LITTLE red flags jut out from the shelves at a CVS drugstore in suburban Boston, alerting shoppers to shortages of nearly a dozen Johnson & Johnson products. Among them are Motrin, Rolaids, children’s Tylenol liquid and adult Tylenol, Mylanta, Pepcid AC and even some Neutrogena skin care products.
“Looking for Tylenol pain relief products?” asks one of the signs. The notices at CVS serve as a stark reproof to Johnson & Johnson, whose brands have for more than a century been synonymous with quality. Some of its products are in short supply at drugstores and supermarkets because the McNeil Consumer Healthcare unit of J.& J. last year recalled about 288 million items, including about 136 million bottles of liquid Tylenol, Motrin, Zyrtec and Benadryl for infants and children.
Johnson & Johnson has had to recall such a variety of products because of quality-control problems across product lines, in multiple factories and in several units last year. Some of its consumer products, for instance, may have contained bits of metal. Others came in bottles with a moldy smell. And some products have gone missing from stores with hardly an explanation. All of this has put the company and its manufacturing under the intense scrutiny of lawmakers and officials at the Food and Drug Administration.
“It looks like a plane spinning out of control,” says David Vinjamuri, a former J.& J. marketing employee who now trains brand managers at his company, ThirdWay Brand Trainers.
While the drugstore signs that helpfully suggest “Try CVS/pharmacy brand” are intended to assist frustrated shoppers in identifying alternatives to missing brand-name products, they also serve as constant reminders of another of J.& J.’s continuing problems: It must persuade millions of disappointed customers to once again pay a premium for products that may no longer seem to be of any higher quality than the less expensive store brand.
“I don’t even consider buying them any more,” says Thien-Kim Lam, a mother of two and a blogger in Silver Spring, Md. In a post last spring titled “Makers of Tylenol, I’m Disappointed in You” on the blog DC Metro Moms, Ms. Lam wrote about the huge recall of J.& J. infants’ and children’s medicines.
Now, she says, the frequent recalls have prompted her to switch to generic cold and cough medicines for her children. “It’s like a breakup,” she says. “I’m done. I’ve moved on.”
Bonnie Jacobs, a McNeil spokeswoman, says the company is committed to restoring McNeil’s reputation as a world-class manufacturer of over-the-counter medicines. “We will invest the necessary resources and make whatever changes are needed to do so, and we will take the time to do it right,” she wrote in an e-mail last Thursday.
If Queen Elizabeth II had been the chief executive of Johnson & Johnson, she might have called 2010 an “annus horribilis.”
J.& J.’s troubles with some of its consumer products began in earnest last January, when McNeil recalled millions of pill bottles after some consumers complained that they smelled like mold. By December, when it recalled 13 million packages of Rolaids soft chews that may have been contaminated with metal or wood particles, the company had closed one plant in Fort Washington, Pa., for an overhaul and had yet to solve the quality problems at another, in Puerto Rico.
The response of J.& J.’s chief executive, William C. Weldon, has been to allocate more than $100 million to upgrade McNeil’s plants and equipment, appoint new manufacturing executives, hire a third-party consulting firm to improve procedures and systems at McNeil and shore up quality control companywide. In Congressional testimony last fall, he promised that when the Pennsylvania plant reopened, it would “represent the state of the art in medicine production.” And he has repeatedly tried to reassure consumers, as he did when he promised that J.& J. had “no higher concern than providing parents with the highest-quality products for their children.”
Those reassurances, however, have been followed by yet more recalls. What is most perplexing is the seeming inability of executives to solve — and satisfactorily explain — the manufacturing issues that dog the company. Federal regulators have continued to fault the McNeil unit for failing to identify and address systemic problems at its plants, and consumers remain mystified about why simple products like O.B. tampons can disappear from drugstore shelves.
In July, McNeil submitted a plan to the F.D.A. detailing how it intends to overhaul its operations. To comply with regulatory standards, McNeil is undertaking thorough manufacturing and quality-control reviews for all its products, Ms. Jacobs says.
That means the recalls may continue. Last Thursday, Ms. Jacobs said the company would “take whatever steps are needed to ensure our products meet quality standards, including further recalls if warranted.”
Only a day later, McNeil recalled 47 million units of Sudafed, Sinutab, Benadryl and other drugs from wholesalers because of issues like inadequate equipment cleaning practices. The company said that the recalls were not a result of health problems and that consumers could continue to use the products.
JOHNSON & JOHNSON, with about $62 billion in sales in 2009, makes thousands of different kinds of products, including Band-Aids, baby shampoo, cardiac stents and advanced drug treatments for rheumatoid arthritis. It solidified a reputation for product quality with a company credo, dating from 1943, saying that the company owed its first responsibility to the mothers and fathers, doctors, nurses and patients who use its products.
With such a diversity of products and operating companies, Johnson & Johnson’s overall business has not suffered significantly. But the string of recent recalls at McNeil threatens to weaken the kind of trust that made many people willing to pay more for J.& J. brands.
Saturday, January 15, 2011
Emami Paper to Borrow, Sell Shares to Raise $443 Million to Add Capacity
Emami Paper Mills Ltd., an Indian supplier to the world’s largest selling English newspaper, plans to raise 20 billion rupees ($443 million) from borrowings and a share sale in the next four years to add capacity.
The Kolkata-based company may raise 6 billion rupees through internal accrual and the sale of shares, and the balance 14 billion rupees through debt, Chief Executive Officer P.S. Patwari said in an interview at his office. Emami Paper plans to raise capacity of its newsprint manufacturing units and set up a new facility to make wood-based writing and printing paper.
Economic acceleration is increasing literacy in India, the world’s most populated nation after China, and boosting newspaper readership luring investors including Blackstone Group LP into the industry. Demand for paper is expected to grow 57 percent to 14 million tons in the seven years to 2015, according to the Indian Paper Manufacturers Association.
“Now that newspaper companies are expanding, it is a favorable time for us to look at expansion and also increase newsprint prices,” Patwari said. The company plans to raise prices of newsprint by 14 percent to as much as $800 a ton in April, he said.
Emami Paper’s shares, which have declined 15 percent this month, gained 3.7 percent to 52.3 at 9:46 a.m. in Mumbai after surging as much as 13 percent.
Blackstone Group, the world’s largest private equity firm, in April said it plans to invest 2.25 billion rupees in Jagran Media Network Pvt. A unit of Jagran Media prints Dainik Jagran, which claims to be the world’s most widely read newspaper with a readership of 54.6 million.
Emami Paper supplies newsprint to the Times of India, the world’s largest selling English-language broadsheet.
The paper maker will spend 6 billion rupees to raise the production capacity of its two existing newsprint units to 250,000 tons a year from 150,000 tons, Patwari said.
India’s $1.3 trillion economy may expand 8.5 percent in the year ending March 31, according to the Indian central bank.
The Kolkata-based company may raise 6 billion rupees through internal accrual and the sale of shares, and the balance 14 billion rupees through debt, Chief Executive Officer P.S. Patwari said in an interview at his office. Emami Paper plans to raise capacity of its newsprint manufacturing units and set up a new facility to make wood-based writing and printing paper.
Economic acceleration is increasing literacy in India, the world’s most populated nation after China, and boosting newspaper readership luring investors including Blackstone Group LP into the industry. Demand for paper is expected to grow 57 percent to 14 million tons in the seven years to 2015, according to the Indian Paper Manufacturers Association.
“Now that newspaper companies are expanding, it is a favorable time for us to look at expansion and also increase newsprint prices,” Patwari said. The company plans to raise prices of newsprint by 14 percent to as much as $800 a ton in April, he said.
Emami Paper’s shares, which have declined 15 percent this month, gained 3.7 percent to 52.3 at 9:46 a.m. in Mumbai after surging as much as 13 percent.
Blackstone Group, the world’s largest private equity firm, in April said it plans to invest 2.25 billion rupees in Jagran Media Network Pvt. A unit of Jagran Media prints Dainik Jagran, which claims to be the world’s most widely read newspaper with a readership of 54.6 million.
Emami Paper supplies newsprint to the Times of India, the world’s largest selling English-language broadsheet.
The paper maker will spend 6 billion rupees to raise the production capacity of its two existing newsprint units to 250,000 tons a year from 150,000 tons, Patwari said.
India’s $1.3 trillion economy may expand 8.5 percent in the year ending March 31, according to the Indian central bank.
Sensex Plunges 10% From Peak on Concern Inflation May Prompt Higher Rates
India’s stocks fell, dragging the benchmark index 10 percent below its November record, amid concern rising prices will erode profit growth and prompt the central bank to raise interest rates.
Tata Motors Ltd., the nation’s biggest truckmaker, dropped for the first time in three days. Inflation and rising commodity prices are major challenges, Finance Minister Pranab Mukherjee said today after a government report showed the pace of price increases accelerated last month. Steel Authority of India Ltd., the country’s second-largest producer, sank to its lowest level in more than 14 months after saying higher costs contributed to a 34 percent slide in quarterly net income.
“Inflation is a big concern,” said Rajat Jain, Chief Investment Officer at Principal Pnb Asset Management Co. in Mumbai, who oversees the equivalent of $1.3 billion in assets. “There could be some earnings downgrades by analysts.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, lost 322.38, or 1.7 percent, to 18,860.44 at the 3:30 p.m. in Mumbai, completing a 10 percent slide from a record close on Nov. 5. The gauge fell 4.2 percent this week, the most since May, and its 8 percent drop this year makes it the worst performer in dollar terms among the world’s 10 largest equity markets.
The S&P CNX Nifty Index on the National Stock Exchange dropped 1.7 percent to 5,654.55. The BSE 200 Index retreated 1.7 percent to 2,339.28.
Tata Motors
Tata Motors fell 4.4 percent to 1,182.4 rupees. Maruti Suzuki India Ltd., the biggest carmaker, sank 3.5 percent to 1269.7 rupees.
The benchmark wholesale-price index rose 8.43 percent in December from a year earlier after a 7.48 percent gain in November, according to a commerce ministry statement in New Delhi today.
“Investors are worried that the central bank will take strict measures as inflation continues to be out of control,” said Ranjit Kapadia, vice-president for institutional research at HDFC Securities Ltd. in Mumbai.
State Bank of India, the nation’s biggest lender, lost 2.3 percent to 2,500.8 rupees. HDFC Bank Ltd., the third-biggest, decreased 4.4 percent to 2,049.55 rupees.
The yield on the benchmark nine-year government bond has gained 28 basis points to 8.19 percent this month on speculation Reserve Bank of India Governor Duvvuri Subbarao may boost interest rates for the seventh time in a year at the next scheduled monetary policy meeting on Jan. 25.
Selling India
Global funds are poised to sell more Indian stocks than they bought this month, the first monthly foreign outflows since May. They disposed of a net 982 million rupees of the equities on Jan. 12, the sixth straight day of withdrawals, according to data on the website of the Securities and Exchange Board of India. That’s the longest string of sales since May.
Steel Authority of India, plunged 6.3 percent to 161.4 rupees, its lowest close since Nov. 4, 2009. Third-quarter profit was 11 billion rupees ($245 million), lower than the 14.1 billion-rupee average of 19 analyst estimates compiled by Bloomberg. Raw material costs rose 38 percent, while total expenses increased 30 percent, it said in a statement.
Jubilant FoodWorks Ltd., the local franchisee of Domino’s Pizza Inc., declined 5.7 percent to 562.2 rupees.
“There are inflationary pressures on labor, food items and fuel, which are putting strain on the business,” Chief Executive Officer Ajay Kaul said in an interview.
India will import onions, a key ingredient in local cuisine, and keep a ban on exports of edible oils and lentils to cool higher costs for food items, Prime Minister Manmohan Singh said yesterday.
The Reserve Bank of India, which raised rates the most in Asia in 2010, held off on boosting borrowing costs in the last policy statement on Dec. 16 as a record 1.1 trillion rupees of share sales by companies including Coal India Ltd. caused a cash squeeze at lenders.
Tata Motors Ltd., the nation’s biggest truckmaker, dropped for the first time in three days. Inflation and rising commodity prices are major challenges, Finance Minister Pranab Mukherjee said today after a government report showed the pace of price increases accelerated last month. Steel Authority of India Ltd., the country’s second-largest producer, sank to its lowest level in more than 14 months after saying higher costs contributed to a 34 percent slide in quarterly net income.
“Inflation is a big concern,” said Rajat Jain, Chief Investment Officer at Principal Pnb Asset Management Co. in Mumbai, who oversees the equivalent of $1.3 billion in assets. “There could be some earnings downgrades by analysts.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, lost 322.38, or 1.7 percent, to 18,860.44 at the 3:30 p.m. in Mumbai, completing a 10 percent slide from a record close on Nov. 5. The gauge fell 4.2 percent this week, the most since May, and its 8 percent drop this year makes it the worst performer in dollar terms among the world’s 10 largest equity markets.
The S&P CNX Nifty Index on the National Stock Exchange dropped 1.7 percent to 5,654.55. The BSE 200 Index retreated 1.7 percent to 2,339.28.
Tata Motors
Tata Motors fell 4.4 percent to 1,182.4 rupees. Maruti Suzuki India Ltd., the biggest carmaker, sank 3.5 percent to 1269.7 rupees.
The benchmark wholesale-price index rose 8.43 percent in December from a year earlier after a 7.48 percent gain in November, according to a commerce ministry statement in New Delhi today.
“Investors are worried that the central bank will take strict measures as inflation continues to be out of control,” said Ranjit Kapadia, vice-president for institutional research at HDFC Securities Ltd. in Mumbai.
State Bank of India, the nation’s biggest lender, lost 2.3 percent to 2,500.8 rupees. HDFC Bank Ltd., the third-biggest, decreased 4.4 percent to 2,049.55 rupees.
The yield on the benchmark nine-year government bond has gained 28 basis points to 8.19 percent this month on speculation Reserve Bank of India Governor Duvvuri Subbarao may boost interest rates for the seventh time in a year at the next scheduled monetary policy meeting on Jan. 25.
Selling India
Global funds are poised to sell more Indian stocks than they bought this month, the first monthly foreign outflows since May. They disposed of a net 982 million rupees of the equities on Jan. 12, the sixth straight day of withdrawals, according to data on the website of the Securities and Exchange Board of India. That’s the longest string of sales since May.
Steel Authority of India, plunged 6.3 percent to 161.4 rupees, its lowest close since Nov. 4, 2009. Third-quarter profit was 11 billion rupees ($245 million), lower than the 14.1 billion-rupee average of 19 analyst estimates compiled by Bloomberg. Raw material costs rose 38 percent, while total expenses increased 30 percent, it said in a statement.
Jubilant FoodWorks Ltd., the local franchisee of Domino’s Pizza Inc., declined 5.7 percent to 562.2 rupees.
“There are inflationary pressures on labor, food items and fuel, which are putting strain on the business,” Chief Executive Officer Ajay Kaul said in an interview.
India will import onions, a key ingredient in local cuisine, and keep a ban on exports of edible oils and lentils to cool higher costs for food items, Prime Minister Manmohan Singh said yesterday.
The Reserve Bank of India, which raised rates the most in Asia in 2010, held off on boosting borrowing costs in the last policy statement on Dec. 16 as a record 1.1 trillion rupees of share sales by companies including Coal India Ltd. caused a cash squeeze at lenders.
