Week in review, March 23

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A round up of some of the week’s most significant corporate events and news stories.

Corporate person in the news: Shi Zhengrong

When Shi Zhengrong was born to a destitute rural family in eastern China in 1963, his parents were so poor they gave him up for adoption, writes Leslie Hook in Beijing.

Forty years later, after founding Suntech, the solar-panel maker, he was one of China’s richest men and widely celebrated as one of the top green entrepreneurs in the world.

However, over the past six months the fortunes of Mr Shi have fallen.

Mr Shi, or “Dr Shi” as he is known to Suntech employees, has been largely forced out of the company he founded and now stands to lose much of his fortune because of the bankruptcy proceedings at Suntech’s main subsidiary.

The bankruptcy, announced on Wednesday, marked a milestone for the painful decline of the Chinese solar industry, which has been struggling to stem losses amid a glut of overcapacity.

An exceptionally gifted student, Mr Shi won a scholarship to the University of New South Wales in Australia in the late 1980s. After earning his PhD he joined one of the country’s top solar cell research groups.

After more than a decade in Australia, during which he acquired Australian citizenship, Mr Shi received an offer from local officials in Wuxi, a town in eastern China not far from where he was born.

“They said, we need a scientist like you to come here and be a boss,” Mr Shi recalled in a 2009 interview with Chinese television. “I’d never thought of myself as a boss before.”

But a boss he became. Using start-up capital provided by the government of Wuxi, Mr Shi founded Suntech in 2001. The company seemed unstoppable. When Mr Shi took Suntech public on the New York Stock Exchange in 2005, its share price rose 41 per cent on the first day of trading. Two years later, the stock price had leapt more than fivefold, making Mr Shi one of the richest men in China.

By 2011, thanks to Suntech’s low-cost production and cheap financing, the company had become the world’s largest panel maker by sales.

However, as the global market for solar panels collapsed, Suntech’s high debt levels left it more exposed than its peers.

The company’s fall has been almost as precipitous as its rise. At the end of March 2012, it had $1.6bn in net debt and reported a net loss of more than $1bn for the previous year. In September, it received a delisting warning from the New York Stock Exchange.

As Suntech struggled to turn round, Mr Shi was gradually pushed out of his roles at the company. Last August, he stepped down as chief executive and became chief strategy officer.

This month, the board announced that it had also removed him as chairman and appointed someone else in his place. In a rare display of public acrimony, Mr Shi issued a statement saying that the board’s move was “unlawful” and that he was still chairman.

Since then, Mr Shi has largely disappeared from public view. The Shanghai Securities News, a prominent Chinese newspaper, reported on Friday that his movements were being restricted and that he was not allowed to leave the country pending an investigation related to his role at Suntech. Suntech declined to comment.

For China’s former solar star, there could be dark times ahead.

Tech groups are ‘cash kings’

Apple’s mounting pile of cash will make up 11 per cent of all US corporate cash by the end of 2013, analysts predicted this week, writes Tim Bradshaw in San Francisco.

Moody’s Investor Service, the US rating agency, put Apple at the top of its “cash kings” in a report that found technology companies’ funds dominate America’s reserves outside the financial sector.

Pfizer was the only company outside the tech sector in Moody’s top five cash-rich US companies – and the rich are getting richer.

Together with Microsoft, Google and Cisco, the top five’s collective $347bn in liquid funds made up 24 per cent of the total non-financial corporate cash balances last year, up from 21 per cent in 2011.

The total funds held by US companies, excluding banks and other financials, expanded by 10 per cent to a record $1.45tn last year.

Apple, which has come under pressure from activist investors over how best to allocate its $137bn in a cash and equivalents, will increase its cash balance to $170bn by year-end, Moody’s forecast, unless it increases its dividend.

Tim Cook, Apple’s chief executive, said last month that the company’s leadership is in “very, very active discussions” about whether to dole out more cash to shareholders after announcing its dividend exactly a year ago.

However, he has also said that the company has previously considered making “more than one” large acquisition and did not rule out other deals in future.

