June 19 (Bloomberg) -- Toyota Motor Corp. closed a factory in China because of a supplier strike while workers at a Honda Motor Co. affiliate agreed to return to their jobs with a promise of higher pay.
Walkouts have spread through foreign-owned industrial plants during the past month as workers demand higher pay, underscoring the shrinking supply of low-cost labor in the world’s fastest-growing major economy.
Strikes at Honda suppliers in China disrupted the Tokyo- based automaker’s production in the country and forced it to raise pay at three plants. Employees at Honda Lock (Guangdong) Co. agreed last night to accept wage increases, said Takayuki Fujii, a Beijing-based spokesman for Honda.
“We aren’t striking anymore and decided to take the offer,” said a 23-year-old Honda Lock employee who identified himself only by the surname Huang. “It’s not much of an increase, but there’s nothing more we can do.”
Toyota closed its Tianjin factory at noon yesterday after a strike at supplier Toyoda Gosei Co. in the city, said Mieko Iwasaki, a spokeswoman for the Toyota, Japan-based carmaker.
Honda is trying to prevent the resumption of a strike at a fourth parts maker. Nihon Plast Co. shut its Zhongshan, Guangdong province plant on June 17 after workers walked out demanding higher wages. They agreed late yesterday to return to work as negotiations continued, and operations resumed at about 9 p.m. Beijing time, Fujii said.
‘Copycat Strikes’
“When strikes are successful, you do see replica strikes, copycat strikes,” said Geoffrey Crothall, a spokesman for Hong Kong-based advocacy group China Labour Bulletin. “I expect you’ll see more strikes in the coming weeks.”
Workers at Honda Lock, wholly owned by the carmaker, began their walkout on June 9 and suspended industrial action June 15. A Honda Lock employee surnamed Luo said the basic monthly salary has been increased by 200 yuan ($29.30) plus an 80-yuan allowance.
“It’s much less than what I expected,” Luo said, adding that there were no talks of more strikes. “I was hoping we would get at least 450 yuan more each month. About 80 percent of the workers in there were very unhappy with the increase.”
Employees would probably join in should someone decide to start another strike because dissatisfaction is so high, he said.
Production Unaffected
Honda’s car production wasn’t disrupted by the earlier Nihon Plast walkout, Fujii said.
Nihon Plast, based in Shizuoka, Japan, is 21 percent owned by Honda, according to data compiled by Bloomberg. The company also supplies Japanese carmakers Nissan Motor Co. and Suzuki Motor Corp., according to its website. It makes air bags and handles for Honda and Nissan, according to Kyodo News, which reported the strike earlier.
Nihon Plast’s Zhongshan factory manufactures steering wheels for all models from Nissan’s Chinese venture, Dongfeng Nissan Passenger Vehicle Co.
Nissan’s production in China hasn’t been affected because the company has a sufficient stock of parts, Yoshihisa Jun, a spokesman for the Yokohama-based carmaker in China, said by phone.
Assembly car plants in Guangzhou and Hubei province run by Dongfeng Nissan will resume today, said Akihiro Nakanishi, a Guangzhou-based spokesman for the company.
The factory in Zhongshan is 85 percent owned by Nihon Plast and 15 percent owned by Osaka, Japan-based Itochu Corp. It has 502 employees and was established in 2003, according to the website.
Pay Rises
A Toyoda Gosei Co. plant in Tianjin has been partially shut since workers went on strike June 17, said Shingo Handa, a spokesman for the Toyota affiliate, based in Japan’s Aichi prefecture.
Niu Yu, a Toyota spokesman in China, said the Tianjin FAW Toyota Motor Co. car plant that shut down yesterday is normally closed on Saturday and Sunday.
Workers at another Toyota supplier in China, Tianjin Star Light Rubber and Plastic Co., also walked out briefly on June 15, Toyoda Gosei’s Handa said. The issue was resolved when the company offered a pay increase, said Zhu Hai Feng, a spokesman for the company in Tianjin. He declined to elaborate.
Toyota fell 1.7 percent to close at 3,240 yen yesterday in Tokyo trading, while the benchmark Nikkei 225 Stock Average was little changed. Toyoda Gosei declined 0.4 percent and Honda dropped 1.7 percent.
Reduced Migration
Higher investment and improved wages in western China are deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong in the south, David Abrahamson, project manager at the China Center for Labor and Environment, said by phone from Shenzhen.
A factory owned by Xiaotian (Zhongshan) Industrial Co., a maker of gas stoves and electric fans located 3 kilometers (1.9 miles) from Honda Lock’s plant, promised workers a monthly increase of at least 250 yuan, excluding overtime, last week.
Some factories in China are losing as many as 25 percent of their workers a month, reflecting increased competition among employers to hire staff, said Ian Spaulding, Hong Kong-based managing director at Infact Global Partners, which advises factory owners on China work practices.
More than 20 Chinese provinces and cities raised minimum wages this year, the Shenzhen city government said on its website. In Shenzhen, which raised minimum wages an average of 15.8 percent, the government said higher pay will help companies recruit workers and will boost consumption.
Friday, June 18, 2010
India and Pakistan to arbitrate water feud
India and Pakistan are establishing an arbitration panel to address an intensifying dispute over rival hydro-electric projects, highlighting the growing importance of water in the tensions between the dry but nuclear-armed neighbours.
Tensions have been rising as both countries face deepening water crises, the result of rampant over-use of water for agriculture and growing demand from industry.
The dispute centres on India’s plans to build the 330-megawatt Kishanganga hydro-electric project in Kashmir, the divided region at the centre of the decades-old animosity between the neighbours. Pakistan’s decision to seek arbitration over Kishanganga comes as New Delhi has accused Islamabad of deliberately ratcheting up tensions on the sensitive issue of water-sharing to mobilise popular anger against India.
Pakistan claims India’s project, which has been designed to divert water from one tributary of the Jhelum river to another, will adversely affect its own 969MW Neelum-Jhelum project, being built downstream on the Jhelum with Chinese backing.
Water-sharing between India and Pakistan is regulated by the Indus Water Treaty, a 1960 pact brokered by the World Bank which governs the use of six rivers that flow through India – three from the disputed Kashmir region and three from Indian Punjab – into Pakistan.
India says its plans for Kishanganga were drawn up long before the Neelum-Jhelum project was conceived and that it complies with the Indus Water Treaty as it will not affect the quantity of water eventually flowing into Pakistan.
The two countries are in the process of convening a seven-member Court of Arbitration, in accordance with the provisions of the 50-year-old treaty, to adjudicate the dispute.
Brahma Chellaney, a professor of strategic studies at the New Delhi-based Centre for Policy Research, says Pakistan’s reopening of the water-sharing agreement could backfire, as it may prompt India to rethink a treaty that he says is extremely generous to Pakistan.
“There is no treaty in the world which has been so generous on the part of the upper riparian to the lower riparian state,” he said. “The issue really is the fact that India is starving its own northern regions and reserving four-fifths of the water for Pakistan. If Pakistan plays this dangerous game, they will make India review its generosity.”
Earlier this year, a top Indian official told the Financial Times that Islamabad was using its domestic water shortages to “create another anti-India issue that can capture the popular imagination in Pakistan”.
Tensions have been rising as both countries face deepening water crises, the result of rampant over-use of water for agriculture and growing demand from industry.
The dispute centres on India’s plans to build the 330-megawatt Kishanganga hydro-electric project in Kashmir, the divided region at the centre of the decades-old animosity between the neighbours. Pakistan’s decision to seek arbitration over Kishanganga comes as New Delhi has accused Islamabad of deliberately ratcheting up tensions on the sensitive issue of water-sharing to mobilise popular anger against India.
Pakistan claims India’s project, which has been designed to divert water from one tributary of the Jhelum river to another, will adversely affect its own 969MW Neelum-Jhelum project, being built downstream on the Jhelum with Chinese backing.
Water-sharing between India and Pakistan is regulated by the Indus Water Treaty, a 1960 pact brokered by the World Bank which governs the use of six rivers that flow through India – three from the disputed Kashmir region and three from Indian Punjab – into Pakistan.
India says its plans for Kishanganga were drawn up long before the Neelum-Jhelum project was conceived and that it complies with the Indus Water Treaty as it will not affect the quantity of water eventually flowing into Pakistan.
The two countries are in the process of convening a seven-member Court of Arbitration, in accordance with the provisions of the 50-year-old treaty, to adjudicate the dispute.
Brahma Chellaney, a professor of strategic studies at the New Delhi-based Centre for Policy Research, says Pakistan’s reopening of the water-sharing agreement could backfire, as it may prompt India to rethink a treaty that he says is extremely generous to Pakistan.
“There is no treaty in the world which has been so generous on the part of the upper riparian to the lower riparian state,” he said. “The issue really is the fact that India is starving its own northern regions and reserving four-fifths of the water for Pakistan. If Pakistan plays this dangerous game, they will make India review its generosity.”
Earlier this year, a top Indian official told the Financial Times that Islamabad was using its domestic water shortages to “create another anti-India issue that can capture the popular imagination in Pakistan”.
Peddling Relief, Industry Puts Debtors in a Deeper Hole
PALM BEACH, Fla. — For the companies that promise relief to Americans confronting swelling credit card balances, these are days of lucrative opportunity.
So lucrative, that an industry trade association, the United States Organizations for Bankruptcy Alternatives, recently convened here, in the oceanfront confines of the Four Seasons Resort, to forge deals and plot strategy.
At a well-lubricated evening reception, a steel drum band played Bob Marley songs as hostesses in skimpy dresses draped leis around the necks of arriving entrepreneurs, some with deep tans.
The debt settlement industry can afford some extravagance. The long recession has delivered an abundance of customers — debt-saturated Americans, suffering lost jobs and income, sliding toward bankruptcy. The settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer’s debt is actually reduced.
State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry’s proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises.
Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.
In the Kansas City area, Linda Robertson, 58, rues the day she bought the pitch from a debt settlement company advertising on the radio, promising to spare her from bankruptcy and eliminate her debts. She wound up sending nearly $4,000 into a special account established under the company’s guidance before a credit card company sued her, prompting her to drop out of the program.
By then, her account had only $1,470 remaining: The debt settlement company had collected the rest in fees. She is now filing for bankruptcy.
“They take advantage of vulnerable people,” she said. “When you’re desperate and you’re trying to get out of debt, they take advantage of you.” Debt settlement has swollen to some 2,000 firms, from a niche of perhaps a dozen companies a decade ago, according to trade associations and the Federal Trade Commission, which is completing new rules aimed at curbing abuses within the industry.
Last year, within the industry’s two leading trade associations — the United States Organizations for Bankruptcy Alternatives and the Association of Settlement Companies — some 250 companies collectively had more than 425,000 customers, who had enrolled roughly $11.7 billion in credit card balances in their programs.
As the industry has grown, so have allegations of unfair practices. Since 2004, at least 21 states have brought at least 128 enforcement actions against debt relief companies, according to the National Association of Attorneys General. Consumer complaints received by states more than doubled between 2007 and 2009, according to comments filed with the Federal Trade Commission.
“The industry’s not legitimate,” said Norman Googel, assistant attorney general in West Virginia, which has prosecuted debt settlement companies. “They’re targeting a group of people who are already drowning in debt. We’re talking about middle-class and lower middle-class people who had incomes, but they were using credit cards to survive.”
The industry counters that a few rogue operators have unfairly tarnished the reputations of well-intentioned debt settlement companies that provide a crucial service: liberating Americans from impossible credit card burdens.
With the unemployment rate near double digits and 6.7 million people out of work for six months or longer, many have relied on credit cards. By the middle of last year, 6.5 percent of all accounts were at least 30 days past due, up from less than 4 percent in 2005, according to Moody’s Economy.com.
Yet a 2005 alteration spurred by the financial industry made it harder for Americans to discharge credit card debts through bankruptcy, generating demand for alternatives like debt settlement.
The Arrangement
The industry casts itself as a victim of a smear campaign orchestrated by the giant banks that dominate the credit card trade and aim to hang on to the spoils: interest rates of 20 percent or more and exorbitant late fees.
“We’re the little guys in this,” said John Ansbach, the chief lobbyist for the United States Organizations for Bankruptcy Alternatives, better known as Usoba (pronounced you-SO-buh). “We exist to advocate for consumers. Two and a half billion dollars of unsecured debt has been settled by this industry, so how can you take the position that it has no value?”
But consumer watchdogs and state authorities argue that debt settlement companies generally fail to deliver.
In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.
So lucrative, that an industry trade association, the United States Organizations for Bankruptcy Alternatives, recently convened here, in the oceanfront confines of the Four Seasons Resort, to forge deals and plot strategy.
At a well-lubricated evening reception, a steel drum band played Bob Marley songs as hostesses in skimpy dresses draped leis around the necks of arriving entrepreneurs, some with deep tans.
The debt settlement industry can afford some extravagance. The long recession has delivered an abundance of customers — debt-saturated Americans, suffering lost jobs and income, sliding toward bankruptcy. The settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer’s debt is actually reduced.
State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry’s proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises.
Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.
In the Kansas City area, Linda Robertson, 58, rues the day she bought the pitch from a debt settlement company advertising on the radio, promising to spare her from bankruptcy and eliminate her debts. She wound up sending nearly $4,000 into a special account established under the company’s guidance before a credit card company sued her, prompting her to drop out of the program.
By then, her account had only $1,470 remaining: The debt settlement company had collected the rest in fees. She is now filing for bankruptcy.
“They take advantage of vulnerable people,” she said. “When you’re desperate and you’re trying to get out of debt, they take advantage of you.” Debt settlement has swollen to some 2,000 firms, from a niche of perhaps a dozen companies a decade ago, according to trade associations and the Federal Trade Commission, which is completing new rules aimed at curbing abuses within the industry.
Last year, within the industry’s two leading trade associations — the United States Organizations for Bankruptcy Alternatives and the Association of Settlement Companies — some 250 companies collectively had more than 425,000 customers, who had enrolled roughly $11.7 billion in credit card balances in their programs.
