The Obama administration on Monday plans to announce a campaign to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence mounts that a $75 billion taxpayer-financed effort aimed at stemming foreclosures is foundering.
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Ruth Fremson/The New York Times
In February, President Obama announced the program to help keep people in their homes.
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Winning Lower Payments Takes Patience, and Luck (November 29, 2009)
“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.”
Even as lenders have in recent months accelerated the pace at which they are reducing mortgage payments for borrowers, a vast majority of loans modified through the program remain in a trial stage lasting up to five months, and only a tiny fraction have been made permanent.
Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.
“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.
From its inception early this year, the Obama administration’s program, called Making Home Affordable, has been dogged by persistent questions about whether it could diminish a swelling wave of foreclosures. Some economists argued that the plan was built for last year’s problem — exotic mortgages whose payments increased — and not for the current menace of soaring joblessness. Lawyers who defend homeowners against foreclosure maintained that mortgage companies collect lucrative fees from long-term delinquency, undercutting their incentive to lower payments to affordable levels.
Last month, an oversight panel created by Congress reported that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent under Making Home Affordable. When the Treasury releases new numbers next month, it is expected to report a disappointingly small number of permanent loan modifications, with estimates in the tens of thousands out of the more than 650,000 borrowers now in the program.
More unsatisfactory data is likely to intensify pressures on the Obama administration to mount a more muscular effort to stem foreclosures beyond the Treasury’s campaign this week. Populist anger has been fanned by a growing perception that the Treasury has lavished generous bailouts on Wall Street institutions while neglecting ordinary homeowners — this, in the midst of double-digit unemployment, which is daily sending more households into delinquency.
“I’ve been very frustrated by the pace of the program,” said Senator Jeff Merkley, an Oregon Democrat who sits on the Senate Banking Committee. “Very few people have emerged from the trial period.”
Though the administration’s program was initially proclaimed as a means of sparing three to four million households from foreclosure, “they’re going to be lucky if they save one or one-and-a-half million,” said Edward Pinto, a consultant to the real estate finance industry who served as chief credit officer to the government-backed mortgage company Fannie Mae in the late 1980s.
A White House spokeswoman, Jennifer R. Psaki, said the administration would continue to refine the program as needed. “We will not be satisfied until more program participants are transitioning from trial to permanent modifications,” she said.
Capitol Hill aides in regular contact with senior Treasury officials say a consensus has emerged inside the department that the program has proved inadequate, necessitating a new approach. But discussions have yet to reach the point of mapping out new options, the aides say.
“People who work on this on a day-to-day basis are vested enough in it that they think there’s a need to do a course correction rather than a wholesale rethink,” said a Senate Democratic aide, who spoke on the condition he not be named for fear of angering the administration. “But at senior levels, where people are looking at this and thinking ‘Good God,’ there’s a sense that we need to think about doing something more.”
Mr. Barr, who supervises the program, portrayed such deliberations as part of a constant process of assessment within the Treasury. He expressed confidence that the mortgage program had sufficient tools to deliver relief, characterizing the slow pace as reflecting a lack of follow-through, and not structural defects requiring a revamping.
“We’re seeing a failure by some of the bigger banks on execution,” Mr. Barr said. “We’re going to be quite focused and direct on particular institutions that are not doing a good job.”
The banks say they are making good-faith efforts to comply with the program and provide relief.
“We’ve poured resources into this,” said a spokesman for JPMorgan Chase, Tom Kelly. “We’ve made dramatic improvements, and we continue to try to get better.”
Some senators contend that the Treasury program, addressing mortgages whose low promotional interest rates had soared, is outmoded. At this point, foreclosures are being propelled by joblessness, which is sending millions of previously credit-worthy people with ordinary mortgages into delinquency.
Saturday, November 28, 2009
Food Stamp Use Soars Across U.S., and Stigma Fades
MARTINSVILLE, Ohio — With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children.
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The Safety Net
A Program Once Scorned
With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.
Previous Articles in the Series »
Living With Less
The Recession’s Impact
Faces, numbers and stories from behind the downturn.
Multimedia
Food Stamp Usage Across the CountryInteractive Map
Food Stamp Usage Across the Country
Once Scorned, a Federal Program Grows to Feed the StrugglingSlide Show
Once Scorned, a Federal Program Grows to Feed the Struggling
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Times Topics: Food Stamps
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It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.
Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.
While the numbers have soared during the recession, the path was cleared in better times when the Bush administration led a campaign to erase the program’s stigma, calling food stamps “nutritional aid” instead of welfare, and made it easier to apply. That bipartisan effort capped an extraordinary reversal from the 1990s, when some conservatives tried to abolish the program, Congress enacted large cuts and bureaucratic hurdles chased many needy people away.
From the ailing resorts of the Florida Keys to Alaskan villages along the Bering Sea, the program is now expanding at a pace of about 20,000 people a day.
There are 239 counties in the United States where at least a quarter of the population receives food stamps, according to an analysis of local data collected by The New York Times.
The counties are as big as the Bronx and Philadelphia and as small as Owsley County in Kentucky, a patch of Appalachian distress where half of the 4,600 residents receive food stamps.
In more than 750 counties, the program helps feed one in three blacks. In more than 800 counties, it helps feed one in three children. In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. Even in Peoria, Ill. — Everytown, U.S.A. — nearly 40 percent of children receive aid.
While use is greatest where poverty runs deep, the growth has been especially swift in once-prosperous places hit by the housing bust. There are about 50 small counties and a dozen sizable ones where the rolls have doubled in the last two years. In another 205 counties, they have risen by at least two-thirds. These places with soaring rolls include populous Riverside County, Calif., most of greater Phoenix and Las Vegas, a ring of affluent Atlanta suburbs, and a 150-mile stretch of southwest Florida from Bradenton to the Everglades.
Although the program is growing at a record rate, the federal official who oversees it would like it to grow even faster.
“I think the response of the program has been tremendous,” said Kevin Concannon, an under secretary of agriculture, “but we’re mindful that there are another 15, 16 million who could benefit.”
Nationwide, food stamps reach about two-thirds of those eligible, with rates ranging from an estimated 50 percent in California to 98 percent in Missouri. Mr. Concannon urged lagging states to do more to enroll the needy, citing a recent government report that found a sharp rise in Americans with inconsistent access to adequate food.
“This is the most urgent time for our feeding programs in our lifetime, with the exception of the Depression,” he said. “It’s time for us to face up to the fact that in this country of plenty, there are hungry people.”
The program’s growing reach can be seen in a corner of southwestern Ohio where red state politics reign and blue-collar workers have often called food stamps a sign of laziness. But unemployment has soared, and food stamp use in a six-county area outside Cincinnati has risen more than 50 percent.
With most of his co-workers laid off, Greg Dawson, a third-generation electrician in rural Martinsville, considers himself lucky to still have a job. He works the night shift for a contracting firm, installing freezer lights in a chain of grocery stores. But when his overtime income vanished and his expenses went up, Mr. Dawson started skimping on meals to feed his wife and five children.
Skip to next paragraph
The Safety Net
A Program Once Scorned
With millions of jobs lost and major industries on the ropes, America’s array of government aid — including unemployment insurance, food stamps and cash welfare — is being tested as never before. This series examines how the safety net is holding up under the worst economic crisis in decades.
Previous Articles in the Series »
Living With Less
The Recession’s Impact
Faces, numbers and stories from behind the downturn.
Multimedia
Food Stamp Usage Across the CountryInteractive Map
Food Stamp Usage Across the Country
Once Scorned, a Federal Program Grows to Feed the StrugglingSlide Show
Once Scorned, a Federal Program Grows to Feed the Struggling
Related
Times Topics: Food Stamps
Readers' Comments
Share your thoughts.
* Post a Comment »
It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.
Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.
While the numbers have soared during the recession, the path was cleared in better times when the Bush administration led a campaign to erase the program’s stigma, calling food stamps “nutritional aid” instead of welfare, and made it easier to apply. That bipartisan effort capped an extraordinary reversal from the 1990s, when some conservatives tried to abolish the program, Congress enacted large cuts and bureaucratic hurdles chased many needy people away.
From the ailing resorts of the Florida Keys to Alaskan villages along the Bering Sea, the program is now expanding at a pace of about 20,000 people a day.
There are 239 counties in the United States where at least a quarter of the population receives food stamps, according to an analysis of local data collected by The New York Times.
The counties are as big as the Bronx and Philadelphia and as small as Owsley County in Kentucky, a patch of Appalachian distress where half of the 4,600 residents receive food stamps.
In more than 750 counties, the program helps feed one in three blacks. In more than 800 counties, it helps feed one in three children. In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. Even in Peoria, Ill. — Everytown, U.S.A. — nearly 40 percent of children receive aid.
While use is greatest where poverty runs deep, the growth has been especially swift in once-prosperous places hit by the housing bust. There are about 50 small counties and a dozen sizable ones where the rolls have doubled in the last two years. In another 205 counties, they have risen by at least two-thirds. These places with soaring rolls include populous Riverside County, Calif., most of greater Phoenix and Las Vegas, a ring of affluent Atlanta suburbs, and a 150-mile stretch of southwest Florida from Bradenton to the Everglades.
Although the program is growing at a record rate, the federal official who oversees it would like it to grow even faster.
“I think the response of the program has been tremendous,” said Kevin Concannon, an under secretary of agriculture, “but we’re mindful that there are another 15, 16 million who could benefit.”
Nationwide, food stamps reach about two-thirds of those eligible, with rates ranging from an estimated 50 percent in California to 98 percent in Missouri. Mr. Concannon urged lagging states to do more to enroll the needy, citing a recent government report that found a sharp rise in Americans with inconsistent access to adequate food.
“This is the most urgent time for our feeding programs in our lifetime, with the exception of the Depression,” he said. “It’s time for us to face up to the fact that in this country of plenty, there are hungry people.”
