Chinese local government investment vehicles escape borrowing limits

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Regional governments across China are escaping borrowing limits by shifting assets into the books of local investment firms to lower their official debt ratios, executives and officials say.

This practice has enabled local government funding vehicles to raise more money for infrastructure and other construction projects. But analysts warn that many assets are of poor quality, paving the way for an increase in bad debt after a wave of bond defaults at government-backed companies in recent weeks.

“A lot of our assets don’t generate much economic value,” Liu Pengfei, chairman of Taiyuan Longcheng Development Investment, a LGFV in northern Taiyuan City, said at an investment conference last month. “Taiyuan government gave them to us so that we could meet. [the debt-to-asset] requirements set by our creditor banks and bond investors.

TLDI focused on infrastructure projects. Today, it is a large, diverse operator of everything from parking lots to tourist attractions, many of which barely stay afloat.

According to public records, the total assets of 960 major LGFVs that regularly disclose their financial results have increased by 40% over the past four years. However, their income and net income only increased by 6% and 4% respectively.

“A Rmb100bn [$15.3bn] a company will be no less likely to default on its debt than a Rmb 10 billion company simply because of a size difference, ”said Bo Zhuang, chief economist for China at TS Lombard, a group of research.

The surge in acquisitions is expected to continue as local governments turn to LGFVs to boost the economy in the wake of the coronavirus pandemic. The Shaanxi provincial government said in a statement in October that it would transfer “as many assets as possible” to LGFVs so that they can double their borrowing over the next two years. The measure “would effectively eliminate the risks associated with public debt,” the government added.

“The bigger we are, the more we can borrow,” said an executive from Yan’an City Construction Investment Corp, another Shaanxi-based LGFV.

The executive said YCCIC has been entrusted with dozens of state-owned enterprises by the Yan’an municipal government since 2018, ranging from hotels to water treatment plants. Most of them struggle to make a profit.

Nonetheless, the executive added, YCCIC was able to borrow more as its larger size translated into a better credit rating, which was upped a notch to double A plus in October. Over the past two years, YCCIC’s outstanding bank loans have more than doubled.

Many local governments had previously ceded valuable land to their LGFVs free of charge in order to increase their borrowing capacity. But the practice was banned by the central government, forcing local governments to resort to lower-quality asset transfers.

Chinese banks, the largest LGFV lenders, are comfortable lending to the largest public investment firms, even as the quality of their underlying assets deteriorates.

“We have an obligation to support government-controlled enterprises as long as they meet core funding requirements,” said an executive from the Bank of Xi’an.

The rating agencies, on which LGFVs rely to access the bond market, are also generally favorable. An executive from the China Chengxin Credit Rating Group, one of the largest in the country, said the company paid more attention to total assets than earnings or cash flow. “The injection of government-controlled entities, whether profitable or not, into LGFVs is a sign of state support,” the official said. “It’s a plus for their credit rating. “

Some investors, however, are not convinced that the frenzy of LGFV acquisitions will make them less likely to default.

“Expanding LGFV balance sheets will not remove credit risk,” said Dave Wang, a Shanghai-based fund manager specializing in buying LGFV debt. “They may erupt at a later date, on a larger scale.”

Some LGFV executives have said they are aware of the potential risks as they seek to create more market-responsive businesses.

An executive from Jiangdong Holding, an LGFV in central Ma’anshan city, said his group had acquired two smaller peers and wanted to emulate Temasek, the Singaporean public investment group, even though it could not match its return on capital for the foreseeable future.

“Temasek has enjoyed a 16% annual return on investment for many years,” he said. “We would be satisfied with 1.5%. “


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Hagerty is bullish on these classic investment vehicles for 2021

Like Wall Street, the classic car trade has its ups and downs, with investment vehicles entering and leaving favor over the years.

There are blue chips that are there for the long term, like the ultra-rare ones. Ferrari and Ford winners of Le Mans, but the values ​​of most fluctuate a bit with the demographics of the buying pool. A recent poll found that Gen Z are now the most interested in buying a collectible before Gen Y, Gen X, and the Baby Boomers who sparked all the hype.

The only big difference is that unlike a share of You’re here, you can drive a classic car to get your money’s worth, regardless of the final resale value.

That said, no one wants to lose anything on a major purchase, so the folks at Hagerty Insurance analyzed the trends to create their Bull Market list of cars, trucks, and motorcycles to watch in 2021. Factors like recent price changes, the web traffic, quote values ​​and the total number of quotes were all taken into account.

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Hagerty doesn’t make precise predictions about performance – so watch out for the buyer – but has chosen a mix of vehicles under the radar, old successes gaining renewed interest, and relatively new models that have made the leap. of depreciation and are ready to enjoy while you enjoy them.

2011-2012 Lexus LFA

The $ 350,000 LFA was a bit odd for the value-driven luxury brand, but its 553bhp V10 engine and supercar speed made it an instant classic. Only 500 were built and Hagerty estimates the current value of a well-driven example at around $ 550,000.

2006-10 Jeep Grand Cherokee SRT8

With its 420 horsepower HEMI V8, wide tires and super low stance, the Grand Cherokee SRT8 certainly wasn’t designed for off-roading, unless it’s a race track. The SUV cost around $ 40,000 in new condition and its value rose 8.3% last year to almost that amount.

1984-1991 Ferrari Testarossa

Even ignoring his lead role in “Miami vice“, Testarossa is so 80s it almost hurts, so it’s no surprise that Baby Boomers and Gen Xers are most interested in it today. Priced at $ 165,000 per l new condition, they sell in the $ 100,000 range, but values ​​rose 8.7 percent last year with the highest auction price paid 37.5 percent more than the year former.

