Philippa Kaur

Gautam adani is a man of few words but, as Asia’s richest tycoon, plenty of means. On May 15th he agreed to pay $10.5bn for Ambuja Cement, India’s second-biggest cement-maker, controlled by Holcim, a Swiss building-materials behemoth. Mr Adani’s terse statement accompanying the deal belies its significance. It will be the largest outright acquisition of an Indian company since Walmart, an American supermarket titan, purchased Flipkart, an Indian e-merchant, in 2018.Ambuja was founded by Narotam Sekhsaria, a Bombay cotton trader with a degree in chemical engineering but no background in cement. He managed to turn a commodity into a consumer product through a clever slogan (“giant strength”) and an eye-catching logo (a giant clutching a building). After courting Ambuja for years, Holcim succeeded only in 2005-07, as Mr Sekhsaria’s health began to fail. Since then the business has flailed. In the past decade, according to Kotak Securities, a broker, capacity at Holcim’s Indian holdings expanded by less than 2% a year, compared with a rate of 10% for UltraTech, India’s biggest cement-maker, and 13% for Shree Cement, an upstart. Holcim has not disclosed how much it paid for its Indian venture. One analyst puts the figure at around $2bn. Given that it will receive $6.4bn for its 63% stake, this would amount to an adequate but unexciting annual return of perhaps 8%. (The other $4bn or so Mr Adani is paying will go to Ambuja’s minority shareholders.)The deal is more favourable for Holcim in other ways. It fits in with the firm’s broader shift towards a greener, less cement-centric business. In recent years it has sold cement units in Brazil, Indonesia, Malaysia, Russia, Sri Lanka and Vietnam. Critically, it shouldn’t attract antitrust scrutiny, whereas success by one of the two other bidders might well have raised trustbusters’ concerns. UltraTech, controlled by the Birla family, is India’s biggest cement-maker. The Jindals’ jsw Group, a big steel producer, has a growing cement business. The Competition Commission of India has been looking into a possible cement cartel since at least 2010. A case involving Holcim is before the Supreme Court. Another investigation was reportedly launched in 2020. As part of the sale, Holcim will be spared from any judgment, its chief executive, Jan Jenisch, told analysts. But it was not solely because Mr Adani has no existing cement operations that he prevailed in the fight for Ambuja. What he brought also mattered. The Adani Group owns power utilities, useful in running energy-hungry kilns, and India’s biggest network of ports to ship the stuff. Its coal-fired plants provide a by-product, fly-ash, required for cement-making. Most important, the tycoon displays an uncanny ability to raise capital. Paired with vaulting ambition, it is a hard mix to beat. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

America’s clean-energy bosses thought they would by now have more to celebrate. In the presidential campaign of 2020 Democrats tried to outbid one another on climate plans—Joe Biden offered $2trn, Bernie Sanders’s Green New Deal was $16trn—as if the nomination would go to the highest bidder. In the three months after Mr Biden defeated Donald Trump, an index of clean-energy firms jumped by about 60%. Goldman Sachs, a bank, forecast “a new era for green infrastructure” in America and beyond. Though Mr Biden’s infrastructure bill offered some help for clean energy, a giant climate bill now seems fantastical. Worse, green power is not just failing to boom. It is going bust. An array of American solar projects have been delayed or cancelled amid a federal probe into tariff evasion by manufacturers of solar panels and modules. The countries in question—Cambodia, Malaysia, Thailand and Vietnam—together produce about 80% of America’s solar-panel imports. Politics is stymying makers of wind turbines, builders of wind farms and the utilities that buy power from them. The results are stark. So far this year the clean-energy sector has lost about 25% of its market value, compared with an 18% drop for the benchmark s&p 500 index of big American firms. Rystad Energy, a research firm, estimates that two-thirds of its forecast solar installations for this year are in doubt. According to Bloombergnef, a data provider, the capacity of new renewables projects in 2022 looks set to be a tenth lower than in 2020, under the windmill-hating Mr Trump. Two years ago clean-energy enthusiasts were right to feel bullish. In the decade to 2020 the levelised cost of electricity—which takes into account investment in