At least 100 pilgrims killed in India stampede
THIRUVANANTHAPURAM, India, Jan 15 (Reuters) - A stampede sparked by a night-time road accident in dense forest has killed more than 100 Hindu pilgrims in the southern Indian state of Kerala, police and officials said on Saturday.
The state’s deputy general of police told reporters that 102 people had been killed on Friday night. Officials at a Hindu temple estimated the death toll at around 100, Kerala Temple Affairs Minister Ramachandran Kadannappally said by telephone.
Kerala’s chief minister has called for an emergency meeting of the state government, as Indian Prime Minister Manmohan Singh pledged up to 100,000 rupees ($2,200) compensation to each of the families of those killed, the Press Trust of India reported.
“It is an unfortunate incident. The Prime Minister has called us and assured that all measures will be taken. My government will decide on a suitable compensation amount,” V.S Achuthanandan, Kerala Chief Minister, told CNN-IBN.
Hundreds of thousands had gathered at the hilltop shrine of Sabarimala on Friday evening, the last day of an annual two-month religious festival.
A bus carrying pilgrims back to the neighbouring state of Karnataka collided with a jeep and went out of control, crushing people walking nearby, Kadannappally said. Panicked pilgrims rushed forward, triggering a stampede.
“The rescue operations are extremely difficult as the incident occurred in a dense forest where the roads are very narrow,” he said.
“They came down the hillside... this happened primarly because the area was totally dark,” Jacob Punnoose, Kerala Deputy General of Police told Times Now TV channel.
Stampedes at large public gatherings are common in India, especially at popular places of worship. Large numbers throng congested areas with few or no safety regulations and inadequate crowd management measures.
Fifty-two pilgrims were killed in an almost identical stampede at Sabarimala in 1999. An investigation into the deaths found the state government guilty of negligence in ensuring public safety.
The state’s deputy general of police told reporters that 102 people had been killed on Friday night. Officials at a Hindu temple estimated the death toll at around 100, Kerala Temple Affairs Minister Ramachandran Kadannappally said by telephone.
Kerala’s chief minister has called for an emergency meeting of the state government, as Indian Prime Minister Manmohan Singh pledged up to 100,000 rupees ($2,200) compensation to each of the families of those killed, the Press Trust of India reported.
“It is an unfortunate incident. The Prime Minister has called us and assured that all measures will be taken. My government will decide on a suitable compensation amount,” V.S Achuthanandan, Kerala Chief Minister, told CNN-IBN.
Hundreds of thousands had gathered at the hilltop shrine of Sabarimala on Friday evening, the last day of an annual two-month religious festival.
A bus carrying pilgrims back to the neighbouring state of Karnataka collided with a jeep and went out of control, crushing people walking nearby, Kadannappally said. Panicked pilgrims rushed forward, triggering a stampede.
“The rescue operations are extremely difficult as the incident occurred in a dense forest where the roads are very narrow,” he said.
“They came down the hillside... this happened primarly because the area was totally dark,” Jacob Punnoose, Kerala Deputy General of Police told Times Now TV channel.
Stampedes at large public gatherings are common in India, especially at popular places of worship. Large numbers throng congested areas with few or no safety regulations and inadequate crowd management measures.
Fifty-two pilgrims were killed in an almost identical stampede at Sabarimala in 1999. An investigation into the deaths found the state government guilty of negligence in ensuring public safety.
Thursday, January 13, 2011
S.E.C. Looking Into Deals With Sovereign Funds
The Securities and Exchange Commission has begun examining whether American financial firms may have violated bribery laws in their dealings with sovereign wealth funds, people briefed on the matter said on Thursday.
The S.E.C. is looking into whether these companies, including banks and private equity firms, violated the Foreign Corrupt Practices Act in their efforts to secure investments from foreign governments’ investment funds.
The agency sent letters to several firms recently asking them to preserve documents, though it is only in the early stages of its inquiry, these people said, speaking on condition of anonymity because the investigation was confidential.
A spokesman for the S.E.C. declined to comment.
At the heart of the inquiry are the huge investments made by sovereign wealth funds in American financial firms in recent years, many struck just as a financial crisis began to snowball. Citigroup, Morgan Stanley and Merrill Lynch all sought capital injections from these government investment funds, raising billions of dollars in capital to shore up their balance sheets.
Private equity firms have been courting sovereign wealth funds as partners, not just as investors in their funds. The China Investment Corporation bought a big stake in the Blackstone Group before that firm’s initial public offering in 2007, while the Carlyle Group and Apollo Global Management sold stakes to funds run by Abu Dhabi.
Violations of the antibribery act usually involve improper payments made by companies to win business from foreign government officials, and can involve benefits like entertainment or trips.
In recent years, the Justice Department has stepped up criminal investigations into possible violations of the act. In February last year, BAE Systems of Britain, Europe’s largest military contractor agreed to pay a $400 million fine to settle an investigation into questionable payments to win contracts in a number of countries.
The S.E.C. is looking into whether these companies, including banks and private equity firms, violated the Foreign Corrupt Practices Act in their efforts to secure investments from foreign governments’ investment funds.
The agency sent letters to several firms recently asking them to preserve documents, though it is only in the early stages of its inquiry, these people said, speaking on condition of anonymity because the investigation was confidential.
A spokesman for the S.E.C. declined to comment.
At the heart of the inquiry are the huge investments made by sovereign wealth funds in American financial firms in recent years, many struck just as a financial crisis began to snowball. Citigroup, Morgan Stanley and Merrill Lynch all sought capital injections from these government investment funds, raising billions of dollars in capital to shore up their balance sheets.
Private equity firms have been courting sovereign wealth funds as partners, not just as investors in their funds. The China Investment Corporation bought a big stake in the Blackstone Group before that firm’s initial public offering in 2007, while the Carlyle Group and Apollo Global Management sold stakes to funds run by Abu Dhabi.
Violations of the antibribery act usually involve improper payments made by companies to win business from foreign government officials, and can involve benefits like entertainment or trips.
In recent years, the Justice Department has stepped up criminal investigations into possible violations of the act. In February last year, BAE Systems of Britain, Europe’s largest military contractor agreed to pay a $400 million fine to settle an investigation into questionable payments to win contracts in a number of countries.
New Delhi to act on soaring prices of food
India will review imports and exports of all essential commodities in an attempt to tackle soaring food prices, the government has said.
New Delhi has struggled to deal with spiralling food inflation that has hurt the millions of Indians who spend 50 per cent of their income on food.
EDITOR’S CHOICE
Little relief seen in Indian food prices - Jan-13
Delhi onion sellers strike against raids - Jan-12
Economic fears as Indian food prices soar - Jan-06
UN body warns of ‘food price shock’ - Jan-05
Opinion: Time for India to rein in its robber barons - Jan-06
Algerians riot over rising price of food - Jan-06
The government said on Thursday it would “impose controls on exports and ease restrictions on imports, including tariff reduction where necessary, to improve domestic supplies”. The announcement was made as countries from China to Algeria struggle to cope with rising food prices. Food inflation in India eased slightly to 16.9 per cent for the week to January 1, after hitting 18.3 per cent the previous week, the commerce and industry ministry said on Thursday.
But the cost of onions and other vegetables, the main drivers of food price rises, has continued to increase after unusual weather destroyed crops.
It is unclear what specific action the government will take. Industry observers suggest the plan is for state-run enterprises to control prices by absorbing losses and providing food staples at lower prices.
Madan Diwan, an analyst at Ramchandra Bhimaaji in Pune, said this was “a first signal to the market that the government is taking control of important commodities”.
New Delhi said it would take “stringent action against hoarders and black marketeers manipulating prices, to ensure that products reach markets properly and prices remain moderate”. It would also increase storage facilities and modernise warehouses.
A. Prasanna, chief economist at ICICI Securities, said: “This measure won’t solve the problem . . . the damage has already been done by the bad crop.”
Analysts say that structural factors such as low farm productivity and poor food storage and distribution networks are the underlying reasons for high food inflation.
New Delhi has struggled to deal with spiralling food inflation that has hurt the millions of Indians who spend 50 per cent of their income on food.
EDITOR’S CHOICE
Little relief seen in Indian food prices - Jan-13
Delhi onion sellers strike against raids - Jan-12
Economic fears as Indian food prices soar - Jan-06
UN body warns of ‘food price shock’ - Jan-05
Opinion: Time for India to rein in its robber barons - Jan-06
Algerians riot over rising price of food - Jan-06
The government said on Thursday it would “impose controls on exports and ease restrictions on imports, including tariff reduction where necessary, to improve domestic supplies”. The announcement was made as countries from China to Algeria struggle to cope with rising food prices. Food inflation in India eased slightly to 16.9 per cent for the week to January 1, after hitting 18.3 per cent the previous week, the commerce and industry ministry said on Thursday.
But the cost of onions and other vegetables, the main drivers of food price rises, has continued to increase after unusual weather destroyed crops.
It is unclear what specific action the government will take. Industry observers suggest the plan is for state-run enterprises to control prices by absorbing losses and providing food staples at lower prices.
Madan Diwan, an analyst at Ramchandra Bhimaaji in Pune, said this was “a first signal to the market that the government is taking control of important commodities”.
New Delhi said it would take “stringent action against hoarders and black marketeers manipulating prices, to ensure that products reach markets properly and prices remain moderate”. It would also increase storage facilities and modernise warehouses.
A. Prasanna, chief economist at ICICI Securities, said: “This measure won’t solve the problem . . . the damage has already been done by the bad crop.”
Analysts say that structural factors such as low farm productivity and poor food storage and distribution networks are the underlying reasons for high food inflation.
Starbucks in Accord With Tata Coffee as U.S. Chain Weighs Entry Into India
Starbucks Corp., the world’s largest coffee-shop operator, signed an accord with India’s Tata Coffee Ltd. to source coffee beans and to explore opening stores in the country, as the retailer ramps up expansion outside the U.S.
Starbucks and Bangalore-based Tata, Asia’s largest publicly traded coffee grower, announced the non-binding agreement in a statement today. Tata, majority-owned by Tata Global Beverages Ltd., a unit of India’s second-biggest industrial group, has supplied coffee beans to Seattle-based Starbucks, the companies said.
Starbucks Chief Executive Officer Howard Schultz plans to open 400 outlets, of 500 new stores, outside the U.S. in the fiscal year that began in October. Starbucks operates more than 16,800 stores in more than 50 countries, with about one-fifth of its sales coming from non-U.S. locations.
The agreement “is the first step in our entry to India,” Schultz said in the statement. “We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations.”
The first Starbucks store in India will open in six to seven months, Tata Coffee Chairman R.K. Krishna Kumar said today in an interview with Bloomberg-UTV. A spokeswoman for Starbucks, Trina Smith, said today in an e-mail that it’s “too early” to give a timetable.
New Locations
In addition to working together to source beans for Tata’s Indian facilities, the companies will look to develop Starbucks stores in retail outlets and hotels. Investing in roasting facilities for export will also be considered, they said.
Starbucks is seeking to tap a market where consumption of coffee has more than doubled to 100,000 metric tons from a decade ago. Cafe Coffee Day, India’s biggest coffee-cafe chain, Barista Coffee Co., a unit of Italy’s Lavazza SpA, and rivals have opened more than 1,200 shops in the past 10 years as people in the world’s largest tea-growing nation develop a taste for cappuccinos, according to G.V. Krishna Rau, a former chairman of the state-run Coffee Board.
The Times of India reported last month that Starbucks was in talks with some Indian retailers about setting up shop there. Starbucks was in discussions with Jubilant FoodWorks Ltd., the Indian franchisee of Domino’s Pizza Inc., for a possible alliance, the Economic Times newspaper reported last year.
Increased Exports
Coffee exports from India, Asia’s third-biggest producer, gained 56 percent last year on an increased crop and as demand recovered in the leading importing countries, the Coffee Board said earlier this month.
Tata Coffee and its domestic rivals shipped 292,550 metric tons, compared with 187,326 tons a year earlier, Deputy Director N.V. Nagarajaiah said Jan 3. Exports fetched $644.9 million, up 58 percent, he said. In 2006, Tata Coffee acquired New Providence, New Jersey-based coffee retailer Eight O’Clock Coffee Co. to enter the U.S.
Starbucks’ Schultz is also moving into China, which will be the company’s major growth market in two years, he said in November. The coffee chain aims to increase the number of outlets in the world’s most populous nation to 1,500 from about 400 by 2015.
Starbucks generated 22 percent of its revenue outside the U.S. last year, up from 17 percent in 2007. Profit almost doubled last quarter, helped by increased sales of Via instant coffee and foot traffic in stores. Sales climbed about 10 percent in the year ended Oct. 3, topping $10 billion.
Starbucks rose 21 cents to $32.41 at 4 p.m. in Nasdaq Stock Market trading. Tata Coffee fell 2.85 rupees to 464.55 rupees in Mumbai.
Starbucks and Bangalore-based Tata, Asia’s largest publicly traded coffee grower, announced the non-binding agreement in a statement today. Tata, majority-owned by Tata Global Beverages Ltd., a unit of India’s second-biggest industrial group, has supplied coffee beans to Seattle-based Starbucks, the companies said.
Starbucks Chief Executive Officer Howard Schultz plans to open 400 outlets, of 500 new stores, outside the U.S. in the fiscal year that began in October. Starbucks operates more than 16,800 stores in more than 50 countries, with about one-fifth of its sales coming from non-U.S. locations.
The agreement “is the first step in our entry to India,” Schultz said in the statement. “We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations.”
The first Starbucks store in India will open in six to seven months, Tata Coffee Chairman R.K. Krishna Kumar said today in an interview with Bloomberg-UTV. A spokeswoman for Starbucks, Trina Smith, said today in an e-mail that it’s “too early” to give a timetable.
New Locations
In addition to working together to source beans for Tata’s Indian facilities, the companies will look to develop Starbucks stores in retail outlets and hotels. Investing in roasting facilities for export will also be considered, they said.
Starbucks is seeking to tap a market where consumption of coffee has more than doubled to 100,000 metric tons from a decade ago. Cafe Coffee Day, India’s biggest coffee-cafe chain, Barista Coffee Co., a unit of Italy’s Lavazza SpA, and rivals have opened more than 1,200 shops in the past 10 years as people in the world’s largest tea-growing nation develop a taste for cappuccinos, according to G.V. Krishna Rau, a former chairman of the state-run Coffee Board.
The Times of India reported last month that Starbucks was in talks with some Indian retailers about setting up shop there. Starbucks was in discussions with Jubilant FoodWorks Ltd., the Indian franchisee of Domino’s Pizza Inc., for a possible alliance, the Economic Times newspaper reported last year.
Increased Exports
Coffee exports from India, Asia’s third-biggest producer, gained 56 percent last year on an increased crop and as demand recovered in the leading importing countries, the Coffee Board said earlier this month.
Tata Coffee and its domestic rivals shipped 292,550 metric tons, compared with 187,326 tons a year earlier, Deputy Director N.V. Nagarajaiah said Jan 3. Exports fetched $644.9 million, up 58 percent, he said. In 2006, Tata Coffee acquired New Providence, New Jersey-based coffee retailer Eight O’Clock Coffee Co. to enter the U.S.
Starbucks’ Schultz is also moving into China, which will be the company’s major growth market in two years, he said in November. The coffee chain aims to increase the number of outlets in the world’s most populous nation to 1,500 from about 400 by 2015.
