Investing in the Future of Emerging Markets

Highlights from a Q&A with Lord Browne of Madingley, speaking at Cleary Gottlieb’s Investing in the Future of Emerging Markets conference.

Working for oil and gas exploration giants BP since 1966, Lord John Browne knows emerging markets. In his time as CEO from 1995 to 2007, Lord Browne turned BP into a global giant. He was also the first leader of an oil and gas company to acknowledge the link between burning fossil fuels and climate change in 1997.

Currently the chairman of several companies, including L1 Energy and Huawei, Lord Browne shared his experience of the emerging markets sector at the Investing in the Future of Emerging Markets conference on June 26th.

Opportunities in Emerging Markets Today

People often assume that the oil and gas industry prefers to deal with strongmen and dictators because it’s easier to get quick decisions. However, this is rarely the case, for a few reasons.

First, if you depend on one person, you’re dependant on their success – and on their failure. You are also subject to their whims, which leaves you exposed to risk. Secondly, growth and progress only occur when people are free to innovate and exchange ideas. In the long run, societies based on exclusion rather than inclusion will struggle to succeed.

It has always been crucial to get in first and build long-term and resilient relationships. You have to really connect to the society in which you’re operating, from heads of state to local communities. Listen and engage – but never make assumptions.

Technology, in particular its effect on information flow and transparency, presents an important opportunity in emerging markets. There are now more mobile phones in Africa than in Europe, which is driving the rise of innovative new financial platforms, markets and public services. For investors, it has made business safer and easier to conduct by enabling improved activity monitoring – by all parties.

The Role of Shale Gas and Clean Energy

Another change across the industrial landscape is the rise of shale gas and clean energy – but these are two trends we need to keep in perspective.

The shale revolution is extraordinary, but it currently supplies less than 10% of global oil demand. It is also highly responsive to market conditions and therefore extremely volatile, in contrast to the more capital intensive and long-term projects that tend to characterise activity outside the US.

Renewable energy is meeting a growing share of demand, but starting from a very low base. It is certainly creating huge new opportunities for communities that have been disconnected from the grid and traditional sources of power, but it’s unlikely to make a noticeable impact on economies that depend on hydrocarbons – at least not in the lifetime of Lord Browne.

Looking Ahead

In the oil and gas sector, it is important to keep an eye on regions which are opening up – often as a result of political reform or new discoveries. For these reasons, Mexico, Brazil and West Africa have all become exciting propositions. On the other hand, some areas seem to be closing up, such as Norway, which is increasingly talking about getting out of hydrocarbons.

Responsible Business for Tomorrow

Environmental Impact

As the global population grows, the task of keeping temperature rises below 2 degrees will get significantly more difficult. We have the technologies we need to do this, such as renewable energy and carbon capture and storage. But we do not yet have the policies, behaviours and incentives needed to deploy them at scale. Business leaders around the world increasingly believe that a global carbon tax is the best way to do this – providing it supports economic growth and minimises the costs to vulnerable communities. Lord Browne  had been advocating for this for more than two decades, and will continue to do so.

Duty of Care

There is always a duty, whatever the community you’re working in, to do things in the right way – for society and for the people you’re directly responsible for. That’s why being an investor is important. It gives you a voice. It’s a way of influencing the direction of a company. If you don’t take that place, someone else may do so – and they might not share your values.

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Biography of Lord Browne of Madingley

Lord Browne was born in 1948. He holds degrees in Natural Sciences from Cambridge and an M.S. in Business from Stanford.

Career

He joined BP in 1966 as a university apprentice, between 1969 and 1983 had a variety of exploration and production posts in North America and the UK, and in 1984 became Group Treasurer and Chief Executive of BP Finance International. He held senior roles during the BP/Standard and BP/Amoco mergers in 1987 and 1998 and was appointed Group Chief Executive in 1995. He left in 2007.

He is Executive Chairman of L1 Energy and Chairman of Huawei UK, Stanhope Capital, and the Accenture Global Energy Board. He sits on the boards of Pattern Energy and IHS Markit, and is a member of the advisory boards of Edelman, Schillings, and the big data technology companies Afiniti, Kayrros, and Windward.

Lord Browne was voted Most Admired CEO by Management Today every year between 1999 and 2002, was knighted in 1998, and made a life peer in 2001.

He was Chairman of the Trustees of the Tate Galleries from 2009 to 2017. He is currently Chairman of the board of the Donmar Warehouse, Chairman of the Courtauld Institute of Art, and a Trustee of the Holocaust Educational Trust. He is a member or Chairman of the boards of a number of other organisations, including the Blavatnik School of Government in Oxford.

