|Bid||130.71 x 0|
|Ask||123.40 x 0|
|Day's Range||122.08 - 123.54|
|52 Week Range||103.30 - 136.84|
|Beta (3Y Monthly)||1.12|
|PE Ratio (TTM)||14.21|
|Earnings Date||Nov 2, 2019|
|Forward Dividend & Yield||5.75 (4.70%)|
|1y Target Est||129.79|
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. When Japan decided to step up its fight with South Korea last month, it dug deep into the supply chain to impose sanctions on three obscure materials made by a handful of Japanese companies few have ever heard of.The most powerful weapon in Tokyo’s campaign against its neighbor turned out to be a half-dozen or so niche firms with names like JSR Corp., Shin-Etsu Chemical Co. and Tokyo Ohka Kogyo Co. They make fluorinated polyimide, hydrogen fluoride and photo-resist: essential ingredients for the manufacture of the displays and semiconductors that go into every piece of modern consumer electronics, from Apple Inc. iPhones and Dell Technologies Inc. laptops to the full range of Samsung Electronics Co. devices. Japan prohibited the export of those materials, allowing an exception only if suppliers secure a license and renew that license regularly.How did they become so indispensable? And how did they manage to stay on top even after their Japanese clients ceded the chip and display markets to Taiwanese and South Korean rivals? The answer lies in a series of well-timed investments decades ago, combined with a willingness to explore foreign markets and an unceasing refinement of manufacturing standards too exacting for anyone else to try and match.“JSR is an interesting case in that they became big in photo-resists because they succeeded overseas first,” said Damian Thong, an analyst at Macquarie Group Ltd. “And much of this success was because of the strategy of one man — Mitsunobu Koshiba.”The JSR chairman’s story shows just how hard it would be for a newcomer to fill the shoes of one of these suppliers. Koshiba spearheaded the company’s pivot into photo-resists, a light-sensitive liquid used to imprint circuits as narrow as a few strands of DNA onto silicon wafers in a process called lithography. Gadgets keep getting slimmer, more powerful and cheaper because chip companies are able to etch ever smaller circuit patterns onto silicon. When it comes to the most advanced chip processes, JSR is one of the few that can deliver the goods.When 25-year-old Koshiba joined JSR in 1981, the company’s biggest business was still tire rubber. (The name is an abbreviation of Japan Synthetic Rubber.) As luck would have it, photo-resist at that time used resins that JSR had access to for its existing business, and the company saw an opportunity to break into a new growth industry. Japanese semiconductor makers were just beginning their rise to global dominance, and suppliers were positioning themselves to go along for the ride.The problem for JSR was it didn’t belong to any of the local keiretsu, a grouping of suppliers that receives preferential access to contracts. And the company was also up against Tokyo Ohka or TOK, the first in Japan to manufacture photo-resist. By the mid-1980s, TOK controlled as much as 90% of the domestic market.“As a neutral company without keiretsu affiliations, we had to look outside Japan,” Koshiba said in an interview, outlining JSR’s decades-long rise but declining to talk in detail about sensitive trade negotiations now underway between Tokyo and Seoul.JSR’s decision to get into that market was bold but Koshiba seemed like the right person for the job. He’d spent two years studying materials science at the University of Wisconsin-Madison on a Rotary Club scholarship, was one of the few English speakers at the company and was eager to work abroad. In 1990, JSR sent him to Belgium to set up a photo-resist joint venture with the country’s biopharmaceutical giant UCB SA. The goal was to target the American market.As timing would have it, JSR was going overseas just as Japan was approaching the peak of its semiconductor prowess. That same year, NEC Corp., Toshiba Corp. and Hitachi Ltd. were the world’s biggest chipmakers, pushing aside Intel Corp. and Texas Instruments Inc. Japanese firms occupied six spots in the industry’s top 10 ranking by revenue, a level of concentration that hasn’t been matched by any country since, according to IC Insights.Japan’s seemingly unshakable control of the computer memory market gave the country renewed national confidence. The mood was reflected in the book “The Japan That Can Say No,” in which right-wing politician Shintaro Ishihara and Sony Corp. co-founder Akio Morita argued for a more muscular foreign policy. In an eerie echo of recent events, the authors contended that the Japanese government had the power to determine the outcome of the Cold War just by directing its national companies to sell the chips used in intercontinental ballistic missiles (ICBMs) to the Soviets instead of the U.S.But the Cold War ended before that theory could be tested. Over the following decade, personal computers overtook ICBMs as the primary destination for chips and demand shifted to prioritize low unit costs over military-spec quality. By 2006, Samsung had risen to No. 2 on the list of the world’s biggest chipmakers, with Korean compatriot SK Hynix Inc. ranking seventh and only three Japanese names remaining among the top 10.For JSR, the turning point came in 2000. Koshiba, who was based in California at that time, recalls being dragged into an emergency meeting on a Sunday wearing a T-shirt and shorts. Word was a rival company was about to clinch an agreement with IBM for joint research on a next-generation photo-resist material. “Get it back,” he was told. Koshiba leaned on the network of American industry contacts he had spent a decade building, people who had known him through the worst of U.S.