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Walmart Delivers Big Blow against Amazon with Flipkart Takeover

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Retail giant Walmart delivered a major blow against Amazon in the fight for India’s rapidly-growing e-commerce market of some 1.3 billion customers with the approval of a US$ 16 billion bid for a majority stake in Flipkart, the subcontinent’s largest online operator by sales volume. In what is thought to be the single largest foreign direct investment in Indian history, Flipkart’s board has approved an agreement to sell 77% of the company to the world’s largest retailer at a valuation of roughly US$ 20 billion. Google parent company Alphabet Inc. – earlier reported to be picking up a 15% stake for US$ 3 billion – has said negotiations are ongoing as to whether it will join Walmart as a co-investor.

If completed, the acquisition will grant Walmart access to some 32% of India’s e-commerce sector gained by Flipkart since its founding in 2007 by former Amazonians Sachin and Binny Bansal, who share a mutual interest with the Arkansas-based mega-retailer in maintaining dominance on the subcontinent over their former employer and shared rival. In addition to a US$ 2 billion infusion of new equity, Walmart brings a treasure trove of experience in logistics and marketing that will allow Flipkart to shore up its overhead costs and expand its portfolio into grocery sales.

Amazon has committed approximately US$ 5.5 billion towards aggressively expanding its Indian operations since arriving on the scene in 2013, capturing some 31% of the market and positioning itself to overtake Flipkart as the undisputed local leader of online retail. With Flipkart’s pact with Walmart sealed, however, any opportunity to assume the lead in India is unlikely to materialize, forcing Amazon CEO Jeff Bezos and company to settle for the unfamiliar role of second place in a country that is projected to grow into one of Amazon’s largest sources of revenue outside the U.S. in the years to ahead.

The Seattle-based firm has struggled to duplicate its North American success overseas in the face of stiff competition from local outfits such as Flipkart and China’s Alibaba who have had far longer to build out their logistics networks and tailor their offerings to customers far removed from – and far less enamored with – the power of Amazon’s not-quite-global brand, which saw losses on its international operations more than double in 2017 to US$ 3 billion, compared to US$ 1.3 billion from the year previous.

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Under the agreement, SoftBank Group of Japan will make a quick and tidy turnaround of US$ 4 billion on the 20% stake in Flipkart it bought through its Vision Fund for US$ 2.5 billion just last August, when the company was valued at US$ 12 billion. The exit is a first for the US$ 93 billion technology fund, which received sizeable contributions from a number of sovereign backers, including Abu Dhabi’s Mubadala Investment Company and the Public Investment Fund of Saudi Arabia.

Singapore’s GIC Private Limited is also an investor in Flipkart. According to data from the Sovereign Wealth Fund Institute’s transaction database, sovereign wealth funds and public pensions have directly invested US$ 8.89 billion into India in 2017 and US$ 4.68 billion in 2016.

Other existing shareholders – including Microsoft, eBay, Tencent Holdings, and early investors Tiger Global Management and Accel Ventures – will retain small minority stakes. Walmart chief executive Doug McMillon is reportedly flying to Flipkart’s headquarters in Bengaluru this week to announce final closing of the deal.

China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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