Dr. Reddy’s Laboratories Ltd., India’s second-biggest drugmaker by revenue, said second-quarter group profit jumped 32 percent to 2.87 billion rupees ($64 million) on increased sales of generic drugs.
Sales increased to 18.9 billion rupees in the three months ended Sept. 30, from 18.5 billion rupees a year earlier, the company said in an e-mailed statement today.
Saturday, October 23, 2010
Should BP’s Money Go Where the Oil Didn’t?
ST. PETE BEACH, Fla.
IN late April, a week after the BP oil spill began, Keith Overton had an alarming encounter with one of his employees here at the TradeWinds Resort. The guy — an engineer who had worked at the hotel for a dozen years — had just spoken with his mother, who lives in Bosnia, and the conversation went like this:
“Are you going to be fired?” she asked.
“Fired?” the son replied. “Why would I get fired?”
“Because your beach is covered with oil,” she said.
Actually, there wasn’t a drop of oil anywhere in sight. Not then, not in the months that followed and not now. This barrier-island city and snowbird haven is hundreds of miles from the nearest land befouled by the collapse of the Deepwater Horizon platform and the epic gusher it left behind.
“That was the moment I realized how big the problem had become,” recalls Mr. Overton, who runs the resort. “At first we thought, ‘Well, people will know there’s a spill in the Gulf of Mexico, and they won’t think that St. Pete has been affected.’ ”
Not so. After the explosion on April 20, there were some cancellations, but what really wrecked the summer for TradeWinds was the countless number of people who feared that oil was about to hit St. Pete and never called in the first place. By Mr. Overton’s calculations, his profits from April to late October sank by slightly more than $1 million, compared with his average earnings during the same period for the last three years.
Of course, anyone who bothered to look at a map would have known that St. Pete Beach — and hundreds of other vacation spots throughout the Sunshine State — would have pristine beachfronts through the summer, even under the worst of the worst-case scenarios.
But Mr. Overton and others don’t blame tourists or the news media for failing to grasp basic geography and ocean currents. They blame BP, and they think the company should compensate them for money they would have earned but for the onset of black-crude hysteria.
Are they right? Should companies like TradeWinds collect damages from an oil spill even if their beaches were never sullied? Put another way, should BP have to pay for economic hardship caused by the public’s reaction to the oil, even if that reaction was utterly irrational?
The answers involve a sum of money that can safely be described as staggering. The aftermath and legal wranglings of the BP fiasco have focused so far on commercial interests — like fishing, shrimping and food processing — that relied directly on the gulf for their livelihoods. For the most part, these are people in Louisiana, Mississippi and Alabama.
What has scarcely been noted, however, is that virtually oil-free Florida just might hoover up the bulk of BP’s settlement money. The company has set aside $20 billion for a fund intended to make whole both private enterprises (for lost earnings) and the states and the federal government (for cleanup costs), with a promise to throw additional money in the pot if more is needed to cover legitimate claims.
But what if every business in Florida’s $60 billion-a-year tourist trade stands up and demands compensation for what it would have earned this summer had the spill not happened?
And what if hotels, restaurants, gas stations, miniature-golf courses, amusement parks, grocery stores, retailers, movie theaters and others want more than just those losses? What if they demand future lost revenue, too — money that would have come to Florida next year, and the year after, but won’t because people who spent their summer vacations in, say, South Carolina decided that they liked it enough to go back?
None of this should be very hard to imagine — because it’s happening. According to the estimates of plaintiffs’ lawyers, more than 100,000 entities in Florida will make what are known as proximity claims, which are based on arguments of indirect harm.
Already, the sheer number of Florida claims is outpacing those of Louisiana, among claimants who have provided addresses of where they suffered damages to the Gulf Coast Claims Facility, which is administering the BP fund: 35,500 versus just over 31,000, as of last week. Even businesses in Miami and Key West are lawyering up.
IN late April, a week after the BP oil spill began, Keith Overton had an alarming encounter with one of his employees here at the TradeWinds Resort. The guy — an engineer who had worked at the hotel for a dozen years — had just spoken with his mother, who lives in Bosnia, and the conversation went like this:
“Are you going to be fired?” she asked.
“Fired?” the son replied. “Why would I get fired?”
“Because your beach is covered with oil,” she said.
Actually, there wasn’t a drop of oil anywhere in sight. Not then, not in the months that followed and not now. This barrier-island city and snowbird haven is hundreds of miles from the nearest land befouled by the collapse of the Deepwater Horizon platform and the epic gusher it left behind.
“That was the moment I realized how big the problem had become,” recalls Mr. Overton, who runs the resort. “At first we thought, ‘Well, people will know there’s a spill in the Gulf of Mexico, and they won’t think that St. Pete has been affected.’ ”
Not so. After the explosion on April 20, there were some cancellations, but what really wrecked the summer for TradeWinds was the countless number of people who feared that oil was about to hit St. Pete and never called in the first place. By Mr. Overton’s calculations, his profits from April to late October sank by slightly more than $1 million, compared with his average earnings during the same period for the last three years.
Of course, anyone who bothered to look at a map would have known that St. Pete Beach — and hundreds of other vacation spots throughout the Sunshine State — would have pristine beachfronts through the summer, even under the worst of the worst-case scenarios.
But Mr. Overton and others don’t blame tourists or the news media for failing to grasp basic geography and ocean currents. They blame BP, and they think the company should compensate them for money they would have earned but for the onset of black-crude hysteria.
Are they right? Should companies like TradeWinds collect damages from an oil spill even if their beaches were never sullied? Put another way, should BP have to pay for economic hardship caused by the public’s reaction to the oil, even if that reaction was utterly irrational?
The answers involve a sum of money that can safely be described as staggering. The aftermath and legal wranglings of the BP fiasco have focused so far on commercial interests — like fishing, shrimping and food processing — that relied directly on the gulf for their livelihoods. For the most part, these are people in Louisiana, Mississippi and Alabama.
What has scarcely been noted, however, is that virtually oil-free Florida just might hoover up the bulk of BP’s settlement money. The company has set aside $20 billion for a fund intended to make whole both private enterprises (for lost earnings) and the states and the federal government (for cleanup costs), with a promise to throw additional money in the pot if more is needed to cover legitimate claims.
But what if every business in Florida’s $60 billion-a-year tourist trade stands up and demands compensation for what it would have earned this summer had the spill not happened?
And what if hotels, restaurants, gas stations, miniature-golf courses, amusement parks, grocery stores, retailers, movie theaters and others want more than just those losses? What if they demand future lost revenue, too — money that would have come to Florida next year, and the year after, but won’t because people who spent their summer vacations in, say, South Carolina decided that they liked it enough to go back?
None of this should be very hard to imagine — because it’s happening. According to the estimates of plaintiffs’ lawyers, more than 100,000 entities in Florida will make what are known as proximity claims, which are based on arguments of indirect harm.
Already, the sheer number of Florida claims is outpacing those of Louisiana, among claimants who have provided addresses of where they suffered damages to the Gulf Coast Claims Facility, which is administering the BP fund: 35,500 versus just over 31,000, as of last week. Even businesses in Miami and Key West are lawyering up.
G-20 Pledges to Avoid Devaluations in Push to Defuse Global Trade Tensions
Group of 20 finance chiefs sought to calm trade frictions that threaten the world economy by pledging to avoid weakening their currencies to boost exports and to let markets increasingly set foreign-exchange values.
The G-20 agreed to “move towards more market-determined exchange-rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies,” finance ministers and central bankers said after talks yesterday in Gyeongju, South Korea. U.S. Treasury Secretary Timothy F. Geithner and Chinese Vice-Premier Wang Qishan may continue the debate today when they meet in Qingdao, China, for previously unscheduled talks.
It was the first time the finance officials made a joint stance on exchange rates as they tried to end concern that nations from the U.S. to China are relying on cheap currencies to spur growth, risking a protectionist backlash. The policy makers delayed further debate over a U.S. proposal for current account targets until next month’s Seoul summit of leaders, while agreeing the gaps should be made more sustainable.
“The terms of the currency policy are so vague and broad that they can be interpreted into different meanings by each country as well as market players,” said Oh Suk Tae, an economist at SC First Bank Korea Ltd. in Seoul. “I’m not sure whether the currency war is over. We need to see actions in line with the verbal vows.”
Recycle
The finance officials previously avoided joint statements on currencies for fear of alienating China. The communique still recycles language used at previous G-20 leaders’ summits in London and Toronto and falls short of the currency accords of the 1980s.
The group also called the economic recovery “fragile and uneven.” Seeking to increase the influence of emerging nations in running of the International Monetary Fund, it endorsed what IMF Managing Director Dominique Strauss-Kahn called the “biggest reform ever” of its governance.
Europe will surrender two seats on the lender’s 24-member executive board and a majority of countries will shift more than 6 percent of so-called quotas to under-represented countries. Quotas determine voting rights, financial commitment and access to aid.
Dollar’s Slide
The policy makers met as China’s restraint of the yuan and the U.S. dollar’s recent slide force trade partners including South Korea and Brazil to temper gains in their own floating currencies to remain competitive. The dollar has dropped as the Federal Reserve mulls easing monetary policy to lift growth.
The currency on Oct. 22 completed its first weekly advance since early September against a basket of currencies, according to IntercontinentalExchange Inc.’s Dollar Index, rising 0.6 percent. Yuan forwards dropped the most in 22 months on the same day amid speculation China will rely more heavily on interest- rate hikes to damp inflation after raising its benchmark for the first time since 2007.
China should open its markets and Fed Chairman Ben S. Bernanke heard “criticism” of its current policy stance from within the G-20, German Economy Minister Rainer Bruederle said.
“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle said. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
Combating Deflation
European Central Bank President Jean-Claude Trichet said combating deflation risks “was also a contribution to global prosperity.”
To dilute the focus of such meetings on currencies and make a revaluation of the yuan more palatable to China, Geithner suggested countries set goals for their current account surpluses or deficits. While South Korea and Canada were among those to back the initiative, it was challenged by major exporters Germany and Japan.
The group will “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels,” the statement said. The IMF will deepen its monitoring of currencies and persistently large trade gaps.
The G-20 members will flesh out details by the Seoul forum, a U.S. official said. Although Japanese Finance Minister Yoshihiko Noda said Geithner wanted a 4 percent cap on trade imbalances, the official said the U.S. doesn’t expect a fixed target and may instead push for a range with an eye on having sustainable trade positions by 2015.
Balanced Growth
“We need to work to achieve more balance in the pattern of global growth,” said Geithner. “This requires a shift in growth strategies by countries that have traditionally run large trade and current account surpluses, away from export dependence and toward stronger domestic demand led growth.”
Bundesbank President Axel Weber, who also attended the talks, said Germany shouldn’t be blamed for having a current- account surplus.
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting. Saudi Arabia, Germany, Russia and China all run surpluses larger than 4 percent of gross domestic product, while Turkey and South Africa have deficits bigger than that, according to the IMF.
The G-20 has long attempted to narrow such imbalances and pivot the world economy away from its reliance on excess U.S. demand and Chinese savings after those fault lines helped trigger the credit crisis. Limiting talks to foreign exchange is too inflexible for nations with trade surpluses and refocusing them on current accounts would allow tools other than currencies to be used, officials said.
Yuan’s Rise
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Fed has sent the dollar tumbling by leaning toward the purchase of more assets to tackle unemployment near a 26-year high and weak inflation.
Caught in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and slow the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions, and Brazil last week raised taxes on foreign capital for the second time this month.
Advanced economies agreed to be “vigilant against excess volatility and disorderly movements in exchange rates,” the G- 20 statement said. Geithner said the U.S. backs a “strong dollar” and recognizes its global responsibility to support it.
Trading Edge
The G-20’s statement will encourage Asian nations to allow their exchange rates to rise without having to worry they will end up doing so alone and lose a trading edge, said Douglas Borthwick, head of foreign-exchange trading at Stamford, Connecticut-based Faros Trading. He said the yuan may climb to 6.60 per dollar in November from 6.66 at the end of last week and predicted the dollar will drop against the euro and yen.
For all the complaints it faces, China let the yuan gain the most versus the dollar since 2005 in September and by more than 20 percent in the last five years. The Bloomberg-JPMorgan Chase & Co. Asia Currency Index is up about 3 percent since August.
“China and its neighbors see the need to strengthen their currencies,” said Borthwick, whose firm executes currency transactions on behalf of hedge funds and institutional clients. “Going forward they will all move together and allow their currencies to strengthen, over time resulting in a more balanced economy.”
The G-20 agreed to “move towards more market-determined exchange-rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies,” finance ministers and central bankers said after talks yesterday in Gyeongju, South Korea. U.S. Treasury Secretary Timothy F. Geithner and Chinese Vice-Premier Wang Qishan may continue the debate today when they meet in Qingdao, China, for previously unscheduled talks.
It was the first time the finance officials made a joint stance on exchange rates as they tried to end concern that nations from the U.S. to China are relying on cheap currencies to spur growth, risking a protectionist backlash. The policy makers delayed further debate over a U.S. proposal for current account targets until next month’s Seoul summit of leaders, while agreeing the gaps should be made more sustainable.
“The terms of the currency policy are so vague and broad that they can be interpreted into different meanings by each country as well as market players,” said Oh Suk Tae, an economist at SC First Bank Korea Ltd. in Seoul. “I’m not sure whether the currency war is over. We need to see actions in line with the verbal vows.”
Recycle
The finance officials previously avoided joint statements on currencies for fear of alienating China. The communique still recycles language used at previous G-20 leaders’ summits in London and Toronto and falls short of the currency accords of the 1980s.
The group also called the economic recovery “fragile and uneven.” Seeking to increase the influence of emerging nations in running of the International Monetary Fund, it endorsed what IMF Managing Director Dominique Strauss-Kahn called the “biggest reform ever” of its governance.
Europe will surrender two seats on the lender’s 24-member executive board and a majority of countries will shift more than 6 percent of so-called quotas to under-represented countries. Quotas determine voting rights, financial commitment and access to aid.
Dollar’s Slide
The policy makers met as China’s restraint of the yuan and the U.S. dollar’s recent slide force trade partners including South Korea and Brazil to temper gains in their own floating currencies to remain competitive. The dollar has dropped as the Federal Reserve mulls easing monetary policy to lift growth.
The currency on Oct. 22 completed its first weekly advance since early September against a basket of currencies, according to IntercontinentalExchange Inc.’s Dollar Index, rising 0.6 percent. Yuan forwards dropped the most in 22 months on the same day amid speculation China will rely more heavily on interest- rate hikes to damp inflation after raising its benchmark for the first time since 2007.
China should open its markets and Fed Chairman Ben S. Bernanke heard “criticism” of its current policy stance from within the G-20, German Economy Minister Rainer Bruederle said.
“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle said. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”
Combating Deflation
European Central Bank President Jean-Claude Trichet said combating deflation risks “was also a contribution to global prosperity.”
To dilute the focus of such meetings on currencies and make a revaluation of the yuan more palatable to China, Geithner suggested countries set goals for their current account surpluses or deficits. While South Korea and Canada were among those to back the initiative, it was challenged by major exporters Germany and Japan.
The group will “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels,” the statement said. The IMF will deepen its monitoring of currencies and persistently large trade gaps.
The G-20 members will flesh out details by the Seoul forum, a U.S. official said. Although Japanese Finance Minister Yoshihiko Noda said Geithner wanted a 4 percent cap on trade imbalances, the official said the U.S. doesn’t expect a fixed target and may instead push for a range with an eye on having sustainable trade positions by 2015.
Balanced Growth
“We need to work to achieve more balance in the pattern of global growth,” said Geithner. “This requires a shift in growth strategies by countries that have traditionally run large trade and current account surpluses, away from export dependence and toward stronger domestic demand led growth.”
Bundesbank President Axel Weber, who also attended the talks, said Germany shouldn’t be blamed for having a current- account surplus.
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting. Saudi Arabia, Germany, Russia and China all run surpluses larger than 4 percent of gross domestic product, while Turkey and South Africa have deficits bigger than that, according to the IMF.
The G-20 has long attempted to narrow such imbalances and pivot the world economy away from its reliance on excess U.S. demand and Chinese savings after those fault lines helped trigger the credit crisis. Limiting talks to foreign exchange is too inflexible for nations with trade surpluses and refocusing them on current accounts would allow tools other than currencies to be used, officials said.
Yuan’s Rise
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Fed has sent the dollar tumbling by leaning toward the purchase of more assets to tackle unemployment near a 26-year high and weak inflation.
Caught in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and slow the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions, and Brazil last week raised taxes on foreign capital for the second time this month.
Advanced economies agreed to be “vigilant against excess volatility and disorderly movements in exchange rates,” the G- 20 statement said. Geithner said the U.S. backs a “strong dollar” and recognizes its global responsibility to support it.
Trading Edge
The G-20’s statement will encourage Asian nations to allow their exchange rates to rise without having to worry they will end up doing so alone and lose a trading edge, said Douglas Borthwick, head of foreign-exchange trading at Stamford, Connecticut-based Faros Trading. He said the yuan may climb to 6.60 per dollar in November from 6.66 at the end of last week and predicted the dollar will drop against the euro and yen.
For all the complaints it faces, China let the yuan gain the most versus the dollar since 2005 in September and by more than 20 percent in the last five years. The Bloomberg-JPMorgan Chase & Co. Asia Currency Index is up about 3 percent since August.
“China and its neighbors see the need to strengthen their currencies,” said Borthwick, whose firm executes currency transactions on behalf of hedge funds and institutional clients. “Going forward they will all move together and allow their currencies to strengthen, over time resulting in a more balanced economy.”
