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Why Saudi Aramco Is Pursuing Sabic In Place Of An IPO · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Yesterday
• 0:33
  Speaker 1: we learned that Saudi Arabia has iced the initial public
• 0:37
  Speaker 1: offering for its Ramco UH state owned oil company. This
• 0:42
  Speaker 1: was arguably the most anticipated i p O of the decade,
• 0:46
  Speaker 1: would have been UH the largest such company in the
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  Speaker 1: World's joining us now to understand what happened here and
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  Speaker 1: what it would take for this i p O to
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  Speaker 1: get back on the schedule. As Dr ellen Wald, president
• 0:59
  Speaker 1: of Transversal Insulting, also a nonresident Senior Fellow at the
• 1:02
  Speaker 1: Atlantic Council's Global Energy Center, and author of a book,
• 1:06
  Speaker 1: Saudi Inc. Looking at Saudi Aramco and the Family that
• 1:10
  Speaker 1: runs it uh, Dr, Well, thank you so much for
• 1:12
  Speaker 1: joining us. What was your impression when you saw the
• 1:15
  Speaker 1: news that this deal was being iced. My initial impression
• 1:20
  Speaker 1: was that, um, this isn't really all that new We've
• 1:25
  Speaker 1: kind of been hearing for a while that the I
• 1:28
  Speaker 1: p O was stalling, that the plans were not really
• 1:32
  Speaker 1: moving forward anymore, and that basically they were stuck on
• 1:37
  Speaker 1: a political decision of whether or not they want to
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  Speaker 1: IPO the company, when the optimum time for that would
• 1:45
  Speaker 1: be and where. So it doesn't seem like this is
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  Speaker 1: really a business or a financial issue more than it's
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  Speaker 1: a political issue. If that's the case, then is it
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  Speaker 1: more realistic to think that this is off the table
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  Speaker 1: at this point that there will not be an initial
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  Speaker 1: public offering of Saudia Aramco. I think it's much more
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  Speaker 1: unlikely now than it was, say a year ago or
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  Speaker 1: even six months ago, when the Crown Prince was visiting
• 2:11
  Speaker 1: the United States and he was making these rounds. He
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  Speaker 1: was visiting London back in in March and April. This
• 2:17
  Speaker 1: was a huge talking point. Is a RAMCO going to
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  Speaker 1: be listed in London, will be listed in New York
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  Speaker 1: or would it be listed just on the Saudi stock market?
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  Speaker 1: And now all of that talk is basically calmed down now.
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  Speaker 1: There are there are a couple issues here. One is that, um,
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  Speaker 1: this is really not a big time for business in
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  Speaker 1: Saudi Arabia. The period between Ramadan and Hajj, you know,
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  Speaker 1: not all that much gets done. So it's not like
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  Speaker 1: we should have been expecting any big decisions to come anyway,
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  Speaker 1: But the fact is that it does seem like all
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  Speaker 1: of the massive preparations that were going on have just
• 2:50
  Speaker 1: kind of calmed down and basically shut shut down for
• 2:53
  Speaker 1: the present. So basically, the word yesterday was that Saudi
• 2:58
  Speaker 1: Arabia wants to focus more on buying, on Saudi Aramco
• 3:02
  Speaker 1: buying a strategic stake in Sabak, the local petrochemical group,
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  Speaker 1: and that's the reason for this delay, indefinite delay in
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  Speaker 1: the I p O. Do you buy that? Well, I
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  Speaker 1: think that that's maybe a symptom as opposed to the
• 3:18
  Speaker 1: ultimate reason, because the fact is that the company has
• 3:21
  Speaker 1: said that they're prepared to go forward with an i
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  Speaker 1: p O pending a decision by the top as in
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  Speaker 1: the King and the Crown Prince on where and when
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  Speaker 1: it should happen. So the company was ready, they had
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  Speaker 1: their perspectus as prepared, They've done their financials, they gotten
• 3:37
  Speaker 1: their accounting in order. Um from their perspective, they were
• 3:40
  Speaker 1: just waiting on the final word, and that was something
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  Speaker 1: that the CEO made clear months ago. Now they've gotten
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  Speaker 1: into this deal with SABAC, and so it does seem
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  Speaker 1: like they're saying that this is the reason for the delay,
• 3:52
  Speaker 1: whereas really the real reason is probably they're not sure
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  Speaker 1: if this is the best course of action or they're
• 3:59
  Speaker 1: not ready to take that decision. That makes a lot
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  Speaker 1: of sense. And one thing that I was wondering is,
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  Speaker 1: you know how much this has to do with the
• 4:07
  Speaker 1: price of oil, given the fact that it has been
• 4:10
  Speaker 1: sort of fluctuating. It did rise substantially, but there seems
• 4:14
  Speaker 1: to be an increasing lack of clarity about how much
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  Speaker 1: more it could increase. What's your sense of that. I
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  Speaker 1: think a lot depends on what's going to be happening
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  Speaker 1: in the next six months, even the next two or
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  Speaker 1: three months with the Iran with the Iran sanctions. There
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  Speaker 1: seems to be a kind of consensus from a lot
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  Speaker 1: of the oil analysts that oil is heading upwards between
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  Speaker 1: now and the beginning of two thousand uh nineteen, could
• 4:38
  Speaker 1: be going up. Some have even said hundred dollars of barrel,
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  Speaker 1: But then they do see prices really dropping again by
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  Speaker 1: the end of twenty nine. They see additional production coming
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  Speaker 1: online in the United States and other places that would
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  Speaker 1: put down with pressure. And it is possible that Saudi
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  Speaker 1: Arabia just decided, you know, oil prices are still very volatile,
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  Speaker 1: We're going to wait it out. On the other hand,
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  Speaker 1: I don't think that whether or not the price of
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  Speaker 1: oil is at sixty or eighty is really all that
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  Speaker 1: big of a concern for an aram CO I p O.