As the industry has grown, so have allegations of unfair practices. Since 2004, at least 21 states have brought at least 128 enforcement actions against debt relief companies, according to the National Association of Attorneys General. Consumer complaints received by states more than doubled between 2007 and 2009, according to comments filed with the Federal Trade Commission.
“The industry’s not legitimate,” said Norman Googel, assistant attorney general in West Virginia, which has prosecuted debt settlement companies. “They’re targeting a group of people who are already drowning in debt. We’re talking about middle-class and lower middle-class people who had incomes, but they were using credit cards to survive.”
The industry counters that a few rogue operators have unfairly tarnished the reputations of well-intentioned debt settlement companies that provide a crucial service: liberating Americans from impossible credit card burdens.
With the unemployment rate near double digits and 6.7 million people out of work for six months or longer, many have relied on credit cards. By the middle of last year, 6.5 percent of all accounts were at least 30 days past due, up from less than 4 percent in 2005, according to Moody’s Economy.com.
Yet a 2005 alteration spurred by the financial industry made it harder for Americans to discharge credit card debts through bankruptcy, generating demand for alternatives like debt settlement.
The Arrangement
The industry casts itself as a victim of a smear campaign orchestrated by the giant banks that dominate the credit card trade and aim to hang on to the spoils: interest rates of 20 percent or more and exorbitant late fees.
“We’re the little guys in this,” said John Ansbach, the chief lobbyist for the United States Organizations for Bankruptcy Alternatives, better known as Usoba (pronounced you-SO-buh). “We exist to advocate for consumers. Two and a half billion dollars of unsecured debt has been settled by this industry, so how can you take the position that it has no value?”
But consumer watchdogs and state authorities argue that debt settlement companies generally fail to deliver.
In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.
Japan Bonds Rise on Kan’s Debt Reduction Plan, Global Slowdown
June 19 (Bloomberg) -- Japan’s 10-year bonds completed a second weekly gain after Prime Minister Naoto Kan vowed to reduce the world’s largest public debt and said he will consider increasing the consumption tax.
Benchmark bonds rose for a second day yesterday before reports next week economists said will show German business confidence declined and U.S. new home sales dropped, signaling the global economic recovery is losing momentum. Ten-year yields fell to the lowest in a week as credit-default swaps for Japanese government bonds dropped for a second week.
“The fiscal consolidation plan helped soothe the anxiety about swelling debt,” said Yuichi Kodama, chief economist in Tokyo at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “Kan’s stance marked a clear contrast to his predecessor who pushed for a big spending policy.”
The yield on the 10-year bond dropped three basis points this week to 1.20 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due June 2020 rose 0.269 yen to 100.892 yen. The yield dropped to 1.195 percent yesterday, the lowest since June 10.
Ten-year bond futures for September delivery climbed 0.27 this week to 140.61 on the Tokyo Stock Exchange.
‘Rehabilitate’ Finances
“Unless we work on fiscal rehabilitation, an international organization such as the International Monetary Fund could control our fiscal management,” Kan said on June 17. “We must rehabilitate our finances with our own power without relying on other countries.”
The prime minister said he would consider the opposition Liberal Democratic Party’s proposal to raise the consumption tax to 10 percent. The earliest Japan could increase the tax would be the fall of 2012, DPJ Policy Chief Koichiro Genba said on June 17.
“If a tax increase was implemented before Japan can regain the economic strength to achieve autonomous recovery, it would pose serious risks to the economy,” said Seiji Shiraishi, chief economist for Japan at HSBC Holdings Plc. in Tokyo. “The tax plan will support the debt market not only from a viewpoint of supply and demand conditions but also from the economic fundamentals perspective.”
Japan’s government also pledged to cut taxes on businesses and nurture the environment and health care industries as part of plans to defeat deflation and end two decades of stagnation.
Corporate Tax Cut
The government pledged in its medium-term economic plan yesterday to bring the corporate tax rate down to a level “commensurate” with other leading nations. That rate is “about 25 percent,” Yosuke Kondo, parliamentary secretary for the Trade Ministry, said. Firms in Tokyo pay a levy, including local taxes, of 40.7 percent.
Japan’s bonds also rose on speculation Europe’s lingering debt crisis is slowing the global recovery, boosting demand for the safety of debt.
The Ifo institute’s German business climate index fell to 101.1 in June from 101.5 the previous month, according to a Bloomberg survey before the June 22 report. Purchases of new U.S. homes slid 14.6 percent in May, according to a separate survey before a June 23 release.
“The slew of economic data is beginning to show signs of a slowdown, weighing on risk sentiment,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group. “Bonds may continue to fare well.”
The cost to protect Japanese government debt from default fell six basis points this week to 89.775, according to prices from CMA DataVision.
‘Risk Premium’
“The risk premium investors demand to hold Japanese debt is likely to decline” on news of the government’s financial plans, said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. “The market had not prepared for an early increase in the consumption-tax rate.”
Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.
Benchmark bonds rose for a second day yesterday before reports next week economists said will show German business confidence declined and U.S. new home sales dropped, signaling the global economic recovery is losing momentum. Ten-year yields fell to the lowest in a week as credit-default swaps for Japanese government bonds dropped for a second week.
“The fiscal consolidation plan helped soothe the anxiety about swelling debt,” said Yuichi Kodama, chief economist in Tokyo at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “Kan’s stance marked a clear contrast to his predecessor who pushed for a big spending policy.”
The yield on the 10-year bond dropped three basis points this week to 1.20 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due June 2020 rose 0.269 yen to 100.892 yen. The yield dropped to 1.195 percent yesterday, the lowest since June 10.
Ten-year bond futures for September delivery climbed 0.27 this week to 140.61 on the Tokyo Stock Exchange.
‘Rehabilitate’ Finances
“Unless we work on fiscal rehabilitation, an international organization such as the International Monetary Fund could control our fiscal management,” Kan said on June 17. “We must rehabilitate our finances with our own power without relying on other countries.”
The prime minister said he would consider the opposition Liberal Democratic Party’s proposal to raise the consumption tax to 10 percent. The earliest Japan could increase the tax would be the fall of 2012, DPJ Policy Chief Koichiro Genba said on June 17.
“If a tax increase was implemented before Japan can regain the economic strength to achieve autonomous recovery, it would pose serious risks to the economy,” said Seiji Shiraishi, chief economist for Japan at HSBC Holdings Plc. in Tokyo. “The tax plan will support the debt market not only from a viewpoint of supply and demand conditions but also from the economic fundamentals perspective.”
Japan’s government also pledged to cut taxes on businesses and nurture the environment and health care industries as part of plans to defeat deflation and end two decades of stagnation.
Corporate Tax Cut
The government pledged in its medium-term economic plan yesterday to bring the corporate tax rate down to a level “commensurate” with other leading nations. That rate is “about 25 percent,” Yosuke Kondo, parliamentary secretary for the Trade Ministry, said. Firms in Tokyo pay a levy, including local taxes, of 40.7 percent.
Japan’s bonds also rose on speculation Europe’s lingering debt crisis is slowing the global recovery, boosting demand for the safety of debt.
The Ifo institute’s German business climate index fell to 101.1 in June from 101.5 the previous month, according to a Bloomberg survey before the June 22 report. Purchases of new U.S. homes slid 14.6 percent in May, according to a separate survey before a June 23 release.
“The slew of economic data is beginning to show signs of a slowdown, weighing on risk sentiment,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group. “Bonds may continue to fare well.”
The cost to protect Japanese government debt from default fell six basis points this week to 89.775, according to prices from CMA DataVision.
‘Risk Premium’
“The risk premium investors demand to hold Japanese debt is likely to decline” on news of the government’s financial plans, said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. “The market had not prepared for an early increase in the consumption-tax rate.”
Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.
Thursday, June 17, 2010
HDFC Asset Dealer Barred by India Regulator for Illicit Trades
June 18 (Bloomberg) -- India’s market regulator said it banned a dealer at HDFC Asset Management Co. for so-called front running that led to estimated losses of 23.8 million rupees ($513,928) at the country’s second-biggest money manager.
Nilesh Kapadia, an assistant vice president at the Mumbai- based fund, has been barred from trading after findings showed 38 cases where Kapadia and his accomplices placed orders before the fund, leading to “illegitimate” gains of 19.9 million rupees, the Securities & Exchange Board of India said in a statement on its website.
Kapadia, an employee with HDFC Asset since June 2000, was tipping off his friend Rajiv Ramniklal Sanghvi before placing the orders for the fund. Chandrakant P. Mehta and his daughter- in-law Dipti Paras Mehta, in turn, traded on the tips received from Kapadia and Sanghvi, the regulator said.
Milind Barve, managing director at HDFC Asset Management, didn’t immediately respond to an e-mailed query on the order. The fund had about 1 trillion rupees in shares and bonds on May 31.
The regulator said trading and telephone records provided evidence of front running, a practice in which a trader executes orders for his own account, taking advantage of prior knowledge of a transaction expected to influence the price of a security.
The regulator ordered Kapadia and HDFC Asset to jointly deposit the estimated losses to the trustees of the mutual fund. Sanghvi and the Mehtas have been given 15 days to deposit the gains with the National Stock Exchange, which will hold the amount in an escrow account, according to the statement.
HDFC Asset has been told to probe Kapadia’s transactions and submit a report within six months, the regulator said.
Stocks that were front run include Reliance Industries Ltd., India’s most valuable company, State Bank of India, the nation’s largest lender, and Bharti Airtel Ltd., the biggest mobile-phone service provider, the regulator said.
The Securities & Exchange Board in May 2009 barred a fund manager at Passport Capital LCC, a San Fransico-based hedge fund for tipping off two people in advance of his trades.
Nilesh Kapadia, an assistant vice president at the Mumbai- based fund, has been barred from trading after findings showed 38 cases where Kapadia and his accomplices placed orders before the fund, leading to “illegitimate” gains of 19.9 million rupees, the Securities & Exchange Board of India said in a statement on its website.
Kapadia, an employee with HDFC Asset since June 2000, was tipping off his friend Rajiv Ramniklal Sanghvi before placing the orders for the fund. Chandrakant P. Mehta and his daughter- in-law Dipti Paras Mehta, in turn, traded on the tips received from Kapadia and Sanghvi, the regulator said.
Milind Barve, managing director at HDFC Asset Management, didn’t immediately respond to an e-mailed query on the order. The fund had about 1 trillion rupees in shares and bonds on May 31.
The regulator said trading and telephone records provided evidence of front running, a practice in which a trader executes orders for his own account, taking advantage of prior knowledge of a transaction expected to influence the price of a security.
The regulator ordered Kapadia and HDFC Asset to jointly deposit the estimated losses to the trustees of the mutual fund. Sanghvi and the Mehtas have been given 15 days to deposit the gains with the National Stock Exchange, which will hold the amount in an escrow account, according to the statement.
HDFC Asset has been told to probe Kapadia’s transactions and submit a report within six months, the regulator said.
Stocks that were front run include Reliance Industries Ltd., India’s most valuable company, State Bank of India, the nation’s largest lender, and Bharti Airtel Ltd., the biggest mobile-phone service provider, the regulator said.
The Securities & Exchange Board in May 2009 barred a fund manager at Passport Capital LCC, a San Fransico-based hedge fund for tipping off two people in advance of his trades.
Mukesh Ambani May Unveil Reliance Expansion, End Feud With Anil
June 18 (Bloomberg) -- Billionaire Mukesh Ambani may unveil plans to invest in power and communications in India amid speculation that Asia’s richest man is also likely to formally end a five-year-old feud with his younger brother.
Anil Ambani may attend the annual shareholder meeting of Reliance Industries Ltd., controlled by Mukesh, for the first time since the world’s wealthiest brothers split the empire founded by their father, the Hindustan Times reported yesterday, citing an unidentified person close to the family.
The shareholder meeting takes place in Mumbai today, exactly five years to the day the Ambanis split India’s second- biggest group and squabbled as their business interests clashed. Indian newspapers have speculated about a rapprochement since the brothers scrapped a non-competition accord last month, removing curbs on investments by their companies.
A reconciliation would be “a positive signal for all shareholders,” said Walter Rossini, who helps manage about $1.2 billion of emerging market stocks, including Reliance Industries shares, at Aletti Gestielle Sgr Spa in Milan. “They realize that together they are much more effective and can grab a much larger share of the cake,” he said by telephone yesterday.
Last week the brothers and their families holidayed in South Africa’s Kruger National Park, where Mukesh and Anil discussed ways to develop synergies between their businesses, Press Trust of India reported June 13, citing unidentified persons familiar with the details.
Manoj Warrier, a spokesman for Reliance Industries, declined to comment on the reports and Anil Ambani didn’t respond to an e-mail seeking comments.
Accord Scrapped
Reliance, which accounts for about 14 percent of the benchmark stock index, rose 1.3 percent to 1,071.40 rupees in Mumbai yesterday. The stock has lagged behind the Sensex in four of the 10 years ended June 15, according to Bloomberg data.
Reliance on June 11, less than a month after the accord between the brothers was scrapped, acquired an Internet services company for $1 billion. Anil’s Reliance Communications Ltd. said it dropped out of the bidding for Internet services permits after securing third-generation mobile-phone licenses in an earlier auction.
Fund manager Deven Choksey, chief executive officer of Mumbai-based KR Choksey Shares & Securities, said more initiatives may be outlined by Mukesh in his annual speech to shareholders today.
Under an agreement reached on June 18, 2005, Mukesh, 53, kept the petrochemicals, oil and gas units and Anil, 51, got the power, telecommunications, financial services and entertainment units.
‘Two Giants’
The removal of the non-competition pact may translate into “these two giants effectively beginning to collaborate,” said Rajeev Kohli, professor of marketing at Columbia Business School in New York. “Given the needs of the country at present, there is a great opportunity if it’s in the right sectors of the economy,” such as infrastructure development or energy, he said by telephone.