US makes Pakistan aid pledge
The US will provide Pakistan with $2bn a year in military aid over at least four years, Hillary Clinton has promised, underlining Washington’s view that the battle against Islamist extremists on Pakistani soil is a vital national interest.
The secretary of state’s promise to maintain military aid at its current level from 2012 to 2016 builds on increases in such support under George W. Bush and comes in spite of Barack Obama’s intention to focus more on civilian assistance. The US president has signed legislation committing to $1.5bn in civilian aid to Pakistan over five years.
However, although Mrs Clinton told a meeting with Pakistani officials on Friday that the US had “no stronger partner” than Islamabad over counterterrorism, fresh strains are besetting the two countries.
US officials are disappointed that Pakistan has not done more to move against extremist strongholds and are worried the country’s civilian leadership is weak and its military unreliable. They are also seeking to stave off the reaction to a video apparently showing Pakistani military executing prisoners and an Indian inquiry linking Pakistan’s intelligence services to the 2008 Mumbai attack.
“There are still tongue-in-cheek comments . . . about Pakistan’s heart not really being in this fight,” countered Mahmood Qureshi, foreign minister, at the Washington meeting. “We do not know what greater evidence to offer than the blood of our people.” He also called for Mr Obama to focus on the dispute over Kashmir when he travels to India next month.
Meanwhile, Pakistan officials are questioning US commitment to the region in light of Mr Obama’s plans to begin withdrawing US troops from Afghanistan next July. Islamabad further demonstrated its leverage over the Afghanistan war effort recently by temporarily choking off a supply route for Nato troops in retaliation against US incursions.
The meeting between Pakistan and the US – which included an encounter in the White House between Mr Obama and Gen Ashfaq Kayani, Pakistan’s army chief, and a formal session on Friday – is intended to address such concerns and deepen co-operation.
It is the third cabinet-level meeting in a year, highlighting Pakistan’s importance for the US. But some of the development projects singled out by the US for aid at the last session have been set back by Pakistan’s devastating floods.
Officials in Washington are now less hopeful that Pakistan will launch a sustained push against terrorist havens.
A White House report sent to Congress last month said the military had made just “short-lived gains” in areas seized from the insurgents, and had made a “political choice” not to take on Afghan Taliban or al-Qaeda forces in north Waziristan.
The video on the internet showing men in military uniforms executing prisoners has led US officials to say Washington will refuse to provide aid to Pakistani army units that have killed civilians.
At the same time, the US is resisting Indian conclusions that David Headley, one of the plotters of the Mumbai attacks, was backed by Pakistan’s Inter-Services Intelligence, saying it has no indications of such a link.
The secretary of state’s promise to maintain military aid at its current level from 2012 to 2016 builds on increases in such support under George W. Bush and comes in spite of Barack Obama’s intention to focus more on civilian assistance. The US president has signed legislation committing to $1.5bn in civilian aid to Pakistan over five years.
However, although Mrs Clinton told a meeting with Pakistani officials on Friday that the US had “no stronger partner” than Islamabad over counterterrorism, fresh strains are besetting the two countries.
US officials are disappointed that Pakistan has not done more to move against extremist strongholds and are worried the country’s civilian leadership is weak and its military unreliable. They are also seeking to stave off the reaction to a video apparently showing Pakistani military executing prisoners and an Indian inquiry linking Pakistan’s intelligence services to the 2008 Mumbai attack.
“There are still tongue-in-cheek comments . . . about Pakistan’s heart not really being in this fight,” countered Mahmood Qureshi, foreign minister, at the Washington meeting. “We do not know what greater evidence to offer than the blood of our people.” He also called for Mr Obama to focus on the dispute over Kashmir when he travels to India next month.
Meanwhile, Pakistan officials are questioning US commitment to the region in light of Mr Obama’s plans to begin withdrawing US troops from Afghanistan next July. Islamabad further demonstrated its leverage over the Afghanistan war effort recently by temporarily choking off a supply route for Nato troops in retaliation against US incursions.
The meeting between Pakistan and the US – which included an encounter in the White House between Mr Obama and Gen Ashfaq Kayani, Pakistan’s army chief, and a formal session on Friday – is intended to address such concerns and deepen co-operation.
It is the third cabinet-level meeting in a year, highlighting Pakistan’s importance for the US. But some of the development projects singled out by the US for aid at the last session have been set back by Pakistan’s devastating floods.
Officials in Washington are now less hopeful that Pakistan will launch a sustained push against terrorist havens.
A White House report sent to Congress last month said the military had made just “short-lived gains” in areas seized from the insurgents, and had made a “political choice” not to take on Afghan Taliban or al-Qaeda forces in north Waziristan.
The video on the internet showing men in military uniforms executing prisoners has led US officials to say Washington will refuse to provide aid to Pakistani army units that have killed civilians.
At the same time, the US is resisting Indian conclusions that David Headley, one of the plotters of the Mumbai attacks, was backed by Pakistan’s Inter-Services Intelligence, saying it has no indications of such a link.
Friday, October 22, 2010
BRIC Stocks May Double, Return to 2008 High, on Fed's Easing, SocGen Says
Stock markets in the biggest developing nations may double as the Federal Reserve’s monetary stimulus sends valuations back to their 2008 peak, according to Dylan Grice, a global strategist at Societe Generale SA.
Investors have poured record amounts of money into emerging-market equity funds this year as U.S. benchmark interest rates near zero spurred demand for higher-yielding assets abroad, EPFR Global data show. Fed Chairman Ben S. Bernanke said last week more monetary stimulus may be warranted after $1.7 trillion of debt purchases failed to spur growth.
Low interest rates under Bernanke’s predecessor Alan Greenspan helped fuel the U.S. housing boom and bust that precipitated the global financial recession two years ago, economists including John Taylor of Stanford University have said. The MSCI BRIC Index of shares in Brazil, Russia, India and China has surged 164 percent from its 2008 low, beating the 40 percent gain in the Standard & Poor’s 500 Index.
“If central banks know anything, it’s how to blow bubbles,” Grice, who is based in London and was ranked the No. 2 strategist behind SocGen’s Albert Edwards in Thomson Extel’s Pan-Europe 2010 survey, wrote in a research report e-mailed today. “Emerging-market valuations could go much further before they could be considered seriously stretched.”
Equities in the BRIC markets trade at a discount to the Standard & Poor’s 500 based on a measure of profits adjusted for economic cycles, Grice said.
‘Too Much Liquidity’
BRIC share prices may double from current levels if valuations climb back to 2008 levels, when they were more expensive than the S&P 500, he said. Emerging-market bond valuations have already returned to their level two years ago, Grice wrote.
The combination of healthy government finances, young populations and hard-working people with low income levels makes developing nations “compelling” investment destinations, Grice wrote.
Developing nations will expand 6.4 percent next year as the U.S. grows 2.3 percent, according to forecasts this month from the International Monetary Fund. Brazil’s economy grew 9 percent in the first quarter, the fastest pace in 15 years, while China expanded 11.9 percent, the most since 2007.
“What happens when you have a compelling investment case and too much liquidity?” Grice wrote. “You get rampant asset price inflation.”
Emerging-market equity mutual funds attracted more than $60 billion this year and bond funds lured more than $40 billion, on pace for record annual inflows, according to data compiled by Cambridge, Massachusetts-based research firm EPFR.
Cheap Options
Buying call options on emerging-market equities may be a cheap way to profit from a “nascent” emerging-market bubble, Grice wrote.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall. Calls give the right to buy a security through a specific date for an agreed price.
“The headache posed by bubbles depends on the asset managers’ perspective; for skeptics the pain is on the way up, for true believers it’s on the way down,” Grice wrote. “For emerging-market skeptics, such a scenario represents a positive tail risk. Options pricing currently suggests such a risk is relatively cheap to hedge.”
Investors have poured record amounts of money into emerging-market equity funds this year as U.S. benchmark interest rates near zero spurred demand for higher-yielding assets abroad, EPFR Global data show. Fed Chairman Ben S. Bernanke said last week more monetary stimulus may be warranted after $1.7 trillion of debt purchases failed to spur growth.
Low interest rates under Bernanke’s predecessor Alan Greenspan helped fuel the U.S. housing boom and bust that precipitated the global financial recession two years ago, economists including John Taylor of Stanford University have said. The MSCI BRIC Index of shares in Brazil, Russia, India and China has surged 164 percent from its 2008 low, beating the 40 percent gain in the Standard & Poor’s 500 Index.
“If central banks know anything, it’s how to blow bubbles,” Grice, who is based in London and was ranked the No. 2 strategist behind SocGen’s Albert Edwards in Thomson Extel’s Pan-Europe 2010 survey, wrote in a research report e-mailed today. “Emerging-market valuations could go much further before they could be considered seriously stretched.”
Equities in the BRIC markets trade at a discount to the Standard & Poor’s 500 based on a measure of profits adjusted for economic cycles, Grice said.
‘Too Much Liquidity’
BRIC share prices may double from current levels if valuations climb back to 2008 levels, when they were more expensive than the S&P 500, he said. Emerging-market bond valuations have already returned to their level two years ago, Grice wrote.
The combination of healthy government finances, young populations and hard-working people with low income levels makes developing nations “compelling” investment destinations, Grice wrote.
Developing nations will expand 6.4 percent next year as the U.S. grows 2.3 percent, according to forecasts this month from the International Monetary Fund. Brazil’s economy grew 9 percent in the first quarter, the fastest pace in 15 years, while China expanded 11.9 percent, the most since 2007.
“What happens when you have a compelling investment case and too much liquidity?” Grice wrote. “You get rampant asset price inflation.”
Emerging-market equity mutual funds attracted more than $60 billion this year and bond funds lured more than $40 billion, on pace for record annual inflows, according to data compiled by Cambridge, Massachusetts-based research firm EPFR.
Cheap Options
Buying call options on emerging-market equities may be a cheap way to profit from a “nascent” emerging-market bubble, Grice wrote.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall. Calls give the right to buy a security through a specific date for an agreed price.
“The headache posed by bubbles depends on the asset managers’ perspective; for skeptics the pain is on the way up, for true believers it’s on the way down,” Grice wrote. “For emerging-market skeptics, such a scenario represents a positive tail risk. Options pricing currently suggests such a risk is relatively cheap to hedge.”
Plunging Mortgage Refinancing Rates Aid the Thrifty
For those sober souls who were thrifty long before it became fashionable, the last few years have been intensely aggravating.
They did nothing to cause the recession, but they absorbed the pain. Their stock portfolios languished. The values of their homes skidded. Their savings still do not earn enough interest each month to buy a pack of gum.
Now, at last, the frugal are celebrating. With a leg up on their less creditworthy neighbors, they are qualifying for refinanced home mortgages at interest rates that in any other recent era would have been considered stealing. And unlike in late 2008, when rates started their plunge to historic lows, many lenders say they are rushing to accommodate the influx in applications.
Wilner Samson and Michelle Smedley, both doctors, just refinanced their home in West Hartford, Conn., saving $300 a month. “There were times during the housing boom when I felt I was missing out on a big party,” said Dr. Samson, a kidney specialist. “Now I’m getting my reward.”
Refinancing activity surged in early October when mortgage rates fell for the fifth week in a row, pushing the volume to one of the highest levels of the year, the Mortgage Bankers Association said. Many economists expect the trend to continue as the Federal Reserve moves further to bolster the economy.
And while the credit elite get the best treatment, for the first time since the recession began the rewards of lower rates are beginning to spread to some of those with less than exemplary finances or just more complicated circumstances, according to data from Fannie Mae, which buys millions of mortgages from lenders.
Kathy and Mike Bernreuter have been working on the refinance of their home in Northbrook, Ill., since May. The property taxes in their escrow account were improperly credited, a small mistake that nevertheless threatened to put the mortgage in default. They had to get a home equity loan on their former apartment, which they could not sell, and apply the funds to their house.
It was an ordeal that threatened to ruin their summer — and not so long ago, would have been a nonstarter for most lenders — but the effort paid off.
This month the Bernreuters were told their new loan was on track for approval. Their monthly mortgage payment should soon drop by more than $1,000 a month.
“Now we’ll have more money available to us to actually fix up this house,” said Mrs. Bernreuter.
For competitive reasons, the large lenders are reluctant to reveal their refinancing numbers, but they acknowledged that the news had been getting ever better for many borrowers. JPMorgan Chase, for instance, said that “refinancings have increased dramatically as a percentage of all new mortgages from a year ago, and the refinancing dollar volume has risen even more dramatically.” Chase also said it had added staff to its refinancing unit to process applications more quickly.
Interest rates for 30-year fixed mortgages this week were 4.21 percent, just slightly above the 4.19 percent record set earlier this month, Freddie Mac, the other large mortgage company, said. The current level is estimated to be the lowest since the early 1950s. Two years ago, rates were about 6.5 percent.
Lower rates are merely a dream if you do not qualify. Early on, as the rates were coming down, Fannie Mae and Freddie Mac were tightening standards on loans they purchased. Lenders would not refinance loans they could not sell to the holding companies.
Now Fannie and Freddie have stopped tightening and may be loosening requirements a bit. The average credit score of a Fannie Mae borrower rose to 761 in 2009, from 716 in 2007. In the second quarter of this year, it was 758.
In 2007, before housing started to slide in earnest, about one in six Fannie borrowers had less than 10 percent equity in their property. A small slide in values could wipe them out and encourage defaults, which is exactly what happened to many.
Last year, only one in 33 borrowers had that little equity, because of stricter terms by banks. But in the first half of this year, the level was creeping back up, to one in 17.
“The nice thing about this mini-refi boom is that folks who have got into a loan that is a bit of a ticking time bomb have the opportunity to get out,” said Kevin Marshall, president of the research firm Clear Capital.
Another upside of the refinancing surge is that households with more cash in their pocket tend to spend it. And more refinances might also help heal the troubled housing market.
“If you could wave a magic wand and give a refinance to everyone who wanted one, that would absolutely reduce the problem of folks who are defaulting,” said Mr. Marshall.
Bobby Frank, a Valley Stream, N.Y., mortgage broker, offers this advice for homeowners who have been turned down in the past: “Call your bank. Every day, like a hungry dog, call and ask.”
A different approach worked for Tom Foley when he tried to refinance his home in Cape Cod, Mass. His lender, one of the biggest, sent him a letter inviting him to refinance. Then it gave Mr. Foley a lengthy run-around despite what he says is his excellent credit.
Mr. Foley compared his original lender to Hal, the computer in the film “2001: A Space Odyssey.” “They pretend to be personal, but are far from it,” he said. “If there isn’t an office around the corner you can walk to, stay away from it.” He eventually refinanced with a local bank, Sovereign.
Refinances are still a long way from the boom of 2003, when volume reached $2.5 trillion. The Mortgage Bankers Association estimates that this year’s volume will be about $900 billion. Analysts calculate that more than two-thirds of all households with mortgages could benefit from a new loan. Many of those families owe more than their home is worth, which all by itself rules out a refinance. There are no shortage of proposals to create a magic wand to help these 11 million homeowners.
Happy are the borrowers who do not need to wait for aid that may not come. Dr. Samson, the Connecticut physician, was taught the virtues of saving by his father, an immigrant from Haiti who died this month with all bills paid.
Dr. Samson and his wife are not taking the monthly savings from their refinance and spending it. Instead, they are continuing to pay the same amount each month. “Paying down the loan faster opens up options for us,” said Dr. Samson, who is 42. “We might want to retire early.”
They did nothing to cause the recession, but they absorbed the pain. Their stock portfolios languished. The values of their homes skidded. Their savings still do not earn enough interest each month to buy a pack of gum.
Now, at last, the frugal are celebrating. With a leg up on their less creditworthy neighbors, they are qualifying for refinanced home mortgages at interest rates that in any other recent era would have been considered stealing. And unlike in late 2008, when rates started their plunge to historic lows, many lenders say they are rushing to accommodate the influx in applications.
Wilner Samson and Michelle Smedley, both doctors, just refinanced their home in West Hartford, Conn., saving $300 a month. “There were times during the housing boom when I felt I was missing out on a big party,” said Dr. Samson, a kidney specialist. “Now I’m getting my reward.”
Refinancing activity surged in early October when mortgage rates fell for the fifth week in a row, pushing the volume to one of the highest levels of the year, the Mortgage Bankers Association said. Many economists expect the trend to continue as the Federal Reserve moves further to bolster the economy.
And while the credit elite get the best treatment, for the first time since the recession began the rewards of lower rates are beginning to spread to some of those with less than exemplary finances or just more complicated circumstances, according to data from Fannie Mae, which buys millions of mortgages from lenders.
Kathy and Mike Bernreuter have been working on the refinance of their home in Northbrook, Ill., since May. The property taxes in their escrow account were improperly credited, a small mistake that nevertheless threatened to put the mortgage in default. They had to get a home equity loan on their former apartment, which they could not sell, and apply the funds to their house.
It was an ordeal that threatened to ruin their summer — and not so long ago, would have been a nonstarter for most lenders — but the effort paid off.
This month the Bernreuters were told their new loan was on track for approval. Their monthly mortgage payment should soon drop by more than $1,000 a month.
“Now we’ll have more money available to us to actually fix up this house,” said Mrs. Bernreuter.
For competitive reasons, the large lenders are reluctant to reveal their refinancing numbers, but they acknowledged that the news had been getting ever better for many borrowers. JPMorgan Chase, for instance, said that “refinancings have increased dramatically as a percentage of all new mortgages from a year ago, and the refinancing dollar volume has risen even more dramatically.” Chase also said it had added staff to its refinancing unit to process applications more quickly.
