Tag Archives: Standard Life

The Outsourcer’s Furlong

The race is on, we heard last year just how poorly the setting of Interserve was. We all head how Interserve served the people the small fact that they were half a billion (in £) in debt. I discussed it last December (at https://lawlordtobe.com/2018/12/17/one-to-the-hospital-one-to-the-morgue/) in the article ‘One to the hospital, one to the morgue‘, and if the previous financial model applies, there is every consideration that so far another £200 million has been added to the debt. The guardian gives us: “the directors danced around the issue. A “fully consensual” financial restructuring would be preferable but Interserve was “also actively preparing alternative plans to ensure the proposed transaction can be implemented in the event that shareholder approval is not forthcoming”“, and as they very correctly state it ‘What alternative arrangements?

In this Coltrane and Farringdon Capital Management have between them one third of the equity and the message of “the proposed £480m debt-for-equity rescue in which the banks would take control and current investors would be diluted to just 2.5% ownership“, you can imagine that these two campers were not happy. They stand to lose it all if things go pear shaped, the awkward impact of a wrong investment made bare. The fact that these two could stagger it all if there is not a full house (which is the most likely event), could stop everything and as the Guardian states (to be more specific Nils Pratley does at https://www.theguardian.com/business/nils-pratley-on-finance/2019/feb/13/interserve-needs-a-plan-b-given-the-rebellion-over-its-current-plan), a plan B is needed. I personally think that a plan C is equally essential. At present chairman Glyn Barker has his work cut out for him, not only are 45,000 out of the 74,000 employees in the UK and they are waited with baited breath, there are more than two parties that are on the ropes and he needs the bulk to fall in line with his vision. One part is the lucrative Interserve Saudi Arabia. Even as it is profitable now, it is also in demand now, auctioning it off to Salini Impregilo could give them a decent reduction in debt overnight and with matters in Saudi Arabia as they go, Salini Impregilo needs the workforce, they are scoring job after job and at some point the workforce will not hold up to the scrutiny of deadlines. As it includes presence in the UAE, Interserve might want to choose dollars for doughnuts before the stage has changed and all that they can hope for is 10 cents to the dollar, because at the stage where two players having one third push for change, Salini Impregilo merely needs to wait for Interserve parties to become utterly desperate and that given stage is a little more realistic than some players are comfortable with.

If debt reduction is the goal and we see that their Middle Eastern part involves:

  • Hospitality and leisure
  • Oil and gas
  • Retail
  • Transport and infrastructure

I see at least three branches that could be pruned and it is a first step to push Interserve back to their core and optionally into a field where cost becomes increasingly lower than the current balance statements require them to be. A similar view could be held for the US and Asia. I wonder just how profitable these branches are, the total debt implies that it goes way beyond the UK (or the UK part is optionally mismanaged in the most dreadful way). I am not implying or judging, half a billion in debt is doing that for me pretty convincingly.

So as the Times gives us: “The New York hedge fund attempting to derail the £905 million rescue plan at Interserve is nursing losses of nearly 90 per cent on a £25 million bet that the public services contractor could recover without falling into the hands of its lenders“, we also see another side. The fact that we see someone hedging 3% into moving away from the £900 million rescue plan, and losing 90% of their attempt also implies that the tress intensifies. Another view is given by the Financial Times (at https://www.ft.com/content/8cd9d920-2b98-11e9-a5ab-ff8ef2b976c7) with: ‘Hedge fund in Interserve feud profited from Carillion collapse‘, with the addition “Coltrane Asset Management, the biggest investor in Interserve, earned £4m wagering on Carillion’s collapse by selling its shares short“, so why give them any consideration? the fact that they decided to add a 20+% share in Interserve with the assumed and highly likely path to try that trick a second time implies that they have no vested interest in the firm, merely a need for greed. So why cater to that? When we are given: “Carillion collapsed in January 2018 leaving banks, investors and pensioners nursing heavy losses and the government struggling to deliver key services such as hospital cleaning and school meals. Some 3,000 staff lost their jobs, with another 14,000 transferred to other employers, in one of the biggest corporate failures in British history“, we know that this was not the fault of Coltrane Asset Management, yet they had no issue selling it all down the drain as it allowed them to fill their pockets. We get it and we do understand that Coltrane is in it for the money, that is how the cookie crumbles, yet when we see the impact on an optional 74,000 employees, we need to look beyond. It is not like Coltrane is taking over and making it a profitable setting, are they?

