Week in review

The week in review: Qantas Air’s debt spat, $1billion for Tencent’s Yuanfuda, and the end of shareholder activism

Each Friday afternoon starting today, FinanceAsia will pen an editorial highlighting our unique capital markets news from the past week and place them in context of the bigger picture for the months ahead. We welcome your comments and criticisms. It is the best way to start the weekend.

From the Editor’s Desk, April 3, 2020.

With more than a third of world’s population under a COVID-19 lockdown, there are few places not experiencing the pandemic impact. Living rooms are converted into office spaces while in-face meetings are moving online, it is part of a global effort to flatten the infection curve based on one strategy: stay home.

No sector is impacted more by the sudden halt in people movement than those in transportation, particularly airlines. With aviation losses likely to surpass $250 billion this year with several going bankrupt by May, the most governments have stepped up to save their industry – with some already turning livid. Adrian Murdoch’sAre Virgin Australia’s bonds headed for a crash landing?” highlights Sydney’s challenge to channel taxpayer money to bailout Australia’s second largest airline company.

Qantas Air’s Chief executive Alan Joyce made it bluntly clear, he doesn’t think Australians should be on the hook for “badly managed companies” owned by billionaires. Many concur. Unlike the bank bailout a decade earlier, airline industries were not directly responsible for the current crisis. Through no fault of their own did airline companies cause the pandemic or order governments to close their country gates.

But what implications would this hold? Christopher Chu’sWill an airline company ever be able to IPO again?” argues that like banks after the financial crisis, airlines will need to hold more money on their balance sheet for the next, once-in-- lifetime pandemic. It is not been lost on the public that the $50 billion lifeline from the US government is approximately equal to what the major airlines paid shareholders in dividends and buybacks over the past ten years.

Holding more cash on the balance sheet will fundamentally alter the way business operate and invest. Immediately for capital markets, this may mean that shareholder activism has likely peaked, for now. In less than a month, Japan’s government implements the Foreign Exchange and Foreign Trade Act (FEFTA), which is branded as a muzzle against shareholder activists going after cash that Japanese companies sit on.

Half of the 3,700 listed companies in Tokyo are trading below book value. The idea goes as follows: either invest cash or give dividends and shrink the balance sheet, improving the return on assets (ROA), and rerate the share price. Given the crisis, expect money to remain stagnant.

Cash has found its way into online education services as schools across China remain close. Carol Huang’sStructure of Chinese education mega deals reflect IPO exit anxietynote reflects deal remain a bright spot for investors. With $1.5 billion merger deals completed with a 48-hour span, online education companies are avoiding the volatile secondary markets and instead partnering with private money. The market potential is enormous, with online education in China is projected to exceed Rmb450 billion ($63 billion) with more than 300 million users by 2020. How many of us were spending our time inside?

There is one beneficiary in the current lockdown: the planet. With fewer people out and about, animals have replaced human in villages in the UK. Cleaner skies are becoming more common in urban cities where pollution normally lingers, particularly in Central and Southeast Asia.

How does this impact ESG investing? Elizabeth Utley’sDigest: Sustainable Indonesian Startups to watch in 2020 highlights companies looking how the planet and its inhabitants can co-exists. Clearly, a balance needs to be found, otherwise expect more days inside.

Let’s see what happens in the markets next week

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