Starbucks generated 22 percent of its revenue outside the U.S. last year, up from 17 percent in 2007. Profit almost doubled last quarter, helped by increased sales of Via instant coffee and foot traffic in stores. Sales climbed about 10 percent in the year ended Oct. 3, topping $10 billion.
Starbucks rose 21 cents to $32.41 at 4 p.m. in Nasdaq Stock Market trading. Tata Coffee fell 2.85 rupees to 464.55 rupees in Mumbai.
Bank Treasurers Cut Bond Holdings at Fastest Pace Since 2005: India Credit
India’s banks are cutting bond holdings at the fastest pace in five years, deterred by accelerating inflation and the widest swings in debt prices in six months.
Lenders sold 288.3 billion rupees ($6.4 billion) of debt last quarter, the most since the three months ended Dec. 31 2005, central bank statistics show. The 30-day historical volatility of benchmark notes rose to 10.2 percent on Jan. 10, the highest level since July, data compiled by Bloomberg show.
The government’s 10-year bonds now yield 8.14 percent, the most among Asia’s 10-biggest economies after Indonesia, ahead of a report today that will probably show inflation quickened for the first time in three months in December. The Reserve Bank of India will review its assessment that price gains will slow to 5.5 percent by March when policy makers meet to review rates on Jan. 25, Deputy Governor Shyamala Gopinath said last week.
“Bond yields are bound to rise further,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc, said in an interview on Jan. 12. “With inflation expected to be well above the central bank’s comfort level, we expect further interest- rate increases by March.”
The British bank, the first foreign company to sell shares in India, predicts the yield on benchmark bonds may climb to 8.50 percent by March. Indian banks disclose the details of their Treasury operations when releasing earnings.
Wholesale Prices
The yield on the 7.8 percent bonds due May 2020 has climbed 23 basis points since the end of last year in the run-up to the Reserve Bank’s policy meeting. The rate touched 8.26 percent, this year’s high, as banks’ bond holdings have dropped by 584 billion rupees from a high of 14.97 trillion rupees in the two weeks ended Oct. 22. The yield on the notes dropped three basis points to 8.14 percent yesterday on signs the availability of cash at banks improved.
Benchmark wholesale prices rose 8.4 percent last month from a year earlier, after having increased 7.48 percent in November, according to the median forecast of 30 economists in a Bloomberg survey before data due today. Food prices rose 16.91 percent in the week ended Jan. 1, near the previous week’s 18.32 percent that was the fastest pace of increase since July, commerce ministry data showed yesterday. Food accounts for about 14 percent of India’s inflation.
The surge in prices may force the central bank to raise the repurchase rate by 50 basis points when it meets for the first time this year, according to Robert Prior-Wandesforde, the Singapore-based head of India and South Asia economics at Credit Suisse Group AG. The Reserve Bank boosted the rate, at which it lends to banks, by 150 basis points to 6.25 percent last year.
‘Bear Trap’
Policy makers at the central bank need to weigh more than just inflation at this month’s meeting, according to IndusInd Bank Ltd., whose shares have gained the most in the Bombay Stock Exchange’s index of banking stocks in the past year. Government data on Jan. 12 showed industrial production rose 2.7 percent from a year earlier in November, the slowest pace in 18 months.
“The bond market is in a bear trap as inflationary pressures mount,” J. Moses Harding, a Mumbai-based executive vice president at the bank, said in an interview yesterday. “There’s pressure on the RBI to hike rates, but it can’t afford to take an aggressive monetary stance as concerns about a slowdown in economic growth are increasing.”
The central bank may buy back government bonds from lenders to pump money into the financial system even if it decides to raise rates to cap inflation, he said. Such repurchases will ease the impact of higher borrowing costs on economic growth, according to the bank.
Cash Availability
Lenders borrowed 703 billion rupees ($15.6 billion) on average a day from the central bank this month, according to data compiled by Bloomberg. They tapped 1.2 trillion rupees a day in December as the sale of third-generation mobile-phone licenses in May and Internet permits a month later drained more than $1 trillion from the financial system.
“I continue to be bearish on bonds because we will see a rate hike this month,” Killol Pandya, who manages the equivalent of $111 million in debt funds at Shinsei Asset Management Pvt. in Mumbai, said in an interview yesterday. “Also, liquidity in the banking system is still above the central bank’s comfort zone.”
He predicts the rate on the May 2020 bonds could climb as high as 8.30 percent by the end of March.
Debt Returns
The difference in yields between the security and U.S. Treasuries due in a decade has widened to 479 basis points from a six-month low of 442 on Dec. 28. India’s three-year government bond yield of 7.78 percent compares with 12.6 percent in Brazil, 3.29 percent in China and 7.02 percent in Russia.
India’s bonds lost 0.4 percent this month, Asia’s third worst performance after Indonesia and South Korea, according to indexes compiled by London-based HSBC Holdings Plc. Rupiah notes declined 2.65 percent while Korean bonds slumped 0.6 percent. The rupee has weakened 1.2 percent so far this year, Asia’s third-worst performance, data compiled by Bloomberg show. The currency slid 0.2 percent yesterday to 45.2450 per dollar.
The cost of protecting the debt of government-owned State Bank, which some investors perceive as a proxy for the nation, has climbed 18 basis points this month to 178 basis points, 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.
The central bank needs to consider the borrowing plan for the financial year starting April, according to Gaurav Kapur, senior economist at Royal Bank of Scotland NV, which is a primary dealer for India’s debt. The government plans to borrow 4.47 trillion rupees this fiscal year, after raising a record 4.51 trillion rupees in the previous 12 months.
“The government’s borrowing program next year won’t be significantly lower than this year,” Mumbai-based Kapur said in an interview on Jan. 12. “The debt supply is a big problem.” He forecasts the policy rate will go up by at least 75 basis points in 2011.
Lenders sold 288.3 billion rupees ($6.4 billion) of debt last quarter, the most since the three months ended Dec. 31 2005, central bank statistics show. The 30-day historical volatility of benchmark notes rose to 10.2 percent on Jan. 10, the highest level since July, data compiled by Bloomberg show.
The government’s 10-year bonds now yield 8.14 percent, the most among Asia’s 10-biggest economies after Indonesia, ahead of a report today that will probably show inflation quickened for the first time in three months in December. The Reserve Bank of India will review its assessment that price gains will slow to 5.5 percent by March when policy makers meet to review rates on Jan. 25, Deputy Governor Shyamala Gopinath said last week.
“Bond yields are bound to rise further,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc, said in an interview on Jan. 12. “With inflation expected to be well above the central bank’s comfort level, we expect further interest- rate increases by March.”
The British bank, the first foreign company to sell shares in India, predicts the yield on benchmark bonds may climb to 8.50 percent by March. Indian banks disclose the details of their Treasury operations when releasing earnings.
Wholesale Prices
The yield on the 7.8 percent bonds due May 2020 has climbed 23 basis points since the end of last year in the run-up to the Reserve Bank’s policy meeting. The rate touched 8.26 percent, this year’s high, as banks’ bond holdings have dropped by 584 billion rupees from a high of 14.97 trillion rupees in the two weeks ended Oct. 22. The yield on the notes dropped three basis points to 8.14 percent yesterday on signs the availability of cash at banks improved.
Benchmark wholesale prices rose 8.4 percent last month from a year earlier, after having increased 7.48 percent in November, according to the median forecast of 30 economists in a Bloomberg survey before data due today. Food prices rose 16.91 percent in the week ended Jan. 1, near the previous week’s 18.32 percent that was the fastest pace of increase since July, commerce ministry data showed yesterday. Food accounts for about 14 percent of India’s inflation.
The surge in prices may force the central bank to raise the repurchase rate by 50 basis points when it meets for the first time this year, according to Robert Prior-Wandesforde, the Singapore-based head of India and South Asia economics at Credit Suisse Group AG. The Reserve Bank boosted the rate, at which it lends to banks, by 150 basis points to 6.25 percent last year.
‘Bear Trap’
Policy makers at the central bank need to weigh more than just inflation at this month’s meeting, according to IndusInd Bank Ltd., whose shares have gained the most in the Bombay Stock Exchange’s index of banking stocks in the past year. Government data on Jan. 12 showed industrial production rose 2.7 percent from a year earlier in November, the slowest pace in 18 months.
“The bond market is in a bear trap as inflationary pressures mount,” J. Moses Harding, a Mumbai-based executive vice president at the bank, said in an interview yesterday. “There’s pressure on the RBI to hike rates, but it can’t afford to take an aggressive monetary stance as concerns about a slowdown in economic growth are increasing.”
The central bank may buy back government bonds from lenders to pump money into the financial system even if it decides to raise rates to cap inflation, he said. Such repurchases will ease the impact of higher borrowing costs on economic growth, according to the bank.
Cash Availability
Lenders borrowed 703 billion rupees ($15.6 billion) on average a day from the central bank this month, according to data compiled by Bloomberg. They tapped 1.2 trillion rupees a day in December as the sale of third-generation mobile-phone licenses in May and Internet permits a month later drained more than $1 trillion from the financial system.
“I continue to be bearish on bonds because we will see a rate hike this month,” Killol Pandya, who manages the equivalent of $111 million in debt funds at Shinsei Asset Management Pvt. in Mumbai, said in an interview yesterday. “Also, liquidity in the banking system is still above the central bank’s comfort zone.”
He predicts the rate on the May 2020 bonds could climb as high as 8.30 percent by the end of March.
Debt Returns
The difference in yields between the security and U.S. Treasuries due in a decade has widened to 479 basis points from a six-month low of 442 on Dec. 28. India’s three-year government bond yield of 7.78 percent compares with 12.6 percent in Brazil, 3.29 percent in China and 7.02 percent in Russia.
India’s bonds lost 0.4 percent this month, Asia’s third worst performance after Indonesia and South Korea, according to indexes compiled by London-based HSBC Holdings Plc. Rupiah notes declined 2.65 percent while Korean bonds slumped 0.6 percent. The rupee has weakened 1.2 percent so far this year, Asia’s third-worst performance, data compiled by Bloomberg show. The currency slid 0.2 percent yesterday to 45.2450 per dollar.
The cost of protecting the debt of government-owned State Bank, which some investors perceive as a proxy for the nation, has climbed 18 basis points this month to 178 basis points, 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.
The central bank needs to consider the borrowing plan for the financial year starting April, according to Gaurav Kapur, senior economist at Royal Bank of Scotland NV, which is a primary dealer for India’s debt. The government plans to borrow 4.47 trillion rupees this fiscal year, after raising a record 4.51 trillion rupees in the previous 12 months.
“The government’s borrowing program next year won’t be significantly lower than this year,” Mumbai-based Kapur said in an interview on Jan. 12. “The debt supply is a big problem.” He forecasts the policy rate will go up by at least 75 basis points in 2011.
Tuesday, January 11, 2011
Rising Chinese Inflation to Show Up in U.S. Imports
BEIJING — When garment buyers from New York show up next month at China’s annual trade shows to bargain over next autumn’s fashions, many will face sticker shock.
“They’re going to go home with 35 percent less product than for the same dollars as last year,” particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. “The consumer will definitely see the price rise.”
Inflation has arrived in China. And after Tuesday’s release of crucial financial statistics by China’s central bank, few economists expect Beijing officials to be able to tame rising prices any time soon.
While American importers of Chinese goods will feel the squeeze, the effect on American consumers may be more subtle and the overall impact on United States inflation may be minimal.
There are simply too many other markups along the way — from transportation to salesclerks’ wages — that affect the American retail prices of Chinese-made products. Excluding those markups, imports from China are equal to little more than 2 percent of the overall American economy.
The bigger consumer impact is in China itself. As China’s booming economy enables more of its own citizens to buy the goods pouring out of its factories, Chinese consumers are feeling inflation directly. And Beijing is increasingly worried about the social unrest that could result.
In China, consumer prices were 5.1 percent higher in November than a year earlier, according to official government data. And many economists say the official figures actually understate the rate of inflation, which might in reality be twice as high.
“Four percent, China can bear it — beyond 5 percent, people will complain a lot,” said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation here.
Higher global commodity prices, as well as rising wages in China, play roles in the increasing cost of Chinese goods. But economists say the main reason for the inflation now is China’s foreign exchange reserves, which surged by a record amount in the fourth quarter.
The central bank has been pumping out currency at an ever-accelerating pace over the past decade to limit the renminbi’s appreciation against the dollar. That strategy has helped preserve a competitive advantage of Chinese exporters by keeping their prices relatively low on global markets — while also protecting the jobs of tens of millions of Chinese workers in export factories.
Now, though, that cheap currency policy seems to be reaching its limits. The extra renminbi are feeding inflation. That is starting to undermine exporters’ price competitiveness — just as a stronger renminbi would do if Beijing was not intervening to begin with.
Money supply figures for December, which the central bank released on Tuesday, showed that cash and bank deposits were increasing at a rate twice as fast as even China’s soaring economy. Ever more renminbi are available to buy goods and services.
Victor Fung, the group chairman of Li & Fung in Hong Kong, a 35,000-employee trading company that supplies most of the world’s big retailers with Asian goods, said that contracts signed late last year would produce a jump of 10 to 20 percent in the import prices of consumer goods arriving at American ports by the second quarter of this year.
“By the middle of this year, you’ll see considerable diversion of trade away from China,” which will start to bring down the United States trade deficit with China, Mr. Fung said in an interview.
But there are only limited alternatives to China as a supplier of cheap goods. As American retail chains scramble to shift orders to other countries like Bangladesh and the Philippines, they are finding that inflation is emerging as an issue across much of Asia.
What is more, the far smaller factories in other Asian countries have little capacity to absorb the huge orders that Chinese factories routinely handle, corporate executives and economists said.
In China, there is little question that the consumer price index understates the true extent of inflation.
“They’re going to go home with 35 percent less product than for the same dollars as last year,” particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. “The consumer will definitely see the price rise.”
Inflation has arrived in China. And after Tuesday’s release of crucial financial statistics by China’s central bank, few economists expect Beijing officials to be able to tame rising prices any time soon.
While American importers of Chinese goods will feel the squeeze, the effect on American consumers may be more subtle and the overall impact on United States inflation may be minimal.
There are simply too many other markups along the way — from transportation to salesclerks’ wages — that affect the American retail prices of Chinese-made products. Excluding those markups, imports from China are equal to little more than 2 percent of the overall American economy.
The bigger consumer impact is in China itself. As China’s booming economy enables more of its own citizens to buy the goods pouring out of its factories, Chinese consumers are feeling inflation directly. And Beijing is increasingly worried about the social unrest that could result.
In China, consumer prices were 5.1 percent higher in November than a year earlier, according to official government data. And many economists say the official figures actually understate the rate of inflation, which might in reality be twice as high.
“Four percent, China can bear it — beyond 5 percent, people will complain a lot,” said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation here.
Higher global commodity prices, as well as rising wages in China, play roles in the increasing cost of Chinese goods. But economists say the main reason for the inflation now is China’s foreign exchange reserves, which surged by a record amount in the fourth quarter.
The central bank has been pumping out currency at an ever-accelerating pace over the past decade to limit the renminbi’s appreciation against the dollar. That strategy has helped preserve a competitive advantage of Chinese exporters by keeping their prices relatively low on global markets — while also protecting the jobs of tens of millions of Chinese workers in export factories.
