Thursday 12 April 2018 FINANCIAL TIMES COMPANIES & MARKETS @ FINANCIAL TIMES LIMITED Venezuela stopped bond payments in September Central bank data suggest government is in ‘a stealth default’, says analyst JONATHAN WHEATLEY Venezuela stopped paying bondholders in September, according to central bank data, contradicting statements by President Nicolás Maduro that the country would continue to honour its debts while negotiating a resettlement with its creditors. The data show that regular foreign debt payments of hundreds of millions of dollars a month, in line with the country’s sovereign obligations, fell to a few tens of millions from last October for fees and the legacy of a 1980s-era restructuring. “This proves that Venezuela is deliberately hoodwinking bondholders and engaging in a stealth default,” said Russ Dallen of boutique bank Caracas Capital, who follows Venezuelan debt closely. The data were posted in an Excel file as part of a recent revamp of the central bank’s website and include monthly expenditures in US dollars on public foreign debt payments going back to 1996. Previously, data on foreign debt payments were published in the form of a ratio that revealed little information, Mr Dallen said. “This must have been posted by an intern,” he added. RALPH ATKINS HNA, the Chinese conglomerate which is seeking to strengthen its finances, has abandoned plans to float Swissport, the air services group, just weeks after it was forced to pull plans to list the Gategroup catering group that it also owns. Swissport said in a brief statement that the planned initial public offering and listing on the Swiss stock exchange would be deferred “due to current market conditions,” without providing further details. Swissport, which provides ground services and cargo handling, had revenues of €2.8bn last year. The decision appeared a further setback for HNA following the collapse last month of plans to raise up to SFr1.3bn ($1.37bn) by floating up to 65 per cent of Gategroup, which it had acquired less than two years previously. Other Swiss companies have pushed ahead recently with IPOs. However the decision to pull the Gategroup IPO highlighted wariness among investors about taking stakes in companies alongside HNA, although bankers close to the deal said it also flopped because of the Mr Maduro announced on November 2 that the country would restructure and refinance its debts after making one last payment on a bond owed by PDVSA, the stateowned oil company. S&P Global, the rating agency, declared the country in default shortly afterwards. Yet holders of bonds issued by PDVSA and Elecar, a state-owned electric utility, have continued to receive sporadic payments, which have amounted to about $2.5bn since Mr Maduro’s announcement. Several payments have been made late, sometimes after the 30-day grace payment for coupon payments. No payments at all have been received on bonds issued by the government of Venezuela, despite assurances that the process of payment was under way. The central bank data, which cover payments of sovereign debt only and exclude obligations by PDVSA and other state entities, show that just $83m was paid in October, compared with sovereign obligations amounting to $465m, according to data from Caracas Capital. Payments in November fell to $28m, compared with obligations of $183m, and in December declined to $23m, compared with obligations of $242m. China’s HNA drops plans to float Swiss air services group price demanded. HNA ran into controversy in Switzerland last year when the country’s takeover watchdog ruled that the Chinese group had provided “untrue or incomplete” information regarding its ownership when it acquired Gategroup for SFr1.4bn in 2016. The Chinese conglomerate has an estimated $20bn in debt maturing this year or next. The company has sold some assets and extended credit arrangements with banks which — until the Gategroup setback — had helped it navigate a turbulent first three months of the year. Immediately after the Gategroup setback, Swissport had said its listings plans — announced in January — remained on track. But Tuesday’s decision to pull the float did not surprise observers. Swissport’s IPO would almost certainly have proved even more challenging than Gategroup’s because Swissport’s finances are more intertwined with its Chinese parent, due to a series of short-term loans the Swiss group has made to HNA affiliates. HNA and Swissport had given no indication of how much would have been raised from the planned IPO, but said HNA would have retained a “long term strategic shareholding”. ANJLI RAVAL Oil extended gains from the previous session, rising above $70 a barrel, as the US neared a decision about whether to launch a strike on Syria in response to an suspected chemical attack. Brent crude, the international oil benchmark, rose $1.49 a barrel in Tuesday afternoon trading to $70.14, culminating in a more than 4 per cent jump in prices over the past two days. West Texas Intermediate, the US marker, also rose $1.25 a barrel to $64.68. Tension has mounted after an attack on Douma in eastern Ghouta which the Syrian American Medical Society, a medical relief organisation, said killed dozens of people and injured hundreds more, and which C002D5556 coincided with worries that US sanctions against Russia and potentially Iran will hit oil supplies. Following new restrictions on Russian business people, including aluminium producer Rusal and its founder Oleg Deripaska, some traders have raised questions about any impact on the oil sector. Vladimir Bogdanov, co-owner of Surgutneftegas, which produces more than 10 per cent of Russia’s oil, has also been named leading to concerns the pool of sanctions-hit individuals and companies could widen to cover larger oil