equipment, construction, financing and maintenance—had fallen by 69% for onshore wind and 85% for solar projects, according to Lazard, an advisory firm. With renewables technologically mature and economically competitive, utilities and developers planned to pour money into solar and wind. NextEra Energy, a giant utility that in 2020 briefly overtook ExxonMobil to become America’s most valuable energy firm, said it would spend up to $14bn a year on capital projects in 2021 and 2022, calling it “the best renewables development environment in our history”. In the arduous effort to decarbonise America’s economy, building clean power would be the easy part. Turns out it isn’t. Some problems stem from the pandemic and gummed-up global supply chains. Pricey commodities helped push up the levelised cost of wind and solar in the second half of 2021 (though more slowly than for coal and gas). But many of the current woes are political in nature. Take restrictions on products from Xinjiang. Last year Mr Biden, seeking to limit imports made with forced labour, announced a ban on polysilicon coming from big companies producing in the Chinese region. American importers scrambled to present proof that they weren’t violating the ban. As customs officials pored over suppliers’ lengthy attestations, in Chinese, solar modules languished in ports. A lack of equipment forced developers to delay construction. That problem has now been dwarfed by a bigger one. In March the Commerce Department humoured a request by Auxin Solar, an American manufacturer, to check if Chinese companies were circumventing anti-dumping tariffs. Duties had originally been imposed by Barack Obama, then extended by Mr Trump; Auxin claims that firms are dodging tariffs by making parts in China but assembling modules in their South-East Asian factories.The effect is that a small American firm is obstructing more than 300 projects, according to a tally by the Solar Energy Industries Association, a lobby group. Some developers cannot get their hands on kit. Others find that costlier gear has put their construction deals in the red. NextEra told investors in April that up to 2.8 giga-watts of solar and battery projects planned for this year, equivalent to around a tenth of its intended renewables investments in 2021-24, would be delayed. American assemblers of solar panels, it said, were sold out for the next three years. America’s largest solar project, spanning 13,000 acres of Indiana, has been postponed. NiSource, the utility behind it, will instead delay the retirement of two coal-fired power stations to 2025. The challenges facing the wind industry look less severe only in comparison. Like many capital-intensive industries, the wind sector is grappling with rising costs of steel, copper, resin and other materials needed to craft turbines. Global manufacturers such as Vestas and Siemens Gamesa have seen their margins shrink. In America, rising input costs have unfortunately coincided with declining tax credits. It is possible that Congress could extend those for wind—but improbable given partisan deadlock. In the meantime developers and utilities are delaying new contracts, unwilling to make commitments before knowing the true costs. Politicians may create problems where things have been going well, as with auctions for seabed leases for offshore wind farms. These have attracted ample bids from oil firms and utilities. The House passed a bill in March with bipartisan support that would require the giant boats used to install turbines off America’s coast to replace some foreign crews with Americans. Wind executives note the country lacks enough people with the requisite skills. A high-voltage situationRepublicans, who look poised to control Congress after the mid-term elections in November, remain more hostile to greenery than Democrats. But the renewables industry’s current troubles highlight the contradictions within Mr Biden’s coalition. It wants to build green projects quickly. At the same time, it wants Americans to build them with American inputs. The trouble is that you cannot have both. In a letter to Mr Biden on May 17th, 85 members of Congress argued that the tariff inquiry could cost America’s solar sector more than 100,000 jobs. That is bad for workers, bad for the renewables industry—and terrible for the climate. ■Read more from Schumpeter, our columnist on global business:Activist investors are becoming tamer (May 14th 2022)Facebook’s retirement plan (May 7th)The weird ways companies are coping with inflation (Apr 30th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Walmart went from strength to strength during the covid-19 pandemic. Its years-long investments in online fulfilment finally began to pay off as virus-wary shoppers swapped aisles for apps. As inflation picked up initially, its “everyday low prices” looked even more appealing than usual. And investors appeared to believe that it had the power to make those prices a bit less low, passing its own rising costs without putting off shoppers or sacrificing margins. Listen to this story. Enjoy more audio and podcasts on More