-Japanese trade tensions. Within a month, IBM signed with JSR.“Without that deal, we wouldn’t have gotten to No. 1,” Koshiba said.In lithography, the formula for shrinking transistors has only two levers: increase the light power or use a lens that lets more light through. Every time the chip process shifts to a higher-energy band of light, resist makers have to go back to the drawing board, opening up new opportunity. The research partnership with IBM ushered in the fourth such shift since integrated circuits replaced vacuum tubes in the 1970s, and JSR rode it all the way to the top.The company now commands about 40% of the market for the latest generation of resist used in mass production. It also supplies more than 30% of the photo-resist for 3D NAND, the most advanced flash memory chips, which are among the few product lines where Japan still competes with Korean rivals. In 2019, JSR is expected to generate about three times the revenue and five times the profit it did in the early ‘90s.What makes this business inaccessible to newcomers is the extreme degree of purity and quality demanded by customers. TOK says a single drop of coffee in two Olympic-sized swimming pools would be considered an unacceptable defect. JSR’s analogy is to a handful of tainted golf balls being enough to spoil a batch the size of the entire Japanese archipelago.In addition to being technically challenging, the markets these companies operate in are small and don’t promise fantastic growth. According to research firm Fuji Keizai Group, the industry’s sales rose just shy of 8% last year to $1.3 billion. Koshiba jokes that even the market for ramen noodles is bigger than that.“To recreate JSR, you basically need to spend as much as they did in the past 20 years on R&D and relationships, and also rebuild their reputation,” Macquarie’s Thong said. “These materials are used in such moderate quantities that to rebuild the whole infrastructure is probably not worth the investment.”And that’s the irony of the current situation. By stoking trade tensions, Japan may encourage its neighbor to subsidize competition to JSR and TOK that wouldn’t make sense under normal market conditions. It’s a matter of survival: Korean corporations now depend on Japan for over 90% of all the fluorinated polyimide and resists they need, and 44% of hydrogen fluoride requirements, Societe Generale estimates.Read more: Japan Grants South Korea Export License, Lessening Trade FearsFor the time being, JSR and TOK retain dominance over one prized material that keeps the consumer electronics industry ticking. According to South Korean Prime Minister Lee Nak-yon, Japan has approved exports of photo-resist for the next-generation of lithography currently under development by Samsung and Taiwan Semiconductor Manufacturing Co. But one of Japan’s last strongholds of tech industry domination may be under threat.“They have the engineers, and once national pride is involved they can possibly make it even if it loses money,” Koshiba said. “We don’t have an impregnable wall.”\--With assistance from Jason Clenfield.To contact the reporters on this story: Pavel Alpeyev in Tokyo at email@example.com;Yuki Furukawa in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Vlad Savov, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Reliance Industries Ltd. soared the most in more than two years after billionaire Mukesh Ambani revealed a plan to sell a stake to Aramco as part of efforts to pare debt.The conglomerate aims to be a zero-net-debt company in 18 months, Asia’s richest man told shareholders Monday. Aiding that would be a proposed sale of 20% of Reliance’s oil-to-chemicals business to Saudi Arabian Oil Co. at an enterprise value of $75 billion. The company will also start preparing to list its retail and telecommunications units within five years, Ambani said.Shares of Reliance jumped as much as 9.3% in Mumbai on Tuesday, their biggest intraday gain since Feb. 22, 2017. Morgan Stanley, Macquarie Group and BOB Capital Markets were among brokerages that upgraded the stock.Aramco Buys Into Reliance Refining Business as Earnings DropThe tycoon is cleaning up the group’s finances following years of spending on his wireless carrier, whose entry in 2016 with free calls and cheap data upended the industry and spurred a consolidation. The $50 billion plowed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse Group AG that Reliance’s ballooning borrowings could weigh on growth. Ambani sought to allay those fears.