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A Cautionary Tale in Cyprus

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A paradise for European tourists, Cyprus has been a never-ending nightmare for depositors and bondholders of local financial institutions. For quite some time, before the island’s financial crisis, Cyprus has marketed itself as an offshore financial center, aka tax haven. Between 2004 and 2010, Cyprus banks grew to 9x gross domestic product, a trait similar to other island banking nations. Scores of international investors placed money into Cyprus bank deposits and purchased securities. Unfortunately, in 2012, Greece defaulted on their bonds; many of these Cypriot financial institutions were major holders of Greek debt, in particular, Laiki Bank and Bank of Cyprus.

The financial results were devastating, with an estimated loss of €4 billion from the Greek debt restructuring. Acting fast, the Cypriot government wanted to raise debt to stabilize their financial system; however, ratings agencies like Moody’s and Standard and Poor’s downgraded Cyprus’s sovereign debt to junk, eliminating the hope of raising capital from debt markets. The troika, commonly known as the group consisting of the European Commission, European Central Bank and International Monetary Fund, agreed to provide Cyprus with €10 billion in funds.

Depositors

However, after going back and forth, the deal seeped out that Laiki Bank would be put down. Insured deposits up to €100,000 and other assets were moved to the Bank of Cyprus. Deposits over €100,000 were effectively confiscated. Deposits over €100,000 in the Bank of Cyprus were subject to a levy that was estimated to be as high as 47.5%. Furthermore, there were capital controls put in place to restrict withdrawals. Funds over €5,000 were frozen.

Bondholders

The bondholders, many Greek investors and other foreign allocators, were negatively affected. In July 2013, the Bank of Cyprus announced that holders of convertible bonds and various types of securities faced conversion to Class D bank shares – a conversion rate of €1 nominal amount for each €1 in principal amount of such subordinated debt claims. To make things worse, the nominal value of Class D shares were reduced to 1/100th of their original value. Foreign investors were composed of the majority of depositors in the two troubled banks. In 2014, private equity firm W.L. Ross, led by billionaire investor Wilbur Ross, invested about €400 million in Bank of Cyprus, getting 19% ownership.

Next Steps

A number of Greek investors, around 100 investors, in July 2014 filed a notice of dispute against the Republic of Cyprus for losses arising from Cyprus’ financial crisis and the subsequent March 2013 bailout of the country. These investors were mostly depositors and bondholders of Laiki Bank and Bank of Cyprus. Sovereign funds that are invested in the bank and have deposits have lost capital. For these depositors and bondholders, the losses were well over €50 million. Grant & Eisenhofer, Kessler Topaz Meltzer & Check and Kyros Law, along with public international law firm Volterra Fietta, have filed the notice of dispute as a group claim on behalf of the Greek investors to recover their losses. For example, Grant & Eisenhofer is representing an institutional in Luxembourg to recover losses.

Temasek Rides with Google on Go-Jek

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Singapore’s Temasek Holdings has reportedly joined forces with Google LLC and Chinese on-demand service provider Meituan-Dianping as part of a US$ 1.2 billion fundraising effort for Indonesian ride-hailing startup Go-Jek that has put regional rivals like Uber and Singapore-based Grab on notice.

Screen Shot Go-Jek, January 19, 2018

Although exact figures for individual stakes have so far been kept secret, the new infusion of capital puts Go-Jek, incorporated as PT Aplikasi Karya Anak Bangsa, at a valuation of roughly US$ 4 billion. Samsung Venture Investment Corporation also participated in funding, as well as existing private equity investors KKR & Co. LP and Warburg Pincus LLC.

Google’s direct involvement in Go-Jek’s growth – rather than through its Google Ventures unit – highlights its faith in the latent potential of ride-sharing services – and the tech-enabled consumer services sector as a whole – in Southeast Asia. Home to more than 640 million potential customers, the region was identified as the fastest growing emerging market for e-commerce globally in an industry report published jointly by Google and Temasek last December. According to data compiled by the internet-giant and the Singaporean sovereign wealth fund, ride-sharing in Southeast Asia is expected to grow into a US$ 20.1 billion industry by 2025, compared to US$ 5.1 billion in 2017.