companies. “The aluminium market was reacting very firmly on the latest US sanctions against Russian aluminium interests and that is helping to develop the ‘what-if’ scenarios on the basis of US sanctions on Russian BUSINESS DAY Venezuela’s President Nicolas Maduro launches a new oil-backed cryptocurrency called “Petro” in Oil extends gains to breach $70 a barrel A3 oil interests,” said Olivier Jakob at Petromatrix. At the same time, the US is weighing the prospect of withdrawing from Iran’s nuclear deal with western powers, which some market participants have said could hit crude supplies from the Opec producer. “We regard such fears as exaggerated, in the case of both Iran and Russia,” said Carsten Fritsch at Commerzbank. Still, he said, “psychological factors” are driving prices. Geopolitical anxieties have offset concerns about a trade war between the US and China that could hit global economic growth and, in turn, oil demand. Robust consumption has helped prices to recover above $70 a barrel alongside production cuts from big producer nations led by Opec and Russia. Start-up offers automatic switching to cut home energy bills Switchcraft to move customers to cheaper fuel deals CLAER BARRETT AND JAMES PICKFORD A start-up energy switching service is promising to save households time and money by automatically switching them to a cheaper deal in the market “forever”. Switchcraft, the idea of ex-City trader Andrew Long, claims the free service can save users an average of £313 “year after year” by automatically switching energy provider as customers roll off the best deals, meaning they avoid being price-gouged by expensive “standard” tariffs. “The best deals are for new customers, so the 83 per cent of the population that don’t find the time to switch are overcharged,” said Mr Long. “Switchcraft provides a hassle-free solution to staying on the best energy deal permanently.” According to Ofgem, the energy regulator, 5.1m electricity consumers and 4.1m gas consumers switched supplier in 2017, producing between them the highest total for almost a decade. Switchcraft competes with price comparison websites but, unlike such services, its users register their details once and then are automatically moved to the best price plan without having to do anything else. “We don’t have TV adverts, and we don’t want to use gimmicks,” said Mr Long referring to the succession of opera singers, meerkats and twerking builders used by his competitors. “They need to be memorable. In a way, we want people to forget about us. You only have to sign up once — and we want to keep on doing a decent job for people.” Consumer groups have censured utilities companies for penalising customers for their loyalty, reserving their best rates for those who sign up. Citizens Advice calculated that consumers who were loyal to their existing providers of services such as energy, mobile, broadband and home insurance, were missing out on up to £1,000 a year by failing to switch. Automatic switching is already offered by services such as Flipper and Switchd. Both charge a fee: Flipper of £25 a year; Switchd charges £1.99 a month. Other services also calculate the annual savings of moving and notify users online. “The problem is, if you’re sending people a reminder, you’re not actually taking it off their to-do list,” said Mr Long. “You’re a busy professional. You sign up to our website. We do it all for you — and that problem is now gone, forever.” Like price comparison websites, Switchcraft takes a commission from energy companies for bringing in new customers. For this reason, it only covers around two-thirds of energy suppliers (including all of the big six) as not all pay commissions. Andrew Hagger of consumer website MoneyComms said the restriction might give potential users of the service some pause. “My concern would be that you’re only having a limited choice and possibly missing out on some of the better deals.” Mr Long and Switchcraft cofounder and chief technology officer Rob Porter hope to expand Switchcraft into insurance, broadband, mobile phones or any market “where people buy household services on a repeat basis”. About 1,000 customers have signed up for its automatic energy switching service so far. When customers’ fixed-term contracts draw to a close, the technology behind the website searches for a cheaper deal. Customers are informed by email of the new supplier and estimated savings versus staying with the same provider, before their supply is switched.
Thursday 12 April 2018 FT ANALYSIS C002D5556 BUSINESS DAY Healthcare: Cancer breakthrough leads China’s biotech boom New generation of cell therapies helps Chinese emerge as industry A4 Beijing has long used ownership caps and joint-venture requirements to protect domestic companies from competition © AP China accelerates opening to foreign financial groups Majority stakes to be permitted in securities and fund management companies within months TOM MITCHELL AND HUDSON LOCKETT Foreign financial groups will be allowed to take majority stakes in securities, fund management, futures and life insurance companies “within a few months”, China’s central bank said on Wednesday. The announcement came a day after President Xi Jinping promised to “accelerate” the opening of China’s financial markets and to ease foreign investment restrictions in the automotive, shipbuilding and aviation sectors. China’s finance ministry first said in November that it would allow overseas companies to take majority stakes in securities, fund management and futures companies, but did not specify a timeline for implementation. At the time Zhu Guangyao, vice-finance minister, also said the foreign investment ceiling in life insurance joint ventures would be raised to 51 per cent, from the current 49 per