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  Speaker 1: If it was at thirty, that would be a different story.
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  Speaker 1: So I do want to just talk about the oil markets.
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  Speaker 1: I know you've been watching and studying it for years,
• 5:18
  Speaker 1: and you know, I'm struck by the close tie that
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  Speaker 1: CREWD has had recently to the value of the dollar.
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  Speaker 1: We're seeing today the dollar strengthen, oil is falling pretty much.
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  Speaker 1: I have seen this inverse relationship steadily throughout the past
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  Speaker 1: few weeks. Is this going to be the main driver
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  Speaker 1: until there is some catalyst? I think that right now
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  Speaker 1: we're seeing that the market fundamentals in the market are
• 5:44
  Speaker 1: increasingly coming into alignment, so there isn't as much of
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  Speaker 1: a cushion in terms of supply as there used to be,
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  Speaker 1: and the fact that we're not undersupplied and um so,
• 5:55
  Speaker 1: so there's definitely some room, but nothing like there was
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  Speaker 1: a year or two ago. And that means that issues
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  Speaker 1: like the value of the dollar or geopolitical issues will
• 6:04
  Speaker 1: have a much more amplified effect on the price of oil. So,
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  Speaker 1: for example, if we get news in the next two
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  Speaker 1: months that another country is cutting its imports from Iran,
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  Speaker 1: that could cause oil prices to go up. Or if
• 6:18
  Speaker 1: we get news that um, you know, another pipeline is
• 6:21
  Speaker 1: coming online in Texas, that could push things down. So
• 6:25
  Speaker 1: given sort of all of the potential tail risks out there,
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  Speaker 1: are there more to risks that will push the price
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  Speaker 1: of oil to the upside or to the downside? I
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  Speaker 1: think right now we're looking more at um at upside
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  Speaker 1: rather than downside. It will say though, in terms of
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  Speaker 1: what the dollar, the effect of the strengthening dollar has,
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  Speaker 1: particularly when you look at the effect that it's having
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  Speaker 1: on countries like Turkey or India which are seeing their
• 6:54
  Speaker 1: currencies devalued, that may push them because these are major
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  Speaker 1: oil importers, that may push them to look for cheaper
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  Speaker 1: sources of oil because they can't get as much you know,
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  Speaker 1: for their for their currency because the dollar is so strong,
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  Speaker 1: and that may in fact push them to try to
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  Speaker 1: defy U S sanctions and purchase more oil from the Iran,
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  Speaker 1: which Iran is happy to offer either at discounted prices
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  Speaker 1: or to accept their currency is opposed to having to
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  Speaker 1: treat it for dollars. In other words, it's not so
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  Speaker 1: clear cut that if if the sanctions UH sort of
• 7:25
  Speaker 1: increase on Iran, there would be an exact corollary and
• 7:29
  Speaker 1: lack of oil kind of coming to market, right, And
• 7:32
  Speaker 1: some of that does depend on the strength of the
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  Speaker 1: dollar visa v other countries currency than whether those countries
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  Speaker 1: are oil exporters or oil importers. Thank you so much
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  Speaker 1: for being with us, Dr Dr ellen Dr ellen Wald.
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  Speaker 1: She is president of Transversal Consulting, also Nonresidents Senior Fellow
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  Speaker 1: at the Atlantic Council's Global Energy Center, as also author
• 7:54
  Speaker 1: of a book, Saudi Inc. Which takes a look at
• 7:57
  Speaker 1: the history of Saudi Aramco and the family of the country.
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  Speaker 1: Roles this multi fully intollar enterprise, What are we going
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  Speaker 1: to eat over the next few years and how will
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  Speaker 1: this reshape the agricultural industry. Joining us now to talk
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  Speaker 1: about that is Alan berga agricultural reporter for Bloomberg News,
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  Speaker 1: coming from our studios in Washington, D c. Alan I
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  Speaker 1: loved this piece you pulled together looking at how it
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  Speaker 1: tastes are changing. It's such a simple thing what you
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  Speaker 1: decide to eat at each meal, and yet collectively the
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  Speaker 1: decisions made by entire populations will dramatically shift and change
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  Speaker 1: the agricultural industry, certainly of America but worldwide. Can you
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  Speaker 1: just give us a sense, first of all, in how
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  Speaker 1: tastes are going to be changing over the next decade,
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  Speaker 1: and uh, what you're basing this on. I think the
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  Speaker 1: big consideration to make when looking at this issue is
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  Speaker 1: that you have the developed world and you have the
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  Speaker 1: developing world. And and this study, which is very much
• 9:10
  Speaker 1: based on a report that the UN Food and Agriculture
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  Speaker 1: Organization puts out twice a year. They do forecasts for
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  Speaker 1: what they see as demand of different commodities and how
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  Speaker 1: that translates to diets, is that the developing world is
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  Speaker 1: still very much driving food consumption much more than the
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  Speaker 1: developed world. And that's key because it leads to some
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  Speaker 1: sort of counterintuitive conclusions. Um, if you take a look
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  Speaker 1: at a lot of the concerns about public health, about obesity,
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  Speaker 1: the fact that we have more people now dealing with
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  Speaker 1: obesity in the world than we have dealing with hunger.
