Japan warns on Brexit: we cannot continue in UK without profit

Britain’s Prime Minister Theresa May hosts a roundtable with Japanese investors in the UK at 10 Downing Street in central London. (AFP)
Updated 08 February 2018
0

Japan warns on Brexit: we cannot continue in UK without profit

LONDON: Japan warned Prime Minister Theresa May on Thursday that its companies would have to leave Britain if trade barriers after Brexit made them unprofitable.
Japanese firms have spent more than 40 billion pounds ($56 billion) in Britain, encouraged by successive governments since Margaret Thatcher promising them a business-friendly base from which to trade across the continent.
But after May and several of her top ministers met bosses from 19 Japanese businesses, including Nissan, SoftBank and bank Nomura, Japan's ambassador to Britain issued an unusually blunt warning on the risks of trade barriers.
"If there is no profitability of continuing operations in the UK - not Japanese only - then no private company can continue operations," Koji Tsuruoka told reporters on Downing Street when asked how real the threat was to Japanese companies of Britain not securing frictionless EU trade.
"So it is as simple as that," he said. "This is all high stakes that all of us, I think, need to keep in mind."
Japan, the world's third largest economy, has expressed unusually strong public concerns about the impact of Brexit on the United Kingdom, the second-most important destination for Japanese investment after the United States.
In a warning after the shock 2016 Brexit vote, Japan expressed fears about a cliff edge that could disrupt trade when Britain formally leaves the bloc in March 2019.
Major corporations have sought a two-year transition period, which they hope will ease Britain into its new relationship with the bloc.
Both London and Brussels hope to agree a transition deal lasting until the end of 2020, in which Britain would remain in the single market and be bound by all EU laws, by a March 22-23 summit.
May and her ministers assured Japanese businesses of the importance of maintaining free and frictionless trade after Brexit during the meeting but said nothing firm on the matter, a source familiar with the discussions told Reuters.
"The point about frictionless trade and tariff-free trade was made in the meeting and acknowledged by the government and all sides as being important but nothing firm," said the source, who spoke on condition of anonymity.
CUSTOMS UNION UNCERTAINTY
A spokesman at May's office said she had agreed with them on the need to move on quickly in the Brexit talks to secure a trading relationship with the EU that is as tariff-free and frictionless as possible after the transition period.
Thursday's meeting came after a Brexit sub-committee of ministers discussed their Brexit strategy including how closely Britain should remain aligned with the EU and its customs union, a divisive issue for the ruling Conservatives.
Brexit minister David Davis said there was still progress to be made in the committee, after disagreements between ministers erupted into the public domain.
Hitachi Europe's Deputy Chairman Stephen Gomersall, Mitsubishi CEO for Europe and Africa Haruki Hayashi, SoftBank Investment Advisers UK CEO Rajeev Misra and Nomura's Executive Chairman in Europe, the Middle East and Africa Yasuo Kashiwagi joined the meeting with Japanese investors.
Nissan's Europe Chairman Paul Willcox, Honda's Senior Vice President in Europe Ian Howells and Toyota's Europe President and Chief Executive Johan van Zyl were also present.
Collectively the three carmakers build nearly half of Britain's 1.67 million cars.


India’s small renewables firms fighting consolidation wave

Updated 21 August 2018
0

India’s small renewables firms fighting consolidation wave

  • With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall
  • Besides loans, other funding options have been dead ends for the smaller companies, further limiting growth opportunities

MUMBAI: Small to mid-sized renewable energy companies in India are starting to look like attractive takeover targets as lenders and investors withhold funds, worried by the stiff competition, weak bond markets, low tariffs and high debt besetting the sector.
The small companies’ difficulty in raising cash is keeping them away from government power project auctions, restricting their growth and crippling their ability to refinance loans, said a consultant from a top global consultancy firm.
With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall, potentially keeping India from its renewable energy targets, said the consultant, who did not wish to be named as he is directly involved with a company that canceled a bond issue.
“India’s solar industry is becoming a big boys’ club,” said Rahul Goswami, managing director of Greenstone Energy Advisers.
In a few years, there may be only a few big companies and a few regional firms active in India’s renewable sector, he said.
The trend goes back at least to 2016, when Tata Power bought solar and wind company Welspun Renewable Energy, but the pace is expected to pick up.
“Smaller players are being squeezed out ... due to two main factors: cost of equipment and ... financing,” said Alok Verma, executive director at Kotak Investment Banking, an arm of Kotak Mahindra Bank.
One of India’s largest renewables companies, Greenko Group, said in June that it was buying 750 megawatts (MWs) of solar and wind assets from Orange Renewables, because the Singapore-based company saw few opportunities for growth. The deal has yet to be closed.
Essel Infra, with a renewable power capacity of 685 MWs, and Shapoorji Pallonji Group’s 400-MW solar arm are also in talks to sell off their assets, one firm and two banks doing the due diligence for these companies have said.
Besides loans, other funding options have also been dead ends for the smaller companies, further limiting growth opportunities.
ACME Solar postponed an initial public offering (IPO) announced in September last year as the proposed share issue did not generate enough interest from investors, confirmed a banker who was directly involved in the listing attempt.
Mytrah Energy, a major mid-sized renewables company, called off a $300 million to $500 million bond issue earlier this year as that option also went dry for the sector, and it canned IPO plans as well, said a separate banker directly involved there.
The companies have all declined to comment.
This dearth of financing and trend toward consolidation could be a significant threat to India’s target of 175 gigawatts (GWs) of renewables capacity by 2022, up from 71 GWs now, some analysts said.
Others said a concentration of bigger players, with more cash and better financing, could mean things move faster.
“Consolidation in the renewable energy industry augurs well for the overall success of the program ... Large players have access to required capital at reasonable rates and can procure the latest technology,” said Debasish Mishra, head of Energy, Resources and Industrials at Deloitte Touche Tohmatsu India.
Tata Power, one of India’s largest power generators, said in May it plans to invest $5 billion to increase its renewable capacity in India fourfold over the next decade to 12 GWs.
More than doubling India’s renewables capacity by 2022 will require $76 billion, including debt of $53 billion, the Ministry of New and Renewable Energy said in July.
Another problem in India’s renewable sector is debt.
“Many mid-sized firms have taken debt to fund their equity,” the partner of an investment firm said, adding that many such companies will need financial restructuring or have to put themselves up for auction.
This model of financing debt through equity is called mezzanine financing and tends to involve high interest rates and an option to convert debt to equity in future.
Both ACME and Mytrah are funded by Piramal Finance Ltd. via mezzanine financing, according to statements by the companies at the time of funding.
For lending banks, this quasi-equity is seen as debt, making the liabilities of these companies look higher than usual, said the partner, who asked not to be named. The investment firm handles all kinds of financing, including mezzanine.
When companies with mezzanine financing go to banks for funds for upcoming projects, banks ask them for higher collateral or offer less cash in loan, said Kotak’s Verma.
Fitch Solutions said in a note last week that India would likely miss its renewable capacity targets due to “risks stemming from bureaucratic, financing and logistical delays.”