March 6 (Bloomberg) -- American International Group Inc.’s board of directors approved the sale of a non-U.S. insurance division to MetLife Inc., according to two people with knowledge of the matter.
An agreement to sell AIG’s American Life Insurance Co. may be announced as soon as this weekend, said the people, who declined to be identified because the vote was private. The price under discussion had been about $15 billion, other people with knowledge of the situation said.
The deal to divest Alico, which operates in more than 50 countries including parts of Europe, Latin America and Japan, would be AIG’s second involving an overseas life unit this month. The insurer said March 1 it will sell AIA Group Ltd., with customers in nations including China, India and Vietnam, to Prudential Plc for $35.5 billion. AIG is auctioning assets to repay a U.S. rescue that swelled to $182.3 billion.
“AIG’s foreign life insurance operations have always been one of the company’s crown jewels,” Chief Executive Officer Robert Benmosche said in a Feb. 26 letter to shareholders. “Alico is a global leader in life insurance, with operations in 54 countries serving 19 million customers.”
AIG’s board met and approved of the sale on March 5, the two people said. Christina Pretto, a spokeswoman for AIG, declined to comment. Christopher Breslin of New York-based MetLife didn’t return a call seeking comment.
Excluding Alico, AIG has secured deals to raise more than $47 billion since its 2008 bailout, including the $35.5 billion sale of AIA. The company has also agreed to sell a U.S. auto insurer, an asset manager and a reinsurer.
AIG’s approval came after it was told by the Internal Revenue Service that it doesn’t owe taxes on life insurance sold to non-U.S. customers through Alico, said a person with knowledge of the matter.
The talks for Alico were stalled in February over uncertainty regarding the tax. Delaware-based Alico had said the tax didn’t apply because more than 80 percent of its business was outside the country, the person said.
Friday, March 5, 2010
Banks Defend Sovereign Default Swaps at EU Regulators’ Meeting
March 6 (Bloomberg) -- The banking industry argued at a meeting with European Union regulators that trading in sovereign credit-default swaps isn’t large enough to affect Greek bond prices.
Swaps account for “only a small percentage of government bond trading volumes,” so it isn’t likely speculation in the contracts is “dictating price levels in the larger government bond market,” the International Swaps & Derivatives Association, an industry group, said in a statement yesterday. The group said the Brussels meeting offered a chance to address “misconceptions” about credit swaps.
Banks and regulators across Europe were summoned by the European Commission to an informal meeting to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis. European leaders have said the products fuel speculation that can distort market perceptions, making it harder for countries to borrow.
The commission, the EU executive agency, should ban naked swaps speculation, where investors insure bonds they don’t own, because “it is a demonstrably dangerous market,” Richard Portes, founder of the Centre for Economic Policy Research, said in a telephone interview. “If I were the commission, I’d ask the banks to say what social function the trade in naked CDS has.”
The roundtable yesterday was a “technical meeting,” and the discussions will be taken into account for the commission’s planned derivatives proposals later this year, Chantal Hughes, a commission spokeswoman, told reporters in Brussels.
Face Value for Debt
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company default on its debt payments.
“The absence of competition between banks also means that the possibilities of effective cartel behavior in the CDS market have increased,” Portes said.
ISDA defended sovereign swaps, saying in its statement they “can be used to hedge financial, industrial and real estate investments in countries.” The products allow investors to buy and sell default protection “without having access to government bond markets,” the group said.
German Chancellor Angela Merkel’s government is considering ways to tighten rules in the sovereign default swaps market. French Finance Minister Christine Lagarde said Feb. 17 “we should examine the suitability” of credit-default swaps.
The cost of such contracts on Greece rose to a record 428 basis points last month, according to CMA DataVision in London. That meant it cost $428,000 a year to insure $10 million of debt for five years.
Efforts to limit sovereign swaps contracts were criticized by Citigroup Inc. analysts in a note March 2. The analysts said governments should address investor concerns about budget deficits, rather than ban derivatives that hedge against risks.
“We would do better to spend our time addressing the defects the mirror shows than blaming the mirror,” Citigroup analysts, led by Michael Hampden-Turner in London, wrote in a note to investors. “After all, banning mirrors does nothing at all to make the world a prettier place.”
Swaps account for “only a small percentage of government bond trading volumes,” so it isn’t likely speculation in the contracts is “dictating price levels in the larger government bond market,” the International Swaps & Derivatives Association, an industry group, said in a statement yesterday. The group said the Brussels meeting offered a chance to address “misconceptions” about credit swaps.
Banks and regulators across Europe were summoned by the European Commission to an informal meeting to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis. European leaders have said the products fuel speculation that can distort market perceptions, making it harder for countries to borrow.
The commission, the EU executive agency, should ban naked swaps speculation, where investors insure bonds they don’t own, because “it is a demonstrably dangerous market,” Richard Portes, founder of the Centre for Economic Policy Research, said in a telephone interview. “If I were the commission, I’d ask the banks to say what social function the trade in naked CDS has.”
The roundtable yesterday was a “technical meeting,” and the discussions will be taken into account for the commission’s planned derivatives proposals later this year, Chantal Hughes, a commission spokeswoman, told reporters in Brussels.
Face Value for Debt
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company default on its debt payments.
“The absence of competition between banks also means that the possibilities of effective cartel behavior in the CDS market have increased,” Portes said.
ISDA defended sovereign swaps, saying in its statement they “can be used to hedge financial, industrial and real estate investments in countries.” The products allow investors to buy and sell default protection “without having access to government bond markets,” the group said.
German Chancellor Angela Merkel’s government is considering ways to tighten rules in the sovereign default swaps market. French Finance Minister Christine Lagarde said Feb. 17 “we should examine the suitability” of credit-default swaps.
The cost of such contracts on Greece rose to a record 428 basis points last month, according to CMA DataVision in London. That meant it cost $428,000 a year to insure $10 million of debt for five years.
Efforts to limit sovereign swaps contracts were criticized by Citigroup Inc. analysts in a note March 2. The analysts said governments should address investor concerns about budget deficits, rather than ban derivatives that hedge against risks.
“We would do better to spend our time addressing the defects the mirror shows than blaming the mirror,” Citigroup analysts, led by Michael Hampden-Turner in London, wrote in a note to investors. “After all, banning mirrors does nothing at all to make the world a prettier place.”
Thursday, March 4, 2010
Asian Stocks Rise on U.S. Jobs, BOJ Speculation; Sony Advances
March 5 (Bloomberg) -- Asian stocks rose for the fourth time in five days after U.S. jobless claims fell and the Nikkei newspaper reported that the Bank of Japan may further loosen monetary policy.
Billabong International Ltd., a surfwear maker that gets 44 percent of its revenue from the Americas, climbed 2.9 percent in Sydney. Sony Corp., the maker of the PlayStation 3 game machine, rose 2.7 percent as a weaker yen boosted the outlook for export earnings. STX Pan Ocean Co. and Korea Line Corp., South Korea’s biggest bulk-shipping lines, advanced more than 2 percent in Seoul after an index of freight rates rose the most since July.
The U.S. economy is “steadily recovering,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “If implemented, the BOJ’s measures may widen a gap in the U.S.’s and Japan’s borrowing costs and halt a further appreciation of the yen.”
The MSCI Asia Pacific Index advanced 0.7 percent to 120.51 as of 9:46 a.m. in Tokyo. The gauge has fallen 4.9 percent from a 17-month high on Jan. 15 on concern over budget deficits in Europe and speculation governments around the world will start withdrawing economic stimulus policies.
