China’s Fosun in talks on future of Thomas Cook tour business

Guo Guangchang, the chairman of Fosun International. (Reuters)
Updated 13 July 2019
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China’s Fosun in talks on future of Thomas Cook tour business

  • Proposed deal would be most significant purchase of a British company by a Chinese group in years

HONG KONG: China’s Fosun Tourism Group is in advanced talks with Thomas Cook Group and its lenders regarding a combined £750 million ($940 million) fund-raising by the world’s oldest travel company.
The proposed deal would give Fosun Tourism control of the British firm’s core packaged-tour business and minority interest in its airline business, marking one of the most significant purchases of a British company by a Chinese group in years.
Fosun did not say how much of the money it would inject and how much would come from lenders.
The 178-year-old London-listed company has been battered by fading demand for its package holidays, high debt and a hot 2018 summer in Europe, which deterred bookings. The company is also weighing approaches for its airline business and Nordic operations.
“After evaluating a broad range of options to reduce our debt and to put our finances onto a more sustainable footing ... the board has decided to move forward with a plan to recapitalize the business,” Thomas Cook Chief Executive Peter Fankhauser said in a statement.
“While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution.”
Thomas Cook, worth roughly $4 billion after it debuted in June 2007, currently has a market value of about $255 million and has seen its stock more than halve in value so far this year.
The tour business of Thomas Cook had 11 million customers in 2018 and produced 7.4 billion pounds in revenue, while its higher-margin airline business — which includes German holiday carrier Condor — made £3.5 billion in revenue.
Hong Kong-listed Fosun Tourism, owner of the Club Med holiday business brand, is already Thomas Cook’s biggest shareholder with an 18 percent stake.
Thomas Cook’s recapitalization proposal may comprise a capital injection and new financing facilities, Fosun Tourism said in a filing to the Hong Kong stock exchange on Friday.
The news comes a month after Thomas Cook said it was in talks with Fosun, after the Chinese firm made a preliminary approach.

HIGHLIGHTS

• Proposal may comprise capital injection, new financing.

• Fosun does not say how much of the money it will inject.

• Fosun may control Thomas Cook’s core packaged-tour business.

“Fosun is a shareholder in Thomas Cook, because it is a British company operating in the global travel industry, in which we have extensive experience,” Fosun Tourism told Reuters in an email on Friday.
“We are committed investors, with a proven track record of turning around iconic brands including Club Med.”
Thomas Cook’s proposal envisions that a significant amount of its external bank and bond debt will be converted into equity, and that existing Thomas Cook shareholders will have their stakes significantly diluted as a result of the recapitalization.
The proposal is subject to due diligence and further discussion, among other things, Fosun said.


China central bank moves to support financial institutions

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. (REUTERS)
Updated 24 July 2019
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China central bank moves to support financial institutions

  • Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31

BEIJING: China’s central bank offered medium-term loans to financial institutions on Tuesday in an attempt to get more affordable funds to struggling smaller firms, as it steps up efforts to support a slowing economy.
With growth in China sliding to a near 30-year low, global financial markets are closely watching to see if the People’s Bank
of China (PBOC) will trim interest rates soon in line with expected easing by other central banks.
While the PBOC left rates on the medium-term loans unchanged on Tuesday, and the injection had been expected, it funneled more lower-cost funds into a credit program aimed specifically at reducing strains on small and medium-sized businesses.
The PBOC lent 497.7 billion yuan ($72.31 billion), including 200 billion yuan through one-year medium-term lending facility (MLF) loans and another 297.7 billion yuan through targeted medium-term lending facility (TMLF) loans, it said in a statement.
The size of the TMLF funding was 11 percent larger than the last such injection in April.
Interest rates for both liquidity facilities were unchanged from previous levels. The one-year MLF and TMLF remained at 3.30 percent and 3.15 percent, respectively.
The total amount roughly offset 502 billion yuan of MLF loans that were set to expire on Tuesday,
ensuring a steady supply of cash.
“Replacing some MLF with TMLF effectively cut funding costs. We should focus on the lower rate, instead of the net drainage on the day,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

The central bank said banking system liquidity will be “reasonably ample” after the lending operations.
About 160 billion yuan in reverse repos were also set to expire on Tuesday, according to Reuters calculations based on official data. The PBOC did not say in its statement whether it had drained funds from money markets on Tuesday.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

Some traders said Tuesday’s moves were in line with the PBOC’s support measures since last year, which have been aimed at getting more affordable financing to small and private companies.
While Chinese regulators have urged banks to keep lending to distressed firms, such companies are often considered higher credit risks than big, state-owned enterprises.
Traders and analysts still expect the PBOC to cut rates on some of its liquidity tools in coming months.
The PBOC has already slashed banks’ reserve requirement ratios (RRR) six times since early 2018 to free up more money to lend, while guiding short-term market rates lower through liquidity injections in various forms.
Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31.
Cheung from Westpac said it was still possible the PBOC could lower the MLF rate after the Fed’s policy decision.
She also has pencilled in a 50 basis-point RRR cut this quarter, and another in the fourth quarter.