SUPERNEWS

Equities

Power Sustainable Exits China, Eyes Alternatives After C$12M Charge

Power Sustainable exits China equities, taking a C$12 million charge, to focus on alternative assets and stabilize earnings.

By Athena Xu

ᐧ

5/9, 11:19 EDT
article-main-img

Key Takeaway

  • Power Sustainable exits China equities, liquidating its portfolio and planning to return funds to investors, aligning with a focus on alternative assets.
  • The move incurs a C$12 million restructuring charge for Power Corp., despite expecting C$500 million in proceeds from the liquidation.
  • Analysts view the exit as positive, reducing earnings volatility and refocusing on higher growth areas.

Strategic Shift for Power Sustainable

Power Sustainable, a subsidiary of Power Corp. of Canada and part of the Desmarais family's financial empire, has announced a significant shift in its investment strategy by exiting its investment management operations in China. This move includes winding down its public equities strategy within the country, as revealed in a recent filing by Power Corp. The firm has already liquidated its Chinese stock portfolio and is in the process of returning funds to investors. This decision aligns with Power Sustainable's broader strategy to concentrate on growing its alternative asset management business, with a focus on raising third-party capital.

Financial Implications

The restructuring of Power Sustainable's operations in China comes with financial consequences. Power Corp. of Canada is set to take a restructuring charge of C$12 million ($8.8 million) due to this strategic pivot. Furthermore, Power Sustainable reported a loss of C$33 million in the first quarter from asset management and investment activities. Despite these losses, the liquidation of the Chinese equities portfolio is expected to generate approximately C$500 million in proceeds, according to TD Cowen analyst Graham Ryding. This capital is anticipated to provide financial flexibility, potentially aiding in share buyback initiatives.

Market Reaction and Analysis

The decision to exit the Chinese equities market has been met with a positive response from market analysts. Graham Ryding of TD Cowen highlighted that the move is beneficial as it reduces earnings volatility associated with the Chinese equities platform. The strategic withdrawal from China's public equities sector is seen as a step towards stabilizing Power Sustainable's financial performance and focusing on areas with potentially higher growth and returns. This shift reflects a broader trend among investment firms to reassess their geographic and sectoral allocations in light of evolving market dynamics and investment objectives.

Street Views

  • Graham Ryding, TD Cowen (Bullish on Power Corp. of Canada's decision):

    "The decision to exit China equities is a positive one, given this platform added to earnings volatility."