This question leaps to the mind navigating the ruins of Japanese cities like Tagajo. Skylines now look as if Dali’s surrealist brush had a hand in rendering things so out of place. Escher’s mind seems at work, too. Interlocking shapes that shouldn’t exist in the three-dimensional world litter cityscapes that before March 11’s earthquake and tsunami were pretty run of the mill.
The mess one confronts in the northeast -- flattened buildings, fleets of destroyed Toyotas at ports, ships sitting in the middle of streets, the search for bodies -- graphically demonstrates why Standard & Poor’s is so worried about Japan. Concerned about the magnitude of the reconstruction bill, S&P cut Japan’s rating outlook.
So is Japan on the verge of a debt crisis? No, and that may just be the problem.
Rising stocks and bond prices show traders aren’t buying the despair about Japan’s finances. They are focusing on the nation’s $15 trillion of household savings, the government’s latitude to raise taxes and the fact that about 95 percent of public debt is held domestically.
Yet Japan’s day of reckoning will arrive at some point, and the longer it’s delayed, the worse it will be. This is an ideal moment for the bond vigilantes, who from time to time take matters into their own hands and boost yields, to teach Japan a lesson. Nothing of the sort is happening.
Keep Borrowing
On Wednesday, the day S&P threatened to downgrade Japan, credit-default swaps protecting government debt for five years returned to their pre-March 11 trading range. The message to politicians: By all means, continue borrowing with abandon.
It’s not unlike what’s afoot in the U.S. Negativity about America’s budget deficit has investors like Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., abandoning Treasuries. Bond dealers disagree, as evidenced by the 3.32 percent yield on the 10-year note. Broadly speaking, the bond market doesn’t seem worried about the U.S.
Looked at through this lens, traders are even less perturbed by Japan’s debt load; 10-year yields are a paltry 1.2 percent. One explanation for why markets are ignoring S&P is that credit rating companies, wrong on just about every major crisis of the last 15 years, have lost all credibility in Asia.
Complacent Markets
The more worrisome one is that markets are complacent. It’s hard not to draw this conclusion when you trek around the Sendai region, which was inundated by the tsunami. From my vantage point, the initial $300 billion reconstruction estimates are fanciful. So, too, might be S&P’s suggestion that the price tag would, at the high end, be $613 billion. It may cost far more.
The challenges that held Japan back before the quake are more acute now. The one most evident in the tsunami zone is how an aging and shrinking population symbolizes the decline of economic life in rural areas. The question isn’t just how to rebuild, but whether to even bother in some places.
There’s also the question of when to start. Economic logic tells you to begin right away. After a 1995 quake, the city of Kobe acted fast and vibrant growth followed. Such thinking is callous and borderline immoral to the likes of Shintaro Takegawa.
Takegawa, 57, is a Sendai truck driver whose company lost more than 90 percent of its fleet when the oceans poured into the city center. He was intrigued to see a wandering foreigner in his midst and offered me a ride back to the train station, a few kilometers from Sendai’s main port.
Why the Hurry?
“There is a big hurry to rebuild, but we have to have respect for the dead and the missing -- more than 25,000 people,” Takegawa explains. “Why can’t we wait a few months?”
This sentiment is common in Japan’s northeast. I heard it, for example, from police officers in the city of Natori, which was literally wiped off the map last month. My Bloomberg News colleagues who have traveled extensively around Tohoku since March 11 routinely encounter it, too. It underscores the challenges facing a nation anxious to dispatch construction crews.
The nuclear crisis in Fukushima is another wild card. This week, electronics maker Sharp Corp. became the latest company to delay making forecasts for this year, citing difficulty in estimating the financial toll of the last several weeks.
Japan is in bizarre economic territory. Bank of Japan Governor Masaaki Shirakawa isn’t exaggerating when he says the economy faces “strong downward pressure.” That dynamic, coupled with the cost of rebuilding Tohoku, means issuing lots of new debt.
You would think that with Japan’s debt-to-gross domestic product ratio -- already 200 percent -- set to widen, traders would be wary. You would think a nation with a shrinking population would be chastened by markets for over-borrowing and forced to find another way to boost growth.
No, traders are saying all is well and giving Japan the green light to sell bonds. One can only imagine the market surrealism that will begin once that light turns yellow or, worse, red.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
Friday, April 29, 2011
Morocco Cafe Blast Kills 17 in Tourist Area; U.S. Condemns ‘Terrorist Act’
A blast ripped through a restaurant in downtown Marrakech, Morocco, killing at least 17 people, al Arabiya television reported, citing an unidentified security official who said it was caused by a suicide bomber.
The attack yesterday, which injured about 20 people according to Karim Taj, chief of staff for the North African nation’s communications minister, hit the Argana Restaurant in the Djemma el-Fna square, a popular tourist destination. Six French nationals were among the dead, Al Arabiya television said, without saying where it got the information.
“Killing innocent people in this way could be nothing but an act of terror,” Taj said in an interview yesterday.
The attack was the deadliest in Morocco since 2003, when suicide bombers simultaneously struck five sites in Casablanca, killing more than 40 people and wounding at least 100. It struck at the heart of Morocco’s tourism industry, which accounts for almost 10 percent of gross domestic product. Revenue from tourism was the biggest foreign-currency earner last year, drawing 56.6 billion dirhams ($7 billion).
“Acts of terrorism must not be tolerated wherever and whenever they occur,” U.S. Secretary of State Hillary Clinton said in a statement released in Washington last night. French President Nicolas Sarkozy also condemned the act of terrorism, and United Nations Secretary-General Ban Ki-moon expressed his “firm rejection of the use of indiscriminate violence against innocent civilians.”
Stocks Fall
Morocco’s MADEX Free Float Index (MOSEMDX) fell as much as 3.5 percent and declined 1.6 percent, the most since April 1, to 9,694.51 at the 3:30 p.m. close of trading in Casablanca yesterday.
“Foreigners are getting out,” Amine Larhrib, head of the international desk at CDG Capital Bourse, said in a telephone interview yesterday from Casablanca. “They’re afraid of getting stuck like they did in Egypt. This is just a normal reaction to the news, but I think this is an isolated incident.”
A series of bombings occurred in 2007 in Casablanca, including two that were detonated simultaneously outside the U.S. Consulate General and the American Language Center, according to the U.S. State Department website. It notes that “the potential for terrorist violence against U.S. citizens and interests remains high in Morocco.”
No U.S. Casualties
No U.S. casualties from the explosion have been reported, Liz Gracon, a U.S. public affairs officer, said yesterday in a telephone interview from Casablanca.
The popular protests that ousted Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak have spread to Morocco, though they have been smaller and more peaceful. Morocco’s King Mohammed VI pledged on March 9 to create a commission to review the country’s constitution by June and for a referendum to be held after that. He promised to allow religious freedom and more transparent justice.
Morocco “will confront this hideous criminal act” and is “determined to press ahead with its democratic project,” Taj said.
The attack yesterday, which injured about 20 people according to Karim Taj, chief of staff for the North African nation’s communications minister, hit the Argana Restaurant in the Djemma el-Fna square, a popular tourist destination. Six French nationals were among the dead, Al Arabiya television said, without saying where it got the information.
“Killing innocent people in this way could be nothing but an act of terror,” Taj said in an interview yesterday.
The attack was the deadliest in Morocco since 2003, when suicide bombers simultaneously struck five sites in Casablanca, killing more than 40 people and wounding at least 100. It struck at the heart of Morocco’s tourism industry, which accounts for almost 10 percent of gross domestic product. Revenue from tourism was the biggest foreign-currency earner last year, drawing 56.6 billion dirhams ($7 billion).
“Acts of terrorism must not be tolerated wherever and whenever they occur,” U.S. Secretary of State Hillary Clinton said in a statement released in Washington last night. French President Nicolas Sarkozy also condemned the act of terrorism, and United Nations Secretary-General Ban Ki-moon expressed his “firm rejection of the use of indiscriminate violence against innocent civilians.”
Stocks Fall
Morocco’s MADEX Free Float Index (MOSEMDX) fell as much as 3.5 percent and declined 1.6 percent, the most since April 1, to 9,694.51 at the 3:30 p.m. close of trading in Casablanca yesterday.
“Foreigners are getting out,” Amine Larhrib, head of the international desk at CDG Capital Bourse, said in a telephone interview yesterday from Casablanca. “They’re afraid of getting stuck like they did in Egypt. This is just a normal reaction to the news, but I think this is an isolated incident.”
A series of bombings occurred in 2007 in Casablanca, including two that were detonated simultaneously outside the U.S. Consulate General and the American Language Center, according to the U.S. State Department website. It notes that “the potential for terrorist violence against U.S. citizens and interests remains high in Morocco.”
No U.S. Casualties
No U.S. casualties from the explosion have been reported, Liz Gracon, a U.S. public affairs officer, said yesterday in a telephone interview from Casablanca.
The popular protests that ousted Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak have spread to Morocco, though they have been smaller and more peaceful. Morocco’s King Mohammed VI pledged on March 9 to create a commission to review the country’s constitution by June and for a referendum to be held after that. He promised to allow religious freedom and more transparent justice.
Morocco “will confront this hideous criminal act” and is “determined to press ahead with its democratic project,” Taj said.
India shuns US in $11bn fighter deal
India has shortlisted European jet fighters, in preference to US and Russian rivals, in a hotly contested $11bn competition to supply the Indian air force with advanced combat aircraft.
At stake is a deal to equip India with 126 multi-role fighter jets in one of the world’s largest military contracts. The winning bid is expected to shape India’s air power for the next three decades and serve as the bedrock of a strategic partnership.
After trials, India selected France’s Dassault Rafale and the multinational Eurofighter Typhoon – both currently operating over Libya – to compete in the next stage of the competition, according to India’s defence ministry. A spokesman told the Financial Times that a final decision would be taken within a year.
The move will be a blow to the US. Washington strongly lobbied India to buy its aircraft as payback for the landmark Indian-US civil nuclear deal in 2008. The agreement – brokered by Manmohan Singh, Indian premier, and then-US president George W. Bush – brought India’s nuclear programme out of decades of global isolation.
Timothy Roemer, US ambassador to Delhi, said the US was “deeply disappointed” by the decision not to select US defence companies. Earlier on Thursday, Mr Roemer, a personal friend of Barack Obama, US president, announced his resignation.
While Mr Roemer said he was leaving India for personal reasons, as ambassador he had heavily promoted the US bids. He said he had “accomplished all of the strategic objectives set forth two years ago” when he took the job.
Top Indian officials and politicians had indicated that they wished to buy US military hardware to improve a fast-warming relationship between the two democracies in the wake of the transformative nuclear deal.
The US had pitched Boeing’s F/A-18 Super Hornet and Lockheed’s F-16 Super Viper against the Eurofighter Typhoon, Dassault’s Rafale, Sweden’s Saab Gripen and Russia’s MiG-35.
Defence experts considered the US fighters to be less advanced than some of the competition. But rival bidders were worried that political clout from Washington would give US competitors an advantage. Saab was always considered an outsider but was thought to have a competitively priced bid. Meanwhile, the Russians had earlier secured a partnership with India to build a so-called fifth-generation stealth fighter.
Uday Bhaskar, a defence analyst, said that the jets had been assessed on technical grounds but the final decision could not be divorced from geopolitics. “There can be no doubt that the bilateral US-India relationship will be significantly influenced by this decision,” he said.
The Indian government has in recent months been hit by a series of damaging corruption scandals involving alleged political interference and the integrity of regulation. One consequence, analysts said, was a reluctance to introduce political wrangling into the fighter jet contract.
Siddharth Varadarajan, strategic affairs editor of The Hindu newspaper, said Washington would almost certainly try to press New Delhi to reconsider, as it did successfully in a bitter competition for advanced light helicopters several years ago.
Mr Varadarajan, however, said it would be “virtually impossible” for Mr Singh to override the air force technical evaluations. “He will not be able to manage the politics of cancelling this to mollify the Americans,” he said.
At stake is a deal to equip India with 126 multi-role fighter jets in one of the world’s largest military contracts. The winning bid is expected to shape India’s air power for the next three decades and serve as the bedrock of a strategic partnership.
After trials, India selected France’s Dassault Rafale and the multinational Eurofighter Typhoon – both currently operating over Libya – to compete in the next stage of the competition, according to India’s defence ministry. A spokesman told the Financial Times that a final decision would be taken within a year.
The move will be a blow to the US. Washington strongly lobbied India to buy its aircraft as payback for the landmark Indian-US civil nuclear deal in 2008. The agreement – brokered by Manmohan Singh, Indian premier, and then-US president George W. Bush – brought India’s nuclear programme out of decades of global isolation.
Timothy Roemer, US ambassador to Delhi, said the US was “deeply disappointed” by the decision not to select US defence companies. Earlier on Thursday, Mr Roemer, a personal friend of Barack Obama, US president, announced his resignation.
While Mr Roemer said he was leaving India for personal reasons, as ambassador he had heavily promoted the US bids. He said he had “accomplished all of the strategic objectives set forth two years ago” when he took the job.
Top Indian officials and politicians had indicated that they wished to buy US military hardware to improve a fast-warming relationship between the two democracies in the wake of the transformative nuclear deal.
The US had pitched Boeing’s F/A-18 Super Hornet and Lockheed’s F-16 Super Viper against the Eurofighter Typhoon, Dassault’s Rafale, Sweden’s Saab Gripen and Russia’s MiG-35.
Defence experts considered the US fighters to be less advanced than some of the competition. But rival bidders were worried that political clout from Washington would give US competitors an advantage. Saab was always considered an outsider but was thought to have a competitively priced bid. Meanwhile, the Russians had earlier secured a partnership with India to build a so-called fifth-generation stealth fighter.
Uday Bhaskar, a defence analyst, said that the jets had been assessed on technical grounds but the final decision could not be divorced from geopolitics. “There can be no doubt that the bilateral US-India relationship will be significantly influenced by this decision,” he said.
The Indian government has in recent months been hit by a series of damaging corruption scandals involving alleged political interference and the integrity of regulation. One consequence, analysts said, was a reluctance to introduce political wrangling into the fighter jet contract.
Siddharth Varadarajan, strategic affairs editor of The Hindu newspaper, said Washington would almost certainly try to press New Delhi to reconsider, as it did successfully in a bitter competition for advanced light helicopters several years ago.
Mr Varadarajan, however, said it would be “virtually impossible” for Mr Singh to override the air force technical evaluations. “He will not be able to manage the politics of cancelling this to mollify the Americans,” he said.
Wednesday, April 27, 2011
Sokol Is Accused of Misleading Buffett on Trades
Berkshire Hathaway directors have accused David L. Sokol, once considered a possible successor to Warren E. Buffett, of misleading the company about his personal stake in a lubricant manufacturer that Berkshire recently agreed to acquire.
Mr. Sokol, who resigned in March, never told Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers pitched the company as a potential takeover target, according to a report by the audit committee of the Berkshire board that was released on Wednesday.
“His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,” the report says, which adds that Mr. Sokol may have failed his fiduciary duty under the law of Delaware, where Berkshire is incorporated.
The accusations are a stark turnaround for Berkshire, which had been careful not to criticize its former star manager. Indeed, when Mr. Buffett announced Mr. Sokol’s resignation on March 30, he said, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful.”
Berkshire’s annual shareholder meeting is on Saturday, an event in Omaha known as the Woodstock of capitalism that is attended by thousands. Investors and journalists had been expected to try to question Mr. Buffett about Mr. Sokol and the Lubrizol trades. The board’s report, which finds no fault with Mr. Buffett’s handling of the affair, could mute some of the scrutiny facing Berkshire.