He is Chairman of the Francis Crick Institute, and is a Fellow and past President of the Royal Academy of Engineering. He is a Fellow of the Royal Society and the Institute of Materials, Minerals and Mining, and an Honorary Fellow of a number of institutions.

He was the UK Government’s Lead Non-Executive Board Member from 2010 to 2015, and chaired the committee that authored the Browne Report, an independent review of higher education published in 2010.

Awards

In 1999, The Royal Academy of Engineering awarded him the Prince Philip Medal for his outstanding contribution to engineering. He has also been awarded Honorary Doctorates from a number of leading universities, is an Honorary Fellow of John’s, Cambridge, and is a Senior Member of St Antony’s College, Oxford.

Interests/Publications

His interests are 16th- to 18th-century illustrated Italian books; pre-Columbian art; contemporary art; music; opera and the theatre; and Venice.

Lord Browne is the author of four books, Beyond Business, Seven Elements that Changed the World, The Glass Closet: Why Coming Out is Good Business and the Sunday Times bestseller Connect: How Companies Succeed by Engaging Radically with Society. His fifth book – Make, Think, Imagine: Engineering and the Future of Civilisation – will be published in May 2019.

We are entering a new era of geopolitical challenge and opportunity. Between escalating trade tensions and technological developments, today’s emerging markets demand globalised thinking and on-the-ground expertise.

On June 26, panelists and guests gathered at Cleary’s London office to discuss how businesses can invest in emerging markets for the long term, regardless of political and economic headwinds.

PANELS

• A Clear View – Understanding the Complexities of Africa’s Sovereigns
  In recent years, a series of seismic shifts has changed the established geopolitical and economic order across Africa. Falling commodity prices, adverse interest rate movements and increased debt vulnerabilities have all impacted the outlook of sovereigns and reframed investment considerations on the continent.
• Leveraging Disruption – Investing Through Political Change
  When it comes to investment environments, disruption is the new normal. Emerging markets investors are facing the most significant political changes in a generation. From regime change to trade tensions to rates, investing in this newly altered climate demands a fresh strategy.
• Digging Deep – Lessons Learnt From 30 Years of Natural Resources Investing
  The last few decades of unparalleled global growth created a buoyant, if dynamic, resources market. But it’s also one that’s been socially, politically and environmentally fractious. Today, paradigms are shifting. The hunt for new deposits, and changing ownership patterns and legislation are combining with growing investor activism and public awareness to reset the way resource investment works.
• Shifting the Balance: Opportunities From Bankruptcy Reforms in Emerging Markets
  Changes, often radical, to insolvency laws are shaking up big business across Emerging Markets and reforming the way many of these businesses will be operated. Granting creditors more control is opening up a world of opportunities for investors in some of the world’s most exciting emerging markets. This panel will offer a Western perspective on these reforms and their impact.

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(Timing and rooms to be confirmed at a later date.)

A Clear View – Understanding the Complexities of Africa’s Sovereigns

Panelists:

• Reza Moghadam, Vice Chairman of Morgan Stanley for Sovereigns and Official Institutions

Reza Moghadam is Vice Chairman at Morgan Stanley, having joined the firm in 2014. Prior to joining the private sector, Reza served for 22 years at the International Monetary Fund, spending much of his career as a key IMF crisis manger. Given his expertise, Christine Lagarde appointed Reza to direct the European Department during the Eurozone crisis, where he was responsible for dialogue with European policymakers from 2011 to 2014. Before this, Reza spearheaded the IMF’s response to the Global Financial Crisis, having been asked to head the Strategy, Policy and Review Department by Dominique Strauss-Khan. Reza also held a number of different senior roles at the IMF including head of the Managing Director’s office under both Rodrigo de Rato and Strauss-Khan, and senior positions in the Asian department.

At Morgan Stanley, Reza’s mandate includes working with sovereigns and the official sector, as well as advising clients across the banking, capital markets and investment franchises on global issues, particularly economic and geopolitical developments. Drawing on his experience both in the public sector and with markets, Reza is a regular contributor to the global policy debate, with a particular focus on Europe. He has written publically on a number of issues, including central bank policies, cryptocurrencies, Brexit and Eurozone reform.

• Daniela Re Fraschini, Assistant Vice President at Moody’s

Daniela Re Fraschini is an Assistant Vice President in Moody’s Sovereign Risk Group. Based in London, she is the lead analyst for a number of European and African sovereigns.

