Exxon, Shell Face Uphill Legal Battle Over Soured Nigerian Deal

William Clowes Bloomberg March 5, 2020

(Bloomberg) -- Oil majors including Exxon Mobil Corp. and Royal Dutch Shell Plc are facing uphill battles to convince U.S. courts to enforce multi-billion dollar arbitration awards they secured against Nigeria’s state oil company.

The companies accused the Nigerian National Petroleum Corp. of taking more crude than it was entitled to under four deals that were signed in 1993 to incentivise them to develop deep offshore blocks. Those projects today account for about 30% of the country’s 2 million barrels of daily output.

Independent arbitration tribunals seated in Nigeria sided with the companies and awarded them damages. But the NNPC successfully challenged the awards in the Nigerian courts, which ruled the disagreements were either tax disputes and not subject to arbitration, or the tribunals had no right to impose the penalties.

In September last year, the U.S. District Court for the Southern District of New York dismissed a lawsuit filed by Exxon and Shell units that aimed at enforcing a 2011 arbitration ruling requiring NNPC to pay them $1.8 billion for a contractual breach. Judge William Pauley noted that the companies had multiple appeals pending in Nigeria.

‘No Justice’

The companies have appealed the U.S. judgment, saying the Nigerian courts denied them due process by annulling the award and they are now owed $2.7 billion with accrued interest.

The case was filed in the U.S. because Nigeria’s courts have never ordered NNPC to pay monetary damages to a foreign plaintiff over two decades and lack “the political independence to render impartial judgments in a high-value dispute,” the companies said in a court filing. It could take at least a decade for Nigeria’s Supreme Court to adjudicate in the appeals process, “which renders the prospect of justice so illusory as to amount to no justice at all,” they said.

Umar Gwandu, a spokesman for Justice Minister Abubakar Malami, didn’t respond to a request for comment. NNPC must file its response to the U.S. appeal by April 10.

The companies “face a formidable challenge” to persuade a U.S. judge to reinstate damages already set aside by a Nigerian court, said Tafadzwa Pasipanodya, a Washington-based partner in Foley Hoag LLP’s international litigation and arbitration department.

Separate tribunals in Nigeria instructed NNPC to pay a Shell-led consortium $1.4 billion in damages in 2013, and Eni SpA more than $500 million the following year, while Chevron Corp. and Equinor ASA secured a $1 billion award in 2015. Those awards were also set aside by the local courts.

Chevron and Equinor initiated their own proceedings in the Southern District of New York in March 2018 to enforce their award, with oral argument scheduled to be heard on April 20. Eni approached the same court in mid-2017, but suspended its legal action in November while Nigeria’s Federal High Court considers the matter.

While U.S. courts can enforce arbitration awards made and subsequently overturned in other countries, they “apply a strong presumption in favor of following the foreign court’s ruling,” according to Jonathan Blackman, New York-based senior counsel at Cleary Gottlieb Steen & Hamilton LLP.

The parties must show the decisions of the Nigerian judiciary were “repugnant to basic U.S. principles of justice and fairness or due process,” he said. “This is a difficult -- but not impossible -- standard to meet.”

Industry Support

The case brought by Exxon and Shell meets that threshold, according to the American Petroleum Institute, which filed a brief in support of the companies’ appeal. The conduct of Nigeria’s courts “runs contrary to central concepts of justice in the United States,” it said.

Spokesmen for Exxon, Chevron and Equinor said their companies don’t comment on ongoing litigation. Representatives of Shell, Eni and NNPC didn’t respond to requests for comment.

There is an example of an arbitration decision that went against Nigeria being enforced in the U.K., which threatens to put further strain on the nation’s already stretched finances.

In September, a British judge ruled that Process & Industrial Developments Ltd. can collect on a compensation award for losses incurred on an aborted gas-processing project in Nigeria -- a claim that now stands at $9.6 billion, or more than a quarter of the nation’s foreign reserves. Nigeria’s government, which is appealing that ruling, alleges the company paid bribes to secure the contract. P&ID denies any wrongdoing.

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Exxon CEO Calls Rivals’ Climate Goals a ‘Beauty Competition’

Kevin Crowley Bloomberg March 5, 2020


(Bloomberg) -- Exxon Mobil Corp. dismissed long-term pledges by some of its Big Oil rivals to reduce carbon dioxide emissions as nothing more than a “beauty competition” that would do little to halt climate change.

Energy companies need to focus on global, systemic efforts to reduce greenhouse gases, rather than just replacing their own emissions-heavy assets with cleaner ones to make themselves look good, Chief Executive Officer Darren Woods said in New York on Thursday.

“Individual companies setting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world,” Woods said at Exxon’s analyst day. Exxon is focused on “taking steps to solve the problem for society as a whole and not try and get into a beauty competition.”

READ: BP Sets Bold Agenda for Big Oil With Plan to Eliminate CO2

Woods’ remarks, which echo those made by Chevron Corp. CEO Mike Wirth earlier this week, underscore the divide between U.S. and European oil explorers in their approach to addressing climate change. Both American companies see oil and gas demand growing for decades and refuse to compete in a crowded market for renewables where they have little expertise.

Much-derided plastic even came in for some praise, with Exxon Senior Vice President Jack Williams arguing that it’s “a net benefit to society and to the environment.”

READ: Plastic Beats the Alternatives for the Environment, Exxon Says

By contrast Royal Dutch Shell Plc, Repsol SA and Eni SpA have pledged to make large reductions in carbon emissions over the long term, while last month BP Plc went a step further with a target to become carbon neutral by 2050.

Companies changing their production mix “doesn’t change the demand” for oil and gas, Woods said. “If you don’t have a viable alternative set, all you’re doing is moving out from one company or one country to someplace else. It doesn’t solve the problem.”

Exxon sees world demand for oil and gas growing substantially out to 2040, even under the goals of the Paris Agreement, which seeks to limit temperature rise to 2 degrees Celsius above pre-industrial levels. Renewables such as wind and solar won’t be enough to meet demand growth on their own, according to Exxon.

In any case, it remains to be seen whether oil giants can generate big profits by producing carbon-free energy. Solar, wind and battery storage projects haven’t shown they can fund the huge dividends that underpins the industry’s investment case.

To underscore his point, Woods said that global emissions have risen 4% since the Paris Agreement was signed four years ago and energy demand is up 6%.

For the energy industry to truly address climate change, Woods believes major technological breakthroughs are needed in the fields of carbon capture, alternative fuels in transport and re-thinking industrial processes. The company is investing in all of these fields but admits that progress will take time.

Exxon is also taking steps to reduce emissions from its own operations including reducing methane emissions and gas flaring.

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French Greens Are Eating Away at Core of Macron’s Coalition

WILL FRANCE TURN AUBERGINES 

Ania Nussbaum Bloomberg March 5, 2020

(Bloomberg) -- Emmanuel Macron struck an unusually humble tone as he stared down at the shrinking glacier on the slopes of Mont Blanc.

“Such rapid melting,” he said. “It’s dizzying.” On the trip to the French Alps, he also walked through a tunnel that leads deep inside the ice and lunched with local politicians and scientists. Macron said he wanted to see the impact of climate change for himself.