The report also concluded that Mr. Sokol defied Berkshire’s insider trading policies by accumulating the personal stake in Lubrizol while orchestrating a potential takeover of the company. Munger, Tolles & Olson, Mr. Buffett’s longtime outside law firm, helped prepare the report, which was presented to Berkshire’s board on Tuesday night. Ronald L. Olson, a partner at the firm, sits on Berkshire’s board.
Berkshire’s board and audit committee are considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits,” the report says.
The Securities and Exchange Commission, meanwhile, is investigating Mr. Sokol’s trading, according to people close to the inquiry.
But Mr. Sokol’s lawyer, Barry W. Levine of Dickstein Shapiro, disputed several major assertions in the report, saying that his client had not traded improperly or violated company policies. Mr. Levine said that Mr. Sokol had been looking at a personal investment in Lubrizol since summer 2010, before Citigroup bankers had pitched Lubrizol. And he said that his client had told Mr. Buffett “twice, not once” about his ownership of Lubrizol shares before Mr. Buffett began discussions with the company.
“I am profoundly disappointed that the audit committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol,” Mr. Levine said in a statement.
As a Berkshire manager, Mr. Sokol had stressed the importance of integrity and ethics to his employees. In his 2007 self-published book, “Pleased, But Not Satisfied,” Mr. Sokol, wrote: “Integrity is merely doing what is right, even when no one else is looking. It is being honest and candid. It is being forthright and candid.”
Mr. Sokol, 54, resigned from the company in March after it emerged that he had personally bought $10 million worth of stock in Lubrizol shortly before bringing the company to Mr. Buffett’s attention. Berkshire later agreed to buy Lubrizol for $9 billion — causing Lubrizol’s shares to surge and increasing the value of Mr. Sokol’s holding by some $3 million.
The shift in Berkshire’s position toward Mr. Sokol came, the audit committee’s report says, because Mr. Buffett and the company did not have the full story in March. Mr. Sokol’s conversations with Mr. Buffett and others at Berkshire about his investment in Lubrizol were “intended to deceive” and “its effect was to mislead,” the report said.
Most notably, Mr. Sokol failed to tell Mr. Buffett about the central role that Citigroup played in spawning the Lubrizol deal, according to the report. Mr. Buffett is known to mistrust Wall Street, while Mr. Sokol often flew to New York to huddle with bankers about potential deals.
Mr. Sokol first expressed interest in a Lubrizol acquisition in December, after Citigroup bankers recommended the company as a possible takeover target. Mr. Sokol jumped at the idea.
Citigroup then played matchmaker between Mr. Sokol and Lubrizol’s chief executive, James L. Hambrick, shuttling information between the two executives.
On Dec. 17, a Citigroup banker called Lubrizol’s chief executive to let him know about Berkshire’s possible interest. That same day, Citigroup told Mr. Sokol, then chairman of MidAmerican Energy and NetJets, that Mr. Hambrick planned to discuss the matter with his board.
On Jan. 5, 6 and 7, Mr. Sokol accumulated nearly 100,000 Lubrizol shares.
Soon after, Mr. Sokol suggested a Lubrizol deal to Mr. Buffett, who was initially cool to the idea.
When Mr. Buffett asked Mr. Sokol what started his interest in Lubrizol, Mr. Sokol said he owned the stock.
Mr. Sokol did not disclose that he bought the shares only after Citi pitched the company as a potential takeover target. And Mr. Buffett did not ask about the extent of his stake in the company.
The details of Mr. Sokol’s purchases — and Citi’s involvement in the deal — were not known until a bank representative told Mr. Buffett after the deal was announced on March 14.
“This was the first time Mr. Buffett heard that investment bankers played any role in introducing Lubrizol to Mr. Sokol, and did not square with Mr. Sokol’s remark in January that he had come to know Lubrizol by owning the stock,” the report said.
The report did not take Mr. Buffett to task for failing to press Mr. Sokol for additional details. Some analysts and corporate governance experts have criticized Mr. Buffett for trusting Mr. Sokol’s original account of the situation.
“It did not cross Mr. Buffett’s mind at that time that Mr. Sokol might have bought Lubrizol shares after seeking through investment bankers to initiate discussions with Lubrizol concerning a possible Berkshire Hathaway acquisition of Lubrizol,” the report said.
Shortly before Berkshire publicly disclosed Mr. Sokol’s resignation, he had one last chance to set the record straight.
Mr. Buffett allowed Mr. Sokol to edit for accuracy an advance copy of the press release announcing his resignation.
Mr. Sokol deleted only one sentence that implied that he resigned because the Lubrizol trades would hinder his chances of succeeding Mr. Buffett.
Mr. Sokol, according to the report, said the sentence was inaccurate.
Mr. Sokol, who resigned in March, never told Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers pitched the company as a potential takeover target, according to a report by the audit committee of the Berkshire board that was released on Wednesday.
“His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,” the report says, which adds that Mr. Sokol may have failed his fiduciary duty under the law of Delaware, where Berkshire is incorporated.
The accusations are a stark turnaround for Berkshire, which had been careful not to criticize its former star manager. Indeed, when Mr. Buffett announced Mr. Sokol’s resignation on March 30, he said, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful.”
Berkshire’s annual shareholder meeting is on Saturday, an event in Omaha known as the Woodstock of capitalism that is attended by thousands. Investors and journalists had been expected to try to question Mr. Buffett about Mr. Sokol and the Lubrizol trades. The board’s report, which finds no fault with Mr. Buffett’s handling of the affair, could mute some of the scrutiny facing Berkshire.
The report also concluded that Mr. Sokol defied Berkshire’s insider trading policies by accumulating the personal stake in Lubrizol while orchestrating a potential takeover of the company. Munger, Tolles & Olson, Mr. Buffett’s longtime outside law firm, helped prepare the report, which was presented to Berkshire’s board on Tuesday night. Ronald L. Olson, a partner at the firm, sits on Berkshire’s board.
Berkshire’s board and audit committee are considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits,” the report says.
The Securities and Exchange Commission, meanwhile, is investigating Mr. Sokol’s trading, according to people close to the inquiry.
But Mr. Sokol’s lawyer, Barry W. Levine of Dickstein Shapiro, disputed several major assertions in the report, saying that his client had not traded improperly or violated company policies. Mr. Levine said that Mr. Sokol had been looking at a personal investment in Lubrizol since summer 2010, before Citigroup bankers had pitched Lubrizol. And he said that his client had told Mr. Buffett “twice, not once” about his ownership of Lubrizol shares before Mr. Buffett began discussions with the company.
“I am profoundly disappointed that the audit committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol,” Mr. Levine said in a statement.
As a Berkshire manager, Mr. Sokol had stressed the importance of integrity and ethics to his employees. In his 2007 self-published book, “Pleased, But Not Satisfied,” Mr. Sokol, wrote: “Integrity is merely doing what is right, even when no one else is looking. It is being honest and candid. It is being forthright and candid.”
Mr. Sokol, 54, resigned from the company in March after it emerged that he had personally bought $10 million worth of stock in Lubrizol shortly before bringing the company to Mr. Buffett’s attention. Berkshire later agreed to buy Lubrizol for $9 billion — causing Lubrizol’s shares to surge and increasing the value of Mr. Sokol’s holding by some $3 million.
The shift in Berkshire’s position toward Mr. Sokol came, the audit committee’s report says, because Mr. Buffett and the company did not have the full story in March. Mr. Sokol’s conversations with Mr. Buffett and others at Berkshire about his investment in Lubrizol were “intended to deceive” and “its effect was to mislead,” the report said.
Most notably, Mr. Sokol failed to tell Mr. Buffett about the central role that Citigroup played in spawning the Lubrizol deal, according to the report. Mr. Buffett is known to mistrust Wall Street, while Mr. Sokol often flew to New York to huddle with bankers about potential deals.
Mr. Sokol first expressed interest in a Lubrizol acquisition in December, after Citigroup bankers recommended the company as a possible takeover target. Mr. Sokol jumped at the idea.
Citigroup then played matchmaker between Mr. Sokol and Lubrizol’s chief executive, James L. Hambrick, shuttling information between the two executives.
On Dec. 17, a Citigroup banker called Lubrizol’s chief executive to let him know about Berkshire’s possible interest. That same day, Citigroup told Mr. Sokol, then chairman of MidAmerican Energy and NetJets, that Mr. Hambrick planned to discuss the matter with his board.
On Jan. 5, 6 and 7, Mr. Sokol accumulated nearly 100,000 Lubrizol shares.
Soon after, Mr. Sokol suggested a Lubrizol deal to Mr. Buffett, who was initially cool to the idea.
When Mr. Buffett asked Mr. Sokol what started his interest in Lubrizol, Mr. Sokol said he owned the stock.
Mr. Sokol did not disclose that he bought the shares only after Citi pitched the company as a potential takeover target. And Mr. Buffett did not ask about the extent of his stake in the company.
The details of Mr. Sokol’s purchases — and Citi’s involvement in the deal — were not known until a bank representative told Mr. Buffett after the deal was announced on March 14.
“This was the first time Mr. Buffett heard that investment bankers played any role in introducing Lubrizol to Mr. Sokol, and did not square with Mr. Sokol’s remark in January that he had come to know Lubrizol by owning the stock,” the report said.
The report did not take Mr. Buffett to task for failing to press Mr. Sokol for additional details. Some analysts and corporate governance experts have criticized Mr. Buffett for trusting Mr. Sokol’s original account of the situation.
“It did not cross Mr. Buffett’s mind at that time that Mr. Sokol might have bought Lubrizol shares after seeking through investment bankers to initiate discussions with Lubrizol concerning a possible Berkshire Hathaway acquisition of Lubrizol,” the report said.
Shortly before Berkshire publicly disclosed Mr. Sokol’s resignation, he had one last chance to set the record straight.
Mr. Buffett allowed Mr. Sokol to edit for accuracy an advance copy of the press release announcing his resignation.
Mr. Sokol deleted only one sentence that implied that he resigned because the Lubrizol trades would hinder his chances of succeeding Mr. Buffett.
Mr. Sokol, according to the report, said the sentence was inaccurate.
Mumbai’s Home Sales Drop to Two-Year Low as Unsold Units Climb to a Record
Mumbai home sales dropped to a two- year low in the first quarter as record prices and interest rates at the highest since 2008 crimped demand, increasing the number of unsold units to a record, according to Liases Foras Real Estate Rating & Research Pvt.
Sales in Mumbai, India’s most expensive property market, fell to 9.09 million square feet in the three months ended March, 14 percent lower than the December quarter and the lowest since the first quarter of 2009, Mumbai-based Pankaj Kapoor, founder of Liases Foras said. Unsold stock climbed to 105 million square feet, while the weighted average price of homes rose to a record 9,234 rupees ($208) a square foot.
“This clearly shows the inefficiency in the market, that at higher prices there are no buyers,” Kapoor said in an interview yesterday. “Either prices need to correct or the situation could get worse.” Mumbai’s residential property market will stagnate over the next couple of years until prices decline to match affordability and income levels rise, he said.
Sales fell to 57.47 billion rupees in the three months, a 27 percent drop from the December quarter and the lowest in two years, according to Liases Foras, a real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender.
The nation’s real estate industry is expected to face “large-scale distress” amid rising borrowing costs and shrinking access to credit that may force developers into fire sales for assets, according to Knight Frank LLP.
Unaffordable Prices
Prices have become unaffordable in cities like Mumbai and Delhi, Mark Matthews, a Singapore-based strategist at Macquarie Group Ltd., Australia’s biggest investment bank, said in an interview on April 26. Prices will have to decline or developers won’t be able to sell their projects, he said.
India’s central bank increased interest rates for the eighth time in a year after raising its inflation forecast twice in three months. The Reserve Bank of India last month raised the repurchase rate to 6.75 percent from 6.5 percent and boosted the reverse repurchase rate by 25 basis points to 5.75 percent.
Sales in Delhi and its surrounding areas have climbed 32 percent to 27 million square feet in the quarter, compared with the previous three months, while unsold units are at a record 194 million square feet, Liases Foras said.
The weighted average selling price dropped to 2,673 rupees a square feet, 1.7 percent lower than the December quarter as more affordable housing was sold in areas such as Noida and Greater Noida, near Delhi, Kapoor said.
Sales in Mumbai, India’s most expensive property market, fell to 9.09 million square feet in the three months ended March, 14 percent lower than the December quarter and the lowest since the first quarter of 2009, Mumbai-based Pankaj Kapoor, founder of Liases Foras said. Unsold stock climbed to 105 million square feet, while the weighted average price of homes rose to a record 9,234 rupees ($208) a square foot.
“This clearly shows the inefficiency in the market, that at higher prices there are no buyers,” Kapoor said in an interview yesterday. “Either prices need to correct or the situation could get worse.” Mumbai’s residential property market will stagnate over the next couple of years until prices decline to match affordability and income levels rise, he said.
Sales fell to 57.47 billion rupees in the three months, a 27 percent drop from the December quarter and the lowest in two years, according to Liases Foras, a real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender.
The nation’s real estate industry is expected to face “large-scale distress” amid rising borrowing costs and shrinking access to credit that may force developers into fire sales for assets, according to Knight Frank LLP.
Unaffordable Prices
Prices have become unaffordable in cities like Mumbai and Delhi, Mark Matthews, a Singapore-based strategist at Macquarie Group Ltd., Australia’s biggest investment bank, said in an interview on April 26. Prices will have to decline or developers won’t be able to sell their projects, he said.
India’s central bank increased interest rates for the eighth time in a year after raising its inflation forecast twice in three months. The Reserve Bank of India last month raised the repurchase rate to 6.75 percent from 6.5 percent and boosted the reverse repurchase rate by 25 basis points to 5.75 percent.
Sales in Delhi and its surrounding areas have climbed 32 percent to 27 million square feet in the quarter, compared with the previous three months, while unsold units are at a record 194 million square feet, Liases Foras said.
The weighted average selling price dropped to 2,673 rupees a square feet, 1.7 percent lower than the December quarter as more affordable housing was sold in areas such as Noida and Greater Noida, near Delhi, Kapoor said.
Point of no return for typewriters
Once considered a symbol of Nehru’s modernising India, the typewriter will soon cease to be found on shop shelves.
Godrej & Boyce, one of India’s dynastic conglomerates and the world’s last manufacturer of office typewriters, stopped production at its factory in Pune in 2009. Since then, the company has been selling leftover stock out of which only about 200 typewriters are left, according to a spokesperson for Godrej.
Typewriters, which have been an integral part of the country’s bureaucratic fabric since before India’s independence, are increasingly being replaced by computers as the country makes its giant leap forward into the 21st century.
The Godrej typewriter factory, set up in Mumbai in 1955, signalled technological advancement in independent India. Befitting Nehru’s technocratic vision of a self-reliant India, Godrej typewriters of the time included only four imported components in the 1,800-part machine. That was considered a feat for which Mr Godrej was personally congratulated by Nehru, the prime minister.
Typewriters became a status symbol in the 1960s. Many Indian families still have the machines preserved in a corner of the living room, as a reminder of past wealth and well-being.
After the 1960s, the machine played a central role in the country’s bureaucracy, banks and businesses. Typewriters are still a common sight in the offices of lawyers and judges and outside the court on the streets. Even in Mumbai notaries and other legal professionals can still be found sitting outside the courtroom, tapping away on their typewriters.
