Year: 2018

Inspiring Israel’s fine wine renaissance

Posted on by Max Tomlin

Israel is both one of the oldest and newest winemaking countries in the world: a global leader of quality wine thousands of years ago, a young and identity-searching industry in the present. But the challenges it faces are many: a hot climate, limited rainfall, a lack of indigenous wine grapes, local consumers that rarely drink wine – and, when they do, mainly for sacramental purposes – and a world that, in general, is not familiar with Israeli wine. Collectively, these factors did not create the easiest starting point for Psagot Winery. Despite this, our wines are getting more and more recognition, awards and positive reviews. Winemaking to us is not an ongoing tradition, but rather an attempt to rejuvenate an ancient one.

In a hot climate, you are always facing a conflict of interests: harvest early and you might not have enough ripeness; wait too long and your alcohol levels may be too high

An inspired vision
Before we began our long-term planning, we first came up with a vision. At Psagot, this vision was clear from the start. When planting our first vineyard, we discovered an ancient cave nearby. When this cave was excavated, a 2,000-year-old ancient winery was found, alongside a coin dated to the second year of the Great Revolt (68AD). This deeply inspired our founder, Yaakov Berg, to try and revive the ancient prestige once held by the area as a superior wine-growing region. In reality, it meant starting from nothing. There was no blueprint to follow regarding which grapes to choose, how to grow them or what wines to make from them. So we simply got to work, learning from trial and error along the way.

When they wanted to generate international sales for their wines, traditional Old World countries (such as Italy, Greece and others) relied on what came to be called ‘international varieties’, which are in fact French grape varieties. These include Cabernet Sauvignon, Merlot, Chardonnay and Sauvignon Blanc, to mention a few. So, when rejuvenating a barren land without your own indigenous wine grapes, this is clearly the best place to start.

Grape expectations
One will struggle to make long-term plans when accumulative knowledge of wine growing and winemaking in the region is so sparse. So you start with short-term plans. You select grape varieties that are known and appreciated, and you set out to make the best wine you can. At Psagot, this was done by using international varieties, starting with small-scale production and evaluating the results. Fortunately, they were hugely promising: sales grew gradually and consistently, and we slowly started to understand what was happening, how to deal with any challenges and even how to allow our terroir, or environment, to express itself.

In hot climates, sugar levels increase at a faster pace than the rate at which aromas and flavours develop. So if you seek ripeness, you will end up with a lot of sugar content in the grapes, resulting in high-alcohol wine. We learned that leaner soils and limestone bedrock slow the pace of the ripening process, allowing the aromas and flavours to catch up, thereby generating sugar levels suitable for dry table wines. At Psagot, therefore, we keep our vineyards at the mountain peaks and not in the richer valley soils. By locating our vineyards a considerable distance from the Mediterranean sea, where temperatures drop fast, we can slow the plant’s metabolic breathing, allowing more acid to remain in the grape, while keeping the wines fresh and lively.

Wines from all over the world are generally made in a similar way, although this is only true to an extent. Taking a closer look, there are many details that can affect your wine, including the temperature of fermentation, length of maceration, methods of ageing and other factors. In truth, these considerations are not only regional, as the nature of your fruit can differ from vineyard to vineyard as well. At Psagot, we are gaining a better understanding of how to process our fruit every day. In general, we are located in one of Israel’s greatest growing areas, with fruit that can produce big wines with intense flavours. In our region, our wines must be carefully monitored to ensure that the results are not overwhelming; we are learning to tame the beasts, as it were. So we ferment at cool temperatures, keep macerations and tannin extraction relatively short, and we are gradually shortening the periods of barrel ageing for some of our wines. Altogether, we are reaching a more elegant style in our portfolio.

There is not much you can do about the hot climate of a region, yet you can learn to work with it. One of the most crucial decisions in winemaking is deciding when to harvest. You don’t want to harvest when underripe, nor overripe. In a hot climate, you are always facing a conflict of interests.: if you harvest early to keep your alcohol level moderate, you might not have enough ripeness. If you wait too long, your alcohol levels may end up too high. It is always a compromise. At Psagot, we try to get the best of both worlds. We don’t harvest the entire vineyard at once, but instead harvest multiple times in the same vineyard. Early harvests provide freshness and low alcohol, later harvests provide fruitiness and a full array of aromas and flavours – the combination of the two results in a full, yet balanced and elegant wine.

Glass half full
The winery has established itself gradually over many years. Its reputation grew, as did recognition of the terroir and the nature of the big wines coming out of it. Sales steadily increased each year until production reached 120 times the volume of the first year. Sales are international, and 65 percent of our produce is exported. Years after focusing on short-term plans alone, we can finally start thinking about our long-term goals, which can now be shaped by our accumulated knowledge and the experience we have gained.

The issues we must deal with are complex. We have to navigate a market in which critics are looking for a style of wine that is different from that which consumers seem to like and buy. We also have to make difficult decisions regarding our portfolio of grapes. Deciding between internationally renowned, best-selling grapes, such as Cabernet Sauvignon and Chardonnay, or Mediterranean varieties – which, although largely unknown, are better suited to our climate – is not easy. Assessing market trends is also challenging, particularly as it can take between seven and 10 years to perfect a new variety of wine – and, by that point, trends may have moved on.

Personally, I am not sure there is a methodical way to answer these challenges unless you shoot in all directions and hope some will hit the target. Even then, you lose an important ingredient for success in the wine world: your identity. The wine industry is so passion-driven that perhaps, when planning changes, you are permitted to be non-methodical. You are permitted to be driven by your heart and dreams too. Indeed, as problematic as that might sound, I believe it to be well-suited to an industry where we are all using largely the same grapes and similar technology, and we are all striving for appreciation from the same critics. It means that the results can become all too repetitive, lacking true personality. It is essential, therefore, that we encourage the wine enthusiast to look for identity in his glass of wine, not only fruit and soft tannins. Perhaps in the wine market, following your passion is not only permitted, but might even be necessary. The result will be a wine imbued with identity and personality, and in a market driven by the passion of consumers, this can be your most valuable asset.

So, at Psagot, we take all the above into account. We combine our growing understanding of our terroir, of how to grow our vines and make our wines, and the tastes of our consumers. Yet we do not forget what brought us to this industry in the first place, so we allow our passion to guide us as well. And from our experience, accumulated knowledge and passion, we can finally start making our long-term plans. In order to not compromise our identity, we are focusing on making wine from our own terroir, despite the fact that sourcing grapes from all over Israel might result in added complexity.

A toast to the future
We are also focusing on expanding our white wine portfolio because white, refreshing wines are enjoyable to consume in a hot climate, despite the fact that red wines are probably more profitable. We have begun a sparkling wine project out of admiration for this regal style of wine, even though expenses are rather high. And we are focusing on our reds, gradually making them less robust and more complex and elegant, simply because we believe that this is the more sophisticated and communicative way a wine should express its region and all the efforts that go into growing and making it. We truly believe that the passion that guides us is the best way to make long-term success in the wine industry, and we hope consumers will also appreciate and enjoy the results of this approach. To them we say, Le’Chaim!

A synergy of east and west

Posted on by Max Tomlin

China’s importance to the rest of the world is difficult to overstate. Already the planet’s second-largest economy, and set to take the top spot by 2030, the Asian country contributes more than 35 percent of the world’s economic growth. During this process, Chinese businesses have continued to learn from western counterparts, while retaining the Chinese virtues of diligence and inclusivity, and a willingness to contribute and promote common development. One of the businesses that embody this new Chinese spirit of global entrepreneurialism is HNA Capital.

HNA Capital has recognised the importance of mobile payments, blockchain and artificial intelligence in providing more customised financial solutions

Established in May 2007 as a financial branch of HNA Group, HNA Capital offers a comprehensive and integrated set of financial services, crossing a broad range of sectors, such as leasing, insurance, trust, financial innovation, securities, banking and guarantee. As the Chinese economy transitioned to become more market-oriented, HNA Capital recognised the new financial needs of individuals and businesses. As a result, the company has rapidly increased its overall capability and the range of its products by implementing innovative solutions and seeking new merger and acquisition opportunities.

Today, HNA Capital is able to provide diversified financial services to institutional investors around the world. With further market integration and globalisation, the company will keep its focus on banking, hedge funds and asset management companies as potential prospects for both acquisitions and strategic partnerships. World Finance spoke with Chris Jin, CEO of HNA Capital, about the company’s future investment plans and internationalisation process.

How does HNA Capital assess which businesses present valuable investment opportunities? Where can you see the opportunities?
HNA Capital has a comprehensive assessment process. Carrying out due diligence is important, of course, but we also take current policies, like the government’s Belt and Road Initiative, and the location of the investment opportunities into consideration. We analyse potential synergies between such opportunities and any of our member companies. Once the synergies are proven, we analyse the performance of the company, paying extra attention to the figures that will help us achieve our current objectives.

A lot of opportunities may arise in the synergy of technology and finance. Our company is one of the leading players in the fintech industry in China.