But there was also a political dimension to the highly publicized Feb. 13 visit: A green revolution is picking up steam in France and Macron’s political survival -- already uncertain because of widespread anger over his reform plans -- could depend on winning environmental voters.

The fragmentation of mainstream parties has upended traditional politics across Europe, and given Green groups an opening. In Austria, the right-wing People’s party turned to the Greens to form a coalition and the environmental faction in Germany has surged to within reach of Chancellor Angela Merkel’s CDU party. Two rounds of mayoral elections starting March 15 will give an indication of how the French president’s defenses are holding up.

“You shouldn’t underestimate the importance of the municipal elections,” says Christophe Bouillaud, a political science professor at Sciences Po Grenoble. “For decades they’ve played a role in measuring the popularity of the incumbent government and structuring the opposition parties.”

Governments are watching for an indication of Macron’s prospects for securing another term in 2022.

Party Tensions

Macron blew up France’s two-party system when he swept to power nearly three years ago by promising a new kind of politics. Facing the far-right Marine Le Pen in the run-off meant that he had the progressive vote in the bag. He was lauded for sparring with U.S. President Donald Trump over climate change and vowing to “make the planet great again,” but he’s failed to live up to the hype.

Today, tensions within Macron’s En Marche party have been laid bare by public feuds and defections. Strikes against inequality and plans to overhaul a pension system may have subsided, but anger is palpable. About two thirds of voters don’t think he’s a good president, according to a Odoxa-CGI poll published Feb. 25.

With the Socialists and the right still languishing, the Greens are laying claim to the center ground that Macron carved out for himself.

David Belliard, who’s running for mayor in Paris for the Green party, says that’s a pragmatic approach. “I am the open green,” he told reporters Thursday. “I am open to right-wing people joining the movement if they share our ideas. I am open because it is an emergency situation.”

The party only ever had a few ministers in the previous socialist government and didn’t field a candidate in the 2017 presidential ballot. In May, it doubled its share of the vote in European parliamentary elections, coming third with 13%.

Credible, Consistent

It’s the first political force among 18-to-34-year-old voters and is polling first or second in several cities including Bordeaux, Lyon and Grenoble -- the only large city held by a Green mayor. Macron by contrast wasn’t able to present a candidate in half the country’s big cities.

The Greens are critical of nuclear energy, want to expand public transport over cars, ban pesticides, support urban and organic agriculture and favor local economy. While other parties embrace many of these ideas, The Greens say they’re the most credible and consistent advocates.

They lack a powerful leader, but one could emerge after the municipal elections.

The contest will be watched especially closely in Paris. As the country’s capital and most populous city a win here can make up for losses elsewhere, and the prestigious mayoral job has often been a springboard for the presidency.

So far, current mayor, leftist and environmentally friendly Anne Hildago, is polling ahead of En Marche’s Agnes Buzyn who only entered the race last month after Macron’s preferred candidate, Benjamin Griveaux, dropped out because of a sex tape.

The Greens “can be close to the left, but not only,” says Belliard, 41, when discussing his candidacy. He says he advocates an “economy that’s not predatory” and wants to “move away from over-consumption.” He doesn’t want voters to think of the Greens as people “who look for water kilometers away and wash themselves once a month.”

Alternative Choice

The move to the center may not go down well with the Green’s base, especially in cities like Strasbourg or Besancon where they are emerging as the leaders of potential left-wing coalitions. But Belliard is optimistic. “If the Greens come out of these elections stronger, it will give us momentum to build an alternative choice in the presidential elections,” he said.

For Macron, the problem is persuading voters of his sincerity. His own environment minister resigned in 2018, accusing the government of not doing enough. His attempt to increase taxes on fossil fuels has crumbled and the expansion of renewables is still slow. Macron’s one big achievement, the closure of the country’s oldest nuclear plant, started under Francois Hollande.

“There’s not much to get your teeth into,” according to Bruno Cautres, political scientist at Cevipof.

It looks like voters agree. One fifth of those who backed the Greens in the EU elections had voted for Macron in 2017. The Odoxa-CGI poll meanwhile shows the president’s popularity declined by 3 percentage points after his Mont Blanc appearance, with the sharpest drop among Green sympathizers.

“The environment is a topic of concern in French society and Emmanuel Macron is essentially campaigning to be the Green presidential candidate,” Cautres says. “But if protecting the environment is so essential, you may as well put a Green in as head state.”

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Globalization Faces a Bend-But-Won’t-Break Crisis on Coronavirus

Shawn Donnan Bloomberg March 6, 2020

(Bloomberg) -- Globalization is going through its biggest stress test since the 2008 global financial crisis and its aftermath. But if you want to understand why the forces of economic integration may be more resilient than many think, consider the centerpiece of a fancy new kitchen.

When executives from Middleby Corp., the kitchen equipment maker behind the commercial-grade Viking and Aga stoves, reported earnings last month, they joined the growing chorus of business people warning of supply chain disruptions in China that would hit its first-quarter profits.

Middleby also offered a curious upside twist. The supply stresses it had suffered over the past two years thanks to President Donald Trump’s tariff war on China had actually prepped the company for the new crisis in a way that meant it would be able to limit the damage.

“I'm telling you, within days of the virus being announced I knew exactly what components were going to be affected and had a tactical plan on addressing it,” David Brewer, the chief operations officer, told analysts.

On that same earnings call, executives from the Elgin, Illinois-based company celebrated the opening of a new factory in China late last year that would help it grow revenue from the Chinese market and elsewhere in Asia. For the first time, overseas revenues topped $1 billion in 2019, or more than a third of total net sales for the year, they added.

Globalization — the increasingly barrier-free flow of goods, services and people across national boundaries — has spent the past four years weathering a political assault that has left companies bruised and battered and the multilateral guardians of the global economy weakened. But it is the epidemiological attack now unfolding that appears set to be even more corrosive.

For all the pronounced angst over Trump’s tariffs over the past two years, the coronavirus outbreak has taken just weeks to emerge as a potentially bigger threat to 21st century globalization than trade wars. Economists at Allianz have calculated that the outbreak and efforts to contain it will cost the world $320 billion a quarter in lost exports of goods and services, or more each quarter than the annual cost of the U.S.-China trade war.

It’s not an overstatement to say the integration that has come to define commerce in the past 40 years is under the biggest assault since the financial meltdown more a decade ago or the Sept. 11 attacks before that. There will be an ugly quarter or two for the global trade in goods and services that is rightly prompting fears of new recessions in major economies and concerns about whether policy makers are up to the challenge of tackling it — or even have the appropriate tools.

But it’s also not wrong to say that some of the key traits of globalization look more battle-tested and robust than ever before. Or that focusing on the trade in physical goods as a manifestation of globalization also means missing other elements such as the dependence on overseas revenues of U.S.-listed companies, or the flows of data and ideas that are likely to endure even in a pandemic.

Which might explain why Apple’s Tim Cook said he expected only minor tweaks to supply and production when asked about longer-term disruptions on Fox Business Network last week. “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change,” he said.

There is no doubt critics of globalization and China are seizing on the outbreak and raising anew concerns about an over-dependence on China for everything from antibiotics and face masks to paint pigments.

