Posted by octodj in October 19, 2011
China’s domestic bond market is a murky work-in-progress. But investors ignore its current gloomy message at their peril.
The market is still small in terms of size and turnover, and prices are distorted because bank interest rates in China are regulated. But bond prices reflect the views of some serious in-the-know investors, such as the traders at China’s state owned banks. Right now, they’re signaling troubled times ahead.
The International Monetary Fund points to two key measures of the Chinese market: the yield curve for bonds issued by the three big so-called ‘policy’ banks and the spread between yields on sovereign and AAA rated corporate bonds. Both measures are headed in the wrong direction.
Bonds issued by the policy banks – China Development Bank, Export Import Bank of China and Agricultural Development Bank of China – are the most actively traded in the market and reflect expectations about growth and inflation.
The slope of the yield curve – taken as the difference between the yield on 10 year and 1 year bonds – has fallen from 1.1 percentage points at the end of the first quarter to 0.6 percentage points on 14 October.
That’s partly because a shortage of cash has triggered a sell off at the short end of the curve, pushing yields up. But it is also because investors are pricing in more muted forecasts for growth and inflation, driving demand for low risk assets. To figure out how worried they are, consider that the yield curve is now almost as flat as it was in September 2008, when Lehman Brothers collapsed.
Corporate bonds tell a similar story. The spread between 10 year sovereign debt and riskier AAA corporate bonds has risen to 2.3 percentage points in the middle of October, up from 1.2 percentage points at the beginning of the year. Even in September 2008, the spread was just 1.6 points.
Chinese corporates are still priced for lower risk than, say, the Greek government’s debt. But investors are certainly becoming warier of the potential for default.
China’s gross domestic product data for the third quarter is due Tuesday. It will probably show solid year-on-year growth at about 9%.
The bond markets, though, are looking forward, not back. For those who care to take notice, they’re pricing in heightened risks ahead.
Posted by octodj in September 7, 2011
International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise.
The Stoxx Europe 600 index fell 4.1% Monday, with banks hard hit. The euro slid below $1.42, its lowest in a month. The declines followed a slide in Asia, where stock indexes in China and Japan dropped by about 2%. U.S. markets, which were hit on Friday by a dismal job market report, were closed for Labor Day.
Monday’s rout is a sign investors increasingly worry that a mix of slow economic growth and high public debt will tip the global economy back into a recession.
‘There is clearly a recognition that the debt crisis started in Europe, but the story is similar across the Western world,’ said Silvio Peruzzo, economist at Royal Bank of Scotland.
Though both the U.S. and Europe emerged from recession about two years ago, a recent string of economic data suggests the recovery is fading on both sides of the Atlantic. A report Friday that the U.S. posted no job growth in August was a watershed, Mr. Peruzzo said, ‘a turning point’ showing that economic risks are turning negative.
Until recently, the global economy appeared on track for a solid, if unspectacular, recovery, led by emerging markets such as China, India and Brazil. As a top exporter of specialty machine tools, Germany in particular benefited from this growth, and so did the Netherlands and Austria, helping the the euro bloc offset weakness in Greece and Ireland.
Now emerging markets, though still expanding, aren’t growing fast enough to lift the entire global economy. U.S. consumers, burdened by unemployment and a continuing housing slump, are unlikely to generate a new consumption boom. That leaves the global economy without a potent growth engine.
Some investors are concerned that more-mature economies have entered a period of prolonged weakness related to heavy debts and aging populations.
Analysts attributed Monday’s stock selloff, sending shares down around 5% in much of Europe, to a multitude of factors. Among them, the market anxiety reflects a concern that euro-zone officials ‘are not able to get a handle on this crisis,’ said Carsten Brzeski, economist at ING Bank in Brussels.
The negative turn comes at the start of a pivotal week that includes the European Central Bank’s monthly decision on interest rates and a decision by a German court on the legality of Germany’s participation in Europe’s 440 billion ($625 billion) rescue fund.
The ECB purchased Italian and Spanish government bonds Monday in a bid to keep 10-year borrowing costs from rising further above 5%─a threshold analysts say is key to their ability to finance their high debt loads. The ECB has purchased over 50 billion in bonds since reactivating the program four weeks ago.