cent, by the end of 2020. Beijing has long used ownership caps and joint-venture requirements to protect domestic companies from competition, prompting years of complaints that these restrictions hinder foreign groups in China. Russia steps up warnings against US action in Syria Moscow’s UN representative warns of ‘grave and tragic events’ if action is taken KATHRIN HILLE Russia has stepped up its warnings against US military action over last week’s alleged chemical weapons attack in Syria, warning that it would risk triggering “grave and tragic events”. Vasily Nebenzia, Russia’s permanent representative to the UN, said late on Tuesday night. “I would once again implore you — refrain from those plans that you have in mind for Syria.” Moscow’s renewed warning came as the US, France and the UK were considering a response to indications that Douma, a rebel holdout near Damascus, the Syrian capital, had been attacked with chemical weapons, killing at least 40 people. French president Emmanuel Macron, who has spoken twice to US president Donald Trump since the attack, on Wednesday suggested a military response had been decided and that allies were weighing the details of the operations. France “is continuing to exchange technical and strategic intelligence with our allies to define our reaction, which will take place in the coming days,” he tweeted. While US President Donald Trump rejected the finance ministry’s November offer as insufficient, Chinese negotiators led by Vice-Premier Liu He hope that a faster opening of the country’s financial sector will help avert a trade war between the world’s two largest economies. The People’s Bank of China also said on Wednesday it would open the country’s trust, leasing and car and consumer finance industries to foreign investment by the end of this year. It added that it would not impose foreign ownership limits on commercial banks’ asset investment and wealth management operations. However, US government officials and analysts have pointed out that China is allowing foreign majority control in areas already dominated by large domestic companies that enjoy huge economies of scale. Jonas Short at Everbright Sun Hung Kai said it was significant that the PBoC also indicated overseas brokerages could partner with any Chinese company, rather than a Chinese brokerage, potentially giving them even greater control over operations. But Mr Short noted it could take time for foreign financial firms to secure official approvals to increase Mr Trump on Tuesday cancelled a visit to Latin America as he attempted to rally allies to back the US response to the alleged chemical attack. The White House said the president would “remain in the United States to oversee the American response to Syria and to monitor developments around the world”. Mr Trump spoke to Theresa May, UK prime minister, on Tuesday. On Monday, the US president said that he would deliver his decision on whether to strike Syria in 24 to 48 hours. France’s government spokesman said on Tuesday that Paris would respond if it were proved that forces loyal to Syrian president Bashar al-Assad had carried out the attack. “The president [Macron] has repeated again and again that if the red line is crossed, and if it is established who is responsible, it will lead to a response,” Benjamin Griveaux told Europe 1 radio. While humanitarian aid groups and western governments have pointed the finger at the Syrian regime, Russia, which backs President Assad’s regime, denies that a chemical weapons attack took place at all. their stakes or form new companies. A year after it said it would open China’s domestic payments market, the central bank has yet to award a foreign company a license in the sector. Last week the US unveiled plans to assess punitive tariffs on $50bn of Chinese industrial exports as soon as June, in retaliation for allegedly forcing foreign investors to surrender technology and other intellectual property to local joint venture partners. Chinese officials, who deny appropriating foreign investors’ intellectual property, responded with plans to tax an equal amount of US exports. Mr Trump has signalled that he is more interested in a loosening of the 50 per cent foreign ownership limit in China’s auto sector and lower tariffs on imported cars. In a speech at the Bo’ao Forum for Asia on Tuesday, Mr Xi said China would move on both these fronts but did not provide any details. Mr Trump nevertheless reacted positively, saying on Twitter that he was “very thankful for President Xi[’s] kind words on tariffs and automobile barriers [and] his enlightenment on intellectual property and technology transfers”. Mr Nebenzia was speaking after the US and its allies on one side and Russia on the other blocked each other’s competing resolutions on a new joint chemical weapons inspection mission for Syria at the UN Security Council on Tuesday night. Russia has been scuppering attempts at a renewal of the joint inspection mission for chemical weapons in Syria since it expired last autumn. Most recently, Russia sponsored a proposal that insisted such a mission must have an invitation from the Syrian government, visit all sites in question and prove responsibility of an alleged perpetrator beyond any reasonable doubt — conditions that western diplomats argue would hamper the independence of such a mission. Mr Nebenzia suggested that the US and its allies did not want a real investigation, and might use the UNSC’s failure to adopt their proposal to justify military action. “You say that we are very good at playing games. I’m not sure about that. But what we know for sure is that you’re good at making threats,” he said. “The threats that you are uttering now with regard to Syria must extremely worry all of us.” DAVID CROW, TOM