The constantly changing environment caused by technological disruption requires companies to take steps without any delay. HNA Capital has already recognised the importance of mobile payments, blockchain and artificial intelligence in providing more customised financial solutions and improving risk management practices.

Are international investments in developed economies preferable to those in emerging markets? If so, how?
The markets of developed economies are certainly attractive. Return on investment (ROI) is less volatile in developed markets, when compared with emerging markets, and companies have a stronger corporate governance structure, alongside a wider international presence. These factors play a determining role when deciding which market to invest in.

Nevertheless, HNA Capital has always emphasised the importance of seizing opportunities and being at the forefront of industry development. Although HNA Capital has not yet invested in emerging markets, Chinese investors have already identified the potential of these markets, and if a good opportunity is presented, HNA Capital will act on it with due diligence.

Additionally, China has recently initiated the Belt and Road Initiative, which we believe will bring prosperity to all participants and foster a truly global ecosystem. HNA Capital has also established a team that is in charge of monitoring the development of the initiative and identifying how HNA Capital can contribute along the way.

What is HNA Capital’s strategy on post-investment management of overseas companies? Could you share your experiences?
HNA Capital’s M&A strategy has always been to create operational synergy. Our primary goal is not to buy an undervalued company, apply a few superficial changes and make a quick profit. We aim to acquire well-established companies with proven revenue streams so we can diversify our services and products, complement our business ecosystem, achieve higher growth in new markets and utilise economies of scale to become more cost-efficient and profitable. For example, after the integration of Seaco and Cronos, our container utilisation rate reached 96.7 percent, higher than the average rates of Seaco and
Cronos individually.

We try not to restructure an organisation by enforcing significant institutional changes. HNA Capital understands the difference between western and Chinese corporate cultures, which is why HNA Capital does not impose its managerial methods on acquired companies. Instead, HNA Capital delegates a top-management team to the acquired company to facilitate integration and communication. By doing that, we can be assured that the goals and visions of HNA Capital and the acquired company are aligned together.

A good example of the independence we grant to the companies we acquire can be seen in Bohai Capital and the control that it retains over its subsidiaries. By allowing senior members of staff to manage partner firms in their own way, Bohai Capital has discovered new synergies with subordinate businesses like Avolon, Seaco and Cronos. In addition, when HNA Capital is dealing with international investments, we endeavour to form mutually beneficial support structures. For example, we augment post-investment management with exchange programmes so that Chinese colleagues will learn more about western culture and western colleagues will gain a better understanding of HNA culture.

How important is it for HNA Capital to have good knowledge of a foreign market before making an international investment?
Prior to investing, HNA Capital conducts thorough research and analysis of the market in order to eliminate any potential risk associated with outbound investments. The company will weigh economic, industry, political and sovereign risks and will make outbound investments accordingly. HNA Capital uses all available external and internal resources to gain the most comprehensive and in-depth outlook of the market.

Investments always come with an element of risk. How does HNA Capital conduct good risk management at all times?
Thorough due diligence is always conducted when evaluating a target. At first sight, numbers and synergies can be perfect, but integration still needs to happen, and this is the responsibility of the company making the acquisition. In our current position, we are invariably the acquirers. We do not spare costs for due diligence because this is an area where corners simply cannot be cut. We always have groups of experts assisting us with our acquisitions, alongside the very best consultants and investment banking analysts.

Our use of the Financial Enterprise Risk Management Platform also ensures that HNA Capital has a clear overview of its six main divisions: operations, investment, innovation, human resources, finance and risk control. By creating a unified system across the company’s huge portfolio, HNA Capital can carry out high-quality risk management in any location and at any time. In the future, HNA Capital will improve the level of refined management, further integrate business systems and optimise model analysis capabilities, in order to provide data support for enterprise operations, and speed up the process of identifying, managing and reducing risk.

What are some initiatives that demonstrate HNA Capital’s commitment to social responsibility?
At HNA, we encourage the harmonious coexistence of corporate and social goals within our business model. With the help of our volunteer associations, we have made full use of our financial resources to promote social development by investing in education, pensions, special group care, poverty alleviation and protection of traditional cultures.

HNA Capital and its member companies have made donations to schools, organised charity events for sick children and provided insurance for vulnerable individuals. We also realise the importance of financial education and have launched a number of initiatives aimed at improving the public’s financial knowledge and awareness of risk prevention. Environmental protection and disaster relief are also key components of the group’s approach to corporate social responsibility.

What are some of HNA Capital’s plans for the future?
With the advantage of a multi-industry background and an established financial supply chain, HNA Capital is committed to the sustainable development of modern finance. By bringing together an elite international team and improving levels of service, HNA Capital provides comprehensive support to its global customers and delivers world-class financial solutions and investment opportunities.

HNA Capital is committed to strengthening the foundations of the finance sector through making solid long-term investments. By espousing the importance of strong management, HNA Capital aims to improve the quality of business around insurance, leasing and other core sectors.

Moreover, HNA Capital plans to create a global investment service network. We will catch the needs of the information age, expand emerging business areas such as internet finance and payment platforms, and explore new directions for business excellency. Through incubation, investment, cooperation, sharing and promotion, we aim to create a dynamic global ecosystem for financial innovation.

Top 5 biggest financial scandals of all time

Posted on by Max Tomlin

When millions, or even billions, of dollars are up for grabs, some individuals are willing to play dirty to get their hands on them. Below, World Finance examines five of the biggest financial scandals ever to take place.

Charles Ponzi
In 1919, Charles Ponzi, an Italian immigrant living in Boston, came up with a scheme to get rich that involved purchasing international reply coupons for a low price abroad and then selling them for profit in the US.

He convinced numerous investors to back him, despite the fact his business was racking up huge debts as a result of logistical difficulties and mounting overheads. In what is now a well-known trick, Ponzi simply used the funds provided by new investors to pay existing backers (and himself). Although not the first example of this type of scam, its notoriety gave birth to the term ‘Ponzi scheme’.

Enron
Fortune magazine named the Texas-based energy business Enron the most innovative company in corporate America for six straight years between 1995 and 2000. By November 2001, however, its share price had plummeted to less than $1 following the discovery of hidden debt worth billions. Following this, the company had no other option but to declare itself bankrupt.

Worldcom
Worldcom took Enron’s title as the largest corporate bankruptcy in US history just a year later. Altogether, more than $7bn in ‘accounting errors’ were found to have greatly inflated the company’s assets. Worldcom’s former chief executive Bernard Ebbers was subsequently sentenced to 25 years in prison for his part in the scandal and has since been dubbed one of the most corrupt CEOs of all time.

Bernard Madoff
As the head of his own Wall Street investment firm, Bernard Madoff masterminded the biggest Ponzi scheme of all time, defrauding investors of an estimated $64.8bn. It’s believed that the scam could have been in place as early as the 1980s, but fell apart after the 2008 financial crisis. In December of that year, Madoff confessed to his sons that his business was just “one big lie” and they subsequently turned him into the authorities. Madoff received a sentence of 150 years in prison.

Lehman Brothers
The collapse of Lehman Brothers is an enduring symbol of the late-2000s financial crisis. The financial services firm had been in existence for more than 150 years, but its use of cosmetic accounting tricks was exposed by the subprime mortgage crisis, and the bank was forced to file for bankruptcy. The failure of what was, at the time, the fourth-largest investment bank in the US had severe ramifications for the global economy.

Global Housing helping customers realise their property dreams

Posted on by Max Tomlin

For many people, owning their own home is a goal that appears to drift further away each year. In much of the world, house prices have accelerated at a pace that wages have been unable to keep up with, making property increasingly unaffordable for many. According to the most recent data released by the International Monetary Fund, global house prices have now recovered to the peak they reached prior to the global financial crisis – with further growth expected. This surge has dramatically increased the amount of credit people have been required to take out in order to purchase a home, resulting in growing interest fees. For those who are able to meet these high costs, a home loan from a bank still comes with a long list of restrictions and expectations that some may be unwilling or unable to undertake.

The idea had by the founding members of Global Housing was to develop a solution where people could join forces to cooperate on home purchases

Idrees Malik, Director at Global Housing, told World Finance that recent surges in Norway’s housing market have had a tremendous impact on affordability. From 2016 until June 2017, Oslo house prices surged by almost 23 percent, with prices in areas surrounding the capital city growing by between 15 and 18 percent. Norway’s other cities saw similar results, with price increases ranging between 17 and 20 percent. “Therefore, at the end of 2016, it was very difficult for first-time buyers to buy a property in Norway, because of the extremely high prices,” Malik said.

Prices have started to come down since June, however, having decreased by almost 13 percent. “It is starting to get a lot better now, but Norway is still a country with some of the highest housing prices in the world,” Malik explained. “For first-time buyers, it is a requirement from the banks in Norway that the buyer has at least 15 percent equity. For second-time buyers, the government has raised the requirement so that you must have at least 40 percent of the equity needed to purchase your second house, in Oslo.” With such difficulties currently facing both aspiring property owners and seasoned investors, demand is growing for alterative finance models that provide a better deal.