ECB officials make clear they are buying bonds reluctantly until the rescue fund is granted power to intervene in bond markets. ECB President Jean-Claude Trichet said Monday there is an ‘immediate need’ to implement Greece’s second bailout, which included a pledge by governments to give the rescue fund the ability to buy bonds.
But the Greek bailout, and efforts to keep debt problems from engulfing Spain and Italy, are under threat. Talks between Greece and its international lenders at the International Monetary Fund and European Union broke down last week amid signs Athens will miss its 2011 deficit target.
Adding to the pressure, cracks are widening within the group of 17 nations that use the euro over the best way to deal with the crisis. ‘Reform fatigue’ is spreading in countries such as Greece, where austerity coincides with a deepening recession.
The issue, analysts say, has never been one of Europe’s financial ability to bail out Greece and others; the bloc’s budget deficit this year will only be around 4.5% of gross domestic product, a fraction of the deficit levels in the U.S., U.K. and Japan. Rather, the issue is the ability of political leaders to persuade taxpayers in Germany and other prosperous countries it is in their interests to lend money to Greece.
An electoral defeat for German Chancellor Angela Merkel’s coalition in local elections Sunday served as a reminder that bailing out Greece and others, however good for the euro as a whole, has repercussions at home. ‘You have this continuous struggle between domestic and European politics,’ Mr. Brzeski said.
For almost two years, the debt crisis was centered on small economies such as Greece, Portugal and Ireland that combine for only 6% of the euro bloc’s GDP. When the debt crisis threatened Italy early last month, the dynamics changed. Despite economic and debt problems, Italy is an advanced economy that has long been a member of the club of wealthy countries.
In recent days, doubts emerged about Italy’s ability to deliver on its promised deficit cuts, and a decision due Wednesday by a German constitutional court on the bailout fund is an added uncertainty. Neither is expected to derail efforts to stem the crisis, but they serve as a reminder that for each step policy makers take, new problems can emerge.
Roadblocks come from small countries as well as big ones. Finland already imperiled the Greek rescue by cutting a side collateral deal with Athens, prompting fury from others. A leading legislator in Slovakia, even smaller than Finland, has warned of delays in that country’s approval of the revamped bailout fund, threatening to delay the process.
‘It’s a pattern,’ said Mr. Brzeski. The response of policy makers at first looks good, ‘but then there are things missing or you need approval by politicians and all of a sudden there are new demands.’
European banks fell sharply Monday amid worries such as sovereign-debt exposure. Royal Bank of Scotland Group shares tumbled 12.3%, and Deutsche Bank 8.9%. The cost of insuring European banks against default hit record highs Monday. Default-insurance prices for Spanis h and Italian government bonds increased.
In a speech Monday in Frankfurt, Deutsche Bank chief executive Josef Ackermann warned of a ‘new normalcy’ of a volatile global economy and general market shakiness. ‘All of this is reminiscent of autumn 2008, although the European banking sector is, in comparison to then, much better capitalized and less dependent on short-term liquidity,’ he said.
In 2008, ECB officials slashed interest rates only three months after raising them, seeking to blunt the effects of Lehman Brothers’ collapse.
On Thursday, the ECB is widely expected to signal a lengthy pause in its rate-increase cycle that began in April. But a rate cut remains unlikely.
Posted by octodj in July 5, 2011
For three decades, Donnie Yen has kicked, punched and jumped his way up the rankings of martial-arts movie stars. ‘Wu Xia,’ which opens next month, shows why he’s the genre’s current grand master.
‘I think at a creative level I am at a peak,’ says Mr. Yen, who’s vaulted to the top of A-list Asian actors in recent years, joining the ranks of legendary martial-arts stars Jet Li, Jackie Chan and Bruce Lee.
Superstardom came late for Mr. Yen, who turns 48 years old this year. Back in the 1980s, when he started out, Hong Kong action movies were ‘like the wild west — guerrilla filmmakers, anything goes,’ he says. ‘Those were the primitive days. Back then we didn’t really have the budget. Nowadays, safety comes first.’
After appearing in dozens of movies and television shows, he made leading-man turns in 2008′s ‘Ip Man’ and its sequel — both based on the life of the 20th-century Chinese martial-arts master of the same name — that kicked his career into high gear.
In ‘Wu Xia,’ from director Peter Chan, Mr. Yen plays a repentant killer living in a secluded village whose past catches up with him. The movie, set at the end of the Qing Dynasty in the early 20th century, cost $20 million and premiered last month at Cannes. Mr. Yen spoke with The Wall Street Journal on the set of ‘Wu Xia.’