Prior to joining Moody’s, Daniela worked for five years at the Asian Development Bank as a risk management specialist. Prior to that, Daniela spent more than six years with Unicredit Group. In her last position she was leading the sovereign risk team in the Risk Management Department. She started her career at Unicredit as an economist in the Research and Strategy Unit.

• Mitu Gulati, Professor of Law Duke University – Sovereign debt specialist

Mitu Gulati is on the law faculty of Duke University in North Carolina.  His research focuses on the evolution of contract terms in standard-form international finance documents. He has written extensively about the sovereign debt market in particular.  His current research is aimed at measuring the market penalty (if any) that sovereigns debtors suffer when the assert legal defenses against debts of prior regimes that might have corruptly incurred.

Leveraging Disruption – Investing Through Political Change

Panelists:

• Karim Nasr, Chief Financial Officer at La Mancha

Karim is the acting CEO of the La Mancha group, a privately held Gold mining investment company with a portfolio of assets of over US$1 billion in Australia and West Africa. Karim Joined La Mancha as its Chief Financial Officer in 2018. Prior to joining La Mancha, Karim was the CEO and CIO of Digital World Capital (DWC), a London based investment manager investing globally and across the capital structure in Telecom and Media companies. At DWC, Karim was in charge of the investment strategy and risk management for the DWC Cross Com Fund on discretionary basis, and was in charge of the special situations investment advisory practice for private clients on a non-discretionary basis.

Prior to DWC, Karim was in charge of Corporate Finance for Wind Telecom, one of the largest mobile operators by subscribers, and member of the group’s Executive and Investment Committees. From 2001 to 2011, Karim led over 225 financing and investment projects in the telecom sector. He closed US$68 billion in debt and equity financings, US$67 billion in M&A and was actively managing up to US$30 billion of liabilities. Karim joined in 2000, first serving within the business development group of Orascom Telecom, where he participated in the acquisition of greenfield licenses, and successful operational launch of 6 wireless operators. Karim served on the boards of Wind Telecom (Italy), Wind Telecomunicazioni (Italy), Wind Hellas (Greece), Telecel Globe (Sub Saharan Africa), as well as on the board of most of the group’s holding and financing companies.

From 1995 to 1999, Karim was the CEO of Anzima s.a.l., a Lebanese IT consulting and software firm. He started his career in 1994 at An-Nahar s.a.l., a Lebanese print media group.

Karim holds a Masters in Management from the University of Paris IX Dauphine with a major in Finance. He is fluent in English, Arabic and French.

• Simiso Velempini, Managing Director at Africa K2 Business Intelligence

Simiso Velempini is a managing director and head of the Africa practice of K2 Intelligence. She has extensive consulting and advisory experience in sub-Saharan Africa and has lived and worked in the region.

Simiso’s work includes advising clients on market entry and providing ongoing political analysis and business intelligence across Africa. She is adept at supporting clients in understanding the political and reputational risks they face when conducting business on the continent; she is frequently used as a sounding board for clients when considering strategic decisions.

Prior to joining K2 Intelligence, Simiso was based in Johannesburg where, as vice president of reputation management at Barclays Africa, she advised the business on reputation management for specific issues related to transactions and relationships across 12 African markets. Before joining Barclays, Simiso worked as the Southern Africa analyst at Control Risks, where she provided bespoke analysis and risk consultancy for governmental, commercial, and NGO clients across a range of sectors in Southern and East Africa.

Digging Deep – Lessons Learnt From 30 Years of Natural Resources Investing

Panelists:

• Lord Browne, Former CEO of BP
  
  
• Craig Fish, Group Head of Corporate Finance at Anglo American

Craig Fish has been Group Head of Corporate Finance since January 2016, reporting to the Group Finance Director Stephen Pearce, and is based in London. Within this role, Craig has accountability for M&A execution (including the Group’s recent extensive divestment programme), capital management, and integrated planning. Craig is a member of the Group’s Investment Committee.

Having joined Anglo American’s Platinum Business in South Africa, as a bursar student, in 1998, Craig has worked across a number of finance and cross-functional teams, which included stints in the Platinum and Copper Businesses as well as several Group Functional roles. Craig has worked for Anglo American in Johannesburg, Santiago, and London.

Craig’s previous senior leadership roles include that of CFO of the Copper Business and Head of the Chief Executive’s Office under the previous Chief Executive, Cynthia Carroll, as well as the current Chief Executive, Mark Cutifani.

