INTERNATIONAL NEWSPAPER OF THE YEAR
WednesdaY 16 MarCh 2022
War in
Ukraine
euroPe
3 the world has changed
but the west can still prevail
3 echoes of past crises
combine to haunt markets
3 Putin turns to Chechen
warlord as campaign falters
MartIn WolF, PaGe 19
MohaMed el-erIan, PaGe 11
analYsIs, PaGe 3
West turns up heat on Moscow with
moves against oligarchs and military
3 EU targets Abramovich 3 UK curbs hit Fridman 3 US action on defence chiefs 3 Show of solidarity as leaders visit Kyiv
VALentinA pOp — Brussels
JAsmine CAmerOn-CHiLesHe And
LAurA HugHes — london
Aime WiLLiAms — WashInGton
protest fine russian tV news editor punished for antiwar video
The EU and UK imposed fresh sanctions
on Russians and the US took action
against 11 of the country’s military leaders as western allies ratcheted up pressure on Moscow for its invasion of
Ukraine.
The EU added names including Chelsea Football Club owner Roman Abramovich to an asset freeze and travel ban
list alongside Alfa Group shareholders
German Khan and Alexey Kuzmichev.
Tigran Khudaverdyan, executive
director of Yandex, one of Russia’s leading tech groups, is also blacklisted over
his ties to Russian president Vladimir
Putin. The UK unveiled an additional
set of sanctions on more than 370 oligarchs, including Mikhail Fridman, cofounder of Alfa-Bank, and Mikhail
Mishustin, Russia’s prime minister.
With Nato leaders still ruling out military intervention in Ukraine, they have
instead relied on increasing economic
and diplomatic pressure on Moscow.
In a show of European solidarity, the
leaders of Poland, the Czech Republic
and Slovenia arrived in war-torn Kyiv
yesterday evening — even as Russian
shelling continued on residential neighbourhoods in the Ukrainian capital.
Czech prime minister Petr Fiala said
the group was travelling as representatives of the European Council and
planned to hold talks with Ukrainian
president Volodymyr Zelensky.
Nato also said that US president Joe
Biden and the leaders of the alliance’s
other 29 members would meet next
week for an extraordinary summit in
Brussels. “We will address the consequences of Russia’s invasion of Ukraine,
our strong support for Ukraine and further strengthening Nato’s deterrence
and defence in response to a new reality
for our security,” said Jens Stoltenberg,
Nato secretary-general.
Michal Dworczyk, a senior aide to
Main developments
3 Volkswagen said it would
consider expanding outside
europe as it struggles to
secure parts from ukraine
3 eli lilly said it would stop
exporting non-essential
medicines to russia and
suspend all investments
3 China stocks fell as talk of
Beijing’s willingness to give
arms to russia added to
nerves over Covid cases
3 Pakistan said it planned to
finalise a russian-built gas
pipeline despite global
pressure to isolate Moscow
AFP via Getty Images
Marina Ovsyannikova, an editor at a state broadcaster who protested against the invasion during the evening news on Monday, leaves court after being fined
30,000 roubles ($280) for breaching protest laws in a video recorded beforehand. She still faces investigation over the protest itself Report, Page 2
Poland’s prime minister Mateusz
Morawiecki, said that while Stoltenberg
had been informed about yesterday’s
trip by the leaders of three of Ukraine’s
close allies, it had “nothing to do with
the activities of Nato”.
Zelensky acknowledged there was
only a dim prospect of his country joining Nato, while again urging the alliance
to come to his country’s aid by enforcing
a no-fly zone. “It’s understood that
Ukraine is not a member of Nato. We
understand this,” he said. “For years we
have been hearing about so-called open
doors. But we have also now heard that
we cannot go there.”
Relentless Russian bombing has laid
waste to several Ukrainian cities and
triggered a wave of sanctions that has
left Russia’s economy more isolated
than at any time since the cold war.
Under the new measures announced
yesterday, vodka imports from Russia
will face a 35 per cent import tariff in the
UK, which also introduced a ban on
exports of luxury goods. This is likely to
include items such as vehicles, high-end
fashion and works of art.
In the EU, the economic measures
include a ban on transactions with stateowned Russian companies, except in the
oil and gas sector. An EU import ban on
steel products worth €3.3bn, as well as
an EU export ban for luxury goods to
Russia was also adopted by the bloc.
European companies will be banned
from most new investments in the Russian energy sector. European credit rating agencies would also be banned from
Iran nuclear talks receive lifeline after
Russia says sanctions hurdle overcome
nAJmeH BOzOrgmeHr — tehran
JAmes pOLiti — WashInGton
Wall st hubris abounds in
malaysia fraud testimony
Analysis i PAGE 9
austria
Bahrain
Belgium
Bulgaria
Croatia
Cyprus
Czech rep
denmark
egypt
Finland
France
Germany
Greece
hungary
India
Italy
lithuania
luxembourg
€4.20
din1.8
€4.20
lev7.50
Kn31
€3.90
Kc110
dKr40
e£59
€4.70
€4.20
€4.20
€3.90
Ft1250
rup220
€3.90
€4.60
€4.20
Malta
Morocco
netherlands
norway
oman
Pakistan
Poland
Portugal
romania
russia
serbia
slovenia
spain
sweden
switzerland
tunisia
turkey
uae
€3.90
dh50
€4.20
nKr43
or1.60
rupee350
Zl 22
€3.90
ron17
€5.00
newd530
€3.90
€3.90
sKr39
sFr6.40
din7.50
tl40
dh22.00
Russia yesterday said it had received
guarantees from the US that sanctions
imposed on Moscow would not affect
its trade with Iran, potentially removing a stumbling block that had complicated efforts to revive Tehran’s 2015
nuclear accord with global powers.
Western officials paused indirect talks
between Iran and the US last week,
warning that Russian demands for
assurances from Washington over sanctions threatened to unravel discussions.
Sergei Lavrov, Russia’s foreign minister, said yesterday at a joint press conference with his Iranian counterpart
Hossein Amirabdollahian: “We’ve
received written guarantees. They are
incorporated into the text of the agreement itself.”
Both Iran and Russia put the onus
back on US officials, saying Washington
had to address Tehran’s outstanding
demands for a deal to be signed.
“The Americans are trying to say
every day that we’re hindering this
agreement, but this is a lie,” Lavrov said.
“The agreement has not yet been finally
approved in some capitals, and the Russian capital Moscow is not among these.”
The US state department said it had
no comment on Lavrov’s remarks. However, it said the US was “continuing to
engage” with Russia on reviving the
nuclear deal, and confirmed that it
“would of course not sanction Russian
participation in nuclear projects” that
were part of returning the agreement to
full implementation. The state department added that it could not provide
further assurances to Moscow.
Iran and global powers have been
World markets
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© THE FINANCIAL TIMES LTD 2022
No: 40,964 ★
Printed in london, liverpool, Glasgow, dublin,
Frankfurt, Milan, Madrid, new York, Chicago, san
Francisco, tokyo, hong Kong, singapore, seoul,
dubai
moving closer to an agreement to resurrect the 2015 nuclear agreement that
would lead to Tehran reversing its
nuclear programme in return for the US
rejoining the accord and lifting many
sanctions on the Islamic republic.
Western diplomats blamed Russia for
creating an obstacle with its demands
just as a deal was about to be struck after
11 months of negotiations. But Iran,
which considers neighbouring Russia a
crucial geopolitical partner, insists it is
the US blocking an agreement by refusing to remove all sanctions against Iran.
“Russia will not be an obstacle to reach
an agreement and there is no link
between developments in Ukraine and
the Vienna talks,” Amirabdollahian said.
“If we reach a final agreement in Vienna
with the US on some issues which are our
red lines, Russia will remain by Iran’s
side until the end of negotiations.”
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0.911 US Gov 10 yr
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1.188 Ger Gov 10 yr
129.690 129.580 Jpn Gov 10 yr
price
yield
chg
144.97
2.13
0.02
1.58
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2.47
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103.63
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1.191
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1.230
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103.01
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price
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0.08
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0.00
0.45
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0.00
1.02
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0.02
Prices are latest for edition
Data provided by Morningstar
rating Russian companies and the country’s sovereign debt, Brussels said.
In Washington, the state department
published a list of 11 individuals it said
were in the defence sector, including
Viktor Zolotov, commander-in-chief of
Russia’s National Guard.
Russia hit back with sanctions on US
president Joe Biden, his son Hunter, secretary of state Antony Blinken and
former presidential candidate Hillary
Clinton, banning them from entry to
Russia “on the basis of reciprocity”.
3 rWe warned that a ban
on russian energy imports
would cause lasting damage
to German industry
Inside
3 War in ukraine: news & analysis
Brussels growth warning Page 2
Farewell to Instagram Page 4
3 Companies & markets
rWe warning Page 6
taiwan hedges sought Page 10
3 Opinion
Ft View: risks to China Page 18
Constanze stelzenmüller &
Janan Ganesh Page 19
3 Lex
China stocks Page 20
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FINANCIAL TIMES
Wednesday 16 March 2022
war in ukraine
Beijing warns of retaliation if hit by sanctions
Rising tension follows ‘intense’ meeting between senior US and China officials over perceived support for invasion
Ft reporters
China is concerned it could be hit by
western sanctions imposed on Russia in
response to its invasion of Ukraine and
will retaliate if necessary, the Chinese
foreign minister has said.
“China is not a party to the crisis, nor
does it want sanctions to affect China,”
Wang Yi told his Spanish counterpart,
José Manuel Albares, in remarks published yesterday by the Chinese foreign
ministry.
“China has a right to safeguard its
legitimate rights and interests,” he
added.
The comments come a day after Jake
Sullivan, US national security adviser,
met Yang Jiechi, China’s top foreign policy official, in Rome for what one US
official described as an “intense” sevenhour exchange that included discussion
of Russia’s invasion of Ukraine.
During the meeting on Monday, the
US state department said the US would
have “great concern” if China provided
any support to Russia to help sustain the
invasion of Ukraine.
“We have communicated very clearly
to Beijing that . . . we will not allow any
country to compensate Russia for its
losses,” said Ned Price, state department spokesperson.
Western sanctions on Russia have hit
equity markets around the world and
sent the cost of some commodities, such
as oil and wheat, soaring. China is a big
importer of Russian energy and agricultural commodities.
The recent spate of Covid-19 lock-
downs has hit Chinese equities particularly hard, with Chinese stocks yesterday posting their second day of sharp
declines.
The Hang Seng China Enterprises
index of large liquid Chinese stocks yesterday dropped to its lowest level since
the global financial crisis in 2008. The
CSI 300 index of Shanghai and Shenzhen-listed stocks fell 4.6 per cent, hitting its lowest level since 2020.
Hong Kong’s benchmark Hang Seng
index dropped 5.7 per cent to its lowest
level since 2012.
The sell-off has gathered pace following a report in the Financial Times that
the US believes China responded positively to Russian requests for weapons.
Beijing has hit back at what it said
were US efforts to spread disinforma-
tion and “distort and smear” its position
on the Ukraine war.
Jens Stoltenberg, Nato secretary-general, yesterday called on China to
“clearly condemn” Russia’s invasion of
‘China is not a party to the
crisis, nor does it want
sanctions to affect China’
Wang Yi, Chinese foreign minister
Ukraine and not extend any form of
support to Moscow. “China should join
the rest of the world in condemning,
strongly, the brutal invasion of Ukraine
by Russia,” he said.
“China has an obligation as a member
of the UN Security Council to actually
support and uphold international law,
and the Russian invasion of Ukraine is a
blatant violation of international law,”
Stoltenberg added.
President Xi Jinping and other senior
Chinese officials have insisted that Beijing is a neutral party, but they and state
media continue to repeat and bolster
Russian justifications for its invasion.
In a further reflection of the Chinese
government’s de facto support for President Vladimir Putin, who met Xi in Beijing a few weeks before the invasion, a
US organisation that published a Chinese scholar’s criticism of the war said
yesterday that one of its websites had
been blocked in China.
The article by Hu Wei, a Shanghaibased political scientist affiliated with
the State Council’s research office in Bei-
jing, was first published on March 12 by
the Carter Center in Atlanta.
“Russia’s ‘special military operation’
against Ukraine has caused great controversy in China, with its supporters
and opponents being divided into two
implacably opposing sides,” Hu wrote,
while urging China to disassociate itself
from Putin’s “irreversible mistake”.
“The bottom line is to prevent the US
and the west from imposing joint sanctions on China,” he said.
The Carter Center’s China programme said its Chinese-language websites had been blocked but that it did not
regret publishing the article.
Reporting by William Langley in Hong
Kong, Tom Mitchell in Singapore, Sun Yu in
Beijing, Demetri Sevastopulo in Washington and Henry Foy in Brussels
Evacuated:
a woman is
helped from a
burning
apartment
building in Kyiv
yesterday after
Russian missile
strikes on
residential areas
of the capital
killed at least
two, Ukraine
emergency
services said
Aris Messinis/AFP/Getty
investor gloom
Conflict disruption will severely affect EU growth, says commission
saM FleMing — Brussels
Martin arnolD — frankfurt
EU growth will be “severely impacted”
by disruption from Russia’s invasion of
Ukraine, the European Commission
warned, as investor confidence
dropped sharply in Germany, the
union’s biggest economy.
Valdis Dombrovskis, the commission’s
executive vice-president, said the commission was expecting 2022 growth to
be below the 4 per cent predicted in its
most recent forecasts just over a month
ago, although it was not predicting the
expansion will “completely stop”.
His words, following a meeting of
finance ministers in Brussels, came as
German investor sentiment fell to its
lowest level since the start of the Covid-19 pandemic, according to a survey
published yesterday.
The Zew research institute said its
economic sentiment index recorded the
biggest decline in the 31-year history of
its monthly poll of investors, reflecting
fears that the EU’s biggest economy
could be hit by a recession and soaring
inflation as a result of the fallout from
Russia’s invasion.
Soaring energy prices, the threat of
higher food prices and waning confidence are threatening to derail what
promised to be a second strong year of
economic recovery from the pandemic
in Europe. The EU as a whole returned
to its pre-pandemic level of gross
domestic product in the third quarter
last year and expanded by more than
5 per cent in 2021.
The German economy shrank 0.3 per
cent in the final quarter of last year and
economists fear the disruption caused
by Russia’s invasion could reduce GDP
WORLD BUSINESS NEWSPAPER
HMRC warns
customs risks
being swamped
by Brexit surge
Dear Don...
A computer system acquired to collect
duties and clear imports into the UK
may not be able to handle the huge
surge in workload expected once Britain
leaves the EU, customs authorities have
admitted to MPs.
HM Revenue & Customs told a parliamentary inquiry that the new system
needed urgent action to be ready by
March 2019, when Brexit is due to be
completed, and the chair of the probe
said confidence it would be operational
in time “has collapsed”.
Setting up a digital customs system
has been at the heart of Whitehall’s
Brexit planning because of the fivefold
increase in declarations expected at
British ports when the UK leaves the EU.
About 53 per cent of British imports
come from the EU, and do not require
checks because they arrive through the
single market and customs union. But
Theresa May announced in January that
Brexit would include departure from
both trading blocs. HMRC handles 60m
declarations a year but, once outside the
customs union, the number is expected
to hit 300m.
The revelations about the system,
called Customs Declaration Service, are
likely to throw a sharper spotlight on
whether Whitehall can implement a
host of regulatory regimes — in areas
ranging from customs and immigration
to agriculture and fisheries — by the
time Britain leaves the EU.
Problems with CDS and other projects
essential to Brexit could force London to
adjust its negotiation position with the
EU, a Whitehall official said. “If running
our own customs system is proving
much harder than we anticipated, that
ought to have an impact on how we
press for certain options in Brussels.”
In a letter to Andrew Tyrie, chairman
of the Commons treasury select committee, HMRC said the timetable for
delivering CDS was “challenging but
achievable”. But, it added, CDS was “a
complex programme” that needed to be
linked to dozens of other computer systems to work properly. In November,
HMRC assigned a “green traffic light” to
CDS, indicating it would be delivered on
time. But last month, it wrote to the
committee saying the programme had
been relegated to “amber/red,” which
means there are “major risks or issues
apparent in a number ofkey areas”.
HMRC said last night: “[CDS] is on
track to be delivered by January 2019,
and it will be able to support frictionless
international trade once the UK leaves
the EU . . . Internal ratings are designed
to make sure that each project gets the
focus and resource it requires for successful delivery.”
HMRC’s letters to the select committee, which will be published today, provide no explanation for the rating
change, but some MPs believe it was
caused by Mrs May’s unexpected decision to leave the EU customs union.
FINANCIAL TIMES
Lloyd’s of Brussels Insurance market
to tap new talent pool with EU base
UK £3.80; Channel Islands £3.80; Republic of Ireland €3.80
THE END
OF THE
ROAD
Shutdown risk as border
wall bid goes over the top
Congressional Republicans seeking to
avert a US government shutdown after
April 28 have resisted Donald Trump’s
attempt to tack funds to pay for a wall
on the US-Mexico border on to
stopgap spending plans. They fear
that his planned $33bn increase in
defence and border spending could
force a federal shutdown for the first
time since 2013, as Democrats refuse
to accept the proposals.
US budget Q&A and
Trump attack over health bill i PAGE 8
A boastful WhatsApp message has cost
a London investment banker his job
and a £37,000 fine in the first case of
regulators cracking down on communications over Facebook’s popular
chat app.
The fine by the Financial Conduct
Authority highlights the increasing
problem new media pose for companies
that need to monitor and archive their
staff’s communication.
Several large investment banks have
banned employees from sending client
information over messaging services
including WhatsApp, which uses an
encryption system that cannot be
accessed without permission from the
user. Deutsche Bank last year banned
WhatsApp from work-issued Black-
i Emerging nations in record debt sales
Credit Suisse
engulfed in
fresh tax probe
i London tower plans break records
A survey has revealed that a
record 455 tall buildings are
planned or under construction
in London. Work began on
almost one tower a week
during 2016.— PAGE 4
For the latest news go to
www.ft.com
© THE FINANCIAL TIMES LTD 2017
No: 39,435 ★
Printed in London, Liverpool, Glasgow, Dublin,
Frankfurt, Brussels, Milan, Madrid, New York,
Chicago, San Francisco, Washington DC, Orlando,
Tokyo, Hong Kong, Singapore, Seoul, Dubai
Dow Jones Ind
FTSEurofirst 300
Euro Stoxx 50
FTSE 100
FTSE All-Share
CAC 40
3 UK, France and Netherlands swoop
3 Blow for bid to clean up Swiss image
i HSBC woos transgender customers
Lloyd’s of London chose Brussels over “five or six” other
cities in its decision to set up an
EU base to help deal with the
expected loss of passporting
rights after Brexit.
John Nelson, chairman of the
centuries-old insurance market, said he expected other
insurers to follow. Most of the
business written in Brussels
will be reinsured back to the
syndicates at its City of London
headquarters, pictured above.
The Belgian capital had not
been seen as the first choice for
London’s specialist insurance
groups after the UK leaves the
Berrys after discussions with regulators.
Christopher Niehaus, a former Jefferies banker, passed confidential client
information to a “personal acquaintance and a friend” using WhatsApp,
according to the FCA. The regulator said
Mr Niehaus had turned over his device
to his employer voluntarily.
The FCA said Mr Niehaus had shared
confidential information on the messaging system “on a number of occasions”
last year to “impress” people.
Several banks have banned the use of
new media from work-issued devices,
but the situation has become trickier as
banks move towards a “bring your own
device” policy. Goldman Sachs has
clamped down on its staff’s phone bills
as iPhone-loving staff spurn their workissued BlackBerrys.
Bankers at two institutions said staff
are typically trained in how to use new
prev %chg
Mar 30
2361.13 0.20 $ per €
5897.55 0.09 $ per £
20703.38 20659.32 0.21 £ per €
1500.72 1493.75 0.47 ¥ per $
Mar 30
1.075 € per $
0.932
1.241 £ per $
0.801
Lex page 14
Insurers set to follow page 18
media at work, but banks are unable to
ban people from installing apps on their
private phones.
Andrew Bodnar, a barrister at Matrix
Chambers, said the case set “a precedent
in that it shows the FCA sees these messaging apps as the same as everything
else”.
Information shared by Mr Niehaus
included the identity and details of a
client and information about a rival of
Jefferies. In one instance the banker
boasted how he might be able to pay off
his mortgage if a deal was successful.
Mr Niehaus was suspended from Jefferies and resigned before the completion of a disciplinary process.
Jefferies declined to comment while
Facebook did not respond to a request
for comment.
Additional reporting by Chloe Cornish
Lombard page 20
0.859
0.866 € per £
7369.52
1.164
prev
0.930 US Gov 10 yr
0.806 UK Gov 10 yr
1.155 Ger Gov 10 yr
111.295 111.035 ¥ per € 119.476 119.363 Jpn Gov 10 yr
3475.27 0.18 ¥ per £ 139.035 137.822 £ index 76.705 76.951 US Gov 30 yr
7373.72 -0.06 € index 89.046 89.372 $ index 104.636 103.930 Ger Gov 2 yr
4011.80 -0.02 SFr per € 1.069 1.072 SFr per £ 1.244 1.238
5069.04 0.41 COMMODITIES
Fed Funds Eff
Xetra Dax
12256.43 12203.00 0.44
Mar 30
19063.22 19217.48 -0.80 Oil WTI $
24301.09 24392.05 -0.37 Oil Brent $
297.99
297.73 0.09 Gold $
52.98
52.54
1248.80
1251.10
50.22
prev
49.51
chg
price
yield
98.87
2.38
0.00
100.46
1.21
-0.03
0.39
-0.01
98.68
100.45
100.14
102.58
price
0.66
AFP
EU, with Dublin and Luxembourg thought to be more likely
homes for the industry. But
Mr Nelson said the city won on
its transport links, talent pool
and “extremely good regulatory reputation”.
INTEREST RATES
prev
1.074
1.249
4011.01
it followed “a strategy offull client tax
The bank has unveiled a range of gender-neutral
DUNCAN
— BRUSSELS
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HM Revenue & Customs said it had
needs
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— PAGE 20
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France and the Netherlands, setting suspected tax evasion and money launback Switzerland’s attempts to clean up dering by “a global financial institution
Datawatch
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its image as a tax haven.
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ings and gold ingots as part of their
parts in Germany wereBrussels
also involved,
and Nice, and
the while French officials said their
probe;
while Australia’s revenue department
Norway
Brussels suicide
investigation had revealed “several
said it was investigating
a Swiss
Paris
Nice bank.
bombings — have
thousand” bank accounts opened in
The inquiries threaten to undermine
bucked the trend
efforts by the country’s banking sector
Switzerland and not declared to French
of generally low
to overhaul business models and ensure
tax authorities.
fatalities from
The Swiss attorney-general’s office
customers meet international tax
Sources: Jane’s Terrorism and Insurgency Centre terror incidents in
said it was “astonished at the way this
requirements following a US-led clampwestern Europe
down on evaders, which resulted in operation has been organised with the
deliberate exclusion of Switzerland”. It
billions of dollars in fines.
The probes risk sparking an interna- demanded a written explanation from
tional dispute after the Swiss attorney- Dutch authorities.
In 2014, Credit Suisse pleaded guilty
general’s office expressed “astonishment” that it had been left out of the in the US to an “extensive and wideactions co-ordinated by Eurojust, the ranging conspiracy” to help clients
evade tax. It agreed to fines of $2.6bn.
EU’s judicial liaison body.
Additional reporting by Laura Noonan in
Credit Suisse, whose shares fell 1.2 per
cent yesterday, identified itself as the Dublin, Caroline Binham and Vanessa
Houlder in London, and Michael Stothard
subject ofinvestigations in the Netherlands, France and the UK. The bank said in Paris
RALPH ATKINS — ZURICH
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In a stormy three-hour meeting, investors accused
managers ofhaving an entrenched secrecy culture
and cast doubt on a revival plan after Westinghouse
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Art of persuasion Mystery deepens
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The US secretary of state has failed to reconcile
tensions after talks in Ankara with President Recep
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SATURDAY 1 APRIL / SUNDAY 2 APRIL 2017
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Europe has become the big target for cross-border
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equity market rally to hunt for bargains across the
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i Report outlines longer NHS waiting times
Bracken House, 1 friday street, london eC4M 9Bt.
Timetable & Great Repeal Bill page 2
Scheme to import EU laws page 3
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Philip Stephens & Chris Giles page 13
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A Moscow court fined a state television
editor yesterday for a video condemning Russia’s war in Ukraine after she
crashed a live newscast to protest
against the invasion.
May’s first stab at the break-up
letter — ROBERT SHRIMSLEY, PAGE 12
3 Confidence in IT plans ‘has collapsed’
3 Fivefold rise in declarations expected
JAMES BLITZ — WHITEHALL EDITOR
Max seDDon — riga
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A Five Star plan?
Italy’s populists are trying to woo
the poor — BIG READ, PAGE 11
FEBRUARY 4 2017
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The EU yesterday took a tough opening
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The decision to add the clause giving
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Gibraltar yesterday hit back at the
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Spain”. Madrid defended the draft
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“the traditional Spanish position”.
Senior EU diplomats noted that
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minister Theresa May’s allies insisted
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was “within the parameters of what we
were expecting, perhaps more on the
upside”.
British officials admitted that the EU’s
insistence on a continuing role for the
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Brussels sees little room for compro-
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Mar 31
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2367.10
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3990.00
5122.51
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7369.52 -0.63 € index
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111.430 111.295 ¥ per €
139.338 139.035 £ index
88.767 89.046 $ index
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5089.64 0.65 COMMODITIES
1.069 SFr per £
1.169
price
99.27
102.57
Mar 31
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24111.59 24301.09 -0.78 Oil Brent $
297.38
298.11 -0.24 Gold $
53.35
53.13
1244.85
1248.80
50.46
98.63
100.36
104.536 104.636 Ger Gov 2 yr
1.252 1.244
12312.87 12256.43 0.46
Nikkei
Hang Seng
100.35
119.180 119.476 Jpn Gov 10 yr
77.226 76.705 US Gov 30 yr
Xetra Dax
FTSE All World $
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0.932 US Gov 10 yr
0.801 UK Gov 10 yr
1.164 Ger Gov 10 yr
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99.27
price
0.66
yield
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%chg US 3m Bills
0.22 Euro Libor 3m
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ft.com/war-in-ukraine
vary depending on individual countries’
exposure to Russian energy, their economic structures, geographic location
and the degree of flexibility in their public finances.