We do get that Coltrane is not the actual evil party in this, unless they explored short selling here too, at that point they are on their own. Coltrane is not without teeth, the mere setting of shareholders losing out on their investment will make them gang together and plenty of them are small investors; it is their retirement that is at stake. Scottish pubs tycoon Alan Macintosh is also still an element in all this, the swap would make him massively rich so he is willing to stick with the plan, there are still 6 weeks until the deadline gives us the setting of the battle line that will be drawn, and where that ends is anyone’s guess. yet as the Financial Times points out “People close to Coltrane said it was confident of winning support from the numerous smaller investors — which include Hargreaves Lansdown and Standard Life“, those with their retirement savings in the balance will turn to Coltrane soon enough, some will be scared enough to offer their part to Coltrane at any amount that gives them more than 30 cents to the dollar, giving Coltrane the option to upgrade the size of the bat that they wield in this encounter, leaving the people at Interserve with little to work with, and in light that there is no plan B or a plan C, gives more and more the impression that they never properly prepared for this war, making the outcome of a win for Coltrane against them a rather large likelihood.

So who goes to a war theatre without at least three options ready? Anyone who starts a tactic without two alternative routes handy at any given time is merely on a one way street to defeat. That is not predictive, that is an issue that has been gospel since WW1, I would go further that the Siege of Khartoum of 1884 was another example to that premise. In those days there were thousands of Brits sneering and making fun of Muhammad Ahmad bin Abd Allah, in the end he walked into Khartoum leaving mountains of corpses in his wake. From that setting alone, the board of directors at Interserve have made a few too many really poor decisions, when we add that to the pile, we see that Coltrane is not done, not by a long short and when it falls over, Coltrane walks away with an ox-cart of gold and a fair share of the 74,000 employees will not be that lucky.

Those who want a better stage better find themselves a new deal and set themselves as independent contractors finding new alliances. It might be easy for some where the market is vastly on the rise, but that is merely in a few places where the stage can be set to take control of the projects, making the situation of Interserve a lot less manageable soon enough.

I am merely speculating now, yet consider the projects over the last 6 months.

  • Qatar National Theatre
  • Southwark Council
  • Highways England
  • North Lincolnshire Council
  • Durham University

These are merely a few of many projects where ownership of the project could revert to other players if the pressure on that project is high enough. Those customers will need to seek a solution for their invested needs and there is now enough doubt whether Interserve can fulfil its side of those contracts, the mere absence of a plan B would essentially be enough to facilitate for change if the proper cards were played and £150 million is nothing to make fun of.

But that could be merely my wrongful view on the matter, we will know soon enough.

 

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What is Hiding Underwater

What is the reality of surface life? That is the first question that comes to mind when I look at the fallout that Brexit is creating. You see, to comprehend this part I need to take you back to the 15th April 1912, in that year New Mexico and Arizona become part of the Union that is now regarded as the United States of America and the first Balkan War has not yet started, no at this time the titanic sinks. The world gets introduced to the dangers of an Iceberg, the danger s that 90% of an iceberg remains below the surface. A lesson that will reverberate in many ways. This one event changes the rules of safety regulations for ships at sea forever (for the better I might add). The part that has been dramatized again and again is about a ship going down. It would not be until 1997 until someone truly turned this event into a money maker (James Cameron), it would fetch a little over 2 billion dollars, not a bad result for a movie. The reality is, that for most, the unknown fact was that the Titanic was the direct cause of something else. It would be the reason for something that was created in 1914, it was the International Convention for the Safety of Life at Sea (SOLAS). Let me add a little spice here. If the Titanic had not met up with that proverbial ice cube, there is a decent chance that the amount of fatalities from WW1 and WW2 would have been a lot higher.

