ARRANMORE ISLAND — As Irish and European officials engaged in tense talks over the weekend on terms of a multibillion dollar rescue package, Ireland’s Prime Minister Brian Cowen asserted that the country’s low corporate tax rate and four-year plan to reduce the budget would not be substantially changed.
“Unlike other countries, we have already made our adjustments,” Mr. Cowen said on Saturday, speaking to a small group of reporters and voters on this desolate island of 500 or so people just off the northern coast of Ireland. “Our tax rate is 12.5 percent and it is transparent and it is a matter for the national government.”
However, in at a NATO meeting in Lisbon, President Nicolas Sarkozy of France said he could not imagine that Ireland wouldn’t choose to raise its corporate tax rate. But he said that would not be a condition of any bailout.
Mr. Cowen is facing stiff political pressure from opposing parties who say that his decision in 2008 to guarantee bank liabilities jeopardized the country’s fiscal future. Campaigning for the local Fianna Fail candidate in an upcoming election, Mr. Cowen flew here Friday night while his finance minister Brian Lenihan led negotiations with the International Monetary Fund and the European Commission back in Dublin.
Mr. Cowen also said the current interest rates of 8 percent demanded by buyers of Irish government bonds were “prohibitive,” and indicated that as long as they remained that high Ireland could not borrow more from the financial markets.
For the 250 or so voters on this windswept island, the main issue is fishing; they want to change the Brussels-based restrictions that prevent them from catching more salmon from the surrounding waters.
Despite being a Fianna Fail stronghold, Mr. Cowen was met at the ferry dock by a handful of dour-looking fishermen and their sad-eyed children who held up signs that said, “Please let my Daddy fish.”
After huddling with a delegation of petitioners, in addition to the local priest, Mr. Cowen took questions from journalists who wondered why he was spending his Saturday here and not in Dublin as Ireland’s financial future was being decided.
Mr. Cowen batted away the notion that he was missing important state business, and said he would be returning to Dublin Sunday, where he would head a cabinet meeting that would deal with the final details of the country’s four-year plan to bring the deficit down from the current 32 percent of gross domestic product to 3 percent.
“It is important to meet the people,” he said, as he nodded toward a small group of weather-beaten locals who were watching from the side. “There are dire issues here regarding salmon-fishing, and it is my job to have a good discussion with them about this.”
Mr. Cowen was also insistent that no form of debt restructuring would be on the table — despite a growing cry in Ireland and abroad that the bondholders who financed the boom that has brought this country to its knees share some of the pain too.
“Under Irish law, senior bondholders rank pari passu with depositors,” Mr. Cowen said, meaning they each had equal rights. His government has been roundly criticized for a blanket guarantee of the country’s banks and bondholders in 2008. Irish bank debts are now estimated at around 70 billion euros, almost one half the country’s output.
Mr. Cowen would not go into specifics regarding the talks, but he said there could be no deal struck before the cabinet meeting on Sunday.
He did say that some form of a “contingency fund” could be the answer — underlining a broad view in the government that what is needed to restore confidence in Ireland’s finances is the establishment of a fund big enough that it could be used to help operate the government and at the same time provide capital to its banks.
Analysts at Barclays Capital estimate that banks would need anywhere from 22 to 37 billion euros and that the government would need 63 billion euros if it were to remain out of the bond market through 2013.
Technical discussions on a bailout continued Saturday in Dublin among a team of officials from the European Commission, the European Central Bank and the International Monetary Fund. European Union officials say they are testing the credibility of Ireland’s plans.
“What we have to do is assess that the measures really enable Ireland to meet the target in 2014, sector by sector,” said one European Union official, speaking on condition of anonymity because he was not authorized to speak publicly.
For Father John Joe Duffy, Arranmore Island’s parish priest and its de facto town elder, such matters were less important than how future and certain budget cuts would affect his island — which is in many ways dependent on government funds.
Saturday, November 20, 2010
Japan's Biggest Emerging-Bond Fund to Invest in India on Stronger Rupee
PineBridge Investments Japan Co. said its 160 billion-yen ($1.9 billion) bond fund will start to invest in India next year on expectations the nation’s currency will appreciate.
The firm’s Blue Ocean fund is Japan’s biggest that invests in sovereign bonds in emerging economies without letting customers choose in which currency to invest, according to data compiled by Bloomberg. Investment in India is expected to start in 2011 with an initial allocation of at least 5 percent of the fund’s assets, or about 8 billion yen, said Kazuya Sugiura, managing director at PineBridge’s fund-business development division.
“India is undoubtedly an important country,” Sugiura said in a Nov. 17 interview in Tokyo. The rupee “is moving in almost the same way as the U.S. dollar, but I think the time will come when it starts to move differently.”
Prolonged deflation in Japan enhances the value of fixed payments from bonds, boosting demand for government debt and driving down its returns. While the Bank of Japan maintains interest rates almost zero to boost lending and combat deflation, its Indian counterpart has lifted borrowing costs six times this year to contain inflation.
India’s rupee has depreciated 7.6 percent versus the yen this year, while the dollar has lost 10 percent. Yields on India’s 10-year bonds are seven times higher than similar- maturity Japanese debt.
Sovereign Ratings
Japan’s investments in overseas debt have reached a net 22.3 trillion yen this year through September, exceeding a yearly total of 13.3 trillion yen in 2009, reports from the Ministry of Finance show. Purchases of Indian securities amount to a net 100 billion yen this year, more than any annual total on record dating back to 2005.
Other investment opportunities for Blue Ocean lie with Indonesia and Turkey, whose sovereign ratings may be raised, Sugiura said. There are investors who avoid countries with a rating of BB or lower, and a rating upgrade will spur their purchases, he said.
“Indonesia’s rating may be lifted in 2012 or 2013 if everything goes smoothly,”Sugiura said. “The countries’ interest rates are high and their economies are robust despite some problems.”
Indonesia and Turkey are rated BB by Standard & Poor’s Ratings Services. Turkish securities accounted for the biggest portion of the fund’s asset, or 12 percent, as of Oct. 20, followed by Brazil’s 11 percent, according to the company’s report. Indonesian debt made up 9 percent.
Shift from Latin America
Last month, Brazil raised tax on foreigners’ investments in fixed-income securities to prevent the currency’s appreciation and safeguard export growth. Japan’s purchases of Brazilian debt rose to a net 882.4 billion yen this year through September, reports from Japan’s Ministry of Finance show. That exceeded a 12-month total last year, the most on record since 2005.
“The fund’s allocation will shift from Latin America to Asia to a certain extent,” Sugiura said. “I’m expecting Asian countries to play an increasingly important role in Blue Ocean.”
The International Monetary Fund projects 1.5 percent growth in Japan’s economy next year, and 8.4 percent for India. Turkey’s economy may expand 3.6 percent, compared with 6.2 percent for Indonesia’s real gross domestic product, according to the IMF.
The firm’s Blue Ocean fund is Japan’s biggest that invests in sovereign bonds in emerging economies without letting customers choose in which currency to invest, according to data compiled by Bloomberg. Investment in India is expected to start in 2011 with an initial allocation of at least 5 percent of the fund’s assets, or about 8 billion yen, said Kazuya Sugiura, managing director at PineBridge’s fund-business development division.
“India is undoubtedly an important country,” Sugiura said in a Nov. 17 interview in Tokyo. The rupee “is moving in almost the same way as the U.S. dollar, but I think the time will come when it starts to move differently.”
Prolonged deflation in Japan enhances the value of fixed payments from bonds, boosting demand for government debt and driving down its returns. While the Bank of Japan maintains interest rates almost zero to boost lending and combat deflation, its Indian counterpart has lifted borrowing costs six times this year to contain inflation.
India’s rupee has depreciated 7.6 percent versus the yen this year, while the dollar has lost 10 percent. Yields on India’s 10-year bonds are seven times higher than similar- maturity Japanese debt.
Sovereign Ratings
Japan’s investments in overseas debt have reached a net 22.3 trillion yen this year through September, exceeding a yearly total of 13.3 trillion yen in 2009, reports from the Ministry of Finance show. Purchases of Indian securities amount to a net 100 billion yen this year, more than any annual total on record dating back to 2005.
Other investment opportunities for Blue Ocean lie with Indonesia and Turkey, whose sovereign ratings may be raised, Sugiura said. There are investors who avoid countries with a rating of BB or lower, and a rating upgrade will spur their purchases, he said.
“Indonesia’s rating may be lifted in 2012 or 2013 if everything goes smoothly,”Sugiura said. “The countries’ interest rates are high and their economies are robust despite some problems.”
Indonesia and Turkey are rated BB by Standard & Poor’s Ratings Services. Turkish securities accounted for the biggest portion of the fund’s asset, or 12 percent, as of Oct. 20, followed by Brazil’s 11 percent, according to the company’s report. Indonesian debt made up 9 percent.
Shift from Latin America
Last month, Brazil raised tax on foreigners’ investments in fixed-income securities to prevent the currency’s appreciation and safeguard export growth. Japan’s purchases of Brazilian debt rose to a net 882.4 billion yen this year through September, reports from Japan’s Ministry of Finance show. That exceeded a 12-month total last year, the most on record since 2005.
“The fund’s allocation will shift from Latin America to Asia to a certain extent,” Sugiura said. “I’m expecting Asian countries to play an increasingly important role in Blue Ocean.”
The International Monetary Fund projects 1.5 percent growth in Japan’s economy next year, and 8.4 percent for India. Turkey’s economy may expand 3.6 percent, compared with 6.2 percent for Indonesia’s real gross domestic product, according to the IMF.
India Will Prosecute Any Wrongdoers in Telephone Licensing, Singh Pledges
India’s prime minister rejected allegations that he had delayed responding to calls for prosecution of a minister that awarded phone licenses at below- market prices and pledged to punish wrongdoers in the case.
“If any wrong thing has been done by anybody, he or she will be brought to book,” Manmohan Singh told a conference in New Delhi yesterday. His office also filed an affidavit with the Supreme Court yesterday rejecting allegations Singh had put off bringing charges against former Telecommunications Minister Andimuthu Raja.
Opposition lawmakers stalled proceedings in parliament for seven days and demanded a deeper probe, resulting in the benchmark Bombay Stock Exchange Sensitive Index falling to a two-month low at its close on Friday, Nov. 19. The clash in parliament is threatening to slow decisions by the Congress Party-led coalition government that is reviewing policies to open up the $1.3 trillion economy to companies including Wal- Mart Stores Inc. and Carrefour SA.
“Various aspects of this are being looked into by respective investigating agencies,” Singh said. “I appeal to all political parties to let the parliament do its work. We are ready to discuss all issues in parliament.”
The Supreme Court had asked the Prime Minister’s office to explain by Nov. 20 why he didn’t respond to calls for Raja’s prosecution. The prime minister’s office said it was in the process of seeking advice from the law ministry and awaiting a probe report by the federal investigating agency.
‘Partisan Interest’
Singh’s government has rejected the opposition’s demand for a Joint Parliamentary Committee probe into the Comptroller and Auditor General’s charges, the nation’s auditor.
“The reason we are raising the demand for the parliamentary probe is because of the suborning of official institutions to narrow partisan interest,” said Brinda Karat, a lawmaker of the Communist Party of India (Marxist) at the Hindustan Times Leadership summit in New Delhi yesterday.
The government sold wireless airwaves in 2008 for 123.9 billion rupees ($2.7 billion), though they were worth as much as 1.5 trillion rupees, the Comptroller and Auditor General of India said in a report to parliament in New Delhi on Nov. 15. The telecommunications ministry allowed some bidders to “jump the queue” and awarded 85 of the licenses to ineligible companies, according to the report.
Raja resigned one day before India’s chief auditor said the 2008 sale “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner.”
Clear Conscience
His conscience is “clear,” Raja said after resigning on Nov. 14, adding he will prove he didn’t break any rules.
The former telecommunications minister is a member of the Dravida Munnetra Kazhagam, the political party that rules the southern state of Tamil Nadu, and is a partner in Singh’s federal governing coalition with 18 seats in the lower house.
India’s plan to raise the foreign-direct-investment ceiling in insurance to 49 percent from 26 percent has been stuck in parliament for more than three years because of a lack of consensus among the political parties.
“The key legislative business has come to a standstill due to this impasse, and the government will have think hard about how it will get its important laws passed,” said N. R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy. “This also offers them an opportunity to address the institutional weaknesses in the system.”
The government may decide in two months whether to allow Bentonville, Arkansas-based Wal-Mart and Paris-based Carrefour to open retail stores, Junior Commerce Minister Jyotiraditya Scindia said Nov. 19.
Constant Tests
Prime Minister Singh gave Human Resources Minister Kapil Sibal the additional charge of the communications and information technology ministry on Nov. 15 after Raja’s resignation.
“It is often said that these are testing times,” Prime Minister Singh said yesterday. “In fact, I can’t help feeling that we in India are always living through testing times. Indeed as Prime Minister I sometimes feel like a high school student, going from one test to another.”
“The good news is that though being constantly tested, we are winning,” Singh said.
“If any wrong thing has been done by anybody, he or she will be brought to book,” Manmohan Singh told a conference in New Delhi yesterday. His office also filed an affidavit with the Supreme Court yesterday rejecting allegations Singh had put off bringing charges against former Telecommunications Minister Andimuthu Raja.
Opposition lawmakers stalled proceedings in parliament for seven days and demanded a deeper probe, resulting in the benchmark Bombay Stock Exchange Sensitive Index falling to a two-month low at its close on Friday, Nov. 19. The clash in parliament is threatening to slow decisions by the Congress Party-led coalition government that is reviewing policies to open up the $1.3 trillion economy to companies including Wal- Mart Stores Inc. and Carrefour SA.
“Various aspects of this are being looked into by respective investigating agencies,” Singh said. “I appeal to all political parties to let the parliament do its work. We are ready to discuss all issues in parliament.”
The Supreme Court had asked the Prime Minister’s office to explain by Nov. 20 why he didn’t respond to calls for Raja’s prosecution. The prime minister’s office said it was in the process of seeking advice from the law ministry and awaiting a probe report by the federal investigating agency.
‘Partisan Interest’
Singh’s government has rejected the opposition’s demand for a Joint Parliamentary Committee probe into the Comptroller and Auditor General’s charges, the nation’s auditor.
“The reason we are raising the demand for the parliamentary probe is because of the suborning of official institutions to narrow partisan interest,” said Brinda Karat, a lawmaker of the Communist Party of India (Marxist) at the Hindustan Times Leadership summit in New Delhi yesterday.
The government sold wireless airwaves in 2008 for 123.9 billion rupees ($2.7 billion), though they were worth as much as 1.5 trillion rupees, the Comptroller and Auditor General of India said in a report to parliament in New Delhi on Nov. 15. The telecommunications ministry allowed some bidders to “jump the queue” and awarded 85 of the licenses to ineligible companies, according to the report.
Raja resigned one day before India’s chief auditor said the 2008 sale “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner.”
Clear Conscience
His conscience is “clear,” Raja said after resigning on Nov. 14, adding he will prove he didn’t break any rules.
The former telecommunications minister is a member of the Dravida Munnetra Kazhagam, the political party that rules the southern state of Tamil Nadu, and is a partner in Singh’s federal governing coalition with 18 seats in the lower house.
India’s plan to raise the foreign-direct-investment ceiling in insurance to 49 percent from 26 percent has been stuck in parliament for more than three years because of a lack of consensus among the political parties.
“The key legislative business has come to a standstill due to this impasse, and the government will have think hard about how it will get its important laws passed,” said N. R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy. “This also offers them an opportunity to address the institutional weaknesses in the system.”
The government may decide in two months whether to allow Bentonville, Arkansas-based Wal-Mart and Paris-based Carrefour to open retail stores, Junior Commerce Minister Jyotiraditya Scindia said Nov. 19.
Constant Tests
Prime Minister Singh gave Human Resources Minister Kapil Sibal the additional charge of the communications and information technology ministry on Nov. 15 after Raja’s resignation.
“It is often said that these are testing times,” Prime Minister Singh said yesterday. “In fact, I can’t help feeling that we in India are always living through testing times. Indeed as Prime Minister I sometimes feel like a high school student, going from one test to another.”
“The good news is that though being constantly tested, we are winning,” Singh said.
Gandhi warns Indian growth comes at a price
India’s faster economic growth is coming at the price of a “shrinking moral universe”, Sonia Gandhi, president of the ruling Congress party, said in the wake of a telecoms scandal that engulfed her government this week.
The warning on Friday by a woman widely viewed as the most powerful person in India that “graft and greed” were on the rise adds to the drumbeat of scandals puncturing India’s glowing status as an emerging political and economic force.
The furore surrounding the state’s allocation of licences to telecoms companies also acts as a counterpoint to the way India is held up in the west as a model democracy in contrast with authoritarian China.
Earlier this week, Andimuthu Raja resigned as telecoms minister after an official report highlighted “serious irregularities” in the awarding of 2G mobile phone licences on a “first-come, first-served” basis to new entrants in 2008.
The report claimed that as much as $40bn had been lost in potential government revenues.
Manmohan Singh, prime minister, faces severe criticism for turning a blind eye to the ministry’s controversial dealings, controlled by a coalition partner of the Congress party from the southern state of Tamil Nadu.
