Tag: KKR & Co Inc

Shares of Tencent-backed J&T Express fall in lackluster Hong Kong debut

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Courier handing over package asking female customer to do electronic signature, delivering, receiving, efficiency

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Shares of Indonesia’s J&T Express fell 1.33% when it went public on Friday.

The logistics service provider traded at 11.84 Hong Kong dollars ($1.51) on Friday morning, after opening at HK$12.

The HK$3.92 billion ($500 million) IPO is the second largest listing in Hong Kong this year, after premium Chinese liquor company ZJLD Group. The Chinese “baijiu” maker, backed by KKR, plunged nearly 18% on their first day of trading on April 27.

Investors include Chinese tech giant Tencent, U.S.-based venture capital firm Sequoia, Chinese private equity firm Boyu, SF Express and Singapore’s sovereign wealth fund Temasek.

J&T Express is listing in an uncertain economic environment, characterized by hiking inflation, high interest rates and ongoing conflict such as the Israel-Hamas war and Ukraine invasion.

“In the third quarter of 2023, global IPO activities remained sluggish due to macroeconomic and geopolitical uncertainties. Hong Kong’s global IPO ranking dropped to eighth following a historically slow third quarter,” said KPMG in a report published on Oct. 9.

“The Hong Kong market has not recovered as much as we would like,” Irene Chu, partner at KPMG China, told CNBC, highlighting that the third quarter “continued to be very soft.”

J&T had initially aimed to raise at least $1 billion in the IPO but halved the target amount on weak investor demand, according to Reuters.

Companies that want to go public have “become more realistic” in their pricing, said Ringo Choi, Asia-Pacific IPO leader at EY. “The IPO pricing is dropping significantly by more than 50% or even 70%.”

China is J&T’s largest market, where it delivered nearly 83% of its total parcels last year, serving the likes ecommerce giants like Pinduoduo and Alibaba’s Taobao and Tmall. It held a 10.9% market share by parcel volume in 2022, the company said in its prospectus, citing Frost & Sullivan.

In May, it acquired China-based Fengwang Express for 1.18 billon yuan from largest domestic player SF Express, building on its acquisition of express delivery business from Chinese logistics firm Best in late 2021.

The Indonesian logistics provider delivered a total of more than 14.5 billion parcels in 2022 across China and Southeast Asia, up from 11.5 billion in 2020. In Southeast Asia, it is the largest operator with a 22.5% market share in terms of parcel volume, based on Frost & Sullivan data. Alibaba-owned Lazada, GoTo’s e-commerce arm Tokopedia and Sea Limited‘s Shopee, are among its customers, the prospectus showed.

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It posted a net profit of $1.57 billion in 2022 but went into the red in the first six months of this year Net losses came in at $666.8 million, due to gross losses from operations in China and new market expansion in 2022, among others.

“In the long term, to continue to realize our revenue potential and achieve profitability, we plan to further grow our parcel volume and market share, maintain a flexible pricing strategy, control costs, narrow gross loss and improve gross margin, and enhance operating leverage,” said J&T in its prospectus.

‘Immaterial’ impact from TikTok Shop ban

Analysts warn that TikTok Shop’s ban in Indonesia, which disallows social media platforms from facilitating e-commerce purchases, could impact J&T Express.

TikTok Shop is the e-commerce feature of popular short-video app TikTok.

“There is some sharp short-term pain for J&T in Indonesia because of the TikTok Shop ban, as J&T was (profitably) carrying the majority of the TikTok Shop’s millions of orders a day in Indonesia prior to the ban,” said Momentum Works in a Oct. 17 blog post.

J&T Express acknowledged in its filing that “there remain significant uncertainties” on how the new rules would impact different e-commerce and social media platforms in Indonesia, “some of which are our customers.”

But the company said it will not be adversely impacted as the revenue from social e-commerce platforms in Indonesia “remained immaterial” to the business.