Interest rates for 30-year fixed mortgages this week were 4.21 percent, just slightly above the 4.19 percent record set earlier this month, Freddie Mac, the other large mortgage company, said. The current level is estimated to be the lowest since the early 1950s. Two years ago, rates were about 6.5 percent.
Lower rates are merely a dream if you do not qualify. Early on, as the rates were coming down, Fannie Mae and Freddie Mac were tightening standards on loans they purchased. Lenders would not refinance loans they could not sell to the holding companies.
Now Fannie and Freddie have stopped tightening and may be loosening requirements a bit. The average credit score of a Fannie Mae borrower rose to 761 in 2009, from 716 in 2007. In the second quarter of this year, it was 758.
In 2007, before housing started to slide in earnest, about one in six Fannie borrowers had less than 10 percent equity in their property. A small slide in values could wipe them out and encourage defaults, which is exactly what happened to many.
Last year, only one in 33 borrowers had that little equity, because of stricter terms by banks. But in the first half of this year, the level was creeping back up, to one in 17.
“The nice thing about this mini-refi boom is that folks who have got into a loan that is a bit of a ticking time bomb have the opportunity to get out,” said Kevin Marshall, president of the research firm Clear Capital.
Another upside of the refinancing surge is that households with more cash in their pocket tend to spend it. And more refinances might also help heal the troubled housing market.
“If you could wave a magic wand and give a refinance to everyone who wanted one, that would absolutely reduce the problem of folks who are defaulting,” said Mr. Marshall.
Bobby Frank, a Valley Stream, N.Y., mortgage broker, offers this advice for homeowners who have been turned down in the past: “Call your bank. Every day, like a hungry dog, call and ask.”
A different approach worked for Tom Foley when he tried to refinance his home in Cape Cod, Mass. His lender, one of the biggest, sent him a letter inviting him to refinance. Then it gave Mr. Foley a lengthy run-around despite what he says is his excellent credit.
Mr. Foley compared his original lender to Hal, the computer in the film “2001: A Space Odyssey.” “They pretend to be personal, but are far from it,” he said. “If there isn’t an office around the corner you can walk to, stay away from it.” He eventually refinanced with a local bank, Sovereign.
Refinances are still a long way from the boom of 2003, when volume reached $2.5 trillion. The Mortgage Bankers Association estimates that this year’s volume will be about $900 billion. Analysts calculate that more than two-thirds of all households with mortgages could benefit from a new loan. Many of those families owe more than their home is worth, which all by itself rules out a refinance. There are no shortage of proposals to create a magic wand to help these 11 million homeowners.
Happy are the borrowers who do not need to wait for aid that may not come. Dr. Samson, the Connecticut physician, was taught the virtues of saving by his father, an immigrant from Haiti who died this month with all bills paid.
Dr. Samson and his wife are not taking the monthly savings from their refinance and spending it. Instead, they are continuing to pay the same amount each month. “Paying down the loan faster opens up options for us,” said Dr. Samson, who is 42. “We might want to retire early.”
G-20 Will Pledge to Refrain From Competitive Devaluations at Korea Meeting
Group of 20 finance chiefs will today pledge to avoid competitive devaluations and endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy.
The G-20’s finance ministers and central bankers will probably make the commitments in a statement to be released after talks end today in Gyeongju, South Korea, a G-20 official said, citing a draft and speaking on condition of anonymity.
Policy makers are still wrangling over a U.S. proposal to set targets for current account gaps as a way of rebalancing global growth and realigning exchange rates, leaving further debate to next month’s Seoul summit of leaders. The fragile economic recovery is at stake as nations spur exports with weaker currencies, raising the prospect of protectionism.
The first joint comment on exchange rates by G-20 finance officials since leaders began meeting two years ago still only recycles language used at other forums and falls well short of the currency accords of the 1980s. Such calls are unlikely to stop countries such as China from controlling their currencies or prevent the dollar resuming its recent slide, said John Normand, global head of foreign-exchange strategy at JPMorgan Chase & Co.
No ‘Better Option’
“The status quo, whereby countries manage a dollar decline as best fits their circumstances as long as they don’t deliberately strengthen the dollar, will probably persist for lack of a better option,” said London-based Normand in a research report yesterday.
The G-20 officials are meeting amid a so-called currency war as nations from the U.S. to China are accused of using cheaper exchange rates to support economic growth, forcing trade partners such as South Korea and Brazil to temper gains in their own currencies to remain competitive.
In a new bid to dilute the focus on currencies and make a revaluation of the yuan more palatable to China, U.S. Treasury Secretary Timothy F. Geithner proposed countries set numerical goals for their current account surpluses or deficits. While South Korea, France and Canada were among those to back the initiative, it was challenged by exporters Germany and Japan.
The group agreed for now to pursue a range of policies to reduce imbalances and asked the International Monetary Fund to study the impact of exchange rates and persistence of large trade gaps, the G-20 official said.
Range of Policies
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting. Saudi Arabia, Germany, Russia and China all run surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the IMF.
The G-20 has long sought ways to restrain such imbalances and pivot the world economy away from its reliance on excess U.S. demand and Chinese savings. Limiting those talks to foreign exchange is too inflexible for nations with trade surpluses and refocusing them on current accounts would allow tools other than currencies to be used, a South Korean official said yesterday.
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Federal Reserve has sent the dollar tumbling by leaning toward the purchase of more assets as officials struggle with unemployment near a 26- year high and inflation they say is below levels consistent with long-term economic growth.
Speculative Cash
Trapped in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and limit the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions and Brazil this week raised taxes on foreign capital for the second time this month.
The G-20 finance ministers previously avoided taking a joint stance on currencies for fear of alienating China. Any pledge against competitive devaluation would nevertheless echo language the G-20 leaders used as recently as an April 2009 conference in London. They also said in Toronto in June that they favored market-based exchange rates.
The differences over currencies raise fresh questions over whether the G-20 can ever find consensus or even meet its commitments a year after it became the main body for steering international economic policy. Having once united to fight the credit crisis and global recession by bailing out banks and reducing taxes, the group then split on topics ranging from cutting stimulus to levies on financial speculation. It has also failed to live up to agreements to resist protectionism.
The G-20’s finance ministers and central bankers will probably make the commitments in a statement to be released after talks end today in Gyeongju, South Korea, a G-20 official said, citing a draft and speaking on condition of anonymity.
Policy makers are still wrangling over a U.S. proposal to set targets for current account gaps as a way of rebalancing global growth and realigning exchange rates, leaving further debate to next month’s Seoul summit of leaders. The fragile economic recovery is at stake as nations spur exports with weaker currencies, raising the prospect of protectionism.
The first joint comment on exchange rates by G-20 finance officials since leaders began meeting two years ago still only recycles language used at other forums and falls well short of the currency accords of the 1980s. Such calls are unlikely to stop countries such as China from controlling their currencies or prevent the dollar resuming its recent slide, said John Normand, global head of foreign-exchange strategy at JPMorgan Chase & Co.
No ‘Better Option’
“The status quo, whereby countries manage a dollar decline as best fits their circumstances as long as they don’t deliberately strengthen the dollar, will probably persist for lack of a better option,” said London-based Normand in a research report yesterday.
The G-20 officials are meeting amid a so-called currency war as nations from the U.S. to China are accused of using cheaper exchange rates to support economic growth, forcing trade partners such as South Korea and Brazil to temper gains in their own currencies to remain competitive.
In a new bid to dilute the focus on currencies and make a revaluation of the yuan more palatable to China, U.S. Treasury Secretary Timothy F. Geithner proposed countries set numerical goals for their current account surpluses or deficits. While South Korea, France and Canada were among those to back the initiative, it was challenged by exporters Germany and Japan.
The group agreed for now to pursue a range of policies to reduce imbalances and asked the International Monetary Fund to study the impact of exchange rates and persistence of large trade gaps, the G-20 official said.
Range of Policies
A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting. Saudi Arabia, Germany, Russia and China all run surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the IMF.
The G-20 has long sought ways to restrain such imbalances and pivot the world economy away from its reliance on excess U.S. demand and Chinese savings. Limiting those talks to foreign exchange is too inflexible for nations with trade surpluses and refocusing them on current accounts would allow tools other than currencies to be used, a South Korean official said yesterday.
Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption. At the same time, the Federal Reserve has sent the dollar tumbling by leaning toward the purchase of more assets as officials struggle with unemployment near a 26- year high and inflation they say is below levels consistent with long-term economic growth.
Speculative Cash
Trapped in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and limit the inflow of speculative cash. South Korea is discussing several measures including a bank tax or levy on financial transactions and Brazil this week raised taxes on foreign capital for the second time this month.
The G-20 finance ministers previously avoided taking a joint stance on currencies for fear of alienating China. Any pledge against competitive devaluation would nevertheless echo language the G-20 leaders used as recently as an April 2009 conference in London. They also said in Toronto in June that they favored market-based exchange rates.
The differences over currencies raise fresh questions over whether the G-20 can ever find consensus or even meet its commitments a year after it became the main body for steering international economic policy. Having once united to fight the credit crisis and global recession by bailing out banks and reducing taxes, the group then split on topics ranging from cutting stimulus to levies on financial speculation. It has also failed to live up to agreements to resist protectionism.
Vodafone ordered to pay tax on Indian deal
Indian tax authorities have ordered Vodafone to pay Rs112.18bn ($2.53bn) in back taxes for its $11bn acquisition of Hutchison Whampoa’s stake in a domestic mobile operator that it completed three years ago.
It is the latest blow for the British telecommunications group in its battle with the Indian tax department.
The payment, requested within 30 days, was at the top end of the range of analysts’ estimates.
Vodafone rejected the tax authorities’ demand and said it would take all the necessary actions to defend itself in a case closely watched by foreign investors.
Lawyers warned that the case could have serious implications for the future of cross-border deals in India.
“Vodafone strongly disagrees with the tax calculation released by the Indian Tax Office,” the group said.
“In this ‘test case,’ the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years and this also goes against internationally recognised tax norms.”
Vittorio Colao, global chief executive of Vodafone, told India’s Economic Times newspaper this week that future investments in India would hinge on a positive outcome of the legal battle.
“I have invested more in India because I do believe in the country, but of course now I also need a positive outcome from the tax case and stable regulatory environment to continue,” Mr Colao said.
“We need to get more certainty that regulation will not come back and bite us in order to confirm our investment.”
Vodafone bought a 67 per cent stake in Hutchison Essar, now known as Vodafone Essar, from Hutchison of Hong Kong in 2007.
The transaction was made via a Dutch company controlled by Vodafone that paid $11bn to a Cayman Islands entity run by Hutchison Whampoa, the seller, for another Cayman Islands group that indirectly held a controlling stake in the India-based mobile operator.
Last month the Mumbai High Court ruled that the deal should have been subject to Indian capital gains tax because the operating assets of Hutchison Essar were in India.
Vodafone appealed against the High Court’s decision, and argued that it was not liable for any tax on a transaction that occurred outside of India.
The $2.5bn tax claim will be reviewed on October 25 when the case will be brought before the Supreme Court in New Delhi.
It is the latest blow for the British telecommunications group in its battle with the Indian tax department.
The payment, requested within 30 days, was at the top end of the range of analysts’ estimates.
Vodafone rejected the tax authorities’ demand and said it would take all the necessary actions to defend itself in a case closely watched by foreign investors.
Lawyers warned that the case could have serious implications for the future of cross-border deals in India.
“Vodafone strongly disagrees with the tax calculation released by the Indian Tax Office,” the group said.
“In this ‘test case,’ the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years and this also goes against internationally recognised tax norms.”
Vittorio Colao, global chief executive of Vodafone, told India’s Economic Times newspaper this week that future investments in India would hinge on a positive outcome of the legal battle.
“I have invested more in India because I do believe in the country, but of course now I also need a positive outcome from the tax case and stable regulatory environment to continue,” Mr Colao said.
“We need to get more certainty that regulation will not come back and bite us in order to confirm our investment.”
Vodafone bought a 67 per cent stake in Hutchison Essar, now known as Vodafone Essar, from Hutchison of Hong Kong in 2007.
The transaction was made via a Dutch company controlled by Vodafone that paid $11bn to a Cayman Islands entity run by Hutchison Whampoa, the seller, for another Cayman Islands group that indirectly held a controlling stake in the India-based mobile operator.
Last month the Mumbai High Court ruled that the deal should have been subject to Indian capital gains tax because the operating assets of Hutchison Essar were in India.
Vodafone appealed against the High Court’s decision, and argued that it was not liable for any tax on a transaction that occurred outside of India.
The $2.5bn tax claim will be reviewed on October 25 when the case will be brought before the Supreme Court in New Delhi.
Wednesday, October 20, 2010
Coal India is in demand on debut
Coal India’s $3.5bn share sale, set to be the country’s biggest initial public offering to date, was 12 times subscribed on the third day of bidding as foreign investors seeking emerging markets exposure bought the stock.
The institutional portion of the offering on Wednesday covered 22 times the shares available in the state-run company. Most of the bids came at the top of Coal India’s Rs225-Rs245 IPO price range, valuing the world’s largest coal miner at about $35bn. Investors have been pouring billions of dollars into emerging economies such as India, which has seen capital inflows hit record levels this year.
The country’s stock market has been booming. The Bombay Stock Exchange’s benchmark Sensex index has risen about 15 per cent this year, driven by the influx of capital from western economies. India’s equity markets have attracted a record $24bn in foreign investment so far this year.
A string of IPOs of state-run companies will follow Coal India’s and are expected to attract more foreign capital. Sonal Varma, chief India economist for Nomura, said the spike in inflows coupled with the widest current account deficit in 20 years, indicated that Asia’s third-largest economy was at risk of overheating.
Several market analysts, though, believe the economy, which grew 8.8 per cent year-on-year in the second quarter, will be able to absorb the extra capital.
Rashesh Shah, chairman of Mumbai-based financial services house Edelweiss Group, said: “At the moment there is no risk of overheating, the economy should be able to manage inflows up to $50bn.” Investors enthusiastically backed Coal India as they expect it will benefit from rising global demand for energy.
Crisil, the Indian ratings agency owned by Standard & Poor’s, assigned a score of 5-out-of-5 to Coal India’s IPO, as it pointed out that “the fundamentals of the IPO are ‘strong’ relative to the other listed equity securities in India”.
The miner has a cash pile of Rs390bn ($8.8bn), of which it plans to spend at least $1.2bn on acquiring overseas assets. The group made a net profit of Rs98.3bn in the last fiscal year on revenue of Rs526bn. But there are several regulatory and environmental hurdles that may delay an increase in production in the short-term.
Longer term risks include a new mining policy that may force Coal India to share profits with local communities affected by mining operations and the growing threat of Maoist attacks in the mining regions.
This week, Partha S. Bhattacharyya, Coal India’s chairman, told beyondbrics, the Financial Times’ emerging markets online hub, that the company had full government support to deal with the Maoist insurgents. He added that it was in talks to obtain the necessary environmental approvals to keep production rising at 6 per cent a year.
The institutional portion of the offering on Wednesday covered 22 times the shares available in the state-run company. Most of the bids came at the top of Coal India’s Rs225-Rs245 IPO price range, valuing the world’s largest coal miner at about $35bn. Investors have been pouring billions of dollars into emerging economies such as India, which has seen capital inflows hit record levels this year.
The country’s stock market has been booming. The Bombay Stock Exchange’s benchmark Sensex index has risen about 15 per cent this year, driven by the influx of capital from western economies. India’s equity markets have attracted a record $24bn in foreign investment so far this year.
A string of IPOs of state-run companies will follow Coal India’s and are expected to attract more foreign capital. Sonal Varma, chief India economist for Nomura, said the spike in inflows coupled with the widest current account deficit in 20 years, indicated that Asia’s third-largest economy was at risk of overheating.
Several market analysts, though, believe the economy, which grew 8.8 per cent year-on-year in the second quarter, will be able to absorb the extra capital.
Rashesh Shah, chairman of Mumbai-based financial services house Edelweiss Group, said: “At the moment there is no risk of overheating, the economy should be able to manage inflows up to $50bn.” Investors enthusiastically backed Coal India as they expect it will benefit from rising global demand for energy.
Crisil, the Indian ratings agency owned by Standard & Poor’s, assigned a score of 5-out-of-5 to Coal India’s IPO, as it pointed out that “the fundamentals of the IPO are ‘strong’ relative to the other listed equity securities in India”.
The miner has a cash pile of Rs390bn ($8.8bn), of which it plans to spend at least $1.2bn on acquiring overseas assets. The group made a net profit of Rs98.3bn in the last fiscal year on revenue of Rs526bn. But there are several regulatory and environmental hurdles that may delay an increase in production in the short-term.
Longer term risks include a new mining policy that may force Coal India to share profits with local communities affected by mining operations and the growing threat of Maoist attacks in the mining regions.
This week, Partha S. Bhattacharyya, Coal India’s chairman, told beyondbrics, the Financial Times’ emerging markets online hub, that the company had full government support to deal with the Maoist insurgents. He added that it was in talks to obtain the necessary environmental approvals to keep production rising at 6 per cent a year.
Billionaire Vikas Oberoi's Real Estate Unit Surges in Mumbai Trading Debut
Oberoi Realty Ltd., controlled by Indian billionaire Vikas Oberoi, surged on its Mumbai trading debut after investors demanded 12 times the shares on offer in its initial public offering.
The shares advanced 8.8 percent to 282.90 rupees at the 3:30 p.m. close in Mumbai after rising as much as 15 percent. The company backed by Morgan Stanley raised 10.3 billion rupees ($231 million) selling 39.5 million shares at 260 rupees apiece earlier this month.