At its peak, Godrej produced 50,000 typewriters a year in 40 different languages, including regional Indian languages. It held 50 per cent of the Indian market at the time and also exported the machine to many countries in north Africa and the Middle East.
Today, the factory has been revamped into a refrigeration unit and many of the staff have been retrained.
As for the last few typewriters left in the stock, only 20 are in English, with the rest in Arabic, but demand for what could be a collector’s item is extremely high.
“Over the past couple of days a lot of people have started calling in. Mostly individuals have been making enquiries about purchasing the typewriters,” said the spokesperson.
Godrej & Boyce, one of India’s dynastic conglomerates and the world’s last manufacturer of office typewriters, stopped production at its factory in Pune in 2009. Since then, the company has been selling leftover stock out of which only about 200 typewriters are left, according to a spokesperson for Godrej.
Typewriters, which have been an integral part of the country’s bureaucratic fabric since before India’s independence, are increasingly being replaced by computers as the country makes its giant leap forward into the 21st century.
The Godrej typewriter factory, set up in Mumbai in 1955, signalled technological advancement in independent India. Befitting Nehru’s technocratic vision of a self-reliant India, Godrej typewriters of the time included only four imported components in the 1,800-part machine. That was considered a feat for which Mr Godrej was personally congratulated by Nehru, the prime minister.
Typewriters became a status symbol in the 1960s. Many Indian families still have the machines preserved in a corner of the living room, as a reminder of past wealth and well-being.
After the 1960s, the machine played a central role in the country’s bureaucracy, banks and businesses. Typewriters are still a common sight in the offices of lawyers and judges and outside the court on the streets. Even in Mumbai notaries and other legal professionals can still be found sitting outside the courtroom, tapping away on their typewriters.
At its peak, Godrej produced 50,000 typewriters a year in 40 different languages, including regional Indian languages. It held 50 per cent of the Indian market at the time and also exported the machine to many countries in north Africa and the Middle East.
Today, the factory has been revamped into a refrigeration unit and many of the staff have been retrained.
As for the last few typewriters left in the stock, only 20 are in English, with the rest in Arabic, but demand for what could be a collector’s item is extremely high.
“Over the past couple of days a lot of people have started calling in. Mostly individuals have been making enquiries about purchasing the typewriters,” said the spokesperson.
Asian Stocks Rise on Fed’s Low-Rate Pledge
Asian stocks rose, sending the regional benchmark index to its highest level since February, after the Federal Reserve renewed its pledge to stimulate U.S. economic growth with low interest rates and as companies from Advantest Corp. (6857) and Komatsu Ltd. (6301) posted higher earnings.
Honda Motor Co., the Japanese carmaker that gets about 45 percent of sales from North America, gained 2.4 percent in Tokyo. Advantest, the world’s biggest maker of memory-chip testers, surged 5.6 percent. Komatsu, the world’s second-largest maker of construction equipment, advanced 2.4 percent. Computershare Ltd. (CPU), the world’s No. 1 share registrar, jumped 7.7 percent in Sydney after agreeing to buy the shareholder services business of Bank of New York Mellon Corp. for $550 million.
The MSCI Asia Pacific Index increased 1.4 percent to 139.74 at 11:10 a.m. in Tokyo, heading for its highest close since Feb. 18. More than two stocks gained for each that dropped. The measure climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
“We have a combination of low interest rates and strong earnings,” said Nader Naeimi, a Sydney-based strategist for AMP Capital, which has almost $100 billion under management. “It’s a pretty good cocktail for a good equity market.”
Japan’s Nikkei 225 (NKY) Stock Average rose 1.3 percent, the highest since the March 11 earthquake and tsunami. Investors shrugged off a government report today that showed Japan’s industrial production plunged last month after the temblor led to shuttered factories.
New Zealand Rates
New Zealand’s NZX 50 Index rose 0.5 percent after the nation’s central bank kept its benchmark interest rate at a record low as the country recovers from its most devastating earthquake in 80 years.
South Korea’s Kospi Index and Australia’s S&P/ASX 200 Index both gained 0.5 percent. Hong Kong’s Hang Seng Index added 0.7 percent, while China’s Shanghai Composite Index jumped 0.8 percent.
Futures on the Standard & Poor’s 500 Index gained 0.4 percent today. In New York yesterday, the index rose 0.6 percent to 1,355.66. Federal Reserve Chairman Ben S. Bernanke signaled the Fed will maintain its record monetary stimulus after ending large-scale bond purchases in June, while the need to contain inflation means further easing is unlikely.
“The U.S. will continue its easing monetary policy, as was expected,” said Toshio Sumitani, a strategist at Tokai Tokyo Research Center. “Stocks in the U.S. are rising with support from the easing policy, as they are cheap. Gains in U.S. stocks are positive for other stock markets.”
U.S. Orders
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008.
Bernanke reinforced the view of the Federal Open Market Committee, which released its policy statement yesterday, that borrowing costs are likely to stay low for “an extended period.” The panel agreed to finish $600 billion of Treasury purchases in June and said surging commodity prices will probably have a transitory effect on inflation.
The Commerce Department said yesterday that orders for U.S. durable goods rose in March for a third consecutive month, showing businesses intend to keep spending to update equipment.
The MSCI Asia Pacific Index increased just 0.1 percent this year through yesterday, compared with gains of 7.8 percent by the S&P 500 and 2.3 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.4 times for the Stoxx 600.
Honda Motor Co., the Japanese carmaker that gets about 45 percent of sales from North America, gained 2.4 percent in Tokyo. Advantest, the world’s biggest maker of memory-chip testers, surged 5.6 percent. Komatsu, the world’s second-largest maker of construction equipment, advanced 2.4 percent. Computershare Ltd. (CPU), the world’s No. 1 share registrar, jumped 7.7 percent in Sydney after agreeing to buy the shareholder services business of Bank of New York Mellon Corp. for $550 million.
The MSCI Asia Pacific Index increased 1.4 percent to 139.74 at 11:10 a.m. in Tokyo, heading for its highest close since Feb. 18. More than two stocks gained for each that dropped. The measure climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
“We have a combination of low interest rates and strong earnings,” said Nader Naeimi, a Sydney-based strategist for AMP Capital, which has almost $100 billion under management. “It’s a pretty good cocktail for a good equity market.”
Japan’s Nikkei 225 (NKY) Stock Average rose 1.3 percent, the highest since the March 11 earthquake and tsunami. Investors shrugged off a government report today that showed Japan’s industrial production plunged last month after the temblor led to shuttered factories.
New Zealand Rates
New Zealand’s NZX 50 Index rose 0.5 percent after the nation’s central bank kept its benchmark interest rate at a record low as the country recovers from its most devastating earthquake in 80 years.
South Korea’s Kospi Index and Australia’s S&P/ASX 200 Index both gained 0.5 percent. Hong Kong’s Hang Seng Index added 0.7 percent, while China’s Shanghai Composite Index jumped 0.8 percent.
Futures on the Standard & Poor’s 500 Index gained 0.4 percent today. In New York yesterday, the index rose 0.6 percent to 1,355.66. Federal Reserve Chairman Ben S. Bernanke signaled the Fed will maintain its record monetary stimulus after ending large-scale bond purchases in June, while the need to contain inflation means further easing is unlikely.
“The U.S. will continue its easing monetary policy, as was expected,” said Toshio Sumitani, a strategist at Tokai Tokyo Research Center. “Stocks in the U.S. are rising with support from the easing policy, as they are cheap. Gains in U.S. stocks are positive for other stock markets.”
U.S. Orders
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008.
Bernanke reinforced the view of the Federal Open Market Committee, which released its policy statement yesterday, that borrowing costs are likely to stay low for “an extended period.” The panel agreed to finish $600 billion of Treasury purchases in June and said surging commodity prices will probably have a transitory effect on inflation.
The Commerce Department said yesterday that orders for U.S. durable goods rose in March for a third consecutive month, showing businesses intend to keep spending to update equipment.
The MSCI Asia Pacific Index increased just 0.1 percent this year through yesterday, compared with gains of 7.8 percent by the S&P 500 and 2.3 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.4 times for the Stoxx 600.
Tuesday, April 26, 2011
NATO Aims to Rattle Qaddafi With Bombs Falling Close to Home
NATO is increasing the speed of its airstrikes against Muammar Qaddafi’s fielded forces and the proximity of its attacks to the Libyan dictator in an effort to break a stalemate in the military situation, according to military officials.
NATO has received the further firepower it has sought with the addition of Italian ground-attack warplanes and armed U.S. Predator drones intended to increase pressure on Qaddafi and his loyalists to stop attacking civilians in rebel-held areas.
Pro-regime fighters have withdrawn from rebel-held Misrata while continuing daily shelling of the besieged city. Qaddafi’s forces launched a constant bombardment yesterday afternoon and evening against the vital port area, where hundreds of people were gathered awaiting an evacuation ship, the Associated Press reported.
U.K. Defense Secretary Liam Fox said that the NATO strike on April 25 that flattened buildings in Qaddafi’s main compound was meant to do more than knock out what NATO said was a communications bunker.
Attacks in Tripoli are intended to “increase the psychological pressure, apart from anything else, on Qaddafi, to make him realize that this is something that he is involved in,” Fox said during an appearance on PBS’s “NewsHour” program following discussions about Libya with U.S. Defense Secretary Robert Gates. “And I think that’s very important in terms of the pressure we can bring on the regime itself.”
‘Legitimate Targets’
Earlier yesterday, standing alongside Fox at the Pentagon, Gates countered Libya’s assertion that the strike on the Bab al- Aziziya compound was intended to kill Qaddafi. His comments made clear that centers from which Qaddafi commands his forces are “legitimate targets,” possibly putting him at risk.
“We are not targeting him specifically, but we do consider command-and-control targets legitimate targets, wherever we find them,” Gates said.
Qaddafi’s regime has weathered an uprising for more than two months, holding onto the capital, Tripoli, as rebels control much of the oil-rich east. Russian Prime Minister Vladimir Putin repeated his criticism of the NATO effort in Libya, saying the air campaign is destroying the nation’s infrastructure and going beyond the United Nations mandate to protect civilians.
“Libya’s oil reserves, by the way, are the biggest in Africa and its gas reserves are ranked fourth-biggest in Africa,” Putin told reporters in Copenhagen. “This begs the question of whether they are the main object of interest for those operating there today.”
The conflict in Libya has pushed crude oil prices to the highest since September 2008, and they have gained more than 30 percent since mid-February. Futures fluctuated yesterday, with oil for June delivery falling 7 cents to settle at $112.21 a barrel on the New York Mercantile Exchange.
Predator Power
In Washington, Fox said the addition of the Predators, armed with Hellfire missiles, provides NATO with an improved capability to respond to attacks on civilians.
“That’s given us a shorter gap between the identification of targets and striking the targets, rather than the traditional airpower that we’ve been using,” he said on PBS. “So that’s been an advance for us.”
In Italy, Prime Minister Silvio Berlusconi said Italian Air Force jets would join in attacking Qaddafi’s forces.
“The decision by our government hasn’t been an easy one,” he said, describing pressure from U.S. President Barack Obama, U.K. Prime Minister David Cameron and French President Nicolas Sarkozy to join the mission to “speed up a resolution of the Libyan problem.”
Strike Missions
Previously, Italy had limited itself to providing military support, citing its history as Libya’s former colonial ruler. Italy also has had extensive business ties to Libya, including natural gas delivered by pipeline.
Coalition jets flew 56 “strike” missions to identify and engage possible targets on April 25, NATO said. Targets included tanks, rocket launchers and ammunition depots near Tripoli, Misrata and Sirte.
Libyan state television said NATO jets hit civilian and military sites in three districts in the Libyan capital as well as a fiber-optic cable connecting the Qaddafi stronghold of Sirte with the oil ports of Ras Lanuf and Brega to the east, the BBC reported.
‘Desperate and Weak’
“We have seen significant progress made in the last 72 hours with Qaddafi’s forces losing their grip on Misrata, and we have received reports of under-age soldiers and foreign mercenaries being captured -- this underlines the regime’s inability to rely on its own security forces,” Fox said in an e-mailed statement after his talks with Gates. “These are the tactics of an increasingly desperate and weak regime.”
The Libyan government called the NATO strike on a Qaddafi compound an unsuccessful assassination attempt.
“This is not about individuals. This is not about regime change. This is about bringing an end to the violence,” General Charles Bouchard, the Canadian Air Force officer commanding the Libya operation, told reporters via video link from his command center in the southern Italian city of Naples.
British Foreign Secretary William Hague rejected assertions by lawmakers that a stalemate had emerged, given the standoff between Qaddafi loyalists and rebels in the area between Brega and Ajdabiya in western Libya.
“It has not settled into what one would call a long-term stalemate,” Hague told the House of Commons in London yesterday. He said the overall situation remained “very fluid.”
Moussa Ibrahim, a spokesman for the Libyan government, said that Qaddafi was “healthy and well” after the strike on his compound. Libyan television later showed Qaddafi receiving local leaders while sitting in a tent, with a television displaying the date.
NATO has received the further firepower it has sought with the addition of Italian ground-attack warplanes and armed U.S. Predator drones intended to increase pressure on Qaddafi and his loyalists to stop attacking civilians in rebel-held areas.
Pro-regime fighters have withdrawn from rebel-held Misrata while continuing daily shelling of the besieged city. Qaddafi’s forces launched a constant bombardment yesterday afternoon and evening against the vital port area, where hundreds of people were gathered awaiting an evacuation ship, the Associated Press reported.
U.K. Defense Secretary Liam Fox said that the NATO strike on April 25 that flattened buildings in Qaddafi’s main compound was meant to do more than knock out what NATO said was a communications bunker.
Attacks in Tripoli are intended to “increase the psychological pressure, apart from anything else, on Qaddafi, to make him realize that this is something that he is involved in,” Fox said during an appearance on PBS’s “NewsHour” program following discussions about Libya with U.S. Defense Secretary Robert Gates. “And I think that’s very important in terms of the pressure we can bring on the regime itself.”
‘Legitimate Targets’
Earlier yesterday, standing alongside Fox at the Pentagon, Gates countered Libya’s assertion that the strike on the Bab al- Aziziya compound was intended to kill Qaddafi. His comments made clear that centers from which Qaddafi commands his forces are “legitimate targets,” possibly putting him at risk.
“We are not targeting him specifically, but we do consider command-and-control targets legitimate targets, wherever we find them,” Gates said.
Qaddafi’s regime has weathered an uprising for more than two months, holding onto the capital, Tripoli, as rebels control much of the oil-rich east. Russian Prime Minister Vladimir Putin repeated his criticism of the NATO effort in Libya, saying the air campaign is destroying the nation’s infrastructure and going beyond the United Nations mandate to protect civilians.
“Libya’s oil reserves, by the way, are the biggest in Africa and its gas reserves are ranked fourth-biggest in Africa,” Putin told reporters in Copenhagen. “This begs the question of whether they are the main object of interest for those operating there today.”
The conflict in Libya has pushed crude oil prices to the highest since September 2008, and they have gained more than 30 percent since mid-February. Futures fluctuated yesterday, with oil for June delivery falling 7 cents to settle at $112.21 a barrel on the New York Mercantile Exchange.
Predator Power
In Washington, Fox said the addition of the Predators, armed with Hellfire missiles, provides NATO with an improved capability to respond to attacks on civilians.
“That’s given us a shorter gap between the identification of targets and striking the targets, rather than the traditional airpower that we’ve been using,” he said on PBS. “So that’s been an advance for us.”
