Unable to repay the loan, the "Prince of Suning" lost Inter Milan, and the receiver showed the claws of the "scavenger".

Tencent News Prism

2024-05-23 18:09Published on the official account of the "Prism" column of Tencent News in Beijing

Howard Marks, Founder and Co-Chairman of Oaktree Capital, visited Shanghai during the 2019 Lujiazui Forum and spoke at the forum. Image source: Visual China

Author | Wen Shijun Zheng Jiani  

Edit | Wang Weikai

Produced by | Prism Tencent Xiaoman Studio

Serie A giants Inter Milan finally failed to escape the fate of "winning the championship and changing hands".   

On the evening of May 22, Beijing time, Oaktree Capital, an international asset management giant, issued a statement that Oaktree Capital took over the Inter Milan club due to the failure of Inter Milan Holding Company to repay the loan and interest of 395 million euros. This is the first time in the history of the Inter Milan team that it is controlled by an American company. Prior to that, its controlling shareholder was Suning from China.

On April 23, in a Milan derby, Inter Milan 2-1 AC Milan, stepping on the city's sworn rivals, won the Serie A championship five rounds in advance, which was the team's 20th Serie A title.

On the same day, Zhang Kangyang, chairman of Inter Milan Club and "Prince Suning", issued a long letter: "20, what a great number! 116 years have passed, and now we are finally here. ”

However, within a month of the blue and black jersey embroidered with the "two stars", the competition for the ownership of the team also came to a critical period due to the approaching "deadline" of the debt maturity date. In the end, Oaktree Capital "came as promised".

On May 18, Zhang Kangyang issued a public statement saying that he had been seeking an amicable solution with his partners, but the results were clearly not satisfactory. Zhang Kangyang also said in the letter that Oaktree's "legal threats" and "malicious behavior" would jeopardize Inter's stability.

Oaktree Capital, for its part, said it is committed to the long-term success of the Nerazzurri, with the primary goal of ensuring the club's operational and financial stability.

From entering the ownership to being out, Inter Milan has completed the 8 years of the "Suning era".

The team is on the rise and the youngest chairman is out

In addition to Inter Milan, Suning also owned Suning Football Club and women's football team, and its PPTV has also purchased the rights of many events.

The combination of Suning and Inter Milan dates back to 2016. On June 6 of that year, the two parties held a press conference in Nanjing, announcing that Suning would acquire a 68.5% stake in Inter Milan for about 270 million euros. Suning became the first Chinese company to hold a controlling stake in the top clubs of the five major leagues, and European football ushered in "Zhang's Inter".

On October 26, 2018, Inter Milan FC announced that Zhang Kangyang, the son of Suning founder Zhang Jindong, became the new chairman. At that time, Zhang Kangyang was only 27 years old, the youngest chairman in the history of the team.

At that time, Suning had not yet had a crisis, whether it was Suning Football Club or Inter Milan Club, Suning had invested heavily in it. Some Italian media have reported that Suning has invested 625 million euros in the operation of the Nerazzurri from the time it became the owner to mid-2020.

In the more than five years that Zhang Kangyang has been president, Inter Milan has achieved quite good results.

In the 2019-2020 season, Inter Milan was the runner-up in Serie A by one point; A year later, they made a comeback, and after 10 years, they once again reached the top of Serie A; In the 2022-2023 season, they returned to the Champions League final, and at that time, Zhang Jindong even made a high-profile appearance to watch the game with Suning employees across the country, but unfortunately lost to Manchester City by 1 goal; This season, Inter Milan won the Serie A title five rounds ahead of schedule.   

Two Serie A titles, two Italian Cups, three Italian Super Cups, and seven championship trophies have made Zhang Kangyang the third most chairman in team history, and this century-old team has also regained the brilliance of the "giants".

A veteran Inter Milan fan told the author that although Zhang Kangyang's Inter Milan is not as good as Moratti's in terms of achievements, it can be regarded as creating its own era, and it has indeed left many beautiful moments for fans in recent years.

"Some people say that Zhang Kangyang is the third-ranked president in the history of the Inter team, and I think this assessment is relatively pertinent." The fan said.

However, the soaring momentum on the pitch failed to alleviate the club's financial woes, and control was even put on the table.

In 2021, Suning was already in a deep debt crisis and could not afford to transfuse blood for Inter Milan. In May of that year, Inter pledged its control to Oaktree Capital for a three-year loan worth 275 million euros at an annual interest rate of 12%. If the €375 million in principal and interest cannot be repaid by May 21, 2024, Oaktree Capital will become the club's new owner.

In the end, when the repayment deadline came, Suning and Zhang Kangyang failed to find a new financier, and they were finally out of the battle for control.

It is worth noting that in the Chinese Super League, Suning's Suning Football Club won the first Chinese Super League championship in team history in 2020. But at that time, Suning was already in a liquidity crisis, and not long after winning the championship, the new king of the Chinese Super League announced that it would cease operations and eventually withdraw from the Chinese Super League.