The Mumbai-based company’s first foray in commercial electricity generation may come as early as next month when Reliance plans to bid in a government auction to build at least one power plant in India, two company officials said on June 16.
The operator of the world’s biggest refining complex and India’s largest natural gas field had outstanding debt of about 625 billion rupees ($13.4 billion) and cash and equivalents of 218.7 billion rupees as of March 31, the company said in April. Reliance is in talks with banks to borrow $1 billion, two people with direct knowledge of the matter said June 4.
Even as Mukesh Ambani diversifies his business, investors expect Reliance to continue to buy oil and gas assets overseas and fulfill its ambition of becoming a global energy company.
Acquisitions
The company bought shale gas assets in the U.S. from Atlas Energy Inc. for $1.7 billion in April after failing to purchase LyondellBasell Industries AF in a deal that would have valued the bankrupt chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada owned by Value Creations Inc.
Reliance is considering buying a stake in shale gas assets owned by Pioneer Natural Resources Co. in the U.S., two people with knowledge of the matter said June 10.
“They can become a significant global player and there is nothing to hold them back,” said Seth Freeman, chief executive officer at San Francisco-based EM Capital Management LLC, which owns Reliance shares. “They have the financial wherewithal to do that and energy would be the way they expand overseas.”
Anil Ambani may attend the annual shareholder meeting of Reliance Industries Ltd., controlled by Mukesh, for the first time since the world’s wealthiest brothers split the empire founded by their father, the Hindustan Times reported yesterday, citing an unidentified person close to the family.
The shareholder meeting takes place in Mumbai today, exactly five years to the day the Ambanis split India’s second- biggest group and squabbled as their business interests clashed. Indian newspapers have speculated about a rapprochement since the brothers scrapped a non-competition accord last month, removing curbs on investments by their companies.
A reconciliation would be “a positive signal for all shareholders,” said Walter Rossini, who helps manage about $1.2 billion of emerging market stocks, including Reliance Industries shares, at Aletti Gestielle Sgr Spa in Milan. “They realize that together they are much more effective and can grab a much larger share of the cake,” he said by telephone yesterday.
Last week the brothers and their families holidayed in South Africa’s Kruger National Park, where Mukesh and Anil discussed ways to develop synergies between their businesses, Press Trust of India reported June 13, citing unidentified persons familiar with the details.
Manoj Warrier, a spokesman for Reliance Industries, declined to comment on the reports and Anil Ambani didn’t respond to an e-mail seeking comments.
Accord Scrapped
Reliance, which accounts for about 14 percent of the benchmark stock index, rose 1.3 percent to 1,071.40 rupees in Mumbai yesterday. The stock has lagged behind the Sensex in four of the 10 years ended June 15, according to Bloomberg data.
Reliance on June 11, less than a month after the accord between the brothers was scrapped, acquired an Internet services company for $1 billion. Anil’s Reliance Communications Ltd. said it dropped out of the bidding for Internet services permits after securing third-generation mobile-phone licenses in an earlier auction.
Fund manager Deven Choksey, chief executive officer of Mumbai-based KR Choksey Shares & Securities, said more initiatives may be outlined by Mukesh in his annual speech to shareholders today.
Under an agreement reached on June 18, 2005, Mukesh, 53, kept the petrochemicals, oil and gas units and Anil, 51, got the power, telecommunications, financial services and entertainment units.
‘Two Giants’
The removal of the non-competition pact may translate into “these two giants effectively beginning to collaborate,” said Rajeev Kohli, professor of marketing at Columbia Business School in New York. “Given the needs of the country at present, there is a great opportunity if it’s in the right sectors of the economy,” such as infrastructure development or energy, he said by telephone.
The Mumbai-based company’s first foray in commercial electricity generation may come as early as next month when Reliance plans to bid in a government auction to build at least one power plant in India, two company officials said on June 16.
The operator of the world’s biggest refining complex and India’s largest natural gas field had outstanding debt of about 625 billion rupees ($13.4 billion) and cash and equivalents of 218.7 billion rupees as of March 31, the company said in April. Reliance is in talks with banks to borrow $1 billion, two people with direct knowledge of the matter said June 4.
Even as Mukesh Ambani diversifies his business, investors expect Reliance to continue to buy oil and gas assets overseas and fulfill its ambition of becoming a global energy company.
Acquisitions
The company bought shale gas assets in the U.S. from Atlas Energy Inc. for $1.7 billion in April after failing to purchase LyondellBasell Industries AF in a deal that would have valued the bankrupt chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada owned by Value Creations Inc.
Reliance is considering buying a stake in shale gas assets owned by Pioneer Natural Resources Co. in the U.S., two people with knowledge of the matter said June 10.
“They can become a significant global player and there is nothing to hold them back,” said Seth Freeman, chief executive officer at San Francisco-based EM Capital Management LLC, which owns Reliance shares. “They have the financial wherewithal to do that and energy would be the way they expand overseas.”
Drilling Moratorium Means Hard Times for Gulf Rig Workers
In addition to the fishermen and hoteliers whose livelihoods have been devastated by BP’s hemorrhaging undersea oil well, another group of Gulf Coast residents is beginning to suffer: the tens of thousands of workers like Ronald Brown who run the equipment or serve in support roles on deepwater oil rigs in the Gulf of Mexico.
He works aboard the Ocean Monarch, which was idled along with 32 other oil rigs when the Obama administration ordered a six-month moratorium on all deepwater drilling after the April 20 Deepwater Horizon disaster. The rig’s owner is now seeking customers in other parts of the world. If the rig moves, Mr. Brown and his fellow motormen, roughnecks and roustabouts will be left behind, jobless, with few alternatives that would pay anything close to the $3,500 to $4,000 a month typical for such jobs.
On Wednesday, President Obama and BP announced that the company had voluntarily agreed to create a $100 million fund to compensate such rig workers. That’s a modest sum, critics say, given the potential economic losses. Each rig job supports roughly four additional jobs for cooks, supply-ship operators and others servicing the industry. Together, they represent total monthly wages of at least $165 million, according to estimates by a Louisiana oil industry group.
Still, Mr. Brown is grateful for any assistance. “Every little bit is going to help until we figure out where else to go,” he said. “But I’m not looking forward to unemployment, and I don’t know how quickly we’ll be able to get some of it.”
In an address to the nation Tuesday night, Mr. Obama apologized for the effect on oil workers who had nothing to do with the BP accident. “I know this creates difficulty for the people who work on these rigs,” he said. “But for the sake of their safety, and for the sake of the entire region, we need to know the facts before we allow deepwater drilling to continue.”
The full economic impact of the drilling moratorium is still unclear, since many of the layoffs are just beginning and no one knows how long the ban will last.
The Louisiana Mid-Continent Oil and Gas Association has warned that many of the affected rigs will seek to drill in other countries, imperiling roughly 800 to 1,400 jobs per rig, including third-party support personnel.
The securities firm Raymond James & Associates predicts that the moratorium could last well into 2011, directly jeopardizing 50,000 jobs and potentially gutting blue-collar communities that rely heavily on the economic activity that comes with deepwater work. “Just as the demise of auto plants and steel mills in the Upper Midwest devastated entire towns, an extended drilling ban could eventually have a similar effect in the Gulf Coast,” the company said in a report Monday.
Lawrence R. Dickerson, the chief executive of Diamond Offshore Drilling, which owns the Ocean Monarch and five other deepwater rigs in the gulf, was less pessimistic, suggesting that 15,000 to 20,000 rig and associated service jobs were at risk. He predicted that some deepwater rigs would remain in the area awaiting a resumption of drilling, but that all would be forced to cut staff as the moratorium continued.
Three Diamond rigs are already prospecting for jobs in the Mediterranean and West Africa. Should they leave, they would take less than half of their crew with them, Mr. Dickerson said.
The halt in drilling in waters deeper than 500 feet came in response to the still-unchecked gusher of oil that followed the Deepwater Horizon explosion, which killed 11 workers. The goal was to give the government time to review the rules and oversight of such wells, and the shutdown was welcomed by many Americans who have watched the environmental disaster unfold.
But like fishing and tourism, deepwater drilling is also crucial to the Gulf economy.
At a Congressional hearing last week, Senator Mary Landrieu, a Democrat from Louisiana, confronted Interior Secretary Ken Salazar with a list of local companies that serviced and depended on offshore energy development. She said that a temporary drill ban, even if it only lasted a few months, could affect as many as 330,000 people in Louisiana alone. That would “potentially wreak economic havoc on this region that exceeds the havoc wreaked by the spill itself,” she said.
Until two weeks ago, the Ocean Monarch — a mammoth, $300 million semi-submersible not unlike the Deepwater Horizon owned by Transocean — was poised to drill a well in 4,000 feet of water at a spot more than 100 miles offshore. About 115 workers from a variety of companies were onboard.
After the moratorium, Cobalt International Energy, the company that had hired the Monarch and spent $60 million preparing to drill the well, said it was looking to dissolve the contract.
Those negotiations continue, but when two New York Times reporters visited the rig last week, it was squatting in just 50 feet of water 27 miles off the coast of Louisiana. On the deck, 75-foot segments of riser pipe were stacked in tidy rows two stories high, and the rig’s manifest listed just 77 crew members aboard.
At a meeting with the crew, Mr. Dickerson talked about the uncertain future. “You know, if we can’t go back to work for a minimum six months or longer, it’s awfully hard to leave rigs sitting here,” he said.
Once a rig moves, it tends to stay put, fulfilling multiyear contracts. Lower-level jobs are normally filled using the host country’s work force.
After the meeting with Mr. Dickerson, a handful of rig workers — burly men in oil-stained T-shirts and overalls — shared their gnawing fear that the jobs that paid their modest mortgages, doctor bills and children’s tuitions were about to disappear.
Louis Alvarez, a motorman and 21-year veteran with Diamond Offshore, said that a layoff could hinder plans that he and his wife had made to send their son to college in the fall. “It’s a shame that I have to tell my 18-year-old son that he might have to help his daddy buy groceries,” he said.
Mr. Brown, the shakerhand, began to cry when he said that his wife, Athena, was now looking for a job.
A broad-shouldered, broad-faced man, Mr. Brown, 29, is paid roughly $22 an hour to work the rig’s standard two-week-on, two-week-off cycle, supplemented by occasional overtime. That’s enough to support Athena and their three children: 5-year-old Shiloh, 3-year-old Maelah, and 1-year-old Bennett, who wears a brace to help correct club feet.
The job prospects around their home in Magee, Miss., a dilapidated town of about 4,000, are few. Tyson Foods and Polk’s Meat Products have plants in the area, but would be unlikely to match a rig worker’s paycheck.
In an interview at their home, Mrs. Brown said that someday, the country might find a low-cost alternative to oil.
“But we don’t have an option right now,” she said. “For us to stop drilling in the gulf is like ending our lives as far as the way we live. It’s really that scary.”
He works aboard the Ocean Monarch, which was idled along with 32 other oil rigs when the Obama administration ordered a six-month moratorium on all deepwater drilling after the April 20 Deepwater Horizon disaster. The rig’s owner is now seeking customers in other parts of the world. If the rig moves, Mr. Brown and his fellow motormen, roughnecks and roustabouts will be left behind, jobless, with few alternatives that would pay anything close to the $3,500 to $4,000 a month typical for such jobs.
On Wednesday, President Obama and BP announced that the company had voluntarily agreed to create a $100 million fund to compensate such rig workers. That’s a modest sum, critics say, given the potential economic losses. Each rig job supports roughly four additional jobs for cooks, supply-ship operators and others servicing the industry. Together, they represent total monthly wages of at least $165 million, according to estimates by a Louisiana oil industry group.
Still, Mr. Brown is grateful for any assistance. “Every little bit is going to help until we figure out where else to go,” he said. “But I’m not looking forward to unemployment, and I don’t know how quickly we’ll be able to get some of it.”
In an address to the nation Tuesday night, Mr. Obama apologized for the effect on oil workers who had nothing to do with the BP accident. “I know this creates difficulty for the people who work on these rigs,” he said. “But for the sake of their safety, and for the sake of the entire region, we need to know the facts before we allow deepwater drilling to continue.”
The full economic impact of the drilling moratorium is still unclear, since many of the layoffs are just beginning and no one knows how long the ban will last.
The Louisiana Mid-Continent Oil and Gas Association has warned that many of the affected rigs will seek to drill in other countries, imperiling roughly 800 to 1,400 jobs per rig, including third-party support personnel.
The securities firm Raymond James & Associates predicts that the moratorium could last well into 2011, directly jeopardizing 50,000 jobs and potentially gutting blue-collar communities that rely heavily on the economic activity that comes with deepwater work. “Just as the demise of auto plants and steel mills in the Upper Midwest devastated entire towns, an extended drilling ban could eventually have a similar effect in the Gulf Coast,” the company said in a report Monday.
Lawrence R. Dickerson, the chief executive of Diamond Offshore Drilling, which owns the Ocean Monarch and five other deepwater rigs in the gulf, was less pessimistic, suggesting that 15,000 to 20,000 rig and associated service jobs were at risk. He predicted that some deepwater rigs would remain in the area awaiting a resumption of drilling, but that all would be forced to cut staff as the moratorium continued.
Three Diamond rigs are already prospecting for jobs in the Mediterranean and West Africa. Should they leave, they would take less than half of their crew with them, Mr. Dickerson said.
The halt in drilling in waters deeper than 500 feet came in response to the still-unchecked gusher of oil that followed the Deepwater Horizon explosion, which killed 11 workers. The goal was to give the government time to review the rules and oversight of such wells, and the shutdown was welcomed by many Americans who have watched the environmental disaster unfold.
But like fishing and tourism, deepwater drilling is also crucial to the Gulf economy.