In 2022 and the first six months of this year, revenue from social e-commerce platforms in Indonesia contributed only 4% and 6% to the company’s revenue respectively, said J&T.

“We believe that although [the new e-commerce regulation] may have an impact on our customer composition in Indonesia in the near term, this new regulation will not have a material adverse effect on our business operations and financial performance in the long term.”

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October 26, 2023
These regional banks are at risk of being booted from the S&P 500

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A customer enters Comerica Inc. Bank headquarters in Dallas, Texas.

Cooper Neill | Bloomberg | Getty Images

The stock sell-off that hit regional banks this year has exposed lenders including Zions and Comerica to the risk of being delisted from the Standard & Poor’s 500 index.

The banks, each with market capitalizations of around $5 billion, were the fourth- and sixth-smallest members of the 500 company listing as of this week, according to FactSet.

That leaves the companies in a similar position to Lincoln National, which got shunted from the S&P 500 last month and placed into a small-cap index. Blackstone, the world’s largest alternative asset manager, took Lincoln National’s spot.

This year’s regional banking crisis has already caused changes in the composition of the S&P 500, the most popular broad measure of large American companies in the investing world. Silicon Valley Bank and First Republic were removed from the benchmark after deposit runs led to their government seizure. More changes may be coming, especially if the industry faces a protracted slump, according to analysts.

“It’s absolutely a risk,” Chris Marinac, research director at Janney Montgomery Scott, said in an interview. “If the market were to further change the valuation of these companies, especially if we have higher rates, I wouldn’t rule it out.”

Banks begin disclosing third-quarter results Friday, led by JPMorgan Chase. Investors are keen to hear how rising interest rates affected bond holdings and deposits in the period.

Companies that no longer qualify as large-cap stocks are at heightened risk of demotion from the S&P 500. There were seven members valued at $6 billion or less at the end of August. Two of them were removed the following month: insurer Lincoln National and consumer firm Newell Brands.

Those that join the benchmark often celebrate the milestone. The popularity of mutual funds and ETFs based on the index means that new members typically see an immediate boost to their stock price. Those that get demoted can suffer declines as fewer money managers need to own shares in the companies.

S&P guidelines

To be considered for inclusion in the S&P 500, companies need to have a market capitalization of at least $14.5 billion and meet profitability and trading standards.

Members that violate “one or more of the eligibility criteria for the S&P Composite 1500 may be deleted from the respective component index at the Index Committee’s discretion,” according to S&P Dow Jones Indices’ methodology.

Still, that doesn’t mean Zions or Comerica are on the cusp of a delisting. The committee that decides the composition of the S&P 500 looks to minimize churn and accurately represent reference sectors, making changes only when “ongoing conditions warrant an index change,” according to S&P.

Shares of regional banks ZIons and Comerica have tumbled this year.

For instance, after the onset of the Covid pandemic in March 2020, many retail S&P 500 companies temporarily violated the profitability rule, but that didn’t result in widespread demotions, according to a person who has studied the S&P 500 index.

S&P Dow Jones Indices declined to comment for this article, as did Comerica. Zion’s didn’t immediately return a message seeking comment.

Besides Zions and Comerica, KeyCorp and Citizens Financial are the only other S&P 500 banks with market caps below the threshold for inclusion in the index, according to an Aug. 31 Piper Sandler note. KeyCorp and Citizens, however, each have market caps of greater than $10 billion, making them less likely to be impacted than smaller banks.

After Blackstone became the first major alternative asset manager to join the S&P 500 last month, analysts said that peers including KKR and Apollo Global may be next, and they would likely replace other financial names. KKR and Apollo each have market capitalizations of greater than $50 billion.

“Perhaps more demotions of low-market cap financials are to come,” Wells Fargo analyst Finian O’Shea said in a Sept. 5 research note.

– CNBC’s Gabriel Cortes contributed to this article.

