Infosys Technologies Ltd., India’s second-largest software exporter, said the central bank must intervene to reduce the volatility of the rupee, Asia’s best performing currency in the past month, to assist exporters.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said today in Bangalore, where the company is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
Central bank Governor Duvvuri Subbarao said today that the Reserve Bank of India may intervene if inflows are lumpy and volatile and disrupt the economy. India is among the latest to signal it will stem currency gains after central banks from Brazil to Israel and Thailand intervened in foreign-exchange markets.
Infosys, which draws the majority of its revenue in dollars and euros from clients based in the U.S. and Europe, suffers a 40 basis points drop in operating margin for every one percent movement in the rupee against the dollar, the company said.
The local currency has gained 5.3 percent in the past 30 days as global investors have poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from an economy growing at an annual pace exceeding 8 percent.
“I think exporters have to get used to the volatile currency environment,” Balakrishnan said. “At the same time, the RBI has to step in at some point because this kind of volatility is unsustainable. I am not the RBI governor, but if I was, I’d do it now.”
The rupee gained 0.1 percent to 44.08 against the dollar at 3:49 p.m. in Mumbai today.
Friday, October 15, 2010
Rum Battle in Caribbean Leaves Tax Hangover
Rum and politics have made a fiery mix since America’s earliest days, when a young politician named George Washington won election to the House of Burgesses in colonial Virginia with the help of spiked punch at the polls.
There have been rum wars involving pirates and slave traders, and rumrunners who made a mockery of Prohibition.
Now the spirit once called Kill-Devil has set off a bitter dispute between two United States islands, Puerto Rico and the Virgin Islands, over a tax that the federal treasury collects on rum.
The fight began when the Virgin Islands persuaded the world’s largest distiller, which said it was leaving Puerto Rico, to move to St. Croix by offering a staggering $2.7 billion in tax incentives. The new distillery, for Captain Morgan spiced rum, will provide no more than 70 permanent jobs on the south shore of St. Croix — but it will entitle the Virgin Islands to collect billions in rum tax revenue from Washington.
That bounty comes at the expense of Puerto Rico, where 90 percent of the revenue from the rum tax had been used for public projects and social services rather than corporate incentives. The Virgin Islands has promised to give nearly half its tax revenue back to the distiller, the British company Diageo, prompting a series of charges and countercharges between neighbors roughly 50 miles apart in the Caribbean.
The aftershocks could even change what people drink in the United States. The tax incentives are so generous that Virgin Island producers might ultimately try to use highly subsidized sugar cane to make blended whiskeys, vodka and gin, distillers on the mainland say. That could threaten the jobs of grain farmers and distilleries in the American heartland.
The deal could also cost American taxpayers. With Puerto Rico’s economy reeling and its government budget already strained, some island officials say they cannot rule out needing to ask Washington for aid to cover basic expenses once covered by the rum tax.
“We’d have to make it up one way or another,” said Puerto Rico’s resident commissioner, Pedro R. Pierluisi, the island’s nonvoting delegate to Congress. “It’s not going to be pretty.”
The billions of dollars at stake are the result of a quirk in the tax code that was intended to aid the islands while preventing their offshore distilleries from gaining an unfair advantage over competitors in the states.
Because rum producers in the islands are exempt from federal excise taxes, the government imposed an “equalization tax” on Puerto Rican rum producers in 1917 and gave the money to the commonwealth. In 1954, the United States extended the arrangement to the Virgin Islands.
For half a century, the program allowed the islands to replenish their depleted treasuries and pay for infrastructure, schools and social services. Puerto Rico used less than 10 percent of the $450 million it received last year to provide marketing support and production subsidies to rum companies, according to government officials, leaving the rest for the island.
In 2007, Diageo explored a possible move of its Captain Morgan production to Honduras or Guatemala, where labor costs and supplies were cheaper.
At the same time, Diageo approached the governor of the Virgin Islands, John P. de Jongh Jr., about moving to St. Croix. The two signed a deal the following year. It requires Diageo to stay in the Virgin Islands for 30 years in return for incentives so rich they are double the cost of actually producing the rum.
Diageo, based in Britain, will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes for the length of the deal, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.
The generous subsidies have led to charges by some Puerto Rican officials and Virgin Islands residents that the governor was misled into using public money for corporate welfare.
“We’re not against big businesses,” said Michael J. Springer Jr., a candidate for the Virgin Islands Senate, “but for the government of the Virgin Islands to give that much money to a foreign corporation when it was intended to help the residents and their communities, is outrageous. In the meantime, the government is borrowing to pay its operating expenses.”
There have been rum wars involving pirates and slave traders, and rumrunners who made a mockery of Prohibition.
Now the spirit once called Kill-Devil has set off a bitter dispute between two United States islands, Puerto Rico and the Virgin Islands, over a tax that the federal treasury collects on rum.
The fight began when the Virgin Islands persuaded the world’s largest distiller, which said it was leaving Puerto Rico, to move to St. Croix by offering a staggering $2.7 billion in tax incentives. The new distillery, for Captain Morgan spiced rum, will provide no more than 70 permanent jobs on the south shore of St. Croix — but it will entitle the Virgin Islands to collect billions in rum tax revenue from Washington.
That bounty comes at the expense of Puerto Rico, where 90 percent of the revenue from the rum tax had been used for public projects and social services rather than corporate incentives. The Virgin Islands has promised to give nearly half its tax revenue back to the distiller, the British company Diageo, prompting a series of charges and countercharges between neighbors roughly 50 miles apart in the Caribbean.
The aftershocks could even change what people drink in the United States. The tax incentives are so generous that Virgin Island producers might ultimately try to use highly subsidized sugar cane to make blended whiskeys, vodka and gin, distillers on the mainland say. That could threaten the jobs of grain farmers and distilleries in the American heartland.
The deal could also cost American taxpayers. With Puerto Rico’s economy reeling and its government budget already strained, some island officials say they cannot rule out needing to ask Washington for aid to cover basic expenses once covered by the rum tax.
“We’d have to make it up one way or another,” said Puerto Rico’s resident commissioner, Pedro R. Pierluisi, the island’s nonvoting delegate to Congress. “It’s not going to be pretty.”
The billions of dollars at stake are the result of a quirk in the tax code that was intended to aid the islands while preventing their offshore distilleries from gaining an unfair advantage over competitors in the states.
Because rum producers in the islands are exempt from federal excise taxes, the government imposed an “equalization tax” on Puerto Rican rum producers in 1917 and gave the money to the commonwealth. In 1954, the United States extended the arrangement to the Virgin Islands.
For half a century, the program allowed the islands to replenish their depleted treasuries and pay for infrastructure, schools and social services. Puerto Rico used less than 10 percent of the $450 million it received last year to provide marketing support and production subsidies to rum companies, according to government officials, leaving the rest for the island.
In 2007, Diageo explored a possible move of its Captain Morgan production to Honduras or Guatemala, where labor costs and supplies were cheaper.
At the same time, Diageo approached the governor of the Virgin Islands, John P. de Jongh Jr., about moving to St. Croix. The two signed a deal the following year. It requires Diageo to stay in the Virgin Islands for 30 years in return for incentives so rich they are double the cost of actually producing the rum.
Diageo, based in Britain, will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes for the length of the deal, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.
The generous subsidies have led to charges by some Puerto Rican officials and Virgin Islands residents that the governor was misled into using public money for corporate welfare.
“We’re not against big businesses,” said Michael J. Springer Jr., a candidate for the Virgin Islands Senate, “but for the government of the Virgin Islands to give that much money to a foreign corporation when it was intended to help the residents and their communities, is outrageous. In the meantime, the government is borrowing to pay its operating expenses.”
Rupee Gains `Not a Concern' as Infosys Calls for Intervention
A rally in the Indian rupee, Asia’s best performer in the past month, is “not a matter of concern,” yet, Finance Minister Pranab Mukherjee said, allaying concerns expressed by Infosys Technologies Ltd. that a strengthening currency will hurt exports.
“I would not like to have any unrealistic appreciations or depreciations,” Mukherjee, 74, said in an interview to Bloomberg UTV at Birbhum in the eastern Indian state of West Bengal yesterday. “We should watch the situation but it’s not a matter of concern. We need not press the panic button.”
The local currency has advanced 5.2 percent in the past month and become Asia’s best performer, prompting Infosys, the nation’s second-largest software maker, to say the trend will “kill the export industry.” Reserve Bank of India Governor Duvvuri Subbarao said yesterday the central bank will intervene if inflows are “lumpy and volatile” and disrupt the economy.
Subbarao said on Oct.9 that India’s current-account deficit has boosted the nation’s ability to absorb inflows and therefore the central bank “did not feel” the need to intervene like most emerging markets.
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Foreign Flows
The rupee gained as global investors poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from India’s economic expansion.
Exchange rates dominated the annual meeting of the International Monetary Fund in Washington last week on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. Central banks intervene by buying or selling their currencies to influence exchange rates.
Infosys called on the central bank to intervene and reduce the volatility of the currency.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said yesterday in Bangalore, where Infosys is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country. I’m not the RBI governor, but if I was, I’d do it now.”
India has allowed its currency to gain even as central banks from Brazil to Israel and Thailand intervened in foreign- exchange markets. Japan sold yen last month for the first time since 2004 and Brazil warned of a global “currency war.”
Intervention Signal
Reserve Bank Deputy Governor Subir Gokarn signaled yesterday the central bank may intervene in the currency markets to shield exporters.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” Gokarn said at a conference organized by Bloomberg UTV in the north Indian city of Chandigarh.
Subbarao said yesterday that the Reserve Bank may intervene if the inflows disrupt the economy.
“That remains our policy but I cannot comment when we will intervene or when we will not,” Subbarao said after the central bank’s board meeting in Chandigarh.
Economists including Jahangir Aziz of JPMorgan Chase & Co. said recent concerns about the strengthening currency “appear to be overblown.”
‘Little Sensitivity’
“Exports show little sensitivity to changes in the exchange rate,” Aziz wrote in a note dated Oct. 14. “Changes in external demand have a much larger impact.”
India’s merchandise exports have grown 28.6 percent in the five months through August, according to commerce ministry data.
Mukherjee said funds are flowing into emerging markets such as India because of a “slow recovery” in the U.S. and Europe.
“As soon as the recovery in Europe and America begins, I think the inflow will be a little reduced,” he said.
The Bombay Stock Exchange’s Sensitive Index has rallied 15 percent this year to near a record, making it the best performer among the world’s 10 biggest stock markets.
“Of course, I would not like to have any volatility in the stock market. Already it is there little bit,” Mukherjee said, when asked if the government plans to check foreign investments into the stock market. “At what time the cap is to be put, that is a matter of assessment.”
He said the central bank, the stock market regulator and the government are all “watching this” and “as and when the situation demands, we will intervene.”
“I would not like to have any unrealistic appreciations or depreciations,” Mukherjee, 74, said in an interview to Bloomberg UTV at Birbhum in the eastern Indian state of West Bengal yesterday. “We should watch the situation but it’s not a matter of concern. We need not press the panic button.”
The local currency has advanced 5.2 percent in the past month and become Asia’s best performer, prompting Infosys, the nation’s second-largest software maker, to say the trend will “kill the export industry.” Reserve Bank of India Governor Duvvuri Subbarao said yesterday the central bank will intervene if inflows are “lumpy and volatile” and disrupt the economy.
Subbarao said on Oct.9 that India’s current-account deficit has boosted the nation’s ability to absorb inflows and therefore the central bank “did not feel” the need to intervene like most emerging markets.
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Foreign Flows
The rupee gained as global investors poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from India’s economic expansion.
Exchange rates dominated the annual meeting of the International Monetary Fund in Washington last week on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. Central banks intervene by buying or selling their currencies to influence exchange rates.
Infosys called on the central bank to intervene and reduce the volatility of the currency.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said yesterday in Bangalore, where Infosys is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country. I’m not the RBI governor, but if I was, I’d do it now.”
India has allowed its currency to gain even as central banks from Brazil to Israel and Thailand intervened in foreign- exchange markets. Japan sold yen last month for the first time since 2004 and Brazil warned of a global “currency war.”
Intervention Signal
Reserve Bank Deputy Governor Subir Gokarn signaled yesterday the central bank may intervene in the currency markets to shield exporters.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” Gokarn said at a conference organized by Bloomberg UTV in the north Indian city of Chandigarh.
Subbarao said yesterday that the Reserve Bank may intervene if the inflows disrupt the economy.
“That remains our policy but I cannot comment when we will intervene or when we will not,” Subbarao said after the central bank’s board meeting in Chandigarh.
Economists including Jahangir Aziz of JPMorgan Chase & Co. said recent concerns about the strengthening currency “appear to be overblown.”
‘Little Sensitivity’
“Exports show little sensitivity to changes in the exchange rate,” Aziz wrote in a note dated Oct. 14. “Changes in external demand have a much larger impact.”
India’s merchandise exports have grown 28.6 percent in the five months through August, according to commerce ministry data.
Mukherjee said funds are flowing into emerging markets such as India because of a “slow recovery” in the U.S. and Europe.
“As soon as the recovery in Europe and America begins, I think the inflow will be a little reduced,” he said.
The Bombay Stock Exchange’s Sensitive Index has rallied 15 percent this year to near a record, making it the best performer among the world’s 10 biggest stock markets.
“Of course, I would not like to have any volatility in the stock market. Already it is there little bit,” Mukherjee said, when asked if the government plans to check foreign investments into the stock market. “At what time the cap is to be put, that is a matter of assessment.”
He said the central bank, the stock market regulator and the government are all “watching this” and “as and when the situation demands, we will intervene.”
Essar plans $2bn Nigeria investment
Essar, the Indian conglomerate, is planning an investment of $2bn or more in Nigerian power plants if Africa’s most populous nation sticks to reform plans designed to overcome crippling energy shortages, people familiar with the matter said.
Several engineering and power groups have been linked with potential Nigerian investments in the months since Goodluck Jonathan, president, unveiled a blueprint to attract the tens of billions of dollars required to meet the electricity needs of the country’s 150m people.
Essar’s interest is among the most ambitious and would see it invest in power capacity of at least 2,000 megawatts, equivalent to two-thirds of Nigeria’s entire average output at present, at an estimated cost of $2bn.
“The feeling is that this market has a lot of potential,” said one person with knowledge of Essar’s plans.
But the person echoed the view of other potential investors who have warned that projects will only materialise if the government drives through market reforms to make the power sector commercially viable.
Once the reforms were in place, the person with knowledge of the plans said Essar was “ready to go”.
Essar would primarily seek to build new power plants but might also look to purchase assets in the planned privatisation of the Power Holding Company of Nigeria, the stricken former monopoly which is to be broken up into six generation companies, a transmission network and 11 regional distribution companies.
“Essar is looking for the right opportunity to invest several billion dollars in Nigeria,” a person familiar with the matter said. “They are working closely with the government and are ready to get things started as soon as possible.”
“They are definitely interested,” added a senior Nigerian power official of the Indian group.
Nigeria endures one of the world’s lowest rates of electricity production per capita, despite being a key oil and gas supplier to the US and Europe.
Officials forecast that on current trends the lack of power would cost the country an annual $130bn in thwarted economic activity over the coming years, hampering Nigeria’s ambitions to join the big emerging economies.
Thursday’s conference for potential investors at the presidential palace in Abuja, the capital, drew delegates from Chinese and Indian groups as well as western engineering companies such as Siemens and Rolls-Royce.
Nigerian financiers and others thought to include investors from the UK and the Gulf are looking to make power investments under the new regulatory regime, which aims to tap the country’s vast untapped stocks of natural gas.