Walmart went from strength to strength during the covid-19 pandemic. Its years-long investments in online fulfilment finally began to pay off as virus-wary shoppers swapped aisles for apps. As inflation picked up initially, its “everyday low prices” looked even more appealing than usual. And investors appeared to believe that it had the power to make those prices a bit less low, passing its own rising costs without putting off shoppers or sacrificing margins. On May 17th economic reality finally caught up with America’s supermarket titan. The company reported quarterly earnings that fell short of even the most conservative analysts’ estimates, blaming chiefly supply-chain snags and the rising cost of labour and transport. Its share price fell by 11%, a daily drop second only to the one the firm experienced in the trading session before the Black Monday stockmarket crash in 1987. A day later it slid by another 7%. The same day Target, another pandemic retail star, reported similarly disappointing results, wiping out 25% of its market value. The two companies shed a combined $65bn in market capitalisation in the space of two days.Historically, inflation has often benefited big supermarkets. Elevated prices boost the nominal value of sales. As for higher unit costs, these could often be passed on to shoppers, who are likelier to keep needing supermarkets staples and less likely to gripe about higher bills if everything else they buy is also dearer. This time, though, the retailers are finding it harder to offset the steep increase in operating expenses. Target’s chief executive, Brian Cornell, anticipates an extra $1bn in transport costs this year as soaring energy prices dent profits. It is already raising prices in response—evidently not fast enough. Walmart, far bigger of the two, is better placed to absorb some of the higher costs. But even the Beast of Bentonville now expects earnings to decline by 1% this year. In addition to costlier transport, Walmart also reported higher wage costs, not least as a result of a hiring spree to ensure enough workers amid the Omicron wave of covid-19. It stocked too many clothes and home furnishings in order to avert a supply crunch, just as appetite for these products waned. And margins suffered as penny-pinching customers switched away from pricier premium brands to the supermarkets’ less lucrative own labels.Neither firm is about to collapse. Target’s revenues rose year on year, in nominal terms at least. So did traffic in its stores—something that is “rare to find in retail these days”, according to Morgan Stanley, an investment bank. Walmart’s sales were up by 2.6%, to $142bn. Founded by a man who prized frugality, the bigger retailer has an established reputation for good value—a particular virtue in shoppers’ eyes during a recession, which can no longer be ruled out. Its large grocery business offers a hedge against a downturn. And wealthier shoppers with bigger savings may migrate to Walmart from higher-end retailers, which could help pad margins.The question now is who will be the next to face a reckoning. The share prices of smaller retailers like Kroger and Dollar General, which have yet to report their first-quarter results, have been dragged down by association. Consumer-goods giants may be the next in line. Firms like Procter & Gamble (p&g) have been raising the prices of their premium brands to counter their own margin squeeze. Now they may think twice before doing so again, lest they lose sales. Such calculations diminish their pricing power, which markets have tended to reward handsomely. Investors may have taken note. On May 18th p&g’s share price fell by 6%, even more than the wobbly stockmarket as a whole. ■ More