WSJ: With action sequences, how much is preplanned and how much is improvised on the set?
A: It really depends. I also worked in Hollywood films — everything there is preplanned, written, as much as possible. Ideally, that is the best way, because everybody knows what’s going on and is well prepared. But it is not necessarily the most creative result. Sometimes we get motivated and stimulated on the set. I remember the old days when I first started in the Hong Kong industry — there was no such thing as planning. They start choreographing the moves on the set.
WSJ: Does the drama lead the action or the action lead the drama?
A: I try to make films where the character drives the action. A lot of times films don’t turn out to be that way, especially commercial action movies. But with Peter Chan’s movies, everyone knows it is going to be powerful and dramatic — that’s one of the main reasons why I wanted to be in his film.
WSJ: Did anyone ever tell you that to hit the big time, you had to go to Hollywood?
A: I don’t think anybody said those exact words, but for the longest time — in any country in the world — you have this image that if you’re in a Hollywood film, then you’re in international films. That is the ultimate. But I don’t think this is the case anymore, because the China market is getting so big. We have many, many years to catch up. But from a business point of view — and an opportunities point of view — in some ways we are very fortunate as Chinese filmmakers.
WSJ: What makes a successful action scene?
A: To get you excited — off your seat. But I think nowadays, most importantly, the audience has to love the character. That is way beyond what an action director can do. It takes a director, a story, a script and all the elements put together.
That’s why I’m very happy that I get to work with Peter. I know that drama-wise, story-wise, he’ll make sure you’ll follow the character — that you’ll like the character and, hopefully, you’ll love the character.
WSJ: Have you reached that goal in your recent films?
A: Look at ‘Ip Man’ — it’s the same thing. The audience feels it: They clap, they cheer, they cry. It’s a simple concept: When you watch a movie, you want to pull yourself out of reality. You want to live in that world, and you want to live in that action moment. That’s my ultimate standard of a good action sequence.
WSJ: Are audiences today more demanding?
A: Absolutely. When I first started doing action movies, there was no acting requirement. That’s why at the beginning of my career I could not act — I’m very blunt about it.
WSJ: How do you compare your work with that of other dramatic actors?
A: On one hand, we shouldn’t look at action artists separately from any other kind of actors — actors are actors. As a matter of fact, I think being an action actor takes more skills because they need to tell a story with their body. When I’m fighting or being hit, I’m not actually hitting a person or really being hit. I’m acting.It takes more than just the conventional dramatic approach — especially martial-arts movies, because martial-arts movies take kung-fu mastery.
WSJ: What’s next for your career?
A: I don’t want to do action forever. There are too many things in life. I spend too much time on the road. I’ve got to spend time with my family. I think everyone has to draw a line no matter how much passion they have for one thing. I’ll do as much as I can for the next few years. My goal is to take a step back — maybe direct, maybe produce — share my experience of all these decades in the action world. Hopefully, I can find some newcomers and push the standard a little bit more.
WSJ: Have you found anyone?
A: I’m still looking. The action standards of today are so high. You can’t just find some young, good-looking kid that does great kung fu and expect him to carry the film. He has to have acting experience. There has to be chemistry between him and the audience.
Posted by octodj in April 14, 2011
Serena Williams grabbed her racket and got out on a tennis court Tuesday, which she said was her “first day back” after a series of health problems, including blood clots in her lung.
The 13-time Grand Slam singles champion and former No. 1-ranked player has not played an official match since she won the title at Wimbledon in July.
On Tuesday, Williams tweeted: “Cool news guys stay tuned.. Ill update u with a pic.. U ready??”
Then, a little later, she tweeted again: “Look who I spotted on the court. Her first day back…” That posting came with a link to a photo of Williams in a neon pink bodysuit, standing at the baseline and midway through her service motion with a racket in her right hand.
Her agent, Jill Smoller, confirmed Williams put in some work Tuesday.
“She was out hitting some balls today. Taking it day by day depending on how she’s feeling and was very happy to be back on the court,” Smoller wrote in an email to The louis vuitton handbags Associated Press.
Shortly after claiming her fourth singles championship at the All England Club last year, Williams cut her foot on glass at a restaurant, an injury that led to two operations. The second surgery was in October, and she said she spent 10 weeks in a cast and 10 weeks in a walking boot.