Oberoi Realty is benefitting from record overseas inflows into equities that may prompt $3 billion of property share sales at a time when real estate stocks have underperformed the Bombay Stock Exchange’s benchmark Sensitive Index. The BSE Realty Index has declined 1.8 percent this year, compared with a 14 percent advance in the Sensex.
“Even at the current prices we continue to see great demand for residences in Mumbai,” Oberoi said in Mumbai today. “I don’t see any softening in prices. Every time people meet me, they say they want to buy a house.”
Demand for luxury apartments in India is rising as the biggest rally in stocks in 18 years boosts the ranks of the affluent in the third-fastest growing major economy. The South Asian nation has 84,000 millionaires, according to the 2009 World Wealth Report by Cap Gemini SA and Merrill Lynch Wealth Management. The number of millionaires in India is expected to triple between 2008 and 2018, according to the report.
Cirrus Airplane
That has helped Oberoi make it to the Forbes billionaire list of India’s richest, ranking 46th with a net worth of $1.4 billion. Oberoi, 41, has built the 11.2 million square feet Oberoi Garden City complex, which houses the Westin Hotel, in the city’s north. He recently bought himself a single-engine, four-seater Cirrus airplane, according to Forbes.
Indian realty companies such as Raheja Universal Ltd., Lodha Developers Ltd. and Emaar MGF Land Ltd. are among at least 11 builders waiting to tap the market, according to data compiled by Bloomberg.
Oberoi’s profit rose 84 percent to 4.6 billion rupees in the year ended March 31. Sales climbed 77 percent to 8.05 billion rupees.
A Morgan Stanley real estate fund in January 2007 invested 6.75 billion rupees for a 10.76 percent stake in Oberoi, according to its offer document.
Kotak Mahindra Capital Co., Enam Securities Pvt., J.P. Morgan India Pvt. and Morgan Stanley India Co. managed the sale.
The shares advanced 8.8 percent to 282.90 rupees at the 3:30 p.m. close in Mumbai after rising as much as 15 percent. The company backed by Morgan Stanley raised 10.3 billion rupees ($231 million) selling 39.5 million shares at 260 rupees apiece earlier this month.
Oberoi Realty is benefitting from record overseas inflows into equities that may prompt $3 billion of property share sales at a time when real estate stocks have underperformed the Bombay Stock Exchange’s benchmark Sensitive Index. The BSE Realty Index has declined 1.8 percent this year, compared with a 14 percent advance in the Sensex.
“Even at the current prices we continue to see great demand for residences in Mumbai,” Oberoi said in Mumbai today. “I don’t see any softening in prices. Every time people meet me, they say they want to buy a house.”
Demand for luxury apartments in India is rising as the biggest rally in stocks in 18 years boosts the ranks of the affluent in the third-fastest growing major economy. The South Asian nation has 84,000 millionaires, according to the 2009 World Wealth Report by Cap Gemini SA and Merrill Lynch Wealth Management. The number of millionaires in India is expected to triple between 2008 and 2018, according to the report.
Cirrus Airplane
That has helped Oberoi make it to the Forbes billionaire list of India’s richest, ranking 46th with a net worth of $1.4 billion. Oberoi, 41, has built the 11.2 million square feet Oberoi Garden City complex, which houses the Westin Hotel, in the city’s north. He recently bought himself a single-engine, four-seater Cirrus airplane, according to Forbes.
Indian realty companies such as Raheja Universal Ltd., Lodha Developers Ltd. and Emaar MGF Land Ltd. are among at least 11 builders waiting to tap the market, according to data compiled by Bloomberg.
Oberoi’s profit rose 84 percent to 4.6 billion rupees in the year ended March 31. Sales climbed 77 percent to 8.05 billion rupees.
A Morgan Stanley real estate fund in January 2007 invested 6.75 billion rupees for a 10.76 percent stake in Oberoi, according to its offer document.
Kotak Mahindra Capital Co., Enam Securities Pvt., J.P. Morgan India Pvt. and Morgan Stanley India Co. managed the sale.
Record Rating Upgrades Attract Pimco, Aberdeen as Sales Soar: India Credit
Debt ratings for Indian companies are improving at an unprecedented pace, helping attract the world’s biggest fund managers to record bond sales.
Crisil Ltd., the Indian unit of Standard & Poor’s, raised the rankings of 253 local borrowers in the six months ended Sept. 30, the most since it started business in 1987, it said on a conference call yesterday. Crisil downgraded 111 borrowers. ICRA Ltd., an arm of Moody’s Investors Service, upgraded 97 companies and cut 62, the best ratio since 2005, data compiled by Bloomberg show.
The credit quality of companies in India is improving as earnings head for a record increase, attracting money managers including Pacific Investment Management Co., Western Asset Management Co. and Aberdeen Asset Management Plc, which oversee a combined $1.8 trillion of assets, to their debt. Similar ratings ratios for Brazil, Russia and China are even stronger, Bloomberg data show.
“Debt inflows will remain strong thanks to the improving creditworthiness of companies,” Manoj Swain, chief executive officer at Morgan Stanley India Primary Dealer in Mumbai, a unit of the New York-based bank, said in an interview. “The Indian economic recovery is still in the early stage, and that means corporate profitability will get even better.”
International investors have purchased $10 billion in Indian rupee debt in 2010, more than the combined amount for the previous eight years, according to the Securities and Exchange Board of India. Prime Minister Manmohan Singh lifted limits in September on overseas ownership of local corporate bonds to $20 billion from $15 billion and doubled the cap on government notes to $10 billion.
Sales Boom
Indian companies have sold 1.53 trillion rupees ($34.5 billion) in bonds this year, up from 1.48 trillion rupees in all of 2009 and the most since Bloomberg started tracking the data. Local-currency debt sales climbed 42 percent to 14.6 billion real ($8.7 billion) in Brazil and are lagging behind last year’s amount by 25 percent in Russia, the data show.
“The credit outlook for Indian companies continues to be encouraging,” Anjan Ghosh, head of corporate ratings at New Delhi-based ICRA, said in an interview yesterday. “As long as liquidity and risk appetite remain adequate, credit spreads will stay low or contract.”
The difference in yields between AAA rated five-year corporate bonds and similar-maturity federal notes has shrunk to 61 basis points from the all-time high of 413 basis points, or 4.13 percentage points, two years ago, Bloomberg data show. The spread has narrowed by 26 basis points this year. The gap for securities rated BBB contracted 83 basis points to 309.
Tata Raised
Tata Motors Ltd., the Mumbai-based owner of Jaguar Land Rover, had its rating raised in August for the first time in almost two years by S&P. The grade for Hindalco Industries Ltd., India’s biggest aluminum producer based in Mumbai, was boosted by Crisil in September to AA positive. Yesterday, Crisil pointed to construction, metals and autos as the industries with the most upgrades.
Global money managers are pouring money into Indian assets as company earnings rise, the currency rallies and yields climb. The rupee has surged 6.1 percent against the dollar since August, the best performance among Asia’s 10 most-traded currencies after the South Korea’s won. The dollar touched a two-year low of 43.98 rupees on Oct. 15 and traded yesterday at 44.36 rupees, little changed this week.
The yield on the 7.8 percent government note due May 2020 climbed seven basis points to 8.14 percent yesterday, the highest level for a benchmark 10-year bond in two years, on speculation share sales in state-owned companies will draw money away from bonds.
‘High Quality’
State Bank of India plans to complete its first bond sale to individual investors two days earlier than the scheduled closing date of Oct. 25 after receiving bids for 19 times the 5 billion rupees offered in the first day the securities went on sale on Oct. 18, Chief Financial Officer S.S. Ranjan said by telephone yesterday from Mumbai.
Western Asset Management Co. has been buying Indian debt in dollars and rupees, Rajeev De Mello, the Singapore-based head of Asian debt at the firm, said Oct. 19. “We like bonds of both banks and companies in India,” he said.
Aberdeen Asset has been investing in India’s corporate and government debt, money manager Kenneth Akintewe said in an Oct. 15 interview. Pacific Investment, known as Pimco, is buying “high-quality” bonds in emerging markets including India, Chief Operating Officer Douglas Hodge said in an Oct. 14 interview.
Commodity Risks
Credit-default swaps used to protect against losses on the debt of nine Indian companies fell in the past three months, according to data provider CMA. Swap prices dropped to 163 basis points from 201 at the end of July for State Bank of India, the nation’s largest lender, and to 165 from 169 for Reliance Industries Ltd., the country’s biggest company by market value. Swaps prices typically decline when investor sentiment improves and rise as it deteriorates.
Higher commodity prices and borrowing costs pose a risk to creditworthiness in India, Raman Uberoi, Mumbai-based senior director at Crisil, said on the conference call.
“Input costs are rising as commodity prices firm up and the cost of funding too is increasing, following recent monetary policy measures,” Uberoi said.
The number of ratings with “positive” outlooks climbed to a three-year high of 3.8 percent of the total, Crisil said in a statement yesterday. Those with “negative” prospects fell to 10.2 percent as of Sept. 30, from a record 16.7 percent a year earlier.
Ratings Upgrade
Credit quality is improving across emerging markets. S&P raised at least 19 company ratings and lowered two in Brazil this year, while it upgraded 22 and downgraded five in Russia, Bloomberg data show.
Moody’s boosted the Indian government’s local-currency credit rating one level to Ba1, the highest non-investment category, in July. That was the first increase since 1998 and put India on par with Greece, Egypt and Morocco. India’s foreign-currency debt rating held at Baa3.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 12.3 percent. Comparable securities offer 7.59 percent in Russia and 3.62 percent in China and 2.47 percent in the U.S., according to data compiled by Bloomberg.
“India is the region’s highest-yielding market with acceptable ratings,” Akintewe at Aberdeen in Singapore said. “We are primarily focused on high-yielding assets in Asia and have found the debt of India’s public-sector companies quite attractive.”
Earnings for companies making up the Bombay Stock Exchange’s Sensitive Index jumped 56 percent this year to 1,027 rupees a share and are poised for the biggest annual gain since Bloomberg started compiling the data in 2000. The gauge may climb to 1,140 in the next 12 months, analyst estimates compiled by Bloomberg show. All members of the index that reported profits this month beat forecasts, led by Larsen & Toubro Ltd., India’s biggest engineering firm, and Housing Development Finance Corp., the largest mortgage lender.
Crisil Ltd., the Indian unit of Standard & Poor’s, raised the rankings of 253 local borrowers in the six months ended Sept. 30, the most since it started business in 1987, it said on a conference call yesterday. Crisil downgraded 111 borrowers. ICRA Ltd., an arm of Moody’s Investors Service, upgraded 97 companies and cut 62, the best ratio since 2005, data compiled by Bloomberg show.
The credit quality of companies in India is improving as earnings head for a record increase, attracting money managers including Pacific Investment Management Co., Western Asset Management Co. and Aberdeen Asset Management Plc, which oversee a combined $1.8 trillion of assets, to their debt. Similar ratings ratios for Brazil, Russia and China are even stronger, Bloomberg data show.
“Debt inflows will remain strong thanks to the improving creditworthiness of companies,” Manoj Swain, chief executive officer at Morgan Stanley India Primary Dealer in Mumbai, a unit of the New York-based bank, said in an interview. “The Indian economic recovery is still in the early stage, and that means corporate profitability will get even better.”
International investors have purchased $10 billion in Indian rupee debt in 2010, more than the combined amount for the previous eight years, according to the Securities and Exchange Board of India. Prime Minister Manmohan Singh lifted limits in September on overseas ownership of local corporate bonds to $20 billion from $15 billion and doubled the cap on government notes to $10 billion.
Sales Boom
Indian companies have sold 1.53 trillion rupees ($34.5 billion) in bonds this year, up from 1.48 trillion rupees in all of 2009 and the most since Bloomberg started tracking the data. Local-currency debt sales climbed 42 percent to 14.6 billion real ($8.7 billion) in Brazil and are lagging behind last year’s amount by 25 percent in Russia, the data show.
“The credit outlook for Indian companies continues to be encouraging,” Anjan Ghosh, head of corporate ratings at New Delhi-based ICRA, said in an interview yesterday. “As long as liquidity and risk appetite remain adequate, credit spreads will stay low or contract.”
The difference in yields between AAA rated five-year corporate bonds and similar-maturity federal notes has shrunk to 61 basis points from the all-time high of 413 basis points, or 4.13 percentage points, two years ago, Bloomberg data show. The spread has narrowed by 26 basis points this year. The gap for securities rated BBB contracted 83 basis points to 309.
Tata Raised
Tata Motors Ltd., the Mumbai-based owner of Jaguar Land Rover, had its rating raised in August for the first time in almost two years by S&P. The grade for Hindalco Industries Ltd., India’s biggest aluminum producer based in Mumbai, was boosted by Crisil in September to AA positive. Yesterday, Crisil pointed to construction, metals and autos as the industries with the most upgrades.
Global money managers are pouring money into Indian assets as company earnings rise, the currency rallies and yields climb. The rupee has surged 6.1 percent against the dollar since August, the best performance among Asia’s 10 most-traded currencies after the South Korea’s won. The dollar touched a two-year low of 43.98 rupees on Oct. 15 and traded yesterday at 44.36 rupees, little changed this week.
The yield on the 7.8 percent government note due May 2020 climbed seven basis points to 8.14 percent yesterday, the highest level for a benchmark 10-year bond in two years, on speculation share sales in state-owned companies will draw money away from bonds.
‘High Quality’
State Bank of India plans to complete its first bond sale to individual investors two days earlier than the scheduled closing date of Oct. 25 after receiving bids for 19 times the 5 billion rupees offered in the first day the securities went on sale on Oct. 18, Chief Financial Officer S.S. Ranjan said by telephone yesterday from Mumbai.
Western Asset Management Co. has been buying Indian debt in dollars and rupees, Rajeev De Mello, the Singapore-based head of Asian debt at the firm, said Oct. 19. “We like bonds of both banks and companies in India,” he said.
Aberdeen Asset has been investing in India’s corporate and government debt, money manager Kenneth Akintewe said in an Oct. 15 interview. Pacific Investment, known as Pimco, is buying “high-quality” bonds in emerging markets including India, Chief Operating Officer Douglas Hodge said in an Oct. 14 interview.
Commodity Risks
Credit-default swaps used to protect against losses on the debt of nine Indian companies fell in the past three months, according to data provider CMA. Swap prices dropped to 163 basis points from 201 at the end of July for State Bank of India, the nation’s largest lender, and to 165 from 169 for Reliance Industries Ltd., the country’s biggest company by market value. Swaps prices typically decline when investor sentiment improves and rise as it deteriorates.
Higher commodity prices and borrowing costs pose a risk to creditworthiness in India, Raman Uberoi, Mumbai-based senior director at Crisil, said on the conference call.
“Input costs are rising as commodity prices firm up and the cost of funding too is increasing, following recent monetary policy measures,” Uberoi said.
The number of ratings with “positive” outlooks climbed to a three-year high of 3.8 percent of the total, Crisil said in a statement yesterday. Those with “negative” prospects fell to 10.2 percent as of Sept. 30, from a record 16.7 percent a year earlier.
Ratings Upgrade
Credit quality is improving across emerging markets. S&P raised at least 19 company ratings and lowered two in Brazil this year, while it upgraded 22 and downgraded five in Russia, Bloomberg data show.
Moody’s boosted the Indian government’s local-currency credit rating one level to Ba1, the highest non-investment category, in July. That was the first increase since 1998 and put India on par with Greece, Egypt and Morocco. India’s foreign-currency debt rating held at Baa3.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 12.3 percent. Comparable securities offer 7.59 percent in Russia and 3.62 percent in China and 2.47 percent in the U.S., according to data compiled by Bloomberg.
“India is the region’s highest-yielding market with acceptable ratings,” Akintewe at Aberdeen in Singapore said. “We are primarily focused on high-yielding assets in Asia and have found the debt of India’s public-sector companies quite attractive.”
Earnings for companies making up the Bombay Stock Exchange’s Sensitive Index jumped 56 percent this year to 1,027 rupees a share and are poised for the biggest annual gain since Bloomberg started compiling the data in 2000. The gauge may climb to 1,140 in the next 12 months, analyst estimates compiled by Bloomberg show. All members of the index that reported profits this month beat forecasts, led by Larsen & Toubro Ltd., India’s biggest engineering firm, and Housing Development Finance Corp., the largest mortgage lender.
Big Legal Clash on Foreclosure Is Taking Shape
About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.
But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.
The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.
Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.
That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.
Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.
In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.
While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.
Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”
Others are more sanguine about the dispute.
Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.
“You borrowed money,” he said. “You are obligated to repay it.”
After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.
While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.
“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.
Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.
The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.
“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”
Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.
But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.
The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.
Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.
That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.
Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.
In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.
While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.
Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”
Others are more sanguine about the dispute.
Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.
“You borrowed money,” he said. “You are obligated to repay it.”
After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.
While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.
“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.
Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.
The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.
“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”
Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.
Tuesday, October 19, 2010
India warns on damage from G20 tension
Manmohan Singh, India’s prime minister, has appealed for “a meeting of minds” at next month’s meeting of the Group of 20 leading economies to give renewed impetus to co-ordinated financial reform and the rebalancing of the global economy.
“I’m worried about the global situation,” Mr Singh told the Financial Times.
EDITOR’S CHOICE
Doubts grow on prospects for G20 - Oct-19
In depth: Currency wars - Oct-10
Seoul says US holds key to trade deal - Oct-19
Editorial Comment: Franco-German debt crisis deal - Oct-19
China rate rise triggers market falls - Oct-19
In depth: G20 - Jun-04
The Indian prime minister’s concerns about the fraying cohesion of the G20 were echoed on Tuesday night by Mervyn King, the governor of the Bank of England, who warned that tensions over exchange rates could degenerate into trade protectionism.