“With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world,” he said. “We will also evaluate value unlocking options for our real estate and financial investments.” The group spent $76 billion in the last five years, he said.The Aramco deal should be completed by March and is subject to due diligence, definitive agreements and regulatory and other approvals, Ambani said. He didn’t say how the deal would be structured.Saudi Aramco and Reliance Industries have agreed to a non-binding Letter of Intent regarding a proposed investment in the Indian company’s oil-to-chemicals division comprising the refining, petrochemicals and fuels marketing businesses, according to a statement from Reliance on Monday.Signaling an end to the spending cycle at Reliance Jio Infocomm Ltd., Ambani is setting a new growth path for his group, whose bread-and-butter business has been oil refining and petrochemicals. The company is building an e-commerce platform by leveraging its phone network and Reliance Retail Ltd. to eventually take on Amazon.com Inc. and Walmart Inc.“This is a unique business model we are building in partnership with millions of small merchants” and mom-and-pop stores, he said. As part of the plan, Reliance has been forming partnerships and acquiring technology assets. This month, Reliance announced plans for a joint venture with Tiffany & Co. to open stores for the jeweler in India, and in May paid $82 million for the British toy-store chain Hamleys.The Tiny Deals Behind Mukesh Ambani’s Bid to Take on AmazonThe new businesses are likely to contribute 50% of Reliance’s earnings in a few years, from about 32%, Ambani said.What Bloomberg Intelligence Says“Reliance Industries could dominate the Indian telecom and organized-retail segments through aggressive expansion, capitalizing on its energy business. More than $7 billion in annual cash flow from the energy business provides a war chest to win market share in the retail and telecom industries”\--Kunal Agrawal, energy analystWhile the spending on Jio has helped Reliance lure almost 350 million users in the world’s second-biggest mobile market, the growth has come at a price.Not Since 2013Reliance had a net debt of 1.54 trillion rupees ($22 billion) at the end of March 31, according to Ambani. His plan to carry zero debt would mean the borrowings would fall below the company’s cash reserves to a level not seen since 2013.Last week, Credit Suisse cut its recommendation for Reliance’s stock and the price target citing reasons including rising liabilities and finance costs. Shares of the company pared their losses Tuesday after having earlier slumped about 18% from a record reached on May 3. The benchmark S&P BSE Sensex declined 4% in the same period.Reliance’s debt is backed by “extremely valuable assets,” Ambani said, signaling his group isn’t prone to the kind of troubles that have been plaguing many other corporate borrowers in India. The conglomerate controlled by Ambani’s younger brother, Anil, has been struggling to pay creditors while his mobile carrier has slipped into bankruptcy.Apart from the Aramco deal, Reliance also announced a joint venture with BP Plc this month, under which the European oil major would buy 49% of the Indian firm’s petroleum retailing business. Reliance would receive about 70 billion rupees under this deal.The “commitments” from the Aramco and BP deals alone are about 1.1 trillion rupees, Ambani said, adding that Reliance will induct “leading global partners” in telecom and retail units in the next few quarters.Some of the planned offerings revealed by Ambani:A new broadband service called Jiofiber will start commercial services from Sept. 5 and will be available at tariff packs starting as low as 700 rupees a month with a minimum speed of 100 MbpsJio will install across India one of the world’s largest blockchain networks in the next one yearAfter mobile broadband, Jio to start generating revenues from Internet of Things and broadband for home, businesses and smaller enterprises by March 2020Reliance is getting ready to roll out the new commerce platform at a larger scale to capture what Ambani sees as a $700 billion business opportunityReliance Retail aims to be among the world’s top 20 retailers in the next five years(Updates with stock upgrades in third paragraph)\--With assistance from Ari Altstedter.To contact the reporters on this story: P R Sanjai in Mumbai at firstname.lastname@example.org;Dhwani Pandya in Mumbai at email@example.com;Debjit Chakraborty in New Delhi at firstname.lastname@example.orgTo contact the editors responsible for this story: Sam Nagarajan at email@example.com, Bhuma ShrivastavaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The deal makes Nine Entertainment Australia's first media company with outright ownership in free-to-air television, print and radio assets since the government relaxed ownership rules in 2017. Nine said it unit Fairfax Media would make an all-cash offer of A$1.46 for each Macquarie Media share, a discount of 16.3% to Macquarie's last closing price on August 2. In a separate statement, directors of Macquarie said they recommended Nine's offer to shareholders, in the absence of a superior proposal.
