ApprovedBusiness and financeFINANCEFinance and economics

That sinking feeling

TOO many ships, too little trade. On August 31st Hanjin Shipping, South Korea’s biggest container carrier and the seventh-largest in the world, filed for receivership, after five years of losses and another deficit in the first half of 2016. Hanjin was holed by shipping’s prolonged global slump, the product of vast overcapacity and slow trade growth. Its creditors, led by state-owned Korea Development Bank (KDB), have had enough.

Shipping’s malaise is both broad and deep. An earnings index compiled by Clarksons, a research firm, covering the main types of vessel—bulk carriers, container ships, tankers and gas transporters—reached a 25-year low in mid-August. The average for the first half of 2016 was 30% down, year on year, and 80% below the peak of December 2007. Stephen Gordon of Clarksons adds that new orders at shipyards are the lowest in 30 years.

As KDB’s loss of patience shows, the industry’s troubles hurt lenders as well as shippers. According to Petrofin, another research group, Asian banks have expanded their shipping loans in recent years. With China’s economy slowing and world trade in the doldrums, they may…Continue reading

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Honest partner

The wind’s set fair

THE maroon hot-air balloons which carry tourists over Bagan—an ancient city teeming with crumbling red-brick temples—are famous in Myanmar. The fleet belongs to one of the country’s best-known tycoons. Since the pariah nation began to open up in 2011, Serge Pun has gradually transformed an empire built on property into a conglomerate with interests in tourism, consumer goods and other industries. His firms have become favourite partners for foreign multinationals.

Mr Pun is an atypical character in Myanmar’s business scene. He spent his teenage years in China, his family having left Myanmar after the army’s coup in 1962. During the Cultural Revolution Chinese authorities sent him to a re-education camp. He returned home in the early 1990s after starting his own property firm in Hong Kong.

He owns two flagship companies, First Myanmar Investments (which became the first company to list on Myanmar’s new stock exchange in March) and Yoma Strategic Holdings, which is listed in Singapore. Both hold stakes in a number of housing developments, whose value Myanmar’s opening has greatly…Continue reading

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Show me again

IF YOU can sell smartphones, you can sell anything. That seems to be the motto of Xiaomi, a Chinese firm best known for making feature-laden but affordable handsets. On August 31st, at a splashy event in Beijing, it unveiled a robotic vacuum cleaner—the latest in its “ecosystem” of devices, which also includes smartwatches, air purifiers, hoverboards, rice cookers and even an electric screwdriver (most are built by startups in which Xiaomi has a stake).

The snazzy vacuum—it features a futuristic distance sensor that is able to scan its surroundings up to 1,800 times a second—is a symbol of the hubris that has led Xiaomi to chase its ecosystem dreams even as it has neglected its core business. Considered the world’s most valuable startup only a couple of years ago, when it attracted more than $1 billion in funding at a valuation of $46 billion, some now reckon it to be worth only a tenth of that.

The firm vigorously rejects such estimates—and calls another figure deeply flawed. According to IDC, a market-research firm, sales of Xiaomi handsets on the Chinese mainland fell by nearly 40% in the second quarter of…Continue reading

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Seizure-inducing

Sticker shock

JULIANA KEEPING is rushing to work in Oklahoma with two children in tow. Her three-year-old son, Eli, has cystic fibrosis, a deadly lung disorder. He is too young for a drug called Orkambi from Vertex Pharmaceuticals, a biotech firm, but one day it may keep him alive. His mother’s question is why it costs over $250,000. A charity helped pay for its development, she says, with some donations from people who were “D-Y-I-N-G”—she spells out the word. That is because she doesn’t want her other child to understand. “She doesn’t know her brother’s disease is F-A-T-A-L.”

Ms Keeping has started a petition against the price of Orkambi. She is not alone in her anger. Americans are furious about the cost of medicines. Over the past week their ire engulfed Mylan, a generic-drug firm, which had raised the price of its EpiPen, an injectable medicine that fends off deadly allergic reactions, to $608, from about $100 in 2007. On August 29th Mylan said it would start selling a generic version for half the price. The brawl is far from over. Both Hillary Clinton and Donald Trump are proposing measures that would…Continue reading

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Seek and we shall fund

IN 2007 Lucas Braun and Ryan Robinson emerged from the Stanford Graduate School of Business with such a sense of “professional invincibility” that they decided not to return to their old jobs in a consultancy and a hedge fund, respectively. Instead the two Americans took a leap of faith—in themselves.

They were 32 and had no experience of running businesses, but they persuaded a group of investors to finance them for 21 months as they searched for a business to acquire. They discovered OnRamp, a Texas-based private company, and assumed the roles of chief executive and chairman. Following spin-offs and acquisitions, the company now provides cloud computing for industries with sensitive data. Over the past seven years, they say, revenues have grown by 30-35% a year.

The two executives are products of a niche of the private-equity industry known as search funds—such a small niche, in fact, that few in the business have heard of it. But Stanford, which helped pioneer the industry in the 1980s, tracks it, and says that it has grown sharply in the past two years. In 2015 more than 40 new funds were established, twice as many as in 2009. Over the same period the…Continue reading

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Stada and deliver

IT MADE an uncommonly inviting target for an activist. Stada, a German maker of generic drugs based near Frankfurt, had low revenues, high running costs and opaque accounting. It was valued lower than its peers and shunned by investors. And if its overpaid top managers were lacklustre, its supervisory board was fossilised: crammed with elderly doctors and pharmacists who did little to pep it up.