India’s Power Grid Corporation, Canada’s Manitoba Hydro and Ireland’s Electricity Supply Board are the final three bidders hoping to manage the transmission network.
The sale of the distribution companies and power stations is scheduled to be concluded by May.
Essar said it was “looking at growth and investment opportunities … in India and other emerging and growing economies”.
Another person familiar with the situation said the Nigerian investment would come through Essar Energy, the London-listed group majority-owned by Mumbai-based Essar group.
Several engineering and power groups have been linked with potential Nigerian investments in the months since Goodluck Jonathan, president, unveiled a blueprint to attract the tens of billions of dollars required to meet the electricity needs of the country’s 150m people.
Essar’s interest is among the most ambitious and would see it invest in power capacity of at least 2,000 megawatts, equivalent to two-thirds of Nigeria’s entire average output at present, at an estimated cost of $2bn.
“The feeling is that this market has a lot of potential,” said one person with knowledge of Essar’s plans.
But the person echoed the view of other potential investors who have warned that projects will only materialise if the government drives through market reforms to make the power sector commercially viable.
Once the reforms were in place, the person with knowledge of the plans said Essar was “ready to go”.
Essar would primarily seek to build new power plants but might also look to purchase assets in the planned privatisation of the Power Holding Company of Nigeria, the stricken former monopoly which is to be broken up into six generation companies, a transmission network and 11 regional distribution companies.
“Essar is looking for the right opportunity to invest several billion dollars in Nigeria,” a person familiar with the matter said. “They are working closely with the government and are ready to get things started as soon as possible.”
“They are definitely interested,” added a senior Nigerian power official of the Indian group.
Nigeria endures one of the world’s lowest rates of electricity production per capita, despite being a key oil and gas supplier to the US and Europe.
Officials forecast that on current trends the lack of power would cost the country an annual $130bn in thwarted economic activity over the coming years, hampering Nigeria’s ambitions to join the big emerging economies.
Thursday’s conference for potential investors at the presidential palace in Abuja, the capital, drew delegates from Chinese and Indian groups as well as western engineering companies such as Siemens and Rolls-Royce.
Nigerian financiers and others thought to include investors from the UK and the Gulf are looking to make power investments under the new regulatory regime, which aims to tap the country’s vast untapped stocks of natural gas.
India’s Power Grid Corporation, Canada’s Manitoba Hydro and Ireland’s Electricity Supply Board are the final three bidders hoping to manage the transmission network.
The sale of the distribution companies and power stations is scheduled to be concluded by May.
Essar said it was “looking at growth and investment opportunities … in India and other emerging and growing economies”.
Another person familiar with the situation said the Nigerian investment would come through Essar Energy, the London-listed group majority-owned by Mumbai-based Essar group.
Thursday, October 14, 2010
Rupee Credit-Default Swaps Join Yuan to Become Asia's First: India Credit
India and China are poised to become the first emerging markets in Asia to trade credit-default swaps on local-currency debt as investors seek protection against losses from funding projects in the region’s fastest-growing economies.
Regulators in the two nations say they intend to limit the contracts to bondholders to deter speculators and avoid a repeat of the global financial crisis that was partly blamed on the $615 trillion over-the-counter derivatives market. That conflicts with the wishes of the industry’s trade group.
India needs money for a planned $1 trillion investment in roads, ports and power plants, while yuan bond sales climbed to a record this year. The cost of swaps protecting against a default by State Bank of India was 166.8 basis points yesterday, compared with 123.5 for Bank of China Ltd. and 43.9 for U.S. government debt, according to data provider CMA in New York.
“The ability to use credit-default swaps as a way to hedge India infrastructure risk is a positive development,” said Scott Bennett, the Singapore-based head of regional credit at the Asia unit of Aberdeen Asset Management Plc, which oversees $261 billion globally. Restrictions against speculation would help reduce volatility, he said in an interview this week.
The International Swaps and Derivatives Association, an industry trade group known as ISDA, said in a draft report to the Reserve Bank of India on Oct. 4 that there should be no restrictions because “speculators are necessary for markets to be more liquid, efficient and complete.”
Proposed Regulations
The Reserve Bank of India will prepare regulations after talks with investors and banks, according to a statement on its website dated Aug. 4.
“We are hopeful of starting it by the first week of January,” Shyamala Gopinath, the deputy governor of the central bank, said in the northern Indian city of Chandigarh yesterday. “We are working on the reporting platform. We are assessing various suggestions and feedback on the introduction of credit- default swaps.”
China will introduce credit-default swaps by the end of the year to help banks manage risk, though it won’t permit contracts on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, said in New York last month.
China Association
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
The People’s Bank of China formed the association in 2007 to help develop the country’s over-the-counter financial markets. No one was available for comment when Bloomberg News made a telephone call to its main office in Beijing yesterday.
India Prime Minister Manmohan Singh said March 23 that the country wants investors to provide half the $1 trillion needed for infrastructure spending in the five years starting April 2012. Road Transport and Highways Minister Kamal Nath said in an Oct. 5 interview with Bloomberg-UTV that pension funds in Canada and Europe pledged to invest in bonds issued by road projects.
Default swaps “will bring back those investors into the market who are comfortable with the market risk but not with credit risk,” Hitendra Dave, head of global markets for HSBC Holdings Plc in India, said in an interview on Oct. 11.
Draft Guidelines
The central bank said in draft guidelines issued on Aug. 4 that it will allow banks, financial firms, primary dealers, insurance companies and mutual funds to buy and sell credit protection. Home-loan firms, provident funds and listed corporations will only be able to buy protection.
ISDA says foreign institutional investors who hold rupee bonds should be able to sell protection as it would lead to a more actively traded market. It is “concerned whether there will be sufficient depth and liquidity given the proposed restrictions on the type of instrument and, more importantly, the permitted participants,” Jacqueline Low, ISDA’s Singapore- based senior counsel for Asia, said in an e-mail to Bloomberg News on Oct. 13.
India’s central bank postponed introducing default swaps in 2003, citing a need for banks to improve their risk-management practices, and held off again in 2008 as global credit markets seized up.
Busiest Year
The corporate bond market in India is poised for its busiest year since Bloomberg began tracking it in 1999. Sales have climbed to 1.52 trillion rupees ($34.5 billion), surpassing a previous record of 1.48 trillion rupees set last year. Chinese bond sales rose to 1.53 trillion yuan ($230 billion) from 1.47 trillion yuan in the same period of 2009.
The yield on India’s 7.8 percent note due May 2020 rose to 8.02 percent yesterday from 8.014 percent, according to central bank data. The extra yield investors demand to hold top-rated five-year company debt instead of similar-maturity government notes has shrunk to 65 basis points from 86 basis points this year, Bloomberg indexes show.
Securities & Exchange Board of India data show overseas investors more than doubled purchases of Indian debt this year to $10.5 billion as of Oct. 8 to benefit from growth in Asia’s third-biggest economy. Gross domestic product expanded 8.8 percent last quarter from a year earlier, the most since 2007 and the fastest pace among major economies after China’s 10.3 percent and Brazil’s 8.81 percent.
Likely Companies
The surge in inflows spurred Prime Minister Singh to increase the cap on international holdings of rupee bonds last month by 50 percent to $30 billion.
“Any state-run company, whether in the infrastructure or manufacturing space, will be a lovely candidate” for credit- default swaps, Krishnamurthy Harihar, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company, said in an interview yesterday.
Power Finance Corp Ltd. and Rural Electrification Corp Ltd. would be suitable candidates to have contracts written on their debt, he said.
Power Finance, based in New Delhi, sold 9.5 billion rupees of 7.89 percent bonds last month that mature in 2012. Their yield fell to 7.866 percent yesterday, according to Barclays Plc prices on Bloomberg. The yield on Rural Electrification’s 18 billion rupees in 8.75 percent bonds due July 2025 was little changed at 8.735 percent.
The rupee advanced 4.6 percent since Aug. 4 to trade at 44.15 per dollar yesterday, according to data compiled by Bloomberg. The currency has strengthened 5.4 percent this year.
“India’s strong domestic savings pool should help meet infrastructure funding,” Sukumar Rajah, who manages $5 billion of Asian equities as chief investment officer at Franklin Templeton Investments, said in a telephone interview yesterday from Chennai. “This should throw up large opportunities for global investors.”
Regulators in the two nations say they intend to limit the contracts to bondholders to deter speculators and avoid a repeat of the global financial crisis that was partly blamed on the $615 trillion over-the-counter derivatives market. That conflicts with the wishes of the industry’s trade group.
India needs money for a planned $1 trillion investment in roads, ports and power plants, while yuan bond sales climbed to a record this year. The cost of swaps protecting against a default by State Bank of India was 166.8 basis points yesterday, compared with 123.5 for Bank of China Ltd. and 43.9 for U.S. government debt, according to data provider CMA in New York.
“The ability to use credit-default swaps as a way to hedge India infrastructure risk is a positive development,” said Scott Bennett, the Singapore-based head of regional credit at the Asia unit of Aberdeen Asset Management Plc, which oversees $261 billion globally. Restrictions against speculation would help reduce volatility, he said in an interview this week.
The International Swaps and Derivatives Association, an industry trade group known as ISDA, said in a draft report to the Reserve Bank of India on Oct. 4 that there should be no restrictions because “speculators are necessary for markets to be more liquid, efficient and complete.”
Proposed Regulations
The Reserve Bank of India will prepare regulations after talks with investors and banks, according to a statement on its website dated Aug. 4.
“We are hopeful of starting it by the first week of January,” Shyamala Gopinath, the deputy governor of the central bank, said in the northern Indian city of Chandigarh yesterday. “We are working on the reporting platform. We are assessing various suggestions and feedback on the introduction of credit- default swaps.”
China will introduce credit-default swaps by the end of the year to help banks manage risk, though it won’t permit contracts on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, said in New York last month.
China Association
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
The People’s Bank of China formed the association in 2007 to help develop the country’s over-the-counter financial markets. No one was available for comment when Bloomberg News made a telephone call to its main office in Beijing yesterday.
India Prime Minister Manmohan Singh said March 23 that the country wants investors to provide half the $1 trillion needed for infrastructure spending in the five years starting April 2012. Road Transport and Highways Minister Kamal Nath said in an Oct. 5 interview with Bloomberg-UTV that pension funds in Canada and Europe pledged to invest in bonds issued by road projects.
Default swaps “will bring back those investors into the market who are comfortable with the market risk but not with credit risk,” Hitendra Dave, head of global markets for HSBC Holdings Plc in India, said in an interview on Oct. 11.
Draft Guidelines
The central bank said in draft guidelines issued on Aug. 4 that it will allow banks, financial firms, primary dealers, insurance companies and mutual funds to buy and sell credit protection. Home-loan firms, provident funds and listed corporations will only be able to buy protection.
ISDA says foreign institutional investors who hold rupee bonds should be able to sell protection as it would lead to a more actively traded market. It is “concerned whether there will be sufficient depth and liquidity given the proposed restrictions on the type of instrument and, more importantly, the permitted participants,” Jacqueline Low, ISDA’s Singapore- based senior counsel for Asia, said in an e-mail to Bloomberg News on Oct. 13.
India’s central bank postponed introducing default swaps in 2003, citing a need for banks to improve their risk-management practices, and held off again in 2008 as global credit markets seized up.
Busiest Year
The corporate bond market in India is poised for its busiest year since Bloomberg began tracking it in 1999. Sales have climbed to 1.52 trillion rupees ($34.5 billion), surpassing a previous record of 1.48 trillion rupees set last year. Chinese bond sales rose to 1.53 trillion yuan ($230 billion) from 1.47 trillion yuan in the same period of 2009.
The yield on India’s 7.8 percent note due May 2020 rose to 8.02 percent yesterday from 8.014 percent, according to central bank data. The extra yield investors demand to hold top-rated five-year company debt instead of similar-maturity government notes has shrunk to 65 basis points from 86 basis points this year, Bloomberg indexes show.
Securities & Exchange Board of India data show overseas investors more than doubled purchases of Indian debt this year to $10.5 billion as of Oct. 8 to benefit from growth in Asia’s third-biggest economy. Gross domestic product expanded 8.8 percent last quarter from a year earlier, the most since 2007 and the fastest pace among major economies after China’s 10.3 percent and Brazil’s 8.81 percent.
Likely Companies
The surge in inflows spurred Prime Minister Singh to increase the cap on international holdings of rupee bonds last month by 50 percent to $30 billion.
“Any state-run company, whether in the infrastructure or manufacturing space, will be a lovely candidate” for credit- default swaps, Krishnamurthy Harihar, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company, said in an interview yesterday.
Power Finance Corp Ltd. and Rural Electrification Corp Ltd. would be suitable candidates to have contracts written on their debt, he said.
Power Finance, based in New Delhi, sold 9.5 billion rupees of 7.89 percent bonds last month that mature in 2012. Their yield fell to 7.866 percent yesterday, according to Barclays Plc prices on Bloomberg. The yield on Rural Electrification’s 18 billion rupees in 8.75 percent bonds due July 2025 was little changed at 8.735 percent.
The rupee advanced 4.6 percent since Aug. 4 to trade at 44.15 per dollar yesterday, according to data compiled by Bloomberg. The currency has strengthened 5.4 percent this year.
“India’s strong domestic savings pool should help meet infrastructure funding,” Sukumar Rajah, who manages $5 billion of Asian equities as chief investment officer at Franklin Templeton Investments, said in a telephone interview yesterday from Chennai. “This should throw up large opportunities for global investors.”
Coal India's $3.4 Billion IPO Wins Investors on Energy Demand
Coal India Ltd. may sell as much as 151.5 billion rupees ($3.4 billion) of stock in the nation’s biggest initial share sale as investors bet surging energy demand will override environmental delays for new mines.
Fifteen of 18 investors surveyed by Bloomberg News said they plan to bid for shares in the world’s largest coal producer. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, starting Oct. 18, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“Apply to buy as much as you can,” said Manish Sonthalia, who manages $230 million in equities at Motilal Oswal Securities Ltd. in Mumbai, who’s advising investors to bid at the top end of the range. The stock could gain 34 percent in the first year, said Sonthalia.
India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
“We are talking of a company which doesn’t only have one of the largest reserves and production, but also has a large captive market,” said P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai. “That should make this IPO attractive.”
Prime Minister Manmohan Singh’s government plans to sell shares in state-run companies to raise 400 billion rupees this year to trim a budget deficit. The sale of a 10 percent stake in Coal India could help the government meet about 38 percent of the asset-sale target and may surpass the 116 billion rupees raised by billionaire Anil Ambani’s Reliance Power Ltd. in January 2008.
Rising Coal Demand
India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24. The country is building power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30.
The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 million tons, of which 21.75 million is extractable, the share-sale document shows.
Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said on Oct. 13, without providing the new estimates.
The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said. Those delays are a concern for some investors.
Dead Money?
“They have to improve production and get access to new mines under forests,” said Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging market stocks at Helsinki-based Fim Asset Management, which has invested in four Indian IPOs this year, all non-state companies. “Else it will be dead money. You invest and the shares don’t increase later.”
Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia-Pacific Markets estimates.
The insurgents are based in the forests of the eastern state of Chhattisgarh, which has accounted for almost half of the 573 police and civilians killed in Maoist violence in the first half of this year.
‘No-go’ Areas
The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.
“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.
“The no-go areas make up almost 50 percent of their future projections,” said S.K. Chand, a New Delhi-based senior fellow at The Energy and Resources Institute. “Older blocks are dwindling and they need new blocks.”