The program’s growing reach can be seen in a corner of southwestern Ohio where red state politics reign and blue-collar workers have often called food stamps a sign of laziness. But unemployment has soared, and food stamp use in a six-county area outside Cincinnati has risen more than 50 percent.
With most of his co-workers laid off, Greg Dawson, a third-generation electrician in rural Martinsville, considers himself lucky to still have a job. He works the night shift for a contracting firm, installing freezer lights in a chain of grocery stores. But when his overtime income vanished and his expenses went up, Mr. Dawson started skimping on meals to feed his wife and five children.
Cox & Kings India Gets 6.1 Billion Rupees in Initial Share Sale
Nov. 28 (Bloomberg) -- Cox & Kings (India) Ltd., an Indian tour operator partly owned by a unit of Deutsche Bank AG, raised 6.1 billion rupees ($131 million) in an initial share sale.
The company set its share sale price at 330 rupees apiece in the issue that ended on Nov. 20, Cox & Kings said in an e- mailed statement today. Mumbai-based Cox & Kings had set a price band of 316 rupees and 330 rupees apiece for the 18.5 million share issue.
The company set its share sale price at 330 rupees apiece in the issue that ended on Nov. 20, Cox & Kings said in an e- mailed statement today. Mumbai-based Cox & Kings had set a price band of 316 rupees and 330 rupees apiece for the 18.5 million share issue.
ADB’s piecemeal strategy in India
The Asian Development Bank has endorsed a multilateral development plan for India in spite of Chinese concerns about projects in the disputed territory of Arunachal Pradesh.
However, in proceeding with its country strategy to 2012, the ADB will address projects within the development plan “one by one” in an effort to prevent a territorial dispute with China disrupting one of its biggest lending programmes.
EDITOR’S CHOICE
ADB sees Asian growth doubling in 2010 - Jul-23
Asia warned of growing poverty - Jun-28
ADB to double clean energy funding - Jun-17
ADB grants $1bn Indonesia loan - Jun-04
ADB expands trade finance programme - Apr-01
Dire growth data fuel Asian fears - Feb-27
Rajat Nag, ADB managing director-general, told the Financial Times that the bank’s board had approved the lender’s country partnership strategy in India and was now seeking ways to implement its projects after Beijing raised concerns this year.
The go-ahead was given in spite of a rare postponement of the loan package, triggered by China in protest against proposed lending to projects in India’s north-eastern region of Arunachal Pradesh. China and India fought a war in 1962 over the disputed territory, and China has in the past year become more strident about its claims to a border territory it considers to be South Tibet.
Mr Nag said: “[The objection] referred to a particular element of the country strategy we had presented to the board which has [now] been endorsed by the board. It was not a specific loan which went to the board which was considered or rejected.
“We will now come to the specific projects. [We will] do the due diligence and discuss with the authorities and take it to the board on a one-by-one basis.”
A senior Indian finance ministry official said next year’s ADB lending package to India was worth $1.6bn (€1.1bn, £969m).
The friction has irked India’s leaders. During a state visit to Washington, Manmohan Singh, India’s prime minister, told the US Council for Foreign Relations that China’s posture in the region had become more “assertive” but said he could not explain why.
“We ... recognise that we have a long-standing border problem with China. We are trying to resolve it through dialogue. In the meanwhile both our countries have agreed that pending the resolution of the border problem, peace and tranquillity should be maintained in the border line,” he said.
China’s sensitivity has also surprised officials within the ADB. Mr Nag said it was normal for Beijing and New Delhi to co-operate “very extensively” on economic matters at the ADB and in other international forums.
In Arunachal Pradesh, civil society leaders are tiring of the tug-of-war over the territory. They say lending has been inadequate and has ignored pressing needs. Bamang Tago, of the Arunachal Citizens’ Rights organisation, said: “Arunachal has become a pawn for India and China. It’s a dumping ground for these big Asian nations’ tensions. It’s considered to be a geopolitical and strategic state.”
He was critical of multilateral lenders such as the ADB and World Bank, saying they were insensitive to the needs of local tribal communities. “There’s too narrow a focus. Agriculture, health and education should get more attention,” he said.
However, in proceeding with its country strategy to 2012, the ADB will address projects within the development plan “one by one” in an effort to prevent a territorial dispute with China disrupting one of its biggest lending programmes.
EDITOR’S CHOICE
ADB sees Asian growth doubling in 2010 - Jul-23
Asia warned of growing poverty - Jun-28
ADB to double clean energy funding - Jun-17
ADB grants $1bn Indonesia loan - Jun-04
ADB expands trade finance programme - Apr-01
Dire growth data fuel Asian fears - Feb-27
Rajat Nag, ADB managing director-general, told the Financial Times that the bank’s board had approved the lender’s country partnership strategy in India and was now seeking ways to implement its projects after Beijing raised concerns this year.
The go-ahead was given in spite of a rare postponement of the loan package, triggered by China in protest against proposed lending to projects in India’s north-eastern region of Arunachal Pradesh. China and India fought a war in 1962 over the disputed territory, and China has in the past year become more strident about its claims to a border territory it considers to be South Tibet.
Mr Nag said: “[The objection] referred to a particular element of the country strategy we had presented to the board which has [now] been endorsed by the board. It was not a specific loan which went to the board which was considered or rejected.
“We will now come to the specific projects. [We will] do the due diligence and discuss with the authorities and take it to the board on a one-by-one basis.”
A senior Indian finance ministry official said next year’s ADB lending package to India was worth $1.6bn (€1.1bn, £969m).
The friction has irked India’s leaders. During a state visit to Washington, Manmohan Singh, India’s prime minister, told the US Council for Foreign Relations that China’s posture in the region had become more “assertive” but said he could not explain why.
“We ... recognise that we have a long-standing border problem with China. We are trying to resolve it through dialogue. In the meanwhile both our countries have agreed that pending the resolution of the border problem, peace and tranquillity should be maintained in the border line,” he said.
China’s sensitivity has also surprised officials within the ADB. Mr Nag said it was normal for Beijing and New Delhi to co-operate “very extensively” on economic matters at the ADB and in other international forums.
In Arunachal Pradesh, civil society leaders are tiring of the tug-of-war over the territory. They say lending has been inadequate and has ignored pressing needs. Bamang Tago, of the Arunachal Citizens’ Rights organisation, said: “Arunachal has become a pawn for India and China. It’s a dumping ground for these big Asian nations’ tensions. It’s considered to be a geopolitical and strategic state.”
He was critical of multilateral lenders such as the ADB and World Bank, saying they were insensitive to the needs of local tribal communities. “There’s too narrow a focus. Agriculture, health and education should get more attention,” he said.
Friday, November 27, 2009
Asian Currencies Decline, Led by Won, as Dubai Roils Markets
Nov. 28 (Bloomberg) -- Asian currencies fell, led by the South Korean won and Indian rupee, as emerging markets took a beating after Dubai sought to delay debt payments, bolstering demand for safety in U.S. Treasuries and the dollar.
Regional currencies declined this week, while the MSCI Asia-Pacific Index of local shares slumped to the lowest level in almost eight weeks. The greenback rose against 15 of 16 major currencies yesterday after state-owned Dubai World, with $59 billion of liabilities, requested a “standstill” agreement from creditors. The Philippine peso dropped after data on Nov. 26 showed third-quarter growth fell short of analysts’ estimates.
“Dubai prompted a wave of risk aversion globally,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of France’s Credit Agricole SA. “We see Asian currencies a bit vulnerable in this environment. It’s not going to be a huge fallout because Asia looks more solid in terms of fundamentals.”
The won yesterday dropped 1.7 percent to 1,175.35 per dollar and was down 1.4 percent on the week, the biggest loss in five, according to data compiled by Bloomberg. India’s rupee declined 0.4 percent to 46.6387 and fell 0.01 percent from Nov. 20. Markets in Indonesia, Singapore and Malaysia were closed yesterday for public holidays.
South Korea’s financial companies were owed a combined $32 million from Dubai World and its property unit Nakheel PJSC as of the end of September, the MoneyToday newspaper reported, citing the nation’s financial regulator.
Korea Surplus
Losses in the won were tempered as the Bank of Korea yesterday reported its biggest current-account surplus in four months. The surplus increased to $4.9 billion in October from a revised $4 billion the previous month. The current account is the broadest measure of trade, tracking the flow of goods, services and investment income.
“The current account reflects the increasing health of Korea’s external position and it’s quite a strong buffer to any risk-related pressure,” said Kotecha.
Taiwan’s economy contracted at the slowest pace in a year in the third quarter on rising Chinese demand for the island’s electronics, a government report showed Nov. 26. Gross domestic product shrank 1.29 percent from a year earlier, after contracting a revised 6.85 percent in the second quarter.
The Philippine currency fell for a second week after the government reported on Nov. 26 the economy grew 0.8 percent in the third quarter from a year earlier, matching the revised expansion in the previous period, the National Statistical Coordination Board said. Economists in a Bloomberg News survey had forecast a 1.9 percent expansion.
‘Buy-Dollar Scenario’
The Philippine peso declined 0.8 percent in Manila yesterday to 47.205 and lost 0.3 percent for the week. Taiwan’s dollar dropped 0.3 percent to NT$32.345, little changed from Nov. 20.
The economic data in the Philippines disappointed markets because “it was below all expectations,” said Rafael Algarra, treasurer at Security Banking Corp. in Manila. “The possible default by Dubai World has implications for emerging markets in general. In times of uncertainty, it’s a ‘buy-dollar’ scenario.”
Ten-year U.S. Treasury notes yesterday rose the most this month, driving yields to the lowest level since the start of October. The cost of protecting government notes from default from Abu Dhabi to Bahrain climbed. Credit-default swaps on Dubai yesterday rose 134 basis points to 675 points, according to CMA DataVision prices.
