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Seven Days: 6 December 2019

A round-up of the biggest business stories of the past week
December 5, 2019

M&G gates fund

M&G has suspended trading in its £2.5bn M&G Property Portfolio (GB00B89X8P64) “with immediate effect”. The fund manager said it had seen “unusually high and sustained outflows” from the funds in recent months due to Brexit uncertainty and “ongoing structural shifts in the UK retail sector”. The suspension will allow managers time to raise cash to pay for redemptions, and the fund is waiving 30 per cent of its annual charge while it is suspended. A number of property funds temporarily closed – known as 'gating' – in 2016 in the wake of the EU referendum.

 

Takeover cleared

Opposition dropped

Inmarsat (ISAT) announced that "contesting shareholders" no longer intended to oppose its $3.4bn (£2.6bn) takeover by a private equity consortium, which was sanctioned by scheme of arrangement this week. The court hearing had already been delayed from 12 November after Oaktree Capital Management – then a 2.85 per cent investor in Inmarsat – published a letter to the group’s board on 5 November, asking for a postponement. The fund said that extra time would enable the US regulatory approval process for Inmarsat’s “valuable Ligado spectrum assets” to finish.

 

Don’t bank on it

UK downgraded

Investors hopeful that domestic bank stocks will bounce in 2020 might have to extend their patience by another year. This week, ratings agency Moody’s downgraded the outlook for the UK’s entire banking system from stable to negative, arguing that low interest rates and competition in the mortgage market are weighing on loan quality and profitability. “These challenges will outweigh the sector's strong capital and liquidity buffers, and an expected decline in banks' conduct costs,” said report co-author Laurie Mayers. However, the ratings agency has maintained its positive outlook on high-street giants Royal Bank of Scotland (RBS) and Barclays (BARC).

 

Trade wars intensify

Global equities falter

Expectations that a trade agreement between China and the US would soon be struck were dimmed after President Trump said there was no deadline for talks between the two countries. Mr Trump said he was prepared to wait until after the 2020 US election to agree a trade deal, causing the S&P 500 index and FTSE 100 to close 1 per cent and 1.7 per cent down, respectively, on the day of the president’s comments. That came just a day after the US leader threatened to impose 100 per cent tariffs on up to $2.4bn of French imports, including luxury items.

Reach out

Won’t buy JPI

Newspaper publisher Reach (RCH) dropped talks to buy certain assets from JPI Media – formerly known as Johnston Press, whose titles include The Scotsman and The Yorkshire Post. It said that while “active discussions” had ended, it will continue to review “on a regular and disciplined basis” M&A opportunities that would accelerate its strategy. Daily Mail and General Trust (DMGT) revealed that it has acquired the ‘i’, a UK national newspaper and website, from JPI media for £49.6m. The group said it expects the deal to be reviewed by the Competition and Markets Authority. 

 

Ted falters

Accounting review

Ted Baker (TED) commenced an independent review of its accounts after discovering the value of its inventories had been overstated by around £20m-£25m over a number of prior years. While the group said the overstatement would not have a cash impact, it has further damaged the clothing retailer’s image, which it has been struggling to rebuild since founder Ray Kelvin stepped down in the midst of misconduct allegations in March. The board has appointed Law firm Freshfields Bruckhaus Deringer, with accountants expected to follow, to carry out a comprehensive review of the issue. See page 21.

 

Glencore hunkers down

“Old guard” leaving

Glencore (GLEN) has moved towards a balance-sheet-protecting strategy at the cost of production growth, management announced this week. Chief executive Ivan Glasenberg said the “old guard” would continue to depart from the company next year, with his exit to come once a successor from the incoming, under-50 cohort becomes clear. The company is aiming to get net debt down from 1.24 times cash profits as of 30 June to 1.0 times next year. At the same time, those cash profits are likely to fall in 2020 as weak base metal prices and production decreases hit revenue and capital spending goes up.

 

UK construction activity slowed once again during November, according tothe IHS Markit/CIPS UK Purchasing Managers Index. 

The index rose to 45.3, from 44.2 in October, although any reading below 50 represents a contraction output. 

Civil engineering was the worst performing category, with commercial building coming in second, although a slower decline in housebuilding activity provided a fillip to overall construction output. 

The corresponding index for UK services activity also slipped back into decline, dropping to 49.3 in November.