In Italy, Prime Minister Silvio Berlusconi said Italian Air Force jets would join in attacking Qaddafi’s forces.
“The decision by our government hasn’t been an easy one,” he said, describing pressure from U.S. President Barack Obama, U.K. Prime Minister David Cameron and French President Nicolas Sarkozy to join the mission to “speed up a resolution of the Libyan problem.”
Strike Missions
Previously, Italy had limited itself to providing military support, citing its history as Libya’s former colonial ruler. Italy also has had extensive business ties to Libya, including natural gas delivered by pipeline.
Coalition jets flew 56 “strike” missions to identify and engage possible targets on April 25, NATO said. Targets included tanks, rocket launchers and ammunition depots near Tripoli, Misrata and Sirte.
Libyan state television said NATO jets hit civilian and military sites in three districts in the Libyan capital as well as a fiber-optic cable connecting the Qaddafi stronghold of Sirte with the oil ports of Ras Lanuf and Brega to the east, the BBC reported.
‘Desperate and Weak’
“We have seen significant progress made in the last 72 hours with Qaddafi’s forces losing their grip on Misrata, and we have received reports of under-age soldiers and foreign mercenaries being captured -- this underlines the regime’s inability to rely on its own security forces,” Fox said in an e-mailed statement after his talks with Gates. “These are the tactics of an increasingly desperate and weak regime.”
The Libyan government called the NATO strike on a Qaddafi compound an unsuccessful assassination attempt.
“This is not about individuals. This is not about regime change. This is about bringing an end to the violence,” General Charles Bouchard, the Canadian Air Force officer commanding the Libya operation, told reporters via video link from his command center in the southern Italian city of Naples.
British Foreign Secretary William Hague rejected assertions by lawmakers that a stalemate had emerged, given the standoff between Qaddafi loyalists and rebels in the area between Brega and Ajdabiya in western Libya.
“It has not settled into what one would call a long-term stalemate,” Hague told the House of Commons in London yesterday. He said the overall situation remained “very fluid.”
Moussa Ibrahim, a spokesman for the Libyan government, said that Qaddafi was “healthy and well” after the strike on his compound. Libyan television later showed Qaddafi receiving local leaders while sitting in a tent, with a television displaying the date.
Shippers May Raise Fuel Fees
These should be good times for railroads and trucking companies. After all, an improving economy means that more goods and commodities need to be delivered to the nation’s ports and department stores.
But rising fuel prices have taken a toll on their business.
With diesel prices near their highest levels since 2008, the impact has started to appear in the first-quarter results of companies like Union Pacific railroad and the Arkansas Best Corporation, which has a trucking subsidiary. Some shippers said they expected to raise fuel surcharges.
The timing, some economists say, could not be worse. Consumers are already paying steeper prices at the gas pump and may see prices climb in stores if diesel prices remain high. American manufacturers, meanwhile, are struggling to get back on their feet.
“The manufacturing sector is hit disproportionately hard by higher diesel prices,” said Donald A. Norman, economist for the Manufacturers Alliance/MAPI, a public policy and economics research organization in Arlington, Va. “Simply to move all this stuff around, it is really hard to affect any cost savings. You have little in the way of alternatives.”
Brandon Gale, the president of Retail Shipping Associates, said it was only a matter of time before the high fuel prices affected consumers. “It is a very straight-line relationship,” he said. “When you see fuel at the pump going up, it is going to go up at the package, too.”
Crude oil prices started going up early this year as turmoil spread through the oil-producing regions of the Middle East and North Africa. Increased global demand for fuel has added to the pressure on prices.
On Monday, the average price for a gallon of highway diesel was $4.09, according to the Energy Information Administration, which posts fuel prices every week based on a survey of outlets around the country. The current averages are in the highest range since 2008, when prices peaked at $4.76 on July 14, and more than a dollar higher than in 2010.
The Energy Information Administration price functions as a reference point for trucking companies negotiating fuel surcharges with shippers. Railroads can use a less expensive type of diesel that does not reflect the highway taxes.
While some railroad companies say their businesses can benefit from higher diesel prices because shippers may migrate to trains from trucks, they are still paying millions of dollars more for fuel.
Last week, Union Pacific said in its report on the first quarter that it paid average diesel fuel prices of $2.88 a gallon, up 33 percent from the same period in 2010. The higher costs — the company said it paid about $200 million more for fuel in the quarter than the same period in 2010 — sliced 8 cents off the company’s $1.29 in earnings per share. Even so, the earnings were the company’s highest for any first quarter in its history.
The company has already imposed fuel surcharges to recoup some of its higher costs. And while it did not say directly whether it would raise its surcharges, Tom Lange, a company spokesman, said, “It is how we are addressing it.”
Another railroad company, the CSX Corporation, said in its first-quarter results report this month that higher fuel costs added $119 million to expenses in the year, bringing fuel costs to $402 million.
Norfolk Southern reports its quarterly results on Wednesday.
Railroad companies can benefit in some ways from higher oil prices. When oil prices rise, so do the prices of other commodities, a signal of brisk demand for what is a large component of train freight.
“You can’t look at rising oil prices in a vacuum,” said H. Peter Nesvold, a managing director for research at Jefferies & Company. “It actually helps the volumes at the rails.”
In addition, some cargo usually moves to trains when diesel prices are high because they are more fuel efficient than trucks, industry officials said.
“Fuel costs are an important factor for us; it costs us more money to do what we do,” said John T. Gray, a senior vice president for the Association of American Railroads. “Fortunately, it costs our competitors typically more money than it costs us.”
He added, “If what we saw in 2008 happens now, there will probably be some customers that will seek out rail service that have not in the past.”
But rising fuel prices have taken a toll on their business.
With diesel prices near their highest levels since 2008, the impact has started to appear in the first-quarter results of companies like Union Pacific railroad and the Arkansas Best Corporation, which has a trucking subsidiary. Some shippers said they expected to raise fuel surcharges.
The timing, some economists say, could not be worse. Consumers are already paying steeper prices at the gas pump and may see prices climb in stores if diesel prices remain high. American manufacturers, meanwhile, are struggling to get back on their feet.
“The manufacturing sector is hit disproportionately hard by higher diesel prices,” said Donald A. Norman, economist for the Manufacturers Alliance/MAPI, a public policy and economics research organization in Arlington, Va. “Simply to move all this stuff around, it is really hard to affect any cost savings. You have little in the way of alternatives.”
Brandon Gale, the president of Retail Shipping Associates, said it was only a matter of time before the high fuel prices affected consumers. “It is a very straight-line relationship,” he said. “When you see fuel at the pump going up, it is going to go up at the package, too.”
Crude oil prices started going up early this year as turmoil spread through the oil-producing regions of the Middle East and North Africa. Increased global demand for fuel has added to the pressure on prices.
On Monday, the average price for a gallon of highway diesel was $4.09, according to the Energy Information Administration, which posts fuel prices every week based on a survey of outlets around the country. The current averages are in the highest range since 2008, when prices peaked at $4.76 on July 14, and more than a dollar higher than in 2010.
The Energy Information Administration price functions as a reference point for trucking companies negotiating fuel surcharges with shippers. Railroads can use a less expensive type of diesel that does not reflect the highway taxes.
While some railroad companies say their businesses can benefit from higher diesel prices because shippers may migrate to trains from trucks, they are still paying millions of dollars more for fuel.
Last week, Union Pacific said in its report on the first quarter that it paid average diesel fuel prices of $2.88 a gallon, up 33 percent from the same period in 2010. The higher costs — the company said it paid about $200 million more for fuel in the quarter than the same period in 2010 — sliced 8 cents off the company’s $1.29 in earnings per share. Even so, the earnings were the company’s highest for any first quarter in its history.
The company has already imposed fuel surcharges to recoup some of its higher costs. And while it did not say directly whether it would raise its surcharges, Tom Lange, a company spokesman, said, “It is how we are addressing it.”
Another railroad company, the CSX Corporation, said in its first-quarter results report this month that higher fuel costs added $119 million to expenses in the year, bringing fuel costs to $402 million.
Norfolk Southern reports its quarterly results on Wednesday.
Railroad companies can benefit in some ways from higher oil prices. When oil prices rise, so do the prices of other commodities, a signal of brisk demand for what is a large component of train freight.
“You can’t look at rising oil prices in a vacuum,” said H. Peter Nesvold, a managing director for research at Jefferies & Company. “It actually helps the volumes at the rails.”
In addition, some cargo usually moves to trains when diesel prices are high because they are more fuel efficient than trucks, industry officials said.
“Fuel costs are an important factor for us; it costs us more money to do what we do,” said John T. Gray, a senior vice president for the Association of American Railroads. “Fortunately, it costs our competitors typically more money than it costs us.”
He added, “If what we saw in 2008 happens now, there will probably be some customers that will seek out rail service that have not in the past.”
Asian Stocks Rise on U.S. Consumer Confidence; Canon Jumps
Asian stocks rose, with the regional benchmark index heading for its highest close in almost two months, after a report showed U.S. consumer confidence increased, boosting the outlook for Asian exporters.
Samsung Electronics Co., Asia’s largest maker of chips, flat screens and mobile phones, gained 2.9 percent in Seoul. Canon Inc. (7751), the world’s biggest manufacturer of cameras, surged 6 percent in Tokyo. Origin Energy Ltd. (ORG), Australia’s No. 1 energy retailer, increased 4 percent in Sydney after it and partner ConocoPhillips signed an agreement last week to supply liquefied natural gas to China Petrochemical Corp. Australia resumed trading today following a five-day Easter break.
The MSCI Asia Pacific Index advanced 1 percent to 139.30 as of 11 a.m. in Tokyo, set for its highest close since March 4. More than three stocks gained for each that fell on the gauge. The measure climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
“The U.S. economy is recovering and corporate earnings are strong,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “More and more manufacturers are resuming operations at factories. That means the impact of the earthquake disaster won’t last for long, and that’s positive for stocks.”
Japan’s Nikkei 225 (NKY) Stock Average increased 1.3 percent as the government said 90 percent of the country’s earthquake- stricken factories will resume production by July. Hong Kong’s Hang Seng Index jumped 0.8 percent, while China’s Shanghai Composite Index gained 0.6 percent. New Zealand’s NZX 50 Index rose 0.3 percent.
South Korea’s Kospi Index climbed 0.6 percent as the nation’s economic growth accelerated in the first quarter, driven by exports. Australia’s S&P/ASX 200 Index lost 0.1 percent, erasing gains of as much as 0.3 percent, as a report showed the country’s consumer prices gained the most in five years in the first quarter.
Exporters Rally
Futures on the Standard & Poor’s 500 Index rose 0.1 percent today. In New York, the index rose 0.9 percent to 1,347.24 yesterday, the highest level since June 2008, as earnings at companies from 3M Co. to United Parcel Service Inc. and Ford Motor Co. topped analysts’ estimates and after a report showed confidence among U.S. consumers increased more than forecast in April.
Exporters advanced after a report from the New York-based Conference Board showed the confidence index rose to 65.4 in April from a revised 63.8 reading in March. The median forecast of economists surveyed by Bloomberg News projected an advance to 64.5.
Samsung Electronics, which gets about 22 percent of sales from America, climbed 2.9 percent to 923,000 won in Seoul. LG Electronics Inc., South Korea’s second-biggest electronics maker, gained 2.4 percent to 107,000 won. Canon, which gets more than 80 percent of its sales outside of Japan, surged 6 percent to 3,705 yen in Tokyo.
Federal Reserve policy makers began two days of meetings yesterday, and will likely say they’ll complete a second round of scheduled bond purchases worth $600 billion through the end of June to help sustain the recovery.
Origin Energy, TSMC
Origin Energy jumped 4 percent to A$16.88. The company and its partner ConocoPhillips last week clinched Australia’s largest liquefied-natural-gas export deal, agreeing to supply 4.3 million metric tons of the fuel a year over two decades to China Petrochemical, also known as Sinopec Group.
The Australia-Pacific LNG venture partners also agreed to sell a 15 percent stake in the proposed $18.5 billion LNG project in Queensland state to Sinopec for $1.5 billion.
Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, advanced 2.1 percent to NT$71.8 in Taipei after Goldman Sachs Group Inc. boosted its rating on the stock to “buy” from “neutral” and raised its share-price forecast to NT$90 from NT$64.
The MSCI Asia Pacific Index advanced 0.2 percent this year through yesterday, compared with gains of 7.1 percent by the S&P 500 and 2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.4 times for the Stoxx 600.
Samsung Electronics Co., Asia’s largest maker of chips, flat screens and mobile phones, gained 2.9 percent in Seoul. Canon Inc. (7751), the world’s biggest manufacturer of cameras, surged 6 percent in Tokyo. Origin Energy Ltd. (ORG), Australia’s No. 1 energy retailer, increased 4 percent in Sydney after it and partner ConocoPhillips signed an agreement last week to supply liquefied natural gas to China Petrochemical Corp. Australia resumed trading today following a five-day Easter break.
The MSCI Asia Pacific Index advanced 1 percent to 139.30 as of 11 a.m. in Tokyo, set for its highest close since March 4. More than three stocks gained for each that fell on the gauge. The measure climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
“The U.S. economy is recovering and corporate earnings are strong,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “More and more manufacturers are resuming operations at factories. That means the impact of the earthquake disaster won’t last for long, and that’s positive for stocks.”
Japan’s Nikkei 225 (NKY) Stock Average increased 1.3 percent as the government said 90 percent of the country’s earthquake- stricken factories will resume production by July. Hong Kong’s Hang Seng Index jumped 0.8 percent, while China’s Shanghai Composite Index gained 0.6 percent. New Zealand’s NZX 50 Index rose 0.3 percent.
South Korea’s Kospi Index climbed 0.6 percent as the nation’s economic growth accelerated in the first quarter, driven by exports. Australia’s S&P/ASX 200 Index lost 0.1 percent, erasing gains of as much as 0.3 percent, as a report showed the country’s consumer prices gained the most in five years in the first quarter.
Exporters Rally
Futures on the Standard & Poor’s 500 Index rose 0.1 percent today. In New York, the index rose 0.9 percent to 1,347.24 yesterday, the highest level since June 2008, as earnings at companies from 3M Co. to United Parcel Service Inc. and Ford Motor Co. topped analysts’ estimates and after a report showed confidence among U.S. consumers increased more than forecast in April.
Exporters advanced after a report from the New York-based Conference Board showed the confidence index rose to 65.4 in April from a revised 63.8 reading in March. The median forecast of economists surveyed by Bloomberg News projected an advance to 64.5.
Samsung Electronics, which gets about 22 percent of sales from America, climbed 2.9 percent to 923,000 won in Seoul. LG Electronics Inc., South Korea’s second-biggest electronics maker, gained 2.4 percent to 107,000 won. Canon, which gets more than 80 percent of its sales outside of Japan, surged 6 percent to 3,705 yen in Tokyo.
Federal Reserve policy makers began two days of meetings yesterday, and will likely say they’ll complete a second round of scheduled bond purchases worth $600 billion through the end of June to help sustain the recovery.
Origin Energy, TSMC
Origin Energy jumped 4 percent to A$16.88. The company and its partner ConocoPhillips last week clinched Australia’s largest liquefied-natural-gas export deal, agreeing to supply 4.3 million metric tons of the fuel a year over two decades to China Petrochemical, also known as Sinopec Group.
The Australia-Pacific LNG venture partners also agreed to sell a 15 percent stake in the proposed $18.5 billion LNG project in Queensland state to Sinopec for $1.5 billion.
Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, advanced 2.1 percent to NT$71.8 in Taipei after Goldman Sachs Group Inc. boosted its rating on the stock to “buy” from “neutral” and raised its share-price forecast to NT$90 from NT$64.
The MSCI Asia Pacific Index advanced 0.2 percent this year through yesterday, compared with gains of 7.1 percent by the S&P 500 and 2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.4 times for the Stoxx 600.
Monday, April 25, 2011
Asian Stocks Fall as Earnings Miss Estimates; Nintendo, Mitsubishi Decline
Asian stocks declined for a second day as companies from Nintendo Co. to Nidec Corp. (6594) reported earnings that missed analyst estimates and after commodity prices dropped.
Nintendo, the world’s largest maker of video-game players, slumped 4 percent in Tokyo. Nidec, the biggest global maker of motors for hard-disk drives, decreased 2.3 percent. China Life Insurance Co. fell 2.5 percent after its first-quarter net income declined. Mitsubishi Corp., Japan’s No. 1 commodities trader, retreated 1 percent after copper and oil prices fell.
“As stimulus measures are withdrawn, company profits will be affected,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Asset Management, which oversees about $72 billion. “A lot of the demand in the past two years has been driven by government spending. While valuations are reasonably attractive, investors need to be selective when picking stocks as inflation remains a big concern.”
The MSCI Asia Pacific Index slid 0.5 percent to 137.81 as of 11:50 a.m. in Tokyo, with two shares falling for each that rose. The gauge climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
Japan’s Nikkei 225 (NKY) Stock Average decreased 1 percent, while Hong Kong’s Hang Index fell 0.8 percent. China’s Shanghai Composite Index dropped 0.6 percent and South Korea’s Kospi Index lost 0.3 percent. New Zealand’s NZX 50 Index was little changed.
Futures on the Standard & Poor’s 500 Index were little changed today. In New York yesterday, the index slipped 0.2 percent to 1,335.25 as lower commodity prices drove down energy and raw-material producers, and as Kimberly-Clark Corp., the maker of Scott toilet paper and Huggies diapers, cut its profit forecast.
Asia vs U.S. Earnings
About 40 percent of companies on the MSCI Asia Pacific Index that have reported earnings since April 11 beat estimates, compared with 88 percent among companies on the S&P 500 Index. (SPX)
Nintendo declined 4 percent to 19,520 yen in Tokyo. The company said net income slumped 66 percent to 77.6 billion yen ($946 million) in the year ended in March. The earnings, Nintendo’s forecast for a 42 percent jump in profit this fiscal year and predictions for operating profit and sales, all lagged behind analyst estimates.
Nidec dropped 2.3 percent to 6,920 yen after projecting net income will be 52.5 billion yen this fiscal year, compared with the median analyst estimate of 74 billion yen. Drugmaker Shionogi & Co. tumbled 5.7 percent to 1,300 yen after reporting full-year net income totaled 20 billion yen, missing its profit outlook by 33 percent.
China Life, the country’s largest insurer, fell 2.5 percent to HK$29.90 in Hong Kong. The company said first-quarter net profit slumped 22 percent to 7.97 billion yuan ($1.2 billion) from a year earlier as payouts increased after policies matured.
Commodities Drop
Hyundai Merchant Marine Co., a South Korean shipping line, decreased 3.8 percent to 32,650 won in Seoul. The company said it had a first-quarter operating loss of 24.1 billion won ($22.2 million) compared with a profit of 6.17 billion won a year earlier.
Raw material producers declined after copper and oil futures dropped. Three-month copper futures on the London Metal Exchange fell as much as 3.3 percent to $9,390 a metric ton today. Crude oil for June delivery dropped as much as 1 percent to $111.20 today.
Mitsubishi Corp. (8058), the Japanese trading house that gets about 40 percent of revenue from commodities, lost 1 percent to 2,166 yen in Tokyo. Rival Mitsui & Co. slipped 0.6 percent to 1,417 yen. Inpex Corp., Japan’s biggest energy explorer, dropped 1.2 percent to 604,000 yen. Cnooc Ltd., China’s largest offshore oil and gas producer, decreased 1.8 percent to HK$19.52 in Hong Kong.
The MSCI Asia Pacific Index rose 0.6 percent this year through yesterday, compared with gains of 6.2 percent by the S&P 500 and 1.7 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark index are valued at 13.2 times estimated earnings on average, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Nintendo, the world’s largest maker of video-game players, slumped 4 percent in Tokyo. Nidec, the biggest global maker of motors for hard-disk drives, decreased 2.3 percent. China Life Insurance Co. fell 2.5 percent after its first-quarter net income declined. Mitsubishi Corp., Japan’s No. 1 commodities trader, retreated 1 percent after copper and oil prices fell.
“As stimulus measures are withdrawn, company profits will be affected,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Asset Management, which oversees about $72 billion. “A lot of the demand in the past two years has been driven by government spending. While valuations are reasonably attractive, investors need to be selective when picking stocks as inflation remains a big concern.”
The MSCI Asia Pacific Index slid 0.5 percent to 137.81 as of 11:50 a.m. in Tokyo, with two shares falling for each that rose. The gauge climbed 2.2 percent last week after U.S. companies including Apple Inc. reported increased profits, signaling the global economic recovery is accelerating.
Japan’s Nikkei 225 (NKY) Stock Average decreased 1 percent, while Hong Kong’s Hang Index fell 0.8 percent. China’s Shanghai Composite Index dropped 0.6 percent and South Korea’s Kospi Index lost 0.3 percent. New Zealand’s NZX 50 Index was little changed.
Futures on the Standard & Poor’s 500 Index were little changed today. In New York yesterday, the index slipped 0.2 percent to 1,335.25 as lower commodity prices drove down energy and raw-material producers, and as Kimberly-Clark Corp., the maker of Scott toilet paper and Huggies diapers, cut its profit forecast.
Asia vs U.S. Earnings
About 40 percent of companies on the MSCI Asia Pacific Index that have reported earnings since April 11 beat estimates, compared with 88 percent among companies on the S&P 500 Index. (SPX)
Nintendo declined 4 percent to 19,520 yen in Tokyo. The company said net income slumped 66 percent to 77.6 billion yen ($946 million) in the year ended in March. The earnings, Nintendo’s forecast for a 42 percent jump in profit this fiscal year and predictions for operating profit and sales, all lagged behind analyst estimates.
Nidec dropped 2.3 percent to 6,920 yen after projecting net income will be 52.5 billion yen this fiscal year, compared with the median analyst estimate of 74 billion yen. Drugmaker Shionogi & Co. tumbled 5.7 percent to 1,300 yen after reporting full-year net income totaled 20 billion yen, missing its profit outlook by 33 percent.
China Life, the country’s largest insurer, fell 2.5 percent to HK$29.90 in Hong Kong. The company said first-quarter net profit slumped 22 percent to 7.97 billion yuan ($1.2 billion) from a year earlier as payouts increased after policies matured.
Commodities Drop
Hyundai Merchant Marine Co., a South Korean shipping line, decreased 3.8 percent to 32,650 won in Seoul. The company said it had a first-quarter operating loss of 24.1 billion won ($22.2 million) compared with a profit of 6.17 billion won a year earlier.
Raw material producers declined after copper and oil futures dropped. Three-month copper futures on the London Metal Exchange fell as much as 3.3 percent to $9,390 a metric ton today. Crude oil for June delivery dropped as much as 1 percent to $111.20 today.
Mitsubishi Corp. (8058), the Japanese trading house that gets about 40 percent of revenue from commodities, lost 1 percent to 2,166 yen in Tokyo. Rival Mitsui & Co. slipped 0.6 percent to 1,417 yen. Inpex Corp., Japan’s biggest energy explorer, dropped 1.2 percent to 604,000 yen. Cnooc Ltd., China’s largest offshore oil and gas producer, decreased 1.8 percent to HK$19.52 in Hong Kong.
The MSCI Asia Pacific Index rose 0.6 percent this year through yesterday, compared with gains of 6.2 percent by the S&P 500 and 1.7 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark index are valued at 13.2 times estimated earnings on average, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Swiss Bond Sales Boom as Banks Diversify Amid Dollar Plunge: India Credit
After a 24-year hiatus, Indian companies are poised to raise almost $1 billion of Swiss franc- denominated bonds, about a quarter of total overseas borrowing in 2011, as demand rises among European investors.
State-owned IDBI Bank Ltd. (IDBI) will meet Swiss investors next month in its bid to become the fourth Indian issuer this year to borrow in francs, according to data compiled by Bloomberg. Union Bank of India’s 3.375 percent franc bonds due August 2015 yield 109 basis points more than debt of similar maturities and ratings sold by Jona, Switzerland-based Holcim Ltd., the world’s second-biggest cement maker.
Borrowers in Asia’s third-biggest economy are selling bonds in Swiss francs for the first time since 1987 as the Dollar Index’s 6.5 percent plunge this year spurs a search for alternative funding. European buyers are lured by higher returns and the Indian government’s forecast for economic growth of more than 9 percent this financial year.
“Interest rates in Switzerland are lower and there is strong demand for emerging-market debt,” said Pierre Faddoul, a Singapore-based credit analyst at Aberdeen Asset Management Plc that manages $287 billion. “Companies selling bonds are looking to gain recognition in the Swiss market.”
‘Conducive’ Market
Lenders Export-Import Bank of India, State Bank of India (SBIN) and Union Bank sold 660 million francs ($750 million) of bonds this year, Bloomberg data show. IDBI last issued notes denominated in the Swiss currency when it raised 100 million francs from 5.625 percent, 10-year securities.
The Swiss market is now “conducive” for raising as much as 200 million francs, Melwyn Rego, Mumbai-based executive director at IDBI, said in an interview yesterday. “We are looking at diversifying our funding sources.”
Five-year rupee funding costs for top-rated lenders were last at 9.29 percent, according to FIMMDA, the Fixed Income Money Market and Derivatives Association of India. Swiss financial companies’ bonds yielded 2.46 percent on average yesterday, SWX index prices show.
IDBI appointed BNP Paribas, Credit Suisse Group AG and UBS AG to arrange meetings with debt investors in Switzerland, a person familiar with the matter said April 8. Export-Import Bank of India sold 175 million francs of 3.5 percent bonds this month maturing in April 2016. Borrowing a similar amount in dollars would have cost the lender a 4.1 percent rate, according to data compiled by Bloomberg.
‘New Markets’
“Issuers like Indian banks have to look at new markets and now probably is the time,” S.S. Mundra, Mumbai-based executive director at Union Bank of India (UNBK), said in an interview yesterday. “We will certainly look at Swiss bonds again when the opportunity arises and that may happen sooner rather than later.”
The rupee has strengthened 0.5 percent this year to 44.49 per dollar as overseas funds raised their holdings of the nation’s fixed-income securities by $2.6 billion to $20.3 billion, official data show. The difference in yields between India’s government debt and U.S. Treasuries due in a decade has widened to 473 basis points from a 10-month low of 437 reached April 8.
The extra yield investors demand to hold top-rated Indian corporate bonds for five years instead of government debt has shrunk 10 basis points, or 0.1 percentage point, to 122 from an 18-month high on Feb. 23, Bloomberg data show.
Bond Losses
The yield on Swiss government debt maturing in March 2016 rose six basis points this month to 1.4 percent, according to Credit Suisse. In India, the yield on the most-traded 8.08 percent bond due August 2022 advanced four basis points to 8.28 percent yesterday, the central bank’s trading system shows.
India’s bonds have lost 0.7 percent this month, the worst performance among 10 Asian local-currency debt markets outside Japan, indexes compiled by HSBC Holdings Plc show.
Five-year credit-default swaps on State Bank, which is based in Mumbai and regarded by some investors as a proxy for the sovereign, rose seven basis points this year to 168 basis points, according to CMA in New York. IDBI Bank’s five-year default swaps climbed five basis points to 170.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Haven Reputation
While Swiss investors are looking to diversify their holdings, Switzerland’s reputation as a haven for wealth management attracts Indian companies looking to raise funds, according to Ajay Mahajan, Mumbai-based managing director at the Indian unit of UBS AG.
“The fact the country is rich and has inflows makes a difference in terms of providing the right geography for issuers,” Mahajan said. The dollar’s weakness also has a “role to play in more funds pouring into Swiss francs.”
The Dollar Index, which tracks the currency against six major U.S. trading partners, is headed for its fifth consecutive monthly fall in April as the Federal Reserve keeps interest rates in a record-low range of zero to 0.25 percent, prompting investors to seek higher returns in emerging assets.
The dollar traded at 1.4649 per euro last week, the weakest level since December 2009.
The U.S. economy probably grew at a 1.9 percent annual pace after increasing at a 3.1 percent rate in the previous three months, according to the median estimate of 72 economists surveyed by Bloomberg News before an April 28 Commerce Department report.
“Issuers will begin to shy away from dollar-led funding if its weakening becomes a trend they and look for issuance in other currencies as an option,” said Rajiv Kumar Bakshi, Mumbai-based executive director at Bank of Baroda. “Issuers have comfort in the fact that the spectrum of investors for emerging market issuers is widening.”
State-owned IDBI Bank Ltd. (IDBI) will meet Swiss investors next month in its bid to become the fourth Indian issuer this year to borrow in francs, according to data compiled by Bloomberg. Union Bank of India’s 3.375 percent franc bonds due August 2015 yield 109 basis points more than debt of similar maturities and ratings sold by Jona, Switzerland-based Holcim Ltd., the world’s second-biggest cement maker.
Borrowers in Asia’s third-biggest economy are selling bonds in Swiss francs for the first time since 1987 as the Dollar Index’s 6.5 percent plunge this year spurs a search for alternative funding. European buyers are lured by higher returns and the Indian government’s forecast for economic growth of more than 9 percent this financial year.
“Interest rates in Switzerland are lower and there is strong demand for emerging-market debt,” said Pierre Faddoul, a Singapore-based credit analyst at Aberdeen Asset Management Plc that manages $287 billion. “Companies selling bonds are looking to gain recognition in the Swiss market.”
‘Conducive’ Market
Lenders Export-Import Bank of India, State Bank of India (SBIN) and Union Bank sold 660 million francs ($750 million) of bonds this year, Bloomberg data show. IDBI last issued notes denominated in the Swiss currency when it raised 100 million francs from 5.625 percent, 10-year securities.
The Swiss market is now “conducive” for raising as much as 200 million francs, Melwyn Rego, Mumbai-based executive director at IDBI, said in an interview yesterday. “We are looking at diversifying our funding sources.”
Five-year rupee funding costs for top-rated lenders were last at 9.29 percent, according to FIMMDA, the Fixed Income Money Market and Derivatives Association of India. Swiss financial companies’ bonds yielded 2.46 percent on average yesterday, SWX index prices show.
IDBI appointed BNP Paribas, Credit Suisse Group AG and UBS AG to arrange meetings with debt investors in Switzerland, a person familiar with the matter said April 8. Export-Import Bank of India sold 175 million francs of 3.5 percent bonds this month maturing in April 2016. Borrowing a similar amount in dollars would have cost the lender a 4.1 percent rate, according to data compiled by Bloomberg.
‘New Markets’
“Issuers like Indian banks have to look at new markets and now probably is the time,” S.S. Mundra, Mumbai-based executive director at Union Bank of India (UNBK), said in an interview yesterday. “We will certainly look at Swiss bonds again when the opportunity arises and that may happen sooner rather than later.”