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  Speaker 1: You start to think, well, clearly, we're going to have
• 9:41
  Speaker 1: probably less meat consumption, we're going to have less processed
• 9:44
  Speaker 1: food consumption, etcetera. That's not necessarily the case, um, because
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  Speaker 1: overall global food consumption is not necessarily a First world issue.
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  Speaker 1: So you see some changes in terms of more demand
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  Speaker 1: for vegetable oil, more demand for sugar, things that you
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  Speaker 1: might think we would be moving away from, but that's
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  Speaker 1: only in richer nations. Poor nations still want some of
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  Speaker 1: this stuff, and that's going to be driving growth global growth. Okay,
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  Speaker 1: so let's just talk about the whole concept of developing
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  Speaker 1: nations versus developed nations. So what have developing nations really,
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  Speaker 1: what have they been consuming most and what are they
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  Speaker 1: going to be consuming in the future. Well, and that's
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  Speaker 1: the key distinction about taking a look at the next
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  Speaker 1: year's ten years ahead, because this entire century you've seen
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  Speaker 1: developing world growth very much driven by China. As China
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  Speaker 1: has become wealthier. Of course, you've seen this massive increase
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  Speaker 1: in soybean imports, which is now become a global trade story. Um.
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  Speaker 1: You know, China has half of the world's pigs, and
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  Speaker 1: so they've been pushing anything that can be used for
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  Speaker 1: animal feed, and they've very much been the driver that's
• 10:43
  Speaker 1: going to slack off in the next decade um. And frankly,
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  Speaker 1: China's growth was a unique event that we probably won't
• 10:48
  Speaker 1: see again. Because Chinese growth is slowing, there is still
• 10:52
  Speaker 1: growth in other areas. Of course, you will see India
• 10:54
  Speaker 1: overtake China as the world's most populous nation. You see
• 10:57
  Speaker 1: Sub Saharan Africa being the main source of global growth,
• 11:00
  Speaker 1: but they don't eat like the Chinese. Um don't expect
• 11:03
  Speaker 1: India to be pushing animal feed demand. I mean, this
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  Speaker 1: is a very vegetarian society. They're going to be having
• 11:09
  Speaker 1: more dairy Africa is going to be having more vegetable,
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  Speaker 1: sugar processed foods as they as those countries in Africa
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  Speaker 1: move up the development curve, they're going to want a
• 11:17
  Speaker 1: more developed world diet for better and for worse. It's
• 11:20
  Speaker 1: going to be different than what we've seen with China's rise.
• 11:23
  Speaker 1: It's going to be maybe a little bit slower curve demand,
• 11:25
  Speaker 1: and it's going to be a demand that grows in
• 11:26
  Speaker 1: different commodities. So this is fascinating to me. So this
• 11:29
  Speaker 1: suggests to me, uh, certainly, the cheaper pork prices that
• 11:33
  Speaker 1: we've seen, it suggests that will continue going forward and
• 11:36
  Speaker 1: perhaps uh even accelerate if this really does come to pass.
• 11:40
  Speaker 1: And it also has some sort of bearage views on
• 11:42
  Speaker 1: the corn market as well. Now it does, and it's
• 11:45
  Speaker 1: very important again to remember for perspective about the global
• 11:48
  Speaker 1: agricultural system. Um, of course there are always supply shocks
• 11:51
  Speaker 1: and disruptions, and projections always look much more smoother than
• 11:54
  Speaker 1: the reality. But when you take a look at what's
• 11:56
  Speaker 1: being expected, we're not expecting large increases in food inflation.
• 12:00
  Speaker 1: It should be fairly mild. And that's because the world
• 12:03
  Speaker 1: does not have a problem feeding itself. It can create
• 12:06
  Speaker 1: the commodities. Um, sustainability becomes an issue, Distribution becomes an issue,
• 12:10
  Speaker 1: Wealth becomes an issue. But this is part of why
• 12:12
  Speaker 1: I get skeptical when I see all these stories about
• 12:14
  Speaker 1: how in ten years we need to be eating seaweed
• 12:16
  Speaker 1: or bugs or everything has to be grown hydroponically. The
• 12:19
  Speaker 1: global food system is feeding people just fine. Um, those
• 12:23
  Speaker 1: aren't the issues involving the global food system. It's about sustainability,
• 12:27
  Speaker 1: environmental issues. It's about whether people have the money to
• 12:30
  Speaker 1: get the food they need or the access to the
• 12:32
  Speaker 1: food they have. Um, the current global food system is
• 12:35
  Speaker 1: doing quite fine feeding people. In fact, some of the
• 12:37
  Speaker 1: problems we've been seeing in markets is that's been doing
• 12:39
  Speaker 1: too much of a productive job and we've actually seen
• 12:42
  Speaker 1: too much food being shoved down people's throats because it's
• 12:44
  Speaker 1: so inexpensive. And that's something that report underscores as well. Alright,
• 12:48
  Speaker 1: So are there any areas where you're gonna see demand
• 12:50
  Speaker 1: really dramatically increase? I mean, you mentioned the dairy industry
• 12:53
  Speaker 1: with India. Who benefits from that? What nation provides the milk?