Elsewhere in Asian currency markets, Thailand’s baht was down 0.1 percent from the end of last week at 33.26 per dollar. The Malaysian ringgit declined 0.2 percent to 3.3910, and Indonesia’s rupiah fell 0.7 percent to 9,535 from a week ago. The Singapore dollar dropped 0.1 percent to S$1.3897.
Regional currencies declined this week, while the MSCI Asia-Pacific Index of local shares slumped to the lowest level in almost eight weeks. The greenback rose against 15 of 16 major currencies yesterday after state-owned Dubai World, with $59 billion of liabilities, requested a “standstill” agreement from creditors. The Philippine peso dropped after data on Nov. 26 showed third-quarter growth fell short of analysts’ estimates.
“Dubai prompted a wave of risk aversion globally,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of France’s Credit Agricole SA. “We see Asian currencies a bit vulnerable in this environment. It’s not going to be a huge fallout because Asia looks more solid in terms of fundamentals.”
The won yesterday dropped 1.7 percent to 1,175.35 per dollar and was down 1.4 percent on the week, the biggest loss in five, according to data compiled by Bloomberg. India’s rupee declined 0.4 percent to 46.6387 and fell 0.01 percent from Nov. 20. Markets in Indonesia, Singapore and Malaysia were closed yesterday for public holidays.
South Korea’s financial companies were owed a combined $32 million from Dubai World and its property unit Nakheel PJSC as of the end of September, the MoneyToday newspaper reported, citing the nation’s financial regulator.
Korea Surplus
Losses in the won were tempered as the Bank of Korea yesterday reported its biggest current-account surplus in four months. The surplus increased to $4.9 billion in October from a revised $4 billion the previous month. The current account is the broadest measure of trade, tracking the flow of goods, services and investment income.
“The current account reflects the increasing health of Korea’s external position and it’s quite a strong buffer to any risk-related pressure,” said Kotecha.
Taiwan’s economy contracted at the slowest pace in a year in the third quarter on rising Chinese demand for the island’s electronics, a government report showed Nov. 26. Gross domestic product shrank 1.29 percent from a year earlier, after contracting a revised 6.85 percent in the second quarter.
The Philippine currency fell for a second week after the government reported on Nov. 26 the economy grew 0.8 percent in the third quarter from a year earlier, matching the revised expansion in the previous period, the National Statistical Coordination Board said. Economists in a Bloomberg News survey had forecast a 1.9 percent expansion.
‘Buy-Dollar Scenario’
The Philippine peso declined 0.8 percent in Manila yesterday to 47.205 and lost 0.3 percent for the week. Taiwan’s dollar dropped 0.3 percent to NT$32.345, little changed from Nov. 20.
The economic data in the Philippines disappointed markets because “it was below all expectations,” said Rafael Algarra, treasurer at Security Banking Corp. in Manila. “The possible default by Dubai World has implications for emerging markets in general. In times of uncertainty, it’s a ‘buy-dollar’ scenario.”
Ten-year U.S. Treasury notes yesterday rose the most this month, driving yields to the lowest level since the start of October. The cost of protecting government notes from default from Abu Dhabi to Bahrain climbed. Credit-default swaps on Dubai yesterday rose 134 basis points to 675 points, according to CMA DataVision prices.
Elsewhere in Asian currency markets, Thailand’s baht was down 0.1 percent from the end of last week at 33.26 per dollar. The Malaysian ringgit declined 0.2 percent to 3.3910, and Indonesia’s rupiah fell 0.7 percent to 9,535 from a week ago. The Singapore dollar dropped 0.1 percent to S$1.3897.
India Studying Effect of Dubai’s Debt Delay Plan on Its Economy
Nov. 28 (Bloomberg) -- India, the world’s top recipient of migrant remittances, is examining the effect Dubai’s attempt to delay debt repayments may have on Asia’s third-largest economy, central bank Governor Duvvuri Subbarao said.
About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005.
Dubai World, the emirate’s investment company, roiled markets as it sought a “standstill” agreement to delay repayment on much of its $59 billion of debt. Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG. Most Indian migrant workers are employed in the Gulf’s construction industry, according to the government.
“It’s quite likely that Dubai will face a severe downturn in the real estate and financial sectors and that will affect remittances and jobs,” Issac said in an interview at his office in Thiruvananthapuram yesterday.
Remittances from the Middle East account for about 25 percent of Kerala’s economy, Issac said. India received $52 billion of remittances last year, according to the World Bank, making it the world’s largest recipient of money from migrant workers. China got $49 billion.
‘Excesses’
“We’re bound to see a rise in risk aversion,” Arnab Das, the London-based head of market research and strategy at Roubini Global Economics said in an interview. “The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can’t make all the excesses simply disappear.”
India’s stocks, currency and bonds fell on concern investors may shy away from riskier emerging market assets over losses stemming from the turmoil in Dubai. India’s benchmark stock index dropped 1.3 percent yesterday, while the rupee lost 0.5 percent.
Larsen & Toubro Ltd., India’s biggest engineering company, has receivables of as much as $25 million from three companies in Dubai, Executive Vice President R. Shankar Raman said in a telephone interview. DLF Ltd., India’s biggest property company, software-services providers Wipro Ltd. and Infosys Technologies Ltd. said the crisis in Dubai won’t affect them.
Emaar MGF Land Ltd., the Indian joint venture of Emaar Properties PJSC, said the Dubai crisis has no impact on its local operations and its funding plans for property development in India are on track.
“We must measure the extent of the problem there and how it might impact India,” India’s central bank Governor Subbarao said in Hyderabad, India, today. “On Dubai alone, I want to say, that we should not react to instant news like this.”
Dubai is one of seven sheikhdoms in the U.A.E. The Gulf state had borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub.
About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005.
Dubai World, the emirate’s investment company, roiled markets as it sought a “standstill” agreement to delay repayment on much of its $59 billion of debt. Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG. Most Indian migrant workers are employed in the Gulf’s construction industry, according to the government.
“It’s quite likely that Dubai will face a severe downturn in the real estate and financial sectors and that will affect remittances and jobs,” Issac said in an interview at his office in Thiruvananthapuram yesterday.
Remittances from the Middle East account for about 25 percent of Kerala’s economy, Issac said. India received $52 billion of remittances last year, according to the World Bank, making it the world’s largest recipient of money from migrant workers. China got $49 billion.
‘Excesses’
“We’re bound to see a rise in risk aversion,” Arnab Das, the London-based head of market research and strategy at Roubini Global Economics said in an interview. “The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can’t make all the excesses simply disappear.”
India’s stocks, currency and bonds fell on concern investors may shy away from riskier emerging market assets over losses stemming from the turmoil in Dubai. India’s benchmark stock index dropped 1.3 percent yesterday, while the rupee lost 0.5 percent.
Larsen & Toubro Ltd., India’s biggest engineering company, has receivables of as much as $25 million from three companies in Dubai, Executive Vice President R. Shankar Raman said in a telephone interview. DLF Ltd., India’s biggest property company, software-services providers Wipro Ltd. and Infosys Technologies Ltd. said the crisis in Dubai won’t affect them.
Emaar MGF Land Ltd., the Indian joint venture of Emaar Properties PJSC, said the Dubai crisis has no impact on its local operations and its funding plans for property development in India are on track.
“We must measure the extent of the problem there and how it might impact India,” India’s central bank Governor Subbarao said in Hyderabad, India, today. “On Dubai alone, I want to say, that we should not react to instant news like this.”
Dubai is one of seven sheikhdoms in the U.A.E. The Gulf state had borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub.
Thursday, November 26, 2009
Japan’s Unemployment Rate Unexpectedly Falls to 5.1%
Nov. 27 (Bloomberg) -- Japan’s unemployment rate in October unexpectedly fell for a third month, a sign that the worst may be over for the labor market.
The jobless rate declined to 5.1 percent, the statistics bureau said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was 5.4 percent. The rate has been declining since reaching a postwar high of 5.7 percent in July.
More than 20 trillion yen ($230 billion) in stimulus spending helped the economy expand for a second quarter in the three months ended September. Even as the government steps up measures to support workers, today’s figures indicate that the growth spurred by exports and production is spreading through the world’s second-largest economy.
“Two months of improvements can’t tell you very much, but a third consecutive improvement paints a clear trend,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The world economy is clearly recovering, which means we won’t see the kind of aggressive job cuts like before even if we still won’t see a lot of hiring either.”
Household spending rose 1.6 percent from a year ago, a separate report showed.
The job-to-applicant ratio, a leading indicator of employment trends, rose to 0.44, meaning there are only 44 positions for every 100 candidates, the Labor Ministry said today. The gauge plunged to a record low of 0.42 in July.
Government Pledge
The improvement in the labor market hasn’t convinced Prime Minister Yukio Hatoyama that jobs are secure. Deputy Prime Minister Naoto Kan said this week the government will ease conditions for employers to receive subsidies to keep people on their payrolls. The government has also pledged to create 100,000 jobs by March.
Younger people aren’t reaping the benefits of the improved labor market. The proportion of college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last week, the steepest drop since the survey started in 1996.
“The employment environment for new graduates is extremely severe,” the government said in the report.
Yusuke Ohta, a fourth-year economics major at Tokyo’s Sophia University, is one of these students without a job offer. He plans to stay at school for an extra year to be eligible for jobs for third-year students, because most companies extend offers to students a year before they graduate. A typical year at Sophia costs about 900,000 yen.
“Things weren’t supposed to end up this way,” the 22- year-old said. “I guess I have no choice but to keep enhancing my skills for when the economy gets better.”
To help students like Ohta, the government pledged to create 100,000 jobs by the fiscal year ending in March. Kan said this week the government will ease conditions for employers to receive subsidies to keep current workers employed.