“So a common response is also about
tackling the risk of divergence,” economic commissioner Paolo Gentiloni
said on Monday. “If we remain agile and
ready to adjust as needed, we can ensure
that the recovery is not totally derailed.”
Following Russia’s invasion of
Ukraine, the commission signalled it
would consider in May whether to
extend the suspension of its debt and
deficit rules by another year until 2024,
a decision that an increasing number of
member states view as inevitable.
Finance ministers discussed proposals including a new EU regime permitting state aid to crisis-struck businesses
and emergency cuts to fuel duties.
Some member states have also begun
floating the idea of fresh common EU
borrowing to raise funds to respond to
the crisis, for example, to bolster energy
investments that help the EU to rapidly
wean itself off Russian fossil fuels, a goal
the commission argues could be
achieved as soon as 2027.
However, commission officials
including Dombrovskis stress that the
EU should first seek to fully exploit
existing sources of funding, including
undrawn loans of around €200bn that
are available under the NextGenerationEU recovery plan.
Asked about the need to support
member states that have seen the largest inflows of refugees from the Ukraine
crisis, Dombrovskis added that the
commission had proposed to allocate
€500mn to Ukraine and to neighbouring countries hosting refugees.
Russian state TV editor fined over protest against invasion
Subscribe to the FT today at FT.com/subscription
Trump vs the Valley
in February. Christine Lagarde, president of the European Central Bank, said
in a speech yesterday that the Ukraine
crisis would “lower growth and raise
inflation through higher energy and
commodity prices, the disruption of
international trade and weaker confidence”.
But she added that the eurozone economy “should still grow robustly in 2022
thanks to the declining impact of the
pandemic and the prospect of solid
domestic demand and strong labour
markets”.
The commission warned that the
impact of the external shocks would
Domestic discontent
MAKE A SMART INVESTMENT
Tech titans need to minimise
political risk — GILLIAN TETT, PAGE 13
for a second consecutive quarter, which
meets the definition of recession.
Zew said its gauge of investor expectations for the German economy had
fallen from 54.3 in February to minus
39.3 in March, taking it close to the alltime low of minus 49.5 reached in March
2020 when the pandemic spread across
Europe. A measure of confidence in German economic conditions fell 13.3
points to minus 21.4.
“A recession is becoming increasingly
likely,” said Zew president Achim Wambach. “The Ukraine war and the sanctions against Russia are considerably
worsening the economic outlook for
Germany.”
The war in Ukraine has sent prices for
energy, commodities and food soaring
to record highs, pointing to a further
surge in eurozone inflation, which had
already hit a record high of 5.8 per cent
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Marina Ovsyannikova was fined
Rbs30,000 ($280) for violating public
order in the video, in which she urged
Russians to protest against the war, and
said: “What’s happening in Ukraine is a
crime, and Russia is the aggressor. The
responsibility for this aggression lies
with one man: Vladimir Putin.”
Ovsyannikova is still facing an investigation over the protest itself in which
she appeared for a few seconds live on
air during Russia’s main state evening
newscast, holding a sign that said “Stop
the war — Don’t believe propaganda —
They’re lying to you” and chanting
“Stop the war! No to war!”
Her supporters fear she could face a
sentence of up to 15 years in prison
under a draconian new law that criminalises acts such as “discrediting the
Russian armed forces” and spreading
“fake news” of the conflict.
Police detained Ovsyannikova
immediately after her protest and held
her incommunicado throughout the
night while her lawyers fruitlessly
searched for her.
In a brief statement to reporters after
her hearing, Ovsyannikova said police
interrogated her for 14 hours and did
not let her sleep, contact relatives or
access legal counsel.
Ovsyannikova’s extraordinary TV
protest was the most high-profile
manifestation of discontent in Russia
nearly three weeks into the war. Volodymyr Zelensky, Ukraine’s president,
praised her for “telling the truth”, while
France’s Emmanuel Macron said he
would offer her asylum or protection at
the country’s Moscow embassy.
Other state television employees have
also quit in protest, including Lidia Gildeyeva, an anchor at the state-run NTV
channel, and several staff members at
Defiant: Marina Ovsyannikova interrupts the evening news — DSK/EPA-EFE/Shutterstock
state-funded foreign-language news
network RT. Dmitry Peskov, Putin’s
spokesman, said her protest was an act
of “hooliganism” that carried “a special
dimension and special responsibility”
for taking place on live television.
But Margarita Simonyan, editor in
chief of RT, said the misdemeanour
charges showed Russia was more
accepting of dissent than the west.
“They’re used to knocking out their
protest girls’ eyes with rubber bullets
straight away and they think: what,
then, will animals like us come up with?
Quarter her in public? Nothing will happen to her. Despite the public uproar,”
she wrote on messaging app Telegram.
Ovsyannikova’s arrest comes as Russia has drastically ramped up its already
far-reaching restrictions on dissent during the war. Nearly 15,000 people have
been detained in cities across Russia for
protesting against the war, according
to data compiled by Ovd-Info, an
independent organisation that tracks
detentions.
At least 164 people have been charged
under the new law, according to the Net
Freedoms Project, a public defenders’
association for freedom of speech cases.
★
wednesday 16 March 2022
3
FINANCIAL TIMES
war in ukraine
Putin unleashes Chechnya warlord
Kadyrov to aid faltering Russian push
Caucasian leader and his forces called in as integral part of Kremlin’s military onslaught
The leaders of three EU countries
arrived in Kyiv late yesterday in a show
of European solidarity even as Russian
shelling continued on residential
neighbourhoods in the Ukrainian
capital.
Watching brief:
Ramzan
Kadyrov, centre,
prepares to
review troops
in Grozny,
Chechnya,
last month
Yelena Afonina/Tass
authorities have said they are ready to
welcome fighters from Syria and the
Central African Republic, where Russian forces have themselves been active
in recent years.
The bearded Kadyrov has run his
mostly Muslim republic in the Caucasus
Mountains as a fiefdom since his warlord father, Akhmat-Khadzhi, was
assassinated in 2004. He commands the
Kadyrovtsy, a 25,000-strong militia that
has been credibly accused of widespread abduction, torture and extrajudicial killings. Its fighters helped to
crush the second of two Chechen separatist wars in 2009 and to suppress a
domestic Islamist insurgency, and have
fought with separatist forces in eastern
Ukraine and regime troops in Syria.
“These are fighters who have been
used by Kadyrov to go after insurgents
in Chechnya and after the families of
insurgents,” said Aslan. “If the Russians
are serious about taking over Ukraine,
and choking resistance, then having
these ‘dirty’ warriors gives them cover
to do things and say ‘it was these crazy
savage people from the Caucasus.’”
Kadyrov claims 10,000 Chechens are
being deployed to fight in Ukraine, and
has threatened to bring as many as
70,000. But most analysts believe the
number is likely to be between 3,500
and 7,000, and fighting a distant war for
the Kremlin may have less appeal for
some Kadyrovtsy. Nevertheless, they
represent a considerable fighting force
for the Kremlin to draw on.
“They represent a body of pretty
determined fighters,” said Jack Watling,
research fellow for land warfare at the
UK’s Royal United Services Institute,
who said Kadyrov’s forces had several
advantages over regular Russian troops.
“They are more motivated fighters,
available at a time when the Russians
are desperately short of manpower.”
Moreover, thanks to years of generous
funding from Moscow to prop up Kadyrov, they are also better equipped than
most Russian soldiers.
With Russia forced to shift to besieging major cities, Chechen fighters in particular may be a valuable potential vanguard. The three units reported to be in
Ukraine are the “Akhmad Kadyrov”
Special Motorised Regiment of the
National Guard, the 249th Separate
Special Motorised Battalion “Yug” and
the defence ministry’s Special Battalion
“Vostok”.
But the line between reputation and
‘Having
these “dirty”
warriors
gives them
cover to do
things and
say “it was
these crazy
savage
people
from the
Caucasus” ’
Diplomatic dispute. Non-alignment
MarToN DuNai — Budapest
As Russia intensified its attack on
Ukraine this month, a sombre Serbian
president Aleksandar Vucic warned his
country that it faced a diplomatic storm
— caught between Moscow and the west.
“We are in an exceptionally difficult
situation, there is less understanding
than ever for the position of our nation,”
Vucic said in a television address after
his government declined to align itself
with EU sanctions against Russia over
its invasion of Ukraine. “We are facing
huge pressure.”
Russia’s attack on Ukraine is hastening a moment of reckoning for Serbia,
which has strong political, cultural and
economic ties with Moscow but is also a
candidate country for EU membership
and stronger western alignment.
As the EU tries to isolate Russia, the
Ukraine war has become a test for membership candidates who still have an eye
on Moscow, making Serbia’s attempt to
please both sides hard to maintain.
Belgrade, Moscow’s biggest Balkan
ally, has already felt a backlash over its
attempt to maintain travel links to Russia. After EU member states closed their
airspace to Russian airlines, stateowned Air Serbia doubled the number
of flights between Belgrade and Moscow
to offer a hub for Russian travellers.
But an outcry followed. “Serbia is the
only one in Europe with an open sky to
Russia,” Ukraine deputy foreign minister Emine Dzheppar wrote on Twitter
on Saturday.
“Making money on Ukrainian blood is
unworthy of [an] EU candidate country.”
The number of Air Serbia flights has
now been reduced again to one per day
after what Vucic — who faces an election
on April 3 — labelled a “witch hunt”.
Serbia voted in favour of a UN resolution this month condemning Russia’s
invasion of Ukraine, earning a rebuke
from Moscow.
But its refusal to join sanctions on
Russia makes it one of two European
countries that Moscow has kept off a list
of official enemies following its invasion, alongside Bosnia, another former
part of Yugoslavia and EU membership
candidate.
That reluctance to swing behind sanc-
tions has infuriated western partners.
Some have threatened repercussions
including slowing down EU membership talks, according to high-level Serbian government sources.
The European Parliament this month
said “Serbia’s non-alignment with EU
sanctions . . . damages its EU accession
process”.
One senior Baltic diplomat said it was
‘Making money on
Ukrainian blood is
unworthy of [an] EU
candidate country’
“incomprehensible that Serbia has a
candidate status and is clearly a Russian
supporter . . . Ukraine would be a much
better partner in the [EU] than Serbia.”
Vucic, who took office in 2014, rose to
prominence as a minister under nationalist Serb leader Slobodan Milosevic. He
was elected as president on a proEuropean platform but has become
increasingly autocratic and friendlier to
Russia and Vladimir Putin, increasingly
frustrated by the slow pace of talks over
joining the EU. He is expected to win
re-election on April 3.
reality is a thin one. Chechens have not
had to deal with a conventional adversary, as equally motivated as they are,
for a long time, said Watling. “This is a
fight for which they lack experience.”
Indeed, some question whether
Kadyrov’s grizzled image has much substance behind it. In late February, he
addressed 12,000 Kadyrovtsy at a rally in
the Chechen capital Grozny to promise
support for Putin’s war. He looked every
inch the Caucasian strongman, except
his combat boots were from Prada’s
2019 season, costing just over $1,500.
According to Ukrainian defence
reports, Chechen fighters have had
mixed successes in the conflict, and
have been beaten back north of Kyiv.
Russia’s conventional army is likely to
be wary of them, according to western
officials and analysts. They said Kadyrov considered himself answerable to
Putin alone, not Kremlin generals or the
intelligence apparatus. Many senior
echelons recall that Kadyrov’s father
fought against them in the first Chechen
war, only swapping sides in 2000.
“Kadyrov and the Chechens are a wild
card for the Russian armed forces, as
they do not control Kadyrov,” said one
European defence official.
The trip by the heads of Poland, Czech
Republic and Slovenia is the most highprofile visit to the capital since the Russia invasion on February 24.
The presidents of the European Council and the European Commission were
informed about the travel plans last
week and pointed to the security risks
involved, their spokespeople said.
The announcements came after
authorities in Rivne, a western Ukrainian city, said 19 people were killed in a
Russian air strike on a TV tower. Russian forces also shelled an apartment
block in the Svyatoshinsky neighbourhood of Kyiv in the early hours of yesterday, killing at least two people, according to Ukrainian emergency services.
A Russian cruise missile landed in
front of a 10-storey residential building
in Kyiv’s Podil district after being intercepted by a Ukrainian air defence system, a member of Ukraine’s civilian territorial defence forces told a Financial
Times reporter at the scene. The explosion shattered windows and damaged
balconies, but police said no one was
killed or seriously injured.
An update by the Ukrainian general
staff said Russia “continues to launch
missile and bomb strikes on critical
infrastructure” in several cities across
Ukraine and in particular was still trying to capture Mariupol, which is completely encircled by Russian forces.
Ukrainian military claims could not be
independently verified.
A senior US defence official said yesterday, however, that Russian ground
forces had made “limited to no
progress” in achieving their objectives,
adding that they remained about 15km20km to the north-west and about
20km-30km to the east of Kyiv.
The attacks came on the 20th day of a
war that has laid waste to Ukrainian cities and triggered international sanctions that have left Russia’s economy
more isolated than at any time since the
end of the cold war.
Aid groups have repeatedly warned of
the dire conditions in Mariupol, which
has been subjected to relentless Russian
shelling for more than two weeks. Thousands of people in the besieged city have
been forced to live in bomb shelters,
deprived of heating, electricity and running water. Ukrainian authorities said
they would undertake a fresh attempt to
deliver humanitarian supplies to civilians trapped in Mariupol.
A convoy would attempt to break
through on Tuesday, and on the way
back try to take women and children
out, said Iryna Vereshchuk, minister for
reintegration.
In an address published on Facebook,
Zelensky expressed gratitude to Russian civilians who had taken a stance
against the war.
Reporting by Guy Chazan in Lviv, Roman
Olearchyk in Kyiv, James Shotter in Warsaw
and Max Seddon in Riga
russian market
Serbia nears moment of reckoning with EU
Belgrade has refused to side
with west over sanctions yet
has ambitions to join bloc
European
leaders arrive
in Kyiv as
shelling
continues
FT reporTers
saM JoNes — ZuRich
Max seDDoN — Riga
JohN paul raThboNe — LoNdoN
Russia’s faltering war effort in Ukraine
has a new face. In combat fatigues, arm
stretched over a military map in a darkened room, Chechnya warlord leader
Ramzan Kadyrov announced via his
Telegram channel on Sunday that he
had joined the Russian campaign.
A loyalist of Russian president
Vladimir Putin and deft user of social
media, Kadyrov posted videos on Sunday that appeared to show him commanding a Chechen special forces division, with his right-hand man, Adam
Delimkhanov, leading another unit and
other fighters forcing Ukrainian prisoners of war to shout Chechen slogans.
“The other day we were about 20km
from you Kyiv Nazis and now we are
even closer,” he wrote, claiming to be
close to Hostomel airport, just north of
Ukraine’s capital. “You can relax for a
minute, because you won’t have to look
for us, we’ll find you. Oh, you don’t have
long left. It’s better you surrender and
stand alongside us [ . . .] or your end
will be at hand.”
The Financial Times was not able to
independently confirm the authenticity
of the videos. Dmitry Peskov, Putin’s
spokesperson, on Monday said the
Kremlin had “no data” on whether
Kadyrov actually was in Ukraine.
Chechen forces have, however, been
an integral part of the Kremlin’s military
plan from the start. Western intelligence officials said that Chechen hit
squads were key to the failed plan to
assassinate Ukraine’s political leadership in the first 48 hours of the invasion.
For the past three weeks, at least three
Chechen tactical formations have been
fighting in the country.
Although the units have had mixed
success in operations, with Chechen
forces near Kyiv repeatedly held back
by Ukrainians, Kadyrov’s apparent personal entry this weekend is a signal that
the 45-year-old intends Chechens to
play a greater role in Russia’s conflict.
Nearly three weeks into the war, Moscow’s invasion seems to have largely
stalled. Efforts are under way to try to
regain the initiative and rally Russian
forces, which continue to suffer heavy
losses despite their vastly superior firepower and numbers.
Kadyrov’s arrival, and the foregrounding of his Chechen troops in
media coverage, may play as much of a
psychological role in helping Moscow’s
campaign as it will in boosting Russian
firepower.
“The Chechens have established a
reputation as tough and brutal fighters,”
said Emil Aslan, a Caucasian specialist
and professor of security studies at
Charles University in Prague. “Deploying Chechen fighters has a big psychological impact.”
Yet an increased Chechen presence is
unlikely to do anything to address the
fundamental problems with Russia’s
campaign to date, analysts said. Until
the Kremlin is better able to co-ordinate
and mass its forces, the stalemate on the
ground is likely to persist, regardless of
where it replenishes its frontline fighters from. Besides Chechens, Russian
show of support
Vuk Vuksanovic, a political scientist
at the London School of Economics, said
Serbia appeared to be “slowly moving
into the western camp” after it voted for
the UN declaration.
“They are softening the public to
accept and support sanctions. They are
trying to kick the can down the road
until April elections. It won’t be easy.
Pressure will build,” he said.
An extreme nationalist group called
People’s Patrols organised a pro-Russia
demonstration in central Belgrade this
month. Some 2,000 participants lit
torches, shouted pro-Russia slogans and
carried a big Russian flag across the city.
Several of the organisers and participants have links to Moscow, including
the Russian armed forces, according to a
classified report compiled for the government and seen by the FT.
Many Serb voters resent the west
— which bombed and sanctioned Belgrade in the 1990s — and sympathise
with Russia. Serbia also relies on Russian support in the UN to retain some
control over the status of Kosovo,
its former province, which the US and
most EU member states recognise as
independent.
Additional reporting by James Shotter in
Warsaw and Richard Milne in Oslo
Eli Lilly becomes first big US
pharma group to curb exports
JaMie sMyTh — New YoRk
Eli Lilly will stop exporting non-essential medicines to Russia and suspend all
investments, promotional activities
and new clinical trials in the country.
It marks the first time a big US pharmaceutical company has publicly
announced plans to restrict exports of
some medicines due to the war in
Ukraine and comes as other drugmakers distance themselves from Russia.
Lilly said it would continue to supply
treatments for life-threatening diseases
such as cancer and diabetes. Any profits
generated by sales of essential medicines such as insulin or cancer drugs
would be donated to humanitarian
relief efforts.
“For nearly 150 years, Lilly has
worked to ensure patients have access
to the medicines they need, no matter
where they may live,” it said in a statement. “Our Russian operations are now
only focused on ensuring people suffering from diseases like cancer and diabetes continue to get the Lilly medicines
they need.”
Pfizer said this week a voluntary
pause in the flow of its medicines to Rus-
sia would be in direct violation of the
company’s foundational principle of
putting patients first. It has said it would
donate any profits from its Russian
operations to direct humanitarian support for the Ukrainian people.
The export of medicines, the materials necessary for making them and
medical equipment have been excluded
from tough sanctions imposed on Russia by the US, EU and other western
nations. This has meant pharmaceuticals and healthcare are among the only
industries still doing substantial business in Russia.
Health experts and bioethicists said
Russia’s invasion of Ukraine and bombing of civilian areas left tough ethical
questions for pharma groups.
Dr Ezekiel Emanuel, a bioethicist and
vice provost of global initiatives at the
University of Pennsylvania, said Lilly’s
approach was impressive because it
made a distinction between essential
and non-essential medicines. However,
he said it was often difficult to distinguish between an essential and non-essential medicine.
Lilly declined to offer a full list of medicines it would stop sending to Russia.
4
★
FINANCIAL TIMES
wednesday 16 march 2022
war in Ukraine
Russians’ digital isolation
grows after Instagram ban
Social media crackdown hurts small businesses and influencer community
polIna Ivanova — loNdoN
hannah murphy — saN FraNcIsco
Russian Instagram users woke up this
week to an app that would not load and a
feed empty of the content they had
grown to love, after Moscow decided to
ban the social media site over its parent
company Meta’s policies on the war in
Ukraine.
The photo-sharing app has 80mn
users across Russia, about half the population. Many wrote farewell posts over
the weekend and directed followers to
other social media platforms, as the
clock ticked down on the 48 hours the
government had given users to wind
down their profiles before the app was
officially blocked on Monday.
The loss of the beloved service for
Russians is symbolic of the increasing
isolation of their nation, as US internet
companies join a western corporate
exodus from the country.
The war in Ukraine has placed Silicon
Valley companies in the middle of a geopolitical battle for influence, given their
position as gatekeepers to information
seen by billions.
“I didn’t believe it until the last
minute,” said Yulia Telnova, 36, who
since 2018 has run her baking business
from her home kitchen in Novosibirsk,
sharing photos of elaborate icing sculptures on Instagram and building her client base on the app. “Today, when my
Instagram stopped working . . . then
yes. Then I believed it.”
Telnova is one of millions of Russians
who rely on the app to make a living,
using it to run small, at-home businesses or to promote themselves as
influencers with large followings.
Telnova, like others, has now opened
a page on the Russian platform, VKontakte, a Facebook lookalike that
recently came under state control.
Though sad to see the ban on Instagram,
the source of “99 per cent” of her customers, Telnova said she was not panicked, adding that she would just “have
to build up a client base once again”.
Some Russian influencers have made
hundreds of thousands of dollars from
advertising sold against their Instagram
posts. Singer Olga Buzova posted a tearful farewell video to her more than
23mn followers after the ban. “I’ve been
here with you since the end of 2012,” she
wrote in the caption. Now, “what we created over the course of seven years
might be snatched away from us”.
Many Russians have responded to
their new digital isolation, which has
accelerated sharply in recent days, with
sadness and resignation. Where
attempts to block the Telegram messaging app in 2018 provoked mass protests
in the street, moves against international social media giants since the start
of the war have triggered a muted
response, amid a broader and more
intense political crackdown.
Focus instead has been on workarounds, with people exchanging advice
about using virtual private networks —
software that masks the location of an
internet user — and sharing links to
their profiles on Telegram, which
remains unblocked.
According to data from VPN tracker
Top10VPN, demand for VPN services in
Metro art:
a man checks his
phone in front of
a Moscow mural
celebrating the
unification of
Ukraine and
Russia hundreds
of years ago.
Below, singer
Olga Buzova,
with over 23mn
followers, posts
a farewell on
Instagram
Sergei Ilnitsky/EPA-EFE;
Instagram
Russia rocketed 2,088 per cent on Sunday, compared with average daily
demand in the week before the invasion
of Ukraine.
“It is hard to overestimate the role of
Instagram in my life,” said Inga
Meladze, a prominent jewellery
designer based in Moscow. Meladze
used the app to promote her business
and brand, Aperon, and to find ideas,
inspiration, projects and suppliers.
“I never had any desire to be an influencer, but it turned out that I had 12,000
followers.
“I also find it hard to imagine my personal life without this app,” she added.
Her father, pop icon Valery Meladze,
was the first Russian celebrity to speak
out for peace and diplomacy, recording
‘I never had
any desire
to be an
influencer,
but it
turned out
that I had
12,000
followers’
Inga Meladze
a video message the day war broke out.
Since then, a wave of measures has
been introduced against social media
platforms as well as independent media
outlets, as President Vladimir Putin
erects a digital iron curtain between
Moscow and the rest of the world.
Earlier this month, Moscow blocked
Facebook after claiming it was discriminating against the country by adding
fact-checking labels to posts by state
media outlets Russia Today and Sputnik
and removing them in the EU following
demands from officials in the bloc. Twitter has also been restricted, with similar
threats sent to both Google’s YouTube
and TikTok.
On Friday, Russia announced its biggest move yet: cutting off access to Instagram. The country also launched a
criminal investigation into its parent
company, Meta, potentially ruling it
“extremist” on a par with terrorist
groups, after it changed its moderation
policies to let Ukrainian users post certain violent speech such as “death to the
Russian invaders”.
Meta has defended the controversial
move as “focused on protecting people’s
rights to speech as an expression of selfdefence in reaction to a military invasion of their country”.
Within Russia, the social media
crackdown has prompted some macabre humour. One meme joked that
today people might be sharing their Telegram profiles, but next it would be the
postal addresses of their Gulag cells:
“Please let’s still keep in touch!”
Stricter money-laundering standards will help sanctions hit targets
global insight
Kate
Beioley
N
ew guidelines announced to
little fanfare by the world’s
anti-money-laundering
watchdog this month were
unrelated to the race to
punish the Kremlin and its business
supporters over Russia’s invasion of
Ukraine. But lawyers and activists say
they could have a significant impact in
tracking down Russian assets covered
by western sanctions.
The Paris-based Financial Action
Task Force (FATF) is asking governments to set up a “beneficial ownership
register or a sufficient alternative” that
will allow authorities to see who ultimately owns or controls a company.
The standard, designed to curb the
use of anonymised shell companies and
with which countries must comply or
face public shaming, will bring the likes
of Panama, Australia and Hong Kong in
line with those, including the UK, Germany and Sweden, that have already
introduced such registers.
More than 200 jurisdictions have
vowed to implement the 40 recommendations on anti-money laundering and
protection against terrorist financing.
Although the reform came after two
years of consultation, it could help to
identify Russian assets targeted by the
US and Europe, campaigners said.
“The strengthening of the international standard on beneficial ownership
registry comes at a critical time — just a
week after Russia’s invasion of
Ukraine,” said Maíra Martini from
Transparency International. “Transparency in company ownership is
essential for authorities to trace assets
of those connected to the Kremlin.”