The 29-year-old American was diagnosed in February with blood clots in her lung. After that, she said she needed treatment for a hematoma — a gathering of blood under the skin — on her stomach.
Williams has not said when she might return to competition.
Despite all of the time away from the tour, she is still at No. 10 in this week’s WTA rankings.
Her older sister Venus is 15th this week; she hasn’t played since January because of a hip injury.
Posted by octodj in April 7, 2011
Tokyo Electric Power Co. began efforts Wednesday to stem the possibility of a hydrogen explosion at the quake-damaged Fukushima Daiichi nuclear power complex, demonstrating the increasing technical hurdles as the utility and Japanese government work to keep the plant under control.
The utility, known as Tepco, was preparing Wednesday night to deal with the potential that hydrogen gas in the plant’s No. 1 reactor could come into contact with oxygen and explode─a scenario that could damage the reactor’s containment vessel and leak large quantities of radioactive material.
Tepco and government officials late Wednesday were planning to stabilize the reactor’s containment vessel by injecting nitrogen gas into it. Hidehiko Nishiyama, spokesman for Japan’s Nuclear and Industrial Safety Agency, said the measure is being taken ‘as a precautionary step.’ He added: ‘There is no immediate risk of a hydrogen explosion occurring.’
The measures at reactor No. 1 illustrate the new complexities that arise even as workers stabilize parts of the plant damaged in the March 11 earthquake and tsunami. The risk at reactor No. 1 appears to stem in part from the falling temperature of its reactor core─the top goal of Tepco and government officials trying to stop the release of more radioactive material.
Workers can’t get close enough to the No. 1 reactor to see what is going on inside. But according to one engineer working for the Japanese regulator, experts believe that as the reactor’s fuel rods have cooled, steam inside the containment vessel is condensing into water, reducing the pressure inside.
The containment vessel is meant to be airtight. But the overheating of fuel rods following the breakdown of the cooling system in the wake of last month’s earthquake, and the subsequent pumping of seawater into the reactor, are believed to have damaged some of the vents and pipes running in and out of the reactor.
Inside the vessel, meanwhile, hydrogen has gathered, the engineer said. Overheating of fuel rods earlier in the crisis likely caused the material coating the fuel rods to melt, producing hydrogen. The process also resulted in the gas buildup that caused explosions within the buildings housing the No. 1, No. 3 and No. 4 reactors.
Now, a drop in pressure inside the damaged containment vessel could allow outside air to flow in, introducing oxygen that could react with hydrogen, touching off an explosion.
The injection of nitrogen would keep the pressure inside the containment vessel from falling and keep air from entering. Nitrogen is often injected into such reactors during normal operations, said Wataru Sugiyama, who teaches at Kinki University’s Atomic Energy Research Institute.
The risk of a hydrogen explosion within the reactor has been flagged by the U.S. Nuclear Regulatory Commission, Mr. Nishiyama said. But he added: ‘It was our own decision to inject nitrogen and the exchanges of opinion with the NRC further corroborated this decision.’
The process, which was set to begin just after midnight Wednesday, would be delayed until 4 or 5 a.m. Thursday, a Japanese regulator said early Thursday.
Posted by octodj in March 22, 2011
China’s role in global energy markets is hard to overstate. The country’s immense appetite for resources – it overtook the US in 2009 to become the world’s largest energy user – has driven demand not just for fossil fuels but also spearheaded the revival of nuclear power around the world.
Beijing has put nuclear at the heart of its future energy plans, expecting to draw 5 per cent of its energy from nuclear power by 2020, up from less than 2 per cent today, as part of a shift away from fossil fuels. Wednesday’s decision to freeze all approvals for new nuclear reactors has raised questions about the speed with which China will be able to achieve its nuclear ambitions.
Nuclear experts said any suspension, however temporary, would inevitably delay the construction of new plants. Any additional safety systems that might need to be installed after reviews would add to costs, both in the construction of new reactors as well as in the operation of active ones.
“This will delay what people termed the global renaissance,” said Colette Lewiner, global head of the energy practice at Capgemini. “China already had ambitious plans before today, planning to commission eight or nine new reactors every year.”