“Globalization had gotten out of control,” Wilbur Ross, the U.S. Commerce secretary, offered in a Feb. 6 speech at the Oxford Union in which he defended the Trump administration’s assault on global trade in part by complaining that it now “takes 200 suppliers in 43 countries on six continents to make an iPhone.”

American tariffs have undoubtedly accelerated an existing trend of shifting production toward local or regional production. But it’s been well-documented that the beneficiaries have been places like Vietnam, Mexico or Eastern Europe rather than the U.S. And in many cases, even if the final assembly location of products shifts, Chinese components or a Chinese parent company remain part of the equation.

Reactions like Cook’s are driven in part by the reality that as a result of longer trends ranging from rising factory wages in China to consumer demands for customization and the relentless march of automation, there has been a slow adjustment underway in global supply chains for more than a decade now. If Apple’s iPhone is the often touted example of the complexity of international supply chains, it turns out its launch in 2007 may actually have marked their peak.

According to World Bank research published last year, trade associated with global supply chains has actually been falling as a share of global commerce since the 2008 financial crisis. Trade in components has stalled since the crisis, the bank’s economists found, and actually fell between 2011 and 2014, partly because of China’s increasing domestic production of many parts.

But Caroline Freund, who oversees the World Bank’s work on trade and investment, says it would be wrong to read that as a sign of de-globalization.

“While supply chains have stopped expanding there is no evidence that they have been shortening,” she says. And, she adds, it’s not clear that even the shock emerging from the coronavirus outbreak in China will change that.

“The shock would have to be big enough – and the likelihood of future shocks big enough – that you would want to change your production structure. And it’s not clear that it is at this point,” Freund says.

The bet companies have made on those supply chains is vast. At least 51,000 companies around the world have one or more tier 1 supplier in the affected regions of China, according to Dun & Bradstreet. A further five million global firms, the consultancy calculates, have at least one second-tier supplier in the affected area of China, including 938 of the Fortune 1,000.

Vasco Carvalho, a Cambridge University economist who studied the last major supply-chain shock to hit the global economy — the 2011 earthquake and tsunami in Japan that took key suppliers for the auto industry out of circulation for a time — says the impact of the coronavirus seems likely to be far more consequential.

It also, he argues, illustrates the difficult choices companies now face between potentially fragile global supply chains and the higher costs of producing closer to home in what is likely to be an era of many more disruptions.

“We are entering a more uncertain world and in order to adapt to that uncertainty, some scaling back seems likely,” he says. “I don’t have any apocalyptic view on this. I just think either you accept fragility or costs go up.”

The short-term cost in lost production appears likely to outstrip that of the tariffs introduced in the past two years, says Kyle Handley, a University of Michigan economist who with colleagues at the Census Bureau and Federal Reserve Board has enumerated the costs of those tariffs on American companies.

That is mainly because it will again illustrate how hard it is to shift supply chains out of China for many components, amplified this time by a shortage of supply due to shutdown of factories that the virus caused — rather than simply higher costs, Handley says. Moreover, this time companies around the world are joining American firms that sought to find alternative suppliers to get around the tariffs over the past two years.

Since the 2011 disaster in Japan, which was accompanied that year by floods in Thailand that also wreaked havoc with supply chains, many multinational companies have learned how to cope better with disasters and other threats to production by diversifying production sites, for example.

And there is an argument made by some that the coronavirus may end up making the case for more — not less — globalization whether it relates to production or revenues, or as a result of unintended consequences. Just as the trade wars of the past two years have caused some companies to rethink their reliance on China, some in the tech world have begun talking quietly about a de-Americanization of their production to reduce political risk.

Indeed, after the Japanese earthquake, one documented effect was a decision by domestic automakers and other companies to move some production offshore as a hedge against future disasters.

Any diversification of supply chains away from China is unlikely to lead to a consolidation of production in a single country. In some ways jolts like the tariffs and coronavirus have created an impetus to broaden global supply chains to many more countries to make them shock-proof rather than re-nationalize them.

“We don’t know where the next hurricane and tsunami and deadly disease will originate,” Handley says.

Globalization is a force that has had an up-and-down history going back more than 2,000 years. But the production lines that companies have built up around the world in recent decades are also less movable than many think.

“Supply chains are physical things like bridges, factories, ships, railway lines,” says Robin Brooks, chief economist at the Institute of International Finance. “Those things take a long time to disrupt and the virus and work stoppages we are currently seeing aren’t disrupting those.”

The puzzling Canadian behind a bid to save India’s Yes Bank
Natalie Obiko Pearson and Suvashree Ghosh, Bloomberg News

Signage for Yes Bank Ltd. is displayed at a branch in Mumbai, India, 

on Tuesday, April 30, 2018. , Bloomberg

Erwin Singh Braich, the mysterious tycoon behind a US$1.2 billion bid to rescue a beleaguered Indian bank, says he is Canada’s richest man with a story so fabulous that Netflix Inc. wants to tell it.

There’s a less glittering account pieced together from interviews and court records: The son of a lumber baron has a history including bankruptcy, lawsuits and soured business deals. He has no headquarters, no banker to manage his money, and is currently living in a three-star motel in the Canadian prairies.

The board of Yes Bank Ltd. will decide on Tuesday which version of Braich it supports at a meeting to approve a US$2 billion preferential share sale, 60 per cent of which would be taken up by Braich and his partner, Hong Kong-based SPGP Holdings. As Bloomberg News reported Monday, India’s fourth-largest private lender is likely to reject the offer from Braich and SPGP, opting instead for institutional investors, according to a person familiar with the matter.

At stake is the future of the Mumbai-based bank that’s staggering under the weight of its bad loans, including to some of the non-bank lenders caught up in India’s shadow banking crisis. Yes Bank desperately needs the cash injection to replenish its core equity capital, which is barely above the regulatory minimum of 8 per cent. The stock has plunged 69 per cent this year, reducing its market value to 143 billion rupees (US$2 billion).

Braich says he has the money for the investment and has provided documentation to Yes Bank’s Chief Executive Officer Ravneet Gill on his ability to pay. Yes Bank didn’t respond to an email seeking comment about Braich and his bid.

“I’ve been under the radar,” Braich, 63, said in a phone interview last week. “We have a lot of different holdings and assets that people don’t know about.” The funds will be in escrow by the time Yes Bank shareholders meet this month to approve the capital raising, he added.

“I don’t think Mr. Gill is a stupid man,” Braich said, adding “a lot of skepticism will be erased” surrounding his bid.

Yet there are plenty of signs from Braich’s past that some skepticism may be warranted. For two decades, he has been mired in dozens of lawsuits with family members, creditors and business associates, according to Canadian and U.S. court records.

In one case, he pitched two investors on a plan to buy scrap metal from the Democratic Republic of Congo, telling them he had a multimillion dollar commodity trading business, according to a 2008 lawsuit filed in New York.

Congo Deal

The investors, Roger and Punit Menda, sued him and four others for defrauding them of US$340,000, saying Braich lied about the metal contracts and “did not possess the personal wealth he claimed to and was, in fact, without any personal assets,” according to the filing. Braich failed to respond to the complaint or appear in court, according to a default judgment ordering the money be repaid with interest.

