Mobile startups worth US$800b combined is sign of bubble

SEP 8, 20155:57 PM

[PORTLAND] The number of mobile Internet startups with valuations crossing US$1 billion has jumped by a third in just eight months and that's spelling trouble for some venture capitalists looking to cash in on their investments.

Already, there are signs of worsening returns. The ratio of mobile Internet exits - startups that are either sold or go public - to investments has plunged over the past six quarters, excluding one outlier deal, according to consulting firm Digi- Capital.

"Mobile is frothy and bubblelike," said Rajeev Chand, managing director and head of research at Rutberg & Co. LLC. Companies that would have gotten US$8 million to US$10 million in investments a few years ago are now getting as much as $50 million, he said. "There's way too much money going into mobile delivery companies. The economics are fundamentally not sustainable."

Investors have jumped into mobile Internet startups as services from dog walking to shopping to food delivery became available via smartphones. In 2014, global mobile data traffic was almost 30 times the size of the entire global Internet in 2000, according to Cisco Systems Inc. As a result, mobile Internet companies that crossed the US$1 billion threshold - known as unicorns - have swelled to about 90 for a combined valuation of more than US$800 billion, Digi-Capital said in a report last month.

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It wasn't so long ago when there might have been 10 unicorns in an entire decade, said Matt Murphy, a managing director at Menlo Ventures. Venture funders, who typically recoup their investments in five to seven years, may have to wait two to three years longer and perhaps with less rosy results, he said.

WhatsApp represented a bright spot last year when Facebook Inc bought the mobile messaging service for US$22 billion. Still, excluding that one deal, the ratio of exits to investments declined for six straight quarters, Digi-Capital said in the report. While investments in the second quarter amounted to US$16 billion, exits were just US$13.5 billion, half the US$26 billion peak they reached a year earlier, the researcher said.

While in the past, venture capitalists tended to spread their money around, some are now pouring more into fewer companies, and their risks have skyrocketed, said Tom Taulli, a mergers-and-acquisitions consultant in Los Angeles. Firms, particularly those that stepped in during later funding rounds when mobile startup valuations were higher - could see losses, and have less money to reinvest. The amount of funds that firms have available for promising new companies could drop by 25 per cent in two years, he said.

"It's a high-stakes game of Russian roulette," Mr Taulli said. "A couple of VCs are going to win, and many VCs are going to lose, and that's going to eventually shrink the funding into mobile and other areas."

To raise cash, some venture firms are starting to sell portions of their stakes in private companies to other investors, Menlo Ventures' Murphy said.

"Private-equity firms have always bought from each other," Mr Murphy said. "We are starting to see more of that creep into the venture business," he said, in what he called "another liquidity path." Still, with the mobile market in its infancy and growing fast, it will continue to attract venture capital.

"People are not going to cease to invest now because there's a shortage of exits," said Benedict Evans, a partner at venture firm Andreessen Horowitz in Menlo Park, California. "Yes you have to think about how you are going to get liquidity from that. There are worse problems to have."

All eyes will be on some of the high-profile mobile companies - such as Uber Technologies Inc, Snapchat Inc and Square Inc - when they go public. Uber, the car-fetching app, is valued at about US$50 billion - more than six times the value of car rental company Hertz Global Holdings Inc and about US$4 billion greater than the market cap of General Motors Co.

"If one or two of these will evaporate, that's going to create a lot of fear in the market," Mr Taulli, the M&A consultant, said. "I see few signs that the IPO market is going to accommodate many heavy-losing companies with inflated valuations."

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GE wins EU approval to buy Alstom's power unit

General Electric won European Union antitrust clearance on Tuesday to buy Alstom's power unit, its largest ever takeover, after agreeing to sell some of the French company's assets to Ansaldo Energia. 

PHOTO: BLOOMBERG

SEP 8, 201510:24 PM

[BRUSSELS] General Electric won European Union antitrust clearance on Tuesday to buy Alstom's power unit, its largest ever takeover, after agreeing to sell some of the French company's assets to Ansaldo Energia.

The European Commission said the concessions allayed its earlier concerns that the 12.4-billion-euro (US$13.9 billion) deal would reduce competition to just two players, namely the merged company and Germany's Siemens.