At a Congressional hearing last week, Senator Mary Landrieu, a Democrat from Louisiana, confronted Interior Secretary Ken Salazar with a list of local companies that serviced and depended on offshore energy development. She said that a temporary drill ban, even if it only lasted a few months, could affect as many as 330,000 people in Louisiana alone. That would “potentially wreak economic havoc on this region that exceeds the havoc wreaked by the spill itself,” she said.
Until two weeks ago, the Ocean Monarch — a mammoth, $300 million semi-submersible not unlike the Deepwater Horizon owned by Transocean — was poised to drill a well in 4,000 feet of water at a spot more than 100 miles offshore. About 115 workers from a variety of companies were onboard.
After the moratorium, Cobalt International Energy, the company that had hired the Monarch and spent $60 million preparing to drill the well, said it was looking to dissolve the contract.
Those negotiations continue, but when two New York Times reporters visited the rig last week, it was squatting in just 50 feet of water 27 miles off the coast of Louisiana. On the deck, 75-foot segments of riser pipe were stacked in tidy rows two stories high, and the rig’s manifest listed just 77 crew members aboard.
At a meeting with the crew, Mr. Dickerson talked about the uncertain future. “You know, if we can’t go back to work for a minimum six months or longer, it’s awfully hard to leave rigs sitting here,” he said.
Once a rig moves, it tends to stay put, fulfilling multiyear contracts. Lower-level jobs are normally filled using the host country’s work force.
After the meeting with Mr. Dickerson, a handful of rig workers — burly men in oil-stained T-shirts and overalls — shared their gnawing fear that the jobs that paid their modest mortgages, doctor bills and children’s tuitions were about to disappear.
Louis Alvarez, a motorman and 21-year veteran with Diamond Offshore, said that a layoff could hinder plans that he and his wife had made to send their son to college in the fall. “It’s a shame that I have to tell my 18-year-old son that he might have to help his daddy buy groceries,” he said.
Mr. Brown, the shakerhand, began to cry when he said that his wife, Athena, was now looking for a job.
A broad-shouldered, broad-faced man, Mr. Brown, 29, is paid roughly $22 an hour to work the rig’s standard two-week-on, two-week-off cycle, supplemented by occasional overtime. That’s enough to support Athena and their three children: 5-year-old Shiloh, 3-year-old Maelah, and 1-year-old Bennett, who wears a brace to help correct club feet.
The job prospects around their home in Magee, Miss., a dilapidated town of about 4,000, are few. Tyson Foods and Polk’s Meat Products have plants in the area, but would be unlikely to match a rig worker’s paycheck.
In an interview at their home, Mrs. Brown said that someday, the country might find a low-cost alternative to oil.
“But we don’t have an option right now,” she said. “For us to stop drilling in the gulf is like ending our lives as far as the way we live. It’s really that scary.”
Robust earnings spice up Indian stocks
Indian stocks completed their longest string of gains for 10 months on Thursday while Hong Kong equities enjoyed their best winning streak for more than a year on hopes that Asian markets may have found support after May’s heavy sell-off.
But renewed sovereign debt fears among the European peripheral nations limited gains across the region with the FTSE Asia-Pacific inching forward just 0.01 per cent to 221.59.
“We’re much happier over here in Asia, but we don’t live in our own world,” said Nicholas Yeo of Aberdeen Asset Management. “What happens in the west will affect Asia.”
Robust earnings expectations drove Mumbai’s BSE Sensex 0.9 per cent higher to 17,616.69, its highest close since the end of April and its seventh successive session of gains.
“The market will remain very volatile but India is doing well,” said DK Aggarwal of SMC Wealth Management Services. “Investors are buying selectively.”
Reliance Communications, India’s second-largest wireless carrier, added 2.4 per cent to Rs191.70 – its highest level for eight months – on reports that it is considering raising up to $500m by selling as much as 26 per cent of its Reliance Globalcom unit, which owns an undersea cable system.
Oil & Natural Gas, India’s largest state-owned oil explorer, gained 1.9 per cent to Rs1,186.05 after it was rated a “buy” by Deutsche Bank with a price target of Rs1,300.
Ramsarup Industries, a maker of steel wire, surged 11 per cent to Rs81, on a report that ArcelorMittal, the world’s largest steel company, may buy a stake.
A rapidly expanding economy boosted the outlook for industrial bellwethers Larsen & Toubro, the nation’s biggest engineering company, and Reliance Industries, the energy major that has the biggest weighting on the Sensex.
Larsen rallied 3.3 per cent to Rs1,777, its biggest one-day rise in a month, while Reliance gained 1.3 per cent to Rs1,071.40 ahead of its annual meeting on Friday.
Hong Kong matched Mumbai in recording its seventh successive session of gains, as the Hang Seng index climbed 0.4 per cent to 20,138.40.
Standard Chartered surged 4.1 per cent to HK$194.60 as the UK lender that earns at least three-quarters of its profit in Asia said it would form a partnership with the Agricultural Bank of China – poised for the world’s biggest flotation – to work together in retail and wholesale banking.
Strong manufacturing data out of the US boosted stocks with significant stateside interests. Li & Fung, a trading company that generates two-thirds of its sales in the US, increased 4.4 per cent to HK$ 38.15.
CNOOC, China’s biggest offshore oil explorer, gained 2.3 per cent to HK$13.42 after an HSBC upgrade.
The index of China stocks listed in Hong Kong, or H shares, rose 0.3 per cent to 11,592.22, but the leading mainland index gave up early gains after failing to breach a psychological barrier at 2,600 points that has capped the market since the big sell-off last month.
The Shanghai Composite ended the session 0.4 per cent lower at 2,560.20, retreating from a high of 2,595.5 in early trading.
The biggest gainer among Asia’s stock markets was Indonesia, with the Jakarta Composite rising 1.1 per cent to 2,891.10 as optimism over the region’s growth buoyed shares.
But Tokyo stocks slid for the first time in six days, falling 0.7 per cent to 9,999.40 – the Nikkei 225 Average slipping below the 10,000 mark that has acted as both a support and resistance level over the past year.
But renewed sovereign debt fears among the European peripheral nations limited gains across the region with the FTSE Asia-Pacific inching forward just 0.01 per cent to 221.59.
“We’re much happier over here in Asia, but we don’t live in our own world,” said Nicholas Yeo of Aberdeen Asset Management. “What happens in the west will affect Asia.”
Robust earnings expectations drove Mumbai’s BSE Sensex 0.9 per cent higher to 17,616.69, its highest close since the end of April and its seventh successive session of gains.
“The market will remain very volatile but India is doing well,” said DK Aggarwal of SMC Wealth Management Services. “Investors are buying selectively.”
Reliance Communications, India’s second-largest wireless carrier, added 2.4 per cent to Rs191.70 – its highest level for eight months – on reports that it is considering raising up to $500m by selling as much as 26 per cent of its Reliance Globalcom unit, which owns an undersea cable system.
Oil & Natural Gas, India’s largest state-owned oil explorer, gained 1.9 per cent to Rs1,186.05 after it was rated a “buy” by Deutsche Bank with a price target of Rs1,300.
Ramsarup Industries, a maker of steel wire, surged 11 per cent to Rs81, on a report that ArcelorMittal, the world’s largest steel company, may buy a stake.
A rapidly expanding economy boosted the outlook for industrial bellwethers Larsen & Toubro, the nation’s biggest engineering company, and Reliance Industries, the energy major that has the biggest weighting on the Sensex.
Larsen rallied 3.3 per cent to Rs1,777, its biggest one-day rise in a month, while Reliance gained 1.3 per cent to Rs1,071.40 ahead of its annual meeting on Friday.
Hong Kong matched Mumbai in recording its seventh successive session of gains, as the Hang Seng index climbed 0.4 per cent to 20,138.40.
Standard Chartered surged 4.1 per cent to HK$194.60 as the UK lender that earns at least three-quarters of its profit in Asia said it would form a partnership with the Agricultural Bank of China – poised for the world’s biggest flotation – to work together in retail and wholesale banking.
Strong manufacturing data out of the US boosted stocks with significant stateside interests. Li & Fung, a trading company that generates two-thirds of its sales in the US, increased 4.4 per cent to HK$ 38.15.
CNOOC, China’s biggest offshore oil explorer, gained 2.3 per cent to HK$13.42 after an HSBC upgrade.
The index of China stocks listed in Hong Kong, or H shares, rose 0.3 per cent to 11,592.22, but the leading mainland index gave up early gains after failing to breach a psychological barrier at 2,600 points that has capped the market since the big sell-off last month.
The Shanghai Composite ended the session 0.4 per cent lower at 2,560.20, retreating from a high of 2,595.5 in early trading.
The biggest gainer among Asia’s stock markets was Indonesia, with the Jakarta Composite rising 1.1 per cent to 2,891.10 as optimism over the region’s growth buoyed shares.
But Tokyo stocks slid for the first time in six days, falling 0.7 per cent to 9,999.40 – the Nikkei 225 Average slipping below the 10,000 mark that has acted as both a support and resistance level over the past year.
Wednesday, June 16, 2010
India to Buy Back $2.1 Billion of Debt Tomorrow to Boost Cash
June 17 (Bloomberg) -- India will buy back 100 billion rupees ($2.1 billion) of government securities through an auction tomorrow to boost cash in the financial system.
The government will buy the bonds through a multiple price-based “multi-security” auction, The Reserve Bank of India said in an e-mailed statement yesterday. The auction tomorrow is part of the government’s plan to buy as much as 200 billion rupees of debt in one or more tranches, it said.
Overnight interbank rates climbed to as much as 5.4 percent yesterday from 4.9 percent at the end of May. Banks borrowed an average 375 billion rupees a day from the central bank through its repurchase-auction window this month, indicating a shortage of cash after license-fee payments by phone companies. Last month, they lent a daily average of 328 billion rupees of surplus to the central bank.
“It’s a short-term measure to address a temporary tightening in liquidity and will help infusing confidence among investors,” said Srinivasa Raghavan, head of fixed-income trading in Mumbai at IDBI Gilts. The yield on the benchmark 10- year bond may drop as much as 10 basis points today, he said.
The yield on the 7.80 percent note due May 2020 dropped seven basis points yesterday to 7.59 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system.
The finance ministry will tomorrow repurchase the 12.25 percent notes maturing in 2010, 11.3 percent securities due 2010 and 6.57 percent debt maturing 2011, it said in the statement.
Cash availability has dropped after the government raised 677.2 billion rupees from last month’s auction of mobile-phone permits prompting the central bank to ease bond reserve requirement rules until July 2.
Wireless License
The central bank said lenders can raise more cash by cutting their debt holdings by as much as 0.5 percentage point below the minimum regulatory requirement of 25 percent of deposits. The Reserve Bank is also holding additional daily money-market auctions to increase the availability of funds.
The government is also raising a combined 385.4 billion rupees from winners of wireless broadband licenses by June 22. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai- based Securities Trading Corp. of India last week.
The Reserve Bank, whose next policy meeting is scheduled on July 27, has raised interest rates twice since mid-March, by a quarter-percentage point each time. The reverse-repurchase rate, or the rate at which the central bank absorbs surplus cash, is 3.75 percent, while the repurchase auction rate is 5.25 percent.
The government will buy the bonds through a multiple price-based “multi-security” auction, The Reserve Bank of India said in an e-mailed statement yesterday. The auction tomorrow is part of the government’s plan to buy as much as 200 billion rupees of debt in one or more tranches, it said.
Overnight interbank rates climbed to as much as 5.4 percent yesterday from 4.9 percent at the end of May. Banks borrowed an average 375 billion rupees a day from the central bank through its repurchase-auction window this month, indicating a shortage of cash after license-fee payments by phone companies. Last month, they lent a daily average of 328 billion rupees of surplus to the central bank.
“It’s a short-term measure to address a temporary tightening in liquidity and will help infusing confidence among investors,” said Srinivasa Raghavan, head of fixed-income trading in Mumbai at IDBI Gilts. The yield on the benchmark 10- year bond may drop as much as 10 basis points today, he said.
The yield on the 7.80 percent note due May 2020 dropped seven basis points yesterday to 7.59 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system.
The finance ministry will tomorrow repurchase the 12.25 percent notes maturing in 2010, 11.3 percent securities due 2010 and 6.57 percent debt maturing 2011, it said in the statement.
Cash availability has dropped after the government raised 677.2 billion rupees from last month’s auction of mobile-phone permits prompting the central bank to ease bond reserve requirement rules until July 2.
Wireless License
The central bank said lenders can raise more cash by cutting their debt holdings by as much as 0.5 percentage point below the minimum regulatory requirement of 25 percent of deposits. The Reserve Bank is also holding additional daily money-market auctions to increase the availability of funds.
The government is also raising a combined 385.4 billion rupees from winners of wireless broadband licenses by June 22. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai- based Securities Trading Corp. of India last week.
The Reserve Bank, whose next policy meeting is scheduled on July 27, has raised interest rates twice since mid-March, by a quarter-percentage point each time. The reverse-repurchase rate, or the rate at which the central bank absorbs surplus cash, is 3.75 percent, while the repurchase auction rate is 5.25 percent.
Housing Market Slows as Buyers Get More Demanding
Before the recession, people simply looked for a house to buy. Later they got squeamish just thinking about buying. Now they are on a quest for perfection at the perfect price.
Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.
It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.
Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.
Against such a backdrop of misery, buyers are empowered — and are taking full advantage.
John Porter Simons, a Seattle software engineer, thought he had a couple willing to pay $340,000 for his house. But they asked for $24,000 worth of work, most of which involved waterproofing the basement. “It was totally irrational,” said Mr. Simons. “My basement has never flooded. I live on a hill.”
He made a counteroffer to their offer, and the buyers walked. The house is now under contract to a new set of buyers, who got a cut in price and $2,500 in electrical work thrown in.
Buyers, of course, say they are merely being smart.
Chris Dunn, an economic consultant in Chicago, saw a house he liked last month for $539,000. He offered $500,000, but then his inspector told him that he would eventually have to replace the windows. The sellers were persuaded to kick in another $10,000 to pay for the work.