Thom Townsend, executive director
at anti-corruption group Open Ownership, said: “[The move] significantly
strengthens the potential of the FATF
standards to tackle money laundering
and terrorist financing.” He added that
there was “renewed urgency” to tackling anonymously owned assets, given
the situation with Russia.
The UK was among the first to introduce a beneficial ownership register in
2016. But the information is unverified,
meaning many have been able to hide
behind fake names.
Seeking to draw attention to those
shortcomings, Prem Sikka, an opposition Labour member of the House of
Lords, asked last month what the
British government had done to establish the authenticity of two company
directors named “Lord Truman Hell
Christ” and “Judas Superadio Iskariot”.
The UK government has pledged to
introduce legislation to give Companies
House, the companies register, stronger
powers to query and remove incorrect
entries. Most EU countries have also set
FATF reform will increase
transparency, according to
campaigners, but lawyers
argue loopholes remain
up ownership registers to comply with a
2015 anti-money-laundering directive.
But several have refused to make those
registers open to the public.
The FATF now demands that “access
to information by competent authorities should be timely, and information
should be adequate for identifying the
beneficial owner, accurate — based on
verification — and up to date”.
The watchdog has also ruled against
the issuance of new bearer shares, a type
of share that does not need to be registered under a specific person or business. The change is hailed by campaigners as key to ending the opacity of
corporate ownership. The FATF does
not have enforcement powers but
polices country behaviour by “naming
and shaming” those that fail to comply.
Although its reports take years to compile, its new recommendation applies
with immediate effect, meaning countries must begin to work towards it.
Gemma Tombs at law firm Kingsley
Napley said FATF censure carries
“severe reputational ramifications and
can adversely affect a country’s status
on the international platform leading to
economic sanctions, reduction in international trade and investment, supply
chain issues and de-banking”.
Some lawyers said that while the
reform was a step towards better global
transparency, the standard contained
loopholes that must be closed when the
watchdog publishes detailed guidance
later in the year. They include countries’
capacity to devise alternatives to beneficial ownership registers, and the question of whether information will be
made publicly available.
Critics also said the drive to identify
and freeze Russian assets covered by
western sanctions underlines the regulator’s slowness.
“Today’s reform, while welcome,
arrives a decade too late,” said Martini.
kate.beioley@ft.com
Gas deal
Pakistan presses on with
pipeline despite pressure
BenJamIn parKIn anD
Farhan BoKharI — Islamabad
Pakistan plans to finalise a Russianbuilt gas pipeline despite international
pressure to isolate Moscow economically, as Islamabad searches for alternatives to ease a domestic energy crunch.
Finance minister Shaukat Tarin said
that a deal with Russia to build the
multibillion-dollar Pakistan Stream
pipeline “is almost done”. Also known as
the North-South project, it will transport liquefied natural gas from the
southern port of Karachi to the north.
“We need a gas pipeline to transport
LNG from south to north. That’ll
become almost essential for us in the
next two or three years,” he said. “Either
there’s an alternative for us or we’ll go
ahead with this deal . . . This is the best
alternative as of now, and this was obviously done before Ukraine.”
Pakistan, a western ally during the
cold war and during the post-2001 war
on terror, has refused to condemn Russia’s invasion of Ukraine despite pressure from the EU, UK and elsewhere.
Premier Imran Khan said he “regretted”
the conflict but wanted to stay neutral.
Islamabad has drifted closer to Moscow recently, partly as authorities look
for ways to shore up energy security and
believe jeopardising ties with Russia
would be too costly. While Pakistan produces gas, it has also started importing
from the Gulf as energy demands rise.
The EU also needs Russia’s energy;
about 40 per cent of its LNG is from
there. The bloc has announced plans to
cut imports by two-thirds this year.
But Pakistan’s ties with Russia risk
straining links with the west. Khan visited Moscow the same day Russia
invaded Ukraine last month, the first
visit by a Pakistani premier in more
than 20 years.
The EU, UK, Australia and others
“urged” Pakistan to condemn Russia in
a UN vote. Pakistan abstained from the
vote, with Khan attacking the western
countries at a campaign rally for treating Pakistanis like “slaves”.
Tarin said he hoped Russian officials
would soon visit to finalise the pipeline
deal following Khan’s visit. The line, to
be built by a group of Russian companies, is put at more than $2bn.
Before the latest surge in oil and gas
prices, Pakistan was struggling with a
widening current account deficit and
double-digit inflation exacerbated by
rising global commodity prices. Last
month it resumed a contentious $6bn
IMF programme to stabilise its balance
of payments and bolster state revenues.
‘This is the best alternative
as of now, obviously
done before Ukraine’
Shaukat Tarin, finance minister
But Tarin said the conflict presented a
new “crisis” that would push up the cost
of imports, including energy and wheat,
which Pakistan previously sourced
from Russia and Ukraine.
Higher prices following the US ban on
Russian oil and gas imports would affect
Pakistan “very negatively” unless
Washington unlocked alternate energy
sources, he said. Energy makes up about
a quarter of Pakistan’s import bill.
He added that a nuclear deal between
the US and Iran would allow Islamabad
to revive a plan to build a pipeline delivering gas from Iran to neighbouring
Pakistan, which is suspended because of
sanctions. “If there’s a deal . . . this is the
cheapest [option]. It’s next door,” he
said. “It’ll be very good for us.”
Tarin said it was “only fair that people
should respect” Pakistan’s neutral
stance. The west “have been our allies
for a very long time. We’re listening to
them, but we told them, ‘Listen, we
don’t believe in taking sides. We’re with
you as much as China and others.’ ”
Supply chains. Distribution hurdles
Aid efforts strain to contain
multiple health crises
Attacks on hospitals, shortage
of drugs and polio outbreak
cause humanitarian disaster
JamIe Smyth — New York
hannah Kuchler — loNdoN
Dan Pasko was getting married in Bali
when Russian forces invaded Ukraine.
Two weeks later, the private equity
banker from Kyiv is managing frantic
efforts by a group of Harvard University
alumni to tackle a critical shortage of
life-saving medicines in his homeland.
“Supply chains have broken down
because of the fighting and there is an
urgent need to get healthcare supplies to
people under siege,” said Pasko, who is
liaising with healthcare vendors, logistics companies and Ukraine’s government to source and distribute supplies.
The humanitarian crisis is worsening
in the country, where the World Health
Organization has verified 26 attacks on
medical facilities, including the bombing of a maternity hospital in Mariupol.
Cramped shelters, 1.85mn displaced
people and the outflow of 2.5mn refugees are raising concerns that a polio
outbreak and a new Covid-19 wave
could spread disease beyond its borders.
The WHO declared Europe polio-free
in 2002. Huge global health efforts have
been focused on eradicating the disease,
which is only endemic in Afghanistan
and Pakistan. But the virus returned to
Ukraine in 2015 and 2016 and the latest
outbreak poses a risk to decades of work
to contain it.
A multibillion-dollar aid effort is
under way involving global agencies
such as Unicef, the Red Cross, national
governments and businesses. Many
Ukrainians at home and abroad are also
rallying to the cause, including Pasko,
who co-founded Diligent Capital Partners in 2016 in Kyiv.
“Delivering medicines and equipment via road from the Ukrainian border is now the only option,” he said. But
this is challenging because of fighting
and Russia’s failure to guarantee safe
passage through humanitarian corridors, added Pasco, who has relocated
some staff to Ukraine’s border with
Poland to help the relief efforts.
Ukraine’s health department has
asked the Harvard Club of Ukraine, an
alumni group with links to the country
and other aid groups to source drugs,
which are running out. Medical oxygen
and blood are also needed, as well as
syringes and bandages.
“We are using our private equity connections with local trucking, logistics
and healthcare vendors companies to
get supplies in as fast as possible before
the blockades get worse,” said Dennis
Kogan, an alumni who runs a San Francisco health technology company.
Louise Quy, who leads supply chain
operations for Crown Agents, a nonprofit international development company that works with Ukraine’s health
ministry, said the government had not
been stockpiling to prepare for a war.
Since the invasion, she said it had made
an “absolutely radical” shift. “Their plea
to us . . . is we need response for
trauma, trauma kits, oxygen, PPE,” said
Quy, who has just arrived back from
Poland’s border with Ukraine.
Crown has been sending trauma kits,
which UK drugmaker GlaxoSmithKline
helped fund. National health services
and drugmakers including GSK,
Sleeping bags at a
church in Maryland
in the US, part of
a humanitarian
shipment bound
for Ukraine
Novartis’s Sandoz, and Bayer have been
sending antibiotics to stop sepsis and
other diseases caused by bacteria.
The NGO is hunting for more protective equipment to keep paramedics safe
on bomb sites. Quy said there was a global shortage of vests as other countries
ordered them, and that makers were
dependent on China for raw materials.
Ukraine’s health ministry has set up
ways to accept humanitarian aid at the
border but it is challenging to get medical supplies to the east of the country, as
roads have been jammed with refugees.
On top of supplies to treat war injuries, Crown has managed to import
drugs including polio vaccines so
Ukraine can keep up its infant vaccination campaign. In October, the health
ministry declared a “biological emergency on a regional scale” in response to
an outbreak in the Rivne region in the
west. The WHO has warned of a “high
risk” of national spread because of low
immunisation coverage and almost two
dozen cases have been identified.
“Shortages of vaccine because of corruption and a lot of disinformation
about the safety and efficacy of vaccines
. . . are [contributory] factors,” said Judyth Twigg, professor of global health at
Virginia Commonwealth University.
Unicef is setting up polio vaccination
efforts along refugee routes but the huge
numbers of displaced and the destruction of health infrastructure would
make it hard to contain the spread of the
disease, experts said.
★
wednesday 16 March 2022
5
FINANCIAL TIMES
INTERNATIONAL
Procurement
Brussels to limit foreign bids for state work
Legislation aims to ensure
reciprocal market access in
countries such as China
AnDy bounDs — brusseLs
The EU is acquiring powers aimed at
stopping companies from China, India
and other large economies from winning big public procurement contracts
unless they give reciprocal access to
European companies.
The commission, member states and
the European parliament have struck a
deal on legislation intended to protect
EU bidders from unfair competition and
open markets overseas.
“Currently, European procurement is
broadly open to companies from third
countries, but European companies do
not always have reciprocal access to
public procurement in those countries,”
said Franck Riester, trade minister for
France, which holds the rotating presidency of the EU.
He added: “This new European
instrument will equip the EU with credible leverage to open our partners’ public
procurement to our companies and enable us to right that imbalance and
defend our companies against these discriminatory practices. Today’s wellbalanced agreement is a historic step in
implementing an open, sustainable and
firm trade policy.”
The international procurement
instrument was first put forward in
2012 but was resisted as overly protectionist by many liberal member states.
However, opposition has waned after
mounting evidence that state-funded
businesses from China, India and elsewhere have been undercutting EU rivals
while their governments kept domestic
markets closed.
It is one of a series of measures the EU
is adopting in response to protectionist
moves in the US, China, India and elsewhere. They include powers to retaliate
against embargoes and to block business acquisitions by foreign statefunded companies.
Public procurement is worth €2tn
annually in the EU and about €350bn is
open to overseas companies, according
to the commission.
EU companies win only €10bn of contracts annually abroad, however, with
half the world’s public procurement
markets closed. The value of China’s rail
market available to foreign bidders fell
from 63 per cent in 2009 to 19 per cent
in 2017, for example.
Once legislation is approved, the bloc
will determine whether barriers exist in
the public procurement market of a
third country and will be able to “handicap” any bid from that country. Brussels
could increase the price proposed by an
overseas bidder by up to 100 per cent to
reduce unfair competition. Alterna-
tively, it could mark down the overall
score attached to its bid by up to 50 per
cent, making it less likely to win.
The measures apply only to tenders
worth at least €15mn for works and concessions, such as road or tunnel construction, and €5mn for goods and services, such as buying software. They
would cover 15 per cent of all procurement contracts but they represent more
than 70 per cent of the total by value.
Bidders from least developed countries are exempt.
Bernd Lange, chair of the European
parliament’s international trade committee, said: “The message is clear: fair
market access is not a one-way street, it
must be reciprocal.”
Pandemic. restricting spread
Shanghai teeters on brink of lockdown
Wealthy city risks joining tens
of millions trapped in homes
elsewhere amid Omicron fight
Cautious:
officials and
workers wear
protective gear
as barriers
are erected
yesterday in
Shanghai to
close streets
after virus cases
were detected
Hector Retamal/AFP/Getty
not necessary but advised companies to
instruct employees to work from home.
In a series of measures to lower the
risk of transmission, aviation authorities said they would divert hundreds of
international flights from Shanghai to
other cities until at least May, schools
had been shut and an increasing
number of residential compounds
sealed off while mass testing campaigns
were expanded.
The anxiety in Shanghai is reverberating across the world’s most populous
country as health authorities reported
daily cases of more than 5,000 across 27
regions, a tenfold rise from early March.
The highly infectious Omicron variant has spread rapidly despite the more
than 3bn Covid-19 vaccine doses delivered to a population of 1.4bn.
The outbreak has focused attention
once again on the efficacy of locally-produced vaccines and the underlying vulnerabilities of the healthcare system,
including a huge elderly population at a
higher risk of severe illness and many
poorly resourced hospitals.
Jerome Kim, director-general of the
International Vaccine Institute in South
Korea, said Beijing’s approach of lockdowns and mass testing would be
“increasingly difficult” to maintain.
Kim suggested Beijing could learn
from the “controlled release” measures
used in countries such as South Korea
and Singapore, of slowly unwinding
social distancing, contact tracing and
lockdown rules while prioritising vaccine boosters and treatment. These
have kept death rates comparably low
among highly vaccinated populations
despite vast Omicron outbreaks.
However, given China’s secrecy over
its vaccine technology and stockpiles of
virus treatments, it was unclear
whether the government would have
the confidence to change course.
“China could try to continue its current policy but there’s no guarantee,
with Omicron, that it will be as success-
‘A lot of
people are
really burnt
out now.
There is
no clear
endgame’
Shanghai
executive
Covid-19 Genomic sequencing viewed as vital to spot next variant
DonAto PAoLo MAncInI AnD
cLIve cookson — LONDON
A coronavirus variant that fuses elements of Delta and Omicron was identified last week, according to the World
Health Organization and Gisaid, the initiative that tracks virus mutation. Its
detection, say experts, highlights the
key role of genomic surveillance.
It has been detected in parts of
France, Denmark, the Netherlands and
Germany. The variant, which is yet to be
named but been dubbed Deltacron in
some media reports, has been in circulation since January. The WHO said it was
not yet clear if the variant was distinct
from its predecessors for infectiousness
or severity. Studies are under way.
Two years after the WHO declared
Covid-19 a pandemic, global cases are
beginning to subside, but it still kills
50,000 a week. Public health officials
have urged against complacency as
countries drop restrictions.
How are new variants identified?
The main way is through “genomic
sequencing” of samples taken from
Covid PCR tests. The genetic code of
Sars-Cov-2, pictured, its genome, is
stored as a sequence of four biochemical
“bases” strung out along a long molecule of RNA. To read the genome, scientists convert RNA to DNA, a related molecule that stores the genetic material in
Increase in
producer
prices keeps
US on course
for rate rise
coLby sMItH — New YOrk
US producer prices rose more moderately in February despite maintaining a
record annual pace, keeping the Federal Reserve on track to raise interest
rates this week.
The producer price index, which tracks
the prices businesses receive for their
goods and services, rose 10 per cent last
month compared with February last
year, the Bureau of Labor Statistics said
yesterday. It was the fastest year-onyear rate since the data were first collected in 2010 and in line with January’s
increase.
Producer prices gained 0.8 per cent
month-on-month, just shy of the 1 per
cent jump registered between December and January. So-called core producer prices, an underlying gauge of
inflation, also rose at a more moderate
pace. After stripping out volatile items
such as food, energy and trade, prices
increased 6.6 per cent in February from
the previous year, down from 6.9 per
Economists fear the war in
Ukraine will further boost
inflation, especially given
the jump in energy prices
eDWArD WHIte — seOuL
PrIMrose rIorDAn AnD gLorIA LI
HONg kONg
The coronavirus pandemic has finally
caught up with Shanghai. China’s
wealthiest and most populous metropolis is teetering on the edge of a citywide
lockdown despite reporting only about
150 new cases yesterday.
The international finance hub’s 25mn
people are at risk of joining tens of millions of people restricted to their apartments across Changchun, Shenzhen and
Langfang, as President Xi Jinping’s government responds to the most serious
test of China’s health system since the
pandemic erupted in Wuhan more than
two years ago.
For the first time since early 2020,
Shanghai residents are drawing up contingencies for family members being
separated, as the possibility grows of
being detained in a government quarantine facility under Beijing’s uncompromising zero-Covid controls.
The uncertainties are especially acute
for parents who, in several cases last
week, were blocked from collecting
their children from schools until late in
the evening as officials carried out
quick-fire testing campaigns. Others
who travel for work are worried about
being trapped away from home if they
are caught up in authorities’ unrelenting virus dragnets.
“A lot of people are really burnt out
now. There is no clear endgame and for
the past two years, at least in Shanghai,
we’ve never had to deal with this,” said
a finance industry executive who was
unable to leave his apartment compound.
Jin Chaopeng, a 23-year-old accountant in Shanghai, said panic-buying had
accelerated as online delivery services
were overwhelmed in recent days.
“No one knows when the lockdown
will come to an end,” said Jin, who
has been stuck in his apartment since
Saturday.
Gu Honghui, director of Shanghai’s
epidemic prevention work group, said
yesterday that a citywide lockdown was
Federal reserve
living cells. The genetic sequence of the
virus can then be read by machines.
At the Wellcome Sanger Institute, the
UK’s largest sequencing centre, it takes
about five days to transfer samples from
testing labs to the sequencing machines
and then two days to read out all 30,000
biochemical “letters” of the genetic code
in each sample. “It’s a big logistical operation,” said Ewan Harrison, a microbial
genomics specialist at the institute.
An alternative is using samples
of sewage and waste water that
retain traces of coronavirus
from people. This technology can now distinguish
different variants rather
than just the presence of
Sars-Cov-2 in the area.
“Waste water monitoring
has made some leaps forward and
is going to be part of surveillance,” said
Harrison, “but it can never tell us as
much as sequencing of individuals along
with patient data that can tell us about
the biology of the variant.”
Why is surveillance so important?
Surveillance via genomic sequencing
must be maintained to find new threats
as governments limited Covid testing,
said Peter Bogner, founder of Gisaid.
“If we were to ramp down testing,
there is a significant risk we would miss
several variants. The power of a good
sampling strategy is that relevant
changes can be captured effectively.”
But surveillance must be global, he said.
Recombination, when two molecules
of DNA exchange genetic material, is to
be expected, the WHO and others have
said, especially given the high viral circulation levels in the background. It is
also common in flu viruses.
the arrival of Omicron. But that is no
longer as viable when cases rise as
sequencing cannot keep up. De Oliveira
said his team, since March 2020, had
focused on random and proportional
sequencing each week, so researchers
selected provinces randomly and
focused on samples to be sequenced in
keeping with case numbers.
How are different countries testing and
sequencing?
Wealthier countries such as the
US and in Europe sequence
more than poorer counterparts because advanced
economies have more
trained personnel and better access to genomic
sequencing hardware.
Experts say Omicron exposed
the extent to which inequalities in the
handling of the pandemic were not confined to supply of vaccines or tests and
extended to tools such as sequencing.
But sequencing in places with fewer
resources can still yield powerful
results, such as in South Africa.
Tulio de Oliveira, a bioinformatics
professor at Stellenbosch University
who helped find the Beta and Omicron
variants, said countries with large
resources and low infection rates, such
as Denmark and Australia, could
sequence “almost everything” before
How concerned should we be about the
new variant?
De Oliveira said he was not particularly
concerned by the recombinant variant,
which has elements of Delta and Omicron, because of the small case numbers
amid decreasing overall infections and
rising vaccination rates.
Maria Van Kerkhove, WHO’s Covid-19
technical lead, said: “We have not seen
any change in the epidemiology . . . [or]
in severity,” adding that a number of
studies were under way.
Is a more pathogenic variant likely?
Virologists are unanimous that new variants will emerge. However, no one can
predict the timing of their appearance
or how virulent they are likely to be.
Nervtag, a group of health experts
which advises the UK on new viruses,
said: “The loss of virulence as viruses
evolve is a common misconception.”
Bogner also pointed to the “indispensable need for effective surveillance”.
ful [as it was in combating the earlier
variants],” Kim said. If there was no
change, he added, then lockdowns were
likely in “city after city and maybe,
entire provinces, like they did originally”.
Beijing will also be wary after deaths
among unvaccinated senior citizens
overwhelmed hospitals and mortuaries
in Hong Kong. Beijing’s decision to reinstitute sweeping lockdowns has rattled
the country’s markets and stoked fears
among business owners over prolonged
disruptions.
The decision to lock down Shenzhen,
a city of 17.5mn and China’s most important technology hub, on Monday has
caused scores of factories to halt production, including Apple supplier Foxconn, straining already frayed global
supply chains.
Additional reporting by Nian Liu in
Guangde and Hudson Lockett in Hong
Kong
see Ft big read
cent in January and well below economists’ estimates for a 7.3 per cent
increase.
Ian Lyngen, head of US rates strategy
at BMO Capital Markets, said despite
the moderation, the data still showed
“ample inflation in the system”.
The report comes as the Federal
Reserve kicked off a two-day gathering
yesterday, after which the monetary
policy-setting Federal Open Market
Committee is all but guaranteed to raise
interest rates for the first time since
2018.
Jay Powell, the sitting chair, signalled
at congressional testimonies this month
that the first rate increase would come
in the form of a quarter-point rise,
rather than a half point — which has not
occurred since 2000 and which some
officials had hinted might be appropriate given recent inflation data that show
US consumer prices rising at the fastest
pace in 40 years.
Powell has left open the option of the
Fed lifting interest rates by larger increments later this year, however, if inflationary pressures do not moderate sufficiently.
Economists fear the war in Ukraine
will further boost headline inflation,
especially given the recent jump in
energy prices following Russia’s invasion and the unprecedented package of
sanctions against Moscow rolled out by
the US and its allies.
The Fed is set to look past any
growth slowdown stemming from
the crisis.
The “dot plot” of individual interest
rate projections of the central bank’s top
officials is expected to signal at least five
interest rate increases this year as the
committee seeks to move the federal
funds rate closer to a level that no longer
adds accommodation.
climate litigation
Australia court quashes nun’s
landmark coal mine victory
JAMes FernyHougH — MeLbOurNe
An Australian court has overturned a
ruling on a case brought by an 87-yearold nun that made the environment
minister personally liable for future
damages to children caused by climate
change.
Legal experts warned that the ruling put
climate litigation at risk after a federal
court said the government did not have
a duty of care to protect children from
the effects of global warming when
approving coal mine expansions.
Sister Brigid Arthur, on behalf of eight
high school students, had asked for an
injunction on miner Whitehaven Coal’s
plan to construct an opencast coal mine
in northern New South Wales. The
applicants had argued that permitting
the mine to go ahead would breach the
minister’s duty of care, given the established scientific link between fossil fuel
combustion and global warming.
The court found last year that the
environment minister had a “duty to
take reasonable care” to protect Australian children “from emissions of carbon dioxide into the atmosphere”.
The decision was hailed as a landmark victory for the climate movement,
prompting predictions it would act as a
brake on fossil fuel expansion and spur
more private litigation against governments and businesses. But the Federal
Court’s decision to overturn that ruling,
by three judges yesterday, left the future
of such litigation in doubt.
The judges said the case dealt with
“core policy questions” that were “unsuitable in their nature and character
for judicial determination”. They dismissed an argument that, in approving a
mine, the minister was putting young
residents at “foreseeable risk” of injury.
“It’s fair to say that we’re disappointed
and the children are disappointed, but
they will keep on fighting,” said David
Barnden, principal at Equity Generation Lawyers, which represented the
children and the Roman Catholic nun.
He said the applicants would review the
judgment and that the decision could be
appealed against in the High Court.
Anjali Sharma, 17, one of the students
who brought the case, said she was “devastated” by the decision.
“Climate change is already wreaking
havoc on the lives of Australians,” she
said. “Burning coal makes bushfires and
floods more catastrophic and deadly.
Our leaders need to step up and act.”
6
★
FINANCIAL TIMES
wednesday 16 March 2022
Risk reassessment Ukraine war prompts investors in Taiwan to hedge against chance of military conflict with china y paGE 10
Intel pumps
€30bn into
Europe-based
chipmaking
What tech rout? Bullish Jakarta ecommerce
start-up GoTo sets sights on $1.3bn in IPO
aNTOiNe gaRa aNd
JameS FONTaNeLLa-KHaN — nEw York
cHRiSTOPHeR gRimeS — loS anGElES
Television ratings group Nielsen is
nearing a $15bn deal to be acquired by a
consortium of private equity buyers
led by Elliott Management and Brookfield Asset Management in what would
be the largest company takeover since
Russia’s invasion of Ukraine.
3 US tech giant reveals ambitious plan
3 German plant is centrepiece of shift
Peggy HOLLiNgeR — london
RicHaRd WaTeRS — San FranciSco
Intel announced plans yesterday to
pour about €30bn into boosting chip
manufacturing in Europe, marking the
launch of an expensive, taxpayerbacked bid to vault the continent to the
forefront of advanced chipmaking.
The ambitious plan is designed to
make the EU less dependent on Asian
chipmakers, while supporting a new
technology base in advanced chips to
rival the US and Asia.
However, the effort has drawn complaints from some European chipmakers, who question whether it will produce chips that match the needs of
European industry. They also balk at
the prospect of a large slice of the €43bn
‘[Heavy spending] isn’t a
very Wall Street friendly
message. And it’s exactly
the right thing to do’
in chip subsidies approved by the EU
being spent on a US rival.