Elon musk recently suggested he might introduce an edit button to Twitter, to let users revise injudicious tweets. He might wish such a thing already existed. Less than a month after tweeting that he looked forward to unlocking the social network’s “tremendous potential” as its incoming owner, on May 13th he told his 94m followers that the deal was “on hold”. Mr Musk says he needs time to check Twitter’s claim that no more than 5% of its users are bots, robot accounts used for spamming. Without proof of this, he said, the deal “cannot move forward”. Twitter’s ceo, Parag Agrawal, posted a long explanation of how the firm came up with the estimate. Mr Musk replied with a poo emoji.Identifying bots is hard. They may well make up more than 5% of Twitter’s users. But it sounds like a “dog ate the homework” excuse for cancelling the $44bn acquisition, in the words of Dan Ives of Wedbush Securities, an investment firm. There are other reasons why Mr Musk may have got cold feet. The value of tech stocks has tumbled since the Twitter deal was announced on April 25th. Mr Musk agreed to pay $54.20 per share (an apparent reference to cannabis, which is associated with the number 420). This week Twitter’s shares have been trading as low as $37.Not only may Mr Musk fear overpaying. The acquisition also risks harming his much bigger interests. Tesla, his electric-car company and source of most of his wealth, has lost 29% of its market value—$305bn—since the Twitter plan was hatched. Investors worry that the social network could prove a distraction for Mr Musk, who has indicated that he may serve as its interim chief executive. It could also harm Tesla’s business in China, where Twitter is banned. Twitter’s board says it intends to enforce the acquisition agreement. But it is in a tight spot. Compelling Mr Musk to make good on his offer would mean months in court, with no guarantee of success. There is no obvious alternative buyer. If the deal falls through, Twitter’s share price will drop below $30, thinks Mr Ives, who believes Mr Musk hopes to use this leverage to negotiate a lower price. Unlike with his tweets, the billionaire may yet be able to edit his contract. More

A year ago, at the height of the pandemic boom in all things digital, Son Masayoshi embodied in the flesh the futuristic promise of global tech. The flamboyant founder of SoftBank Group, a telecoms-and-software firm turned tech-investment powerhouse, reported the highest ever annual profit for a Japanese company, driven by soaring valuations of the public and private technology darlings in its vast portfolio. Twelve months later Mr Son and his company are once again the face of tech, which like Masa, as he is universally known, is dealing with rising interest rates, deteriorating balance-sheets, investor disillusionment and, for good measure, China’s crackdown on its digital champions and reinvigorated trustbusters in the West. What happens next to the Masa-verse is therefore of interest not just to SoftBank’s ailing shareholders, who have lost a collective $140bn or so in stockmarket value since its share price peaked in February 2021, but also to anyone interested in the fate of the technology industry more broadly. On May 12th SoftBank reported a net loss of ¥1.7trn ($15bn) for the latest financial year ending in March, caused primarily by a ¥3.7trn write-down in the net value of its flagship tech investments (see chart 1). Its public holdings, most notably in Alibaba, a Chinese e-commerce giant pummelled by the Communist Party’s crackdown on the technology industry, are losing their shine. Northstar, an ill-fated trading unit which funnelled surplus funds from the parent company mainly into American tech stocks, has been all but wound down after losing ¥670bn last year. Meawhile, SoftBank’s copious private investments, in loss-making startups with unproven business models, are being rapidly repriced as higher interest rates make companies whose profits lie mostly far in the future look less attractive to investors. Competition authorities have halted the $66bn sale of Arm, a British chipmaker, to Nvidia, a bigger American one. All this is making SoftBank’s net debt of $140bn, the sixth-largest pile for any listed non-financial firm in the world, harder to manage. And there may be more pain to come, for the tech sell-off has accelerated since March, when SoftBank closed the books on its financial year. SoftBank’s first big challenge has to do with its assets—and in particular its ability to monetise them. The pipeline of initial public offerings (ipos) from its $100bn Vision Fund and its smaller sister, Vision Fund 2, is drying up. That makes it harder for Mr Son to realise gains on its early investments in a string of sexy startups. Oyo, an Indian hotel startup backed by SoftBank, unveiled plans in October to raise $1.1bn from a listing, but more recent reports suggest that the company could cut the fundraising target or shelve the plan altogether. Other