“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”
In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.
“People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.”
Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory.
“Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”
Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.
It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.
Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.
Against such a backdrop of misery, buyers are empowered — and are taking full advantage.
John Porter Simons, a Seattle software engineer, thought he had a couple willing to pay $340,000 for his house. But they asked for $24,000 worth of work, most of which involved waterproofing the basement. “It was totally irrational,” said Mr. Simons. “My basement has never flooded. I live on a hill.”
He made a counteroffer to their offer, and the buyers walked. The house is now under contract to a new set of buyers, who got a cut in price and $2,500 in electrical work thrown in.
Buyers, of course, say they are merely being smart.
Chris Dunn, an economic consultant in Chicago, saw a house he liked last month for $539,000. He offered $500,000, but then his inspector told him that he would eventually have to replace the windows. The sellers were persuaded to kick in another $10,000 to pay for the work.
“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”
In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.
“People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.”
Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory.
“Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”
Asian Nations Impose Curbs to Slow Expanding Property Bubbles
June 17 (Bloomberg) -- From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world’s fastest-growing region.
In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures.
“Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.”
The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates -- at 20-year lows in some places -- in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer.
“The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said.
Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot.
Lending Binge
China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases.
China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.
Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15.
While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent.
Cut Estimates
Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005.
JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales.
China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co.
Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties.
‘Regulatory Measures’
Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009.
“The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks.
Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan, chief executive of the Hong Kong Monetary Authority, said May 20.
Ability to Pay
Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates.
In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis.
Singapore Sales
Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May.
There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon, permanent secretary at the Singapore trade ministry, told reporters the same day.
The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion.
“The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said.
In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures.
“Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.”
The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates -- at 20-year lows in some places -- in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer.
“The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said.
Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot.
Lending Binge
China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases.
China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.
Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15.
While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent.
Cut Estimates
Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005.
JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales.
China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co.
Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties.
‘Regulatory Measures’
Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009.
“The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks.
Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan, chief executive of the Hong Kong Monetary Authority, said May 20.
Ability to Pay
Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates.
In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis.
Singapore Sales
Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May.
There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon, permanent secretary at the Singapore trade ministry, told reporters the same day.
The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion.
“The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said.
India hopes monsoon will tame inflation
India’s Congress-led government is counting on bountiful monsoon rains to boost agricultural production and tame inflation that hit 10.16 per cent in May, driven partly by a 16.5 per cent rise in food prices.
Yet, in spite of the Indian Metrological Department’s optimistic April forecast for a normal monsoon, the departments’ charts and maps – published on a website updated four times daily – indicate that the progress of this year’s monsoon across the subcontinent has been sluggish.
Rains hit India’s southern coast on May 31, a day before schedule, and progressed well into the cane, oilseed and rice growing areas of the south-west. Heavy rains in Mumbai, the business capital, brought the city to a virtual halt yesterday, forcing the airport to close for two hours.
But the monsoon’s progress northwards has been slower than normal. Weather officials have warned that the rains might be late to reach the northwestern state of Punjab, India’s traditional granary. As of June 11, India’s cumulative rainfall was 7 per cent below the long-period average for the season.
Indian officials have played down the sluggish start to the rains, saying the delays could be made up in the rest of the season and would not affect agricultural production. Independent analysts said it was too soon to draw any conclusion about the quality of the monsoon season, which lasts until September, or its likely impact on food production.
“The south, which isn’t very well irrigated, has received rainfall quite early and adequate, so that’s the good side,” said Jahangir Aziz, chief economist in India for JPMorgan. “The north and east, which has more irrigation, still seems to be a problem.”
About 60 per cent of India’s cultivated areas depend entirely on rainfall to water crops. Farmers were hard hit last year by poor, erratic rainfall, which led to a fall in crop production, driving food price inflation to nearly 17 per cent, from previous levels of about 10-11 per cent.
Mr Aziz said easing the current high levels of food price inflation was crucial if the Congress-led coalition was to act on its politically sensitive aim of raising subsidised fuel prices, which was essential to reduce the government’s yawning fiscal deficit.
A government panel, led by Pranab Mukherjee, the finance minister, this week postponed a meeting scheduled to consider whether or not to reform the state-controlled fuel price system, to link prices more closely to the market, which would lead to a rise in fuel prices.
“If you don’t get at least a couple of months of a decline in headline inflation, it’s going to be very difficult for the government to come and change the petroleum policy,” said Mr Aziz.
Yet, in spite of the Indian Metrological Department’s optimistic April forecast for a normal monsoon, the departments’ charts and maps – published on a website updated four times daily – indicate that the progress of this year’s monsoon across the subcontinent has been sluggish.
Rains hit India’s southern coast on May 31, a day before schedule, and progressed well into the cane, oilseed and rice growing areas of the south-west. Heavy rains in Mumbai, the business capital, brought the city to a virtual halt yesterday, forcing the airport to close for two hours.
But the monsoon’s progress northwards has been slower than normal. Weather officials have warned that the rains might be late to reach the northwestern state of Punjab, India’s traditional granary. As of June 11, India’s cumulative rainfall was 7 per cent below the long-period average for the season.
Indian officials have played down the sluggish start to the rains, saying the delays could be made up in the rest of the season and would not affect agricultural production. Independent analysts said it was too soon to draw any conclusion about the quality of the monsoon season, which lasts until September, or its likely impact on food production.
“The south, which isn’t very well irrigated, has received rainfall quite early and adequate, so that’s the good side,” said Jahangir Aziz, chief economist in India for JPMorgan. “The north and east, which has more irrigation, still seems to be a problem.”
About 60 per cent of India’s cultivated areas depend entirely on rainfall to water crops. Farmers were hard hit last year by poor, erratic rainfall, which led to a fall in crop production, driving food price inflation to nearly 17 per cent, from previous levels of about 10-11 per cent.
Mr Aziz said easing the current high levels of food price inflation was crucial if the Congress-led coalition was to act on its politically sensitive aim of raising subsidised fuel prices, which was essential to reduce the government’s yawning fiscal deficit.
A government panel, led by Pranab Mukherjee, the finance minister, this week postponed a meeting scheduled to consider whether or not to reform the state-controlled fuel price system, to link prices more closely to the market, which would lead to a rise in fuel prices.
“If you don’t get at least a couple of months of a decline in headline inflation, it’s going to be very difficult for the government to come and change the petroleum policy,” said Mr Aziz.
Tuesday, June 15, 2010
India Proposes Tax on Gains From Stock Sales, Funds
June 16 (Bloomberg) -- India proposes to impose a capital gains tax on all stock transactions by Indians and overseas funds, aimed at boosting revenue and pare the budget shortfall from a 16-year high.
The new proposals include a move to tax investments in stocks and equity-linked mutual funds at the applicable tax rates for income, according to a document posted on the Finance Ministry’s website yesterday. The so-called direct tax code also proposes to allow a deduction at a specified percentage for investments held for more than a year.
India’s Finance Minister Pranab Mukherjee last year unveiled plans for the biggest change to the nation’s tax law in almost five decades, seeking to raise revenue in Asia’s third- largest economy where a majority of the nation’s 1.2 billion people don’t pay a rupee in income tax. Raising tax revenue would help Mukherjee narrow the budget deficit to 5.5 percent of gross domestic product in the year started April 1, from a 16- year high of 6.9 percent in the previous 12 months.
“It’s understandable why the government is targeting foreign institutional investors and domestic investors, they’re easy targets,” Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC, said in e-mailed comments. Still “FIIs are the worst taxpayers to target, because they’re the people for whom it’s easiest to take their capital elsewhere,” he said.
Overseas investors, categorized as Foreign Institutional Investors, will be liable to pay tax as per the proposals. All investments by such investors will be considered as capital gains. Overseas funds that have been reporting income from stock investments as business income and claiming exemptions will not be allowed to claim such benefits, the tax code proposes.
Few Taxpayers
India relies on the 27 million people who pay taxes in the world’s second-most populous nation to help fund 10.2 trillion rupees ($219 billion) in spending that’s needed to spur economic growth.
Short-term capital gains arising from sale of stocks within a year are taxed at 15 percent at present and long-term capital gains for such investments held for more than a year are exempt from tax.
The draft on the new tax code and a paper for public discussion was released in August last year. The government yesterday released a revised document, seeking comments from investors.
India may present the draft direct tax code to lawmakers during the monsoon session of parliament next month, Revenue Secretary Sunil Mitra said in New Delhi yesterday.
Could Deter Investments
The proposals if passed as law could deter overseas investments into India, Pershad said.
Overseas investors sold $2.04 billion in Indian stocks last month, pulling out the most funds since October 2008 as the European debt crisis roiled global equity markets.
“India will become a less desirable market for foreign investors if the taxes are raised as meaningfully as the government is considering,” Pershad said. “Given the current volatility of markets, more trades and investments are being executed with a time horizon of less than 1 year -- why punish people for being prudent?”
The new law also proposes tripling the limit on tax-free investment in pension funds and life insurance to 300,000 rupees ($6,443) to boost savings and help the government raise finance for ports, roads and airports.
The new proposals include a move to tax investments in stocks and equity-linked mutual funds at the applicable tax rates for income, according to a document posted on the Finance Ministry’s website yesterday. The so-called direct tax code also proposes to allow a deduction at a specified percentage for investments held for more than a year.
India’s Finance Minister Pranab Mukherjee last year unveiled plans for the biggest change to the nation’s tax law in almost five decades, seeking to raise revenue in Asia’s third- largest economy where a majority of the nation’s 1.2 billion people don’t pay a rupee in income tax. Raising tax revenue would help Mukherjee narrow the budget deficit to 5.5 percent of gross domestic product in the year started April 1, from a 16- year high of 6.9 percent in the previous 12 months.
“It’s understandable why the government is targeting foreign institutional investors and domestic investors, they’re easy targets,” Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC, said in e-mailed comments. Still “FIIs are the worst taxpayers to target, because they’re the people for whom it’s easiest to take their capital elsewhere,” he said.
Overseas investors, categorized as Foreign Institutional Investors, will be liable to pay tax as per the proposals. All investments by such investors will be considered as capital gains. Overseas funds that have been reporting income from stock investments as business income and claiming exemptions will not be allowed to claim such benefits, the tax code proposes.
Few Taxpayers
India relies on the 27 million people who pay taxes in the world’s second-most populous nation to help fund 10.2 trillion rupees ($219 billion) in spending that’s needed to spur economic growth.
Short-term capital gains arising from sale of stocks within a year are taxed at 15 percent at present and long-term capital gains for such investments held for more than a year are exempt from tax.
The draft on the new tax code and a paper for public discussion was released in August last year. The government yesterday released a revised document, seeking comments from investors.
India may present the draft direct tax code to lawmakers during the monsoon session of parliament next month, Revenue Secretary Sunil Mitra said in New Delhi yesterday.
Could Deter Investments
The proposals if passed as law could deter overseas investments into India, Pershad said.
Overseas investors sold $2.04 billion in Indian stocks last month, pulling out the most funds since October 2008 as the European debt crisis roiled global equity markets.
“India will become a less desirable market for foreign investors if the taxes are raised as meaningfully as the government is considering,” Pershad said. “Given the current volatility of markets, more trades and investments are being executed with a time horizon of less than 1 year -- why punish people for being prudent?”
The new law also proposes tripling the limit on tax-free investment in pension funds and life insurance to 300,000 rupees ($6,443) to boost savings and help the government raise finance for ports, roads and airports.
India’s Clogged Rail Lines Stall Economic Progress
MUMBAI, India — S. K. Sahai’s firm ships containers 2,400 nautical miles from Singapore to a port here in four or five days. But it typically takes more than two weeks to make the next leg of the journey, 870 miles by rail to New Delhi.
For most of that time the containers idle at the Jawaharlal Nehru Port near Mumbai because railway terminals, trains and tracks are severely backlogged all along the route. Counting storage and rail freight fees, Mr. Sahai estimates the cost of moving goods from Mumbai to Delhi at up to $840 per container — or about three times as much as getting the containers to India from Singapore.
“They don’t have any physical space,” Mr. Sahai, who is chairman of SKS Logistics of Mumbai, said about the government-owned Indian Railways. “And all their trains are booked.”
As the world looks to India to compete with China as a major source of new global economic growth, this country’s weak transportation network is stalling progress.
Economists say India must invest heavily in transportation to achieve a long-term annual growth rate of 10 percent — the goal recently set by the prime minister, Manmohan Singh. But whether measured by highways, airways or — particularly — far-reaching railways, India’s transportation is falling short.
Critics say the growth and modernization of Indian Railways has been hampered by government leaders more interested in winning elections and appeasing select constituents, rather than investing in the country’s long-term needs. It is one of the many ways that the political realities of India’s clamorous democracy stand in contrast to the forced march that China’s authoritarian system can dictate for economic development.
A 40,000-mile, 150-year-old network, Indian Railways is often described as the backbone of this nation’s economy. And in fact it is moving more people and goods than ever: seven billion passengers and 830 million tons of cargo a year. But its expansion and modernization is not keeping pace with India’s needs.
“If it has to serve as the backbone of the Indian economy, the leaders of the Indian Railways have to think big, and they need to have a larger vision,” said S. Ramnarayan, a professor at the Indian School of Business and co-author of a book about the railways. “Thinking in terms of incrementalism — a little extra here, a little extra there — doesn’t solve anybody’s problem.”
The crash on an eastern rail link late last month that killed 151 people and injured hundreds of others underscored the vital nature of the railroads, as well as their vulnerability. The crash, which authorities have attributed to Maoist rebels, was particularly disruptive because it disabled a busy east-west line that, along with many others, was already stretched thin.
Traffic between big cities like Mumbai and Delhi, for instance, often runs at more than 120 percent of planned capacity, which means trains travel more slowly and tracks wear out faster than intended.