Intel’s plans include €17bn for a giant
new fab, or manufacturing plant, in the
German city of Magdeburg using the
most advanced chip-manufacturing
technology. Along with related manufacturing and research efforts in France,
Ireland, Italy, Poland, Belgium and
Spain, the plant is the centrepiece of a
decade-long investment plan that could
eventually cost €80bn.
The US company also confirmed it
was investing €12bn into an existing
facility in Ireland that operates on less
cutting-edge technology, taking the
total invested there since 1989 to €34bn.
The German plant is eventually
expected to soak up tens of billions of
euros in aid, though Pat Gelsinger,
Intel’s chief executive, told the Financial
Legal Notices
Times that the exact amount was not yet
finalised.
Germany is expected to approve billions of euros in state aid for the factory.
France has also signalled support for
Intel’s plan to make the Saclay technology cluster outside Paris its European
R&D headquarters. Italy is in negotiations over terms for a €4.5bn Intel packaging plant, which would help turn the
part-finished chips from the German
facility into final products.
The Magdeburg “mega fab”, which is
set to start operating in 2027, is intended
to produce chips with features that are
two nanometres or less in width — a
miniaturisation that Intel and its main
rivals, TSMC and Samsung, hope to put
into production elsewhere by 2025.
It represents a bet that the US company can claw its way back to the forefront of the world’s most technologically
advanced and complex manufacturing
industry.
In a sign that investors have yet to be
convinced, Intel’s battered shares have
fallen 25 per cent since Gelsinger
became CEO last year. He dismissed the
company’s weak stock price as a reaction to the heavy spending it is facing.
“That isn’t a very Wall Street friendly
message. And it’s exactly the right thing
to do,” said Gelsinger.
Some European executives said that
chips produced with the most advanced
manufacturing techniques, which are
best suited for high-volume, low-power
uses such as smartphones, would not
match the needs of European industry.
Instead, they said, investment should
be directed at improving more mature
nodes used by producers such as carmakers. “The narrative that everything
will converge to less than five nanometres is a false statement,” said one industry executive.
Additional reporting by Joe Miller
See Lex
Elliott and
Brookfield
near $15bn
Nielsen deal
A GoTo rider takes time out between deliveries to make a call in Jakarta, Indonesia — Willy Kurniawan/Reuters
OLiveR TeLLiNg — SinGaporE
GoTo, Indonesia’s biggest start-up,
plans to raise up to $1.3bn in an
initial public offering as it shrugs off
a global decline in technology stocks
and seeks to lure investors who want
to cash in on the country’s booming
digital economy.
The group, formed last year after an
$18bn merger of superapp Gojek and
ecommerce business Tokopedia, said
yesterday that it planned to float on
the Indonesia Stock Exchange next
month in a listing that would value
the company at up to $29bn.
The IPO follows a wave of fundraising by Indonesian start-ups,
including the listing of ecommerce
business Bukalapak, the biggest on
the Indonesian bourse.
GoTo raised $1.3bn in a private
funding round in November led
by the Abu Dhabi Investment
Authority that valued the company at
$28.5bn, according to people familiar
with the deal.
Interest in Indonesia’s tech businesses has surged amid the rapid
growth in internet users. Groups
including SoftBank, Facebook, Microsoft, Tencent, Alibaba, Google and
private equity firms KKR and Warburg Pincus have backed start-ups.
GoTo has built a big customer
base by offering ride-hailing, food
delivery and payment services to people across the world’s fourth most
populous country. After demand for
its services boomed during lockdown,
the company said it had 100mn
monthly users.
The listing will come amid a sharp
sell-off in tech stocks, which have
been rattled by the Ukraine crisis
and expectations of rising interest
rates. Investors are increasingly concerned about the ability of southeast Asia’s biggest tech businesses to
turn a profit.
Shares in GoTo’s Singapore-based
rival Grab hit a low this month after it
posted a $3.6bn annual loss.
Shares in Bukalapak have shed
more than 70 per cent of their value
since listing.
The IPO will be a boost for the Indonesia Stock Exchange, which has
sought to draw more local tech companies away from overseas markets
through looser regulation, including allowing dual-class shares that
allow founders to retain greater
control of their companies.
Patrick Cao, president of GoTo,
admitted that shocks to the global
economy and markets had affected
the company’s pricing of its IPO but it
had a “clear path to profitability”.
He added: “None of us can predict
what’s going to happen in the market
over the course of the next few weeks
or months.
“[But] the opportunity is there and
the company is ready.”
Elliott and Brookfield are finalising a
financing package with multiple large
banks, said people briefed about the
matter, adding that a deal could be
announced within a week. The transaction could still fall apart.
A deal would be a major test of takeover financing after global equity markets have sold off sharply in 2022 on
fears of rising interest rates and the outbreak of war in Europe. Elliott and
Brookfield declined to comment.
It would also signal that private equity
buyers remain confident that Nielsen’s
core business of measuring advertising
reach on cable and broadcast networks
has a future despite being threatened by
the rise of streaming platforms such as
Netflix, Amazon and Hulu.
For years, Nielsen has struggled to
retain its dominance as an intermediary
for buyers of advertising.
Some industry observers say that
there is an opportunity in the market for
companies that could offer more sophisticated audience data about streaming
services.
Elliott’s move to put together a consortium to buy Nielsen further highlights how the hedge fund best-known
for waging bruising activist campaigns
at target companies is embracing private equity dealmaking.
Elliott, which first invested in Nielsen
in 2018, had earlier forced the media
data company to explore a sale that
attracted multiple bids from private
equity groups, including one led by
Blackstone and Hellman & Friedman
and another from Chicago-based Madison Dearborn.
Ultimately, Nielsen decided to remain
independent and in 2020 sold its Global
Connect unit, which tracks sales of consumer goods, to buyout group Advent
International for $2.7bn.
At a $15bn enterprise value, the proposed takeover would value Nielsen at
about $27 a share, a roughly 60 per cent
premium to the group’s undisturbed
market value, according to analyst
Hunter Martin of CreditSights.
Health of Japanese car auctions sends signals to global economy
inside business
asia
Leo
Lewis
B
etween sessions, the cafeteria
of the Mirive auction house
emits a low hum of dealer
chatter. In the air, and in
many languages, is talk of
commodity chaos, shipping rates, semiconductor supply chains, Chinese
industrial strategy, the soaring price of a
professional car wash and, since the
invasion of Ukraine, war.
The auction’s setting, in the depths of
the Saitama countryside, is rural. The
economics in play as thousands of vehicles change hands over a few hours,
could not be more global.
In the minutely balanced — and historically lucrative — business of shipping second-hand Japanese cars to
emerging markets, “every single factor
has an impact”, explains one buyer with
customers across sub-Saharan Africa.
Tiny shifts in the mood and pricing of
the auctions like Mirive in the suburbs
of Tokyo and Osaka trace economic
trends in Lesotho, Jamaica and the UAE,
along with dozens of other markets that
have, over decades, grown used to a constant flow of high-quality, good condition Japanese cars. Japan’s used car
exports, said Sanshiro Fukao, a senior
research fellow at the Itochu Research
Institute, should be seen as the thermometer of the world economy.
Since late February, the abrupt slowdown of shipments to Russia and, with
that, the evaporation of the single biggest source of demand for used Japanese
cars has caused everyone to rip up the
old calculations.
The critical figure that looms over
Japan’s second-hand car market is the
monthly average price settled at the
country’s largest manager of auctions,
Used car System Solutions (USS). For
the first time since comparable records
began more than 20 years ago, the average price in February edged over the
Y1mn mark ($8,500) — a milestone that
still seemed remote a year ago when the
average was 20 per cent lower. But for
how long will it hold?
Locked into the Y1mn figure, say
dealers, is not only the post-Covid-19/
pre-Ukraine strength of worldwide
demand in February, but the closely
entwined relationship between the new
and second-hand
markets in Japan. As the pandemic hit
These markets
matter intensely to supply chains, priority
Toyota, Nissan and was given to ships with
the other Japanese
carmakers. Histor- cargoes deemed to be
ically, when the of greater importance
second-hand auction prices rise, dealerships are more
able to entice Japanese customers with
higher trade-in prices and consequently
push more new cars off the forecourts.
In common with other developed
markets, the pandemic-related shortages of semiconductors have squeezed
the supply of new Japanese cars, extending waiting times and causing more
domestic buyers to turn to the secondhand market. This, combined with a
phase of multiyear weakness in the yen,
which buoyed global demand for used
Japanese cars, produced the surge
towards the Y1mn average.
For many years, a central pillar of
Japan’s used car export market has been
Russia. But the main port of entry,
Vladivostok, has been changing. As the
pandemic hit supply chains, priority
was given to arrivals from China and
South Korean container ships with cargoes deemed to be of greater importance to the Russian economy. At the
same time, Chinese carmakers have
sought ever more dockside space to
push their new cars into the market.
Yet even with these headwinds, said
Fukao, of the total 1.2mn used Japanese
cars exported last year, 160,000 went to
Russia. The UAE, whose total includes a
large proportion subsequently shipped
on to Africa, was second with 130,000.
But, as many of the dealers at Mirive
auction confirmed, the day after Russia
invaded Ukraine, essentially all shipments to Russia have been suspended as
insurance premiums surged and key
cargo routes were abruptly changed.
Auction traders say the sudden
absence of Russian demand should be
dragging the average off its Y1mn peak
in short order. Even a further drop in the
yen and expectations of greater demand
from New Zealand and south-east Asia
are unlikely to fully offset the drop.
But that reckons without the Russiarelated factors affecting prices in Japan’s
new car market: rising electricity and
commodity costs that acutely affect carmakers and parts-makers, or their sudden need to find alternative sources of
materials such as aluminium that would
normally come from Russia. The spectacle of rising prices of new cars, said
dealers, could easily prolong the phase
in which Japanese buyers were attracted
to used models.
“It’s always Russia, its either in or out
of the calculation. Or both,” said one
Pakistani trader, betting that, on balance, the Y1mn average will hold.
leo.lewis@ft.com
8
★
FINANCIAL TIMES
Wednesday 16 March 2022
COMPANIES & MARKETS
Automobiles
VW forced to consider shift overseas
War in Ukraine prompts
group to reassess output
after supplies are cut off
JOe miLLer — WolFsburg
Volkswagen will consider expanding
production outside Europe if the conflict in Ukraine continues, its chief executive said, as the continent’s largest carmaker struggles to secure crucial supplies from parts manufacturers in the
war-torn country.
“For sure, we have to think about
additional investments in the United
States and overseas,” Herbert Diess said
yesterday, although he cautioned that
“the specific effects [of the war] cannot
be conclusively assessed at the present
time”.
Russia’s invasion of Ukraine has
forced VW to idle some plants in Germany, owing to a lack of wiring harnesses being delivered from Ukraine.
Diess said the lack of such parts was the
“dominant constraint” on production. A
150-person strong task force at VW’s
headquarters in Wolfsburg is working
on identifying alternative suppliers.
Diess said VW had already shifted
production of up to 100,000 vehicles to
the Americas and China, in order to
bypass supply bottlenecks.
Last week, Diess told the Financial
Times that a prolonged war in Ukraine
could have a larger impact on the global
economy than the coronavirus pandemic, which shut car plants for weeks.
His latest comments come as VW
A 150-person strong
task force in Wolfsburg is
working on identifying
alternative suppliers
joined local rivals BMW and MercedesBenz in delivering higher annual profits
despite selling far fewer vehicles, as it
prioritised the production of high-end
models during the semiconductor crisis.
Pre-tax profits at VW exceeded
€20bn in 2021, almost double the level
of the previous year, and higher than the
€18.4bn posted in 2019, when it sold
2.4mn more cars.
VW’s Porsche brand continued to lead
the group in terms of profitability,
achieving a 16.5 per cent margin, driven
in part by record deliveries in China.
VW said it still planned a partial initial
public offering of the luxury-car maker
towards the end of this year.
The company confirmed yesterday it
was in “final discussions” about building a battery factory in Spain, to add to
ones being constructed in Sweden and
Germany. “We have started the scouting
process for a fourth location in eastern
Europe already,” Diess said.
Separately, Sweden’s Northvolt,
which VW has invested in, said that it
would build its third European battery
factory in the German state of Schleswig-Holstein, with the hope of starting production towards the end of 2025.
The plant would have the capacity to
provide batteries for roughly 1mn vehicles a year, the company said.
Despite a surge in nickel, cobalt and
lithium prices, VW’s chief financial
officer, Arno Antlitz, said the company
expected profit margins from battery
electric cars to reach parity with combustion engine models “earlier than we
originally thought”. This would happen
in part because raw materials used in
conventional cars would rise too.
Automobiles. Manufacturing
German carmakers hit by loss of Ukraine parts
BMW among groups racing to
move production or replicate
tools for making wire harnesses
peTer CAmpbeLL — london
JOe miLLer — WolFsburg
Inside every car sits almost three miles
of electric cabling. The snaking wires
carry instructions, from steering the
wheels to opening the boot.
This jumble of motoring spaghetti is
held together by the harness, a low-cost
part that, until the invasion of Ukraine,
vehicle manufacturers almost took for
granted.
Now both BMW and Volkswagen have
both been forced to idle plants across
Europe after Russia’s invasion forced
Ukrainian wiring plants to shut.
The country’s fledgling auto industry,
which boasts close to 40 parts factories,
is at risk as carmakers race to relocate
or duplicate the bespoke equipment
needed to make harnesses.
“The problem with wire harnesses
is that they are fundamental,” said
Alexandre Marian, a managing director
at consultancy AlixPartners in Paris.
“You cannot start assembling even an
incomplete car without wire harnesses.”
Unlike other parts that can be
easily made elsewhere, harnesses are
bespoke. Each car model has its own
individual system, honed to the millimetre, so manufacturers can squeeze
wires around the vehicle.
Herbert Diess, VW chief executive,
said: “In our case, as we are positioned
in premium or close to premium, most
of the wiring harnesses we put in the
cars are car-specific. So, it’s a one-to-one
relation.”
But shifting production is a logistical
problem.
“They are a mix of different cables,
you cannot put all 100 pieces together in
a box and send it over,” explained one
person familiar with the process. “They
are a big transportation problem.”
VW’s Diess said: “Currently, we are
. . . trying to get the most out of the wiring harness production in Ukraine but,
in parallel, right from the start of the
conflict, we started to work on alternatives, which are on the way.”
Those alternatives include shifting
equipment, which is difficult with unreliable border crossings, or replicating it
from scratch, which is expensive and
takes time.
Leoni, which has two sites in the country as well as plants in Serbia, Romania
and north Africa, said it was “working
nearly around the clock to constantly
Skilled labour:
women work on
a wire harness at
a factory in
Tunisia. Most of
the assembly
work in Ukraine
is carried out by
female staff
Rainer Jensen/dpa/Alamy
Live News
analyse and evaluate the dynamic
developments on site”.
Dominic Tribe, a supply chain expert
at consultants Vendigital, said making
harnesses involved skilled work. “It’s
complicated with sometimes kilometres of cables and hundreds of connectors that might need to be manually
wrapped and tested.”
New equipment needed to build harnesses runs from £100,000 to about
£2mn, he said, and takes between three
and six months to build, according to
industry estimates.
Some Mini customers have been told
to expect further delays of three months
while new factories are found to make
the parts.
Even though both BMW and VW have
restarted plants, they will be unable to
make models whose harnesses remain
stranded in Ukraine.
Some suppliers in Ukraine have
begun restarting operations, according
to car manufacturers, suppliers and
people familiar with the situation.
Yesterday, VW said nine out of its 11
suppliers in the country were running,
albeit at reduced capacity.
A big problem is shipping finished
goods across the Polish and Ukrainian
border to the car plants. There is a short-
age of truck drivers, who are largely
male and hit by the conscription laws
that stop them from leaving the country.
Some plants have turned to former
retirees, who are over the conscription
age limit, in order to move products,
according to an employee at one of the
Ukraine groups.
Many of the trucking companies outside the country are reluctant to send
vehicles across the border for fear they
will not return, according to two people
briefed on the situation.
Even once trucks and drivers are
located, the border crossings have been
completely overwhelmed by the refugees and are all but closed to traditional
business freight.
“If you send a truck, you can’t say
whether it will be in Poland in three
hours or three days or will be sent back,”
said one person. “We have to check day
by day, is it possible to send one truck
today, or two trucks.”
Joseph Massaro, the chief financial
officer of Aptiv, a US car parts supplier,
said: “Effectively, at this point, the
country is not open for any type of
normal commercial activity.”
The company, which has two plants in
western Ukraine, has begun moving
parts out of the country into existing
Tobacco
Imperial seeks to relinquish Volgograd plant
iAN JOhNsTON — london
Imperial Brands, maker of Gauloises
and Davidoff cigarettes, plans to transfer its Russian operations to a “local
third party”, a means of exiting the
country that rival British American
Tobacco has said would avoid retaliation from Russian authorities.
The London-listed company, which
employs 1,000 in Russia and has a factory in Volgograd, said yesterday it had
“begun negotiations with a local third
party about a transfer of our Russian
assets and operations”.
Russian president Vladimir Putin’s
invasion of Ukraine last month has
sparked a corporate exodus from Russia, with groups from McDonald’s to BP
announcing plans to exit or suspend
their operations.
As the exodus has grown, Putin said
last week that Russia would find “legal
solutions” to seize assets from international groups that closed operations
there. “With regards to those who are
planning to close their production facilities, we must act decisively,” Putin said.
Imperial said last week it was merely
suspending operations in Russia. The
company yesterday declined to comment on Putin’s threat and said its
means of exiting was taken in the best
interests of Imperial’s local workforce.
“Clearly, there is a benefit to doing this
in an orderly way rather than in a disorderly way,” the group said.
Imperial’s decision to transfer assets
to a local third party follows a similar
move from BAT on Friday. Announcing
its decision, Kingsley Wheaton, chief
marketing officer at BAT, said that suspending activities or closing operations
in Russia, rather than transferring
them, would be regarded as “deliberate
bankruptcy” and could lead to criminal
charges being brought against the company’s management.
“[Russia] will regard that as deliberate bankruptcy and . . . will pursue
management of the company and potentially bring criminal charges,” he said.
Imperial added its staff in Russia
would continue to be paid while talks
went on with the local third party, but
declined to give further details.
Russia accounted for only a fraction of
Imperial’s revenues and earnings, so
there would be a “relatively small
impact” from its exit, with its full-year
revenue guidance little changed.
On the same day Inchcape, one of the
UK’s largest car distributors, also
announced plans to “transition” operations in Russia, which generated about
10 per cent of its sales last year.
“In light of the current circumstances,
we have concluded that the group’s
ownership of its business interests in
Russia is no longer tenable,” said Inchcape. “Working with our OEM [carmaker] partners, we have initiated a process
to transition our Russian business.”
Additional reporting by Peter Campbell in
London
‘If you send
a truck, you
can’t say
whether it
will be in
Poland in
three hours
or three
days or be
sent back’
Aptiv facilities in Poland, Romania and
Serbia. The relocation, which is being
aided by VW, also includes the workers
and their families, people familiar with
the operation said.
However, at the factories in Ukraine,
workers have been largely unaffected
by the violence, according to several of
the suppliers operating in the country.
Because assembling harnesses
requires extreme dexterity, most
employees in the factory tend to be
women, who are not covered by
Ukraine’s conscription laws for men
between 18 and 60.
One supplier estimated that threequarters of its workers are women,
many of whom have been offering to
work if it is safe.
“It’s amazing how the people are
motivated and willing to support the
company,” said a manager at one of the
supply groups.
But for Ukraine, the risk is that should
carmakers shift production westward,
the harness industry in the country may
suffer terminal decline, several executives said privately.
Massaro at Aptiv added: “Obviously,
long term, we’ll have to assess if and
when it makes sense to go back to
Ukraine.”
Financials
European
regulators take
relaxed line on
bank payouts
LAurA NOONAN ANd mArTiN ArNOLd
FrAnkFurt
European regulators have ruled out a
blanket ban on bank dividends and
share buybacks in response to the
Ukraine crisis, adopting a more relaxed
response than during the pandemic.
Eurozone lenders, some with sizeable
Russian operations, are planning to pay
tens of billions of euros to shareholders
this year, but Andrea Enria, chair of the
European Central Bank’s supervisory
board, was sanguine.
“I’m not concerned by the overall
ballpark of dividends and buybacks,”
he said.
The war has sent stock markets lower
and raised fears of another recession.
Banks have been among the worst hit,
with the Stoxx Europe 600 Banks index
losing about 15 per cent of its value since
February 24.
When banks were hit by a record
postwar recession early in the pandemic, the ECB ordered them to maximise resources to support Europe’s
economy by abandoning dividends and
share buybacks. The ban stayed in place
until July 2021.
Now the curbs have been lifted, 46 of
the biggest European lenders are
expected to spend about €90bn on
share buybacks and dividends in 2022
and another €83bn the following year,
according to Citigroup research.
Enria said a rise in the percentage of
earnings being paid out by the 115 banks
the ECB supervises, to 50 per cent now
from about 45 per cent before the pandemic, included a “slight catch-up” after
missed payments during the crisis.
“As supervisors we look at individual
banks’ capital trajectories,” he said.
“Some banks may need to review their
plans if those trajectories are affected.”
A regulator familiar with the European debate said he and peers would be
“extremely cautious about across-theboard bans” and the preferred approach
would be “more tailor-made [restrictions] for some specific institutions”.
Austria’s Raiffeisen, which has a big
Russian operation, suspended its 2021
dividend on March 1.
France’s Société Générale, another in
the group of European banks with direct
exposure to Russia, said the crisis would
have “no effect” on dividends it
declared for 2021.
Another bank with Russia operations,
Italy’s UniCredit, said its dividend was
safe but left room to pause its share buyback programme if its capital ratio fell.
Enria said there was a “misperception
in the market that the ECB is less positive on share buybacks than it is on dividends. In fact, we are neutral. If anything, buybacks give you more flexibility because they don’t generate any
expectation on future payments like
dividends may instead do”.
In the US, banks suspended their
share buyback programmes through
the pandemic but continued to pay ordinary dividends.
Several European regulators noted
that banks were unlikely to benefit
from the kind of temporary changes
that softened the impact of the pandemic, including waiving some capital
requirements.
“There is no one who is requesting,
at least for the time being, that we
intervene in the regulatory framework
by lowering certain requirements,”
one said.
Another said that he and others were
cautious about reintroducing pandemic-era measures because Europe’s economy was “overheated” and markets
were “priced at excessive levels”.
banks
UniCredit explores withdrawal from Russia
OWeN WALker
europeAn bAnking correspondent
UniCredit chief executive Andrea Orcel
has said he would like the bank to pull
out of Russia and is conducting an
“urgent” review of how such a complicated exit would work.
Banks have been one of the last sectors
to announce they are pulling out of Russia since its invasion of Ukraine last
month, but JPMorgan, Goldman Sachs
and Deutsche Bank have each
announced in recent days they are
winding down their operations.
UniCredit is one of a handful of western lenders with a far larger presence in
Russia, owing to its retail and commercial banking businesses.
The bank warned last week it faced
losses of more than €7bn in an “extreme
scenario” whereby its entire Russian
business was wiped out.
Speaking at the Morgan Stanley European Financials Conference yesterday,
Orcel said no decision had been made on
whether the group would exit Russia.
“It would be quite easy for me to say
that we’re leaving Russia — it is what we
all want to do, and it is what our minds
and bodies demand,” Orcel said. “However, UniCredit has about 4,000 people
in Russia. We cover 1,500 corporates, of
which 1,250 are Europeans that are trying to disentangle themselves from the
country.” He added: “We are completing
Andrea Orcel: UniCredit chief is
completing ‘an urgent review’
an urgent review on the country. And we
are considering exit. But obviously, we
need to seriously consider the impact
consequences and the complexity of
this untangling a full bank from the
country.”
The lender last week said it had loans
of about €7.8bn in its Russian consumer
unit and net cross-border exposure to
companies of €4.5bn, of which about 5
per cent had been hit by western sanctions after the invasion of Ukraine.
UniCredit also revealed a net derivative exposure to Russian banks of about
€300mn and said “the maximum
potential loss in the event that the rouble would tend to zero is around €1bn”.
Alongside France’s Société Générale
and Austria’s Raiffeisen Bank, UniCredit
has the largest exposure to Russia
among international lenders. Orcel had
been examining an acquisition of Russian government-owned lender Otkritie
before the invasion but has since
scrapped those plans.
★
Wednesday 16 March 2022
9
FINANCIAL TIMES
COMPANIES & MARKETS
Testimony of star witness lays bare 1MDB fraud
Ex-Goldman partner reveals how cocktail of hubris, greed and ambition led to multibillion-dollar scandal at Malaysian fund
sTEfaNia PaLma — WasHington
In 2012, Goldman Sachs banker Tim
Leissner was paid a total of $12mn, a
personal record, after arranging blockbuster bond deals for Malaysian state
investment fund 1MDB, the proceeds
from which he would later help steal.
But that was not enough. The former
Goldman partner would go on to work
on three 1MDB bonds overall in 2012
and 2013, raising roughly $6.5bn to feed
a fraudulent scheme that, the US
Department of Justice alleges, siphoned
more than $2.7bn off from the Malaysian fund.
While vigorously pursuing deals for
Goldman, Leissner also moonlighted as
an adviser on potential deals in the Philippines and Vietnam, in violation of
bank policy. When prosecutors in a New
York court asked why, he replied in a
deadpan tone: “To earn more money
than I was being paid.”
Leissner’s testimony in the longawaited trial of former Goldman banker
Roger Ng — who has been charged by US
authorities with conspiring to bribe officials and launder billions of dollars from
1MDB — has provided a unique window
into one of the key people in an embezzlement scheme that US officials have
labelled “kleptocracy at its worst”.
The jury’s perception of Leissner’s testimony, which concluded last week,
could be critical to the outcome of the
trial. The ex-partner, who has pleaded
guilty to charges of conspiring to launder money and violate foreign bribery
laws in connection with the 1MDB
fraud, struck a co-operation agreement
with the US government in the hope of
receiving a more lenient sentence.
