LONDON, Jan 26 (Reuters) – Britain’s commercial real estate sector is increasingly feeling the pinch of higher borrowing costs, as investor enquiries declined in the fourth quarter and the outlook for the year ahead worsened, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said 83% of respondents to its quarterly commercial property survey thought the market was already in a downturn, up from 81% a quarter before. Almost half considered this downturn to be in its early stages.
RICS said investor enquiries fell across all sectors for the first time since the start of the pandemic, with a net balance of -30 of respondents citing lower investment demand.
Tarrant Parsons, senior economist at RICS, said the investment side of the commercial property market was “significantly affected” by the Bank of England’s (BoE) tighter monetary policy, and that higher borrowing costs were weighing on investor demand and hurting valuations.
The BoE’s Monetary Policy Committee raised its main rate at its last nine meetings and markets have priced in a half percentage point increase to 4% for Feb. 2.
British consumer price inflation was running at 10.5% in December, nearly five times the Bank’s 2% target.
Near-term capital value expectations dropped sharply across the board, and the industrial sector saw the weakest reading since 2011.
“Linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term,” Parsons said.
Looking at the year ahead, average capital values were forecast to fall further in all parts of Britain.
The survey of 940 companies was conducted between Dec. 7 and Jan. 13.
Reporting by Suban Abdulla; editing by David Milliken
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HONG KONG, Nov 9 (Reuters) – Chinese property developers’ share prices surged on Wednesday after regulators expanded a financing programme aimed at supporting bond issuance in the crisis-ridden sector.
CIFI Holdings (Group) Co Ltd (0884.HK) soared 40% while Country Garden Holdings Co Ltd (2007.HK) surged 23%. The Hang Seng Mainland Properties Index (.HSMPI) rose 8%.
The National Association of Financial Market Institutional Investors late on Tuesday said it will widen a programme to support about 250 billion yuan ($34.5 billion) worth of debt sales by private firms, including property developers.
The semi-official association under the central bank also said the programme can be expanded further.
“Even though the programme may not actually help developers that much, it’s the message from the central government, showing its determination to stabilise the sector and the economy, that is boosting sentiment,” said Alvin Cheung, associate director of Prudential Brokerage in Hong Kong.
The move comes as cash-strapped property developers struggle to tap sources of funding to finish projects and pay suppliers. Several developers have defaulted on offshore debt obligations in the past year.
More recently, investors have been fretting about the crisis deepening as developers widely believed to have had government backing also missed payments, such as CIFI and Greenland Holdings Corp Ltd (600606.SS).
“We think this is a big step to help ease liquidity for top private developers after recent defaults,” said Jefferies analyst Shujin Chen in a client note.
Still, there will likely be more defaults given weak recovery in property sales, Chen said.
Developers’ offshore U.S. dollar bonds also rebounded. A Seazen 2026 bond was trading at 14.35 cents on the dollar on Wednesday, showed data from Duration Finance, more than 3 cents higher than a day earlier.
Nomura said benefits from the expanded programme are unlikely to be sufficient to resolve developers’ financial woes as prolonged contraction in new home sales may reduce funding sources this year by 3.3 trillion yuan.
The property market continued its slump in October, with private data showing home prices and sales falling, indicating lacklustre sentiment and a bleak outlook amid strict COVID-19 curbs that have rattled consumer confidence.
($1 = 7.2470 Chinese yuan)
Reporting by Xie Yu and Clare Jim; Editing by Edwina Gibbs and Christopher Cushing
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NEW DELHI, Oct 31 (Reuters) – A locally developed genetically modified (GM) mustard variety will help India boost crop yields of one of the main oilseeds and cut vegetable oil imports that cost billions of dollars a year, the country’s top agricultural scientists said on Monday.
The Genetic Engineering Appraisal Committee (GEAC), part of India’s environment ministry, last week granted environmental clearance for indigenously developed GM mustard seeds, paving the way for commercial use of the first GM food crop.
After the GEAC permission, scientists will now carry out the last rounds of trials and demonstrations before letting farmers grow the transgenic mustard variety developed by Deepak Pental, a geneticist and former vice-chancellor of Delhi University.
“There are strong indications to suggest that new hybrid varieties will finally raise yields of mustard,” Trilochan Mohapatra, president of the National Academy of Agricultural Sciences (NAAS), the top research body of farm scientists, told a news conference.
New hybrid GM seeds could potentially raise mustard yields to 3.0-3.5 tonnes per hectare, he said, up from around 1.3 tonnes now.
Mustard, part of the rapeseed family, has the highest oil content among India’s nine main oilseeds, including soybeans and peanuts, but crop yields have stagnated for years.
India, the world’s biggest edible oil importer, meets more than 70% of its cooking oil demand through imports.
In the fiscal year to March 31, 2022, New Delhi spent a record $18.99 billion to import vegetable oils, prompting Prime Minister to voice concerns about India’s rising vegetable oil import bill.
The GEAC has approved GM mustard seeds after a lengthy, foolproof trial and the new variety is safe for the soil, the environment and human health, said K C Bansal, secretary of NAAS.