2011 Origin Story

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Temasek Leads Series B Round for Chinese Robo Startup Rokid

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Rokid Corporation Limited, a Chinese robotics startup that specializes in smart devices assisted by artificial intelligence (AI), announced the closing of a Series B extension round through its WeChat account on January 18, 2018. The capital-raising effort was led by Singapore’s Temasek Holdings, with additional contributions from Credit Suisse Group, China Development Bank’s overseas investment arm CDIB Capital International, and existing investor IDG Capital. Although Rokid did not disclose the size or terms of the deal in its announcement, the technology company reportedly secured US$ 100 million in funding.

Founded in 2014 by chief executive Mingming Zhu and chief financial officer Eric Wong, Rokid’s core products consist of its smart speakers, the Rokid Pebble and Alien, as well as the newly debuted Rokid Glass augmented reality spectacles. The company’s most exciting offering, however, is its Full Stack Open Platform, a collaborative effort made in partnership with Alibaba that gives third-party developers backdoor access Rokid’s software suite and hardware integration and will – it hopes – help give its offerings the accessibility and recognition they need to thrive outside its home market of China.

Rokid is particularly keen on bringing its products to the U.S., where it believes it can challenge Google and Amazon’s dominance in the smart home arena. Amazon makes the Amazon Echo, while Google has Google Home.

The Series B

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SWFI First Read, January 19, 2018

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RDIF Portfolio Company PhosAgro Raises Bond Issue

PhosAgro is a portfolio company of the Russian Direct Investment Fund (RDIF). The company price out a US$ 500 million 5.25-year Eurobond issue that has a coupon of 3.949%.

Alison Swonnell Named Global Head of Institutional Marketing at Fidelity International

Alison Swonnell was hired on as Global Head of Institutional Marketing at Fidelity International. She will be based in London and report to Chuch McKenzie, the firm’s global head of institutional clients. Before Fidelity, Swonnell was Director of Fund Operations for LCM Partners, an alternative investment management firm.

NY Governor Cuomo Seeks to Treat Carried Interest as Ordinary Income for State Taxes

On January 18, 2018, New York Governor Andrew Cuomo revealed he had submitted a bill to the New York State Legislature that seeks to treat carried interest as ordinary income rather than capital gains in regard to state taxes. Governor Cuomo in his press release said that the federal carried interest tax provision costs New York roughly US$ 100 million per year.

William Bain – Bain Founder Passes Away

Dated January 18, 2018, William Bain Jr. passed away at his home in Naples, Florida at the age of 80. Bain started at the Boston Consulting Group and left in 1973 to form Boston-based Bain & Co. By 1984, Bain formed Bain Capital alongside a number of colleagues including former 2012 Republican presidential nominee Mitt Romney. In a statement to the Boston Globe, Romney said, ” It’s hard for me to imagine my life and career without Bill Bain’s mentoring.”

Prostar Capital Gets Controlling Stake in Socar Aurora Fujairah Terminal

Prostar Capital now has a 90% control stake in Socar Aurora Fujairah Terminal FZC by purchasing 100% of the shares of Socar Aurora Terminals S.A. The Prostar Capital entities investing in the asset are Prostar Asia-Pacific Energy Infrastructure Fund and a co-investment fund managed by Prostar Capital for a large U.S. state pension plan. The storage terminals acquired in the Port of Fujairah in the United Arab Emirates.

Socar Aurora Fujairah Terminal FZC is a joint venture between State Oil Company of Azerbaijan Republic (SOCAR), Swiss-based commodity trader AURORA Progress, and the Government of Fujairah.

Prostar Capital started buying the terminal back in 2013 at 18.6%. The private equity firm eventually moved its ownership up to 40% on August 14, 2015.

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