Offices, Dreams, EFG Hermes: Business news in brief, Tuesday 7 March

London commercial property prices could slump 20 per cent; Record results for bed retailer; bank to invest £470m in British solar power

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Prime London office values may fall 20% this year on Brexit

Central London office values will probably fall as much as 20 per cent this year as the economy slows and investors are deterred by uncertainty in the face of the UK’s exit from Europe and increased business rates, according to Deutsche Bank’s asset management unit.

Spending on properties in the capital slowed sharply before and after the June Brexit referendum as investors and occupiers shunned the market, Simon Wallace, head of research for Deutsche Asset Management Europe, wrote in a report Monday. He predicts the trend will continue this year, with values declining by 15 per cent to 20 per cent.

“The anticipated economic slowdown, in light of rising inflation impacting private consumption, will likely have a material impact on real estate occupier and investment demand throughout the remainder of this year,” Wallace wrote. “Furthermore, the future relationship between the UK and the European Union remains uncertain, weighing on business sentiment, particularly now that access to the single market is now in doubt.”

Investment in London offices fell 17 per cent last year to £15.9bn, according to research compiled by Savills. Vacancy rates in the City of London, the capital’s main financial district, climbed in the second half, Savills said. International businesses may move as many as 100,000 jobs out of London within two years of when the UK officially starts the process to leave the EU because of concerns that businesses will lose access to the single market passporting rights, according to Jefferies Group LLB analyst Mike Prew.


Record results for bed retailer Dreams as owner looks for buyer

Bed retailer Dreams has reported a record set of results as its private equity owner continues to search for a buyer for the firm. The company, which is owned by Sun Capital Partners, saw sales rise 20 per cent to £280m and pre-tax profit grow 136 per cent to £32m last year.

Dreams linked the growth to investment into store refurbishments and its Oldbury factory, where it manufactures over 200,000 mattresses and over 160,000 beds annually. The 181-store chain collapsed into administration in 2013 before being bought by Sun, which has embarked on a successful turnaround in the face of rising online competition.

Sun is working with bankers at Rothschild to hunt for a buyer for Dreams, with an asking price set at around £400m. It is understood several US private equity firms have expressed early interest in the brand, although a sale is not likely to be agreed until later this year.

Speaking alongside the results, chief executive Mike Logue said he is undeterred by a potential slowdown in consumer spending. He said: “2016 was a pivotal year for Dreams, building on the last three years of growth.

“Whilst potential future challenges to the UK consumer economy are well documented, we are confident that we will continue to successfully execute our strategy and that it will be another year of significant progress for Dreams.”


EFG Hermes expects to seal £470m deal to buy UK solar assets by June

EFG Hermes expects a deal for its renewable energy platform Vortex to buy a portfolio of solar power assets in Britain for £470m from Sun Edison's Terraforma to close in May or June, a senior executive said on Monday.

The deal formed part of the bank's plan to grow Vortex's assets to 2 gigawatts in the next few years from 820 megawatts currently, Karim Moussa, chief executive of the investment bank at EFG Hermes, told Reuters.

The bank said in January it had agreed to buy the portfolio from Sun Edison. It includes 24 solar parks and has a combined 365 megawatts of power and an estimated useful life of around three decades, it said at the time.

The bank would look to add to the portfolio after a period of six to 12 months, said Moussa, who is also head of asset management and private equity at the Egyptian bank.

“For the six to 12 months we will be looking to consolidate our assets rather than make another investment,” he said. “Our last investment was £470 so it’s a lot to digest for us.

Malaysian utility firm Tenaga Nasional Berhad is funding half of the £170m equity portion of the transaction. The remaining 50 per cent will be underwritten by EFG Hermes which plans on eventually holding 5 per cent of the equity, consistent with previous transactions undertaken by Vortex.


New Exxon chief enters the market, cautiously 

Darren Woods, the new chief executive of Exxon Mobil, is a veteran of the more cautious refining side of the oil business who is likely to focus relentlessly on controlling costs. 

Woods may take a more hesitant approach to deal-making than his predecessor, Rex Tillerson, who hailed from the more swashbuckling exploration side and famously did business with Russian President Vladimir Putin. 

It's unclear whether Mr Woods will be any more successful than Mr Tillerson in achieving peace with environmental critics. The early signals are mixed. 

Woods was little known outside the company even after emerging as Tillerson's heir apparent. Two months after taking over, Woods is making his first public rounds, meeting with investors last week and speaking on Monday at a major energy conference in Houston. 

Woods, 52, joined Exxon in 1992 and has spent most of his career in chemicals and refining, the so-called downstream part of the business. 

“There is a different psychology in downstream than there is in oil and gas wildcatting,” said Cowen analyst Sam Margolin. “Downstream is very much about managing costs and trying to get the most out of the least effort.” 

Mr Tillerson left Mr Woods plenty to work on. Exxon Mobil earned a record $45.2bn in 2008 and nearly matched that in 2012. With oil prices slumping, profit has tumbled, falling to $7.8bn last year — the company's smallest gain since 1998. 