Economist Azusa Kato, an economist at BNP Paribas says such emergency measures will help keep unemployment from soaring even as pressure to cut costs remain “extremely strong.” Companies including Sony Corp. have yet to return to profit.
The jobless rate declined to 5.1 percent, the statistics bureau said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was 5.4 percent. The rate has been declining since reaching a postwar high of 5.7 percent in July.
More than 20 trillion yen ($230 billion) in stimulus spending helped the economy expand for a second quarter in the three months ended September. Even as the government steps up measures to support workers, today’s figures indicate that the growth spurred by exports and production is spreading through the world’s second-largest economy.
“Two months of improvements can’t tell you very much, but a third consecutive improvement paints a clear trend,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The world economy is clearly recovering, which means we won’t see the kind of aggressive job cuts like before even if we still won’t see a lot of hiring either.”
Household spending rose 1.6 percent from a year ago, a separate report showed.
The job-to-applicant ratio, a leading indicator of employment trends, rose to 0.44, meaning there are only 44 positions for every 100 candidates, the Labor Ministry said today. The gauge plunged to a record low of 0.42 in July.
Government Pledge
The improvement in the labor market hasn’t convinced Prime Minister Yukio Hatoyama that jobs are secure. Deputy Prime Minister Naoto Kan said this week the government will ease conditions for employers to receive subsidies to keep people on their payrolls. The government has also pledged to create 100,000 jobs by March.
Younger people aren’t reaping the benefits of the improved labor market. The proportion of college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last week, the steepest drop since the survey started in 1996.
“The employment environment for new graduates is extremely severe,” the government said in the report.
Yusuke Ohta, a fourth-year economics major at Tokyo’s Sophia University, is one of these students without a job offer. He plans to stay at school for an extra year to be eligible for jobs for third-year students, because most companies extend offers to students a year before they graduate. A typical year at Sophia costs about 900,000 yen.
“Things weren’t supposed to end up this way,” the 22- year-old said. “I guess I have no choice but to keep enhancing my skills for when the economy gets better.”
To help students like Ohta, the government pledged to create 100,000 jobs by the fiscal year ending in March. Kan said this week the government will ease conditions for employers to receive subsidies to keep current workers employed.
Economist Azusa Kato, an economist at BNP Paribas says such emergency measures will help keep unemployment from soaring even as pressure to cut costs remain “extremely strong.” Companies including Sony Corp. have yet to return to profit.
Ess Dee, Sun Pharmaceutical, Tata Power: India Equity Preview
Nov. 27 (Bloomberg) -- The following companies may have unusual price changes in India trading. Stock symbols are in parentheses and share prices are from the last close, unless stated otherwise.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 344.02, or 2 percent, to 16,854.93. The S&P CNX Nifty Index on the National Stock Exchange declined 2 percent to 5,005.55. The BSE 200 Index shed 1.8 percent to 2,095.39.
Ess Dee Aluminium Ltd. (EDA IN): The Indian maker of packaging material for pharmaceuticals was rated “buy” at Antique Stock Broking, which has a target price of 540 rupees. The stock fell 0.1 percent to 334.25 rupees.
SEL Manufacturing Co Ltd. (SELM IN): The textile exporter’s board will on Dec. 1 consider the opening date and pricing of a global depositary receipt issue. SEL Manufacturing fell 2.3 percent to 69.1 rupees.
Siemens India Ltd. (SIEM IN): The unit of Siemens AG said consolidated net profit in the year ended Sept. 30 rose 17 percent to 7.05 billion rupees, compared with the year earlier period. The company said it will pay a dividend of 5 rupees a share. Siemens fell 2.9 percent to 546.9 rupees.
Sun Pharmaceutical Industries Ltd. (SUNP IN): India’s biggest drugmaker by market value said the U.S. has granted it a tentative approval for generic strattera capsules, used to treat attention deficit hyperactivity disorder. Sun Pharmaceutical gained 0.9 percent to 1,464.75 rupees.
Tata Power Ltd. (TPWR IN): India’s biggest electricity generator outside state control said second-quarter group profit fell 30 percent. Net income declined to 3.68 billion rupees from 5.28 billion rupees in the three months ended Sept. 30. Tata Power fell 0.5 percent to 1,329.95 rupees.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 344.02, or 2 percent, to 16,854.93. The S&P CNX Nifty Index on the National Stock Exchange declined 2 percent to 5,005.55. The BSE 200 Index shed 1.8 percent to 2,095.39.
Ess Dee Aluminium Ltd. (EDA IN): The Indian maker of packaging material for pharmaceuticals was rated “buy” at Antique Stock Broking, which has a target price of 540 rupees. The stock fell 0.1 percent to 334.25 rupees.
SEL Manufacturing Co Ltd. (SELM IN): The textile exporter’s board will on Dec. 1 consider the opening date and pricing of a global depositary receipt issue. SEL Manufacturing fell 2.3 percent to 69.1 rupees.
Siemens India Ltd. (SIEM IN): The unit of Siemens AG said consolidated net profit in the year ended Sept. 30 rose 17 percent to 7.05 billion rupees, compared with the year earlier period. The company said it will pay a dividend of 5 rupees a share. Siemens fell 2.9 percent to 546.9 rupees.
Sun Pharmaceutical Industries Ltd. (SUNP IN): India’s biggest drugmaker by market value said the U.S. has granted it a tentative approval for generic strattera capsules, used to treat attention deficit hyperactivity disorder. Sun Pharmaceutical gained 0.9 percent to 1,464.75 rupees.
Tata Power Ltd. (TPWR IN): India’s biggest electricity generator outside state control said second-quarter group profit fell 30 percent. Net income declined to 3.68 billion rupees from 5.28 billion rupees in the three months ended Sept. 30. Tata Power fell 0.5 percent to 1,329.95 rupees.
Wednesday, November 25, 2009
BHP Says Velocity of China Recovery ‘Surprising’
Nov. 26 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, has been surprised by the rapid recovery in China’s economy after the global financial crisis curbed prices and cut demand.
“Over the past six months, we have seen quite a rebound in commodity prices and in particular, the velocity of the recovery in China has indeed been surprising,” Marius Kloppers, 47, chief executive officer of the Melbourne-based company, said today at the company’s annual meeting in Brisbane, Australia. “One element that continues to surprise us, however, is the resilience of the Chinese steel sector.
Commodities, as measured by the Reuters/ Jefferies CRB Index of 19 raw materials, have gained 21 percent this year, reversing a 36 percent decline last year. Steel demand in China may rise 12 percent next year on booming property and auto demand, China International Capital Corp. said this month.
“We have no reason to change our long-held view that Chinese growth will continue and will continue to be resources- intensive,” Kloppers said.
BHP gained 0.8 percent to A$41.50 at 11:53 a.m. Sydney time on the Australian stock exchange. The stock, which has ten ‘buy’ ratings, four ‘hold’ ratings and two ‘sell’ ratings, has gained 36 percent compared with a 27 percent gain on the benchmark index.
China’s economy expanded 8.9 percent in the third quarter, the fastest pace in a year. Demand for minerals is on the verge of “unprecedented growth” as China and India drive consumption, BHP Chairman Don Argus said Oct. 22.
BHP last month reported record first-quarter production of iron ore as steel companies resume output at mills in China, Europe and the U.S. on signs of recovery in the global economy. China accounted for $9.9 billion, or 20 percent, of BHP’s sales in the year ended June 30, according to the company.
“Over the past six months, we have seen quite a rebound in commodity prices and in particular, the velocity of the recovery in China has indeed been surprising,” Marius Kloppers, 47, chief executive officer of the Melbourne-based company, said today at the company’s annual meeting in Brisbane, Australia. “One element that continues to surprise us, however, is the resilience of the Chinese steel sector.
Commodities, as measured by the Reuters/ Jefferies CRB Index of 19 raw materials, have gained 21 percent this year, reversing a 36 percent decline last year. Steel demand in China may rise 12 percent next year on booming property and auto demand, China International Capital Corp. said this month.
“We have no reason to change our long-held view that Chinese growth will continue and will continue to be resources- intensive,” Kloppers said.
BHP gained 0.8 percent to A$41.50 at 11:53 a.m. Sydney time on the Australian stock exchange. The stock, which has ten ‘buy’ ratings, four ‘hold’ ratings and two ‘sell’ ratings, has gained 36 percent compared with a 27 percent gain on the benchmark index.
China’s economy expanded 8.9 percent in the third quarter, the fastest pace in a year. Demand for minerals is on the verge of “unprecedented growth” as China and India drive consumption, BHP Chairman Don Argus said Oct. 22.
BHP last month reported record first-quarter production of iron ore as steel companies resume output at mills in China, Europe and the U.S. on signs of recovery in the global economy. China accounted for $9.9 billion, or 20 percent, of BHP’s sales in the year ended June 30, according to the company.
Australian Dollar Slides From One-Week High as Spending Falls
Nov. 26 (Bloomberg) -- The Australian dollar slipped from a one-week high as business investment unexpectedly fell in the third quarter, damping demand for the nation’s assets. New Zealand’s currency also weakened.
Both currencies were lower on reports that Dubai World, with $59 billion of liabilities, is seeking to delay debt payments. Declines in the Australian dollar may be limited as traders bet the nation’s central bank will raise interest rates on Dec. 1 for a record third month.
“The capital expenditure numbers were disappointing with the market looking for a sign investment is turning around,” said Greg Gibbs, a currency strategist in Sydney with Royal Bank of Scotland Group Plc. “The Dubai World announcements regarding their stance on debt may be causing some risk aversion.”
Australia’s currency fell 0.5 percent to 92.79 U.S. cents as of 12:13 p.m. in Sydney from 93.21 cents in New York yesterday. It earlier touched 93.23 cents, its strongest since Nov. 18. The currency declined 0.4 percent to 81.09 yen from 81.41.