Mrs Gandhi’s pointed intervention highlighted her concern over corruption allegations surrounding last month’s Commonwealth Games in New Delhi, the unravelling of the Indian Premier League, a high profile cricket championship, and a Mumbai land scam involving the top brass of the Indian army.
“We are right to celebrate our high rate of economic growth ... [but] let us not forget that growth is not an end in itself. Much more important to my mind is what kind of society we aspire to be,” she said at a conference in memory of her slain mother-in-law and former prime minister, Indira Gandhi.
“The broad mass of people must believe in the fairness of the system, if it is to survive.”
Mrs Gandhi’s concerns are shared by some of India’s most respected business people who warned that the business environment is deteriorating.
Ratan Tata, chairman of the Tata Group, disclosed this week that he had been asked for a hefty bribe by a government official when considering establishing a domestic airline.
Sanjay Nayar, head of Kohlberg Kravis Roberts, a leading private equity company, said it was becoming more difficult to do business and that the failure to execute projects was a threat to its appeal. “Getting business done has become more difficult,” he said.
Pranab Mukherjee, the finance minister, on Friday questioned the estimation of the losses from the telecoms licences as a calculation made with the benefit of “hindsight” and said its report needed parliamentary scrutiny before conclusions could be drawn.
Kapil Sibal, new telecoms minister, praised Ms Gandhi for speaking openly about corruption. “Graft is a big problem in this country. The political class should start to introspect,” he said.
The government is now considering a proposal made by the country's telecoms regulator to cancel licences held by mobile operators – including foreign ones – that have been accused by the nation’s auditor-general of violating licensing regulations.
The Telecom Regulatory Authority of India has asked the telecoms ministry to cancel 62 licences given to five companies in 2008, including those held by the Indian joint ventures of the UAE’s Etisalat, Norway’s Telenor and Russia’s Sistema. Other groups that risk losing their licences include Loop Telecom and Videocon.
The warning on Friday by a woman widely viewed as the most powerful person in India that “graft and greed” were on the rise adds to the drumbeat of scandals puncturing India’s glowing status as an emerging political and economic force.
The furore surrounding the state’s allocation of licences to telecoms companies also acts as a counterpoint to the way India is held up in the west as a model democracy in contrast with authoritarian China.
Earlier this week, Andimuthu Raja resigned as telecoms minister after an official report highlighted “serious irregularities” in the awarding of 2G mobile phone licences on a “first-come, first-served” basis to new entrants in 2008.
The report claimed that as much as $40bn had been lost in potential government revenues.
Manmohan Singh, prime minister, faces severe criticism for turning a blind eye to the ministry’s controversial dealings, controlled by a coalition partner of the Congress party from the southern state of Tamil Nadu.
Mrs Gandhi’s pointed intervention highlighted her concern over corruption allegations surrounding last month’s Commonwealth Games in New Delhi, the unravelling of the Indian Premier League, a high profile cricket championship, and a Mumbai land scam involving the top brass of the Indian army.
“We are right to celebrate our high rate of economic growth ... [but] let us not forget that growth is not an end in itself. Much more important to my mind is what kind of society we aspire to be,” she said at a conference in memory of her slain mother-in-law and former prime minister, Indira Gandhi.
“The broad mass of people must believe in the fairness of the system, if it is to survive.”
Mrs Gandhi’s concerns are shared by some of India’s most respected business people who warned that the business environment is deteriorating.
Ratan Tata, chairman of the Tata Group, disclosed this week that he had been asked for a hefty bribe by a government official when considering establishing a domestic airline.
Sanjay Nayar, head of Kohlberg Kravis Roberts, a leading private equity company, said it was becoming more difficult to do business and that the failure to execute projects was a threat to its appeal. “Getting business done has become more difficult,” he said.
Pranab Mukherjee, the finance minister, on Friday questioned the estimation of the losses from the telecoms licences as a calculation made with the benefit of “hindsight” and said its report needed parliamentary scrutiny before conclusions could be drawn.
Kapil Sibal, new telecoms minister, praised Ms Gandhi for speaking openly about corruption. “Graft is a big problem in this country. The political class should start to introspect,” he said.
The government is now considering a proposal made by the country's telecoms regulator to cancel licences held by mobile operators – including foreign ones – that have been accused by the nation’s auditor-general of violating licensing regulations.
The Telecom Regulatory Authority of India has asked the telecoms ministry to cancel 62 licences given to five companies in 2008, including those held by the Indian joint ventures of the UAE’s Etisalat, Norway’s Telenor and Russia’s Sistema. Other groups that risk losing their licences include Loop Telecom and Videocon.
Friday, November 19, 2010
Small Cheesemaker Defies F.D.A. Over Recall
MONTESANO, Wash. — The foodies raved. The feds raided.
And now Kelli Estrella, a farmer and award-winning cheesemaker whose pastureland is tucked into a bend of the Wynoochee River here, has become a potent symbol in a contentious national debate over the safety of food produced by small farmers and how much the government should regulate it.
To her devotees, Ms. Estrella is a homespun diva of local food. With her husband and six adopted children from Liberia, she makes tasty artisan cheeses from the milk of her 36 cows and 40 goats and sells it at farmers’ markets.
Some even winds up on tables at fancy restaurants in Manhattan and Los Angeles.
But to the federal government, Ms. Estrella is a defiant businesswoman unable to keep dangerous bacteria out of her products. Last month, the Food and Drug Administration moved to shut down her business, Estrella Family Creamery, after tests found listeria in some of her cheese and she refused to agree to a broad recall of her products.
Although no illnesses have been linked to Ms. Estrella’s cheese, listeria is a sometimes deadly bacteria that is especially hazardous for the very young and the very old. Pregnant women who become infected can have miscarriages or stillbirths.
Issues of food safety and small food producers were at the fore in Washington, D.C., this week as senators struck a deal that would exempt small producers from some of the rules that would be imposed by a sweeping food safety bill. A vote is expected after Thanksgiving on the long-awaited legislation.
“They really need to go after the industrial producers,” said Senator Jon Tester, Democrat of Montana, who pushed for the exemption. “The level of risk is far less with the little guy than it is with the big guy.”
There is fuel for all sides in Ms. Estrella’s predicament: it shows that even food from a revered artisan producer can pose risks, while demonstrating the pitfalls for regulators who may be viewed as heavy-handed.
Ms. Estrella’s case has drawn visceral reaction from foodies because the allegations threaten a core belief of what has come to be known as the locavore movement: that food from small, local producers is inherently better and safer than food made by large, faceless corporations. Her supporters cast her as a David fighting a two-headed Goliath of Big Food and Big Government.
“She’s an incredible craftsperson and one of the best cheesemakers in the country,” said Tia Keenan, a New York restaurant consultant who specializes in cheese. “The laws regarding food safety are really meant to regulate large-scale, corporate, industrial food production, and small food producers really suffer under those guidelines.”
Federal and state regulators, meanwhile, say they have very real concerns about the safety of cheese, especially softer varieties like brie and mozzarella that are more likely to harbor listeria. The F.D.A. began in April to test soft-cheese makers for listeria, visiting 102 facilities, large and small, and found the bacteria in 24 of them. While the list of facilities where listeria was found included some large factories, more than half of the makers were artisanal producers.
Regulators say that safety, not size, is what’s important.
“When you’ve got people that make good cheese, you want them to be successful,” said Claudia Coles, the food safety program manager for the Washington State Department of Agriculture. “But our first premise is, we don’t want people marketing an unsafe product.”
William Marler, a Seattle food safety lawyer, said it was clear that regulators tried to work with Ms. Estrella and that he was puzzled by the attitude that Ms. Estrella’s supporters appear to have toward the F.D.A. “I just don’t know how they make the leap from the government trying to do the right thing for public health to ‘they’re food Nazis in the pocket of big agribusiness.’ ”
At least nine artisan cheesemakers have had recalls this year. Most involved listeria in soft cheeses, but this month, a California cheesemaker, Bravo Farms, recalled a gouda, a semi-hard cheese, from Costco stores after it was linked to an E. coli outbreak that sickened 37 people.
Artisan cheese is made by hand in small batches, often using raw milk that is not pasteurized to kill bacteria (raw-milk cheeses must be aged 60 days to make them safer). In recent years, the number of artisan cheesemakers has grown rapidly. Washington State now has 34, up from about 18 in 2005. Vermont, another hot spot, has 48, up from 27 in 2005.
And now Kelli Estrella, a farmer and award-winning cheesemaker whose pastureland is tucked into a bend of the Wynoochee River here, has become a potent symbol in a contentious national debate over the safety of food produced by small farmers and how much the government should regulate it.
To her devotees, Ms. Estrella is a homespun diva of local food. With her husband and six adopted children from Liberia, she makes tasty artisan cheeses from the milk of her 36 cows and 40 goats and sells it at farmers’ markets.
Some even winds up on tables at fancy restaurants in Manhattan and Los Angeles.
But to the federal government, Ms. Estrella is a defiant businesswoman unable to keep dangerous bacteria out of her products. Last month, the Food and Drug Administration moved to shut down her business, Estrella Family Creamery, after tests found listeria in some of her cheese and she refused to agree to a broad recall of her products.
Although no illnesses have been linked to Ms. Estrella’s cheese, listeria is a sometimes deadly bacteria that is especially hazardous for the very young and the very old. Pregnant women who become infected can have miscarriages or stillbirths.
Issues of food safety and small food producers were at the fore in Washington, D.C., this week as senators struck a deal that would exempt small producers from some of the rules that would be imposed by a sweeping food safety bill. A vote is expected after Thanksgiving on the long-awaited legislation.
“They really need to go after the industrial producers,” said Senator Jon Tester, Democrat of Montana, who pushed for the exemption. “The level of risk is far less with the little guy than it is with the big guy.”
There is fuel for all sides in Ms. Estrella’s predicament: it shows that even food from a revered artisan producer can pose risks, while demonstrating the pitfalls for regulators who may be viewed as heavy-handed.
Ms. Estrella’s case has drawn visceral reaction from foodies because the allegations threaten a core belief of what has come to be known as the locavore movement: that food from small, local producers is inherently better and safer than food made by large, faceless corporations. Her supporters cast her as a David fighting a two-headed Goliath of Big Food and Big Government.
“She’s an incredible craftsperson and one of the best cheesemakers in the country,” said Tia Keenan, a New York restaurant consultant who specializes in cheese. “The laws regarding food safety are really meant to regulate large-scale, corporate, industrial food production, and small food producers really suffer under those guidelines.”
Federal and state regulators, meanwhile, say they have very real concerns about the safety of cheese, especially softer varieties like brie and mozzarella that are more likely to harbor listeria. The F.D.A. began in April to test soft-cheese makers for listeria, visiting 102 facilities, large and small, and found the bacteria in 24 of them. While the list of facilities where listeria was found included some large factories, more than half of the makers were artisanal producers.
Regulators say that safety, not size, is what’s important.
“When you’ve got people that make good cheese, you want them to be successful,” said Claudia Coles, the food safety program manager for the Washington State Department of Agriculture. “But our first premise is, we don’t want people marketing an unsafe product.”
William Marler, a Seattle food safety lawyer, said it was clear that regulators tried to work with Ms. Estrella and that he was puzzled by the attitude that Ms. Estrella’s supporters appear to have toward the F.D.A. “I just don’t know how they make the leap from the government trying to do the right thing for public health to ‘they’re food Nazis in the pocket of big agribusiness.’ ”
At least nine artisan cheesemakers have had recalls this year. Most involved listeria in soft cheeses, but this month, a California cheesemaker, Bravo Farms, recalled a gouda, a semi-hard cheese, from Costco stores after it was linked to an E. coli outbreak that sickened 37 people.
Artisan cheese is made by hand in small batches, often using raw milk that is not pasteurized to kill bacteria (raw-milk cheeses must be aged 60 days to make them safer). In recent years, the number of artisan cheesemakers has grown rapidly. Washington State now has 34, up from about 18 in 2005. Vermont, another hot spot, has 48, up from 27 in 2005.
Oil Has Biggest Weekly Decline in Three Months on China Bank Reserves Move
Oil fell, posting its biggest weekly loss in three months, after China ordered banks to raise reserves in a move that may slow growth in the world’s largest energy-consuming country.
Futures dropped 0.4 percent after China told lenders for the fifth time this year to set aside more funds to drain cash from the financial system and limit asset bubbles. Economic growth will spur a 9.5 percent jump in 2010 Chinese oil use, according to a Nov. 12 International Energy Agency report.
“These further moves by the Chinese to rein in their economy and the real concern they’re expressing about inflation is weighing on this crude market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund focusing on energy.
Crude for December delivery fell 34 cents to settle at $81.51 a barrel on the New York Mercantile Exchange. Prices have dropped 4 percent since Nov. 12, the most since the week ended Aug. 13. The December contract expired today. The more active January contract slipped 44 cents, or 0.5 percent, to $81.98.
The People’s Bank of China said it will raise the reserve ratio requirement for the nation’s banks by 50 basis points starting Nov. 29. Speculation of an imminent increase in interest rates to counter inflation helped to drive the biggest selloff in China’s benchmark stock index since May over the past two weeks.
Inflation Concern
“The Chinese are fearful of inflation, and that’s causing a bit of risk reduction in the market,” said Robert Montefusco, a senior broker with Sucden Financial in London.
Chinese oil-consumption growth of 4.3 percent for next year compares with flat demand in North America and a decline among Europe’s industrialized nations, the Paris-based IEA forecast last week in its monthly Oil Market Report.
U.S. consumption of gasoline increased 0.1 percent during the first 10 months of the year from the same period a year earlier to average 9.02 million barrels a day, the American Petroleum Institute said in a report today.
Gasoline prices retreated on the Chinese move, and the hypothetical profit margin, or crack spread, to process crude into the motor fuel fell from a three month high. The spread more than doubled this month as plants along the U.S. East Coast shut for repairs and imports from Europe declined in the aftermath of a French strike.
Gasoline for December delivery fell 3.23 cents, or 1.5 percent, to $2.196 a gallon on the Nymex. The gasoline-crude oil crack spread, based on December futures, dropped $1.017 to $10.722 a barrel.
Irish Bailout
Oil in New York also decreased this week amid concern Europe’s credit crisis would deepen because of mounting debt at Irish banks. EU, International Monetary Fund and European Central Bank officials spent a second day meeting in Dublin, and Irish Prime Minister Brian Cowen today said talks about potential aid are “going well.”
“We’ve been worried about two major issues, Ireland’s debt concern and Chinese rate rises,” said David Taylor, a market analyst at CMC Markets Ltd. in Sydney.
Oil in New York may increase next week amid speculation Ireland will accept a bailout, a Bloomberg News survey showed. Eighteen of 38 analysts and traders, or 47 percent, forecast crude will climb through Nov. 26. Ten respondents, or 26 percent, predicted prices will fall and 10 estimated there would be little change. Last week, 43 percent said futures would rise.
Crude jumped to a two-year high of $88.63 a barrel on Nov. 11 after trading for above $80 for all of October and November.
“What we’re seeing now in my judgment is not a secular change, but very much a seasonal change,” said Edward Morse, head of commodities research at Credit Suisse Group AG in New York, in a television interview on “Bloomberg Surveillance” with Tom Keene. “The move above $80 was a fourth-quarter, high- demand move and it also was sparked a little by some problems in China, some problems in Europe.”
Brent crude for January settlement fell 71 cents, or 0.8 percent, to $84.34 a barrel on the ICE Futures Europe exchange in London. That’s $2.36 a barrel more than the January contract in New York, more than double the difference of a week ago.
Oil volume in electronic trading on the Nymex was 508,362 contracts as of 2:56 p.m. in New York. Volume totaled 712,780 contracts yesterday, 0.2 percent below the average of the past three months. Open interest was 1.35 million contracts.
Futures dropped 0.4 percent after China told lenders for the fifth time this year to set aside more funds to drain cash from the financial system and limit asset bubbles. Economic growth will spur a 9.5 percent jump in 2010 Chinese oil use, according to a Nov. 12 International Energy Agency report.
“These further moves by the Chinese to rein in their economy and the real concern they’re expressing about inflation is weighing on this crude market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund focusing on energy.
Crude for December delivery fell 34 cents to settle at $81.51 a barrel on the New York Mercantile Exchange. Prices have dropped 4 percent since Nov. 12, the most since the week ended Aug. 13. The December contract expired today. The more active January contract slipped 44 cents, or 0.5 percent, to $81.98.
The People’s Bank of China said it will raise the reserve ratio requirement for the nation’s banks by 50 basis points starting Nov. 29. Speculation of an imminent increase in interest rates to counter inflation helped to drive the biggest selloff in China’s benchmark stock index since May over the past two weeks.
Inflation Concern
“The Chinese are fearful of inflation, and that’s causing a bit of risk reduction in the market,” said Robert Montefusco, a senior broker with Sucden Financial in London.
Chinese oil-consumption growth of 4.3 percent for next year compares with flat demand in North America and a decline among Europe’s industrialized nations, the Paris-based IEA forecast last week in its monthly Oil Market Report.