Alternatives exist
Established in 2007, Global Housing now has more than 10 years of experience in the Norwegian real estate sector. Idrees came to the company later, while his partner Sohail Malik (pictured) was one of the founding members a decade ago. Idrees Malik explained that the company’s financing model to help people purchase property is quite different to a traditional loan from a bank. “In 2007, Global Housing launched a concept that combined partnership and rentals to facilitate housing purchases. The company creates deals that are an arrangement between a shareholder and Global Housing to buy and rent a property in partnership. The idea had by the founding members of Global Housing was to develop a solution where many people could join forces to cooperate on home purchases, thus avoiding interest-based loans. This was mainly a solution for people who did not want to borrow money from the banks.”

15%

Equity required for first-time buyers to purchase a house across Norway

40%

Equity required for second-time buyers to purchase a house in Oslo

The procedure is reasonably straightforward. Global Housing enters an agreement with a shareholder to buy a property, with each providing a portion of the purchase price. “Today, the requirement is that shareholders have at least 25 percent of the residual sum in the form of initial capital in order to enter the contract of buying a house in partnership with our company,” Malik said.

From there, part owners have the right to buy Global Housing’s portion of the property sporadically over time, or through fixed instalments. Global Housing also has the right to purchase the part owner’s portion of the residence if they are not able to buy out the company. The agreement also gives the part owner the right to rent the property from Global Housing, allowing the shareholder to start living in the house immediately after it is purchased. The deal offers a pathway to home ownership without the traditional restrictions that accompany a mortgage.

Malik explained that this model offers a more collaborative arrangement between the individual purchasing the property and the supporting business than a bank loan does. “Borrowing money will, in most cases, make people dependent on the lender. This creates an uneven relationship, where the lender steps into a position of power over the borrower. Loans also have an aspect of uncertainty in them because of fluctuating prices in the market and subsequent fluctuations in interest rates.

“You are also living with a liability when you borrow money. In difficult economic situations, liabilities such as these can make a bad situation even worse. With Global Housing, you have much more predictability. Your future is much more foreseeable.”

Apart from people who do not want the liabilities associated with a home loan, or have had negative experiences in the past, there are other reasons why many don’t want a traditional loan. It is a perception among many Muslims that both the charging of interest and paying interest is not allowed, making many financial products unsuitable for them.

Malik said the size of Global Housing’s target market of people who cannot borrow money from a bank, for religions reasons alone, is about 20,000 people. “Our total market in the long run may amount to between 170,000 and 200,000 people in future years, according to figures from Statistics Norway.”

According to Malik, the company’s model is unique in Norway. “Global Housing has currently no competitors in Norway offering the same housing purchase in partnership and leasing. This is a cultivated concept that focuses on investment in the housing market, while also helping people who have limited opportunities to enter the dynamic housing market in the country.”

This target market extends to the housing construction industry as well. “The total market in housing construction can be difficult to put a figure on,” Malik said. “In 2015, around 30,000 homes were built in Norway. Having compared the 10 largest residential builders in the country, we see that they all build at least 500 homes a year. Global Housing aims to initially invest in at least three housing projects a year, of good quality and style.”

Building and growing
Malik explained that, so far, customers have entered into agreements with Global Housing with the intention of eventually fully owning the property. “This has been the case regarding 31 house purchases in partnership and rental between 2007 and 2018. How long it takes for them to purchase the property varies from case to case. Factors like how big of a share the customer starts our housing partnership with play a big part.”

Apart from arrangements with individuals seeking to buy a house, Malik said Global Housing has also applied its model to two housing development projects in Norway. “For the first project, Global Housing was both the landlord company and the biggest investor. For the second housing project, which is ongoing, Global Housing is just an investor. In charge of the building projects is Global Building, another company established by the same owners as Global Housing.”

It is a pertinent time to undertake housing development projects in Norway, Malik explained. The country has a well-established housing market, but the record year for house prices posted in 2016 suggests that demand for housing is still much higher than supply can provide. Naturally, this has led to a surge in demand for equity in housing purchases in Oslo. “This is something that, in turn, has provided incentives for us to invest in adjoining areas around Oslo,” he said. “Our first two housing projects are in an area between Oslo and Nesodden.”

Global Housing’s 10 years of experience in the region will be crucial to how it navigates the future. Indeed, prices declined by up to 10 percent in Oslo between June and December 2017, although they are now starting to stagnate.
Malik said the future for Global Housing looks both positive and international. The company has registered to operate in both Pakistan and the US, with ambitions to open there in the future. Additionally, Global Housing hopes to expand to Scandinavia, the rest of Europe and South Asia. Right now, the company is looking towards investment opportunities, professional enrichment and growing awareness of its business and model.

“In three years’ time, we will be at a stage where we will not only be financially independent and operating a large business, but also inspiring a large group of people through our success and our work,” Malik said. “By that time, we will have made the company self-sufficient; investments and capital will be growing continuously in a mechanism that creates increasingly larger dividends for our investors.”

Malik said that in five years’ time, Global Housing expects to be among the largest players in Scandinavian housing, and in 10 years will be operating on an international scale. The issue of house prices is a global one, and combining part-ownership with a rent-to-own model is likely to become more prevalent in the future.

“We are aware that purchasing a house can be one of the biggest challenges people face today,” Malik explained. “Therefore, Global Housing believes that providing people with alternative ways of buying homes will give them broader opportunities. We believe in a future where it will be possible to buy houses without taking out a mortgage or loan.”

Top 5 riskiest investments of 2018

Posted on by Max Tomlin

Just because something is popular or talked about doesn’t mean it is a sure thing to invest into – no matter how appealing it looks. Here, World Finance lists the riskiest potential investments of 2018.

1 – Wynn Resorts
Stock in Wynn Resorts, the Las Vegas-based casino and hotel chain, was rising rapidly until it crashed in January, when The Wall Street Journal reported on a series of sexual harassment accusations against founder and CEO Steve Wynn. Wynn resigned in February, and while the dip in stock, the company’s expansion into Asia and whispers of an acquisition by MGM may make it seem like a tempting investment, it will be hard to completely expunge the stain from its name.

2 – Tesla
On paper, Tesla is one of the most recognisable and revolutionary companies around. However, if the aim is substantial returns in the short to medium-term, it is probably not best to buy stock in a company playing the very long game. You can count the number of profitable quarters the 15-year-old company has had on one hand. The rollout of the Model 3 may change that in the coming years, but the company’s stock price has remained somewhat level for the past year.

3 – Bitcoin
Perhaps the most talked about investment of the past couple of years, cryptocurrencies have come to define volatility in the financial space. The currency’s flagship product, Bitcoin, was all the rage in 2017 when it reached a peak value of nearly $20,000 in December. It has since cratered, and now hovers between $6,500 and $7,500. With analysts calling it a bubble and adherents preaching the gospel of buying the dip, the safest bet would be to stay out altogether.

4 – Snap Inc.
In what has likely been the most underwhelming tech IPO in recent memory, Snap has seen its stock fall by almost half since it went public in March 2017. Its popularity among coveted young demographics makes it attractive, as does its innovative array of augmented-reality face filters, but it is growing far slower than a young company of its kind should, and it is facing mounting pressure from Instagram.

5 – Facebook
The fallout from the Cambridge Analytica affair is still radioactive, and Facebook’s stock has not made any meaningful recovery since the controversy began. While it may be tempting to buy at a low price, it is too early to tell what regulatory changes will be put in place, how they will affect Facebook’s profit and how the company will adjust its business model. It is clear, however, that Facebook will not be able to operate in the same way that attracted so many advertisers.

The battle to be top of the stocks

Posted on by Max Tomlin

Hong Kong’s position as a global financial heavyweight has long been secure. The city-state’s commitment to free market principles has seen it evolve from a mercantile shipping hub into a thriving, service-orientated economy. The adoption of the ‘one country, two systems’ principle in 1997 has allowed Hong Kong to retain its economic freedom while also acting as a gateway to the rapidly growing Chinese market.

The international success of its stock exchange is even more impressive: as of the end of 2017, Hong Kong had more than 2,000 listed companies, a total market capitalisation (see Fig 1) of HKD 34trn ($4.34trn) and had been named as the number one global IPO venue for five of the previous nine years. Last year, however, that coveted top spot was taken by New York, while Hong Kong had to settle for third place, behind Asian rival Shanghai.

In fact, the total funds raised on the Stock Exchange of Hong Kong (SEHK) in 2017 amounted to just $35bn, a 15 percent fall when compared with the previous year. This can be partly explained by competition between stock exchanges being fiercer than ever; globalisation and technological development have encouraged businesses to seek public capital in international exchanges instead of their domestic markets.

Costs, access to a particular investor community and increased liquidity are all factors that determine a company’s decision to list on a particular exchange but, increasingly, regulatory issues also play a part. Late last year, Hong Kong Exchanges and Clearing (HKEX), the official operator of the city’s stock exchange, announced it had begun drafting rule changes that would allow for dual-class share listings, bringing the exchange in line with New York.