holdings, including ByteDance (TikTok’s Chinese parent company), Rappi (a Colombian delivery giant) and Klarna (a Swedish buy-now-pay-later firm) were all rumoured to be plausible ipo candidates for 2022. None has announced that it intends to list and that may not change while market conditions remain rough—which could be some time. Arm, which is now expected to launch an ipo, could offer a reprieve. Mr Son has said he would like to list the chipmaker around the middle of next year. But even relative optimists doubt a flotation can fetch anywhere close to the sum Nvidia was offering before the regulators stepped in. At the bullish end, Pierre Ferragu of New Street Research, an investment firm, suggests Arm may be valued at or above $45bn in the public market—$13bn more than SoftBank paid for it in 2016 but well shy of Nvidia’s bid. More bearishly, Mio Kato of Lightstream Research, a firm of analysts in Tokyo, says he struggles to imagine that the chip firm is worth more than $8bn.Mr Son’s problems do not end with the asset side of his company’s balance-sheet. Its debt, too, looks problematic. In the near term, it appears manageable enough. SoftBank’s bond redemptions in the coming 12 months are modest: $3.3bn-worth will mature in the current financial year, and another $6.8bn between April 2023 and March 2024. SoftBank’s $21.3bn in cash would be more than adequate to cover those repayments. Mr Son has pointed out that despite the heavy investment losses his company’s net debt as a share of the equity value of its holdings has remained largely unchanged, at around 20%. The price of credit default swaps against SoftBank’s debt, which pay out if the company defaults, tell a different story. Across most maturities from one year to ten years, the swaps have only been more expensive once in the past decade—during the market turmoil of March 2020, as countries went into the first pandemic lockdowns (see chart 2). The group possesses other large liabilities: its Vision Fund, a $100bn vehicle for speculative tech investments, has no short- or medium-term debt of its own but the holders of $18.5bn in preferred equity tied to it are entitled to a 7% coupon, regardless of the performance of the underlying holdings. On top of that, as of mid-March a third of Mr Son’s stake in SoftBank, worth about $18bn, was pledged to a range of banks as collateral for his own borrowing. The agreements that govern such deals are not public, so it is unclear when or whether margin calls that force sales of those shares could be triggered. Such a sale would put further downward pressure on SoftBank’s share price. All this helps explain why SoftBank shares have consistently traded at a large discount to the net value of its assets (see chart 3).Mr Son’s admirers, a vocal if dwindling bunch, point out that SoftBank still has plenty going in its favour. Its Japanese telecoms business, SoftBank Corp, remains profitable (and helped offset the investment losses). And it has survived previous bear markets, including the dot-com bust at the turn of the century, intact—not least thanks to Mr Son’s early bet on Alibaba. It is not inconceivable that one of SoftBank’s current wagers proves equally successful. As for future gambles, Mr Son struck an uncharacteristically sober note on the latest earnings call. Private companies adjust their valuations one to two years behind the public market, he told investors and analyst, so they are still commanding high multiples. “The only cure is time,” he mused philosophically. Perhaps. Except that in other ways, time is not working in SoftBank’s favour. ■ More

A FAVOURITE PASTIME in Silicon Valley, second only to inventing the next new thing, is bubble-spotting. Even industry insiders tend to get these things spectacularly wrong. “You’ll see some dead unicorns this year,” Bill Gurley, a noted venture capitalist, predicted in 2015, the year that incubation of these startups worth more than $1bn really got going.Listen to this story. Enjoy more audio and podcasts on More

PRESIDENT XI JINPING’S zero-covid policy has been a plague on China’s firms and a headache for Western ones reliant on its suppliers and consumers. The 25m residents of Shanghai, the country’s commercial hub, have been confined to their homes since April 1st. Beijing, the capital, is teetering on the edge of lockdown. Rail and air travel on a recent national holiday were, respectively, 80% and 75% below the level during last year’s festivities. Retail spending has crashed. GDP may shrink in the second quarter.Listen to this story. Enjoy more audio and podcasts on More