The Adani contagion spreads to the UK

One thing to start: Carlyle Group has spoken to former Goldman Sachs executive Harvey Schwartz about taking over as the private equity firm’s chief executive.

And one video: Beloved British grocer Wm Morrison’s unencumbered property portfolio made it a top leveraged buyout target for some of the world’s biggest banks. DD’s Robert Smith explains how the deal ended up costing them hundreds of millions of pounds. 

In today’s newsletter:

Elara’s big bet on Adani

The Adani domino effect has officially begun.

On Thursday, our colleagues broke a story about Lord Jo Johnson. 

The former Conservative minister, former FT journalist and brother of former UK prime minister Boris Johnson has resigned as a director of Elara Capital, a London-based firm that has found itself caught up in the mess surrounding Indian tycoon Gautam Adani’s industrial empire.

Elara, an India-focused investment firm founded by Raj Bhatt, got some undesirable publicity last week when its name popped up in Hindenburg Research’s report levelling accusations of fraud and stock market manipulation at Adani Group. 

The short seller alleged — among many things — that Adani’s businesses used a web of shell entities based in Mauritius to manipulate the stock price of Adani Group’s listed companies and conceal the scale of the family’s ownership of them.

Some of those offshore vehicles, including a fund run by Elara, Hindenburg claimed, conceal their ultimate ownership through nominee directors and almost exclusively hold shares in Adani companies.

It’s little secret that Mauritius is a preferred destination for wealthy Indians to invest or park cash offshore. But the Adani debacle has thrust a long-held debate back into the spotlight over whether the often-opaque funds registered on the island nation are also used to get around Indian market regulations and tinker with share prices. 

Elara’s connections to Adani, for what it’s worth, aren’t hidden. Two Mauritius-based Elara funds — the Elara India Opportunities Fund and Vespera — have been significant investors in Adani’s publicly traded companies, according to data from S&P Global Intelligence.

And as of December, Adani groups accounted for 99 per cent of the $3bn the Elara India Opportunities Fund had invested in listed Indian companies, data from Trendlyne shows.

Elara was also one of the 10 bookrunners on Adani’s abandoned $2.4bn share sale, which, as DD explained yesterday, the Indian billionaire pulled the plug on after Hindenburg’s allegations sent the company’s shares into freefall.

Which begs the question: how did Johnson, ostensibly brilliant enough to work at the FT (including a stint in India as South Asia bureau chief) and the upper echelons of the British government, not see the signs?

This isn’t the only recent setback for Johnson. At the end of last year, he resigned from the advisory board of Bifinity, a subsidiary of crypto exchange Binance. 

Our friends at Alphaville paid a visit to Elara’s office in Marylebone and they showed a photo of Johnson to one employee who identified himself only as Ahmed. He said that he didn’t recognise the man . . . but that he looked a lot like Boris.

Kim K takes Miami on a private equity journey

Perhaps the most stunning fact gleaned from a 38-minute presentation Kim Kardashian and her business partner Jay Sammons made to US pension funds and big asset managers earlier this week was that the reality star would be punctual when it came to her new venture. 

The pair, which launched their new private equity fund Skky Partners last year, were billed as the headliners at a conference that drew the top executives of hundreds of family offices, endowments and pension plans — not to mention the legions of investors who pitch their services to the gathered lot — to Miami. 

And there, on a stage in the bowels of the Fontainebleau hotel, they said almost nothing. 

How was fundraising going and who would they like to partner with? They didn’t say; US Securities and Exchange Commission rules forbid them from doing so. What deal types would they target: companies in the consumer space, but also media, and maybe hospitality. The reality TV star-slash entrepreneur joked about a Kardashian hotel where each sister designed a floor. 

What size would their investments be? Look at Sammons’s past deals at Carlyle. He name-dropped streetwear brand Supreme, a company Carlyle had invested in, but gave little other guidance. It was the same information the world learned when Skky announced its debut in September. 

Kardashian said she would dedicate “a big percentage of my time” to Skky, and that she would be hands-on with the businesses they invest in. But don’t expect her to simply shill for the brands Skky backs, she added.

One person in the audience audibly guffawed when Kardashian spoke about the need for authenticity. She used the word “journey” at least a half dozen times, by DD’s count. 

“This was something that I really thought through,” she said. “I definitely had to say no to a lot of [other] projects.”