“That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world,” he said in a speech.
Indian officials have warned that the G20 is split between debtor countries, such as the US and the UK, and creditor nations, led by China with its large foreign exchange reserves. Undervaluation of currencies and monetary easing were complicating problems and leading to a dangerous divergence of opinion among global leaders.
The officials said that the group, which came together two years ago to help stabilise the global financial system, had lost its cohesiveness as it approached the summit in Seoul, the South Korean capital. A “clash of interests and a clash of perceptions” could result in a stalemate at the summit that would impede progress towards recovery.
“There’s no agreement on diagnosis,” one top official said. “We’ve lost consensus about how to tackle the situation. That’s my worry about the Seoul conference. The G20 is in serious difficulties.”
International tensions over exchange rates have escalated ahead of the summit as some countries have engineered the depreciation of their currencies to sharpen their economic competitiveness. At the heart of the issue lies a long-running tussle between the US and China over the value of the renminbi, the Chinese currency, which the US argues gives unfair advantage to Chinese exports.
The Korean hosts are aiming to create a new financial safety net for troubled governments and agree on banking capital accords.
The Mumbai-based Reserve Bank of India officials are concerned about a growing disconnect between the flagging economies of the west and the faster growing developing world. They regard a wave of capital resulting from the ultra-loose monetary policies in advanced economies as having a potentially destabilising effect on emerging economies.
In his speech, Mr King warned that tensions over exchange rates were hampering the necessary rebalancing of the global economy. The spirit of co-operation evident in late 2008, “so strong then, has ebbed away”, he said.
“Current exchange rate tensions illustrate the resistance to the relative price changes that are necessary for a successful rebalancing. The need to act in the collective interest has yet to be recognised, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing,” he said.
Mr King called for a “grand bargain” among the major economic powers. This would include a commitment from China and other surplus countries to increase domestic demand and an agreement on exchange rates.
Mr King hoped that if countries could agree the “right speed of adjustment” first, the growing tensions in the global economy could be averted with a grand bargain on other policies.
The US is putting pressure on China to allow its currency to strengthen. China, however, has warned that should the US Federal Reserve pump more dollars into the markets through quantitative easing it will worsen imbalances and swamp emerging economies with “hot” capital inflows.
Some economists expect China to move on its currency ahead of a visit by China’s leadership to Washington to ease tensions. But they argue that China is inflicting some of the worst damage on its low income neighbours.
“A beggar thy neighbour attitude has taken hold,” said Hafiz Pasha, a leading Pakistani economist and former finance minister. “The space for growth is smaller and China is artificially taking up too much of that space.”
“The Third World will gang up on it. We need to start complaining,” he said.
Indian officials are emphasising their fast-transforming relationship with the US ahead of a visits by President Barack Obama to New Delhi, the Indian capital, and Wen Jiabao, the Chinese premier, before the end of the year. They say that the relationship with the US has “no irritants” like a hefty trade surplus or rising foreign exchange reserves.
Moreover, there is a convergence of interests with Washington over issues such as global security in the Middle East and Central Asia. The firm footing of the relationship is expected to be underscored during Mr Obama’s visit with an agreement to buy arms from the US as India’s military seeks modernisation.
Many analysts are watching carefully for any sign that India may opt for US aircraft in a deal to supply 126 jet fighters for the Indian air force. Such an arms contract would have big implications at a time when the Obama administration is trying to revive the weakened US economy and protect jobs at home.
“I’m worried about the global situation,” Mr Singh told the Financial Times.
EDITOR’S CHOICE
Doubts grow on prospects for G20 - Oct-19
In depth: Currency wars - Oct-10
Seoul says US holds key to trade deal - Oct-19
Editorial Comment: Franco-German debt crisis deal - Oct-19
China rate rise triggers market falls - Oct-19
In depth: G20 - Jun-04
The Indian prime minister’s concerns about the fraying cohesion of the G20 were echoed on Tuesday night by Mervyn King, the governor of the Bank of England, who warned that tensions over exchange rates could degenerate into trade protectionism.
“That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world,” he said in a speech.
Indian officials have warned that the G20 is split between debtor countries, such as the US and the UK, and creditor nations, led by China with its large foreign exchange reserves. Undervaluation of currencies and monetary easing were complicating problems and leading to a dangerous divergence of opinion among global leaders.
The officials said that the group, which came together two years ago to help stabilise the global financial system, had lost its cohesiveness as it approached the summit in Seoul, the South Korean capital. A “clash of interests and a clash of perceptions” could result in a stalemate at the summit that would impede progress towards recovery.
“There’s no agreement on diagnosis,” one top official said. “We’ve lost consensus about how to tackle the situation. That’s my worry about the Seoul conference. The G20 is in serious difficulties.”
International tensions over exchange rates have escalated ahead of the summit as some countries have engineered the depreciation of their currencies to sharpen their economic competitiveness. At the heart of the issue lies a long-running tussle between the US and China over the value of the renminbi, the Chinese currency, which the US argues gives unfair advantage to Chinese exports.
The Korean hosts are aiming to create a new financial safety net for troubled governments and agree on banking capital accords.
The Mumbai-based Reserve Bank of India officials are concerned about a growing disconnect between the flagging economies of the west and the faster growing developing world. They regard a wave of capital resulting from the ultra-loose monetary policies in advanced economies as having a potentially destabilising effect on emerging economies.
In his speech, Mr King warned that tensions over exchange rates were hampering the necessary rebalancing of the global economy. The spirit of co-operation evident in late 2008, “so strong then, has ebbed away”, he said.
“Current exchange rate tensions illustrate the resistance to the relative price changes that are necessary for a successful rebalancing. The need to act in the collective interest has yet to be recognised, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing,” he said.
Mr King called for a “grand bargain” among the major economic powers. This would include a commitment from China and other surplus countries to increase domestic demand and an agreement on exchange rates.
Mr King hoped that if countries could agree the “right speed of adjustment” first, the growing tensions in the global economy could be averted with a grand bargain on other policies.
The US is putting pressure on China to allow its currency to strengthen. China, however, has warned that should the US Federal Reserve pump more dollars into the markets through quantitative easing it will worsen imbalances and swamp emerging economies with “hot” capital inflows.
Some economists expect China to move on its currency ahead of a visit by China’s leadership to Washington to ease tensions. But they argue that China is inflicting some of the worst damage on its low income neighbours.
“A beggar thy neighbour attitude has taken hold,” said Hafiz Pasha, a leading Pakistani economist and former finance minister. “The space for growth is smaller and China is artificially taking up too much of that space.”
“The Third World will gang up on it. We need to start complaining,” he said.
Indian officials are emphasising their fast-transforming relationship with the US ahead of a visits by President Barack Obama to New Delhi, the Indian capital, and Wen Jiabao, the Chinese premier, before the end of the year. They say that the relationship with the US has “no irritants” like a hefty trade surplus or rising foreign exchange reserves.
Moreover, there is a convergence of interests with Washington over issues such as global security in the Middle East and Central Asia. The firm footing of the relationship is expected to be underscored during Mr Obama’s visit with an agreement to buy arms from the US as India’s military seeks modernisation.
Many analysts are watching carefully for any sign that India may opt for US aircraft in a deal to supply 126 jet fighters for the Indian air force. Such an arms contract would have big implications at a time when the Obama administration is trying to revive the weakened US economy and protect jobs at home.
Reliance Bonds Yielding Less Than Mattel as Ambani Seeks Gas: India Credit
Reliance Industries Ltd., in selling 30-year bonds at yields lower than U.S. companies with comparable debt ratings, shows how investor perceptions of India’s corporations have turned around in two years.
India’s biggest company by market value sold 6.25 percent 2040 bonds at 240 basis points more than U.S. Treasuries last week. Mattel Inc., which has the same rating as Reliance and is the world’s largest toymaker, priced $250 million of 6.2 percent bonds due October 2040 last month at an extra yield of 250 basis points. The average spread for Indian dollar corporate bonds has dropped to 359 basis points from as high as 2,036 in 2008 during the global financial crisis, HSBC Holdings Plc indexes show.
Billionaire Chairman Mukesh Ambani is being offered a discount by investors confident that Mumbai-based Reliance will find demand for its energy resources in Asia’s second-fastest- growing major economy. While nations from Brazil to Thailand impose taxes to control investment inflows, India in September raised its limit for foreigners buying rupee bonds.
“In a relatively short time, Indian companies are becoming highly globalized,” said Seth Freeman, chief executive officer of San Francisco-based EM Capital Management LLC, which focuses on emerging markets including India and Pakistan. “For a whole basket of reasons besides the rate Reliance is getting, companies may look at dollar debt.”
Indian international bond sales have climbed to $6 billion this year from $1.79 billion in all of last year, data compiled by Bloomberg show.
Pimco Likes India
New Delhi-based Rural Electrification Corp., India’s state- controlled lender to power projects, may sell $500 million in debt in November, Finance Director Hari Das Khunteta said in a phone interview this month. Essar Energy Plc may issue its first foreign-currency bonds next year, Chief Financial Officer P. Sampath said in a separate interview. Mumbai-based Axis Bank Ltd. hired five lenders to sell $500 million of dollar bonds, a person familiar with the matter said yesterday, asking not to be identified because the details are private.
Pacific Investment Management Co., which runs the $252 billion Total Return Fund from Newport Beach, California, is buying “high quality” securities in emerging markets such as India, Chief Operating Officer Douglas Hodge said in an Oct. 14 interview.
“We look at the risk-adjusted returns in the developed world versus the emerging bond markets,” Hodge said in Seoul. “We continue to find value in emerging markets.”
‘Critical’ Industry
Ambani, who already owns India’s largest natural gas field, has shown he’s ready to make overseas acquisitions to create a global energy group. The company has spent $3.4 billion since April to buy shale gas assets in the U.S. after failing to purchase LyondellBasell Industries AF in a deal that would have valued the Rotterdam, Netherlands-based chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada.
Reliance plans to spend at least $8.4 billion over the next decade in two shale gas ventures in the U.S., according to a presentation it made to investors in July. The company, which also sold dollar bonds in 1997 and 2007, raised $1.5 billion in India’s biggest-ever corporate bond sale.
The demand was “a function of having a track record in the market and being such a big company, and probably because they are in a critical industry where it is easy to understand that they are going to grow,” said EM Capital’s Freeman, who declined to say how much he manages.
Moody’s Investors Service rates both Reliance Industries and El Segundo, California-based Mattel Baa2, the second-lowest investment grade, and Standard & Poor’s ranks their debt BBB.
Bond Comparison
The bonds also compare with similar-rated securities from U.S. insurers Mutual of Omaha Insurance Co. and Lincoln National Corp. Radnor, Pennsylvania-based Lincoln National’s $500 million of 7 percent notes due in June 2040 sold at a spread of 280 basis points, or 2.8 percentage points. Mutual of Omaha, based in Nebraska, offered $300 million of 6.95 percent notes maturing in October 2040 at a spread of 340 basis points.
The extra yield investors demand to hold India’s top-rated corporate bonds over government debt has fallen to 61 basis points from 86 at the start of the year.
The difference in yields between Indian government debt due in a decade and U.S. Treasuries widened 26 basis points this month to 559. The gap has grown from 375 at the end of 2009.
Default Swaps
India’s 10-year bonds gained for the first time in four days yesterday on speculation yields at the highest level in two years will attract investors. The yield on the government’s 7.8 percent note due May 2020 fell 2 basis points to 8.08 percent.
The rupee was little changed at 44.345 a dollar yesterday, after retreating from a two-year high. The currency has climbed 4.9 percent this year.
The cost of protecting Reliance debt from non-payment rose to 169 basis points from 166 at the start of the month, prices on five-year credit-default swaps from CMA show.
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 on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
“Reliance did have the advantage of getting to investors early, but I think the demand is such that the window for similar offerings is still wide open,” said Vikas Pershad, Chicago-based chief executive officer at Veda Investments LLC. “Not every company will have the appeal to foreign investors that Reliance has, but I still do think this augurs well for other Indian companies as they look to raise capital abroad.”
Chemicals Exports
Reliance can tap overseas sales from its refineries to repay its offshore debt. The company exported fuel and chemicals worth 328.5 billion rupees ($7.4 billion) in the quarter ended June 30 compared with 161.5 billion rupees a year earlier, a presentation made by the company to analysts on July 27 showed. Exports climbed after the company started operating a newer 580,000 barrels-a-day refinery at Jamnagar in the western state of Gujarat at full capacity.
The crude-processing plant, which started in December 2008, and the adjacent, older 660,000 barrels-a-day facility together make up the world’s biggest refining complex at a single location, according to the company’s website.
Corporate bonds worldwide have rallied this year, returning investors 9 percent on average, according to Bank of America Corp. data, as the world economy’s outlook improved and risk appetite revived. India has seen unprecedented overseas demand for bonds.
“This is a fantastic time for Indian companies to issue foreign currency bonds,” said EM Capital’s Freeman. “What will become more interesting to observe is how, say, the BSE 100 companies or the Nifty 50 companies, if they go out and borrow, the ones smaller than Reliance, what kind of rating they are going to get.”
India’s biggest company by market value sold 6.25 percent 2040 bonds at 240 basis points more than U.S. Treasuries last week. Mattel Inc., which has the same rating as Reliance and is the world’s largest toymaker, priced $250 million of 6.2 percent bonds due October 2040 last month at an extra yield of 250 basis points. The average spread for Indian dollar corporate bonds has dropped to 359 basis points from as high as 2,036 in 2008 during the global financial crisis, HSBC Holdings Plc indexes show.
Billionaire Chairman Mukesh Ambani is being offered a discount by investors confident that Mumbai-based Reliance will find demand for its energy resources in Asia’s second-fastest- growing major economy. While nations from Brazil to Thailand impose taxes to control investment inflows, India in September raised its limit for foreigners buying rupee bonds.
“In a relatively short time, Indian companies are becoming highly globalized,” said Seth Freeman, chief executive officer of San Francisco-based EM Capital Management LLC, which focuses on emerging markets including India and Pakistan. “For a whole basket of reasons besides the rate Reliance is getting, companies may look at dollar debt.”
Indian international bond sales have climbed to $6 billion this year from $1.79 billion in all of last year, data compiled by Bloomberg show.
Pimco Likes India
New Delhi-based Rural Electrification Corp., India’s state- controlled lender to power projects, may sell $500 million in debt in November, Finance Director Hari Das Khunteta said in a phone interview this month. Essar Energy Plc may issue its first foreign-currency bonds next year, Chief Financial Officer P. Sampath said in a separate interview. Mumbai-based Axis Bank Ltd. hired five lenders to sell $500 million of dollar bonds, a person familiar with the matter said yesterday, asking not to be identified because the details are private.
Pacific Investment Management Co., which runs the $252 billion Total Return Fund from Newport Beach, California, is buying “high quality” securities in emerging markets such as India, Chief Operating Officer Douglas Hodge said in an Oct. 14 interview.
“We look at the risk-adjusted returns in the developed world versus the emerging bond markets,” Hodge said in Seoul. “We continue to find value in emerging markets.”
‘Critical’ Industry
Ambani, who already owns India’s largest natural gas field, has shown he’s ready to make overseas acquisitions to create a global energy group. The company has spent $3.4 billion since April to buy shale gas assets in the U.S. after failing to purchase LyondellBasell Industries AF in a deal that would have valued the Rotterdam, Netherlands-based chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada.
Reliance plans to spend at least $8.4 billion over the next decade in two shale gas ventures in the U.S., according to a presentation it made to investors in July. The company, which also sold dollar bonds in 1997 and 2007, raised $1.5 billion in India’s biggest-ever corporate bond sale.
The demand was “a function of having a track record in the market and being such a big company, and probably because they are in a critical industry where it is easy to understand that they are going to grow,” said EM Capital’s Freeman, who declined to say how much he manages.
Moody’s Investors Service rates both Reliance Industries and El Segundo, California-based Mattel Baa2, the second-lowest investment grade, and Standard & Poor’s ranks their debt BBB.
Bond Comparison
The bonds also compare with similar-rated securities from U.S. insurers Mutual of Omaha Insurance Co. and Lincoln National Corp. Radnor, Pennsylvania-based Lincoln National’s $500 million of 7 percent notes due in June 2040 sold at a spread of 280 basis points, or 2.8 percentage points. Mutual of Omaha, based in Nebraska, offered $300 million of 6.95 percent notes maturing in October 2040 at a spread of 340 basis points.
The extra yield investors demand to hold India’s top-rated corporate bonds over government debt has fallen to 61 basis points from 86 at the start of the year.
The difference in yields between Indian government debt due in a decade and U.S. Treasuries widened 26 basis points this month to 559. The gap has grown from 375 at the end of 2009.
Default Swaps
India’s 10-year bonds gained for the first time in four days yesterday on speculation yields at the highest level in two years will attract investors. The yield on the government’s 7.8 percent note due May 2020 fell 2 basis points to 8.08 percent.
The rupee was little changed at 44.345 a dollar yesterday, after retreating from a two-year high. The currency has climbed 4.9 percent this year.
The cost of protecting Reliance debt from non-payment rose to 169 basis points from 166 at the start of the month, prices on five-year credit-default swaps from CMA show.
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 on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
“Reliance did have the advantage of getting to investors early, but I think the demand is such that the window for similar offerings is still wide open,” said Vikas Pershad, Chicago-based chief executive officer at Veda Investments LLC. “Not every company will have the appeal to foreign investors that Reliance has, but I still do think this augurs well for other Indian companies as they look to raise capital abroad.”