European shares rose on Wednesday after three sessions of losses as deal-making activity in the chemical sector helped offset pale earnings from banks in the region, with U.S.-China trade worries lingering. German chemical groups Bayer and Lanxess agreed to sell chemical park operator Currenta to Macquarie Infrastructure and Real Assets (MIRA) for an enterprise value of 3.5 billion euros ($3.9 billion). Banks moved lower, with Italian banks weighing after mixed earnings from the country's top lenders.
Australia's banking regulator said on Wednesday it has forced Macquarie Group Ltd and the domestic units of Rabobank and HSBC to tighten funding arrangements in Australia, saying they had been in breach of reporting requirements. The Australian Prudential Regulation Authority (APRA) said it had reviewed the three lenders and found they were "improperly reporting the stability of the funding they received from other entities within the group", in a statement. "APRA is requiring these banks to strengthen intra-group agreements to ensure term funding cannot be withdrawn in a financial stress scenario," APRA said, because such arrangements could undermine the strength of the Australian entities.
(Bloomberg Opinion) -- When you’re in the business of buying and selling, timing is everything.That’s the costly lesson facing BHP Group, which is looking at options to divest its thermal coal assets according to a report Thursday by Thomas Biesheuvel of Bloomberg News that cited people familiar with the matter.Arch-rival Rio Tinto Group raised $2.7 billion selling mines in the Hunter Valley north of Sydney to Yancoal Australia Ltd., in a process that started in 2016. BHP could get far less: Macquarie Group Ltd. estimates $1.6 billion. That’s despite the fact that BHP’s Mount Arthur and Cerrejon mines, in the Hunter Valley and Colombia, post roughly the same Ebitda as as the ones Rio Tinto sold. BHP has had good reasons to keep operating these mines. They’ve produced several years of good earnings, for one. Mount Arthur has probably been even more profitable than it looks on paper, thanks to its ability to utilize tax losses that will now be running low.Still, it will be galling to sell at a discount when the long-term price for the high-energy coal mined in the Hunter Valley is now about a third higher than the $63 a metric ton level at the time Rio Tinto’s deal was announced.What’s changed? More or less everything.Back in 2016, coal was still the lowest-cost way of delivering new generation in most major markets. The slumping price of wind and solar generation since then has changed the game. Thermal coal will fall to 11% of U.S. generation by 2030 from the mid-20s at present, S&P Global Ratings wrote in a report Wednesday; outside of Spain and Germany, most European coal-fired plants will be retired by 2025.North Asian markets supplied by Mount Arthur look like an exception, with Japan, South Korea and China making up about 80% of Australia’s thermal coal exports. The first two countries are rare cases where falling renewables costs have failed to undercut the black stuff.Even there, though, the picture is dimming: Japan’s coal-fired capacity will go into to decline starting 2023, and actual demand should fall faster since its most recent plants use fuel more efficiently, according to a report this week by the Institute for Energy Economics and Financial Analysis, a research group opposed to fossil fuels. South Korea now has taxes on coal amounting to $60 a ton and imports will fall by half by 2040, according to the International Energy Agency.The group of potential buyers looks thin, too. Anglo American Plc, which has a one-third stake in Cerrejon alongside BHP and Glencore Plc, doesn’t seem in the mood for bulking up. The Japanese trading houses that have historically been major investors in Australia’s mining industry, meanwhile, have been quietly divesting strategic coal stakes for several years. What does that leave? Glencore, despite a promise in February to cap coal output, shouldn't be ignored. In that announcement, the commodities trader noted it may still buy out some minority stakes, which seems to anticipate a deal on Cerrejon. Glencore could also, in theory, get rid of its South African operations and replace them with Mount Arthur, keeping total output within limits and swapping in a more profitable mine. That would depend on finding a buyer for those South African mines, though, and there’s enough turmoil in that country’s coal and energy sector as it is.China is another possible buyer for Mount Arthur. The pit is adjacent to Yancoal’s existing operations, suggesting possible synergies. Still, 2019 isn’t the best year to be doing this. Since February, the country has been holding up shipments of Australian coal for ill-defined reasons that have a whiff of geopolitics about them. Any Chinese business looking for government approval to buy an Australian coal mine will have to reckon with that.Beyond that, there’s even the possibility that smaller local miners will have a go. In the old days, the idea that a relative minnow like Whitehaven Coal Ltd. could absorb a pit the size of Mount Arthur would have seemed absurd, but at Macquarie’s estimate of a $600 million price tag it’s not impossible. Based on BHP’s latest