Braich called the lawsuit “so stupid and frivolous we didn’t even bother to defend it.” He said he didn’t pay the judgment but might offer to pay the Mendas back because he feels badly they missed out on an opportunity.

Robin Phinney, former president of Canadian potash developer Karnalyte Resources Inc., says he met Braich several times in 2015 when Braich said he was ready to fund a roughly C$2 billion (US$1.5 billion) mining facility.

Braich jumped the gun with a news release that said his group was set to take control of Karnalyte and would make an “immediate equity injection” of nearly C$200 million. The company responded by saying the proposal wasn’t binding and hadn’t been accepted by the board.

The deal never happened, and Phinney said Karnalyte was unable to ascertain if Braich had the funding he claimed. “Everything looks wonderful until you have to show up with the check,” he said. “I still don’t know if he had any money or not.”



Skeptical Analysts

Braich says he had a binding bid with Karnalyte but “they screwed me” and allowed another investor from Gujarat, India to push him out.

Several analysts have expressed skepticism about the potential new investors in Yes Bank. The lender’s shares dropped 18 per cent in the week after the names were announced on Nov. 29, including Braich, SPGP and Citax Holdings Ltd. (Braich says he has no affiliation with Citax.)

“We have serious reservations regarding the quality of board of directors who are willing to consider these kinds of investors to be large shareholders,” Suresh Ganapathy, an analyst at Macquarie Capital Securities (India) Pvt., wrote in a note.

Braich grew up in Mission, British Columbia, 70 kilometres (44 miles) southeast of Vancouver, the eldest of six children in a Sikh family originally from Punjab in northern India. His father Herman was a pillar of the local Indo-Canadian community who’d left India at the age of 14 -- taking little but the name of his tiny village, Braich -- and built a fortune in British Columbia’s forestry industry. The patriarch died in 1976.

Father’s Trustee

“The reason I’ve had so much litigation was because I was a trustee for my father’s estate,” said Braich. Those headaches include a 1999 involuntary bankruptcy he said was orchestrated by opponents, including his brother. Bobby Braich, reached by phone, said he’s been estranged from his brother for 20 years and declined to comment further.

The bankruptcy remains undischarged with more than C$13 million in total liabilities, according to Canadian bankruptcy records. Braich was arrested and prosecuted after refusing to provide records of his assets or appear in court, the Public Prosecution Service of Canada said in an email.

Braich said he always had assets and has repaid his debts with interest. He holds all his wealth in his children’s five trusts, which he controls as sole trustee, to keep them out of the reach of disgruntled family members and unscrupulous lawsuits, he added.

He hasn’t owned a home since the 1990s, choosing to live and work out of hotel rooms around the world from Ritz-Carltons to Kempinskis to Travelodges, he said.

Right now, it’s the three-star Sandman Hotel in Grande Prairie, Alberta, which Braich said he chose for its in-house Denny’s restaurant. He’s been undergoing dental work ahead of what he says are upcoming TV appearances with Stephen Colbert and Oprah Winfrey.

TV Series
“A bunch of the major networks want to have me go on a talk show tour,” Braich said by phone, a day after a three-hour, 25-minute stint in the dentist’s chair. “I’m going to get my teeth done so they’re like Chiclets.”

Then there’s Netflix and Amazon.com Inc., which want to do a four-season series on him and his father, Braich said.

The Oprah Winfrey Network said none of its producers are familiar with his name. CBS Entertainment said it doesn’t comment on Colbert’s bookings. Netflix and Amazon didn’t respond to requests for comment.

To support the Yes Bank bid, Braich’s trusts and SPGP have various assets including Black Pearl Investments, a jointly owned Hong Kong company capitalized with about $200 million, he said. The partnership with SPGP is developing everything from retirement villages in the Philippines and Thailand to nitrogen-preserved tea in Sri Lanka through SPGP’s sister company Silverdale Services Ltd., he said.

Due Diligence

As of May, Silverdale Services’s total equity capital was HK$100,000 (US$12,800), according to records from Hong Kong’s companies registry. A Hong Kong-registered company named Black Pearl Investments had HK$1 in paid-up capital the last time it filed an annual return in November 2017.

SPGP’s CEO Somitra Agrawal, contacted via LinkedIn, referred questions on his firm’s investment plans to Braich.

Braich said his rationale for investing in Yes Bank was simple:

“I loved the logo and I had my people do the due diligence very deeply,” he said. “If it was called ‘No Bank,’ I wouldn’t have been interested.”

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India Cotton Trader Boosts Buying to Help Suffering Farmers

Pratik Parija Bloomberg March 6, 2020


(Bloomberg) -- An Indian state-run cotton buyer is boosting purchases from farmers to prevent them from making distressed sales as the spreading coronavirus curbs demand in key export markets and causes prices to slump.

Cotton Corp. of India Ltd. has bought about 7.5 million bales (170 kilograms each) from farmers so far in 2019-20, and will buy more if growers offer supplies, Chairman P. Alli Rani said in a phone interview.

Transport of the fiber across China is being delayed, and concern is mounting that factory closures will weigh on demand. Logistical issues mean mills are finding it hard to take delivery of cotton and ship yarn products to buyers.

Cotton futures in New York have fallen about 12% from their Jan. 13 high, while local Indian prices have dropped 7% since Jan. 22.

For Arun Sekhsaria, a top executive at one of the biggest cotton exporters, the virus has meant that he can’t risk selling abroad, though he notes that the support of the state buyer means cotton producers are better off than most.

“I am just keeping quiet,” said Sekhsaria, managing director of D.D. Cotton. “I am not booking any cargoes for exports as I can’t travel overseas now if there is any issue with the shipments for any reason. Everything is uncertain and nobody knows where prices will go.”

Cotton Corp.’s purchases are its biggest on an annual basis since 2014-15, when it bought 8.7 million bales. The company, which acquires fiber at government-set minimum prices, bought about 30% of total market arrivals so far this year and is currently purchasing about 50% of daily arrivals, Rani said.

The company has separately bought about 8,000 bales of long staple cotton from ginners at market rates this year through its commercial business, she said. It bought 7,700 bales in 2018-19, according to Cotton Corp.

“All my infrastructure has been engaged in minimum support price operations,” Rani said. “I am not really concentrating on commercial purchases.” About 65% of total expected production has already arrived in the market, with the remainder set to arrive in the next two to three months.

Read: Coronavirus Causing ‘Big Slowdown’ in Chinese Cotton Factories

Demand for Indian cotton has fallen from most buyers, including Vietnam and China, Sekhsaria said. That leaves Bangladesh as its only export option, and the nation may buy as much as 2.5 million bales in 2019-20, he said.

The current domestic cotton price makes it attractive as it’s lower than the government-set minimum support price, said Vinay Kotak, a director of Kotak Commodity Services Pvt., one of India’s biggest cotton exporters. “Imports are also becoming costlier due to a depreciation in the rupee.”

Some cotton ginners will lose money because of their expensive stockpiles, Kotak said. “We are seeing a new low every day. There is still uncertainty in the market. If the virus settles, the prices will shoot up.”

“International prices are falling because of fear psychosis,” Kotak said. “We are yet to start business with Chinese buyers.”