Japan’s Nikkei 225 Stock Average climbed 2 percent and South Korea’s Kospi Index gained 0.7 percent. Australia’s S&P/ASX 200 Index rose 0.5 percent, while New Zealand’s NZX 50 Index lost 0.1 percent, even after the Treasury Department said the nation’s budget cash deficit in the seven months ended Jan. 31 was narrower than forecast.
Billabong International Ltd., a surfwear maker that gets 44 percent of its revenue from the Americas, climbed 2.9 percent in Sydney. Sony Corp., the maker of the PlayStation 3 game machine, rose 2.7 percent as a weaker yen boosted the outlook for export earnings. STX Pan Ocean Co. and Korea Line Corp., South Korea’s biggest bulk-shipping lines, advanced more than 2 percent in Seoul after an index of freight rates rose the most since July.
The U.S. economy is “steadily recovering,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “If implemented, the BOJ’s measures may widen a gap in the U.S.’s and Japan’s borrowing costs and halt a further appreciation of the yen.”
The MSCI Asia Pacific Index advanced 0.7 percent to 120.51 as of 9:46 a.m. in Tokyo. The gauge has fallen 4.9 percent from a 17-month high on Jan. 15 on concern over budget deficits in Europe and speculation governments around the world will start withdrawing economic stimulus policies.
Japan’s Nikkei 225 Stock Average climbed 2 percent and South Korea’s Kospi Index gained 0.7 percent. Australia’s S&P/ASX 200 Index rose 0.5 percent, while New Zealand’s NZX 50 Index lost 0.1 percent, even after the Treasury Department said the nation’s budget cash deficit in the seven months ended Jan. 31 was narrower than forecast.
JPMorgan’s Abdelnour Closer to Solving China Puzzle
March 5 (Bloomberg) -- Gaby Abdelnour, JPMorgan Chase & Co. Asia-Pacific Chief Executive Officer, slaps the table three times as he spells out his ambition to end the firm’s five-year wait to enter China’s securities market: “I told everyone, I want to do a JV this year.”
At a town hall meeting Jan. 22, Abdelnour told about 500 of the firm’s employees in Asia that they’re nearer to that goal. JPMorgan has identified a partner for a securities joint venture in China and aims to sign an initial agreement as soon as next week, executives close to JPMorgan said. The people, who requested anonymity because the talks are private, declined to identify the company.
JPMorgan CEO Jamie Dimon steered the firm through the global financial crisis, emerging as the only top Wall Street bank to avoid posting a quarterly loss. In China, the company has failed to plug gaps in its business, while rivals Goldman Sachs Group Inc. and UBS AG found the local partners that are a prerequisite for arranging share sales in the world’s biggest market for initial public offerings in 2009.
“Dimon’s reputation is the best in America,” said Donald Straszheim, senior managing director of China research at Los Angeles-based International Strategy & Investment Group and a former Merrill Lynch & Co. chief economist. “It would be astonishing if JPMorgan didn’t keep pushing the China opportunity.”
Sitting in a 27th-floor meeting room in JPMorgan’s Hong Kong office, with a view across the harbor toward southern China, Abdelnour voiced his frustration at the advantage Goldman Sachs and UBS have won while JPMorgan spent four years in dead-end talks with Bohai Securities Co. and Liaoning Securities Co.
‘Wasted Time’
“I hate having wasted the time,” Abdelnour, 56, said in the March 2 interview. “We wasted several years and this is a lot of time, a lot of money and a lot of effort. That’s the thing that bothers me most,” he said, adding that he is now spending as much as 40 percent of his time in China, making five visits in the first two months of this year.
Abdelnour, who declined to comment on the joint-venture talks, was tapped to run JPMorgan’s Asia-Pacific business in July 2006, six months after the firm started discussions with Bohai Securities. The talks went on for about two years before falling apart.
“We should have been way ahead,” the 12-year veteran of the firm said in the interview. “Can I turn back the clock? No. I can learn from our experience and move on.”
Buying a Stake
Abdelnour said he aims for China to contribute about 25 percent of the bank’s Asia revenue “over time” from around 10 percent to 15 percent “through the cycle.” Investment banking, commercial banking and asset management each contribute about a third of revenue in the country. The U.S. bank is also considering buying a stake in a Chinese bank as its next step, when China relaxes limits on ownership, he said.
JPMorgan “needs to get a local venture up and running before becoming a real, active player in China,” said Charles Li, Hong Kong-based founder of investment bank Pelican Securities Ltd., which advises companies in the Greater China region on selling shares overseas and acquisitions.
During the past two years, ventures backed by Credit Suisse Group AG and Deutsche Bank AG have won regulatory approval to underwrite stock and bond sales in China. Morgan Stanley plans to sell its 34.3 percent stake in China’s oldest investment bank, China International Capital Corp., for about $1 billion and seek a new partner after failing to control the venture run by Levin Zhu, son of China’s former premier, Zhu Rongji.
Economic Growth
China’s economy has expanded about 60 percent since Abdelnour assumed his current position in mid-2006, and its stock market capitalization has swelled almost sixfold to about $3.13 trillion. By both measures, the country trails only the U.S. and Japan.
Companies raised 209 billion yuan ($31 billion) in IPOs in Shanghai and Shenzhen last year, making China the world’s biggest market for first-time stock sales -- even after the securities regulator blocked sales in the first half of 2009.
UBS Securities Co., 20 percent owned by the Zurich-based bank, had 26 million yuan in net income for 2008, according to the Securities Association of China. Goldman Sachs Gao Hua Securities Co. made 25.7 million yuan. China International, the nation’s biggest domestic share arranger in 2009, earned 627 million yuan. Second-placed Citic Securities Co. posted 7.3 billion yuan in profit.
Market Share
“From a profitability standpoint, I probably didn’t miss anything,” Abdelnour said. In terms of “market share, I missed something. The ability to be there ahead of everybody else and capture market share makes a big difference, of course. But we can claw it back.”
To help spearhead the push, Abdelnour in November hired Shao Zili, Asia managing partner at law firm Linklaters LLP, as chairman and CEO of JPMorgan in China. Shao helped Goldman Sachs and UBS set up their ventures in China.
Abdelnour also promoted Frank Gong, the bank’s chief China strategist, to vice chairman of China investment banking in July. Fang Fang, appointed as vice chairman of Asia in November, has also been given the task of helping to set up the venture.
Before joining JPMorgan, Abdelnour worked as a mergers and acquisition banker at Merrill Lynch in Hong Kong and Singapore. At JPMorgan, he managed the bank’s central and east European, and Middle East and North African business. He graduated in engineering from Lehigh University, and has a master’s in business administration from New York University. He is fluent in English, French and Arabic.
JPMorgan, which has asset management, futures and options ventures and operates a locally incorporated bank in China, will still face a five-year wait to qualify for a brokerage license under rules set out by the China Securities Regulatory Commission. UBS and Goldman Sachs set up their ventures before the regulations had been developed.
“Guess what? We in the West want to move at our own fast pace, and China moves at its own pace,” Abdelnour said. “They’re the host: I’m the guest and I have to adapt.”
At a town hall meeting Jan. 22, Abdelnour told about 500 of the firm’s employees in Asia that they’re nearer to that goal. JPMorgan has identified a partner for a securities joint venture in China and aims to sign an initial agreement as soon as next week, executives close to JPMorgan said. The people, who requested anonymity because the talks are private, declined to identify the company.
JPMorgan CEO Jamie Dimon steered the firm through the global financial crisis, emerging as the only top Wall Street bank to avoid posting a quarterly loss. In China, the company has failed to plug gaps in its business, while rivals Goldman Sachs Group Inc. and UBS AG found the local partners that are a prerequisite for arranging share sales in the world’s biggest market for initial public offerings in 2009.