Bansal said farmers do not need any herbicide to grow GM mustard seeds and weed killers would only be required at time of seed development. He also said lab-altered GM seeds do not pose any threat to honey bees that flock to mustard flowers for nectar.
Activists have said GM mustard would require widespread use of herbicides and pose a threat to honey bees.
Reporting by Mayank Bhardwaj; editing by David Evans
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The logo of Ernst & Young is seen in Zurich, Switzerland November 13, 2020. REUTERS/Arnd Wiegmann/File Photo
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NEW YORK, Sept 9 (Reuters Breakingviews) – It’s easy to say a company should break up, but hard to make it happen. That couldn’t be more true of the plan to dismantle Ernst & Young, whose partners will vote over the coming months on splitting the firm’s consulting business from its audit arm. Strategically it’s appealing. Logistically and mathematically, it’s a number-cruncher’s nightmare.
EY is carving itself up because regulators in the United Kingdom and elsewhere want it to, but also because it makes sense. Accounting firms often can’t audit companies which are also consulting clients, so being two separate firms, most likely with the consultancy as a public company, would let EY squeeze more milk from the cow. Chief Executive Carmine Di Sibio reckons that could create $10 billion of revenue on top of the $45 billion a year the group makes now.
The devil really is in the detail, though. Unlike a listed company, where shareholders might vote once to approve a breakup, EY must hold local polls in around 75 countries. Some require a simple majority, others need two-thirds’ backing. Some locations give each partner one vote; others divvy up power according to how much capital a person owns. And in some places, partners with certain accounting qualifications get a separate vote.
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Valuation is no less troublesome. If the firm splits, audit partners would effectively trade their share in the consultancy for consultants’ share in the audit business. A slug of cash would go to audit partners to balance things out. But the valuation will rest on assumptions. Pricing a consultancy isn’t too hard: rival Accenture (ACN.F) trades at just under three times this year’s forecast revenue, according to Refinitiv. But none of the big U.S. accounting practices are publicly traded.
EY sold its original consultancy in 2000 to IT firm Capgemini (CAPP.PA) in return for stock. Partners then watched in agony as the buyer’s shares fell 95% in two years, and EY rebuilt its consultancy once the non-compete agreement lapsed. This time there’s no acquirer’s stock to worry about, but valuation still matters. The firm’s owners are also its employees, so a deal where one side does much better than the other is likely to lead to a disgruntled workforce. Auditors and consultants are trained to be critical of deals and valuations; selling them on this scheme will put EY through its paces.
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CONTEXT NEWS
Ernst & Young will ask partners to vote on whether it should separate its audit and consulting businesses, it said on Sept. 8. The ballot, which will take place on a country-by-country basis, will start later in 2022 and the firm expects to finalize the decision in early 2023.
The split would involve partners in each business retaining stakes in their respective sides and would most likely involve cash paid to audit partners to adjust for the different values of the two units.
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Editing by Antony Currie and Thomas Shum
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
BOSTON/LONDON, July 1 (Reuters) – Russia’s invasion of Ukraine has exposed a gap in socially-minded investing – a hands-off approach to geopolitics and human rights.
Before Moscow sent troops into Ukraine on Feb. 24, Sberbank (SBER.MM), a Kremlin-backed bank already the target of international sanctions, enjoyed higher ratings for environmental, social and governance (ESG) risks than some western lenders.
MSCI Inc (MSCI.N) and Sustainalytics improved their ESG scores for Russia’s largest lender last year as recently as December, citing factors such as improved data privacy. S&P Global Inc (SPGI.N) also gave Sberbank a positive review late last year.
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The ratings firms quickly changed course after the offensive, downgrading or suspending their scores on Sberbank and other Russian government-linked companies citing pressures such as their exposure to new western sanctions.
The U-turns have sparked calls from some investors for an overhaul of how geopolitics, sovereign governance and human rights are factored into ESG ratings.
A first step would be to include warning signs of war, allowing the selling of stocks while they could still be sold, said Dana D’Auria, co-chief investment officer for the asset management division of Envestnet Inc.
“Wouldn’t it have been great to divest from Russian stocks before they became frozen?” D’Auria said. She and Envestnet declined to discuss specific holdings.
Simon MacMahon, head of ESG research for Sustainalytics, said the invasion of Ukraine was “a black swan event” because of its low probability and high impact, and said that investors were aware of the risks of investing in the region.
“To suggest that investors were relying solely on ESG ratings to tell them that investments in Russia, (Belarus) and Ukraine were increasingly high risk is nonsensical,” he said.
Still, Morningstar Inc (MORN.O)-owned Sustainalytics is revamping its methodology to capture companies’ exposure to unpredictable, unmanageable events.
Its new “Systemic Event Indicators” aims to capture any development it defines as “a sea change event that is somehow unpredictable in nature and that affects larger groups of companies at the same time and across a multitude of ESG issues.”
Sustainalytics gave Sberbank a 21.47 score pre-invasion, better than scores given to JPMorgan and Deutsche Bank at the time. The Russian bank’s risk rating was then raised to its current “high risk” rating of 33.4, incorporating the new systemic indicators.