Michael Kruse, nuclear specialist at Arthur D. Little, a consultancy, said: “I don’t think that many people would have expected a country like China to look more closely at the safety issue. If China is going to take the safety issue more seriously, then western governments will have to take it even more seriously.”
Meeting in Beijing on Wednesday, the State Council declared that all nuclear reactors that are operating or being built would be inspected “rigorously”, and a new set of nuclear safety regulations drawn up.
No new nuclear projects will be approved until those regulations are finalised. Officials said earlier this year that about 10 projects were slated to receive final approval in the next five years, but nuclear energy has proved so popular that more than 100 nuclear projects have been proposed at local levels.
There were no indications from the State Council that China’s overall nuclear goals were under review, but the news is a U-turn from recent days when the government had reiterated its commitment to nuclear.
China is less prone to earthquakes than Japan, which lies on a key fault around the Pacific Rim. Most Chinese reactors are currently on the coast, but as the nuclear programme grows, some are moving inland and closer to quake-prone areas, including a reactor recently proposed in Chongqing.
The decision will have repercussions not just for China’s domestic industry players but also for global manufacturers. The country’s nuclear reactors are managed primarily by two state-owned companies, China National Nuclear Corporation and China Guangdong Nuclear Power Corporation. However, the supply chain that supports those reactors, from designs to components to fuel, stretches across the globe and includes international companies such as Westinghouse, Shaw Group, Areva, Alstom, EDF and Atomstroyexport. Many companies have been banking on demand from China as a prime source of new nuclear reactors.
China has also been among the earliest countries in the world to start building third-generation reactors, with Westinghouse’s AP1000 and Areva’s EPR both currently under construction there.
The country lacks the activist groups that lead opposition to nuclear reactors in other countries because the political system restricts civil society. That could change after so many people have witnessed the problems in Japan.
“It is inevitable that China will eventually develop these kinds of groups that are opposed to the nuclear industry,” says a businessman who supplies parts for nuclear reactors. “The problem now is that the Chinese public has little understanding about the nuclear industry?.?.?.?if they see developed countries are opposed to it, people might get the wrong impression.”
Additional reporting by David Blair
Posted by octodj in February 16, 2011
According to the Daily Telegraph on February 10, a British woman who was “pushed to the edge” by a faulty fire alarm that sounded non-stop for several days discovered that the sound was in fact made by a parrot in her garden.
Shanna Sexton, 25, from Devon, UK, even called in workmen to try and locate the problem. But she was amazed to see an African Grey Congo parrot perched on a water butt as she hung out washing in the garden.
The noisy parrot, called Sammi, had escaped from neighbor Louise Ledger’s house a week earlier and spent seven days in the garden mimicking a smoke alarm.
Ledger, 38, was distraught and spent hours searching for her beloved pet before she plastered the neighborhood with missing posters appealing for Sammi’s return.
”I am over the moon. I am going to give Shanna a huge bunch of flowers. When I found out where he has I could not have got there any faster. He is always picking up funny noises from anywhere and everywhere. I think he must have heard me burning the toast once as he does mimic the smoke alarm noise,” said Ledger.
Posted by octodj in December 22, 2010
Many of these little, high-growth, companies, including industrial companies RINO International Corp. plus China Energy Savings know-how Inc., have minimal revenues, open to doubt accounting plus inscrutable corporate governance.
One of China’s least-noticed exports to the U.S. has been hundreds of Chinese companies that slipped onto U.S. stock exchanges through back-door mergers with dormant shell companies.
The SEC has also begun homing in on individual Chinese louis vuitton outlet for accounting violations plus lax auditing practices, these people say, beyond numerous historicallyin the past announced investigations.
Now, that back door may be beginning to close. The Securities plus Exchange Commission has begun a crackdown on the practices of the ‘reverse takeover’ market for Chinese listings, according to people with knowledge of the probe. Specifically, the SEC’s enforcement plus corporation-finance divisions have begun a wide-scale inquiry into how networks of U.S. accountants, lawyers, plus bankers have helped bring scores of Chinese companies onto the U.S. stock markets, these people say.
Behind the scenes, the U.S. House Committee on Financial Services Committee is also revving into gear, plus may hold hearings on Chinese-company accounting in 2011, according to a person familiar with the matter. The committee’s fear is that some companies are rife with self-dealing plus potential fraud, plus weak international standards have let it go largely undetected.