Cotton, yarn prices fall as coronavirus brings exports to China to a halt
Indian exporters aren't pursuing the Chinese market either, as travel to that country to address quality or quantity issues post shipment will be difficult

Dilip Kumar Jha & T E Narasimhan | Mumbai/Chennai Last Updated at March 6, 2020 

Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.

ALSO READ
Coronavirus prompts India's top cotton trader to stop sales to China

Cotton and yarn prices have declined by up to 10 per cent during the past one month on a domestic supply glut that emerged after exports to China came to a grinding halt. The cessation of shipments to that country was caused by the lockdown of shops and factories there, following the coronavirus outbreak.

Raw (unginned) cotton in the Gondal (Gujarat) market shed almost 10 per cent to trade at Rs 4,280 a quintal on Wednesday from a level of Rs 4,755 a month ago. Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.

Atul Ganatra, president of Cotton Association of India, said globally cotton yarn prices have dropped to 60.50 cents on the Intercontinental Exchange on February 28 from 71.5 cents. This has also impacted exporters margins.

The lockdown in China of retail shops and factories has hit India’s cotton and yarn exports hard with shipments came to an abrupt halt. “India’s cotton and yarn exports to China have halted due to lack of orders from there. Even Indian exporters have not evinced any interest in pursuing with export orders. In case any quality or quantity issue arises after shipment, travelling to China for clearing the cargo will be difficult,” said Arun Sakseria, a city-based cotton exporter.

Price of cotton and yarn is taking a beating due to poor sentiment in the market due to the outbreak of coronavirus in China and deterioration of quality in the present kapas arrivals.
Looking at the decline in cotton prices, the government owned Cotton Corporation of India (CCI) has offered a discount of Rs 3,200-5,000 per candy (1 candy = 356 kg) for old stock purchased in bulk.

The decline in raw material prices is likely to benefit textile mills and their profit margins may go up in the coming quarters.

“Raw material costs have started moderating due to the outbreak of coronavirus which has impacted demand / production in China. Disruption in supply chain or production of polyester yarn in China is likely to provide greater export opportunities to Indian polyester manufacturers later,” said Madhu Sudhan Bhageria, chairman and managing director, Filatex India Ltd. In the Budget last month, the government had removed anti-dumping duty on purified terephthalic acid (PTA), a raw aterial for synthetic yarn.

The abolition of anti-dumping duty on key raw material input PTA has changed the landscape of synthetic textile manufacturers. The Indian textile industry has been stagnating in spite of the slowdown in China.

According to Icra, the coronavirus outbreak has started exerting pressure on yarn realisations, which have corrected by 2-3 per cent since the beginning of February 2020. This follows a brief recovery seen in India’s cotton yarn exports in the month of January 2020 when the exports touched an estimated 100 million kg, in line with India’s historical monthly average, following a weak performance for nine consecutive months earlier.

The domestic cotton spinning industry is highly dependent on exports, particularly to China, with around 30 per cent of the cotton yarn produced in the country being exported, and China accounting for nearly one-third of the exports in recent years.

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra, said, “Even though domestic cotton fibre prices continue to be competitive vis-a-vis international cotton prices at present with a price spread of about 4 per cent (down from 9 per cent in Feb-20), a further correction in international cotton prices amid demand-side uncertainties could render domestic spinners uncompetitive in the international markets, similar to the situation which was witnessed in H1 FY2020.”

For synthetic yarn, Raw material cost has started moderating because the outbreak of coronavirus is likely to impact demand for polyester yarn in China, which accounts for around 65 per cent of global demand. As a consequence, the price of PTA, a key raw material that accounts for more than half of the sales price of polyester yarn, is expected to be under pressure in the near term.

India’s Chaotic Bank Seizure Sends Shockwaves Through Markets

India Seizes Troubled Yes Bank and Limits Withdrawals

RBI draft plan: SBI to invest in reconstructed YES Bank up to 49%

Suvashree Ghosh and Siddhartha Singh Bloomberg March 6, 2020



(Bloomberg) -- India’s attempt to buttress its financial system by taking control of the country’s fourth-largest private lender has instead triggered widespread confusion and signs of investor panic, adding a fresh layer of risk to an economy that’s already headed for its weakest expansion in more than a decade.

The seizure of Yes Bank Ltd. by India’s central bank late Thursday was the country’s biggest such intervention in at least 13 years. Speculation of a government rescue had been swirling for months, but the announcement unnerved markets by leaving several key questions unanswered, including the fate of depositors, creditors and shareholders.
Also unclear was how Yes Bank clients and counterparties would cope with government-imposed caps on individual withdrawals and a 30-day moratorium on new loans and payments. A Walmart Inc.-backed Indian payments service that relies on Yes Bank to process transactions for more than 175 million users went down late Thursday, underscoring the far-reaching consequences of halting major portions of the bank’s operations.

Investors responded by dumping Yes Bank’s bonds and shares as well as those of other smaller lenders. State Bank of India, which has been tapped to inject new capital into Yes Bank, suffered its biggest intraday tumble since 2012. India’s benchmark Sensex index plunged as much as 3.8%, one of the biggest declines in Asia, and the rupee weakened toward a record low. Lines to withdraw money at one of Yes Bank’s branches in Mumbai were larger than usual around midday on Friday, with security officers telling customers they would have to wait one and a half hours to get cash after ATMs ran out of bills.

“The market was expecting a solution,” said Nilesh Shah, chief executive officer and managing director of Kotak Mahindra Asset Management Co. “People are bound to react the way they have this morning, but the panic can easily be controlled if the government announces the contours of the revival plan.”

The flight from Indian assets persisted even after Reserve Bank of India Governor Shaktikanta Das said the nation’s banking system was “sound” and a proposed resolution plan for Yes Bank would be released quickly.

The RBI, smarting from the failure of a small lender last year, took the decision to seize Yes Bank after noticing a surge in withdrawals by depositors, people with knowledge of the matter said. Policy makers were concerned that the outflows would accelerate once the bank releases its earnings on March 14, which could show a jump in bad loans, the people said, asking not to be identified as the matter was private. The decision came as a surprise to most Yes Bank executives.

The hashtag #YesBankCrisis was trending worldwide on Twitter. Many users shared their worries about possibly losing their deposits, even after Finance Minister Nirmala Sitharaman told reporters on Friday that the money was safe. The RBI has placed a 50,000 rupee ($679) limit on individual withdrawals from Yes Bank accounts.

“I have about 150,000 rupees in savings here,” said Amit Shinde, a 28-year-old construction contractor, as he waited in line to take out cash. “I will be withdrawing it as soon as its possible. I don’t have confidence in the institution any more.”

Regulators’ failure to provide a detailed road map for Yes Bank’s rescue was criticized by some analysts and investors, who said the uncertainty could disrupt the smooth functioning of India’s financial system and crimp funding to non-state banks. Private lenders accounted for about 60% of the nation’s new loan growth over the past 12 months, according to Credit Suisse Group AG.

More financial turbulence is the last thing India’s economy needs. While it expanded at the fastest pace among large countries worldwide about a year ago, it has since been battered by a shadow-banking crisis, waning consumer demand and the global coronavirus outbreak. Growth is projected by the government to slow to 5% in the fiscal year ended March, an 11-year low.