2005-17 Aston Martin V8 Vantage

The V8 Vantage was designed by Henrik Fisker, who is Latest Auto Business Start Worth $ 4 Billionso he would probably have no problem picking one for the $ 50,000 Hagerty they are worth today. Prices have remained stable over the past few years, however, with a lot of interest from younger buyers.

1964–70 Honda S600 / S800

When you think of a two-seater Japanese sports car, the 52bhp Honda S600 or its successor S800 probably doesn’t come to mind, but you can pick one up for under $ 20,000, which is less. than a new Mazda MX-5 Miata. Don’t wait too long, however, as its value increased 18.5% last year.

1980-1991 Volkswagen Vanagon Westfalia

The VW of the 1960s Microbus attracts all the attention, but the Vanagon shares its original rear engine setup and has a lot of charm, especially in the form of a Wetsfalia motorhome. Prices for a decent model range from $ 27,000 to $ 36,000 and have increased 27.7% in the past three years.

2005–06 Ford GT

The original Ford GT40 from “Ford vs. FerrariFame is a multi-million collector’s item these days, but the 40th anniversary tribute is slightly more accessible at just under $ 400,000. That’s almost triple what they sold for the new, but while prices haven’t risen much lately, Hagerty says interest in the 205 mph Coupe across all age groups is.

2000–06 Audi TT Quattro Coupe

The retro-modern TT helped spur a design trend that has thrived over the years, but unlike the VW New Beetle and the rebooted Ford Thunderbird, you can still buy a new one. TT today. The original is much cheaper, however, and can be found for $ 10-16,000.

1948-1954 Jaguar XK 120

The beautiful is not lacking Jaguars out there, but the XK 120 is an all-time great. It was the fastest production car in the world for a time, with a then blazing top speed of 132 mph, and served as both a race car and a road car. Values ​​have fallen 8.6% in the past year, but the going rate of $ 140,000 is still a little higher than its original price of $ 3,945. Gen X loves the XK, however, with quote rates up 33% this year.

1969 Honda CB750 (Sand)

While many consider the XK 120 to be the first supercar, the Honda The CB750 was the first superbike and the first edition of 1969 was particularly special. Its transversely mounted four-cylinder engine block was cast in sand rather than die-cast, which made it unique. Values ​​rose 11.5% in 2020 to reach $ 37,500 for a daily cyclist.

1993-97 Toyota Land Cruiser FZJ80

The Land cruiser The name has been in use for eight decades and there are plenty of cool models for collectors to choose from, but Hagerty says the 1993-1997 model is special because it was the last one with a solid front axle and six-cylinder engine. line, but also the first that was good on the road, thanks in part to a set of coil springs and four-wheel disc brakes.

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Hagerty is bullish on these classic investment vehicles for 2021

Like Wall Street, the classic car trade has its ups and downs, with investment vehicles entering and leaving favor over the years.

There are a few blue chips that are here for the long haul, like ultra-rare Ferraris and Le Mans winner Fords, but most values ​​fluctuate a bit with the demographics of the buying pool. A recent poll found that Gen Z are now the most interested in buying a collectible before Gen Y, Gen X, and the Baby Boomers who sparked all the hype.

The only big difference is that unlike Tesla stock, you can drive a classic car for real money, regardless of the final resale value.

That said, no one wants to lose anything on a major purchase, so the folks at Hagerty Insurance analyzed the trends to create their Bull Market list of cars, trucks, and motorcycles to watch in 2021. Factors like recent price changes, the web traffic, quote values ​​and the total number of quotes were all taken into account.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Hagerty doesn’t make precise predictions about performance – so watch out for the buyer – but has chosen a mix of vehicles under the radar, old successes gaining renewed interest, and relatively new models that have made the leap. of depreciation and are ready to enjoy while you enjoy them.

2011-2012 Lexus LFA

The $ 350,000 LFA was a bit odd for the value-driven luxury brand, but its 553bhp V10 engine and supercar speed made it an instant classic. Only 500 were built and Hagerty estimates the current value of a well-driven example at around $ 550,000.

2006-10 Jeep Grand Cherokee SRT8

With its 420 horsepower HEMI V8, wide tires and super low stance, the Grand Cherokee SRT8 certainly wasn’t designed for off-roading, unless it’s a race track. The SUV cost around $ 40,000 in new condition and its value rose 8.3% last year to almost that amount.

1984-1991 Ferrari Testarossa

Even ignoring his lead role in “Miami vice“, Testarossa is so 80s it almost hurts, so it’s no surprise that baby boomers and Gen Xers are most interested in it today. Priced at $ 165,000 per l new condition, they sell in the $ 100,000 range, but values ​​rose 8.7 percent last year with the highest auction price paid 37.5 percent more than the year former.

2005-17 Aston Martin V8 Vantage

The V8 Vantage was designed by Henrik Fisker, whose latest auto startup is worth $ 4 billion, so he probably wouldn’t have a problem picking one up for the $ 50,000 Hagerty it is worth today. . Prices have remained stable over the past few years, however, with a lot of interest from younger buyers.

1964–70 Honda S600 / S800

When you think of a two-seater Japanese sports car, the 52bhp Honda S600 or its successor S800 probably doesn’t come to mind, but you can pick one up for under $ 20,000, which is less. than a new Mazda MX-5 Miata. Don’t wait too long, however, as its value increased by 18.5% last year.