Leissner’s role as the government’s
star witness pits him directly against his
former colleague Ng in a showdown that
will prove consequential for both.
If convicted, Ng — who has pleaded
not guilty — faces 30 years in prison.
Leissner faces up to 25 years in prison
when he is sentenced.
During 10 days of testimony, Leissner,
a 52-year-old born in Germany,
explained what happens when a cocktail of hubris, greed and ambition mixes
with a platform like Goldman, one of the
most prestigious and hard-nosed banks
on Wall Street.
“I was a very ambitious child,” and
investment banking was an “environment feeding off the ambition I had
built”, Leissner told prosecutors in one
of several instances where he tried to
explain his crimes by pointing to the
industry’s hyper-competitiveness. “I
wanted to be a hero at Goldman Sachs.”
Very few investment bankers become
ensnared in multibillion-dollar scandals, but Leissner’s testimony nonetheless sheds light on how far some dealmakers are willing to go to secure lucrative transactions — and pay cheques —
Tim Leissner is
led away from a
New York court
yesterday. He is
the star witness
in the 1MDB
laundering and
bribery trial of
Roger Ng, below
Stephanie Keith/Bloomberg
even accepting corruption as a cost of
doing business.
“I can’t say I was surprised,” Leissner
said of his reaction when recounting a
meeting in London where Jho Low, the
Malaysian financier accused of masterminding the fraud, allegedly said that
government officials would need to be
paid bribes for the 1MDB bond deals to
go ahead. Low maintains his innocence
and is at large.
Powerful people the world over were
dragged into the 1MDB scandal by Leissner’s testimony, from Malaysian politicians and Abu Dhabi government officials to celebrities who allegedly
attended lavish parties thrown by Low.
Leissner emerged as a driven dealchaser, his excitement over closing complex transactions palpable during parts
of his testimony, including his recollection of a desperate dash to secure final
approval for one of the bond deals after
a signatory had disappeared to the
south of France.
“I would have flown to the North
Oil & gas
Climate group prepares legal
action against Shell directors
CamiLLa HODgsON aND TOm wiLsON
London
Shell’s board of directors bears personal responsibility for not preparing
to cut emissions fast enough, an environmental shareholder group has
claimed in the first significant attempt
to hold individual executives legally
accountable for alleged failures to
tackle climate change.
ClientEarth, a Shell shareholder, notified the energy major on Monday that it
would commence legal proceedings
against the company’s 13 executive and
non-executive directors for what it said
was the board’s failure to adopt a strategy that “truly aligns” with the 2015
Paris climate agreement.
The not-for-profit group, which has a
record of winning climate-related cases,
wrote to Shell in advance of petitioning
the High Court of England and Wales for
permission to bring the claim.
“Shell is seriously exposed to the
physical and transitional risks of climate change,” said ClientEarth lawyer
Paul Benson. “The longer the board
delays, the more likely it is that the company will have to execute an abrupt
‘handbrake turn’ to retain commercial
competitiveness and meet the challenges of inevitable regulatory developments.”
The new legal action comes less than a
year after Shell lost a landmark climate
case in the Netherlands, where it was
ordered by a court to reduce its emissions by 45 per cent by 2030 compared
with 2019 levels.
Shell has said it will cut emissions
from its own operations by more than
the court has ordered but has appealed
against the decision. The UK-listed
group argues it cannot be held responsible for the carbon emitted by the products it sells.
Shell has committed to reduce the
carbon intensity of the energy products
it sells by 20 per cent by 2030, and by 45
per cent by 2035, but not to a reduction
in absolute emissions, which would
require bigger cuts to oil and gas output.
ClientEarth argues these commitments are not consistent with the Paris
agreement’s aim to limit any global temperature rise to 1.5C above pre-industrial levels and that Shell’s directors are
in breach of their obligations under the
UK Companies Act to “act in a way that
promotes the company’s success”.
Shell said its plan to halve emissions
from its global operations by 2030 is
“industry-leading” and that its strategy
to be a net zero emissions business by
2050 “supports the Paris agreement”.
ClientEarth is encouraging institutional investors to join or support its
claim ahead of Shell’s annual meeting in
May. “Shell’s shareholders need certainty that the company is using their
capital effectively in its navigation of the
global energy transition and is genuinely pursuing the climate goals that it
says it is,” Benson said.
Shell is ‘seriously exposed’ to climate
change risk, according to ClientEarth
Pole . . . to make this happen,” the expartner said about the second 1MDB
transaction, which generated $200mn
in fees for Goldman.
Leissner estimated that the bank
made close to an “unprecedented”
$700mn from the 1MDB bond deals —
about $100mn more than the figure
given by prosecutors.
The bank has declined to comment on
Leissner’s higher estimate of the money
it made and has said that it was lied to by
“certain members of the former Malaysian government and 1MDB”.
Leissner admitted to lying during
Goldman’s internal reviews of the 1MDB
deals. The bank struck a settlement of
up to $3.9bn with Malaysia and paid a
record $2.9bn in a global settlement in
2020. Its Malaysian subsidiary pleaded
guilty to a bribery charge.
Leissner told prosecutors that joining
the group of Goldman partners in 2006,
the elite group that makes up 1 per cent
of the bank’s staff, was “a dream come
true”. The appointment cemented
‘[Leissner
is] strategic
in every
area of his
life . . . he’s
a deal
closer’
Roger Ng’s
lawyer
Energy
Orsted brands US wind power
auction a missed opportunity
DErEk BrOwEr — Houston
The world’s leading offshore wind
developer has called on Joe Biden’s
administration to revamp the leasing
process for US waters or risk driving up
electricity prices and stalling the rise of
clean energy.
A federal auction for six wind power
development leases off the coasts of
New York and New Jersey raised a
record $4.4bn last month, dwarfing previous sales. Deb Haaland, US interior
secretary, said it showed enthusiasm for
the clean energy economy was “here to
stay”.
But David Hardy, chief executive of
Orsted Offshore North America, said
the auction was a “missed opportunity”
for an industry still trying to develop
local supply chains and manage costs.
“What does that [the $4.4bn] do for
the industry?” Hardy said in an interview with the Financial Times. “It goes
into federal coffers . . . Maybe it helps
pay for social security or helps us defend
a country in Europe that needs help. But
it doesn’t help offshore wind.
“The price of offshore wind in New
Jersey and New York just went up,”
Hardy added. “I think it will slow the
energy transition, or the offshore energy
transition at least.”
February’s auction in the New York
Bight area was the first since Biden
entered office with a pledge to increase
US offshore wind capacity from virtually nil to 30 gigawatts by 2030 —
enough to power about 10mn homes.
The government is planning another six
offshore wind auctions around the
country by 2025, with the next one set
for waters off North and South Carolina.
Denmark-based Orsted has already
been awarded contracts for capacity of
5GW from seven wind projects on the
US Atlantic coast. But Orsted withdrew
from last month’s three-day New York
Bight auction as prices escalated.
Hardy said his company had studied
the leases carefully and was sceptical
that the projects could generate adequate returns. Wind developers and
their equipment suppliers are already
contending with rising costs for raw
materials and congested supply chains.
Hardy called on the Bureau of Ocean
Energy Management (Boem), the federal agency overseeing the auctions, to
‘What does that [$4.4bn]
do for the industry? It goes
into federal coffers’
David Hardy, Orsted
cap future bid prices or reserve some
money to develop local supply chains.
France-based TotalEnergies, among
the winning bidders in the New York
auction, said its new lease could offer
capacity of 3GW, more than three times
the capacity cited by Boem in its
description of the area ahead of the auction.
Now that the New York Bight ocean
blocks have been auctioned, there will
be “robust” competition between wind
developers as they submit offers to supply New Jersey and New York with electricity, said Doug Pfeister, managing
director of the Renewables Consulting
Group, although project costs could
eventually filter through to utility customers.
Additional reporting by Justin Jacobs in
Houston
Berlin-born Leissner’s ascent from a
“fairly modest” family in Germany. But
the promotion was not “enough”, Leissner told the court. “Greed and ambition
took over.”
Marc Agnifilo, Ng’s lawyer, sought to
question Leissner’s credibility by
cataloguing the lies he told to Goldman,
US authorities and his partners.
“He’s strategic in every area of his
Legal Notices
life . . . he’s a deal closer,” Agnifilo told
the judge.
Leissner described a personal life that
was just as convoluted as his professional one. He admitted to Photoshopping divorce papers so he could marry
his now-estranged wife, former model
Kimora Lee Simmons, and to faking a
document linked to a previous divorce
in the Dominican Republic. He said he
was also temporarily engaged to the
niece of a Malaysian state’s chief minister while married to another woman.
Leissner also had alleged affairs with
the daughter of a former Malaysian
ambassador, and with Rohana Rozhan,
the former CEO of Astro Malaysia Holdings, a Malaysian media group.
Leissner testified that he bought
Rozhan a $10mn apartment in London
with stolen 1MDB funds because she
threatened to expose his involvement in
the scheme after he ended their 10-year
relationship.
Rozhan’s lawyers, who did not
respond to a request for comment, have
said she is co-operating with Malaysian
authorities, according to media reports.
In his pursuit of a glitzy lifestyle,
Leissner spent his share of the stolen
1MDB proceeds, roughly $60mn, on a
170ft yacht and real estate in New York
and London as well as investments in
Italian football team Inter Milan. After
burning through the cash, he was forced
to ask friends for money, some of whom
have not been repaid.
Leissner’s pursuit of riches and status
came to a halt when US authorities
arrested him at a Washington airport in
2018. He told the court that now was the
“time to do the right thing” and “take
responsibility” for actions that have
“destroyed” his life. He has forfeited
$44mn of embezzled 1MDB funds to the
US as part of his co-operation deal.
Leissner testified that while talking to
the government following his arrest, he
initially minimised his involvement in
the scheme, but came “clean” after realising a paper trail of documents would
reveal the truth.
When a prosecutor asked him what
sentence he hoped to receive, Leissner
responded: “I hope I don’t have to go to
prison, sir.”
10
★
FINANCIAL TIMES
Wednesday 16 March 2022
COMPANIES & MARKETS
Equities. Cross-strait tension
Equities
Dubai water
and power
group begins
round of IPOs
Investors in Taiwan seek hedges
against risk of Beijing conflict
SimEon KErr — Dubai
Dubai has kicked off plans to boost its
capital markets by selling stakes in 10
state-owned businesses with the
initial public offering of its monopoly
electricity and water provider.
In its intention to float statement
yesterday, the Dubai Electricity and
Water Authority said it would offer
3.25bn shares, or 6.5 per cent of its
share capital, in what could be one of the
largest listings for the emirate.
Officials and bankers have previously
said the listing could value Dewa at close
to 100bn dirhams ($27.2bn).
“Dubai’s fast-paced development has
resulted in a rapid increase in the
demand for electricity and water,” chief
executive Saeed Al Tayer said in a
statement. “And Dewa has grown along
with Dubai’s expanding economy,
population and world-class competitive
infrastructure.”
Electricity demand grew 11 per cent in
2021, ahead of the forecast 4 per cent, he
added.
The Dewa IPO is part of a plan to
revive Dubai’s moribund capital markets with a series of part-privatisations,
and expansion of market making and
support for technology firms seeking to
list on the Dubai Financial Market.
The government aims to boost its
domestic markets after falling behind
Russia’s invasion of Ukraine
forces rethink of geopolitical
hostilities in Asia for portfolios
Rising Taiwan tension unsettles investors
Goldman Sachs Cross-Strait Tension index
100
80
hudSon loCKEtt — HOng KOng
EdWard WhitE — sEOul
International investors are seeking to
hedge against the possibility of military
conflict between China and Taiwan, as
Russia’s invasion of Ukraine drives a
reassessment of risk in one of the
world’s most dangerous geopolitical
flashpoints.
While a Chinese assault on Taiwan is
still considered a “tail risk” among
investors, the rising concerns about an
attack are underscored by a Goldman
Sachs index tracking tension across the
Taiwan Strait, which recently hit a
record high.
Tim Moe, chief Asia equities strategist
at Goldman, said that, following
the invasion of Ukraine, “informed
consensus is putting a higher level of
concern on cross-strait tensions — it’s
not a foolish thing to think about”.
Hedging strategies are mostly focused
on diversifying away from Taiwan’s
semiconductor industry and balancing
exposure to Taiwan’s currency.
Investors “want to know what’s
available in the tool kit”, said the head of
Asia execution at a Wall Street investment bank, who added that Russia’s
invasion had spurred more inquiries
from clients about Taiwan hedges.
China claims Taiwan as part of its
territory and has not ruled out using
force to achieve unification.
Beijing has said its claims on Taiwan
are “not comparable” to the situation
between Russia and Ukraine.
60
20
0
2010
Source: Goldman Sachs
15
But the Ukraine war has served as a
wake-up call to investors.
Chun Him Cheung, a strategist at
Bank of America, said geopolitical
uncertainties were the “biggest drivers
of portfolio outflows” from Taiwan’s
stock market, which at $14.6bn this year
are already close to matching the total
for all of 2021.
“Increasingly, investors are concerned about the broader geopolitical
implications of war, especially for
Taiwan,” he said.
Taiwan equity hedging strategies
would focus on increasing exposure
to rivals to TSMC, the world’s biggest
producer of processor chips that
supplies technology groups including
Apple, said one Singapore-based analyst
with a European fund.
“The reason why we buy Taiwan
largely is the semiconductor business
and that’s basically TSMC,” the analyst
said.
To counter the risk to TSMC from an
invasion, the person said investors
would need exposure to Samsung and
20
22
Intel, the only rival producers of
high-end chips.
Taiwan’s currency, which has fallen
2.6 per cent against the US dollar this
year, was also expected to become a
focus of hedging strategies, having gone
from being a “regional safe haven to
geopolitical risk proxy”, according to
Chun.
The question of how to hedge Taiwan
risk had grown more pointed even
before Russia invaded Ukraine.
But the threat of disruption to
grain and energy exports from the two
countries has sent global commodity
prices soaring, highlighting the
potential for cascading financial
repercussions when long-simmering
geopolitical conflict boils over.
Analysts said investors might also
seek to hedge by buying non-Taiwanese
or Chinese companies involved in the
chip supply chain, especially US and
European makers of equipment used to
manufacture semiconductors — Dutch
groups ASML and ASM International
would be key beneficiaries.
China shares fall sharply on concerns
over Covid outbreak and Ukraine war
Stocks in China dropped 5 per cent yesterday, taking losses for the year close
to 20 per cent in a fresh burst of nerves
over surging coronavirus cases.
The CSI 300 index of Shanghai- and
Shenzhen-listed shares closed 4.6 per
cent lower, the declines exacerbated by
reports that Beijing had signalled its
willingness to supply Russia with
military assistance to support its
invasion of Ukraine.
Hong Kong’s benchmark Hang Seng
index dropped almost 6 per cent to its
lowest closing level since 2016 while the
city’s China Enterprises index of large
and liquid Chinese stocks shed 6.6 per
cent.
Companies with heavy exposure to
the consumer and travel sectors bore
the brunt of the sell-off.
A Bloomberg index of Macau casino
operators fell more than 11 per cent for
the second day in a row and the China
Real Estate Owners and Developers
index, a gauge of property developers,
fell 10 per cent to the lowest close in
almost a decade.
Concerns over the potential for more
NurPhoto/Getty
40
Equities
hudSon loCKEtt — HOng KOng
War games:
Taiwanese army
soldiers practice
drills amid
escalating
cross-strait
worries — Ceng Shou Yi/
lockdowns spurred offshore investors to
dump Chinese shares at the fastest pace
in 20 months yesterday, according to
Financial Times calculations based on
Bloomberg data.
Stock connect programmes facilitating cross-market trading between Hong
Kong and mainland bourses recorded
net sales of more than Rmb16bn
($2.5bn), bringing total divestment for
the week to more than Rmb30bn.
The declines followed sharp falls on
Monday when Chinese stocks in Hong
It has been a ‘rough ride’ for China
markets this week, say managers
Kong fell the most since 2008 after
multiple cities were put into lockdown,
including the technology and manufacturing hub of Shenzhen.
China reported more than 3,500 new
cases on Monday, up from fewer than
1,400 a day earlier, putting pressure on
Beijing’s capacity to maintain its “zeroCovid” approach.
Eric Lau, an analyst at Citi, said a oneweek lockdown of just a few cities would
have limited impact on most companies. But he warned that disruptions
would escalate “if the partial lockdown
measures are prolonged and extended
more widely to cover the whole nation”.
Also weighing on sentiment, investors
said, was an FT report that the US
told its allies that China was open to
providing military assistance to Russia.
“If this is the Americans suggesting
there’s a risk China now supports
Russia, then it’s a message of ‘either
you’re with us or against us’,” said one
Hong Kong-based fund manager at an
international asset manager, adding
that “it’s been a rough ride [for] markets
already this week”.
Additional reporting by Tabby Kinder in
Bangkok
‘I have a
number of
long-only
investment
clients
who are
building
China takes
Taiwan
hedges’
“If you are going to replicate the
supply chain, then it is very likely that
the equipment guys would be the ones
that will benefit from the increase in
expenditure,” the Singapore analyst
said.
They added that the same risks will
further incentivise Beijing to increase its
years-long efforts to reduce its reliance
on computer chip technology from
overseas.
Experts agree the chances of an
immediate large-scale Taiwan conflict
remain remote. Andrew Gilholm, head
of China analysis at Control Risks, a
consultancy, said Beijing was highly
unlikely to take Taiwan militarily without a “very strong” trigger or pretext.
China, among other things, “lacks a
land border or sympathetic armed
groups in Taiwan, and has to take very
seriously the possibility of US military
intervention”, he said.
Yet there is reason to expect that
tension between Beijing and Washington will intensify, with China watching
the Ukraine war closely.
“If all they have to pay for in the event
of a military takeover of Taiwan is
financial and economic sanctions, the
Chinese will do it tomorrow morning,”
said Yun Sun, a China foreign policy
expert with the Stimson Center, a US
think-tank.
For this reason, analysts said investor
inquiries over Taiwan were mounting
even ahead of the Russian invasion.
“I have a number of long-only
investment clients who are building
‘China takes Taiwan’ hedges into their
portfolios . . . the impact on Asian portfolios of such an event would be pretty
far-reaching,” one Hong Kong-based
analyst at a top US fund said in January.
War in Ukraine has now
sparked another inflow of
money with rich Russians
flocking to the emirate
Our global
team gives you
market-moving
news and views,
24 hours a day
ft.com/markets
regional competitors Abu Dhabi and
Riyadh, where volume and valuations
have soared in recent years.
Dubai has also revealed plans to float
other government and state-related
entities, including Salik, the road toll
unit of the transportation authority;
Empower, another utility; and business
park operator Tecom.
It has yet to announce the other six
businesses being readied for privatisation with bankers anticipating they
include a part of Dubai’s corporate
crown jewel, Emirates Group, which
owns the airline and a range of other airport and travel services, or even the sale
of shares in the international airline
itself, as travel demand has recovered.
Dubai, which was initially hit hard by
the pandemic, has rebounded quickly as
wealthy people flocked there to escape
lockdowns elsewhere. The regional
business hub kept its economy open
alongside public health restrictions.
War in Ukraine has now sparked
another inflow of money with rich
Russians flocking to the emirate as
sanctions have tightened.
Outlining its growth opportunities,
Dewa said Dubai had about 3.5mn residents and an active daytime population
of 4.7mn with the figures set to rise to
5.8mn and 7.8mn, respectively, by 2040.
The company’s adjusted earnings
before interest, tax, depreciation and
amortisation was Dh12.1bn in 2021 with
net income of Dh6.6bn. Net debt stood
at Dh17.6bn.
Crypto
Ethereum accuses rival digital ledger
Solana of paying outsized user rewards
milES Kruppa — san FranCisCO
Ethereum co-founder Joseph Lubin has
questioned the sustainability of rival
projects, including the fast-growing
Solana blockchain, as venture capital
pours into new cryptocurrency networks.
The Ethereum blockchain has become
one of the world’s most widely used digital ledgers, but it is facing challenges
from rivals such as Solana, which has set
lower transaction fees to draw in users.
Lubin told the Financial Times that
Solana, which pitches itself as a faster
and cheaper alternative to Ethereum,
was paying outsized rewards to users
who validate transactions on the network compared with the revenues generated by those transactions.
Solana needs to “figure out a more
sustainable business model for the network”, Lubin said. “That’s natural. All
the projects in our ecosystem essentially
fake it until they make it, or they die.”
Some critics have argued that Solana
sacrifices security for greater efficiency,
and the network has experienced multiple outages.
In response to Lubin’s criticism,
Solana said that “simply looking at protocol revenue doesn’t tell the full story
of the long-term performance” of a
blockchain’s economic model.
Lubin’s comments came as tech investors make big wagers on new projects
trying to create more efficient alternatives to Ethereum — including Avalanche, Near Protocol and Solana — in a
race to capitalise on growing main-
‘Projects in our ecosystem
essentially fake it until
they make it, or they die’
Joseph Lubin, Ethereum
stream interest in cryptocurrency applications.
ConsenSys, a cryptocurrency software company led by Lubin and closely
tied to Ethereum, said yesterday it had
more than doubled its valuation to $7bn
in a new $450mn financing round. The
company has soared in value as an
influx of new users turned to its products to navigate Ethereum.
Ethereum is the most widely used digital ledger for rapidly expanding areas
such as decentralised finance and nonfungible tokens.
MetaMask, an app developed by ConsenSys with more than 30mn monthly
active users, has recorded almost
$330mn in transaction fees since late
2020 through a feature that lets users
swap between cryptocurrency tokens
on Ethereum, according to public data.
Venture capitalists invested in ConsenSys Software, an entity Lubin created with the help of JPMorgan during a
restructuring that was finalised in 2021.
It comes after former employees of its
predecessor company, ConsenSys AG,
challenged the legality of the restructuring and requested a special audit.
Lubin said ConsenSys had been
“extremely open” about negotiating
with the former staff and “understanding their concerns”.
ParaFi Capital, a cryptocurrency venture firm backed by KKR, led the new
round of funding in ConsenSys. Microsoft, Singapore’s Temasek and SoftBank’s second Vision Fund also
invested.
ConsenSys declined to comment on
whether Lubin or other shareholders
sold any shares in the financing.
★
Wednesday 16 March 2022
11
FINANCIAL TIMES
COMPANIES & MARKETS
Fallout of Ukraine
war combines the
risks of past crises
The day in the markets
What you need to know
3 Steep consecutive fall for stocks in
Asia as Beijing battles Covid outbreaks
3 Wall Street shares climb ahead of
closely watched Fed meeting
3 Yield on 10-year US Treasury hovers
around highest level since 2019
Global oil benchmark slides to two-week low
Brent crude price ($ per barrel)
130
Expectations of weaker crude demand
from China sent the global oil benchmark
down to it lowest level since the start of
March.
Brent crude, the international marker,
fell more than 9 per cent to a low of
$97.44 a barrel as lockdowns in China
suggested that the world’s largest crude
importer could curb its oil purchases as
Beijing battled outbreaks of Covid-19.
Brent crude and US peer West Texas
Intermediate later pared back some of
those losses to hover at about $100 and
$98 a barrel respectively.
Oil prices hit their highest levels since
2008 earlier this month, as Russia’s
isolation from the international
community stoked fears that there would
be a squeeze on crude supplies.
But pressure on the oil market has
eased slightly as Covid-19 infections in
China have shot higher.
The second-biggest economy “is facing
a tough challenge to contain a fresh wave
of outbreak”, said Tamas Varga, analyst at
PVM. “Given the Chinese attitude of zero
Covid, the recently declared growth
target of 5.5 per cent might have to be
revised lower again, dealing a blow to the
country’s oil demand growth that the IEA
estimated to be 500,000 barrels per day
in last month’s Oil Market Report.”
Equity markets in China and Hong
Kong posted a second day of sharp
120
110
100
90
80
70
Jan
2022
Mar
Source: Refinitiv
declines on concerns over the outbreak
as well as reports that Beijing had
signalled its willingness to provide Russia
with military assistance in Ukraine.
Hong Kong’s Hang Seng dropped
5.7 per cent and the CSI 300 of Shanghai
and Shenzhen-listed stocks fell 4.6 per
cent.
On Wall Street, stocks climbed ahead of
today’s closely watched Federal Reserve
interest rate decision.
Economists widely expect the central
bank to deliver a quarter-point increase
— the first rate rise since 2018 — as the
war in Ukraine threatens to exacerbate
US inflation, which is already running at
its highest annual rate in 40 years.
Wall Street’s benchmark S&P 500 was
up 1.5 per cent at lunchtime in New York
yesterday, while the tech-heavy Nasdaq
Composite added 1.9 per cent.
The region-wide Stoxx Europe 600
ended 0.3 per cent down and London’s
FTSE 100 slid by the same margin.
In government debt markets, the yield
on the 10-year US Treasury note edged
1 basis point lower to 2.13 per cent, but
remained around its highest level since
2019. Kate Duguid, George Steer, Hudson
Lockett, Neil Hume and Tabby Kinder
Markets update
US
Stocks
S&P 500
Level
4228.65
% change on day
1.33
Currency
$ index (DXY)
Level
98.740
% change on day
-0.262
Govt. bonds
10-year Treasury
Yield
2.128
Basis point change on day
1.520
World index, Commods FTSE All-World
Level
436.59
% change on day
0.41
Eurozone
Eurofirst 300
1702.55
-0.16
$ per €
1.097
-0.091
10-year Bund
0.332
-3.200
Oil - Brent
100.20
-5.36
Japan
Nikkei 225
25346.48
0.15
Yen per $
118.185
0.144
10-year JGB
0.206
1.540
Oil - WTI
96.41
-5.54
UK
FTSE100
7175.70
-0.25
$ per £
1.307
0.153
10-year Gilt
1.575
-1.800
Gold
1954.05
-1.25
China
Shanghai Comp
3063.97
-4.95
Rmb per $
6.380
0.332
10-year bond
2.826
5.500
Silver
25.38
-1.09
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.
