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China property dives as Kaisa pleads for help, Fed warns of contagion

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November 9, 2021

By Marc Jones

SHANGHAI/BEIJING/LONDON (Reuters) – China’s property sector suffered a fresh pounding on Tuesday as Kaisa Group made a desperate plea for help and the U.S. Federal Reserve sent its first direct warning that the crisis could cause global damage.

Builders’ bonds were sold off again after sources in China said Kaisa, which was the first of its developers to default back in 2015, had told a meeting with a government think-tank and some of the country’s banks and property firms that it needed help to pay its loans, workers and suppliers.

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Other big firms’ bonds were tumbling too, with those of R&F Properties and China Vanke – seen as one of the sector’s most solid firms due to partial state ownership – seeing their biggest falls on record.

The flare-up came just hours after the U.S. Federal Reserve warned the troubles could pose global risks.

“Given the size of China’s economy and financial system… financial stresses in China could strain global financial markets through a deterioration of risk sentiment, (and) pose risks to global economic growth,” it said in its financial stability report.

Underscoring the liquidity crunch, Fitch downgraded Kaisa closer to default on Tuesday, citing its deteriorating finances, struggle to sell assets and undisclosed debt in its wealth management unit.

“We sincerely ask investors to give Kaisa Group more time and patience,” the firm said in a statement on its official WeChat account late on Monday.

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CRY FOR HELP

Kaisa is only China’s 25th largest developer by sales but only Evergrande, the poster child for the current crisis, has a bigger bond repayment bill next year.

It attended a meeting on Monday with the Development Research Center of the State Council, other developers and lenders in the southern Chinese city of Shenzhen, one well-placed source told Reuters.

The think-tank makes policy proposals on China’s national development and its economy, but is not a decision-making body.

At the meeting, Shenzhen-based Kaisa urged state companies to help struggling privately run peers by buying some of their projects and making other strategic purchases, the source added.

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Participants at the meeting included China Vanke, Ping An Bank, China Citic Bank, China Construction Bank, CR Trust, Southern Asset Management and developer Excellence Group, according to the source.

They added that Kaisa had told the meeting it was facing significant difficulties and that some financial institutions had transferred funds from its accounts. It also urged that all lawsuits seeking to freeze its assets be handled centrally in a Shenzhen court, the source said.

Kaisa, Vanke, Citic Bank declined to comment. Neither Excellence, the other banks that participated in the meeting nor the State Council Information Office immediately responded to requests for comment.

(GRAPHIC: China property woes worsen – https://fingfx.thomsonreuters.com/gfx/mkt/zgvomkkljvd/Pasted%20image%201636466014891.png)

SYSTEMIC?

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China’s property woes rattled global markets in September and October. There was a brief lull in mid October after Beijing officials tried to reassure markets that the crisis would not be allowed to spiral out of control, but concerns have reemerged.

“The problem is, it is getting systemic,” said Viktor Szabo, a London-based EM portfolio manager at ABRDN, saying many Chinese property developers could no longer access borrowing markets and get financing.

“The big issue is that we don’t know what (Beijing’s) ultimate plan is… And now long can you hold on to the view that China can handle it?”

Trading in shares of Kaisa and three of its units was suspended last week, a day after an affiliate missed a payment to onshore investors.

Evergrande, the world’s most indebted developer, meanwhile has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.

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Another already-overdue bond payment must be made on Wednesday and it has coupon payments totalling more than $255 million on its June 2023 and 2025 bonds on Dec. 28.

Beijing has been prodding government-owned firms and state-backed property developers to purchase some of Evergrande’s assets to try to control the fall.

Its shares ended higher on Tuesday after it sold a $52 million stake in HengTen Networks Group, taking its total fundraising from selling down its holding in the Chinese internet services provider since Nov. 4 to $144 million.

Separately, shares of small developer China Aoyuan jumped more than 6% after Infini Capital told Reuters on Tuesday it has been accumulating stakes in the firm’s property management unit Aoyuan Healthy Life Group and was now its second-largest shareholder.

($1 = 7.7840 Hong Kong dollars)

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(Reporting By Samuel Shen, Cheng Leng and Tony Munroe; Additional reporting by Joy Leung and Clare Jim in Hong Kong and Marc Jones in London; Writing by Anne Marie Roantree; Editing by Kim Coghill, Muralikumar Anantharaman and Jan Harvey)

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Arnault-backed group launches second SPAC listing

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December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

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On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

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($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

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Bulls back in charge as Omicron worries wane

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December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

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The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

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There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

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“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

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(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

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Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

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December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

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Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

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Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

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Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

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