• 12:57
  Speaker 1: So India is going to be a fascinating issue because
• 12:59
  Speaker 1: India isn't credibly protectionist in his agricultural policy, and they've
• 13:02
  Speaker 1: been meeting their dairy demand through domestic supply. The feeling
• 13:07
  Speaker 1: is at some point that's just going to give. And
• 13:09
  Speaker 1: we actually saw something similar with China two decades ago,
• 13:12
  Speaker 1: and they just decided they couldn't grow enough soybeans and
• 13:14
  Speaker 1: they were going to strategically rely on imports. If you
• 13:16
  Speaker 1: see that happen in India the next decade, that is
• 13:19
  Speaker 1: going to be an incredible opportunity for dairy producers. But
• 13:22
  Speaker 1: at this point in time, India is really trying to
• 13:24
  Speaker 1: boost domestic capacity, domestic process and because of course they
• 13:27
  Speaker 1: would like to see that wealth stay internally with their
• 13:29
  Speaker 1: own agriculture sector. That's going to be one of the
• 13:32
  Speaker 1: big business questions in the next ten years. You know,
• 13:35
  Speaker 1: this is such a great conversation to have, especially as
• 13:38
  Speaker 1: these tariffs pick up. You just have to wonder how
• 13:40
  Speaker 1: much this factors into China's calculus here with soybeans, you
• 13:43
  Speaker 1: do have to wonder. I mean, China is an aging society.
• 13:46
  Speaker 1: It's population growth is slowing and may actually shift into
• 13:49
  Speaker 1: reverse and upcoming years. Um, they would like more domestic
• 13:53
  Speaker 1: capacity as well. Frankly, Um, they don't like to necessarily
• 13:56
  Speaker 1: have such strategically important commodity be dependent on brazil um
• 14:00
  Speaker 1: us producers. You know, they will change their their production
• 14:04
  Speaker 1: more's with domestic markets as well. You may look back
• 14:07
  Speaker 1: on these these tariffs is sort of a zenith of
• 14:09
  Speaker 1: this particular system, and even if we get rid of
• 14:12
  Speaker 1: these tariffs, the system going forward is never going to
• 14:15
  Speaker 1: look quite like it did before. Alan Burga, thank you
• 14:18
  Speaker 1: so much. That was terrific. Allen burga agricultural reporter for
• 14:22
  Speaker 1: Bloomberg News coming to us from our studio in Washington,
• 14:26
  Speaker 1: d C. The Bloomber reporters put together, including Alambergo, put
• 14:30
  Speaker 1: together a piece infographic what will the World Eat in
• 14:34
  Speaker 1: the next decade? It's pretty interesting. I mean, it just
• 14:36
  Speaker 1: sort of highlights the shift in the developing worlds and
• 14:39
  Speaker 1: the changing tastes and the concept of what really will
• 14:43
  Speaker 1: happen with respect to our agricultural flows. Well, the legal
• 15:03
  Speaker 1: woes of President Trump appeared to be deepening, certainly with
• 15:07
  Speaker 1: Michael Cohen, his former attorney, pleading guilty to a number
• 15:11
  Speaker 1: of different issues, including campaign of finance misuse. But today
• 15:17
  Speaker 1: President Trump had a lot of comments on Fox and Friends,
• 15:20
  Speaker 1: including one on flippers. I want to bring in Bob
• 15:22
  Speaker 1: Men's who's a partner at mcarter in English in Newark,
• 15:25
  Speaker 1: New Jersey. Bob, I am so glad that you're joining
• 15:28
  Speaker 1: us today, especially given the fact your former assistant U
• 15:32
  Speaker 1: S Attorney in New Jersey as well as assistant counsel
• 15:36
  Speaker 1: to New Jersey Republican Governor Thomas Keene in the nine nineties. Bob,
• 15:41
  Speaker 1: I want to read you something the President Trump said
• 15:44
  Speaker 1: for thirty or forty years, I've been watching flippers. Everything
• 15:47
  Speaker 1: is wonderful. Then they get ten years in jail and
• 15:49
  Speaker 1: they flip on whoever the next highest one is, or
• 15:51
  Speaker 1: as high as you can go. As someone who headed
• 15:54
  Speaker 1: the organized crime division in New Jersey, what was your
• 15:56
  Speaker 1: reaction of that. Well, what I can tell you is
• 16:00
  Speaker 1: that federal prosecutors all over the country rely on cooperating
• 16:05
  Speaker 1: witnesses all the time. In fact, I would go so
• 16:09
  Speaker 1: far as to say that it is unusual for a
• 16:12
  Speaker 1: case not to involve a cooperating witness. And the reason
• 16:16
  Speaker 1: for that is simple because even cases in which there
• 16:19
  Speaker 1: is strong documentary evidence. You know, for example, the Paul
• 16:23
  Speaker 1: Mantifor case had lots of documents showing money being moved
• 16:27
  Speaker 1: from the Russian uh oligarch who was paying them into
• 16:32
  Speaker 1: these shell companies, and from the shell companies he was
• 16:36
  Speaker 1: paying his personal finances. You often need an insider, a
• 16:40
  Speaker 1: person who actually participated in the crime itself, to take
• 16:45
  Speaker 1: the jury by the hand and explain to them what
• 16:48
  Speaker 1: was going on and most importantly, what was in the
• 16:51
  Speaker 1: mind of the individuals who's charged with the criminal offense.