Brazil
Bovespa
109531.44
-0.36
Real per $
5.142
1.147
10-year bond
12.097
7.300
Metals (LMEX)
5194.80
-2.52
Main equity markets
S&P 500 index
Eurofirst 300 index
4800
7680
1920
FTSE 100 index
7360
4480
4160
1760
| |
Jan
|
|
|
|
|
|
| |
2022
|
|
|
|
|
|
|
| |
Mar
1600
|
7040
| |
Jan
|
|
|
|
Biggest movers
Ups
%
Downs
%
US
American Airlines
United Airlines Holdings
Delta Air Lines
Nvidia
Norwegian Cruise Line Holdings Ltd
Valero Energy
Lyondellbasell Industries Nv
Chevron
Baker Hughes
Schlumberger
8.91
8.17
7.89
5.69
5.63
-5.75
-5.72
-4.80
-4.54
-4.36
Prices taken at 17:00 GMT
Atlantia
Reed Elsevier
Lindt
Caixabank
Renault
Grifols
Carlsberg
Kone
Alstom
Tenaris
|
|
| |
2022
|
|
|
Eurozone
|
|
|
|
| |
Mar
|
2.96
2.84
2.48
2.35
2.27
-6.45
-5.26
-3.75
-3.55
-3.33
Based on the constituents of the FTSE Eurofirst 300 Eurozone
6720
| | |
Jan
|
|
Pearson
Ashtead
Informa
National Grid
Relx
|
|
|
| | |
2022
UK
Ferguson
Glencore
Prudential
Standard Chartered
Hargreaves Lansdown
|
|
|
|
|
|
| | |
Mar
8.65
4.02
3.38
2.87
2.63
-6.17
-4.41
-4.21
-3.99
-3.33
All data provided by Morningstar unless otherwise noted.
Wall Street
Europe
London
GitLab rose sharply as the development
operations platform unveiled narrower
losses than expected.
Revenue also increased 69 per cent
year on year, reflecting “continued strong
momentum” from customers, said Sid
Sijbrandij, chief executive.
Software group Coupa tumbled after
results suggested its “pandemic pain”
had continued, said BMO Capital Markets.
Fourth-quarter revenue rose 18 per
cent year on year to $193.3mn, beating
the Refinitiv-compiled estimate of
$185.7mn, but its fiscal 2023 revenue
guidance was 4 per cent lower than
BMO’s “already below consensus
estimate”.
This update highlighted “some of the
challenges and the lagged impact of the
pandemic, particularly in the enterprise
market” for Coupa, said the broker.
Energy companies tracked a slide in
crude with Diamondback, Hess,
Marathon, Occidental Petroleum, Baker
Hughes, ExxonMobil and Devon all down.
Airlines took off after issuing bullish
guidance.
Delta, United and Southwest
reportedly forecast a rebound in traveller
numbers while at the JPMorgan 2022
Industrials Conference, said CNBC.
Online holiday group Expedia, which
stood to gain from an uptick in flying, also
climbed. Ray Douglas
Austrian IT group S&T, which was heavily
criticised by Viceroy Research, rose
sharply after it released details of “an
independent forensic audit” that
debunked the short seller’s allegations.
Viceroy called S&T “a roll-up of lowquality, labour intensive ‘IoT’ [internet of
things] assets, often acquired under firesale circumstances”, sending its shares
tumbling in December.
However, an external report by
auditing firm Deloitte said the claims
were “almost completely inaccurate”,
concerning matters that did not relate to
S&T or were “misrepresented” and
“immaterial”.
A summary of Deloitte’s main findings
was published online by S&T.
Wacker Chemie, the speciality chemical
manufacturer, rallied after announcing
“all-time highs for sales, earnings and net
cash flow” in 2021.
Higher energy and raw material costs
would probably hit core profits by about
€1bn in 2022, although “a substantial
share of these additional costs” would be
passed on through price increases, said
the German group.
Wacker Chemie forecast sales of €7bn
for this year, comfortably topping the
€6.4bn consensus.
An earnings miss weighed on
Switzerland’s Tecan, a provider of lab
instruments. Ray Douglas
Exhibitions organiser Informa climbed
following the release of “solid” 2021
results, said Citi.
Operating profit came in at £388.4mn,
in line with consensus forecasts, while
earnings per share of 16.7p beat the 15.3p
that analysts had expected.
The broker highlighted Informa’s
extremely low exposure to the Ukraine
conflict and its current “robust” trading.
A further £200mn towards its share
buyback programme provided another
catalyst.
Interdealer broker TP ICAP fell more
than 15 per cent after releasing an update
that reflected “another difficult year”, said
Shore Capital.
Statutory earnings per share for 2021
came in at 0.7p against 2.4p expected by
Numis and a consensus of 2.1p.
An interim dividend of 5.5p per share
brought the group’s total payout to 9.5p,
which was shy of the 9.8p expected by
the broker.
Car dealerships group Inchcape dipped
on announcing that it was selling its
Russia business because it was “no longer
tenable”.
The retail-only operation contributed
£750mn of revenue in 2021, equivalent to
about 10 per cent of group sales, and
generated 5 per cent of Inchcape’s
operating profit during the past five
years. Ray Douglas
Mohamed El-Erian
Markets Insight
D
ue to the invasion of
Ukraine, Russia is being disconnected from the global
system, one economic and
financial wire after another.
This will devastate the economy, once
the world’s 11th largest and still a G20
member. Together with a crippled
financial system, it will result in a
depression undermining the wellbeing
of generations of Russians.
What is happening economically and
financially in Russia and Ukraine
will not stay there. In addition to the
tragic forced migration of millions of
Ukrainians, there are consequences for
the global economy and markets, both
immediately and in the longer term.
By the time the spillovers and
spillbacks have made their way through
the world, we will have faced some of the
toughest economic and financial challenges of the 1970s, 1980s, and 1990s.
But there is one important difference:
they will all have materialised at the
same time.
Russia’s vulnerability to the west’s
sanctions is visible in the collapse of
its currency, queues outside banks,
goods shortages, multiplying financial
restrictions and so on.
The resulting sharp contraction in
GDP will take years to reverse and will
necessitate a costly transformation of
how the economy operates internally
and interacts externally.
The major implications for the rest of
the world — while uneven across and
within countries — are a combination of
challenges we have seen before.
Due to disruptions in the availability
of commodities from both Ukraine and
Russia, as well as renewed supply chain
breakdowns, the world faces big
inflation in costs reminiscent of the oil
shock of the 1970s. Also similar to the
1970s, the US Federal Reserve, the
world’s most powerful central bank, is
already dealing with self-inflicted damage to its inflation-fighting credibility.
With that comes the likelihood of
de-anchored inflationary expectations,
the absence of good monetary policy
options and a stark choice for the Fed
between enabling above-target inflation
well into 2023 or pushing the economy
into recession.
Like the 1980s, mounting payments
arrears will be a feature of emerging
markets. This will start with Russia and
Ukraine, albeit for different reasons.
Investors shouldn’t expect
a quick normalisation of
Russia’s relationship with
global capital markets
Increasingly, Russia will be both
unwilling and unable to pay western
bond creditors, banks and suppliers.
In sharp contrast, Ukraine will attract
considerable international financial
assistance — but this will increasingly
be conditional on the private sector
sharing some of the funding burden by
agreeing to a reduction in contractual
claims on the country’s public sector.
This mix of default and restructuring
is set to spread to other emerging economies, including particularly fragile commodity importers in Africa, Asia and
Latin America. They are feeling the pain
of elevated import prices, a stronger
dollar and higher borrowing costs.
Like the 1990s, when a surge in yields
caught many by surprise, we should also
expect more financial market volatility.
Investors are slowly recognising that
the “buy-the-dip” strategy for investing
has been undermined. That approach
had proved very profitable when supported by massive and predictable
injections of liquidity by central banks.
But it is now facing headwinds with
US monetary policymakers having no
good policy alternatives. This comes
when the price of many assets is
decoupled from fundamentals by many
years of central bank interventions.
Unlike the 1990s, however, investors
should not expect a quick normalisation
of Russia’s relationship with international capital markets and, with that, a
recovery in its debt securities. This time
will be messier and lengthier.
All this has three main implications
for the global economy. Stagflation has
gone from being a risk scenario to a
baseline one. Recession is now the risk
scenario. And there will be significant
dispersion in individual baseline
outcomes, ranging from a depression in
Russia to a recession in the eurozone
and stagflation in the US.
While differentiation will also be
visible in market performance, this will
come after a period of contagion for
some as global financial conditions
tighten. The major risk scenario for
markets has changed, too — potentially
with unsettling volatility and market
malfunction.
It is a risk that, unlike in 2008-09, is
of less relevance to banks and the
payments and settlement system. That
is the good news. But its morphing and
migration to the non-bank sector poses
blowback risks for the real economy.
Mohamed El-Erian is president of Queens’
College, Cambridge, and an adviser to
Allianz and Gramercy
16
★
FINANCIAL TIMES
Wednesday 16 March 2022
arts
Netflix’s need for speed — and drama
OPERA
Rodelinda
Metropolitan Opera, New York
aaaae
George Loomis
TELEVISION
Drive to Survive
Netflix
aaaae
Peter Aspden
You may, as I did, want to turn straight
to the final episodes of Formula 1: Drive to
Survive, the Netflix series, now in its
fourth season, that looks behind the pit
walls of F1. Even by the overwrought
standards of this spectacular sport, last
year’s season was, as they say, next level.
The contest in Abu Dhabi, which concluded the 2021 season in December,
was set up to be a thriller: the two
leading contenders, Mercedes’s Lewis
Hamilton and Red Bull’s Max Verstappen, equal on points, the former seeking
a record-breaking eighth championship, the young pretender looking for
his first. The clear winner, says F1 president and CEO Stefano Domenicali,
smiling to the cameras before the
race, “will be Formula 1” . He was right
— and wrong.
The race’s climax became a bizarre
one-lap shootout that handed the trophy to Verstappen and kept the world
talking for weeks. Few observers, however, found the conclusion obviously
fair, appropriate or even understandable. Formula 1’s finest moment threatened to become its most ignoble, as lawyers dived into the controversy.
Some of the exchanges around the
race have already become part of F1 history, and it is satisfying to see them
played out in something approaching
real time here. “What just happened?”
demands bewildered Mercedes boss
Toto Wolff of race director Michael
Masi. “It’s called a motor race, OK?”
replies Masi bluntly.
Despite appeals, the result stood. In
an earlier episode, Masi describes his
role as that of “race director, safety delegate, friend and umpire”, which seems
about three jobs too many — and so it
proved. He has since been removed
from his position as part of a restructuring exercise.
Max Verstappen’s Red Bull collides with Lewis Hamilton’s Mercedes at the 2021 Italian Grand Prix
Champion: Max Verstappen
Widespread among the criticisms of
Netflix’s series, which is, make no mistake, assembled and edited with rare
brilliance, is that it has itself had an
undue influence on events on the track.
The final moments of Abu Dhabi,
according to those critics, were the
contrived result of the pressure for
unnecessarily heightened drama. In
the race’s aftermath, even the British
driver Lando Norris conceded that the
finish had been “for the TV, of course”.
The show’s producers have rightly
ridiculed the thought that Masi might
have been influenced, in those tense
seconds, by the presence of the Netflix
cameras. But reality TV has taught us
that these interplays work more insidiously than that. One of Drive to Survive’s
strengths has been to delve more closely
into the characters of a sport whose aficionados can happily talk for two consecutive hours on tyre treads. There can
be little doubt that it has substantially
broadened F1’s appeal.
Those characters, in turn, are
beginning to understand the show’s
requirements, and have learnt to play
to the gallery. The result is often
cartoon-like: Wolff is portrayed as (or
portrays himself as) urbane, reflective,
mindful of the sport’s decorum;
Red Bull principal Christian Horner is
the disrupter, sharper in tone, and endlessly aggressive: “We’ll get the fuckers,”
he says, on more than one occasion, of
his determination to end Mercedes’s
dominance. Wolff says it is like being
snapped at by a Jack Russell terrier.
As for the true protagonists, Verstappen and Hamilton, remarkable drivers
both, they understand the need to tread
lightly on the throttle of this particular
juggernaut. The Dutchman sees no need
to talk directly to the Netflix cameras at
all; Hamilton’s self-possession is a beautifully played exercise in showbiz Zen.
Asked about his motivation, he movingly recalls his schooldays, when, as the
only black boy in the playground, he
was always last to be picked for football
teams. It is a rare insight.
In the final scene of the final episode,
Wolff, dressed in a funereally-dark polo
neck, is asked if there is now a target on
the back of the Red Bull drivers. His
response is the kind of thing Aeschylus
might have teased the audience with
after the first part of the Oresteian
trilogy. “Everybody has a target on
their backs next year.” Long pause, fade
to black. Activities resume in Bahrain
on Friday.
On Netflix now
Handel’s Agrippina was such a hit
at the Metropolitan Opera immediately before the company was
shuttered for the coronavirus two
years ago that a prompt return to
the composer was only fitting.
Happily, a revival of its 2004
production of Rodelinda brings
just that.
An opera high on the list of
works favoured by Handel aficionados, it has also fared well with
Met audiences, and rightly so. Like
Beethoven’s Fidelio, it celebrates
marriage, as Bertarido, the
wrongly ousted king of Lombardy,
seeks to regain the throne and,
more important to him, the company of his wife, Rodelinda, and
their child.
Stephen Wadsworth’s production, along with Thomas Lynch’s
decor and lighting design by Peter
Kaczorowski, dazzles the audience
with old-fashioned opulence. It’s
as if to prove that a Handel opera
can equal the scenic grandeur of
anything from the 19th century.
After opening in Rodelinda’s
bedroom, the sets depicting Milan
and its environs seem almost
limitless as they slide in, an
elaborate two-level private library
emerging as perhaps the most
sumptuous. Martin Pakledinaz’s
costumes discreetly update the
action to the time of the composer.
Wadsworth’s direction of the
principals brings out the poignancy of the drama, not least during
musical numbers of stark expressive power. He keeps the stage
busy by involving a host of extras
in minor tasks, such as delivering
mail or a sack of grain — the production includes a live horse — or
simply walking across the stage.
The heroine, previously the
domain of Renée Fleming, is now
taken by Elza van den Heever,
whose singing gleams and
responds to the music’s interpretative demands, though it would be
enhanced by greater vocal
warmth. As Bertarido, a role written for the castrato Senesino, the
countertenor Iestyn Davies sings
with polish and handsome, though
not heroic, tone. Bertarido’s rival,
Grimoaldo, is a malefactor with a
conscience, and the tenor Paul
Appleby repays the Met’s confidence in him over the years with
an arresting portrayal of this conflicted figure. Also fine are Sasha
Cooke as Bertarido’s sister Eduige
and the popular countertenor
Anthony Roth Costanzo as his
friend Unulfo.
Harry Bicket, the production’s
original conductor in 2004, again
leads a stylish, well-judged performance, apart from some overly
aggressive playing by plucked continuo instruments.
The performance offers further
proof that Handel operas are by no
means too small-scaled for the
vastness of the Met.
To March 27, metopera.org
From left, Elza van den Heever, Iestyn Davies and Sasha Cooke in
‘Rodelinda’ at the Metropolitan Opera — Ken Howard
Do games have a role to play in wartime?
GAMING
Tom
Faber
T
his isn’t something that
anyone will ever forget or
walk away from
unchanged,” says Wael
Amr, chief executive at
Frogwares, a Ukrainian game development studio based in Kyiv. His employees are contending with direct shellings,
destroyed homes and life in bomb shelters. Families have been split up as
women and children flee but men stay
in case they are called for the draft.
Some have already joined the armed
struggle voluntarily.
Part of his team, creators of The Sinking City and the Adventures of Sherlock
Holmes series, have fled to the west of
the country. Others are in Kyiv or
Odesa, Amr says, “ready for whatever
comes next”.
He views relocation as a last resort,
since it implies a painful capitulation.
“The future of our company is heavily
tied to the outcome of the war. Every
one of us wants to work and live in a free
and independent Ukraine.”
Other Ukrainian studios, including
Vostok Games and GSC Game World,
creator of the popular S.T.A.L.K.E.R.
series, have also been posting updates
and requesting support on social media.
Games are even playing a role in misinformation about the war: videos of combat in Ukraine that went viral on social
media were later shown to be faked
using military simulation games. One
example is still live on the official
Twitter account of Ukraine’s Ministry
of Defence.
The gaming industry has responded
to the war with speed and resolve. The
Pokemon Company, SEGA and Remedy
Entertainment pledged donations to
humanitarian causes, while Doom
designer John Romero raised more than
€25,000 with a new level he created for
1994’s Doom II. A charity bundle of
almost 1,000 games from indie game
store itch.io has brought in more
than $5mn.
On March 2, Ukraine’s vice-prime
minister Mykhailo Fedorov published a
letter addressed to the gaming industry
asking companies to block Russian and
Belarusian accounts and prevent their
teams from participating in esports
events. “We are sure that such actions
will motivate the citizens of Russia to
proactively stop the disgraceful military
aggression,” Fedorov argued. Over the
course of a week, almost all the major
players cut off sales to Russian gamers,
including Nintendo, Sony, Microsoft,
EA, Activision Blizzard, Epic Games,
Take-Two Interactive, Ubisoft and CD
Projekt Red.
Large companies wading into politics
can be viewed with scepticism. Are they
making a meaningful gesture or opportunistically leveraging a global catastrophe for a PR opportunity?
In this case, restricting sales to Russia
will probably result in a significant loss
of profits. According to analysts Newzoo
and IDG Consulting, the Russian gaming
market is the 15th biggest in the world,
valued at $3.4bn. There is something
momentous about this united move: the
globalised gaming industry understands that it’s now expected to take a
stand on current events. Today’s players
want developers not just to deliver quality titles but to reflect their values.
The gaming industry’s boycott of
The globalised gaming
industry understands
that it is now expected
to take a stand on
current events
Russia comes amid widespread economic sanctions and ostracism from
Fifa, Formula One, Netflix and even the
Eurovision Song Contest. Is this an
effective strategy?
For Amr, it’s a question of proportion and priority. “Yes, it is terrible
that everyday Russian citizens need
to be the targets of these economic
methods,” he says, “but right now
Ukrainian citizens are the targets
Wael Amr, left, chief executive of
Kyiv-based game studio Frogwares
of Russian rockets and shelling.”
Some believe that this cultural pressure could encourage Russians to look
beyond the dominant narrative of the
war within Russian media, where access
to information is tightly controlled,
social media restricted and words like
“war” and “invasion” banned.
“Clearly the Russian state is acting
this way because they fear that their
population of [around] 140mn is going
to wake up if they don’t,” Amr says. “So
any and every sanction that gets more
Russians on to this path of defiance is
fair game.”
It may not be realistic to expect a gaming boycott to incite revolution in Russia, particularly when protests are being
brutally suppressed, with thousands of
protesters arrested. Yet even if it cannot
achieve this goal, simply keeping
Ukraine at the top of the international
agenda makes a crucial difference, says
Amr. “When going through something
as horrible as war, it’s a beacon of hope
to see that the world has not forgotten
about you.”
‘The Sinking City’ is one of the games created by Frogwares
★
Wednesday 16 March 2022
17
FINANCIAL TIMES
FT BIG READ. COVID-19
A WHO-backed scheme to create ‘open-source’ mRNA vaccines aims to eradicate the inequality in
access to drugs between rich and poor nations that was exposed by the pandemic. But will it work?
By Donato Paolo Mancini, Jamie Smyth and Joseph Cotterill
S
oumya Swaminathan’s “aha
moment” came in February
2021. Covid-19 had been ravaging the world for 12 months
and vaccines had only just
begun a slow trickle into richer countries, but were nowhere to be seen in
poorer ones.
Swaminathan, the World Health
Organization’s chief scientist, had been
on a call with Tedros Adhanom Ghebreyesus, the health body’s directorgeneral, French president Emmanuel
Macron and others, to discuss access to
vaccines. “Macron said something
about [a] lack of manufacturing capacity [for Covid vaccines] and that all the
manufacturing is concentrated in a few
regions,” Swaminathan says. “That
planted a seed in my mind.”
A little over a year later, that seed has
morphed into a potential high-tech revolution in mRNA vaccines that could
transform access to all sorts of medicines, not just for current health emergencies, such as Covid, but also the next
one — whatever it might be.
Spearheaded by the WHO, the setting
for this radical overhaul is a series of
nondescript warehouses on a Cape
Town industrial estate, next to a factorysale bed shop. It is there, at the headquarters of Afrigen Biologics and Vaccines, a South African start-up, that late
one night in January a scientist walked
into the office of Petro Terblanche, the
company’s managing director, and
announced a breakthrough. Afrigen, a
member of a hub — of scientists and
Stéphane Bancel,
Moderna’s chief
executive, has
raised questions
over the WHObacked hub
pharmaceutical companies — created to
develop mRNA vaccines, had successfully formulated a replica of Moderna’s
Covid vaccine. It used publicly available
information and relied on the drugmaker’s commitment not to enforce its
intellectual property rights during the
pandemic. The first human trials of the
copycat drug could start in November.
A year ago, “there was a sense that this
was too difficult, that scientists in Africa
could not make this,” Terblanche says.
But Afrigen’s team worked up a detailed
plan even before going into the lab, she
adds. “They have run this in a very short
period of time.”
Over the past two years, global health
authorities have consistently warned of
iniquitous access to tools — from testing
to drugs and vaccines — to help counter
the pandemic. High-income nations
such as the UK, the US and those in
Europe began their vaccine rollouts in
December 2020, having reached substantial proportions of vulnerable
groups by February 2021.
The first shipment of vaccines —
600,000 doses of the Oxford/AstraZeneca version — delivered by Covax,
the WHO-backed access programme,
only arrived in the Ghanaian capital,
Accra, in late February 2021. Since then
mRNA manufacturers, such as BioNTech/Pfizer and Moderna, have booked
record-breaking revenues and become
key players in business and geopolitics.
Yet, more than three-quarters of people in low-income countries aged 12 and
over have still to receive a single dose,
compared with 10 per cent in highincome countries, according to Our
World in Data, the research group.
The Cape Town initiative is part of a
new push by global health authorities to
address that and promote alternatives
to Big Pharma’s business model, which
relies on legally enforceable patent protections to raise investment to fund new
drugs. The chronic lack of access to vaccines in the developing world has
emboldened some researchers to
embrace the concept of “open-source
pharma” — an idea modelled on the free
software movement, which encourages
collaboration and sharing to improve
code.
Matthew Todd, chair of drug discovery at University College London and
one of the founders of the open-source
initiative, says the pandemic has driven
global collaboration on developing vaccines and antiviral treatments, which
could have a lasting impact on the
industry. “The idea of sharing everything you’re doing and developing a
medicine that’s freely available with liberal freedoms associated with it is really
quite a new thing,” he says.
Industry experts vociferously oppose
weakening protections for intellectual
property, which they say are critical to
incentivising companies to take risks.
And for months, the battle for access
was centred on those rights. But the socalled Trips waiver — proposed by India
and South Africa in 2020 — which would
allow for flexibility in patents for the
manufacture of vaccines, is still being
discussed at the World Trade Organization. The hub, in contrast, aims to make
Closing the vaccination gap
‘The idea of
sharing
everything
you’re doing
and
developing a
medicine
that’s freely
available
with liberal
freedoms
associated
with it is
really quite a
new thing’
the technology accessible to poorer
nations and also train qualified staff to
produce vaccines locally without breaking any intellectual property rules.
“There was a lot of scepticism from a
lot of people, ‘It’ll be a failure. WHO
can’t do it’,” says Swaminathan, who is
still cautious: “I want to be very realistic
here. The fact we set up this programme
is a long way [from] achieving success.”
Stéphane Bancel, the chief executive
of Moderna, has his own reservations.
“We’ve never helped them develop it or
make it. We have never certified their
quality control. They are claiming it’s a
copy of Moderna’s product. I don’t
know,” he said in November. “It is like
when somebody makes a copy of a Louis
Vuitton bag. Does it look like a
Louis Vuitton bag? Does it last like
a Louis Vuitton bag? I don’t know.”
In response to criticism from social
justice advocates that Moderna risked
harming the WHO-backed project, the
company last week said it would not
enforce its Covid vaccine patents against
the hub or other manufacturers seeking
to make jabs solely for 92 low and
middle-income nations.
Harnessing the technology
Martin Friede, the co-ordinator of the
WHO’s initiative for vaccine research,
says the new scheme is drawing on
experience from a previous hub, set up
to spark production of pandemic influenza vaccines. “This was a copy [and]
paste” of a 2006 plan that came about
after an H5N1 scare the previous year,
with several hundred cases in the Far
East with high mortality, he says. Even
then, says Friede, poorer countries, facing the brunt of the disease, risked being
left out by richer ones.
“When we started in 2006, the total
production capacity [for pandemic
influenza vaccines] in lower and middle-income countries was zero doses,”
says Friede. In 2015, it was 1.3bn, helped
by that hub set up in the Netherlands.
He says the mRNA initiative has
received at least €40mn from a host of
countries including France, Germany,
Rich countries have given out more
boosters in seven months than poor
countries have given total doses in
a year...
50 doses administered
per 100 people aged 12+
40
Boosters in high
income countries
30
20
10
0
Jul
‘The world’s vaccine’
Even if it passes all of its regulatory hurdles, Afrigen’s will not be the first opensource vaccine to go into people’s arms,
although it would be the first mRNA one
to do so.
Cuba has invested heavily to create a
public and domestic biotech sector to
produce drugs. It now has one of the
world’s highest Covid vaccination rates
and has been using protein-based shots,
a more traditional type of technology
that is easier to make and store.