Moody's report comes at a time when activist investors are becoming more vigorous in their challenges to cash-rich companies, prompting a debate about how they should share their accumulated wealth.

Technology, pharmaceuticals, energy and consumer products are the sectors most flush with cash, accounting for more than two thirds of the total US funds. 

More and more of this wealth is being held outside the US. Moody's estimates that $840bn, or 58 per cent, is held overseas, where tax rates may be more favourable, especially given the costs of repatriating funds to the US.

Spotlight on Dimon

Jamie Dimon, chairman and chief executive of JPMorgan Chase, has come under scrutiny after the US Senate hearing into the bank’s “London whale” derivatives trades, writes Tracy Alloway in New York.

The bipartisan Senate panel investigating the affair revealed a litany of risk management failings at JPMorgan, some of which were allegedly tied to Mr Dimon. The trades were made by the London division of JPMorgan’s chief investment office last year, and eventually generated more than $6bn worth of losses for the bank. The senate hearing has strengthened calls from some of the bank’s investors to strip Mr Dimon of the chairmanship in an effort to strengthen the board’s independence.

Investors including the AFSCME Employees Pension Plan, the NYC Pension Funds, and Hermes Equity Ownership Services are spearheading a shareholder proposal that would ask the bank’s board to appoint an independent chairman.

But the board is set to back the bank’s current leadership structure, essentially rejecting the calls from some shareholders to split Mr Dimon’s roles.

Proxy materials for the bank’s annual shareholder meeting are likely to show the board in favour of maintaining the status quo, according to people familiar with the documents.

Mr Dimon, 57, has led JPMorgan for the past seven years, during which the company has grown into the biggest US bank by assets, with more than $1tn worth of deposits.

HP shareholders speak out

Some Hewlett-Packard shareholders must have a glass half-empty view of the trouble-prone Silicon Valley company. For other more recent investors, the glass is half full, writes Chris Nuttal in San Francisco.

The shares are up nearly 60 per cent so far this year, making it the best-performing stock on the Dow Jones blue-chip index. But long-suffering holders of HP stock who invested five years ago have seen the value of their shares cut in half. Shareholders are only half-satisfied with the company’s performance, judging by voting at the PC maker’s annual meeting on Wednesday.

The re-election of Ray Lane as chairman was achieved with only 59 per cent approval, compared with 96 per cent a year earlier. Only around 55 per cent of the votes were in favour of the re-election of John Hammergren and Ken Thompson, the only directors remaining from five years ago. The three had been identified by Institutional Shareholder Services, the influential proxy advisory firm, as those who held the most responsibility for the disastrous acquisition of UK software company Autonomy. HP bought the company for $11bn in October 2011. In November 2012, it wrote down the value by $8.8bn.

The board has set up a special committee to investigate the Autonomy deal. Meg Whitman, chief executive, told shareholders she had confidence in her fellow board members and they were helping her to turn round the company, which will take five years.

BAE and Man Group in pay freeze

BAE Systems and Man Group this week joined a dozen other large quoted UK companies in declaring a pay freeze on executive directors’ salaries, writes Alison Smith.

Defence contractor BAE cited sensitivity to the economic downturn as the reason for its decision, which came after a delay in a jet fighter deal with Saudi Arabia caused it to miss earnings targets. Man, the hedge fund group, introduced its freeze as part of a broader clampdown on pay, which includes limiting cash bonuses for top executives to a maximum of 250 per cent of salary.

Pay consultancy Towers Watson says that, of the 45 FTSE 350 companies to have set out future pay policy in their annual reports, 13 have frozen the basic salary of executive directors.

HSBC, Barclays, Aberdeen Asset Management and Jupiter have taken this step.

A freeze has also been reported by travel companies Carnival and International Airlines Group.

As well as noting the freeze in some base salaries Katharine Turner, of Towers Watson, said: “Where salaries are being changed, the increases are generally modest.”

Some observers doubt these examples of restraint reflect a long-term change in attitude. Deborah Hargreaves, director of the High Pay Centre, said: “This could be no more than executives keeping their heads down for a year or two. That’s why we need to put structures in place to keep the lid on pay when things get better.”

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