U.S. consumption of gasoline increased 0.1 percent during the first 10 months of the year from the same period a year earlier to average 9.02 million barrels a day, the American Petroleum Institute said in a report today.
Gasoline prices retreated on the Chinese move, and the hypothetical profit margin, or crack spread, to process crude into the motor fuel fell from a three month high. The spread more than doubled this month as plants along the U.S. East Coast shut for repairs and imports from Europe declined in the aftermath of a French strike.
Gasoline for December delivery fell 3.23 cents, or 1.5 percent, to $2.196 a gallon on the Nymex. The gasoline-crude oil crack spread, based on December futures, dropped $1.017 to $10.722 a barrel.
Irish Bailout
Oil in New York also decreased this week amid concern Europe’s credit crisis would deepen because of mounting debt at Irish banks. EU, International Monetary Fund and European Central Bank officials spent a second day meeting in Dublin, and Irish Prime Minister Brian Cowen today said talks about potential aid are “going well.”
“We’ve been worried about two major issues, Ireland’s debt concern and Chinese rate rises,” said David Taylor, a market analyst at CMC Markets Ltd. in Sydney.
Oil in New York may increase next week amid speculation Ireland will accept a bailout, a Bloomberg News survey showed. Eighteen of 38 analysts and traders, or 47 percent, forecast crude will climb through Nov. 26. Ten respondents, or 26 percent, predicted prices will fall and 10 estimated there would be little change. Last week, 43 percent said futures would rise.
Crude jumped to a two-year high of $88.63 a barrel on Nov. 11 after trading for above $80 for all of October and November.
“What we’re seeing now in my judgment is not a secular change, but very much a seasonal change,” said Edward Morse, head of commodities research at Credit Suisse Group AG in New York, in a television interview on “Bloomberg Surveillance” with Tom Keene. “The move above $80 was a fourth-quarter, high- demand move and it also was sparked a little by some problems in China, some problems in Europe.”
Brent crude for January settlement fell 71 cents, or 0.8 percent, to $84.34 a barrel on the ICE Futures Europe exchange in London. That’s $2.36 a barrel more than the January contract in New York, more than double the difference of a week ago.
Oil volume in electronic trading on the Nymex was 508,362 contracts as of 2:56 p.m. in New York. Volume totaled 712,780 contracts yesterday, 0.2 percent below the average of the past three months. Open interest was 1.35 million contracts.
Billionaire Chandler-Backed Microfinance Firm Delays India IPO on Turmoil
Share Microfin Ltd., backed by New Zealand billionaire Christopher Chandler, plans to delay an initial public offering after rival microfinance companies in India sought emergency funds to cope with rising loan defaults.
The lender, based in Hyderabad, had planned to raise 10 billion rupees ($221 million) in early 2011, Philip Vassiliou, managing director of Chandler’s Legatum Ltd., said in an interview in Mumbai yesterday. The company has also postponed a merger with another lender, said M. Udaia Kumar, Share Microfin’s managing director.
Repayment rates have fallen to less than 20 percent in Andhra Pradesh state for most lenders after the government in their biggest market clamped down on lending practices in mid- October, Kumar said. The state capped rates for micro-lenders, who typically offer loans starting at $100, and barred coercive collection methods following suicides by borrowers.
“The challenge for MFIs is to manage the liquidity crisis” with the new regulations, Kumar said. “Most of the MFIs, including Share, have stopped disbursing loans in the state of Andhra Pradesh because of the ordinance.”
The southern state’s new norms included requiring lenders to shift collections to a monthly basis from weekly, and ordering repayments to be made only at government-designated places. That’s led to a slump in cash flows this month and strained some lenders’ capital levels.
Collections have been further disrupted by politicians telling borrowers to abstain from payments as loan-waivers may be granted, Share Microfin’s Kumar said. The lenders’ staff have also been harassed by local village leaders, who prevented them from entering the areas or filed police complaints, he said.
The lender won’t consider an IPO until clients begin repaying debts and state and central governments deal with the current upheaval, Kumar said. Banks and the lenders’ staff also need to regain confidence in the companies’ operations, he said.
Harassed Staff
Microfinance companies are seeking 10 billion rupees from banks for an emergency liquidity fund, Vijay Mahajan, head of the Microfinance Institutions Network lobbying group, said on Nov. 16 in New Delhi. Shares of SKS Microfinance Ltd., the nation’s largest provider of small loans, have plummeted 40 percent since Oct. 15, when Andhra Pradesh introduced the rules.
‘Adequate Liquidity’
SKS has adequate liquidity and doesn’t need emergency funding, Chairman Vikram Akula said in an interview today in Hyderabad, where the company is based. ICICI Ltd., Axis Bank Ltd. and Kotak Mahindra Bank Ltd. are among eight lenders that provided financing to SKS in the last two weeks, he said.
The company, backed by George Soros, yesterday said 66 people among its field staff who had been arrested or detained in the state have been released. Andhra Pradesh accounts for about 26 percent of SKS’s loan portfolio.
Dubai-based Legatum, which had invested about 1 billion rupees in Share Microfin in 2007, currently holds a 61.5 percent stake, Vassiliou and Kumar said yesterday. Aavishkaar Goodwell, a company that provides financing to micro-lenders, owns 3.5 percent, employees hold 2 percent, and the remaining is held by Kumar and his family, they said.
Legatum isn’t “overly concerned” by the current crisis, Vassiliou said. Microfinance companies are essential for providing financing to people in India where banking services aren’t available, he said.
Still, rising delinquencies may lead smaller lenders to default on their loans to banks, Kumar said.
“Even if a single MFI defaults, it might have a trickle- down effect on the entire sector,” he said. “Institutions with stronger net worth have a possibility of survival for a period of time.”
The lender, based in Hyderabad, had planned to raise 10 billion rupees ($221 million) in early 2011, Philip Vassiliou, managing director of Chandler’s Legatum Ltd., said in an interview in Mumbai yesterday. The company has also postponed a merger with another lender, said M. Udaia Kumar, Share Microfin’s managing director.
Repayment rates have fallen to less than 20 percent in Andhra Pradesh state for most lenders after the government in their biggest market clamped down on lending practices in mid- October, Kumar said. The state capped rates for micro-lenders, who typically offer loans starting at $100, and barred coercive collection methods following suicides by borrowers.
“The challenge for MFIs is to manage the liquidity crisis” with the new regulations, Kumar said. “Most of the MFIs, including Share, have stopped disbursing loans in the state of Andhra Pradesh because of the ordinance.”
The southern state’s new norms included requiring lenders to shift collections to a monthly basis from weekly, and ordering repayments to be made only at government-designated places. That’s led to a slump in cash flows this month and strained some lenders’ capital levels.
Collections have been further disrupted by politicians telling borrowers to abstain from payments as loan-waivers may be granted, Share Microfin’s Kumar said. The lenders’ staff have also been harassed by local village leaders, who prevented them from entering the areas or filed police complaints, he said.
The lender won’t consider an IPO until clients begin repaying debts and state and central governments deal with the current upheaval, Kumar said. Banks and the lenders’ staff also need to regain confidence in the companies’ operations, he said.
Harassed Staff
Microfinance companies are seeking 10 billion rupees from banks for an emergency liquidity fund, Vijay Mahajan, head of the Microfinance Institutions Network lobbying group, said on Nov. 16 in New Delhi. Shares of SKS Microfinance Ltd., the nation’s largest provider of small loans, have plummeted 40 percent since Oct. 15, when Andhra Pradesh introduced the rules.
‘Adequate Liquidity’
SKS has adequate liquidity and doesn’t need emergency funding, Chairman Vikram Akula said in an interview today in Hyderabad, where the company is based. ICICI Ltd., Axis Bank Ltd. and Kotak Mahindra Bank Ltd. are among eight lenders that provided financing to SKS in the last two weeks, he said.
The company, backed by George Soros, yesterday said 66 people among its field staff who had been arrested or detained in the state have been released. Andhra Pradesh accounts for about 26 percent of SKS’s loan portfolio.
Dubai-based Legatum, which had invested about 1 billion rupees in Share Microfin in 2007, currently holds a 61.5 percent stake, Vassiliou and Kumar said yesterday. Aavishkaar Goodwell, a company that provides financing to micro-lenders, owns 3.5 percent, employees hold 2 percent, and the remaining is held by Kumar and his family, they said.
Legatum isn’t “overly concerned” by the current crisis, Vassiliou said. Microfinance companies are essential for providing financing to people in India where banking services aren’t available, he said.
Still, rising delinquencies may lead smaller lenders to default on their loans to banks, Kumar said.
“Even if a single MFI defaults, it might have a trickle- down effect on the entire sector,” he said. “Institutions with stronger net worth have a possibility of survival for a period of time.”
Thursday, November 18, 2010
Settling With S.E.C., Rattner Is Sued by Cuomo
Andrew M. Cuomo, the attorney general and governor-elect of New York, sued the financier Steven L. Rattner on Thursday over his role in kickbacks to secure investments from the New York State pension fund.
The attorney general filed two lawsuits, seeking at least $26 million from Mr. Rattner and a lifetime ban for Mr. Rattner from the securities industry in New York.
Mr. Rattner left his private equity firm, Quadrangle Group, last year to head the Obama administration’s efforts to overhaul the auto industry. He responded to the attorney general’s lawsuit in a statement to DealBook on Thursday morning, addressing charges brought against him under the Martin Act, a sweeping state securities law.
“While settling with the S.E.C. begins the process of putting this matter behind me, I will not be bullied simply because the attorney general’s office prefers political considerations instead of a reasoned assessment of the facts,” Mr. Rattner said. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity — and I certainly did not violate the Martin Act. That’s why I intend to clear my name by defending myself vigorously against this politically motivated lawsuit.”
Soon after Mr. Rattner made his statement, a spokesman for the attorney general’s office had a sharp retort: “Mr. Rattner now has a lot to say as he spins his friends in the press, but when he was questioned under oath about his pension fund dealings he was much less talkative, taking the Fifth and refusing to answer questions 68 different times. Anyone who reads the extensive facts laid out in our complaint will understand that Rattner’s claims that he did nothing wrong are ridiculous and belied by the fact that he is paying the S.E.C. $6 million today.”
Mr. Rattner is accused of paying Hank Morris, a top adviser to a former New York State comptroller, Alan G. Hevesi, for his help in securing investments from the $135 billion New York pension fund. According to earlier reports, Mr. Morris is expected to plead guilty to charges related to the case.
Also Thursday, the Securities and Exchange Commission announced a settlement with Mr. Rattner in which he agreed to pay $6.2 million in disgorgement and penalties. He will also be barred from “associating with any investment adviser or broker dealer” for two years.
“Rattner delivered special favors and conducted sham transactions that corrupted the [pension fund's] investment process,” said David Rosenfeld, associate director of the S.E.C.’s New York regional office.
Mr. Rattner, 58 years old, is among the most prominent individuals ensnared by a nationwide inquiry over the investment activities of state pension funds. The so-called pay-to-play investigations, which have been conducted in states including New York, California, New Mexico and Illinois, have focused on the role of midddlemen who are paid fees by money-management firms for helping secure investments from state pension funds. Those payments can be illegal if they are bribes or kickbacks masked as legitimate payments.
Mr. Cuomo’s investigation has led to criminal charges and seven guilty pleas, including one from Mr. Hevesi, who as comptroller had sole control over the state pension fund.
The timing of the attorney’s general lawsuit against Mr. Rattner is especially awkward as it comes on the day of the initial public offering of General Motors. Mr. Rattner had been speaking publicly all week about the revival of G.M. and appeared on CNBC Thursday morning to talk about the I.P.O.
“The attorney general and the S.E.C. have the same information,” said Davidson Goldin, a spokesman for Mr. Rattner. “So picking the day of the G.M. I.P.O after about 500 possible days further demonstrates that the attorney puts politics and maximizing his own media coverage ahead of the public interest.”
The attorney general’s action focuses on Mr. Rattner’s hiring of Mr. Morris to win business from the New York fund, as well as the help Mr. Rattner provided to the brother of a top pension fund official in distributing ”Chooch,” a low-budget movie, through a DVD company owned by the Quadrangle, a private equity firm Mr. Rattner co-founded a decade ago. The complaint also accuses Mr. Rattner of connecting the pension fund official’s brother to IFC, a cable network in which Quadrangle was an investor and on whose board Mr. Rattner sat.
Mr. Cuomo also claims that Mr. Rattner, a major Democratic fund-raiser, arranged for contributions totaling $50,000 to Mr. Hevesi’s re-election campaign, contributions that the attorney general says caused the pension fund to increase its investment with Quadrangle to $150 million, from $100 million. These contributions were made through third parties to conceal Mr. Rattner’s role, Mr. Cuomo’s office says.
“Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal and funneling campaign contributions,” Mr. Cuomo said. “Through these lawsuits, we will recover his ill-gotten gains and hold Rattner accountable.”
Last month, Mr. Rattner rejected a settlement offer from Mr. Cuomo that would have had him pay a $20 million penalty. Mr. Rattner and his lawyers have said that amount sought by the attorney general is disproportionate to the money he earned at Quadrangle and to the penalties paid by other executives ensnared by the pension fund investigation.
Mr. Rattner’s team also believes that his compensation related to any income Quadrangle received from the New York State pension fund investment is fully disgorged by the S.E.C. settlement, according to a person familiar with Mr. Rattner’s thinking.
Quadrangle settled with authorities this year, admitting to paying Mr. Morris for his help in securing investments from the New York pension fund. Mr. Morris pleaded guilty in November to selling access to the fund.
The firm paid a $12 million settlement and, as part of the deal, disavowed Mr. Rattner’s actions as ”inappropriate, wrong and unethical.”
Lawyers for Mr. Rattner have disputed Quadrangle’s characterizations, and on Thursday, they fired back at his former partner.
In a filing in New York state court, Mr. Rattner requested documents related to the New York pension-fund inquiry as part of an arbitration claim that he is pursuing against his former firm. The claim seeks damages against Quadrangle and its partners ”for their unlawful conduct and contractual breaches” and for taking advantage of Mr. Rattner’s departure “to seize” money owed to Mr. Rattner.
The filing also says that Mr. Rattner’s former partners effectively threw him under the bus. ”Faced with the investigation, the Quadrangle parties had a choice: they could have either disclosed completely their involvement with the underlying facts,” said the filing, “or they could offer the New York Attorney General a scalp. They chose the latter.”
In response, Quadrangle sent a letter to its investors Thursday saying that Mr. Rattner’s arbitration filing, initiated in September, came despite the firm’s efforts “to resolve our differences in a negotiated manner.”
Before Quadrangle, Mr. Rattner was a former reporter for The New York Times who went on to work as an investment banker at Lazard. He rose as high as vice chairman at Lazard. When he signed on to head the Obama administration’s auto task force, he disclosed a net worth of $188 million to $608 million.
Mr. Rattner, who left Quadrangle in February 2009 to take the government post, has been keeping busy promoting “Overhaul,” his new book on the revamping of the auto industry. He also is working at Willett Advisors, an investment firm dedicated to managing the money of Michael R. Bloomberg, the mayor of New York and a close friend of Mr. Rattner’s.
People close to Mr. Rattner say that the S.E.C. ban will allow him to continue in that role.
The attorney general filed two lawsuits, seeking at least $26 million from Mr. Rattner and a lifetime ban for Mr. Rattner from the securities industry in New York.
Mr. Rattner left his private equity firm, Quadrangle Group, last year to head the Obama administration’s efforts to overhaul the auto industry. He responded to the attorney general’s lawsuit in a statement to DealBook on Thursday morning, addressing charges brought against him under the Martin Act, a sweeping state securities law.
“While settling with the S.E.C. begins the process of putting this matter behind me, I will not be bullied simply because the attorney general’s office prefers political considerations instead of a reasoned assessment of the facts,” Mr. Rattner said. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity — and I certainly did not violate the Martin Act. That’s why I intend to clear my name by defending myself vigorously against this politically motivated lawsuit.”
Soon after Mr. Rattner made his statement, a spokesman for the attorney general’s office had a sharp retort: “Mr. Rattner now has a lot to say as he spins his friends in the press, but when he was questioned under oath about his pension fund dealings he was much less talkative, taking the Fifth and refusing to answer questions 68 different times. Anyone who reads the extensive facts laid out in our complaint will understand that Rattner’s claims that he did nothing wrong are ridiculous and belied by the fact that he is paying the S.E.C. $6 million today.”
Mr. Rattner is accused of paying Hank Morris, a top adviser to a former New York State comptroller, Alan G. Hevesi, for his help in securing investments from the $135 billion New York pension fund. According to earlier reports, Mr. Morris is expected to plead guilty to charges related to the case.
Also Thursday, the Securities and Exchange Commission announced a settlement with Mr. Rattner in which he agreed to pay $6.2 million in disgorgement and penalties. He will also be barred from “associating with any investment adviser or broker dealer” for two years.
“Rattner delivered special favors and conducted sham transactions that corrupted the [pension fund's] investment process,” said David Rosenfeld, associate director of the S.E.C.’s New York regional office.
Mr. Rattner, 58 years old, is among the most prominent individuals ensnared by a nationwide inquiry over the investment activities of state pension funds. The so-called pay-to-play investigations, which have been conducted in states including New York, California, New Mexico and Illinois, have focused on the role of midddlemen who are paid fees by money-management firms for helping secure investments from state pension funds. Those payments can be illegal if they are bribes or kickbacks masked as legitimate payments.