Now, though, that cheap currency policy seems to be reaching its limits. The extra renminbi are feeding inflation. That is starting to undermine exporters’ price competitiveness — just as a stronger renminbi would do if Beijing was not intervening to begin with.
Money supply figures for December, which the central bank released on Tuesday, showed that cash and bank deposits were increasing at a rate twice as fast as even China’s soaring economy. Ever more renminbi are available to buy goods and services.
Victor Fung, the group chairman of Li & Fung in Hong Kong, a 35,000-employee trading company that supplies most of the world’s big retailers with Asian goods, said that contracts signed late last year would produce a jump of 10 to 20 percent in the import prices of consumer goods arriving at American ports by the second quarter of this year.
“By the middle of this year, you’ll see considerable diversion of trade away from China,” which will start to bring down the United States trade deficit with China, Mr. Fung said in an interview.
But there are only limited alternatives to China as a supplier of cheap goods. As American retail chains scramble to shift orders to other countries like Bangladesh and the Philippines, they are finding that inflation is emerging as an issue across much of Asia.
What is more, the far smaller factories in other Asian countries have little capacity to absorb the huge orders that Chinese factories routinely handle, corporate executives and economists said.
In China, there is little question that the consumer price index understates the true extent of inflation.
India's Opposition to Protest as Singh Weighs Steps on Prices
India’s main opposition party plans nationwide protests as rising prices of food including onions and milk roils Prime Minister Manmohan Singh’s coalition, already weakened by corruption charges.
The Bharatiya Janata Party, or BJP, will hold demonstrations and stage sit-ins in India’s major towns for a month starting Jan. 20, party spokesman Ravi Shankar Prasad said in New Delhi yesterday. Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said Singh yesterday discussed steps to curb prices with cabinet colleagues. He didn’t elaborate. More deliberations may be held today, the Press Trust of India reported, without saying where it got the information.
India, where elections have been lost on the price of onions, a key ingredient in the nation’s cuisine, is holding polls in nine states in the next 18 months. Singh’s government has reached out to Pakistan to import the vegetable and plans to distribute 5 million tons of rice and wheat at subsidized prices to regain its popularity.
“The surge in food prices is threatening to further weaken the government’s credibility,” said N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy. “The government needs to do something urgently to slow inflation.”
The benchmark nine-year government bond yield has gained 30 basis points this month on speculation Reserve Bank of India Governor Duvvuri Subbarao may raise interest rates this month for the seventh time in a year, the most by any central bank in Asia. The yield fell more than one basis point to 8.21 percent at the close of trading in Mumbai yesterday. The RBI’s benchmark repurchase rate is 6.25 percent.
Stocks Fall
The Bombay Stock Exchange’s Sensitive Index lost 0.1 percent, completing its longest stretch of losses in almost a year. The rupee appreciated 0.6 percent to 45.165 per dollar.
In the past 15 years, Indians have voted out at least two national governments after inflation eroded the spending power of the poor. The World Bank estimates 828 million Indians live on less than $2 a day.
Inflation of more than 6 percent between 1994 and 1996 helped oust Prime Minister P.V. Narasimha Rao. His Congress party-led government lost to the BJP, which was voted out in May 2004 after prices rose in eight of the 12 months that preceded the poll.
The BJP plans to hold rallies to highlight “rampant corruption” in the government and Singh’s “failure” to control prices, party spokesman Prasad said.
Onion Prices
Food inflation accelerated to 18.32 percent in the week ended Dec. 25, the highest rate since July, the commerce ministry said on Jan. 6. Prices of onions soared 80 percent during the week and milk by about 20 percent.
Finance Minister Pranab Mukherjee on Dec. 30 raised his inflation forecast for the year through March. The inflation rate may be “around” 6.5 percent by March 31, Mukherjee said, more than the 6 percent prediction he made on Dec. 14. The rate was 7.5 percent in November.
Price gains are curbing purchasing power among consumers.
Krshna Vasudevan, a 68-year-old retired economics professor in the southern Indian city of Chennai, said his monthly vegetable bill has doubled to 9,000 rupees ($200) in the past two years.
“The government is not at all bothered about the rise in prices,” Vasudevan said in an interview yesterday. “I will definitely not vote for them.”
Neelam Kapur, a government spokeswoman, said yesterday that the prime minister is “concerned” about inflation and is discussing with cabinet ministers ways to gain control over it.
Political Pressure
Food prices have emerged as a top political issue even as Singh’s government tries to fend off opposition calls for a cross-party probe into an auditor’s report on the award of mobile-phone licenses at below-market prices that may have cost the state $31 billion.
The Indian mobile-phone service providers in which Telenor ASA and Emirates Telecommunications Corp. bought a stake, said Dec. 14 they will prove the validity of their licenses within 60 days after the telecommunications ministry ordered the carriers to respond to the audit.
The row stalled parliament during a monthlong session in November and December.
The BJP on Jan. 4 also accused the government of shielding an Italian businessman charged with taking bribes for brokering a 1986 defense deal.
If a parliamentary election were to be held now, Singh’s coalition may win 42 seats fewer than the 259 it got in the last general elections in May 2009, according to an opinion poll conducted by the India Today magazine and AC Nielsen this month.
The Bharatiya Janata Party, or BJP, will hold demonstrations and stage sit-ins in India’s major towns for a month starting Jan. 20, party spokesman Ravi Shankar Prasad said in New Delhi yesterday. Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said Singh yesterday discussed steps to curb prices with cabinet colleagues. He didn’t elaborate. More deliberations may be held today, the Press Trust of India reported, without saying where it got the information.
India, where elections have been lost on the price of onions, a key ingredient in the nation’s cuisine, is holding polls in nine states in the next 18 months. Singh’s government has reached out to Pakistan to import the vegetable and plans to distribute 5 million tons of rice and wheat at subsidized prices to regain its popularity.
“The surge in food prices is threatening to further weaken the government’s credibility,” said N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy. “The government needs to do something urgently to slow inflation.”
The benchmark nine-year government bond yield has gained 30 basis points this month on speculation Reserve Bank of India Governor Duvvuri Subbarao may raise interest rates this month for the seventh time in a year, the most by any central bank in Asia. The yield fell more than one basis point to 8.21 percent at the close of trading in Mumbai yesterday. The RBI’s benchmark repurchase rate is 6.25 percent.
Stocks Fall
The Bombay Stock Exchange’s Sensitive Index lost 0.1 percent, completing its longest stretch of losses in almost a year. The rupee appreciated 0.6 percent to 45.165 per dollar.
In the past 15 years, Indians have voted out at least two national governments after inflation eroded the spending power of the poor. The World Bank estimates 828 million Indians live on less than $2 a day.
Inflation of more than 6 percent between 1994 and 1996 helped oust Prime Minister P.V. Narasimha Rao. His Congress party-led government lost to the BJP, which was voted out in May 2004 after prices rose in eight of the 12 months that preceded the poll.
The BJP plans to hold rallies to highlight “rampant corruption” in the government and Singh’s “failure” to control prices, party spokesman Prasad said.
Onion Prices
Food inflation accelerated to 18.32 percent in the week ended Dec. 25, the highest rate since July, the commerce ministry said on Jan. 6. Prices of onions soared 80 percent during the week and milk by about 20 percent.
Finance Minister Pranab Mukherjee on Dec. 30 raised his inflation forecast for the year through March. The inflation rate may be “around” 6.5 percent by March 31, Mukherjee said, more than the 6 percent prediction he made on Dec. 14. The rate was 7.5 percent in November.
Price gains are curbing purchasing power among consumers.
Krshna Vasudevan, a 68-year-old retired economics professor in the southern Indian city of Chennai, said his monthly vegetable bill has doubled to 9,000 rupees ($200) in the past two years.
“The government is not at all bothered about the rise in prices,” Vasudevan said in an interview yesterday. “I will definitely not vote for them.”
Neelam Kapur, a government spokeswoman, said yesterday that the prime minister is “concerned” about inflation and is discussing with cabinet ministers ways to gain control over it.
Political Pressure
Food prices have emerged as a top political issue even as Singh’s government tries to fend off opposition calls for a cross-party probe into an auditor’s report on the award of mobile-phone licenses at below-market prices that may have cost the state $31 billion.
The Indian mobile-phone service providers in which Telenor ASA and Emirates Telecommunications Corp. bought a stake, said Dec. 14 they will prove the validity of their licenses within 60 days after the telecommunications ministry ordered the carriers to respond to the audit.
The row stalled parliament during a monthlong session in November and December.
The BJP on Jan. 4 also accused the government of shielding an Italian businessman charged with taking bribes for brokering a 1986 defense deal.
If a parliamentary election were to be held now, Singh’s coalition may win 42 seats fewer than the 259 it got in the last general elections in May 2009, according to an opinion poll conducted by the India Today magazine and AC Nielsen this month.
Tata Default Swaps Back Below Ford on China's Jaguar Demand: India Credit
Credit-default swaps tied to Tata Motors Ltd. have fallen back below those for Ford Motor Co. as sales of the Indian automaker’s Jaguar and Land Rover vehicles in China boost profits and help reduce debt.
Traders are paying about 246 basis points annually to insure the debt of Mumbai-based Tata Motors, compared with 282 basis points for Ford of Dearborn, Michigan, CMA prices show. Swap prices linked to the debt of Tata Motors were below those of Ford last year until the end of October. As recently as Dec. 7 the contracts on both companies were at 288 basis points.
More than two years after Tata Motors bought Jaguar and Land Rover from Ford, the company has posted a 100-fold gain in quarterly profit to 22.2 billion rupees ($491 million) in the three months through September and cut its debt-to-equity ratio to 1.16 from 6 in September 2009. Growing investor confidence in Indian companies has helped reduce average yields on their dollar-denominated debt to 5.11 percent from as high as 22 percent in November 2008, according to HSBC Holdings Plc data.
“Tata Motors has done a good job with turning around Jaguar Land Rover,” said Walter Rossini, a money manager at Aletti Gestielle SGR SpA in Milan who manages a $350 million India fund that has Tata Motors shares. “The Chinese demand for Jaguar vehicles has also helped Tata Motors at a time when the market for luxury vehicles in Europe and the U.S. is not so good.”
Car Sales
Chinese passenger-car sales climbed 33 percent to 13.8 million last year, China Association of Automobile Manufacturers figures show. Annual vehicle sales have surged 10-fold in the past decade on rising affluence and government stimulus policies. In the U.S., total vehicle sales rose 11.1 percent to 11.6 million in 2010, according to Autodata Corp., based in Woodcliff Lake, New Jersey.
Tata Motors, which took on debt to buy the U.K. car brands for $2.5 billion, said Nov. 9 that excluding Jaguar, Land Rover and some other units profit declined 41 percent to 4.33 billion rupees. Moody’s Investors Service raised the company’s credit rating in October to Ba3, three levels below investment grade. That same month Standard & Poor’s boosted the company to an equivalent BB-.
‘Turned Around’
“The company has definitely turned around in the short term,” said Mehul P. Sukkawala, a credit analyst at S&P in Mumbai. “There’s still uncertainty about the recovery from the economic downturn, which could have an impact” on Jaguar and Land Rover “in the near to medium turn,” Sukkawala said.
Ford and Detroit-based General Motors Co. are rated Ba2 by Moody’s, one level higher than Tata Motors.
Swaps on Tata Motors have fallen from 304 basis points at the start of December, and from more than 3,000 following the global financial crisis in April 2009. Ford’s have declined from about 321 on Dec. 1. Contracts linked to GM trade at about 298.
Credit-default swaps, which investors use to hedge against losses on bonds or to speculate on creditworthiness, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point is $1,000 annually on a contract protecting $10 million of debt.
Swaps for government-owned State Bank of India, a proxy for sovereign debt, have increased 16 basis points from the end of last year to 176 as pressure mounts on the government to curb inflation. Wholesale prices, the benchmark gauge, gained 7.48 percent in November from a year earlier.
Government Yields
The yield on India’s 10-year government bonds has risen 27 basis points this year to 8.21 percent. The rate on the most- traded 7.8 percent security due in May 2020 fell 1 basis point yesterday from an eight-month high. The difference between India’s 10-year bonds and U.S. Treasuries widened to 486 basis points from 463 at the end of last year.
India’s rupee strengthened 0.6 percent to 45.17 per dollar yesterday, paring its losses this year to 1 percent, according to data compiled by Bloomberg.
Yields on India’s top-rated benchmark three-year corporate bonds fell to within 126 basis points on Jan. 10 of those for similar-maturity government debt, the smallest gap in a month, from 133 last week. The difference was 134 yesterday.
Indian companies tripled international borrowing last year to $8.7 billion as they expanded abroad and built global brands, led by Reliance Industries Ltd., the nation’s biggest company by market value, according to data compiled by Bloomberg.
Rate Increases
Companies in India are turning to global bond markets after the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Rural Electrification Corp., India’s state-controlled lender to power projects, plans to sell bonds denominated in dollars, according to a banker involved in the deal yesterday who declined to be identified because the terms aren’t set.
Tata Motors, also India’s largest commercial-vehicle maker, has 200 billion rupees of bonds and loans outstanding, according to Bloomberg data. The company said Oct. 12 that it raised $750 million selling shares overseas. That came four months after Tata Motors said it plans to raise as much as 47 billion rupees to expand operations and pare debt.
Tata Motors Chief Executive Officer Carl-Peter Forster said in October that the company was in talks with a possible partner in China to build Jaguar Land Rover vehicles in the country. The company is also setting up an assembly plant for Land Rover vehicles in India, he said.
‘Important Market’
“China is an increasingly important market for Jaguar Land Rover, ranking third overall in terms of sales volume,” Debasis Ray, a spokesman for Tata Motors, said in an e-mailed response to questions yesterday.
Volkswagen AG’s Audi luxury unit last month said China will replace Germany as its biggest market by 2011. Audi aims to deliver one million vehicles in China over the next three years. Rolls-Royce Motor Cars Ltd. plans to sell 800 cars in China in 2011, Paul Harris, the company’s Asia Pacific regional director, said in a Nov. 26 interview.
Ford, the world’s most-profitable automaker, said full-year sales in China climbed to a record in 2010. The company forecasts 70 percent of growth in the next 10 years will come from Asia-Pacific and Africa. GM expects China sales this year to grow as much as 15 percent, according to Kevin Wale, president of its local operations.
“The luxury car market is totally new for Tata Motors,” Rossini at Aletti Gestielle said. “It is very different from the truck business and even the passenger car business they are in. So they will need to approach the management of JLR differently.”
Traders are paying about 246 basis points annually to insure the debt of Mumbai-based Tata Motors, compared with 282 basis points for Ford of Dearborn, Michigan, CMA prices show. Swap prices linked to the debt of Tata Motors were below those of Ford last year until the end of October. As recently as Dec. 7 the contracts on both companies were at 288 basis points.
More than two years after Tata Motors bought Jaguar and Land Rover from Ford, the company has posted a 100-fold gain in quarterly profit to 22.2 billion rupees ($491 million) in the three months through September and cut its debt-to-equity ratio to 1.16 from 6 in September 2009. Growing investor confidence in Indian companies has helped reduce average yields on their dollar-denominated debt to 5.11 percent from as high as 22 percent in November 2008, according to HSBC Holdings Plc data.