• 16:54
  Speaker 1: Because all criminal offenses boiled down to intent another word,
• 17:00
  Speaker 1: it's the possess to know what they're doing and know
• 17:02
  Speaker 1: what they're doing is wrong. So cooperating witnesses are an
• 17:06
  Speaker 1: integral part of federal law enforcement and it's something that
• 17:09
  Speaker 1: is used all the time. Alright. So given that the
• 17:12
  Speaker 1: fact that President Trump was talking about flippers and in
• 17:15
  Speaker 1: that context said it almost ought to be outlawed, it's
• 17:18
  Speaker 1: not fair. What does that do for federal prosecutors and
• 17:22
  Speaker 1: others who rely on cooperating witnesses. I mean, is this
• 17:25
  Speaker 1: just sort of a flip off the cuff, you know, uh,
• 17:28
  Speaker 1: inflamatory statement, but it's just part for the course with
• 17:31
  Speaker 1: our president, or does it have a material effect. Well,
• 17:34
  Speaker 1: it's really the same type of argument that defense lawyers
• 17:37
  Speaker 1: raise all the time. And to reference back to the
• 17:40
  Speaker 1: Paul Mantifort trial, it was the central theme of Manifort's
• 17:43
  Speaker 1: defense that in that case, Rick Gates, his former right
• 17:46
  Speaker 1: hand person, who had been involved intimately in all of
• 17:49
  Speaker 1: his financial dealings, had flipped on him and had cooperated
• 17:54
  Speaker 1: with the government. And it's fair game for the defense
• 17:56
  Speaker 1: to point out that individuals in those circumstances are trying
• 18:01
  Speaker 1: to save themselves, that they are going to get a
• 18:03
  Speaker 1: lesser sentence. Uh, it's up to the judge at the
• 18:06
  Speaker 1: end of the day how much of a reduction in
• 18:08
  Speaker 1: sentence they may receive. But they certainly are doing it
• 18:10
  Speaker 1: because they believe that at the end of this process
• 18:13
  Speaker 1: they will go to jail for less time or perhaps
• 18:15
  Speaker 1: no time at all, and that their credibility ought to
• 18:18
  Speaker 1: be challenged on that basis. And that's why prosecutors will
• 18:21
  Speaker 1: never go to trial in a case where they will
• 18:24
  Speaker 1: ask jurors to rely on the uncorroborated testimony of some
• 18:27
  Speaker 1: cooperating witness, because there's just too much of a motivation
• 18:31
  Speaker 1: for them to perhaps shade the truths in order to
• 18:33
  Speaker 1: save themselves. So those cases will always be cases in
• 18:36
  Speaker 1: which you've got a cooperating witness, but you also have
• 18:39
  Speaker 1: other witnesses and other documents that corroborate and support what
• 18:43
  Speaker 1: they're telling the jury to jurors don't have to rely
• 18:46
  Speaker 1: on those cooperating witnesses alone. And arguably with Michael Cohen,
• 18:50
  Speaker 1: for example, which is the context in which President Trump
• 18:53
  Speaker 1: was speaking, arguably he didn't even get a cooperation agreement
• 18:58
  Speaker 1: or any kind of uh you didn't cut get was
• 19:00
  Speaker 1: it wasn't able to reduce his sentence clearly or my
• 19:03
  Speaker 1: cooperating perhaps because he didn't need to, or wasn't credible enough,
• 19:08
  Speaker 1: or they had plenty of evidence didn't matter, correct. Yeah,
• 19:11
  Speaker 1: that certainly seems to be the case, and that doesn't
• 19:13
  Speaker 1: mean that that might not change. And it's possible that
• 19:17
  Speaker 1: prosecutors will give him a cooperating deal down the road,
• 19:20
  Speaker 1: but at this point it doesn't appear that he has
• 19:23
  Speaker 1: that kind of arrangement. And that can be for either
• 19:26
  Speaker 1: of the reasons that you decited that they believe that
• 19:29
  Speaker 1: he is his testimony just might not be credible. Um,
• 19:33
  Speaker 1: But more likely, if they don't give him a cooperating deal,
• 19:35
  Speaker 1: it's simply because they don't need it. That they have
• 19:38
  Speaker 1: lots of other evidence and they think they're going to
• 19:40
  Speaker 1: have other witnesses who perhaps have less baggage than Michael Cohn,
• 19:43
  Speaker 1: and therefore they don't need his testimony in some future prosecution. Yeah,
• 19:48
  Speaker 1: but a lot of people have been talking today about,
• 19:50
  Speaker 1: you know, the possibilities of impeachment President Trump also pining
• 19:53
  Speaker 1: on it and saying that the market would crash if
• 19:55
  Speaker 1: he were to be impeached. I'm just wondering, I mean,
• 19:57
  Speaker 1: if we are talking about campaign finance, Viole aations. Is