“[Cuba’s] public patents are free to
facilitate tech transfer,” says Fabrizio
Chiodo, a scientific researcher at Italy’s
national research centre and Cuba’s Finlay institute, “with a royalty to be paid
[to the state] on a case-by-case basis.”
In February, a team at the Texas Children’s Hospital Center for Vaccine
Development in Houston celebrated the
roll out of Corbevax, a patent-free vaccine costing less than $2 a shot, which
has been granted emergency use
...exacerbating stark inequalities
in global vaccine coverage
Share of population aged 12+ by vaccination
status and country’s income level (%)
Unvaccinated
One dose
Upper Lower
High middle middle Low
income income income income
100
Two
doses
Total doses
in low income
countries
Apr
and South Africa, while the Genevabased Medicines Patent Pool, a nonprofit group that has helped strike lowincome country access deals for Covid
drugs, assists with legal and licensing
aspects of its work.
Marie-Paule Kieny, the director of
research at France’s National Institute
of Health and Medical Research
(Inserm) and a WHO veteran, has been
pivotal in creating these hubs, say
Friede and Swaminathan. And she successfully lobbied Macron and his advisers to help bankroll the mRNA version.
The South African hub has a series of
“spokes”, or recipients of the technology
in Africa and beyond. The theory is that
they will harness the technology locally,
for Covid or other as-yet-unidentified
diseases. The WHO has also established
a centre in South Korea to help train the
workers needed to produce and manufacture the vaccine. A shortage of such
specialists has previously been used to
justify the rejection of calls from wealthier countries, such as Italy, to set up
domestic mRNA production.
Oct
Jan
Sources: FT analysis of Our World in Data; UN population division
Three
doses
0
countries through Covax or other mechanisms to tackle vaccine inequality.”
Pandemic insurance
authorisation in India. Biological E Limited, a Hyderabad pharmaceutical company, licensed the technology developed by the Texas vaccine centre at low
cost from BCM Ventures, part of Baylor
College of Medicine, and has a contract
with the Indian government to deliver
300mn doses. There are hopes the jab
can be rolled out in Bangladesh, Indonesia and Africa, where there are plans to
set up manufacturing in Botswana.
Unlike the mRNA jabs developed by
BioNTech/Pfizer and Moderna, there is
no requirement for storage at very low
temperatures — a key advantage in
administering the vaccine in developing
nations. Corbevax provides 90 per cent
efficacy against symptomatic infection
from the original Wuhan strain of Covid
and 80 per cent against Delta, according
to two phase-3 clinical trials conducted
by Biological E. The results are awaiting
peer review.
“In an emergency you want to make
sure there are no barriers,” says Maria
Elena Bottazzi, one of the principal
researchers who developed the Texas
vaccine, explaining why they waived
intellectual property rights and chose
an old-fashioned protein-based vaccine
technology, which is easy to replicate.
“It’s not just a matter of patent deed
restrictions. There is the technical know
how, there is the practice, [people] need
help in knowing how to make the vaccine — and that’s what we provide as
well,” says Peter Hotez, another
researcher on Corbevax.
The Texas research team failed to
secure cash from the US government’s
multibillion-dollar Warp Speed programme. Instead, it raised $7mn in philanthropic donations, including from a
Texan vodka maker, to fund the project.
Bottazzi says their success in developing and licensing its open-source vaccine could become a model for how to
tackle future pandemics.
“It would create this self-sufficiency, a
validation that it was made indigenously. [That people] don’t have to wait
all the time to receive solutions from
high-income countries,” she adds. “We
call it ‘the world’s vaccine’ because it can
very rapidly be shared and provided to
Afrigen’s labs,
top, have
successfully
formulated a
replica of
Moderna’s Covid
vaccine by using
publicly
available
information.
Above:
three-quarters
of people in
low-income
countries, such
as Ghana, have
still to receive
a single dose of a
vaccine
FT montage/Bloomberg
‘In between
pandemics
it’s going to
cost a lot of
money to
keep the fans
running, the
filters clean
and the
lights on.
This is a
strategic
decision to
be made by
each
country’
Backers of open-source vaccines say it is
difficult to fully assess their potential.
But the WHO’s Swaminathan hopes
their development means the world can
at least be better prepared to roll out
speedy vaccines to all when and if the
next pandemic hits. “My dream would
be that if there’s an outbreak of a virus
next time,” she says, “that as soon as the
genetic sequence is done and there are
these platforms that are ready to go that
the tech [can be] shared immediately
around the world, then you’re ready and
pumping out vaccines . . . It’s not just
about producing Covid vaccines and
then closing shop.”
Friede argues that building a “relatively small facility” is a cost-effective
pandemic insurance. “You can have
parts of it ‘mothballed’, kept in a sterile
room, and roll it out if and when the
next pandemic strikes. You’re going to
keep your knowhow warm at non-horrendous costs,” he adds, before conceding that some countries would have to
rationalise how the facilities are kept
between public health emergencies.
“You keep a skeleton staff operating
this at low scale to make sure the knowhow doesn’t leave,” he says.
The vaccines would also need a market — or governments willing to buy
doses annually or in advance to make
the venture financially viable.
“In between pandemics it’s going to
cost a lot of money just to keep the fans
running, the filters clean and the lights
on. This is going to be a strategic decision made by each country,” Friede says.
Moderna, which has pledged not to
enforce any patents during the pandemic but reserved the right to do so
when it ends, is facing a separate intellectual property case. The biotech company is being sued by rivals Arbutus
Biopharma and Genevant Sciences over
“patent infringement” allegations,
which Moderna denies.
Kieny says that in the previous hub,
for pandemic influenza, patents were
not an issue as they had expired. And
patent-free drug development itself is
not new: it has been used for the polio
vaccine and penicillin.
But the promise of the open-source
model is, according to its backers,
unprecedented. “A year ago we thought
that if only we could get Moderna to give
us the tech, the recipe, we would fasttrack [vaccine production],” says Afrigen’s Terblanche. “Today, I am in a way
grateful that they didn’t, because a turnkey tech transfer from a company like
Moderna or Pfizer, you get a box, you sit
in the box, and your freedom sits only in
that box. The scientists would have
learnt to bake,” she says. “Now they
have learnt to make.”
18
★
FINANCIAL TIMES
Letters
Wednesday 16 March 2022
Email: letters.editor@ft.com
Include daytime telephone number and full address
Corrections: corrections@ft.com
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to the FT Editorial Complaints Commissioner: complaints.commissioner@ft.com
The EU played a reprehensible role in origins of present crisis
WEDNESDAY 16 MARCH 2022
China risks ‘losing the
west’ over Ukraine
Beijing should redouble efforts to press Russia for a ceasefire
As Russia shells residential neighbourhoods in Kyiv, the quest for a ceasefire
in Ukraine is ever more urgent. But
western hopes that China may be able
to use its influence as Russia’s “strategic
partner” remain so far unfulfilled. A
seven-hour meeting late on Monday
between Yang Jiechi, China’s top diplomat, and Jake Sullivan, the US national
security adviser, ended without word
of an agreement to work together
towards a cessation of violence.
In fact, a write-up of the meeting in
China’s official Xinhua news agency
mentioned Ukraine only in passing as
one of a number of “international and
regional issues”. It said that discussions
had focused on how US-China relations
could return to the “correct track” and
reported that Yang criticised Washington for not adhering to the “one China
principle”, which Beijing says recognises its sovereignty over Taiwan. A
senior US official said the meeting
included an extensive conversation
about Russia and Ukraine.
China and Russia have developed a
similar world view, chafing at US dominance and efforts to spread liberal
democracy. Both have been wrongfooted by the strength and unity of the
western response to Vladimir Putin’s
invasion of his neighbour. Beijing’s ties
to Moscow mean its reputation with
the wider world is on the line. Not since
China’s 1989 massacre of pro-democracy demonstrators has it risked so
severely sullying its global standing.
Yet if Beijing can prevail upon Moscow
to join ceasefire negotiations in good
faith, it may be seen internationally as
something of a saviour.
There are costs to China’s no-limits
friendship with Russia. Its refusal to
call Russia’s aggression an “invasion”,
or to criticise Moscow at all, are combining to paint China in the west as
an accomplice to slaughter. Russia’s
civilian bombardment in Ukraine is
provoking accusations of war crimes.
The risks for China could rise if it
helps Russia to dodge western sanctions. Sullivan said this week that the
US was “communicating directly, privately to Beijing that there will absolutely be consequences for large-scale
sanctions evasion efforts or support to
Russia to backfill them”.
There are also other dangers for Beijing. US officials have told the Financial
Times that Moscow has asked Beijing
for military equipment to support its
invasion of Ukraine. China has denied
such claims as “malicious disinformation”. Whatever the truth, the potential
for an escalation in acrimony between
Washington and Beijing is clear.
China is not nearly self-sufficient in
energy or food. It is only too well aware
of the vulnerabilities inherent in its
supply routes through Asian seas dominated by the US navy. The possibility
of naval blockades, however remote, is
matched by US capacity to freeze a
large portion of China’s foreign
reserves held in US Treasury bonds.
It may well be that — for all Russia’s
professed friendship with Beijing —
Putin cannot be deflected from his purpose to subjugate Ukraine under the
boot of his authoritarian regime. Even
if this is the case, Beijing’s refusal so far
to put clear daylight between Russia’s
invasion and its own position is inviting
western governments to associate it
with Putin’s war.
Beijing’s best interest lies in exerting
pressure on Putin and redoubling its
efforts to bring about a ceasefire. China
may share the Russian regime’s perception of the western world. But it would
not want to be on to the “wrong side of
history”. In a concrete sense, as Hu Wei,
a prominent Chinese academic argued
in an extraordinary article this week,
Beijing’s main aim should be to avoid
Russia from dragging it into the war,
and to act to prevent escalation.
The courage of Kyiv’s
unlikely wartime leader
Zelensky has become a symbol of resistance and national identity
Volodymyr Zelensky makes for an
unlikely Churchill. A comic actor who
played a teacher who becomes president by accident, a winner of Ukraine’s
version of Strictly Come Dancing and
voice of its Paddington Bear, he never
aspired to be a war leader. Yet it is precisely his empathy and communication
skills, teamed with exceptional guts,
that have turned him into the voice of
his people and their resistance, and a
symbol of modern Ukrainian identity.
As Zelensky will no doubt do in an
online address to the US Congress
today, he is also repeatedly pricking
the west’s conscience for not providing
more military help.
Somewhat ironically, his presidency
had been faltering before the war. His
electoral pledge to end the Russian-fomented conflict in the Donbas foundered when his charm failed to sway
Russia’s Vladimir Putin. Though Zelensky pushed through some big economic reforms, he struggled to overhaul the judiciary and break the hold of
oligarchs on the state. He deserves
credit, however, for proving less of an
instrument than had been feared of
Igor Kolomoisky, the tycoon whose TV
network put Zelensky on a presidential
path and supported his candidacy.
His ban last year on three pro-Russian TV channels and sanctions against
a key Putin ally in Kyiv enraged Moscow. The president faced criticisms,
too, for playing down the prospect of
invasion despite US warnings. Supporters argue his army was all the time
readying itself and Zelensky wisely
avoided socio-economic panic that
might have proved needless, or aided
Russia’s invaders.
Yet while Putin’s invasions in 2014
and today have done more than anything to solidify a sense of Ukrainian
nationhood and identity, Zelensky’s
great wartime gift has been to give this
a voice, and to personify it. While many
previous candidates defined themselves as pro-western or Russian-leaning, the Russian-speaking political
novice from Kryvyi Rih in centralsouthern Ukraine sought from the start
to bridge faultlines and emphasise a
broad-based Ukrainianism.
Indeed, if Putin calls Ukraine the
“anti-Russia”, Zelensky has made himself the anti-Putin. The 69-year-old, exKGB Kremlin chief relies on rambling,
menacing speeches on his TV propaganda channels. His Kyiv counterpart
came of age in the post-Soviet social
media era and is at home with shooting
witty and defiant selfie videos on the
streets of his wartime capital. Putin’s
message is one of exclusion and lies:
Ukraine has no right to sovereignty, is
largely Russian-created, and is now run
by “Nazis”. Zelensky’s is positive, inclusive, and truthful: Ukrainians are a
nation but Russians’ closest kin.
The fact Zelensky is still in office, in
Kyiv — and after several assassination
attempts were reportedly thwarted —
has made him a powerful rallying figure. But his toughest choices may still
lie ahead. If an all-out Russian assault
on Kyiv comes, he must balance what
colleagues call an instinctive desire to
fight to the last moment with the reality that he may be more useful as head
of a continuing government elsewhere.
With lower-level talks with Moscow
showing some progress, the president
may have to weigh, too, his red lines
and what concessions his people, after
their sacrifices, can countenance.
Zelensky’s conduct continues to
enhance his moral stature as he
demands fighter jets and a no-fly zone
from Nato leaders. Their hard logic —
that the west must avoid triggering a
potentially apocalyptic direct conflict
with Moscow — remains correct. But if
Russia steps up its brutality, it will be a
position western leaders will find ever
more agonising to have to stick to.
Nato’s role in the lead up to the war in
Ukraine might justifiably be described
as the alliance’s greatest policy failure
since its foundation in 1949. But there
are striking parallels with the equally
reprehensible role of the EU in the
background to the present conflict,
which I believe is largely ignored in
Sylvie Kauffmann’s opinion piece “A
new Europe is emerging from the
tragedy of Ukraine” (March 7).
It is almost 25 years since Ukraine
under the presidency of Leonid
Kuchma made its “European choice” to
seek EU membership, the first of the
original Soviet states to do so. Initially
the EU response was encouraging.
Financial and expert resources were
poured into Ukraine to facilitate the
necessary reforms. The Orange
revolution of 2004 and Euromaidan in
2014 were spontaneous and dramatic
statements of popular support for a
future inside the EU, with 60 per cent
of Ukrainians polling in favour of
membership.
In the months following the Orange
revolution, then president Viktor
Yushchenko repeatedly pleaded with
the European Commission to open
negotiations leading to candidate
status, only to be rebuffed with the
India’s strategic autonomy
beats bilateral bonhomie
Your leader “India’s disappointing
silence over Ukraine” (FT View, March
14) is right to recall India’s reluctance
to condemn the USSR during the
non-aligned era. India was also silent
during the East Berlin workers’
uprising in 1953 when there was no
strategic compulsion. India’s
diplomatic relations with the old GDR
(East Germany) were only established
two decades later in 1973, the very
decade Indo-Soviet military
co-operation took off.
There is a marked Indian aversion to
interfere even when much more is at
stake, economically and politically.
New Delhi abstained from joining the
international coalition to liberate
Kuwait and its tightrope balancing act
between the Gulf Cooperation Council
and Iraq enabled it to ride out that
imbroglio.
India is aware Vladimir Putin has
been more voluble than China’s Xi
Jinping in denouncing its decision to
join the Indo-Pacific Quad security
dialogue which links India with
Australia, Japan and the US. Strategic
autonomy, not residual Indo-Soviet
bonhomie, led it to cancel a recent
Russian order for 21 MiG-29 jets,
helicopters and anti-tank weapons.
Burzine Waghmar
Member, SOAS South Asia Institute
London W2, UK
A word of encouragement
from a Japanese folk tale
Chris Giles, Jonathan Wheatley and
Colby Smith report that more than half
of Ukraine’s economy has shut down
and that infrastructure assets worth
$100bn have been destroyed (“Half of
Ukraine economy shut down as
Mariupol counts war’s human cost”,
Report, March 11).
In Japan, a castle once faced a
similarly terrible siege, with all food
and water cut off. Nevertheless, every
night someone in the castle played the
flute. When the siege was at its worst, a
member of the besieging army said
that if they heard the music that night
then the siege would fail. They did hear
the flute and the siege eventually
failed.
If Ukrainians can keep their spirits
strong they can overcome the Russian
aggressors. Then, after the war, they
will be able to rebuild their
infrastructure and restart their
economy.
Willem Thorbecke
Senior Fellow, Research Institute of
Economy, Trade and Industry
Tokyo, Japan
Conservatives
hope local
elections will
bolster their
‘red wall’
UK
Notebook
by Sebastian Payne
The BBC’s decision is
on the right wavelength
The BBC’s excellent decision to
relaunch short wave radio news
broadcasts to Russia and Ukraine
deserves our warm support and
applause (“How to puncture Russia’s
disinformation bubble”, FT View,
March 14).
Receiving a short wave signal is
almost risk free. Unless a censor or
security policeman catches the listener
in the act of listening, use of a radio
receiver is not traceable. There is no
two-way communication as there must
be when a user connects to the
internet. BBC short wave can be as
valuable to Vladimir Putin’s brave
opponents in this terrible war as it was
to European resistance movements
during the second world war. Of
course, BBC World Service’s relaunch
of this historic means of transmission
also reaffirms the value of our national
broadcaster. I hope and believe the
Johnson government has noticed.
Professor Tim Luckhurst
Principal, South College
Durham University, Durham, UK
Cancelling artists would
be double standards
Jan Dalley asks “Should we cancel
Russian artists?” (Life & Arts, March
12). If my memory serves me right,
European countries did not cancel
American or British artists when those
countries invaded Iraq under false
pretences in 2003. Western double
standards are slowly but surely
destroying our democracy.
Francis Ghiles
Senior Research Fellow
Barcelona Centre for International Affairs
Barcelona, Spain
The bombshell news that nearly twothirds of voters in the north-eastern
constituency of Sunderland had voted
for Brexit — which trickled in during
the early hours of June 24 2016 —
foretold the result of the referendum.
The pound promptly crashed and
Remain’s hopes of victory faded away.
US actress Lindsay Lohan, glued to the
coverage, was even prompted to ask
on Twitter: “Where’s Sunderland?”
The symbolic constituency may be
about to surprise again. Once
renowned for its shipbuilding,
Sunderland has regenerated with a
further education drive and small
business boom. The vast barren
factories are now swish offices. The
end of the heavy industry is also
overturning its politics, which has
been redoubtably Labour since the
inception of the city council in 1973.
It feels almost inconceivable that
Labour may lose control of
Sunderland in the May 5 local
elections. In 2019, as many of Labour’s
traditional “red wall” heartlands fell
to the Conservatives in Boris Johnson’s
landslide win, Sunderland’s clung on.
Its incumbent Labour MPs saw their
majorities slashed, but the party held
every seat. In 2021, the Tories gained
six council seats and Labour lost nine.
Now they hope to finish the job.
Labour holds 43 seats, a third of
which are up for grabs in May. The
Tories are trailing on 19 seats, with the
Liberal Democrats holding 12. If the
opposition parties retain and gain
seven, they will oust Labour. One local
Tory reckons they are well-placed to
European Neighbourhood Policy, an
opaque piece of Euro-speak offering
partnership and co-operation but
ruling out membership in the
foreseeable future. Similar status was
offered to other former Soviet states,
notably Georgia and Moldova, while
Ukraine’s arguably less reformed
neighbours Bulgaria and Romania
became full members of the EU in
2007. Three Balkan states later went on
to acquire the candidate status still
being denied to Ukraine.
One can only speculate what
difference a more consistent, less
dilatory and ambiguous response from
the European Union might have made
to the conflict in Ukraine today. But
surely just as a Russian invasion of
Ukraine as a Nato state would have
been unthinkable, so an attack on
Ukraine as an established EU member
would have been virtually
unimaginable.
No wonder Vladimir Putin is
insisting that reference to future
membership of either be removed
from Ukraine’s constitution.
Duncan Leitch
Former Adviser on Regional Development
to the Government of Ukraine, 2000-2013
Hertford, Hertfordshire, UK
Monitoring staff can help
aid workplace experience
The ghost of my late father
compels me to protest
Valentina Romei’s piece about staff
surveillance (Report, February 28)
outlines how widespread employee
monitoring has become in the UK.
However, the use of artificial
intelligence by human resources
departments in companies doesn’t
necessarily have to be a bad thing. If
implemented in a transparent way,
AI-enabled employee engagement
platforms can be a powerful tool to
improve the employee experience, help
managers and HR make faster, more
effective decisions to retain employees
and improve workplace inclusivity.
One example of this is how
employers can benefit from technology
that collects data on employee
sentiment anonymously, and then uses
AI to analyse this data, detect any
trends towards things such as
“presenteeism” or burnout, and then
produce recommendations in real time
on how best to address these issues.
This is critical for any business that
not only wants to retain existing
employees but also wants to create a
positive, inclusive culture that will
stand the test of time.
Pierre Lindmark
Chief Executive, Winningtemp
Göteborg, Sweden
Career progression, female
health and family life
Emma Jacobs’ article on fertility
discussions in the workplace (Opinion,
February 27) brought to light a topic
that is often hidden from view in the
workplace, but has a huge impact on
women’s experience and careers.
Many women make painful tradeoffs between career progression,
female health or family life — which is
why they can struggle to excel beyond
the middle management rung of the
career ladder and achieve their full
potential.
Data from our platform shows that
women are 30 per cent more likely
than male colleagues to seek support
about personal challenges (doubling to
60 per cent more in financial services),
suggesting that women’s needs must be
explicitly addressed in the overall
culture of the organisation.
To retain talent, employers must find
new ways to support people through
life’s toughest challenges. It’s only by
bringing these issues to light that we
can hope to make progress in
understanding, and eventually find
solutions that will benefit all.
Julie Chakraverty
Chief Executive and Founder, Rungway
London WC2, UK
win “if they can win the second seats
in the wards they broke into”.
Anthony Mullen, leader of the
Sunderland Tories, hopes the council
will fall into “no overall control” for
the first time. “This is not a
straightforward story about Labour
versus Conservative, it is a story of
local actors who are either for or
against the current administration.
The Green party is helping
strategically target Labour seats and
we work closely with the Lib Dems,”
he says. “With one final push, we are
convinced we will bring it down.”
Mullen points to some
extraordinary events in Sunderland’s
Labour party, which has been
tarnished by two former local
councillors, Paul Middleton and
Thomas Wright, who were sentenced
for child sex offences. Another was
successfully sued after branding a
member of the public a paedophile.
Were the Tories to make gains in
Sunderland, it would mark another
step in the post-Brexit realignment of
British politics. Whether in Sandwell
in the West Midlands or Sheffield in
South Yorkshire, May’s results will
test whether Johnson can still take
ground from Labour following the
“partygate” scandal over lockdown
gatherings in Downing Street.
Lord Robert Hayward, a Tory peer
and local elections expert, says the
war in Ukraine has deflected attention
from Johnson’s domestic problems.
Tories have “crawled upwards” in the
polls over the past few weeks, he says,
predicting that if the elections were
The ghost of my late father, a Trinity
House pilot, compels me to protest at
the injustice to his profession implied
in your article “Ports demand blacklist
of barred Russian ships” (Report,
March 10).
The official guidance, you write, was
“for companies themselves to conduct
their own due diligence”. Later on you
write that, according to the
government, “specialist ‘port pilots’
who guide ships into harbour will be
held liable for mistakenly allowing a
Russian-connected ship into a port”.
Taken together these imply that a
pilot may be required to undertake due
diligence in respect of any vessel which
he boards in the course of his duties.
The job already has hazards enough.
Routinely it involves transfer from a
small launch to a ladder on the side of a
massive vessel, at any time of day or
night, in open seas and all sorts of
weather. One of my own distant
relatives, an Australian pilot, was
drowned when his launch capsized in
surf. A colleague of my father was
killed when his launch crushed him
against the side of the ship he was
boarding in rough weather. Stepping
down on to the launch is also far from
risk free.
The Department for Transport says
the government will assist ports in
implementing these new laws. A
comprehensive list of “Russian
connected” vessels may be hard to
compile but the DfT should at least
publish a blacklist of those ships under
suspicion.
No one — individual or company —
should be required by law to take
responsibility for something which the
DfT says it cannot itself contemplate.
Rhoderick Powrie
Winchelsea Beach, East Sussex, UK
Recalling another icon
of that Antarctic epic
The James Caird lifeboat is a rightful
icon of Ernest Shackleton’s expedition
as Tom Robbins reminds us (Opinion,
March 12). However, without the
presence of Frank Worsley, captain of
the Endurance, all hands would have
been lost. His feat of navigation is
unparalleled. Shackleton expected
difficulties in the Weddell Sea but had
hoped the pack ice would be loose in
December and January. His risky push
south was motivated by the thought
that “every mile gained towards the
south meant a mile less sledging . . . for
the overland journey”.
Colin Heath
Cardiff, UK
today, they would not quite match
2021’s stellar results but still fare
respectably. Yet he adds that if
partygate returns to the agenda, for
example if Johnson is fined by
Scotland Yard, “the Tories will be in
for a much rougher time”.
Even if Johnson chips away at
Labour’s red wall, the Conservative
results further south may be less
positive. The party’s strategists are
pessimistic about holding on to
Wandsworth and Westminster
councils, two totemic Tory pillars in
London that the party has firmly held
for decades. The loss of the former — a
bastion of Thatcherite low-tax
efficiency since 1978 — would come as
a particular blow.
But gains outside the capital matter
more as this is where the next general
election will be won or lost. May 5 has
been billed as a make or break
moment for Johnson, but it may end
up posing questions for opposition
leader Sir Keir Starmer. As one Tory
strategist puts it, Labour should be
returning to where they were before
2021. “They ought to be hoovering up
seats right across the country.”
One of Starmer’s closest allies is
downbeat. “Our polling numbers are
very soft and I’m sceptical we’re going
to make much progress,” the shadow
cabinet minister said. “Once again,
Boris has been proven fortunate by
dreadful events”. Just as Sunderland
was the place to watch in 2016, it will
be once again in 2022.
sebastian.payne@ft.com
★
Wednesday 16 March 2022
19
FINANCIAL TIMES
Opinion
A divided US hangs together on the question of Ukraine
A MER ICA
Janan
Ganesh
H
ere follows the US Republican line on the present
crisis. Joe Biden has been
a slow and halfhearted
friend of Ukraine. A better
president would neither have waited
for outright war to raise sanctions on
Russia, nor spelt out quite so clearly
what America won’t do for the besieged
republic. The Kremlin was already
emboldened by a pattern of Democratic
weakness that is at least as old as Barack
Obama’s underreaction to the 2014
seizure of Crimea. Call it coincidence,
but Donald Trump is the only US leader
elected this century who hasn’t presided
over a Russian incursion into a neighbouring state.