“Dimon’s reputation is the best in America,” said Donald Straszheim, senior managing director of China research at Los Angeles-based International Strategy & Investment Group and a former Merrill Lynch & Co. chief economist. “It would be astonishing if JPMorgan didn’t keep pushing the China opportunity.”
Sitting in a 27th-floor meeting room in JPMorgan’s Hong Kong office, with a view across the harbor toward southern China, Abdelnour voiced his frustration at the advantage Goldman Sachs and UBS have won while JPMorgan spent four years in dead-end talks with Bohai Securities Co. and Liaoning Securities Co.
‘Wasted Time’
“I hate having wasted the time,” Abdelnour, 56, said in the March 2 interview. “We wasted several years and this is a lot of time, a lot of money and a lot of effort. That’s the thing that bothers me most,” he said, adding that he is now spending as much as 40 percent of his time in China, making five visits in the first two months of this year.
Abdelnour, who declined to comment on the joint-venture talks, was tapped to run JPMorgan’s Asia-Pacific business in July 2006, six months after the firm started discussions with Bohai Securities. The talks went on for about two years before falling apart.
“We should have been way ahead,” the 12-year veteran of the firm said in the interview. “Can I turn back the clock? No. I can learn from our experience and move on.”
Buying a Stake
Abdelnour said he aims for China to contribute about 25 percent of the bank’s Asia revenue “over time” from around 10 percent to 15 percent “through the cycle.” Investment banking, commercial banking and asset management each contribute about a third of revenue in the country. The U.S. bank is also considering buying a stake in a Chinese bank as its next step, when China relaxes limits on ownership, he said.
JPMorgan “needs to get a local venture up and running before becoming a real, active player in China,” said Charles Li, Hong Kong-based founder of investment bank Pelican Securities Ltd., which advises companies in the Greater China region on selling shares overseas and acquisitions.
During the past two years, ventures backed by Credit Suisse Group AG and Deutsche Bank AG have won regulatory approval to underwrite stock and bond sales in China. Morgan Stanley plans to sell its 34.3 percent stake in China’s oldest investment bank, China International Capital Corp., for about $1 billion and seek a new partner after failing to control the venture run by Levin Zhu, son of China’s former premier, Zhu Rongji.
Economic Growth
China’s economy has expanded about 60 percent since Abdelnour assumed his current position in mid-2006, and its stock market capitalization has swelled almost sixfold to about $3.13 trillion. By both measures, the country trails only the U.S. and Japan.
Companies raised 209 billion yuan ($31 billion) in IPOs in Shanghai and Shenzhen last year, making China the world’s biggest market for first-time stock sales -- even after the securities regulator blocked sales in the first half of 2009.
UBS Securities Co., 20 percent owned by the Zurich-based bank, had 26 million yuan in net income for 2008, according to the Securities Association of China. Goldman Sachs Gao Hua Securities Co. made 25.7 million yuan. China International, the nation’s biggest domestic share arranger in 2009, earned 627 million yuan. Second-placed Citic Securities Co. posted 7.3 billion yuan in profit.
Market Share
“From a profitability standpoint, I probably didn’t miss anything,” Abdelnour said. In terms of “market share, I missed something. The ability to be there ahead of everybody else and capture market share makes a big difference, of course. But we can claw it back.”
To help spearhead the push, Abdelnour in November hired Shao Zili, Asia managing partner at law firm Linklaters LLP, as chairman and CEO of JPMorgan in China. Shao helped Goldman Sachs and UBS set up their ventures in China.
Abdelnour also promoted Frank Gong, the bank’s chief China strategist, to vice chairman of China investment banking in July. Fang Fang, appointed as vice chairman of Asia in November, has also been given the task of helping to set up the venture.
Before joining JPMorgan, Abdelnour worked as a mergers and acquisition banker at Merrill Lynch in Hong Kong and Singapore. At JPMorgan, he managed the bank’s central and east European, and Middle East and North African business. He graduated in engineering from Lehigh University, and has a master’s in business administration from New York University. He is fluent in English, French and Arabic.
JPMorgan, which has asset management, futures and options ventures and operates a locally incorporated bank in China, will still face a five-year wait to qualify for a brokerage license under rules set out by the China Securities Regulatory Commission. UBS and Goldman Sachs set up their ventures before the regulations had been developed.
“Guess what? We in the West want to move at our own fast pace, and China moves at its own pace,” Abdelnour said. “They’re the host: I’m the guest and I have to adapt.”
Wednesday, March 3, 2010
Reliance Said to Have No Plans to Raise Lyondell Bid
March 4 (Bloomberg) -- Reliance Industries Ltd. has no plans to increase its bid for bankrupt chemicals maker LyondellBasell Industries AF after creditors rejected a $14.5 billion offer, two people briefed on the matter said.
Market conditions didn’t justify raising the offer further, the people said yesterday declining to be identified because they aren’t authorized to speak to the media. Chairman Mukesh Ambani, Asia’s richest man, may be prompted to spend Reliance’s $3.5 billion of cash elsewhere, analyst Victor Shum said.
“Paying any more than Reliance have offered makes the deal unattractive,” Shum of energy consultants Purvin & Gertz Ltd. said by telephone from Singapore today. “Lyondell would have given Reliance assets outside India and access to its marketing network in the U.S., but Reliance already markets globally and the synergies between the two companies are not that great.”
The Mumbai-based oil refiner and explorer’s shares have climbed 4.7 percent this week after its bid was rejected for a second time this year. Reliance is seeking asset abroad to reduce the risk of investing mostly in India, where it is battling a lawsuit over natural-gas supplies with a company owned Mukesh’s estranged brother, Anil Ambani.
Alok Agarwal, chief financial officer at Reliance couldn’t be reached at his office after hours.
Rising crude oil prices coupled with weak global demand for fuels and chemicals are prompting companies to sell assets.
Bid History
Rotterdam-based LyondellBasell had earlier rejected a revised Reliance bid that valued it at $13.5 billion, the Wall Street Journal reported Jan. 8. India’s largest company by market value had raised its offer for a controlling stake to $14.5 billion, two people with knowledge of the offer said on Feb. 22. The company initially offered an undisclosed amount on Nov. 21 and has yet to make public the value of its bid.
Oklahoma-based Devon Energy Corp., the biggest independent U.S. oil and gas producer, on Nov. 16 announced it was putting oil blocks from the Gulf of Mexico to the Caspian Sea up for sale to raise $7.5 billion to cut debt and fund onshore developments.
Houston-based ConocoPhillips plans to sell $10 billion of assets in two years to cut debt that may include exploration and production holdings in North America and gas properties in the North Sea, Chief Executive Officer Jim Mulva said in October.
‘Global Footprint’
Reliance operates India’s biggest natural gas field, owns the world’s largest refining complex at Jamnagar in Gujarat state, and has cash holdings of 160 billion rupees ($3.5 billion). While it has interests in overseas oil blocks, including in Peru, Iraq and Australia, only one in Yemen is producing at 4,400 barrels a day, according to Reliance’s earnings statement for the three months ended Dec. 31.
Reliance seeks a “far more widespread global footprint” in the near term, Ambani told shareholders Nov. 17. The company may buy oil fields in the Gulf of Mexico and Brazil to hedge the risk of investing mainly in India, P.M.S. Prasad, president of its oil and gas business, said Sept. 14. In December, Reliance hired Walter van de Vijver, a former exploration chief at Royal Dutch Shell Plc, to head its overseas business.
“Reliance has a very strong position in India but it doesn’t internationally,” Nathan Schaffer, an analyst at PFC Energy, said by phone from Houston. “There will be plenty of opportunities to pick up some attractive assets.”