“Tata Motors has done a good job with turning around Jaguar Land Rover,” said Walter Rossini, a money manager at Aletti Gestielle SGR SpA in Milan who manages a $350 million India fund that has Tata Motors shares. “The Chinese demand for Jaguar vehicles has also helped Tata Motors at a time when the market for luxury vehicles in Europe and the U.S. is not so good.”
Car Sales
Chinese passenger-car sales climbed 33 percent to 13.8 million last year, China Association of Automobile Manufacturers figures show. Annual vehicle sales have surged 10-fold in the past decade on rising affluence and government stimulus policies. In the U.S., total vehicle sales rose 11.1 percent to 11.6 million in 2010, according to Autodata Corp., based in Woodcliff Lake, New Jersey.
Tata Motors, which took on debt to buy the U.K. car brands for $2.5 billion, said Nov. 9 that excluding Jaguar, Land Rover and some other units profit declined 41 percent to 4.33 billion rupees. Moody’s Investors Service raised the company’s credit rating in October to Ba3, three levels below investment grade. That same month Standard & Poor’s boosted the company to an equivalent BB-.
‘Turned Around’
“The company has definitely turned around in the short term,” said Mehul P. Sukkawala, a credit analyst at S&P in Mumbai. “There’s still uncertainty about the recovery from the economic downturn, which could have an impact” on Jaguar and Land Rover “in the near to medium turn,” Sukkawala said.
Ford and Detroit-based General Motors Co. are rated Ba2 by Moody’s, one level higher than Tata Motors.
Swaps on Tata Motors have fallen from 304 basis points at the start of December, and from more than 3,000 following the global financial crisis in April 2009. Ford’s have declined from about 321 on Dec. 1. Contracts linked to GM trade at about 298.
Credit-default swaps, which investors use to hedge against losses on bonds or to speculate on creditworthiness, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point is $1,000 annually on a contract protecting $10 million of debt.
Swaps for government-owned State Bank of India, a proxy for sovereign debt, have increased 16 basis points from the end of last year to 176 as pressure mounts on the government to curb inflation. Wholesale prices, the benchmark gauge, gained 7.48 percent in November from a year earlier.
Government Yields
The yield on India’s 10-year government bonds has risen 27 basis points this year to 8.21 percent. The rate on the most- traded 7.8 percent security due in May 2020 fell 1 basis point yesterday from an eight-month high. The difference between India’s 10-year bonds and U.S. Treasuries widened to 486 basis points from 463 at the end of last year.
India’s rupee strengthened 0.6 percent to 45.17 per dollar yesterday, paring its losses this year to 1 percent, according to data compiled by Bloomberg.
Yields on India’s top-rated benchmark three-year corporate bonds fell to within 126 basis points on Jan. 10 of those for similar-maturity government debt, the smallest gap in a month, from 133 last week. The difference was 134 yesterday.
Indian companies tripled international borrowing last year to $8.7 billion as they expanded abroad and built global brands, led by Reliance Industries Ltd., the nation’s biggest company by market value, according to data compiled by Bloomberg.
Rate Increases
Companies in India are turning to global bond markets after the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Rural Electrification Corp., India’s state-controlled lender to power projects, plans to sell bonds denominated in dollars, according to a banker involved in the deal yesterday who declined to be identified because the terms aren’t set.
Tata Motors, also India’s largest commercial-vehicle maker, has 200 billion rupees of bonds and loans outstanding, according to Bloomberg data. The company said Oct. 12 that it raised $750 million selling shares overseas. That came four months after Tata Motors said it plans to raise as much as 47 billion rupees to expand operations and pare debt.
Tata Motors Chief Executive Officer Carl-Peter Forster said in October that the company was in talks with a possible partner in China to build Jaguar Land Rover vehicles in the country. The company is also setting up an assembly plant for Land Rover vehicles in India, he said.
‘Important Market’
“China is an increasingly important market for Jaguar Land Rover, ranking third overall in terms of sales volume,” Debasis Ray, a spokesman for Tata Motors, said in an e-mailed response to questions yesterday.
Volkswagen AG’s Audi luxury unit last month said China will replace Germany as its biggest market by 2011. Audi aims to deliver one million vehicles in China over the next three years. Rolls-Royce Motor Cars Ltd. plans to sell 800 cars in China in 2011, Paul Harris, the company’s Asia Pacific regional director, said in a Nov. 26 interview.
Ford, the world’s most-profitable automaker, said full-year sales in China climbed to a record in 2010. The company forecasts 70 percent of growth in the next 10 years will come from Asia-Pacific and Africa. GM expects China sales this year to grow as much as 15 percent, according to Kevin Wale, president of its local operations.
“The luxury car market is totally new for Tata Motors,” Rossini at Aletti Gestielle said. “It is very different from the truck business and even the passenger car business they are in. So they will need to approach the management of JLR differently.”
Monday, January 10, 2011
A Resurgent Chrysler Says It Is Here to Stay
DETROIT — A year ago, Chrysler didn’t have a single new vehicle to display at its hometown auto show, and rival executives were taking bets on how long the smallest and most troubled of Detroit’s three automakers would last.
Now it is looking like the obituaries were premature. After stabilizing sales in the United States last year, Chrysler is in the midst of a product blitz that company executives and industry analysts say should help it pay off its government loans and re-emerge as a public company this year.
Chrysler’s chief executive, Sergio Marchionne, said Monday that the company was gaining traction with new products after subsisting on older models in the aftermath of its government-financed bankruptcy in 2009.
“I haven’t gotten any questions yet today like, ‘Will you be here next year?’ ” Mr. Marchionne said on the opening day of media previews at the North American International Auto Show here. “There were some severe doubts that we could execute what we promised.”
It has been a difficult road back so far for the company, which has lagged General Motors and Ford in its comeback. But the addition of several new and revamped models helped increase Chrysler’s sales in the United States by 16 percent in 2010, and now the company appears to be positioned to gain market share for the first time in several years.
Chrysler still trails G.M. and Ford, both of which are expected to report substantial profits for 2010 later this month. But it has gotten a big boost from the introduction of the redesigned version of its Jeep Grand Cherokee sport utility.
Industry analysts had been skeptical that the S.U.V. would do well in a market more and more dominated by lighter-weight crossover vehicles. Sales of the Grand Cherokee, however, increased 68 percent last year and helped the overall Jeep brand improve sales by 25 percent. On Monday, the company also unveiled a new version of its flagship sedan, the Chrysler 300. It is an unapologetically large car that Mr. Marchionne predicted would appeal to consumers not interested in downsizing.
With its big grille and spacious interior, the 300 stands out from the compact and hybrid cars that most automakers are highlighting in Detroit. At a base price around $30,000 and with fuel economy estimated at 27 miles per gallon on the highway, the car is a critical building block in restoring Chrysler’s reputation.
“I think this company is slowly proving it can come back,” said David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. “They have been helped quite a bit by relatively stable fuel prices.”
Most of Chrysler’s new vehicles have been produced in collaboration with its Italian partner, Fiat. The Obama administration gave Fiat a 20 percent stake in Chrysler in exchange for providing new technology to the company, and set benchmarks for it to increase its ownership position.
On Monday, Fiat increased its stake to 25 percent because it had met the guideline of producing a new fuel-efficient engine in the United States. Fiat can raise its ownership to 35 percent by building a new small car in the United States and increasing its international sales.
Mr. Marchionne said Fiat might raise its stake as high as 51 percent once Chrysler repays the $7.1 billion in loans it still owes to the United States and Canadian governments.
He said Chrysler was planning to pay off the loans this year and then pursue an initial public stock offering to reduce the majority ownership position of the United Automobile Workers health care trust — currently 63 percent — and smaller stakes held by the American and Canadian governments.
“We are going to repay one hundred cents on every dollar of loans we received,” said Mr. Marchionne. He said it was unlikely that Chrysler would attempt a stock offering until its loans were repaid.
“I think it would be advantageous for us to repay it all before we do an I.P.O.,” he said.
Chrysler has yet to post a quarterly profit since emerging from bankruptcy, but Mr. Marchionne indicated that it was getting close. “We should see in the first or second quarter how far we’ve come,” he said.
Chrysler’s long-term outlook is heavily dependent on a series of smaller, fuel-efficient models it will get from Fiat, the first of which is the tiny Fiat 500 micro-car that is to arrive in this country later this year.
But in the interim, Chrysler is hewing to its previously successful formula of stylish, affordable cars and rugged sport utility vehicles — albeit with better mileage than previous products.
Mr. Marchionne said there was no question the company would meet the new federal fuel economy guidelines of 36 miles per gallon, which go into effect in 2016.
But he said that most of Chrysler’s fuel-economy improvements would come from improving its internal combustion engines rather than introducing a large number of electric or hybrid vehicles.
“The downsizing of our engines is continuing,” he said.
Still, Chrysler is the most vulnerable of the Detroit auto companies to a rise in fuel prices. About 80 percent of its sales in the United States are light trucks rather than cars, and that won’t change until the Fiat-based models go on sale. But even its competitors are impressed by the early stages of its turnaround.
“You have to give them credit for the product freshening they’ve done this year,” said James Farley, Ford’s head of global sales and marketing. “You have to respect that they are executing their plan.”
The arrival of the new Chrysler 300 is a big turning point for the company. The statuesque sedan is the linchpin of the brand’s promise of “affordable luxury” and aggressive styling. Mr. Marchionne said the car’s size and fuel economy would not deter consumers looking for stylish alternatives to an S.U.V. or crossover vehicle.
“You want a full-size car, this is the best fuel economy you can get,” he said. “If you want 37 miles per gallon, go get a Fiat 500.”
Now it is looking like the obituaries were premature. After stabilizing sales in the United States last year, Chrysler is in the midst of a product blitz that company executives and industry analysts say should help it pay off its government loans and re-emerge as a public company this year.
Chrysler’s chief executive, Sergio Marchionne, said Monday that the company was gaining traction with new products after subsisting on older models in the aftermath of its government-financed bankruptcy in 2009.
“I haven’t gotten any questions yet today like, ‘Will you be here next year?’ ” Mr. Marchionne said on the opening day of media previews at the North American International Auto Show here. “There were some severe doubts that we could execute what we promised.”
It has been a difficult road back so far for the company, which has lagged General Motors and Ford in its comeback. But the addition of several new and revamped models helped increase Chrysler’s sales in the United States by 16 percent in 2010, and now the company appears to be positioned to gain market share for the first time in several years.
Chrysler still trails G.M. and Ford, both of which are expected to report substantial profits for 2010 later this month. But it has gotten a big boost from the introduction of the redesigned version of its Jeep Grand Cherokee sport utility.
Industry analysts had been skeptical that the S.U.V. would do well in a market more and more dominated by lighter-weight crossover vehicles. Sales of the Grand Cherokee, however, increased 68 percent last year and helped the overall Jeep brand improve sales by 25 percent. On Monday, the company also unveiled a new version of its flagship sedan, the Chrysler 300. It is an unapologetically large car that Mr. Marchionne predicted would appeal to consumers not interested in downsizing.
With its big grille and spacious interior, the 300 stands out from the compact and hybrid cars that most automakers are highlighting in Detroit. At a base price around $30,000 and with fuel economy estimated at 27 miles per gallon on the highway, the car is a critical building block in restoring Chrysler’s reputation.
“I think this company is slowly proving it can come back,” said David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. “They have been helped quite a bit by relatively stable fuel prices.”
Most of Chrysler’s new vehicles have been produced in collaboration with its Italian partner, Fiat. The Obama administration gave Fiat a 20 percent stake in Chrysler in exchange for providing new technology to the company, and set benchmarks for it to increase its ownership position.
On Monday, Fiat increased its stake to 25 percent because it had met the guideline of producing a new fuel-efficient engine in the United States. Fiat can raise its ownership to 35 percent by building a new small car in the United States and increasing its international sales.
Mr. Marchionne said Fiat might raise its stake as high as 51 percent once Chrysler repays the $7.1 billion in loans it still owes to the United States and Canadian governments.
He said Chrysler was planning to pay off the loans this year and then pursue an initial public stock offering to reduce the majority ownership position of the United Automobile Workers health care trust — currently 63 percent — and smaller stakes held by the American and Canadian governments.
“We are going to repay one hundred cents on every dollar of loans we received,” said Mr. Marchionne. He said it was unlikely that Chrysler would attempt a stock offering until its loans were repaid.
“I think it would be advantageous for us to repay it all before we do an I.P.O.,” he said.
Chrysler has yet to post a quarterly profit since emerging from bankruptcy, but Mr. Marchionne indicated that it was getting close. “We should see in the first or second quarter how far we’ve come,” he said.
Chrysler’s long-term outlook is heavily dependent on a series of smaller, fuel-efficient models it will get from Fiat, the first of which is the tiny Fiat 500 micro-car that is to arrive in this country later this year.
But in the interim, Chrysler is hewing to its previously successful formula of stylish, affordable cars and rugged sport utility vehicles — albeit with better mileage than previous products.
Mr. Marchionne said there was no question the company would meet the new federal fuel economy guidelines of 36 miles per gallon, which go into effect in 2016.
But he said that most of Chrysler’s fuel-economy improvements would come from improving its internal combustion engines rather than introducing a large number of electric or hybrid vehicles.
“The downsizing of our engines is continuing,” he said.
Still, Chrysler is the most vulnerable of the Detroit auto companies to a rise in fuel prices. About 80 percent of its sales in the United States are light trucks rather than cars, and that won’t change until the Fiat-based models go on sale. But even its competitors are impressed by the early stages of its turnaround.
“You have to give them credit for the product freshening they’ve done this year,” said James Farley, Ford’s head of global sales and marketing. “You have to respect that they are executing their plan.”
The arrival of the new Chrysler 300 is a big turning point for the company. The statuesque sedan is the linchpin of the brand’s promise of “affordable luxury” and aggressive styling. Mr. Marchionne said the car’s size and fuel economy would not deter consumers looking for stylish alternatives to an S.U.V. or crossover vehicle.
“You want a full-size car, this is the best fuel economy you can get,” he said. “If you want 37 miles per gallon, go get a Fiat 500.”
US outsourcer iGate in $1.2bn India deal
Patni Computer Systems, a Mumbai-based software outsourcing business, is being acquired by iGate, a US rival, in a deal valuing the company at $1.22bn excluding debt.
The deal could herald a wave of consolidation among smaller players in the highly competitive industry.
In one of the largest deals in India’s technology sector, iGate’s agreed takeover comes as medium-sized IT outsourcing companies groups see their margins squeezed by larger groups.
“Small and medium companies are getting marginalised by their bigger competitors,” said Sudin Apte, principal IT analyst at Offshore Insight. “This deal will give iGate some headway to grow ... and I think other smaller IT groups will follow them as that’s the only way they can survive in this market.”
iGate said on Monday that it would pay $921m to buy a 63 per cent stake in the medium-sized Indian IT group from Patni’s founders and private equity firm General Atlantic. It has secured $270m in funding from Apax Partners, another private equity company.
At Rs503.50 a share, the deal represents a 9.4 per cent premium to Patni’s closing price on the Bombay Stock Exchange last week.
iGate will follow with an open offer to acquire a further 20 per cent from Patni’s remaining shareholders, which will be worth $301m, according to the US group.
“It has been our stated intent to scale revenues, customers, and expand our vertical capability,” said Phaneesh Murthy, chief executive of iGate. “We think that this deal is extremely strategic for iGate.”