On Tuesday, the SEC filed a case in the area, settling a lawsuit against accounting firm Moore Stephens Wurth Frazer & Torbet LLP plus one of its partners for its audits of China Energy, which was listed on Nasdaq in 2005.
More broadly, ‘the integrity of the data could be flawed, plus I don’t require this to be a junior Madoff scandal,’ Rep. Chris Lee (R., N.Y.) said in an interview. ‘China is the second-largest economy, plus it’s growing at such a quick pace there is a chance for exploitation plus fraud.’
The Chinese stock markets stay a deeply inefficient place, where government minders must approve a company’s listing designs on a domestic exchange. Getting a listing on a U.S. exchange is therefore a fast plus comparatively simple way to gain credibility.
Today, most of the reverse takeover stocks carryover market capitalizations of under $500 million. plus all the companies tap into the global fascination with Chinese markets, which are generating dozens of new, high-growth firms in everything from agriculture plus food to engineering plus chemicals.
The issues stem, in part, from the way lots of little Chinese companies are audited. A company listing on a U.S. stock exchange must be audited by a firm registered with the “auditor’s auditor”─known as the Public Company Accounting Oversight Board.
it’s perfectly legal for an approved auditor to subcontract the work to local accountants in China or elsewhere. But troubles are beginning to pop up, given the huge geographical distances plus language barriers.
By this spring, some 340 Chinese companies listed on U.S. stock exchanges were using little, largely unknown auditing U.S. firms, who in turn may have been contracting the work back out to local Chinese firms, according to the SEC’s chief accountant.
More is coming. “The SEC has definitely been focusing on it,” says Greg Scates, deputy chief auditor at the PCAOB. “Some work papers are in Chinese plus the U.S. auditors can’t even read them. plus so there is no way that the auditor can conduct a review or perform appropriate supervision of staff.”
In the case of China Energy, a Chino Hills, Calif., auditor Kerry Dean Yamagata failed to “exercise professional skepticism plus due professional care” in reviewing company filings in 2004 plus 2005, according to an SEC proceeding that ordered the disgorgement of $129,500. In 2006, the SEC sued China Energy for violating federal securities laws soon after its shares stopped trading on Nasdaq.
Such fears became actual after Nasdaq-listed RINO International, a Dalian, China maker of environmental products, disclosed accounting flaws earlier in the fall. RINO was delisted, plus it withdrew its 2008 plus 2009 financial statements. Today its shares trade on the Pink Sheets.
Posted by octodj in December 3, 2010
Yuri Milner is very popular among internet entrepreneurs. Mark Zuckerberg, founder of Facebook, encourages him to drop by and Mark Pincus, chief executive of Zynga, an online games company, regards him as a trusted adviser. Among Silicon Valley’s venture capitalists, feelings are decidedly cooler.
“He came on a night attack when everyone was asleep and while you might be full of admiration for his audacity and cunning in taking advantage of that moment, we’ve woken up now and he won’t be able to do it again,” says one Valley investing veteran about Mr Milner, chairman of Mail.ru, a Russian internet company that floated in London this month.
Mr Milner, who runs Digital Sky Technologies, the investment fund of Mail.ru, came up with a solution to the initial public offering drought that has afflicted venture capital funds and technology companies. He offers them a simple way to raise fresh money, and for their employees to sell shares, without going public.
His insight enabled DST to
acquire nearly 10 per cent of Facebook and stakes in Zynga and Groupon, both premier league internet properties, at prices that are now bargains. He has shaken up late-stage technology investing and bruised the Valley’s elite.
The question is whether he is another Masayoshi Son of Softbank, the Japanese investor who rose to fame by acquiring stakes in Yahoo and other properties in the 1990s but flamed out in the dotcom crash, or an innovator who has changed the balance of power between investors and entrepreneurs for good.
My feeling is that, although Mr Milner’s coup was partly cyclical and partly a matter of first-mover advantage – the social media boom has produced some highly valued, fast-growing companies that want to remain private for as long as they can and he picked them adroitly in the wake of the financial crisis – it will have a long-term impact.
One reason for the VCs’ irritation (“You can hear the frustration in my voice,” says the veteran investor) is that Mr Milner has avoided playing the traditional role of a foreign investor who tries to break into Silicon Valley or Hollywood – that of the greater fool who takes the worst deal. Instead, he outmanoeuvred those who pride themselves on building the next Apple or Google.