Fifteen of 18 investors surveyed by Bloomberg News said they plan to bid for shares in the world’s largest coal producer. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, starting Oct. 18, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“Apply to buy as much as you can,” said Manish Sonthalia, who manages $230 million in equities at Motilal Oswal Securities Ltd. in Mumbai, who’s advising investors to bid at the top end of the range. The stock could gain 34 percent in the first year, said Sonthalia.
India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
“We are talking of a company which doesn’t only have one of the largest reserves and production, but also has a large captive market,” said P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai. “That should make this IPO attractive.”
Prime Minister Manmohan Singh’s government plans to sell shares in state-run companies to raise 400 billion rupees this year to trim a budget deficit. The sale of a 10 percent stake in Coal India could help the government meet about 38 percent of the asset-sale target and may surpass the 116 billion rupees raised by billionaire Anil Ambani’s Reliance Power Ltd. in January 2008.
Rising Coal Demand
India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24. The country is building power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30.
The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 million tons, of which 21.75 million is extractable, the share-sale document shows.
Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said on Oct. 13, without providing the new estimates.
The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said. Those delays are a concern for some investors.
Dead Money?
“They have to improve production and get access to new mines under forests,” said Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging market stocks at Helsinki-based Fim Asset Management, which has invested in four Indian IPOs this year, all non-state companies. “Else it will be dead money. You invest and the shares don’t increase later.”
Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia-Pacific Markets estimates.
The insurgents are based in the forests of the eastern state of Chhattisgarh, which has accounted for almost half of the 573 police and civilians killed in Maoist violence in the first half of this year.
‘No-go’ Areas
The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.
“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.
“The no-go areas make up almost 50 percent of their future projections,” said S.K. Chand, a New Delhi-based senior fellow at The Energy and Resources Institute. “Older blocks are dwindling and they need new blocks.”
Plug-In Cars Pose Riddle for E.P.A.
DETROIT — About two months before two new plug-in cars go on sale in the United States, the federal government is struggling with how to rate the fuel economy of mass-market plug-in vehicles.
How the Environmental Protection Agency rates the two cars, the Chevrolet Volt and Nissan Leaf, could have a big influence on consumers’ perceptions of vehicles that run on electricity. General Motors, which makes the Volt, and Nissan are anxiously awaiting the agency’s decision as they start production of the cars and complete marketing plans for rollouts in December.
Providing the customary city and highway miles-per-gallon information would make little sense for the Volt, which can drive 25 to 50 miles on battery power before its gas engine kicks on, and even less so for the Leaf, which is powered by only a rechargeable battery.
Cathy Milbourn, a spokeswoman for the E.P.A., declined to specify a date when the new ratings might be released, saying only that they would come “shortly.”
The Volt and Leaf must be rated by the E.P.A. and have those ratings shown on window labels before they are sold.
Both Nissan and G.M. are in discussions with the agency about what the fuel economy information on the window stickers of new vehicles will state, company officials said. But they said they were in the dark about the outcome and its timing.
“We don’t have an official position on what they should do,” said Brian Brockman, a Nissan spokesman. “We expect there will be some form of ‘equivalency rating,’ like how many miles the Leaf can get per the number of kilowatt hours charged.”
Thomas G. Stephens, G.M.’s vice chairman for global product operations, said that he expected the agency to determine multiple fuel-economy figures for the Volt, based on the distance driven between battery charges.
“Right now it looks like there’s going to be a lot on the label,” Mr. Stephens said. “They’re trying to figure out what are all the variables that customers are going to see out there.”
The E.P.A. has proposed changing the labels on all new cars, including the possibility of assigning an overall letter grade, in part to address the issue of electric and hybrid vehicles. But the proposal would not take effect until the automakers’ 2012 models. In the meantime, Ms. Milbourn said, the agency was trying to determine “the appropriate information that will go on the 2011 model year label.”
Ms. Milbourn said the agency would use its standard highway and city testing procedures on the Volt. Since 2008, the agency has been using a battery of five test drives that cover a total distance of 43.9 miles.
Pam Fletcher, G.M.’s chief engineer for the Volt’s powertrain, said she expected multiple tests to capture ratings with the battery in various states of charge. The testing takes two days for a typical vehicle but seven days for the Volt, she said.
“There are going to be new and unique numbers to classify the new and unique behavior of this car,” Ms. Fletcher said. “We need to talk about electricity usage and we need to talk about gasoline usage and we need to figure out the best way to do that.”
Ms. Fletcher said she expected the Volt’s window label to at least show a miles-per-gallon equivalency rating for the car when it ran on battery power, as well as a more traditional rating to measure the engine’s efficiency after the battery was drained. In the latter situation, the car should get “some kind of combined fuel economy that’s in the mid- to upper 30s,” she said.
G.M. has said the Volt, which has a 9.3-gallon gas tank, would have about a 310-mile range on a depleted battery, which calculates to 33.3 miles per gallon.
A year ago, G.M. announced to widespread skepticism that it expected the Volt to earn a city rating of 230 miles per gallon based on a draft proposal for new testing procedures. Nissan later calculated the Leaf, using the same method, at 367 miles per gallon. (The vehicle with the highest E.P.A. rating is the Toyota Prius, with 51 miles per gallon in city driving.) The E.P.A. later rejected the formula that resulted in the two estimates.
The Volt became a source of debate this week among some automotive reviewers who test-drove it. Some accused G.M. of lying about the Volt’s design after the company revealed that in some situations — such as at high speeds after the battery has been drained — the gas engine helps propel the car’s wheels, much like a traditional hybrid car.
For years, G.M. described the Volt as an electric car in which gasoline powers a generator, not the wheels.
Mr. Stephens said G.M. had not previously disclosed that detail for competitive reasons until it received a patent on the design, which happened in September.
The questions raised about the Volt’s hybrid credentials are not expected to weigh heavily on potential buyers, said one auto analyst who attended the test-drive in Detroit.
“It might matter to some techno-geeks, but not to anybody else,” said Joseph Phillippi of the firm Auto Trends Consulting in Short Hills, N.J.
The E.P.A. has already weighed in on that topic. Its Web site classifies the Volt as a “plug-in hybrid” while calling the Leaf simply an “electric car.”
How the Environmental Protection Agency rates the two cars, the Chevrolet Volt and Nissan Leaf, could have a big influence on consumers’ perceptions of vehicles that run on electricity. General Motors, which makes the Volt, and Nissan are anxiously awaiting the agency’s decision as they start production of the cars and complete marketing plans for rollouts in December.
Providing the customary city and highway miles-per-gallon information would make little sense for the Volt, which can drive 25 to 50 miles on battery power before its gas engine kicks on, and even less so for the Leaf, which is powered by only a rechargeable battery.
Cathy Milbourn, a spokeswoman for the E.P.A., declined to specify a date when the new ratings might be released, saying only that they would come “shortly.”
The Volt and Leaf must be rated by the E.P.A. and have those ratings shown on window labels before they are sold.
Both Nissan and G.M. are in discussions with the agency about what the fuel economy information on the window stickers of new vehicles will state, company officials said. But they said they were in the dark about the outcome and its timing.
“We don’t have an official position on what they should do,” said Brian Brockman, a Nissan spokesman. “We expect there will be some form of ‘equivalency rating,’ like how many miles the Leaf can get per the number of kilowatt hours charged.”
Thomas G. Stephens, G.M.’s vice chairman for global product operations, said that he expected the agency to determine multiple fuel-economy figures for the Volt, based on the distance driven between battery charges.
“Right now it looks like there’s going to be a lot on the label,” Mr. Stephens said. “They’re trying to figure out what are all the variables that customers are going to see out there.”
The E.P.A. has proposed changing the labels on all new cars, including the possibility of assigning an overall letter grade, in part to address the issue of electric and hybrid vehicles. But the proposal would not take effect until the automakers’ 2012 models. In the meantime, Ms. Milbourn said, the agency was trying to determine “the appropriate information that will go on the 2011 model year label.”
Ms. Milbourn said the agency would use its standard highway and city testing procedures on the Volt. Since 2008, the agency has been using a battery of five test drives that cover a total distance of 43.9 miles.
Pam Fletcher, G.M.’s chief engineer for the Volt’s powertrain, said she expected multiple tests to capture ratings with the battery in various states of charge. The testing takes two days for a typical vehicle but seven days for the Volt, she said.
“There are going to be new and unique numbers to classify the new and unique behavior of this car,” Ms. Fletcher said. “We need to talk about electricity usage and we need to talk about gasoline usage and we need to figure out the best way to do that.”
Ms. Fletcher said she expected the Volt’s window label to at least show a miles-per-gallon equivalency rating for the car when it ran on battery power, as well as a more traditional rating to measure the engine’s efficiency after the battery was drained. In the latter situation, the car should get “some kind of combined fuel economy that’s in the mid- to upper 30s,” she said.
G.M. has said the Volt, which has a 9.3-gallon gas tank, would have about a 310-mile range on a depleted battery, which calculates to 33.3 miles per gallon.
A year ago, G.M. announced to widespread skepticism that it expected the Volt to earn a city rating of 230 miles per gallon based on a draft proposal for new testing procedures. Nissan later calculated the Leaf, using the same method, at 367 miles per gallon. (The vehicle with the highest E.P.A. rating is the Toyota Prius, with 51 miles per gallon in city driving.) The E.P.A. later rejected the formula that resulted in the two estimates.
The Volt became a source of debate this week among some automotive reviewers who test-drove it. Some accused G.M. of lying about the Volt’s design after the company revealed that in some situations — such as at high speeds after the battery has been drained — the gas engine helps propel the car’s wheels, much like a traditional hybrid car.
For years, G.M. described the Volt as an electric car in which gasoline powers a generator, not the wheels.
Mr. Stephens said G.M. had not previously disclosed that detail for competitive reasons until it received a patent on the design, which happened in September.
The questions raised about the Volt’s hybrid credentials are not expected to weigh heavily on potential buyers, said one auto analyst who attended the test-drive in Detroit.
“It might matter to some techno-geeks, but not to anybody else,” said Joseph Phillippi of the firm Auto Trends Consulting in Short Hills, N.J.
The E.P.A. has already weighed in on that topic. Its Web site classifies the Volt as a “plug-in hybrid” while calling the Leaf simply an “electric car.”
Sale of Cairn unit to be test case for India
Sir Bill Gammell, chairman of oil explorer Cairn Energy, is founding patron of a sports charity whose mantra is “winning isn’t everything, but wanting to win is”.
Sir Bill, a former international rugby player, is about to discover how far the will to win can go in India. He is awaiting New Delhi’s sanction for UK-based Cairn’s sale of a $9.6bn controlling stake in its Indian subsidiary to Vedanta, the India-focused mining company.
Anil Agarwal, Vedanta’s billionaire founder, certainly does not lack drive. Over the past 15 years, he has transformed a small family metal fabrication business into a global mining group, mainly by snapping up underperforming state-owned Indian mining firms and strengthening their operations. Now he is launching into oil and gas production.
But Vedanta’s recent regulatory setbacks have raised questions about the UK-listed company’s prospects for extending its control over India’s mineral wealth.
They have cast a shadow over its planned acquisition of Cairn India, with its strategically important oilfields in a country renowned for an energy deficit.
Sir Bill is betting that the high-profile sale of what his executives describe as a world-class asset in the western state of Rajasthan will not get tripped up by the regulators or those that seek to influence them in a sometimes ferociously competitive corporate environment.
In an interview this week, he and Mr Agarwal expressed optimism that New Delhi would approve the sale in a few months.
He said: “I’m completely confident that this transaction will go ahead. It’s really a question of all the stakeholders becoming comfortable ... I think it’s a good deal for both sides.”
But in a country enthralled by the “decision-making process”, protracted delays could test the ties between the two entrepreneurs, as Sir Bill seeks cash for his promising, but costly, Greenland explorations, and Cairn India requires an additional $2bn investment over the next three to four years to double its current production to 240,000 barrels a day.
“If you get stuck, it’s more critical,” Sir Bill says. “It’s important that the business doesn’t get affected by the change in corporate ownership.”
The deal that caught both London investors and the Indian government off guard in August had its inception just weeks earlier, as Mr Agarwal, who was on holiday in Scotland, dropped by to meet Sir Bill for tea and stunned him with an unsolicited offer to buy Cairn India.
In spite of their shared entrepreneurial energies, the two had not previously met. But with two common members on their respective corporate boards, Mr Agarwal was familiar with Sir Bill’s rich Indian oil finds – and had a long-standing aspiration to plunge into the oil business.
“Adding oil is a feather in our cap,” Mr Agarwal says. “Ever since I was young, I was hearing how India needed more and more oil.”
Cairn India, which held an IPO on the Bombay Stock Exchange in 2007 at Rs155 per share, was not technically on the market.
But Sir Bill was considering a sell-off of the maturing Indian business within 18 months to support Cairn’s focus on exploration elsewhere. The Scottish oil explorer found Mr Agarwal’s offer price of Rs355 per share, plus a Rs50 per share “non-compete” premium for Cairn Energy, too good to refuse.
“Cairn didn’t particularly have a plan that we were going to divest at this point in time, but we were offered an attractive price,” Sir Bill says. “Our drivers are: can we double the value every three years?”
So speedy were the negotiations that the Indian government and Cairn’s production partner, state-owned ONGC, were “wrong-footed” by the unexpected deal to sell to Vedanta – a company that has been sparring with New Delhi on issues ranging from bauxite mining in Orissa to its desire to buy out the state’s minority shareholding in two Vedanta-controlled mining companies. “Our partners were upset they hadn’t had prior warning and that caused us some embarrassment,” Sir Bill says. “I have apologised for that.”
Some powerful figures among India’s business community say that the Scottish entrepreneur may have to pay more obeisance to state power brokers, and that Mr Agarwal will likewise have to “grease the wheels” to make the transaction more attractive to the Ministry of Petroleum and the regulators.
Others say the deal is likely to go through on schedule and agree with Sir Bill’s view that the sale of Cairn Energy is an important “test case” for India’s standing as a destination for foreign direct investment and the country’s capital markets.
Meanwhile, India’s media are rife with speculation that powerful Indian business interests are keen to obstruct the acquisition of the highly lucrative oil assets by a man they see as an upstart and unwelcome rival. But Mr Agarwal believes India’s elite business circle is like “a crowded train compartment. Everyone says, ‘there’s no room, there’s no room’, but eventually people make room and soon they are talking and sharing lunch.”
Sir Bill, a former international rugby player, is about to discover how far the will to win can go in India. He is awaiting New Delhi’s sanction for UK-based Cairn’s sale of a $9.6bn controlling stake in its Indian subsidiary to Vedanta, the India-focused mining company.
Anil Agarwal, Vedanta’s billionaire founder, certainly does not lack drive. Over the past 15 years, he has transformed a small family metal fabrication business into a global mining group, mainly by snapping up underperforming state-owned Indian mining firms and strengthening their operations. Now he is launching into oil and gas production.
But Vedanta’s recent regulatory setbacks have raised questions about the UK-listed company’s prospects for extending its control over India’s mineral wealth.
They have cast a shadow over its planned acquisition of Cairn India, with its strategically important oilfields in a country renowned for an energy deficit.
Sir Bill is betting that the high-profile sale of what his executives describe as a world-class asset in the western state of Rajasthan will not get tripped up by the regulators or those that seek to influence them in a sometimes ferociously competitive corporate environment.
In an interview this week, he and Mr Agarwal expressed optimism that New Delhi would approve the sale in a few months.