Market conditions didn’t justify raising the offer further, the people said yesterday declining to be identified because they aren’t authorized to speak to the media. Chairman Mukesh Ambani, Asia’s richest man, may be prompted to spend Reliance’s $3.5 billion of cash elsewhere, analyst Victor Shum said.
“Paying any more than Reliance have offered makes the deal unattractive,” Shum of energy consultants Purvin & Gertz Ltd. said by telephone from Singapore today. “Lyondell would have given Reliance assets outside India and access to its marketing network in the U.S., but Reliance already markets globally and the synergies between the two companies are not that great.”
The Mumbai-based oil refiner and explorer’s shares have climbed 4.7 percent this week after its bid was rejected for a second time this year. Reliance is seeking asset abroad to reduce the risk of investing mostly in India, where it is battling a lawsuit over natural-gas supplies with a company owned Mukesh’s estranged brother, Anil Ambani.
Alok Agarwal, chief financial officer at Reliance couldn’t be reached at his office after hours.
Rising crude oil prices coupled with weak global demand for fuels and chemicals are prompting companies to sell assets.
Bid History
Rotterdam-based LyondellBasell had earlier rejected a revised Reliance bid that valued it at $13.5 billion, the Wall Street Journal reported Jan. 8. India’s largest company by market value had raised its offer for a controlling stake to $14.5 billion, two people with knowledge of the offer said on Feb. 22. The company initially offered an undisclosed amount on Nov. 21 and has yet to make public the value of its bid.
Oklahoma-based Devon Energy Corp., the biggest independent U.S. oil and gas producer, on Nov. 16 announced it was putting oil blocks from the Gulf of Mexico to the Caspian Sea up for sale to raise $7.5 billion to cut debt and fund onshore developments.
Houston-based ConocoPhillips plans to sell $10 billion of assets in two years to cut debt that may include exploration and production holdings in North America and gas properties in the North Sea, Chief Executive Officer Jim Mulva said in October.
‘Global Footprint’
Reliance operates India’s biggest natural gas field, owns the world’s largest refining complex at Jamnagar in Gujarat state, and has cash holdings of 160 billion rupees ($3.5 billion). While it has interests in overseas oil blocks, including in Peru, Iraq and Australia, only one in Yemen is producing at 4,400 barrels a day, according to Reliance’s earnings statement for the three months ended Dec. 31.
Reliance seeks a “far more widespread global footprint” in the near term, Ambani told shareholders Nov. 17. The company may buy oil fields in the Gulf of Mexico and Brazil to hedge the risk of investing mainly in India, P.M.S. Prasad, president of its oil and gas business, said Sept. 14. In December, Reliance hired Walter van de Vijver, a former exploration chief at Royal Dutch Shell Plc, to head its overseas business.
“Reliance has a very strong position in India but it doesn’t internationally,” Nathan Schaffer, an analyst at PFC Energy, said by phone from Houston. “There will be plenty of opportunities to pick up some attractive assets.”
Toyota Employees Quit College Board Following Critical Study
March 4 (Bloomberg) -- Two Toyota Motor Corp. managers resigned from an advisory panel at Southern Illinois University after a professor from the school told a congressional committee the automaker’s vehicles may have electronics defects.
The employees, one of whom had been on the Carbondale, Illinois, college’s automotive technology department advisory committee for more than 20 years, resigned this week, said SIU spokesman Dave Gross. Toyota executives met March 2 with Professor David W. Gilbert to discuss his findings of weaknesses in Toyota’s electronic system, Gross said.
“It’s fair to say Toyota would have liked to have had a chance to review his results before they were presented in a congressional hearing,” Gross said. “We’ve had a long relationship with Toyota, and we’re just trying to facilitate communication.”
Toyota has drawn fire at three congressional hearings in the last two weeks for dismissing electronics as a possible cause of unintended acceleration episodes that have forced recalls of more than 8 million models worldwide. Toyota has blamed sticky accelerators and floor mats for the episodes, which the government on March 2 said have been linked in consumer complaints to 43 crashes that caused 52 deaths and 38 injuries.
Terry Martin, manager of customer quality for Toyota Motor Manufacturing Indiana Inc., resigned March 1, and Neil R. Swartz, corporate manager for North American Parts Operations, Toyota Motor Sales USA, resigned Feb. 28, according to copies of resignation letters verified by the university.
‘Not Punitive’
The resignations “were to avoid any suggestion or appearance that Toyota board members would exert influence on SIU in any way,” said Mike Michels, a spokesman for Toyota’s U.S. unit. “It’s not punitive in any way. We continue to support their program. It’s an excellent school, and we have a number of alumni at Toyota from Southern Illinois.”
The identical two-paragraph letters, on Toyota stationery, said the executives were resigning “in view of recent events.”
“In addition, Toyota strongly recommends that Southern Illinois University cooperate with the National Highway Traffic Safety Administration and promptly respond to any requests that relate to any of the Toyota or Lexus vehicles worked on by Professor Gilbert,” the executives said in the letters.
Toyota has donated $100,000 to the SIU campus over the last two years for a new Transportation Education Center. Construction of the facility, which will house automotive and aeronautic classes, is to begin in the spring, Gross said.
“The resignations are unfortunate and we are disappointed in the decision to render them, but we do feel that over time, given our program’s outstanding reputation and the long partnership we have enjoyed with Toyota, that we will restore this important industry relationship,” Gross said.
None as Easy
Gilbert, who has taught classes on auto technology since 1981 at various colleges, said in testimony before a House panel last week that he was able to isolate weaknesses in Toyota’s electronic throttles that aren’t found in units from other automakers.
“None were quite as easy as the Toyota system to crack,” Gilbert said at the time.
Asked why Toyota wasn’t able to figure this out, Gilbert said, “Maybe they didn’t ask the right questions.”
Toyota executives told a Senate panel this week they haven’t found evidence that electronic failure is a cause of any of the incidents. They said they would continue to study the possibility.
NHTSA said yesterday it has had at least 10 reports of new acceleration incidents in Toyota vehicles that had already been repaired by the automaker under the recalls.
‘Piqued My Curiosity’
Gilbert is being paid for his work by Safety Research & Strategies Inc. of Rehoboth, Massachusetts, a research firm that gathers data from NHTSA and other sources for plaintiff’s attorneys and consumers.
He said during his questioning Feb. 23 that he contacted the group because the reports about Toyota’s electronic system “piqued my curiosity.” Sean Kane, president of Safety Research, said he has paid Gilbert $1,800, and reimburses him at a rate of $150 an hour.
Gilbert followed the proper university procedures for accepting outside work in taking on the project, Gross said.
Toyota has freed up “unlimited” funds for its own tests from consultant Exponent Inc. to review electronics on behalf of the automaker, Toyota U.S. Sales President James Lentz said during the Feb. 23 hearing. The company was able to duplicate some of Gilbert’s results in tests the night before the hearing, Lentz said.
The employees, one of whom had been on the Carbondale, Illinois, college’s automotive technology department advisory committee for more than 20 years, resigned this week, said SIU spokesman Dave Gross. Toyota executives met March 2 with Professor David W. Gilbert to discuss his findings of weaknesses in Toyota’s electronic system, Gross said.
“It’s fair to say Toyota would have liked to have had a chance to review his results before they were presented in a congressional hearing,” Gross said. “We’ve had a long relationship with Toyota, and we’re just trying to facilitate communication.”
Toyota has drawn fire at three congressional hearings in the last two weeks for dismissing electronics as a possible cause of unintended acceleration episodes that have forced recalls of more than 8 million models worldwide. Toyota has blamed sticky accelerators and floor mats for the episodes, which the government on March 2 said have been linked in consumer complaints to 43 crashes that caused 52 deaths and 38 injuries.