Yes Bank’s troubles are rooted in the rapid expansion under its former Chief Executive Officer and co-founder Rana Kapoor. In his last year in charge (the fiscal year to March 2018), Yes Bank had the fastest loan growth of any bank in India. But it was also piling on risk. The RBI forced Kapoor out last year after challenging Yes Bank’s accounting, saying the lender was downplaying the scale of its spiraling bad loans.

The shadow banking crisis that erupted in September 2018 added to Yes Bank’s woes. A Credit Suisse report last year said the company had the biggest proportion of outstanding loans to large stressed borrowers, including to Anil Ambani group companies and Dewan Housing Finance Corp., which was seized by the RBI in November.

Kapoor’s successor, Ravneet Gill, a former Deutsche Bank AG executive, embarked on a prolonged quest for new capital last year as provisions against bad debt mounted. Gill received expressions of interest from investors including JC Flowers & Co., Silver Point Capital and even a mysterious Canadian lumber tycoon. But the money never materialized.

Read more: The Puzzling Canadian Behind a Bid to Save India’s Yes Bank

State Bank of India, the nation’s largest lender, has been selected to lead a consortium that will inject new capital into Yes Bank, people familiar with the matter said on Thursday. The government-owned lender was slowly cajoled by policy makers into agreeing to take a stake as Yes Bank’s situation became more dire, one person said.

The rescue is unlikely to result in forced haircuts for depositors and senior creditors, according to Ashish Gupta, an analyst at Credit Suisse.

Still, a prolonged period of uncertainty while policy makers finalize the plan could have ripple effects on the economy, Gupta noted. It has already weighed on investor perceptions of other private lenders, sending a gauge of their share prices down more than 4% on Friday, the most in about five years. Yes Bank’s stock tumbled as much as 85%.

“The delay in bailout creates an unnerving precedent and uncertainty for deposit holders and debt providers,” Gupta wrote in a report to clients. “This would also likely further aggravate the credit crunch in the economy as private banks have been the primary loan growth driver.”


India Seizes Troubled Yes Bank and Limits Withdrawals

Siddhartha Singh and Suvashree Ghosh Bloomberg March 5, 2020

(Bloomberg) --

India’s stock and currency markets tumbled after the central bank seized control of beleaguered Yes Bank Ltd., raising concerns about the knock-on effects on the financial system.

The Reserve Bank of India capped withdrawals at 50,000 rupees ($682) and imposed strict limits on operations at the country’s fourth-largest private lender, while a rescue plan is devised. In a statement late on Thursday, the regulator said it was forced to step in after Yes Bank’s latest effort to raise new capital failed to materialize and as the lender “was facing regular outflow of liquidity.”

Yes Bank shares fell as much as 25% on Friday morning in Mumbai, with the Bankex index dropping more than 5%. The rupee fell more than 1%, approaching a record low reached in October 2018. The S&P BSE Sensex index of shares lost as much as 3.8%.

The move to rescue Yes Bank illustrates the widening damage from India’s shadow banking crisis, which has left the lender with a growing pile of bad loans. Indian authorities have been struggling to contain the turmoil that has choked credit to consumers and small businesses, slowing economic growth to an 11-year low.

“In the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative,” but to seize Yes Bank, the RBI said in the statement.

Read Andy Mukherjee on how authorities dragged their feet over Yes Bank

The takeover will help authorities implement a revival plan after numerous attempts by the lender to raise capital failed. Under a government-backed proposal State Bank of India, the nation’s largest lender, has been selected to lead a consortium that will inject new capital into Yes Bank, people familiar with the matter said earlier on Thursday.

While the RBI works on the rescue plan, there could be uncertainty about the liabilities of smaller Indian banks and shadow lenders, including their deposits and bonds, Manish Shukla, an analyst at Citigroup Inc., said in a report. “Fast clarity on the plan of reconstruction/amalgamation is critical from a system perspective,” Shukla wrote.

Yes Bank had been seeking new capital since last year, to bolster its ratios and quell questions about its stability due to its exposure to shadow banks entangled in a prolonged crunch in the local credit market. That erupted with a series of defaults at Infrastructure Leasing & Financial Services Ltd. in September 2018.

The seizure of Yes Bank is the largest of the government’s moves to stem an erosion of confidence among investors due to the shadow bank crisis. The government took over IL&FS in 2018 in an effort to reassure creditors after the defaults. And last year, the RBI seized control of another struggling shadow lender, Dewan Housing Finance Corp., and said it will initiate bankruptcy proceedings.

RBI Governor Shaktikanta Das pledged this week in an interview with Bloomberg News that no major bank would be allowed to fail. He didn’t comment on the revival plan in an interview to BloombergQuint earlier on Thursday.

State Bank of India has been authorized to select other members of the consortium, the people said earlier Thursday, asking not to be identified as the information isn’t public. In a subsequent filing to the stock exchange, State Bank of India said its board met on Thursday and “an in-principle approval has been given by the board to explore investment opportunity” in Yes Bank.

Yes Bank’s total exposure to shadow lenders and developers -- both caught up in a funding crunch since late 2018 -- was 11.5% as of September, filings show. A Credit Suisse Group AG note in April marked Yes Bank out as the lender with the largest proportion of outstanding loans to large stressed borrowers, including Anil Ambani group companies, Essel Group, Dewan Housing and IL&FS.

Last month, Yes Bank said it has received non-binding offers from foreign investors including JC Flowers & Co., Tilden Capital, Oak Hill Advisors and Silver Point Capital. But the RBI made clear those talks had fizzled.

“These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital,” the RBI said in its statement.

And it wasn’t the first time the bank had announced names of potential investors. In November, the bank’s board disclosed several other names before rejecting most of the offers

Moody’s Investors Service cut the bank’s credit ratings in December and in January said its “standalone viability is getting increasingly challenged by its slowness in raising new capital

RBI draft plan: SBI to invest in reconstructed YES Bank up to 49%

The draft comes a day after the RBI imposed a moratorium on the bank, restricting withdrawals to Rs 50,000 per depositor till April 3


BS Web Team Last Updated at March 6, 2020

Photo: Kamlesh Pednekar

The Reserve Bank of India on Friday unveiled 'Scheme of Reconstruction' for Yes Bank, saying that the State Bank of India (SBI) has expressed willingness to invest in the crisis-ridden lender. The RBI said that investor bank cannot reduce its holding in Yes Bank below 26 per cent before three years. "Yes Bank's capital stands altered at Rs 5,000 crore and the strategic investor bank will bring in 49 per cent equity," the central bank said in a release.

The draft comes a day after the RBI imposed a moratorium on the bank, restricting withdrawals to Rs 50,000 per depositor till April 3. The RBI has also superseded the board of the bank, which is now being headed by former deputy managing director and CFO of SBI Prashant Kumar.