HANCOCK AND WANG XUEQIAO A few days before Craig Chase was discharged from the Jiangsu Provincial People’s Hospital in Nanjing, his doctor told him something he never expected to hear: his cancer had been cured. “His English was not so good, so he used Google Translate. When he said I was cured, I told him it was impossible — there is no cure for multiple myeloma,” he recalls. “But he said, ‘no, you’re definitely cured’. It was unbelievable.” Unbelievable, perhaps, but also true. When Mr Chase, now 57, returned home to America after his six weeks of treatment in China to undergo further tests, his doctors could find no trace of multiple myeloma. The blood cancer he had suffered for three years — which had threatened to end his life — was gone. Wealthy Chinese people often travel to the US for healthcare, but it is rare to hear of someone going the other way. Indeed, Mr Chase was the first American to be treated at the Jiangsu hospital, where he underwent an experimental procedure known as chimeric antigen receptor cell therapy or Car-T. As biotech has gone from strength to strength over the past four decades, China has been a backwater for the industry, tending to follow the west rather than pursuing its own innovations. But it is now rapidly emerging as a world leader in cell therapies like Car-T, which try to treat and even cure illness by hacking the body’s biology. There are already more clinical trials in the country than in the US, and executives and scientists say it has several strategic advantages that could allow China to challenge US dominance, including an accommodating regulatory regime, low labour costs and expertise in precision manufacturing. “The Chinese companies I have met are determined to become leaders in this,” says Brad Loncar, founder of the Loncar Cancer Immunotherapy Exchange Traded Fund, who recently returned from a trip to the country. “These treatments have the potential to be highly disruptive to medicine and I think they view it as a unique opportunity as new contenders to spring to the forefront of the biotech industry.” At a time when President Donald Trump is fretting about Beijing’s plans to dominate the industries of the future, China’s push to become the pre-eminent destination for cell therapies and other evolving technologies such as gene editing would represent a major shift in modern medicine and an important marker in the growing technological competition between the US and China. Car-T “is among the few corners of biotech in which China may have a chance to compete globally in the near to medium term . . . and even leapfrog global pace in certain targets”, analysts at Bernstein wrote in a report this year. Mr Chase’s visit to China was not without its jarring moments. On one occasion in Nanjing, his doctor used a herbal wrap to reduce a large swelling in his ankle. “It smelled like an Italian lunch,” recalls Mr Chase, a paper broker, though he says it seemed to work rather well. This low-tech anecdote belies the fact that Car-T is at the cutting edge of biology: it involves extracting a patient’s blood cells, re-engineering them in a lab so they can identify and destroy cancer and then re-inserting them into the body. There are already two Car-T products for rare types of leukaemia on the market in the US, made by Novartis, the Swiss pharma company, and Gilead, the west coast biotech group. But the treatment is still in its infancy and many scientists in the field believe the biggest advances are yet to come. The next bigtarget is multiple myeloma, after which companies are expected to turn their attention to solid cancers and even infectious diseases like HIV. Research into Car-T in China has exploded in recent years. There are currently 116 clinical trials registered in the country, according to a US government database, compared with 96 in the US and 15 in Europe, giving it a lead that would have been unthinkable when the treatment was first discovered. “It was zero when we started [human trials] in 2010,” says Carl June, a professor at the University of Pennsylvania, who helped develop the earliest Car-Ts. “Then they caught up with us, and now they have surpassed us.” Although the Trump administration’s recently proposed trade tariffs have targeted raw pharmaceutical ingredients from China, they would have a negligible effect on the country’s ability to pursue and export the cell and gene therapies of the future. Mr Chase first heard about the particular Car-T that would rid him of cancer after a large clinical trial of the treatment was published last June at the world’s most prestigious oncology meeting. The gathering of the American Society of Clinical Oncology takes place each year in a conference centre by Lake Michigan, where 30,000 researchers and doctors from around the world pore over studies sponsored by the biggest pharma companies in cancer. But the most eye-catching research at last year’s conference was presented by a Chinese biotech group that virtually no one had heard of: Nanjing Legend. In a study of 35 Chinese multiple myeloma patients, who had all relapsed and were no longer responding to drugs, 33 participants had entered remission within two months of being treated. The response rate of 94 per cent was among the highest seen for a Car-T trial. Excitement over the trial soon turned to disbelief in some quarters, in part because Legend was such an unfamiliar name, but also because it was based in China. Some delegates at the conference told the Financial Times that data from a company based in a country that fiddles its economic growth figures could not be trusted. But Mr Chase, who had spent five months on the waiting list for a Car-T trial in the US, investigated Legend, spoke to its executives and decided it was a credible company.