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October 11, 2023
How Wall Street’s REIT giants are reshaping U.S. real estate

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U.S real estate investment trusts today manage $4.5 trillion in real estate worldwide. Many groups on Wall Street offer these tax-friendly funds to retail investors.

KKR’s real estate business is one of the big players in the REIT game. The private equity firm manages multiple REIT funds. The KKR Real Estate Select Trust, which currently manages $1.5 billion in assets, paid a dividend of 5.4% to its investors in July 2023.

But the benefits extend beyond returns.

“When you look at the after tax equivalent of that yield, it is very compelling.” said Billy Butcher, CEO of KKR’s global real estate business. “The depreciation from our properties has covered 100% of the income generated by our properties, and there’s no tax on that dividend,” he said in an interview with CNBC.

Larger funds sometimes contain a diversified pool of assets. Categories may include office, student housing, casino, timberlands, radio and cell towers, server farms, self-storage properties, billboards, and much more.

“Back in the 1960s, there were three or four different types [of REITs], said Sher Hafeez, a managing director at Jones Lang LaSalle, a real estate services firm. “Now, I can count at least 20 different types.”

Top performing REIT sub-sectors in recent years include data centers, self-storage properties, residential housing and tower REITs. Residential housing delivered a return of 16% from 2010 to 2020, according to a S&P Global Investments report.

The investor-friendly tax rules can also increase the pace of large-scale development.

“Having REITs there as a potential exit helps the market, and helps the availability of financing,” said Michael Pestronk, CEO and co-founder of Post Brothers, a Philadelphia-based housing developer.

Some funds like Invitation Homes and American Homes 4 Rent were founded in the yearslong slowdown in U.S. home construction. At the time, REITs bought and managed commercial-scale properties, which could include products like master-planned communities or traditional apartment complexes.

In recent years, publicly traded trusts have targeted single-family rental market, and today, these REITs have grown tremendously — enough to build new neighborhoods in their entirety.

Watch the video above to learn the fundamentals of real estate investment trusts.

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September 1, 2023
East Coast mayors call for more office-to-apartment conversions

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Mayors in cities across the U.S. want to loosen rules that can slow the pace of office-to-residential conversions. In some instances, cities have offered generous tax abatements to developers who build new housing.

“We have a great opportunity to change the uses in the downtown,” said Washington, DC, Mayor Muriel Bowser at a December 2022 news conference in support of her housing budget proposals.

“It’s absolutely a budget gimmick” said Erica Williams, executive director at the DC Fiscal Policy Institute, referring to Bowser’s 2023 proposal to increase the downtown developer tax break. “We fully support the idea that some of these buildings could be turned into residential properties or into mixed-use properties, but that we don’t necessarily need to subsidize that.”

In New York City, a task force of planners assembled by Mayor Eric Adams is studying the effects of zoning changes, and possible abatements for developers who include affordable units in conversions.

Cities like Philadelphia have previously embraced these policies to revitalize their downtowns. In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects.

A small collective of developers have taken on this challenging slice of the real estate business. Since 2000, 498 buildings have been converted in the U.S., creating 49,390 new housing units through the final quarter of 2022, according to real estate services firm CBRE.

Prominent investors Societe Generale and KKR have worked with developers like Philadelphia-based Post Brothers to finance institutional-scale office conversions in expensive central business districts.

“Capital has gotten much more limited,” said Michael Pestronk, CEO of Post Brothers. “We’re able to get financing today. … It is a lot more expensive than it was a year ago.”

Many experts believe local governments will alter zoning laws and building codes to make these conversions easier over the years.

“Our rules are in the way, and we need to fix that,” said Dan Garodnick, director of New York City’s Department of City Planning.

Watch the video above to learn how cities are getting developers to convert more offices into apartments.

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July 15, 2023
China’s consumer-driven sectors are a ‘sweet spot’ and opportunity for investors, says KKR

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Kong Yiji Restaurant full of diners in Shanghai, China, June 28, 2023.