Chemicals Exports
Reliance can tap overseas sales from its refineries to repay its offshore debt. The company exported fuel and chemicals worth 328.5 billion rupees ($7.4 billion) in the quarter ended June 30 compared with 161.5 billion rupees a year earlier, a presentation made by the company to analysts on July 27 showed. Exports climbed after the company started operating a newer 580,000 barrels-a-day refinery at Jamnagar in the western state of Gujarat at full capacity.
The crude-processing plant, which started in December 2008, and the adjacent, older 660,000 barrels-a-day facility together make up the world’s biggest refining complex at a single location, according to the company’s website.
Corporate bonds worldwide have rallied this year, returning investors 9 percent on average, according to Bank of America Corp. data, as the world economy’s outlook improved and risk appetite revived. India has seen unprecedented overseas demand for bonds.
“This is a fantastic time for Indian companies to issue foreign currency bonds,” said EM Capital’s Freeman. “What will become more interesting to observe is how, say, the BSE 100 companies or the Nifty 50 companies, if they go out and borrow, the ones smaller than Reliance, what kind of rating they are going to get.”
India to Step Up Asset Sales in Next Six Months as Investor Appetite Grows
India plans to step up share sales in the next six months and offer stakes in seven companies including Indian Oil Corp., the nation’s second-biggest refiner, said Sumit Bose, the top bureaucrat in charge of asset sales.
Sale of shares in Power Grid Corp. of India Ltd., Manganese Ore (India) Ltd., Shipping Corp. of India Ltd., and Hindustan Copper Ltd. will be completed by December, Bose, the disinvestment secretary, told reporters in New Delhi today.
Prime Minister Manmohan Singh’s government plans to raise 400 billion rupees ($9 billion) from asset sales in the year through March and cut the budget deficit to 5.5 percent of gross domestic product, a three-year low. Investor appetite for local shares has surged in 2010, evidenced by a record $24 billion of inflows into equities since January.
Coal India Ltd., the world’s biggest producer of the fuel, received bids for all the shares being offered to institutional and retail investors, according to the National Stock Exchange’s website. The government is selling a 10 percent stake in the company. The offer opened Oct. 18 and closes Oct. 21. India aims to raise 151 billion rupees from the sale.
The government will next sell shares in Power Grid, followed by sales in Indian Oil, Oil and Natural Gas Corp. and Steel Authority of India Ltd. between January and March, Bose said.
Indian Oil will invite bids from merchant bankers in the coming weeks to advice on the sale, Bose said. The Indian Oil share offer may fetch about 190 billion rupees, he said.
Sale of shares in Power Grid Corp. of India Ltd., Manganese Ore (India) Ltd., Shipping Corp. of India Ltd., and Hindustan Copper Ltd. will be completed by December, Bose, the disinvestment secretary, told reporters in New Delhi today.
Prime Minister Manmohan Singh’s government plans to raise 400 billion rupees ($9 billion) from asset sales in the year through March and cut the budget deficit to 5.5 percent of gross domestic product, a three-year low. Investor appetite for local shares has surged in 2010, evidenced by a record $24 billion of inflows into equities since January.
Coal India Ltd., the world’s biggest producer of the fuel, received bids for all the shares being offered to institutional and retail investors, according to the National Stock Exchange’s website. The government is selling a 10 percent stake in the company. The offer opened Oct. 18 and closes Oct. 21. India aims to raise 151 billion rupees from the sale.
The government will next sell shares in Power Grid, followed by sales in Indian Oil, Oil and Natural Gas Corp. and Steel Authority of India Ltd. between January and March, Bose said.
Indian Oil will invite bids from merchant bankers in the coming weeks to advice on the sale, Bose said. The Indian Oil share offer may fetch about 190 billion rupees, he said.
New York Fed Wants Banks to Buy Back Bad Mortgages
To the long list of those picking fights with banks over bad mortgages, add the Federal Reserve.
Two years after the Fed bought billions of dollars in mortgage securities as part of the financial bailout, its New York arm is questioning the paperwork — and pressing banks to buy some of the investments back.
The Federal Reserve Bank of New York and several giant investment companies, including Pimco and BlackRock, have singled out Bank of America, which assembled more than $2 trillion of mortgage securities from 2004 to 2008.
Bank of America is already dealing with the fallout from the fight over whether foreclosures were handled properly. It insists that no foreclosures have been initiated in error, and on Monday announced it would resume the foreclosure process in 23 states where court approval is required to go ahead.
But while the human toll of the foreclosure crisis has grabbed the headlines, the fight over how these loans were created in the first place could last longer and ultimately cost the banks much, much more. And it is setting the stage for a huge battle between mortgage holders like the government, hedge funds and other institutional investors on one side and the big banks on the other.
“It’s very serious,” said Glenn Schorr, an analyst with Nomura Securities. “The numbers are all over the map.”
If the Fed and the investors succeed, it could cost Bank of America billions of dollars. On Wall Street and in bank boardrooms, the question of whether investors can force banks to buy back, or “put-back,” the bad mortgages to the banks that sold them is dominating the debate and worrying analysts, money managers and banking executives.
It also makes for some strange bedfellows. After all, it was the government that bailed out Bank of America — twice — during the financial crisis, the same government that includes the Fed.
And it is going to be a fight. On Tuesday, after watching its shares get pummeled again, Bank of America went on the offensive, vowing to “defend the interests of Bank of America shareholders,” and hire more lawyers.
“It’s loan by loan, and we have the resources to deploy in that kind of review,” said Brian T. Moynihan, Bank of America’s chief executive, on a conference call to discuss the bank’s results for the third quarter.
Although the bank turned in better results than expected, much of the call was given over to the put-back issue. “We have thousands of people who are willing to stand and look at these loans,” Mr. Moynihan told analysts. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”
The legal battle turns on the question of whether the banks properly represented the loans they put together into mortgage-backed securities when they sold them to investors. If the banks ignored evidence that the underlying mortgages did not conform to underwriting standards or they lacked the proper paperwork, the banks could be obligated to buy the troubled mortgages back.
The Federal Reserve Bank of New York and the other large investors are pressing Bank of America to buy back a portion of the $47 billion in mortgages it originated, most of which were assembled by Countrywide Financial just before the real estate boom turned to bust in 2005, 2006 and 2007.
Countrywide, which specialized in subprime mortgages, was acquired by Bank of America in July 2008.
“People did not think bondholders would be able to organize themselves, but they can,” said Kathy Patrick, a Houston lawyer who is leading the effort. “It’s a large amount of money but the principle is simple. When you promise to do something in an agreement, you should do it.” A letter from Ms. Patrick detailing the claims was obtained by The New York Times.
The danger posed by angry — or opportunistic — investors ‘putting-back’ mortgages to the banks is hardly limited to Bank of America. Other giants like Citigroup and JPMorgan Chase face similar claims, and last week JPMorgan set aside $1.3 billion just for legal costs, including put-backs.
JPMorgan has said it expects repurchases of mortgages to run at about $1 billion a year, but that expense should be covered by $3 billion it has earmarked specifically for put-backs.
At Bank of America, repurchases have been running at about half a billion dollars a quarter. The bank estimates total put-back claims stand at $12.9 billion, as of Sept. 30. In the third-quarter, Bank of America recorded an $872 million expense for put-backs.
Besides the major institutions, hedge funds like York Capital and Moore Capital have been jumping into the game recently, buying up bad debt in the hopes it will eventually be bought back, according to traders and money managers. Both funds declined to comment.
And smaller ones are sniffing around, hoping to ride the depressed securities higher as the fight over put-backs gathers steam.
“Any hedge fund with a distressed desk is contemplating this trade,” said one analyst who insisted on anonymity. “The idea of bottom-fishing vulture funds buying this stuff up for a nickel on the dollar so they can sue the banks to get 100 cents must be pretty odious for the Treasury, which bailed out the banks in the first place.”
Indeed, the group that includes the Fed is one of two coalitions that is gearing up for a fight with the banks.
Bill Frey, chief executive of Greenwich Financial Services, leads a group of investors that holds just under $600 billion worth of mortgage-backed securities.
But it is the recent controversy over foreclosures that has jump-started interest by pension funds, hedge funds and other players. “In the last two weeks, there has been a flood of new investors,” Mr. Frey said. “We haven’t even had a chance to do the arithmetic, that’s how fast they’re coming in.”
Besides all the lawyers that billions can buy, the banks have other weapons in their arsenal. Some hedge funds and other investors are nervous about challenging the banks too forcefully, because they trade with them daily.
There is risk too for the government, despite the Federal Reserve claims. If the banks are indeed forced to spend tens of billions to buy back securities, they could turn once again to the federal government for help.
Given the legal resources available to the banks, though, that is unlikely to happen quickly. And for now, broader conditions in the financial services are improving. On Wednesday, Bank of America reported that operating earnings in the third quarter hit $3.1 billion, in contrast to a loss a year ago.
A substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, but the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.
On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.
Two years after the Fed bought billions of dollars in mortgage securities as part of the financial bailout, its New York arm is questioning the paperwork — and pressing banks to buy some of the investments back.
The Federal Reserve Bank of New York and several giant investment companies, including Pimco and BlackRock, have singled out Bank of America, which assembled more than $2 trillion of mortgage securities from 2004 to 2008.
Bank of America is already dealing with the fallout from the fight over whether foreclosures were handled properly. It insists that no foreclosures have been initiated in error, and on Monday announced it would resume the foreclosure process in 23 states where court approval is required to go ahead.
But while the human toll of the foreclosure crisis has grabbed the headlines, the fight over how these loans were created in the first place could last longer and ultimately cost the banks much, much more. And it is setting the stage for a huge battle between mortgage holders like the government, hedge funds and other institutional investors on one side and the big banks on the other.
“It’s very serious,” said Glenn Schorr, an analyst with Nomura Securities. “The numbers are all over the map.”
If the Fed and the investors succeed, it could cost Bank of America billions of dollars. On Wall Street and in bank boardrooms, the question of whether investors can force banks to buy back, or “put-back,” the bad mortgages to the banks that sold them is dominating the debate and worrying analysts, money managers and banking executives.
It also makes for some strange bedfellows. After all, it was the government that bailed out Bank of America — twice — during the financial crisis, the same government that includes the Fed.
And it is going to be a fight. On Tuesday, after watching its shares get pummeled again, Bank of America went on the offensive, vowing to “defend the interests of Bank of America shareholders,” and hire more lawyers.
“It’s loan by loan, and we have the resources to deploy in that kind of review,” said Brian T. Moynihan, Bank of America’s chief executive, on a conference call to discuss the bank’s results for the third quarter.
Although the bank turned in better results than expected, much of the call was given over to the put-back issue. “We have thousands of people who are willing to stand and look at these loans,” Mr. Moynihan told analysts. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”
The legal battle turns on the question of whether the banks properly represented the loans they put together into mortgage-backed securities when they sold them to investors. If the banks ignored evidence that the underlying mortgages did not conform to underwriting standards or they lacked the proper paperwork, the banks could be obligated to buy the troubled mortgages back.
The Federal Reserve Bank of New York and the other large investors are pressing Bank of America to buy back a portion of the $47 billion in mortgages it originated, most of which were assembled by Countrywide Financial just before the real estate boom turned to bust in 2005, 2006 and 2007.
Countrywide, which specialized in subprime mortgages, was acquired by Bank of America in July 2008.
“People did not think bondholders would be able to organize themselves, but they can,” said Kathy Patrick, a Houston lawyer who is leading the effort. “It’s a large amount of money but the principle is simple. When you promise to do something in an agreement, you should do it.” A letter from Ms. Patrick detailing the claims was obtained by The New York Times.
The danger posed by angry — or opportunistic — investors ‘putting-back’ mortgages to the banks is hardly limited to Bank of America. Other giants like Citigroup and JPMorgan Chase face similar claims, and last week JPMorgan set aside $1.3 billion just for legal costs, including put-backs.
JPMorgan has said it expects repurchases of mortgages to run at about $1 billion a year, but that expense should be covered by $3 billion it has earmarked specifically for put-backs.
At Bank of America, repurchases have been running at about half a billion dollars a quarter. The bank estimates total put-back claims stand at $12.9 billion, as of Sept. 30. In the third-quarter, Bank of America recorded an $872 million expense for put-backs.
Besides the major institutions, hedge funds like York Capital and Moore Capital have been jumping into the game recently, buying up bad debt in the hopes it will eventually be bought back, according to traders and money managers. Both funds declined to comment.
And smaller ones are sniffing around, hoping to ride the depressed securities higher as the fight over put-backs gathers steam.
“Any hedge fund with a distressed desk is contemplating this trade,” said one analyst who insisted on anonymity. “The idea of bottom-fishing vulture funds buying this stuff up for a nickel on the dollar so they can sue the banks to get 100 cents must be pretty odious for the Treasury, which bailed out the banks in the first place.”
Indeed, the group that includes the Fed is one of two coalitions that is gearing up for a fight with the banks.
Bill Frey, chief executive of Greenwich Financial Services, leads a group of investors that holds just under $600 billion worth of mortgage-backed securities.
But it is the recent controversy over foreclosures that has jump-started interest by pension funds, hedge funds and other players. “In the last two weeks, there has been a flood of new investors,” Mr. Frey said. “We haven’t even had a chance to do the arithmetic, that’s how fast they’re coming in.”
Besides all the lawyers that billions can buy, the banks have other weapons in their arsenal. Some hedge funds and other investors are nervous about challenging the banks too forcefully, because they trade with them daily.
There is risk too for the government, despite the Federal Reserve claims. If the banks are indeed forced to spend tens of billions to buy back securities, they could turn once again to the federal government for help.
Given the legal resources available to the banks, though, that is unlikely to happen quickly. And for now, broader conditions in the financial services are improving. On Wednesday, Bank of America reported that operating earnings in the third quarter hit $3.1 billion, in contrast to a loss a year ago.
A substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, but the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.
On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.
Monday, October 18, 2010
Asian Stocks Advance as Citigroup Profit Brightens Banks' Earnings Outlook
Asian stocks advanced for the first time in three days after commodity prices increased and Citigroup Inc. reported profit that exceeded analysts’ estimates, boosting the outlook for corporate earnings.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, gained 1.3 percent. Westpac Banking Corp., Australia’s second- biggest bank, rose 1.3 percent. Nintendo Co., the world’s largest maker of video-game players, climbed 1.5 percent after JPMorgan Chase & Co. recommended investors buy the stock. Inpex Corp., Japan’s biggest energy explorer, increased 1 percent.
“Market sentiment is improving,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Expectations for corporate earnings in the financial sector are rising after the better-than-expected results at Citigroup.”
The MSCI Asia Pacific Index gained 0.5 percent to 131.04 as of 9:32 a.m. in Tokyo. The measure completed its seventh weekly advance last week, the longest winning streak since 2006, 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
Japan’s Nikkei 225 Stock Average rose 0.7 percent. Korea’s Kospi Index gained 0.2 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent today.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent. The gauge rose 0.7 percent yesterday in New York to the highest level since May 3 following Citigroup’s results and as an unexpected drop in U.S. industrial production added to signs the Federal Reserve will help fuel the economic recovery.
Output at factories, mines and utilities fell 0.2 percent in September, according to figures from the Fed, the first decline since the recession ended in June 2009.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, gained 1.3 percent. Westpac Banking Corp., Australia’s second- biggest bank, rose 1.3 percent. Nintendo Co., the world’s largest maker of video-game players, climbed 1.5 percent after JPMorgan Chase & Co. recommended investors buy the stock. Inpex Corp., Japan’s biggest energy explorer, increased 1 percent.
“Market sentiment is improving,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Expectations for corporate earnings in the financial sector are rising after the better-than-expected results at Citigroup.”
The MSCI Asia Pacific Index gained 0.5 percent to 131.04 as of 9:32 a.m. in Tokyo. The measure completed its seventh weekly advance last week, the longest winning streak since 2006, 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
Japan’s Nikkei 225 Stock Average rose 0.7 percent. Korea’s Kospi Index gained 0.2 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent today.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent. The gauge rose 0.7 percent yesterday in New York to the highest level since May 3 following Citigroup’s results and as an unexpected drop in U.S. industrial production added to signs the Federal Reserve will help fuel the economic recovery.
Output at factories, mines and utilities fell 0.2 percent in September, according to figures from the Fed, the first decline since the recession ended in June 2009.
Rupee Advance to 43 May Prompt Sales as Exporters Complain: India Credit
The Indian rupee’s 6 percent climb in the past seven weeks left the currency close to a level that may prompt the central bank to intervene in the foreign-exchange market to limit gains for the first time in 11 months.
The government is comfortable with a rate between 43 and 45 per dollar, said a Finance Ministry official with direct knowledge of the matter, who asked not to be identified because the issue is sensitive. The rupee, the second-best performer in Asia outside of Japan since Aug. 30 after South Korea’s won, fell 0.6 percent yesterday to 44.37.
Reserve Bank of India Governor Duvvuri Subbarao would join policy makers from Japan to Brazil who have sold their currencies to keep exports competitive as the global recovery loses momentum. Infosys Technologies Ltd., India’s second- biggest software exporter, said last week that volatility in the exchange rate would ‘kill’ exporters, while pharmaceutical companies such as Cipla Ltd. and IPCA Laboratories Ltd. called on the central bank to curb swings in the rupee.
“Global demand is already weak and many are starting to intervene,” Sonal Varma, a Mumbai-based economist with Nomura Holdings Inc., said in a phone interview yesterday. “We won’t be surprised if the RBI did start intervening before 43 as well.”
