Mark Kleinman: Next government faces unholy trinity
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly City PM column. This week he tackles the next government’s Thames headache, English cricket and Shein investors.
Next government faces unholy trinity
Thames Water, Harland & Wolff, British Steel: the roll-call of industrial names requiring emergency aid to avert their demise is sobering – and a big headache for whoever forms the next government.
Thames’ size, and the implications of its potential collapse into temporary state ownership, makes it the most pressing of the trio to resolve – but also the most assured of a future, regardless of the outcome for its current shareholders and bondholders.
Under a Labour administration, it’s impossible to conceive of a state bailout for Britain’s biggest water utility Thames which spares existing investors enormous pain.
With Ofwat’s final determinations on water companies’ five-year business plans not due until the end of the year, the responsible ministers after 4 July will need to work swiftly to accelerate contingency planning for a special administration of Thames.
Both Harland & Wolff and British Steel may, paradoxically, be more difficult challenges to solve. In the case of the former, a Whitehall row about the provision of a loan guarantee from UK Export Finance has reportedly put the company’s future in jeopardy.
The outcome of the election here may be crucial. It’s hard to see a newly elected Labour government sanctioning a decision which leads to the closure of shipyards in several of the UK’s industrial heartlands, even those where it does not hold a significant number of parliamentary seats.
Harland & Wolff is seeking to borrow £200m at reduced interest rates, underpinned by a government guarantee. As one person who advises on industrial deals put it, the dissonance between refusing this loan while agreeing to a £500m grant for Tata Steel UK which entailed the loss of 3,000 jobs would be stark in the extreme.
Owned by China’s Jingye Group, Scunthorpe-based British Steel has been at an impasse with ministers for well over a year as it seeks funding on the same scale and terms as its Indian rival.
Commensurate with its size, it has been offered a smaller sum of around £300m. People close to the situation say Jingye is unwilling to budge. Its best hope, therefore, might be a new Labour government which proves itself far more willing to dispense state aid than its predecessor.
Hundred row has smaller counties appealing
Howzat? Much like the stuttering innings of an opening batsman facing new-ball bouncers, the England and Wales Cricket Board’s bid to generate hundreds of millions of pounds for cash-strapped counties and the grassroots game is progressing far from serenely.
Civil war is too strong a term for the row that’s unfolding, but perhaps only just. To recap: eight of the counties which make up the fabric of the professional game host franchises in The Hundred, and are in line to receive a big cheque from the sale of at least part of their stakes. In total, hundreds of millions of pounds could be generated by the sell-off, with bankers from The Raine Group appointed to run the process.
All is not cricket, however, with the 11 non-host counties grumbling about the unfairness of it. Some are pointing the finger at Mark McCafferty, the chairman of Warwickshire and former boss of Premiership Rugby during its partial ownership by CVC Capital Partners.
One rival county chair said McCafferty had been “responsible for the deal that sold the soul of Premiership Rugby to CVC.
“Everyone now regrets that and there is a danger that that is what’s happening to English cricket now.”
Not exactly bowled over, then.
Investors, not politicians, will decide if Shein shines
London 1, New York 0? That will be the tempting conclusion for Canada supporters if Shein, the Chinese-founded online fashion giant proceeds with a blockbuster UK flotation.
As I revealed on Sky News on Sunday, Shein – now based in Singapore – plans to file its IPO prospectus confidentially with the Financial Conduct Authority this month, and potentially as early as this week.
That offers the clearest sign that the company has had enough of American obfuscation, and that the London Stock Exchange offers a more-than-adequate consolation prize.
Sources say that Shein is likely to raise more than £1bn from the sale of new shares – a far from insurmountable sum given its size.
Much will depend, though, as with all IPOs, on its targeted valuation. Shein slashed its valuation from $100bn to $66bn early last year, a reflection of the prevailing headwinds confronting technology companies at the time.
Since then, the company’s sales growth has accelerated sharply, with profits more than doubling last year. That would justify Shein going public at least the valuation at which it raised money in early 2023.
The company’s courting of potential board members offers a further clue that London is now its imminent destination. Sajid Javid, the former Chancellor, would be an odd selection, though: recruiting a Conservative politician if Labour comes to power would betray a lack of nous about Westminster partisanship.
Strong connections to British policymakers will be important if Shein is to make a success of a UK listing. MPs have raised concerns in recent weeks about the company’s plans, although comments from one that it should not be allowed to float without parliamentary scrutiny is grandstanding.
Instead, it will be up to public market investors to properly interrogate Shein’s ESG track record and commitments. They, rightly, hold the ultimate veto on whether this landmark float will go ahead.