Mr. Cuomo’s investigation has led to criminal charges and seven guilty pleas, including one from Mr. Hevesi, who as comptroller had sole control over the state pension fund.
The timing of the attorney’s general lawsuit against Mr. Rattner is especially awkward as it comes on the day of the initial public offering of General Motors. Mr. Rattner had been speaking publicly all week about the revival of G.M. and appeared on CNBC Thursday morning to talk about the I.P.O.
“The attorney general and the S.E.C. have the same information,” said Davidson Goldin, a spokesman for Mr. Rattner. “So picking the day of the G.M. I.P.O after about 500 possible days further demonstrates that the attorney puts politics and maximizing his own media coverage ahead of the public interest.”
The attorney general’s action focuses on Mr. Rattner’s hiring of Mr. Morris to win business from the New York fund, as well as the help Mr. Rattner provided to the brother of a top pension fund official in distributing ”Chooch,” a low-budget movie, through a DVD company owned by the Quadrangle, a private equity firm Mr. Rattner co-founded a decade ago. The complaint also accuses Mr. Rattner of connecting the pension fund official’s brother to IFC, a cable network in which Quadrangle was an investor and on whose board Mr. Rattner sat.
Mr. Cuomo also claims that Mr. Rattner, a major Democratic fund-raiser, arranged for contributions totaling $50,000 to Mr. Hevesi’s re-election campaign, contributions that the attorney general says caused the pension fund to increase its investment with Quadrangle to $150 million, from $100 million. These contributions were made through third parties to conceal Mr. Rattner’s role, Mr. Cuomo’s office says.
“Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal and funneling campaign contributions,” Mr. Cuomo said. “Through these lawsuits, we will recover his ill-gotten gains and hold Rattner accountable.”
Last month, Mr. Rattner rejected a settlement offer from Mr. Cuomo that would have had him pay a $20 million penalty. Mr. Rattner and his lawyers have said that amount sought by the attorney general is disproportionate to the money he earned at Quadrangle and to the penalties paid by other executives ensnared by the pension fund investigation.
Mr. Rattner’s team also believes that his compensation related to any income Quadrangle received from the New York State pension fund investment is fully disgorged by the S.E.C. settlement, according to a person familiar with Mr. Rattner’s thinking.
Quadrangle settled with authorities this year, admitting to paying Mr. Morris for his help in securing investments from the New York pension fund. Mr. Morris pleaded guilty in November to selling access to the fund.
The firm paid a $12 million settlement and, as part of the deal, disavowed Mr. Rattner’s actions as ”inappropriate, wrong and unethical.”
Lawyers for Mr. Rattner have disputed Quadrangle’s characterizations, and on Thursday, they fired back at his former partner.
In a filing in New York state court, Mr. Rattner requested documents related to the New York pension-fund inquiry as part of an arbitration claim that he is pursuing against his former firm. The claim seeks damages against Quadrangle and its partners ”for their unlawful conduct and contractual breaches” and for taking advantage of Mr. Rattner’s departure “to seize” money owed to Mr. Rattner.
The filing also says that Mr. Rattner’s former partners effectively threw him under the bus. ”Faced with the investigation, the Quadrangle parties had a choice: they could have either disclosed completely their involvement with the underlying facts,” said the filing, “or they could offer the New York Attorney General a scalp. They chose the latter.”
In response, Quadrangle sent a letter to its investors Thursday saying that Mr. Rattner’s arbitration filing, initiated in September, came despite the firm’s efforts “to resolve our differences in a negotiated manner.”
Before Quadrangle, Mr. Rattner was a former reporter for The New York Times who went on to work as an investment banker at Lazard. He rose as high as vice chairman at Lazard. When he signed on to head the Obama administration’s auto task force, he disclosed a net worth of $188 million to $608 million.
Mr. Rattner, who left Quadrangle in February 2009 to take the government post, has been keeping busy promoting “Overhaul,” his new book on the revamping of the auto industry. He also is working at Willett Advisors, an investment firm dedicated to managing the money of Michael R. Bloomberg, the mayor of New York and a close friend of Mr. Rattner’s.
People close to Mr. Rattner say that the S.E.C. ban will allow him to continue in that role.
Crude Oil Rises a Second Day on Optimism Over Fuel Demand, Irish Bailout
Oil rose for a second day in New York because of optimism fuel demand will rebound in the U.S. because of an improved economic outlook and as Ireland moved closer to a European Union-led financial bailout.
Futures were up 1.8 percent yesterday, paring the biggest weekly decline since September, after Ireland’s central bank governor said he expects the country to seek help, strengthening the euro and boosting commodities. Prices also gained as reports showed that the index of U.S. leading indicators rose for a fourth month and jobless claims gained less than forecast.
“We’ve been worried about two major issues in Ireland’s debt concern and Chinese rate rises,” said David Taylor, a market analyst at CMC Markets Ltd. in Sydney. “There was no news of any rate rise coming out of China which has helped the market a bit, but more importantly it looks like Ireland is going to accept a bailout.”
The December contract increased as much as 65 cents, or 0.8 percent, to $82.50 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $82.28 at 11:24 a.m. Sydney time. Yesterday, it gained $1.41 to $81.85 a barrel after declining for four days. The more-actively traded January contract climbed 44 cents to $82.86. Prices are up 3.7 percent this year.
The U.S. reports provided “a little bit of optimism” in the economy, Taylor said. “The initial jobless claims were better than expected.”
Oil is down 3.1 percent this week because of Europe’s debt concern and amid speculation that China, the world’s biggest energy-consuming country, will raise interest rates.
Ireland Rescue
Irish Central Bank Governor Patrick Honohan said in an interview with state broadcaster RTE yesterday he expects the country to ask the EU and the International Monetary Fund for “tens of billions” of euros to rescue its banks.
Prices also rose as manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged.
An Energy Department report on Nov. 17 showed crude supplies unexpectedly fell 7.29 million barrels last week to 357.6 million. It was the biggest weekly decline since August 2009. Imports tumbled 2.8 percent to 7.86 million barrels a day, the lowest level since December.
Brent crude for January settlement rose $1.77, or 2.1 percent, to $85.05 a barrel on the London-based ICE Futures Europe exchange yesterday.
Futures were up 1.8 percent yesterday, paring the biggest weekly decline since September, after Ireland’s central bank governor said he expects the country to seek help, strengthening the euro and boosting commodities. Prices also gained as reports showed that the index of U.S. leading indicators rose for a fourth month and jobless claims gained less than forecast.
“We’ve been worried about two major issues in Ireland’s debt concern and Chinese rate rises,” said David Taylor, a market analyst at CMC Markets Ltd. in Sydney. “There was no news of any rate rise coming out of China which has helped the market a bit, but more importantly it looks like Ireland is going to accept a bailout.”
The December contract increased as much as 65 cents, or 0.8 percent, to $82.50 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $82.28 at 11:24 a.m. Sydney time. Yesterday, it gained $1.41 to $81.85 a barrel after declining for four days. The more-actively traded January contract climbed 44 cents to $82.86. Prices are up 3.7 percent this year.
The U.S. reports provided “a little bit of optimism” in the economy, Taylor said. “The initial jobless claims were better than expected.”
Oil is down 3.1 percent this week because of Europe’s debt concern and amid speculation that China, the world’s biggest energy-consuming country, will raise interest rates.
Ireland Rescue
Irish Central Bank Governor Patrick Honohan said in an interview with state broadcaster RTE yesterday he expects the country to ask the EU and the International Monetary Fund for “tens of billions” of euros to rescue its banks.
Prices also rose as manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged.
An Energy Department report on Nov. 17 showed crude supplies unexpectedly fell 7.29 million barrels last week to 357.6 million. It was the biggest weekly decline since August 2009. Imports tumbled 2.8 percent to 7.86 million barrels a day, the lowest level since December.
Brent crude for January settlement rose $1.77, or 2.1 percent, to $85.05 a barrel on the London-based ICE Futures Europe exchange yesterday.
Asian Stocks Advance for Second Day on U.S. Economic Data, Ireland Hopes
Asian stocks rose, driving up the main regional index for a second day, on signs a U.S. economic recovery is accelerating and on speculation a bailout for Ireland will prevent the nation’s banking crisis from spreading.
Canon Inc., a Japanese camera maker that derives about 80 percent of its revenue abroad, advanced 0.9 percent in Tokyo as the dollar traded near a six-week high against the yen. BHP Billiton Ltd., the world’s largest mining company, advanced 0.8 percent in Sydney after commodity prices climbed. Komatsu Ltd., a maker of earth movers that gets more than 75 percent of its revenue outside Japan, climbed 0.7 percent.
The MSCI Asia Pacific Index rose 0.5 percent to 132.35 as of 9:45 a.m. in Tokyo, extending yesterday’s 1.4 percent climb. The gauge is rebounding after concern over how China will tackle the fastest inflation in two years triggered a global stock rout.
“Upward momentum in the U.S. economy was confirmed, so concerns that the yen will appreciate further receded,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “Exporters will likely lead gains as worries about their earnings have decreased.”
Japan’s Nikkei 225 Stock Average rose 0.8 percent. South Korea’s Kospi Index increased 0.5 percent. Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index each gained 0.6 percent.
Ireland Bailout
Futures on the Standard & Poor’s 500 Index were little changed. The index gained 1.5 percent yesterday as speculation grew that Ireland will accept a bailout to rescue indebted banks and reports on U.S. manufacturing and jobless claims bolstered optimism about the economy.
Irish Finance Minister Brian Lenihan said yesterday the government is prepared to ask for a bank rescue after talks with the European Union and International Monetary Fund, which sent teams to Dublin yesterday.
“When details of the EU’s support for Ireland become clear, uncertainties about the outlook of heavily indebted countries will decrease,” Nomura’s Wako said.
A report yesterday from the Federal Reserve Bank of Philadelphia showed manufacturing in the Philadelphia region expanded in November at the fastest pace this year. U.S. applications for unemployment-insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13, Labor Department figures showed yesterday in Washington. That was lower than the median estimate of 441,000 of 46 economists in the Bloomberg survey.
The yen depreciated to 83.79 against the dollar about 1 a.m. today in Tokyo, the weakest level since Oct. 5. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index increased 9.3 percent through yesterday in 2010, compared with gains of 7.3 percent by the S&P 500 and 6.8 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 14.5 times estimated earnings, compared with 14.1 times for the S&P 500 and 12.2 times for the Stoxx 600.
Canon Inc., a Japanese camera maker that derives about 80 percent of its revenue abroad, advanced 0.9 percent in Tokyo as the dollar traded near a six-week high against the yen. BHP Billiton Ltd., the world’s largest mining company, advanced 0.8 percent in Sydney after commodity prices climbed. Komatsu Ltd., a maker of earth movers that gets more than 75 percent of its revenue outside Japan, climbed 0.7 percent.
The MSCI Asia Pacific Index rose 0.5 percent to 132.35 as of 9:45 a.m. in Tokyo, extending yesterday’s 1.4 percent climb. The gauge is rebounding after concern over how China will tackle the fastest inflation in two years triggered a global stock rout.
“Upward momentum in the U.S. economy was confirmed, so concerns that the yen will appreciate further receded,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “Exporters will likely lead gains as worries about their earnings have decreased.”
Japan’s Nikkei 225 Stock Average rose 0.8 percent. South Korea’s Kospi Index increased 0.5 percent. Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index each gained 0.6 percent.
Ireland Bailout
Futures on the Standard & Poor’s 500 Index were little changed. The index gained 1.5 percent yesterday as speculation grew that Ireland will accept a bailout to rescue indebted banks and reports on U.S. manufacturing and jobless claims bolstered optimism about the economy.
Irish Finance Minister Brian Lenihan said yesterday the government is prepared to ask for a bank rescue after talks with the European Union and International Monetary Fund, which sent teams to Dublin yesterday.
“When details of the EU’s support for Ireland become clear, uncertainties about the outlook of heavily indebted countries will decrease,” Nomura’s Wako said.
A report yesterday from the Federal Reserve Bank of Philadelphia showed manufacturing in the Philadelphia region expanded in November at the fastest pace this year. U.S. applications for unemployment-insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13, Labor Department figures showed yesterday in Washington. That was lower than the median estimate of 441,000 of 46 economists in the Bloomberg survey.
The yen depreciated to 83.79 against the dollar about 1 a.m. today in Tokyo, the weakest level since Oct. 5. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
The MSCI Asia Pacific Index increased 9.3 percent through yesterday in 2010, compared with gains of 7.3 percent by the S&P 500 and 6.8 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 14.5 times estimated earnings, compared with 14.1 times for the S&P 500 and 12.2 times for the Stoxx 600.
Payment ruling knocks microfinance shares
Shares in SKS Microfinance, India’s largest microfinance company, fell nearly 20 per cent on the Bombay Stock Exchange on Thursday as the company warned of the possible blow to profits from new restrictions on collecting payments on outstanding debt.
The sharp fall reflects investors’ deepening anxiety over the impact of a regulatory crackdown in the southern state of Andhra Pradesh, where authorities have adopted new rules requiring changes to the way microfinance companies operate.
EDITOR’S CHOICE
Indian microlender makes regulation plea - Nov-16
Raising microfinance standards - Nov-07
India’s microlenders cap rates - Nov-04
SKS Microfinance plans to raise $350m in IPO - Jul-20
Lex: Monetising microfinance - Jul-20
Compartamos helps out Mexican women - May-19
That nervousness has also hit shares of some of India’s commercial banks, which have about $6bn in outstanding loans to Indian microfinance institutions, which then lend the money in tiny sums to poor rural and urban borrowers.
“We are, today, extremely worried about our exposure to the microfinance sector,” SK Mitra, a senior executive at Axis Bank, said this week. “The banking sector is heavily exposed. Eighty per cent of the risk is on the bank, not on the microfinance institutions.”
SKS, founded by Indian-American social entrepreneur Vikram Akula, has been the global face of India’s burgeoning microfinance industry since August, when the company raised $358m in an initial public offering that valued it at $1.5bn.
Many other microlenders, including Spandana and Share Microfin, were expected to follow SKS in the path to market.
But since then the industry has seen a rapid reversal of its fortunes, as policymakers began to question the large profits being made in an industry ostensibly intended to alleviate poverty.
SKS shares, which rose 42 per cent in the first five weeks of trading on the Bombay Stock Exchange, are now about 55 per cent below their late September peak, and 35 per cent off the initial offering price.
In Andhra Pradesh, where authorities have accused microlenders of charging very high interest rates and using tough debt collection tactics, weekly payment collection – the standard practice in the global microfinance industry – has been banned. The industry is now limited to monthly collection.
Mr Akula has warned that a monthly repayment cycle in Andhra Pradesh – which accounts for about 27 per cent of SKS’s total portfolio, is likely to lead to a drop in collections, and a rise in non-performing loans, as poor borrowers may find it tougher to accumulate the larger sums for once-a-month repayments.
“If this is not redressed satisfactorily, the resultant reduction in collections in Andhra Pradesh is likely to have a material impact on the company’s revenues, profitability and asset quality in AP,” the company warned in a statement to the Bombay Stock Exchange on Thursday.
The sharp fall reflects investors’ deepening anxiety over the impact of a regulatory crackdown in the southern state of Andhra Pradesh, where authorities have adopted new rules requiring changes to the way microfinance companies operate.
EDITOR’S CHOICE
Indian microlender makes regulation plea - Nov-16
Raising microfinance standards - Nov-07
India’s microlenders cap rates - Nov-04
SKS Microfinance plans to raise $350m in IPO - Jul-20
Lex: Monetising microfinance - Jul-20
Compartamos helps out Mexican women - May-19
That nervousness has also hit shares of some of India’s commercial banks, which have about $6bn in outstanding loans to Indian microfinance institutions, which then lend the money in tiny sums to poor rural and urban borrowers.
“We are, today, extremely worried about our exposure to the microfinance sector,” SK Mitra, a senior executive at Axis Bank, said this week. “The banking sector is heavily exposed. Eighty per cent of the risk is on the bank, not on the microfinance institutions.”
SKS, founded by Indian-American social entrepreneur Vikram Akula, has been the global face of India’s burgeoning microfinance industry since August, when the company raised $358m in an initial public offering that valued it at $1.5bn.
Many other microlenders, including Spandana and Share Microfin, were expected to follow SKS in the path to market.
But since then the industry has seen a rapid reversal of its fortunes, as policymakers began to question the large profits being made in an industry ostensibly intended to alleviate poverty.
SKS shares, which rose 42 per cent in the first five weeks of trading on the Bombay Stock Exchange, are now about 55 per cent below their late September peak, and 35 per cent off the initial offering price.
In Andhra Pradesh, where authorities have accused microlenders of charging very high interest rates and using tough debt collection tactics, weekly payment collection – the standard practice in the global microfinance industry – has been banned. The industry is now limited to monthly collection.
Mr Akula has warned that a monthly repayment cycle in Andhra Pradesh – which accounts for about 27 per cent of SKS’s total portfolio, is likely to lead to a drop in collections, and a rise in non-performing loans, as poor borrowers may find it tougher to accumulate the larger sums for once-a-month repayments.