GE will divest Alstom's large turbine product line and the technology it is developing for very large turbines to Ansaldo, which is 40 per cent owned by Italian state-backed investment fund Fondo Strategico Italiano and another 40 per cent by China's Shanghai Electric.

The US conglomerate will also sell Alstom's service contracts for 34 installed turbines and its US-based subsidiary Power System Manufacturing to Ansaldo.

Reuters reported on Aug 14 that the deal would be approved with conditions.

REUTERS

Expectations of Saudi oil shake-up stir uncertainty

A shake-up of Saudi Arabia's oil leadership by King Salman has introduced a new element of unpredictability to its energy policymaking at a moment when Riyadh is grappling with slumping crude prices and its war in neighbouring Yemen. 

PHOTO: AFP

SEP 8, 20158:31 PM

[DUBAI] A shake-up of Saudi Arabia's oil leadership by King Salman has introduced a new element of unpredictability to its energy policymaking at a moment when Riyadh is grappling with slumping crude prices and its war in neighbouring Yemen.

State oil giant Aramco has been without a permanent chief executive since April, when Khalid al-Falih was made health minister, and the old Supreme Petroleum Council, where energy policy was historically made, was abolished in January.

While the world's top crude exporter has always prized stability and consistency in crafting oil policy, the changes, alongside a shift in market strategy that contributed to the world price slump, have left analysts and traders guessing as to King Salman's long-term vision.

The main tenets of Saudi oil policy - maintaining the ability to stabilise markets via an expensive spare-capacity cushion and a reluctance to interfere in the market for political reasons - are still set in stone, say market insiders.

But the uncertainty has led to speculation over the fate of both veteran Oil Minister Ali al-Naimi and the wider composition of the kingdom's energy and minerals sectors, with rumours abounding that a sweeping restructure could be imminent.

"There will be changes (at the oil ministry), but no one knows when or what will happen next. It could be tomorrow, next week or a month from now," said a Saudi insider. "The decisions are being taken by a small circle of people and a few advisers."

The key person in that small circle is Prince Mohammed bin Salman, the young deputy crown prince who without having any previous oil experience has emerged since his father's accession to power as the most powerful figure in Saudi economic and energy policy.

The prince heads both an economic development supercommittee and a new council overseeing Aramco, making him the first royal ever to directly supervise the state oil giant, the world's biggest energy company.

The sense of unpredictability has only been sharpened by the wider geopolitical and market climate. "It's anybody's guess what will happen next," said a Western diplomat in Riyadh.

While Riyadh's launch of airstrikes in Yemen on March 26 stunned observers of a country more noted for its use of backroom chequebook diplomacy, its shift in oil market policy in November was equally surprising - and arguably more important.

The kingdom led other Opec producers in November against cutting output levels, a move that abandoned decades of work to protect oil prices in favour of a strategy geared towards maintaining market share against rival producers such as Russia and US shale drillers.

Brent prices have more than halved since then, partly due to that policy shift, to around US$48 a barrel down from peaks of around US$115 in June 2014. This has tested Saudi Arabia's ability to corral its fellow Opec members and added fiscal pressure as Riyadh cements its leadership change and faces regional turmoil.

"With the advent of US shale, Saudi Arabia has entered unchartered territory where it is still learning about a new source of supply. This necessitates a new approach for managing their investment and output policies," said Bassam Fattouh, director of the Oxford Institute for Energy Studies.

In his other role, as defence minister, Prince Mohammed has been the public face of the war in Yemen, which may have cut into the time he has been able to devote to restructuring Saudi Arabia's energy sector.

One clue as to what may eventually happen was given by al-Arabiya, a news channel with close ties to Salman's branch of the ruling Al Saud family, which reported on April 30, that Aramco would be restructured and split from the Oil Ministry.

Some Saudi energy sources have speculated about merging the oil ministry with the electricity, water and renewable power entities, to create a new energy ministry. Some have even raised the possibility of a limited privatisation of Aramco.

Inevitably, given his role as godfather of Saudi Arabia's energy sector from his youth as an Aramco office boy in the 1940s to his leadership of the company in the 1980s and as minister since 1995, such speculation also takes in Mr Naimi's own future.

It will be impossible to find a like-for-like replacement for Mr Naimi, who turns 80 this month and has enjoyed unmatched scope to interpret and implement policy thanks to his experience and the respect in which he is held internationally.