While international competition makes it more difficult than ever for one market to hold more stringent rules than another, the loosening of regulations around dual-class shares has raised concerns among corporate governance advocates. The move may encourage business owners to choose Hong Kong over New York, but minority investors could be the ones losing out.

Falling behind
The root of Hong Kong’s decision can be traced back to September 19, 2014, when Chinese e-commerce giant Alibaba decided to host its IPO on the New York Stock Exchange (NYSE). By the time the IPO had concluded, the company had raised a staggering $25bn – still, to this day, the largest IPO ever conducted. As cheers rang out in Alibaba’s business headquarters in Hangzhou and across the New York trading floor, the reaction in Hong Kong was very different.

The loosening of regulations around dual-class shares has raised concerns among corporate governance advocates

HKEX CEO Charles Li had already faced criticism for focusing on commodity firms rather than technology-orientated ones, and now he stood accused of letting New York waltz in and steal the most valuable listing of all time. What’s more, Alibaba made it clear that, although the IPO was a runaway success, in different circumstances it would have preferred to be listed in Hong Kong.

The reason New York eventually came out on top was Alibaba’s insistence on a dual-class listing, which would allow its 28 partners to retain majority control of the board despite only owning around 13 percent of the company. Although this practice has been allowed on the NYSE since the 1980s, Hong Kong has stuck rigidly to the ‘one share, one vote’ principle. Aurelio Gurrea-Martínez, a fellow in Corporate Governance and Capital Markets at Harvard Law School, believes dual-class shares, while not necessarily harmful, are open to abuse.

“Through the use of dual-class share structures, some shareholders (usually the company’s founder and its top executives) are able to pursue their vision and enjoy the full benefits of control without paying for this privilege,” Gurrea-Martínez explained. “They become what many authors call ‘controlling minority shareholders’. This means that not only will they run the company as they see fit (sometimes for their own interest or portfolio, and not for the interests of the shareholders as a whole), they will also enjoy the private benefits of control.”

Hong Kong may have resisted the pressure to match New York’s more relaxed approach to stock market regulations until now, but it wasn’t for want of trying. At the time of the Alibaba IPO, a committee that had been formed to review SEHK rules was split on whether to make an exception for the e-commerce giant. Ultimately, it decided waiving the regulations to accommodate a single company would damage the exchange’s reputation. Further, formalising a rule change to allow dual-class shares is not a quick process and, as Hong Kong deliberated, New York stepped in.

Playing catch-up
“The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by,” Alibaba Executive Vice Chairman Joseph Tsai wrote in a blog post in 2013, ahead of the company’s record-breaking IPO. “As a company with most of our business in China, it was natural for Hong Kong to be our first choice.”

$35bn

Total value of funds raised by SEHK (2017)

$1.1bn

Value of China Literature’s IPO on SEHK (2017)

$25bn

Value of Alibaba’s record-breaking IPO

Following Alibaba’s decision, a number of other Chinese technology firms have looked elsewhere for their IPO listing. Just three percent of listings by market value on the SEHK have been ‘new economy’ companies in the last 10 years, compared with 47 percent on the NYSE. Similarly, nine of the 10 largest IPOs conducted by Chinese digital firms have been in the US.

Although dual-class shares – or weighted voting rights, as they are sometimes known – have been around for decades, they have experienced a surge in popularity as the digital economy has taken off. Dual-class shares are particularly popular with technology firms, as they give entrepreneurs the freedom to pursue their unique, singular vision without having to seek approval from other investors. What’s more, many digital companies decide to go public before they have become profitable. In this case, the kind of long-term strategy likely to be implemented by a company founder is preferable to investors seeking short-term returns.

“On average, the founders of young tech companies are more likely to add value than their peers in mature companies with a more traditional business,” Gurrea-Martínez explained. “That’s why most companies with dual-class shares are tech companies or start-ups with a novel product or idea.”

In order to attract this new breed of company, the SEHK has finally decided to join the likes of the US, Brazil and Canada in relaxing its rules on dual-class shares. Hong Kong’s decision will not have been taken lightly, with Gurrea-Martínez noting that “many institutional investors have already shown their concerns about the reform”, but the move has been welcomed in some quarters. Speaking earlier this year, Alibaba founder Jack Ma revealed the e-commerce firm would now consider listing its subsidiaries in Hong Kong as a direct result of the rule change.

Getting back in front
When deciding whether to change the regulations surrounding dual-class shares, the SEHK had to carefully weigh up the pros and cons. The loosening of rules could help to attract the new digital firms that make up an increasingly large proportion of the global economy, but could also damage overall trust in the exchange, making it more difficult to attract IPOs from other industries. Further, there are other issues – beyond weighted voting rights – that tech companies consider when deciding where to list. “The liquidity and depth of the stock exchange are crucial factors,” Gurrea-Martínez said. “As is the reputation, qualification and independence of the regulator.”

Even as Hong Kong moves to lift the ban on dual-class shares, the city-state knows better than to get involved in a regulatory race to the bottom

The fact Hong Kong was able to become one of the world’s leading financial hubs, despite banning dual-class shares for more than three decades, suggests it already had a great deal of IPO pulling power. And it seems this pulling power was beginning to have a slow but steady effect on new economy businesses. In fact, the fourth quarter of 2017 saw a surge in tech listings on the SEHK, with China Literature’s $1.1bn IPO the largest recorded.

Despite recent successes, those in charge of the Hong Kong exchange know that competition will be fiercer than ever this year. Some of the leading lights of the Chinese tech scene – including Didi Chuxing, Tencent Music and Xiaomi – are all rumoured to be planning an IPO at some point in 2018. After missing out on Alibaba’s record-breaking IPO four years ago, it is understandable if Hong Kong feels the need to align its regulations with its competitors.

Even as Hong Kong moves to lift the ban on dual-class shares, the city-state knows better than to get involved in a regulatory race to the bottom. Gurrea-Martínez believes the SEHK is sophisticated enough to punish value-destroying founders going public with dual-class shares, but “could still implement new rules to enhance the protection of minority investors”.

These new rules are on the way: there will be restrictions on the type of companies that can issue dual-class shares, for example, and the Hong Kong Government is launching a much-needed overhaul of its auditing regulations. More safeguards may be needed as the stock exchange gets accustomed to its newfound acceptance of weighted voting rights.
If Hong Kong wants to get ahead of New York, Shanghai and the rest of the world’s top exchanges, it cannot simply follow the lead of others. It must create a regulatory framework that is right for its particular market and, crucially, one that is attractive to both billionaire tech entrepreneurs and public investors alike.

Wema Bank launches ALAT to kickstart its digital transformation

Posted on by World Finance

ALAT is Nigeria’s first fully digital bank, built from the ground up to provide a branchless customer experience. It’s the child of Wema Bank, which has been aggressively expanding its digital services in recent years. Ademola Adebise and Moruf Oseni from Wema Bank discuss ALAT’s success, its products and incentives, and the further digitisation strategy that is in the bank’s future.

World Finance: ALAT is Nigeria’s first fully digital bank, built from the ground up to provide a branchless customer experience. It’s the child of Wema Bank, which has been aggressively expanding its digital services in recent years. Ademola Adebise and Moruf Oseni from Wema Bank join me now.

How successful has ALAT been, and what’s the potential for a fully digital bank in Africa?

Ademola Adebise: It’s been an exciting journey for us. In the last nine months we’ve on-boarded about 200,000 customers, with a deposit balance of about NGN 1.3bn. And on a monthly basis we do transactional volumes of about NGN 15bn.

In the next three years our target basically is to on-board 2.5 million customers, with a deposit balance of NGN 100bn.

And in terms of Africa; Africa has a very youthful demography. And if you look at 2016 and 2017, the growth of sales in mobile phones was about 47 percent. Internet penetration is just about 29 percent, which shows that there’s an opportunity for a fully digital bank to thrive.

World Finance: What’s Wema Bank’s digitisation strategy?

Ademola Adebise: Our strategy is premised on leveraging existing and emerging technologies to provide compelling products and services for our customers. The focus is really meeting our customers’ lifestyle needs.

Our service vision is around simplicity, reliability, and convenience. We believe that with ALAT, a lot of things will happen: we’ll begin to look at strategic insights, data analytics, agile and best in class technologies to provide a world class service.

World Finance: Moruf, what do you currently offer digitally, and what other products are in the pipeline?

Moruf Oseni: First of all we have full account opening in five minutes or less, without getting into any branch. You can fund from any bank account and any bank card, internationally and locally.

We also allow free cards, which can be delivered to anywhere in the country. There’s also something called in-app debit card activation. We have instant loans, group and individual savings with 10 percent interest rates. We have a 24 hour contact centre. So we have a whole gamut of things we’ve digitised in the first phase.

Now, going forward, there are quite a number of things we want to introduce, based on customer feedback. The first is our personal financial planner. We have artificial intelligence and virtual assistance. We’re coming out with something we call iconographic gamification. We’re going to also have something we call ALAT Plus, which will speak to our current account and our corporate account. And we’ll also do international remittances.

