Commercial Awareness Discussion Thread

[Jaysen]

Hi All,

In the run up to summer vacation schemes and training contract interviews, I thought it would be nice to have a thread to discuss ongoing commercial news stories.

This thread is open to anyone to discuss anything interesting they found in the news and share articles. This will also serve to complement our weekly commercial awareness newsletter.

Best!

Jaysen

 

[Jaysen]

A couple of commercial stories that have caught my eye recently:

• US-China tensions have ramped up once again. The reasons range from Trump's criticism of China for 'covering up' the outbreak (BBC) to China's plan to impose a new security law in Hong Kong (BBC). There are also broader reasons at play here, such as the US-China trade war, the race towards 5G and the role of the US and China on the global stage.
  
  
• The UK is facing its steepest recession on record (BBC). One of the key questions right now is what recovery will look like in the future (often denoted by shapes). Some central banks are also exploring negative interest rates to support the economy (Reuters).

Further resources:

Understanding the Economic Shock of the Covid-19 Crisis (Video by Harvard Business Review)

 

[Daniel Boden]

Given my interest in Private Equity, I'll post a few things that have caught my eye recently in this area throughout the course of the day

 

[Daniel Boden]

Hi guys, if any of you are members of the graduate recruitment app Debut, then you can get free access for 6 months to 'Finance Unlocked'. This website looks like it could be really useful for case studies so I'd really recommend checking it out

 

[Dennis Varghese]

An interesting decision recently by a German constitutional court which ruled that the European Court of Justice (ECJ) had gone beyond their mandate in allowing the European Central Bank's quantitative easing measures. It's an interesting decision especially in the context of challenging ECJ's supremacy. You can read more about it here - https://www.euronews.com/2020/05/11...tter-spat-with-germany-s-constitutional-court

 

[Jaysen]

An interesting decision recently by a German constitutional court which ruled that the European Court of Justice (ECJ) had gone beyond their mandate in allowing the European Central Bank's quantitative easing measures. It's an interesting decision especially in the context of challenging ECJ's supremacy. You can read more about it here - https://www.euronews.com/2020/05/11...tter-spat-with-germany-s-constitutional-court

Great example of topic that is both legal and commercial!

A few more stories:

• The car rental company Hertz has filed for bankruptcy protection in the US (BBC). It's one of many businesses falling into insolvency procedures during the current pandemic.
  
  
• The UK government's Corporate Governance and Insolvency Bill introduces dramatic changes to insolvency law in order to aid businesses during the pandemic (Accountancy Daily).
  
  
• Government borrowing has surged (BBC and Vox) and there are big questions over how this will be paid back in the future.

I've also made our weekly report on the impact of the pandemic across financial sectors freely accessible this week: https://classes.thecorporatelawacademy.com/courses/tcla-weekly-report/lectures/17426929.

 

[Daniel Boden]

In Private Equity International recently, there was a long feature on the potential impact of COVID-19. In summary:

1. The focus on Environment, Social and Governance (ESG) is intensifying
2. PE is gearing up for more disputes
3. Data considerations are key in due diligence and beyond
4. GP-led deals in the secondaries market remain on the agenda

“Huge opportunities exist in the GP-led secondaries space,” says Christopher Sullivan, Partner at Clifford Chance. “We expect to see it become the ‘fourth leg’ of exit track planning sitting alongside sale, IPO and recap.”

For those who aren't sure what the secondaries space is, the private equity secondaries market refers to the buying and selling of a pre-existing investor commitment to a fund. Since there is so much 'dry powder' in the market and not a huge amount of viable investments, this secondaries market is becoming increasingly popular with GPs (Fund Managers).

 

[J32]

Thanks for this post Dan, it's very helpful Could you share the link if possible?

 

[Daniel Boden]

Thanks for this post Dan, it's very helpful Could you share the link if possible?

It might be behind a paywall/you'll have to make an account but here it is

https://www.privateequityinternational.com/legal-special-four-need-to-know-issues-for-2020/

 

[J32]

It might be behind a paywall/you'll have to make an account but here it is

https://www.privateequityinternational.com/legal-special-four-need-to-know-issues-for-2020/

Thanks Dan!

 

[Dennis Varghese]

A great story to follow is the investment into Indian company Jio. It is a subsidiary of Reliance Industries, a conglomerate owned by India's richest businessman, Mukesh Ambani. They've been subject to investment from Facebook, Silver Lake, Vista Equity, General Atlantic and KKR since the pandemic kicked in, and there are rumours that sovereign wealth funds in the Middle East are looking to join in too.

If PE isn't your thing, I still think it's an important read. It reflects the growing importance tech will play in the post-coronavirus era, and India as an investment target because of the country's untapped potential (the use of tech amongst Indian consumers is far behind China e.g. in terms of contactless payment). India will also be a hotspots for deals due to what I perceive to be the permanent increase in tensions between the US and China - there will be more economic sanctions following the pandemic.

Here's a link to a general article about Reliance Jio in the FT: https://www.ft.com/content/f2f55a6c-8350-4de3-ae27-c8e8fdbcd482

Yeah, it's quite impressive the amount of investments Reliance has been able to attract. Articles indicate that Jio should be debt-free soon...