• 20:01
  Speaker 1: the issue that we're talking about an impeachable offense, Well,
• 20:04
  Speaker 1: that's a great question. Typically impeachable offenses involved abuses of
• 20:10
  Speaker 1: a position while somebody is in office. So, for example,
• 20:15
  Speaker 1: President Nixon UM would have been impeached presumably over his
• 20:19
  Speaker 1: attempts to interfere with the FBI's investigation into Watergate, and
• 20:23
  Speaker 1: all of that occurred while he was president. Here, the
• 20:26
  Speaker 1: allegations surrounding the campaign finance violations occurred before the president
• 20:33
  Speaker 1: was in office. But if you go back and look
• 20:36
  Speaker 1: at the history of the impeachment clause in the Constitution UM,
• 20:41
  Speaker 1: it does refer to a subset of violations which would
• 20:47
  Speaker 1: involve some type of abuse that related to the person
• 20:51
  Speaker 1: getting elected in the first place. So the framers were
• 20:53
  Speaker 1: sensitive not only to abuses that it would occur while
• 20:57
  Speaker 1: an elected official was in office, but all so a
• 21:00
  Speaker 1: circumstance in which there was an allegation of which there
• 21:03
  Speaker 1: was some abuse connected with their election to that office
• 21:07
  Speaker 1: in the first place. So it sounds complicated. It is.
• 21:11
  Speaker 1: It is complicated, And I think the answer is that
• 21:13
  Speaker 1: this could become something down the road that would be
• 21:17
  Speaker 1: considered in a teachable offense. But We're a long way
• 21:20
  Speaker 1: from that point, as we see here today. Bob Man's
• 21:22
  Speaker 1: thank you so much for taking the time. Really appreciate it,
• 21:25
  Speaker 1: my pleasure. Bob Man's partner with Macarter in English in Newark,
• 21:29
  Speaker 1: New Jersey. He was a former assistant U S Attorney
• 21:32
  Speaker 1: as well as assistant counsel to Governor Thomas Keane of
• 21:36
  Speaker 1: New Jersey in the nineties, and he was deputy chief
• 21:40
  Speaker 1: of the Organized Crime Strike Force Division for the District
• 21:43
  Speaker 1: of New Jersey. I'm sure there are a lot of
• 21:44
  Speaker 1: fascinating stories, particularly emerging from that division. The US stock
• 22:04
  Speaker 1: market is booming, bonds are stable, even in the riskier sectors.
• 22:10
  Speaker 1: So what does a distressed debt investor, distressed and equity
• 22:14
  Speaker 1: investor do. We're gonna ask that to George Shalty. He
• 22:18
  Speaker 1: is head of Salty Asset Management, and he's been mining, uh,
• 22:21
  Speaker 1: the various players out there who might be in distress
• 22:25
  Speaker 1: or just emerging from it to try to find some opportunities. So, George,
• 22:29
  Speaker 1: is this a particularly tough time to be a distressed investor? Well,
• 22:33
  Speaker 1: if you have the flexibility of going long and short,
• 22:35
  Speaker 1: up and down the capital structure, it's not because there
• 22:38
  Speaker 1: are a lot of companies that recently emerged from distress
• 22:42
  Speaker 1: and bankruptcy, especially in the energy and the oil and
• 22:45
  Speaker 1: gas field and the metals and mining field. UM. You know,
• 22:49
  Speaker 1: just a crazy amount of distressed companies there because it
• 22:52
  Speaker 1: was just really too much leverage in that space. Um.
• 22:55
  Speaker 1: In fact, it was about twenty or of the entire
• 22:59
  Speaker 1: high yield create a debt issue ones market for a while,
• 23:02
  Speaker 1: and then when commodity prices dropped, a lot of these
• 23:04
  Speaker 1: companies went bankrupt. Now many of them have come out
• 23:06
  Speaker 1: on the other side with clean balance sheets and a
• 23:09
  Speaker 1: much different outlook. Although I have to thank with so
• 23:12
  Speaker 1: much money out there trying to find any bit of
• 23:15
  Speaker 1: value whatsoever, these companies have had a pretty easy time
• 23:18
  Speaker 1: just absolutely rebounding and getting plenty of capital now. Well,
• 23:23
  Speaker 1: some of them are smaller, so they're flying a little
• 23:25
  Speaker 1: bit under the radar. They're small caps or mid caps.
• 23:28
  Speaker 1: And some of them are sort of semi listed or
• 23:30
  Speaker 1: on their way to being listed. UM. For instance, Contour
• 23:35
  Speaker 1: Energy is one that's on the pink sheets. It's about
• 23:37
  Speaker 1: to be listed again on the New York Socket Change
• 23:39
  Speaker 1: as soon as it completes its merger with Alpha Natural Resources.