New Zealand’s dollar slid 0.6 percent to 72.84 U.S. cents from 73.25 cents in New York yesterday. It bought 63.65 yen from 63.99 yen.
Capital spending in Australia declined 3.9 percent from the previous quarter, when it rose a revised 2.1 percent, the Bureau of Statistics said today. The median estimate of 19 economists surveyed by Bloomberg was for a 1 percent advance.
Balance of Risks
Investors should buy the Australian dollar at these levels as “the balance of risks still favors a move in December from the central bank,” Gibbs said.
Benchmark interest rates are 3.5 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Swaps traders are betting on a 75 percent chance that the Reserve Bank of Australia will increase its target rate by 25 basis points next week, according to a Credit Suisse Group AG index based on swaps trading.
Australian government bonds rose, pushing the yield on 10- year notes down to a six-week low of 5.35 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.065, or A$0.65 per A$1,000 face amount, to 99.39. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.41 percent.
Both currencies were lower on reports that Dubai World, with $59 billion of liabilities, is seeking to delay debt payments. Declines in the Australian dollar may be limited as traders bet the nation’s central bank will raise interest rates on Dec. 1 for a record third month.
“The capital expenditure numbers were disappointing with the market looking for a sign investment is turning around,” said Greg Gibbs, a currency strategist in Sydney with Royal Bank of Scotland Group Plc. “The Dubai World announcements regarding their stance on debt may be causing some risk aversion.”
Australia’s currency fell 0.5 percent to 92.79 U.S. cents as of 12:13 p.m. in Sydney from 93.21 cents in New York yesterday. It earlier touched 93.23 cents, its strongest since Nov. 18. The currency declined 0.4 percent to 81.09 yen from 81.41.
New Zealand’s dollar slid 0.6 percent to 72.84 U.S. cents from 73.25 cents in New York yesterday. It bought 63.65 yen from 63.99 yen.
Capital spending in Australia declined 3.9 percent from the previous quarter, when it rose a revised 2.1 percent, the Bureau of Statistics said today. The median estimate of 19 economists surveyed by Bloomberg was for a 1 percent advance.
Balance of Risks
Investors should buy the Australian dollar at these levels as “the balance of risks still favors a move in December from the central bank,” Gibbs said.
Benchmark interest rates are 3.5 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Swaps traders are betting on a 75 percent chance that the Reserve Bank of Australia will increase its target rate by 25 basis points next week, according to a Credit Suisse Group AG index based on swaps trading.
Australian government bonds rose, pushing the yield on 10- year notes down to a six-week low of 5.35 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.065, or A$0.65 per A$1,000 face amount, to 99.39. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.41 percent.
Tuesday, November 24, 2009
Japan Property Shares Fall After Anabuki Bankruptcy
Nov. 25 (Bloomberg) -- Japan property shares fell to a six- month low after developer Anabuki Construction Inc. filed for bankruptcy with 140 billion yen ($1.58 billion) in debt, the nation’s fifth-largest corporate failure this year.
The Topix Real Estate Index slumped as much as 2.5 percent to 692.51, the lowest since May 1, and traded 2.2 percent lower as of 10:52 a.m. The broader Topix index declined 0.1 percent.
Anabuki, based in Takamatsu in western Japan, filed for protection from creditors yesterday, saying its condominium business had struggled as a result of the recession and tighter credit markets since last year. Condominium sales in Tokyo, the country’s biggest housing market, fell 20.1 percent in October.
“With declining wages and falling consumption, fears about a continued drop in the market are spreading,” said Mikio Namiki, an analyst at Mizuho Securities Co. in Tokyo. “Condominium sales are still in a bad state because of the global economic crisis.”
Construction companies made up 27.1 percent of all bankruptcies in the country last month, according to Tokyo Shoko Research Ltd.
Real-estate companies had the second-steepest decline among the Topix’s 33 industry groups. Mitsui Fudosan Co., Japan’s largest property developer by revenue, sank 2.5 percent to 1,387 yen and Sumitomo Realty & Development Co., Japan’s No. 3 property developer, dropped 2.6 percent to 1,404 yen.
Anabuki, which has a further 10.9 billion yen in debt if the liabilities of two other subsidiaries are included, has approximately 2,060 creditors, according to the research firm.
Aozora Bank
Aozora Bank Ltd., the Japanese lender controlled by Cerberus Capital Management LP, said yesterday it is owed 12.7 billion yen by Anabuki.
The effect of the bankruptcy will be “slight” and won’t affect its full-year forecast, Aozora said. The shares fell 1.1 percent.
Chugoku Bank Ltd. shares lost 2.9 percent after the lender said Anabuki owes it 3.63 billion yen. Hyakujushi Bank Ltd. dropped 2.9 percent after saying it will write off 4.1 billion yen, and Shikoku Bank Ltd. fell 3.8 percent after it said it may not be able to recover 1.3 billion yen in loans to Anabuki.
The Topix Real Estate Index slumped as much as 2.5 percent to 692.51, the lowest since May 1, and traded 2.2 percent lower as of 10:52 a.m. The broader Topix index declined 0.1 percent.
Anabuki, based in Takamatsu in western Japan, filed for protection from creditors yesterday, saying its condominium business had struggled as a result of the recession and tighter credit markets since last year. Condominium sales in Tokyo, the country’s biggest housing market, fell 20.1 percent in October.
“With declining wages and falling consumption, fears about a continued drop in the market are spreading,” said Mikio Namiki, an analyst at Mizuho Securities Co. in Tokyo. “Condominium sales are still in a bad state because of the global economic crisis.”
Construction companies made up 27.1 percent of all bankruptcies in the country last month, according to Tokyo Shoko Research Ltd.
Real-estate companies had the second-steepest decline among the Topix’s 33 industry groups. Mitsui Fudosan Co., Japan’s largest property developer by revenue, sank 2.5 percent to 1,387 yen and Sumitomo Realty & Development Co., Japan’s No. 3 property developer, dropped 2.6 percent to 1,404 yen.
Anabuki, which has a further 10.9 billion yen in debt if the liabilities of two other subsidiaries are included, has approximately 2,060 creditors, according to the research firm.
Aozora Bank
Aozora Bank Ltd., the Japanese lender controlled by Cerberus Capital Management LP, said yesterday it is owed 12.7 billion yen by Anabuki.
The effect of the bankruptcy will be “slight” and won’t affect its full-year forecast, Aozora said. The shares fell 1.1 percent.
Chugoku Bank Ltd. shares lost 2.9 percent after the lender said Anabuki owes it 3.63 billion yen. Hyakujushi Bank Ltd. dropped 2.9 percent after saying it will write off 4.1 billion yen, and Shikoku Bank Ltd. fell 3.8 percent after it said it may not be able to recover 1.3 billion yen in loans to Anabuki.
Standard Chartered Says Asian Spreads to Widen on Default Rates
Nov. 25 (Bloomberg) -- The extra yield investors demand to own Asian corporate dollar bonds instead of government debt will increase in the “imminent future” as they realize default risk is greater than expected, according to Standard Chartered Plc.
After “discounting Armageddon” in the wake of Lehman Brothers Holdings Inc.’s bankruptcy, when so-called spreads implied a 60 percent default rate with no recovery, investors are now “discounting perfection,” Vijay Chander, head of credit strategy for the London-based bank, said at the Asian Bond Markets Summit in Singapore yesterday.
“This optimism is somewhat unjustified,” Chander said. “For the first time in about five years you’ve had a cross-over where actual default rates are quite a bit higher than the default rates implied by credit spreads.”
Five companies defaulted globally last week, bringing the tally this year to 247, nearly triple the 87 defaults of the same period last year and the most since Standard & Poor’s began collecting such data in 1981, the ratings company said on Nov. 20. Companies’ ability to pay their debt was crimped after Lehman failed in September 2008, shuttering credit markets and causing investors to flee all but the safest government debt.
Spreads over similar-maturity U.S. Treasuries for Asian investment-grade corporate dollar bonds narrowed to 2.92 percentage points on Nov. 24 from 7.62 percentage points on Dec. 5, JPMorgan Chase & Co. indexes show. They have widened from a year-low of 2.89 percentage points on Oct. 26.
While Asian spreads imply a default rate of about 4.7 percent, the actual rate is about 9 percent, Chander said.
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After “discounting Armageddon” in the wake of Lehman Brothers Holdings Inc.’s bankruptcy, when so-called spreads implied a 60 percent default rate with no recovery, investors are now “discounting perfection,” Vijay Chander, head of credit strategy for the London-based bank, said at the Asian Bond Markets Summit in Singapore yesterday.
“This optimism is somewhat unjustified,” Chander said. “For the first time in about five years you’ve had a cross-over where actual default rates are quite a bit higher than the default rates implied by credit spreads.”
Five companies defaulted globally last week, bringing the tally this year to 247, nearly triple the 87 defaults of the same period last year and the most since Standard & Poor’s began collecting such data in 1981, the ratings company said on Nov. 20. Companies’ ability to pay their debt was crimped after Lehman failed in September 2008, shuttering credit markets and causing investors to flee all but the safest government debt.
Spreads over similar-maturity U.S. Treasuries for Asian investment-grade corporate dollar bonds narrowed to 2.92 percentage points on Nov. 24 from 7.62 percentage points on Dec. 5, JPMorgan Chase & Co. indexes show. They have widened from a year-low of 2.89 percentage points on Oct. 26.
While Asian spreads imply a default rate of about 4.7 percent, the actual rate is about 9 percent, Chander said.
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Monday, November 23, 2009
Hindalco Said to Raise Up to $600 Million in Share Sale
Hindalco Industries Ltd., India’s biggest aluminum producer, plans to raise as much as $600 million selling shares to institutional investors, according to a sale document.