You see, what lies beneath the surface is an issue, especially when we do not know what is there. We can only arm ourselves with the lessons we are taught and the common sense implementation that our logic allows for. So when I saw two articles today, my mind went into wander mode. The simplest of reasons is that certain events do not make sense. I feel that we are being played. This is a feeling I have and I could be massively wrong at this point. I accept that, but let me tell you about these articles and these facts and it will be up to you to decide.

  1. Construction becomes first casualty of Brexit as housebuilders get jitters‘ (at https://www.theguardian.com/business/2016/jul/04/construction-first-casualty-brexit-housebuilders-jitters-eu-referendum).

So there has been a referendum and a vote has been cast. We now read “their stockpiles will reach to the moon and back. That’s the message from private sector house builders, which have looked into the industry’s crystal ball and concluded that there is no reason to expand supply for the next six months“, in addition we get “As the former head of the civil service Lord Turnbull said last week, the industry is extremely sensitive to economic sentiment and will not build a single house more than it believes can be sold” as well as “the industry is unable to build the homes that the nation needs, where it needs them and at a reasonable price“. You see, when we see messages on house shortages, on the fact that houses are absolutely unaffordable, is it not weird that one referendum, a referendum that will take time to sort out suddenly has this effect? As I see it, the prices have been pushed up and up in a bubble and the people have been victims. This is partially sown/proven when we consider “Tony Pidgley, the chairman of Berkeley Group, who pocketed a 42% rise in his take home pay to £23m last year, could not close the supply gap even if he wanted to“, as well as “He needs to make a profit for his hungry shareholders, who have set him a target of generating £2bn in pretax profit over three years from 2015“. So we now see that we have been the play toy of ‘hungry’ (read: greedy) shareholders. Exploitation of an unacceptable level and I wonder why the people at large accept this. Pardon my ‘off grammar’ English when I state “Can we get rid of these bloody shareholders, preferably with extreme prejudice?

You see, when we reread the article in another light we get:

  1. Pity the poor brick makers; Why? Bricks are needed, they have a certain cost and they are always needed.
  2. There is no reason to expand supply for the next six months; why? There is still a housing shortage.
  3. Will not build a single house more than it believes can be sold. Wrong? This is perception of when it will be sold. There is no need to not build, mainly because there is a housing shortage. People need houses.
  4. The industry is unable to build the homes that the nation needs, where it needs them and at a reasonable price. This is now proven to be untrue. This industry has become a vulture driving up prices artificially by reselling a house at times more than once, even before the house is build.

It seems to me that the law can be adjusted, so that a house cannot be sold until 2 years after the house/building has been completed. That takes out the speculative vultures and it would drop house prices to a level where a population at least 15% larger than initial would be able to afford a house. So when I read about Tony Pidgley and his shareholders, I would suggest that if Mr Pidgley desperately needs that 2 billion in profit, he should consider explaining to these shareholders how to make £20 per half hour selling services in areas like Soho? It sounds a bit over the top, but when we see profits that run into billions, we have truly overstated levels of acceptability. Perhaps moving away from the EU forcing another path where 64 million Brits could regain a life that is affordable is truly the best thing to do. Let’s not forget that an affordable mortgage, means that families will spend on quality of life, this implies that commerce will grow and no stimulus (in the way Mario Draghi is applying it) would be required.

The second article is actually a very different channel. The article ‘Standard Life shuts property fund amid rush of Brexit withdrawals‘ (at https://www.theguardian.com/business/2016/jul/04/standard-life-shuts-property-fund-post-brexit-withdrawals). The quote here is “The £2.9bn fund, which invests in commercial properties including shopping centres, warehouses and offices, is thought to be the first UK property fund to suspend trading since the 2007-2009 financial crisis, when some of the biggest names in investment management stopped withdrawals because they did not have the money to repay investors” and it makes me wonder what game is on here. The article links to ‘New Star halts property fund withdrawals‘ (at https://www.theguardian.com/money/2008/nov/26/new-star-suspends-investor-withdrawals), which was the 2008 meltdown. So now, when we see Standard Life’s property funds referring to “Investors in Standard Life’s property funds have been told that they cannot withdraw their money, after the firm acted to stop a rush of withdrawals following the UK’s decision to leave the EU“, I wonder how many investors, where they are from and the reasoning is behind the withdrawal.