“If this is not redressed satisfactorily, the resultant reduction in collections in Andhra Pradesh is likely to have a material impact on the company’s revenues, profitability and asset quality in AP,” the company warned in a statement to the Bombay Stock Exchange on Thursday.
Wednesday, November 17, 2010
G.M. Prices Its Shares at $33 in Return to Stock Market
General Motors announced on Wednesday afternoon that it had priced its common shares at $33 each, setting a record for the largest initial public offering in American history.
The offering is expected to reap $23.1 billion through the sale of common and preferred shares, including overallotment options that will be exercised to take advantage of surging investor demand for the car maker’s shares.
G.M. will return to the stock markets on Thursday, a year and a half after it filed for a quick government-sponsored bankruptcy to shed billions of dollars in debt and reshape its business.
The stock sale will also halve the Treasury Department’s stake to about 26 percent, speeding up the Obama administration’s effort to remove itself from G.M. That has also been a important goal for the company, which has long wanted to regain private ownership and shed the “Government Motors” label.
G.M. will sell 549.7 million common shares at $33 apiece, raising $18.1 billion by taking advantage of an overallotment option to cash in on bigger-than-expected demand. It will also sell 92 million preferred shares at $50 each, raising $4.6 billion.
The $33 is at the top of the company’s expected price range — itself raised from a range of $26 to $29 earlier this week.
By raising $23.1 billion through the sale of common and preferred stock, G.M. will have surpassed the $22.1 billion raised by the Agricultural Bank of China this year to claim the title of biggest I.P.O. in history. It also tops the $19.7 billion that Visa raised in its initial offering two years ago.
The pricing of G.M.’s stock has crept up in recent weeks as the company and its bankers encountered significant demand from investors around the world, people briefed on the matter said. Among the participants buying into the offering are Asian sovereign wealth funds and SAIC Motor, a major G.M. partner in China.
At a market value of roughly $50 billion, G.M. will fall behind its rival Ford Motor, which carried out its own costly reorganization but avoided bankruptcy.
G.M.’s offering was underwritten by a bevy of banks, led by Morgan Stanley and JPMorgan Chase, who have agreed to accept a lower-than-average fee in return for taking a piece of the high-profile assignment.
The offering is expected to reap $23.1 billion through the sale of common and preferred shares, including overallotment options that will be exercised to take advantage of surging investor demand for the car maker’s shares.
G.M. will return to the stock markets on Thursday, a year and a half after it filed for a quick government-sponsored bankruptcy to shed billions of dollars in debt and reshape its business.
The stock sale will also halve the Treasury Department’s stake to about 26 percent, speeding up the Obama administration’s effort to remove itself from G.M. That has also been a important goal for the company, which has long wanted to regain private ownership and shed the “Government Motors” label.
G.M. will sell 549.7 million common shares at $33 apiece, raising $18.1 billion by taking advantage of an overallotment option to cash in on bigger-than-expected demand. It will also sell 92 million preferred shares at $50 each, raising $4.6 billion.
The $33 is at the top of the company’s expected price range — itself raised from a range of $26 to $29 earlier this week.
By raising $23.1 billion through the sale of common and preferred stock, G.M. will have surpassed the $22.1 billion raised by the Agricultural Bank of China this year to claim the title of biggest I.P.O. in history. It also tops the $19.7 billion that Visa raised in its initial offering two years ago.
The pricing of G.M.’s stock has crept up in recent weeks as the company and its bankers encountered significant demand from investors around the world, people briefed on the matter said. Among the participants buying into the offering are Asian sovereign wealth funds and SAIC Motor, a major G.M. partner in China.
At a market value of roughly $50 billion, G.M. will fall behind its rival Ford Motor, which carried out its own costly reorganization but avoided bankruptcy.
G.M.’s offering was underwritten by a bevy of banks, led by Morgan Stanley and JPMorgan Chase, who have agreed to accept a lower-than-average fee in return for taking a piece of the high-profile assignment.
Oil Rebounds From Four-Week Low After Surprise Drop in U.S. Crude Supplies
Oil rose, rebounding from a four- week low, after a U.S. government report unexpectedly showed crude inventories fell the most since August 2009, boosting optimism of an increase in fuel demand.
Futures retraced some of yesterday’s 2.3 percent slump, snapping four days of declines, after the Energy Department said stockpiles dropped 7.3 million barrels to 357.6 million last week. They were forecast to be unchanged, according to a Bloomberg News survey of analysts. Gasoline and distillate supplies also decreased.
“U.S. crude supplies unexpectedly plunged,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, wrote in a note today. “Crude product inventories also declined, painting a positive picture for U.S. consumption.”
The December contract advanced as much as 56 cents, or 0.7 percent, to $81 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $80.84 at 9:17 a.m. Singapore time. Yesterday, it lost $1.90 to $80.44, the lowest settlement since Oct. 19. Prices have fallen 4.8 this week and gained 2 percent this year.
“It could be that consumption is improving,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “It seems to be the start of a trend.”
Fuel Supplies
Gasoline inventories slipped 2.66 million barrels to 207.7 million, the lowest level since the week ended Oct. 16, 2009, the Energy Department report showed. They were projected to slide 750,000 barrels, according to the Bloomberg News survey.
Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 1.11 million barrels to 158.8 million. They were forecast to decline 2 million barrels. The Energy Department report showed imports tumbled 2.8 percent to 7.86 million barrels a day, the lowest level since December.
Crude oil slumped yesterday amid speculation that China, the world’s biggest energy-consuming country, will raise interest rates. Prices also dropped on concern Europe’s debt crisis is worsening.
Brent crude for January settlement decreased 46 cents, or 0.6 percent, to $83.74 a barrel on the London-based ICE Futures Europe exchange.
Futures retraced some of yesterday’s 2.3 percent slump, snapping four days of declines, after the Energy Department said stockpiles dropped 7.3 million barrels to 357.6 million last week. They were forecast to be unchanged, according to a Bloomberg News survey of analysts. Gasoline and distillate supplies also decreased.
“U.S. crude supplies unexpectedly plunged,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, wrote in a note today. “Crude product inventories also declined, painting a positive picture for U.S. consumption.”
The December contract advanced as much as 56 cents, or 0.7 percent, to $81 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $80.84 at 9:17 a.m. Singapore time. Yesterday, it lost $1.90 to $80.44, the lowest settlement since Oct. 19. Prices have fallen 4.8 this week and gained 2 percent this year.
“It could be that consumption is improving,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “It seems to be the start of a trend.”
Fuel Supplies
Gasoline inventories slipped 2.66 million barrels to 207.7 million, the lowest level since the week ended Oct. 16, 2009, the Energy Department report showed. They were projected to slide 750,000 barrels, according to the Bloomberg News survey.
Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 1.11 million barrels to 158.8 million. They were forecast to decline 2 million barrels. The Energy Department report showed imports tumbled 2.8 percent to 7.86 million barrels a day, the lowest level since December.
Crude oil slumped yesterday amid speculation that China, the world’s biggest energy-consuming country, will raise interest rates. Prices also dropped on concern Europe’s debt crisis is worsening.
Brent crude for January settlement decreased 46 cents, or 0.6 percent, to $83.74 a barrel on the London-based ICE Futures Europe exchange.
Axis Bank, Enam Securities to Merge Investment Banking Operations in India
Axis Bank Ltd., India’s top-ranked manager of debt sales, aims to bolster its equity underwriting operations by merging the unit with Enam Securities Pvt. in a transaction valued at about 20.7 billion rupees ($455 million).
Axis Bank will swap 5.7 shares for each one of closely held Enam, the Mumbai-based companies said in a joint statement yesterday. Enam shareholders will get a 3.3 percent stake in Axis following the transaction, and Enam’s Manish Chokhani, 44, will be chief executive officer of the entity to be created by the combination, according to the release.
Axis’s first financial-services acquisition will combine capital at India’s fourth-largest bank with the clients and distribution network managed by Enam, said Deven Choksey, CEO of K.R. Choksey Shares & Securities Pvt. Shikha Sharma, 51, named CEO of Axis in April 2009, is seeking to expand its investment bank after share sales in India climbed to a record this year.
“The deal is a shot in the arm for Axis, which was looking to expand: when you are becoming a global player, you need to have a bank at the front-end and distribution for the back- end,” said Choksey, whose Mumbai-based firm manages $125 million in assets. “It’s a win-win deal for both, as even Enam needs funds from a bank base.”
Enam is ranked third among equity-underwriters in India, where share sales climbed to 1.02 trillion rupees this year, surpassing 2007’s 782 billion rupees, according to data compiled by Bloomberg. Axis is at No. 16, the data show. In mergers and acquisitions, Enam is ranked No. 9 among advisers, while Axis isn’t in the top 20.
Bond Market
Yet Axis has beaten local and overseas rivals including HSBC Holdings Plc and ICICI Bank Ltd. in managing debt sales in the nation this year, according to data compiled by Bloomberg.
“Axis Bank is a powerhouse in several businesses like the bond market, debt syndication market,” Vallabh Bhansali, co- founder and chairman of Enam, told reporters yesterday. “For us to build a balance-sheet, we thought that combining forces would be an extraordinary opportunity.”
Bhansali, 58, will be a director on Axis’s board, the companies said. The transaction would combine Axis’s investment bank with Enam’s advisory service, as well as its institutional and retail equities units and its non-banking finance company, according to the statement. It won’t include Enam’s portfolio management service and asset management units.
Macquarie Group Ltd. advised Axis on the transaction, while Anil Singhvi advised Enam.
Enam won’t compete with Axis in the businesses that will be merged for five years, and will also license its brand to Axis for two years, Sharma said yesterday.
‘Sweet Spot’
Enam “complements the strong corporate banking and debt capital market franchise of Axis Bank,” Sharma said. “Indian banking is in a sweet spot as India’s economy is in a sweet spot: Enam was a perfect fit and was too tempting not to consider.”
Shares of Axis fell 3.5 percent to 1,469.15 rupees on Nov. 16 in Mumbai trading, curbing their gains for the year to 49 percent. That compares with a 14 percent advance in India’s benchmark Sensitive Index. Stock markets in India were closed yesterday.
Axis is likely to merge with Enam’s investment banking and securities unit in an all-stock transaction that may be valued at about 21 billion rupees, ET Now reported yesterday before the announcement, citing people that it didn’t identify.
Axis’s larger rivals have made acquisitions in recent years to add clients and outlets. ICICI Bank Ltd., ranked No. 2 among the nation’s lenders, bought smaller rival Bank of Rajasthan Ltd., based in northwest India, in August through a share swap in a transaction worth as much as 23 billion rupees.
Biggest Banking Acquisition
HDFC Bank Ltd., ranked third in India by capitalization, bought regional lender Centurion Bank of Punjab Ltd. in July 2008 for 71.2 billion rupees in India’s biggest banking acquisition, according to data compiled by Bloomberg.
Axis, which had previously sought to buy Global Trust Bank Ltd. in January 2001 to create the nation’s largest non-state lender, scrapped that transaction in April of that year after allegations of manipulation in Global Trust shares.
Enam Securities, based in Mumbai, was founded in 1984 by Manek Bhanshali, Nemish Shah,Bhanshali and Jagdish Master, according to the company’s website.
Axis Bank will swap 5.7 shares for each one of closely held Enam, the Mumbai-based companies said in a joint statement yesterday. Enam shareholders will get a 3.3 percent stake in Axis following the transaction, and Enam’s Manish Chokhani, 44, will be chief executive officer of the entity to be created by the combination, according to the release.
Axis’s first financial-services acquisition will combine capital at India’s fourth-largest bank with the clients and distribution network managed by Enam, said Deven Choksey, CEO of K.R. Choksey Shares & Securities Pvt. Shikha Sharma, 51, named CEO of Axis in April 2009, is seeking to expand its investment bank after share sales in India climbed to a record this year.
“The deal is a shot in the arm for Axis, which was looking to expand: when you are becoming a global player, you need to have a bank at the front-end and distribution for the back- end,” said Choksey, whose Mumbai-based firm manages $125 million in assets. “It’s a win-win deal for both, as even Enam needs funds from a bank base.”
Enam is ranked third among equity-underwriters in India, where share sales climbed to 1.02 trillion rupees this year, surpassing 2007’s 782 billion rupees, according to data compiled by Bloomberg. Axis is at No. 16, the data show. In mergers and acquisitions, Enam is ranked No. 9 among advisers, while Axis isn’t in the top 20.
Bond Market
Yet Axis has beaten local and overseas rivals including HSBC Holdings Plc and ICICI Bank Ltd. in managing debt sales in the nation this year, according to data compiled by Bloomberg.
“Axis Bank is a powerhouse in several businesses like the bond market, debt syndication market,” Vallabh Bhansali, co- founder and chairman of Enam, told reporters yesterday. “For us to build a balance-sheet, we thought that combining forces would be an extraordinary opportunity.”
Bhansali, 58, will be a director on Axis’s board, the companies said. The transaction would combine Axis’s investment bank with Enam’s advisory service, as well as its institutional and retail equities units and its non-banking finance company, according to the statement. It won’t include Enam’s portfolio management service and asset management units.
Macquarie Group Ltd. advised Axis on the transaction, while Anil Singhvi advised Enam.
Enam won’t compete with Axis in the businesses that will be merged for five years, and will also license its brand to Axis for two years, Sharma said yesterday.
‘Sweet Spot’
Enam “complements the strong corporate banking and debt capital market franchise of Axis Bank,” Sharma said. “Indian banking is in a sweet spot as India’s economy is in a sweet spot: Enam was a perfect fit and was too tempting not to consider.”
Shares of Axis fell 3.5 percent to 1,469.15 rupees on Nov. 16 in Mumbai trading, curbing their gains for the year to 49 percent. That compares with a 14 percent advance in India’s benchmark Sensitive Index. Stock markets in India were closed yesterday.
Axis is likely to merge with Enam’s investment banking and securities unit in an all-stock transaction that may be valued at about 21 billion rupees, ET Now reported yesterday before the announcement, citing people that it didn’t identify.
Axis’s larger rivals have made acquisitions in recent years to add clients and outlets. ICICI Bank Ltd., ranked No. 2 among the nation’s lenders, bought smaller rival Bank of Rajasthan Ltd., based in northwest India, in August through a share swap in a transaction worth as much as 23 billion rupees.
Biggest Banking Acquisition
HDFC Bank Ltd., ranked third in India by capitalization, bought regional lender Centurion Bank of Punjab Ltd. in July 2008 for 71.2 billion rupees in India’s biggest banking acquisition, according to data compiled by Bloomberg.
Axis, which had previously sought to buy Global Trust Bank Ltd. in January 2001 to create the nation’s largest non-state lender, scrapped that transaction in April of that year after allegations of manipulation in Global Trust shares.
Enam Securities, based in Mumbai, was founded in 1984 by Manek Bhanshali, Nemish Shah,Bhanshali and Jagdish Master, according to the company’s website.
India needs ‘quantum step’ in investment
India’s central bank governor has warned that the country needs a "quantum step" in investment to achieve the ambitious double-digit economic growth rate forecast by Manmohan Singh, the Indian prime minister.
The warning from Duvvuri Subbarao flies in the face of the growing belief in India and overseas that the country can outpace China by moving from its current 8.5 per cent growth to 10 per cent growth over the next three to five years.
“India needs to raise its investment by a quantum step if it is to realise its aspiration of a double-digit growth,” Mr Subbarao said in an online forum hosted by the Financial Times.
His comments also highlight India’s need for greater foreign direct investment at a time when short-term capital inflows to emerging markets are rising quickly.
“We certainly need to augment our domestic resources with foreign savings . . . We have a preference for long-term funds over short-term funds, for equity over debt, and for FDI over portfolio flows.”
Mr Singh has forecast that India will reach 10 per cent economic growth in the medium term, placing it on a par with Chinese levels of expansion. His senior officials argue that double-digit growth can be achieved without additional major structural reforms, such as those encouraging higher levels of foreign investment, or simply by improved performance in the lagging agricultural sector.
Leading investment banks like Japan’s Nomura and US-based JPMorgan also predict that India's domestic consumption boom can help propel its economic growth higher than China's in coming years.
Rob Subbaraman, chief Asia economist at Nomura, said India stood a strong chance of surpassing Chinese growth rates as Beijing rebalanced its economy from investment-led growth to one supported by more domestic demand. Adrian Mowat, JPMorgan’s chief Asian strategist, agreed that India had a “real possibility” of growing faster than China.
“When you look at risk-adjusted growth, India is looking pretty attractive compared to China,” said Mr Subbaraman. “It’s much more difficult for China to sustain growth rates.”
Whereas China’s investment rate is about 55 per cent of the size of the economy, India’s is about 35 per cent.
The central bank governor’s comments are a striking reminder that there is real concern that investment in infrastructure and corporate expansion is badly trailing growing demand in a country of 1.2bn mostly young people. High inflation fuelled by supply constraints and a widening current account deficit threaten to put a drag on India’s performance.
Supporting the view of the central bank governor, Jeff Immelt, chief executive of General Electric, last week criticised India for stifling investment opportunities in infrastructure and for failing to execute large projects in sectors like energy and transport.