1980-1991 Volkswagen Vanagon Westfalia

The VW of the 1960s Microbus attracts all the attention, but the Vanagon shares its original rear engine setup and has a lot of charm, especially in the form of a Wetsfalia motorhome. Prices for a decent model range from $ 27,000 to $ 36,000 and have increased 27.7% in the past three years.

2005–06 Ford GT

The original Ford GT40 from “Ford v. Ferrari” is a multi-million dollar collector’s item today, but the 40th Anniversary Tribute is slightly more affordable at just under $ 400,000. It’s almost triple what they’ve sold for the new, but while prices haven’t risen much lately, Hagerty says interest in the 205mph coupe is present across all groups. of age.

2000–06 Audi TT Quattro Coupe

National Automobile Museum / Heritage Images / Getty Images

The retro-modern TT helped spur a design trend that has thrived over the years, but unlike the VW New Beetle and the rebooted Ford Thunderbird, you can always buy a new one. TT today. The original is much cheaper, however, and can be found for $ 10-16,000.

1948-1954 Jaguar XK 120

The beautiful is not lacking Jaguars out there, but the XK 120 is an all-time great. It was the fastest production car in the world for a time, with a then blazing top speed of 132 mph, and served as both a race car and a road car. Values ​​have fallen 8.6% in the past year, but the going rate of $ 140,000 is still a little higher than its original price of $ 3,945. Gen X loves the XK, however, with quote rates up 33% this year.

1969 Honda CB750 (Sand)

While many consider the XK 120 to be the first supercar, the Honda The CB750 was the first superbike and the first edition of 1969 was particularly special. Its transversely mounted four-cylinder engine block was cast in sand rather than die-cast, which made it unique. Values ​​rose 11.5% in 2020 to reach $ 37,500 for a daily cyclist.

1993-97 Toyota Land Cruiser FZJ80

The Land cruiser The name has been in use for eight decades and there are plenty of cool models for collectors to choose from, but Hagerty says the 1993-1997 model is special because it was the last one with a solid front axle and six-cylinder engine. line, but also the first that was good on the road, thanks in part to a set of coil springs and four-wheel disc brakes.


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Edinburgh fintech Nucleus Financial looks ‘positive’ for the future as assets rebound to £ 16bn

Nucleus, which CEO David Ferguson created with the support of a number of financial advisory firms in 2006, has developed software platforms that allow financial advisors to provide online access to clients for investments in ISA accounts, pensions and bonds. Photo: Lisa Ferguson

Gross inflows of £ 373million were recorded in the third quarter at the end of September, down slightly from the previous quarter (£ 384million) due to the pandemic.

Net inflows for the quarter were down 26.1% year-on-year to £ 82million, but are up 44.7% year-to-date compared to the same period in 2019.

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In its latest business update, the company noted that advisers actively using its platform have remained broadly stable compared to the comparable period. The number of customers increased by 4.1% year-on-year.

Despite the continued impact of the pandemic on investor sentiment and market growth, assets under administration (AUA) stood at £ 16.1 billion as of September 30, up 1.8% from in the previous quarter and 2.6% year-on-year.

In comparison, the FTSE All-Share index fell 3.8% year-over-year and 19.2% year-on-year.

Chief Executive Officer David Ferguson said: “Covid-19 is expected to dominate our lives for at least the rest of the year and is likely to have an ongoing impact for some time.

“In these difficult times, the health and well-being of our staff remains our top priority. Although we have reopened part of the office, in accordance with government guidelines, almost all of our employees continue to work from home.

“Despite a significant reduction in markets this year… our AUA at the end of Q3 2020 was back to where we started the year at £ 16.1 billion.

“Despite a weaker third quarter in terms of net inflows, our year-to-date position remains ahead at £ 515m from £ 356m in 2019, an increase of 44.7% from compared to the same period last year It should be noted that in terms of gross collections, if they fell in August, the September figures are more positive.

He added, “Our goal throughout the pandemic has been to make sure we are well prepared for the months and years to come, focusing on the things that matter to our business and that are under our control.

“It means a commitment to continue investing in the platform. The third quarter was no exception.

“While the future impact of the Covid-19 crisis remains unknown, there has perhaps never been a more pressing need for high-quality financial planning, and as such, we remain positive about in the long-term future of the industry. “

Nucleus, which Ferguson created with the support of a number of financial advisory firms in 2006, has developed software platforms that allow financial advisors to provide online access to clients for investments in ISA accounts, pensions and bonds.

The ‘wrap platform’ provider, which was launched in 2018, is considered one of the biggest successes in Scotland’s burgeoning fintech – fintech – sector.

Last month, Nucleus said it saw customer numbers surpass 100,000 after posting resilient first-half results despite investor sentiment hit by the coronavirus crisis.

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Edinburgh fintech Nucleus Financial continues to invest in the future in the first half of the year …

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SEC accuses Lewis Wallach, former CEO of Professional Financial Investors, of handling Ponzi scheme

Lewis Wallach, the former Managing Director of Professional Financial Investors, Inc. (PFI) has been accused of setting up a fraudulent Ponzi scheme and embezzling investor funds.

PFI is a real estate investment and management firm based in Marin, California.

The Securities and Exchange Commission (SEC) filed a lawsuit against Wallach in U.S. District Court for the Northern District of California. The Commission accused him of violating the anti-fraud provisions of federal securities laws.

In the lawsuit, the SEC alleged that Wallach and the now deceased founder of PFI raised about $ 330 million from more than 1,300 investors.

Wallach is said to have embezzled more than $ 26 million from their investors, many of whom are seniors, retired and relying on their investment income for their daily expenses.