results, a buyer could pay off that sum in 18 months or so and run the mine for cash, assuming rehabilitation costs weren’t too high. Still, how times have changed. Back when Rio Tinto was hawking its coal assets, the company could plausibly argue that it still saw a bright future for the stuff. Nowadays, BHP is warning that it could be “phased out, potentially sooner than expected,” even as it’s trying to tempt buyers. Those M&A bankers are going to have their work cut out to get a good price.To contact the author of this story: David Fickling at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Osram Licht AG’s supervisory and managing boards accepted a 3.4 billion euro ($3.8 billion) takeover bid from Bain Capital and Carlyle Group LP, ending the German lighting company’s relatively brief and at times contentious period as a standalone company.Bain and Carlyle are offering 35 euros a share, 21% more than the stock’s close on Tuesday, amid reports about the latest offer. The price is still 15% lower than its peak this year in February. They’ve put a minimum acceptance level of 70% on the deal, excluding shares owned by Osram, and the acceptance period will run until early September. The stock rose 1.4% to 32.94 euros at the open of trading in Frankfurt.“Bain and Carlyle bring a lot of experience and have a deep knowledge of the industry,” Ingo Bank, Osram’s chief financial officer, said in a Bloomberg TV interview on Friday. “They will help us build the portfolio.”Bloomberg reported earlier Thursday that Osram’s supervisory board was poised to accept the offer.After Siemens AG spun off the light bulb-making division in 2013, Osram Chief Executive Officer Olaf Berlien began to refocus on higher technology, sparking a bitter and public dispute over strategy. Bain and Carlyle’s purchase of Osram would add to the $51.6 billion in private equity buyouts of European companies announced this year, according to data compiled by Bloomberg.Negotiations to buy Osram have moved slowly since they were first revealed in February. Funding has been a challenge as potential lenders raised concerns about future earnings forecasts for the company after Osram issued a string of profit warnings.Osram’s earnings deterioration during negotiations had a big impact on the deal, and the bidders also had concerns about the impact of the U.S.-China trade war on business. Bain and Carlyle were able to push down the offer price, but also struggled to raise a significant amount of debt, people familiar with the matter said. In the end about 70% of the acquisition cost -- an unusually high proportion -- comes from equity, or cash contributed by the buyers, while the remainder will be borrowed money, the people said.The offer is unlikely to include a so-called material adverse change clause, one of the people said, a provision that would allow the buyer to withdraw from the transaction if certain negative events like a fresh profit warning arise. The buyout firms declined to comment.Osram suffered from a downturn in the automotive industry, yet there remain growth opportunities in that sector, including with autonomous vehicles and continued digital lighting, Bank said in the interview. Bain and Carlyle will be focused on margin improvement as well as growing the business, he added.What Bloomberg Opinion Says“It would require real guts to turn down what Bain and Carlyle are dangling. Osram was already in a weak state when news about the potential bid first emerged in November.”--Bloomberg Opinion columnist Chris HughesThe German company has struggled since it was spun off from Siemens. Berlien shifted Osram’s focus to high-tech specialized lighting and LED chips, although he’s failed to get a handle on weakening market demand as European car sales drop. He has also tried to branch out into new areas to attract revenue such as through the purchase of horticultural lighting maker Fluence.Bain and Carlyle support the company’s strategy, and the bid is “attractive to employees as a lot of the labor provisions will stay intact so, yes, we support the offer,” Bank said.Osram now has the task of getting shareholders on board. Given the board’s acceptance of the offer came just last night, Bank said the company “doesn’t have much feedback” from shareholders yet, but expects the bid to receive “very good support” from investors.The company is hoping to avoid the fate of other take-privates in Germany such as online classifieds operator Scout24 AG, where Blackstone Group LP and Hellman & Friedman in May failed to convince sufficient shareholders to sell amid pressure from hedge funds to boost the offer price.AMS InterestDuring negotiations with Bain and Carlyle, Austrian sensor manufacturer AMS AG made an informal approach about a potential takeover of Osram, according to people familiar with the matter. While there was some strategic fit to a deal, Osram decided against pursuing talks because of concerns about the feasibility of AMS to fund the transaction due to its size and debt levels, said the people.A representative for AMS, which has a market value of $3.4 billion and counts Apple Inc. among its key clients, declined to comment.Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Macquarie Group Ltd. as well as Nomura Holdings Inc. were financial advisers to Bain and Carlyle. Perella Weinberg Partners LP worked with Osram.