He said: “I’m completely confident that this transaction will go ahead. It’s really a question of all the stakeholders becoming comfortable ... I think it’s a good deal for both sides.”
But in a country enthralled by the “decision-making process”, protracted delays could test the ties between the two entrepreneurs, as Sir Bill seeks cash for his promising, but costly, Greenland explorations, and Cairn India requires an additional $2bn investment over the next three to four years to double its current production to 240,000 barrels a day.
“If you get stuck, it’s more critical,” Sir Bill says. “It’s important that the business doesn’t get affected by the change in corporate ownership.”
The deal that caught both London investors and the Indian government off guard in August had its inception just weeks earlier, as Mr Agarwal, who was on holiday in Scotland, dropped by to meet Sir Bill for tea and stunned him with an unsolicited offer to buy Cairn India.
In spite of their shared entrepreneurial energies, the two had not previously met. But with two common members on their respective corporate boards, Mr Agarwal was familiar with Sir Bill’s rich Indian oil finds – and had a long-standing aspiration to plunge into the oil business.
“Adding oil is a feather in our cap,” Mr Agarwal says. “Ever since I was young, I was hearing how India needed more and more oil.”
Cairn India, which held an IPO on the Bombay Stock Exchange in 2007 at Rs155 per share, was not technically on the market.
But Sir Bill was considering a sell-off of the maturing Indian business within 18 months to support Cairn’s focus on exploration elsewhere. The Scottish oil explorer found Mr Agarwal’s offer price of Rs355 per share, plus a Rs50 per share “non-compete” premium for Cairn Energy, too good to refuse.
“Cairn didn’t particularly have a plan that we were going to divest at this point in time, but we were offered an attractive price,” Sir Bill says. “Our drivers are: can we double the value every three years?”
So speedy were the negotiations that the Indian government and Cairn’s production partner, state-owned ONGC, were “wrong-footed” by the unexpected deal to sell to Vedanta – a company that has been sparring with New Delhi on issues ranging from bauxite mining in Orissa to its desire to buy out the state’s minority shareholding in two Vedanta-controlled mining companies. “Our partners were upset they hadn’t had prior warning and that caused us some embarrassment,” Sir Bill says. “I have apologised for that.”
Some powerful figures among India’s business community say that the Scottish entrepreneur may have to pay more obeisance to state power brokers, and that Mr Agarwal will likewise have to “grease the wheels” to make the transaction more attractive to the Ministry of Petroleum and the regulators.
Others say the deal is likely to go through on schedule and agree with Sir Bill’s view that the sale of Cairn Energy is an important “test case” for India’s standing as a destination for foreign direct investment and the country’s capital markets.
Meanwhile, India’s media are rife with speculation that powerful Indian business interests are keen to obstruct the acquisition of the highly lucrative oil assets by a man they see as an upstart and unwelcome rival. But Mr Agarwal believes India’s elite business circle is like “a crowded train compartment. Everyone says, ‘there’s no room, there’s no room’, but eventually people make room and soon they are talking and sharing lunch.”
Wednesday, October 13, 2010
Indian Oil CFO Says Yield Decline Will Boost Competitiveness: India Credit
Indian Oil Corp., the country’s biggest state refiner, is winning the confidence of bond investors it needs to buy energy resources and power the world’s third fastest growing major economy.
The yield on New Delhi-based Indian Oil’s $500 million of notes due in 2015 has tumbled to 2.9 percent since they were issued in January at 4.82 percent. That’s a bigger drop than the 1.04 percentage-point decline in the yield on 2013 bonds of Cnooc Ltd., China’s biggest offshore oil and gas explorer.
“Indian oil companies are looking for assets and lower borrowing costs help raise the money and make us competitive,” Serangulam V. Narasimhan, Indian Oil’s finance director, said in an interview yesterday. “We can go anytime overseas to raise money. There is a lot of appetite.”
Lower funding costs would help Indian companies compete for overseas purchases, challenging China as the two nations scour the world for energy assets. Reliance Industries Ltd. is selling bonds this week, while Oil & Natural Gas Corp. plans to borrow $10 billion over a decade for acquisitions, taking advantage of record global demand for Indian assets.
“India will become more aggressive in acquisitions overseas as the economy continues to grow,” said Dharmakirti Joshi, chief economist at Mumbai-based Crisil Ltd., the Indian unit of Standard & Poor’s. “Cheaper debt can give Indian companies that advantage and make them more aggressive in buying assets.”
Reliance Borrowing
India has lost out to Chinese competitors, which can get loans at discounted rates from state-run banks. Cnooc will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, the biggest acquisition of a U.S. oil and gas asset by a Chinese company, according to company statements.
Reliance was reviewing the assets and considered investing, three people with direct knowledge of the matter said Sept. 17. They declined to be identified because the deliberations weren’t announced.
Reliance, controlled by Mukesh Ambani, Asia’s richest man, has been more acquisitive this year, spending $3.4 billion to buy three shale gas assets in the U.S. The explorer plans to use proceeds from the sale of dollar-denominated bonds to refinance loans and for investments, Moody’s Investors Service said.
India’s energy use may more than double by 2030 from 2007 to the equivalent of 833 million metric tons of oil, while China’s demand may jump 87 percent to 2.4 billion tons, according to the Paris-based International Energy Agency.
Spurned Bid
Indian Oil and state-run Oil India Ltd. bid to buy Gulfsands Petroleum Plc, a U.K. company with assets in Syria and the Gulf of Mexico, in March at a valuation of about 380 million pounds ($603 million). Gulfsands spurned the offer on March 19, calling it “wholly inadequate.”
Indian Oil plans to buy fields in Africa as part of a $1 billion overseas investment plan, Chairman Brij Mohan Bansal said in July.
State-run Chinese companies spent a record $32 billion last year acquiring energy and resources overseas, versus India’s single $2.1 billion investment by ONGC, the nation’s biggest energy explorer, to buy Imperial Energy Corp., according to data compiled by Bloomberg.
“We aren’t happy having such low debt and would like to have an optimum mix,” ONGC Chairman R.S. Sharma said in a telephone interview yesterday. “There are no immediate plans to raise money, but at some point of time, we will.”
ONGC may borrow $10 billion over the next decade to purchase assets overseas, Sharma said earlier this year. In September 2009, China National Petroleum Corp. received a $30 billion loan from China Development Bank at a discounted interest rate to buy energy resources, according to a statement from China National.
Rupee Gains
In India’s corporate bond market, the extra yield investors demand to hold five-year company debt instead of similar- maturity government notes has shrunk to 63 basis points from 81 in May, according to data compiled by Bloomberg.
The rupee has gained 4.5 percent this year, closing at 44.515 per dollar yesterday. Inflows of money forced the government to raise its limit on foreign holdings of debt in the currency by 50 percent last month.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries was at 560 basis points yesterday, the high for the year and up from 374 at the start of 2010.
Uganda Bid
China’s third-largest oil company spent at least $3.8 billion on overseas acquisitions in the past year. State- controlled China Petrochemical Corp. bought a $4.65 billion stake in an oil-sands project in Canada in April.
Uganda may approve Cnooc and Total SA as Tullow Oil Plc’s partners in developing oil projects in the country, Patrick Bitature, chairman of the Uganda Investment Authority, said Oct. 12. The assets include a one-third stake in three blocks in the African nation’s Lake Albert region from Tullow. ONGC jointly bid with Indian Oil and Oil India for the stake and lost out to the Chinese bid, a person familiar with the negotiations said in June, declining to be identified because the talks were private.
Indian Oil plans to sell $2.5 billion of stock to lower debt and fund new plants, Chairman Bansal said this month. Narasimhan said yesterday there’s no timing yet for any possible bond sale, pending the outcome of the stock offering.
The yield on New Delhi-based Indian Oil’s $500 million of notes due in 2015 has tumbled to 2.9 percent since they were issued in January at 4.82 percent. That’s a bigger drop than the 1.04 percentage-point decline in the yield on 2013 bonds of Cnooc Ltd., China’s biggest offshore oil and gas explorer.
“Indian oil companies are looking for assets and lower borrowing costs help raise the money and make us competitive,” Serangulam V. Narasimhan, Indian Oil’s finance director, said in an interview yesterday. “We can go anytime overseas to raise money. There is a lot of appetite.”
Lower funding costs would help Indian companies compete for overseas purchases, challenging China as the two nations scour the world for energy assets. Reliance Industries Ltd. is selling bonds this week, while Oil & Natural Gas Corp. plans to borrow $10 billion over a decade for acquisitions, taking advantage of record global demand for Indian assets.
“India will become more aggressive in acquisitions overseas as the economy continues to grow,” said Dharmakirti Joshi, chief economist at Mumbai-based Crisil Ltd., the Indian unit of Standard & Poor’s. “Cheaper debt can give Indian companies that advantage and make them more aggressive in buying assets.”
Reliance Borrowing
India has lost out to Chinese competitors, which can get loans at discounted rates from state-run banks. Cnooc will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, the biggest acquisition of a U.S. oil and gas asset by a Chinese company, according to company statements.
Reliance was reviewing the assets and considered investing, three people with direct knowledge of the matter said Sept. 17. They declined to be identified because the deliberations weren’t announced.
Reliance, controlled by Mukesh Ambani, Asia’s richest man, has been more acquisitive this year, spending $3.4 billion to buy three shale gas assets in the U.S. The explorer plans to use proceeds from the sale of dollar-denominated bonds to refinance loans and for investments, Moody’s Investors Service said.
India’s energy use may more than double by 2030 from 2007 to the equivalent of 833 million metric tons of oil, while China’s demand may jump 87 percent to 2.4 billion tons, according to the Paris-based International Energy Agency.
Spurned Bid
Indian Oil and state-run Oil India Ltd. bid to buy Gulfsands Petroleum Plc, a U.K. company with assets in Syria and the Gulf of Mexico, in March at a valuation of about 380 million pounds ($603 million). Gulfsands spurned the offer on March 19, calling it “wholly inadequate.”
Indian Oil plans to buy fields in Africa as part of a $1 billion overseas investment plan, Chairman Brij Mohan Bansal said in July.
State-run Chinese companies spent a record $32 billion last year acquiring energy and resources overseas, versus India’s single $2.1 billion investment by ONGC, the nation’s biggest energy explorer, to buy Imperial Energy Corp., according to data compiled by Bloomberg.
“We aren’t happy having such low debt and would like to have an optimum mix,” ONGC Chairman R.S. Sharma said in a telephone interview yesterday. “There are no immediate plans to raise money, but at some point of time, we will.”
ONGC may borrow $10 billion over the next decade to purchase assets overseas, Sharma said earlier this year. In September 2009, China National Petroleum Corp. received a $30 billion loan from China Development Bank at a discounted interest rate to buy energy resources, according to a statement from China National.
Rupee Gains
In India’s corporate bond market, the extra yield investors demand to hold five-year company debt instead of similar- maturity government notes has shrunk to 63 basis points from 81 in May, according to data compiled by Bloomberg.
The rupee has gained 4.5 percent this year, closing at 44.515 per dollar yesterday. Inflows of money forced the government to raise its limit on foreign holdings of debt in the currency by 50 percent last month.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries was at 560 basis points yesterday, the high for the year and up from 374 at the start of 2010.
Uganda Bid
China’s third-largest oil company spent at least $3.8 billion on overseas acquisitions in the past year. State- controlled China Petrochemical Corp. bought a $4.65 billion stake in an oil-sands project in Canada in April.
Uganda may approve Cnooc and Total SA as Tullow Oil Plc’s partners in developing oil projects in the country, Patrick Bitature, chairman of the Uganda Investment Authority, said Oct. 12. The assets include a one-third stake in three blocks in the African nation’s Lake Albert region from Tullow. ONGC jointly bid with Indian Oil and Oil India for the stake and lost out to the Chinese bid, a person familiar with the negotiations said in June, declining to be identified because the talks were private.
Indian Oil plans to sell $2.5 billion of stock to lower debt and fund new plants, Chairman Bansal said this month. Narasimhan said yesterday there’s no timing yet for any possible bond sale, pending the outcome of the stock offering.
Swaps Show China, India, Developing Nations Gaining on G-7: Credit Markets
Credit-default swaps on bonds sold by Brazil, Russia, India and China are closing in on those tied to the world’s largest economies, which are piling on debt in an attempt to stoke growth.
The average cost of contracts protecting debt of the so- called BRICs dropped to 41.4 basis points more than the price of swaps on the Group of Seven countries and last week reached the lowest on record. The extra cost to insure the emerging-market nations’ bonds shrunk from 362 basis points, or 3.62 percentage points, in March 2009.
Record demand for emerging-market bonds is driving down the relative yields that investors seek to own the debt. Fixed- income investors are wagering nations including Brazil and China will continue to fuel the global recovery while the U.S., Japan and some of Europe’s biggest countries wrestle with budget deficits and sluggish growth. Developing nations will grow 6.4 percent next year, while developed economies will expand 2.2 percent, the International Monetary Fund said last week.
“Emerging markets don’t have the problems that developed markets are having right now,” said Mikhail Foux, a credit strategist at Citigroup Inc. in New York. “They don’t have the heavy debt load. They’re growing. A lot of them export commodities, and the price of commodities is increasing. Their populations are young and growing. So people feel really good about emerging markets in general.”
The average cost of swaps on BRIC nations has fallen 9 basis points since the start of the year to 116 basis points, while the G-7 average jumped 15 to 74, according to data provider CMA. The G-7 average includes swaps on the U.S., U.K., France, Germany, Italy and Japan. Swaps on Canada are not actively traded.
Extra Yield
Elsewhere in credit markets, a gauge of corporate credit risk in the U.S. tumbled to the lowest since May. The world’s biggest missile maker, Raytheon Co., planned to sell $2 billion of bonds and the cost of protecting Standard Chartered Plc debt from default fell to the lowest in two months after the bank said it would raise about 3.3 billion pounds ($5.2 billion) of equity.
The extra yield investors demand to own company bonds instead of similar maturity government debt fell 1 basis point to 168 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. That’s the lowest since reaching the same level May 13 and down 13 basis points since Aug. 31. Yields averaged 3.36 percent yesterday.
Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 4.2 basis points to a mid-price of 92.8 as of 1:04 p.m. in New York, the lowest since May 3, according to index administrator Markit Group Ltd.
Bad Loans
The contracts, which typically fall as investor confidence improves and decline as it deteriorates, have dropped 13.8 basis points since Sept. 30, CMA data show.
The cost to protect debt issued by JPMorgan Chase & Co. fell 0.2 basis point to 83, according to broker Phoenix Partners Group, after the first of the largest U.S. banks to report earnings said its profit exceeded analyst estimates. Provisions for bad loans shrank offsetting an 11 percent decline in revenue.
Third-quarter net income climbed to $4.42 billion, or $1.01 a share, from $3.59 billion, or 82 cents, in the same period a year earlier, the New York-based company said today in a statement. Twenty-two analysts surveyed by Bloomberg estimated adjusted earnings of 88 cents a share.
“It wasn’t as impressive as everybody was hoping,” said Andrew Kuan, senior trader at Primus Asset Management in New York.
Raytheon Offering
Contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Raytheon will issue 5-, 10- and 30-year securities to buy back 5.5 percent debt due November 2012 and 5.375 percent notes maturing in April 2013, the Waltham, Massachusetts-based company said today in a regulatory filing that didn’t specify the size or timing of the offering.
The defense contractor will sell the debt as soon as today, according to a person familiar with the transaction, who declined to be identified to be identified as terms aren’t set.