Inter certainly won't end up like this. Under Zhang Kangyang's leadership, Inter Milan's financial situation is also turning. Inter Milan's financial report shows that the club's losses have fallen from €140 million to €86 million compared to the 2021/22 financial year. In the financial report for the first half of the 2023/24 fiscal year, Inter Milan has achieved the first "turnaround" in the Suning era, achieving a profit of 22.3 million euros.

A century-old wealthy family that has already made money is obviously a better asset. At present, Inter Milan is also on the rise. Oaktree Capital will be on the verge of selling to find a new owner for the club.

Vultures hover over Inter

For Oaktree Capital, they had no intention of becoming the owners of the football club. After all, it is the "original intention" of Oaktree Capital to release the loan and get the principal and interest back on time, and it was an "accident" to win Inter Milan.

Oaktree Capital was founded in 1995 by Howard Marks. Born in 1946 in New York to a Christian Jewish family, Howard Marks graduated from the Wharton School and the University of Chicago Graduate School of Business.

The Wall Street Journal called him a "pioneer in the Wall Street cemetery" precisely because Howard Marks has gradually grown into one of the most important figures in the investment of distressed assets in the US financial market during his career, putting money into high-risk projects that other institutions are unwilling or afraid to touch, and being able to win a higher return on investment.

In 1995, Howard Marks set up his own business and founded Oaktree Capital. In 2019, Oaktree Capital incorporated the Toronto-based Brookfield assets while maintaining independent operations. The latter has become the world's largest alternative asset investment firm on a par with Blackstone.   

At present, Oaktree Capital's assets under management (AUM) has risen from $5 billion raised by Howard Marks when he started his business to $192 billion by the end of the first quarter of 2024, making it the world's largest "vulture fund".

"Is this an attractive deal?" Howard Marks once talked about his principles for investing: it all depends on price, terms and risk.

Three years ago, in May, Suning sought a loan from Oaktree Capital. In that year, Suning Tesco suffered a huge loss of 44.179 billion yuan, and the founder Zhang Jindong stepped down as chairman. Not only has the entire Suning system fallen into an unprecedented liquidity crisis, but Inter Milan has also had difficulty in revenue due to the pandemic.

Suning found Oaktree Capital and happened to enter the airspace of this vulture fund: lending money to risk institutions or buying temporarily risky assets at a lower price, and using capital strength to go through the cycle, with the purpose of obtaining more generous returns. In fact, in the current investment asset allocation portfolio of Oaktree Capital, the credit component accounts for 75%, while the investment in listed company stocks accounts for only 4% of the asset size.

Howard Marks and Warren Buffett have a deep affection for each other and quote each other. Howard Marks once said something similar to Warren Buffett's "fear-greed" theory: "When investors panic, we should be more aggressive." ”

This kind of "positive" is the basic quality of Oaktree Capital as a "scavenger" in the capital market. A well-known case is that at the end of 2022, when a large Chinese real estate developer's trillion-dollar debt was just showing signs of risk. Oaktree Capital has already taken the lead by selling a piece of undeveloped land in Hong Kong pledged by the developer for US$637 million before other creditors around the world.   

The sale cost the large developer $770 million on its books, but the $520 million secured loan provided by Oaktree Capital was safely exited.

In addition, the developer pledged its flagship project in East China, Jiangsu Province, to Oaktree Capital for a loan of more than $400 million. Similarly, after failing to repay the debt when due, Oaktree Capital acquired control of the project under the contract.

"There aren't many bold and old investors"

While "vulture" may not sound like a good term, the returns from investing in distressed assets are real.

This has brought a large number of clients to Oaktree Capital, including insurance companies, wealthy family offices, national sovereign wealth funds, endowments, corporate annuities, FOFs, and even union funds that will be managed by Oaktree Capital for better investment returns. In fact, 39 out of 50 U.S. states have pensions that are Oaktree clients.

Like many analyst-turned-finance tycoons, Howard Marks has been writing memos for many years to summarize his philosophical reflections on contrarian investing. Warren Buffett is also a reader of his memo: "When I saw an investment memorandum written by Howard Marks in the email, the first thing I did was open it and read it immediately. ”

Even in 2023, when Howard Marks began treatment for throat cancer, the writing of the memo did not stop. In a memo dated July 10, 2023, he recalled the experience of "beating the market five times":   

foresaw the dot-com bubble in advance in January 2000; warned investors to watch out for a recession in July 2007, but increased their holdings in 2008 when the financial crisis hit. In 2012, he sang long the stock market in advance, but bought aggressively when the epidemic broke out in 2020. In fact, Oaktree Capital's loan to Suning's Inter Milan and the injection of $1 billion into a large Chinese real estate developer are also a continuation of the idea of increasing positions during the epidemic.

Just recently, on May 8, 2024, Howard Marks addressed the question of whether you should borrow in his latest memo: Is debt a bad thing? Should it be avoided? "Of course not".

However, it is important to be cautious when it comes to leveraging debt. Ward Marks quoted an aphorism in the memo: "There are old investors and there are bold investors, but there are not many bold and old investors." He has also said, "Some people with high understanding recognize that understanding risk is just as important as reaping benefits." ”

These words may have a good reference significance for today's Suning Department and its "difficult friends". 

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Personal opinion, for reference only