March 24, 2020 / 9:35 PM / 10 days ago

Breakingviews - Corona Capital: India on lockdown

MILAN/LONDON/NEW YORK/MUMBAI (Reuters Breakingviews) - Breakingviews has launched a daily column covering pandemic-related insights that you might have missed. Throughout the day, we’ll bring you shorter-than-usual views from columnists around the world with the same financial savvy on companies, economies and capital markets during this important unfolding story.

India's Prime Minister Narendra Modi speaks at the ASEAN-India Summit on the sideline of the 35th ASEAN Summit in Bangkok, Thailand November 3, 2019. REUTERS/Athit Perawongmetha

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- India on lockdown

NARENDRA MODI TESTS HIS METTLE. India’s prime minister has put the entire nation of 1.3 billion people under lockdown for three weeks. It might seem extreme given just 10 Covid-19 deaths reported so far, but as we wrote on Monday, India will have to face the pandemic on a shoestring. Plus, its economy was already on its knees, ravaged by soured corporate loans.

Many Indians have rushed to stock up on supplies. Modi needs to make sure the ordeal is manageable for poor, daily wage earners who work in the informal sector and have little in the way of cash savings. The government can borrow more or even raid the Reserve Bank of India’s reserves to fund cash handouts. It might make better sense to ensure a supply of free food. India has been quick to shutter businesses; now it will have to dig deep to manage the fallout. (By Una Galani)

IS CANNABIS A COVID-19 ESSENTIAL? Many consumers would say so. As urban lockdowns spread, the weed industry is lobbying for dispensaries to remain open, like supermarkets and pharmacies. San Francisco, Los Angeles and the Netherlands have already decided cannabis is crucial.

Staying operational is only one challenge for U.S. firms, which workforce research firm Leafly claims employ 240,000 people. Medicinal marijuana is permitted in two-thirds of states but illegal at a national level, so companies can’t borrow from big banks, nor request federal crisis funds. Yet they must still follow employment rules like offering paid Covid-19 sick leave.

Legislation to bring cannabis out of the cold has stalled and is unlikely to revive soon. A bill that would protect banks serving the industry from federal reprisals hasn’t yet passed in the Senate. That’s a shame: The coronavirus will wreak havoc on job creation, so nurturing a growing industry can only help. (By John Foley)

U.S. DRILLERS ADD LEASES TO THEIR WOES. Oil and gas companies in the Permian Basin are already reeling from the double whammy of falling demand due to Covid-19’s rout of global economies and the Saudi-Russia price war. That has prompted oil giants like Exxon Mobil and Chevron to cut production. Even the Texas Railroad Commission, which regulates the state’s extractive industry, is eyeing mandatory production cuts.

But they have another big problem. Reducing how much they pump makes some financial sense. But if companies don’t produce black gold at what is deemed to be a commercial rate, they could lose the lease for the land they’re operating on, law firm Haynes and Boone points out. That would force them to down tools completely, sparking even greater financial pain. To drill or not to drill is becoming a double-sided existential dilemma. (By Antony Currie)

PROSIEBEN’S PROBLEMS PILE UP. The Berlusconis, who aspire to acquire German broadcaster ProSiebenSat 1, have upped their stake to about 20%. This piles pressure on Chief Executive Max Conze, who has pushed back on the idea of consolidation as he struggles with the triple challenge of shares at decade lows, an exodus of disgruntled executives and the coronavirus.

Top shareholder Mediaset, controlled by former Italian Prime Minister Silvio Berlusconi’s family, dislikes Conze’s push into e-commerce and digital. The German also got a thumbs down from investors for splashing $500 million on U.S. dating-app developer Meet Group just as the pandemic forced millions into lockdown. With Mediaset breathing harder down his neck, Conze needs to come up with a more popular Plan B. (By Lisa Jucca)

VIRUS UNEARTHS NEW CORPORATE SPECIES: ESG LEMMINGS. The UK’s largest sports retailer, Sports Direct, tried to keep its doors open despite Britain’s near-total lockdown on non-essential stores. Its rationale: it owns some bicycle shops, which can stay open; people are still allowed to exercise, just about; and it sells some fitness equipment. 

Given he mainly sells cheap sports clothing, Chief Executive Mike Ashley was asking to be given short shrift by unimpressed government ministers. He now faces the worst of both worlds – stores that will only open if the state agrees, which it won’t, and a bottom-of-the-class showing on environmental, social and governance principles – remember those? Companies that care about ESG are supposed to provide healthy working conditions. No disrespect to Sports Direct’s social-distancing protocols, but staying open was a funny way to do that. (By George Hay)

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