The only question that the moderator offered to the crowd came from his daughter (who doesn’t love a little nepotism!). She asked what advice Kardashian had for other women starting out their careers in business. It was an odd choice given the standing-room-only space was mostly filled with people who have been in the industry for decades.

The showing from Skky was a disappointment to be sure. 

But at least Kardashian was on time. That’s not always the case, as any attendee of Paris, Milan or New York fashion week can attest. 

A secret weapon in the scramble to get deals done

Corporate and private equity buyers have been hamstrung for nearly a year by soaring interest rates and an inability to raise large financing packages to get takeovers done. 

But a wave of large deals over the past 12 months underscores that bankers have found creative ways to sidestep frozen credit markets, DD’s Antoine Gara and Eric Platt report.

Acquirers have been structuring deals to keep the existing borrowings of target companies on the books, lowering overall financing needs and keeping low-cost debts in place.

These arrangements were a hallmark of several big deals last year, including Kroger’s proposed $24.6bn takeover of rival grocer Albertsons; Brookfield’s $7.9bn sale of Westinghouse; and private equity firm BDT Capital’s near-$4bn purchase of grill maker Weber.

“Buyers in this market are seeking to keep the existing debt in place whenever possible,” said a senior adviser involved in one of the largest such deals of last year.

Among the approaches are so-called “portable capital structures”, which allow sales of large stakes in companies, or even complete takeovers, to be executed with just enough cash to pay for a business’s equity. Buyers can avoid having to raise extra money to pay off the debts of their targets, as is typically the case.

In the case of the Albertsons deal, most of its lower-cost debt will transfer to Kroger because it’s highly rated, minimising the overall financing package. 

Many deals have also been structured to avoid triggering “change of control” provisions that force buyers to repay all outstanding debts and implement new financing.

In its sale of Westinghouse, Brookfield sold a 49 per cent stake to uranium miner Cameco. However, since another unit of Brookfield purchased the remaining 51 per cent controlling stake, the transaction didn’t trigger a change of control.

So-called secondary transactions are another type of arrangement where new investors buy a minority stake, avoiding a change in control. 

Bain Capital’s sale of a large minority stake in warehouse operator Imperial Dade to Advent International, and Partners Group’s sale of a 50 per cent stake in pipeline services company USIC to Kohlberg & Co all kept existing debt in place. 

“Most capital structures that were executed prior to last year’s [market] sell-off offer significant value to a buyer,” said Jeff Greenip, global head of financial sponsors at Jefferies.

Job moves

• Sony has promoted its chief financial officer Hiroki Totoki to president and chief operating officer, in a move seen as lining him up to be the future head of the entertainment and consumer electronics group.

• Bridgewater has named Karen Karniol-Tambour as its third co-chief investment officer alongside Greg Jensen and Bob Prince as the hedge fund reorganises its leadership after its billionaire founder Ray Dalio ceased control over the firm.

• The Federal Reserve Bank of New York has named Roberto Perli, currently head of global policy at Piper Sandler, as manager of the system open market account (SOMA). Julie Remache, the Fed’s head of market and portfolio analysis, has been selected as his deputy.

• Jonathan Boyers, the former head of KPMG’s global finance practice, is joining US advisory firm Alvarez & Marsal to launch a UK M&A business.

• Private equity firm Siris Capital has promoted Tyler Sipprelle to partner, based in New York.

Smart reads

High roller BlueCrest’s Michael Platt has made eye-watering gains placing highly leveraged bets with his own cash. Bloomberg digs into the billionaire’s lucrative but risky methods, which have sometimes flirted with disaster.

Keeping up with the Griffins Citadel’s Ken Griffin is looking to relocate a historic home on land the billionaire purchased in Miami for more than $100mn last year. Local preservationists aren’t happy, the Wall Street Journal reports.

More money, more problems Shell is grappling with an embarrassment of riches as its profits boom, debts dwindle and scrutiny intensifies on how much it will deploy towards green investments versus how much it will return to shareholders, the FT’s Helen Thomas writes.

News round-up

KKR offers to buy stake in Telecom Italia’s fixed-line business (FT)

Blackstone to become No. 1 in CLOs with AIG’s $3.6bn deal (Bloomberg)

Deutsche Bank delays buyback decision as annual profits hit 15-year high (FT + Lex)

Shell profits more than double to record $40bn (FT)

New York property tycoon to give worn-out offices ‘back to the bank’ (FT)

Grupo Mexico lines up debt for $7bn Banamex offer (Bloomberg)