The rupee has strengthened 0.5 percent this year to 44.49 per dollar as overseas funds raised their holdings of the nation’s fixed-income securities by $2.6 billion to $20.3 billion, official data show. The difference in yields between India’s government debt and U.S. Treasuries due in a decade has widened to 473 basis points from a 10-month low of 437 reached April 8.
The extra yield investors demand to hold top-rated Indian corporate bonds for five years instead of government debt has shrunk 10 basis points, or 0.1 percentage point, to 122 from an 18-month high on Feb. 23, Bloomberg data show.
Bond Losses
The yield on Swiss government debt maturing in March 2016 rose six basis points this month to 1.4 percent, according to Credit Suisse. In India, the yield on the most-traded 8.08 percent bond due August 2022 advanced four basis points to 8.28 percent yesterday, the central bank’s trading system shows.
India’s bonds have lost 0.7 percent this month, the worst performance among 10 Asian local-currency debt markets outside Japan, indexes compiled by HSBC Holdings Plc show.
Five-year credit-default swaps on State Bank, which is based in Mumbai and regarded by some investors as a proxy for the sovereign, rose seven basis points this year to 168 basis points, according to CMA in New York. IDBI Bank’s five-year default swaps climbed five basis points to 170.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Haven Reputation
While Swiss investors are looking to diversify their holdings, Switzerland’s reputation as a haven for wealth management attracts Indian companies looking to raise funds, according to Ajay Mahajan, Mumbai-based managing director at the Indian unit of UBS AG.
“The fact the country is rich and has inflows makes a difference in terms of providing the right geography for issuers,” Mahajan said. The dollar’s weakness also has a “role to play in more funds pouring into Swiss francs.”
The Dollar Index, which tracks the currency against six major U.S. trading partners, is headed for its fifth consecutive monthly fall in April as the Federal Reserve keeps interest rates in a record-low range of zero to 0.25 percent, prompting investors to seek higher returns in emerging assets.
The dollar traded at 1.4649 per euro last week, the weakest level since December 2009.
The U.S. economy probably grew at a 1.9 percent annual pace after increasing at a 3.1 percent rate in the previous three months, according to the median estimate of 72 economists surveyed by Bloomberg News before an April 28 Commerce Department report.
“Issuers will begin to shy away from dollar-led funding if its weakening becomes a trend they and look for issuance in other currencies as an option,” said Rajiv Kumar Bakshi, Mumbai-based executive director at Bank of Baroda. “Issuers have comfort in the fact that the spectrum of investors for emerging market issuers is widening.”
Indian games chief arrested in graft probe
Suresh Kalmadi, the Indian politician who presided over New Delhi’s controversial Commonwealth Games last year, has been arrested for allegedly fixing the contract for procuring equipment for the competition.
The arrest of Mr Kalmadi, a parliamentarian from the ruling Congress party, follows a long probe into preparations for last October's games, which featured teams from the 53 countries that make up the Commonwealth of Nations, mostly members of the former British empire.
Intended to showcase India as an emerging economic powerhouse, the shoddy and scandal-plagued preparations, dogged by cost overruns, delays and allegations of graft, instead cast an embarrassing spotlight on its deficiencies.
Long-time president of the Indian Olympic Association, Mr Kalmadi was the global face of debacle, blithely insisting New Delhi would be ready to host the games, even as deadlines were missed repeatedly, and foreign officials condemned the athletes’ housing as unfit for human habitation just days before the competitors’ arrival.
On Monday, the Central Bureau of Investigation arrested him for his role in awarding a $31m contract for timing and scoring equipment to a Swiss firm, Swiss Timing Ltd, saying in a statement that Mr Kalmadi was involved in “wrongfully restricting and eliminating competition from other suppliers in a premeditated and planned manner”.
The contract, which the CBI alleged in overpayments of around $21m, is but one small example of the pervasive corruption believed to have affected preparations for the games, whose cost soared to $15bn, way over the original estimates made in 2002.
Mr Kalmadi’s arrest also coincides with the CBI filing criminal charges against Kanimozhi Karunanidhi, the daughter of the chief minister of Tamil Nadu, for allegedly receiving kickbacks in the 2G telecoms scam, which saw highly coveted telecom spectrum allocated to favoured companies at throwaway prices.
Both Mr Kalmadi and Ms Karunanidhi deny any wrongdoing.
Manmohan Singh’s Congress-led government is under intense pressure to demonstrate that it is serious about rooting out corruption that has sapped much of the public goodwill it had when it returned to power after parliamentary elections in May 2009.
“The entire governance machine has just been paralysed for the past eight months or so,” said Swapan Das Gupta, an independent political analyst. “These scandals have really eroded their decision-making ability.”
However, Pratap Bhanu Mehta, director of the New Delhi-based Centre for Policy Research, said the arrest of Mr Kalmadi, and the charges against Ms Kanimozhi, whose father is a Congress party ally, would not be sufficient to reinvigorate the government.
“I don’t think it’s actually going to help them recover political ground. The perception is that they are not doing it out of their own initiative,” Mr Mehta said.
The Hindu nationalist opposition Bharatiya Janata Party welcomed Mr Kalmadi’s arrest, but suggested he was just a “small fry” and that the chain of accountability reached higher into the Congress party.
Meanwhile, India’s sports minister, Ajay Maken, said he would write to the Indian Olympic Association, demanding Mr Kalmadi’s removal as the organisation’s president.
In the months since the Commonwealth Games, seven of Mr Kalmadi’s inner circle from the organising committee, and representatives of three small companies, have been arrested for alleged wrongdoing in connection with various contracts for goods and services for the games.
The arrest of Mr Kalmadi, a parliamentarian from the ruling Congress party, follows a long probe into preparations for last October's games, which featured teams from the 53 countries that make up the Commonwealth of Nations, mostly members of the former British empire.
Intended to showcase India as an emerging economic powerhouse, the shoddy and scandal-plagued preparations, dogged by cost overruns, delays and allegations of graft, instead cast an embarrassing spotlight on its deficiencies.
Long-time president of the Indian Olympic Association, Mr Kalmadi was the global face of debacle, blithely insisting New Delhi would be ready to host the games, even as deadlines were missed repeatedly, and foreign officials condemned the athletes’ housing as unfit for human habitation just days before the competitors’ arrival.
On Monday, the Central Bureau of Investigation arrested him for his role in awarding a $31m contract for timing and scoring equipment to a Swiss firm, Swiss Timing Ltd, saying in a statement that Mr Kalmadi was involved in “wrongfully restricting and eliminating competition from other suppliers in a premeditated and planned manner”.
The contract, which the CBI alleged in overpayments of around $21m, is but one small example of the pervasive corruption believed to have affected preparations for the games, whose cost soared to $15bn, way over the original estimates made in 2002.
Mr Kalmadi’s arrest also coincides with the CBI filing criminal charges against Kanimozhi Karunanidhi, the daughter of the chief minister of Tamil Nadu, for allegedly receiving kickbacks in the 2G telecoms scam, which saw highly coveted telecom spectrum allocated to favoured companies at throwaway prices.
Both Mr Kalmadi and Ms Karunanidhi deny any wrongdoing.
Manmohan Singh’s Congress-led government is under intense pressure to demonstrate that it is serious about rooting out corruption that has sapped much of the public goodwill it had when it returned to power after parliamentary elections in May 2009.
“The entire governance machine has just been paralysed for the past eight months or so,” said Swapan Das Gupta, an independent political analyst. “These scandals have really eroded their decision-making ability.”
However, Pratap Bhanu Mehta, director of the New Delhi-based Centre for Policy Research, said the arrest of Mr Kalmadi, and the charges against Ms Kanimozhi, whose father is a Congress party ally, would not be sufficient to reinvigorate the government.
“I don’t think it’s actually going to help them recover political ground. The perception is that they are not doing it out of their own initiative,” Mr Mehta said.
The Hindu nationalist opposition Bharatiya Janata Party welcomed Mr Kalmadi’s arrest, but suggested he was just a “small fry” and that the chain of accountability reached higher into the Congress party.
Meanwhile, India’s sports minister, Ajay Maken, said he would write to the Indian Olympic Association, demanding Mr Kalmadi’s removal as the organisation’s president.
In the months since the Commonwealth Games, seven of Mr Kalmadi’s inner circle from the organising committee, and representatives of three small companies, have been arrested for alleged wrongdoing in connection with various contracts for goods and services for the games.
Preserving a Market Symbol
When it comes to keeping the New York Stock Exchange’s trading floor open, Robert Greifeld makes a very unlikely savior.
The New York Stock Exchange, which has a 74-foot ceiling and Georgia marble walls, would remain open, bidders say.
Under its chief, Robert Greifeld, the all-electronic Nasdaq exchange seeks to dominate stock trading in the United States.
As the chief executive of the all-electronic Nasdaq exchange, Mr. Greifeld has questioned whether a physical place where human beings come together to buy and sell stocks is even necessary. He has dismissed the 219-year-old capitalist symbol of the New York exchange as “a stage prop” that ought to be taken apart “board by board.”
Now, though, with Nasdaq and the Intercontinental-Exchange in a fierce fight with the Deutsche Börse to buy the Big Board, and its parent company, NYSE Euronext, Mr. Greifeld insists that he will not only keep the floor open but reverse its long decline.
Although it might seem largely symbolic — only about 1,200 traders remain on the floor, down from more than 2,500 a decade and a half ago — both bidders are promising to keep it open, a rare point of agreement and a nod to the high-stakes public relations battle now under way.
Behind the scenes, however, starkly different strategic visions of the future of stock exchanges are being proposed. The tussle between the exchanges is a question about which model is going to compete most successfully in a global marketplace: one that straddles continents and product lines or one that stays local and focused.
The question is, what is the exchange of the future?” said Richard Repetto, an analyst at Sandler O’Neill, an investment banking and brokerage firm. “Both want to compete globally but Nasdaq is saying, hey, we think the best way to compete globally is to stay as narrowly focused as possible. NYSE is saying, hey, you need to be diversified to compete and have global capabilities.”
The strategy of the Deutsche Börse calls for the combined company to trade stocks as well as higher-margin, faster-growing derivatives in both Europe and the United States.
“It is a bigger international play,” said Patrick J. Healy, chief executive of the Issuer Advisory Group.
Nasdaq’s vision is built on dominating stock trading in the United States. It would have some international equity trading, like its current OMX operations in the Nordic and Baltic countries, as well NYSE Euronext exchanges in European centers like Paris and Amsterdam.
But the merger would make the combined business the home of all the companies listed in the United States, responsible for 45 percent to 50 percent of domestic trading volume. Issuers, including overseas companies, might prefer a bigger, unified American capital market compared with the fragmented one now.
On Thursday the fate of the Big Board is likely to take center stage at the annual shareholder meeting of NYSE Euronext in Manhattan. But the final outcome may be decided only by a shareholder vote scheduled for July.
The deal with the Deutsche Börse — which went mainly electronic more than a decade ago and has only about 120 traders on its floor in Frankfurt — would give NYSE Euronext a much bigger share of the market for exchange-based derivatives trading in Europe, including interest rate derivatives as well as NYSE Euronext’s 27 percent share of cash stock market trading in the United States.
Under the Nasdaq-ICE bid, NYSE Euronext would be split into two. The NYSE Euronext’s stock-trading operations, including the NYSE floor, would go to Nasdaq, while ICE would pick up most of the derivatives businesses in the United States and Europe.
NYSE’s board has twice rebuffed the Nasdaq-ICE bid, even though Mr. Greifeld sweetened his offer last week with firmer bank financing and an offer to pay a $350 million break-up fee to NYSE Euronext if regulators veto the deal.
The NYSE Euronext board said it still prefers to merge with the Deutsche Börse, because that deal would keep the company intact, and emphasize the global cross-product strategy, while they argue an Nasdaq-ICE combination would run afoul of antitrust rules.
The Nasdaq-ICE bid is also a bet on the superiority of purely electronic trading. From its headquarters in Times Square, Nasdaq has done more than anyone else to draw business away and diminish the exchange, and in the shift to electronic trading the Big Board itself adopted ever more automation and set up its own electronic-only market, called Arca.
The New York Stock Exchange, which has a 74-foot ceiling and Georgia marble walls, would remain open, bidders say.
Under its chief, Robert Greifeld, the all-electronic Nasdaq exchange seeks to dominate stock trading in the United States.
As the chief executive of the all-electronic Nasdaq exchange, Mr. Greifeld has questioned whether a physical place where human beings come together to buy and sell stocks is even necessary. He has dismissed the 219-year-old capitalist symbol of the New York exchange as “a stage prop” that ought to be taken apart “board by board.”
Now, though, with Nasdaq and the Intercontinental-Exchange in a fierce fight with the Deutsche Börse to buy the Big Board, and its parent company, NYSE Euronext, Mr. Greifeld insists that he will not only keep the floor open but reverse its long decline.
Although it might seem largely symbolic — only about 1,200 traders remain on the floor, down from more than 2,500 a decade and a half ago — both bidders are promising to keep it open, a rare point of agreement and a nod to the high-stakes public relations battle now under way.
Behind the scenes, however, starkly different strategic visions of the future of stock exchanges are being proposed. The tussle between the exchanges is a question about which model is going to compete most successfully in a global marketplace: one that straddles continents and product lines or one that stays local and focused.
The question is, what is the exchange of the future?” said Richard Repetto, an analyst at Sandler O’Neill, an investment banking and brokerage firm. “Both want to compete globally but Nasdaq is saying, hey, we think the best way to compete globally is to stay as narrowly focused as possible. NYSE is saying, hey, you need to be diversified to compete and have global capabilities.”
The strategy of the Deutsche Börse calls for the combined company to trade stocks as well as higher-margin, faster-growing derivatives in both Europe and the United States.
“It is a bigger international play,” said Patrick J. Healy, chief executive of the Issuer Advisory Group.
Nasdaq’s vision is built on dominating stock trading in the United States. It would have some international equity trading, like its current OMX operations in the Nordic and Baltic countries, as well NYSE Euronext exchanges in European centers like Paris and Amsterdam.
But the merger would make the combined business the home of all the companies listed in the United States, responsible for 45 percent to 50 percent of domestic trading volume. Issuers, including overseas companies, might prefer a bigger, unified American capital market compared with the fragmented one now.
On Thursday the fate of the Big Board is likely to take center stage at the annual shareholder meeting of NYSE Euronext in Manhattan. But the final outcome may be decided only by a shareholder vote scheduled for July.
The deal with the Deutsche Börse — which went mainly electronic more than a decade ago and has only about 120 traders on its floor in Frankfurt — would give NYSE Euronext a much bigger share of the market for exchange-based derivatives trading in Europe, including interest rate derivatives as well as NYSE Euronext’s 27 percent share of cash stock market trading in the United States.
Under the Nasdaq-ICE bid, NYSE Euronext would be split into two. The NYSE Euronext’s stock-trading operations, including the NYSE floor, would go to Nasdaq, while ICE would pick up most of the derivatives businesses in the United States and Europe.
NYSE’s board has twice rebuffed the Nasdaq-ICE bid, even though Mr. Greifeld sweetened his offer last week with firmer bank financing and an offer to pay a $350 million break-up fee to NYSE Euronext if regulators veto the deal.
The NYSE Euronext board said it still prefers to merge with the Deutsche Börse, because that deal would keep the company intact, and emphasize the global cross-product strategy, while they argue an Nasdaq-ICE combination would run afoul of antitrust rules.