Terry Martin, manager of customer quality for Toyota Motor Manufacturing Indiana Inc., resigned March 1, and Neil R. Swartz, corporate manager for North American Parts Operations, Toyota Motor Sales USA, resigned Feb. 28, according to copies of resignation letters verified by the university.
‘Not Punitive’
The resignations “were to avoid any suggestion or appearance that Toyota board members would exert influence on SIU in any way,” said Mike Michels, a spokesman for Toyota’s U.S. unit. “It’s not punitive in any way. We continue to support their program. It’s an excellent school, and we have a number of alumni at Toyota from Southern Illinois.”
The identical two-paragraph letters, on Toyota stationery, said the executives were resigning “in view of recent events.”
“In addition, Toyota strongly recommends that Southern Illinois University cooperate with the National Highway Traffic Safety Administration and promptly respond to any requests that relate to any of the Toyota or Lexus vehicles worked on by Professor Gilbert,” the executives said in the letters.
Toyota has donated $100,000 to the SIU campus over the last two years for a new Transportation Education Center. Construction of the facility, which will house automotive and aeronautic classes, is to begin in the spring, Gross said.
“The resignations are unfortunate and we are disappointed in the decision to render them, but we do feel that over time, given our program’s outstanding reputation and the long partnership we have enjoyed with Toyota, that we will restore this important industry relationship,” Gross said.
None as Easy
Gilbert, who has taught classes on auto technology since 1981 at various colleges, said in testimony before a House panel last week that he was able to isolate weaknesses in Toyota’s electronic throttles that aren’t found in units from other automakers.
“None were quite as easy as the Toyota system to crack,” Gilbert said at the time.
Asked why Toyota wasn’t able to figure this out, Gilbert said, “Maybe they didn’t ask the right questions.”
Toyota executives told a Senate panel this week they haven’t found evidence that electronic failure is a cause of any of the incidents. They said they would continue to study the possibility.
NHTSA said yesterday it has had at least 10 reports of new acceleration incidents in Toyota vehicles that had already been repaired by the automaker under the recalls.
‘Piqued My Curiosity’
Gilbert is being paid for his work by Safety Research & Strategies Inc. of Rehoboth, Massachusetts, a research firm that gathers data from NHTSA and other sources for plaintiff’s attorneys and consumers.
He said during his questioning Feb. 23 that he contacted the group because the reports about Toyota’s electronic system “piqued my curiosity.” Sean Kane, president of Safety Research, said he has paid Gilbert $1,800, and reimburses him at a rate of $150 an hour.
Gilbert followed the proper university procedures for accepting outside work in taking on the project, Gross said.
Toyota has freed up “unlimited” funds for its own tests from consultant Exponent Inc. to review electronics on behalf of the automaker, Toyota U.S. Sales President James Lentz said during the Feb. 23 hearing. The company was able to duplicate some of Gilbert’s results in tests the night before the hearing, Lentz said.
Tuesday, March 2, 2010
Asian Stocks Rise on Greece, Metals; BHP Billiton, Rio Advance
March 3 (Bloomberg) -- Asian stocks rose, erasing the MSCI Asia Pacific Index’s 2010 decline, as metal and oil prices advanced and concerns about Greece’s budget problems eased.
BHP Billiton Ltd. and Rio Tinto Ltd., the world’s largest and third-largest mining companies, rose more than 1.5 percent in Sydney. National Australia Bank Ltd., Australia’s fourth- largest bank, climbed 1.9 percent. The Greek government will announce as much as 4.8 billion euros ($6.5 billion) of additional deficit cuts today, bowing to pressure from the European Union and investors to do more to tame the region’s biggest shortfall, a person familiar with the plan said.
“Greece’s debt issue is moving toward a resolution,” said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc. in Tokyo.
The MSCI Asia Pacific Index gained 0.4 percent to 120.43 as of 10:19 a.m. in Tokyo, leaving it little changed from the start of 2010. The gauge had lost as much as 5.2 percent this year amid concern governments will start withdrawing stimulus.
Australia’s S&P/ASX 200 Index rose 0.8 percent as the government reported the nation’s economy expanded 0.9 percent in the fourth quarter from the previous three months, the fastest pace in almost two years. New Zealand’s NZX 50 Index gained 0.6 percent. South Korea’s Kospi Index increased 0.4 percent.
Japan’s Nikkei 225 Stock Average dropped 0.2 percent. Jtekt Corp. slumped 3.1 percent in Tokyo after the Associated Press reported the auto-parts company supplied power-steering motors recalled by General Motors Co.
Futures on the Standard & Poor’s 500 Index were little changed. The gauge rose 0.2 percent to the highest since Jan. 20 yesterday, helped by corporate takeovers and a possible resolution to Greece’s budget issues. Banks advanced after analyst Richard X. Bove said the industry is stabilizing.
The London Metal Exchange Index of six metals including copper and zinc climbed 1.5 percent yesterday, a third day of gains. Crude oil for April delivery rose 1.3 percent to settle at $79.68 a barrel in New York. Gold futures rose 1.7 percent to $1,137.40 an ounce.
BHP Billiton Ltd. and Rio Tinto Ltd., the world’s largest and third-largest mining companies, rose more than 1.5 percent in Sydney. National Australia Bank Ltd., Australia’s fourth- largest bank, climbed 1.9 percent. The Greek government will announce as much as 4.8 billion euros ($6.5 billion) of additional deficit cuts today, bowing to pressure from the European Union and investors to do more to tame the region’s biggest shortfall, a person familiar with the plan said.
“Greece’s debt issue is moving toward a resolution,” said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc. in Tokyo.
The MSCI Asia Pacific Index gained 0.4 percent to 120.43 as of 10:19 a.m. in Tokyo, leaving it little changed from the start of 2010. The gauge had lost as much as 5.2 percent this year amid concern governments will start withdrawing stimulus.
Australia’s S&P/ASX 200 Index rose 0.8 percent as the government reported the nation’s economy expanded 0.9 percent in the fourth quarter from the previous three months, the fastest pace in almost two years. New Zealand’s NZX 50 Index gained 0.6 percent. South Korea’s Kospi Index increased 0.4 percent.
Japan’s Nikkei 225 Stock Average dropped 0.2 percent. Jtekt Corp. slumped 3.1 percent in Tokyo after the Associated Press reported the auto-parts company supplied power-steering motors recalled by General Motors Co.
Futures on the Standard & Poor’s 500 Index were little changed. The gauge rose 0.2 percent to the highest since Jan. 20 yesterday, helped by corporate takeovers and a possible resolution to Greece’s budget issues. Banks advanced after analyst Richard X. Bove said the industry is stabilizing.
The London Metal Exchange Index of six metals including copper and zinc climbed 1.5 percent yesterday, a third day of gains. Crude oil for April delivery rose 1.3 percent to settle at $79.68 a barrel in New York. Gold futures rose 1.7 percent to $1,137.40 an ounce.
Australia February Services Industry Contracts at Slower Pace
March 3 (Bloomberg) -- Australia’s services industry shrank in February at a slower pace amid rising demand among banks and transport companies.
The performance of services index rose 0.9 points to 48.3 from January, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. A figure below 50 indicates the industry is shrinking.
Central bank Governor Glenn Stevens, who boosted borrowing costs yesterday for the fourth time in five meetings, may pause next month to gauge the impact of previous increases, according to 19 of 22 economists surveyed by Bloomberg yesterday. Employment and supplier delivery levels contracted as firms cited “soft” consumer and business confidence in February, today’s report said.