Credit-default swaps on Standard Chartered fell 2.5 basis points to 78.5, according to data provider CMA, as investors speculated the company won’t sell as many bonds to boost capital. Its shares dropped 1.7 percent to 1,876 pence in London.
Temasek Involvement
Standard Chartered’s 1.25 billion euros ($1.8 billion) of 3.625 percent senior unsecured notes due 2015 rose, pushing the yield versus benchmark government debt 7 basis points lower to 131, according to HSBC Holdings Plc prices on Bloomberg.
Investors in Standard Chartered will be offered one new share at 1,280 pence for every eight they already own, the London-based bank said in a statement today. That’s a third less than yesterday’s closing price. Temasek Holdings Pte, Standard Chartered’s largest shareholder with a 17.7 percent stake, will subscribe to its portion of the sale, the bank said.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debentures fell 7 basis points to 247 basis points, the lowest since April 26, according to JPMorgan index data.
Outperformance
A record $40.5 billion has flowed into emerging-market bond funds this year, more than four times the full-year high of $9.7 billion in 2005, according to data from research firm EPFR Global.
Emerging economies are outperforming developed nations as European leaders seek to contain debt crises in Greece and Ireland and as the U.S., which has a $1.3 trillion budget deficit, tries to jumpstart an economy that grew at an annual rate of 1.7 percent in the second quarter.
By contrast, Brazil’s economy may expand 7.5 percent this year, up from a previous forecast of 7 percent, Finance Minister Guido Mantega said yesterday in New York.
“Brazil is enjoying high quality, sustainable growth, because it doesn’t generate macroeconomic imbalances,” Mantega said. “Investment today is growing almost three times faster than the economy and we’re increasing productivity.”
‘Flowing Aggressively’
Brazilian companies are selling record amounts of perpetual bonds, which allow issuers to repay principal at their discretion. Mexico sold $1 billion of 100-year-notes last week in the first such sale by a Latin American government.
“Money is flowing more aggressively into emerging-market credit, and the quality of new issues is starting to reflect that,” said Ashish Shah, co-head of global credit investment at AllianceBernstein LP in New York. “That’s the classic way bubbles get built.”
Mexico Central bank Governor Agustin Carstens said the debt won’t lead to a bubble. The Mexican economy is “solid” and inflation has been better than expected, he said in Mexico City yesterday.
An index of swaps on 15 governments in central and eastern Europe, the Middle East and Africa exceeds a benchmark of western European creditworthiness by a record low 50 basis points, down from 161 in February, according to CMA.
China’s Exports
The Markit iTraxx SovX CEEMEA Index has fallen more than 20 basis points since it started trading in January and about 75 from its May peak to 195, while the Markit iTraxx SovX Western Europe Index rose 55 to 144.5, CMA prices show.
The record flow of cash into emerging economies has prompted some policymakers to act to slow the trend. Brazil doubled to 4 percent a tax it charges on some foreign inflows last week. The real has gained 4.5 percent this year to 1.6699 per dollar as prices on the commodities it exports climb. Sugar futures have jumped 52 percent since the end of June and yesterday reached the highest level since February.
China’s economy will likely grow 9.9 percent this year from a year earlier and will grow 10 percent in 2011, the Caijing Magazine reported yesterday, citing a report issued by the Chinese Academy of Social Sciences.
China’s exports are expected to increase by 27.3 percent this year and imports to rise 35.7 percent, bringing the country’s trade surplus to $165 billion this year, Caijing said, citing the report.
The average cost of contracts protecting debt of the so- called BRICs dropped to 41.4 basis points more than the price of swaps on the Group of Seven countries and last week reached the lowest on record. The extra cost to insure the emerging-market nations’ bonds shrunk from 362 basis points, or 3.62 percentage points, in March 2009.
Record demand for emerging-market bonds is driving down the relative yields that investors seek to own the debt. Fixed- income investors are wagering nations including Brazil and China will continue to fuel the global recovery while the U.S., Japan and some of Europe’s biggest countries wrestle with budget deficits and sluggish growth. Developing nations will grow 6.4 percent next year, while developed economies will expand 2.2 percent, the International Monetary Fund said last week.
“Emerging markets don’t have the problems that developed markets are having right now,” said Mikhail Foux, a credit strategist at Citigroup Inc. in New York. “They don’t have the heavy debt load. They’re growing. A lot of them export commodities, and the price of commodities is increasing. Their populations are young and growing. So people feel really good about emerging markets in general.”
The average cost of swaps on BRIC nations has fallen 9 basis points since the start of the year to 116 basis points, while the G-7 average jumped 15 to 74, according to data provider CMA. The G-7 average includes swaps on the U.S., U.K., France, Germany, Italy and Japan. Swaps on Canada are not actively traded.
Extra Yield
Elsewhere in credit markets, a gauge of corporate credit risk in the U.S. tumbled to the lowest since May. The world’s biggest missile maker, Raytheon Co., planned to sell $2 billion of bonds and the cost of protecting Standard Chartered Plc debt from default fell to the lowest in two months after the bank said it would raise about 3.3 billion pounds ($5.2 billion) of equity.
The extra yield investors demand to own company bonds instead of similar maturity government debt fell 1 basis point to 168 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. That’s the lowest since reaching the same level May 13 and down 13 basis points since Aug. 31. Yields averaged 3.36 percent yesterday.
Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 4.2 basis points to a mid-price of 92.8 as of 1:04 p.m. in New York, the lowest since May 3, according to index administrator Markit Group Ltd.
Bad Loans
The contracts, which typically fall as investor confidence improves and decline as it deteriorates, have dropped 13.8 basis points since Sept. 30, CMA data show.
The cost to protect debt issued by JPMorgan Chase & Co. fell 0.2 basis point to 83, according to broker Phoenix Partners Group, after the first of the largest U.S. banks to report earnings said its profit exceeded analyst estimates. Provisions for bad loans shrank offsetting an 11 percent decline in revenue.
Third-quarter net income climbed to $4.42 billion, or $1.01 a share, from $3.59 billion, or 82 cents, in the same period a year earlier, the New York-based company said today in a statement. Twenty-two analysts surveyed by Bloomberg estimated adjusted earnings of 88 cents a share.
“It wasn’t as impressive as everybody was hoping,” said Andrew Kuan, senior trader at Primus Asset Management in New York.
Raytheon Offering
Contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Raytheon will issue 5-, 10- and 30-year securities to buy back 5.5 percent debt due November 2012 and 5.375 percent notes maturing in April 2013, the Waltham, Massachusetts-based company said today in a regulatory filing that didn’t specify the size or timing of the offering.
The defense contractor will sell the debt as soon as today, according to a person familiar with the transaction, who declined to be identified to be identified as terms aren’t set.
Credit-default swaps on Standard Chartered fell 2.5 basis points to 78.5, according to data provider CMA, as investors speculated the company won’t sell as many bonds to boost capital. Its shares dropped 1.7 percent to 1,876 pence in London.
Temasek Involvement
Standard Chartered’s 1.25 billion euros ($1.8 billion) of 3.625 percent senior unsecured notes due 2015 rose, pushing the yield versus benchmark government debt 7 basis points lower to 131, according to HSBC Holdings Plc prices on Bloomberg.
Investors in Standard Chartered will be offered one new share at 1,280 pence for every eight they already own, the London-based bank said in a statement today. That’s a third less than yesterday’s closing price. Temasek Holdings Pte, Standard Chartered’s largest shareholder with a 17.7 percent stake, will subscribe to its portion of the sale, the bank said.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debentures fell 7 basis points to 247 basis points, the lowest since April 26, according to JPMorgan index data.
Outperformance
A record $40.5 billion has flowed into emerging-market bond funds this year, more than four times the full-year high of $9.7 billion in 2005, according to data from research firm EPFR Global.
Emerging economies are outperforming developed nations as European leaders seek to contain debt crises in Greece and Ireland and as the U.S., which has a $1.3 trillion budget deficit, tries to jumpstart an economy that grew at an annual rate of 1.7 percent in the second quarter.
By contrast, Brazil’s economy may expand 7.5 percent this year, up from a previous forecast of 7 percent, Finance Minister Guido Mantega said yesterday in New York.
“Brazil is enjoying high quality, sustainable growth, because it doesn’t generate macroeconomic imbalances,” Mantega said. “Investment today is growing almost three times faster than the economy and we’re increasing productivity.”
‘Flowing Aggressively’
Brazilian companies are selling record amounts of perpetual bonds, which allow issuers to repay principal at their discretion. Mexico sold $1 billion of 100-year-notes last week in the first such sale by a Latin American government.
“Money is flowing more aggressively into emerging-market credit, and the quality of new issues is starting to reflect that,” said Ashish Shah, co-head of global credit investment at AllianceBernstein LP in New York. “That’s the classic way bubbles get built.”
Mexico Central bank Governor Agustin Carstens said the debt won’t lead to a bubble. The Mexican economy is “solid” and inflation has been better than expected, he said in Mexico City yesterday.
An index of swaps on 15 governments in central and eastern Europe, the Middle East and Africa exceeds a benchmark of western European creditworthiness by a record low 50 basis points, down from 161 in February, according to CMA.
China’s Exports
The Markit iTraxx SovX CEEMEA Index has fallen more than 20 basis points since it started trading in January and about 75 from its May peak to 195, while the Markit iTraxx SovX Western Europe Index rose 55 to 144.5, CMA prices show.
The record flow of cash into emerging economies has prompted some policymakers to act to slow the trend. Brazil doubled to 4 percent a tax it charges on some foreign inflows last week. The real has gained 4.5 percent this year to 1.6699 per dollar as prices on the commodities it exports climb. Sugar futures have jumped 52 percent since the end of June and yesterday reached the highest level since February.
China’s economy will likely grow 9.9 percent this year from a year earlier and will grow 10 percent in 2011, the Caijing Magazine reported yesterday, citing a report issued by the Chinese Academy of Social Sciences.
China’s exports are expected to increase by 27.3 percent this year and imports to rise 35.7 percent, bringing the country’s trade surplus to $165 billion this year, Caijing said, citing the report.
Ex-Overseer of Auto Industry Accepts Ban in S.E.C. Deal
Steven Rattner, the former car czar, has agreed to a settlement with the Securities and Exchange Commission over kickback claims involving the New York State pension fund, a person with knowledge of the negotiation said Wednesday.
Mr. Rattner will accept a multiyear ban from the securities industry and pay a fine of more than $5 million, the person said. He is still in negotiations over a similar settlement with the office of the New York attorney general, Andrew M. Cuomo.
The settlement, which is expected to be announced on Thursday, caps a multiyear investigation by the government into kickbacks paid to officials with New York’s pension fund. Earlier this month, Alan G. Hevesi, the state’s former comptroller, pleaded guilty to a corruption charge involving the state fund.
The Quadrangle Group, the private equity firm co-founded by Mr. Rattner, settled with the S.E.C. and Mr. Cuomo’s office in the spring and issued a statement disavowing Mr. Rattner’s conduct. The firm agreed to pay $7 million to the pension fund and $5 million to the Securities and Exchange Commission.
Mr. Rattner refused a similar offer to settle with the S.E.C. last spring, because he did not want to accept the ban from the industry. Quadrangle had been cooperating in the government’s investigation of Mr. Rattner. Since leaving his post with the Obama administration’s auto task force over a year ago, Mr. Rattner has been advising Mayor Michael R. Bloomberg of New York on his personal finances and writing a book about his tenure as car czar. That book, “Overhaul” was released last month.
A spokesman for the S.E.C. declined to comment.
The accusations against Mr. Rattner settle on his agreement to help finance a low-budget film called “Chooch” that was being produced by a brother of David J. Loglisci, the chief investment officer of the state’s pension. One of Quadrangle’s private equity funds owned a company called GT Brands that distributed movies and Mr. Rattner used that company to complete the deal. Mr. Loglisci pleaded guilty to securities fraud in March.
The pension investigation had focused on allegations that friends and aides of the Mr. Hevesi reaped millions of dollars from investment companies seeking state business. Mr. Hevesi resigned in 2006 after pleading guilty to a felony related to his use of state workers to chauffeur his wife. Quadrangle has acknowledged paying more than $1 million in fees to a political consultant, Henry Morris, in exchange for his help in landing a state investment contract. Mr. Morris was a longtime aide to Mr. Hevesi.
Mr. Rattner organized those payments, according to the attorney general’s office, which said that he also arranged for GT Brands to distribute the low-budget film.
Mr. Rattner and his wife are prominent donors to the Democratic Party. Mr. Rattner was an investment banker at Lazard before becoming a co-founder of Quadrangle in 2000. Early in his career, Mr. Rattner worked as a reporter for The New York Times.
Mr. Rattner will accept a multiyear ban from the securities industry and pay a fine of more than $5 million, the person said. He is still in negotiations over a similar settlement with the office of the New York attorney general, Andrew M. Cuomo.
The settlement, which is expected to be announced on Thursday, caps a multiyear investigation by the government into kickbacks paid to officials with New York’s pension fund. Earlier this month, Alan G. Hevesi, the state’s former comptroller, pleaded guilty to a corruption charge involving the state fund.
The Quadrangle Group, the private equity firm co-founded by Mr. Rattner, settled with the S.E.C. and Mr. Cuomo’s office in the spring and issued a statement disavowing Mr. Rattner’s conduct. The firm agreed to pay $7 million to the pension fund and $5 million to the Securities and Exchange Commission.
Mr. Rattner refused a similar offer to settle with the S.E.C. last spring, because he did not want to accept the ban from the industry. Quadrangle had been cooperating in the government’s investigation of Mr. Rattner. Since leaving his post with the Obama administration’s auto task force over a year ago, Mr. Rattner has been advising Mayor Michael R. Bloomberg of New York on his personal finances and writing a book about his tenure as car czar. That book, “Overhaul” was released last month.
A spokesman for the S.E.C. declined to comment.
The accusations against Mr. Rattner settle on his agreement to help finance a low-budget film called “Chooch” that was being produced by a brother of David J. Loglisci, the chief investment officer of the state’s pension. One of Quadrangle’s private equity funds owned a company called GT Brands that distributed movies and Mr. Rattner used that company to complete the deal. Mr. Loglisci pleaded guilty to securities fraud in March.
The pension investigation had focused on allegations that friends and aides of the Mr. Hevesi reaped millions of dollars from investment companies seeking state business. Mr. Hevesi resigned in 2006 after pleading guilty to a felony related to his use of state workers to chauffeur his wife. Quadrangle has acknowledged paying more than $1 million in fees to a political consultant, Henry Morris, in exchange for his help in landing a state investment contract. Mr. Morris was a longtime aide to Mr. Hevesi.
Mr. Rattner organized those payments, according to the attorney general’s office, which said that he also arranged for GT Brands to distribute the low-budget film.
Mr. Rattner and his wife are prominent donors to the Democratic Party. Mr. Rattner was an investment banker at Lazard before becoming a co-founder of Quadrangle in 2000. Early in his career, Mr. Rattner worked as a reporter for The New York Times.
Tuesday, October 12, 2010
Reliance 3G Bond Risk Tumbling as Loans Fund License Binge: India Credit
Reliance Communications Ltd.’s creditworthiness is improving at the fastest pace since June as it refinances $1.9 billion of debt and investors gain confidence in the ability of Indian cell phone companies to fund record spending.
Credit-default swaps on India’s second-largest mobile phone operator dropped 109 basis points last week to 421 basis points, the most since the five days ending June 18, according to prices quoted by CMA. Billionaire Anil Ambani’s company approached banks seeking dollar funding to cut costs, a person with direct knowledge of the plan said Oct. 11.