You see, there are two options. The first one, the straight path is the one where we see the links to ‘shopping centres, warehouses and offices‘, these places are still needed, commerce will go on, even if the downturn is stronger, people need food, people need their goods. This will not change. The part that will change is the one we just dealt with. Unacceptable ‘profit margins’, which implies at present that these ‘investors’ are little more than vultures, do we need more of those?

It is the next quote that implies that there is a secondary path: “The selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long term”, here I wonder if the fund manager has been ‘juicing’ expectations, which could only continue in a ‘Bremain’ world. The fact that the news cycles go wider as the mere intent that the reality of Brexit made the Dow buckle is equally weird (initially).

When we consider the words from Mark Carney, who stated “U.K. banks can be part of the solution, not part of the problem“, in that mindset I can offer a first option. If we get rid of Tony Pidgley and his shareholders, the UK gets to not see these 2 Billion go elsewhere. Now, let’s be fair, the UK would never make that much on it, so if the coffers can accept a mere £200 million as a profit margin, an amount that is most likely more than taxation of the 2 billion, the UK coffers still win and life becomes a little more affordable in the UK for all who buy a house.

I will be the first one to admit that my view is not realistic and too optimistic, yet am I wrong? The housing bubble is only one event that needs to be fought. Taxation loopholes have to be dealt with, dealing with the s a decade overdue and it is one of several reasons that the UK economy is in such a bad slump. Now we get additional news that the EU is in an even worse state than we have been kept informed about. The Australian gives us “Italy’s banking system is in trouble, with about $540 billion of non-performing loans and a desperate need for new capital. Given the dearth of willing alternative capital-providers, Italian Prime Minister Matteo Renzi wants to inject the equivalent of about $60bn of public funding into the system to try to stabilise it. The problem for Renzi and Italy — and the EU — is that the rules of the European Banking Union forbid taxpayer bailouts as the first resort for troubled banks” (at http://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/italys-banking-crisis-a-bigger-problem-than-brexit/news-story/d4e0c5007fb133db959cc569f9678804), the Italian issue has been known and I have reported on it in the past, yet the fact that banks are still the biggest issue in the EU and they still have not been muzzled to the extent that they need to be remains an issue. An issue that shows on another level that Brexit was not the worst idea. So when we see Reuters stating ‘Draghi could have done more to help Italian banks in 90’s, says PM Renzi‘ whilst this issue has been known for well over a year and for the fact that Italy’s antiquated bankruptcy laws have never been properly dealt with, especially in light of the 2004 and 2008 events makes me wonder where Matteo Renzi got the idea to blame other places, when his office should have made clear priority in these matters and he should have made equal mention that people like Enrico Letta, Mario Monti and Silvio Berlusconi who had been Prime Minister in batches going back to 1994 forgot to deal with that situation, and now we see that the EU is in a state much less healthy than most predicted. I knew about several issues, but not all, it seems that all news on the stat of the EU have been overstated by way too many players in this game and it makes me wonder in equal measure how it was possible for Mario Draghi to spend over a trillion that he is still ready to spend even more.

So in light of all this, how could the UK return to a place that is killing itself, that is allowing for inaction that is not prosecuted in any way. So when you watch Rose Dawson push Leonardo DiCaprio to his icy grave, consider that the EU debt is like that Iceberg, it can sink anything and 90% is kept below the surface, sustaining the tropical life of less than 1,000 banking executives. The people in the UK need their own Safety of Life against Greed (SOLAG). If these players were decently less greedy, none of this would have happened. Perhaps one day we will see a modern European Aleksandr Solzhenitsyn and we will accept his book ‘The SOLAG archipelago’ and the wave it brings as a given wisdom.

Time will tell!

 

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