“Our infrastructure investment needs are huge,” said Mr Subbarao. “The concern though is that infrastructure, by its very nature, needs long term finance, and volatile flows chasing short-term returns do not meet the need.”
The warning from Duvvuri Subbarao flies in the face of the growing belief in India and overseas that the country can outpace China by moving from its current 8.5 per cent growth to 10 per cent growth over the next three to five years.
“India needs to raise its investment by a quantum step if it is to realise its aspiration of a double-digit growth,” Mr Subbarao said in an online forum hosted by the Financial Times.
His comments also highlight India’s need for greater foreign direct investment at a time when short-term capital inflows to emerging markets are rising quickly.
“We certainly need to augment our domestic resources with foreign savings . . . We have a preference for long-term funds over short-term funds, for equity over debt, and for FDI over portfolio flows.”
Mr Singh has forecast that India will reach 10 per cent economic growth in the medium term, placing it on a par with Chinese levels of expansion. His senior officials argue that double-digit growth can be achieved without additional major structural reforms, such as those encouraging higher levels of foreign investment, or simply by improved performance in the lagging agricultural sector.
Leading investment banks like Japan’s Nomura and US-based JPMorgan also predict that India's domestic consumption boom can help propel its economic growth higher than China's in coming years.
Rob Subbaraman, chief Asia economist at Nomura, said India stood a strong chance of surpassing Chinese growth rates as Beijing rebalanced its economy from investment-led growth to one supported by more domestic demand. Adrian Mowat, JPMorgan’s chief Asian strategist, agreed that India had a “real possibility” of growing faster than China.
“When you look at risk-adjusted growth, India is looking pretty attractive compared to China,” said Mr Subbaraman. “It’s much more difficult for China to sustain growth rates.”
Whereas China’s investment rate is about 55 per cent of the size of the economy, India’s is about 35 per cent.
The central bank governor’s comments are a striking reminder that there is real concern that investment in infrastructure and corporate expansion is badly trailing growing demand in a country of 1.2bn mostly young people. High inflation fuelled by supply constraints and a widening current account deficit threaten to put a drag on India’s performance.
Supporting the view of the central bank governor, Jeff Immelt, chief executive of General Electric, last week criticised India for stifling investment opportunities in infrastructure and for failing to execute large projects in sectors like energy and transport.
“Our infrastructure investment needs are huge,” said Mr Subbarao. “The concern though is that infrastructure, by its very nature, needs long term finance, and volatile flows chasing short-term returns do not meet the need.”
Tuesday, November 16, 2010
Currency Fight With China Divides U.S. Businesses
ZHUJI, China — For American business, the United States currency dispute with China is a two-sided coin.
On the tails-we-lose side are companies like New York-based PS Brands, one of the biggest American importers of socks. With the Obama administration pressing China to raise the value of its currency, the cost of Chinese-made socks is likely to rise. So PS Brands’ main supplier here is demanding shorter contracts at higher prices.
“Before, I could price six months out,” Elie Levy, chief executive of PS Brands, said during a recent factory visit here. “Now they only want to price 30 or 40 days out because the dollar could lose value.”
For the heads-we-win side, look to an American company 9,000 miles away, in Irvine, Calif., where the prospect of a weaker dollar is actually good news. There, Staco Systems, a maker of aerospace electronics, has a growth business selling parts to state-owned aviation companies in China. If anything, a stronger Chinese renminbi would make Staco’s products even more attractive to buyers in China.
PS Brands’ problems, contrasted with Staco’s opportunities, make clear why American businesses are far from unified on whether Washington should be waging a currency fight with China.
United States monetary policy has already caused the dollar to drop in value this year against most other major currencies. But the dollar’s value has fallen only modestly against the renminbi. That is because Beijing has kept the renminbi artificially low by pegging it to the dollar — instead of letting it float to its market level, as most other global currencies do.
Beijing’s critics say the artificially low renminbi, by making Chinese exports cheaper than they otherwise might be, has helped China run up its huge trade surplus with the United States and much of the rest of the world.
At the Group of 20 summit meeting in Seoul, South Korea, last week, President Obama chided China on its currency policy, calling for Beijing to “act in a responsible fashion internationally” and saying the undervalued renminbi was “an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world.”
Beijing countered that between 2005 and 2008, when the value of the renminbi rose by about 20 percent against the dollar, it had little braking effect on the soaring United States trade deficit with China. Chinese officials say Washington is simply searching for a scapegoat.
“China will do its best to manage its economy, and never blame others for its own problems,” China’s president, Hu Jintao, said on his way to the Seoul meeting.
Big American multinational manufacturing companies can feel the pinch of dollar-renminbi fluctuations. In many cases, though, they have set up operations in China and elsewhere that let them hedge by doing business in local currencies.
But currency exchange rates are a much bigger factor for the many small and midsize American companies that still manufacture on shore, like Staco. They tend to embrace a dollar policy that would make their export prices lower.
Meanwhile, the American companies most likely to oppose Washington’s currency fight with Beijing are businesses like PS Brands — Wal-Mart would be another good example — that get their goods from China and sell them in the United States. Those companies’ balance sheets are likely to suffer, and American consumers more likely to feel the effect, when the cost goes up on Chinese imports — whether socks, sofas or smartphones.
What often gets lost in the heated rhetoric, though, is that American and Chinese officials actually agree in principle that more balanced trade is healthier for the global economy. Where they diverge is on how fast to get there.
The Obama administration wants fast action because it worries that the growing United States trade deficit will continue to threaten jobs and economic growth. But Chinese officials worry that letting the renminbi rise too quickly would bankrupt coastal factories that price their goods in dollars and that already operate on thin profit margins, destroying tens of millions of jobs.
As a result, Beijing has allowed the renminbi to rise against the dollar only moderately, by about 3 percent this year. China’s critics say it needs to rise by as much as 20 percent more.
The challenges to both sides are evident here in the city of Zhuji, two hours south of Shanghai, where Mr. Levy arrived recently to negotiate the purchase of about $1 million worth of socks.
PS Brand, which had $58 million in revenue last year, is a private company with 35 employees. Its Chinese supplier is Shuangjin Knitting and Textile, which operates a 300,000-square-foot factory here that will produce about 43 million pairs of socks this year. Dealers like PS Brands distribute those socks to customers like Wal-Mart, Adidas and Disney.
On the crisp, autumn day of Mr. Levy’s visit, about 75 workers were busy stitching, sorting and packaging thousands of socks headed for America, including labels featuring the cartoon character Dora the Explorer.
The factory’s boss, a friendly, 41-year-old entrepreneur named Yang Tiefeng, boasts that he has sock manufacturing down to a science. His facility can churn out 5,000 pairs of socks every hour at a cost of about 25 cents a pair, he says, which at current exchange rates still leaves him a tiny profit.
Analysts say those socks retail in the United States for about $2.99, with the difference divided among shippers, middlemen, marketers and the retailer.
But even without the currency fight, the economics of sock-making here are shifting. This year, labor shortages in China’s booming coastal factory towns have pushed up factory wages. And skyrocketing cotton prices, propelled by bad weather in cotton-producing regions, have been an even sharper blow.
On the tails-we-lose side are companies like New York-based PS Brands, one of the biggest American importers of socks. With the Obama administration pressing China to raise the value of its currency, the cost of Chinese-made socks is likely to rise. So PS Brands’ main supplier here is demanding shorter contracts at higher prices.
“Before, I could price six months out,” Elie Levy, chief executive of PS Brands, said during a recent factory visit here. “Now they only want to price 30 or 40 days out because the dollar could lose value.”
For the heads-we-win side, look to an American company 9,000 miles away, in Irvine, Calif., where the prospect of a weaker dollar is actually good news. There, Staco Systems, a maker of aerospace electronics, has a growth business selling parts to state-owned aviation companies in China. If anything, a stronger Chinese renminbi would make Staco’s products even more attractive to buyers in China.
PS Brands’ problems, contrasted with Staco’s opportunities, make clear why American businesses are far from unified on whether Washington should be waging a currency fight with China.
United States monetary policy has already caused the dollar to drop in value this year against most other major currencies. But the dollar’s value has fallen only modestly against the renminbi. That is because Beijing has kept the renminbi artificially low by pegging it to the dollar — instead of letting it float to its market level, as most other global currencies do.
Beijing’s critics say the artificially low renminbi, by making Chinese exports cheaper than they otherwise might be, has helped China run up its huge trade surplus with the United States and much of the rest of the world.
At the Group of 20 summit meeting in Seoul, South Korea, last week, President Obama chided China on its currency policy, calling for Beijing to “act in a responsible fashion internationally” and saying the undervalued renminbi was “an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world.”
Beijing countered that between 2005 and 2008, when the value of the renminbi rose by about 20 percent against the dollar, it had little braking effect on the soaring United States trade deficit with China. Chinese officials say Washington is simply searching for a scapegoat.
“China will do its best to manage its economy, and never blame others for its own problems,” China’s president, Hu Jintao, said on his way to the Seoul meeting.
Big American multinational manufacturing companies can feel the pinch of dollar-renminbi fluctuations. In many cases, though, they have set up operations in China and elsewhere that let them hedge by doing business in local currencies.
But currency exchange rates are a much bigger factor for the many small and midsize American companies that still manufacture on shore, like Staco. They tend to embrace a dollar policy that would make their export prices lower.
Meanwhile, the American companies most likely to oppose Washington’s currency fight with Beijing are businesses like PS Brands — Wal-Mart would be another good example — that get their goods from China and sell them in the United States. Those companies’ balance sheets are likely to suffer, and American consumers more likely to feel the effect, when the cost goes up on Chinese imports — whether socks, sofas or smartphones.
What often gets lost in the heated rhetoric, though, is that American and Chinese officials actually agree in principle that more balanced trade is healthier for the global economy. Where they diverge is on how fast to get there.
The Obama administration wants fast action because it worries that the growing United States trade deficit will continue to threaten jobs and economic growth. But Chinese officials worry that letting the renminbi rise too quickly would bankrupt coastal factories that price their goods in dollars and that already operate on thin profit margins, destroying tens of millions of jobs.
As a result, Beijing has allowed the renminbi to rise against the dollar only moderately, by about 3 percent this year. China’s critics say it needs to rise by as much as 20 percent more.
The challenges to both sides are evident here in the city of Zhuji, two hours south of Shanghai, where Mr. Levy arrived recently to negotiate the purchase of about $1 million worth of socks.
PS Brand, which had $58 million in revenue last year, is a private company with 35 employees. Its Chinese supplier is Shuangjin Knitting and Textile, which operates a 300,000-square-foot factory here that will produce about 43 million pairs of socks this year. Dealers like PS Brands distribute those socks to customers like Wal-Mart, Adidas and Disney.
On the crisp, autumn day of Mr. Levy’s visit, about 75 workers were busy stitching, sorting and packaging thousands of socks headed for America, including labels featuring the cartoon character Dora the Explorer.
The factory’s boss, a friendly, 41-year-old entrepreneur named Yang Tiefeng, boasts that he has sock manufacturing down to a science. His facility can churn out 5,000 pairs of socks every hour at a cost of about 25 cents a pair, he says, which at current exchange rates still leaves him a tiny profit.
Analysts say those socks retail in the United States for about $2.99, with the difference divided among shippers, middlemen, marketers and the retailer.
But even without the currency fight, the economics of sock-making here are shifting. This year, labor shortages in China’s booming coastal factory towns have pushed up factory wages. And skyrocketing cotton prices, propelled by bad weather in cotton-producing regions, have been an even sharper blow.
Kenya in Talks With Reliance, Tatas for Investments, Prime Minister Says
Kenya’s government is in talks with Reliance Industries Ltd., India’s biggest company by market value, and the Tata Group for possible investments in the African country, Prime Minister Raila Odinga said.
“Reliance and Tata groups are interested,” Odinga told Bloomberg-UTV in an interview at the World Economic Forum’s India economic summit in New Delhi today. “We see a new group of Indian multinationals taking interest not only in Kenya, but the rest of Africa.”
Billionaire Mukesh Ambani’s Reliance has $6.5 billion in cash to use in buying energy assets overseas as natural gas output from its biggest deposit in India stagnates. Tata Group Chairman Ratan Tata has made 66 acquisitions in two decades. The group’s revenue was more than $67 billion in the year ended March, according to its website.
Reliance is looking at investing in oil exploration in Kenya, Odinga said.
Manoj Warrier, a spokesman for Reliance, declined to comment. Raman Dhawan, managing director of Tata Africa Holdings, couldn’t immediately be reached at his office in Johannesburg.
Reliance bought three shale-gas assets in the U.S. this year. The Mumbai-based explorer and oil refiner paid $943 million for the three assets and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.
Reliance had 293.5 billion rupees ($6.5 billion) in cash and equivalent and outstanding debt was 682 billion rupees as of Sept. 30, according to an Oct. 30 statement.
Oil Blocks
Cnooc Ltd., China’s biggest offshore energy explorer, has told the Kenyan government it plans to drop licenses to search for oil and gas in two Kenyan blocks by December, Mines and Energy Ministry Permanent Secretary Patrick Nyoike said Oct. 21. Cnooc is interested in working with Tullow Oil Plc and Africa Oil Corp. to explore five other blocks, Nyoike said then.
Kenya has four sedimentary basins that have been divided into 38 exploration blocks, Nyoike said in July. About 24 of the blocks are being explored, he said.
Reliance, owner of the world’s biggest refining complex, bought fuel retailer Gulf Africa Petroleum Corp. to enter the African market in September 2007. Gulf Africa Petroleum retails fuel in Tanzania, Uganda and Kenya. It owns storage tanks and depots in east and central Africa, Reliance said at the time.
The Tata Group’s businesses in Africa include automobiles, phone services and a hotel.
“Reliance and Tata groups are interested,” Odinga told Bloomberg-UTV in an interview at the World Economic Forum’s India economic summit in New Delhi today. “We see a new group of Indian multinationals taking interest not only in Kenya, but the rest of Africa.”
Billionaire Mukesh Ambani’s Reliance has $6.5 billion in cash to use in buying energy assets overseas as natural gas output from its biggest deposit in India stagnates. Tata Group Chairman Ratan Tata has made 66 acquisitions in two decades. The group’s revenue was more than $67 billion in the year ended March, according to its website.
Reliance is looking at investing in oil exploration in Kenya, Odinga said.
Manoj Warrier, a spokesman for Reliance, declined to comment. Raman Dhawan, managing director of Tata Africa Holdings, couldn’t immediately be reached at his office in Johannesburg.
Reliance bought three shale-gas assets in the U.S. this year. The Mumbai-based explorer and oil refiner paid $943 million for the three assets and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.
Reliance had 293.5 billion rupees ($6.5 billion) in cash and equivalent and outstanding debt was 682 billion rupees as of Sept. 30, according to an Oct. 30 statement.
Oil Blocks
Cnooc Ltd., China’s biggest offshore energy explorer, has told the Kenyan government it plans to drop licenses to search for oil and gas in two Kenyan blocks by December, Mines and Energy Ministry Permanent Secretary Patrick Nyoike said Oct. 21. Cnooc is interested in working with Tullow Oil Plc and Africa Oil Corp. to explore five other blocks, Nyoike said then.
Kenya has four sedimentary basins that have been divided into 38 exploration blocks, Nyoike said in July. About 24 of the blocks are being explored, he said.
Reliance, owner of the world’s biggest refining complex, bought fuel retailer Gulf Africa Petroleum Corp. to enter the African market in September 2007. Gulf Africa Petroleum retails fuel in Tanzania, Uganda and Kenya. It owns storage tanks and depots in east and central Africa, Reliance said at the time.
The Tata Group’s businesses in Africa include automobiles, phone services and a hotel.
India Auditor Says State Lost $31 Billion Rupees in Mobile Airwaves Sale
India’s federal treasury may have lost as much as 1.4 trillion rupees ($31 billion) in revenue after telecommunications airwaves were sold below market rates two years ago, the government’s auditor said.
The Indian government collected only 123.9 billion rupees from the sale of the so-called second-generation wireless spectrum to companies, the Comptroller and Auditor General of India said in a report submitted to parliament in New Delhi today. The airwaves were sold in 2008.
In contrast, India raised 677.2 billion rupees selling third-generation wireless airwaves in May. Phone companies in Europe paid more than $100 billion for similar high-speed spectrum in auctions across the continent in 2000.
Andimuthu Raja, resigned on Nov. 14 as the nation’s telecommunications minister after a year-long investigation into the sale of the wireless spectrum. The Central Bureau of Investigation has been examining the role Raja and the Ministry of Communications had in the pricing of the permits since October last year while the Supreme Court has been hearing public interest petitions on the subject.
The auditor calculated the maximum estimated loss based on the prices at which the third-generation airwaves were sold in May. Based on another model, the under-pricing of 2G spectrum led to a loss of 535.2 billion rupees, according to the report.
‘Jump the Queue’
The department of telecommunications failed to consider applications on a “first come, first serve” basis, the auditor said, allowing some applicants to “jump the queue.” The process by which the department issued the permits, called Universal Access Service, or UAS, licenses, “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner,” according to the report.