After the merger with Patni, which is also listed on the New York Stock Exchange, iGate will have a global workforce of more than 25,000 and is expected to generate $1bn in revenues, according to Mr Murthy.
The deal received mixed reviews from IT analysts as it remains unclear how iGate, which is significantly smaller than Patni in sales, will integrate the Indian outsourcer without losing clients and talent.
Patni posted revenue of $689m for the 12 months ended on September 30 2010, while iGate reported revenues of $252m in the same period.
Soumitra Chatterjee, an analyst at Espirito Santo securities, said: “While there won’t be any significant impact on net margins post the proposed merger, the key question is will iGate be able to integrate Patni, extract synergies out of its sales team and enhance shareholder value?
Jan Erik Aase, an analyst at Forrester Research, said: “The sum of the two will be greater than the current strength of each individually.”
iGate was advised by Jefferies while Patni hired Credit Suisse and Ambit Capital to assist it on the deal.
The deal could herald a wave of consolidation among smaller players in the highly competitive industry.
In one of the largest deals in India’s technology sector, iGate’s agreed takeover comes as medium-sized IT outsourcing companies groups see their margins squeezed by larger groups.
“Small and medium companies are getting marginalised by their bigger competitors,” said Sudin Apte, principal IT analyst at Offshore Insight. “This deal will give iGate some headway to grow ... and I think other smaller IT groups will follow them as that’s the only way they can survive in this market.”
iGate said on Monday that it would pay $921m to buy a 63 per cent stake in the medium-sized Indian IT group from Patni’s founders and private equity firm General Atlantic. It has secured $270m in funding from Apax Partners, another private equity company.
At Rs503.50 a share, the deal represents a 9.4 per cent premium to Patni’s closing price on the Bombay Stock Exchange last week.
iGate will follow with an open offer to acquire a further 20 per cent from Patni’s remaining shareholders, which will be worth $301m, according to the US group.
“It has been our stated intent to scale revenues, customers, and expand our vertical capability,” said Phaneesh Murthy, chief executive of iGate. “We think that this deal is extremely strategic for iGate.”
After the merger with Patni, which is also listed on the New York Stock Exchange, iGate will have a global workforce of more than 25,000 and is expected to generate $1bn in revenues, according to Mr Murthy.
The deal received mixed reviews from IT analysts as it remains unclear how iGate, which is significantly smaller than Patni in sales, will integrate the Indian outsourcer without losing clients and talent.
Patni posted revenue of $689m for the 12 months ended on September 30 2010, while iGate reported revenues of $252m in the same period.
Soumitra Chatterjee, an analyst at Espirito Santo securities, said: “While there won’t be any significant impact on net margins post the proposed merger, the key question is will iGate be able to integrate Patni, extract synergies out of its sales team and enhance shareholder value?
Jan Erik Aase, an analyst at Forrester Research, said: “The sum of the two will be greater than the current strength of each individually.”
iGate was advised by Jefferies while Patni hired Credit Suisse and Ambit Capital to assist it on the deal.
Asia Exports Cooling Damps Commodity Shipping Outlook
Asian exports that helped power the world recovery last year are poised to grow more slowly as the region’s manufacturing rebound eases and U.S. unemployment restrains consumption after a post-recession spending spree.
Container traffic growth in Shanghai, Singapore and Hong Kong, the world’s busiest ports, has cooled since the first half of 2010. Singapore exports in 2011 may rise at a third of last year’s pace of as much as 24 percent, according to DBS Group Holdings Ltd. The island’s government joins Taiwan and South Korea in predicting smaller gains in overseas sales.
“2011 is not looking as exuberant as 2010,” said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “The easy part of the trade upswing is over now and demand is getting tighter,” making the outlook for shipping “less bubbly,” he said.
While container-shipping companies may profit from rate increases, the export slowdown may damp growth in other Asia shipping and transport stocks, which are already underperforming Asian stock indexes. The Bloomberg Dry Ships Index fell 8 percent last year while the MSCI World Index rose 10.4 percent.
Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. Rates were last that low in 2002.
Goldman Sachs Group Inc. analysts lowered their industry views on Asian airlines and bulk shipping companies to “neutral” last month, from an “attractive” rating. They downgraded STX Pan Ocean Co., South Korea’s biggest bulk carrier, and said lower bulker rates will hurt earnings.
Box Rates
They upgraded Hanjin Shipping Co., South Korea’s largest container line, to “buy” from “neutral” in late December. Hanjin Shipping said last month that it plans to raise rates by $250 per 20-foot box for trade to Europe from Asia in the first quarter.
“Bulk shipping doesn’t look good because there are concerns of oversupply,” said Lee Ki Myung, an analyst in Seoul at Shinhan BNP Paribas Asset Management Co., which oversees $28 billion. “It will be some time before the overcapacity issue is resolved. That’s why many institutional investors have sold bulk shipping and switched to container shipping.” He declined to comment on Shinhan’s holdings.
Asian exports surged last year as demand for China-made Barbie dolls and Hyundai Motor Co.’s Sonata cars recovered from the 2009 world recession. In Singapore, where non-oil exports are equivalent to more than half of an economy that grew a record 14.7 percent in 2010, Prime Minister Lee Hsien Loong expects a “weak” U.S. and Europe’s debt crisis to limit the global outlook this year.
Kind Recovery
Still, “the current recovery in the West has been very kind to Asian exports and we expect that to continue even as growth rates come down,” said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong and a former consultant to the World Bank.
Overseas shipments by Singapore companies may increase 12 percent this year, half the probable pace of 2010, according to the median estimate of 22 economists in a central bank survey published last month. In Taiwan and South Korea, exports are forecast by policy makers to grow at a third of 2010’s pace, while the International Monetary Fund said Hong Kong may see the volume of shipments halve.
DBS Group, Southeast Asia’s biggest bank by assets, predicts an 8.2 percent growth rate for Singapore’s exports, while CIMB Research Pte, a Singapore unit of Malaysia’s second- biggest banking group, forecasts as low as 8 percent.
More MP3 Players
“Overall we see a slowdown in exports especially to the U.S. and Europe due to rising U.S. inventories and waning growth in Europe, which curbs shipments,” the cargo unit of Singapore Airlines Ltd., the world’s second-biggest carrier by market value, said in e-mailed comments to Bloomberg News.
Seoul-based Korean Air Lines Co., the world’s largest international cargo carrier, said last month demand would fall in December because of rising stockpiles of liquid-crystal display televisions, computers and MP3 players. The company also said in an e-mail it expects demand to decline “across regions.”
Memphis, Tennessee-based FedEx Corp., the second-largest U.S. package-shipping company, posted profit that trailed analysts’ estimates in the three months through November as growth slowed in international deliveries and costs rose. Since Dec. 3, 2010, the iShares Dow Jones U.S. Transportation exchange traded fund, which includes FedEx, has risen just 1.9 percent while the S&P 500 ETF is up 3.5 percent.
Air and Land
U.S. retailers’ inventories climbed to an 18-month high in September, helped by restocking that drove a 28 percent jump in Asia-Pacific carriers’ cargo traffic through October. The retailers’ stock fell 0.6 percent in October. Growth on the continent of Europe may slow to 1.8 percent this year, according to the International Monetary Fund.
About 90 percent of the volume of global trade is done by sea, while the rest of the goods are carried by air and land.
At the world’s five busiest container ports -- Shanghai, Singapore, Hong Kong, Shenzhen and Busan -- growth in the number of cargo boxes handled slowed in November from earlier in 2010.
Singapore’s container throughput rose 3.8 percent in November from a year earlier, less than a quarter of the pace in January. Container traffic in Hong Kong climbed 10.5 percent in November, less than half the pace in January, while Shenzhen’s growth slowed to a five-month low of 12.9 percent.
Paying More
Container shipping lines may escape the consequences of a slowdown in trade growth: Last year’s demand surge used up existing capacity, letting them charge customers more.
Copenhagen-based A.P. Moeller-Maersk A/S, owner of the world’s biggest container line, along with 14 others, is seeking a rate increase from exporters of $400 per 40-foot box on Asia- U.S. west coast trade this year.
“There is demand out there,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “Although we’ll have to see how much of the increase is agreed with shippers, the prospects are looking good.”
An index from the Hamburg Shipbrokers’ Association reflecting charges for six types of container carriers more than doubled last year.
Container volumes may expand 11 percent this year after growing 13 percent in 2010, Jon Windham, an analyst at Barclays Capital in Hong Kong, said in a Jan. 3 Bloomberg Television interview. U.S. retail spending excluding food and gasoline is still “quite strong,” he said.
Tiffany Jewels
U.S. economic data have sent mixed signals. Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores, according to MasterCard Advisors’ SpendingPulse.
In contrast, confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011, the Conference Board’s confidence index showed.
Barclays Capital’s Windham says investors should avoid bulk shipping companies, which transport commodities and are expanding their fleets. The Baltic Dry Index, a measure of commodity shipping costs, dropped about 28 percent last quarter to 1,773 points. It was at 1,519 points on Jan. 7.
The Baltic Dry Index may remain at a “persistently low level” for the next six to eight quarters, said Khalid Hashim, managing director of Precious Shipping Pcl, Thailand’s second- largest shipping company.
“Forecasts all seem to point to a slowdown in global economic activity,” Khalid said. “If this materializes at the same time as the new supply of ships hits the water, it could cause the perfect storm that would keep the Baltic Dry Index lower than 1,500 points for an extended period of time.”
Emerging Demand
Freight and cargo companies may have to rely increasingly on demand from emerging countries from China to Brazil. A.P. Moeller-Maersk plans to increase investments in China and India in anticipation of emerging-market traffic growth outpacing demand on U.S. and European routes.
Sea-cargo traffic in China, Vietnam, India and other emerging markets may grow 7 percent annually until 2015 compared with a 2 percent expansion in more mature economies, according to Kim Fejfer, chief executive officer of APM Terminals, the container-terminal arm of A.P. Moeller.
For now, 60 percent of Asia’s exports are ultimately destined for the U.S., Europe and Japan.
“The rate at which trade will grow will definitely be more subdued and demand won’t be compelling,” said Alvin Liew, a Singapore-based economist at Standard Chartered Plc. “There’s still business to be done but it’s inevitable that we are in for a slower year.”
Container traffic growth in Shanghai, Singapore and Hong Kong, the world’s busiest ports, has cooled since the first half of 2010. Singapore exports in 2011 may rise at a third of last year’s pace of as much as 24 percent, according to DBS Group Holdings Ltd. The island’s government joins Taiwan and South Korea in predicting smaller gains in overseas sales.
“2011 is not looking as exuberant as 2010,” said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “The easy part of the trade upswing is over now and demand is getting tighter,” making the outlook for shipping “less bubbly,” he said.
While container-shipping companies may profit from rate increases, the export slowdown may damp growth in other Asia shipping and transport stocks, which are already underperforming Asian stock indexes. The Bloomberg Dry Ships Index fell 8 percent last year while the MSCI World Index rose 10.4 percent.
Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. Rates were last that low in 2002.
Goldman Sachs Group Inc. analysts lowered their industry views on Asian airlines and bulk shipping companies to “neutral” last month, from an “attractive” rating. They downgraded STX Pan Ocean Co., South Korea’s biggest bulk carrier, and said lower bulker rates will hurt earnings.
Box Rates
They upgraded Hanjin Shipping Co., South Korea’s largest container line, to “buy” from “neutral” in late December. Hanjin Shipping said last month that it plans to raise rates by $250 per 20-foot box for trade to Europe from Asia in the first quarter.
“Bulk shipping doesn’t look good because there are concerns of oversupply,” said Lee Ki Myung, an analyst in Seoul at Shinhan BNP Paribas Asset Management Co., which oversees $28 billion. “It will be some time before the overcapacity issue is resolved. That’s why many institutional investors have sold bulk shipping and switched to container shipping.” He declined to comment on Shinhan’s holdings.
Asian exports surged last year as demand for China-made Barbie dolls and Hyundai Motor Co.’s Sonata cars recovered from the 2009 world recession. In Singapore, where non-oil exports are equivalent to more than half of an economy that grew a record 14.7 percent in 2010, Prime Minister Lee Hsien Loong expects a “weak” U.S. and Europe’s debt crisis to limit the global outlook this year.
Kind Recovery
Still, “the current recovery in the West has been very kind to Asian exports and we expect that to continue even as growth rates come down,” said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong and a former consultant to the World Bank.
Overseas shipments by Singapore companies may increase 12 percent this year, half the probable pace of 2010, according to the median estimate of 22 economists in a central bank survey published last month. In Taiwan and South Korea, exports are forecast by policy makers to grow at a third of 2010’s pace, while the International Monetary Fund said Hong Kong may see the volume of shipments halve.
DBS Group, Southeast Asia’s biggest bank by assets, predicts an 8.2 percent growth rate for Singapore’s exports, while CIMB Research Pte, a Singapore unit of Malaysia’s second- biggest banking group, forecasts as low as 8 percent.
More MP3 Players
“Overall we see a slowdown in exports especially to the U.S. and Europe due to rising U.S. inventories and waning growth in Europe, which curbs shipments,” the cargo unit of Singapore Airlines Ltd., the world’s second-biggest carrier by market value, said in e-mailed comments to Bloomberg News.
Seoul-based Korean Air Lines Co., the world’s largest international cargo carrier, said last month demand would fall in December because of rising stockpiles of liquid-crystal display televisions, computers and MP3 players. The company also said in an e-mail it expects demand to decline “across regions.”
Memphis, Tennessee-based FedEx Corp., the second-largest U.S. package-shipping company, posted profit that trailed analysts’ estimates in the three months through November as growth slowed in international deliveries and costs rose. Since Dec. 3, 2010, the iShares Dow Jones U.S. Transportation exchange traded fund, which includes FedEx, has risen just 1.9 percent while the S&P 500 ETF is up 3.5 percent.
Air and Land
U.S. retailers’ inventories climbed to an 18-month high in September, helped by restocking that drove a 28 percent jump in Asia-Pacific carriers’ cargo traffic through October. The retailers’ stock fell 0.6 percent in October. Growth on the continent of Europe may slow to 1.8 percent this year, according to the International Monetary Fund.
About 90 percent of the volume of global trade is done by sea, while the rest of the goods are carried by air and land.
At the world’s five busiest container ports -- Shanghai, Singapore, Hong Kong, Shenzhen and Busan -- growth in the number of cargo boxes handled slowed in November from earlier in 2010.
Singapore’s container throughput rose 3.8 percent in November from a year earlier, less than a quarter of the pace in January. Container traffic in Hong Kong climbed 10.5 percent in November, less than half the pace in January, while Shenzhen’s growth slowed to a five-month low of 12.9 percent.
Paying More
Container shipping lines may escape the consequences of a slowdown in trade growth: Last year’s demand surge used up existing capacity, letting them charge customers more.
Copenhagen-based A.P. Moeller-Maersk A/S, owner of the world’s biggest container line, along with 14 others, is seeking a rate increase from exporters of $400 per 40-foot box on Asia- U.S. west coast trade this year.
“There is demand out there,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “Although we’ll have to see how much of the increase is agreed with shippers, the prospects are looking good.”
An index from the Hamburg Shipbrokers’ Association reflecting charges for six types of container carriers more than doubled last year.