The Nasdaq-ICE bid is also a bet on the superiority of purely electronic trading. From its headquarters in Times Square, Nasdaq has done more than anyone else to draw business away and diminish the exchange, and in the shift to electronic trading the Big Board itself adopted ever more automation and set up its own electronic-only market, called Arca.
ONGC gears up for Bashneft stake move
India’s Oil and Natural Gas Corporation has hired two investment banks to help it acquire a stake in Russia’s Bashneft, according to people close to the matter.
Rothchild and Citigroup will advise state-owned ONGC on its attempt to buy a 25 per cent stake in the Russian production and refining group, which has a market value of $10.5bn.
The move is part of an effort by India to secure overseas energy assets as New Delhi aspires to an economy with double-digit growth in a few years’ time.
India has been leveraging on its historic ties with Moscow to secure energy assets in Russia as it struggles to compete with financially stronger Chinese oil and gas groups in the race for energy resources.
Russia had been a close partner of India’s during the Soviet era but relations fell dormant between the two for more than two decades after the collapse of communism in 1991.
However, in the past five years the heads of the two nations have been seeking new business and closer political alignment.
Dmitry Medvedev, Russian president, last travelled to India in December with some of Russia’s largest companies in an attempt to boost trade.
During his two-day trip to New Delhi, Mr Medvedev announced 15 agreements to align India’s oil and gas companies with Russian energy groups.
One of the deals was a framework agreement between ONGC and Sistema, which owns the stake in Bashneft that the Indian company wants to buy.
It paved the way for the two companies to share equity in their Russian oil assets and consider joint operations in other countries.
ONGC, which has a market capitalisation of $52bn, acquired Imperial Energy, a London-listed company with most of its assets in Russia, for nearly $2.1bn in December 2008.
Meanwhile, Sistema, which is controlled by Russian billionaire Vladimir Yevtushenko, has large stakes in several oil producing and refining groups in Russia, including Bashneft and RussNeft.
Bashneft’s oil production in 2010 hit 276,000 barrels per day.
This is expected to grow after it won the tender to develop the Trebs and Titov oilfields in the Russian Arctic, which have an estimated 200m tonnes of reserves.
ONGC has come under fire from India’s official auditor, which questioned the group’s transparency and its ability to secure overseas assets.
The Comptroller and Auditor General of India said ONGC had had a habit of expressing intentions of buying foreign assets – in Vietnam, Australia and African countries – and failing to follow through.
The CAG added that out of 36 acquisitions, only five had been successful.
Rothchild and Citigroup will advise state-owned ONGC on its attempt to buy a 25 per cent stake in the Russian production and refining group, which has a market value of $10.5bn.
The move is part of an effort by India to secure overseas energy assets as New Delhi aspires to an economy with double-digit growth in a few years’ time.
India has been leveraging on its historic ties with Moscow to secure energy assets in Russia as it struggles to compete with financially stronger Chinese oil and gas groups in the race for energy resources.
Russia had been a close partner of India’s during the Soviet era but relations fell dormant between the two for more than two decades after the collapse of communism in 1991.
However, in the past five years the heads of the two nations have been seeking new business and closer political alignment.
Dmitry Medvedev, Russian president, last travelled to India in December with some of Russia’s largest companies in an attempt to boost trade.
During his two-day trip to New Delhi, Mr Medvedev announced 15 agreements to align India’s oil and gas companies with Russian energy groups.
One of the deals was a framework agreement between ONGC and Sistema, which owns the stake in Bashneft that the Indian company wants to buy.
It paved the way for the two companies to share equity in their Russian oil assets and consider joint operations in other countries.
ONGC, which has a market capitalisation of $52bn, acquired Imperial Energy, a London-listed company with most of its assets in Russia, for nearly $2.1bn in December 2008.
Meanwhile, Sistema, which is controlled by Russian billionaire Vladimir Yevtushenko, has large stakes in several oil producing and refining groups in Russia, including Bashneft and RussNeft.
Bashneft’s oil production in 2010 hit 276,000 barrels per day.
This is expected to grow after it won the tender to develop the Trebs and Titov oilfields in the Russian Arctic, which have an estimated 200m tonnes of reserves.
ONGC has come under fire from India’s official auditor, which questioned the group’s transparency and its ability to secure overseas assets.
The Comptroller and Auditor General of India said ONGC had had a habit of expressing intentions of buying foreign assets – in Vietnam, Australia and African countries – and failing to follow through.
The CAG added that out of 36 acquisitions, only five had been successful.
Sunday, April 24, 2011
Google, a Giant in Mobile Search, Seeks New Ways to Make It Pay
MOUNTAIN VIEW, Calif. — In early 2008, in the early days of the iPhone era, Google engineers began noticing something unusual in the search engine’s logs. Owners of these new phones were doing a huge number of Web searches.
But there was a problem: searching on a phone was less than ideal. It was hard to type on small screens. And most irritating for Google, which brags about its speed on every page of search results, was that Web pages were slow to load on phones.
So Google started a project it code-named Grand Prix. In six weeks, engineers revamped mobile searching and hatched plans for new ways to search on the go, by talking or taking photos instead of typing.
The stakes were high. Mobile phones could be a huge new market for Google. Or they could provide an opening for a competitor to pounce, or obviate the need for a search engine altogether. If people on phones could go straight to apps for information, why Google anything?
Today, Google says mobile searches are growing as quickly as Web searches were at the same stage in the company’s early days, and they are up sixfold in the last two years. Google has a market share of 97 percent for mobile searches, according to StatCounter, which tracks Web use.
Now that it dominates the field, Google is throwing its burly computing power and heaps of data at new problems specific to mobile phones — like translating phone calls on the fly and recognizing photos of things like plants and items of clothing.
“I feel like a parent the second time around feels,” said Amit Singhal, a Google fellow who works on search. “You saw your first child grow at an amazing pace, and here we are with our second child, mobile, growing at the same pace and showing the same signs.”
Google has been slow to seize some newer Web business opportunities, most notably social networking. Investors have criticized the company for dragging its feet when it comes to figuring out how to make money in new fields.
But mobile is an exception. Last year, Eric E. Schmidt, then the company’s chief executive, said Google’s philosophy was “mobile first,” meaning it would build products for phones at the same time as versions for PCs.
“This is the place that Google is essentially betting its future on,” said Karim Temsamani, Google’s head of mobile advertising, a role created in September.
Still, Google has not consistently followed the mobile-first mantra, and some analysts, including Colin W. Gillis of BGC Partners, say it has not moved quickly enough to create new mobile products or ads.
“They’ve done a really good job of positioning themselves so they can’t get boxed out of the market,” Mr. Gillis said. “Now they just need to deliver some innovation. Let’s wring some revenue out of this platform.”
Google said in October that mobile ads were on track to generate $1 billion in revenue in the coming year. Mobile users can call a business from within a Google ad or receive coupons for nearby stores. They can take cellphone photos of movie posters to pull up a trailer. With new technologies like near-field communication, advertisers could reward customers with loyalty gifts for walking into stores, Mr. Temsamani said.
But because mobile ads generally sell for less than half the price of Web ads, Mr. Gillis said, “there’s just not a lot of profit left over.” Though Google makes Android software for phones, it does not make money from it directly because it gives it away to phone makers. Meanwhile, Apple makes money from its devices and from what appears on their screens, including its own ad network.
Still, the company’s approach to the mobile market is classic Google: take problems that computer scientists have been working on for decades, throw huge amounts of data and computing power at them and assume that if the resulting product is useful to people, it will eventually make money.
People can now snap photos of landmarks or wine labels to search for them using Google Goggles, speak to their phones using voice search and, on Android phones, translate spoken conversations between English and Spanish.
“We as an academic community would have figured this out, but we wouldn’t have been able to set it up on this kind of scale,” said Alexei A. Efros, an associate professor in computer science and robotics at Carnegie Mellon, referring to these kinds of technological feats. “That’s really the great thing about Google, the fact that it can do it on such a humongous scale and actually make it useful to the general public.”
Google trained its computers to learn spoken language based on troves of voice recordings. “Even if you’re from Brooklyn and you drop all your R’s when you park your car, it’s heard plenty of people from Brooklyn and it can do well,” said Mike Cohen, head of Google’s speech technology team.
At first, Google engineers thought people would talk to its voice search service as if they were talking to a person — “you know, it’s my anniversary, and I’d love to take my wife somewhere really romantic to eat, do you have any ideas?” — so it taught the service to filter out unnecessary words. But it turned out that Google had already trained people into thinking in keywords, so they knew to search “romantic restaurants” even when speaking instead of typing.
Goggles, the visual search tool, recognizes things that have strong visual textures, like a bar code, book cover or landmark. But it often can’t distinguish between a black cat and a black chair, for instance, or recognize food or plants, though Google is working with botanists to teach its machines the secrets of leaf-spotting. Google already has the capability to recognize faces, so people could theoretically snap a photo of a blind date and pull up an online profile, but it is not yet using that technology because it is still working out the privacy implications.
People can also snap a photo to translate a menu in a foreign country, and speak English to hear the Spanish translation. Someday Google hopes to be able to translate both sides of a phone conversation as it happens, said Franz Och, head of Google’s machine translation group.
Though the search results Google spits out might seem the same on phones as on computers, there are some behind-the-scenes differences.
For example, certain search results are ranked differently, with location factored in. Search for Wal-Mart on a computer and Google suspects you are probably looking for the e-commerce site or job openings. Search on a phone and Google assumes you are looking for the nearest store. Other search tools were built specifically for phones. Search for weather or stock prices and Google shows a scale, movable with a finger, to see results for different times.
Google says mobile search is not stealing time from computer searches. Instead, mobile searches spike during the lunch hour and evenings, when people are away from their computers. And while mobile users do search for simple things like weather and train times, engineers have been surprised at how many people also ask more complicated questions about business and politics.
“Mobile search is definitely going to surpass desktop search,” said Scott B. Huffman, who works on mobile search at Google and leads its search evaluation team. “The lines will pass, and I think they’ll pass before anyone thought they would.”
But there was a problem: searching on a phone was less than ideal. It was hard to type on small screens. And most irritating for Google, which brags about its speed on every page of search results, was that Web pages were slow to load on phones.
So Google started a project it code-named Grand Prix. In six weeks, engineers revamped mobile searching and hatched plans for new ways to search on the go, by talking or taking photos instead of typing.
The stakes were high. Mobile phones could be a huge new market for Google. Or they could provide an opening for a competitor to pounce, or obviate the need for a search engine altogether. If people on phones could go straight to apps for information, why Google anything?
Today, Google says mobile searches are growing as quickly as Web searches were at the same stage in the company’s early days, and they are up sixfold in the last two years. Google has a market share of 97 percent for mobile searches, according to StatCounter, which tracks Web use.
Now that it dominates the field, Google is throwing its burly computing power and heaps of data at new problems specific to mobile phones — like translating phone calls on the fly and recognizing photos of things like plants and items of clothing.
“I feel like a parent the second time around feels,” said Amit Singhal, a Google fellow who works on search. “You saw your first child grow at an amazing pace, and here we are with our second child, mobile, growing at the same pace and showing the same signs.”
Google has been slow to seize some newer Web business opportunities, most notably social networking. Investors have criticized the company for dragging its feet when it comes to figuring out how to make money in new fields.
But mobile is an exception. Last year, Eric E. Schmidt, then the company’s chief executive, said Google’s philosophy was “mobile first,” meaning it would build products for phones at the same time as versions for PCs.
“This is the place that Google is essentially betting its future on,” said Karim Temsamani, Google’s head of mobile advertising, a role created in September.
Still, Google has not consistently followed the mobile-first mantra, and some analysts, including Colin W. Gillis of BGC Partners, say it has not moved quickly enough to create new mobile products or ads.
“They’ve done a really good job of positioning themselves so they can’t get boxed out of the market,” Mr. Gillis said. “Now they just need to deliver some innovation. Let’s wring some revenue out of this platform.”
Google said in October that mobile ads were on track to generate $1 billion in revenue in the coming year. Mobile users can call a business from within a Google ad or receive coupons for nearby stores. They can take cellphone photos of movie posters to pull up a trailer. With new technologies like near-field communication, advertisers could reward customers with loyalty gifts for walking into stores, Mr. Temsamani said.
But because mobile ads generally sell for less than half the price of Web ads, Mr. Gillis said, “there’s just not a lot of profit left over.” Though Google makes Android software for phones, it does not make money from it directly because it gives it away to phone makers. Meanwhile, Apple makes money from its devices and from what appears on their screens, including its own ad network.
Still, the company’s approach to the mobile market is classic Google: take problems that computer scientists have been working on for decades, throw huge amounts of data and computing power at them and assume that if the resulting product is useful to people, it will eventually make money.
People can now snap photos of landmarks or wine labels to search for them using Google Goggles, speak to their phones using voice search and, on Android phones, translate spoken conversations between English and Spanish.
“We as an academic community would have figured this out, but we wouldn’t have been able to set it up on this kind of scale,” said Alexei A. Efros, an associate professor in computer science and robotics at Carnegie Mellon, referring to these kinds of technological feats. “That’s really the great thing about Google, the fact that it can do it on such a humongous scale and actually make it useful to the general public.”
Google trained its computers to learn spoken language based on troves of voice recordings. “Even if you’re from Brooklyn and you drop all your R’s when you park your car, it’s heard plenty of people from Brooklyn and it can do well,” said Mike Cohen, head of Google’s speech technology team.
At first, Google engineers thought people would talk to its voice search service as if they were talking to a person — “you know, it’s my anniversary, and I’d love to take my wife somewhere really romantic to eat, do you have any ideas?” — so it taught the service to filter out unnecessary words. But it turned out that Google had already trained people into thinking in keywords, so they knew to search “romantic restaurants” even when speaking instead of typing.
Goggles, the visual search tool, recognizes things that have strong visual textures, like a bar code, book cover or landmark. But it often can’t distinguish between a black cat and a black chair, for instance, or recognize food or plants, though Google is working with botanists to teach its machines the secrets of leaf-spotting. Google already has the capability to recognize faces, so people could theoretically snap a photo of a blind date and pull up an online profile, but it is not yet using that technology because it is still working out the privacy implications.
People can also snap a photo to translate a menu in a foreign country, and speak English to hear the Spanish translation. Someday Google hopes to be able to translate both sides of a phone conversation as it happens, said Franz Och, head of Google’s machine translation group.
Though the search results Google spits out might seem the same on phones as on computers, there are some behind-the-scenes differences.
For example, certain search results are ranked differently, with location factored in. Search for Wal-Mart on a computer and Google suspects you are probably looking for the e-commerce site or job openings. Search on a phone and Google assumes you are looking for the nearest store. Other search tools were built specifically for phones. Search for weather or stock prices and Google shows a scale, movable with a finger, to see results for different times.
Google says mobile search is not stealing time from computer searches. Instead, mobile searches spike during the lunch hour and evenings, when people are away from their computers. And while mobile users do search for simple things like weather and train times, engineers have been surprised at how many people also ask more complicated questions about business and politics.
“Mobile search is definitely going to surpass desktop search,” said Scott B. Huffman, who works on mobile search at Google and leads its search evaluation team. “The lines will pass, and I think they’ll pass before anyone thought they would.”
Indian bank scraps ‘teaser’ home loans
The State Bank of India, the country’s largest commercial bank, has been forced to withdraw “teaser” mortgage loans amid fears of repeating the lending follies of the US subprime crisis.
Under pressure from the Reserve Bank of India to curb what the regulator considered potentially reckless lending, the SBI said last week that it would scrap the home loans from May.