Our plan at the end of the day is not only to digitise our customer journeys; the idea is to digitise the operations of the bank end to end; from trade services to operations to treasury. We intend to digitise the bank across the board, and we intend to be the one-stop digital bank in Nigeria.

Ademola Adebise: In addition to the features that Moruf already stated, we also intend to ensure that we improve on customer engagement, to ensure that we know exactly what they really want.

We continue to build on our partnerships, so that we can meet the needs of our customers. And lastly, we build the back-office systems, to make sure that we can meet the growing demands of our customers.

World Finance: And how are you incentivising customers to go digital?

Moruf Oseni: We’re passing on a lot of cost benefits to gravitate them towards the platform. Also we’re educating them on the advantage of having a digital bank, instead of a traditional bank: you can sit in the comfort of your home and do everything you want to do.

Also with a digital bank we’re mapping into their lifestyle. So, basically the idea is to meet them at their every point of convenience; whatever they need, we’ll be there. That’s the idea.

World Finance: And finally, what’s Wema Bank’s vision for banking in Nigeria?

Ademola Adebise: We believe that banking is changing; moving from the brick-and-mortar to digital. The landscape is changing pretty fast, and for us, we want to be the leading digital bank in Africa, providing very innovative financial services to our customers.

We believe that providing this in a very easy, convenient, and reliable way – and of course, more cost-effective – we will be able to create shareholder value for our stakeholders in the bank.

World Finance: Ademola, Moruf, thank you very much.

Ademola Adebise: Thank you.

Moruf Oseni: Thank you.

Thanks for watching. Click through for more interviews with the world’s most innovative banks, and please subscribe for the latest international business insights from worldfinance.com

Top 5 takeover targets for the rest of 2018

Posted on by Max Tomlin

Acquiring another company is a risky move. When it goes badly, businesses can end up saddled with mountains of debt and in possession of unprofitable assets. Nonetheless, many companies continue to utilise corporate takeovers as part of their business strategy because the rewards on offer – increased revenue, a larger product base and access to new markets – are so great. World Finance takes a look at five potential takeover targets that industry heavyweights should be keeping an eye on in 2018.

Many companies continue to utilise corporate takeovers as part of their business strategy because the rewards on offer are so great

1 – Bristol-Myers Squibb
The healthcare sector has experienced a ramping-up of mergers and acquisitions in recent years, and the consolidation looks set to continue throughout 2018. One company in particular that looks ripe for takeover is Bristol-Myers Squibb. The recent success of the company’s immuno-oncology drugs has raised prospects of a buyout by rival firm Pfizer.

2 – Hortonworks
Data management firm Hortonworks has seen its share price steadily decline over the first few months of 2018, despite posting revenue growth of more than 40 percent in the fourth quarter of last year. This could make the company an attractive prospect for other tech businesses looking to gain access to Hortonworks’ data analytics expertise.

3 – Jagged Peak Energy
Geological concerns may have put off other oil producers from investing in the Southern Delaware Basin, but Jagged Peak Energy decided to take a chance. Now, with 2,000 drilling locations and more than 75,000 acres to explore, that chance looks likely to pay off, making the Colorado-based energy firm an attractive takeover prospect.

4 – Allergan
Although shares in Allergan are well below their 2015 peak, the Irish pharmaceutical firm has a number of new drugs in the pipeline that make the company a more appealing proposition than it may first appear. Potential buyers will be rightly concerned over heightened competition to Allergan’s key product, Botox, but that might not be enough to completely quell takeover rumours.

5 – Pinnacle West
Large-scale mergers in the utility sector can fall foul of national regulators, leaving major players looking at smaller firms for acquisitions. Not only does Arizona-based Pinnacle West boast strong long-term growth prospects, the fact that it is a single-state operator means that achieving regulatory approval for a potential takeover shouldn’t prove too much of a challenge.

An enticing citizenship destination

Posted on by Max Tomlin

For many, the politics of one’s home country constitutes an obstacle to freedom of movement. While this is an imperfect state of affairs, a second citizenship can give this demographic the chance to become global citizens. This is an opportunity that should be granted to every individual, but unfortunately is often restricted to those who have the means to make large investments.

Foreign investment has contributed to the rapid development of the economy, resulting in Antigua and Barbuda having one of the highest GDPs per capita in the sub-region

That said, second citizenship can be surprisingly good value for money. What’s more, in addition to mobility, citizenship and residency, investment programmes afford families better security, access to education, quality of life, stability and diversification of wealth. Those seeking second citizenship face a dizzying array of choice, from Malta to Austria, Cyprus, Bulgaria and Saint Lucia. Each location differs in terms of the freedom of movement they offer and the minimum investment outlay, as well as the various rules surrounding mandatory travel and due diligence.

New kid on the bloc
Having been established five years ago, the Antigua and Barbuda Citizenship by Investment Programme (CIP) is still a relatively new entrant to the economic investment arena. Despite this, it has become very popular with investors, owing to its straightforward and transparent application process, fast turnaround and the quality of real estate offerings in Antigua and Barbuda. What’s more, since August last year, a reduction in processing fees has given the programme an additional competitive edge.

In fact, Antigua and Barbuda was recently ranked number one in the region and number four in the world by citizenship expert Henley & Partners on account of its culture of efficiency, robust due diligence process, transparency and accountability.

The key benefit of Antigua and Barbuda as a choice for second citizenship is that it enables visa-free access to more than 135 countries, including the UK, the Schengen Area, Hong Kong and Singapore. In addition, there are no restrictions on dual nationality, and applicants can receive citizenship for life once the residency requirement is met. Another key factor for many is that new citizens can add dependents after approval. The recent elimination of personal income tax makes it even more attractive.

After Hurricane Irma devastated Barbuda, the smaller and less populated of the two islands, in September 2017, a further decision was taken by the government to decrease the National Development Fund (NDF) contribution for a limited period. This, the government felt, would allow for the allocation of an estimated $200m needed to rebuild a stronger, greener Barbuda.

Investment requirements
Antigua and Barbuda’s citizenship scheme requires the applicant to commit to one of three investment options. One option is to make a contribution of $100,000 to either the NDF or an approved charity.

The second option is to make a real estate investment, whereby applicants purchase a property valued at a minimum of $400,000 in a preapproved real estate development area, which must then be maintained for a minimum of five years. This option includes any fees for property registration, processing fees and taxes.

The third option open to applicants is to invest $1.5m to establish a business. This can be a joint investment comprising two or more people, as long as each person contributes at least $400,000, and the total joint investment comes to a minimum of $5m.

A Caribbean gem
Home to more than 100,000 people and blessed with 365 powder-white sand beaches, Antigua and Barbuda is revered as one of the most beautiful places in the world. Dubbed the ‘heart’ or ‘gem’ of the Caribbean for its strategic location in the middle of the Leeward Island chain, the independent Commonwealth state of Antigua and Barbuda comes close to many people’s idea of paradise. Its ideal geographic positioning makes the tropical twin-island a regional travel hub, with excellent air links to both North America and Europe.

The initial introduction of the second citizenship scheme dates back to harder times. Like many countries around the world, Antigua and Barbuda was adversely affected by the 2008 economic crisis. Tourism, the main driver of the economy, experienced a decline from the country’s source markets, namely Europe, the UK and the US. After considering various options to jumpstart the economy, the government saw the CIP as the most effective way to bring back foreign direct investment, renew interest in the real estate market and spur investment in the economy.

Bolstered by generous government incentives, foreign investment has contributed to the rapid development of the economy, resulting in the country having one of the highest GDPs per capita in the sub-region. Aside from the hiccup during the financial crisis, Antigua and Barbuda has historically experienced continuous growth in foreign direct investment, owing to its attractive tourism and real estate sectors; while more recently, financial services, tertiary education and e-commerce have also become significant contributors.

Antigua and Barbuda, along with seven other states, is a member of the Eastern Caribbean Currency Union, a development of the Organisation of Eastern Caribbean States, which uses the Eastern Caribbean dollar as its currency. The Eastern Caribbean dollar has been pegged to the US dollar for the last 40 years, which has contributed to its long-term financial stability.

As far as innovation is concerned, Antigua and Barbuda was the first Caribbean nation to permit investment in approved businesses, an initiative that other jurisdictions are only now copying. What’s more, Antigua and Barbuda has maintained a strong presence in the high-end tourism sector for more than four decades. Since it has long had basic infrastructure in place, the country has now become an attractive portal for those seeking to invest in real estate and business.

The CIP unit has also been very visible in the international community as it has attended and presented at various industry conferences, as well as having established a strong presence in a number of high-quality publications.

Nuts and bolts
The only residency stipulation for the programme is that new citizens spend at least five days in Antigua and Barbuda in the five years following the granting of citizenship. The other potential hurdle for applicants is the restricted country list, which comprises Afghanistan, Iran, Iraq, North Korea, Somalia, Yemen and Sudan. Nationals of these countries are eligible to apply for citizenship in Antigua and Barbuda only if they meet additional criteria.