US top court rejects ex-UBS trader's challenge to Libor indictment

The US Supreme Court on Monday rejected a bid by a former trader with Swiss global financial services company UBS to dismiss a criminal indictment filed by US prosecutors over his alleged role in Libor benchmark interest rate manipulation.

The court's decision not to hear the appeal brought by Swiss citizen Roger Darin means the 2012 charges will not be thrown out, leaving in place a March 2016 ruling by the New York-based 2nd US Circuit Court of Appeals. Mr Darin has remained in his home country, meaning he cannot be arrested. Mr Darin has never appeared in US court, and Switzerland does not extradite its citizens.

Libor, or the London interbank offered rate, is a short-term rate that underpins hundreds of trillions of dollars of financial products from mortgages to credit card loans.

According to the US Justice Department, Mr Darin was primarily focused on trading yen-dominated short-term interest rate derivative products. While at UBS, he worked in Singapore, Tokyo and Zurich.

The criminal complaint said Mr Darin conspired with co-worker Tom Hayes to commit wire fraud by agreeing to submit yen Libor opinions to benefit Hayes' positions.

Hayes, who was prosecuted in Britain, is serving an 11-year prison sentence after being found guilty of conspiring to rig Libor benchmark interest rates.


Funds expect Saudi Aramco to be valued around $1-1.5 trillion

Fund managers and institutional investors expect oil giant Saudi Aramco to have a market capitalisation of $1 trillion (£816bn) to $1.5 trillion (£1.22 trillion) when it sells shares to the public next year, a survey by regional investment bank EFG Hermes showed on Monday.

The valuation of Aramco, the world's biggest oil firm, has been the focus of intense speculation since the Saudi government last year announced plans to sell up to 5 per cent of it and list the shares in Riyadh and at least one foreign stock exchange.

Deputy Crown Prince Mohammed bin Salman, who oversees the kingdom's economic policy, has said the sale is expected to value Aramco at $2 trillion or more, making it by the far the world's largest initial public offer.

The EFG Hermes survey, conducted at an investment conference organised by the bank in Dubai, found 39 per cent of respondents predicted the market would value Aramco at between $1 trillion and $1.5 trillion.

Thirty-six per cent expect a valuation below $1 trillion, and 24 per cent a figure above $1.5 trillion, the bank said.

EFG Hermes said it polled 510 international fund managers and investors from 260 institutions at the conference, as well as 147 other companies. 


UK new car sales dip in February, pickup seen in March 

British new car registrations fell by an annual 0.3 per cent to 83,115 units in February, driven down by weaker demand from individuals and companies, but sales are expected to pick up in March, a car industry body said on Monday.

Private demand fell 4.4 per cent to 36,018 units and business registrations declined 5.3 per cent to 1,398 units. Fleet sales, typically to car rentals firms, rose 3.3 percent to 45,699 cars, the Society of Motor Manufacturers and Traders said.

Analysts predict the British car market, Europe's second largest, will shrink by about 5 per cent in 2017 after two years of record demand, due to the Brexit-related fall in the pound pushing up the price of some models and wider economic uncertainty linked to Britain's split from the European Union.

Over the first two months of the year, registrations were up 1.8 percent at 257,679, SMMT said.

February is one of the quietest months of the year for the car market and SMMT chief executive Mike Hawes said he expected a bounce in March with the launch of 2017 number plates.


Fitbit tracks your steps; now it wants to chart your Zs, too 

Fitbit, whose devices encourage people to walk 10,000 steps each day, now wants to put them to sleep as well. 

The company said data collected by the millions of Fitbit trackers in use show that people are averaging less than seven hours of sleep a night, the amount recommended by the Centers for Disease Control and Prevention. And the Zs people do get aren't necessarily the right kind of sleep. 

So Fitbit will offer deeper sleep tracking on some of its devices. Fitbits already track how much sleep people get and use sensors to measure periods of being awake or restless while in bed. Now, using a built-in heart-rate monitor, the devices will break sleep into clinically defined stages. 

For example, about a quarter of sleep is supposed to consist of the rapid-eye movement, or REM, phase. This is when dreams occur, and scientists believe it's important for improving memory. Fitbit says devices with this new Sleep Stages feature will be able to measure whether you get enough REM sleep. 


India's Tata Steel says in 'constructive discussions' with ThyssenKrupp

Tata Steel is still in talks with Germany's ThyssenKrupp about a potential merger of their European steel assets, the Indian company said on Monday.

The statement was in response to reports in the British media on Sunday that India's largest steel company might be in the process of calling off a potential deal with the Germans.

The company is in “constructive discussions” with ThyssenKrupp, said Tata Steel. “However, until a definitive agreement is reached, there can be no assurances that these discussions will result in a transaction.”

Tata Steel began talks with ThyssenKrupp last July after it called off the sale of its Port Talbot works in Wales because of uncertainty caused by the Brexit vote and its burgeoning pension liabilities.

A deal would cut costs and reduce overcapacity but Thyssenkrupp chief executive Heinrich Hiesinger warned in January that it would take time and may yet fail.

Thyssenkrupp has looked at the option of splitting its European steel business into a separate company that could be floated if a merger does fall through, German weekly WirtschftsWoche reported last week.