Hindalco will sell the shares for a minimum price of 130.90 rupees each ($2.8), the sale document showed.
Citigroup Global Markets India Pvt., Deutsche Equities India Pvt., DSP Merrill Lynch Ltd., the Hong Kong and Shanghai Banking Corporation Ltd., RBS Equities (India) Ltd., SBI Capital Markets Ltd. and UBS Securities India Pvt. are managing the sale, the document showed.
Hindalco will sell the shares for a minimum price of 130.90 rupees each ($2.8), the sale document showed.
Citigroup Global Markets India Pvt., Deutsche Equities India Pvt., DSP Merrill Lynch Ltd., the Hong Kong and Shanghai Banking Corporation Ltd., RBS Equities (India) Ltd., SBI Capital Markets Ltd. and UBS Securities India Pvt. are managing the sale, the document showed.
Moody’s cautions India on problem loans
Deteriorating credit conditions in India’s banking system over the coming months have raised concerns about a hefty increase in problem loans and weakening bank profitability, ratings agency Moody’s warned on Monday.
India’s largely state-owned banking system has emerged mostly unscathed from the global financial crisis and has won wide applause from regulators and policymakers for its conservative approach. The broader economy has also proved resilient, buoyed by domestic demand. India is one of the fastest-growing large economies in the world and is forecast to grow 6.5 per cent this year
EDITOR’S CHOICE
Singh’s visit to ‘consolidate’ US-India ties - Nov-22
India’s Cox & Kings beats a path to a listing - Nov-22
In spite of clear signs of recovery, Moody’s has maintained a negative outlook for the Indian banking system. In a report, the ratings agency flagged up worries about deteriorating asset quality and the volume of restructured loans. During the fiscal year ending March 2009, the level of gross non-performing loans for commercial banks rose by 22.5 per cent, almost double the 11.9 per cent of the previous year.
“The rapid expansion of retail lending in recent years, combined with the slowdown of the Indian economy, has led to increased delinquency rates, especially for unsecured retail loans,” said Nondas Nicolaides, a Moody’s analyst and author of the report.
The agency’s warning comes as expectations rise that the Reserve Bank of India will raise interest rates early next year. At its last policy-setting meeting the bank left rates unchanged but began to tighten up loose monetary policy introduced earlier to defend the economy from the global financial crisis.
The RBI’s requirement that banks increase their cover ratio for non-performing loan provision to at least 70 per cent by next September would “severely affect” bank profitability in the short term, Moody’s predicted. The measure threatens to bring to an end a comfortable run in which the profitability of commercial banks, like the State Bank of India and the Bank of Baroda , has benefited from the high lending environment and net interest income rising sharply in 2009.
Almost 72 per cent of India’s banking system assets are in government hands. The private sector holds close to 20 per cent, leaving foreign banks with about 8 per cent.
Earlier this month, Manmohan Singh, India’s premier, called for deep financial reforms to support credit growth and finance badly needed infrastructure development across the Indian economy. The reform agenda includes developing long-term debt markets, a corporate bond market, strong insurance and pension sectors and futures markets. Government disinvestment in state-owned companies would be accelerated.
Moody's also raised concerns around the capitalisation of some public sector banks and their ability to raise fresh capital to fund future growth while maintaining majority government shareholdings.
The Indian authorities estimate that some public sector banks need injections of about $4.8bn in the coming year to maintain capital adequacy ratios of at least 12 per cent while also expanding credit.
India’s largely state-owned banking system has emerged mostly unscathed from the global financial crisis and has won wide applause from regulators and policymakers for its conservative approach. The broader economy has also proved resilient, buoyed by domestic demand. India is one of the fastest-growing large economies in the world and is forecast to grow 6.5 per cent this year
EDITOR’S CHOICE
Singh’s visit to ‘consolidate’ US-India ties - Nov-22
India’s Cox & Kings beats a path to a listing - Nov-22
In spite of clear signs of recovery, Moody’s has maintained a negative outlook for the Indian banking system. In a report, the ratings agency flagged up worries about deteriorating asset quality and the volume of restructured loans. During the fiscal year ending March 2009, the level of gross non-performing loans for commercial banks rose by 22.5 per cent, almost double the 11.9 per cent of the previous year.
“The rapid expansion of retail lending in recent years, combined with the slowdown of the Indian economy, has led to increased delinquency rates, especially for unsecured retail loans,” said Nondas Nicolaides, a Moody’s analyst and author of the report.
The agency’s warning comes as expectations rise that the Reserve Bank of India will raise interest rates early next year. At its last policy-setting meeting the bank left rates unchanged but began to tighten up loose monetary policy introduced earlier to defend the economy from the global financial crisis.
The RBI’s requirement that banks increase their cover ratio for non-performing loan provision to at least 70 per cent by next September would “severely affect” bank profitability in the short term, Moody’s predicted. The measure threatens to bring to an end a comfortable run in which the profitability of commercial banks, like the State Bank of India and the Bank of Baroda , has benefited from the high lending environment and net interest income rising sharply in 2009.
Almost 72 per cent of India’s banking system assets are in government hands. The private sector holds close to 20 per cent, leaving foreign banks with about 8 per cent.
Earlier this month, Manmohan Singh, India’s premier, called for deep financial reforms to support credit growth and finance badly needed infrastructure development across the Indian economy. The reform agenda includes developing long-term debt markets, a corporate bond market, strong insurance and pension sectors and futures markets. Government disinvestment in state-owned companies would be accelerated.
Moody's also raised concerns around the capitalisation of some public sector banks and their ability to raise fresh capital to fund future growth while maintaining majority government shareholdings.
The Indian authorities estimate that some public sector banks need injections of about $4.8bn in the coming year to maintain capital adequacy ratios of at least 12 per cent while also expanding credit.
Hewlett-Packard’s Profit Rises, With China’s Help
The Hewlett-Packard Company posted a 14 percent increase in quarterly profit on Monday despite an 8 percent decline in revenue, helped by a strong performance in China and improved profit margins in its services business.
The results were in line with preliminary figures that Hewlett gave two weeks ago, which had topped Wall Street’s estimates at the time. Stock in H.P. fell slightly in after-hours trading.
Hewlett, a hardware and technology services company that is a bellwether for information technology spending, has been more cautious than some of its peers in predicting an economic turnaround.
The chief financial officer, Cathie Lesjak, called the results “solid.” She said the market in the United States, particularly in the consumer business, was recovering.
Ms. Lesjak said the strength of a recovery next year was largely dependent on demand in Europe, which remains weak.
H.P.’s services revenue rose 8 percent, and signings were strong, putting it in good position for next year, said Mark V. Hurd, the chief executive of H.P.
Sales of PC units rose 8 percent, as the company continued to take market share, but revenue fell 12 percent as consumer demand focused on smaller and less expensive models. PC revenue in China rose 40 percent.
A Kaufman Brothers analyst, Shaw Wu, said Hewlett’s report showed hints of recovery in a number of its business units, including PCs and printers.
“They’re basically pointing to year-over-year growth in the January quarter,” Mr. Wu said. “It’s a good sign.”
Hewlett’s diversified business model, recurring revenue streams and focus on cost controls have provided it with a solid cushion during the downturn.
Although its printer business has struggled, PCs and servers have performed relatively well as the company continues to shift its focus to information technology services after last year’s purchase of E.D.S., now known as H.P. Enterprise Services. Hewlett reported a net profit of $2.4 billion, or 99 cents a share, in the quarter, up from $2.1 billion, or 84 cents a share, a year earlier.
Revenue in the period, which ended Oct. 31 and was the fourth quarter of Hewlett’s fiscal year, fell 8 percent, to $30.8 billion from $33.6 billion.
Stock in Hewlett, which is based in Palo Alto, Calif., closed at $51.02 and fell to $50.83 in after-hours trading.
The results were in line with preliminary figures that Hewlett gave two weeks ago, which had topped Wall Street’s estimates at the time. Stock in H.P. fell slightly in after-hours trading.
Hewlett, a hardware and technology services company that is a bellwether for information technology spending, has been more cautious than some of its peers in predicting an economic turnaround.
The chief financial officer, Cathie Lesjak, called the results “solid.” She said the market in the United States, particularly in the consumer business, was recovering.
Ms. Lesjak said the strength of a recovery next year was largely dependent on demand in Europe, which remains weak.
H.P.’s services revenue rose 8 percent, and signings were strong, putting it in good position for next year, said Mark V. Hurd, the chief executive of H.P.
Sales of PC units rose 8 percent, as the company continued to take market share, but revenue fell 12 percent as consumer demand focused on smaller and less expensive models. PC revenue in China rose 40 percent.
A Kaufman Brothers analyst, Shaw Wu, said Hewlett’s report showed hints of recovery in a number of its business units, including PCs and printers.
“They’re basically pointing to year-over-year growth in the January quarter,” Mr. Wu said. “It’s a good sign.”
Hewlett’s diversified business model, recurring revenue streams and focus on cost controls have provided it with a solid cushion during the downturn.
Although its printer business has struggled, PCs and servers have performed relatively well as the company continues to shift its focus to information technology services after last year’s purchase of E.D.S., now known as H.P. Enterprise Services. Hewlett reported a net profit of $2.4 billion, or 99 cents a share, in the quarter, up from $2.1 billion, or 84 cents a share, a year earlier.
Revenue in the period, which ended Oct. 31 and was the fourth quarter of Hewlett’s fiscal year, fell 8 percent, to $30.8 billion from $33.6 billion.
Stock in Hewlett, which is based in Palo Alto, Calif., closed at $51.02 and fell to $50.83 in after-hours trading.
Indian Stocks Rise a Second Day; Commodity Producers Advance
India’s stocks rose for a second day, led by commodity producers after oil and metal prices climbed. Reliance Industries Ltd. gained after the country’s biggest publicly traded company said it’s buying bankrupt chemicals and fuels maker LyondellBasell Industries AF.