However, some had seen Falih, the former Aramco chief executive, as being his most likely successor, following Naimi's route from Aramco into the ministry. Whether his move to the health ministry makes that more or less likely is unclear, as is the fact he has been left in place as Aramco chairman.

Senior Aramco vice-president Amin al-Nasser was named acting chief executive on May 1, but there has been no further word as to whether he will remain in the job.

Others still bet on the deputy oil minister, Prince Abdulaziz, another of Salman's sons, being promoted thanks to his years of experience. But that would fly in the face of the Al Saud's preference for keeping the oil ministry in the hands of technocrats and steering it clear of princely politicking.

How far this unpredictability affects the market is unclear, said Samuel Ciszuk, senior adviser at the Swedish Energy Agency, pointing to the fact that the new oil strategy appeared to enjoy consensus at the top levels of the Al Saud.

However, "the uncertainty element ... could grow if the changes are perceived to be detrimental to the market," he added.

REUTERS

    
 

Li Ka-shing's CKI to buy out Hong Kong utility in US$11.6b all-share deal 

Cheung Kong Infrastructure Holdings Ltd (CKI), part of billionaire Li Ka-shing's business empire, offered on Tuesday to buy all the shares it doesn't already own in Hong Kong utility Power Assets Holdings Ltd in an all-stock transaction valued at US$11.6 billion. 

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SEP 8, 20156:49 PM

[HONG KONG] Cheung Kong Infrastructure Holdings Ltd (CKI), part of billionaire Li Ka-shing's business empire, offered on Tuesday to buy all the shares it doesn't already own in Hong Kong utility Power Assets Holdings Ltd in an all-stock transaction valued at US$11.6 billion.

CKI will issue 1.36 billion new shares to buy the 61 per cent of Power Assets it doesn't already own, the companies said in a joint securities filing. At Tuesday's closing price of HK$66.15 per CKI share, the deal would be valued at HK$89.7 billion (US$11.6 billion).

The transaction will help CKI take advantage of the"significant cash balance" of Power Assets, which stood at HK$67.8 billion at the end of June, to improve its balance sheet and help in future expansion, the company said.

The move would dilute the stake held in CKI by Li's CK Hutchison Holdings Ltd to 49.2 per cent from 75.7 per cent before the deal.

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HSBC was hired as financial adviser to CKI, while Anglo Chinese Corporate Finance Ltd was hired as independent financial adviser to CKI's board.

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Indonesia said to be on course to rejoin Opec in December

SEP 8, 20156:17 PM

[LONDON] Indonesia is on track to resume full Opec membership in December after a break of almost seven years, according to three people familiar with the matter.

The Asian nation, which suspended membership in January 2009 after becoming a net oil importer, received formal notification that the Organization of Petroleum Exporting Countries' 12 members all support its return, said the people, who asked not to be identified because the discussions aren't public. The move is subject to final approval at the group's ministerial meeting on Dec 4, they said.

Opec agreed to suspend Indonesia's membership in September 2008 at the country's own request, almost half a century after the nation joined. The country pumped 852,000 barrels a day of oil in 2014 and consumed almost twice as much, according to BP Plc.

Indonesia received confirmation of members' support on Aug 31, one of the people said. Opec member countries also received written notice that the nation's readmission is approved, the people said
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Gold holds near 2-1/2-week low as US rate outlook weighs

Gold steadied on Tuesday after a four-day losing streak as the dollar eased, but the metal wasn't too far from a 2-1/2-week low as it struggled to find direction amid uncertainty over a looming US interest rate hike. 

ST PHOTO: KEVIN LIM

SEP 8, 201511:55 AM

[SINGAPORE] Gold steadied on Tuesday after a four-day losing streak as the dollar eased, but the metal wasn't too far from a 2-1/2-week low as it struggled to find direction amid uncertainty over a looming US interest rate hike.

Spot gold ticked up 0.2 per cent to US$1,121.16 an ounce by 0331 GMT. It slid to US$1,116.20 on Monday, its lowest since Aug 19. US gold was little changed at US$1,120.70.

The dollar index fell 0.3 per cent.

Investors had been waitng on Friday's US jobs report to gauge the strength of the economic recovery and whether it would prompt the Federal Reserve to hike rates at its policy meet later this month. But the data failed to provide adequate clarity regarding a Fed move amid volatility in financial markets.

