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PFC gets shareholders’ nod to raise borrowing limit

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NEW DELHI: State-owned Power Finance Corporation (PFC) has received shareholders‘ approval to increase its borrowing limit to Rs six lakh crore from existing Rs four lakh crore.

All the resolutions proposed in the annual general meeting (AGM) on September 29, 2020, were passed by the requisite majority, it said in a BSE filing on Tuesday.

According to an AGM notice by the company, considering the fund requirements of PFC over the next 3 to 4 years, the board on August 13 accorded approval for seeking shareholders’ nod for increasing the borrowing limit to Rs 6 lakh crore over and above aggregate paid-up capital of the firm and its free reserves.

As per the notice, a special resolution was proposed for increasing the borrowing limit in the annual general meeting(AGM) scheduled on September 29.

Shareholders had approved a borrowing limit of Rs 4 lakh crore in the 30th AGM held on August 19, 2016.

PFC is engaged in providing financial assistance to power utilities for meeting financing and development requirements of the power sector.

In order to tap the emerging business opportunities in the changing business environment, it also got shareholders’ approval to expand the object clause in its Memorandum of Association during the AGM.





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Wall Street stocks hit record highs ahead of crucial jobs report

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Equities updates

Wall Street’s stocks hovered at fresh all-time highs on Thursday, after weekly data suggested employment in the world’s largest economy was beginning to stabilise.

The blue-chip S&P 500 finished 0.6 per cent higher in New York, marking a new closing record level, despite having pushed slightly higher during the trading day a week ago. The technology-heavy Nasdaq climbed 0.8 per cent, also a new high, after data showed the number of Americans actively collecting jobless benefits had fallen to its lowest level of the pandemic.

Ahead of Friday’s closely watched non-farm payrolls data, the US labour department on Thursday reported 385,000 initial unemployment applicants for the last week in July, down from 399,000 in the previous week.

In advance of the release of the payrolls report from last month, economists polled by Bloomberg forecast that the US economy will have added 870,000 jobs in July, up from June’s blockbuster 850,000 figure, while the jobless rate is predicted to dip to 5.7 per cent, down from 5.9 per cent in June.

A strong jobs print would intensify speculation about when the US Federal Reserve might begin to cut back its $120bn in monthly asset purchases, which have supported the economy during the pandemic. “We expect that taper talk could lead to stock market volatility, given the stretched technical indicators,” said analysts at Credit Suisse.

Line chart of Indices rebased showing US equities at record highs before non-farm payrolls release

Goldman Sachs says Wall Street’s climb has further to go this year. Analysts at the bank estimated that the S&P 500 would gain a further 7 per cent by the end of 2021 — on top of index gains of 17 per cent so far this year — on the back of a bullish estimate that company earnings per share would grow 45 per cent throughout this period.

“We expect stronger revenue growth and more pre-tax profit margin expansion, as firms successfully manage costs and as high-margin tech companies become a larger share of the index,” they wrote.

In Europe, the region-wide Stoxx 600 closed up 0.4 per cent at another record high, while London’s FTSE 100 edged 0.1 per cent lower after the Bank of England acknowledged that some “modest tightening” might be needed in the next two years after its latest policy meeting on Thursday.

The UK central bank said economic growth was running “slightly” above expectations. But it also noted “difficulties in matching available jobs and workers” and “uncertainty” over how the UK economy would react to the end of the furlough scheme brought in to deal with the effects of the pandemic.

The BoE’s announcement triggered a brief dip in UK government bond prices, with the yield on the 10-year gilt climbing to a session high of 0.54 per cent before ending day at 0.52 per cent.

In Asia, Hong Kong’s Hang Seng index close down 0.8 per cent and the CSI 300 index of Shanghai and Shenzhen-listed shares dropped 0.6 per cent, as China imposed new nationwide travel curbs as cases of the Delta variant spread to 15 provinces.

The global oil benchmark Brent crude rebounded 1.4 per cent to $71.33 a barrel but remained about 6 per cent lower for the week, as worries that the spread of the virus could depress demand for fuel outweighed tensions in the Middle East with Iran, which has supported crude prices.

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday



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Taking Aim at a small-cap success story

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London’s Alternative Investment Market was traditionally a hunting ground for gung-ho private investors, willing to take a punt on thinly traded small-cap stocks that could make — or lose — them a small fortune.

But eight years ago, Aim found a higher purpose. It is now the go-to place if you want to reduce your inheritance tax bill.

This week is the anniversary of reforms ushered in by former chancellor George Osborne making it possible to hold Aim shares within a stocks and shares Isa.

Designed to boost investment in small British companies, the tax-free attractions of Isas were yoked with the IHT loophole of business property relief (BPR). Intended to protect family businesses from ruinous tax bills, this IHT exemption also applies to certain Aim shares if held for over two years.