And because the railways’ tracks are too lightweight and the locomotives underpowered, Indian trains can haul no more than 5,000 tons of cargo, compared with 20,000-ton capacities in the United States, China and Russia.
India’s fastest passenger services, the Rajdhani and Shatabdi, have top speeds of only 160 kilometers (100 miles) an hour, while even the Amtrak Acela in the United States can hit 150 miles an hour in a few stretches. China’s bullet trains, meanwhile, zip along at an average speed of 215 miles an hour.
Political analysts say that the current railway minister, Mamata Banerjee, has been distracted by her party’s campaign to win elections in her home state of West Bengal. Those political ambitions, they say, have inspired populist policies by Indian Railways that are at financial odds with modernization and capital investments.
Even though Indian law allows the railways to acquire land quickly through hearings before magistrates, for example, Ms. Banerjee has promised farmers and other landowners that the ministry will negotiate with each landowner whose property must be acquired for two large freight projects. While popular with landowners, the process could add years to the projects.
An assistant to Ms. Banerjee said she was not available for an interview because she was busy with recently concluded municipal elections in West Bengal.
Ms. Banerjee is hardly the first railway minister with a political agenda, though. And most of the ministers who preceded her have funneled the railways’ limited resources into subsidies for passengers at the expense of freight service.
For most of that time the containers idle at the Jawaharlal Nehru Port near Mumbai because railway terminals, trains and tracks are severely backlogged all along the route. Counting storage and rail freight fees, Mr. Sahai estimates the cost of moving goods from Mumbai to Delhi at up to $840 per container — or about three times as much as getting the containers to India from Singapore.
“They don’t have any physical space,” Mr. Sahai, who is chairman of SKS Logistics of Mumbai, said about the government-owned Indian Railways. “And all their trains are booked.”
As the world looks to India to compete with China as a major source of new global economic growth, this country’s weak transportation network is stalling progress.
Economists say India must invest heavily in transportation to achieve a long-term annual growth rate of 10 percent — the goal recently set by the prime minister, Manmohan Singh. But whether measured by highways, airways or — particularly — far-reaching railways, India’s transportation is falling short.
Critics say the growth and modernization of Indian Railways has been hampered by government leaders more interested in winning elections and appeasing select constituents, rather than investing in the country’s long-term needs. It is one of the many ways that the political realities of India’s clamorous democracy stand in contrast to the forced march that China’s authoritarian system can dictate for economic development.
A 40,000-mile, 150-year-old network, Indian Railways is often described as the backbone of this nation’s economy. And in fact it is moving more people and goods than ever: seven billion passengers and 830 million tons of cargo a year. But its expansion and modernization is not keeping pace with India’s needs.
“If it has to serve as the backbone of the Indian economy, the leaders of the Indian Railways have to think big, and they need to have a larger vision,” said S. Ramnarayan, a professor at the Indian School of Business and co-author of a book about the railways. “Thinking in terms of incrementalism — a little extra here, a little extra there — doesn’t solve anybody’s problem.”
The crash on an eastern rail link late last month that killed 151 people and injured hundreds of others underscored the vital nature of the railroads, as well as their vulnerability. The crash, which authorities have attributed to Maoist rebels, was particularly disruptive because it disabled a busy east-west line that, along with many others, was already stretched thin.
Traffic between big cities like Mumbai and Delhi, for instance, often runs at more than 120 percent of planned capacity, which means trains travel more slowly and tracks wear out faster than intended.
And because the railways’ tracks are too lightweight and the locomotives underpowered, Indian trains can haul no more than 5,000 tons of cargo, compared with 20,000-ton capacities in the United States, China and Russia.
India’s fastest passenger services, the Rajdhani and Shatabdi, have top speeds of only 160 kilometers (100 miles) an hour, while even the Amtrak Acela in the United States can hit 150 miles an hour in a few stretches. China’s bullet trains, meanwhile, zip along at an average speed of 215 miles an hour.
Political analysts say that the current railway minister, Mamata Banerjee, has been distracted by her party’s campaign to win elections in her home state of West Bengal. Those political ambitions, they say, have inspired populist policies by Indian Railways that are at financial odds with modernization and capital investments.
Even though Indian law allows the railways to acquire land quickly through hearings before magistrates, for example, Ms. Banerjee has promised farmers and other landowners that the ministry will negotiate with each landowner whose property must be acquired for two large freight projects. While popular with landowners, the process could add years to the projects.
An assistant to Ms. Banerjee said she was not available for an interview because she was busy with recently concluded municipal elections in West Bengal.
Ms. Banerjee is hardly the first railway minister with a political agenda, though. And most of the ministers who preceded her have funneled the railways’ limited resources into subsidies for passengers at the expense of freight service.
Asian Stocks Rise to Four-Week High, Led by Commodity Companies
June 16 (Bloomberg) -- Asian stocks rose to a four-week high after a report showing growth in New York manufacturing boosted confidence that a recovery in world’s biggest economy will increase corporate earnings.
Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.4 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company, climbed 1.8 percent in Sydney after commodity prices advanced. Samsung Electronics Co., Asia’s largest chipmaker, rose 1.8 percent in Seoul. Nintendo Co. jumped 4.7 percent in Osaka, Japan, after the company introduced a new handheld video-game player.
“We are bullish on the U.S. economy,” said Naoki Fujiwara, a fund manager in Tokyo at Shinkin Asset Management Co., which oversees about $6 billion. “The continuing improvement in earnings will drive down valuations even further, so there is little concern that the market will decline.”
The MSCI Asia Pacific Index climbed 0.9 percent to 115.45 as of 11:03 a.m. in Tokyo, rising for a fifth day in its longest winning streak since April 7. The index has lost 4.1 percent this year on concern that Greece and other European countries will struggle to curb their budget deficits and repay debt.
Japan’s Nikkei 225 Stock Average rose 1.6 percent, the biggest increase among equity benchmarks in the Asia-Pacific region. South Korea’s Kospi Index advanced 0.4 percent. Markets in Hong Kong, China and Taiwan are closed today for a holiday.
New York Manufacturing
Australia’s S&P/ASX 200 gained 1.1 percent even as an index of leading economic indicators in the country slowed in April to the weakest pace in three months, according to Westpac Banking Corp. and the Melbourne Institute.
Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The gauge climbed 2.4 percent in New York yesterday after the Federal Reserve Bank of New York said its general economic index of manufacturing rose in June for an 11th consecutive month.
Optimism the world’s largest economy is gathering momentum boosted the dollar to near a one-week high against the yen today, further buoying by Japanese exporters.
Toyota, the world’s largest automaker, rose 1.4 percent to 3,335 yen in Tokyo. Canon Inc., which is the world’s biggest maker of digital cameras and receives 78 percent of its revenue from outside Japan, increased 3.2 percent to 3,855 yen.
Nissan Motor Co., Japan’s third-biggest carmaker, increased 3.7 percent to 693 yen. Goldman Sachs Group Inc. raised its investment rating on the company to “buy” from “neutral,” while lowering its share-price estimate to 800 yen from 950 yen.
Yen Boosts Exporters
The yen fell to as low as 91.67 against the dollar today from 91.48 yen at yesterday’s close of stock trading in Tokyo. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index has slumped 11 percent from its 52-week high on April 15 as swelling budget deficits prompted Standard & Poor’s to cut ratings of Greece, Spain and Portugal. The retreat has driven down the average price of shares in the gauge to 14.8 times estimated earnings. The ratio sank to 13.8 times on May 18, the lowest level since December 2008.
“Shares have been sold too much, considering the outlook for corporate earnings,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “U.S. manufacturing, supported by low interest rates and the buoyant Chinese economy, is recovering steadily.”
About five shares advanced for each that declined today on the MSCI Asia Pacific Index. Material and computer-related companies led gains among the gauge’s 10 industry groups.
Commodities, Chipmakers Rise
BHP rose 1.8 percent to A$39.09 in Sydney and was the biggest contributor to the index’s increase. Rio Tinto Group, the world’s third-biggest mining company, climbed 1.9 percent to A$70.75. Mitsubishi Corp., which gets about 40 percent of sales from commodities, gained 2.1 percent to 1,928 yen in Tokyo.
The prospects for higher demand buoyed oil prices by 2.4 percent to $76.94 a barrel in New York yesterday, the highest settlement since May 6. The London Metal Exchange Index advanced 0.7 percent, its sixth straight day of gains. Copper futures in New York rose 1.2 percent, their seventh consecutive increase.
Nintendo climbed 4.7 percent to 26,400 yen and was the most active stock by value in Japan. The stock rose the most in more than two months after the company unveiled a handheld machine that shows 3-D images without special glasses.
Asian chip-related shares followed a rally yesterday by their U.S. counterparts after Taiwan Semiconductor Manufacturing Co. said global sales in the chip industry will increase almost 30 percent this year, compared with an April forecast of 22 percent. Morris Chang, chairman and chief executive officer of the world’s largest contract manufacturer of chips, announced the projection yesterday morning in Taiwan.
Samsung Electronics, the world’s largest maker of memory chips and liquid-crystal displays, rose 1.8 percent to 812,000 won in Seoul. Advantest Corp., the world’s biggest maker of memory-chip testers, gained 2 percent to 2,017 yen in Tokyo. Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, increased 2.5 percent to 5,780 yen.
Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.4 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company, climbed 1.8 percent in Sydney after commodity prices advanced. Samsung Electronics Co., Asia’s largest chipmaker, rose 1.8 percent in Seoul. Nintendo Co. jumped 4.7 percent in Osaka, Japan, after the company introduced a new handheld video-game player.
“We are bullish on the U.S. economy,” said Naoki Fujiwara, a fund manager in Tokyo at Shinkin Asset Management Co., which oversees about $6 billion. “The continuing improvement in earnings will drive down valuations even further, so there is little concern that the market will decline.”
The MSCI Asia Pacific Index climbed 0.9 percent to 115.45 as of 11:03 a.m. in Tokyo, rising for a fifth day in its longest winning streak since April 7. The index has lost 4.1 percent this year on concern that Greece and other European countries will struggle to curb their budget deficits and repay debt.
Japan’s Nikkei 225 Stock Average rose 1.6 percent, the biggest increase among equity benchmarks in the Asia-Pacific region. South Korea’s Kospi Index advanced 0.4 percent. Markets in Hong Kong, China and Taiwan are closed today for a holiday.
New York Manufacturing
Australia’s S&P/ASX 200 gained 1.1 percent even as an index of leading economic indicators in the country slowed in April to the weakest pace in three months, according to Westpac Banking Corp. and the Melbourne Institute.
Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The gauge climbed 2.4 percent in New York yesterday after the Federal Reserve Bank of New York said its general economic index of manufacturing rose in June for an 11th consecutive month.
Optimism the world’s largest economy is gathering momentum boosted the dollar to near a one-week high against the yen today, further buoying by Japanese exporters.
Toyota, the world’s largest automaker, rose 1.4 percent to 3,335 yen in Tokyo. Canon Inc., which is the world’s biggest maker of digital cameras and receives 78 percent of its revenue from outside Japan, increased 3.2 percent to 3,855 yen.
Nissan Motor Co., Japan’s third-biggest carmaker, increased 3.7 percent to 693 yen. Goldman Sachs Group Inc. raised its investment rating on the company to “buy” from “neutral,” while lowering its share-price estimate to 800 yen from 950 yen.
Yen Boosts Exporters
The yen fell to as low as 91.67 against the dollar today from 91.48 yen at yesterday’s close of stock trading in Tokyo. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index has slumped 11 percent from its 52-week high on April 15 as swelling budget deficits prompted Standard & Poor’s to cut ratings of Greece, Spain and Portugal. The retreat has driven down the average price of shares in the gauge to 14.8 times estimated earnings. The ratio sank to 13.8 times on May 18, the lowest level since December 2008.
“Shares have been sold too much, considering the outlook for corporate earnings,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “U.S. manufacturing, supported by low interest rates and the buoyant Chinese economy, is recovering steadily.”
About five shares advanced for each that declined today on the MSCI Asia Pacific Index. Material and computer-related companies led gains among the gauge’s 10 industry groups.
Commodities, Chipmakers Rise
BHP rose 1.8 percent to A$39.09 in Sydney and was the biggest contributor to the index’s increase. Rio Tinto Group, the world’s third-biggest mining company, climbed 1.9 percent to A$70.75. Mitsubishi Corp., which gets about 40 percent of sales from commodities, gained 2.1 percent to 1,928 yen in Tokyo.
The prospects for higher demand buoyed oil prices by 2.4 percent to $76.94 a barrel in New York yesterday, the highest settlement since May 6. The London Metal Exchange Index advanced 0.7 percent, its sixth straight day of gains. Copper futures in New York rose 1.2 percent, their seventh consecutive increase.
Nintendo climbed 4.7 percent to 26,400 yen and was the most active stock by value in Japan. The stock rose the most in more than two months after the company unveiled a handheld machine that shows 3-D images without special glasses.
Asian chip-related shares followed a rally yesterday by their U.S. counterparts after Taiwan Semiconductor Manufacturing Co. said global sales in the chip industry will increase almost 30 percent this year, compared with an April forecast of 22 percent. Morris Chang, chairman and chief executive officer of the world’s largest contract manufacturer of chips, announced the projection yesterday morning in Taiwan.
Samsung Electronics, the world’s largest maker of memory chips and liquid-crystal displays, rose 1.8 percent to 812,000 won in Seoul. Advantest Corp., the world’s biggest maker of memory-chip testers, gained 2 percent to 2,017 yen in Tokyo. Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, increased 2.5 percent to 5,780 yen.
India’s inflation reaches double digits
India’s headline inflation has hit double digits, raising the possibility that the Reserve Bank of India will raise rates before a scheduled monetary policy review meeting next month.
Revised figures released yesterday showed that the wholesale price index had risen 11 per cent in March year-on-year, overturning earlier relief that the economy had restrained inflation in single digits. In May the WPI rose 10.2 per cent, double what the government considers its “comfort level”.
