Governance in Brief
February 7, 2019 | Editor: Martin Wennerström
Tesla posts profit amid increasing challenges
While Tesla’s Q4 earnings release last week marked its second consecutive quarter of profitability, the California automaker now faces a set of challenges. Approximately USD 920 million in convertible debt expires on March 1, at a conversion price of USD 359.87 per share. Tesla’s current stock price of USD 317.22 is significantly below this level, meaning that a sustained rally would be needed to stave off the possibility of bondholders demanding an all-cash conversion. Tesla has meanwhile announced a second price cut this year for its bestselling Model 3, following a reduction in US green tax credits. The company also announced that the price reductions will be supported by workforce downsizing and the termination of the customer referral program. Furthermore, Saudi Arabia’s Public Investment Fund, holder of a 4.9% stake in Tesla, has through insurance contracts hedged a significant portion of its exposure to Tesla stock. There was brief speculation last September that the Saudis would back up Tesla founder and CEO Elon Musk in his apparently baseless claim that he was to take the company private. Tesla also announced that its CFO Deepak Ahuja will step down and be replaced by the company’s vice president of finance Zach Kirkhorn. Ahuja will continue in an advisory role.
Brussels rejects Siemens-Alstom merger
The European Commission announced on February 6, 2019 its decision to block the Siemens-Alstom merger “to protect rail operators and passengers”, after the remedy package submitted by the companies in December 2018 failed to alleviate antitrust concerns. Following an in-depth investigation launched in July 2018, Brussels concluded that the tie-up would have led to “higher prices and less choice for railway operators and infrastructure managers.” Whereas Siemens shares fell by 0.96% on the news, speculations that Alstom will seek a transaction with Canada’s Bombardier caused both stocks to rise, by 4% and 6%, respectively. The purpose of the failed transaction was to create a regional rail giant capable of countering China’s state-controlled CRRC Corp. As such, the veto caused backlash from Paris and Berlin, triggering calls for an overhaul of the EU competition policy.
Bangkok Dusit Medical and Bangkok Airways executives barred
The Thai Securities & Exchange Commission (SEC) has applied administrative sanctions to Bangkok Dusit Medical and Bangkok Airways CEO Prasert Prasarttong-Osoth, his daughter and Bangkok Dusit Medical COO Poramaporn Prasarttong-Osoth, and Bangkok Airways executive secretary Narumon Chainaknan. Specifically, the trio are barred from serving as executives or directors at listed companies and have been fined a collective THB 499 million (USD 16 million). The sanctions were prompted by the charge that, between November 2015 and January 2016, the trio engaged in stock market manipulation by surreptitiously trading Bangkok Airways shares among themselves.
Director resigns at China TCM
In an uncommon move for the Hong Kong market, Zhou Bajun, who had been an independent director of China Traditional Medicines Holdings (“China TCM”) since 2013, sent an open letter to shareholders, announcing his resignation on account of governance issues at the company. China TCM is listed in Hong Kong and is 36% controlled by China National Pharmaceutical Group, a Chinese state-owned enterprise. Zhou alleges, inter alia, that recordings and minutes of board meetings were not properly kept and that the company’s strategy committee had not held any meetings in the five years since it was formed. The company is in an unusual position, as it must now find a replacement independent director in order to be compliant with its listing requirements.