(Adds info on offer, AMS interest and advisers from seventh paragraph.)\--With assistance from Andrew Noël.To contact the reporters on this story: Eyk Henning in Frankfurt at firstname.lastname@example.org;Aaron Kirchfeld in London at email@example.com;Sarah Syed in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Matthew G. Miller at email@example.com, Amy Thomson, Ben ScentFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- India will need $1 trillion of infrastructure investment to nudge annual GDP growth higher by just half a percentage point in Prime Minister Narendra Modi’s second five-year term. Of this, at least 55% will have to come from public resources. Where’s the money?Those figures from an analysis by the Confederation of Indian Industry are the No. 1 challenge for Nirmala Sitharaman as the country’s new finance minister gets ready to present her first annual budget on Friday.While the scale of investment isn’t very different from what India spent in the past five years, the sorry state of corporate balance sheets makes it doubtful whether the private sector can put up its projected 45% share. Besides, the economy is in dire straits, regardless of the near-7% GDP growth portrayed by disputed government statistics.From consumption and private investment to exports, no cylinders are firing. Government spending is therefore the only hope. But Sitharaman is in a tight corner. It doesn’t help that revenue from a goods and services levy, India’s biggest tax innovation of recent times, continues to disappoint two years after its introduction by her predecessor, Arun Jaitley.With health, education and other government services also needing more money, the scope to free up funds by cutting public expenditure simply doesn’t exist. Nor is borrowing an option. Annual federal deficits can’t go much higher than $100 billion; borrowing by the public sector is already cornering resources equal to 8% of the economy even as the household sector barely manages to save 9% to 11% of GDP in financial assets.It’s what economists call a classic “crowding out” of the private sector. India Inc. is clamoring for lower costs of capital, but the level of public debt is keeping them elevated. Cuts in the central bank’s short-term policy rates can’t be passed on to private companies if they’re not even reducing the government’s long-term borrowing costs as much as they should. Besides, a shadow-banking crisis has made lenders mistrustful of the private sector’s solvency, especially for debtors that have anything to do with comatose real estate. That’s one more reason why inflation-adjusted borrowing costs are 5%-plus.A consensus is building around the idea that Sitharaman’s best option is to recycle public assets, something that Australian states such as New South Wales have successfully achieved with power grids and other assets. After Modi’s resounding election victory in May, I wrote that India now has structures like Infrastructure Investment Trusts and a toll-operate-transfer model that it can use to monetize cash-generating toll roads, ports, airports and power plants. “The proceeds from these sales can be used in the creation of new assets,” economists at HSBC Holdings Plc said in a recent report. “As such, the same pot of money is recycled several times over, without endangering the fiscal deficit, and yet upgrading India's infrastructure.”Should Sitharaman take this road, she’ll find plenty of interest among investors such as Canada’s Brookfield Asset Management Inc., Australia’s Macquarie Group Ltd. and Singaporean sovereign wealth fund GIC Pte. India’s own National Investment and Infrastructure Fund, which is 51% private-owned, can be a powerful vehicle for mobilizing global interest.This is the right time. As much as $13 trillion of global debt now offers negative yields. Ten-year U.S. Treasuries yield less than 2%. If ready-made Indian infrastructure can offer dollar returns in the high single digits, it’ll get lapped up by yield-hungry investors.There are caveats, though. Although existing projects will carry no or little construction risk, they would be exposed to future regulatory uncertainty. Only risks that can be priced should be passed on to new owners. Moreover, it will be important for India to auction assets in a manner that leads to fair outcomes. Adani Enterprises Ltd. was the highest bidder for six functioning regional airports, leading one to wonder why others failed to see the value that it did. (India’s cabinet approved leasing three of those airports to Adani on Wednesday; a government spokesman refused to comment on approval for the remaining three.) In a way, India’s 2016 insolvency law was also a recycling mechanism, albeit for corporate assets trapped under unsustainable debt. There was much hope that bankruptcies would attract global buyers. Those that did come – such as ArcelorMittal and Bain Capital – got a bruising legal ordeal. With $1 trillion required to build new infrastructure, India can’t afford similar bungling when it comes to state assets. That’s something Sitharaman should keep in mind. To contact the author of this story: Andy Mukherjee at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Dan Loeb is back trying to whip Sony Corp. into shape, but he’s drawing fire this time around after reversing course from his prior thesis.Loeb’s Third Point last week revealed a $1.5 billion stake in the Tokyo-based company and advocated for a spin off of its chip business to finance deeper expansion in entertainment, including games and movies. That’s the opposite of what he championed in 2013, when he called on executives to sell a part of their film division.