Wallach, founder of PFI lured in investors by making false and misleading statements

Wallach and the now deceased founder of the company are said to have made false and misleading statements to attract investors. They falsely told investors that they would invest their money in multi-unit residential and commercial buildings that would be managed by PFI. In fact, they used a significant portion of investor funds in a Ponzi scheme to pay previous investors.

When investors raised concerns about the impact of the COVID-19 pandemic on their investments, Wallach allegedly falsely told investors that they had nothing to fear. He told them that PFI was financially secure because it had huge cash reserves.

In reality, Wallach knew that PFI was a zombie company. It does not have sufficient reserves to meet its obligations, does not have a line of credit, and all of its properties have unpaid debts.

Additionally, the SEC alleged that Wallach used investor funds for his personal benefits, such as buying a vacation home, luxury cars, and coins, as well as paying for school fees. private schools.

Wallach admitted his role in the fraudulent Ponzi scheme

The Ponzi scheme began to unravel after the death of PFI’s founder on May 6, 2020. A review of the company’s financial records raised concerns about the short-term creditworthiness of PFI and its related entities. Wallach admitted his role in exploiting the fraudulent Ponzi scheme, including its misuse of investor funds.

Wallach accepted the entry of a judgment ordering a permanent injunction and bar of officer and director. He has also agreed to pay civil penalties, restitution, and prejudgment interest to be determined by the court at a later date at the request of the SEC. The proposed judgment is subject to court approval.

In a statement, the director of the SEC’s regional office in San Francisco, Erin Schneider, said: “As alleged in our complaint, Wallach has engaged in blatant fraud which has deprived many older investors of their funds. hard-earned savings and retirement. We will continue to fight fraud targeting our most vulnerable investors.

The Commission’s Office of Investor Education and Advocacy Encourages Investors to Ask Questions Before Investing and to Review Investor Alerts on Fraud Targeting Seniors and Ponzi Schemes .

The U.S. District Attorney’s Office for the Northern District of California has filed criminal charges against Wallach based on SEC charges that he exploited an illegal Ponzi scheme.

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PSPC attack: investment vehicles see their popularity increase

Gores Group claims that the market for sellers who go public through PSPC has grown significantly.

Photo by Ringo Chiu.

Special Purpose Acquisition Companies, or SPACs, are in the midst of their greatest moment yet.

Driven in part by deals with local companies like the Gores Group and Harry Sloan’s SPAC Eagle series, a multitude of large companies and investors are adopting the approach.


According to Silicon Valley Bank, PSPCs accounted for 35% of initial public offerings in the United States through June 2020. Together, the vehicles have raised $ 19 billion in the first six months of this year, or more than the total raised over the six years from 2010 to 2016.


Among those deals were a series of local moves that made headlines, such as Draftkings Inc.’s $ 3.3 billion merger with Diamond Eagle Acquisition Corp. and the planned multibillion-dollar PSPC mergers for electric vehicle manufacturers Canoo Inc. and Fisker Inc.


The growth in popularity of PSPCs has only accelerated as the Covid-19 pandemic has continued, prompting some industry watchers to question whether this is the start of a new paradigm in public procurement – or a PSPC bubble waiting to burst.

Cold

Also known as blank check companies, SPACs are commercial entities that have no activity of their own. They are created to raise funds through initial public offerings. The managers then use the funded vehicle to acquire a target business that is seeking to go public in a reverse merger.


PSPCs have recently become known as a way to raise public funds faster than through a traditional IPO, especially for high growth capital,
intensive businesses. One of their main advantages is that they often have lower short-term uncertainty levels, as most funding is already locked in before the target company goes public.


However, blank check companies have not always had such a good reputation.


Ten years ago, they were often seen as a way for companies with unconvincing investment prospects to squeeze through the IPO process.


“In the beginning, SPACs had a bad reputation,” said Sloan, former managing director of MGM Holdings Inc. and founder of six Century City-based SPACs under the Eagle name, including Diamond Eagle Acquisition Corp.


“You never wanted too much publicity as a PSPC guy when we started this in 2011,” Sloan said.


Sloan said he and his partner, former CBS Entertainment Group CEO Jeff Sagansky, had to rely heavily on their own reputation and industry expertise to win over investors early on.


What we said was, ‘We’re media guys. We will bring you what we know, ”Sloan said. “If something was wrong with the management of the company, we could temporarily step in as media executives. “


“I don’t think people would have invested with us without our expertise,” he added.


Most of Sloan’s PSPC deals have targeted companies with at least one connection to the media and entertainment space. His latest play, a $ 3.5 billion merger between his Flying Eagle Acquisition Corp. SPAC and the mobile gaming platform Skillz Inc., is betting on esports as a future pillar of the entertainment industry.


In the past, many SPACs have followed a similar model of relying on the industry expertise of their sponsors to attract investors, although with less success than Sloan’s efforts.


Three years after Sloan created his first SPAC, another group of local negotiators sought to redefine this decades-old approach.


Mark Stone of Beverly Hills private equity firm Gores Group said he and company founder Alec Gores have started exploring PSPCs as a potential way to expand beyond traditional capital offerings. -investment.


“PSPC didn’t have a good reputation (at the time),” Stone said. “We decided that the vehicle was not faulty but that people had not performed appropriately for it. … We thought we could do it right.


Stone, who now heads Gores’ SPAC practice, said the relatively small size of most older SPAC investment pools meant vehicles could often only target lower quality companies.


“We said, ‘Let’s turn it around, look for companies over $ 2 billion (enterprise value) – what we call the middle market,” Stone said.


Rather than relying on personal industry knowledge, Stone’s strategy was to bring together large pools of capital that could attract companies with strong growth trajectories. His company would add additional investors through private equity investments, or PIPEs, both increasing total available capital and boosting investor confidence by adding top institutional players to deals.