RBI's rescue plan for Yes Bank:


1. SBI will have to pick up 49% stake

2 SBI cannot reduce holding to below 26% before three years from the date of capital infusion

3. From the appointed date, the authorised capital of the private sector bank would stand altered to Rs 5,000 crore

4. Number of equity shares to 2,400 crore having face value of Rs 2 each

5. The investor bank (SBI) shall agree to invest in the equity of the reconstructed bank to the extent that post infusion it holds 49 per cent shareholding in the reconstructed bank at a price not less than Rs 10 (Face value of Rs 2) and premium of Rs 8

6. "All the deposits with and liabilities of the reconstructed bank, except as provided in the scheme, and the rights, liabilities and obligations of its creditors, will continue in the same manner and with the same terms and conditions, completely unaffected by the Scheme, The instruments qualifying as Additional Tier 1 capital, issued by the Yes Bank Ltd. under Basel III framework, shall stand written down permanently, in full, with effect from the Appointed date."

7. The reconstructed Yes Bank will have six member board, including CEO& MD and non-executive chairman. The investor bank (read SBI) shall have two nominee directors appointed on the Board of the Reconstructed Bank

8. Reserve Bank of India may appoint Additional Directors in exercise of the powers conferred by sub-section (1) of Section 36AB of the Banking Regulation Act, 1949.

9. The Board of directors of the Reconstructed Bank will have the freedom to discontinue the services of the key managerial personnel at any point after following the due procedure.

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India Up for Sale as Modi Offers National Icons to Plug Deficit

Vrishti Beniwal Bloomberg March 5, 2020


(Bloomberg) -- After years of small divestments, Prime Minister Narendra Modi has launched India’s biggest-ever asset sale, a $29 billion privatization drive that would help prop up the economy but could also spark worker protests as some of the nation’s corporate icons go on the block.

Faced with the highest unemployment in 45 years and a shadow-banking crisis that’s crippling lending, Modi needs the money to plug a budget hole and fund spending on infrastructure and reforms. But the plan has roused a storm of protest, even among some of his supporters, over how far he will pursue a policy that could jeopardize millions of livelihoods and dismantle entities that have been a source of pride for citizens in the decades since independence.

“The breadth of the sale program is intended to signal that it is driven by the government’s reformist tendencies rather than just fiscal needs,” said Eswar Prasad, a professor at Cornell University. “A key question is whether Modi is willing to use some of his political capital to push through the privatization and related reforms” to the financial system, labor markets and infrastructure, Prasad said.

Privatization policies the world over have always drawn criticism of “selling the family silver,” but since former British Prime Minister Margaret Thatcher’s historic divestment campaign in the 1980s, governments have defended the strategy as one which brings efficiency and longer-term growth.

Modi’s program likewise has elicited a chorus of disapproval. Affiliates of his Bharatiya Janata Party have labeled it a handover of state assets to “multinational corporations at throwaway prices.”

“The difference is that Thatcher had a comprehensive plan that she backed with income tax, sales tax and so many other things,” said Subramanian Swamy, a lawmaker from the ruling party who has recently been critical of the government’s economic policy. “It was a package to move the country from left to right. Here, there is no comprehensive plan. It’s a horrendous mixture of state control and privatization.”

Missed Deadlines

There are also concerns over whether the plan is even achievable. In the 2019-2020 fiscal year, the government has fallen short of its divestment target after failing to complete the sale of Air India Ltd. and Bharat Petroleum Corp., a state-owned oil refiner. Having missed its fiscal gap goals for a third straight year, those sales have been carried forward.

In all, the federal government aims to sell stakes in more than two dozen of about 300 state enterprises in the next fiscal year starting April 1. So far, Modi’s reforms to businesses include a steep cut in corporate taxes, the merger of some state-owned lenders and measures to encourage more foreign investment.

If the sales do go according to plan in the upcoming fiscal year, they would bring in almost half the amount India has raised from as many as 283 transactions over the past three decades, stock exchange data show. They would also raise the share of divestment receipts to 7% of government revenue, from a little over 2% five years ago.

The big ticket for the coming year is Life Insurance Corp. of India, or LIC, which is expected to rake in as much as 900 billion rupees for only a sliver of the state behemoth. Investors likened the proposal to the record initial share sale of Saudi Aramco, which in December raised more than $25 billion.

The Mumbai-based insurer has more than a million agents and 300 million policies, together with stakes in hundreds of other companies, including its affiliate IDBI Bank Ltd. and the nation’s largest listed company Reliance Industries Ltd. But LIC is much more than that to many Indians. It’s a symbol of government support since it was formed in the decade after independence to provide universal coverage.

“Why should there be an IPO? This is public money,” said Shiva Nimje, 52, who has worked for the insurer for 27 years and is part of a campaign by workers to derail the plan. “I’m confident we will be able to stop the sale, however hard we need to struggle for this,” he said by phone from the central Indian city of Nagpur.

National Protest

Rajesh Nimbalkar, general secretary of the All India National Life Insurance Employees Federation, the union that represents many LIC workers, said 100,000 of the firm’s employees are protesting. “LIC is a goose that lays golden eggs,” he said. “The government shouldn’t kill it.”


Even without the staff opposition, LIC’s history, size and operations mean the listing won’t be easy, said Mahesh Patil, chief investment officer for equity at Aditya Birla Mutual Fund.

“LIC being the largest life insurance play will no doubt have interest from investors,” he said. “However, they will have to get over a lot of issues like getting their accounts in order, more disclosures in line with listed players, and employee resistance before they can hit the market.”

While LIC is the elephant in the room, its offering would be a minority stake, not a privatization. The companies where the government is selling control -- including Shipping Corp. of India Ltd., the nation’s largest sea-cargo carrier, construction equipment maker BEML Ltd. and Container Corp. of India Ltd. -- are a mixed bag from an investment point of view.

Bharat Petroleum, for example, earned a little over 76 billion rupees last fiscal year, while Air India lost almost as much in the same time and hasn’t made money since 2007. The sale plan also comes against the backdrop of the coronavirus epidemic, which is hammering global confidence. India’s benchmark index lost 7% last week.

Junior Finance Minister Anurag Thakur told lawmakers on Dec. 3 that the divestment strategy is guided by the principle that the state withdraw from sectors where competitive markets have matured, and that profitability is not a criteria.

Air India

India has injected $4.2 billion into Air India since a 2012 bailout, yet the airline still has $8.4 billion in debt and continues to lose money.

“The government has tried for many years to turn the company around, but it hasn’t been able to do this,” said Joshua Felman, a director at JH Consulting and a former International Monetary Fund official.

He said government subsidies that allowed Air India to offer lower fares were among the reasons rival Jet Airways India Ltd. was not able to compete. Jet went into bankruptcy last year leaving more than 20,000 people jobless.

The government expects to complete the $7.4 billion sale of its stake in Bharat Petroleum by September, with some big Middle East oil producers and Russia’s Rosneft PJSC, keen to acquire the asset, according to Indian officials.

Skeptics say the sales could have unitended consequences -- that losing control of Shipping Corp. would affect the nation’s oil supply and listing LIC could make its investments riskier.

Modi’s political opposition has been more forceful.

“These companies were set up by founding fathers of the country to give employment to people who didn’t have work,” said Ashok Singh, national vice president of the Indian National Trade Union Congress, the union wing of the main opposition party. “Now unemployment is rising and the economy has gone into the intensive care unit. In winter you keep a blanket to keep yourself secure and warm. You don’t give it away.”