Reliance Industries, which has the biggest weighting in the index, added 3.4 percent after bidding an undisclosed amount of cash to buy LyondellBasell Industries AF. Oil & Natural Gas Corp., India’s largest producer of the fuels, climbed 1.5 percent to 1,186.45 rupees, while Sterlite Industries (India) Ltd., the nation’s biggest copper producer, increased 1.6 percent to 871.70 rupees.
“We aren’t seeing a bubble yet in commodities,” said Deven Choksey, chief executive officer of K.R. Choksey Shares & Securities, who manages about $118 million for wealthy individuals. “We have already seen some oil refining capacities close down, if that continues we will see a demand-supply mismatch.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, advanced 158.33, or 0.9 percent, to 17,180.18. The S&P CNX Nifty Index on the National Stock Exchange climbed 1 percent to 5,103.55. The BSE 200 Index added 0.8 percent to 2,129.88.
Copper for delivery in three months on the London Metal Exchange gained 2.4 percent to $6,970 a metric ton at 9:45 a.m. in London. Crude oil rose from a one-week low on speculation demand will increase as the global economy recovers. Crude oil for January delivery rose as much as $1.05, or 1.4 percent, to $78.52 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
Access to U.S.
Reliance rose 3.4 percent to 2,194.95 rupees. The owner of the world’s largest oil-refining complex may pay as much as $12 billion for bankrupt LyondellBasell, Victor Shum, an analyst at Purvin & Gertz Inc. said. The purchase would give Reliance access to the U.S. fuel market, the world’s biggest, and make it the largest producer of polypropylene used in refrigerator casings.
“We believe this deal would give Reliance access to LyondellBasell’s distribution network in Europe and U.S. regions and also presence in the Middle East through LyondellBasell upcoming low-cost olefin capacities,” Nilesh Banerjee, an analyst at Goldman Sachs Group Inc. said in a note to clients today. “It also will likely allow Reliance greater bargaining power in procurement and sales.”
‘Bad Phase’
Bharti Airtel Ltd. led declines in phone operators on concern low transaction fees for mobile number portability will increase retention costs for phone companies. The phone regulator has set the price for number portability at 19 rupees, according to a statement on Nov. 20.
“The telecom sector is going through a bad phase, first with the price competition and now the number portability” said Jayesh Shroff, who helps manage $7 billion in assets at SBI Asset Management Co. in Mumbai. “The number portability fee being set so low will result in customers resorting to switching between service providers.”
Bharti, India’s largest mobile phone operator, fell 4.7 percent to 275.25 rupees. Reliance Communications Ltd. declined 0.9 percent to 172.25 rupees. Idea Cellular Ltd. slid 3.3 percent to 49.35 rupees.
Ashapura Minechem Ltd. (ASMN IN) advanced by 5.1 percent to 53.55 rupees. The miner can resume the sale and export of bauxite from the western state of Gujarat, it said in a filing to the Bombay Stock Exchange on Nov. 21. The resumption is likely to have a “positive impact” on the company’s performance this fiscal year, it said.
Essar Oil Ltd. (ESOIL IN) gained 2.1 percent to 139.65 rupees. Royal Dutch Shell Plc is in talks to acquire a 10 percent stake in Essar Oil, the Economic Times reported on Nov. 21 citing people it didn’t identify. Shell will buy the stake, valued at about $364 million, as part payment for selling three of its European refineries to Essar, the newspaper said.
Patni Computer Systems Ltd. (PATNI IN) added 5.2 percent to 466.55 rupees. The Patni brothers and General Atlantic have agreed to sell their stakes in the software service provider, the Business Standard reported, citing investment banking officials it didn’t identify.
Reliance Industries, which has the biggest weighting in the index, added 3.4 percent after bidding an undisclosed amount of cash to buy LyondellBasell Industries AF. Oil & Natural Gas Corp., India’s largest producer of the fuels, climbed 1.5 percent to 1,186.45 rupees, while Sterlite Industries (India) Ltd., the nation’s biggest copper producer, increased 1.6 percent to 871.70 rupees.
“We aren’t seeing a bubble yet in commodities,” said Deven Choksey, chief executive officer of K.R. Choksey Shares & Securities, who manages about $118 million for wealthy individuals. “We have already seen some oil refining capacities close down, if that continues we will see a demand-supply mismatch.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, advanced 158.33, or 0.9 percent, to 17,180.18. The S&P CNX Nifty Index on the National Stock Exchange climbed 1 percent to 5,103.55. The BSE 200 Index added 0.8 percent to 2,129.88.
Copper for delivery in three months on the London Metal Exchange gained 2.4 percent to $6,970 a metric ton at 9:45 a.m. in London. Crude oil rose from a one-week low on speculation demand will increase as the global economy recovers. Crude oil for January delivery rose as much as $1.05, or 1.4 percent, to $78.52 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
Access to U.S.
Reliance rose 3.4 percent to 2,194.95 rupees. The owner of the world’s largest oil-refining complex may pay as much as $12 billion for bankrupt LyondellBasell, Victor Shum, an analyst at Purvin & Gertz Inc. said. The purchase would give Reliance access to the U.S. fuel market, the world’s biggest, and make it the largest producer of polypropylene used in refrigerator casings.
“We believe this deal would give Reliance access to LyondellBasell’s distribution network in Europe and U.S. regions and also presence in the Middle East through LyondellBasell upcoming low-cost olefin capacities,” Nilesh Banerjee, an analyst at Goldman Sachs Group Inc. said in a note to clients today. “It also will likely allow Reliance greater bargaining power in procurement and sales.”
‘Bad Phase’
Bharti Airtel Ltd. led declines in phone operators on concern low transaction fees for mobile number portability will increase retention costs for phone companies. The phone regulator has set the price for number portability at 19 rupees, according to a statement on Nov. 20.
“The telecom sector is going through a bad phase, first with the price competition and now the number portability” said Jayesh Shroff, who helps manage $7 billion in assets at SBI Asset Management Co. in Mumbai. “The number portability fee being set so low will result in customers resorting to switching between service providers.”
Bharti, India’s largest mobile phone operator, fell 4.7 percent to 275.25 rupees. Reliance Communications Ltd. declined 0.9 percent to 172.25 rupees. Idea Cellular Ltd. slid 3.3 percent to 49.35 rupees.
Ashapura Minechem Ltd. (ASMN IN) advanced by 5.1 percent to 53.55 rupees. The miner can resume the sale and export of bauxite from the western state of Gujarat, it said in a filing to the Bombay Stock Exchange on Nov. 21. The resumption is likely to have a “positive impact” on the company’s performance this fiscal year, it said.
Essar Oil Ltd. (ESOIL IN) gained 2.1 percent to 139.65 rupees. Royal Dutch Shell Plc is in talks to acquire a 10 percent stake in Essar Oil, the Economic Times reported on Nov. 21 citing people it didn’t identify. Shell will buy the stake, valued at about $364 million, as part payment for selling three of its European refineries to Essar, the newspaper said.
Patni Computer Systems Ltd. (PATNI IN) added 5.2 percent to 466.55 rupees. The Patni brothers and General Atlantic have agreed to sell their stakes in the software service provider, the Business Standard reported, citing investment banking officials it didn’t identify.
Sunday, November 22, 2009
Reliance Bids for Bankrupt LyondellBasell to Expand Overseas
Nov. 23 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company by market value, bid for bankrupt chemicals and fuels maker LyondellBasell Industries AF, as it seeks to take advantage of the global financial crisis to expand overseas.
The refiner and energy explorer controlled by billionaire Mukesh Ambani on Nov. 21 offered an undisclosed amount of cash to buy a controlling stake in LyondellBasell. The Mumbai-based company may have to pay at least $12 billion, the Times of India reported yesterday, citing an unidentified banker.
“It’s not really the best time to be taking on refining assets,” said Tony Regan, a consultant at Tri-Zen International Ltd. in Singapore. “It’s an opportunistic purchase if the company is bankrupt, but there’s a reason why those assets are cheap.”
Reliance joins India’s Essar Group in bidding for plants overseas as declining fuel demand and processing margins prompt global rivals Royal Dutch Shell Plc and Exxon Mobil Corp. to sell assets including refineries. Ambani, armed with $4.2 billion in cash, told shareholders last week that “global growth by acquisitions” is the key to boosting revenue.
If the Lyondell transaction were completed, it would be the biggest by an Indian company since Tata Steel Ltd. bought Corus Group Plc for $12 billion in 2007.
Reliance spokesman Manoj Warrier declined to comment on the valuation. P.M.S. Prasad, president of the oil and gas business, could not be reached. LyondellBasell didn’t disclose the amount offered by Reliance in a Nov. 21 statement.
Revenue Mix
Reliance’s stock has gained 72 percent this year, giving the company a market value of about $75 billion. That compares with the benchmark Sensitive Index’s 76 percent surge. Reliance has said it is looking for assets abroad to reduce the risk of investing mostly in India, where the company has been battling a lawsuit over natural gas supplies with a firm owned by Mukesh’s estranged brother, Anil Ambani.
About 97 percent of Reliance’s assets are in India.
Reliance had about $32.4 billion of revenue in the fiscal year that ended in March, with 59 percent coming from refining and 36 percent from petrochemicals.
LyondellBasell had revenue of $50.7 billion in 2008, with about 34 percent coming from fuels, including gasoline, diesel, jet fuel and additives. About 30 percent was from chemicals, including ethylene, propylene, benzene and acetic acid, and 35 percent was from plastics, according to its annual report.
LyondellBasell was formed in December 2007 when Basell AF paid $12.7 billion for Lyondell Chemical Co. The company declared bankruptcy 13 months later.