Over the next five years, Stone led six PSPC increases for Gores under this model. Four of these blank check companies have completed mergers to date, with targets ranging from iconic snack maker Hostess Brands Inc. to autonomous vehicle sensor maker Luminar Technologies Inc.


The success of these deals has led Gores Group to focus more and more on PSPCs in recent years, although Stone said the company remains engaged in its traditional private equity business as well.

Overexcitement

The participation of actors like Gores Group in the SPAC space has had effects beyond changes in the strategies of individual companies. As PSPC sponsors became increasingly known as established and reputable market players, blank check companies began to lose their long-standing dubious reputation.


“It has certainly helped improve the image of PSPCs,” said Paul Sachs, managing director of consulting firm Protiviti Inc.


Sachs said the combination of these companies’ strong reputations and the ability to raise larger capital was likely the key to the radical change surrounding SPAC.


“In a traditional SPAC, the sponsor will have a seat on the board,” Sachs said. “If a company is going to give up on this as part of going public, they have to make sure it’s someone they want to work with for the long term.”


This improvement in reputation laid the groundwork for what Sachs called the “perfect storm” for PSPCs to take off once the Covid-19 pandemic struck.


“Economic volatility and the sharp decline in prices have made IPOs and direct listings impractical options for many private companies,” Sachs said. “It has certainly drawn attention to SPACs as a way for private companies to access public procurement. “


From an investor perspective, many private equity firms, hedge funds and other asset managers were sitting on huge pools of capital at the start of this year. Sachs said that PSPCs have emerged as one of the most viable ways for these companies to invest their funds quickly and take advantage of the strength of the stock markets in recent months.


“PSPC has certainly benefited from the pandemic,” Sachs said. “This is partly why we have seen the growing number of SPACs coming in, as well as why some large institutional players are getting started.”

General public alternative?

Predictions on where the current
the wave of market activity ultimately leads for the SPAC sector range from bullish to bearish.

“What happens until the end of the year, especially with all the uncertainties surrounding the macro environment, will determine the future of PSPCs,” said Robby Kumar, managing director of Silicon Valley Bank based in Santa Monica. “It goes back to the performance of this (PSPC) cohort, which is so different from the previous groups.”


Kumar’s bank is bullish on PSPCs and included in its Q3 State of the Markets report this prediction: “If PSPCs and direct listings continue to gain adoption, the traditional IPO route could eventually. become obsolete. “


Kumar said he believed such a dramatic change was unlikely, but added that PSPCs could become a popular alternative to IPOs if the current group of deals do well for businesses and investors.


Stone of Gores Group is somewhat less convinced that the current trajectory of the PSPC market is sustainable. “I think there is a risk that the PSPC market is oversaturated,” he said. “It won’t surprise me if there is a lot of carnage. “


Stone said he sees PSPCs as a solid alternative to traditional IPOs, now and in the future, but only for companies whose individual circumstances are truly suited to the approach.


“We had a company that we were talking to that we wanted to go public recently,” Stone said. “Obviously I wanted them to come with us because I wanted to close the deal, but they ended up deciding that an IPO was better suited to their goals. “


“I sat down with Alec (Gores) afterwards, and I said, ‘You know, honestly, if I was them I would have made the same choice,'” he said. “The IPO was more appropriate for their goals.”

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Draft Law on Special Investment Vehicles for Backed Bad Debt Loans

Lawrence Agcaoili – The Filipino Star

August 30, 2020 | 00h00

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) and the country’s major banking players are pushing for passage of a bill that will establish special purpose vehicles for distressed loans and assets amid the coronavirus disease 2019 or the COVID-19 pandemic.

BSP chief executive Lyn Javier said the regulator is pushing for swift passage of Senate Bills 1594 and 1596 or Strategic Financial Institution Transfer (FIST) to help banks get rid of bad loans and of assets via special purpose vehicles.

“Prompt enactment of the FIST law, despite strong banking fundamentals, would promote investor and depositor confidence and mitigate the adverse reactions of a financial system in the country,” Javier recently told the Senate Committee on Banks, Institutions financial and currency.

The FIST law encourages financial institutions to sell non-performing assets (NPAs) to asset management companies specializing in resolving troubled assets, through tax incentives.

The law will allow the Department of Finance (DOF) to extend the two- and five-year entitlement periods to qualify for tax exemptions and fee privileges of up to two and five years, respectively.

Other tax incentives include exemption from documentary stamp duty, capital gains tax, withholding tax and value added tax or gross revenue tax, as well as a 50% reduction in registration and transfer fees imposed by the Land Registration Authority, among others. .

“The banking system has built-in buffers. There is, however, a limit to this risk-taking capacity. Putting in place resolution frameworks, such as the FIST law, will ensure that troubled financial institutions have a mechanism to strengthen their balance sheets, ”Javier said.

Javier noted that the NPL (NPL) ratio of Philippine banks swelled to 18.6 percent in 2001, from a range of 3 percent to 3.4 percent in the first half of 1997 during the financial crisis. Asian, but improved to 2.2 percent from 8.6 percent during the global financial crisis in 2008.

Thanks to Republic Law 9182 or the Special Purpose Vehicles Law of 2002, Javier said banks were able to offload NPA worth 146.2 billion pesos, mostly under the form of bad loans.

Javier said the SPV Act helped reduce the NPL ratio of Philippine banks to 2.6% in 2009, from 14.7% at the end of 2002.

