Wagner head downplays attack on Russia

This is an audio transcript of the FT News Briefing podcast episode: ‘Wagner head downplays attack on Russia’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, June 27th, and this is your FT News Briefing.

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The head of the Wagner group says his armed uprising in Russia wasn’t actually a coup. And western banks are hungry for a $9bn IPO in Shanghai. Plus, asset managers thought the Fed was going to cut interest rates earlier this year, turns out . . . 

Kate Duguid
That may start to be a bit of a painful position if the Fed does not cut interest rates anytime soon.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Russian president Vladimir Putin and the head of the Wagner group each spoke for the first time since the militia’s abandoned coup. Yesterday, Putin called it a mutiny. Here he is talking through a translator.

Vladimir Putin, via interpreter
Armed mutiny would have been destroyed in any case. The organisers . . . 

Marc Filippino
But a few hours earlier, Wagner head Yevgeny Prigozhin denied trying to overthrow the government. He made the comments in a video he posted online.

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Over the weekend, Prigozhin’s troops took control of a city in southern Russia and then moved toward Moscow. But the Wagner group pulled back before reaching the capital. Here’s the FT’s Polina Ivanova on why Prigozhin isn’t calling it a coup.

Polina Ivanova
I think his line has always been that he is a loyal subject of the president and of the Kremlin. But what he wanted to do was to punish those people who are in the Ministry of Defence. Some rumours and reports say that maybe Prigozhin, who used to have the Kremlin’s ear and used to have the president’s ear, was not able to get his attention most recently, just as the defence ministry was moving to disband his group. So that maybe this was, you know, a kind of cry for attention so that someone in the Kremlin would listen to him. But it’s really hard to know. What’s clear is that whether or not he intended to do damage to Putin and his reputation and his sense of authority, whether or not he was actually aiming for a coup or just aiming to punish the generals, as he says, regardless, the damage to the actual Kremlin has been done.

Marc Filippino
That’s the FT’s Polina Ivanova.

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Swiss chemicals giant Syngenta is planning to go public in Shanghai. The initial public offering is expected to raise about $9bn. That would make it one of the largest listings in Chinese history. Big western banks like JPMorgan and Goldman Sachs have been waiting eagerly for this kind of prime business opportunity. But they’re also worried that they might not be able to participate. I’m joined now by the FT’s Kaye Wiggins in Hong Kong to talk about Syngenta’s IPO and the complications around it. Hey, Kaye.

Kaye Wiggins
Hi, Marc.

Marc Filippino
So Kaye, can you tell us a little bit about the listing and why banks are so interested in it?

Kaye Wiggins
Yeah, absolutely. This deal on paper looks like an ideal dream ticket for global banks. This company, Syngenta, is a really large company and a really big IPO. It’s a really international company. It operates in a hundred different countries, roughly. And the real attraction for the banks is its influence and its kind of status that comes with being involved in an IPO of this size on the mainland. And the other the kind of commercial rationale for it is that there’s been lots of discussion about the prospect that Syngenta might do a secondary listing, most likely in Europe, potentially in the US in a few years time. And so, you know, a big part of the commercial rationale is if you get a role on this one, on the IPO in China, then it positions you pretty well to get extra business down the line when it does a secondary listing.

Marc Filippino
But Kaye, do western banks need to get involved for this IPO to be successful?

Kaye Wiggins
The thing that these banks would bring would be international investors. China doesn’t really need Goldman Sachs or JPMorgan or any of the international banks to bring in domestic Chinese investors. If what they’re trying to do is sell these shares to Chinese retail investors, which will be the main part of what they’re trying to do, that becomes much easier if you’ve got the kind of credibility of saying, well, hey, we’ve brought in these international investors as well at this level. And so that’s a big rationale for having the international banks involved.

Marc Filippino
Now, you’ve reported that the western banks are hesitating. What exactly is the problem?

Kaye Wiggins
This all comes down to a kind of geopolitical tension between China and the US. Syngenta is a Swiss company, but for the last six years it has been owned by ChemChina, which is a state-owned enterprise. And ChemChina is on a US government watchlist of companies that the US says have close ties to China’s military. And so what the banks are doing at the moment is kind of having conversations with lawyers or with political consultants to try and figure out whether they can or should be a part of this IPO. And so far, the answer is really not clear cut at all. There isn’t anyone saying, no, absolutely, you can’t do this. But people we spoke to are basically saying, well, this might create some scrutiny from, kind of, policymakers in Washington. And I guess what they’re doing is saying, yes, on the surface of it, this is a great commercial thing for us. But are we ready for the political scrutiny that comes with it?

Marc Filippino
Kaye Wiggins is the FT’s Asia financial correspondent. Thanks, Kaye.

Kaye Wiggins
Thank you.

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Marc Filippino
The Federal Reserve’s interest rate hike campaign is doing damage to short-term bonds. Yields on short-term bonds go up as the Fed raises rates. In recent months, the yield on the two-year Treasury bond has hovered between four and a half and 5 per cent. The FT’s Kate Duguid has more on what this means for asset managers.

Kate Duguid
We know that for a long time, investors in the market have bet that the Fed would cut interest rates at some point this year. The Fed has really, really pushed back against that, and at their June meeting, suggested that we may see another two interest rate hikes this year. For asset managers, what it does mean is that if you bought a bunch of two-year bonds at the beginning of the year, which we know asset managers did do, it means that the value of those bonds has gone down and that may start to be a bit of a painful position if the Fed does not cut interest rates anytime soon.

Marc Filippino
Kate says a lot of the asset managers that she’s spoken to are just gonna wait it out.

Kate Duguid
They still believe that, you know, sort of within the next year or two, we will see a recession and the Fed will be forced to cut interest rates. And so if you believe that, you hang on to those bonds, right? You see this as a trade that’s still in process. You’re not gonna do necessarily anything unless you think that the economy is going to avoid a recession completely, that we’re gonna have interest rates at 5 per cent or higher for the next couple of years. You would probably stay in this position and endure some of that pain.

Marc Filippino
So asset managers are hoping inflation cools and the Fed lowers interest rates sometime before 2025. In the meantime, things aren’t quite as bad as they could be.

Kate Duguid
You get a 4 per cent coupon every six months. And so even if the value of your holdings is going down a little bit, so that is eating away into that coupon, but it’s probably not erasing it completely. And so for bond investors, it’s not actually that bad of a situation right now. You will be enduring a little bit of pain, but you have these big coupons that are cushioning some of that.

Marc Filippino
Kate Duguid is the FT’s US capital markets correspondent.

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Before we go, a corruption trial against Benjamin Netanyahu took a turn yesterday. Hollywood movie producer Arnon Milchan is a key witness. And in a testimony he called his gifts to the Israeli prime minister, quote, “excessive”. Milchan is an Israeli-born billionaire who had a hand in movies like Fight Club and Pretty Woman. He gave Netanyahu and his wife tens of thousands of dollars in gifts that included champagne and cigars. Prosecutors allege that in exchange, Netanyahu did various favours for Milchan, like help lobby for the Hollywood producer to get a multiyear visa in the US. But Netanyahu’s lawyers called the presents friendly gestures.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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