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Breakingviews – Corona Capital: China, Lufthansa, Tesco

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HONG KONG/LONDON (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Helping China’s small firms

– Lufthansa

– Tesco

MINNOW MONEY. The People’s Bank of China is preparing to buy loans made directly to small firms by commercial banks to the tune of 400 billion yuan ($56.2 billion) per quarter. The aim is to inject around 1 trillion yuan into struggling private companies that ordinarily represent big risks to bank balance sheets, and which are also responsible for a majority of the country’s jobs. They have been hit hard by Covid-19, but this move reinforces suspicions that loan officers have been reluctant to fund these businesses, despite relentless pressure from the central government.

The rub is that anyone using the facility will need to pay it back in a year. The central bank also will not bear the risk if loans sour. This conservatism might sabotage the goal; China is unlikely to leap back to health so quickly, which means the money will go to smaller state-owned enterprises – or nowhere at all. (By Pete Sweeney)

SLOT MACHINES. Deutsche Lufthansa has come up with a partial answer to the question of how to value airport slots. Shares in the German carrier climbed as much as 8% on Tuesday, the first trading day after the European Commission watered down demands for it to surrender 72 take-off and landing openings in return for approval of a 9 billion euro state rescue. Instead, Lufthansa will only lose 24 slots at the Munich and Frankfurt hubs where it accounts for two-thirds of flights.

What looks like a mini-victory for Chief Executive Carsten Spohr is not necessarily a setback for European Union antitrust chief Margrethe Vestager. She was never going to get her opening gambit, but at least now has some measure of how much a slot might be worth. Based on the 350 million euros added to Lufthansa’s market capitalisation, the 48 slots it is keeping come out at 7 million euros a pop. (By Ed Cropley)

PARTING GIFTS. Tesco’s clear-out of executives may come with a sting. Although the 22 billion pound grocer has enjoyed record sales during the coronavirus pandemic, its finance chief, Alan Stewart, is following in the footsteps of Chief Executive Dave Lewis, who will step down at the end of September. The duo deserve credit for steadying the ship after an accounting scandal in 2014. But a brewing pay row may sour relations with investors.

Tesco is stripping out online retailer Ocado from its peer group when calculating bonuses. The result will see Stewart pocket nearly 1 million pounds on top of his 750,000 pound salary and pension perks. Tesco’s defence is that Ocado, which also sells warehouse technology, is not really a grocer and is skewing the benchmark. This would be an easier argument to make if Ocado hadn’t also experienced a grocery boom since lockdown began. Investors will get a chance to have their say at the annual shareholder meeting on June 26. Tesco bosses may find their leaving presents are handed out reluctantly. (By Aimee Donnellan)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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