Sunday, March 27, 2016

The worldwide IPO drought; Has the Brics bubble burst? FBI and the cracking of an iPhone

1 The worldwide IPO drought (Goh Eng Yeow in Straits Times) It has been a long, dry spell in the initial public offering market and the drought looks unlikely to end any time soon. So far this year, only four IPOs have surfaced in Singapore and all four were trading below their respective issue prices, as of last Thursday.

Their lacklustre performances are likely to dampen the ambitions of other companies planning to launch their own IPOs. In New York, the IPO market is virtually shuttered, except for the listing of a small handful of bio-tech companies. Hong Kong - billed as the world's largest IPO market last year - is also suffering a slow start to the year.

But there is a twist in being a cornerstone investor now. In the halcyon days when IPOs sold like hot cakes, the cornerstone ploy was used to attract high-profile names to IPO hopefuls, giving them an aura of respectability for being able to attract such powerful investors.

That, in turn, was meant to whet the appetite of other institutional and retail investors to subscribe to the new offerings. But with the souring of investor appetite for IPOs, many of the new Chinese listings in Hong Kong have resorted to relying on "friends and family", such as fellow state-owned enterprises, as cornerstone investors to bolster their IPO order books.

Until 20 years ago, all IPOs were truly public offerings. Except for a small portion of shares reserved for staff and company associates, the rest of the IPO had to be made available for public subscription. This changed with the onset of the 1997-1998 Asian financial crisis, when merchant banks and brokerages were forced to place out the bulk of the IPOs handled by them to clients because retail interest had dwindled to almost zero. That sad state of affairs prevails to this day.

2 Has the Brics bubble burst? (Simon Tisdall in The Guardian) The political crisis in Brazil over economic mismanagement and high-level corruption, likely to come to a head this week, has reinforced the fashionable view, popular among western governments and businesses, that the Brics bubble has burst.

Members of the exclusive Brics club of leading developing countries – Brazil, Russia, India, China and South Africa – are failing to justify predictions that, separately and together, they will dominate the 21st century world, or so the argument goes.

But ambitious plans to create an alternative reserve currency to the US dollar and challenge American dominance in IT and global security surveillance have come to little. Meanwhile, adverse economic conditions compounded by falling global demand and lower oil and commodity prices are taking their toll.

Last November, Goldman Sachs, where the idea originated, closed its Bric investment fund after assets reportedly declined in value by 88% from a 2010 peak. The bank told the US securities and exchange commission it did not expect “significant asset growth in the foreseeable future”.

The problems facing Brics members are remarkably similar, even though each country is different. Russia and Brazil have both fallen into recession, while China, the principal engine of world growth, has seen a sharp contraction in overall economic activity.

In South Africa where Jacob Zuma, the country’s president, and the ruling African National Congress government are beset by allegations of corruption and malfeasance, big questions surround the influence wielded by private individuals and businesses over government appointments and policies. The backdrop is under-performing state-owned companies, a depreciating currency, falling exports and rising inflation.

But not all the Brics are floundering. As the analyst George Magnus noted, India currently presents a model of relative progress which the others might study to their advantage. “India is certainly no paragon of virtue when it comes to corruption, nor is its economic infrastructure efficient, but it is endeavouring to accelerate economic reform, and competitiveness,” Magnus wrote.

To take their rightful place in the 21st century, the Brics countries must create more open, accountable, and trustworthy systems of governance. This is a challenge of leadership, not profit and loss.

3 FBI and the cracking of an iPhone (San Francisco Chronicle) Turns out there's a shadowy global industry devoted to breaking into smartphones and extracting their information. Now one of those hacking businesses may well be helping the FBI try to break into the iPhone of one of the San Bernardino killers.

Late Monday, the FBI abruptly put its legal fight with Apple on hold, announcing that an "outside party" had come forward with a possible way to unlock the phone. FBI Director James Comey said the method "may work." If so, it could render Apple's forced cooperation unnecessary.

The announcement has thrown a spotlight on a group of digital forensics companies, contractors and freelance consultants that make a living cracking security protections on phones and computers. Comey said the publicity around the Apple case encouraged such people to come forward with new ideas.

Most such companies keep a very low profile. Since the bulk of their business is with governments and law enforcement, there's no reason to for them to advertise their services. For the moment, no one outside the Justice Department appears to know who the FBI's white knight is.

In the cybersecurity arms race, Apple has managed to stay ahead of these forensics companies. "Anything is crackable — it's just how much time do you have and how much money do you have to spend," said Jeremy Kirby, sales director at Susteen, based in Irvine, California, that says it's not the FBI's outside party.

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