“Consumer-related services sectors bore much of the brunt of the cumulative impact of the consecutive interest-rate rises and the gradual withdrawal” of government spending, said Australian Industry Group Chief Executive Heather Ridout.
The index has fallen every month since October, when it hit the highest level in 19 months.
Stevens began increasing the overnight cash rate target at the start of October, taking it to 4 percent yesterday from a half-century low of 3 percent.
Today’s report also suggests the impact of more than A$20 billion ($18 billion) in cash handouts to households from Prime Minister Kevin Rudd has waned. Most of the handouts were completed in the first half of 2009.
Services businesses are looking to further improvement in Australia’s labor market to boost “household discretionary spending in the face of yesterday’s interest-rate rise,” Ridout said.
Today’s report, which is based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.
The report measures sales, new orders, deliveries, inventories and employment for companies such as banks, real estate agents, insurers, restaurants, transport firms and retailers to compile the overall performance of services index.
The performance of services index rose 0.9 points to 48.3 from January, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. A figure below 50 indicates the industry is shrinking.
Central bank Governor Glenn Stevens, who boosted borrowing costs yesterday for the fourth time in five meetings, may pause next month to gauge the impact of previous increases, according to 19 of 22 economists surveyed by Bloomberg yesterday. Employment and supplier delivery levels contracted as firms cited “soft” consumer and business confidence in February, today’s report said.
“Consumer-related services sectors bore much of the brunt of the cumulative impact of the consecutive interest-rate rises and the gradual withdrawal” of government spending, said Australian Industry Group Chief Executive Heather Ridout.
The index has fallen every month since October, when it hit the highest level in 19 months.
Stevens began increasing the overnight cash rate target at the start of October, taking it to 4 percent yesterday from a half-century low of 3 percent.
Today’s report also suggests the impact of more than A$20 billion ($18 billion) in cash handouts to households from Prime Minister Kevin Rudd has waned. Most of the handouts were completed in the first half of 2009.
Services businesses are looking to further improvement in Australia’s labor market to boost “household discretionary spending in the face of yesterday’s interest-rate rise,” Ridout said.
Today’s report, which is based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.
The report measures sales, new orders, deliveries, inventories and employment for companies such as banks, real estate agents, insurers, restaurants, transport firms and retailers to compile the overall performance of services index.
India Infrastructure May Lend $500 Million Reserves
March 2 (Bloomberg) -- India Infrastructure Finance Co., a state-run entity that extends loans at preferential rates, may use $500 million of the nation’s foreign-exchange reserves next fiscal year to build roads, ports and power plants.
The agency, set up four years ago, will eventually draw up to $5 billion from the reserves, which are managed by the Reserve Bank of India and have reached $279 billion, chairman S.S. Kohli said in an interview last week in New Delhi. The holdings, the world’s seventh largest, are enough to pay for nine to 11 months of imports, according to HSBC Holdings Plc.
“The reserves are way above what would be considered adequate and a significant amount can be safely drawn down and spent,” said Robert Prior-Wandesforde, a Singapore-based economist at HSBC, Europe’s biggest bank. “It’s a very small step but it is impossible to close India’s massive infrastructure deficit by conventional means.”
The government is using foreign-currency holdings to spur economic growth after the funds almost doubled in the past four years. The country was forced to turn to the International Monetary Fund for aid in 1991 after Iraq’s invasion of Kuwait pushed up fuel import costs, causing reserves to dwindle to the equivalent of two weeks’ imports.
India Infrastructure plans to raise $1 billion selling 10- year medium-term notes overseas in the next two years. The agency has disbursed 75 billion rupees ($1.6 billion) of funds in the year ending March 31 and plans to boost lending to about 220 billion rupees next fiscal year, Kohli said. That’s dwarfed by the $500 billion the government says is needed to build infrastructure in the five years through March 2012.
Hampers Growth
The inadequacy of the nation’s utilities and transport network shaves 2 percentage points from economic growth, the finance ministry estimates. The government said in last month’s budget it will boost infrastructure spending by 24 percent to 2.67 trillion rupees in the coming fiscal year, when gross domestic product is forecast to climb 8.2 percent.
The plan to tap reserves also underscores policy makers’ efforts to build infrastructure without burdening the government to raise funds. The government plans to reduce its budget deficit to 5.5 percent of GDP in the next 12 months from a targeted 6.7 percent this fiscal year.
“It’s the kind of thing that many governments around the world do to mobilize resources necessary for public infrastructure,” said Andrew Colquhoun, Hong Kong-based director at Fitch Ratings, which has a negative outlook on India’s local-currency rating of BBB-. A stable outlook will require “government action to get India’s public debt ratios firmly on a downward trend,” he added.
Power Plants, Railways
India Infrastructure has so far borrowed $250 million by selling government-guaranteed debt to the Reserve Bank of India, Kohli said. The agency has approved loans totaling $1.37 billion for buying machinery and equipment from abroad, including funding a power plant and two metro rail projects being built by companies controlled by billionaire Anil Ambani.
“Right now there is a big gap between loans sanctioned and disbursed, mainly because it takes time for projects to get off the ground due to regulatory and environmental clearances,” Kohli said. “We expect funding to gather pace in the coming year.”
World Bank
India Infrastructure also has credit lines of up to $1.2 billion with both the Asian Development Bank and the World Bank, Kohli said. The agency is not allowed to lend more than 20 percent of a project’s cost under government rules and it can’t be the No. 1 supplier of funds.
Kohli declined to comment on a Feb. 10 Business Standard report that IIFC will be involved in setting up an India Infrastructure Debt Fund to attract money from global sovereign wealth funds and domestic insurance companies.
Apart from lending directly to companies, the agency also refinances loans by banks to infrastructure projects. India Infrastructure will refinance about 60 billion rupees in the year beginning April, more than double from this year, Finance Minister Pranab Mukherjee said in his Feb. 26 budget speech.
Spending on infrastructure will rise 24 percent to 2.67 trillion rupees, the budget document showed. The budget increases spending on road building by 13 percent, targeting 20 kilometers of new national highways per day.
“Since we get our funding through innovative means, we are able to lend for a longer term than commercial banks,” Kohli said. “But the development of a robust corporate bond market is a must if we are to upgrade our infrastructure to international standards.”
The agency, set up four years ago, will eventually draw up to $5 billion from the reserves, which are managed by the Reserve Bank of India and have reached $279 billion, chairman S.S. Kohli said in an interview last week in New Delhi. The holdings, the world’s seventh largest, are enough to pay for nine to 11 months of imports, according to HSBC Holdings Plc.
“The reserves are way above what would be considered adequate and a significant amount can be safely drawn down and spent,” said Robert Prior-Wandesforde, a Singapore-based economist at HSBC, Europe’s biggest bank. “It’s a very small step but it is impossible to close India’s massive infrastructure deficit by conventional means.”
The government is using foreign-currency holdings to spur economic growth after the funds almost doubled in the past four years. The country was forced to turn to the International Monetary Fund for aid in 1991 after Iraq’s invasion of Kuwait pushed up fuel import costs, causing reserves to dwindle to the equivalent of two weeks’ imports.
India Infrastructure plans to raise $1 billion selling 10- year medium-term notes overseas in the next two years. The agency has disbursed 75 billion rupees ($1.6 billion) of funds in the year ending March 31 and plans to boost lending to about 220 billion rupees next fiscal year, Kohli said. That’s dwarfed by the $500 billion the government says is needed to build infrastructure in the five years through March 2012.
Hampers Growth
The inadequacy of the nation’s utilities and transport network shaves 2 percentage points from economic growth, the finance ministry estimates. The government said in last month’s budget it will boost infrastructure spending by 24 percent to 2.67 trillion rupees in the coming fiscal year, when gross domestic product is forecast to climb 8.2 percent.