• 23:43
  Speaker 1: That company is extraordinarily cheap. It's a could producer. Um
• 23:47
  Speaker 1: uh It's predecessor, Alpha Natural Resources came out of bankruptcy
• 23:51
  Speaker 1: in two thousand and sixteen UM and it had it
• 23:54
  Speaker 1: reduced debt by eight billion dollars UM. Now the company
• 23:57
  Speaker 1: trades at about two and a half times ebit doc
• 24:00
  Speaker 1: uh It recently paid a hundred million dollars special dividend,
• 24:03
  Speaker 1: and it recently brought back fifty million dollars of stock
• 24:06
  Speaker 1: as well. UM But again, that one's merging, and it's
• 24:08
  Speaker 1: about to be relisted on the New York Stock Exchange.
• 24:10
  Speaker 1: When the merger is complete. It trades in the low seventies,
• 24:13
  Speaker 1: but we think it's worth probably a hundred and ten
• 24:15
  Speaker 1: or a hundred and fifteen dollars a share. So you
• 24:17
  Speaker 1: get these events. It's very interesting for companies after they emerge,
• 24:21
  Speaker 1: if they remain cheap enough, sometimes you get these catalytic
• 24:24
  Speaker 1: events like special dividends, um emin A transactions or large
• 24:29
  Speaker 1: stock buy backs, and that tends to drive them closer
• 24:31
  Speaker 1: to fair value. So at this time, when the markets
• 24:34
  Speaker 1: are really stable and climbing higher, I have to wonder,
• 24:37
  Speaker 1: are you more long than short? We are still more
• 24:40
  Speaker 1: long than short, and we have not made the call
• 24:42
  Speaker 1: that the markets about to change yet. A lot of
• 24:44
  Speaker 1: people are saying that, you know, the equity market is
• 24:47
  Speaker 1: in the final stages of its bull run. It's been
• 24:51
  Speaker 1: going up really since March of two thousand. People are
• 24:53
  Speaker 1: saying that that though, honestly, and the more that I
• 24:56
  Speaker 1: speak with people, a fewer people are saying that we're
• 24:58
  Speaker 1: almost near the end and your crash and people are
• 25:01
  Speaker 1: saying it's six months twelve months. Yeah, maybe not that
• 25:04
  Speaker 1: many people are saying it, but but a lot of
• 25:05
  Speaker 1: people are holding onto cash, They're being cautious, they're chasing
• 25:08
  Speaker 1: lower risk securities like treasuries, and you know, I think
• 25:11
  Speaker 1: there's actually a bubble in the treasury market. Um. But anyway,
• 25:15
  Speaker 1: we're we we've had a long run anyway you look
• 25:17
  Speaker 1: at it. It's approaching three thousand, five hundred days of
• 25:20
  Speaker 1: appreciation with without a setback, So it's been a long
• 25:24
  Speaker 1: bowl market. Um. With that, you know, the macroeconomic trends
• 25:28
  Speaker 1: are very favorable, but you know, you can still find
• 25:31
  Speaker 1: very interesting value oriented equities within the market, and some
• 25:35
  Speaker 1: of them have these event type catalysts. And I think
• 25:37
  Speaker 1: that the stress market is a perfect place to find them. Okay,
• 25:39
  Speaker 1: So given the fact that we maybe a while out
• 25:42
  Speaker 1: yet before we see a market downturn, where are the
• 25:45
  Speaker 1: short positions? I mean, could companies go bust even in
• 25:48
  Speaker 1: this pretty benign time. Well, it's it's harder to short
• 25:52
  Speaker 1: sell well. Um, it takes a special sort of skill set. Um.
• 25:57
  Speaker 1: There's some companies that are extraordinarily overvalued, but you know,
• 26:00
  Speaker 1: you're not seeing the events that are driving them closer
• 26:02
  Speaker 1: to bankruptcy yet or are closer to drop. One of
• 26:05
  Speaker 1: the things that we do is we short companies headed
• 26:07
  Speaker 1: into trouble like that, and it's a little bit easier
• 26:10
  Speaker 1: because if you know they're going to run out of
• 26:11
  Speaker 1: money at a certain day, and you know that their
• 26:14
  Speaker 1: distressed debt is starting to sell off, then maybe you
• 26:17
  Speaker 1: can time their bankruptcy. And that's a big event on
• 26:19
  Speaker 1: the short side. If you're short selling company, it eventually
• 26:21
  Speaker 1: goes bankrupt. Um. So we're finding companies in the telecom space.
• 26:26
  Speaker 1: There's still some companies in the energy space. And then
• 26:28
  Speaker 1: of course there's a wait, there's still energy companies that
• 26:31
  Speaker 1: didn't go bankrupt downturn that you could see going under.
• 26:35
  Speaker 1: There are there are few and far between, but some
• 26:37
  Speaker 1: of them kicked the can down the road, you know,
• 26:40
  Speaker 1: they they restructured some of their debt or didn't really
• 26:43
  Speaker 1: restructure their debt, or made it through somehow, and and
• 26:46
  Speaker 1: so some of them will definitely still go bankrupt. And
• 26:48
  Speaker 1: when you talk about telecoms, certainly that sector has been
• 26:51
  Speaker 1: leveraging up dramatically, I mean from Frontier to to Dish
• 26:56
  Speaker 1: when it comes to trying to build out their networks
• 26:59
  Speaker 1: in rural area. Is from the case of Frontier, when
• 27:02
  Speaker 1: does sort of the road run out there, Well, it's
• 27:05
  Speaker 1: really a function of when the fixed income market stops
• 27:08
  Speaker 1: having an appetite to fund these cash flow negative business
• 27:11
  Speaker 1: plans at at such an aggressive level um. The multiples
• 27:15
  Speaker 1: of debt that you're seeing for some of these old
• 27:17
  Speaker 1: line telecom comm operators that are really struggling with secular
• 27:21
  Speaker 1: change UM and you know, weak cash flow or even
• 27:25
  Speaker 1: negative cash flow UM as well as upcoming debt maturities.
