) sale of two plots of land in Hong Kong to local developer Henderson Land.”
“It was Anbang’s financing model that caused the Chinese authorities most concern. Unlike other groups that relied on bank loans or bond issuances to fund acquisitions, Anbang relied on sales of investment-like products it sold to wealthy Chinese retail investors labelled as life insurance, a part of China’s sprawling shadow-banking system.”
“Anbang’s finances were also in a more precarious state than other companies due to the mismatch between the short-term nature of its assets and the longer-term nature of its liabilities.”
“China’s Anbang Insurance went from zero to too-big-to-fail in the blink of an eye. It is a lesson in how quickly China’s financial problems grow—and how much is left to clean up.”
“A capital raising, including a possible government capital injection seems likely. The total cost of cleaning up the mess, including whatever losses sit on Anbang’s gargantuan balance sheet—put at close to 2 trillion yuan ($300 billion) in April by financial magazine Caixin—is an unknown.”
“This yearlong ‘management’ of Anbang announced by regulators could be misinterpreted as a positive for China: financial shares rose. But investors celebrating China’s apparent success at containing financial risks without damaging the broader economy shouldn’t be so sanguine.”
“Anbang fueled its international shopping spree, including a top-dollar price for the Waldorf Astoria Hotel in New York, on the back of high-yielding, often highly leveraged investment products sold to retail investors. Some of these, known as wealth-management products, or WMPs, became the target in 2017 of government efforts to clean up China’s highly leveraged financial system. That essentially cut off one the biggest sources of Anbang’s funding.”
“Anbang and WMPs are not, however, the end of China’s debt crackdown story. While WMPs and the bonds they invested in withered, companies have returned to previously popular forms of non-bank finance including trust loans, off-balance sheet company-to-company loans and bankers’ acceptances.”
“These grew 15% last year after just 4% growth in both 2015 and 2016. Overall debt and equity issuance stayed robust despite the crackdown.”
“Anbang may be wrapped up. But the cost of letting finance take such a big chunk of China’s economy is far from being resolved.”
“For three decades Tajikistan has wanted to build the world’s tallest hydroelectric dam but struggled to pay for it.”
“That changed last September when the mountainous central Asian country tapped international debt markets for the first time, was inundated with $4bn of orders and eventually sold $500m of debt at a yield of 7.125% — a landmark moment for an economy with an annual GDP of just $7bn.”
“Investors’ search for yield, brightening global economic conditions and structural reforms in many countries have resulted in benign conditions for what debt bankers refer to as ‘frontier’ economies.”
“The world’s riskiest countries are selling debt at a record rate, research published late last year found, with junk-rated borrowers comprising nearly half of all borrowing from emerging markets in 2017; one adviser called it a ‘gold rush’.”
“’The markets are so good at the moment that clients can literally ask for whatever they want,’ said an experienced deals banker. ‘People will buy anything so long as it offers them yield and diversification. They get bored of only being able to buy the same names and have also hit their limits for some of the more frequent names’.”
“’Ultimately this is people’s pensions we’re talking about,’ said one investor. ‘If you explained to the man on the street that their pension fund is being invested in Nigeria at 7%, they would be incredulous. If you threw that decision out to ordinary people, would they buy it? Probably not’.”
“Bitcoin and many of its peers have crashed in recent months from all-time highs reached in December. But that hasn’t dented the popularity of one crypto-fundraising method: so-called initial coin offerings.”
“Sales of those digital tokens have already raised about $1.66 billion this year, according to research and data firm Token Report. About 480 have launched in 2018 and only 126 of those have closed to new funds. That puts the market on pace to top last year’s total of $6.5 billion raised in coin offerings, according to the firm.”
“Whatever their motive, coin-offering investors have created some of the best-capitalized startups in incredibly short periods. The $1.5 billion raised by block.one in less than a year is equal to the amount raised by Twitter Inc. between 2007 and 2011 across nine separate funding rounds. And only four initial public offerings in 2017 and 2018 raised more than the amount block.one has attracted, according to data from Dealogic.”
“The continued success of coin offerings is even more remarkable given heightened regulatory scrutiny globally of cryptocurrencies and on the sales of digital tokens.”