The loans, launched two years ago, quickly gained popularity with first-time buyers and accounted for as much as half of new mortgage business.
India’s mortgage market is growing fast as property prices strengthen. Developers in the fastest-growing large economy after China are marketing apartment complexes heavily to offer modern city living to a growing middle class.
Teaser loans offer initially low repayment rates over one to three years that then escalate. They were also initially provided by HDFC and ICICI banks, but later withdrawn.
Critics say the tiered pricing is often not well understood by borrowers, who are unprepared for higher repayments as the loan matures. They also worry about rising defaults at a time when the RBI is raising interest rates to rein in the highest inflation of any large Asian economy.
Teaser loans were promoted aggressively by O.P. Bhatt, former chairman of state-owned SBI. He argued that the RBI had not understood their benefit to the bank and its customers. They were withdrawn soon after Mr Bhatt’s retirement from the bank and replacement by Pratip Chaudhuri.
The loans were extended to about 300,000 customers, and accounted for about Rs100bn ($2.2bn).
Mr Chaudhuri said the bank’s teaser loans had not complied with central bank guidelines, but their withdrawal would not affect his bank’s performance.
“We are changing the interest rate structure which will be compliant with RBI’s guidelines on tiered loans but will not result in a higher interest pay-out for the borrower,” he said.
In its Economic Survey, published this year, the finance ministry praised SBI for its Happy Home Loan and Easy and Advantage Home loan. The “terraced” lending instruments had encouraged first-time buyers into the market.
Both held interest constant for the first 12 months of repayment. About 90 per cent of the home loan borrowers were first-time buyers. Yet defaults – still early in the life of the mortgages – were “negligible”.
“It is worthwhile giving banks and financial institutions the freedom to introduce new products and thereby expand the options available to consumers and firms,” the ministry had recommended.
Financial authorities have been in a state of high alert about new widely marketed products and complex structured finance in the country’s housing market. Although the global financial crisis hardly touched India, the central bank is highly sensitive to risks similar to the subprime housing mortgage market and its failure in the US.
Two products have come under scrutiny in what is already a highly regulated economy. Alongside the teaser loans, collateralised debt obligations have drawn concern.
CDOs package up different mortgages of varying risk, slices of which are then sold off to financial institutions. They are notorious for being difficult to rate for risk and have a big “handle with care” sign stamped all over them after wreaking destruction in the world’s financial markets.
Under pressure from the Reserve Bank of India to curb what the regulator considered potentially reckless lending, the SBI said last week that it would scrap the home loans from May.
The loans, launched two years ago, quickly gained popularity with first-time buyers and accounted for as much as half of new mortgage business.
India’s mortgage market is growing fast as property prices strengthen. Developers in the fastest-growing large economy after China are marketing apartment complexes heavily to offer modern city living to a growing middle class.
Teaser loans offer initially low repayment rates over one to three years that then escalate. They were also initially provided by HDFC and ICICI banks, but later withdrawn.
Critics say the tiered pricing is often not well understood by borrowers, who are unprepared for higher repayments as the loan matures. They also worry about rising defaults at a time when the RBI is raising interest rates to rein in the highest inflation of any large Asian economy.
Teaser loans were promoted aggressively by O.P. Bhatt, former chairman of state-owned SBI. He argued that the RBI had not understood their benefit to the bank and its customers. They were withdrawn soon after Mr Bhatt’s retirement from the bank and replacement by Pratip Chaudhuri.
The loans were extended to about 300,000 customers, and accounted for about Rs100bn ($2.2bn).
Mr Chaudhuri said the bank’s teaser loans had not complied with central bank guidelines, but their withdrawal would not affect his bank’s performance.
“We are changing the interest rate structure which will be compliant with RBI’s guidelines on tiered loans but will not result in a higher interest pay-out for the borrower,” he said.
In its Economic Survey, published this year, the finance ministry praised SBI for its Happy Home Loan and Easy and Advantage Home loan. The “terraced” lending instruments had encouraged first-time buyers into the market.
Both held interest constant for the first 12 months of repayment. About 90 per cent of the home loan borrowers were first-time buyers. Yet defaults – still early in the life of the mortgages – were “negligible”.
“It is worthwhile giving banks and financial institutions the freedom to introduce new products and thereby expand the options available to consumers and firms,” the ministry had recommended.
Financial authorities have been in a state of high alert about new widely marketed products and complex structured finance in the country’s housing market. Although the global financial crisis hardly touched India, the central bank is highly sensitive to risks similar to the subprime housing mortgage market and its failure in the US.
Two products have come under scrutiny in what is already a highly regulated economy. Alongside the teaser loans, collateralised debt obligations have drawn concern.
CDOs package up different mortgages of varying risk, slices of which are then sold off to financial institutions. They are notorious for being difficult to rate for risk and have a big “handle with care” sign stamped all over them after wreaking destruction in the world’s financial markets.
Jaguar considers UK engine factory
Jaguar Land Rover is considering building an engine factory that would most likely be based in the UK, its existing manufacturing base, as the Indian-owned carmaker prepares to expand production.
The company made no comment on reports that Wolverhampton and south Wales had been shortlisted as possible sites for a new engine plant that might employ 1,000 people.
It also declined to comment on suggestions that a site in India was being considered as a low-cost location in spite of the logistical challenges.
But the company had “ambitious plans for growth”, a representative confirmed on Sunday. Tata, its owner, could make a decision about whether to build a UK engine factory as soon as next month.
Jaguar Land Rover – bought by Tata Motors in 2008 from Ford’s luxury venture Premier Automotive Group – continues to source its engines from the US carmaker. But the company’s plan to expand production volumes as it develops new models independently of Ford could see it continue to buy engines from its previous owner while it also branches out into building its own engines, it is understood.
Production of Jaguars and Land Rovers, all of which are made in the UK, have recovered since the worst months of the 2009 recession. The company has also reversed cuts in its workforce prompted by the general collapse in car demand, expanding from about 14,500 two years ago to almost 18,000 today.
Talk of the possible addition of another major UK factory comes months after the company said it would maintain production at all three of its existing assembly plants. JLR announced in October last year that it was reversing a decision announced in September 2009 to shut one of its factories in Castle Bromwich in Birmingham or at Solihull within 10 years.
That decision effectively safeguarded jobs of 7,000 jobs in the Midlands and the survival of assembly at Solihull, Castle Bromwich and Halewood on Merseyside. Suggestions that a new plant may be built in the UK also comes after an apparent rapprochement between JLR and the British government.
Last month, Ralf Speth, chief executive, accompanied Vince Cable, UK business secretary, around the Halewood plant as the company outlined its commitment to support UK suppliers over the next five years.
Mr Cable praised JLR for awarding £2bn ($3.3bn) worth of contracts to UK businesses.
The company made no comment on reports that Wolverhampton and south Wales had been shortlisted as possible sites for a new engine plant that might employ 1,000 people.
It also declined to comment on suggestions that a site in India was being considered as a low-cost location in spite of the logistical challenges.
But the company had “ambitious plans for growth”, a representative confirmed on Sunday. Tata, its owner, could make a decision about whether to build a UK engine factory as soon as next month.
Jaguar Land Rover – bought by Tata Motors in 2008 from Ford’s luxury venture Premier Automotive Group – continues to source its engines from the US carmaker. But the company’s plan to expand production volumes as it develops new models independently of Ford could see it continue to buy engines from its previous owner while it also branches out into building its own engines, it is understood.
Production of Jaguars and Land Rovers, all of which are made in the UK, have recovered since the worst months of the 2009 recession. The company has also reversed cuts in its workforce prompted by the general collapse in car demand, expanding from about 14,500 two years ago to almost 18,000 today.
Talk of the possible addition of another major UK factory comes months after the company said it would maintain production at all three of its existing assembly plants. JLR announced in October last year that it was reversing a decision announced in September 2009 to shut one of its factories in Castle Bromwich in Birmingham or at Solihull within 10 years.
That decision effectively safeguarded jobs of 7,000 jobs in the Midlands and the survival of assembly at Solihull, Castle Bromwich and Halewood on Merseyside. Suggestions that a new plant may be built in the UK also comes after an apparent rapprochement between JLR and the British government.
Last month, Ralf Speth, chief executive, accompanied Vince Cable, UK business secretary, around the Halewood plant as the company outlined its commitment to support UK suppliers over the next five years.
Mr Cable praised JLR for awarding £2bn ($3.3bn) worth of contracts to UK businesses.
Reliance Profit Growth May Slow as Refining Margins Set to Drop
Reliance Industries Ltd. (RIL), India’s biggest company by market value, may see profit growth slow as earnings from processing crude oil drop from a two-year high, investors said.
The company’s 14 percent increase in net income in the three months ended March 31 to 53.8 billion rupees ($1.2 billion) was the slowest growth in six quarters. Profit missed the 54.3 billion rupee average estimate of 18 analysts in a Bloomberg survey after output of natural gas fell.
Refining margins at Reliance, controlled by billionaire Mukesh Ambani, rose 23 percent in the quarter and helped counter an 8 percent decline in earnings from exploration. That may change as refineries in Japan and China ramp up output, adding supply and reducing profitability of turning crude into fuels. Reliance runs the world’s largest refining complex and got 87 percent of its revenue last year from processing oil.
“Profit will be flattish from quarter to quarter as refining margins may be near a peak and gas production is not increasing,” said Peter Varga, who helps manage about $300 million of emerging market corporate debt in Vienna at Erste Sparinvest KAG and owns Reliance bonds. “As capacity will come live in Asia, margins will slowly fall.”
Reliance sold 30 percent in 23 oil and gas areas to BP Plc to boost output from its biggest gas area and increase earnings.
Reliance has declined 1.7 percent this year in Mumbai compared with a 4.4 percent drop in the benchmark Sensitive Index. The shares rose 1.4 percent to 1,040.60 rupees at the close of trading on April 21 before the earnings were announced. Reliance, with a market value of about $77 billion, has the highest weighting in the benchmark index
Singapore Margins
Margins of complex refiners in Singapore processing Dubai crude rose to a record of $7.47 a barrel on March 4, the highest level since Dec. 2. They fell to $3.60 a barrel on April 20, the lowest since March 9, according to data compiled by Bloomberg.
Reliance’s pretax profit from refining rose 26 percent to 25.1 billion rupees in the quarter, according to the earnings statement. The company’s two adjacent refineries in the western state of Gujarat earned $9.20 on every barrel of crude oil turned into fuels compared with $7.50 barrel a year earlier.
“We probably are going to see refining margins in Asia moderate from the highs of the first quarter as diesel cracks begin to ease in the region,” said Vivek Mathur, a Boston-based oil market analyst at Energy Security Analysis Inc. “Japan’s refineries are also coming back up after the earthquake and we see a fuel surplus.”
Gold in Ground
Refiners in Japan, including Cosmo Oil Co., are ramping up production after the nation’s biggest earthquake idled about 29 percent of processing capacity.
Lower than estimated gas production is also weighing down on Reliance’s profit growth. Pretax profit from selling crude oil and gas declined 8 percent to 15.7 billion rupees in the quarter, Reliance said in an e-mailed statement.
“The cost of energy makes this gas like gold in the ground,” said Chokkalingam G., chief investment officer at Centrum Wealth Managers Ltd. in Mumbai. “Even if there’s a moderation in refining margins, at some point of time gas output will rise again and profit growth will pick up.”
Reliance produced 161.9 billion cubic feet of gas from the KG-D6 block in the three months ended March 31 compared with 190.1 billion cubic feet a year earlier, according to a presentation on its website.
Complex Reservoirs
“Based on over two years of production data, the reservoirs appear to be more complex than earlier envisaged,” Reliance said in the presentation. The company hasn’t said when output will rise.
The government isn’t satisfied with Reliance’s explanation for the decline, S.K. Srivastava, director general at India’s oil regulator, told reporters in New Delhi April 21, without elaborating.
BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks in India from Reliance and to form a venture to market gas.
Reliance had outstanding debt of 674 billion rupees as of March 31 and cash and equivalents of 423.9 billion rupees, the company said in its earnings statement of April 21.
The company’s 14 percent increase in net income in the three months ended March 31 to 53.8 billion rupees ($1.2 billion) was the slowest growth in six quarters. Profit missed the 54.3 billion rupee average estimate of 18 analysts in a Bloomberg survey after output of natural gas fell.
Refining margins at Reliance, controlled by billionaire Mukesh Ambani, rose 23 percent in the quarter and helped counter an 8 percent decline in earnings from exploration. That may change as refineries in Japan and China ramp up output, adding supply and reducing profitability of turning crude into fuels. Reliance runs the world’s largest refining complex and got 87 percent of its revenue last year from processing oil.
“Profit will be flattish from quarter to quarter as refining margins may be near a peak and gas production is not increasing,” said Peter Varga, who helps manage about $300 million of emerging market corporate debt in Vienna at Erste Sparinvest KAG and owns Reliance bonds. “As capacity will come live in Asia, margins will slowly fall.”
Reliance sold 30 percent in 23 oil and gas areas to BP Plc to boost output from its biggest gas area and increase earnings.
Reliance has declined 1.7 percent this year in Mumbai compared with a 4.4 percent drop in the benchmark Sensitive Index. The shares rose 1.4 percent to 1,040.60 rupees at the close of trading on April 21 before the earnings were announced. Reliance, with a market value of about $77 billion, has the highest weighting in the benchmark index
Singapore Margins
Margins of complex refiners in Singapore processing Dubai crude rose to a record of $7.47 a barrel on March 4, the highest level since Dec. 2. They fell to $3.60 a barrel on April 20, the lowest since March 9, according to data compiled by Bloomberg.
Reliance’s pretax profit from refining rose 26 percent to 25.1 billion rupees in the quarter, according to the earnings statement. The company’s two adjacent refineries in the western state of Gujarat earned $9.20 on every barrel of crude oil turned into fuels compared with $7.50 barrel a year earlier.
“We probably are going to see refining margins in Asia moderate from the highs of the first quarter as diesel cracks begin to ease in the region,” said Vivek Mathur, a Boston-based oil market analyst at Energy Security Analysis Inc. “Japan’s refineries are also coming back up after the earthquake and we see a fuel surplus.”
Gold in Ground
Refiners in Japan, including Cosmo Oil Co., are ramping up production after the nation’s biggest earthquake idled about 29 percent of processing capacity.
Lower than estimated gas production is also weighing down on Reliance’s profit growth. Pretax profit from selling crude oil and gas declined 8 percent to 15.7 billion rupees in the quarter, Reliance said in an e-mailed statement.
“The cost of energy makes this gas like gold in the ground,” said Chokkalingam G., chief investment officer at Centrum Wealth Managers Ltd. in Mumbai. “Even if there’s a moderation in refining margins, at some point of time gas output will rise again and profit growth will pick up.”
Reliance produced 161.9 billion cubic feet of gas from the KG-D6 block in the three months ended March 31 compared with 190.1 billion cubic feet a year earlier, according to a presentation on its website.
Complex Reservoirs
“Based on over two years of production data, the reservoirs appear to be more complex than earlier envisaged,” Reliance said in the presentation. The company hasn’t said when output will rise.
The government isn’t satisfied with Reliance’s explanation for the decline, S.K. Srivastava, director general at India’s oil regulator, told reporters in New Delhi April 21, without elaborating.
BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks in India from Reliance and to form a venture to market gas.
Reliance had outstanding debt of 674 billion rupees as of March 31 and cash and equivalents of 423.9 billion rupees, the company said in its earnings statement of April 21.
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