Indian mobile operators such as Tata Teleservices Ltd. need to persuade lenders they can repay almost 1 trillion rupees ($22 billion) of debt after bidding twice as much as the government projected for third-generation mobile phone licenses. Reliance Communications bond risk reached 766 basis points on June 8, a level comparable with that of European phone companies when they loaded up on debt to pay $100 billion for permits to offer faster services.
“The company is witnessing a revival in its mobile services business,” said Piyush Choudhary, an analyst at Indiabulls Securities Ltd. in Mumbai. “Reliance Communications’ cash-flow ability is expected to improve since the peak capital expenditure cycle is behind it.”
Default Swaps
A decade ago, France Telecom SA and Deutsche Telekom AG bid so aggressively for European 3G licenses that they reported record losses. Credit swaps on France Telecom debt surged to 638 basis points in June 2002 and have since fallen to 61. Reliance Communications swaps trade at 416, the highest among Asian mobile phone operators tracked by CMA.
Tom Wright, a spokesman for France Telecom in Paris, declined to comment.
Philipp Blank, a spokesman for Deutsche Telekom, said the company couldn’t comment on auctions or companies involved in auctions in other countries.
A one basis-point increase on a credit-default swap protecting $10 million of debt from default for five years costs the investor who wants to buy a contract an extra $1,000 annually. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Competition among 15 phone companies including Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit has already driven call rates as low as one U.S. penny a minute. The nine Indian operators were forced to seek short-term financing to pay $11 billion for 3G licenses in May.
Ambani said at an annual shareholders meeting on Sept. 28 that he aims to rid his flagship company of debt within three years in part by cutting capital expenses and selling the Reliance Infratel Ltd. tower unit.
Debt Triples
Reliance Communications’ net debt more than tripled to about 310 billion rupees as of Sept. 30, from 100 billion rupees on March 31, 2008, according to ICRA Ltd., a New Delhi-based affiliate of Moody’s Investors Service.
The company reported a record 85 percent drop in profit in the quarter to June. Net income at competitor Bharti Airtel, the nation’s biggest operator, fell 32 percent as it increased investment in Africa to counter slowing growth in India.
“As long as their operating performance supports their ability to service debt, they shouldn’t face any constraints with refinancing,” said Manoj Mohta, head of Mumbai-based Crisil Research, a unit of McGraw-Hill Cos.
‘Top Pick’
Reliance Communications is the worst-performing stock over the past 12 months in the 89-company Bloomberg World Telecommunications Index, falling 12 percent. The index gained 6 percent in the same period.
The stock’s slide makes it attractive for investors as the operator focuses on expanding its coverage in the world’s second-biggest wireless phone market, UBS AG analysts led by Suresh Mahadevan wrote in a note to clients on Oct. 11. Gartner Inc. predicts mobile services in India will grow at an annual rate of 17 percent in the four years through 2013.
The company is “well-positioned to ride the wireless data boom,” UBS said, adding it has the potential to cut debt in coming years with more free cash flow. “Reliance Communications is our top pick in the India mobile phone sector as it has been a big laggard.”
Combined Burden
Himanshu Shah, an analyst with HDFC Securities Ltd. in Mumbai, estimates the industry’s combined debt burden has peaked at 1 trillion rupees, according to a Sept. 20 note to clients.
Tata Teleservices, the Indian partner of NTT DoCoMo Inc., said on June 2 it plans to borrow as much as 20 billion rupees to expand its existing network, a week after Idea Cellular Ltd. said it’s looking to raise foreign-currency debt.
Dollar-denominated debt sales in India this year reached $7.4 billion as of Oct. 11, up from $1.5 billion in the same period in 2009. Local-currency sales in India reached 1.51 trillion rupees, versus 1.48 trillion rupees for all of 2009 as the extra yield top-rated companies must pay to borrow for five years in relation to the government’s cost narrowed to 66 basis points from 87 at the end of last year, according to data compiled by Bloomberg.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month and 45 basis points since the end of May to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil. A basis point is 0.01 percentage point.
‘No Concern’
The rupee has gained 4.1 percent this year and 3.8 percent since May, reaching 44.68 per dollar yesterday. The currency will climb 3.4 percent to 43.2 by the end of 2011, according to the median forecast in a Bloomberg survey of 14 analysts.
Reliance Communications started talks other potential investors after a non-binding agreement with GTL Infrastructure Ltd. to sell 50,000 phone towers lapsed on Aug. 31. The operator is also considering an initial public offering of its tower unit, it said in an e-mail on Sept. 6, without specifying names.
The board has given preliminary approval for the sale of a 26 percent stake to a strategic or private equity investor, the company said June 6.
“A combination of strategic and financial initiatives would result in a large cash infusion and significantly bring down debt levels in the next few quarters,” Ambani told shareholders on Sept. 28.
Risk assessor ICRA has a long-term rating on Reliance Communications of LAA+, its second-highest, meaning “high safety” with “modest” risks.
“There’s no concern over its ability to repay its debt,” said Vikas Aggarwal, an analyst at ICRA. “It’s also part of the Reliance group, which gives it significant flexibility.”
Credit-default swaps on India’s second-largest mobile phone operator dropped 109 basis points last week to 421 basis points, the most since the five days ending June 18, according to prices quoted by CMA. Billionaire Anil Ambani’s company approached banks seeking dollar funding to cut costs, a person with direct knowledge of the plan said Oct. 11.
Indian mobile operators such as Tata Teleservices Ltd. need to persuade lenders they can repay almost 1 trillion rupees ($22 billion) of debt after bidding twice as much as the government projected for third-generation mobile phone licenses. Reliance Communications bond risk reached 766 basis points on June 8, a level comparable with that of European phone companies when they loaded up on debt to pay $100 billion for permits to offer faster services.
“The company is witnessing a revival in its mobile services business,” said Piyush Choudhary, an analyst at Indiabulls Securities Ltd. in Mumbai. “Reliance Communications’ cash-flow ability is expected to improve since the peak capital expenditure cycle is behind it.”
Default Swaps
A decade ago, France Telecom SA and Deutsche Telekom AG bid so aggressively for European 3G licenses that they reported record losses. Credit swaps on France Telecom debt surged to 638 basis points in June 2002 and have since fallen to 61. Reliance Communications swaps trade at 416, the highest among Asian mobile phone operators tracked by CMA.
Tom Wright, a spokesman for France Telecom in Paris, declined to comment.
Philipp Blank, a spokesman for Deutsche Telekom, said the company couldn’t comment on auctions or companies involved in auctions in other countries.
A one basis-point increase on a credit-default swap protecting $10 million of debt from default for five years costs the investor who wants to buy a contract an extra $1,000 annually. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Competition among 15 phone companies including Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit has already driven call rates as low as one U.S. penny a minute. The nine Indian operators were forced to seek short-term financing to pay $11 billion for 3G licenses in May.
Ambani said at an annual shareholders meeting on Sept. 28 that he aims to rid his flagship company of debt within three years in part by cutting capital expenses and selling the Reliance Infratel Ltd. tower unit.
Debt Triples
Reliance Communications’ net debt more than tripled to about 310 billion rupees as of Sept. 30, from 100 billion rupees on March 31, 2008, according to ICRA Ltd., a New Delhi-based affiliate of Moody’s Investors Service.
The company reported a record 85 percent drop in profit in the quarter to June. Net income at competitor Bharti Airtel, the nation’s biggest operator, fell 32 percent as it increased investment in Africa to counter slowing growth in India.
“As long as their operating performance supports their ability to service debt, they shouldn’t face any constraints with refinancing,” said Manoj Mohta, head of Mumbai-based Crisil Research, a unit of McGraw-Hill Cos.
‘Top Pick’
Reliance Communications is the worst-performing stock over the past 12 months in the 89-company Bloomberg World Telecommunications Index, falling 12 percent. The index gained 6 percent in the same period.
The stock’s slide makes it attractive for investors as the operator focuses on expanding its coverage in the world’s second-biggest wireless phone market, UBS AG analysts led by Suresh Mahadevan wrote in a note to clients on Oct. 11. Gartner Inc. predicts mobile services in India will grow at an annual rate of 17 percent in the four years through 2013.
The company is “well-positioned to ride the wireless data boom,” UBS said, adding it has the potential to cut debt in coming years with more free cash flow. “Reliance Communications is our top pick in the India mobile phone sector as it has been a big laggard.”
Combined Burden
Himanshu Shah, an analyst with HDFC Securities Ltd. in Mumbai, estimates the industry’s combined debt burden has peaked at 1 trillion rupees, according to a Sept. 20 note to clients.
Tata Teleservices, the Indian partner of NTT DoCoMo Inc., said on June 2 it plans to borrow as much as 20 billion rupees to expand its existing network, a week after Idea Cellular Ltd. said it’s looking to raise foreign-currency debt.
Dollar-denominated debt sales in India this year reached $7.4 billion as of Oct. 11, up from $1.5 billion in the same period in 2009. Local-currency sales in India reached 1.51 trillion rupees, versus 1.48 trillion rupees for all of 2009 as the extra yield top-rated companies must pay to borrow for five years in relation to the government’s cost narrowed to 66 basis points from 87 at the end of last year, according to data compiled by Bloomberg.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month and 45 basis points since the end of May to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil. A basis point is 0.01 percentage point.
‘No Concern’
The rupee has gained 4.1 percent this year and 3.8 percent since May, reaching 44.68 per dollar yesterday. The currency will climb 3.4 percent to 43.2 by the end of 2011, according to the median forecast in a Bloomberg survey of 14 analysts.
Reliance Communications started talks other potential investors after a non-binding agreement with GTL Infrastructure Ltd. to sell 50,000 phone towers lapsed on Aug. 31. The operator is also considering an initial public offering of its tower unit, it said in an e-mail on Sept. 6, without specifying names.
The board has given preliminary approval for the sale of a 26 percent stake to a strategic or private equity investor, the company said June 6.
“A combination of strategic and financial initiatives would result in a large cash infusion and significantly bring down debt levels in the next few quarters,” Ambani told shareholders on Sept. 28.
Risk assessor ICRA has a long-term rating on Reliance Communications of LAA+, its second-highest, meaning “high safety” with “modest” risks.
“There’s no concern over its ability to repay its debt,” said Vikas Aggarwal, an analyst at ICRA. “It’s also part of the Reliance group, which gives it significant flexibility.”
JSW Steel Said to Consider Spin Off of Overseas Coal Mine, Iron Ore Assets
JSW Steel Ltd., India’s third- largest producer, is considering putting its overseas coal and iron ore assets into a unit for a share sale to fund expansion, two people familiar with the plans said.
The unit would control coal and iron ore mines in the U.S. and Chile, as well as an exploration business in Mozambique, said the people who declined to be identified as the plans aren’t yet public. JSW may list the unit in an overseas exchange, they said, without giving a timeframe.
JSW Steel, Tata Steel Ltd. and Steel Authority of India Ltd., the nation’s largest producers, are looking to buy mines in Australia, the U.S. and Africa, to feed furnaces as demand increases. The Indian steel market has expanded more than 55 percent since 2005, fueled by automobile sales and government construction.
Mumbai-based JSW Steel spokesman Mithun Roy didn’t reply to e-mailed questions from Bloomberg News.
Shares in JSW Steel have climbed 31 percent this year to close yesterday at 1,326.90 rupees, making them the third-best performer on the 35-company Bloomberg Asia Pacific Iron and Steel Index behind South Korea’s Hyundai Steel Co. and Australia’s Fortescue Metals Group Ltd.
JSW Steel bought seven coking coal mines in May in the U.S. with reserves of about 123 million metric tons. In Chile, the company’s Bellavista iron ore mines, acquired in 2008, are likely to start production by December, Group Chief Financial Officer Seshagiri Rao said last month.
The company’s Mozambique unit is exploring for coal and iron ore resources, according to JSW’s latest annual report.
The unit would control coal and iron ore mines in the U.S. and Chile, as well as an exploration business in Mozambique, said the people who declined to be identified as the plans aren’t yet public. JSW may list the unit in an overseas exchange, they said, without giving a timeframe.
JSW Steel, Tata Steel Ltd. and Steel Authority of India Ltd., the nation’s largest producers, are looking to buy mines in Australia, the U.S. and Africa, to feed furnaces as demand increases. The Indian steel market has expanded more than 55 percent since 2005, fueled by automobile sales and government construction.
Mumbai-based JSW Steel spokesman Mithun Roy didn’t reply to e-mailed questions from Bloomberg News.
Shares in JSW Steel have climbed 31 percent this year to close yesterday at 1,326.90 rupees, making them the third-best performer on the 35-company Bloomberg Asia Pacific Iron and Steel Index behind South Korea’s Hyundai Steel Co. and Australia’s Fortescue Metals Group Ltd.
JSW Steel bought seven coking coal mines in May in the U.S. with reserves of about 123 million metric tons. In Chile, the company’s Bellavista iron ore mines, acquired in 2008, are likely to start production by December, Group Chief Financial Officer Seshagiri Rao said last month.
The company’s Mozambique unit is exploring for coal and iron ore resources, according to JSW’s latest annual report.
Cairn warns Delhi over $9bn sale
The way New Delhi handles Cairn Energy’s proposed $9.6bn sale to Vedanta of a controlling stake in its Indian energy business is a crucial litmus test for foreign investment in India, the UK oil and gas explorer has warned.
Sir Bill Gammell, Cairn chairman, said New Delhi’s attitude to the “high profile” deal would be a signal to other major international companies of India’s approach to its investors, especially those who potentially might wish to disinvest in Indian operations.
“It’s important this transaction be seen to be a smooth transaction from an investment point of view,” Sir Bill told the Financial Times on Monday. “People will be watching very carefully as to how it takes place.”
India’s government has insisted on its right to approve the transaction, which involves strategically important oilfields.
It has so far been muted in its response to Cairn’s surprise August decision to sell a majority stake in its Indian subsidiary to Vedanta, the London-listed mining and metals group founded by Anil Agarwal, the Indian-born billionaire.
Sir Bill said he hoped New Delhi would give its blessing by the end of the year.
Cairn began its Indian foray in the 1990s, acquiring the then struggling local exploration operations of the Anglo-Dutch oil company Shell. It subsequently made India’s biggest onshore oil discovery of the last two decades in Rajasthan’s desert sands and listed on the Bombay Stock Exchange four years ago.
However, some of Cairn India’s minority shareholders have been angered by Vedanta’s plan to pay Rs405 per share to Cairn Energy, which holds a 62 per cent stake in Cairn India, while offering them just Rs355 per share in a mandatory open tender.
Mr Agarwal appears undaunted. He has ruled out any increase in the offer price to minority shareholders.
“We have given a very lucrative offer – that offer will stand,” he said on Monday.
Sir Bill Gammell, Cairn chairman, said New Delhi’s attitude to the “high profile” deal would be a signal to other major international companies of India’s approach to its investors, especially those who potentially might wish to disinvest in Indian operations.
“It’s important this transaction be seen to be a smooth transaction from an investment point of view,” Sir Bill told the Financial Times on Monday. “People will be watching very carefully as to how it takes place.”
India’s government has insisted on its right to approve the transaction, which involves strategically important oilfields.
It has so far been muted in its response to Cairn’s surprise August decision to sell a majority stake in its Indian subsidiary to Vedanta, the London-listed mining and metals group founded by Anil Agarwal, the Indian-born billionaire.
Sir Bill said he hoped New Delhi would give its blessing by the end of the year.