"We are unlikely to see a big move until the Fed meeting,"said a bullion trader in Hong Kong. "Gold is not even reacting much to what we are seeing in the equities market." Gold prices have been dented this year by expectations the Fed will hike rates for the first time in nearly a decade. The Fed meets next on Sept 16-17.

Investors believe higher rates could diminish demand for non-interest-paying gold, while boosting the dollar.

"Gold continues to test support around US$1,115-$1,117, with dips still well bought. Short term we see US$1,115 - $1,130 as the likely range," said MKS Group trader Sam Laughlin.

Gold has failed to find a strong safe-haven bid despite the recent weakness in stocks due to worries over the Chinese economy, showing that gold is struggling to find direction outside of US monetary policy.

Bullion investors will be watching China's August data over coming weeks to see if the economy is at risk of a hard landing.

A stock market crash and the unexpected devaluation of the yuan currency in August have heightened concerns about stability in the world's second-largest economy, with some also believing the weakness could prompt the Fed to delay its rate hike.

Data on Tuesday showed China's August exports fell a less than expected 5.5 per cent from a year earlier, while imports declined by 13.8 per cent.

REUTERS

      

 

Chinese citizens in US$2.8m insider trading deal with SEC

Two Beijing residents agreed to pay nearly US$2.77 million to resolve a US regulator's charges that their "remarkably timed" purchase of options in Chinese e-commerce company 58.com Inc stemmed from insider trading, according to court papers. 

PHOTO: BLOOMBERG

SEP 8, 201510:54 PM

[NEW YORK] Two Beijing residents agreed to pay nearly US$2.77 million to resolve a US regulator's charges that their "remarkably timed" purchase of options in Chinese e-commerce company 58.com Inc stemmed from insider trading, according to court papers.

The proposed settlements between the US Securities and Exchange Commission and the Chinese nationals, Xiaoyu Xia and Yanting Hu, were disclosed in the papers filed in federal court in Manhattan last week.

Without admitting or denying wrongdoing, Mr Xia agreed to pay nearly US$2.35 million, while Ms Hu agreed to pay US$416,038, the SEC said in a court filing on Thursday. The settlement must be approved by US District Judge William Pauley.

Lawyers for Mr Xia, a man who is a director at China-based investment firm, and Ms Hu, a woman who works for a Chinese airline, did not respond to requests for comment on Tuesday.

The SEC alleged that Mr Xia and Ms Hu made more than US$2 million by investing in the call options - essentially bets that the stock would rise - before news broke in April that 58.com agreed to buy a 43.2 per cent stake in Ganji.com, and that Tencent Holdings Ltd would invest US$400 million in 58.com.

The announcement pushed 58.com's stock price up 34 per cent to $67.87, the highest it had reached since its October 2013 debut on the New York Stock Exchange.

The SEC called the trading by Mr Xia and Mr Hu "remarkably timed,"while saying both had connections to the Chinese financial industry.

The SEC said Mr Xia, a director at investment firm Chinastone Capital Management Limited, was tied to a network of individuals regularly called on to work on deals such as 58.com Inc's and therefore may have known people with inside information.

Ms Hu, meanwhile, appeared to be connected to an individual at a large Hong Kong investment bank that assisted Tencent with financing matters, the SEC said.

The SEC filed its civil lawsuit in April. A federal judge soon after issued an asset freeze against monies held in Mr Xia's and Ms Hu's US brokerage accounts.

The case is Securities and Exchange Commission v. Xia, US District Court, Southern District of New York, No. 15-03320.

REUTERS

    
 

Blackstone offers to buy Strategic Hotels in US$6b deal

Strategic Hotels & Resorts Inc, an owner of luxury lodging properties across the US, agreed to be bought by affiliates of Blackstone Group LP in a deal valued at US$6 billion including debt. 

PHOTO: BLOOMBERG

SEP 8, 20159:10 PM

[NEW YORK] Strategic Hotels & Resorts Inc, an owner of luxury lodging properties across the US, agreed to be bought by affiliates of Blackstone Group LP in a deal valued at US$6 billion including debt.

Blackstone offered US$14.25 a share in cash, about 13 per cent more than the unaffected intraday trading price on July 23, when Bloomberg reported on a potential transaction for the Chicago- based company.

Strategic owns high-end properties including the Ritz- Carlton Half Moon Bay in California and Manhattan's Essex House.

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