By Shikhar Balwani and Rajhkumar K Shaaw - Dec 9, 2011 5:39 PM GMT+0530
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India’s benchmark stock index posted its biggest two-day drop in almost three months amid concern a freeze in decision-making by the government and Europe’s debt crisis will stall growth in the South Asian nation.
Reliance Industries Ltd. (RIL), India’s largest company, tumbled 3 percent to a two-week low as Nomura Holdings Inc. downgraded the shares. Prime Minister Manmohan Singh backtracked this week on plans to allow overseas retailers including Wal-Mart Inc. (WMT) to expand in the country, undermining efforts to revive growth and deepening a yearlong paralysis in policy making. The BSE India Sensitive Index (SENSEX) has slumped 21 percent this year, faster than the 19 percent drop in the MSCI Emerging Markets Index.
“India may continue to underperform emerging markets for now because policy inaction and corruption scandals are pushing investors away,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asia and emerging-market strategist, said in an interview to Bloomberg UTV today. “Growth is slowing and headline inflation” hasn’t come down as fast as expected.
The Sensex slumped 274.78, or 1.7 percent, to 16,213.46 at the 3:30 p.m. close in Mumbai, its steepest two-day loss since Sept. 23. The gauge, which lost 3.8 percent this week, rallied the most in 2 1/2 years last week on speculation the central bank may boost cash as China cut the reserve ratio for banks for the first time since 2008. As many as 26 of the 30 stocks (MXAPJ) in the measure retreated today.
Euro Concerns
Asian stocks declined for a second day, with the MSCI Asia Pacific Index (MXAP) losing 2 percent on economic reports indicating Europe’s debt crisis is contributing to slower growth in Japan, South Korea and China. Japan’s Nikkei 225 Stock Average (NKY) sank 1.5 percent after a report showed the nation’s economy grew less last quarter than the government’s initial estimate. South Korea’s Kospi Index (KOSPI) declined 2 percent after producer prices rose at the slowest pace in a year in November.
European leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting fund to halt two years of debt-driven turmoil in financial markets and dispel concerns that the 17-nation euro currency is on the brink of unraveling. Europe is India’s biggest trading partner.
The Sensex was Asia’s worst performer yesterday after Reserve Bank of India Deputy Governor Subir Gokarn said Dec. 7 the central bank won’t compromise on its fight to tame inflation to ease a cash deficit. Policy makers are concerned that adding cash by freeing up a part of the reserves held by banks will fan inflation that has stayed above 9 percent all year, even after seven interest-rate increases.
Food Prices
Still, food inflation slowed to the lowest level in more than three years in the week ended Nov. 26, the trade ministry said yesterday, giving the central bank more scope to pause rate increases when it meets Dec. 16.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. fell 1.6 percent to 4,866.7. Its December futures traded at 4,882.25. The BSE-200 Index (BSE200) lost 1.4 percent.
Reliance retreated 3 percent to 755.70 rupees, the lowest close since Nov. 25. Nomura downgraded the stock to ‘neutral’ from ‘buy’ and cut its price estimate 18 percent to 870 rupees, citing a likely slowdown in earnings.
Sterlite Industries (India) Ltd. (STLT), the biggest copper maker, slumped 3.3 percent to 101.30 rupees. Bharat Heavy Electricals Ltd. (BHEL), India’s biggest power-equipment maker, slid 3.3 percent to 263.75 rupees, extending yesterday’s 5.7 percent retreat. Bajaj Auto Ltd. (BJAUT), the second-biggest motorcycle maker, lost 3.3 percent to 1,670.35 rupees and Mahindra & Mahindra Ltd. (MM), the biggest sports-utility vehicle maker, sank 3.7 percent to 703.25 rupees.
Sensex Target
CLSA Asia-Pacific Markets yesterday reduced its 12-month Sensex target to 17,000 from 18,200, citing lower earnings and a “political logjam.” The brokerage cut its earnings estimate for Sensex companies by 3 percent to 1,269 rupees per share for the year to March 2013, joining Credit Suisse Group AG, which on Dec. 7 pared its forecast by 7 percent to 1,300 rupees.
The Sensex trades at 13.9 times future earnings, down from 21.5 times in March 2010. The MSCI Emerging Markets Index (MXEF) is valued at 9.6 times.
India’s economy grew 6.9 percent in the September quarter, the slowest pace in two years, as rising borrowing costs and accelerating inflation cooled demand. Industrial production in October may drop 0.7 percent, the first contraction since June 2009, according to the median estimate of 24 economists in a Bloomberg survey. The government will release the data Dec. 12.
Foreign funds have reduced holdings of domestic shares by $2.4 billion from a record $104.4 billion in July, contributing to the slide in stocks and the rupee, which tumbled to a record 52.73 per U.S. dollar on Nov. 22.
The currency slid 6.7 percent in November, the most since March 1992, and is heading for its second-worst year against the dollar since 1991, when Singh, then India’s finance chief, began a shift toward free-market policies.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
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Saturday, December 10, 2011
Friday, December 9, 2011
Sensex Index Drops as Europe Woes, Policy Logjam Threaten Economic Growth By Shikhar Balwani and Rajhkumar K Shaaw - Dec 9, 2011
India’s benchmark stock index posted its biggest two-day drop in almost three months amid concern a freeze in decision-making by the government and Europe’s debt crisis will stall growth in the South Asian nation.