Cairn began its Indian foray in the 1990s, acquiring the then struggling local exploration operations of the Anglo-Dutch oil company Shell. It subsequently made India’s biggest onshore oil discovery of the last two decades in Rajasthan’s desert sands and listed on the Bombay Stock Exchange four years ago.
However, some of Cairn India’s minority shareholders have been angered by Vedanta’s plan to pay Rs405 per share to Cairn Energy, which holds a 62 per cent stake in Cairn India, while offering them just Rs355 per share in a mandatory open tender.
Mr Agarwal appears undaunted. He has ruled out any increase in the offer price to minority shareholders.
“We have given a very lucrative offer – that offer will stand,” he said on Monday.
Across the U.S., Long Recovery Looks Like Recession
This is not what a recovery is supposed to look like.
In Atlanta, the Bank of America tower, the tallest in the Southeast, is nearly a fifth vacant, and bank officials just wrestled a rent cut from the developer. In Cherry Hill, N.J., 10 percent of the houses on the market are so-called short sales, in which sellers ask for less than they owe lenders. And in Arizona, in sun-blasted desert subdivisions, owners speak of hours cut, jobs lost and meals at soup kitchens.
Less than a month before November elections, the United States is mired in a grim New Normal that could last for years. That has policy makers, particularly the Federal Reserve, considering a range of ever more extreme measures, as noted in the minutes of its last meeting, released Tuesday. Call it recession or recovery, for tens of millions of Americans, there’s little difference.
Born of a record financial collapse, this recession has been more severe than any since the Great Depression and has left an enormous oversupply of houses and office buildings and crippling debt. The decision last week by leading mortgage lenders to freeze foreclosures, and calls for a national moratorium, could cast a long shadow of uncertainty over banks and the housing market. Put simply, the national economy has fallen so far that it could take years to climb back.
The math yields somber conclusions, with implications not just for this autumn’s elections but also — barring a policy surprise or economic upturn — for 2012 as well:
¶At the current rate of job creation, the nation would need nine more years to recapture the jobs lost during the recession. And that doesn’t even account for five million or six million jobs needed in that time to keep pace with an expanding population. Even top Obama officials concede the unemployment rate could climb higher still.
¶Median house prices have dropped 20 percent since 2005. Given an inflation rate of about 2 percent — a common forecast — it would take 13 years for housing prices to climb back to their peak, according to Allen L. Sinai, chief global economist at the consulting firm Decision Economics.
¶Commercial vacancies are soaring, and it could take a decade to absorb the excess in many of the largest cities. The vacancy rate, as of the end of June, stands at 21.4 percent in Phoenix, 19.7 percent in Las Vegas, 18.3 in Dallas/Fort Worth and 17.3 percent in Atlanta, in each case higher than last year, according to the data firm CoStar Group.
Demand is inert. Consumer confidence has tumbled as many are afraid or unable to spend. Families are still paying off — or walking away from — debt. Mark Zandi, chief economist of Moody’s Analytics, estimates it will be the end of 2011 before the amount of income that households pay in interest recedes to levels seen before the run-up. Credit card delinquencies are rising.
“No wonder Americans are pessimistic and unhappy,” said Mr. Sinai. “The only way we are going to get in gear is to face up to the reality that we are entering a period of austerity.”
This dreary accounting should not suggest a nation without strengths. Unemployment rates have come down from their peaks in swaths of the United States, from Vermont to Minnesota to Wisconsin. Port traffic has increased, and employers have created an average of 68,111 jobs a month this year.
After plummeting in 2009, the stock market has spiraled up, buoying retirement accounts and perhaps the spirits of middle-class Americans. As a measure of economic health, though, that gain is overstated. Robert Reich, the former labor secretary, notes that the most profitable companies in the domestic stock indexes generate about 40 percent of their revenue from abroad.
Few doubt the American economy remains capable of electrifying growth, but few expect that any time soon. “We still have a lot of strengths, from a culture of entrepreneurship and venture capitalism, to flexible labor markets and attracting immigrants,” said Barry Eichengreen, an economist at the University of California, Berkeley. “But we’re going to be living with the overhang of our financial and debt problems for a long, long time to come.”
New shocks could push the nation into another recession or deflation. “We are in a situation where our vulnerability to any new problem is great,” said Carmen M. Reinhart, a professor of economics at the University of Maryland.
So troubles ripple outward, as lost jobs, unsold houses and empty offices weigh down the economy and upend lives. Struggles in Arizona, New Jersey and Georgia echo broadly.
Florence, Ariz.
In 2005, Arizona ranked, as usual, second nationally in job growth behind Nevada, its economy predicated on growth. The snowbirds came and construction boomed and land stretched endless and cheap. Then it stopped.
This year, Arizona ranks 42nd in job growth. It has lost 287,000 jobs since the recession began, and the fall has been calamitous.
Renee Wheaton, 38, sits in an old golf cart on the corner of Tangerine and Barley Roads in her subdivision in the desert, an hour south of Phoenix. Her next-door neighbor, an engineer, just lost his job. The man across the street is unemployed.
Her family is not doing so well either. Her husband’s hours have been cut by 15 percent, leaving her family of five behind on water and credit card bills — more or less on everything except the house and car payment. She teaches art, but that’s not much in demand.
“I say to myself ‘This can’t be happening to us: We saved, we worked hard and we’re under tremendous stress,’ ” Ms. Wheaton says. “My husband is a very hard-working man but for the first time, he’s having real trouble.”
In Atlanta, the Bank of America tower, the tallest in the Southeast, is nearly a fifth vacant, and bank officials just wrestled a rent cut from the developer. In Cherry Hill, N.J., 10 percent of the houses on the market are so-called short sales, in which sellers ask for less than they owe lenders. And in Arizona, in sun-blasted desert subdivisions, owners speak of hours cut, jobs lost and meals at soup kitchens.
Less than a month before November elections, the United States is mired in a grim New Normal that could last for years. That has policy makers, particularly the Federal Reserve, considering a range of ever more extreme measures, as noted in the minutes of its last meeting, released Tuesday. Call it recession or recovery, for tens of millions of Americans, there’s little difference.
Born of a record financial collapse, this recession has been more severe than any since the Great Depression and has left an enormous oversupply of houses and office buildings and crippling debt. The decision last week by leading mortgage lenders to freeze foreclosures, and calls for a national moratorium, could cast a long shadow of uncertainty over banks and the housing market. Put simply, the national economy has fallen so far that it could take years to climb back.
The math yields somber conclusions, with implications not just for this autumn’s elections but also — barring a policy surprise or economic upturn — for 2012 as well:
¶At the current rate of job creation, the nation would need nine more years to recapture the jobs lost during the recession. And that doesn’t even account for five million or six million jobs needed in that time to keep pace with an expanding population. Even top Obama officials concede the unemployment rate could climb higher still.
¶Median house prices have dropped 20 percent since 2005. Given an inflation rate of about 2 percent — a common forecast — it would take 13 years for housing prices to climb back to their peak, according to Allen L. Sinai, chief global economist at the consulting firm Decision Economics.
¶Commercial vacancies are soaring, and it could take a decade to absorb the excess in many of the largest cities. The vacancy rate, as of the end of June, stands at 21.4 percent in Phoenix, 19.7 percent in Las Vegas, 18.3 in Dallas/Fort Worth and 17.3 percent in Atlanta, in each case higher than last year, according to the data firm CoStar Group.
Demand is inert. Consumer confidence has tumbled as many are afraid or unable to spend. Families are still paying off — or walking away from — debt. Mark Zandi, chief economist of Moody’s Analytics, estimates it will be the end of 2011 before the amount of income that households pay in interest recedes to levels seen before the run-up. Credit card delinquencies are rising.
“No wonder Americans are pessimistic and unhappy,” said Mr. Sinai. “The only way we are going to get in gear is to face up to the reality that we are entering a period of austerity.”
This dreary accounting should not suggest a nation without strengths. Unemployment rates have come down from their peaks in swaths of the United States, from Vermont to Minnesota to Wisconsin. Port traffic has increased, and employers have created an average of 68,111 jobs a month this year.
After plummeting in 2009, the stock market has spiraled up, buoying retirement accounts and perhaps the spirits of middle-class Americans. As a measure of economic health, though, that gain is overstated. Robert Reich, the former labor secretary, notes that the most profitable companies in the domestic stock indexes generate about 40 percent of their revenue from abroad.
Few doubt the American economy remains capable of electrifying growth, but few expect that any time soon. “We still have a lot of strengths, from a culture of entrepreneurship and venture capitalism, to flexible labor markets and attracting immigrants,” said Barry Eichengreen, an economist at the University of California, Berkeley. “But we’re going to be living with the overhang of our financial and debt problems for a long, long time to come.”
New shocks could push the nation into another recession or deflation. “We are in a situation where our vulnerability to any new problem is great,” said Carmen M. Reinhart, a professor of economics at the University of Maryland.
So troubles ripple outward, as lost jobs, unsold houses and empty offices weigh down the economy and upend lives. Struggles in Arizona, New Jersey and Georgia echo broadly.
Florence, Ariz.
In 2005, Arizona ranked, as usual, second nationally in job growth behind Nevada, its economy predicated on growth. The snowbirds came and construction boomed and land stretched endless and cheap. Then it stopped.
This year, Arizona ranks 42nd in job growth. It has lost 287,000 jobs since the recession began, and the fall has been calamitous.
Renee Wheaton, 38, sits in an old golf cart on the corner of Tangerine and Barley Roads in her subdivision in the desert, an hour south of Phoenix. Her next-door neighbor, an engineer, just lost his job. The man across the street is unemployed.
Her family is not doing so well either. Her husband’s hours have been cut by 15 percent, leaving her family of five behind on water and credit card bills — more or less on everything except the house and car payment. She teaches art, but that’s not much in demand.
“I say to myself ‘This can’t be happening to us: We saved, we worked hard and we’re under tremendous stress,’ ” Ms. Wheaton says. “My husband is a very hard-working man but for the first time, he’s having real trouble.”
Sunday, October 10, 2010
Asian Stocks Advance on Speculation U.S. Fed Will Act to Stimulate Growth
Asian stocks rose on speculation the U.S. Federal Reserve will join the region’s central banks in further stimulating economic growth, supporting a fragile global economic recovery.
BHP Billiton Ltd., the world’s biggest mining company, gained 0.7 percent as oil and metal prices rallied. Korea Zinc Co., which produces gold and silver, advanced 1.9 percent in Seoul. Yanzhou Coal Mining Co. jumped 10 percent in Shanghai. Fortescue Metals Group Ltd., Australia’s third-largest iron-ore exporter, surged 5.7 percent in Sydney after securing bank funding.
“Further quantitative easing will hopefully stimulate economic activity to where the recovery is self-sustaining,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “That would bolster the outlook for jobs creation, higher consumption and earnings growth, and give a positive impetus to equity valuations.”
The MSCI Asia Pacific excluding Japan Index gained 0.4 percent to 460.45 at 12:38 p.m. in Sydney after a larger-than- estimated cut in U.S. jobs stoked optimism the Fed will intensify action to bolster the economy. The gauge advanced 2 percent last week after Japan’s central bank cut its benchmark interest rate and Australia unexpectedly kept its key rate unchanged.
Material Stocks
Material stocks were the biggest drivers of the MSCI Asia Pacific ex-Japan gauge’s advance. The index has rallied 29 percent from this year’s May 25 low amid signs a U.S. recovery is regaining momentum and that China’s economic expansion will continue.
The S&P/ASX 200 Index gained 0.6 percent as a statistics bureau report showed Australian home-loan approvals rose in August from a month earlier. South Korea’s Kospi index rose 0.2 percent, while New Zealand’s NZX 50 Index added 0.1 percent. Japanese markets are closed for a public holiday.
Futures on the U.S. Standard & Poor’s 500 Index increased 0.2 percent. The gauge climbed 0.6 percent to 1,165.15 in New York on Oct. 8 as the jobs report fueled speculation the Fed would do more to ensure a lasting recovery.
“Further quantitative easing will boost short-term liquidity, which should find its way into financial markets,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney. “It should also support broader economic activity in the longer term. The rising supply of dollars in the system will increase demand for hard assets like commodities and precious metals as a store of value.”
U.S. Employment
U.S. employers cut 95,000 jobs in September, Labor Department figures showed. The median estimate of economists surveyed by Bloomberg News was for a 5,000 drop. The dollar fell below 82 yen for the first time since 1995, while the Reuters/Jefferies CRB Index of 19 raw materials climbed to the highest level in almost two years.
Copper futures for December delivery rose 2.6 percent to a 27-month high on Oct. 8 in New York, while gold futures for December delivery gained 0.8 percent to settle at $1,345.30. Crude oil for November delivery advanced 1.2 percent to settle at $82.66 a barrel on the New York Mercantile Exchange.
“The U.S. jobs data was basically a win-win for equities,” said Chris Weston, a Melbourne-based institutional dealer at IG Markets. “If it was better, we’d have seen a rally in risk, but as we saw a worse-than-expected number, it again heightened the need for stimulus. Fed liquidity into markets helps inflate asset prices, providing a solid platform for equities to rally in the short term.”
The MSCI Asia Pacific ex-Japan Index has risen 11 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property- price inflation and concern about the pace of the U.S. economic rebound. Stocks in the gauge trade at 13.8 times estimated profit on average, compared with 13.9 times for the S&P 500 and 12.1 times for the Stoxx Europe 600 Index.
BHP Billiton Ltd., the world’s biggest mining company, gained 0.7 percent as oil and metal prices rallied. Korea Zinc Co., which produces gold and silver, advanced 1.9 percent in Seoul. Yanzhou Coal Mining Co. jumped 10 percent in Shanghai. Fortescue Metals Group Ltd., Australia’s third-largest iron-ore exporter, surged 5.7 percent in Sydney after securing bank funding.
“Further quantitative easing will hopefully stimulate economic activity to where the recovery is self-sustaining,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “That would bolster the outlook for jobs creation, higher consumption and earnings growth, and give a positive impetus to equity valuations.”
The MSCI Asia Pacific excluding Japan Index gained 0.4 percent to 460.45 at 12:38 p.m. in Sydney after a larger-than- estimated cut in U.S. jobs stoked optimism the Fed will intensify action to bolster the economy. The gauge advanced 2 percent last week after Japan’s central bank cut its benchmark interest rate and Australia unexpectedly kept its key rate unchanged.
Material Stocks
Material stocks were the biggest drivers of the MSCI Asia Pacific ex-Japan gauge’s advance. The index has rallied 29 percent from this year’s May 25 low amid signs a U.S. recovery is regaining momentum and that China’s economic expansion will continue.
The S&P/ASX 200 Index gained 0.6 percent as a statistics bureau report showed Australian home-loan approvals rose in August from a month earlier. South Korea’s Kospi index rose 0.2 percent, while New Zealand’s NZX 50 Index added 0.1 percent. Japanese markets are closed for a public holiday.
Futures on the U.S. Standard & Poor’s 500 Index increased 0.2 percent. The gauge climbed 0.6 percent to 1,165.15 in New York on Oct. 8 as the jobs report fueled speculation the Fed would do more to ensure a lasting recovery.
“Further quantitative easing will boost short-term liquidity, which should find its way into financial markets,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney. “It should also support broader economic activity in the longer term. The rising supply of dollars in the system will increase demand for hard assets like commodities and precious metals as a store of value.”
U.S. Employment
U.S. employers cut 95,000 jobs in September, Labor Department figures showed. The median estimate of economists surveyed by Bloomberg News was for a 5,000 drop. The dollar fell below 82 yen for the first time since 1995, while the Reuters/Jefferies CRB Index of 19 raw materials climbed to the highest level in almost two years.