• 27:28
  Speaker 1: That's the key catalyst. If you get to an upcoming
• 27:31
  Speaker 1: debt maturity and they can't refinance because the fixed income
• 27:34
  Speaker 1: market becomes less hospitable, that's you know, a time when
• 27:37
  Speaker 1: you're thinking about a potential bankruptcy. Okay, So I'm looking
• 27:40
  Speaker 1: at Frontier right now. It has more than seventeen billion
• 27:42
  Speaker 1: dollars of debt, but it looks like it's big maturities
• 27:45
  Speaker 1: don't really start coming to until two or there are
• 27:48
  Speaker 1: other telecom companies that you're homing in on that have
• 27:52
  Speaker 1: more imminent debaturities. You know, there are a few, not
• 27:56
  Speaker 1: none that I wanted to close today on the radio.
• 27:58
  Speaker 1: One one that, you know, one in a different sector
• 28:01
  Speaker 1: that I think is very interesting and sort of like
• 28:04
  Speaker 1: I'm not going to give my hand. Yeah. Yeah, But
• 28:06
  Speaker 1: there's a different, you know, developing story that you guys
• 28:09
  Speaker 1: have covered very well here on Bloomberg with Tesla. You know,
• 28:13
  Speaker 1: it might be uh, you know, maybe too many people
• 28:15
  Speaker 1: are focused on it these days, but that's certainly one
• 28:17
  Speaker 1: that's we can talk Tesla following I'm a little sick
• 28:19
  Speaker 1: of it, but we can talk about Tesla. How do
• 28:21
  Speaker 1: you play Tesla at a time when this is a
• 28:23
  Speaker 1: belief based dock and and and debt play? Yeah, so
• 28:26
  Speaker 1: you have to be cautious, and you know, it's it's
• 28:28
  Speaker 1: been subject to you know, dramatic and emotional ups and
• 28:31
  Speaker 1: downs based on tweets and sleepless nights and being filled nights.
• 28:38
  Speaker 1: So that company has close to twenty billion dollars in liabilities,
• 28:41
  Speaker 1: including about eleven billion dollars in loans and bonds and
• 28:45
  Speaker 1: capital leases, so very heavy balance sheet. Um are you playing?
• 28:50
  Speaker 1: We aren't right now. We have in the past. Um,
• 28:52
  Speaker 1: but we'll be looking at it and watching it to
• 28:54
  Speaker 1: see if there's another opportunity to enter the trade. What's
• 28:57
  Speaker 1: what's the opportunity you're looking for? So what we're looking
• 28:59
  Speaker 1: there for potential short sale? Um. You know, the company
• 29:02
  Speaker 1: has hired a number of investment banks to help with
• 29:06
  Speaker 1: this proposed potential go private transaction. Um, we think it's
• 29:11
  Speaker 1: actually a lot of hot air and and uh, a
• 29:13
  Speaker 1: lot of people would agree with you, but it's sort
• 29:15
  Speaker 1: of we just have about three seconds here. But I'm
• 29:16
  Speaker 1: just curious, at what point do you say, all right,
• 29:19
  Speaker 1: now is the time to go in and short Yes,
• 29:21
  Speaker 1: So you have to wait for these sort of emotional
• 29:24
  Speaker 1: market drives, like when you have a tweet or something
• 29:26
  Speaker 1: else that gets people excited beyond reasonableness. And we saw
• 29:30
  Speaker 1: that recently. Um, you know, but but but interestingly, right now,
• 29:34
  Speaker 1: if the company is looking to raise capital for potential
• 29:37
  Speaker 1: buy out, you know the fact that you know the
• 29:39
  Speaker 1: CEO is under investigation by the SEC for market manipulation.
• 29:44
  Speaker 1: You know, it makes it much harder to do a
• 29:45
  Speaker 1: transaction like that, and I think that generally would spook
• 29:48
  Speaker 1: most investors, but we shall see how it plays out. Yeah,
• 29:51
  Speaker 1: a lot of the things you would expect as traditional
• 29:54
  Speaker 1: market behavior, it doesn't seem to work when it comes
• 29:56
  Speaker 1: to Tesla. George Shelty, thanks so much for being with
• 29:59
  Speaker 1: me today. Are really interesting to hear what you have
• 30:01
  Speaker 1: to say. George Shelty is chief executive officer of Shalty
• 30:04
  Speaker 1: Asset Management based in Purchase, New York. He joins us
• 30:07
  Speaker 1: here in our eleven three oh studios. Thanks for listening
• 30:14
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 30:17
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 30:20
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 30:24
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo wits one.
• 30:28
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 30:31
  Speaker 1: Bloomberg Radio