Craig’s prior experience also includes roles leading performance and risk management within the Global Supply Chain team, as well as a previous stint as Manager in the Corporate Finance team in South Africa.

Craig is a Chartered Accountant (SA) and holds a Bachelor of Commerce degree (University of Johannesburg) and a Post-graduate Honours degree in Accounting (University of South Africa).

• Ondra Otradovec, Head of M&A at ArcelorMittal

Ondra Otradovec is Vice President and the Global Head of Mergers and Acquisitions at ArcelorMittal.

Ondra joined ArcelorMittal in May 2003 as the Director for Corporate Finance and Advisory participating in many transformational transactions for the Group. The most significant acquisitions completed include PHS in Poland, Kryvorizhstal in Ukraine, Hunan Valin in China, Sicartsa in Mexico, ThyssenKrupp Steel USA in Alabama, and ILVA in Italy. He was also involved in the creation of the largest steel company in the world by the acquisition of Arcelor by Mittal in 2007. He has been leading the M&A team at ArcelorMittal since January 2015 reporting to the Group CFO Aditya Mittal.

Ondra serves on the Board of China Oriental, HK listed Group subsidiary and on the Board of ArcelorMittal Tubular Products Jubail, Group’s joint venture in Saudi Arabia.

Prior to joining ArcelorMittal, Ondra spent nine years in investment banking at Samuel Montague, James Capel, and HSBC Investment Bank. He graduated from State University of New York at Stony Brook.

Shifting the Balance: Opportunities From Bankruptcy Reforms in Emerging Markets

Panelists:

• Arundhati Bhattacharya, Former Chairman of State Bank of India

Arundhati Bhattacharya has 40 years of rich experience in India’s financial sector working across varied roles and diverse national and international locations.

During her four-year tenure as the first-ever woman Chair of the State Bank of India (the “Bank”), she stamped her imprint on the financial world, not just in India but globally as well.

Bhattacharya has expertise and deep understanding of all aspects of banking, spanning the domains of credit, forex, treasury, retail operations, mergers and acquisitions, in addition to the capital and bond markets.

She is credited with upscaling the Bank’s technology initiatives in order to give it a digital edge that has been acknowledged by Industry as path breaking. Other notable initiatives during her Chairmanship include the overhauling of the Bank’s risk structure and implementation of various technology tools for this purpose, as well as enhancing enterprise-wide risk awareness and sensitivity through various training initiatives. She also engineered the merger of the mother Bank with its six associate banks, creating an entity three times the size of its nearest competitor.

Her work in the area of Human Resources, with special focus on the status of women and “challenged” members of the work force, has also been of special significance. Forbes magazine ranked her 25th in their list of “Most Powerful Women in the World” and 5th in “The Most Powerful Women in Finance” category in 2016. She has also been featured in the Fortune “Most Powerful Women” list and ranked 26th in the fourth edition of Fortune’s World’s 50 Greatest Leaders list, becoming the only Indian corporate leader to be featured in the list.

• Antje Gaensler, Director at Lazard

Antje Gaensler is a Director in the Restructuring Team. Antje joined Lazard in 2017 from Gleacher Shacklock LLP where she worked in the Special Situations group. Antje’s experience includes financial restructuring advisory roles working for both creditors and debtors.

Prior to that, Antje was Director Investments at HARDT Group, a family office, in London and an associate in the structured finance team at Linklaters LLP.

Antje has recently completed the successful restructuring of OTAS where she advised the lenders on the enforcement process which lead to lenders taking control through an SPV structure of the 55% shareholding in Turk Telekom. Antje is also currently advising the lenders to IDO.

Other notable recent transactions include Danaos, Kalle, Tirreno Power, Budapest Airport and Telepizza.

• Kofi Bentsi, Senior Vice President at PIMCO

Kofi Bentsi is a Senior Vice President and Portfolio Manager for PIMCO, one of world’s premier fixed income investors, based out of their London office. He has over 20 years of investment experience in Emerging Markets.

He focuses on the selection, execution and management of investments decisions on Emerging Markets fixed income assets for a number of PIMCO’s funds and investment vehicles, working closely with the firm’s global macroeconomists and sector analysts in the investment decision making process; he is also the lead portfolio manager on EM corporate credit strategies and sits on the EM investment committee.

Bentsi originally joined PIMCO’s Newport Beach offices in 2012 after extensive experience on the sell side, having worked at Credit Suisse, JP Morgan and Morgan Stanley in Emerging Markets.