Future Publishing | Future Publishing | Getty Images

From pet food to liquor and lighting fixtures, global investing firm KKR is putting its money behind a suite of consumer-driven sectors in China, departing from a singular focus on technology.

“We have around $6 billion invested in China. And our core focus has really been around the sweet spot of what we think the market opportunity is — domestic consumption,” KKR’s co-CEO Joseph Bae told CNBC’s “Squawk Box Asia.”

The company is intending to capitalize and cater to the growing middle class of 400 million people in China as they pursue higher quality food and services. KKR also has an active presence in different parts of China, with offices in capital Beijing, Shanghai and Hong Kong.

“We’ve invested in companies like the largest pet food company in China, the largest lighting fixtures company in China, retail pharmacy chains in China, domestic liquor and alcohol brands in China… All consumer driven,” Bae elaborated.

Last month, China’s State Council proposed measures to boost the consumption of household products, without going into details. China has also recently reported a slew of weaker-than-expected economic data, pointing to fizzling growth momentum and intensifying calls for more stimulus.

Bae added that the firm’s focus has not been around some of the “sensitive areas in technology” — such as semiconductors, A.I. and supercomputing.

Last week, China has imposed export curbs of two metals key to the manufacturing of semiconductors, in a warning to the U.S. and Europe in their escalating technological trade war over access to microchips.

Bae also cautioned that the geopolitical complexity between China and U.S. has increased dramatically, and called for more prudency in how investment in China should be done despite the competition between the economic superpowers.

The investment company’s assets under management is over $500 billion today, with its Asia PE fund boasting $15 billion.

“We’re not only in private equity, we’re in growth equity. We’re the largest investor in infrastructure in Asia today,” Bae said, adding that KKR has a private credit fund and platform in the region as well.

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July 9, 2023
Microsoft, Meta and others face rising drought risk to their data centers

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Drought conditions are worsening in the U.S., and that is having an outsized impact on the real estate that houses the internet.

Data centers generate massive amounts of heat through their servers because of the enormous amount of power they use. Water is the cheapest and most common method used to cool the centers.

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In just one day, the average data center could use 300,000 gallons of water to cool itself — the same water consumption as 100,000 homes, according to researchers at Virginia Tech who also estimated that one in five data centers draws water from stressed watersheds mostly in the west.

“There is, without a doubt, risk if you’re dependent on water,” said Kyle Myers, vice president of environmental health, safety & sustainability at CyrusOne, which owns and operates over 40 data centers in North America, Europe, and South America. “These data centers are set up to operate 20 years, so what is it going to look like in 2040 here, right?”

CyrusOne is formerly a REIT, but was purchased this year by investment firms KKR and Global Infrastructure Partners. When the company moved into the drought-stricken Phoenix area, it used a different, albeit more expensive method of cooling.

“That was sort of our ‘aha moment.’ where we had to make a decision. We changed our design to go to zero consumption water, so that we didn’t have that sort of risk,” said Myers.

Realizing the water risk in New Mexico, Meta, formerly known as Facebook, ran a pilot program on its Los Lunas data center to reduce relative humidity from 20% to 13%, lowering water consumption. It has since implemented this in all of its center.

But Meta’s overall water consumption is still rising steadily, with one fifth of that water last year coming from areas deemed to have “water stress,” according to its website. It does actively restore water and set a goal last year to restore more water than it consumes by 2030, starting in the west.

Microsoft has also set a goal to be “water positive” by 2030.

“The good news is we’ve been investing for years in ongoing innovation in this space so that fundamentally we can recycle almost all of the water we use in our data centers,” said Brad Smith, president of Microsoft. “In places where it rains, like the Pacific Northwest where we’re headquartered in Seattle, we collect rain from the roof. In places where it doesn’t rain like Arizona, we develop condensation techniques.”

While companies with their own data centers can do that, so-called co-location data centers that lease to multiple clients are increasingly being bought by private equity firms in search of high-growth real estate.

There are currently about ,1800 co-location data centers in the U.S., and that number is growing, as data centers are some of the hottest real estate around, offering big returns to investors. But the risk from drought is only getting worse. Just over half (50.46%) of the nation is in drought conditions, and over 60% of the lower 48 states, according to the latest reading from the U.S. Drought Monitor. That is a 9% increase from just one month ago. Much of the west and Midwest in ‘severe’ drought.

“We need to innovate our way out of the climate crisis. The better we innovate the cheaper it becomes, and the faster we’ll move to reaching these climate goals,” added Smith.

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November 15, 2022
Citadel’s billionaire CEO Ken Griffin becomes GOP $100 million midterm megadonor

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Ken Griffin, Citadel at CNBC’s Delivering Alpha, Sept. 28, 2022.

Scott Mlyn | CNBC

Citadel’s billionaire CEO, Ken Griffin, is one of Wall Street’s biggest political donors in the 2022 midterms, giving more than $100 million toward state and federal candidates across the country since April 2021, campaign finance records show.

The $50 million Griffin has donated to Republicans running in federal races alone make him the party’s single biggest individual donor from the finance industry and the third-biggest political donor to federal candidates in this election cycle, according to data tracked by campaign finance watchdog OpenSecrets.

Only Soros Fund Management founder George Soros and shipping magnate Richard Uihlein have given more to candidates running for the U.S. House or Senate. Soros has donated over $128 million to Democrats while Uihlein has given $53 million to Republicans, according to OpenSecrets.

Griffin, however, has spent another $50 million during this election cycle — which runs from Jan. 1, 2021 through the end of this year — on the failed Illinois gubernatorial campaign of Aurora, Ill., Mayor Richard Irvin, who lost in the Republican primary, according to state campaign finance records.

Citadel announced plans this summer to move its headquarters from Chicago to Miami, as the Windy City struggles to stop a rise in crime. Griffin has previously said part of his feud with Illinois Gov. J. B. Pritzker is over the Democratic leader’s record on crime. Griffin said at a DealBook conference last year that when he brought up the crime issue to Pritzker, “he took the moment to call me a liar.”

Zia Ahmed, a spokesman for Griffin, told CNBC in a statement that the Citadel CEO is aiming to “broaden the tent of the Republican Party.”

“Ken wants to elevate talented candidates and broaden the tent of the Republican Party to make it more representative of our country,” Ahmed said. “He supports leaders who will focus on education, job creation, public safety and a strong national defense so that every individual has access to the American dream.”

Democratic political operatives have taken aim at Griffin, especially as he’s tried to make an impact on elections.

The Democratic Governors Association, an outside group that backs Democrats, organized opposition research on Griffin as he was deciding who to support in the Illinois Republican primary for governor. The research, which was reviewed by CNBC, is titled “Ken Griffin Has Been Playing Kingmaker In IL Politics With No Consequences.” It’s a compilation of public documents and reporting that included a focus on Griffin’s divorces. Pritzker, who has an estimated net worth of $3.6 billion, donated $24 million to the group as Griffin moved to back Irvin, according to records filed to the IRS.

In a statement to CNBC, the Democratic governors’ group compared Griffin’s contributions to those of Charles Koch and his brother, the late David Koch. They said that Griffin deserves scrutiny due to him becoming a major donor for Republicans.

“Much like when the Koch Brothers were the Republican Party’s number one donor it was important for the public to understand how they were trying to use their money to further their own special interests,” a Democratic Governors Association spokesperson said after being asked about the opposition research. “Ken Griffin is now the largest donor in the GOP and deserves the same kind of scrutiny.”

Senate Minority Leader Mitch McConnell, R-Ky., and other GOP leaders have privately courted Griffin as one of their most important and lucrative donors this cycle, as Republicans try to take back both the U.S. House and Senate, according to people familiar with the conversations.

Democrats control the House and Senate, but by slim margins. The Senate is split 50-50 with Democrats relying on Vice President Kamala Harris to break any ties. Cook Political Report labels Senate seats held by Sens. Raphael Warnock, D-Ga., Catherine Cortez Masto, D-Nev., and Ron Johnson, R-Wis., as toss-ups. In the House, Democrats have a nine-seat majority. But the Cook report projects that 30 of the chamber’s 435 seats are up for grabs.

Data from AdImpact shows the general election fight for control of the Senate has cost over $1 billion with almost 30 days left to go until Election Day. In total, federal candidates and PACs have spent in excess of $6.4 billion on the 2022 midterms, putting them on track to be the most expensive ever.

Republican leaders are turning to Griffin to take the lead after two of the GOP party’s most influential donors have died: former executive vice president of Koch Industries David Koch at 79 in August 2019 and casino magnate Sheldon Adelson at 87 in January 2021.

CEO and chairman of casino company Las Vegas Sands Sheldon Adelson (L) listens as US President Donald Trump delivers remarks at a Keep America Great rally in Las Vegas, Nevada, on February 21, 2020.

Jim Watson | AFP | Getty Images

“He likes being a player” in politics, a Koch political advisor told CNBC when asked about Griffin’s efforts to sway the midterms. Griffin said in a 2012 interview with the Chicago Tribune that he knew David Koch and his brother Charles for “a number of years” and regularly went to the Koch network seminars, where business leaders would huddle with the group’s donors.

The Koch’s policy network has spent hundreds of millions of dollars over the past decade on campaigns.

David Koch

Carlo Allegri | Reuters

Griffin, 53, has “youth on his side and probably $35 billion,” the Koch advisor said. “He could step up but those are big shoes to fill.” Forbes estimates Griffin has a net worth of $30.5 billion.

Among Wall Street executives, the next biggest GOP donors include Blackstone CEO Steve Schwarzman with $20 million in contributions and Paul Singer, the founder of Elliott Management, who’s donated $14 million during this election cycle. Jeffrey Yass, the co-founder of Philadelphia based trading firm Susquehanna International Group, has contributed over $30 million.

McConnell and party officials this summer were expecting Griffin to cut a multimillion-dollar check to the Senate Leadership Fund, according to those familiar with McConnell’s thinking. Though McConnell doesn’t run the super PAC, which is dedicated to helping Republicans get elected to the Senate, it’s closely aligned with the senator and run by his former chief of staff, Steven Law.

Griffin donated $10 million to the PAC in two evenly split checks sent in December and March, Federal Election Commission filings show. Griffin cut another check to the PAC in the third quarter, according to a person close to the billionaire, but they wouldn’t say how much and the PAC doesn’t need to disclose its most recent fundraising records to the FEC until Oct. 15.

Griffin also recently donated to the Congressional Leadership Fund, a super PAC backing House Republican candidates, that person said, declining to say how much. FEC records show Griffin donated over $18 million to that group from Jan. 1, 2021 through June.

A representative for McConnell did not return a request for comment.

Griffin gave $5 million last year to a separate political action committee backing Florida Gov. Ron DeSantis’ 2022 reelection bid and an additional $5 million to the Republican Party of Florida in August, according to state campaign finance records.

During CNBC’s Delivering Alpha Conference, Griffin indicated that he’s become so close to DeSantis that his team told the governor that Griffin didn’t agree with DeSantis’ decision to fly two planes of Central and South American migrants to Martha’s Vineyard.

“I don’t agree with what he did,” Griffin said when asked at the conference about DeSantis shipping migrants to Florida. “I’m certain that my team’s communicated that to him,” he added. He also said he was open to becoming Treasury secretary if the country was experiencing an economic crisis. DeSantis hasn’t ruled out running for president in the upcoming 2024 election.

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October 7, 2022