Mr Milner’s trick was to spot that, as he told me last week at the Monaco Media Forum: “The company founder is charismatic and sees the future but some people just want to pay their mortgages and live a normal life.” In other words, visionaries such as Mr Zuckerberg are happy to be billionaires on paper and live in rented houses, while employees want to cash out.
Mr Milner responded by offering Facebook a deal in May last year: he would inject $200m in cash in return for a 2 per cent stake valuing the company at $10bn, and official approval to tender for the shares of employees at a lower valuation. He did not demand a seat on the board and was content to be “a servant” – to let Mr Zuckerberg keep on running things as he wished.
Both the $10bn valuation and the lack of control rights were much better than rival offers, but they have so far worked out extremely well – Facebook is now valued at $40bn. “If you select the best two or three high-velocity companies, pay 20 per cent more than anyone else and offer softer terms, you look like a genius,” says one venture investor.
There are obvious problems with replicating these early successes. One is that there are only a limited number of Facebooks and Zyngas around – his formula requires him to find high-growth companies that are heading for multi-billion dollar IPOs yet want time. He himself estimates that there are only 25 of these choice properties in the world, and he is not the only hunter out there.
A second difficulty is that it is a riskier business than Mr Milner has made it look so far. The IPO market for all but outstanding tech companies such as Google has been slow for years and companies often sell for less than venture valuations. Slide, a social media company, was valued at $500m in a 2008 venture deal but Google bought it for only $230m this summer.
“Some companies have raised money at huge valuations in early rounds and don’t want to go public and suffer huge dilutions,” says Tracy Lefteroff, a partner of PwC. Investors that match Mr Milner’s terms on second-tier properties could get burned while he goes down in history as, as Josh Lerner, a Harvard professor, puts it, “an idiosyncratic reflection of the times”.
But I doubt whether it will be that easy for Silicon Valley’s investors to get rid of him. Tensions between entrepreneurs and investors are as old as the hills and the founders of some companies left money on the table when investors pushed to exit. Mr Milner points out that, at their peak valuations, Google was worth 10 times, Ebay 78 times and Yahoo 126 times the IPO price.
Until now, the founders of such elite enterprises have struggled to resist the wishes of venture funds, but the deals pioneered by Mr Milner – and already mimicked by Elevation Partners in a recent financing of Yelp – give them greater power. They can keep employees happy while retaining control.
This may gall early-stage investors who have invested both money and precious expertise only to have a late-stage Russian bargain hunter outbid them, but that’s life. Mr Milner has broken into the club and he will be hard to dislodge.
Posted by octodj in November 10, 2010
I was doing a guest writing workshop at Susanville State Prison near the Sierra Nevada foothills in northern California. Most of the men doing time there are sentenced to prison because of drugs. They are housed in huge dormitories in bunk beds. They have no privacy, no place to be alone, no place to think quietly. I had great apprehensions when I walked onto the prison grounds. I had taught writing workshops at many California prisons, but those prisons had cells. In Cells, even if they are shared with another inmate, one can find a least a little writing time. Surely the men here at Susanville were not going to be interested in what I had to offer.
I had decided to spend my two days giving a monologue workshop. I wanted the men to have a chance to write and then perform before a camera. I wanted them to see themselves on video before I left the prison at the end of the second day. I felt that life in this prison had probably stripped them of most of their identity and that writing and performance art might restore some sense of who they were or who they could be.
I was pleased that twenty men had signed up for the class. This was the maximum number I had said I could take. I spend the first hour with them, talking about what it was like to be a writer. Telling them that there is a joy and a freedom in the words. That no matter how much they were all forced to be alike, dress alike, eat the same food, keep the same hours, that in their writing they could finally be different. As different as they wanted to be. Writing, I told them, can be the most liberating of all the arts. You can be free with the word. There are no limits. told them that every time I picked up a pencil or sat down at a computer or a typewriter that it was as if I was coming home, coming home to my art, my words, that this was a world that no one else could take away. This art would sustain me throughout all my days.
The men listened well and when I finally had them start their writing projects, they worked hard. There was only one, a young, very handsome blond man, who I worried about. He was reluctant to share during that first day when I had them writing their monologues. Every other student read and rewrote and read again, but this man sat quietly, erasing, writing, tearing up drafts, starting again. Whenever I would approach his desk, he quietly covered his paper with his arms.