 

[Dennis Varghese]

You would think US is playing carefully in terms of undermining China, but shortsighted decisions like banning the sale of micro-chips to Chinese firm Huawei is an absolute no-brainer. Turns out, China has attracted over $2bn worth investments to develop its own chips. The sort of restrictions companies are currently face because of the US's draconian policies (like being told who they should supply their products to), it is imminent that companies will eventually turn to China in the future.

https://www.cnbc.com/2020/05/18/huawei-faces-big-blow-from-new-us-rules-to-cut-off-chips.html

 

[Daniel Boden]

A great story to follow is the investment into Indian company Jio. It is a subsidiary of Reliance Industries, a conglomerate owned by India's richest businessman, Mukesh Ambani. They've been subject to investment from Facebook, Silver Lake, Vista Equity, General Atlantic and KKR since the pandemic kicked in, and there are rumours that sovereign wealth funds in the Middle East are looking to join in too.

If PE isn't your thing, I still think it's an important read. It reflects the growing importance tech will play in the post-coronavirus era, and it highlights the growing prominence of India as an investment target due to the country's untapped potential (the use of tech amongst Indian consumers is far behind China e.g. in terms of contactless payment). India will also be a dealmaking hotspot due to what I perceive to be the permanent increase in tensions between the US and China - there will be more economic sanctions following the pandemic.

Here's a link to a general article about Reliance's Jio in the FT: https://www.ft.com/content/f2f55a6c-8350-4de3-ae27-c8e8fdbcd482

Great post @Raam! Totally agree with you re your opinion on dealmaking in India in the near future - it really is an untapped market that has a tremendous amount of potential for tech investors and I'd definitely expect to see increased investment there, at least until the US-China tensions ease anyway

 

[Alice G]

Some incredible posts here guys - I have been busy of late and haven't been as attuned as I would like to be so this was quite an education for me!!

 

[S87]

I have a question that just popped in my head.

Do not you think that the rise of Jio is also due to the rise of fake news?

It seems that there is an increasing percentage of people believing in 2 big fake news
1) 5G technology, 2) coronavirus was created by a Chines lab. Both news have as main subject China.
When Trump visited India..Jio's CEO said a magic word "our technology is not made in China..we do not do business with China"..Music for Trump!!
Plus consider also a new rising social media platform made in china..TikTok..which US congressmen are trying to block..(that's why TT hired an american businessman)
Do you think that India-US is a new trade force? I do not think so..India has so many problems and geopolitical and social are the first.

 

[Daniel Boden]

I have a question that just popped in my head.

Do not you think that the rise of Jio is also due to the rise of fake news?

It seems that there is an increasing percentage of people believing in 2 big fake news
1) 5G technology, 2) coronavirus was created by a Chines lab. Both news have as main subject China.
When Trump visited India..Jio's CEO said a magic word "our technology is not made in China..we do not do business with China"..Music for Trump!!
Plus consider also a new rising social media platform made in china..TikTok..which US congressmen are trying to block..(that's why TT hired an american businessman)
Do you think that India-US is a new trade force? I do not think so..India has so many problems and geopolitical and social are the first.

I think that certainly could play a part in it absolutely, at least on an unconscious level. We are all aware of Trump's attitudes towards the Chinese and his largely mistaken beliefs regarding that country.

That said, I'd like to think that those investors in US private equity or Silicon Valley are able to separate fact from fiction in their due diligence in this way, but if India is able to affect positive change to those geopolitical and social problems you mention then I wouldn't be that surprised if in a few years the US and India have a significant trading relationship.

 

[S87]

I think that certainly could play a part in it absolutely, at least on an unconscious level. We are all aware of Trump's attitudes towards the Chinese and his largely mistaken beliefs regarding that country.

That said, I'd like to think that those investors in US private equity or Silicon Valley are able to separate fact from fiction in their due diligence in this way, but if India is able to affect positive change to those geopolitical and social problems you mention then I wouldn't be that surprised if in a few years the US and India have a significant trading relationship.

I agree with you. But I am not sure about India being able to go beyond its rooted problems. News report about increasing attacks against muslims after changing citizenship law, more than half of the country does not have access to basic needs like toilettes, education and so on. Plus consider women's rights..it is a profound divided country..plus do not forget that over the last few months the Indian economic growth was in deep depression and Narendra Modi was criticised for not implementing the right financial measures.

 

[Daniel Boden]

I agree with you. But I am not sure about India being able to beyond its rooted problems. News report about increasing attacks against muslims after changing citizenship law, more than half of the country does not have access to basic needs like toilettes, education and so on. Plus consider women's rights..it is a profound divided country..plus do not forget that over the last few months the Indian economic growth was in deep depression and Narendra Modi was criticised for not implementing the right financial measures.

I don't know enough about India's various circumstances to be able to comment further I'm afraid but I guess its the case like with anything that any sort of meaningful change will take time

 

[Daniel Boden]

Further to the above discussion regarding furthering US-China tensions, the US has just announced that it will no longer consider Hong Kong autonomous from China in a big change in policy. Somehow I don't see this ending well...

What impact do you think this could have? @Alice G @Jaysen @Raam @Konstantinos

Personally, I have a suspicion the markets won't react too kindly to this news...

Here's the link to the article in the FT: https://www.ft.com/content/3ae02552...egmentId=3d08be62-315f-7330-5bbd-af33dc531acb

 

[Daniel Boden]

I think these points reinforce support for anti-China policies amongst the population. As Dan said, PE executives will deal in facts and for them, the sanctions placed on China make it a very difficult market to navigate. Conversely, India is free of any sanctions and if anything has more potential than China in the short term, with trends such as consumer tech yet to be fully exploited. Given this backdrop, that's why Jio has emerged as a key target. Also, with India now emerging as a key investment hub post-coronavirus, it makes sense for large investors to formulate relations with India's most eminent businessman (Mukesh Ambani, the owner of Reliance); it will provide an invaluable foundation for contacts when it comes to future deals.

@Raam Couldn't have said it better myself