Shareholders in Germany usually shy away from confronting such problems. But after a rancorous 14-hour annual general meeting on August 26th, they voted out Stada’s chairman, Martin Abend. He went the way of the once-dominant chief executive, Hartmut Retzlaff, who quit in June (owing to an illness). As the board is rejigged, managers have rediscovered some ambition. They have promised to lift revenue to €2.6 billion ($2.9 billion) by 2019, from €2.1 billion last year.

It is a big victory for a young, German-led investment firm, Active Ownership Capital (AOC), which has adopted the sort of aggressive style usually associated with American, British or Nordic funds, such as Cevian Capital of Sweden. AOC, which has a 7% stake in Stada, fought for a year to shake up the…Continue reading

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Fashion forward

A platform for all shoes

PAST the rolling hills, grazing ponies and sleepy villages of North Rhine-Westphalia, in west Germany, a convoy of trucks converges on Mönchengladbach. Here a hangar the size of 13 football fields encloses the logistics centre of Zalando, Europe’s biggest online vendor of clothing and footwear. Inside, people pack boxes with shoes, jeans and handbags; and thousands of parcels progress at fairground speed up and down a 14km conveyor belt where they are weighed, labelled, scanned and sorted before tumbling down slides into trucks bound for 15 countries. Last year Zalando shipped 55m orders, over 100 per minute, from three such warehouses.

The firm’s founders, David Schneider and Robert Gentz, started by selling flip-flops online from their Berlin flat in 2008. They found that Europe’s market for shoes and clothing was fragmented, inefficient and offline. Soon, they were backed by Germany’s Samwer brothers, whose habit of imitating American online businesses earned them a reputation as the copycat kings of Europe. They noted that whereas Zappos, a firm later bought by Amazon, an American online…Continue reading

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More spend, less thrift

ON AUGUST 24th Germans received news to warm any Teutonic heart. Figures revealed a larger-than-expected budget surplus in the first half of 2016, and put Germany on track for its third year in a row in the black. To many such excess seems harmless enough—admirable even. Were Greece half as fiscally responsible as Germany, it might not be facing its eighth year of economic contraction in a decade. Yet German saving and Greek suffering are two sides of the same coin. Seemingly prudent budgeting in economies like Germany’s produce dangerous strains globally. The pressure may yet be the undoing of the euro area.

German frugality and economic woes elsewhere are linked through global trade and capital flows. In recent years, as Germany’s budget balance flipped from red to black, its current-account surplus—which reflects net cross-border flows of goods, services and investment—has soared, to nearly 9% of German GDP this year.

The connection between budgets and current accounts might not be immediately obvious. But in a series of papers published in 2011 IMF economists found evidence that cutting budget deficits is associated…Continue reading

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Called to account

“FACTS are stubborn,” wrote Mark Twain, “but statistics are more pliable.” Because made-up GDP and borrowing figures can trick creditors into lending more cheaply, and fiddled inflation numbers can cover up economic woes, politicians are sometimes tempted to tweak data. It is the job of statisticians to keep numbers honest.

Occasionally, at a high price. In 1937 Olimpiy Kvitkin, a Russian statistician in charge of a census of the Soviet Union, was arrested and shot. His error was to find that the country contained fewer people than Joseph Stalin had announced (the dictator’s brutal policies may have explained the shortfall).

Less extreme, but nonetheless shocking, is the case of Andreas Georgiou, who has gone from Greece’s chief statistician to its chief scapegoat. Mr Georgiou’s crime? Estimating that the government’s budget deficit in 2009 was 15.4% of GDP.

Never mind that the first estimate of this figure had been only a little lower, at 13.6% of GDP. Never mind repeated confirmation from the European Commission that Mr Georgiou’s numbers were accurate. Never mind, too, his 21 years of experience at the IMF. Detractors across the political…Continue reading

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Leaving for the city

FIFTY years ago American companies started to move their headquarters away from city centres to the suburbs. Some critics blamed the exodus on “white flight”, as businesses followed their employees out of increasingly crime-ridden cities. The firms themselves ascribed it to corporate responsibility. They provided offices in safe neighbourhoods and near good schools—one academic, Louise Mozingo, of the University of California, Berkeley, calls it “pastoral capitalism”. Whatever the reason, it created a new type of HQ: not an office tower in the pumping heart of a metropolis but a leafy campus in the middle of nowhere.

Now a growing number of companies are moving back again. The most prominent example is General Electric, which abandoned New York City for a 68-acre campus in Fairfield, Connecticut, in 1974, but is now swapping its bucolic site for a collection of warehouses on the Boston waterfront. There are legions more. Chicago’s downtown has attracted an impressive collection of HQs, from both the surrounding suburbs and from farther afield, including McDonald’s, Kraft Heinz, Motorola Solutions, Boeing, and Archer Daniels Midland, a…Continue reading

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Bank vigilantes

AFTER years of frustrated attempts to bolster India’s corporate-bond markets, Indian policymakers are supplementing their efforts with a dose of bank-bashing to improve their chances of success. The plans will make life pleasingly hard for crony capitalists. But they could leave some Indian companies struggling for capital if implementation fails to go to plan.

Big companies across the world typically mix borrowing money from banks (which are flexible and can disburse loans quickly) with that raised from investors through bond markets (which offer lower interest rates). In India the balance has been skewed towards banks. This is, in part, because 70% of the banking sector is state-owned; at times, it has seen financing of even dubious projects as a calling rather than a way to make money. Issuing bonds has in any case been a fiddly business.

That system used to work, but a good chunk of the money loaned by banks in a mini-credit boom that started around 2011 now appears not to be coming back. Around 16% of total loans have been restructured or are distressed in some way, and some banks have been bailed out by the government. One cause of the bad lending is that…Continue reading

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