Jamnagar
The company, which has an oil refinery in Houston, is a unit of New York-based Access Industries Holdings LLC, founded by billionaire Len Blavatnik. The company operates a second refinery in France.
Reliance completed the world’s largest oil-processing complex in December in Jamnagar in western India, where two adjacent refineries have a combined capacity to process 1.24 million barrels of oil a day. The company, which started producing natural gas from India’s largest field in April, also makes polyester and chemicals and operates a retail store chain.
“Reliance doesn’t have any overseas production capacity,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd. “The only immediately apparent reason is that you buy when assets are at the bottom of a cycle. There’s no clarity on how much costs can be cut by this, if Reliance intends to buy all or part of Lyondell, and whether it’ll be the right mix.”
Indian companies, which have lagged behind Chinese rivals in buying overseas energy assets, are stepping up acquisitions.
Shell said Oct. 30 it’s in exclusive talks with Essar Oil Ltd. over the sale of three refineries in the U.K. and Germany.
Indian Acquisitions
Oil & Natural Gas Corp., India’s biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.
Chinese companies have spent at least $13 billion on oil assets overseas since December after crude fell from a record $147.27 a barrel in July 2008.
Reliance may buy oil fields in the Gulf of Mexico and Brazil as it seeks to spread its geographical and geological risks, Prasad said in September.
Reliance has 99,000 square kilometers of acreage in Oman, Yemen, Colombia, East Timor and Peru, Mukesh Ambani told shareholders. Average production in the Yemen Block 9 was 4,200 barrels of oil a day, he said.
The Reliance bid may herald more acquisitions in the chemical industry as the global economy recovers, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview.
More Deals?
Selling companies are growing more confident that they will receive appropriate value as earnings improve, he said. Some companies may not have the cash or borrowing capacity to expand output fast enough and decide the best path is to merger with competitors, he said.
“You are going to continue to see the Middle East players expand downstream into thermoplastics, adhesives or coatings,” Alexander said, citing Sabic’s acquisition of General Electric’s plastics unit and Abu Dhabi’s purchase of Nova Chemicals.
Saudi Basic Industries Corp. bought General Electric Co.’s plastics unit in 2007 for $11.6 billion, the biggest purchase by a Gulf region company, to add a network of factories and customers in Europe and the U.S.
The refiner and energy explorer controlled by billionaire Mukesh Ambani on Nov. 21 offered an undisclosed amount of cash to buy a controlling stake in LyondellBasell. The Mumbai-based company may have to pay at least $12 billion, the Times of India reported yesterday, citing an unidentified banker.
“It’s not really the best time to be taking on refining assets,” said Tony Regan, a consultant at Tri-Zen International Ltd. in Singapore. “It’s an opportunistic purchase if the company is bankrupt, but there’s a reason why those assets are cheap.”
Reliance joins India’s Essar Group in bidding for plants overseas as declining fuel demand and processing margins prompt global rivals Royal Dutch Shell Plc and Exxon Mobil Corp. to sell assets including refineries. Ambani, armed with $4.2 billion in cash, told shareholders last week that “global growth by acquisitions” is the key to boosting revenue.
If the Lyondell transaction were completed, it would be the biggest by an Indian company since Tata Steel Ltd. bought Corus Group Plc for $12 billion in 2007.
Reliance spokesman Manoj Warrier declined to comment on the valuation. P.M.S. Prasad, president of the oil and gas business, could not be reached. LyondellBasell didn’t disclose the amount offered by Reliance in a Nov. 21 statement.
Revenue Mix
Reliance’s stock has gained 72 percent this year, giving the company a market value of about $75 billion. That compares with the benchmark Sensitive Index’s 76 percent surge. Reliance has said it is looking for assets abroad to reduce the risk of investing mostly in India, where the company has been battling a lawsuit over natural gas supplies with a firm owned by Mukesh’s estranged brother, Anil Ambani.
About 97 percent of Reliance’s assets are in India.
Reliance had about $32.4 billion of revenue in the fiscal year that ended in March, with 59 percent coming from refining and 36 percent from petrochemicals.
LyondellBasell had revenue of $50.7 billion in 2008, with about 34 percent coming from fuels, including gasoline, diesel, jet fuel and additives. About 30 percent was from chemicals, including ethylene, propylene, benzene and acetic acid, and 35 percent was from plastics, according to its annual report.
LyondellBasell was formed in December 2007 when Basell AF paid $12.7 billion for Lyondell Chemical Co. The company declared bankruptcy 13 months later.
Jamnagar
The company, which has an oil refinery in Houston, is a unit of New York-based Access Industries Holdings LLC, founded by billionaire Len Blavatnik. The company operates a second refinery in France.
Reliance completed the world’s largest oil-processing complex in December in Jamnagar in western India, where two adjacent refineries have a combined capacity to process 1.24 million barrels of oil a day. The company, which started producing natural gas from India’s largest field in April, also makes polyester and chemicals and operates a retail store chain.
“Reliance doesn’t have any overseas production capacity,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd. “The only immediately apparent reason is that you buy when assets are at the bottom of a cycle. There’s no clarity on how much costs can be cut by this, if Reliance intends to buy all or part of Lyondell, and whether it’ll be the right mix.”
Indian companies, which have lagged behind Chinese rivals in buying overseas energy assets, are stepping up acquisitions.
Shell said Oct. 30 it’s in exclusive talks with Essar Oil Ltd. over the sale of three refineries in the U.K. and Germany.
Indian Acquisitions
Oil & Natural Gas Corp., India’s biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.
Chinese companies have spent at least $13 billion on oil assets overseas since December after crude fell from a record $147.27 a barrel in July 2008.
Reliance may buy oil fields in the Gulf of Mexico and Brazil as it seeks to spread its geographical and geological risks, Prasad said in September.
Reliance has 99,000 square kilometers of acreage in Oman, Yemen, Colombia, East Timor and Peru, Mukesh Ambani told shareholders. Average production in the Yemen Block 9 was 4,200 barrels of oil a day, he said.
The Reliance bid may herald more acquisitions in the chemical industry as the global economy recovers, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview.
More Deals?
Selling companies are growing more confident that they will receive appropriate value as earnings improve, he said. Some companies may not have the cash or borrowing capacity to expand output fast enough and decide the best path is to merger with competitors, he said.
“You are going to continue to see the Middle East players expand downstream into thermoplastics, adhesives or coatings,” Alexander said, citing Sabic’s acquisition of General Electric’s plastics unit and Abu Dhabi’s purchase of Nova Chemicals.
Saudi Basic Industries Corp. bought General Electric Co.’s plastics unit in 2007 for $11.6 billion, the biggest purchase by a Gulf region company, to add a network of factories and customers in Europe and the U.S.
Asian Stocks Rise on Higher Metal Prices; James Hardie Advances
Nov. 23 (Bloomberg) -- Asian stocks rose as higher metal prices boosted mining companies, James Hardie Industries NV forecast earnings at the top of a range and on speculation Korea Exchange Bank will get a takeover offer.
Newcrest Mining Ltd. added 3 percent in Sydney as gold prices increased for the seventh straight session. Rio Tinto Group climbed 2 percent after metal prices in London had their biggest weekly advance in a month. James Hardie surged 7.8 percent after forecasting full-year earnings at the top range of analyst estimates. Korea Exchange Bank gained 3.8 percent after Hana Financial Group Inc. said it would consider a bid.
The MSCI Asia-Pacific Excluding Japan Index added 0.3 percent to 408.72 as of 10:16 a.m. in Tokyo, where markets were closed for a national holiday. The gauge has risen 65 percent this year, on course for its steepest annual gain since 1993, as governments worldwide enacted spending programs and cut borrowing costs to revive growth.
“The global economy, whilst in recovery mode, is still vulnerable,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “Take away the stimulus at the wrong time and it could send it back into a double-dip scenario.”
Australia’s S&P/ASX 200 Index rose 0.8 percent. The gauge has rallied 50 percent from a five-year low on March 6 as government measures including cash handouts and infrastructure spending helped Australia skirt a recession. South Korea’s Kospi Index slipped 0.1 percent today.
Futures on the Standard & Poor’s 500 Index added 0.3 percent. The index slipped 0.3 percent on Nov. 20 as earnings at Dell Inc. and D.R. Horton Inc. trailed analysts’ estimates and concern grew that European Central Bank policy makers will phase out measures to stimulate the economy.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
Last Updated: November 22
Newcrest Mining Ltd. added 3 percent in Sydney as gold prices increased for the seventh straight session. Rio Tinto Group climbed 2 percent after metal prices in London had their biggest weekly advance in a month. James Hardie surged 7.8 percent after forecasting full-year earnings at the top range of analyst estimates. Korea Exchange Bank gained 3.8 percent after Hana Financial Group Inc. said it would consider a bid.
The MSCI Asia-Pacific Excluding Japan Index added 0.3 percent to 408.72 as of 10:16 a.m. in Tokyo, where markets were closed for a national holiday. The gauge has risen 65 percent this year, on course for its steepest annual gain since 1993, as governments worldwide enacted spending programs and cut borrowing costs to revive growth.
“The global economy, whilst in recovery mode, is still vulnerable,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “Take away the stimulus at the wrong time and it could send it back into a double-dip scenario.”
Australia’s S&P/ASX 200 Index rose 0.8 percent. The gauge has rallied 50 percent from a five-year low on March 6 as government measures including cash handouts and infrastructure spending helped Australia skirt a recession. South Korea’s Kospi Index slipped 0.1 percent today.
Futures on the Standard & Poor’s 500 Index added 0.3 percent. The index slipped 0.3 percent on Nov. 20 as earnings at Dell Inc. and D.R. Horton Inc. trailed analysts’ estimates and concern grew that European Central Bank policy makers will phase out measures to stimulate the economy.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
Last Updated: November 22
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