The plan to tap reserves also underscores policy makers’ efforts to build infrastructure without burdening the government to raise funds. The government plans to reduce its budget deficit to 5.5 percent of GDP in the next 12 months from a targeted 6.7 percent this fiscal year.
“It’s the kind of thing that many governments around the world do to mobilize resources necessary for public infrastructure,” said Andrew Colquhoun, Hong Kong-based director at Fitch Ratings, which has a negative outlook on India’s local-currency rating of BBB-. A stable outlook will require “government action to get India’s public debt ratios firmly on a downward trend,” he added.
Power Plants, Railways
India Infrastructure has so far borrowed $250 million by selling government-guaranteed debt to the Reserve Bank of India, Kohli said. The agency has approved loans totaling $1.37 billion for buying machinery and equipment from abroad, including funding a power plant and two metro rail projects being built by companies controlled by billionaire Anil Ambani.
“Right now there is a big gap between loans sanctioned and disbursed, mainly because it takes time for projects to get off the ground due to regulatory and environmental clearances,” Kohli said. “We expect funding to gather pace in the coming year.”
World Bank
India Infrastructure also has credit lines of up to $1.2 billion with both the Asian Development Bank and the World Bank, Kohli said. The agency is not allowed to lend more than 20 percent of a project’s cost under government rules and it can’t be the No. 1 supplier of funds.
Kohli declined to comment on a Feb. 10 Business Standard report that IIFC will be involved in setting up an India Infrastructure Debt Fund to attract money from global sovereign wealth funds and domestic insurance companies.
Apart from lending directly to companies, the agency also refinances loans by banks to infrastructure projects. India Infrastructure will refinance about 60 billion rupees in the year beginning April, more than double from this year, Finance Minister Pranab Mukherjee said in his Feb. 26 budget speech.
Spending on infrastructure will rise 24 percent to 2.67 trillion rupees, the budget document showed. The budget increases spending on road building by 13 percent, targeting 20 kilometers of new national highways per day.
“Since we get our funding through innovative means, we are able to lend for a longer term than commercial banks,” Kohli said. “But the development of a robust corporate bond market is a must if we are to upgrade our infrastructure to international standards.”
Indian Bonds Fall as Investors Wary of First-Half Debt Sales
March 2 (Bloomberg) -- India’s 10-year bonds fell, pushing yields to their highest level in more than a week, on concern the government will increase borrowing in the first half of the year beginning April, when the bulk of debt will mature.
The government will raise a record 4.57 trillion rupees ($99.3 billion) in the next fiscal year, Finance Minister Pranab Mukherjee said on Feb. 26. Debt payments will more than double to 1.14 trillion rupees, of which almost three quarters are scheduled to be repaid in the four months through July, according to the government’s budget.
“Since you have heavy redemptions you have to be prepared for big bond sales in the first half,” said Rajeev Radhakrishnan, who manages the equivalent of $4 billion of debt at SBI Funds Management Pvt. Ltd., a unit of the nation’s biggest bank, in Mumbai. “Yields will be under pressure until the auction calendar is announced.”
The yield on the 6.35 percent note due January 2020 rose four basis points to 7.9 percent at 10:40 a.m. in Mumbai, the highest intraday level since Feb. 19, according to the central bank’s trading system. The price fell 0.26, or 26 paise per 100 rupee face amount, to 89.50.
The yield will be between 7.75 percent and 8 percent this month, Radhakrishnan predicted. The government will soon start discussion with the central bank on next fiscal year’s borrowing schedule, Finance Secretary Ashok Chawla said on Feb. 26.
The plan to auction licenses for nationwide third- generation mobile phone services will be a key factor deciding the borrowing schedule in the first half, said Radhakrishnan. India expects to earn 350 billion rupees from the auction.
The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased today. The rate, a fixed payment made to receive floating rates, rose to 7.06 percent from 7.02 percent on Feb. 26.
The government will raise a record 4.57 trillion rupees ($99.3 billion) in the next fiscal year, Finance Minister Pranab Mukherjee said on Feb. 26. Debt payments will more than double to 1.14 trillion rupees, of which almost three quarters are scheduled to be repaid in the four months through July, according to the government’s budget.
“Since you have heavy redemptions you have to be prepared for big bond sales in the first half,” said Rajeev Radhakrishnan, who manages the equivalent of $4 billion of debt at SBI Funds Management Pvt. Ltd., a unit of the nation’s biggest bank, in Mumbai. “Yields will be under pressure until the auction calendar is announced.”
The yield on the 6.35 percent note due January 2020 rose four basis points to 7.9 percent at 10:40 a.m. in Mumbai, the highest intraday level since Feb. 19, according to the central bank’s trading system. The price fell 0.26, or 26 paise per 100 rupee face amount, to 89.50.
The yield will be between 7.75 percent and 8 percent this month, Radhakrishnan predicted. The government will soon start discussion with the central bank on next fiscal year’s borrowing schedule, Finance Secretary Ashok Chawla said on Feb. 26.
The plan to auction licenses for nationwide third- generation mobile phone services will be a key factor deciding the borrowing schedule in the first half, said Radhakrishnan. India expects to earn 350 billion rupees from the auction.
The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased today. The rate, a fixed payment made to receive floating rates, rose to 7.06 percent from 7.02 percent on Feb. 26.
Monday, March 1, 2010
Australian Government Confident of Rebound, Treasurer Swan Says
Feb. 28 (Bloomberg) -- Australian Treasurer Wayne Swan said the government is confident the economy is strengthening after last year’s global recession.
Swan, commenting in a statement before the release of fourth-quarter economic-growth figures on March 3, said “whatever the numbers are on Wednesday, we’re confident we can recover strongly, but we’re far from complacent given some sectors of our economy are still vulnerable.”
Australia’s gross domestic product probably rose the most in 1 1/2 years last quarter, according to a Bloomberg News survey of analysts, boosted by A$22 billion ($19.7 billion) in spending by Prime Minister Kevin Rudd on roads and schools.
Signs of a rebound will prompt central bank Governor Glenn Stevens to boost the benchmark lending rate to 4 percent from 3.75 percent on March 2, according to 14 of 19 economists surveyed by Bloomberg.
“Any interest-rate rise is of course very tough on family budgets,” Swan said in the statement placed on a government Web site. “But it’s also worth remembering that official interest rates are currently 350 basis points below their peak a year and a half ago.” A basis point is 0.01 percentage point.
Swan, commenting in a statement before the release of fourth-quarter economic-growth figures on March 3, said “whatever the numbers are on Wednesday, we’re confident we can recover strongly, but we’re far from complacent given some sectors of our economy are still vulnerable.”
Australia’s gross domestic product probably rose the most in 1 1/2 years last quarter, according to a Bloomberg News survey of analysts, boosted by A$22 billion ($19.7 billion) in spending by Prime Minister Kevin Rudd on roads and schools.
Signs of a rebound will prompt central bank Governor Glenn Stevens to boost the benchmark lending rate to 4 percent from 3.75 percent on March 2, according to 14 of 19 economists surveyed by Bloomberg.
“Any interest-rate rise is of course very tough on family budgets,” Swan said in the statement placed on a government Web site. “But it’s also worth remembering that official interest rates are currently 350 basis points below their peak a year and a half ago.” A basis point is 0.01 percentage point.
India to Be Ready to ‘Correct’ Budget If Fiscal Target at Risk
Feb. 28 (Bloomberg) -- India’s government must be ready to take “corrective steps” to achieve its fiscal deficit- reduction target for next year should its budget assumptions start falling through, an aide to the prime minister said.