Of course, BPR was never intended to benefit ageing “Isa millionaires”, but plenty of their heirs will be spared a 40 per cent tax charge when they inherit these portfolios. What’s more, the Isa wrapper means there hasn’t been a penny of capital gains or dividend tax to pay despite the stonking performance of Aim shares in recent years. Thanks, George!

Today, up to half a billion pounds a year is flowing into “IHT Isas” offered by specialist investment management companies such as Octopus, Unicorn and RC Brown, according to estimates by investment service Wealth Club.

This trend has been boosted by the pandemic, as the tax liability of soaring equity valuations collides with fears of diminishing life expectancy.

Line chart of Indices, rebased  showing The Alternative Investment Market outperforms

But IHT fever alone cannot account for the impressive outperformance of the alternative index. Since the pandemic nadir last March, the FTSE Aim 100 index has rebounded 107 per cent — nearly two and half times the recovery achieved by the FTSE 100 over the same period.

Hargreaves Lansdown, the UK’s biggest investment platform, says 2021 is “on track to be the biggest ever year” for Aim trading, as investors buy into the small-cap growth story.

Data from investment brokers show that tech, green energy and life sciences companies are the biggest draw for investors, alongside the commodities stocks with which Aim is more traditionally associated.

When the Isa rules changed in 2014, there were just 18 Aim-listed companies with a market cap of £500m or more (a third were highly speculative mining or oil and gas exploration outfits, cementing Aim’s reputation as a volatile market).

Today, there are 68 stocks that have passed the £500m point — and spanning a range of sectors, they are arguably much more investable.

Online retailers Asos and Boohoo are two of the most-bought Aim shares by Hargreaves Lansdown investors this year, having received a huge sales boost during the pandemic.

Other tech picks lurking just outside the top 10 include GlobalData, which supplies thousands of governments and companies with data analytics, and identity data specialist GB Group, which claims to be able to ID more than half the world’s population. All have greatly increased their earnings in recent years.

“The FTSE 100 is full of yesterday’s companies, but if you invest in Aim you can get exposure to tomorrow’s winners,” says Alex Davies, chief executive of Wealth Club. “It’s the nearest thing we have to a British Nasdaq.”

On rival platform Interactive Investor, the green theme dominates. Hydrogen energy producer ITM Power is its bestselling Aim stock so far this year, with investors betting it will benefit from changing energy requirements in a more carbon neutral world.

The same tailwinds are driving investors towards Ceres Power and Impax, an asset management house specialising in ESG.

Two questions hang over Aim’s outperformance. First, has this rally got further to run? Second, how far would any future removal of the IHT advantages dent its popularity with investors?

Simon Thompson, my former boss at the Investors Chronicle and compiler of its Bargain Shares Portfolio, says the small-cap bull run is far from over.

“The outperformance of small-caps reflects the higher weighting in Aim indices to fast-growing sectors (technology, ecommerce and healthcare) that are beneficiaries of benign monetary and fiscal tailwinds — it’s that simple,” he says.

Simon has an enviable crystal ball. He highlighted the likely sectoral winners and losers from quantitative easing in his most recent book, Stock Picking for Profit. While he wouldn’t claim to have predicted the pandemic, it has accentuated these gains as software and ecommerce companies exploit their prime positions, and healthcare stocks benefit from government largesse. However, even Simon accepts that “the easy money has been made”.

He predicts the next stage of the rally will be largely driven by earnings momentum and rotation from growth to value stocks as monetary policy starts to normalise — but pleasingly, this is a market that favours stock pickers.

Accordingly, his picks for the 2021 Bargain Shares Portfolio include Aim-traded mining, oil and gas companies, renewable energy, UK retailers, housebuilders and a royalty company. In its first six months, the portfolio has delivered a total return of more than 20 per cent (9 percentage points higher than the FTSE All-Share index).

As Aim has become bigger and more diverse, so too have its investors. Its ranks of fast-growing tech-enabled businesses have been pulling in the mainstream retail punters, while the growing size of Aim constituents has attracted more institutional money.

Both would help cushion the blow if Aim’s IHT advantage failed to survive post-Covid tax reforms. But if business property relief was limited, I do wonder how many investors would actually sell up.

Some might switch to other tax-advantaged investments like VCTs or EIS, or simply give the money away (assuming the seven-year rule remains in place). But the loss of BPR would be of no long-term consequence to institutions or younger investors like me. In the event of a sell-off, we’d have a chance to buy into the future growth story at a bargain price.

For now, another key Aim theme that is likely to develop is a surge in M&A activity. Simon Thompson notes that the average market capitalisation of Aim companies is at an all-time high of £178m, although the number of listed companies has halved since 2007. This, he says, is a reflection of their higher quality — a factor that will undoubtedly tempt predators to run their slide rules.

Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb





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What’s in a name? DWS eyes ESG refresh for funds

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Hello from New York, where I am hoping you are looking forward to some rest and relaxation this month. While it might be fun-and-games time for some of us, Deloitte’s employees are headed to school — climate school.

Deloitte has started to roll out a new climate learning programme for all 330,000 of its employees worldwide. The new programme, developed in collaboration with the World Wildlife Fund, is designed to help Deloitte advise clients. Remember, in June rival Big Four firm PwC said it would add a whopping 100,000 staffers to capture the booming environmental, social and governance (ESG) market.

Clearly, people are eager for ESG information, and we hope we can help fill the void with this newsletter. Read on. — Patrick Temple-West

DWS re-engineers European ETF to lure ESG investors

Corporate name changes are often the focus of public snickering. Standard Life Aberdeen’s switch to Abrdn in April, for example, was widely mocked on the Financial Times website. The FT’s Pilita Clark has even argued that corporate rebranding is a waste of time.

Last week, DWS, Deutsche Bank’s asset management arm, announced the renaming of nine of its ETFs to incorporate the ESG label and track a new index. The new index provided by MSCI, which includes ESG screens, replaces Stoxx indices.

The move is part of a larger trend to appeal to ESG investors. JPMorgan and Amundi were among the companies that overhauled more than 250 conventional funds to add sustainability language and investment criteria in 2020, according to Morningstar. 

Companies that have failed to capture investor interest are now adding “a coat of green paint” on funds, says Ben Johnson, director of ETF research at Morningstar. The changes are “an attempt to revitalise this particular product,” Johnson said.

© Bloomberg

DWS is also adding securities lending activities to the ETFs, the company said. Funds will often lend shares to short sellers to liven up returns, but the practice could raise concerns from ESG investors. In 2019, Hiro Mizuno (pictured), the former head of the world’s largest pension fund, stopped lending out securities from the Japanese scheme because he believed shorting was antithetical to his mission of long-term value creation.

Refurbishing existing funds to give them an ESG-friendly look has limitations, Johnson said.

“There are ESG-like exclusionary screens that are hardly what we would think of as best in class ESG intentional index strategies,” Johnson said. 

And renaming a fund to hoover up ESG money has caught the eye of regulators. Last week, Securities and Exchange Commission chair Gary Gensler said he wanted the agency to revisit its “names rule”, which prohibits funds from using materially deceptive or misleading names.

“Labels like ‘green’ or ‘sustainable’ say a lot to investors,” Gensler said. “Which data and criteria are asset managers using to ensure they’re meeting investors’ targets — the people to whom they’ve marketed themselves as ‘green’ or ‘sustainable’?” (Mariana Lemann)

Climate campaigners allege central banks aren’t doing enough to avoid a ‘hothouse world’

© AP

When the Federal Reserve in December finally joined the Network for Greening the Financial System (NGFS), all systemically important banks worldwide fell under the organisation’s climate risk oversight. With the US onboard, the NGFS can command significant influence over the financial industry’s role in climate change mitigation.

NGFS research is already being used by central banks around the world. To build their stress tests, the Banque de France, European Central Bank and Bank of England have used NGFS forecasts, including the frightening “hothouse world” scenario in which global warming imposes extreme costs on everyone.

© S&P Global Ratings

And companies are taking the financial implications seriously. For example, Global Partners, a US petrol company, has warned shareholders that bank financing could get more difficult as NGFS’s climate stress tests are implemented. 

But the NGFS has flaws, according to Reclaim Finance, a Paris-based activist group founded in 2020 by Lucie Pinson. In a report provided exclusively to Moral Money, Reclaim Finance argued that NGFS climate risk forecasts rely too heavily on carbon capture and storage, which would not sufficiently reduce fossil fuels investment enough to limit global warming to 1.5°C.

In July, NGFS updated its climate risk scenarios to limit global warming to 1.5°C. However, Reclaim Finance takes issue with NFGS’s assumptions about how banks would reduce their carbon footprint to get there. A false sense of security could prompt companies to decelerate efforts to reduce their fossil fuel assets.

NGFS scenarios could allow for significantly more fossil fuel extraction investments in the 2030s, Reclaim Finance said. The International Energy Agency said in May that energy companies must stop all new oil and gas exploration projects from this year to halt global warming.

“These scenarios rely too heavily on carbon capture and storage and permit ongoing investments in fossil fuels, a recipe for climate chaos and stranded assets,” said Paul Schreiber, a campaigner at Reclaim Finance. (Patrick Temple-West)

Inside the fight to eliminate microplastics

© Getty Images

Polymateria, a London-based company, has published findings this month identifying a new type of plastic that can decompose into harmless wax.