Copper futures for December delivery rose 2.6 percent to a 27-month high on Oct. 8 in New York, while gold futures for December delivery gained 0.8 percent to settle at $1,345.30. Crude oil for November delivery advanced 1.2 percent to settle at $82.66 a barrel on the New York Mercantile Exchange.
“The U.S. jobs data was basically a win-win for equities,” said Chris Weston, a Melbourne-based institutional dealer at IG Markets. “If it was better, we’d have seen a rally in risk, but as we saw a worse-than-expected number, it again heightened the need for stimulus. Fed liquidity into markets helps inflate asset prices, providing a solid platform for equities to rally in the short term.”
The MSCI Asia Pacific ex-Japan Index has risen 11 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property- price inflation and concern about the pace of the U.S. economic rebound. Stocks in the gauge trade at 13.8 times estimated profit on average, compared with 13.9 times for the S&P 500 and 12.1 times for the Stoxx Europe 600 Index.
Bloomberg Plans a Data Service on the Business of Government
Ambition and confidence have never been in short supply at Bloomberg L.P.
Chapter 4 of Michael R. Bloomberg’s autobiography, the part in which he describes conceiving the idea for Bloomberg News in the late 1980s, is titled “We Can Do That: Elementary Journalism, Not Rocket Science.”
Now Bloomberg is taking that entrepreneurial ethos and making an aggressive push into the Washington media terrain long dominated by trade publications and news outlets like Congressional Quarterly and National Journal, which charge high subscription fees to provide lobbyists and Capitol Hill insiders with information on the nuts-and-bolts of lawmaking and government regulation.
In the same way that Bloomberg terminals have become a ubiquitous presence on the desks of Wall Street traders, Bloomberg executives aim to make their new service an indispensable tool for lobbyists, Capitol Hill staff members and government contractors.
The service, called Bloomberg Government, is based on the same guiding principle that spawned the original Bloomberg financial data machine: people need an aggregator and filter for information, and they will pay a lot of money for that convenience.
Bloomberg Government is an information behemoth — a news aggregator, government contract database, Congressional staff directory and source for policy research and analysis all in one Web site.
Unlike the Bloomberg financial information service, Bloomberg Government will not require separate hardware to operate. For $5,700 a year for each user (a discount will be available for government users), subscribers will be able to gain access to the system through their personal computers.
The idea for the service was born in part from what Bloomberg executives saw as an opening in the Washington media market. As numerous Web sites, blogs and even traditional policy-focused outlets like National Journal have ramped up their coverage of political news, reporting on the less glamorous aspects — how the legislative sausage is made — has become less of a priority for many news organizations.
“There has been a bloom in news around political reporting,” said Kevin Sheekey, chairman of Bloomberg Government. “There’s been at the same time a sort of hidden but very sharp decline in coverage of government apart from politics, in terms of what government is doing and regulating, and the impact that will have on segments of the economy. That part of press coverage of our society has probably dropped off tenfold. That’s where Bloomberg is stepping in.”
Many news organizations are coy about their ambitions, preferring to let their journalism speak for itself and content to let others speculate about what designs they have on the future. Not Bloomberg. And Bloomberg Government is an unmistakable signal that the company is positioning itself to be not only a major media player in Washington, but the dominant one.
“Our aspiration is to be the most influential news organization in the world,” said Mike Riley, the managing editor of Bloomberg Government in Washington. “I think Bloomberg sees a great opportunity here, and they are wisely investing on the front end,” he added, declining to say exactly how much the company has spent building the service over the last nine months. “Suffice it to say, it’s not inexpensive.”
Bloomberg’s existing Washington bureau employs 175 journalists apart from the nearly 40 journalists and analysts Mr. Riley has hired so far for Bloomberg Government. He plans to hire 60 more by the end of the year, half of them journalists, half policy experts like trained economists.
By the end of 2011, Bloomberg Government expects to have 150 journalists and analysts on staff. Counting nonjournalists, plans call for Bloomberg Government to expand to 300, which would make the company’s Washington office the largest for a news organization not based in the capital.
Bloomberg’s investment in the staff alone will be in the area of $30 million a year.
Chapter 4 of Michael R. Bloomberg’s autobiography, the part in which he describes conceiving the idea for Bloomberg News in the late 1980s, is titled “We Can Do That: Elementary Journalism, Not Rocket Science.”
Now Bloomberg is taking that entrepreneurial ethos and making an aggressive push into the Washington media terrain long dominated by trade publications and news outlets like Congressional Quarterly and National Journal, which charge high subscription fees to provide lobbyists and Capitol Hill insiders with information on the nuts-and-bolts of lawmaking and government regulation.
In the same way that Bloomberg terminals have become a ubiquitous presence on the desks of Wall Street traders, Bloomberg executives aim to make their new service an indispensable tool for lobbyists, Capitol Hill staff members and government contractors.
The service, called Bloomberg Government, is based on the same guiding principle that spawned the original Bloomberg financial data machine: people need an aggregator and filter for information, and they will pay a lot of money for that convenience.
Bloomberg Government is an information behemoth — a news aggregator, government contract database, Congressional staff directory and source for policy research and analysis all in one Web site.
Unlike the Bloomberg financial information service, Bloomberg Government will not require separate hardware to operate. For $5,700 a year for each user (a discount will be available for government users), subscribers will be able to gain access to the system through their personal computers.
The idea for the service was born in part from what Bloomberg executives saw as an opening in the Washington media market. As numerous Web sites, blogs and even traditional policy-focused outlets like National Journal have ramped up their coverage of political news, reporting on the less glamorous aspects — how the legislative sausage is made — has become less of a priority for many news organizations.
“There has been a bloom in news around political reporting,” said Kevin Sheekey, chairman of Bloomberg Government. “There’s been at the same time a sort of hidden but very sharp decline in coverage of government apart from politics, in terms of what government is doing and regulating, and the impact that will have on segments of the economy. That part of press coverage of our society has probably dropped off tenfold. That’s where Bloomberg is stepping in.”
Many news organizations are coy about their ambitions, preferring to let their journalism speak for itself and content to let others speculate about what designs they have on the future. Not Bloomberg. And Bloomberg Government is an unmistakable signal that the company is positioning itself to be not only a major media player in Washington, but the dominant one.
“Our aspiration is to be the most influential news organization in the world,” said Mike Riley, the managing editor of Bloomberg Government in Washington. “I think Bloomberg sees a great opportunity here, and they are wisely investing on the front end,” he added, declining to say exactly how much the company has spent building the service over the last nine months. “Suffice it to say, it’s not inexpensive.”
Bloomberg’s existing Washington bureau employs 175 journalists apart from the nearly 40 journalists and analysts Mr. Riley has hired so far for Bloomberg Government. He plans to hire 60 more by the end of the year, half of them journalists, half policy experts like trained economists.
By the end of 2011, Bloomberg Government expects to have 150 journalists and analysts on staff. Counting nonjournalists, plans call for Bloomberg Government to expand to 300, which would make the company’s Washington office the largest for a news organization not based in the capital.
Bloomberg’s investment in the staff alone will be in the area of $30 million a year.
Subbarao Says India May Act If Capital Inflows Disrupt Economy
India may intervene in the foreign exchange market if capital flows “disrupt” the economy, the central bank’s governor, Duvvuri Subbarao, said after the rupee rallied to be Asia’s best performer of the past month.
“If the inflows are lumpy and volatile or if they disrupt the macroeconomic situation, we will do so,” Subbarao said in a panel discussion at the International Monetary Fund in Washington on Oct. 9. “We’ve not found the need to intervene so far,” he told reporters.
The rupee gained 5 percent against the dollar in the past month as global funds pumped a record $21 billion into Indian stocks this year on optimism about the South Asian’s nation’s growth prospects. Subbarao’s comments came as countries from Brazil to South Korea took steps to slow currency appreciation amid rising capital flows into emerging and Asian economies.
“In recent months, when inflows have swamped most emerging market economies, several central banks have intervened in the forex markets,” Subbarao said. “The reason we did not feel the need to intervene is because our absorption, driven by a widening current-account deficit as imports have surged on the back of a positive outlook on growth and investment, has also increased.”
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund last week raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Advance Pared
The rupee declined 0.5 percent to 44.4350 per dollar at close of trading on Oct. 8 in Mumbai, paring its advance during the week to 0.3 percent on concern importers will step up dollar purchases and the central bank may intervene in the foreign exchange market. In the past month, the Bombay Stock Exchange’s Sensitive Index has gained 8.6 percent to a near record 20,250.26.
“Our intervention will be to keep liquidity conditions consistent with activity in the real economy and to maintain financial stability,” Subbarao said. “And not to stand against developments driven by changing economic fundamentals.”
“If the inflows are lumpy and volatile or if they disrupt the macroeconomic situation, we will do so,” Subbarao said in a panel discussion at the International Monetary Fund in Washington on Oct. 9. “We’ve not found the need to intervene so far,” he told reporters.
The rupee gained 5 percent against the dollar in the past month as global funds pumped a record $21 billion into Indian stocks this year on optimism about the South Asian’s nation’s growth prospects. Subbarao’s comments came as countries from Brazil to South Korea took steps to slow currency appreciation amid rising capital flows into emerging and Asian economies.
“In recent months, when inflows have swamped most emerging market economies, several central banks have intervened in the forex markets,” Subbarao said. “The reason we did not feel the need to intervene is because our absorption, driven by a widening current-account deficit as imports have surged on the back of a positive outlook on growth and investment, has also increased.”
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund last week raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Advance Pared
The rupee declined 0.5 percent to 44.4350 per dollar at close of trading on Oct. 8 in Mumbai, paring its advance during the week to 0.3 percent on concern importers will step up dollar purchases and the central bank may intervene in the foreign exchange market. In the past month, the Bombay Stock Exchange’s Sensitive Index has gained 8.6 percent to a near record 20,250.26.
“Our intervention will be to keep liquidity conditions consistent with activity in the real economy and to maintain financial stability,” Subbarao said. “And not to stand against developments driven by changing economic fundamentals.”
Mittal urges China to relax investment rules
Lakshmi Mittal has called for Beijing to reduce its restrictions on inward investments to help damp hostility to efforts by Chinese companies to take stakes in businesses in countries such as the US.
“You cannot expect business people in the US to be relaxed [about planned inward investments by Chinese companies] if their attempts to do the same thing in China are covered by restrictions,” the chief executive and main owner of ArcelorMittal said in an interview with the Financial Times in Tokyo.
Mr Mittal was speaking in light of a row in the US over a planned participation by Anshan Iron & Steel, one of China’s biggest steelmakers, in a $168m venture to build a steel plant in Mississippi by John Correnti, a veteran US steel executive.
The head of the world’s biggest steelmaker – whose own efforts to expand in China have been hampered by Beijing’s inward investment rules – said he was, in principle, relaxed about plans by Anshan to take a minority stake in the plant.
“In today’s free market, I don’t think you can stop projects by Chinese companies to expand overseas,” he said.
But Mr Mittal added that in thinking about this issue, Beijing had to become more relaxed about the conditions under which foreign companies could participate in running China-based businesses.
“There has to be a two-way aspect to policy,” Mr Mittal said.
Mr Mittal has had plans to expand in China – by far the world’s biggest producer and consumer of steel – for some years.
But so far, he has been allowed only to take minority stakes in two medium sized China-based steel producers, rather than take control of large ventures, as he would have liked.
Behind this is the refusal by the Chinese government to allow non-Chinese companies to take majority stakes in business fields that Beijing regards as “strategic” to the country’s long-term interests, one of which is the steel industry.
In the case of the this industry, it is fairly easy for Beijing to stop foreign ownership since most big Chinese steel companies, including Anshan, are state-owned.
The plan by Zhang Xiaogang, Anshan’s president, to link up with Mr Correnti has run into strong criticism by large US steelmakers on concerns that it would lead to other efforts by Chinese steelmakers to set up plants in the US, which in turn could lead to new competitive pressures.
The US industry believes that companies such as Anshan are helped by hidden government subsidies that give them an unfair advantage.
Mr Mittal also gave further details of his new thinking on setting up steel plants in India in the next few years.
Confirming that plans to set up two big steel sites producing between them 24m tonnes of steel a year by 2015 were highly unlikely to be realised, Mr Mittal said his new strategy was to have a number of smaller steelmaking hubs in different parts of the country each capable of making a few million tonnes of steel a year.
“My plan is now to have 2-4 sites rather than concentrate everything on large plants,” Mr Mittal said. However, he gave no time frame for when these units could come into operation.
Mr Mittal’s original scheme to spend about $20bn on two large steel plants in Jharkand and Orissa was put on hold last year after difficulties in persuading farmers and others in selling the land that is needed.
However, Mr Mittal said he was still “determined to participate” in the steel industry in India where demand for the metal is increasing quickly as a result of new investments in industrial expansion and infrastructure development.
“You cannot expect business people in the US to be relaxed [about planned inward investments by Chinese companies] if their attempts to do the same thing in China are covered by restrictions,” the chief executive and main owner of ArcelorMittal said in an interview with the Financial Times in Tokyo.
Mr Mittal was speaking in light of a row in the US over a planned participation by Anshan Iron & Steel, one of China’s biggest steelmakers, in a $168m venture to build a steel plant in Mississippi by John Correnti, a veteran US steel executive.
The head of the world’s biggest steelmaker – whose own efforts to expand in China have been hampered by Beijing’s inward investment rules – said he was, in principle, relaxed about plans by Anshan to take a minority stake in the plant.
“In today’s free market, I don’t think you can stop projects by Chinese companies to expand overseas,” he said.
But Mr Mittal added that in thinking about this issue, Beijing had to become more relaxed about the conditions under which foreign companies could participate in running China-based businesses.
“There has to be a two-way aspect to policy,” Mr Mittal said.
Mr Mittal has had plans to expand in China – by far the world’s biggest producer and consumer of steel – for some years.
But so far, he has been allowed only to take minority stakes in two medium sized China-based steel producers, rather than take control of large ventures, as he would have liked.
Behind this is the refusal by the Chinese government to allow non-Chinese companies to take majority stakes in business fields that Beijing regards as “strategic” to the country’s long-term interests, one of which is the steel industry.
In the case of the this industry, it is fairly easy for Beijing to stop foreign ownership since most big Chinese steel companies, including Anshan, are state-owned.
The plan by Zhang Xiaogang, Anshan’s president, to link up with Mr Correnti has run into strong criticism by large US steelmakers on concerns that it would lead to other efforts by Chinese steelmakers to set up plants in the US, which in turn could lead to new competitive pressures.
The US industry believes that companies such as Anshan are helped by hidden government subsidies that give them an unfair advantage.
Mr Mittal also gave further details of his new thinking on setting up steel plants in India in the next few years.
Confirming that plans to set up two big steel sites producing between them 24m tonnes of steel a year by 2015 were highly unlikely to be realised, Mr Mittal said his new strategy was to have a number of smaller steelmaking hubs in different parts of the country each capable of making a few million tonnes of steel a year.
“My plan is now to have 2-4 sites rather than concentrate everything on large plants,” Mr Mittal said. However, he gave no time frame for when these units could come into operation.
Mr Mittal’s original scheme to spend about $20bn on two large steel plants in Jharkand and Orissa was put on hold last year after difficulties in persuading farmers and others in selling the land that is needed.
However, Mr Mittal said he was still “determined to participate” in the steel industry in India where demand for the metal is increasing quickly as a result of new investments in industrial expansion and infrastructure development.
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