“In the U.S., the SEC and Commodity Futures Trading Commission have heightened their oversight of the coin-offering market. The CFTC recently issued a customer advisory in which it advised people to avoid ‘pump-and-dump’ schemes, and offered whistleblowers a monetary reward in the case of successful enforcement actions.”
“The SEC has brought enforcement actions against several ICOs, most recently a Texas-based outfit called AriseBank, which had claimed to have raised more than $600 million in an ICO.”
“That pressure may have led to something of a bifurcation in the market for coin offerings. While large, widely publicized projects like block.one and Telegram have no problem raising money, others have had trouble meeting their fundraising goals.”
“Researchers at Ernst & Young found that less than 25% of the ICOs in November 2017 hit their goals, down from 93% in June. Token Report said the median amount raised by ICOs this year is about $12 million.”
“Beijing’s nationwide anticorruption drive, which drove luxury spending to a halt just three years ago, has faded. That coincided with a rebound in property prices, Chinese consumers’ main source of wealth. According to Deutsche Bank, the housing boom has added 86 trillion yuan ($13.5 trillion) to the total value of residential properties in the past two years. And unlike previous cycles, the gains aren’t concentrated in the biggest cities such as Shanghai and Beijing but have spread to smaller cities. People in these so-called tier-two and tier-three cities have made more money from their houses on paper last year than from their wages, according to Deutsche.”
“JPMorgan Chase has given a big boost to the old business heart of midtown Manhattan, agreeing a deal to tear down its 60-year-old Park Avenue headquarters and replace it with one of the tallest towers in New York City.”
“The biggest US bank by assets had been considering a move from its 270 Park Avenue location to the west side of Manhattan, as an anchor tenant of a new development known as Hudson Yards. But on Wednesday the bank said that it had struck a deal with Mayor Bill de Blasio to stay put, moving staff from several buildings in the Park Avenue area into a new, 2.5m sq ft tower.”
“At 70 to 75 floors, it should be the tallest bank building in the country upon completion in 2024, topping Bank of America’s 55-floor tower a few streets away, on the north-west corner of Bryant Park. It will also surpass BofA’s 60-floor headquarters in Charlotte, North Carolina, which looms over the 42-floor Wells Fargo Tower.”
“Stuart Saft, head of the New York real estate practice at Holland & Knight, described the deal as a ‘fabulous’ one for midtown Manhattan, likening the threat from Hudson Yards to the development of Canary Wharf in London in the late 1980s. Already, white-shoe law firms such as Milbank, Tweed, Hadley & McCloy and Boies Schiller Flexner have agreed to move to the complex emerging by the Hudson River.”
“JPMorgan will expand its floor area by buying unused development credits, known as ‘air rights’, from landmark properties in the area such as St Patrick’s Cathedral, St Bartholomew’s Church and Central Synagogue.”
“Blockchain could save asset managers $2.7bn a year if the investment industry shunned the laborious manual practices involved in buying and selling funds in favor of using online ledger technology, according to research published on Thursday.”
“Technology company Calastone said blockchain, which is a giant online ledger, could revolutionize the processes involved in buying and selling funds, generating large savings for investors in the process.”
“It estimated that based on daily trade volumes of funds in the UK, Ireland, Luxembourg, Hong Kong, Singapore, Taiwan and Australia, £1.9bn — or $2.7bn — in savings was possible.”
“Earlier this year, BNP Paribas Asset Management said it had successfully completed a full end-to-end fund transaction test using blockchain technology. The project involved a tie-up between BNP Paribas Securities Services’ blockchain program, Fund Link, and FundsDLT, a blockchain-based decentralized platform for fund transaction processing.”
“Indonesians declared more than 750tn rupiah ($52.5bn) worth of assets in Singapore during Indonesia’s tax amnesty program — which gave immunity from prosecution to those who came clean about untaxed wealth and paid a small penalty — ended last March. That is more than the combined total they declared in the next four top destinations — British Virgin Islands, Hong Kong, Cayman Islands and Australia.”