Beyond restrictions, there are a few important factors that have contributed to the rapid success of the programme. For one, the programme’s workforce is highly competent, comprising mostly private sector individuals. With a turnaround time of about 60 days, the CIP unit quickly became one of the most efficient units – if not the most efficient – in the region, surpassing countries that had been in the industry for far longer.

In addition, as one of the youngest second citizenship schemes in the world, the twin-island state has had the unique opportunity to learn from already-established programmes and model its real estate offerings and escrow arrangements accordingly. In order to give investors the confidence that developers will deliver on their promises, the unit exerts a certain level of control over the management of escrow accounts.

A greener future
Since the programme’s launch, Antigua and Barbuda has seen a resurgence in its real estate sector, as well as renewed interest in the hotel sector. This economic boost has created the fiscal space for a number of environmentally responsible projects to be developed, such as solar energy and reverse osmosis. The local population has also benefitted from direct contributions to social development schemes through charities and the NDF.

Looking to the future, the country anticipates that revenue flows from the CIP will assist in fostering cottage industries such as agro-processing, further improve the agricultural sector, and support the creation of new industries, which will provide a source of diversification for the economy. Furthermore, the construction boom that is anticipated as a result of the programme is set to create even more employment opportunities and other spillover benefits, ultimately improving the economic livelihood of all citizens that are lucky enough to live in paradise.

World Bank releases Doing Business report

Posted on by Ashton Wenborn

The World Bank’s Doing Business 2018 report ranks 190 economies based on how easy it is to do business there, taking into account trading regulations, property rights, contract enforcement, investment laws, the availability of credit and a number of other factors.

1. New Zealand (Rank 1)
For the second year in a row, New Zealand retains its position at the top of the Doing Business rankings. The Oceanic country may be thousands of miles away from major markets in the West, but global supply chains and new communication technologies are eroding this hindrance. New Zealand’s strengths are particularly pronounced when it comes to starting a business; the country boasts the smallest number of procedures required – just one – and the shortest time needed to fulfil them (half a day). It also scores highly in terms of building regulation transparency, tax payment services and protecting minority investors.

2. Georgia (Rank 9)
The only lower-middle-income economy to feature in the top 20, at first glance Georgia appears to be something of an anomaly. With a population of just 3.7 million and a GDP per capita that ranks among the lowest in Europe, it is not a country often considered a business hotspot. However, the Georgian Government has made great efforts to enhance private enterprise in the country, implementing 47 business regulation reforms since the Doing Business report began in 2003 – more than any other country in the survey. Among the many changes, Georgia has made electricity more affordable and created more accessible insolvency proceedings for debtors and creditors.

3. UAE (Rank 21)
The UAE is the best-performing country in the Middle East and North Africa region, and climbed five places from last year. The country performs particularly well in the availability of electricity and the efficiency of issuing construction permits. In addition, great strides have been made towards improving credit reporting, with credit bureaus now offering scores to banks and other financial institutions, helping them to more accurately determine the creditworthiness of borrowers. The formation of a regulatory reform committee, which pays close attention to the Doing Business metrics and how to score highly, has also helped the UAE’s rise.

4. Thailand (Rank 26)
Thailand is one of the world’s most improved economies in terms of the ease of doing business, having implemented eight reforms during the 2016/17 period covered by the report. The adoption of a new secured transactions law has bolstered the rights of creditors and borrowers, while changes to risk assessment and land administration systems boosted efficiency markedly. These reforms, and a host of others, have created a much more welcoming business climate in the country. Not so long ago, starting a company in Thailand took an average of 27.5 days. Now, it takes less than five, demonstrating the South-East Asian country’s impressive recent development.

5. Chile (Rank 55)
Chile was ranked 34th in the 2014 Doing Business report, but has suffered a significant drop in the years since. While the World Bank has been keen to stress that the fall is simply due to other nations improving at a faster rate, some suspect foul play. Critics of the report have gone as far as suggesting that Chile’s lower ranking is politically motivated, influenced by opponents of the country’s left-leaning former president, Michelle Bachelet. The 12 methodological changes made between 2014 and 2016, which have largely damaged Chile’s score, have only added credence to claims of the report’s bias.

6. India (Rank 100)
India may already be the world’s sixth-largest economy, and is growing fast, but it still has a long way to go if it’s to make doing business in the country easier. Fortunately, the government is working hard to climb the ranking. The processes for making tax payments were streamlined in 2016, thanks to the introduction of income computation and disclosure standards. Contract enforcement has also improved due to the adoption of performance measurement reports on a wider scale. One area where India has had great success is protecting minority investors, where enhanced standards of governance have had a significant impact.

7. Nigeria (Rank 145)
Nigeria made it onto the report’s list of the 10 most improved economies for the first time this year as a result of recently enforced business reforms. Africa’s most populous state recently increased transparency regarding construction permits and the transferral of property rights. Starting a business has also become a faster process since the government introduced the electronic stamping of registration documents. Nigeria is still playing catch-up in other areas, and ranks particularly poorly in terms of electricity access and cross-border trade. The country’s overall position shows there is much work still to be done.

8. Somalia (Rank 190)
For the second year in a row, Somalia has the unwanted distinction of being named the most challenging place in which to do business. Dire economic conditions, a fragile political climate and the ongoing threat of terrorism make it difficult for Somalia to create much upward momentum. A mostly dollarised economy and a worrying number of regulatory loopholes have also meant that the informal economy often seems more prominent than the formal one. Business potential does exist, particularly if diaspora professionals can be enticed back to the country, but the chances of Somalia rising significantly up the Doing Business rankings look slim for now.

Private enterprise flourishing in Eastern Europe

Posted on by Max Tomlin

It can sometimes be forgotten that private real estate developers and investors provide a vital public service. By constructing, renovating or managing properties, they deliver the residential and commercial infrastructure that is necessary for the creation of a thriving local economy. For Dana Holdings – BK, this certainly rings true.

The Karić family helped shape the financial landscape in Serbia, other parts of Eastern Europe and even China

As an award-winning developer that has completed more than 1,000 projects, covering over 10 million sq m, Dana Holdings – BK has helped build high-quality urban environments for countless individuals to live and work in. With projects receiving praise from many quarters, it was no surprise when Dana Holdings – BK was listed on the World Finance 100 in 2017 in recognition of its impact in the real estate sector. For Bogoljub Karić, Dana Holding – BK’s Chairman of the Board, the positive work being undertaken by the business represents the culmination of a long personal and professional journey that has taken him from a small city in former Yugoslavia to the upper echelons of Serbian politics.

New beginnings
Karić, the youngest son of Danica and Janićije Karić, was born on January 17, 1954, in the town of Peć, located in what was then known as Yugoslavia. The Karić family come from a long tradition of entrepreneurialism that would no doubt have made a strong impression on the young Bogoljub. In fact, records of the family’s work in handicraft and trade sectors can be traced all the way back to 1763.

Private enterprise in the Socialist Federal Republic of Yugoslavia, however, was not easily pursued. Although the post-war period did see a reduction in the state management of enterprises, unemployment remained rampant and much of the country’s labour force emigrated to find work abroad. These difficulties, however, did not prevent Bogoljub, his brothers Dragomir, Sreten and Zoran, and his sister Olivera, from pursuing their entrepreneurial instincts.

In the 1960s, after further legislative changes, Bogoljub and his siblings founded the first private factory in Eastern Europe and, in doing so, they became pioneers of private business; not only in former Yugoslavia, but in Eastern Europe. Using credit obtained from the International Finance Corporation, the family was able to produce a number of vital tools that had previously been missing from the local market, including tractors, axles and cogwheels. In doing so, the factory enabled the foundation of many other private companies in the region.

Within 10 years, the factory grew into a thriving, multi-faceted business. The family’s BK Group soon encompassed an industrial network of 400 sub-contractors, applying western standards of management, responsibility and remuneration to its workings. The group became a phenomenon in the communist world, with both Pravda in Moscow and Renmin Ribao in Beijing writing disapprovingly about the restoration of capitalism in Yugoslavia. Despite the reproach, the Karić family fully believed in its work.

“My family knew that criticism from powerful local individuals stemmed from concern that the old power structures were fading away,” Karić explained. “We responded by renewing our commitment to private enterprise, understanding that it would not only benefit ourselves but also help the wider economy.”

Giving back
Although the success of BK Group has brought Karić and his family significant wealth, the Serbian businessman has been keen to use his financial clout to help others too. Through his founding of the Centre for the Development of Small Enterprises, Karic´ has played a key role in fostering private enterprise in the region.

The establishment of the Karić Foundation in 1992 helped provide assistance to refugees, orphans, schools and hospitals through its branches in Moscow, Vienna and London. Similarly, the Karić Brothers Award was established in 1998 to celebrate work in the fields of art, journalism, science, economics and humanitarianism. The reputation of previous laureates is testament to both its national importance and international prestige. The award aims to both celebrate past achievements and inspire new ones.