A recent survey by the BSP found that the industry’s NPL ratio would almost double to 4.6% by the end of the year, from 2.4% at the end of March due to the impact of the COVID-19 pandemic.

On the other hand, the industry’s capital adequacy ratio (CAR) will drop slightly to 14.8% this year, from 15% at the end of March, well above the 10% threshold set by the BSP.

For his part, the chief executive of the Philippine Bankers Association, Benjamin Castillo, said the group strongly supports the initiative taken by the Senate in pursuing the bill.

“We believe this will prepare the banking system for the expected increase in non-performing assets resulting from the community quarantines we have put in place to contain human damage,” Castillo said.

The economy stagnated and contracted 9% in the first half of the year after Luzon was placed under enhanced community quarantine in mid-March to prevent the spread of COVID-19.

The Development Budget Coordination Committee (DBCC) now expects a larger GDP contraction from 4.4% to 6.6% instead of 2% to 3.4% this year.


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Santo Domingo Group’s investment vehicles direct new financing for Flying Embers

FRAMINGHAM, Mass.– Leading “better-for-you” alcohol company, Fermented Sciences, Inc. DBA Flying Embers (“Flying Embers”), announced the closing of $ 10 million in new funding, bringing the series total B from the company to $ 35 million. The new funding was led by investment vehicles from the Santo Domingo Group, advised by Quadrant Capital Advisors (“Quadrant”), and included participation from existing investors from Flying Embers, Ecosystem Integrity Fund, PowerPlant Ventures and others.

Flying Embers quickly became a national leader in the hard kombucha category and will now use the additional investment to expand into new categories such as hard seltzer. Bill Moses, Founder and CEO of Flying Embers, said: “This new funding will help Flying Embers continue its rapid nationwide expansion, refine our manufacturing capabilities, further develop our direct-to-consumer business and launch revolutionary innovations in new categories of alcohol.

“Quadrant views the Flying Embers brand as strategically positioned to disrupt the alcoholic beverage market with innovative product lines aligned with current and future consumer trends and is delighted to join Bill and his highly skilled team to help create a platform. iconic form of alcoholic beverages, ”added Juan Carlos Garcia, CEO of Quadrant.

“Whipstitch Capital couldn’t have found a better partner for us. We are delighted that the Santo Domingo Group is joining us; their global reach and deep understanding of the alcohol category will be a huge asset, ”added Moses.

“Flying Embers’ products are unparalleled in terms of functionality, attributes and flavor as a whole. And the new innovation to come is amazing; no competitor we’ve seen comes close to what Flying Embers creates, ”added Michael Burgmaier, Managing Director of Whipstitch Capital. “We see Flying Embers as a brand that has the potential to shape the future of the alcoholic beverage industry. “

“Flying Embers is winning in key early adopters markets and has unique potential to disrupt the entire alcohol market,” said Nicolas McCoy, Managing Director of Whipstitch Capital.

Moses added, “This investment is in addition to our existing war chest to support the business over a long period of time. Whipstitch Capital has helped bring a group of world class investors to Flying Embers and we are delighted that Quadrant’s Ben Brooksby is joining our board of directors.

Later this summer, the Flying Embers brand will add to its expanding portfolio with the release of a new line of hard seltzer. In what they describe as “the new form of seltzer,” Flying Embers Hard Seltzer is the world’s first probiotic-powered hard seltzer with antioxidants and all USDA organic ingredients. This new entry in the fast growing category will deliver delicious and unique flavor combinations, and meet consumers’ need for healthier options with just 95 calories, 0 sugars, 0 carbs, USDA organic ingredients, live probiotics and l Antioxidant Vitamin C The product has already generated significant buzz within distributor and retailer networks and continues to gain traction until its launch.

Founded in Ojai, California, Flying Embers has established itself as the best-for-you alcohol brand. The company’s first line of handcrafted hard kombuchas has an ABV ranging from 4.5% to 7.2%. Dry Fermented Sparkling Kombuchas contain zero grams of sugar and zero carbs, while using only USDA organic ingredients. Brewed with an adaptogenic root blend, Flying Embers hard kombucha is gluten-free, vegan, non-GMO, keto-friendly, and contains live probiotics. Using a proprietary process, Flying Embers hard kombuchas are shelf stable while maintaining living probiotic cultures, but are never pasteurized and always raw. The brand offers six refreshing base flavors, including pineapple chili, black cherry, grapefruit, berry, lemon and ginger.

Whipstitch Capital acted as the exclusive financial advisor to Fermented Sciences in this transaction.

For more information on Flying Embers and to find places where you can buy, please click here and follow on Facebook, Instagram and Twitter. About Flying EmbersFlying Embers, part of Fermented Sciences Inc, is a handcrafted hard drink brand based in Ventura, California that develops flavorful botanical infusions with functional benefits. With a commitment to innovation, Flying Embers products are low in sugar, carbohydrates and calories, while exhibiting attributes such as live probiotics, adaptogens and USDA certified organic ingredients. A proud supporter of its community, Flying Embers donates a portion of its income to firefighters and first responder charities out of respect for their service. Flying Embers was founded in 2017 by beverage entrepreneur Bill Moses, former CEO of Kevita Sparkling Probiotics, which sold to PepsiCo in 2016. Today, Flying Embers has two faucet rooms in Los Angeles and Boston, and its products are sold in 40 states across the United States To learn more, click here or @FlyingEmbersBrew.