The stubbornly high inflation was above most analysts’ expectations and threatens to spell trouble for Manmohan Singh, the prime minister. Last month he acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
The Hindu nationalist opposition Bharatiya Janata party has criticised the Congress party-led government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises.
Some analysts, including Stephen Roach, chairman of Morgan Stanley Asia, have warned India is in danger of overstimulating its economy in the aftermath of the global financial crisis.
Yesterday’s figures showed that price pressures remain strong, with rapid growth of 8.6 per cent in the past quarter. The inflationary pressure was registered among primary products, such as sugar cane, tea, metals, textiles and wood.
Rohini Malkani, an economist at Citigroup in Mumbai, said the high inflation reflected the importance of changes in India’s economy, such as rising incomes, changing dietary patterns and low agricultural yields. Non-food manufactured goods inflation showed the force of demand in a fast-growing, yet constrained, domestic economy.
India, in recent months, has been the most aggressive tightener of monetary policy among the G20 leading nations, after Australia. More interest rate rises are on the way, but the RBI has said it is prepared for “baby steps” rather than more dramatic action. Some analysts predict the repo rate will rise 100 basis points from the current rate of 5.25 per cent in December.
Resistance to sudden rate rises by Pranab Mukherjee, the finance minister, and strong lobbying by India’s business groups, however, have left only a few of the more hawkish economists believing another rate rise is imminent.
“The RBI must take action to cool demand now, otherwise it will run the risk of having to tighten more aggressively later,” said Frederic Neumann, co-head of Asian economic research at HSBC. “A 25 basis point hike in repo rates before the next quarterly review meeting in July is still on the cards.”
Last night, business groups urged the RBI not to choke off liquidity at a time when foreign portfolio investment had slowed.
Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, said inflation would fall in coming months. “The primary sector is where the maximum pressure is coming from. It is the lean season [before the monsoon] as far as agricultural supplies are concerned. Once the new season begins . . . we can expect inflation in primary articles to come down.”
Revised figures released yesterday showed that the wholesale price index had risen 11 per cent in March year-on-year, overturning earlier relief that the economy had restrained inflation in single digits. In May the WPI rose 10.2 per cent, double what the government considers its “comfort level”.
The stubbornly high inflation was above most analysts’ expectations and threatens to spell trouble for Manmohan Singh, the prime minister. Last month he acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
The Hindu nationalist opposition Bharatiya Janata party has criticised the Congress party-led government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises.
Some analysts, including Stephen Roach, chairman of Morgan Stanley Asia, have warned India is in danger of overstimulating its economy in the aftermath of the global financial crisis.
Yesterday’s figures showed that price pressures remain strong, with rapid growth of 8.6 per cent in the past quarter. The inflationary pressure was registered among primary products, such as sugar cane, tea, metals, textiles and wood.
Rohini Malkani, an economist at Citigroup in Mumbai, said the high inflation reflected the importance of changes in India’s economy, such as rising incomes, changing dietary patterns and low agricultural yields. Non-food manufactured goods inflation showed the force of demand in a fast-growing, yet constrained, domestic economy.
India, in recent months, has been the most aggressive tightener of monetary policy among the G20 leading nations, after Australia. More interest rate rises are on the way, but the RBI has said it is prepared for “baby steps” rather than more dramatic action. Some analysts predict the repo rate will rise 100 basis points from the current rate of 5.25 per cent in December.
Resistance to sudden rate rises by Pranab Mukherjee, the finance minister, and strong lobbying by India’s business groups, however, have left only a few of the more hawkish economists believing another rate rise is imminent.
“The RBI must take action to cool demand now, otherwise it will run the risk of having to tighten more aggressively later,” said Frederic Neumann, co-head of Asian economic research at HSBC. “A 25 basis point hike in repo rates before the next quarterly review meeting in July is still on the cards.”
Last night, business groups urged the RBI not to choke off liquidity at a time when foreign portfolio investment had slowed.
Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, said inflation would fall in coming months. “The primary sector is where the maximum pressure is coming from. It is the lean season [before the monsoon] as far as agricultural supplies are concerned. Once the new season begins . . . we can expect inflation in primary articles to come down.”
Monday, June 14, 2010
Singapore Employers Added More Jobs Than Estimated
June 15 (Bloomberg) -- Singapore employers added more jobs than initially estimated last quarter, pushing the unemployment rate to the lowest level in almost two years as a strengthening economy boosted hiring sentiment.
The city state added 36,500 jobs, compared with an earlier forecast of 34,000, according to revised figures released by the Ministry of Manpower today. The seasonally adjusted unemployment rate fell to 2.2 percent in the three months through March from 2.3 percent the previous quarter.
The opening of Singapore’s two casino resorts this year, which include a theme park and convention centers, is spurring tourism and fueling employment. The job gains have led to the first increase in average wages in more than a year, supporting consumer spending. A separate report today may show retail sales resumed growth in April, according to the median forecast of eight economists surveyed by Bloomberg News.
“The hospitality industry with the opening of the casino resorts is leading the way in hiring while the rebound in export demand is supporting jobs growth in the manufacturing sector,” said Vishnu Varathan, an economist at Forecast Pte in Singapore. “The tightening of the labor market may lead to a build-up in wage pressures.”
Singapore’s economy expanded an annualized 38.6 percent from the previous three months in the first quarter, and the government has raised its growth forecast twice this year as Asia leads a rebound from last year’s global slump. The nation expects the economy to grow as much as 9 percent this year.
Services, Manufacturing
“The strong economic recovery has led to more people securing jobs,” the ministry said. “Employment grew strongly, contributing to an improvement in unemployment for the second straight quarter as redundancies remained at pre-recessionary levels.”
Services companies, such as Genting Singapore Plc, added 33,400 positions in the first quarter, while the manufacturing industry created 3,100 jobs in the same period. The construction industry lost 400 workers, the report showed.
There were 37,300 job vacancies as of March, compared with 33,800 at the end of December, according to today’s report. Average wages before adjusting for inflation rose 3.7 percent in the three months through March from a year earlier, after declining for four quarters.
Singapore’s unemployment rate may be 2 percent by the end of 2010, according to the median estimate in a survey of 19 economists by the Monetary Authority of Singapore released last week.
The city state added 36,500 jobs, compared with an earlier forecast of 34,000, according to revised figures released by the Ministry of Manpower today. The seasonally adjusted unemployment rate fell to 2.2 percent in the three months through March from 2.3 percent the previous quarter.
The opening of Singapore’s two casino resorts this year, which include a theme park and convention centers, is spurring tourism and fueling employment. The job gains have led to the first increase in average wages in more than a year, supporting consumer spending. A separate report today may show retail sales resumed growth in April, according to the median forecast of eight economists surveyed by Bloomberg News.
“The hospitality industry with the opening of the casino resorts is leading the way in hiring while the rebound in export demand is supporting jobs growth in the manufacturing sector,” said Vishnu Varathan, an economist at Forecast Pte in Singapore. “The tightening of the labor market may lead to a build-up in wage pressures.”
Singapore’s economy expanded an annualized 38.6 percent from the previous three months in the first quarter, and the government has raised its growth forecast twice this year as Asia leads a rebound from last year’s global slump. The nation expects the economy to grow as much as 9 percent this year.
Services, Manufacturing
“The strong economic recovery has led to more people securing jobs,” the ministry said. “Employment grew strongly, contributing to an improvement in unemployment for the second straight quarter as redundancies remained at pre-recessionary levels.”
Services companies, such as Genting Singapore Plc, added 33,400 positions in the first quarter, while the manufacturing industry created 3,100 jobs in the same period. The construction industry lost 400 workers, the report showed.
There were 37,300 job vacancies as of March, compared with 33,800 at the end of December, according to today’s report. Average wages before adjusting for inflation rose 3.7 percent in the three months through March from a year earlier, after declining for four quarters.
Singapore’s unemployment rate may be 2 percent by the end of 2010, according to the median estimate in a survey of 19 economists by the Monetary Authority of Singapore released last week.
BOJ to Offer 3 Trillion Yen to Spur Corporate Loans
June 15 (Bloomberg) -- The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in a new credit program that will extend loans to companies for as long as four years in an effort to strengthen the economic recovery.
The central bank will accept loan requests through March 2012, it said in a statement released today in Tokyo. New loans will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.
Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt. The facility will do little to spur demand and is mainly aimed at averting calls for broader monetary easing, said economist Yasunari Ueno.
“The new program is a tool to flag the BOJ’s cooperation to the government,” Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before the announcement. “It’s also an attempt to prevent the bank’s monetary policy from being driven in an unfavorable direction.”
Yesterday, on the first day of the bank’s meeting, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken.
Critical Challenge
“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries.”
Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. The BOJ has discussed the boundaries of the program, with some members voicing concern that the bank should avoid getting too involved in allocating capital, minutes of an April 30 meeting show.
The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. The bank decided to resume a U.S. dollar currency swap agreement with the Federal Reserve in an unscheduled policy meeting on May 10.
Interest Rates
Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today.
Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent.
“The BOJ has already provided abundant liquidity” by lowering borrowing costs and through existing programs, said Mizuho’s Ueno. “Under the current circumstances surrounding interest rates, the advantages of tapping a new facility for commercial lenders is extremely small.”
If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage.
Recovery Trend
Japan’s economy is on a recovery trend and spending by companies is showing signs of picking up, the central bank said today.
Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months.
He is expected to unveil the midterm growth and fiscal strategy before the Group of 20 leaders’ summit this month. Vice Finance Minister Motohisa Ikeda, who has also pressed the BOJ to do more, is attending today’s gathering as a government representative.
“With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.”
The central bank will accept loan requests through March 2012, it said in a statement released today in Tokyo. New loans will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.
Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt. The facility will do little to spur demand and is mainly aimed at averting calls for broader monetary easing, said economist Yasunari Ueno.
“The new program is a tool to flag the BOJ’s cooperation to the government,” Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before the announcement. “It’s also an attempt to prevent the bank’s monetary policy from being driven in an unfavorable direction.”
Yesterday, on the first day of the bank’s meeting, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken.
Critical Challenge
“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries.”
Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. The BOJ has discussed the boundaries of the program, with some members voicing concern that the bank should avoid getting too involved in allocating capital, minutes of an April 30 meeting show.
The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. The bank decided to resume a U.S. dollar currency swap agreement with the Federal Reserve in an unscheduled policy meeting on May 10.
Interest Rates
Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today.
Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent.
“The BOJ has already provided abundant liquidity” by lowering borrowing costs and through existing programs, said Mizuho’s Ueno. “Under the current circumstances surrounding interest rates, the advantages of tapping a new facility for commercial lenders is extremely small.”
If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage.
Recovery Trend
Japan’s economy is on a recovery trend and spending by companies is showing signs of picking up, the central bank said today.
Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months.
He is expected to unveil the midterm growth and fiscal strategy before the Group of 20 leaders’ summit this month. Vice Finance Minister Motohisa Ikeda, who has also pressed the BOJ to do more, is attending today’s gathering as a government representative.
“With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.”
Sunday, June 13, 2010
Reliance Industries eyes more US shale gas
Reliance Industries is in talks to acquire what would be its second US shale gas interest in as many months as India’s largest private sector oil refining and production group seeks to build a foothold in overseas markets.
Reliance, controlled by Mukesh Ambani, India’s richest man, is considering buying a stake in shale gas assets owned by Pioneer Natural Resources, which is developing a large field in south Texas, people familiar with the matter said.
The deal is still under negotiation but one person familiar with the talks said the price was expected to be less than the $1.7bn Reliance paid in April for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
The deal follows similar agreements between some of the world’s largest energy companies and smaller independents with exposure to so-called unconventional gas.
Proponents of these unconventional deposits claim new drilling technology makes them economical to develop for the first time. This has raised estimates for US gas reserves from 30 years to 100 years at current usage rates.
In the biggest deals, ExxonMobil has agreed a $41bn deal to buy XTO, the shale gas specialist, while BP, Statoil and Total have each struck deals with Chesapeake Energy to tap into its US shale assets.
Reliance Industries has been shopping for overseas acquisitions, resulting in the deal with Atlas Energy, under which the Indian company took a 40 per cent interest in the shale field owned by the US company and committed funds for development.
Dallas-based Pioneer said last month it had drilled its fifth successful well in its 310,000-acre Eagle Ford Shale in south Texas.
“To further accelerate Eagle Ford Shale development, the company is actively pursuing a joint venture, with an announcement expected by the end of the second quarter of 2010,” Pioneer said last month.
Reliance yesterday said it did not comment on “market speculation”.
Pioneer has another shale gas field, Barnett, near Fort Worth, with 80,000 acres.
Reliance – whose upstream operations are headed by Walter Van De Vijver, a former Shell executive – is keen to gain hands-on experience developing shale assets.
Reliance operates the world’s biggest refinery complex in a single location on India’s west coast and the country’s largest gas field on its east coast.
It sought to buy bankrupt chemicals group Lyondell-Bassell earlier this year but was thwarted by a management-backed debt restructuring proposal.
Mr Ambani is known for his ability to build large projects, particularly in oil and gas. But analysts say he now needs to show he is equally adept at acquisitions so that he can put the billions of dollars of cash flow being generated by his gas field and refinery to good use.
Reliance, controlled by Mukesh Ambani, India’s richest man, is considering buying a stake in shale gas assets owned by Pioneer Natural Resources, which is developing a large field in south Texas, people familiar with the matter said.
The deal is still under negotiation but one person familiar with the talks said the price was expected to be less than the $1.7bn Reliance paid in April for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
The deal follows similar agreements between some of the world’s largest energy companies and smaller independents with exposure to so-called unconventional gas.
Proponents of these unconventional deposits claim new drilling technology makes them economical to develop for the first time. This has raised estimates for US gas reserves from 30 years to 100 years at current usage rates.
In the biggest deals, ExxonMobil has agreed a $41bn deal to buy XTO, the shale gas specialist, while BP, Statoil and Total have each struck deals with Chesapeake Energy to tap into its US shale assets.