“I had a dream of creating a new generation of brilliant minds, inspired by contemporaries who have selflessly devoted their work and life to their homeland,” Karić told World Finance. “That is how the idea of the award originated two decades ago. After all these years, the laureates represent a family of great people brought together by the Karić Award.”

The businessman’s desire to safeguard Serbia’s future was also demonstrated when he established the Alfa BK University – the first private university in Eastern Europe – in Belgrade in 1992. Alongside his brother Dragomir, Karić also founded the International University for Business and Management in Moscow as the first private university in Russia.

Over the years, the BK Group has also provided a number of essential services for the Serbian people. Through the creation of TV BK Telecom and then EUnet, the first domestic internet provider, the group helped connect Serbians with each other and the wider world. Similarly, the establishment of Mobtel, the first mobile telephony company in the region, indicated that the BK Group was not afraid to pioneer new services.

“The world around us is constantly changing and businesses must be able to react swiftly to new developments,” Karić said. “At the BK Group, we are always alert to new technologies and services that could deliver value to our customers. We aim to be proactive, rather than reactive.”

The Karić family also helped shape the financial landscape in Serbia, other parts of Eastern Europe and even China where they became pioneers of private business when they started activities 30 years ago through their company in Hong Kong. The Karić Bank, later called Astra Bank, opened its doors in 1990 in Belgrade as the first private bank in Eastern Europe. Affiliate banks were subsequently opened elsewhere in the country and abroad, which continued to provide valuable financial services, even as Serbia faced crippling economic sanctions. It was the only private bank that survived the financial chaos that engulfed the country during the 1990s, and in doing so even managed to enhance its reputation.

By supporting charities and businesses alike, the BK Group has played a vital role in stimulating the domestic economy, helping to improve the fortunes of many Serbians. “The creation of just one job is the greatest act of patriotism that anyone can commit,” noted Karić. “Everyone who does this for their country is a hero who deserves the greatest recognition.”

Building a better future
Today, BK Group is one of the largest construction companies in Europe, with current projects valued in excess of €20bn ($24.74bn). As one of the first foreign investment and development groups to recognise the potential of emerging Eastern European markets, BK Group’s Dana Holdings has successfully completed more than 500 projects since its inauguration and is on track to deliver a number of significant mixed-use schemes over the next few years also.

In Belarus, as with so many other Eastern European markets, the pathway to sustainable growth begins with a full and productive workforce, although suitable infrastructure is also a major driver. According to Colliers International, the estimated market value of all the projects in Minsk is $3.95bn, while total net operating and sales income is $7.2bn.

Minsk World, which is Dana Holdings – BK’s largest development, is a three million sq m mixed-use scheme that is located in the heart of the city, on the site formerly occupied by the Minsk-1 Airport. Construction of the complex started immediately after both the presidents of Serbia and Belarus participated in a groundbreaking ceremony in November 2015.

On a site of around 400 hectares, the new Minsk World project is one of the largest mixed-use construction developments in existence in the world today. Upon completion, the project will comprise 30,000 high-quality residential units and villas, along with 305,000 sq m of gross leasable area (GLA) of Class A office space, all within a new international financial district that will attract numerous new investors.

There will also be: conference, event and leisure centres; schools; lakes and green spaces within a new metropolitan park; and a 120,000 sq m GLA shopping, entertainment and leisure centre. The residential segment of the development is ahead of schedule, while the entire project is on track to be completed by 2029. The project offers strategic benefits for Belarus and will help the country become a regional leader in business and finance, similar to Singapore, Dubai or Hong Kong.

Furthermore, Dana Holdings – BK is working in Belgrade to imple­ment its two million sq m Tesla City project, designed to be the leading energy-efficient city- within-a-city development on the planet.

There’s also the Astana Royal, which is currently in development. This is another city-within-a-city development that heralds a new centre for living, working and recreation for residents of all ages in Kazakhstan’s capital. Such projects are in addition to the many completed projects that the BK Group has worked on across the former Soviet Union. In fact, during 40 years of operations, the company has worked in more than 18 countries.

There is still more work to be done, however. States in Central and Eastern Europe require an estimated €615bn ($760bn) of investment in transport infrastructure just to catch up with countries in the West. For Karić, this shortfall only makes him more committed to future projects, both in his native Serbia and elsewhere. In any case, for the many reasons mentioned above, the Karić brothers have become synonymous with the success and development of private business in Yugoslavia and Eastern Europe.

“At Dana Holdings – BK, we only invest in the best,” Karić said. “Whether our partners are based in manufacturing, telecoms, finance or any other industry, we give them support, but also freedom to be creative. In this way, we are helping to change the world, one project at a time.” Indeed, thanks to all they have achieved, the Karić brothers have become synonymous with the success and the development of private business in Yugoslavia and Eastern Europe.

Saudi Arabia to open first commercial cinemas in almost four decades

Posted on by Max Tomlin

On April 4, American cinema chain AMC announced it will open the first commercial movie theatre in Saudi Arabia in more than 35 years. The Saudi Ministry of Culture and Information granted the licence, which is consistent with Saudi Arabia’s Vision 2030 plan to modernise its economy.

AMC said it plans to open between 30 and 40 new theatres in 15 cities around the country in the next five years

This follows the announcement in December that the country’s long-standing ban on cinemas was to be lifted, opening the way for commercial enterprises to set up in the kingdom. AMC, which is the biggest cinema chain in the world, is the first entrant into the Saudi market and plans to open its first cinema in the country by April 18.

“The granting of the first licence marks the opening of very significant opportunities for exhibitors. The Saudi market is very large, with the majority of the population under the age of 30 and eager to watch their favourite films here at home,” said Awwad Alawwad, Saudi Arabia’s Minister of Culture and Information in the statement. “The aim of Saudi Vision 2030 is to improve the quality of life for Saudi families by providing an array of entertainment opportunities. The restoration of cinemas will also help boost the local economy by increasing household spending on entertainment while supporting job creation in the kingdom”

In a separate statement, AMC said it plans to open between 30 and 40 new theatres in 15 cities around the country in the next five years. Eventually, it plans on establishing between 50 and 100 venues in 25 cities by 2030.

This is a significant cultural development for Saudi Arabia, which outlawed movie theatres in the 1980s following a resurgence of ultra-conservative religious sentiment in the aftermath of the Iranian Revolution. Saudi’s young crown prince, Mohammed bin Salman, has been making bold moves to modernise the nation’s culture and economy through the framework of Vision 2030, including lifting the ban on women driving. The sweeping, ambitious and forward-looking nature of the Vision 2030 is both facilitated and hindered by the kingdom’s status as an absolute monarchy.

Top 5 most interesting mergers and acquisitions of the past year

Posted on by Max Tomlin

The past 12 months have produced a seemingly endless string of mergers and acquisitions (M&As). Over $3.5trn worth of deals were made worldwide, marking the fourth consecutive year the $3trn benchmark has been passed.

As competition across multiple sectors heats up and is disrupted by new entrants and technology, companies are taking dramatic steps to cement their positions and secure their industry futures. M&As, whether horizontal (buying the competition) or vertical (buying up and down the supply chain), can drastically improve a company’s strategic standing in its market.

Here, World Finance lists the five most noteworthy M&As of the past year. They may not necessarily be the biggest, but they have already made waves that are well worth following in the years to come.

Companies are taking dramatic steps to cement their positions and secure their industry futures

1 – Amazon/Whole Foods Market – $13.7bn
In perhaps the most visible deal of the past year, the e-commerce behemoth Amazon stepped out into the real world last August with a major acquisition of the brick-and-mortar food retail company Whole Foods Market. On paper, Amazon and Whole Foods don’t seem like a natural match: Amazon is known for its absurdly quick turnover of inventory and its logistical mastery. Whole Foods, on the other hand, gives off the vibe of a local artisanal food shop where time and effort goes into everything. The effects on the food retailer have been quick, with lower prices and Amazon lockers in stores within the first few months. The changes are likely to attract a new customer base that has avoided Whole Foods because of its niche reputation and relatively high prices.

2 – Disney/21st Century Fox – $52.4bn
In a real shake-up of the entertainment business, Disney announced it would purchase the entertainment assets of Rupert Murdoch’s 21st Century Fox in December, for a mammoth $52.4bn. The deal brings together two of the biggest entertainment companies in the world, and future-proofs Disney’s vast empire. For avid movie fans, this deal means the possibility of seeing lucrative franchise crossovers. X-Men, The Fantastic Four and Deadpool may finally team up with their Marvel brethren in Disney’s Marvel Cinematic Universe. Through this acquisition, Disney is also doubling its stake in the streaming service Hulu, which solidifies its position in the streaming market, especially given its planned direct-to-consumer streaming service, which is set to launch in 2019.