Government Perks
That idea of the state’s duty to protect citizens goes to the heart of the opposition from employees. In India, working for the government isn’t just a job. Often it carries prestige and benefits such as job security, better health care, a retirement package, even housing. Each year, millions of people apply for government jobs for which they are clearly overqualified.

“State companies provide a decent employment in terms of promotions, annual increments and wages,” said Brijesh Upadhyay, general secretary of Bharatiya Mazdoor Sangh, a trade union connected with the BJP. “After privatization conditions will change for employees and the company taking over may cut jobs.”

The government argued in a Parliament reply on Feb. 11 that companies released from state control would generate higher economic activity, spur ancillary industries and create jobs. Its recent Economic Survey said research showed a “very strong positive effect” on labor productivity and overall efficiency.

Modi has four years to prove that’s the case before the country will judge the success of the program at the polls.

Bank Boardroom Battles Put Powerful Chairmen in Spotlight


Nicholas Comfort and Steven Arons Bloomberg March 5, 2020

(Bloomberg) -- First was the stunning power struggle atop Credit Suisse Group AG. Then cross-town rival UBS Group AG named a new chief out of the blue. Now Standard Chartered Plc is quietly looking for one.

Barely a week passes these days without a European bank chairman ousting a chief executive officer or seeking potential new ones. The turmoil has engulfed the boardrooms of almost all of the region’s top firms, from Germany’s troubled lenders to Switzerland’s large wealth managers, France’s investment banking powerhouses and London’s financial giants.

The turnover speaks to the dire state of European finance more than a decade after the financial crisis and almost six years into the region’s controversial experiment with negative interest rates. But the frequency and the speed at which top executives are being swapped out, at times over the vocal opposition of large shareholders, underscore another key difference with Wall Street: The powerful role of chairmen.

“There’s been a quite a lot of churn,” said Stilpon Nestor, who advises companies on governance at Nestor Advisors. The chairmen “are playing a more active role. The big governance changes after the crisis aimed at exactly that: giving more power to the board.”

Unlike their peers on Wall Street, where CEOs frequently also hold the position of chairman, European banks separate the two roles fairly strictly. Regulators made that a legal requirement after the financial crisis showed the need for more checks and balances, although there are exceptions. The European Central Bank built on that by telling boards that it expects them to challenge management on the implementation of strategy and culture.

Today, about two-thirds of CEOs at U.S. financial companies are also chairman of the board, most prominently Jamie Dimon, who has run the biggest Wall Street firm for the past 14 years. In Europe, that number is just 1%, according to data from the responsible investment arm of Institutional Shareholder Services.

The strengthening of the board has encouraged chairmen to take a more active role and move more decisively to replace top executives when needed. At Deutsche Bank AG, supervisory board chairman Paul Achleitner is on his fourth CEO in eight years at the lender during which he has overseen a long series of unsuccessful turnaround efforts. Credit Suisse has the third CEO since Rohner took over in 2011.

Achleitner’s Backseat

However, in a sign that a backlash may be brewing, both chairmen are facing mounting opposition from key shareholders unhappy with their performance. Achleitner has become a lightning rod for many long-time Deutsche Bank investors after overseeing a long decline in the stock. Several stakeholders were debating last year whether to push the Austrian out.

Now Achleitner -- one of the best-connected executives in Germany -- is taking a backseat in discussions with some shareholders in an effort to defuse tensions, according to people familiar with the matter. He’s been making fewer public appearances, with CEO Sewing taking a more active role in communicating with backers, the people said, asking for anonymity to discuss private meetings.

Deutsche Bank declined to comment.

“A lot of people actually wonder whether the pendulum has gone too far with the board assuming more and more executive decision-making responsibilities and the CEO becoming less and less responsible,” said Nestor. “This is a real concern in some banks.”

At Credit Suisse, Rohner has draw the ire of David Herro, a major shareholder who supported Thiam and said it was a mistake to replace a CEO over a spying scandal, given that he had just completed a successful turnaround of the lender.

“We think there is great potential in Credit Suisse and we would hate to see it ruined by a chairman who is not on the same page of shareholder value creation as we are,” he said last month. “If he really loved the company, he should step down and resign.”

At UBS Group AG, Chairman Axel Weber recently poached the CEO of Dutch lender ING Groep NV to replace Sergio Ermotti, one of the longest-serving European bank CEOs, as shareholders look for new ideas to maintain the bank’s edge in wealth management. But tensions had been brewing for some time at UBS as well, with Weber saying more than a year ago that the bank was starting to look at potential CEO candidates.


Ermotti’s Move

Weber, who has been chairman of UBS since 2012, has said the search for his own successor will start next year. That search became more complicated after Ermotti, who was seen as a potential candidate for the chairman role, on Tuesday agreed to join reinsurer Swiss Re AG instead -- a move that suggests he wasn’t entirely happy about his departure from UBS.

At Standard Chartered, Chairman Jose Vinals has informally approached banking executives this year to gauge their interest in taking over from Chief Executive Officer Bill Winters, according to people familiar with the plans who asked not to be identified. His search is not currently part of any formal selection process, the people said.

Winters had a public spat with investors last year after some opposed the bank’s compensation policy, saying that shareholders’ criticism of his pension award was “immature.” While Standard Chartered eventually cut his retirement allowance, the chairman was not happy with Winters’s public handling of the situation, some of the people said.

‘Increasingly Complex’

HSBC Holdings Plc, meanwhile, removed CEO John Flint last year, citing an “increasingly complex” environment. Chairman Mark Tucker and Flint clashed over style, with Flint focused on cultural issues at the firm and Tucker taking a more data-driven approach, people familiar with the matter have said.

Tucker named Noel Quinn interim CEO, but he has yet to find on a long-term replacement, a task complicated after UniCredit SpA’s Jean Pierre Mustier dropped out of consideration for the role. Now pressure on the chairman -- the first outsider ever hired for the role at the 165-year-old institution -- is ramping up after a steep share price decline following a Feb. 18 strategy overhaul that failed to impress investors.

The bank chairmen “know that investors are increasingly prepared to vote against them, so there’s a lot of explaining they have to do on the management changes,” said Ingo Speich, head of sustainability and corporate governance at Deka Investment, which holds stakes in European banks.

Whether chairmen are ousted ahead of time or not, the wave of change ultimately won’t stop at the CEO level. At Deutsche Bank, Achleitner’s second five-year term ends in 2022. The current term of HSBC’s Tucker will expire at the bank’s shareholder meeting in 2021.

‘Next Transformation’

Rohner, who has been on Credit Suisse’s board since 2009, will see his term end in April next year. The bank on Thursday denied a report in the Financial Times that he is seeking to extend his tenure, saying there is an orderly succession plan for a replacement.

The chairmen have accompanied banks through far-reaching overhauls but their successors will face another set of challenges. That’s especially true for the necessity to adapt their business to higher environmental, societal and governance standards, a paradigm shift similar to that of the automotive industry, says Speich at Dekabank.

“European bank chairmen have been an anchor of stability in recent years, but they’re getting older and asking themselves about where the journey’s going,” said Speich. “We need to see that generational change in order for banks to manage their next transformation.”