Currency forecasters bet India’s rupee will drop during the rest of this year and climb in 2011. The rupee will trade 0.5 percent lower at 44.60 per dollar on Dec. 31, according to the median prediction of 16 analysts surveyed by Bloomberg. The currency will advance 5.6 percent to 42 by the end of 2011, according to 13 analysts.
Don’t Panic
“We should watch the situation but it’s not a matter of concern,” Finance Minister Pranab Mukherjee said in an interview to Bloomberg-UTV on Oct. 15 in Birbhum in the eastern state of West Bengal. “We need not press the panic button.”
The central bank, which last intervened in November 2009, says that the currency’s strength will be limited by the nation’s deteriorating trade balance. Exports climbed at a rate of 22.5 percent in August, down from as much as 54.1 percent in March, according to government data. The current-account deficit widened to a record $13.7 billion in the three months through June, the Reserve Bank said Sept. 30.
“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,” central bank Deputy Governor Subir Gokarn said in the northern Indian city of Chandigarh said on Oct. 14.
Price Swings
Infosys said it suffers a 40-basis point drop in operating margin for every 1 percent movement in the rupee. The rupee has gained 17 percent since it slid to 51.985 in March 2009 and was as strong as 39.27 on Jan. 15, 2008, according to data compiled by Bloomberg.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Infosys Chief Financial Officer V. Balakrishnan told reporters last week. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
A. K. Jain, the joint managing director of IPCA Laboratories Ltd., India’s biggest supplier of anti-malaria drugs, said the rupee gain will start hurting in a few months.
“Suddenly, 6 to 7 percent of your revenues have just gone,” Mumbai-based Jain said in an interview on Oct. 15. “Within one month, your cost structures have not come down by 7 percent.”
Bond Yields
The rupee retreated from a two year-high yesterday as refiners bought dollars to buy crude oil after a decline in the price of the commodity.
India’s 7.8 percent note due May 2020 fell, pushing the yield up 2 basis points to 8.09 percent, the highest level in more than five months, after inflation unexpectedly accelerated, according to the central bank’s trading system.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia and 3.29 percent in China and 2.51 percent in the U.S., according to data compiled by Bloomberg.
India’s securities returned 3.5 percent in 2010, the second-worst performance after China among 10 local-currency debt markets in Asia outside Japan, according to indexes compiled by HSBC Holdings Plc.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened 19 basis points this month to 558. The gap has grown from 375 at the end of 2009 and touched a record 5.6 points on Oct. 11.
Rate Swaps
The cost of one-year interest-rate swaps, a fixed payment made to receive floating rates, rose four basis points yesterday to 6.72 percent.
Nine of 10 banks surveyed by Bloomberg earlier this month said they expected the central bank to refrain from attempts to influence the exchange rate in October. Standard Chartered Plc said policy makers may take steps to reduce swings in the currency.
Option prices signal investors expect wider fluctuations in the rupee. The implied volatility on one-month dollar-rupee options has rebounded to 10.8 percent from a five-month low of 7.3 percent on Sept. 13, data compiled by Bloomberg show. Traders quote the gauge of expected swings in exchange rates as part of option prices.
Rupee Options
The rupee has “been too volatile and completely affects all our planning and strategy,” S. Radhakrishnan, the Mumbai- based Chief Financial Officer at Cipla, India’s third-biggest drugmaker by revenue, said in a phone interview on Oct. 15.
One-month options granting the right to sell the rupee against the dollar cost 0.8 percentage point more than contracts that allow purchases as of yesterday, up from a 16-month low of 0.31 percentage point reached Sept. 20. The change indicates demand increased for contracts that permit local-currency sales, data compiled by Bloomberg show. The so-called one-month 25- delta risk-reversal rate, which peaked this year in May at 6 percentage points, compares with 2.40 for Brazil’s real and 1.25 for Russia’s ruble.
Economic Growth
India’s $1.3 trillion economy may expand 8.5 percent in the year to March 31, the most in three years, the central bank forecast on July 27. Economic output grew 8.8 percent last quarter from a year earlier, the most since 2007, a government report showed Aug. 31. The Washington-based IMF raised its 2010 growth forecast for the nation’s gross domestic product on Oct. 6 to 9.7 percent from a July estimate of 9.4 percent.
“I would use this opportunity to put in place a medium- term growth strategy through productivity and infrastructure improvements rather than banking on a cheap currency,” Venkatraman Anantha Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., which oversees $140 billion, said in an interview yesterday. “This is going to be a problem that will be with us for two to three years, with the developed countries’ need for a weak currency.”
Dangerous Policy
Christian Gaier, who helps oversee the 1.33 billion euros ($1.85 billion) of the emerging-market debt managed by Erste Sparinvest KAG, said he doesn’t expect policy makers to draw a line in the sand as that would be “always dangerous.”
“India’s aim is for long-term growth and a smooth, long- term appreciation,” Gaier said in an interview yesterday. “Interventions, yes, they are possible. I don’t expect a major move such as stopping the rupee appreciation with a hard peg to the dollar, or closing the market.”
Brazil and Thailand have been selling their own currencies and taxing global investors to curb appreciation, prompting calls for the International Monetary Fund to play a greater role in monitoring capital flows and exchange-rate policy.
Thailand’s cabinet removed a tax exemption last week on foreign investment in government bonds. South Korea’s central bank began an audit this month of banks’ foreign-exchange trading to clamp down on currency speculation. In India, the government raised its cap on foreign ownership of debt by 50 percent to $30 billion last month.
Allowing the rupee to appreciate fast is “very dangerous,” A.V. Rajwade, chairman of currency consultancy A.V. Rajwade & Co. Pvt. in Mumbai, who was part of a central bank committee that suggested a plan for fuller convertibility of India’s currency, said in a phone interview yesterday. “I think they are not taking into account the impact on growth and jobs.”
The government is comfortable with a rate between 43 and 45 per dollar, said a Finance Ministry official with direct knowledge of the matter, who asked not to be identified because the issue is sensitive. The rupee, the second-best performer in Asia outside of Japan since Aug. 30 after South Korea’s won, fell 0.6 percent yesterday to 44.37.
Reserve Bank of India Governor Duvvuri Subbarao would join policy makers from Japan to Brazil who have sold their currencies to keep exports competitive as the global recovery loses momentum. Infosys Technologies Ltd., India’s second- biggest software exporter, said last week that volatility in the exchange rate would ‘kill’ exporters, while pharmaceutical companies such as Cipla Ltd. and IPCA Laboratories Ltd. called on the central bank to curb swings in the rupee.
“Global demand is already weak and many are starting to intervene,” Sonal Varma, a Mumbai-based economist with Nomura Holdings Inc., said in a phone interview yesterday. “We won’t be surprised if the RBI did start intervening before 43 as well.”
Currency forecasters bet India’s rupee will drop during the rest of this year and climb in 2011. The rupee will trade 0.5 percent lower at 44.60 per dollar on Dec. 31, according to the median prediction of 16 analysts surveyed by Bloomberg. The currency will advance 5.6 percent to 42 by the end of 2011, according to 13 analysts.
Don’t Panic
“We should watch the situation but it’s not a matter of concern,” Finance Minister Pranab Mukherjee said in an interview to Bloomberg-UTV on Oct. 15 in Birbhum in the eastern state of West Bengal. “We need not press the panic button.”
The central bank, which last intervened in November 2009, says that the currency’s strength will be limited by the nation’s deteriorating trade balance. Exports climbed at a rate of 22.5 percent in August, down from as much as 54.1 percent in March, according to government data. The current-account deficit widened to a record $13.7 billion in the three months through June, the Reserve Bank said Sept. 30.
“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,” central bank Deputy Governor Subir Gokarn said in the northern Indian city of Chandigarh said on Oct. 14.
Price Swings
Infosys said it suffers a 40-basis point drop in operating margin for every 1 percent movement in the rupee. The rupee has gained 17 percent since it slid to 51.985 in March 2009 and was as strong as 39.27 on Jan. 15, 2008, according to data compiled by Bloomberg.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Infosys Chief Financial Officer V. Balakrishnan told reporters last week. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
A. K. Jain, the joint managing director of IPCA Laboratories Ltd., India’s biggest supplier of anti-malaria drugs, said the rupee gain will start hurting in a few months.
“Suddenly, 6 to 7 percent of your revenues have just gone,” Mumbai-based Jain said in an interview on Oct. 15. “Within one month, your cost structures have not come down by 7 percent.”
Bond Yields
The rupee retreated from a two year-high yesterday as refiners bought dollars to buy crude oil after a decline in the price of the commodity.
India’s 7.8 percent note due May 2020 fell, pushing the yield up 2 basis points to 8.09 percent, the highest level in more than five months, after inflation unexpectedly accelerated, according to the central bank’s trading system.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia and 3.29 percent in China and 2.51 percent in the U.S., according to data compiled by Bloomberg.
India’s securities returned 3.5 percent in 2010, the second-worst performance after China among 10 local-currency debt markets in Asia outside Japan, according to indexes compiled by HSBC Holdings Plc.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened 19 basis points this month to 558. The gap has grown from 375 at the end of 2009 and touched a record 5.6 points on Oct. 11.
Rate Swaps
The cost of one-year interest-rate swaps, a fixed payment made to receive floating rates, rose four basis points yesterday to 6.72 percent.
Nine of 10 banks surveyed by Bloomberg earlier this month said they expected the central bank to refrain from attempts to influence the exchange rate in October. Standard Chartered Plc said policy makers may take steps to reduce swings in the currency.
Option prices signal investors expect wider fluctuations in the rupee. The implied volatility on one-month dollar-rupee options has rebounded to 10.8 percent from a five-month low of 7.3 percent on Sept. 13, data compiled by Bloomberg show. Traders quote the gauge of expected swings in exchange rates as part of option prices.
Rupee Options
The rupee has “been too volatile and completely affects all our planning and strategy,” S. Radhakrishnan, the Mumbai- based Chief Financial Officer at Cipla, India’s third-biggest drugmaker by revenue, said in a phone interview on Oct. 15.
One-month options granting the right to sell the rupee against the dollar cost 0.8 percentage point more than contracts that allow purchases as of yesterday, up from a 16-month low of 0.31 percentage point reached Sept. 20. The change indicates demand increased for contracts that permit local-currency sales, data compiled by Bloomberg show. The so-called one-month 25- delta risk-reversal rate, which peaked this year in May at 6 percentage points, compares with 2.40 for Brazil’s real and 1.25 for Russia’s ruble.
Economic Growth
India’s $1.3 trillion economy may expand 8.5 percent in the year to March 31, the most in three years, the central bank forecast on July 27. Economic output grew 8.8 percent last quarter from a year earlier, the most since 2007, a government report showed Aug. 31. The Washington-based IMF raised its 2010 growth forecast for the nation’s gross domestic product on Oct. 6 to 9.7 percent from a July estimate of 9.4 percent.
“I would use this opportunity to put in place a medium- term growth strategy through productivity and infrastructure improvements rather than banking on a cheap currency,” Venkatraman Anantha Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., which oversees $140 billion, said in an interview yesterday. “This is going to be a problem that will be with us for two to three years, with the developed countries’ need for a weak currency.”
Dangerous Policy
Christian Gaier, who helps oversee the 1.33 billion euros ($1.85 billion) of the emerging-market debt managed by Erste Sparinvest KAG, said he doesn’t expect policy makers to draw a line in the sand as that would be “always dangerous.”
“India’s aim is for long-term growth and a smooth, long- term appreciation,” Gaier said in an interview yesterday. “Interventions, yes, they are possible. I don’t expect a major move such as stopping the rupee appreciation with a hard peg to the dollar, or closing the market.”
Brazil and Thailand have been selling their own currencies and taxing global investors to curb appreciation, prompting calls for the International Monetary Fund to play a greater role in monitoring capital flows and exchange-rate policy.
Thailand’s cabinet removed a tax exemption last week on foreign investment in government bonds. South Korea’s central bank began an audit this month of banks’ foreign-exchange trading to clamp down on currency speculation. In India, the government raised its cap on foreign ownership of debt by 50 percent to $30 billion last month.
Allowing the rupee to appreciate fast is “very dangerous,” A.V. Rajwade, chairman of currency consultancy A.V. Rajwade & Co. Pvt. in Mumbai, who was part of a central bank committee that suggested a plan for fuller convertibility of India’s currency, said in a phone interview yesterday. “I think they are not taking into account the impact on growth and jobs.”
Indian diamond bourse opens
The world’s largest diamond exchange opened in Mumbai on Sunday, as India, the largest global cutter and polisher of roughs looks to establish itself as a trading hub, challenging the traditional dominance of countries such as Belgium and Israel.
Bharat Diamond Bourse (BDB), spread over 20 acres with eight interlinked nine-storey towers, has been set up in India’s financial capital at a cost of more than $200m. Situated in central Mumbai’s Bandra Kurla Complex the exchange will house 2,500 offices for exporters, importers and clearing agents, banks, customs departments and trading halls with top security as well as restaurants, food courts, landscaped areas and other amenities for the staff, visitors, businessmen and clients.
While India is a leading diamond manufacturing centre with 11 out of 12 diamonds in the world being cut, polished and processed in the country, it is hoped that the better infrastructure for traders and other operators in the country’s diamond industry will enable India to compete with Antwerp and Tel Aviv and even catapult its diamond trade to become the biggest in the world.
Anoop Mehta, president of the Bharat Diamond Bourse said the bourse would be the springboard from which the Indian diamond industry could endeavour not only to be the world’s largest manufacturing centre but also the world’s top diamond trading centre.
“Today we are the leaders in every aspect of this trade, in terms of number of pieces manufactured, maximum carats being exported and highest volume,’’ he said. “The BDB will ultimately help make India an international trading centre for gems and jewellery and take the step towards creating a Brand India in the world of diamonds.”
India’s diamond processing industry accounts for 70 to 75 per cent of total diamond exports, worth about $28bn annually. It also employs 850,000 people, making it the largest cutting centre not only by value but also by number of employees. The top 400 exporters will operate for the first time within the same complex
Incorporated in 1984 with a group of diamond exporters in the city, the exchange expects revenues to rise 10-15 per cent annually over the next five years. Although industry bodies said that they did not expect to see an effect on pricing, they expected diamond traders from Israel, Belgium and elsewhere to start trading in India as a result of the world-class bourse that complies with international standards.
“Buyers can now carry out trade as they would in Antwerp, Tel Aviv or New York,” said Vasant Mehta, chairman of India’s Gem and Jewellery Export Promotion Council.
Bharat Diamond Bourse (BDB), spread over 20 acres with eight interlinked nine-storey towers, has been set up in India’s financial capital at a cost of more than $200m. Situated in central Mumbai’s Bandra Kurla Complex the exchange will house 2,500 offices for exporters, importers and clearing agents, banks, customs departments and trading halls with top security as well as restaurants, food courts, landscaped areas and other amenities for the staff, visitors, businessmen and clients.
While India is a leading diamond manufacturing centre with 11 out of 12 diamonds in the world being cut, polished and processed in the country, it is hoped that the better infrastructure for traders and other operators in the country’s diamond industry will enable India to compete with Antwerp and Tel Aviv and even catapult its diamond trade to become the biggest in the world.
Anoop Mehta, president of the Bharat Diamond Bourse said the bourse would be the springboard from which the Indian diamond industry could endeavour not only to be the world’s largest manufacturing centre but also the world’s top diamond trading centre.
“Today we are the leaders in every aspect of this trade, in terms of number of pieces manufactured, maximum carats being exported and highest volume,’’ he said. “The BDB will ultimately help make India an international trading centre for gems and jewellery and take the step towards creating a Brand India in the world of diamonds.”
India’s diamond processing industry accounts for 70 to 75 per cent of total diamond exports, worth about $28bn annually. It also employs 850,000 people, making it the largest cutting centre not only by value but also by number of employees. The top 400 exporters will operate for the first time within the same complex
Incorporated in 1984 with a group of diamond exporters in the city, the exchange expects revenues to rise 10-15 per cent annually over the next five years. Although industry bodies said that they did not expect to see an effect on pricing, they expected diamond traders from Israel, Belgium and elsewhere to start trading in India as a result of the world-class bourse that complies with international standards.
“Buyers can now carry out trade as they would in Antwerp, Tel Aviv or New York,” said Vasant Mehta, chairman of India’s Gem and Jewellery Export Promotion Council.
A Hedge Fund Soared, Controlled by Women, or So It Claimed
Jane Buchan is a rarity in the big-money boys’ club of hedge funds.
Amid the testosterone-fueled trading floors of Wall Street, Ms. Buchan has not only built a hugely successful hedge fund investment firm but also one that is, on paper, owned and run by women.
But questions have surfaced about whether her firm, Pacific Alternative Asset Management Company, is now — or ever was — controlled by women at all.
It turns out that S. Donald Sussman, a hedge fund mogul who has bankrolled some of the biggest (male) names in the business, has quietly stood behind Paamco for years, pocketing much of its profit. A recent court ruling officially put a chunk of Paamco’s parent company in his hands.
Equally troubling is the suggestion that Paamco, which collects tens of millions of dollars in fees annually to vet hedge funds for pension funds and other clients, disguised aspects of its own business from its customers, partners and federal regulators.
The arrangement with Mr. Sussman “may have been designed to mislead a number of observers, from the tax authorities to the S.E.C. to entities wishing to invest in women-owned businesses,” Judge Richard J. Sullivan of the United States District Court for the Southern District of New York wrote in an August ruling in the case, which centered on a contract dispute between Mr. Sussman and Paamco.