“You must be ready to correct yourself if things go wrong,” Montek Singh Ahluwalia, 66, said in an interview in his office in New Delhi yesterday. The goal of reducing the budget deficit to 5.5 percent of gross domestic product for the financial year starting April 1 “absolutely” must be met and “something will have to be done” if it’s endangered, he said.
India must convince investors it is committed to the deficit reduction, in part because the nation needs overseas capital to finance a current-account deficit. That shortfall may reach 2.5 percent of GDP from 2.2 percent as domestic demand grows more strongly than exports, according to Ahluwalia.
“We need to remain an investor-friendly environment,” said Ahluwalia, who is the deputy chairman of the Planning Commission, an agency that sets India’s growth and investment targets. He refrained from specifying what new efforts the government should be ready to adopt to maintain its fiscal goal.
Finance Minister Pranab Mukherjee two days ago unveiled a budget proposal featuring tax increases and 400 billion rupees ($9 billion) of state asset sales to help shrink the deficit from a 16-year high of 6.9 percent of GDP.
Budget Plan
The budget, betting on a faster global expansion in 2010, has assumed a nominal economic growth rate of 12.5 percent in India, helping boost tax revenues by 18 percent. It also aims to mobilize another 350 billion rupees by auctioning frequency licenses to mobile-phone operators.
JPMorgan Chase & Co. Mumbai-based analysts Jahangir Aziz and Gunjan Gulati called it a “risky” plan, saying it was based “narrowly on a few adjusters” to bring down the shortfall.
“The global economy can turn up nasty surprises,” the analysts said. “If a few things go wrong, the budget will look shaky.”
For now, indications are that the world economy is recovering from the first global recession since World War II. The U.S. and U.K. economies grew faster-than-expected in the fourth quarter.
The U.S. economy expanded at a 5.9 percent annual rate in the last three months of 2009, more than the government’s estimate last month, reflecting stronger business investment. Gross domestic product in Britain rose 0.3 percent last quarter, compared with a previous calculation of 0.1 percent gain, as the nation emerged from the recession.
Assuming ‘Optimism’
“We are making a set of assumptions which do build an optimism,” the Oxford-educated Ahluwalia said. “The important thing is that if they turn out to be different, are you going to react to make sure that you don’t continue to be optimistic when the facts don’t warrant.”
In India, the latest data for industrial production showed output gained 16.8 percent in December, the fastest pace since at least 1994 as sales at carmakers and cement producers gained.
Mukherjee told business chambers in New Delhi yesterday that the government had to cut next year’s budget deficit to facilitate credit flow to companies.
Grasim Industries Ltd., India Cements Ltd. and other producers of the building material sold 15 percent more in January from a year earlier. Sales at Tata Motors Ltd. and other local car manufacturers rose 32 percent to a record in January.
Foreign Investments
That’s helped foreign investments to flow into India even with a decline in global capital flows, Mukherjee said in parliament on Feb. 26. India got $20.9 billion in the nine months to Dec. 31 compared with $21.1 billion in the same period last year, he said.
“We are looking actively at having a policy environment which encourages foreign direct investments and other flows but not short-term capital flows,” said Ahluwalia, who worked as the top bureaucrat in the Ministry of Finance in 1991 when Prime Minister Manmohan Singh, then Finance Minister, opened the economy to foreign investors. Ahluwalia left the finance ministry in 1998 to join the Planning Commission as a member.
Ahluwalia said India wants foreign direct investments to finance the country’s current account gap.
He also said India contributes to global economic growth and isn’t “mercantilist,” when asked about Princeton University economist Paul Krugman saying that China is sapping demand from other emerging markets.
Ahluwalia declined to comment specifically on China, saying “the Chinese say that’s not what they’re doing.”
He said a 10 percent growth rate in India is achievable over the next two decades. This would mean per capita income will grow at 7.5 percent a year, doubling every nine years.
“You must be ready to correct yourself if things go wrong,” Montek Singh Ahluwalia, 66, said in an interview in his office in New Delhi yesterday. The goal of reducing the budget deficit to 5.5 percent of gross domestic product for the financial year starting April 1 “absolutely” must be met and “something will have to be done” if it’s endangered, he said.
India must convince investors it is committed to the deficit reduction, in part because the nation needs overseas capital to finance a current-account deficit. That shortfall may reach 2.5 percent of GDP from 2.2 percent as domestic demand grows more strongly than exports, according to Ahluwalia.
“We need to remain an investor-friendly environment,” said Ahluwalia, who is the deputy chairman of the Planning Commission, an agency that sets India’s growth and investment targets. He refrained from specifying what new efforts the government should be ready to adopt to maintain its fiscal goal.
Finance Minister Pranab Mukherjee two days ago unveiled a budget proposal featuring tax increases and 400 billion rupees ($9 billion) of state asset sales to help shrink the deficit from a 16-year high of 6.9 percent of GDP.
Budget Plan
The budget, betting on a faster global expansion in 2010, has assumed a nominal economic growth rate of 12.5 percent in India, helping boost tax revenues by 18 percent. It also aims to mobilize another 350 billion rupees by auctioning frequency licenses to mobile-phone operators.
JPMorgan Chase & Co. Mumbai-based analysts Jahangir Aziz and Gunjan Gulati called it a “risky” plan, saying it was based “narrowly on a few adjusters” to bring down the shortfall.
“The global economy can turn up nasty surprises,” the analysts said. “If a few things go wrong, the budget will look shaky.”
For now, indications are that the world economy is recovering from the first global recession since World War II. The U.S. and U.K. economies grew faster-than-expected in the fourth quarter.
The U.S. economy expanded at a 5.9 percent annual rate in the last three months of 2009, more than the government’s estimate last month, reflecting stronger business investment. Gross domestic product in Britain rose 0.3 percent last quarter, compared with a previous calculation of 0.1 percent gain, as the nation emerged from the recession.
Assuming ‘Optimism’
“We are making a set of assumptions which do build an optimism,” the Oxford-educated Ahluwalia said. “The important thing is that if they turn out to be different, are you going to react to make sure that you don’t continue to be optimistic when the facts don’t warrant.”
In India, the latest data for industrial production showed output gained 16.8 percent in December, the fastest pace since at least 1994 as sales at carmakers and cement producers gained.
Mukherjee told business chambers in New Delhi yesterday that the government had to cut next year’s budget deficit to facilitate credit flow to companies.
Grasim Industries Ltd., India Cements Ltd. and other producers of the building material sold 15 percent more in January from a year earlier. Sales at Tata Motors Ltd. and other local car manufacturers rose 32 percent to a record in January.
Foreign Investments
That’s helped foreign investments to flow into India even with a decline in global capital flows, Mukherjee said in parliament on Feb. 26. India got $20.9 billion in the nine months to Dec. 31 compared with $21.1 billion in the same period last year, he said.
“We are looking actively at having a policy environment which encourages foreign direct investments and other flows but not short-term capital flows,” said Ahluwalia, who worked as the top bureaucrat in the Ministry of Finance in 1991 when Prime Minister Manmohan Singh, then Finance Minister, opened the economy to foreign investors. Ahluwalia left the finance ministry in 1998 to join the Planning Commission as a member.
Ahluwalia said India wants foreign direct investments to finance the country’s current account gap.
He also said India contributes to global economic growth and isn’t “mercantilist,” when asked about Princeton University economist Paul Krugman saying that China is sapping demand from other emerging markets.
Ahluwalia declined to comment specifically on China, saying “the Chinese say that’s not what they’re doing.”
He said a 10 percent growth rate in India is achievable over the next two decades. This would mean per capita income will grow at 7.5 percent a year, doubling every nine years.
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