About the Santo Domingo Group and Quadrant Capital

Santo Domingo Group is an institutional family office advised by Quadrant Capital. Quadrant is based in New York, where Juan Carlos Garcia is Managing Director. ABOUT Whipstitch Capital Whipstitch Capital is the largest independent private investment bank in the United States focused solely on the consumer best-for-you sector, specializing in buy-side and sell-side M&A and private placements. Whipstitch understands that every situation, every business and every product is unique. We’re listening. We focus. We offer honesty and transparency. We do business. We create the “whip point” of the agreement. Prepare to treat TM differently.


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Cannabis investment vehicles wait a long time

Special Purpose Acquisition Vehicles (SPACs) struggle to find suitable purchases as valuations drop

By Dane Hamilton

The liquidation of cannabis stocks over the past year, which has caused investment to explode, also threatens to upend the plans of the Special Purpose Cannabis Acquisition Companies (SPACs) that were formed last year to purchase cannabis. cannabis assets when values ​​were high, according to industry experts.

More than a dozen PSPCs have collectively raised more than $ 3 billion from June 2019 to today with mandates to buy cannabis and cannabis-related companies, according to cannabis investment bank ELLO Capital. Companies typically have 18-24 months to buy from private companies or return money to investors.

But with valuations across the industry continuing to plummet from early 2019 highs, these PSPCs are scrambling to find viable acquisition candidates who match their revenue and valuation mandates, increasing pressure on these managers and their investors, the advisers said.

“They are starting to run up against their termination dates and they will start to be desperate,” said Hershel Gerson, CEO of ELLO, who advises on cannabis mergers and acquisitions, capital increases and other transactions.

The North American cannabis industry, once considered to have virtually unlimited potential for growth, has fallen to earth over the past 18 months due to a variety of factors, including national and state regulatory restrictions, inexperienced operators, and a lack of solid foundations of institutional investors who support companies over the long term. MJ Alternative Harvest, a proxy for the industry, fell more than 75% from the start of 2019 to March 2020, despite having bounced slightly These last months.

Much of the current crop of active SAVS was formed between early and mid-2019, when valuations were much higher, including Subversive Capital, which raised $ 575 million in June 2019; Mercer Park Brand, which raised $ 402 million in May 2019 and Tuscan Holdings, which raised $ 200 million in March 2019, according to ELLO data.

The surge in valuations in late 2018 and early 2019, a period when Canada legalized the recreational use of cannabis, along with a number of US states, prompted many cannabis companies to list their cannabis companies. stocks on the Canadian and US stock exchanges, often through reverse mergers with shell companies, leaving them off the table for PSPC transactions.

And now, with the industry still struggling to grow, fewer companies are available for PSPC transactions in last year’s assessments, leaving many PSPCs struggling to find candidates for the acquisition with substantial revenue and profitability indicators.

“You’ve seen a lot of PSPCs coming in at the same time looking for assets,” said Tahira Rehmatullah, president of T3 Ventures and Akerna board member, formerly MJ Freeway, which went public thanks to a merger with MTech, a SPAC, in 2019. “But valuations have gone down and the pool of acquisitions is much smaller than it was a year ago.”

SAVS may seek to bring together several companies

As part of fund mandates, SPACs must devote 80% of their capital to a single company, and they typically look for companies with positive cash flow and EBITDA. But with the difficulties of the industry, fewer private companies meet these criteria. Now, some PSPCs are looking to merge multiple companies to make the numbers work, presenting a litany of issues regarding individual company valuations, their share structures in the merged company, and management control, ELLO’s Gerson said.

“It’s hard to get them to agree, and if they agree, they worry about the relative valuations of their companies, which is a real challenge,” Gerson said.

There have only been a handful of SPAC cannabis deals in recent years, the most recent being Clever Leaves pending merger with SPAC Schultz Asset Management last month, and the 2018 merger of Cannabis. Strategies Acquisition of five US and Canadian companies with expected combined 2019 sales of up to C $ 270 million. Gerson said he expects several more PSPC deals before the end of the year.

Some prominent companies that could be viable PSPC candidates include Verano Holdings, which ended an $ 850 million deal this year to be acquired by Harvest Health this year; Canndescent, Ascent Wellness, Gage Cannabis, Connected Cannabis and NorCal Cannabis, industry watchers said.

But some industry players say the amount of money raised for cannabis PSPCs exceeds the number of viable applicants, forcing them to look to other parts of the industry for potential acquisitions.

Bruce Linton, the former CEO and co-founder of industry leader Canopy Growth, raised $ 150 million this year for a SPAC called Collective Growth, but the vehicle focuses solely on hemp, a plant derivative of legal cannabis in the United States and Canada, and related sectors.

The lack of pure and potential cannabis companies is “one of the reasons collective growth is not in cannabis,” Linton told Mergermarket. “How many awesome private cannabis companies are there?” ”

“There is a mismatch” between the amount of capital of PSPCs seeking deals and the number of viable acquisition candidates, he said, adding that he had reviewed more than 100 companies since the creation of PSPC this year, an indication of the extent of PSPC’s work. operators must search for suitable assets. “So many companies have gone public in recent years that it really limits the scope,” he added.

Still, industry watchers have said the challenges of raising capital from investors are likely to prompt a number of companies to seek PSPC deals, a move that can bring immediate capital, a list investors, institutional investors and managers qualified to guide companies, all key elements PSPC points of sale.

PSPCs are growing in popularity

PSPC deals, once seen as an alternative for companies that could not be publicly traded for various reasons, are experiencing a renaissance this year. Leading investor Bill Ackman in July launched Pershing Square Tontine Holdings, a $ 4 billion SPAC billed as the the biggest to date. And healthcare provider MultiPlan, a Hellman & Friedman holding company, agreed in July to a $ 3.7 billion investment from Churchill Capital SPAC for Go in public on the NYSE. As of July 22, 47 PSPCs across all sectors had held IPOs in 2020, compared to 59 for all of 2019 and 46 in 2018, according to law firm Debevoise & Plimpton.