Container volumes may expand 11 percent this year after growing 13 percent in 2010, Jon Windham, an analyst at Barclays Capital in Hong Kong, said in a Jan. 3 Bloomberg Television interview. U.S. retail spending excluding food and gasoline is still “quite strong,” he said.
Tiffany Jewels
U.S. economic data have sent mixed signals. Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores, according to MasterCard Advisors’ SpendingPulse.
In contrast, confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011, the Conference Board’s confidence index showed.
Barclays Capital’s Windham says investors should avoid bulk shipping companies, which transport commodities and are expanding their fleets. The Baltic Dry Index, a measure of commodity shipping costs, dropped about 28 percent last quarter to 1,773 points. It was at 1,519 points on Jan. 7.
The Baltic Dry Index may remain at a “persistently low level” for the next six to eight quarters, said Khalid Hashim, managing director of Precious Shipping Pcl, Thailand’s second- largest shipping company.
“Forecasts all seem to point to a slowdown in global economic activity,” Khalid said. “If this materializes at the same time as the new supply of ships hits the water, it could cause the perfect storm that would keep the Baltic Dry Index lower than 1,500 points for an extended period of time.”
Emerging Demand
Freight and cargo companies may have to rely increasingly on demand from emerging countries from China to Brazil. A.P. Moeller-Maersk plans to increase investments in China and India in anticipation of emerging-market traffic growth outpacing demand on U.S. and European routes.
Sea-cargo traffic in China, Vietnam, India and other emerging markets may grow 7 percent annually until 2015 compared with a 2 percent expansion in more mature economies, according to Kim Fejfer, chief executive officer of APM Terminals, the container-terminal arm of A.P. Moeller.
For now, 60 percent of Asia’s exports are ultimately destined for the U.S., Europe and Japan.
“The rate at which trade will grow will definitely be more subdued and demand won’t be compelling,” said Alvin Liew, a Singapore-based economist at Standard Chartered Plc. “There’s still business to be done but it’s inevitable that we are in for a slower year.”
`Dramatic' Inflation Change Increases Bets on Interest Rates: India Credit
Local banks in India are joining Goldman Sachs Group Inc. in predicting benchmark borrowing costs will climb 1 percentage point in 2011 before a report this week forecast to show inflation accelerated for the first time in three months in December.
Wholesale prices, the benchmark gauge, gained 8.40 percent from a year earlier, faster than the 7.48 percent rate in November, according to the median forecast of 29 economists in a Bloomberg survey before data due on Jan. 14. Axis Bank Ltd., the nation’s fourth-biggest lender by market value, raised its forecast from 75 basis points yesterday. Mumbai-based Yes Bank Ltd. made the same adjustment last week.
One-year interest-rate swaps in India have climbed 34 basis points, or 0.34 percentage point, in the past month, the most among the so-called BRIC economies of the largest developing nations, reflecting expectations that the Reserve Bank of India will raise rates as soon as this month. Prime Minister Manmohan Singh is under pressure to curb inflation as his Congress party faces elections in nine states over the next 18 months.
“The dramatic change in the inflation trajectory prompted us to revise our call to a more hawkish one,” Shubhada Rao, a Mumbai-based economist at Yes Bank, said in an interview yesterday. “Inflation is like a ubiquitous tax, and the government will be under pressure to get inflation under control as early as possible.”
Food Prices
Food prices surged 18.3 percent in the week ended Dec. 25, the most since July, according to a Commerce Ministry report issued on Jan. 6. The annual wholesale inflation rate, which climbed as high as 11 percent in April, fell in both October and November.
The central bank will review borrowing costs next on Jan. 25 after raising the benchmark repurchase rate six times last year.
Any increase in food costs “feeds into the rest of the sectors in the economy,” Chakravarthy Rangarajan, the prime minister’s top economic adviser, said in an interview on Jan. 7. If prices remain “sticky, probably some action will be required,” said Rangarajan, who led the Reserve Bank between 1992 and 1997.
Tushar Poddar, a Mumbai-based economist at Goldman Sachs who correctly predicted that the central bank would raise the benchmark repurchase rate by 150 basis points in 2010, said in an interview yesterday that the biggest risk to inflation is higher food and commodity prices. Poddar told reporters in Mumbai on Dec. 8 that he expects the central bank to lift interest rates 100 basis points in 2011.
The yield on India’s 10-year bonds has risen 33 basis points this year. The rate on the most-traded 7.8 percent security due in May 2020 climbed 2 basis points to 8.22 percent yesterday.
Swap Rates
“With inflationary pressures persisting, we expect yields to remain elevated for a prolonged period,” Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai, said in an interview yesterday. She predicts the 10-year rate will rise to 8.50 percent by the end of the current financial year in March.
The difference between India’s 10-year bonds and U.S. Treasuries widened to 493 basis points yesterday from 463 at the end of last year.
India’s one-year swap rate, the fixed cost needed to receive a floating interest rate, climbed to 7.30 percent from 6.96 percent on Dec. 10. Comparable rates in Brazil have gained 11 basis points to 12.12 percent, those in Russia have climbed 22 basis points to 5.25 percent and those in China have increased 2.5 basis points to 3.17 percent.
India’s government bonds have lost 0.3 percent so far this month, Asia’s worst performance after South Korea, the Philippines and Singapore, according to indexes compiled by HSBC Holdings Plc.
Rupee Drops
The rupee has slid 1.6 percent in January, the third-worst performance among Asia’s 10 most-traded currencies excluding the yen, on concern costlier oil prices will push up the import bill in an economy that buys about 75 percent of its fuel overseas. Crude-oil prices in New York, which reached a two-year high of $91.55 a barrel on Jan. 3, traded at $88.72 yesterday.
“There’s a risk of inflation becoming generalized due to the spill-over effect of higher oil and food prices,” Jay Shankar, an economist at Mumbai-based Religare Capital Markets Ltd., said in an interview yesterday. “If crude-oil prices go beyond $120 a barrel, it isn’t unlikely that the RBI may raise rates by as much as 175 basis points.” He expects the repurchase rate to climb 100 basis points to 7.25 percent by the end of the year.
The rupee dropped 0.2 percent to 45.45 per dollar yesterday, according to data compiled by Bloomberg. The currency will trade at 46 by the end of March and weaken to 47 by the end of the year, said Poddar, who was an economist at the International Monetary Fund before joining Goldman.
‘Politically Sensitive’
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has increased 9 basis points from the end of last year to 169 as pressure mounts on the government to curb gains in 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.
Indians voted out at least two federal governments and one state administration in the past 15 years after inflation reduced their purchasing power. The World Bank estimates 828 million Indians, or 66 percent of the population, live on less than $2 a day.
“Inflation is a politically sensitive issue,” N. R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said in an interview yesterday. “It’s imperative for the government to gain control over prices ahead of state elections.”
Wholesale prices, the benchmark gauge, gained 8.40 percent from a year earlier, faster than the 7.48 percent rate in November, according to the median forecast of 29 economists in a Bloomberg survey before data due on Jan. 14. Axis Bank Ltd., the nation’s fourth-biggest lender by market value, raised its forecast from 75 basis points yesterday. Mumbai-based Yes Bank Ltd. made the same adjustment last week.
One-year interest-rate swaps in India have climbed 34 basis points, or 0.34 percentage point, in the past month, the most among the so-called BRIC economies of the largest developing nations, reflecting expectations that the Reserve Bank of India will raise rates as soon as this month. Prime Minister Manmohan Singh is under pressure to curb inflation as his Congress party faces elections in nine states over the next 18 months.
“The dramatic change in the inflation trajectory prompted us to revise our call to a more hawkish one,” Shubhada Rao, a Mumbai-based economist at Yes Bank, said in an interview yesterday. “Inflation is like a ubiquitous tax, and the government will be under pressure to get inflation under control as early as possible.”
Food Prices
Food prices surged 18.3 percent in the week ended Dec. 25, the most since July, according to a Commerce Ministry report issued on Jan. 6. The annual wholesale inflation rate, which climbed as high as 11 percent in April, fell in both October and November.
The central bank will review borrowing costs next on Jan. 25 after raising the benchmark repurchase rate six times last year.
Any increase in food costs “feeds into the rest of the sectors in the economy,” Chakravarthy Rangarajan, the prime minister’s top economic adviser, said in an interview on Jan. 7. If prices remain “sticky, probably some action will be required,” said Rangarajan, who led the Reserve Bank between 1992 and 1997.
Tushar Poddar, a Mumbai-based economist at Goldman Sachs who correctly predicted that the central bank would raise the benchmark repurchase rate by 150 basis points in 2010, said in an interview yesterday that the biggest risk to inflation is higher food and commodity prices. Poddar told reporters in Mumbai on Dec. 8 that he expects the central bank to lift interest rates 100 basis points in 2011.
The yield on India’s 10-year bonds has risen 33 basis points this year. The rate on the most-traded 7.8 percent security due in May 2020 climbed 2 basis points to 8.22 percent yesterday.
Swap Rates
“With inflationary pressures persisting, we expect yields to remain elevated for a prolonged period,” Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai, said in an interview yesterday. She predicts the 10-year rate will rise to 8.50 percent by the end of the current financial year in March.
The difference between India’s 10-year bonds and U.S. Treasuries widened to 493 basis points yesterday from 463 at the end of last year.
India’s one-year swap rate, the fixed cost needed to receive a floating interest rate, climbed to 7.30 percent from 6.96 percent on Dec. 10. Comparable rates in Brazil have gained 11 basis points to 12.12 percent, those in Russia have climbed 22 basis points to 5.25 percent and those in China have increased 2.5 basis points to 3.17 percent.
India’s government bonds have lost 0.3 percent so far this month, Asia’s worst performance after South Korea, the Philippines and Singapore, according to indexes compiled by HSBC Holdings Plc.
Rupee Drops
The rupee has slid 1.6 percent in January, the third-worst performance among Asia’s 10 most-traded currencies excluding the yen, on concern costlier oil prices will push up the import bill in an economy that buys about 75 percent of its fuel overseas. Crude-oil prices in New York, which reached a two-year high of $91.55 a barrel on Jan. 3, traded at $88.72 yesterday.
“There’s a risk of inflation becoming generalized due to the spill-over effect of higher oil and food prices,” Jay Shankar, an economist at Mumbai-based Religare Capital Markets Ltd., said in an interview yesterday. “If crude-oil prices go beyond $120 a barrel, it isn’t unlikely that the RBI may raise rates by as much as 175 basis points.” He expects the repurchase rate to climb 100 basis points to 7.25 percent by the end of the year.
The rupee dropped 0.2 percent to 45.45 per dollar yesterday, according to data compiled by Bloomberg. The currency will trade at 46 by the end of March and weaken to 47 by the end of the year, said Poddar, who was an economist at the International Monetary Fund before joining Goldman.
‘Politically Sensitive’
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has increased 9 basis points from the end of last year to 169 as pressure mounts on the government to curb gains in 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.
Indians voted out at least two federal governments and one state administration in the past 15 years after inflation reduced their purchasing power. The World Bank estimates 828 million Indians, or 66 percent of the population, live on less than $2 a day.
“Inflation is a politically sensitive issue,” N. R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said in an interview yesterday. “It’s imperative for the government to gain control over prices ahead of state elections.”
Sunday, January 9, 2011
Pentagon Must ‘Buy American,’ Barring Chinese Solar Panels
HONG KONG — The military appropriations law signed by President Obama on Friday contains a little-noticed “Buy American” provision for the Defense Department purchases of solar panels — a provision that is likely to dismay Chinese officials as President Hu Jintao prepares to visit the United States next week.
Although there are many big issues to discuss, including concerns about North Korea, trade and economic matters are certain to be high on the agenda. And while both sides are aiming to keep the discussion positive — the United States is the world’s largest importer and China the largest exporter of goods — simmering resentments over trade in green-energy technologies could be a distraction.
China has emerged as the world’s dominant producer of solar panels in the last two years. It accounted for at least half the world’s production last year, and its market share is rising rapidly. The United States accounts for $1.6 billion of the world’s $29 billion market for solar panels; market analyses typically have not broken out military sales separately.
The perception that Beijing unfairly subsidizes the Chinese solar industry to the detriment of American companies and other foreign competitors has drawn concern in Congress. The issue of clean-energy subsidies is also at the heart of a trade investigation under way by the Obama administration, which plans to bring a case against China before the World Trade Organization.
The new Buy American provision, created mainly by House and Senate conferees during a flurry of activity at the end of the lame-duck session of Congress, prevents the Defense Department from buying Chinese-made solar panels.
The American military is a rapidly growing consumer of renewable energy products, because it is extremely expensive and frequently dangerous to ship large quantities of fuel into remote areas of Iraq and Afghanistan.
The solar panel provision is carefully written to help it comply with the free trade rules of the World Trade Organization, which would make it hard for China to ask a W.T.O. tribunal to overturn the provision, trade lawyers said.
Chinese leaders have strongly criticized such provisions in the past, particularly one in President Obama’s economic stimulus package in early 2009 that applied to government procurement of steel and construction materials.
But China required in the late spring of 2009 that virtually all of its $600 billion economic stimulus be spent within China, not just for construction materials.
Chinese officials in Beijing and Washington did not respond on Saturday or Sunday to requests for comment on the solar panel provision.
While the United States and Europe have focused on subsidizing buyers of solar panels, China has emphasized subsidies for solar panel manufacturers. It then exports virtually all of its panels to the United States and Europe, often helped by the American and European consumer subsidies.
The solar panel provision in the defense appropriations law comes as President Obama has ordered a broad investigation into whether Chinese export subsidies, local content requirements and other rules have violated W.T.O. rules. As a result of the investigation, the United States started a W.T.O. case on Dec. 22 against what it said were Chinese wind turbine manufacturing subsidies.
American trade officials said then that they were still examining other Chinese clean-energy subsidy policies to decide whether to file additional W.T.O. cases.
The solar panel provision was part of the initial defense appropriations bill passed by the House. The House version had a simple requirement that the Defense Department buy solar panels made in the United States.
The Senate, which has been more leery of interfering with free trade, had no comparable provision, however, and many people in the solar panel industry did not expect the final law to have such a provision.
But the conference of House and Senate leaders ended up retaining the House provision and modifying it, by adding legal language to require that it also comply with previous American trade legislation.
Representative Maurice Hinchey, Democrat of New York, said he had fought for the provision to be included in the bill.
“We’ve had a lot of money taken out of this country and invested in other places around the world, particularly China, and particularly in alternative energies,” he said in an interview by phone. “For them to be producing alternative energy, that’s great, but we need to do it ourselves, and as much of it as possible.”
Mr. Hinchey said he did not think the provision would jeopardize relations with the Chinese ahead of Mr. Hu’s visit. “We have provided them with a lot of economic growth there,” he said. “A lot of money has gone out of this country and into China, and a lot of manufacturing operations, particularly alternative energy, has also gone into China.”
Mr. Hinchey had praised the Obama administration in November for starting a broad investigation into Chinese subsidies for solar and wind energy exports, saying then that these subsidies had put a company in his district, Prism Solar Technologies of Highland, N.Y., at a competitive disadvantage.
Although there are many big issues to discuss, including concerns about North Korea, trade and economic matters are certain to be high on the agenda. And while both sides are aiming to keep the discussion positive — the United States is the world’s largest importer and China the largest exporter of goods — simmering resentments over trade in green-energy technologies could be a distraction.