The department issued 122 new licenses to use 2G spectrum in 2008, according to the report. Eighty-five of the licenses were given to “ineligible” recipients.
Companies including Unitech Ltd., Tata Teleservices Ltd., Shyam Telelink Ltd., now known as Sistema Shyam Teleservices Ltd., and Swan Telecom Ltd., now known as Etisalat DB Telecom Pvt., sold stakes in their wireless ventures at significant premiums to the price they paid for spectrum, the auditor said. Telenor ASA spent 61.2 billion rupees for buying a 67.25 percent stake in its venture with Unitech, the auditor said.
‘Fraudulent Means’
“These companies, created barely months ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means for getting UAS licenses and thereby access to spectrum,” according to the report. Owners of the licenses, “obtained at unbelievably low price, have in turn sold significant stakes in their companies to Indian or foreign companies at high premium.”
The auditor’s report is “based on incorrect footings” and is “erroneous,” Shahid Balwa, Mumbai-based vice chairman of Etisalat DB, said in an e-mail today. “We shall be putting out a detailed explanation to the concerned authorities, which more than adequately clarifies the company’s position.”
Rajeev Narayan, a spokesman for Mumbai-based Tata Teleservices, declined to comment. Tanuja Kehar, a spokeswoman for New Delhi-based Unitech, and Viraj Chouhan, a Gurgaon, India-based spokesman for Sistema Shyam, didn’t immediately respond to e-mails seeking comment.
The Indian government collected only 123.9 billion rupees from the sale of the so-called second-generation wireless spectrum to companies, the Comptroller and Auditor General of India said in a report submitted to parliament in New Delhi today. The airwaves were sold in 2008.
In contrast, India raised 677.2 billion rupees selling third-generation wireless airwaves in May. Phone companies in Europe paid more than $100 billion for similar high-speed spectrum in auctions across the continent in 2000.
Andimuthu Raja, resigned on Nov. 14 as the nation’s telecommunications minister after a year-long investigation into the sale of the wireless spectrum. The Central Bureau of Investigation has been examining the role Raja and the Ministry of Communications had in the pricing of the permits since October last year while the Supreme Court has been hearing public interest petitions on the subject.
The auditor calculated the maximum estimated loss based on the prices at which the third-generation airwaves were sold in May. Based on another model, the under-pricing of 2G spectrum led to a loss of 535.2 billion rupees, according to the report.
‘Jump the Queue’
The department of telecommunications failed to consider applications on a “first come, first serve” basis, the auditor said, allowing some applicants to “jump the queue.” The process by which the department issued the permits, called Universal Access Service, or UAS, licenses, “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner,” according to the report.
The department issued 122 new licenses to use 2G spectrum in 2008, according to the report. Eighty-five of the licenses were given to “ineligible” recipients.
Companies including Unitech Ltd., Tata Teleservices Ltd., Shyam Telelink Ltd., now known as Sistema Shyam Teleservices Ltd., and Swan Telecom Ltd., now known as Etisalat DB Telecom Pvt., sold stakes in their wireless ventures at significant premiums to the price they paid for spectrum, the auditor said. Telenor ASA spent 61.2 billion rupees for buying a 67.25 percent stake in its venture with Unitech, the auditor said.
‘Fraudulent Means’
“These companies, created barely months ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means for getting UAS licenses and thereby access to spectrum,” according to the report. Owners of the licenses, “obtained at unbelievably low price, have in turn sold significant stakes in their companies to Indian or foreign companies at high premium.”
The auditor’s report is “based on incorrect footings” and is “erroneous,” Shahid Balwa, Mumbai-based vice chairman of Etisalat DB, said in an e-mail today. “We shall be putting out a detailed explanation to the concerned authorities, which more than adequately clarifies the company’s position.”
Rajeev Narayan, a spokesman for Mumbai-based Tata Teleservices, declined to comment. Tanuja Kehar, a spokeswoman for New Delhi-based Unitech, and Viraj Chouhan, a Gurgaon, India-based spokesman for Sistema Shyam, didn’t immediately respond to e-mails seeking comment.
Indian microlender makes regulation plea
Vikram Akula, founder of India’s largest microcredit company, has called for “enlightened regulation” of the microfinance industry to weed out “rogue actors” without pushing other players to collapse.
“Do not destroy an entire industry because of the actions of a few rogue players,” Mr Akula, who founded SKS Microfinance, said in New Delhi on Tuesday at the World Economic Forum. “There is a right way to do microfinance, and a majority do practise ethical lending and have been doing so for decades.”
Mr Akula, the most visible face of India’s microfinance industry since his company’s August initial public offering raised $350m dollars, conceded that “occasionally, you do get rogue players and errant practices”. But he said such players should be held “fully accountable” without others being punished others in the process
His appeal comes as India’s for-profit microfinance industry has warned it is being pushed to the brink of collapse by a political and regulatory backlash in the southern Andhra Pradesh state, where officials have accused companies of “usurious” interest rates and “coercive” debt collection tactics.
The industry has denied wrongdoing but says some traditional moneylenders have rebranded themselves as microfinance institutions, adopted their group lending practices and are sullying the industry’s image.
“Microfinance in India, or at least in Andhra Pradesh, is in the midst of a near-death experience,” Sam Daley Harris, director of the Microcredit Summit Campaign, said at a conference in New Delhi this week.
India’s microfinance industry has around $6.7bn in outstanding loans – at interest rates of 27 to 36 per cent – to some 30m small rural and urban borrowers. But the sector’s once enviable repayment rates of 98 per cent have plummeted since mid-October, when state authorities abruptly adopted new rules requiring microlenders dramatically to change the way they operate.
Besides imposing onerous registration procedures on companies, authorities have banned lenders from collecting on their outstanding debts every week – standard practice in the international microfinance industry – and instead restricted collections to once a month.
At the same time, microcredit companies say their loan officers are being actively obstructed from meeting clients and collecting in debts by local officials, and political activists, who have spread rumours of an imminent microfinance debt waiver and are encouraging borrowers to withhold repayment.
Industry executives believe the Andhra Pradesh moves have been deliberately designed to inflict serious damage on what had been a fast-growing industry, after the SKS IPO turned the public spotlight on the huge profits being earned in an industry ostensibly intended to aid the poor.
“The ordinance was not designed just to reform,” Alok Prasad, chief executive of India’s Microfinance Institutions Network, said of the Andhra Pradesh ordinance. “It was designed to hurt. It was designed to wound.”
“Do not destroy an entire industry because of the actions of a few rogue players,” Mr Akula, who founded SKS Microfinance, said in New Delhi on Tuesday at the World Economic Forum. “There is a right way to do microfinance, and a majority do practise ethical lending and have been doing so for decades.”
Mr Akula, the most visible face of India’s microfinance industry since his company’s August initial public offering raised $350m dollars, conceded that “occasionally, you do get rogue players and errant practices”. But he said such players should be held “fully accountable” without others being punished others in the process
His appeal comes as India’s for-profit microfinance industry has warned it is being pushed to the brink of collapse by a political and regulatory backlash in the southern Andhra Pradesh state, where officials have accused companies of “usurious” interest rates and “coercive” debt collection tactics.
The industry has denied wrongdoing but says some traditional moneylenders have rebranded themselves as microfinance institutions, adopted their group lending practices and are sullying the industry’s image.
“Microfinance in India, or at least in Andhra Pradesh, is in the midst of a near-death experience,” Sam Daley Harris, director of the Microcredit Summit Campaign, said at a conference in New Delhi this week.
India’s microfinance industry has around $6.7bn in outstanding loans – at interest rates of 27 to 36 per cent – to some 30m small rural and urban borrowers. But the sector’s once enviable repayment rates of 98 per cent have plummeted since mid-October, when state authorities abruptly adopted new rules requiring microlenders dramatically to change the way they operate.
Besides imposing onerous registration procedures on companies, authorities have banned lenders from collecting on their outstanding debts every week – standard practice in the international microfinance industry – and instead restricted collections to once a month.
At the same time, microcredit companies say their loan officers are being actively obstructed from meeting clients and collecting in debts by local officials, and political activists, who have spread rumours of an imminent microfinance debt waiver and are encouraging borrowers to withhold repayment.
Industry executives believe the Andhra Pradesh moves have been deliberately designed to inflict serious damage on what had been a fast-growing industry, after the SKS IPO turned the public spotlight on the huge profits being earned in an industry ostensibly intended to aid the poor.
“The ordinance was not designed just to reform,” Alok Prasad, chief executive of India’s Microfinance Institutions Network, said of the Andhra Pradesh ordinance. “It was designed to hurt. It was designed to wound.”
Sunday, November 14, 2010
Religare eyes emerging markets deals
Religare Capital Markets, backed by the Indian billionaire Singh family, is planning acquisitions in four developing countries over the next six to 12 months as it seeks to become a global emerging markets investment bank.
The move by Religare comes as homegrown investment banks in emerging markets are seeking to build overseas networks to serve their corporate clients, which are increasingly looking for acquisitions abroad.
Religare, which has already formed a joint venture in Turkey and acquired a presence in Sri Lanka, Singapore, Hong Kong, London and New York, is looking to buy investment banking or broking operations in Brazil, the Philippines, Indonesia and South Africa.
“We are seeking to become India’s first global emerging markets investment bank,” said Tarun Kataria, chief executive of Religare Capital Markets India.
Religare joins rivals in other emerging markets, such as Renaissance Capital in Russia and BTG Pactual in Brazil, which are also acquiring a presence in other fast-growing markets.
Religare could not disclose the size of the intended acquisitions but Mr Kataria said the group has invested $100m and plans to invest a total of $400m within the next 12-18 months.
Religare Capital Markets’ controlling shareholder, Religare Enterprises, is majority owned by billionaire brothers, Malvinder Singh and Shivinder Mohan Singh.
The Singhs raised $2bn from the sale of their stake in India’s biggest generic drugs maker, Ranbaxy Laboratories, to Japan’s Daichi Sankyo in 2008.
Religare in September agreed to acquire a 50 per cent stake in a Sri Lankan brokerage, Bartleet Mallory Stock Brokers, and in August bought the US and UK units of South Africa’s Barnard Jacobs Mellet for $7.3m.
In June, it bought Aviate Global (Asia), an equities business with offices in Hong Kong, Singapore and Melbourne, Australia and the same month formed a strategic alliance with Guaranti Securities in Turkey.
Religare has acquired 290 institutional investor clients from the acquisitions, Mr Kataria said.
The group will offer services ranging from mergers and acquisition advisory work to share offerings, and will target deals worth $300m and above.
India will remain the group’s homebase. It claims to have the largest retail broking market share in India.
Religare is not the only Indian homegrown bank looking to build an international network.
Raamdeo Agrawal, director of financial services group Motilal Oswal, said that Indian merchant banks with offices in emerging markets would be better positioned to win mandates from Indian companies.
“On a cross-border deal, an Indian corporate will always prefer to have at least one Indian investment banker advising him … it’s a cultural matter,” said Mr Agrawal.
In the last five years homegrown investment banks have been competing with global banks that have expanded their advisory operations in India.
Indian investment banks that have been unable to expand abroad through acquisitions have started to set up joint ventures and alliances with counterparts in other emerging economies.
“It is much more convenient to set up a partnership with an investment bank in Africa and South America than opening up an office there,” said Rashesh Shah of Edelweiss, an Indian financial services group.
The move by Religare comes as homegrown investment banks in emerging markets are seeking to build overseas networks to serve their corporate clients, which are increasingly looking for acquisitions abroad.
Religare, which has already formed a joint venture in Turkey and acquired a presence in Sri Lanka, Singapore, Hong Kong, London and New York, is looking to buy investment banking or broking operations in Brazil, the Philippines, Indonesia and South Africa.
“We are seeking to become India’s first global emerging markets investment bank,” said Tarun Kataria, chief executive of Religare Capital Markets India.
Religare joins rivals in other emerging markets, such as Renaissance Capital in Russia and BTG Pactual in Brazil, which are also acquiring a presence in other fast-growing markets.
Religare could not disclose the size of the intended acquisitions but Mr Kataria said the group has invested $100m and plans to invest a total of $400m within the next 12-18 months.
Religare Capital Markets’ controlling shareholder, Religare Enterprises, is majority owned by billionaire brothers, Malvinder Singh and Shivinder Mohan Singh.
The Singhs raised $2bn from the sale of their stake in India’s biggest generic drugs maker, Ranbaxy Laboratories, to Japan’s Daichi Sankyo in 2008.
Religare in September agreed to acquire a 50 per cent stake in a Sri Lankan brokerage, Bartleet Mallory Stock Brokers, and in August bought the US and UK units of South Africa’s Barnard Jacobs Mellet for $7.3m.
In June, it bought Aviate Global (Asia), an equities business with offices in Hong Kong, Singapore and Melbourne, Australia and the same month formed a strategic alliance with Guaranti Securities in Turkey.
Religare has acquired 290 institutional investor clients from the acquisitions, Mr Kataria said.
The group will offer services ranging from mergers and acquisition advisory work to share offerings, and will target deals worth $300m and above.
India will remain the group’s homebase. It claims to have the largest retail broking market share in India.
Religare is not the only Indian homegrown bank looking to build an international network.
Raamdeo Agrawal, director of financial services group Motilal Oswal, said that Indian merchant banks with offices in emerging markets would be better positioned to win mandates from Indian companies.
“On a cross-border deal, an Indian corporate will always prefer to have at least one Indian investment banker advising him … it’s a cultural matter,” said Mr Agrawal.
In the last five years homegrown investment banks have been competing with global banks that have expanded their advisory operations in India.
Indian investment banks that have been unable to expand abroad through acquisitions have started to set up joint ventures and alliances with counterparts in other emerging economies.
“It is much more convenient to set up a partnership with an investment bank in Africa and South America than opening up an office there,” said Rashesh Shah of Edelweiss, an Indian financial services group.
Bonds Beat BRIC Rivals as Inflation Shows Signs of Slowing: India Credit
Indian bonds outperformed those of the largest emerging nations in the past month, with the biggest decline in yields relative to Treasuries among BRIC nations, on signs inflation is slowing.
A government report today will show the wholesale-price index rose 8.5 percent in October, the least since December, compared with 8.6 percent in September, according to the median estimate of economists in a Bloomberg survey. Yields on India’s 10-year bonds dropped relative to U.S. treasuries more than Brazil’s, while similar rates in Russia and China jumped.
Central bank Governor Duvvuri Subbarao’s decision to raise interest rates six times this year is boosting confidence he will tame benchmark inflation that is about twice the rate in Brazil and China and more than 2 percentage points above Russia’s. Nomura Holdings Inc. forecast India’s benchmark yield will drop 28 basis points to 7.80 percent by March after data last week showed slowing factory output and food-price gains.
“We expect the RBI to pause in its rate hikes in the immediate future given the softening trend in inflation and factory output,” said Sonal Varma, a Mumbai-based economist at Nomura. “It is prudent for the RBI to take stock of previous policy actions.”
Benchmark 10-year notes were little changed on Nov. 12 at 8.08 percent. The rate is 531 basis points, or 5.31 percentage points, more than similar-maturity U.S. Treasuries, down from 558 a month earlier, according to data compiled by Bloomberg. The gap for Brazil’s 10-year yields narrowed one basis point, while the spread widened three points in Russia and 16 in China during the same period. Brazil, Russia, India and China make up the so-called BRIC markets of the largest emerging nations.
Industrial Output
Growth in industrial production slowed to 4.4 percent in September from this year’s high of 16.8 percent in January, the government said on Nov. 12. The previous day, Commerce Ministry data showed food inflation slowed to a one-year low of 12.3 percent in the week to Oct. 30.
“Given the deceleration in factory output, we think the RBI is likely to hold rates,” Jay Shankar, a Mumbai-based chief economist at Religare Capital Markets Ltd., said in an interview on Nov. 12. “We were earlier expecting a 25-basis point increase by March. The chances of that have diminished after the deceleration in the key economic data.”
He forecasts the benchmark yield will drop to 7.90 percent by January. The Reserve Bank predicted on Nov. 2 that benchmark wholesale-price inflation may slow to 5.5 percent by the end of March.
Bond Volatility
India uses the wholesale-price index as a benchmark for measuring inflation. The consumer-price inflation rate for industrial workers quickened 9.82 percent in September. In contrast, consumer price inflation rate rose 5.2 percent in Brazil, 7.5 percent in Russia and 4.4 percent in China.
The government raised $2.5 billion, selling seven-, 10- and 30-year bonds at maximum yields of 7.99 percent, 8.10 percent and 8.49 percent at an auction on Nov. 12.
India’s government bonds underperformed earlier this year as average inflation in the first nine months jumped sevenfold to 9.7 percent. The securities returned 3.8 percent this year, the third-worst performance among 10 Asian local-currency debt markets outside Japan, according to indexes compiled by HSBC Holdings Plc.
Narrowing swings in the bond yields of Asia’s third-biggest economy signaled a smaller potential for losses. A measure of the 10-year rate’s 30-day historical volatility has declined to 7.8 percent from 19.1 percent in May, data compiled by Bloomberg show. A similar gauge was at 17 percent in Brazil, 12 percent in Russia and 19.3 percent in China.
Treasury Yields
The cost of fixing rates on money for a year in India’s interest-rate swap market has declined 7 basis points from a two-year high of 6.83 percent reached on Oct. 28, data compiled by Bloomberg show.
The rupee appreciated 3.8 percent this year as the Reserve Bank raised the benchmark repurchase rate 150 basis points to 6.25 percent, attracting fund inflows into the nation. The currency dropped 1.1 percent on Nov. 12 to 44.805 per dollar after production growth slowed and on concern the Group of 20 nations will be unable to revive global growth and that China’s central bank may raise interest rates.
Yields in the U.S., the world’s biggest economy, have also climbed on speculation efforts by the Federal Reserve to spur the economy will lead to faster inflation. The benchmark 10-year treasury yield was at 2.79 percent on Nov. 12, the highest since Sept. 10.
Bank Holdings
The Reserve Bank said on Nov. 2 that increases in global commodity-prices pose a risk to its inflation outlook. Record share sales in India have also starved the bond market of funds, raising overnight borrowing rates to an average 6.3 percent this quarter from 5.4 percent in the previous three months.
Banks, the biggest buyers of government debt, raised their holdings by 1.8 percent in the two weeks to Oct. 22, the most since April, before a cash shortage in the last week of the month prompted them to cut their positions, Reserve Bank of India data show.
Factory-output and India’s food inflation data “don’t really matter for investors as long as the liquidity shortage continues,” Prasanna Ananthasubramaniam, the Mumbai-based chief economist at ICICI Securities Primary Dealership Ltd., said in an interview on Nov. 12. “Liquidity is a bigger concern now.”
Cash Crunch
The Reserve Bank has increased daily lending to banks to alleviate the cash squeeze. The central bank lent 1.2 trillion rupees ($27 billion) to local lenders Nov. 11, an all-time high.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has decreased 70 basis points to 169 from a one-year high reached in May, according to CMA prices.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“The industrial-output data indicate further hikes may not be necessary,” Roy Paul, deputy general manager at Mumbai-based Federal Bank Ltd., said in an interview on Nov. 12. “It’s a good level to enter bonds in the backdrop of a likely pause.” He predicts the 10-year yield will drop to 7.60 percent by March.
A government report today will show the wholesale-price index rose 8.5 percent in October, the least since December, compared with 8.6 percent in September, according to the median estimate of economists in a Bloomberg survey. Yields on India’s 10-year bonds dropped relative to U.S. treasuries more than Brazil’s, while similar rates in Russia and China jumped.
Central bank Governor Duvvuri Subbarao’s decision to raise interest rates six times this year is boosting confidence he will tame benchmark inflation that is about twice the rate in Brazil and China and more than 2 percentage points above Russia’s. Nomura Holdings Inc. forecast India’s benchmark yield will drop 28 basis points to 7.80 percent by March after data last week showed slowing factory output and food-price gains.
“We expect the RBI to pause in its rate hikes in the immediate future given the softening trend in inflation and factory output,” said Sonal Varma, a Mumbai-based economist at Nomura. “It is prudent for the RBI to take stock of previous policy actions.”
Benchmark 10-year notes were little changed on Nov. 12 at 8.08 percent. The rate is 531 basis points, or 5.31 percentage points, more than similar-maturity U.S. Treasuries, down from 558 a month earlier, according to data compiled by Bloomberg. The gap for Brazil’s 10-year yields narrowed one basis point, while the spread widened three points in Russia and 16 in China during the same period. Brazil, Russia, India and China make up the so-called BRIC markets of the largest emerging nations.
Industrial Output
Growth in industrial production slowed to 4.4 percent in September from this year’s high of 16.8 percent in January, the government said on Nov. 12. The previous day, Commerce Ministry data showed food inflation slowed to a one-year low of 12.3 percent in the week to Oct. 30.
“Given the deceleration in factory output, we think the RBI is likely to hold rates,” Jay Shankar, a Mumbai-based chief economist at Religare Capital Markets Ltd., said in an interview on Nov. 12. “We were earlier expecting a 25-basis point increase by March. The chances of that have diminished after the deceleration in the key economic data.”
He forecasts the benchmark yield will drop to 7.90 percent by January. The Reserve Bank predicted on Nov. 2 that benchmark wholesale-price inflation may slow to 5.5 percent by the end of March.
Bond Volatility
India uses the wholesale-price index as a benchmark for measuring inflation. The consumer-price inflation rate for industrial workers quickened 9.82 percent in September. In contrast, consumer price inflation rate rose 5.2 percent in Brazil, 7.5 percent in Russia and 4.4 percent in China.
The government raised $2.5 billion, selling seven-, 10- and 30-year bonds at maximum yields of 7.99 percent, 8.10 percent and 8.49 percent at an auction on Nov. 12.
India’s government bonds underperformed earlier this year as average inflation in the first nine months jumped sevenfold to 9.7 percent. The securities returned 3.8 percent this year, the third-worst performance among 10 Asian local-currency debt markets outside Japan, according to indexes compiled by HSBC Holdings Plc.
Narrowing swings in the bond yields of Asia’s third-biggest economy signaled a smaller potential for losses. A measure of the 10-year rate’s 30-day historical volatility has declined to 7.8 percent from 19.1 percent in May, data compiled by Bloomberg show. A similar gauge was at 17 percent in Brazil, 12 percent in Russia and 19.3 percent in China.
Treasury Yields
The cost of fixing rates on money for a year in India’s interest-rate swap market has declined 7 basis points from a two-year high of 6.83 percent reached on Oct. 28, data compiled by Bloomberg show.
The rupee appreciated 3.8 percent this year as the Reserve Bank raised the benchmark repurchase rate 150 basis points to 6.25 percent, attracting fund inflows into the nation. The currency dropped 1.1 percent on Nov. 12 to 44.805 per dollar after production growth slowed and on concern the Group of 20 nations will be unable to revive global growth and that China’s central bank may raise interest rates.
Yields in the U.S., the world’s biggest economy, have also climbed on speculation efforts by the Federal Reserve to spur the economy will lead to faster inflation. The benchmark 10-year treasury yield was at 2.79 percent on Nov. 12, the highest since Sept. 10.
Bank Holdings
The Reserve Bank said on Nov. 2 that increases in global commodity-prices pose a risk to its inflation outlook. Record share sales in India have also starved the bond market of funds, raising overnight borrowing rates to an average 6.3 percent this quarter from 5.4 percent in the previous three months.
Banks, the biggest buyers of government debt, raised their holdings by 1.8 percent in the two weeks to Oct. 22, the most since April, before a cash shortage in the last week of the month prompted them to cut their positions, Reserve Bank of India data show.
Factory-output and India’s food inflation data “don’t really matter for investors as long as the liquidity shortage continues,” Prasanna Ananthasubramaniam, the Mumbai-based chief economist at ICICI Securities Primary Dealership Ltd., said in an interview on Nov. 12. “Liquidity is a bigger concern now.”
Cash Crunch
The Reserve Bank has increased daily lending to banks to alleviate the cash squeeze. The central bank lent 1.2 trillion rupees ($27 billion) to local lenders Nov. 11, an all-time high.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has decreased 70 basis points to 169 from a one-year high reached in May, according to CMA prices.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“The industrial-output data indicate further hikes may not be necessary,” Roy Paul, deputy general manager at Mumbai-based Federal Bank Ltd., said in an interview on Nov. 12. “It’s a good level to enter bonds in the backdrop of a likely pause.” He predicts the 10-year yield will drop to 7.60 percent by March.
Under Pressure Over Bailout, Dublin Defends Its Finances
BRUSSELS — European ministers worked over the weekend on a financial rescue plan for Ireland, as pressure mounted on Dublin to seek a bailout as the best means of preventing the markets from spreading turbulence to other European countries, officials said on Sunday.
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Aidan Crawley/Bloomberg News
Dublin is hoping to reassure markets that it can avoid a bailout by winning formal European Union approval for its bailout of Anglo Irish Banks.
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The Irish government continued to insist that it did not need a bailout, arguing that it could present a credible austerity budget next month that would satisfy investors, and that it had enough money to finance its operations through early next year.
But analysts and investors, as well as some European officials, say the government’s plan needs to be buttressed by a promise of outside funding to counter the jumpiness in the markets, which have pushed interest rates on Irish bonds to record highs.
“There is a risk of a self-fulfilling prophecy,” a European diplomat said, speaking on the condition of anonymity because of the sensitivity of the issue. “Even a denial is seen as some sort of affirmation that there is something to deny.”
The push to shore up Irish finances reflects the desire of some officials to get ahead of a problem that could not only undermine Dublin’s recovery efforts but also threaten other weak economies in Europe like Portugal and Spain. Last spring, when Greece teetered on the brink of default, a series of reassurances by the European Union failed to calm investor anxiety, and a huge bailout fund had to be arranged at the last minute to stabilize Greece and relieve pressure on the euro.
On Friday, the storm in the markets was briefly calmed when five European ministers at the Group of 20 summit in Seoul issued supportive statements and Ireland’s finance minister, Brian Lenihan, reaffirmed the country’s resolve. But European officials are concerned that more needs to be done before Ireland presents its next budget, scheduled for Dec. 7.
The reaction of the bond markets on Monday is the next test for Ireland. Officials said they were preparing a contingency plan in case the markets moved sharply against the country.
Preliminary talks on a rescue package had already taken place. Discussions involving European Union ministers and senior officials continued on Sunday, said one official involved in the debate. But by early Sunday evening, diplomats said, there were still no plans for any formal teleconference between the finance ministers of the 16 countries that use the euro.
Officials in Brussels and Dublin said that Ireland had not made any formal application for a loan and that without such an application, no bailout could be approved or executed.
According to a report by Barclays Capital, the European Union and the International Monetary Fund would need to loan 80 billion to 85 billion euros, or $109 billion to $116 billion, to satisfy Ireland’s sovereign funding needs and to create an added buffer to help recapitalize its failed banks.
The “extreme tension that has been prevailing in the financial markets, especially concerning the ability of Ireland to achieve a sustainable fiscal path by going it alone,” meant that recourse to European Union loans “would, in our view, represent a sensible outturn,” Julian Callow and Antonio Garcia Pascual of Barclays Capital wrote in a research note on Friday evening.
Finance officials are scheduled to meet on Tuesday and Wednesday to discuss the Irish situation.
Any Irish bailout would be a delicate matter for Germany, which strongly resisted the bailout of Greece and has been pushing to overhaul the current mechanism for European rescues to ensure that private investors help foot the bill of any sovereign defaults. German officials, however, may be hoping that Ireland accepts the bailout sooner rather than later to soothe jittery debt markets and ensure stability of the euro and, in the longer term, the growth prospects of the European Union.
The first of any such payments to Ireland would come from a pot of money totaling 60 billion euros that is guaranteed by the union’s budget and set up to provide rapid assistance to countries in “acute difficulties,” one European official said. The official spoke on the condition of anonymity because of the delicacy of the situation and would not speculate on how much money Ireland might need over all.
Any additional loans would have to come from a much larger pool of money guaranteed by the euro zone nations. That pool totals 440 billion euros, the official said. Reaching such an agreement on using those funds might prove harder, as governments still are debating how a permanent loan system should work. It also could take up to four weeks to draw up a support program using that pool and could require more scrutiny from the International Monetary Fund.
The two pools of funding were set up in May after the bailout of Greece. But the official stressed that Ireland was a very different case.
Whereas Greece’s rescue came after years of concealing the true state of its finances, Ireland has a much stronger track record in economic management. That means it was still possible that Ireland could steady the markets by imposing tough austerity measures.
While Ireland must submit its budget by Dec. 7, it is rushing to prepare a four-year plan that will show how it plans to cut its current deficit from 32 percent of gross domestic product to 3 percent by 2014.
That strategy will include another round of spending cuts and is likely to spark further unrest from a citizenry that is suffering from a third consecutive year of negative growth in the economy.
The Irish government is extremely reluctant to seek a bailout, analysts say, because of the stigma associated with applying for aid and the risk to its political standing.
The Fianna Fail Party leads a shaky coalition that holds only a thin majority in Parliament and could be forced to call early elections next year.
Dublin is also hoping to reassure markets that it can avoid a bailout by winning approval from the European Union for its bailout of Anglo Irish Bank.
The European Commission, the executive arm of the union, still needs to determine whether the bank bailout falls within European state aid rules. The commission is considering whether to approve a 6.4 billion euro portion of the bailout of Allied Irish and to agree to the overall restructuring plan.
Enlarge This Image
Aidan Crawley/Bloomberg News
Dublin is hoping to reassure markets that it can avoid a bailout by winning formal European Union approval for its bailout of Anglo Irish Banks.
Add to Portfolio
Barclays PLC
Go to your Portfolio »
The Irish government continued to insist that it did not need a bailout, arguing that it could present a credible austerity budget next month that would satisfy investors, and that it had enough money to finance its operations through early next year.
But analysts and investors, as well as some European officials, say the government’s plan needs to be buttressed by a promise of outside funding to counter the jumpiness in the markets, which have pushed interest rates on Irish bonds to record highs.
“There is a risk of a self-fulfilling prophecy,” a European diplomat said, speaking on the condition of anonymity because of the sensitivity of the issue. “Even a denial is seen as some sort of affirmation that there is something to deny.”
The push to shore up Irish finances reflects the desire of some officials to get ahead of a problem that could not only undermine Dublin’s recovery efforts but also threaten other weak economies in Europe like Portugal and Spain. Last spring, when Greece teetered on the brink of default, a series of reassurances by the European Union failed to calm investor anxiety, and a huge bailout fund had to be arranged at the last minute to stabilize Greece and relieve pressure on the euro.
On Friday, the storm in the markets was briefly calmed when five European ministers at the Group of 20 summit in Seoul issued supportive statements and Ireland’s finance minister, Brian Lenihan, reaffirmed the country’s resolve. But European officials are concerned that more needs to be done before Ireland presents its next budget, scheduled for Dec. 7.
The reaction of the bond markets on Monday is the next test for Ireland. Officials said they were preparing a contingency plan in case the markets moved sharply against the country.
Preliminary talks on a rescue package had already taken place. Discussions involving European Union ministers and senior officials continued on Sunday, said one official involved in the debate. But by early Sunday evening, diplomats said, there were still no plans for any formal teleconference between the finance ministers of the 16 countries that use the euro.
Officials in Brussels and Dublin said that Ireland had not made any formal application for a loan and that without such an application, no bailout could be approved or executed.
According to a report by Barclays Capital, the European Union and the International Monetary Fund would need to loan 80 billion to 85 billion euros, or $109 billion to $116 billion, to satisfy Ireland’s sovereign funding needs and to create an added buffer to help recapitalize its failed banks.
The “extreme tension that has been prevailing in the financial markets, especially concerning the ability of Ireland to achieve a sustainable fiscal path by going it alone,” meant that recourse to European Union loans “would, in our view, represent a sensible outturn,” Julian Callow and Antonio Garcia Pascual of Barclays Capital wrote in a research note on Friday evening.
Finance officials are scheduled to meet on Tuesday and Wednesday to discuss the Irish situation.
Any Irish bailout would be a delicate matter for Germany, which strongly resisted the bailout of Greece and has been pushing to overhaul the current mechanism for European rescues to ensure that private investors help foot the bill of any sovereign defaults. German officials, however, may be hoping that Ireland accepts the bailout sooner rather than later to soothe jittery debt markets and ensure stability of the euro and, in the longer term, the growth prospects of the European Union.
The first of any such payments to Ireland would come from a pot of money totaling 60 billion euros that is guaranteed by the union’s budget and set up to provide rapid assistance to countries in “acute difficulties,” one European official said. The official spoke on the condition of anonymity because of the delicacy of the situation and would not speculate on how much money Ireland might need over all.
Any additional loans would have to come from a much larger pool of money guaranteed by the euro zone nations. That pool totals 440 billion euros, the official said. Reaching such an agreement on using those funds might prove harder, as governments still are debating how a permanent loan system should work. It also could take up to four weeks to draw up a support program using that pool and could require more scrutiny from the International Monetary Fund.
The two pools of funding were set up in May after the bailout of Greece. But the official stressed that Ireland was a very different case.
Whereas Greece’s rescue came after years of concealing the true state of its finances, Ireland has a much stronger track record in economic management. That means it was still possible that Ireland could steady the markets by imposing tough austerity measures.
While Ireland must submit its budget by Dec. 7, it is rushing to prepare a four-year plan that will show how it plans to cut its current deficit from 32 percent of gross domestic product to 3 percent by 2014.
That strategy will include another round of spending cuts and is likely to spark further unrest from a citizenry that is suffering from a third consecutive year of negative growth in the economy.
The Irish government is extremely reluctant to seek a bailout, analysts say, because of the stigma associated with applying for aid and the risk to its political standing.
The Fianna Fail Party leads a shaky coalition that holds only a thin majority in Parliament and could be forced to call early elections next year.
Dublin is also hoping to reassure markets that it can avoid a bailout by winning approval from the European Union for its bailout of Anglo Irish Bank.
The European Commission, the executive arm of the union, still needs to determine whether the bank bailout falls within European state aid rules. The commission is considering whether to approve a 6.4 billion euro portion of the bailout of Allied Irish and to agree to the overall restructuring plan.
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