3 – CVS/Aetna – $69bn
In what is sure to rock the US healthcare market, CVS – the biggest pharmacy chain in the country – announced the purchase of the fifth-largest health insurer for $69bn in December. So significant is the deal, in fact, that the American Antitrust Institute has lobbied the US Government to block the deal, arguing that it would leave other players in the market with little or no incentive to compete. The deal comes as industry titans are feeling threatened by major players like Amazon, which is also poised to enter the market. CVS’ merger also put pressure on other significant players in the market to make bold moves; health insurer Cigna bought prescription benefit management company Express Scripts in a $67bn deal.

4 – Intel/Mobileye – $15.3bn
Intel – which was recently overtaken by Samsung as the world’s largest chipmaker – has made a major move into the autonomous driving space with its acquisition of Israeli visual sensor company Mobileye in August. Through the merger, Intel is looking to position itself as a leader in what is undoubtedly one of the hottest fields in tech right now. The companies are already in partnership with German automaker BMW on a fleet of 40 self-driving vehicles, which will hit the road in the second half of 2018. Mobileye’s technology is already used by a number of players in the market, most notably Tesla, which has perhaps the best-recognised automated driving programme in the car industry.

5 – Verizon/Yahoo – $4.48bn
Anyone old enough to remember the internet in the late 1990s will remember Yahoo’s digital dominance. It was the most popular starting point on the web in 1998, before the burst of the dotcom bubble – and, more importantly, Google – violently wrenched it from its perch. Verizon, the American telecommunications conglomerate, finally ended Yahoo’s tenure as an independent company last June with a $4.48bn purchase. Yahoo’s glory days may be long over, but its recent history has not been underwhelming: in 2016, Yahoo was the world’s sixth most visited site. The company now operates under Oath, Verizon’s digital content subsidiary, which also controls AOL and Huffington Post.

Portugal launches new investment fund path to golden visa

Posted on by World Finance

For high net worth individuals, a golden visa is a gateway to freedom. It’s not about relocating – but about creating future opportunities for their families. They may want an improved quality of life, access to better education, or a safe haven from political instability. Since 2012, Portugal has been offering just this portal to independence. Tiago Camara and David Machado from ptgoldenvisa.com explain how the programme works, and how the new investment fund route makes it simpler than ever to acquire a golden visa.

Tiago Camara: The Portuguese Golden Visa programme allows investors to freely live, work, and study in the whole Schenghen area; and after six years they can even apply for a Portuguese passport.

It’s a straightforward programme with no grey areas; if one invests a minimum of €350,000 in a Portuguese investment fund or in a real estate product, they will get their residence permit card in Portugal.

Investors can also add family members to their applications as dependents, and there’s no need for relocation. Just a minimum stay of seven days – they are already complying with the rules of the programme.

One of the main routes for applicants has been investing in real estate. Investors can expect return on their investments, in the main cities, of around 10-12 percent every year. Tourism is increasing 50 percent on the last three years, allowing investors to place their properties on the short rental market, renting these properties to tourists, and generating per year around five to 10 percent rental income.

The launch of programmes like Golden Visa and Non-Habitual residents generated a huge demand for real estate products in our country. The Portuguese are also investing in real estate instead of having their money in the banks. At the moment, supply cannot keep up with demand, which provides a great capital appreciation on properties.

World Finance: With demand outstripping supply, there’s an urgent need for more real estate products in Portugal. To address this, the Portuguese government created the new investment fund path to the golden visa this year.

David Machado: From 2018, you are able to invest €350,000 in a Golden Visa qualified investment fund, which is fully regulated by the Portuguese Stock Exchange Market, and audited by third party companies. This option comes free of taxes and is focused on the bottom line investment, creating a very fast and interesting solution with high returns.

PTGoldenVisa is working on a basis of a close collaboration to implement the first fund in Portugal qualified for Golden Visa. It’s sustained in two major criteria, which we fully share 100 percent of the strategy vision: first, invest in real estate easy to resell; and second, invest in real estate easy to rent out. This investment fund is managed with a safe approach to market, without leverage.

The goal here is to invest in real estate opportunities already identified; such as developing private villas with swimming pools close to tourism spots, refurbish buildings in the major city centre avenues, or convert hotels into tourism apartments to be able to be sold on a piece-by-piece basis.

The term of the investment is planned for seven years, custom designed to optimise the Golden Visa requirements, and is expected to generate over six percent return per year. This uses a very conservative approach, considering that the market has been growing double digits per year.

As an exit strategy, it’s an investor right, granted by the regulator, to exit the fund any time you want. Additionally you can always resell the fund units to other investors, or simply convert the units into real estate assets supported by the fund.

Tiago Camara: PT Golden Visa offers a long-term relationship solution which fulfils all the needs of our clients during the investment period. We will continue to enlarge the scope of our integrated services, since that’s what differentiates our company from most of the service providers, and makes it special.

Golden Visa residence permit programme has a huge impact on the Portuguese economy. This is the reason why all political parties and the government are constantly supporting this programme. So far, €3.5bn were injected in Portugal through the Golden Visa programme; and 95 percent of this amount was investment in real estate.

Forty percent of all real estate transactions last year were made by foreign investors. The majority of them with the objective of getting the residence permit card.

The Golden Visa residence permit is our golden egg, and our politicians know it. We are very confident that the programme will keep on being supported by our government; and we are here to support all investors.

Financial History: CAFTA-DR

Posted on by Ashton Wenborn

2001
Representatives of five Central American countries – Nicaragua, Costa Rica, El Salvador, Honduras and Guatemala – met with counterparts from the US in 2001 to discuss the development of a trade relationship akin to the NAFTA agreement between the US, Mexico and Canada. The aim was to eliminate trade barriers between member countries, improving the US’ access to regional markets while encouraging economic growth in Central America through export diversification and higher foreign investment.

2003-04
Official negotiations began in January 2003, with the Dominican Republic joining in November. CAFTA, without the Dominican Republic, was signed on May 28, 2004. Separate negotiations between Central America and the Dominican Republic were undertaken to iron out issues stemming from a previous free trade arrangement between the two. The final CAFTA-DR agreement, which integrated the Dominican Republic, was signed in August 2004 in Washington DC.

All seven signatories signed agreements to facilitate the handling of environmental measures within CAFTA-DR and establish the Environmental Affairs Council in 2006
All seven signatories agreed to facilitate the handling of environmental measures within CAFTA-DR and establish the Environmental Affairs Council in 2006

2006-07
All seven signatories signed agreements to facilitate the handling of environmental measures within CAFTA-DR and establish the Environmental Affairs Council. CAFTA-DR came into force for El Salvador, Honduras, Nicaragua and Guatemala in 2006. The Dominican Republic implemented the deal on March 1, 2007. Costa Rica held a referendum on whether to approve CAFTA-DR, in which Costa Ricans voted affirmatively, though by a narrow margin, on October 7, 2007 – it came into force two years later.

2008-09
Trade began to decline in November 2008, two months after the global financial crisis began. Two-way trade between the US and CAFTA-DR countries fell from $44.7bn in 2008 to $38.7bn in 2009. All Central American countries saw a sharp drop in foreign direct investment, which was exacerbated further by regional security issues. With the exception of Guatemala and the Dominican Republic, all CAFTA-DR countries saw negative economic growth in 2009.

2010-12
Bilateral trade between CAFTA-DR countries and the US returned to pre-crisis levels in 2010, with total trade amounting to $48.2bn. In March 2012, a number of Honduran and American labour organisations alleged that the Honduran Government was failing to enforce labour laws. At around the same time, the US requested the establishment of an arbitral panel to consider whether Guatemala was enforcing its labour laws pursuant to its commitments under CAFTA-DR.

2013-14
In April 2013, the US and Guatemala signed an enforcement plan to address the labour dispute that had prompted the establishment of the arbitral panel. Two-way trade between the US and the bloc saw its strongest year in 2014, totalling $59.6bn. US exports to the region alone amounted to $31.1bn, an increase of almost 85 percent from 2005, before the agreement had been signed. The CAFTA-DR bloc constituted the US’ 13th-largest export market and the third-largest in Latin America.

US farm and food exports to CAFTA-DR countries doubled between 2006 and 2016. Corn exports from the US to the rest of the bloc were particularly strong
US farm and food exports to CAFTA-DR countries doubled between 2006 and 2016. Corn exports from the US to the rest of the bloc were particularly strong

2015-16
As of 2015, $87.2m had been invested in the Environmental Cooperation programme, funding training in a number of environmental issues. Trade between the US and CAFTA-DR fell slightly but remained strong, totalling $52.4bn and $52bn in 2015 and 2016, respectively. US farm and food exports to CAFTA-DR countries doubled between 2006 and 2016. Corn exports from the US to the rest of the bloc were particularly strong, reaching record levels as tariff elimination schedules advanced.

2017
After scrutinising Guatemala’s labour law enforcement, the arbitral panel determined that the issues did not reflect a system-wide problem. The protectionist attitudes of the new US administration cast uncertainty over regional free trade agreements, particularly NAFTA. However, CAFTA-DR maintained consistent trade surpluses for the US, placing it on solid ground going forward. In 2017, the US saw its largest trade surplus with the bloc to date, amounting to over $7bn.