“Tencent, a Chinese technology group with an equity value greater than Facebook’s, said 768m people sent and received hongbao, the red packets stuffed with cash, over Weixin Pay, its third-party payments business, during the six-day holiday period. Typically people will hand out scores or even hundreds of hongbao: according to Tencent, one person sent 2,723 while another received 3,429.”
“So-called initial coin offerings, or ICOs, like this have turned into the year’s most striking financial craze. More than $1.8bn has been raised by software developers from the sale of new currencies with names such as Tezzies, Atoms and Basic Attention Tokens.”
“In unofficial online markets where these and other digital tokens are traded, the mania has hit even more bizarre levels. The value of Ripple — at five years, a cryptocurrency veteran — soared this year on a wider boom that was led by bitcoin. Ripple’s notional value, including coins held by the company for later sale, jumped from $500m at the start of the year to more than $35bn, before falling back to $19bn.”
“The boom in cryptocurrency prices has been fed by uncontrolled speculation, leading regulators to act. In recent days, Chinese authorities have banned ICOs and are now reported to be on the brink of shutting down all cryptocurrency exchanges. The Financial Conduct Authority, the UK regulator, warned anyone thinking of buying coins in an ICO that they should only do so if they are prepared to lose everything. Jamie Dimon, chief executive of JPMorgan, sent bitcoin prices down 10% on Tuesday when he called the currency a ‘fraud’ and threatened to sack anyone at his bank caught trading it.”
“But cryptocurrencies’ promoters argue that beyond the speculative mania, something profound is taking place. It has created a new way for start-ups developing platforms based on blockchain and other technologies to raise money, using online crowdfunding techniques.”
“Networks such as IPFS are based on a vision of decentralized online services where ordinary users interact directly with each other, rather than through internet companies that set themselves up as gatekeepers to the online world. According to the enthusiasts, many of the most popular internet applications could be remade in this way, leaving the control — and the profits — in the hands of the users.”
“But there is another view that draws on a different aspect of internet investment history. ‘There’s a tendency to turn the brain off and jump in. It’s like Pets.com [which shut down in 2000],’ says Mark Williams, a lecturer in financial risk management at Boston University. The speculation is being fed by a hype that is as insidious as the dotcom craze of the late 1990s, he says: ‘People are treating it like a lottery ticket.’”
“The value of the best-known digital currency, bitcoin, has risen eightfold in the past year. That has led to a hunt for the next untapped markets, lifting the notional value of all cryptocurrencies to more than $130bn. With nothing more needed to launch a coin sale than a ‘white paper’ — the document that coin promoters use to lay out their grand plans — and the promise of some computer code, the steady flow of ICOs in the past year has turned into a flood.”
“The boom, which began in early summer, is already exhibiting many of the characteristics of other speculative crazes. New coins have proliferated: more than 150 token sales have been conducted or announced this year. CoinMarketCap lists prices for about 1,100 coins, with more than 120 ICOs planned before the end of September.“
“Celebrity endorsements have followed. Paris Hilton used Twitter to boost LydianCoin, a currency for a mooted advertising market that its backers hope will raise $100m. Boxer Floyd Mayweather got there before her, using the run-up to his late August bout with Conor McGregor to promote the prediction market Stox.com and content marketplace Hubii Network.”
“Underpinning new blockchain-based networks such as IPFS are protocols, or rules, embedded in software that govern how participants interact. At least in theory, many of the interactions that happen online, such as those on social networks, ecommerce sites and search engines, could take place between willing users on decentralized networks.”
“What supporters see as a profound financial innovation, however, others warn can be an easy route to creating funny money. When buyers have been so willing to purchase currencies issued on nothing more than the promise of a future market, it’s not surprising that so many are trying to mint new ones.”
“Selling coins has another advantage that the ICOs are less keen to highlight: it exploits a regulatory loophole. By selling a currency rather than shares they stay outside the scope of securities regulation, removing any constraints on how they market their offerings.”
“Regulators are working on closing this loophole. The US Securities and Exchange Commission said in July that it had determined that many coins were in fact a type of security, and would look at the underlying nature of each ICO to determine whether they should be regulated as securities.”
“For their creators, ICOs have another obvious attraction. They have made it possible to raise far larger amounts than start-ups can usually tap, at least as long as enough investors can be persuaded to suspend their disbelief.”