China has emerged as the world’s dominant producer of solar panels in the last two years. It accounted for at least half the world’s production last year, and its market share is rising rapidly. The United States accounts for $1.6 billion of the world’s $29 billion market for solar panels; market analyses typically have not broken out military sales separately.
The perception that Beijing unfairly subsidizes the Chinese solar industry to the detriment of American companies and other foreign competitors has drawn concern in Congress. The issue of clean-energy subsidies is also at the heart of a trade investigation under way by the Obama administration, which plans to bring a case against China before the World Trade Organization.
The new Buy American provision, created mainly by House and Senate conferees during a flurry of activity at the end of the lame-duck session of Congress, prevents the Defense Department from buying Chinese-made solar panels.
The American military is a rapidly growing consumer of renewable energy products, because it is extremely expensive and frequently dangerous to ship large quantities of fuel into remote areas of Iraq and Afghanistan.
The solar panel provision is carefully written to help it comply with the free trade rules of the World Trade Organization, which would make it hard for China to ask a W.T.O. tribunal to overturn the provision, trade lawyers said.
Chinese leaders have strongly criticized such provisions in the past, particularly one in President Obama’s economic stimulus package in early 2009 that applied to government procurement of steel and construction materials.
But China required in the late spring of 2009 that virtually all of its $600 billion economic stimulus be spent within China, not just for construction materials.
Chinese officials in Beijing and Washington did not respond on Saturday or Sunday to requests for comment on the solar panel provision.
While the United States and Europe have focused on subsidizing buyers of solar panels, China has emphasized subsidies for solar panel manufacturers. It then exports virtually all of its panels to the United States and Europe, often helped by the American and European consumer subsidies.
The solar panel provision in the defense appropriations law comes as President Obama has ordered a broad investigation into whether Chinese export subsidies, local content requirements and other rules have violated W.T.O. rules. As a result of the investigation, the United States started a W.T.O. case on Dec. 22 against what it said were Chinese wind turbine manufacturing subsidies.
American trade officials said then that they were still examining other Chinese clean-energy subsidy policies to decide whether to file additional W.T.O. cases.
The solar panel provision was part of the initial defense appropriations bill passed by the House. The House version had a simple requirement that the Defense Department buy solar panels made in the United States.
The Senate, which has been more leery of interfering with free trade, had no comparable provision, however, and many people in the solar panel industry did not expect the final law to have such a provision.
But the conference of House and Senate leaders ended up retaining the House provision and modifying it, by adding legal language to require that it also comply with previous American trade legislation.
Representative Maurice Hinchey, Democrat of New York, said he had fought for the provision to be included in the bill.
“We’ve had a lot of money taken out of this country and invested in other places around the world, particularly China, and particularly in alternative energies,” he said in an interview by phone. “For them to be producing alternative energy, that’s great, but we need to do it ourselves, and as much of it as possible.”
Mr. Hinchey said he did not think the provision would jeopardize relations with the Chinese ahead of Mr. Hu’s visit. “We have provided them with a lot of economic growth there,” he said. “A lot of money has gone out of this country and into China, and a lot of manufacturing operations, particularly alternative energy, has also gone into China.”
Mr. Hinchey had praised the Obama administration in November for starting a broad investigation into Chinese subsidies for solar and wind energy exports, saying then that these subsidies had put a company in his district, Prism Solar Technologies of Highland, N.Y., at a competitive disadvantage.
Asian Stocks Fluctuate as Australian Insurers Decline, Oil Producers Gain
Asian stocks fluctuated as Australian insurers dropped as flooding in Australia worsened and energy producers advanced after crude oil futures increased.
Suncorp Group Ltd., the country’s biggest Brisbane-based insurer, and Insurance Australia Group Ltd. fell at least 1 percent in Sydney. LG Chem Ltd., South Korea’s largest chemicals maker, declined 2.3 percent on speculation its battery designs have been compromised after partner Renault SA’s electric-car secrets were disclosed. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, rose 0.6 percent as crude oil futures rose for the first time in three days after leak forced the shutdown of an Alaskan crude pipeline.
The MSCI Asia Pacific Excluding Japan Index was little changed at 477.15 as of 9:44 a.m. in Hong Kong, with six stocks declining for every five that advanced. The gauge climbed to a two-month high on Jan. 4 as data on U.S. manufacturing and services industries boosted optimism that a recovery in the world’s largest economy is strengthening.
Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index were little changed. South Korea’s Kospi Index fell 0.2 percent. Singapore’s Straits Times Index pared gains. Taiwan’s Taiex Index retreated 0.1 percent. Japanese markets are closed for a holiday.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The index fell 0.2 percent on Jan. 7 after the world’s biggest economy added fewer jobs than forecast.
Suncorp Group Ltd., the country’s biggest Brisbane-based insurer, and Insurance Australia Group Ltd. fell at least 1 percent in Sydney. LG Chem Ltd., South Korea’s largest chemicals maker, declined 2.3 percent on speculation its battery designs have been compromised after partner Renault SA’s electric-car secrets were disclosed. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, rose 0.6 percent as crude oil futures rose for the first time in three days after leak forced the shutdown of an Alaskan crude pipeline.
The MSCI Asia Pacific Excluding Japan Index was little changed at 477.15 as of 9:44 a.m. in Hong Kong, with six stocks declining for every five that advanced. The gauge climbed to a two-month high on Jan. 4 as data on U.S. manufacturing and services industries boosted optimism that a recovery in the world’s largest economy is strengthening.
Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index were little changed. South Korea’s Kospi Index fell 0.2 percent. Singapore’s Straits Times Index pared gains. Taiwan’s Taiex Index retreated 0.1 percent. Japanese markets are closed for a holiday.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The index fell 0.2 percent on Jan. 7 after the world’s biggest economy added fewer jobs than forecast.
CFOs Start to Revive Global Bond Sales as Dollar Rates Fall: India Credit
Rural Electrification Corp. and Union Bank of India are reviving bond sales to international investors, after the market shut in December, as Indian dollar- denominated bond yields fall from a five-month high.
Rural Electrification in New Delhi may sell $500 million of bonds on Jan. 18, Finance Director Hari Das Khunteta said in a Dec. 29 interview. Union Bank is seeking as much as 200 million Swiss francs ($208 million) and European fund managers plan to buy as soon as they get their New Year allocations of cash, General Manager V.K. Khanna said in an interview on Jan. 4.
Indian companies more than tripled sales of foreign- currency bonds to $8.7 billion in 2010 as the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Average Indian dollar bond yields dropped to 5.10 percent from 5.22 percent last month, HSBC Holdings Plc indexes show. That compares with five-year funding costs in rupees for top-rated borrowers of 8.92 percent, according to Fixed Income Money Market and Derivatives Association of India or FIMMDA.
“The macro environment and risk appetite has improved from December,” Pierre Faddoul, a credit analyst in Singapore at Aberdeen Asset Management Ltd., which manages about $282 billion globally, said in a Jan. 6 interview. “The finding of a solution to the European sovereign crisis helped the overall sentiment.”
‘Choppy’
Indian borrowers stayed out of the market for global debt sales in December as U.S. Treasury yields climbed to the highest in more than four months after President Barack Obama’s extended tax cuts due to expire and as the European debt crisis worsened.
“Markets were choppy,” said Union Bank’s Khanna. Officials from the Mumbai-based state-owned bank met investors in Zurich, Geneva, Lausanne and Vaduz, Liechtenstein, between Nov. 18 and 20. Markets in Switzerland are stable and there’s still appetite for emerging-market bonds, Khanna said.
Reports showing an improving U.S. economy and bailouts of Greece and Ireland last year helped soothe deficit concerns and revive appetite for higher-yielding emerging-market assets.
Rural Electrification hired Credit Agricole CIB, Royal Bank of Scotland Group Plc, and Standard Chartered Plc to help manage its sale. The nation’s largest lender, State Bank of India, raised 750 million euros ($973 million) in November selling 4.75 percent bonds maturing in 2015.
Need Funds
“I expect huge issuances from India, especially among banks,” said Peter Varga, who manages $220 million of emerging- market corporate debt in Vienna at Erste Sparinvest KAG. “They will also need to fund their growth in 2011 after an amazing growth in credit last year.”
He owns bonds sold by Vedanta Resources Plc, Reliance Industries Ltd. and State Bank of India. “If the spreads are attractive, I will consider investing” in Indian debt, he said, referring to yields relative to benchmarks.
Average spreads on Indian dollar bonds have narrowed to 322 basis points from 382 basis points, or 3.82 percentage points, on Nov. 5, HSBC data show.
Indian banks borrowed an average 923 billion rupees ($20.3 billion) a day from the Reserve Bank of India last quarter, the most since 2000, as they struggled to meet rising demand for loans. The overnight borrowing rate between local banks was 6.38 percent last week, up from 5.5 percent a week earlier.
Deposit Growth
Deposits grew 14.7 percent in the two weeks ended Dec. 17 from a year earlier, lagging behind a 23.7 percent increase in lending, according to central bank data.
India’s state-run banks need to raise more capital to sustain credit growth, Chakravarthy Rangarajan, the prime minister’s chief economic adviser, said in New Delhi on Jan. 7.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell six basis points this month to 154 basis points on Jan. 6, according to CMA credit-default swaps prices.
Credit swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. The contracts rise when creditworthiness deteriorates and fall when it improves.
Issuance may revive across Asia, according to Aberdeen.
“A few Chinese companies and other Asian companies that did not go through with their issuance plans are now coming back,” Faddoul said. “January is when activity picks up and you have more people present to drive appetite.”
Yields Fall
The rate on emerging-market sovereign debt was 5.82 percent on Jan. 6, down from a five-month high of 5.99 on Dec. 16, according to an index compiled by JPMorgan Chase & Co. The spread to U.S. Treasuries narrowed to 229 basis points from 248 at the end of last year.
Elsewhere in Indian markets, the rupee had a weekly drop as investors bought dollars on rising confidence in the U.S. economy. The rupee declined 1.5 percent to 45.3850 per dollar, according to data compiled by Bloomberg.
Indian government bonds fell last week, pushing yields to the highest level in a month, on speculation the central bank will resume raising rates this month to slow food-price inflation.
“There are still three more weeks before the monetary policy action and the Reserve Bank of India should watch the behavior of the prices,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an interview on Jan. 7 in Gurgaon, near New Delhi. “If prices continue to remain sticky, then probably some action will be required.”
The yield on the benchmark 7.80 percent bond due in May 2020 rose seven basis points to 8.2 percent on Jan. 7, according to the central bank’s trading system.
Food prices surged 18.32 percent in the week ended Dec. 25 from a year earlier, the most since July, according to a commerce ministry statement. The central bank is set to review monetary policy on Jan. 25.
Rural Electrification in New Delhi may sell $500 million of bonds on Jan. 18, Finance Director Hari Das Khunteta said in a Dec. 29 interview. Union Bank is seeking as much as 200 million Swiss francs ($208 million) and European fund managers plan to buy as soon as they get their New Year allocations of cash, General Manager V.K. Khanna said in an interview on Jan. 4.
Indian companies more than tripled sales of foreign- currency bonds to $8.7 billion in 2010 as the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Average Indian dollar bond yields dropped to 5.10 percent from 5.22 percent last month, HSBC Holdings Plc indexes show. That compares with five-year funding costs in rupees for top-rated borrowers of 8.92 percent, according to Fixed Income Money Market and Derivatives Association of India or FIMMDA.
“The macro environment and risk appetite has improved from December,” Pierre Faddoul, a credit analyst in Singapore at Aberdeen Asset Management Ltd., which manages about $282 billion globally, said in a Jan. 6 interview. “The finding of a solution to the European sovereign crisis helped the overall sentiment.”
‘Choppy’
Indian borrowers stayed out of the market for global debt sales in December as U.S. Treasury yields climbed to the highest in more than four months after President Barack Obama’s extended tax cuts due to expire and as the European debt crisis worsened.
“Markets were choppy,” said Union Bank’s Khanna. Officials from the Mumbai-based state-owned bank met investors in Zurich, Geneva, Lausanne and Vaduz, Liechtenstein, between Nov. 18 and 20. Markets in Switzerland are stable and there’s still appetite for emerging-market bonds, Khanna said.
Reports showing an improving U.S. economy and bailouts of Greece and Ireland last year helped soothe deficit concerns and revive appetite for higher-yielding emerging-market assets.
Rural Electrification hired Credit Agricole CIB, Royal Bank of Scotland Group Plc, and Standard Chartered Plc to help manage its sale. The nation’s largest lender, State Bank of India, raised 750 million euros ($973 million) in November selling 4.75 percent bonds maturing in 2015.
Need Funds
“I expect huge issuances from India, especially among banks,” said Peter Varga, who manages $220 million of emerging- market corporate debt in Vienna at Erste Sparinvest KAG. “They will also need to fund their growth in 2011 after an amazing growth in credit last year.”
He owns bonds sold by Vedanta Resources Plc, Reliance Industries Ltd. and State Bank of India. “If the spreads are attractive, I will consider investing” in Indian debt, he said, referring to yields relative to benchmarks.
Average spreads on Indian dollar bonds have narrowed to 322 basis points from 382 basis points, or 3.82 percentage points, on Nov. 5, HSBC data show.
Indian banks borrowed an average 923 billion rupees ($20.3 billion) a day from the Reserve Bank of India last quarter, the most since 2000, as they struggled to meet rising demand for loans. The overnight borrowing rate between local banks was 6.38 percent last week, up from 5.5 percent a week earlier.
Deposit Growth
Deposits grew 14.7 percent in the two weeks ended Dec. 17 from a year earlier, lagging behind a 23.7 percent increase in lending, according to central bank data.
India’s state-run banks need to raise more capital to sustain credit growth, Chakravarthy Rangarajan, the prime minister’s chief economic adviser, said in New Delhi on Jan. 7.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell six basis points this month to 154 basis points on Jan. 6, according to CMA credit-default swaps prices.
Credit swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. The contracts rise when creditworthiness deteriorates and fall when it improves.
Issuance may revive across Asia, according to Aberdeen.
“A few Chinese companies and other Asian companies that did not go through with their issuance plans are now coming back,” Faddoul said. “January is when activity picks up and you have more people present to drive appetite.”
Yields Fall
The rate on emerging-market sovereign debt was 5.82 percent on Jan. 6, down from a five-month high of 5.99 on Dec. 16, according to an index compiled by JPMorgan Chase & Co. The spread to U.S. Treasuries narrowed to 229 basis points from 248 at the end of last year.
Elsewhere in Indian markets, the rupee had a weekly drop as investors bought dollars on rising confidence in the U.S. economy. The rupee declined 1.5 percent to 45.3850 per dollar, according to data compiled by Bloomberg.
Indian government bonds fell last week, pushing yields to the highest level in a month, on speculation the central bank will resume raising rates this month to slow food-price inflation.
“There are still three more weeks before the monetary policy action and the Reserve Bank of India should watch the behavior of the prices,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an interview on Jan. 7 in Gurgaon, near New Delhi. “If prices continue to remain sticky, then probably some action will be required.”
The yield on the benchmark 7.80 percent bond due in May 2020 rose seven basis points to 8.2 percent on Jan. 7, according to the central bank’s trading system.
Food prices surged 18.32 percent in the week ended Dec. 25 from a year earlier, the most since July, according to a commerce ministry statement. The central bank is set to review monetary policy on Jan. 25.
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