“Anyone who has money is approached by those who don’t,” said David Traylor, senior managing director of Golden Eagle Partners, an investment bank focused on cannabis and life science companies. “Yet some PSPCs want companies with at least $ 150 million in revenue that they can grow to $ 300 million (in transaction size) with leverage. There are very few companies that have this kind of income.

Dane Hamilton is the U.S. healthcare editor for Acuris, a subscription-based news and data provider for finance and M&A executives.


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Merger control for funds and financial investors: varying risk profiles for VIE structures in China

In April 2020, and for the first time, the Chinese competition law authority (the State Administration for Market Regulation, or SAMR) accepted a merger control case involving a party incorporated under an “variable interest entity” (LIFE) structure.

While this case was not announced with fanfare by SAMR (indeed, it was only revealed through the standard public disclosure process applicable to all filings made under the simplified notification procedure), it is supposed to signify a significant change in the position of SAMR vis-à-vis the VIE structure.

For foreign investors who hold stakes in Chinese companies through VIE structures, or who seek to invest, this is an important development. In this e-newsletter, we explore what this means for funds and other foreign investors.

What is a VIE structure?

VIE structures and merger control in China

VIE structures now able (and expected?) To deposit

Increase in maximum penalties in consultation

What is a VIE structure?

VIE is a concept commonly used by foreign-invested companies operating in industries where China has restricted foreign ownership. The VIE structure can be used to circumvent certain restrictions via: (1) an offshore holding company creating a wholly owned subsidiary (under a wholly foreign-owned company, or WFOE structure) in China; and (2) the WFOE would control and then receive all of the profits of the RPC business through a series of contractual arrangements. The shareholders of the Chinese company would remain Chinese nationals (according to regulations), while the offshore holding company would recognize the income and record the operations of the WFOE in its financial statements.

The VIE structure allows domestic Chinese companies in narrow sectors to seek foreign venture capital funding, as well as register in offshore jurisdictions. Many tech giants listed on China’s stock exchanges have adopted this structure, including Alibaba, Baidu and Tudou.

VIE structures and merger control in China

Although VIE structures have been widely used for some time, until recently they were not formally recognized by the Chinese government. In particular, it is common practice for SAMR (and its predecessor, the Ministry of Commerce) not to formally accept merger review cases involving companies operating under a VIE structure.

This has led to significant uncertainty as to the risk of non-compliance for EDV structures. Despite widespread practice, there is no clear legal basis for SAMR not to accept deposits involving VIE structures, nor an explicit exemption under anti-monopoly law (AMLA) on which companies adopting such structures could rely not to notify triggering transactions.

However, this has now changed following the recent acceptance by SAMR of a filing involving a VIE structure. On April 20, 2020, SAMR officially accepted a dossier submitted by Huansheng Information Technology (Shanghai) Co., Ltd. (“Huansheng“) and Shanghai Mingcha Zhegang Management Consulting Co., Ltd. (“Mingcha“). Huansheng is said to be a subsidiary of Yum China, the operator of restaurant chains such as KFC, Pizza Hut and Taco Bell in China.

According to the public disclosure form of this file, Mingcha is controlled by a Caymanian company “via related entities on the basis of a series of contractual arrangements”, which shows that this company is incorporated via a VIE structure. According to recent reports, consideration of this transaction has been hampered due to competition law complaints raised by third parties, which appear to be unrelated to the fact that Mingcha is organized under a VIE structure.

VIE structures now able (and expected?) To deposit

Following this case, it is clear that SAMR will accept deposits regarding transactions involving VIE structures. More importantly, this likely means that SAMR will now expect such deposits, and the involvement of a VIE structure will no longer serve as a reason not to file.

In turn, SAMR may begin to sue VIEs for failing to file transactions. While we cannot rule out the possibility that SAMR will pursue historical transactions involving VIE structures that were not filed due to the previous policy position, attention should certainly be turned to future transactions. In particular, for funds and other investors in Chinese companies organized under a VIE structure, and who have previously ignored the need to make merger review filings in China due to SAMR’s approach, this may mean that a fundamental shift towards merger control strategy is needed in relation to future transactions. Going forward, it will be essential to consider Chinese merger control even when the transaction involves a VIE entity.

Increase in maximum penalties in consultation

In addition to SAMR’s change of approach to VIE structures, the potential risk of non-reporting is also likely to increase in the near future. Currently, the maximum fines that can be imposed by SAMR are capped at RMB 500,000. However, SAMR is currently consulting on various AML changes, including a substantial change to its fine powers.

According to the SAMR’s AML amendment proposals (published for public consultation in January 2020), it is proposed to significantly increase the maximum fines for failure to notify a transaction in violation of merger control rules, passing from RMB 500,000 to 10% of total enterprise revenue in the previous fiscal year.

This increased cap also applies to other breaches of merger control rules, including the completion of transactions notified before authorization (i.e. the jump of weapon) or the completion of a transaction prohibited by SAMR. The proposed increase in fine powers aligns the PRC regime with that of other key merger control jurisdictions, such as the EU. However, it should be noted that merger review requests are triggered more frequently under the PRC for a variety of reasons, including significantly lower turnover thresholds and the lack of “full functionality” criteria in the PRC. valuation of joint ventures that exist in the EU regime.

These changes are likely to put merger control compliance in the PRC even further into the spotlight, especially as jump-arms has long been an enforcement priority of SAMR (and its predecessor, MOFCOM). .


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