It is possible to reject the substance of
these views, marvel at the brass neck on
show and still feel relief verging on
delight at the overall thrust of the criticism. After all, it suggests there is no
meaningful disagreement in Washington about whether to confront Russia,
only how. A party that was thought to be
ambivalent about the democratic west
in recent years is, if anything, recklessly
bellicose in its defence. Better a headstrong GOP than a hedging one.
A lot has been said about Russia’s accidental unification of a once-squabbling
or at least meandering west. Almost as
large a question is whether the war is
having the same effect within the US
itself. The early signs are far from conclusive but they are promising.
They can’t be written off as features of
the Beltway alone. A new YouGov poll
for CBS shows that voters who backed
Trump in 2020 are only slightly less
keen than Democrats on providing
military hardware to Ukraine. A large
majority of them even say they would
back sanctions that “made the price of
gas in the US higher”.
No one should take that claim at its
word. No one should expect a new age of
Democrats and
Republicans are conscious
now of a mutual and vastly
more serious opponent
bipartisanship. (Republicans have not
rallied at all to Biden, whose approval
rating remains dire.) It is too much to
even count on the party to renounce the
fast-and-loose approach to democratic
norms that climaxed in the Capitol
siege. But we have to find consolations
where we can, and the ongoing toughness of Republicans on the Ukraine
issue is one that is underrated.
If the goal of Russian subversion of US
public life was to make a fifth column
out of the GOP, perhaps with a view to
splitting the nation over such a war as
this, a bureau somewhere in Moscow
has to be questioning the value for
money. Just 12 per cent of voters who
identify as Republican think Biden’s
response to the war has been “too
strong”. Seventy-five per cent are willing him to be tougher. This seems more
or less of a piece with the spread of opinion on Capitol Hill.
What the former vice-president Mike
Pence calls “apologists for Putin” are rife
online; the theory that secret US
“biolabs” dot the Ukrainian landscape
does a roaring trade there. But those
sentiments are not seeping into frontline politics or the wider public as much
as might have been expected. More even
than the rapid fiscal relief during the
pandemic, passed two years ago by a
divided and gummed-up Washington,
this stands out as the biggest surprise of
this columnist’s time in the US.
And this (relative) cohesion has been
achieved after three weeks of a war that
is 5,000 miles away. How a wider global
struggle might transform domestic US
politics is tasteless, but I am afraid also
essential, to consider.
A second cold war, between the democratic west and some autocratic axis,
would be terrible for the world. Even
if it never turned “hot”, the loss to
trade, human contact and non-defence
claims on the public purse would be
vast. People caught on the wrong side
of a border (liberals in Russia, say)
would suffer. It is only the passage of
time since the squalid reality of the
cold war that has allowed “cold” to be
reinterpreted as “soft” or “civilised”.
Equally, it is hard to avoid the thought
that just such a showdown, with its
immense stakes, its external discipline,
is what America has lacked for 30 years.
And that domestic partisanship, which
began to hit a new pitch of intensity with
the Congressional elections of 1994, has
been the result. Al-Qaeda was always
too diffuse a threat to concentrate
American minds. As for China, it has so
far rattled its sabre more often than it
has plunged it into another country.
This crisis might be different. The animus between Democrats and Republicans is no less strong today than it was a
few months ago. But each side is at least
conscious now of a mutual and vastly
more serious opponent. The democratic
world must hope this sense of perspective lasts. The unity of the west is only
worth so much without the cohesion of
its most important member.
janan.ganesh@ft.com
Russia’s war
will remake
the world
Martin Wolf Economics
The combination of conflict,
supply shocks and high inflation
is inevitably destabilising
A
new world is being born.
The hope for peaceful relations is fading. Instead, we
have Russia’s war on
Ukraine, threats of nuclear
Armageddon, a mobilised west, an alliance of autocracies, unprecedented economic sanctions and a huge energy and
food shock. No one knows what will
happen. But we do know this looks to be
a disaster.
It is natural to seek someone to blame.
For many, the culprit is Nato’s expansion into central and eastern Europe. A
leading voice is John Mearsheimer, the
distinguished “realist” scholar, who
blames the US decision to open up the
possibility of Nato membership to
Ukraine in 2008. I agree and disagree.
The mistake was the ambiguity. The
offer should only have been made when
Ukraine would join as a full member.
But I supported the expansion of Nato
into the former Russian satellites
because good fences make good neighbours. Russia knows that if it invades a
Nato member, there will be war. That
was not the case with Ukraine. This is
why this assault seemed an easy option
for the despot in the Kremlin.
As to why Vladimir Putin did it, one
answer is that he runs a failed regime.
Only empire can justify his rule. Russia’s
commodity-dependent economy has
fallen far behind Poland’s. It is a rentiers’ paradise. Today, those rentiers are
Putin’s thugs and the Boris Yeltsin-era
“oligarchs”. Ukraine has failed economically, too. But it is democratic. For
Putin, that aspiration is intolerable.
(See charts.)
In the aftermath of the fall of the
Soviet Union, many hoped for a world
guided by co-operation and mutually
beneficial exchange. But great power
conflict was always waiting to break
through. The US was inebriated by its
“unipolar moment”. China grew more
powerful and authoritarian under Xi
Jinping. Putin chewed on his resentments, finally invading a country he
thinks he owns. We hear echoes of the
first world war. Then, it was Austria, the
weaker partner, not Germany, that
began the conflict. Today, it is Russia,
the weaker partner in its alliance
with China.
China’s promised support risks turning the dangers created by Russia’s war
into a catastrophe. It would transform
the world into two blocs, with costly economic and security consequences. Yet a
mobilised west is still far stronger. The
impact of western sanctions demonstrates this. A unified west dwarfs Russia on all measures, except military personnel and nuclear warheads. Even with
China added, the west is significantly
more powerful, except in numbers.
Nevertheless, a long-term clash
between the west and an authoritarian
bloc of Russia and China must be prevented if at all possible. It would be
hugely dangerous.
Today, then, we see a transforming
world. Consider the challenges ahead.
Most obviously, there must be an end
to the war in Ukraine, which is an
Nato still possesses the world’s
dominant economies
Nato’s military spending far exceeds
that of Russia and even China
Russia’s catch-up halted after the financial
crisis, as Ukraine lags behind
GDP per head at PPP relative to Germany
(Germany = 100)
GDP at PPP (current prices, $tn), 2021
50
Forecasts
Military expenditure ($tn, in current terms), 2020
1.2
70
1.0
60
0.8
50
0.6
40
0.4
10
30
0.2
0
20
0
40
Poland
30
Russia
20
Nato
EU (nonTotal
(EU & UK)
Nato)
Nato (nonUS &
EU excl UK) Canada
Russia &
Total
Belarus
China
Source: IMF
assault simultaneously on a peaceful
country, on a democracy and on the
world order. China should seek to help
extricate Russia from its quagmire. It is
not hard to understand why it backs
Putin. Among other things, its leaders
surely share his contempt for democracies. Yet these are huge mistakes. As history has often shown, free societies are
powerful, once mobilised, because they
enjoy the support of their people.
It is also essential to manage the
coming economic crisis. The combina-
An accelerating reversal of
globalisation and sacrifice
of business interests to
geopolitics is likely
Ukraine
1995
2000
2010
Source: IMF
tion of war, supply shocks and high
inflation is destabilising, as the world
learnt in the 1970s. Financial instability
now seems very likely, too. Monetary
authorities cannot ignore high inflation,
however. So governments will have to
employ targeted fiscal support for the
vulnerable.
Moreover, the west must reinforce its
defences, on all fronts — military,
energy, cyber and economic. It is inevitable, alas, that in a conflict with huge
ramifications the requirements of security come first. This is not the world any
sane person desires. But it is the one in
which we now live. It is vital that the EU
becomes a true security power. It comfortably possesses the economic and
demographic scale to balance Russia.
Post-Brexit UK must participate as fully
as possible. The US needs such Euro-
2020
10
2026
0
Nato
EU (nonTotal
(EU & UK)
Nato)
Nato (nonUS &
EU excl UK) Canada
Russia &
Total
Belarus
China
Source: IMF
pean assistance, since it will also be
dealing with Xi’s worrying China.
Despite these pressing needs, we
should try not to abandon everything
achieved in the past three decades. We
are not at war with ordinary Russians
and Chinese people who simply hope for
a better future. On the contrary, in the
long term they may prove our allies.
Sanctions need to be targeted, so far as
possible. The future of trade and other
peaceful exchanges will depend, however, on how — and, no less, after how
long — this crisis ends.
Not least, we need to remember the
wider concerns all humans share — the
global environment, managing pandemics, economic development and
peace itself. We cannot survive without
co-operation. If Putin’s madness proves
anything it is that. The world of “might
is right” is not a world we can safely live
in. As his nuclear threats show.
After the battle of Austerlitz in 1805,
William Pitt the Younger said, presciently: “Roll up the map [of Europe]; it
will not be needed these 10 years.” Russia’s war on Ukraine has similarly transformed the map of our world. A prolonged bout of stagflation seems certain,
with large potential effects on financial
markets. In the long term, the emergence of two blocs with deep splits
between them is likely, as is an accelerating reversal of globalisation and sacrifice of business interests to geopolitics.
Even nuclear war is, alas, conceivable.
Pray for a miracle in Moscow.
Without it, the road ahead will be long
and hard.
martin.wolf@ft.com
Western leaders must be honest about the costs of standing up to Putin
europe
Constanze
Stelzenmüller
D
uring major international
championships, Germany
— as a popular saying has it
— is home to 82mn football
trainers. In the pandemic, it
was a nation of impassioned virologists.
Since the beginning of the Kremlin’s war
against Ukraine in late February, it
seems that every German has become
an expert on irregular warfare against
Russian tanks.
But then the country is being rocked
by a seismic shift not seen since the fall
of the Berlin Wall and the demise of the
Soviet Union more than 30 years ago.
As it became clear that Vladimir Putin
would make good on his threats against
Ukraine, chancellor Olaf Scholz had
already suspended the controversial gas
pipeline project Nord Stream 2, and
announced that Berlin would send arms
to Ukraine. Three days after the invasion, he said in a historic speech that
Germany would now fulfil its promise of
spending 2 per cent of its gross domestic
product on defence, accelerate the
move away from dependence on Russian energy, build two new liquid natural gas terminals, buy armed drones,
commit to nuclear participation and
send more troops to reinforce Nato’s
eastern flank. One observer tweeted
that “Germany’s foreign policy sacred
cows are now a steaming pot of Rindergulasch” or beef stew.
The impact on public opinion in a
nation with a deserved reputation for
endemic caution and a propensity to
outsource security risks and costs to its
neighbours and allies has been nothing
short of astonishing. Scholz’s popularity
jumped by 13 per cent. Ninety per cent
of those polled say Russia is untrustworthy. Eighty per cent say Berlin’s actions
are appropriate, or should be even
tougher. Two-thirds support his deci-
Even if the worst does not
come to pass, the hardest
decisions for Kyiv’s allies
are yet to come
sions — even if Germany suffers energy
shortages, inflation or damage to companies. Four-fifths say Nato matters to
secure peace in Europe.
This wave of support is proof of what
firmness of thought, speech and action
in a leader can achieve. Also, if you want
to make millions of horrified Germans
give up pacifism, it’s hard to conceive of
a more effective combination of triggers
than invading a sovereign nation, committing atrocities against civilians,
unleashing a wave of refugees on a scale
not seen in Europe since the 1940s,
threatening to use nuclear weapons,
shooting up nuclear power plants and
calling a Jewish president of Ukraine a
Nazi. Putin has done all of these things
since February 24.
Yet in all this lies an immense danger.
As CIA director William Burns testified in the US Congress last week, an
“angry and frustrated” Putin is “likely
to double down,” meaning that Ukraine
might be in for an “ugly next few
weeks”. Even if the worst does not come
to pass, and Moscow and Kyiv decide
to seek a negotiated truce, the hardest
decisions for the west are yet to come.
How to protect Ukraine? Would a faster
transition away from Russian energy
imports, or further weapons deliveries
to Ukraine, or a real crackdown on oligarch assets in the west, deter the Kremlin or at least constrain its choices?
How to protect the transatlantic alliance against Putin’s repeated maximalist demands? Should it move swiftly to
deploy troops permanently along Nato’s
eastern flank? Station IntermediateRange missiles in response to Russian
Iskander batteries in Kaliningrad?
Should it perhaps even contemplate a
European nuclear deterrent?
And what if Putin escalates, using
chemical or nuclear weapons?
The stress is beginning to show. Western policymakers have been at odds
over proposals to bring Ukraine into the
EU, to give Kyiv Polish MiG fighter
planes or to cut off Russian energy
immediately. Or to establish a no-flyzone over Ukraine, which would mean
bombarding Russian air defences in
Russia and make Nato a combatant.
Public anger, amplified by social
media, risks pushing leaders into hasty
decisions when they should be thinking
soberly and prudently. So a key challenge in what could be fateful weeks
ahead will be for Scholz and his peers to
maintain clarity and message discipline:
explaining what we can and cannot do;
that there will be a price for standing up
for Ukraine and against Putin; and that
in doing so we will also be standing up
for ourselves.
As for Russians living among us, they
must be protected against bullying and
hate. To those living in Russia, we
should say (whether via short wave
radio, low-orbit satellite communications or the Dark Web): our quarrel is
solely with the war criminal in the
Kremlin and the cronies that enable
him. You are not our enemy. But Putin
is. And he is yours as well.
The writer is Fritz Stern Chair at the Brookings Institution
20
★
FINANCIAL TIMES
Wednesday 16 March 2022
Solvay: complicated process
The chemicals group plans to spin off legacy assets, including the manufacturing of soda ash. It hopes to
achieve a re-rating for its underperforming shares. The production of soda ash is emissions-intensive. That is
likely to push up the cost of Solvay’s EU operations as carbon-reduction targets are imposed.
Group’s production of soda ash remains competitive
Twitter: @FTLex
Cash costs including free on-board shipping ($/t 2021)*
It is not just oil prices that bring back
memories of 2008. Chinese stocks
listed in Hong Kong this week fell the
most since the financial crisis. Expect
oil prices to normalise before Chinese
stocks do.
After a rough Monday, declines
continued yesterday despite strong
Chinese economic data. Hong Kong’s
Hang Seng index dropped 6 per cent,
with the Shanghai Composite index
close behind. Shares in techs Alibaba
and Tencent fell more than a tenth.
Lockdowns in China are partly to
blame. Shenzhen and Shanghai, two of
its wealthiest cities, have been partially
shut as China struggles to control
a surge in Covid-19 cases. Shenzhen is
especially key to China’s economy. It is
a hub for tech groups such as Tencent
as well as manufacturers such as
Taiwan’s Foxconn, supplier to global
companies including Apple.
Lockdowns have pushed the number
of container ships waiting off some of
China’s biggest ports to almost double
that of February, Bloomberg data say.
Yet the biggest risk remains the
potential of US-led sanctions. US
officials believe China responded
positively to Russian requests for
weapons and military assistance.
Beijing hit back at what it claims are US
efforts to spread disinformation.
Nonetheless, China remains exposed
to western sanctions imposed on
Russia. Many Chinese companies,
especially in high tech sectors such as
chipmaking, continue to rely heavily
on foreign equipment and technology
for manufacturing. Future earnings of
these groups, including SMIC, the
country’s biggest chipmaker, could be
at risk if they continue to sell to Russia.
The 37 per cent decline in the Hang
Seng index in the past year means its
valuation on a forward earnings basis
has more than halved over the period.
Hong Kong’s benchmark index and
the Shanghai Composite index now
both trade at just 1.1 times book value,
even below the lows of the global
financial crisis.
But that is not a sign of a bargain.
More drastic, citywide lockdowns in
Shanghai, China’s wealthiest
metropolis, are looming. The
government has not signalled its intent
to support growth, nor stem the tech
sell-off. Yesterday the central bank
decided not to ease interest rates. Local
regulators are continuing to crack
down on tech groups.
The worst is far from over for local
stocks.
Cryptocurrency mixers:
stirred not shaken
“What’s the point of a washing
machine that only washes clean
laundry?” Wasabi Wallet’s followers are
unimpressed by plans to start blocking
crypto mixing, a means used by money
launderers to avoid detection.
So-called CoinJoins let dealers team
up by combining their transactions
into a sort of virtual cocktail shaker;
once decanted, there is little audit trail
back to where the coins originally came
from. Users of some of this software
pay a staggered fee that rises according
to the number of parties in the mix.
This makes it popular with selfproclaimed libertarians and criminals
alike. Anonymity is the sine qua non of
crypto, a currency designed to be
untraceable and unshackled from
government oversight. Unsurprisingly,
regulators are less enamoured. The
UK’s National Crime Agency is urging
the regulation of decentralised crypto
mixers. Other watchdogs, closing up
loopholes for evasion of sanctions
imposed on Russia, are piling in.
The push-pull between industry and
watchdogs will go on. Compromising
privacy goes against the grain for
crypto firms. An early Coinbase
investor presentation, obtained by
Washington Free Beacon, flagged
bitcoin’s immunity to country-specific
sanctions as an advantage. (It has since
changed its tune.) Later, in 2017, it
claimed a partial victory by whittling
back the US tax authorities’ request for
half a million account holders’ financial
records down to 14,000.
Those same freedoms are exploited
by criminals too. Elliptic, which
analyses crypto transactions, reckons
15 per cent of all proceeds of crypto
crime was routed through mixers last
year. A Europol report found 30 per
cent of transactions on Wasabi over a
three-week sample period originated
from the dark web. That is 30 times the
overall level of total transactions.
More change is likely, but
participants are used to moving fast;
Higher cost
China stocks:
locked in
Solvay Other
plants plants
Production cash cost (synthetic assets)
Production cash cost (natural assets)
Solvay ‘regional’
Plant-to-FOB cost
Solvay ‘world-class’
assets best positioned
to serve seaborne customers
FT graphic Sources: company; Refinitiv; S&P Global
JOTTER PAD
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Prices (rebased)
Stoxx Europe 600 Chemicals index
Solvay
2017 2018
2019
2020
2021
2022
160
140
120
100
80
60
40
Breakup should lift valuation
Turkey Turkey US
US
US
natural
natural
natural
Supply (soda ash plant capacity)
*Data not disclosed
India
Enterprise value (€bn)
20
15
10
5
0
Solvay
Solvay
Specialty
Solvay
Essentials
EV/ebitda multiple
30
20
10
Vitrex
Hexcel
0
EMS-Chemie
Ernest Solvay revolutionised the
process for making soda ash in the
19th century. The €12bn Belgian
company that bears his name is still
the world’s largest manufacturer of
the compound. But its focus is
currently on financial, not chemical,
engineering.
Yesterday, Solvay said it planned to
split its business into two, separating
the faster-growing speciality growth
business from the mature chemicals
business via a spin-off in the second
half of next year. The move aims to
unlock a conglomerate discount and
add fizz to lagging shares.
Solvay had already stated its
intention to rejig the portfolio at
results in February. The choice to
spin off, rather than divest, the assets
is another possible consequence of the
Ukraine conflict.
Used in glass making, soda ash is a
widely made commodity chemical.
Bundled beside other cash generative
assets, this business should appeal to
investors. The faster-growing materials
unit, meanwhile, will fetch a higher
rating, providing the valuation lift.
Solvay’s enterprise valuation of just 6
times forward ebitda pales against
speciality peers. The UK’s Victrex
trades at 15 times while Hexcel of the
US is on an 18 times ebitda multiple.
Even a 10 times multiple for Solvay’s
new speciality unit would value it at
about €13bn, or more than the current
group total. Add in the soda ash and
other mature assets on a 5 times
multiple and that rises to €18bn. That
would be a 50 per cent potential
upside for shareholders.
Things will be less straightforward
in practice. Soda ash manufacturers
in Europe will need to invest to cut
their carbon footprint, says Sebastian
Bray of Berenberg. That means a
creeping disadvantage compared
with rivals outside the EU. Many of
the latter mine, rather than
manufacture, the soda ash. That is a
less energy-intensive process.
Management failed to provide
estimates on how much free cash
flow this will require. There were also
few details on how the €2.2bn of net
debt or the environmental liabilities
worth €648mn last year will be split.
Both are likely to be a drag on the
legacy business and its valuation.
they have access to rafts of open source
technology and plenty of capital too.
The onus is on regulators to keep up.
demand, amplified by Russia’s invasion
of Ukraine, pushed up the price. This
year alone, it has more than doubled to
over $400 per metric tonne.
Peabody has now been hit with a
margin call of more than $500mn. In
response, it has turned to Goldman
Sachs, which has extended a $150mn
credit facility to help bolster its
liquidity at a juicy interest rate of 10
per cent. That move is controversial,
given Goldman’s previously announced
aversion to coal companies.
Shares of Peabody, which produces
coal both for energy and steelmaking,
have fallen a quarter since their
recent peak, clouding one of Wall
Street’s most remarkable turnrounds
in recent years.
In early February, they hit more than
$26 a share, up from $1 a share where
the coal company traded in 2020 when
it teetered on the edge of bankruptcy.
In 2021, operating profits more than
tripled, year on year, to more than
$900mn. Total debt-to-ebitda fell
correspondingly, to just 1.2 times at the
company, in which Elliott is the largest
shareholder with a 19 per cent stake.
Peabody’s hedge was mercifully
limited to just about a tenth of its
thermal seaborne production. As the
company sells unhedged coal at high
spot prices over time, it will generate
the resources to both fund any
impending margin calls and pay down
the Goldman loan.
Peabody, like all other commodity
producers, has been caught off guard
by the rally in prices. Its ordeal is a
reminder that companies favour
predictability over volatility.
Peabody Energy:
coal comfort
Commodity prices can, perversely,
rocket too high for mining companies.
A hedge that was supposed to support
the profitability of one of Peabody
Energy’s Australian mines has become
a drain on the resources of the world’s
biggest private-sector coal producer.
The contract agreed last year locked
Peabody into a sales price of $84 per
metric tonne until mid-2023 for a
fraction of its seaborne thermal-coal
production in Australia. Soaring energy
CROSSWORD
No 17,044 Set by JULIUS
assets best positioned to
serve inland local customers
Shares underperform
ACROSS
1 Ageing Aussie swinger, maneater, #1
twerker, sozzled (5,5,5)
9 Misery of seaside spa I remember (7)
10 Taking time out from martial art; OK to
pop in for a sing-song? (7)
11 Feeling unwell in the French city (5)
12 TV, radio & press service aimed for
disruption (4,5)
13 Tabloid rubbish article included “what
the PM did in Marbella?” (9)
15 Visiting Bridport, I’d always like the sea
(5)
16 Fury seen as Glasgow side has both
wingers dismissed (5)
18 Awful pain when East German comes in
for new currency, longing for the past
(9)
20 Nudge Joey, reclaim - finally! - a bit of
space (5,4)
23 Brits losing a thousand from equities
going into recession (5)
24 Silly sort of everyday language mother
banned (7)
25 Sticky substance Malcolm occasionally
found in ash? (7)
26 Bishop tucking into pasta al dente I’d
cooked which contains no meat (1,5-5,4)
DOWN
1 Grand Crimea/Odessa gathering
featuring oddly bold patriotic statement
(3,5,7)
2 Letter beginning to explain uplifting
result of Ms Bott’s treatment? (7)
3 Trattoria fed artist going north to host
an expo (5,4)
4 Female members of household run miles
(5)
5 Show bias and pick teams (4,5)
6 Packs down for this? (5)
7 Shunned adult video broadcast over
Germany (7)
8 Ordering cheapest ale, keen to save all
the shots? (4,1,5,5)
14 Its driver might demolish bacon and
mash (6,3)
15 Rise above tendency to keep cans for
recycling (9)
17 Young lady eating soft cheese, a gift
from God (7)
19 Coaching poor American to quit starchy
food (7)
21 Western alliance upset Germanic
supreme leader (5)
22 Dull husband struggling at first in this
subject (5)
Intel:
hey, big spender
Can Intel spend its way back to
chipmaking relevance? That is the
question investors should be asking as
the US semiconductor group reveals
plans to invest €33bn in chip
production and research across
Europe. The news comes as it looks to
spend more than $40bn to build and
expand chipmaking facilities in the US.
In Europe, Intel says it could end up
investing as much as €80bn on the
continent over the next decade.
Boss Pat Gelsinger has picked a good
time to embark on a building spree.
Semiconductors, which run everything
from smartphones to medical devices
to F-35 fighter jets, have become the
new battleground for geopolitical
rivalry. The global chip shortage has
only heightened this sense of anxiety.
Governments in the US and Europe are
pouring tens of billions of dollars of
subsidies into the sector to lessen their
dependence on Asian chipmakers.
Even with the help of taxpayer
largesse, it is not clear whether Intel’s
spending binge will be enough to
return the company to its former glory.
It has fallen behind its Asian rivals,
after decades of global leadership.
A 30 per cent decline in Intel shares
over the past 12 months reflects
investor scepticism that it can close the
gap with rivals. The giant new fab — or
manufacturing plant — that it plans to
build in Germany for example is aimed
at churning out new cutting-edge chips
that are two nanometres or less in
width. Yet it is not expected to be up
and running until 2027.
By contrast TSMC and Samsung are
both looking to mass-produce these
chips by 2025.
In the meantime, Intel will be feeling
the cash burn. Adjusted free cash flow
is expected to be negative $1bn to $2bn
this year. Capital expenditure will
come in at about 35 per cent of this
year’s projected revenue and gross
margins will drop to under 50 per cent
compared with 55.4 per cent last year.
Intel says that this is short-term pain
for long-term gain. Investors may not
stick around long enough to find out.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex