Exclusive: Brazil’s Embraer draws foreign interest after Boeing rift

© Reuters. FILE PHOTO: The logo of Brazilian planemaker Embraer SA is seen at the company’s headquarters in Sao Jose dos Campos

By Marcelo Rochabrun, Sanjeev Miglani and Tim Hepher

NEW DELHI/PARIS (Reuters) – Aircraft makers are circling Brazil’s Embraer (SA:) weeks after Boeing (N:) ditched plans for a historic commercial aviation tie-up, people familiar with the matter said.

Boeing axed plans to buy 80% of Embraer’s commercial unit in April, ending a planned move into regional jets that mirrored rival Airbus’ (PA:) purchase in 2018 of a competing model developed by Canada’s Bombardier (OTC:).

China’s state-owned COMAC planemaker has voiced informal interest in co-operation with the world’s third-largest jetmaker, two of the people said. Russian aircraft manufacturer Irkut has also explored the issue, two others said, though the company denied any current interest.

India, another rising aerospace power focusing mainly on defence but with a huge civil market, has informally conveyed interest at government level while still studying the matter, sources said.

That places Embraer’s fate at the centre of the so-called BRIC group of nations, with each honing aerospace strategies as Airbus (PA:) and Boeing (N:) reel from the coronavirus crisis.

China’s COMAC and the Indian and Brazilian governments did not reply to requests for comment.

An Irkut spokeswoman denied interest in Embraer. The Brazilian planemaker declined to comment.

Both COMAC and Irkut are developing aircraft to compete directly with Airbus and Boeing in the busy 150-seat market. China’s plans are considered the most advanced.

A deal with Embraer would add engineering resources and global support but also clash with smaller and commercially less successful regional jets developed by both countries.

A Russian industry source said Irkut’s ultimate parent Rostec is focusing on its existing MS-21, designed to compete with Airbus and Boeing, and Superjet regional aircraft.

Although it has invested heavily in parts and maintenance, India is the least visible suitor in commercial aerospace with no active project other than a 14-seater jet dubbed SARAS.

But India has a potential requirement for developing an 80-90-seat regional jet – a category occupied by Embraer – for Prime Minister Narendra Modi’s signature UDAN project to expand air services to small towns.

Embraer is also seen as a one-off chance to rebalance India’s aerospace ambitions against strategic rival China.

R.K. Tyagi, ex-chairman of state-run Hindustan Aeronautics, said he had written to the government urging it to move fast.

“Any country with ambitions will look at this. I feel this is a good opportunity. Valuation is down and if we get control of a modern, proven aircraft programme, it is a big jump.”

Modi administration officials and a government thinktank are preparing a strategy paper on Embraer but no formal approach has yet been made, an official aware of the plans said.

“The situation at Embraer is fairly bad, share value is drastically eroded; there would be many countries showing interest in this including us,” the official said.

Although Embraer says it can rebound, aircraft buyers have said it lacks deep enough pockets to counter Airbus’s powerful commercial backing for the Canadian-designed A220.


Embraer’s jetliner boss said on May 1 the company had not initiated talks with anyone, but that he could not “legislate for the inbound calls that could come.”

Embraer has said it will consider its next moves carefully. A major headache for the company is a valuation down 64% this year, underperforming the crisis-hit aviation sector.

Embraer may be reluctant to yield to bargain-hunters, but with aviation in shock globally from the pandemic, its options remain limited even though it is the only available full-scale manufacturer, Teal Group analyst Richard Aboulafia said.

“Embraer is a fantastic commercial prime (contractor) but very few people are trying to buy a commercial prime,” he said.

Privatised in the 1990s, Embraer remains close to Brazil’s government, which can veto strategic decisions.

Any negotiation with China, Russia or India would require a slow and methodical process to put everyone at ease, said Oliver Stuenkel, a professor at the Getulio Vargas Foundation and expert on the BRICS group that since 2010 includes South Africa.

Tensions with China have risen since Brazil’s right-wing President Jair Bolsonaro took over last year, while Brazil has deepened ties with India in various sectors.

Stuenkel does not expect resistance to China, Russia or India from Brazil’s politicians. But he said Bolsonaro might not want to be linked publicly to any talks with China and would likely enlist his vice-president, retired general Hamilton Mourao, who has already backed Embraer having a Chinese partner.

“Bolsonaro does not want to be seen as the one who sold Embraer to the Chinese,” Stuenkel said.

Other industry analysts cautioned that while China has discussed buying major aerospace assets in the past, including the Canadian jet that eventually went to Airbus and became the A220, but has completed relatively few acquisitions.

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Exclusive: Renewable firms in Mexico must contribute to grid backup

© Reuters. Federal Commission of Electricity (CFE) Director Manuel Bartlett attends a news conference at the National Palace in Mexico City

By David Alire Garcia

MEXICO CITY (Reuters) – Private renewable energy firms in Mexico should pay for part of the baseload power underpinning the flow of electricity on the grid, the head of the state power company said on Friday, as a dispute on the future of the local industry roils the market.

Manuel Bartlett, director of the Comision Federal de Electricidad, or CFE, told Reuters that his company nevertheless favors more clean energy and will seek to further reduce its use of fuel oil as a major source of power generation.

“Wind and photovoltaic (plants) don’t pay the CFE for the backup,” Bartlett said in an interview, referring to the cost of power generation from fossil fuels to ensure a uninterrupted flow to the grid. “And I can’t allow that.”

Last month, Mexico’s power grid regulator CENACE issued a ruling supported by Bartlett that prevented several dozen new renewable energy plants from connecting to the network.

CENACE cited the national crisis over the coronavirus pandemic as a justification, arguing that the intermittent nature of wind and solar power is not consistent with ensuring constant electricity supply.

The decision prompted letters of complaint to the energy ministry by the European Union and Canada, whose governments were upset that their companies had been shut out.

Mexican business associations also criticized the move, saying it puts more than $6 billion in renewable power plants scheduled to begin operating this year or next in limbo.

In a provisional ruling this week, a judge ordered CENACE to back down and allow the renewable firms to continue with tests needed to bring plants online.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Exclusive: Nasdaq to tighten listing rules, restricting Chinese IPOs

© Reuters. People work in the client experience space at the Nasdaq Market site in New York


By Echo Wang

NEW YORK (Reuters) – Nasdaq Inc (O:) is set to unveil new restrictions on initial public offerings (IPOs), a move that will make it more difficult for some Chinese companies to debut on its stock exchange, people familiar with the matter said on Monday.

While Nasdaq will not cite Chinese companies specifically in the changes, the move is being driven largely by concerns about some of the Chinese IPO hopefuls’ lack of accounting transparency and close ties to powerful insiders, the sources said.

At a time of escalating tensions between the United States and China over trade, technology and the spread of the novel coronavirus, Nasdaq’s curbs on small Chinese IPOs represent the latest flashpoint in the financial relationship between the world’s two largest economies.

Nasdaq also unveiled some restrictions on listings last year, seeking to curb IPOs by small Chinese companies. Their shares often trade thinly because most stay in the hands of a few insiders. Their low liquidity makes them unattractive to many large institutional investors, to whom Nasdaq is seeking to cater.

The new tightening of the listing standards reflects the bourse operator’s ongoing concerns about some Chinese companies seeking U.S. IPOs. Last month, Luckin Coffee (O:), which had a U.S. IPO in early 2019, announced that an internal investigation had shown its chief operating officer and other employees fabricated sales deals.

The new rules will require companies from some countries, including China, to raise $25 million in their IPO or, alternatively, at least a quarter of their post-listing market capitalization, the sources said.

This is the first time Nasdaq has put a minimum value on the size of IPOs. The change would have prevented several Chinese companies currently listed on the Nasdaq from going public. Out of 155 Chinese companies that listed on Nasdaq since 2000, 40 grossed IPO proceeds below $25 million, according to Refinitiv data.

Small Chinese firms pursue these IPOs because they allow their founders and backers to cash out, rewarding them with U.S. dollars they cannot easily access because of China’s capital controls. The companies also use their Nasdaq-listed status to convince lenders in China to fund them and often get subsidies from Chinese local authorities for becoming publicly traded.

The proposed rules will also require auditing firms to ensure that their international franchises comply with global standards, the sources said. Nasdaq will also inspect the auditing of small U.S. firms that audit the accounts of Chinese IPO hopefuls, the sources added.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Exclusive: U.S. Justice Dept. subpoenas Wall Street banks for small business loans info

© Reuters. FILE PHOTO: The U.S. Department of Justice building is bathed in morning light at sunrise in Washington

By Koh Gui Qing and Pete Schroeder

WASHINGTON (Reuters) – The U.S. Justice Department has sent grand jury subpoenas to big banks seeking records as part of a broader investigation into potential abuse of a $660 billion emergency loan program to help small businesses hurt by the novel coronavirus, two people with knowledge of the matter told Reuters.

The previously unreported subpoenas issued by the department’s Washington fraud division do not necessarily indicate wrongdoing on the part of the banks, but will compound growing worries among lenders that they risk being swept up in a federal crackdown on Paycheck Protection Program fraud.      

The program allows small businesses hurt by the pandemic to apply with lenders for a government-backed loan which can be forgiven provided at least 75% is spent on payroll costs.

Policymakers worry that the huge pot of cash has been a magnet for fraudsters, and U.S. Treasury Secretary Steven Mnuchin has warned that companies found to have lied to secure loans could face prosecution. The Justice Department opened a probe into the program last month and has already brought criminal charges against borrowers it alleges lied about the state of their businesses and numbers of employees.

Due to their critical role in processing the loans, banks have reams of information that could point to other fraud.

Grand jury subpoenas allow prosecutors to get their hands on a range of private financial and personal records and to hear witness testimony as part of a criminal investigation.

Recipients are not necessarily the subject of a probe and can be a cooperating witness.

“Right now, we don’t think banks are 100% the target,” said one of the sources, but added: “There are concerns that there will be a boomerang effect six months down the road on banks that they didn’t do enough.”

A third person with direct knowledge of industry interactions with the Justice Department said the agency wanted to scan banks’ records for possible wrongdoing by borrowers.

A Justice Department spokesman declined to comment.

The first two sources said major banks had received the subpoenas, but did not provide names. Industry data shows JPMorgan Chase (NYSE:) & Co, Citigroup Inc (NYSE:), Bank of America Corp (NYSE:) and Wells Fargo (NYSE:) & Co were among the biggest banks to participate in the program.

The banks all declined to comment on Friday.

Wells Fargo said in a regulatory filing this month that it had received “formal and informal inquiries” from federal agencies regarding PPP loans, but did not elaborate.


As the government raced to launch PPP in April, bank trade groups raised concerns with the Treasury and the Small Business Administration, which jointly administer the program, that the rush to get the funds to businesses in just days would expose them to too much legal risk.

The agencies subsequently agreed that lenders could rely on borrower certifications and specified documents to determine their eligibility and use of the loans. Banks would be “held harmless” if borrowers broke the rules or lied.

However, that pledge would not preclude the Justice Department from pursuing banks if the agency found evidence or identified patterns that suggested loan officers facilitated fraud, or wilfully ignored it, legal experts said.

In addition, the program still requires banks to conduct anti-money laundering checks which could have tripped some lenders up, said lawyers.

The third source said Wall Street banks are also worried that a Democratic administration would rip up their agreement with the current administration and launch a crackdown on lenders if they win the presidential election on Nov. 3.

Joe Biden, the former Democratic vice president expected to challenge Trump for the presidency, has said a comprehensive review of coronavirus stimulus relief will be a top priority.

Lenders are already in the crosshairs of Democrats in Congress, who have also asked for data on the loans, as have attorney generals in New York and Massachusetts.

(Writing and additional reporting by Michelle Price; Additional reporting by Imani Moise and Elizabeth Dilts in New York; Editing by Lauren LaCapra and Daniel Wallis)

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Exclusive: Nissan sees bigger role for U.S., China markets in global car sales

© Reuters. FILE PHOTO: A Nissan logo is pictured at Brussels Motor Show

By Naomi Tajitsu and Maki Shiraki

TOKYO (Reuters) – Nissan (OTC:) Motor Co (T:) expects equal contributions to global car sales from China, the United States and elsewhere in coming years as the struggling Japanese carmaker strategises to recover profitability, two people with knowledge of the issue said.

Nissan aims to grow contributions from its biggest markets, China and the United States, to about a third each from just over a quarter now, while the share of other regions, including Brazil, Europe, Japan and Russia, will ease slightly to a third, from about 45% in total now, the sources said.

The comments offer the first glimpse of how the automaker’s global sales breakdown could look in its recovery strategy, set to be unveiled on May 28.

Under the plan, Nissan will aim to bolster cooperation with partners Renault SA (PA:) and Mitsubishi Motors Corp (T:) to reverse losses and spruce up a brand dented from years of chasing market share.

The steps will focus on salvaging profitability in the United States and “stopping the bleeding” in Europe, said one of the sources, who spoke to Reuters on condition of anonymity, as they were not authorised to speak with media.

“Eventually we see roughly one-third (of sales) in the United States, one-third in China, and one-third in other regions,” the source added.

“There are many newer markets we can continue to grow, like Brazil, Russia and south Asia,” he said, adding, “If we work well with our partners we can achieve volume growth and profitability.”

Nissan declined immediate comment on its future sales outlook.

In April, Reuters reported that Nissan’s latest recovery plan was likely to assume its annual sales target would hover around 5 million units, down from 6 million in the previous recovery plan announced in July.

Nissan’s global sales plunged to a 9-year low of 4.8 million units in the year ended March, when the coronavirus worsened its slump in sales.

Sources have told Reuters a downsizing plan envisions closing at least 14 assembly lines through 2021, leaving annual production capacity of about 5.5 million units.

An expected annual operating loss of around 45 billion yen in the year ended March is cranking up pressure on the company to scale back an aggressive expansion plan pursued by ousted leader Carlos Ghosn.

A key pillar of Nissan’s “operational performance plan” will be to consolidate production, procurement and development with Renault in Europe, the French automaker’s home market, and Mitsubishi Motors in southeast Asia, where the smaller Japanese automaker has a stronger presence.

Nissan plans to reduce its manufacturing presence in Europe and is considering closing its plant in the Spanish city of Barcelona, sources have told Reuters, with one saying it was also assessing the prospect of Renault building cars at Nissan’s massive plant in Sunderland, England.

“My view is that we will be left with more integration of Sunderland into the general European industrial scheme,” the person said, while acknowledging such moves would hinge on Brexit trade pacts.

Nissan’s May plan will not include consideration of any outside investment or government-backed support, he added.

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