MSCI, which in December upgraded Sberbank to an “A” rating from “BB,” said that it regularly reviewed its ratings methodology and that it had put a ceiling on Russian company ratings and removed them from its indexes.
MSCI spokesperson Melanie Blanco said that across all markets covered by MSCI, state-owned enterprises on average have lower ESG ratings, typically due to weaker corporate governance and higher corruption risk.
A spokesperson for S&P said it continued to review its coverage and methodology for affected companies in Russia but declined to discuss ratings in detail.
AUTOCRACY RISK
Funds that exclude or are underweight companies from countries with weak human rights records are a tiny fraction of the tens of trillions of dollars held in ESG investments.
MSCI Managing Director Meggin Thwing Eastman told Reuters that while Russia’s invasion was forcing “a revisiting of a lot of people’s thinking” in how they assess geopolitics many emerging markets (EM) investors still want exposure to countries despite their sometimes poor human rights records.
“If what you want to do is buy EM, that’s part of what you’re buying into,” she said.
But demand for strategies with a human rights screen is growing.
Julie Cane, CEO of Democracy Investments, investment adviser to the $5 million Democracy International Fund (DMCY.P), said it had a rush of new interest and inflows since Russia’s invasion. It attracted $3 million in net new deposits this year, including $1 million in each of February, March and April, according to Lipper data.
The fund reduces the weighting of some of its holdings if a company’s home country receives a low score in The Economist magazine’s Democracy Index.
That still leaves it with exposure to state-connected businesses, including in China, which has come under increasing international pressure over human rights in the Xinjiang region.
Cane said it was better to keep such stakes, however diminished, “to put pressure on authoritarians to become better citizens of the world.”
China’s foreign ministry and the State Council Information Office did not respond to requests for comment.
The United States says China is committing genocide against Uyghur Muslims in the Xinjiang region. Beijing has denied all accusations of abuse.
Another fund, the $220 million Freedom 100 Emerging Markets ETF , takes a harder line. It excludes companies from countries that score low on a measure of “human freedom” kept by the Cato Institute and the Fraser Institute.
That makes it a rarity among EM funds because it omits Russian and Chinese holdings. Fund manager Perth Tolle said Russia’s invasion helped attract new money. Lipper data shows it has taken in $117 million so far this year.
“The invasion seems to have made investors more aware of autocracy risk than ever before, and they see that freedom works as a leading indicator,” Tolle said.
Moscow calls its invasion a “special military operation” to protect Russian speakers from Ukrainians intent on taking Kyiv into NATO, a move Russia says it cannot accept. The West and Ukraine say Russia is waging an unjustified war of aggression.
RUSSIAN EXPOSURE
To be sure, most ESG-focused funds had little or no exposure to Russia. Close to $320 million in securities linked to Russia’s government, including via sovereign debt and shares in Sberbank and other state-backed companies, was held across 75 ESG labelled U.S. and European funds as of March according to corporate accountability NGO Inclusive Development International.
Some $100 billion is held in passively managed funds linked to sustainable indexes compiled by MSCI and others according to Sustainable Research and Analysis.
Some ESG raters had flagged the sanctioning of government-connected Russian firms pre-invasion, but those assessments had a limited impact. In a Nov. 29 note a unit of S&P credited Sberbank for conducting risk assessments and strategic planning.
The note cautioned against corruption and centralized power in Russia, but said “the inclusion of the bank on international sanctions lists currently does not affect the effectiveness of its corporate management and does not create any immediate financial or operational risks.”
Despite being put on 2014 U.S. and European Union sanctions lists after Russia’s annexation of Crimea, Sberbank grew in the following seven years, maintaining a sizeable presence in some European markets and reporting a 74% jump in net profits to a record 1.24 trillion roubles for 2021.
Sberbank said in a statement that its “impressive progress” on ESG ratings in 2021 reflected “internal ESG transformation efforts as well as its sustainability leadership in Russia.” It did not respond to specific questions about the ratings.
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Reporting by Ross Kerber in Boston and by Tommy Wilkes in London. Additional reporting by Simon Jessop in London and Ryan Woo in Beijing. Editing by Greg Roumeliotis and Carmel Crimmins.
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The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their headquarters in Washington, D.C., U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo
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June 15 (Reuters) – The U.S. Securities and Exchange Commission (SEC) on Wednesday requested information on the activities of financial information providers amid growing concerns over their influence on investment decisions, despite not being fully regulated.
Critics have expressed concerns that information providers, particularly index companies such as S&P Global, MSCI (MSCI.N) and FTSE Russell which assist in trillions of dollars of investment decisions globally, have acted as unregulated investment advisors.
“The role of these information providers today raises important questions under the securities laws as to when they are providing investment advice rather than merely information,” U.S. SEC chair Gary Gensler said in a statement.
Index providers are currently treated as data publishers by the SEC.
The information gathered will help the watchdog to understand whether information providers should be regulated, given the influence of these companies in driving investment decisions, the statement said.
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Reporting by Akriti Sharma and Shubhendu Deshmukh in Bengaluru; editing by Richard Pullin
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