Reliance Industries has been shopping for overseas acquisitions, resulting in the deal with Atlas Energy, under which the Indian company took a 40 per cent interest in the shale field owned by the US company and committed funds for development.
Dallas-based Pioneer said last month it had drilled its fifth successful well in its 310,000-acre Eagle Ford Shale in south Texas.
“To further accelerate Eagle Ford Shale development, the company is actively pursuing a joint venture, with an announcement expected by the end of the second quarter of 2010,” Pioneer said last month.
Reliance yesterday said it did not comment on “market speculation”.
Pioneer has another shale gas field, Barnett, near Fort Worth, with 80,000 acres.
Reliance – whose upstream operations are headed by Walter Van De Vijver, a former Shell executive – is keen to gain hands-on experience developing shale assets.
Reliance operates the world’s biggest refinery complex in a single location on India’s west coast and the country’s largest gas field on its east coast.
It sought to buy bankrupt chemicals group Lyondell-Bassell earlier this year but was thwarted by a management-backed debt restructuring proposal.
Mr Ambani is known for his ability to build large projects, particularly in oil and gas. But analysts say he now needs to show he is equally adept at acquisitions so that he can put the billions of dollars of cash flow being generated by his gas field and refinery to good use.
India May Put Off Debt Sales on Cash Shortages, JPMorgan Says
June 14 (Bloomberg) -- India may postpone or cut the size of its scheduled bond sales this week as the payment of corporate taxes and mobile-phone license fees squeezes cash at banks, JPMorgan Chase & Co. and Securities Trading Corp. said.
Overnight interbank rates climbed to 5.43 percent on June 11, their highest level in more than two months, increasing the cost of funding to buy bonds. The average amount of cash borrowed each day by banks from the central bank’s repurchase auction window jumped six-fold last week, showing the shortage of funds. The Finance Ministry is due to auction up to 110 billion rupees ($2.8 billion) in the week beginning today, according to the government’s debt sale calendar.
“This tight liquidity situation is going to be there for quite some time, probably until at least August,” Jahangir Aziz, chief India economist at JPMorgan in Mumbai said in a June 12 telephone interview. “They may postpone the week’s auction because that’s when the big shock is going to be.”
The yield on the benchmark 7.80 percent bonds due in May 2020 rose nine basis points to 7.61 percent last week, the highest level in a month.
Wireless broadband operators will have to pay a combined 385.4 billion rupees for licenses by June 22. The payment for 110 billion rupees of bonds sold by the government last week is due today. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp. of India, known as STCI.
Room for Delays
The companies that won permits to provide third-generation services last month paid 677.2 billion rupees to the government, reducing cash at banks.
“Since the government has mobilized so much money, they can truncate the borrowing for a couple of auctions,” said Mumbai-based Madhav.
Madhav predicts lenders may borrow up to 900 billion rupees from the Reserve Bank of India during this week. Banks borrowed an average of 599.3 billion rupees from the central bank through its repurchase-auction window every day last week, compared with 94.1 billion rupees the previous week.
The government plans to complete 63 percent of its record borrowing program of 4.57 trillion rupees for the fiscal year that began April 1 in the first half.
Overnight interbank rates climbed to 5.43 percent on June 11, their highest level in more than two months, increasing the cost of funding to buy bonds. The average amount of cash borrowed each day by banks from the central bank’s repurchase auction window jumped six-fold last week, showing the shortage of funds. The Finance Ministry is due to auction up to 110 billion rupees ($2.8 billion) in the week beginning today, according to the government’s debt sale calendar.
“This tight liquidity situation is going to be there for quite some time, probably until at least August,” Jahangir Aziz, chief India economist at JPMorgan in Mumbai said in a June 12 telephone interview. “They may postpone the week’s auction because that’s when the big shock is going to be.”
The yield on the benchmark 7.80 percent bonds due in May 2020 rose nine basis points to 7.61 percent last week, the highest level in a month.
Wireless broadband operators will have to pay a combined 385.4 billion rupees for licenses by June 22. The payment for 110 billion rupees of bonds sold by the government last week is due today. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp. of India, known as STCI.
Room for Delays
The companies that won permits to provide third-generation services last month paid 677.2 billion rupees to the government, reducing cash at banks.
“Since the government has mobilized so much money, they can truncate the borrowing for a couple of auctions,” said Mumbai-based Madhav.
Madhav predicts lenders may borrow up to 900 billion rupees from the Reserve Bank of India during this week. Banks borrowed an average of 599.3 billion rupees from the central bank through its repurchase-auction window every day last week, compared with 94.1 billion rupees the previous week.
The government plans to complete 63 percent of its record borrowing program of 4.57 trillion rupees for the fiscal year that began April 1 in the first half.
Europe’s Banks Face Second Funding Squeeze on Sovereign Crisis
June 14 (Bloomberg) -- European banks at risk of writedowns from the sovereign debt crisis face a funding squeeze that may depress earnings, curb lending and imperil economic recovery in the region.
Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.
“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”
The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
The cost of insuring bank debt from default rose close to a record last week. The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed to 208 basis points on June 8, approaching the all-time high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show.
Italy’s Intesa Sanpaolo SpA, SEB AB, the second-biggest bank in the Baltic states, DnB NOR ASA and ING Groep NV have isolated themselves from the freeze by already selling all the debt they needed this year, according to estimates by Morgan Stanley analyst Huw van Steenis. Germany’s Commerzbank AG, France’s Natixis SA and Spain’s Banco Espanol de Credito SA have raised less than 35 percent of the senior funding they require, he wrote in a note to clients on June 9.
“If you’re not a quality borrower, you’re not going to get funding from the market until you reduce your loan-to-deposit ratio and shrink your balance sheet,” said Simon Maughan, an analyst at MF Global Ltd. in London. “The credit and bond markets are doing their job. Unless you reform, you’ll be stuck on government support for the foreseeable future.”
An official at Natixis declined to comment. Officials at Banesto in Madrid didn’t return calls for comment. “We are comfortably funded,” Commerzbank spokesman Reiner Rossman said by telephone.
Risk aversion is helping to spur sales of covered bonds, securities that are guaranteed by the issuer and backed by mortgages and other loans, reducing risk for investors and interest payments for the issuer. Financial firms have sold 11.5 billion euros ($13.9 billion) of the bonds this month, three times the total for May, according to van Steenis. Frankfurt- based Commerzbank raised 1 billion euros in a June 9 offering.
‘Rare And Expensive’
Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are “rare and expensive,” making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.
Shut out of the interbank market, lenders tapped the ECB for 122 billion euros of seven-day cash at the central bank’s last weekly tender on June 8. The 96 bidders paid an interest rate of 1 percent on those loans, almost three times the one- week euro interbank offered rate of 0.37 percent. The ECB didn’t identify the banks involved.
Europe’s lenders deposited a record 369 billion euros in the ECB’s overnight deposit facility on June 9, more than in the aftermath of Lehman’s collapse. Deposits have surpassed 360 billion euros for the past week. In the eight years leading up to Lehman’s collapse, euro-region banks deposited an average of about 277 million euros with the ECB.
‘Dangerous Games’
Firms are leaving cash with the central bank instead of lending it to other banks amid concern that counterparties may collapse. Deposits have also climbed to a record as the ECB flooded money markets with cash since 2008.
“Central banks are helping with funding and liquidity and, if push came to shove, further accommodation would be provided,” said Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London, which has 35 billion euros of assets under management. “The ECB’s role isn’t to play dangerous games by withdrawing funding early: it’s to prevent a sovereign issue becoming a banking issue.”
Increased reliance on short-term ECB loans and interbank funding runs counter to the rules being proposed by the Basel Committee on Banking Supervision. The committee, which sets minimum standards for banks in 27 countries, plans to require banks to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months.
Basel Delayed?
The Basel Committee’s proposals will have to be modified and phased in over a long period of time, according to Morgan Stanley’s van Steenis. Basel will require 1.5 trillion euros of incremental bank deposits and bond funding alone, he estimated.
WestLB AG, the German state-owned lender bailed out during the financial crisis, is among banks paying the most to borrow for three months in euros, dollars and pounds, according to data from the British Bankers’ Association.
“Funding costs for any bank are a reflection of an institution’s credit ratings,” WestLB spokesman Richard Bassett said, referring to the bank’s BBB+ credit rating from Standard & Poor’s. “WestLB has benefited from recent restructuring and is now a profitable bank with a stable earnings base.”
European banks are on average paying 4 basis points more than U.S. lenders to access three-month dollar cash, close to the widest since November, the BBA data show.
Bonds ‘Crowded Out’
The ECB said on May 31 that Europe’s banks will have to write down 195 billion euros of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, bringing the total to the equivalent of $762 billion. U.S. banks will have written down $885 billion by the end of 2010, the International Monetary Fund said in April.
The ECB said European banks’ ability to sell bonds may be hampered as governments seek to finance fiscal deficits amassed in part to finance a bailout of the banking industry.
With governments facing “heavy financing requirements over the coming years” there’s a “risk of bank bond issuance being crowded out,” the Frankfurt-based ECB said in its biannual Financial Stability Report.
The ECB is going to have to continue supporting banks in the region for at least the time being, said Danny Gabay, director of Fathom Financial Consulting in London and a former Bank of England economist.
“The banks are entering increasingly turbulent waters now,” Gabay said. “For too long policy makers in Europe were looking the other way, hoping we could sail through the financial crisis. Now their chickens have come home to roost.”
Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.
“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”
The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
The cost of insuring bank debt from default rose close to a record last week. The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed to 208 basis points on June 8, approaching the all-time high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show.
Italy’s Intesa Sanpaolo SpA, SEB AB, the second-biggest bank in the Baltic states, DnB NOR ASA and ING Groep NV have isolated themselves from the freeze by already selling all the debt they needed this year, according to estimates by Morgan Stanley analyst Huw van Steenis. Germany’s Commerzbank AG, France’s Natixis SA and Spain’s Banco Espanol de Credito SA have raised less than 35 percent of the senior funding they require, he wrote in a note to clients on June 9.
“If you’re not a quality borrower, you’re not going to get funding from the market until you reduce your loan-to-deposit ratio and shrink your balance sheet,” said Simon Maughan, an analyst at MF Global Ltd. in London. “The credit and bond markets are doing their job. Unless you reform, you’ll be stuck on government support for the foreseeable future.”
An official at Natixis declined to comment. Officials at Banesto in Madrid didn’t return calls for comment. “We are comfortably funded,” Commerzbank spokesman Reiner Rossman said by telephone.
Risk aversion is helping to spur sales of covered bonds, securities that are guaranteed by the issuer and backed by mortgages and other loans, reducing risk for investors and interest payments for the issuer. Financial firms have sold 11.5 billion euros ($13.9 billion) of the bonds this month, three times the total for May, according to van Steenis. Frankfurt- based Commerzbank raised 1 billion euros in a June 9 offering.
‘Rare And Expensive’
Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are “rare and expensive,” making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.
Shut out of the interbank market, lenders tapped the ECB for 122 billion euros of seven-day cash at the central bank’s last weekly tender on June 8. The 96 bidders paid an interest rate of 1 percent on those loans, almost three times the one- week euro interbank offered rate of 0.37 percent. The ECB didn’t identify the banks involved.
Europe’s lenders deposited a record 369 billion euros in the ECB’s overnight deposit facility on June 9, more than in the aftermath of Lehman’s collapse. Deposits have surpassed 360 billion euros for the past week. In the eight years leading up to Lehman’s collapse, euro-region banks deposited an average of about 277 million euros with the ECB.
‘Dangerous Games’
Firms are leaving cash with the central bank instead of lending it to other banks amid concern that counterparties may collapse. Deposits have also climbed to a record as the ECB flooded money markets with cash since 2008.
“Central banks are helping with funding and liquidity and, if push came to shove, further accommodation would be provided,” said Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London, which has 35 billion euros of assets under management. “The ECB’s role isn’t to play dangerous games by withdrawing funding early: it’s to prevent a sovereign issue becoming a banking issue.”
Increased reliance on short-term ECB loans and interbank funding runs counter to the rules being proposed by the Basel Committee on Banking Supervision. The committee, which sets minimum standards for banks in 27 countries, plans to require banks to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months.
Basel Delayed?
The Basel Committee’s proposals will have to be modified and phased in over a long period of time, according to Morgan Stanley’s van Steenis. Basel will require 1.5 trillion euros of incremental bank deposits and bond funding alone, he estimated.
WestLB AG, the German state-owned lender bailed out during the financial crisis, is among banks paying the most to borrow for three months in euros, dollars and pounds, according to data from the British Bankers’ Association.
“Funding costs for any bank are a reflection of an institution’s credit ratings,” WestLB spokesman Richard Bassett said, referring to the bank’s BBB+ credit rating from Standard & Poor’s. “WestLB has benefited from recent restructuring and is now a profitable bank with a stable earnings base.”
European banks are on average paying 4 basis points more than U.S. lenders to access three-month dollar cash, close to the widest since November, the BBA data show.
Bonds ‘Crowded Out’
The ECB said on May 31 that Europe’s banks will have to write down 195 billion euros of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, bringing the total to the equivalent of $762 billion. U.S. banks will have written down $885 billion by the end of 2010, the International Monetary Fund said in April.
The ECB said European banks’ ability to sell bonds may be hampered as governments seek to finance fiscal deficits amassed in part to finance a bailout of the banking industry.
With governments facing “heavy financing requirements over the coming years” there’s a “risk of bank bond issuance being crowded out,” the Frankfurt-based ECB said in its biannual Financial Stability Report.
The ECB is going to have to continue supporting banks in the region for at least the time being, said Danny Gabay, director of Fathom Financial Consulting in London and a former Bank of England economist.
“The banks are entering increasingly turbulent waters now,” Gabay said. “For too long policy makers in Europe were looking the other way, hoping we could sail through the financial crisis. Now their chickens have come home to roost.”
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