Imperial College London scientists proved the technology worked in the Mediterranean, home to the world’s highest global microplastic concentration, according to Niall Dunne, chief executive of Polymateria.

Microplastic, a traditional plastic, is harmful to the environment because over time it fragments into tiny particles less than 5mm in size. These particles are easily digested by aquatic animals and can travel through the food chain.

While there is significant interest and demand for an alternative to plastics, innovation has lagged, Dunne told Moral Money.

Convenience store chain 7-Eleven has begun implementing the sustainable plastic into its packaging, as has Pour Les Femmes, a clothing brand created by House of Cards actress Robin Wright.

“Our awareness on the issue is thankfully rising but sadly robust research and innovation is still lagging behind,” said David de Rothchild, the British environmentalist known for building a plastic boat and sailing it around the Pacific Ocean.

(Kristen Talman)

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

To attract more foreign investors, the Tokyo Stock Exchange is instituting the biggest reform of Japan’s stock markets in a decade.

From next April the exchange will require companies to be more aligned with global corporate governance and financial standards. As part of the overhaul, the Tokyo bourse will split into three sections — prime, standard, and growth. To list in the prestigious “prime” section, companies must meet tighter criteria, such as liquidity standards.

Companies in the prime group are also recommended to fill a third or more of their boards with external directors and to disclose climate risk.

Approximately 30 per cent of the companies that are listed on the top-tier group in the exchange fall short of the requirements for staying in the prime section, Nikkei said.

To stay in the top group, some companies are scrambling to unwind long-criticised practices such as cross-shareholdings and cash-hoarding. The new requirement triggered harsh competition among companies to find qualified candidates for their boards. Weekly Toyo Keizai magazine estimates that Japan Inc will face a shortfall of 3,000 outside directors next year.

The companies that failed to qualify for the prime section this time around can apply again with new information by December.

The reshuffle in the exchange is creating new investment opportunities as well as risks. If you are an investor in the Japanese stock markets, it is a good time to take a look with fresh eyes.

Chart of the day

Global impact fundraising activity

With TPG and Brookfield launching $12bn for new climate funds, the impact investing space has never been hotter. Globally there are 675 impact funds representing about $200bn in commitments so far in 2021, according to a July 27 report from PitchBook, a data provider.

These funds include private equity, and early-state venture capital. “We estimate that there is about $73bn in dry powder targeting impact investments,” PitchBook said.

Grit in the oyster

  • DWS has struggled to implement an ESG strategy and allegedly exaggerated ESG claims to investors, according to the company’s former sustainability chief, Desiree Fixler. Fixler, who provided internal emails and presentations to the Wall Street Journal, said she believed DWS misrepresented its ESG capabilities. The former sustainability chief was fired on March 11, one day before DWS’s annual report was released.

© AFP via Getty Images
  • Hundreds of Activision Blizzard workers walked out in protest last week at the company’s handling of a California state lawsuit alleging sex discrimination, harassment and retaliation. The case alleged a “pervasive ‘frat boy’ workplace culture” at the Santa Monica-based company. On Tuesday, J Allen Brack, a top executive at Activision Blizzard left the company in a management shake-up that promised to bolster “integrity and inclusivity”. Read the FT’s story here.

Smart reads

  • As the SEC drafts unprecedented regulations to require ESG disclosures, the oil and gas industry is ramping up an effort to dilute the climate reporting rules, Myles McCormick and Patrick Temple-West wrote this week. Some fossil fuel companies are lobbying the SEC for the first time.

  • John Browne, a point person on General Atlantic’s new $3bn climate solutions fund, has written in the FT that one of its key goals is to avoid greenwashing.

“Business has a reputation for clinging to the past and greenwashing its way through the climate debate,” Browne said. “Now is the time for businesses, and the investors who back them, to play a decisive role in the greatest challenge humanity is likely to face this century.”

  • Electric cars are celebrated by investors and customers alike as causing less environmental damage than their combustion engine counterparts. But, their supply chain is muddled with a mining and manufacturing process that could be become an “environmental disaster”, FT’s Patrick McGee and Henry Sanderson write. Advocates for a circular economy are hopeful that an increase in urban mining, or breaking down and repurposing batteries, “can close the emissions gap and ease supply chain concerns”.

Recommended reading

  • ESG Returns Emerge as Key Focal Point for US Institutional Investors (Fund Fire)

  • Inequality Has Soared During the Pandemic — and So Has CEO Compensation (New Yorker)

  • US forest fires threaten carbon offsets as company-linked trees burn (FT)

  • Beyond Meat boss backs tax on meat consumption (BBC)

  • Does Positive ESG News Help a Company’s Stock Price? (Northwestern School of Management, Kellog)

  • Olympic sponsors need to ‘walk the talk’ on values (FT)



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