In an e-mailed statement, Paamco said its relationship with Mr. Sussman had not been structured to mislead anyone and that the transaction in question had been properly treated, and approved by the firm’s legal advisers and auditors.
Furthermore, Paamco said it had never taken any “set aside” business or minority mandates.
A lawyer for Mr. Sussman said in an e-mailed statement that Paamco executives “relied on their own counsel and advisers” and that they had built a “world-class fund of funds business to the benefit of their investors.”
But from the start, Paamco trumpeted the fact that it was run by Ms. Buchan, one of only a handful of women who have made a big mark in the mostly male world of hedge funds.
The question raised by the lawsuit was whether Paamco’s status as a company owned by women, albeit with a scant 51 percent majority for many years, gave it an edge over the competition.
Some states like Illinois and Ohio and corporations like Verizon steer a portion of their pension fund business to investment companies owned by women or minorities, which often fall into the category euphemistically referred to in the industry as “emerging managers.”
For investment professionals trying to stand out in a crowded field, the designation can be “a tool for competitive advantage,” said Thurman V. White Jr., the chief executive officer of Progress Investment Management Company, a San Francisco-based firm that invests in emerging managers. “It’s clear they’ve had some benefits from these kind of initiatives,” he said of Paamco.
Verizon Communications, for instance, hired Paamco as part of the Verizon Diversity Managers program, which was established in the late 1990s to attract funds managed by minorities. Ms. Buchan’s firm oversees a small part of the communication company’s $28.6 billion pension fund. In recent state budget and presentation materials, public pension funds in California and Pennsylvania highlighted Paamco’s status as a firm owned by women.
Documents and depositions related to the case involving Mr. Sussman paint a somewhat different picture. The case centered on whether Mr. Sussman had the right to convert a $2 million loan he made to Paamco’s founding partners in 2000 into an equity stake in Paamco’s parent company. In a countersuit, Paamco’s founding partners claimed the interest Mr. Sussman had charged them violated state laws that set maximum rates on loans.
Amid the testosterone-fueled trading floors of Wall Street, Ms. Buchan has not only built a hugely successful hedge fund investment firm but also one that is, on paper, owned and run by women.
But questions have surfaced about whether her firm, Pacific Alternative Asset Management Company, is now — or ever was — controlled by women at all.
It turns out that S. Donald Sussman, a hedge fund mogul who has bankrolled some of the biggest (male) names in the business, has quietly stood behind Paamco for years, pocketing much of its profit. A recent court ruling officially put a chunk of Paamco’s parent company in his hands.
Equally troubling is the suggestion that Paamco, which collects tens of millions of dollars in fees annually to vet hedge funds for pension funds and other clients, disguised aspects of its own business from its customers, partners and federal regulators.
The arrangement with Mr. Sussman “may have been designed to mislead a number of observers, from the tax authorities to the S.E.C. to entities wishing to invest in women-owned businesses,” Judge Richard J. Sullivan of the United States District Court for the Southern District of New York wrote in an August ruling in the case, which centered on a contract dispute between Mr. Sussman and Paamco.
In an e-mailed statement, Paamco said its relationship with Mr. Sussman had not been structured to mislead anyone and that the transaction in question had been properly treated, and approved by the firm’s legal advisers and auditors.
Furthermore, Paamco said it had never taken any “set aside” business or minority mandates.
A lawyer for Mr. Sussman said in an e-mailed statement that Paamco executives “relied on their own counsel and advisers” and that they had built a “world-class fund of funds business to the benefit of their investors.”
But from the start, Paamco trumpeted the fact that it was run by Ms. Buchan, one of only a handful of women who have made a big mark in the mostly male world of hedge funds.
The question raised by the lawsuit was whether Paamco’s status as a company owned by women, albeit with a scant 51 percent majority for many years, gave it an edge over the competition.
Some states like Illinois and Ohio and corporations like Verizon steer a portion of their pension fund business to investment companies owned by women or minorities, which often fall into the category euphemistically referred to in the industry as “emerging managers.”
For investment professionals trying to stand out in a crowded field, the designation can be “a tool for competitive advantage,” said Thurman V. White Jr., the chief executive officer of Progress Investment Management Company, a San Francisco-based firm that invests in emerging managers. “It’s clear they’ve had some benefits from these kind of initiatives,” he said of Paamco.
Verizon Communications, for instance, hired Paamco as part of the Verizon Diversity Managers program, which was established in the late 1990s to attract funds managed by minorities. Ms. Buchan’s firm oversees a small part of the communication company’s $28.6 billion pension fund. In recent state budget and presentation materials, public pension funds in California and Pennsylvania highlighted Paamco’s status as a firm owned by women.
Documents and depositions related to the case involving Mr. Sussman paint a somewhat different picture. The case centered on whether Mr. Sussman had the right to convert a $2 million loan he made to Paamco’s founding partners in 2000 into an equity stake in Paamco’s parent company. In a countersuit, Paamco’s founding partners claimed the interest Mr. Sussman had charged them violated state laws that set maximum rates on loans.
Sunday, October 17, 2010
Asian Stocks Fluctuate as Asset Managers Advance on KKR's Perpetual Offer
Asian stocks fluctuated after completing a seventh weekly advance last week, as Australian asset managers climbed following a private-equity bid for Perpetual Ltd., countering declines among commodity producers.
Perpetual jumped 22 percent in Sydney after Kohlberg Kravis Roberts & Co. offered as much as A$1.75 billion ($1.73 billion) for the company. Challenger Financial Services Group Ltd. surged 5.4 percent. BHP Billiton Ltd. sank 0.8 percent after abandoning plans to create the world’s largest iron-ore exporter, and as commodity prices sank. Mazda Motor Corp. dropped 0.5 percent in Tokyo after Nikkei English News reported Ford Motor Co. may lower its stake in the company.
“Investors are in a wait-and-see mood as they look to see what’s coming in the way of policy stimulus in the U.S. and elsewhere,” said Stephen Halmarick, who helps manage about $135 billion as head of investment markets research at Colonial First State Global Asset Management in Sydney. “The data is mixed at the moment, and that’s why we’re seeing a pretty slow pace today.”
The MSCI Asia Pacific Index fell 0.3 percent to 131.69 as of 11:24 a.m. in Tokyo today after reaching its highest level since July 2008 last week. About four stocks rose for every three that fell on the nearly 1,000-member gauge, which advanced as much as 0.2 percent earlier today. The measure completed its seventh weekly advance last week, the longest winning streak since 2006.
Japan’s Nikkei 225 Stock Average climbed 0.5 percent today. South Korea’s Kospi Index fell 1 percent. Australia’s S&P/ASX 200 Index slid 0.9 percent, while New Zealand’s NZX 50 Index advanced 0.2 percent in Wellington.
Hong Kong’s Hang Seng Index declined 1 percent as HSBC Holdings Plc led banks lower.
Technology Shares
Futures on the Standard & Poor’s 500 Index retreated 0.3 percent. The U.S. index rose 0.2 percent on Oct. 15 in New York as companies such as Google Inc. fueled a rally in technology shares that helped offset a decline in bank shares and an unexpected drop in consumer confidence.
Perpetual soared 22 percent to A$37.71 in Sydney. Kohlberg Kravis Roberts & Co. offered to buy the Australian asset manager to tap expanding wealth in one of the world’s fastest growing developed economies.
The offer from the New York-based private-equity firm is priced between A$38 and A$40 per share, Perpetual said in a statement to the Australian stock exchange today, 29 percent more than Perpetual’s previous closing price on Oct. 15. Challenger Financial rose 5.4 percent to A$4.86, its highest level since January 2008.
Iron-Ore Venture
Also in Sydney, BHP Billiton slipped 0.8 percent to A$41.32 after abandoning a plan with Rio Tinto Group to create the world’s largest iron-ore exporter, following opposition from regulators in Europe and Asia. Rio slipped 0.2 percent to A$83.03.
Crude oil for November delivery declined 1.7 percent on Oct. 15 in New York to $81.25 a barrel, the lowest settlement this month. The London Metal Exchange Index of six metals including aluminum and copper slipped 0.4 percent on Oct. 15, the biggest drop since Oct. 7.
Newcrest Mining Ltd., Australia’s largest gold producer, slumped 3.1 percent to A$40.78 as gold futures fell for a second day, the first two-day decline since July.
“The stock market will likely trade sideways,” said Kazuhiro Takahashi, a general manager at Tokyo-based Daiwa Securities Capital Markets Co.
Mazda dropped 0.5 percent to 213 yen in Tokyo after the Nikkei English News report. The shares pared declines after Sumitomo Mitsui Financial Group Inc.’s chairman, Masayuki Oku, said the Japanese company will become Mazda’s largest shareholder by the end of the year.
The MSCI Asia Pacific Index has risen 8.5 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 14.3 times estimated profit on average, compared with 14 times for the S&P 500 and 12.2 times for the Stoxx Europe 600 Index.
Perpetual jumped 22 percent in Sydney after Kohlberg Kravis Roberts & Co. offered as much as A$1.75 billion ($1.73 billion) for the company. Challenger Financial Services Group Ltd. surged 5.4 percent. BHP Billiton Ltd. sank 0.8 percent after abandoning plans to create the world’s largest iron-ore exporter, and as commodity prices sank. Mazda Motor Corp. dropped 0.5 percent in Tokyo after Nikkei English News reported Ford Motor Co. may lower its stake in the company.
“Investors are in a wait-and-see mood as they look to see what’s coming in the way of policy stimulus in the U.S. and elsewhere,” said Stephen Halmarick, who helps manage about $135 billion as head of investment markets research at Colonial First State Global Asset Management in Sydney. “The data is mixed at the moment, and that’s why we’re seeing a pretty slow pace today.”
The MSCI Asia Pacific Index fell 0.3 percent to 131.69 as of 11:24 a.m. in Tokyo today after reaching its highest level since July 2008 last week. About four stocks rose for every three that fell on the nearly 1,000-member gauge, which advanced as much as 0.2 percent earlier today. The measure completed its seventh weekly advance last week, the longest winning streak since 2006.
Japan’s Nikkei 225 Stock Average climbed 0.5 percent today. South Korea’s Kospi Index fell 1 percent. Australia’s S&P/ASX 200 Index slid 0.9 percent, while New Zealand’s NZX 50 Index advanced 0.2 percent in Wellington.
Hong Kong’s Hang Seng Index declined 1 percent as HSBC Holdings Plc led banks lower.
Technology Shares
Futures on the Standard & Poor’s 500 Index retreated 0.3 percent. The U.S. index rose 0.2 percent on Oct. 15 in New York as companies such as Google Inc. fueled a rally in technology shares that helped offset a decline in bank shares and an unexpected drop in consumer confidence.
Perpetual soared 22 percent to A$37.71 in Sydney. Kohlberg Kravis Roberts & Co. offered to buy the Australian asset manager to tap expanding wealth in one of the world’s fastest growing developed economies.
The offer from the New York-based private-equity firm is priced between A$38 and A$40 per share, Perpetual said in a statement to the Australian stock exchange today, 29 percent more than Perpetual’s previous closing price on Oct. 15. Challenger Financial rose 5.4 percent to A$4.86, its highest level since January 2008.
Iron-Ore Venture
Also in Sydney, BHP Billiton slipped 0.8 percent to A$41.32 after abandoning a plan with Rio Tinto Group to create the world’s largest iron-ore exporter, following opposition from regulators in Europe and Asia. Rio slipped 0.2 percent to A$83.03.
Crude oil for November delivery declined 1.7 percent on Oct. 15 in New York to $81.25 a barrel, the lowest settlement this month. The London Metal Exchange Index of six metals including aluminum and copper slipped 0.4 percent on Oct. 15, the biggest drop since Oct. 7.
Newcrest Mining Ltd., Australia’s largest gold producer, slumped 3.1 percent to A$40.78 as gold futures fell for a second day, the first two-day decline since July.
“The stock market will likely trade sideways,” said Kazuhiro Takahashi, a general manager at Tokyo-based Daiwa Securities Capital Markets Co.
Mazda dropped 0.5 percent to 213 yen in Tokyo after the Nikkei English News report. The shares pared declines after Sumitomo Mitsui Financial Group Inc.’s chairman, Masayuki Oku, said the Japanese company will become Mazda’s largest shareholder by the end of the year.
The MSCI Asia Pacific Index has risen 8.5 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 14.3 times estimated profit on average, compared with 14 times for the S&P 500 and 12.2 times for the Stoxx Europe 600 Index.
Coal India's Valuation for Record Share Offering Is `Biggest Attraction'
Coal India Ltd.’s sale of as much as 151.5 billion rupees ($3.4 billion) of stock in the nation’s biggest initial share sale will likely be fully subscribed because the price set by the government is low, investors said.
The state-owned coal producer starts selling 631.6 million shares today. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“The IPO will easily get subscribed and that is because the valuation is fair,” said Samir Arora, founder of hedge fund Helios Capital Management Pte. in Singapore, who plans to buy the shares. “That’s the biggest attraction. It’s a large company and it’s relatively cheap.”
Fifteen of 18 investors surveyed by Bloomberg News said they plan to buy shares in the world’s largest coal producer. The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp. and Indian Oil Corp. also plan to sell shares.
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.
‘Cheaper Than Peers’
“The shares are available at a price cheaper than their global peers,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities Pvt., manager of the equivalent of $124 million in assets. “They have large cash holdings on their balance sheet and the world’s largest coal reserves. They haven’t charged a premium for this.”
The IPO by Kolkata, West Bengal-based Coal India would surpass Reliance Power Ltd.’s 116 billion-rupee sale in January 2008 as India’s biggest, data compiled by Bloomberg show. Reliance Power sold shares at 450 rupees apiece and investors ordered shares worth as much as $189 billion. The shares declined 17 percent on its trading debut on Feb. 11, 2008.
Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley is managing Coal India’s offering. The sale closes on Oct. 21.
Government Target
The share sale will help the government raise 37.8 percent of its 400 billion rupee asset-sale target in the year ending March 31. The South Asian nation has raised 5.2 percent of its target from selling stake in two state companies this year.
Investors are buying shares as India build 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. India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24.
Companies from emerging economies in the Asia-Pacific region raised over $72 billion in initial sales this year, more than triple the amount in the same period in 2009, according to data compiled by Bloomberg. Beijing-based Agricultural Bank of China Ltd. sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s biggest IPO on record.
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 billion tons, of which 21.75 billion is extractable, the share-sale document shows.
Coal Production
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.
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.
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 state-owned coal producer starts selling 631.6 million shares today. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“The IPO will easily get subscribed and that is because the valuation is fair,” said Samir Arora, founder of hedge fund Helios Capital Management Pte. in Singapore, who plans to buy the shares. “That’s the biggest attraction. It’s a large company and it’s relatively cheap.”
Fifteen of 18 investors surveyed by Bloomberg News said they plan to buy shares in the world’s largest coal producer. The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp. and Indian Oil Corp. also plan to sell shares.
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.
‘Cheaper Than Peers’
“The shares are available at a price cheaper than their global peers,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities Pvt., manager of the equivalent of $124 million in assets. “They have large cash holdings on their balance sheet and the world’s largest coal reserves. They haven’t charged a premium for this.”
The IPO by Kolkata, West Bengal-based Coal India would surpass Reliance Power Ltd.’s 116 billion-rupee sale in January 2008 as India’s biggest, data compiled by Bloomberg show. Reliance Power sold shares at 450 rupees apiece and investors ordered shares worth as much as $189 billion. The shares declined 17 percent on its trading debut on Feb. 11, 2008.
Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley is managing Coal India’s offering. The sale closes on Oct. 21.
Government Target
The share sale will help the government raise 37.8 percent of its 400 billion rupee asset-sale target in the year ending March 31. The South Asian nation has raised 5.2 percent of its target from selling stake in two state companies this year.
Investors are buying shares as India build 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. India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24.
Companies from emerging economies in the Asia-Pacific region raised over $72 billion in initial sales this year, more than triple the amount in the same period in 2009, according to data compiled by Bloomberg. Beijing-based Agricultural Bank of China Ltd. sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s biggest IPO on record.
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 billion tons, of which 21.75 billion is extractable, the share-sale document shows.
Coal Production
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.
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.
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.
Sahara tipped to buy Grosvenor House
Sahara India Pariwar, the Indian conglomerate run by billionaire industrialist Subrata Roy, has been tipped as a leading bidder to buy the Grosvenor House Hotel on Park Lane from Royal Bank of Scotland for about £500m ($799m).
The Indian group is seen by those close to the negotiations as one of the favourites to acquire the well-known London hotel, which is the venue for many of the capital’s larger black tie events, although a final decision has not been made from a shortlist of bidders.
Other parties linked to the deal include sovereign and state wealth funds from Singapore, Qatar and China. The Candy brothers, the upmarket developers, are no longer involved in the process.
RBS took ownership of the hotel in 2003 when Le Meridien collapsed into administrative receivership. It owns a long lease on the 494-bedroom hotel, which is operated by Marriott International.
Sahara was not available for comment; RBS declined to comment. CBRE Hotels is advising on the bids.
The Indian group is seen by those close to the negotiations as one of the favourites to acquire the well-known London hotel, which is the venue for many of the capital’s larger black tie events, although a final decision has not been made from a shortlist of bidders.
Other parties linked to the deal include sovereign and state wealth funds from Singapore, Qatar and China. The Candy brothers, the upmarket developers, are no longer involved in the process.
RBS took ownership of the hotel in 2003 when Le Meridien collapsed into administrative receivership. It owns a long lease on the 494-bedroom hotel, which is operated by Marriott International.
Sahara was not available for comment; RBS declined to comment. CBRE Hotels is advising on the bids.
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