“Loeb advocated for moving away from entertainment, but Sony is thriving today precisely because they went in the opposite direction," said Masahiko Ishino, an analyst at Tokai Tokyo Research Center, referring to both movies and games. "Amid trade wars, losing chips would be a negative in terms of Japan’s national security. It’s not something that needs to be done right now."The cool reception came as Sony stakeholders gathered in Tokyo on Tuesday for the company’s annual general meeting. Loeb’s proposals are not up for a vote, although analysts said he will likely be a main topic of conversations among shareholders. Sony declined to comment on the Third Point proposal, but said it takes all shareholder suggestions seriously.Chief Executive Officer Kenichiro Yoshida repeated that message Tuesday, saying management is constantly studying how to increase long-term shareholder value. “That includes deliberations about how to structure our portfolio of businesses,” he said.Loeb laid out his thesis personally to Yoshida last week in New York. The CEO mostly listened and didn’t rebuff the activist in terms of valuation or feasibility of implementing the proposals, giving Third Point more confidence to move ahead.The hedge fund sees Sony as a different company from six years ago, which is why its focus has changed from shunning entertainment to embracing it. Sensing an opening with Yoshida’s more investor-friendly approach, Loeb is trying again with what he believes he can realistically achieve. The next step is getting a formal reaction from management.Analysts almost universally applauded his effort last week to reduce Sony’s so-called "conglomerate discount," or the idea that its many disparate businesses -- from entertainment to chips to finance -- are collectively undervalued and would benefit from being split apart. But they questioned whether Third Point’s proposals are realistic or make strategic sense.For one, some are not convinced that a standalone chip unit can finance the large investments necessary for growth and said it’s better done as part of a bigger group, which can offset temporary losses. They also argued that the unit currently enjoys strong synergy with Sony’s other product divisions and should be integrated more closely rather than spun out.“We think that spinning off the semiconductor business could in fact reduce its actual value,” Yasuo Nakane and Kenichi Saita, analysts at Mizuho Financial Group Inc., wrote in a report. “The semiconductor subsidiary’s technological assets and intellectual properties are inseparable from the electronics products and solutions.”Others questioned Loeb’s estimate for how much a standalone chips unit could fetch at a time when global phone sales are shrinking and the U.S. is waging war on one of Sony’s largest customers, Huawei Technologies Co.“We think Third Point’s US$33-39bn valuation is too high,” wrote Macquarie Group analysts Damian Thong and Hiroshi Taguchi, who currently value the chips division at $11 billion. "But there is wide scope for price discovery above the current embedded value."Then there’s the issue of Sony’s historically stubborn management. Yoshida has so far side-stepped calls to sell or spin off businesses. Instead, he has carried out two record buybacks this year, pleasing investors and preempting calls for more drastic change. And at $1.5 billion, Loeb’s new stake represents about a third of the 6.5% of voting shares he accumulated in 2013.“Third Point’s key proposals about the divestiture of Sony Financial and spin-off of the semiconductor business are unlikely to be easily accepted by management," wrote CLSA analyst Amit Garg. Still, he said the company could yield given that the buybacks "have failed, with the stock remaining at depressed multiples."Loeb is probably not helping his case by saying that sell-side analysts are part of the problem. In his presentation, he said a lack of familiarity with Sony’s many different businesses results in analysts applying discounts to divisions they’re unfamiliar with, contributing to a lower valuation for the entire company.“The lack of entertainment sector expertise among Sony’s sell‐side analysts may explain the wide skew in valuation methodologies, multiples, and target prices,” Third Point wrote in its presentation last week. "We sympathize with the challenge they face: maintaining an up‐to‐date, informed view on a diverse range of industries, most of which are outside their core expertise."(Updates with CEO’s comment from the fifth paragraph.)\--With assistance from 院去信太郎 and Kurt Schussler.To contact the reporter on this story: Yuji Nakamura in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Edwin Chan at email@example.com, Peter ElstromFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
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