“Can I see?” I ask.
“It would be easier for me if you didn’t,” he would answer then a shy smile would appear.
I figured, what the heck. Even if he doesn’t share his writing with the class, he’s writing. He is choosing to spend his whole day in this hot stuffy classroom working on something called monologue. That morning he probably didn’t even know the meaning of the word. This should make me happy. But it didn’t. I was concerned about his need for privacy, a
bout his inability to share, knowing that he didn’t think his writing was good enough.
I had worked in prisons for too many years to be fooled by his shyness. I knew that many of the inmates had learned at a very young age that they could do nothing right. They had been abused and tormented as children and lacked any self-confidence. But no matter how much I praised the other prisoners he wouldn’t relent. He went back to his dormitory that evening with his writing tucked into his jeans pocket. Many of the other men just left their work on the desks. Not him. He was taking no chance that I would read it after he was locked away behind the bars. He was right, of course. 1 would have made a beeline right for his desk the minute he got out the door. He had judged me right.
The second day all the men returned to the classroom. This was particularly pleasing to me. Even the young blond man. This was the day for reading and taping. I wondered how the silent, shy student would handle this. I was actually surprised to see him there. He had combed his long, blond hair and his shirt was neatly pressed. He had obviously thought about the fact that he was going to be filmed and wanted to look his best. At last I was going to hear what he wrote.
He didn’t say much during the performances. I had given the men fairly loose instructions about who should be speaking in their monologues. I had, though, told them that I wanted to hear their characters tell me what it is they really wanted, what it was that no one understood about them, and why they needed to talk. He sat there quietly, watching the work of his fellow inmates. One of the men had written a monologue for God, and another had been Abraham Lincoln, another Martin Luther King, Jr. Some of the monologues were funny, others serious. Even though they hadn’t had time to memorize their lines, once they began reading, the scripts in their hands were hardly noticeable, and I was extremely moved by their work.
Finally, he was the only one who hadn’t read his monologue. When all the others were finished I asked him, “Are you ready now?”
“I don’t think so,” he answered in such a gentle voice. Then the men were on him.
“Man, if I can do it, you can do it. Try it. You’ll like it. Come on man, don’t be shy. Nobody’s going to judge you here.”
So he got up, took his script to the performance area and stood before the camera. He looked so young. The papers in his hands were shaking like frightened birds, but he looked with determination into the eye of the camera and opened up his monologue.
“My name is Bruce. I am twenty-one years old and I am dead. I am dead because I spent time in prison for drugs and I didn’t care. I didn’t care about me. I went to bed every night just counting the days ‘till I could get out and get that next
fix. I would kill for my next fix. I would kill for my next fix.”
He went on about his life, how he was raised in poverty by alcoholic parents, beaten, hungry, no life at all, shuffled back and forth through foster homes. While he read, he showed scars on his body, the burn marks on his arms where a drunken father had extinguished cigarettes, the cuts on his wrists where he had tried to take his own life. I couldn’t help it. The tears began forming in my eyes, hot and painful. My God, why had I asked him to share this horrible pain? Then he got to the end of his story.
“Even though I died right there in prison, I want to tell you something. The reason I need to talk to you today. I have risen again, just like in the Bible. I am reborn. One day a woman came in and told me to write. And I had never written before, but I did it anyway. I sat for eight ours in a chair and focused the way I have never focused before. I could never even sit still before! I wrote out my ugly life, and then I was able to finally feel something. To feel pity. For myself. When no one else was ever able to feel it. And I felt something else. I felt joy. I was writing, and what I was writing was good. I was a writer! And I was going to get up in front of all those men in that class, and I would say that this . . .” At these words he held up his little manuscript. This is more important to me than any drug. What I wanted to tell you was that I died a drug addict, and I was reborn as a writer.”
We all sat there stunned. The camera kept running. He took a self-conscious little bow. Then he said, “Thank you,” once again in his quiet voice. And then the men broke out in spontaneous applause. He walked over to me and took my hands. Inmates are not allowed to touch their teachers, but I let him anyway. “You have given me something,” he said, “that no drug has ever given me. My self-respect.”
I think of him often. I pray that he has continued to find respect for himself through the written word. I know, though, that that day in that room with those men, a writer was born. After a long and terrible journey, a lost soul had come home, home to the words.
