Here comes Aston Martin with news of its “successful” placing of $150m (£120m) worth of bonds. Success, in this context, merely means the company got its cash. Everything else about the fundraising screams of desperation on the part of the borrower.
Aston Martin will pay interest at 12%, a corporate pauper’s rate. A second $100m bond will have to be pitched at 15% if sales targets on the new SUV model are not met. It is quite a reversal: as recently as April, there were buyers for new Aston Martin IOUs at 6.5%.
What’s changed? There was a hefty profits warning in July, blamed on “macroeconomic headwinds”. More fundamentally, the suckers who bought shares at £19 in last October’s flotation have come to understand that the listing, marshalled by 12 generously remunerated investment banks and promoters, was over-revved. The shares have fallen 70% and sit at 551p.
“We don’t make cars – we make dreams,” declared the chief executive, Andy Palmer, during his pitch to investors who must have been half-asleep. Absurdly, the £4bn float raised no new money to strengthen a debt-heavy balance sheet created by private equity owners. Aston Martin, in effect, was betting that trading conditions would be near perfect ahead of the launch of the DBX, its first SUV, in December. Life rarely proceeds so happily in the luxury car trade.
Net debt was £732m at the end of June, a huge sum versus “adjusted” operating profits of £147m last year, so one could say Aston Martin has done well even to issue bonds at 12%. The extra funding at least allows a calmer lead-up to the launch of the new vehicle but the wider position has not changed radically. If the DBX flops, the balance sheet will require a proper overhaul – the one it should have had before arrival on the public markets.
One can grumble about the greed of the Italian and Kuwaiti owners who flogged a quarter of their holdings in the float. But the blame mostly lies with the fund managers, some of them managing our pensions. It was their job to kick the tyres. Instead, they acted like members of the Aston Martin fan club.
EDF poses a nuclear cost risk
Quelle surprise! EDF, the French folk whose nuclear power station in Flamanville in Normandy is three times over budget and still not built, reckon their construction at Hinkley Point C will also arrive on the high side.
Hinkley was originally meant to cost £18bn. The figure was revised to £19.6bn in 2017. Now, having found the soil in Somerset to be “challenging”, EDF is shooting for £21.5bn to £22.5bn.
One can, of course, take comfort that EDF, and not UK billpayers, will bear the cost of the cost overrun. That was the sole consolation in a deal that obliges consumers to buy Hinkley’s juice at sky-high prices for 35 years.
But one cannot relax. Sizewell C looms as EDF’s next project and the government is contemplating obliging consumers to carry some of the construction risks in Suffolk. This is a “regulated asset base” (RAB) model. Under RAB, consumers would start to pay for a plant before it is built but the electricity at the end would be cheaper. Sizewell, it is suggested, is a suitable candidate for RAB because EDF will merely be replicating its Hinkley plant and will start with greater engineering experience.
Well, it’s an idea and, clearly, the appeal of the trade-off will depend on the terms. EDF would still have to be on the hook for, say, a 20% cost overrun. But if the electricity were to be substantially cheaper than Hinkley’s, there might be a deal to be done if more nuclear-generated power is deemed essential for baseload supplies.
But there are two reasons to be cautious. First, note the warning of the National Infrastructure Commission in a report last year: “There is limited experience of using the RAB model for anything as complex or as risky as nuclear.”
Second, EDF’s latest estimate for Hinkley may not be its last. Every upwards revision weakens the case for RAB – and the argument was already in borderline territory.
M&G boss manages to rise above
The asset manager M&G, demerging from the Prudential, is coming to the FTSE 100 index soon. Like all shiny-faced newcomers, it wants to show it is playing fair with executive pensions. Thus boss John Foley’s pension contribution has been cut from 25% of salary to 13%, in line with the workforce.
Luckily for Foley, however, his basic salary has been increased from £781,000 in 2018 to £980,000, which more than compensates for the pension change. Solidarity should not prove too irksome.