Reliance Industries Ltd. (RIL), India’s largest company, tumbled 3 percent to a two-week low as Nomura Holdings Inc. downgraded the shares. Prime Minister Manmohan Singh backtracked this week on plans to allow overseas retailers including Wal-Mart Inc. (WMT) to expand in the country, undermining efforts to revive growth and deepening a yearlong paralysis in policy making. The BSE India Sensitive Index (SENSEX) has slumped 21 percent this year, faster than the 19 percent drop in the MSCI Emerging Markets Index.
“India may continue to underperform emerging markets for now because policy inaction and corruption scandals are pushing investors away,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asia and emerging-market strategist, said in an interview to Bloomberg UTV today. “Growth is slowing and headline inflation” hasn’t come down as fast as expected.
The Sensex slumped 274.78, or 1.7 percent, to 16,213.46 at the 3:30 p.m. close in Mumbai, its steepest two-day loss since Sept. 23. The gauge, which lost 3.8 percent this week, rallied the most in 2 1/2 years last week on speculation the central bank may boost cash as China cut the reserve ratio for banks for the first time since 2008. As many as 26 of the 30 stocks (MXAPJ) in the measure retreated today.
Euro Concerns
Asian stocks declined for a second day, with the MSCI Asia Pacific Index (MXAP) losing 2 percent on economic reports indicating Europe’s debt crisis is contributing to slower growth in Japan, South Korea and China. Japan’s Nikkei 225 Stock Average (NKY) sank 1.5 percent after a report showed the nation’s economy grew less last quarter than the government’s initial estimate. South Korea’s Kospi Index (KOSPI) declined 2 percent after producer prices rose at the slowest pace in a year in November.
European leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting fund to halt two years of debt-driven turmoil in financial markets and dispel concerns that the 17-nation euro currency is on the brink of unraveling. Europe is India’s biggest trading partner.
The Sensex was Asia’s worst performer yesterday after Reserve Bank of India Deputy Governor Subir Gokarn said Dec. 7 the central bank won’t compromise on its fight to tame inflation to ease a cash deficit. Policy makers are concerned that adding cash by freeing up a part of the reserves held by banks will fan inflation that has stayed above 9 percent all year, even after seven interest-rate increases.
Food Prices
Still, food inflation slowed to the lowest level in more than three years in the week ended Nov. 26, the trade ministry said yesterday, giving the central bank more scope to pause rate increases when it meets Dec. 16.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. fell 1.6 percent to 4,866.7. Its December futures traded at 4,882.25. The BSE-200 Index (BSE200) lost 1.4 percent.
Reliance retreated 3 percent to 755.70 rupees, the lowest close since Nov. 25. Nomura downgraded the stock to ‘neutral’ from ‘buy’ and cut its price estimate 18 percent to 870 rupees, citing a likely slowdown in earnings.
Sterlite Industries (India) Ltd. (STLT), the biggest copper maker, slumped 3.3 percent to 101.30 rupees. Bharat Heavy Electricals Ltd. (BHEL), India’s biggest power-equipment maker, slid 3.3 percent to 263.75 rupees, extending yesterday’s 5.7 percent retreat. Bajaj Auto Ltd. (BJAUT), the second-biggest motorcycle maker, lost 3.3 percent to 1,670.35 rupees and Mahindra & Mahindra Ltd. (MM), the biggest sports-utility vehicle maker, sank 3.7 percent to 703.25 rupees.
Sensex Target
CLSA Asia-Pacific Markets yesterday reduced its 12-month Sensex target to 17,000 from 18,200, citing lower earnings and a “political logjam.” The brokerage cut its earnings estimate for Sensex companies by 3 percent to 1,269 rupees per share for the year to March 2013, joining Credit Suisse Group AG, which on Dec. 7 pared its forecast by 7 percent to 1,300 rupees.
The Sensex trades at 13.9 times future earnings, down from 21.5 times in March 2010. The MSCI Emerging Markets Index (MXEF) is valued at 9.6 times.
India’s economy grew 6.9 percent in the September quarter, the slowest pace in two years, as rising borrowing costs and accelerating inflation cooled demand. Industrial production in October may drop 0.7 percent, the first contraction since June 2009, according to the median estimate of 24 economists in a Bloomberg survey. The government will release the data Dec. 12.
Foreign funds have reduced holdings of domestic shares by $2.4 billion from a record $104.4 billion in July, contributing to the slide in stocks and the rupee, which tumbled to a record 52.73 per U.S. dollar on Nov. 22.
The currency slid 6.7 percent in November, the most since March 1992, and is heading for its second-worst year against the dollar since 1991, when Singh, then India’s finance chief, began a shift toward free-market policies.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Reliance Industries Ltd. (RIL), India’s largest company, tumbled 3 percent to a two-week low as Nomura Holdings Inc. downgraded the shares. Prime Minister Manmohan Singh backtracked this week on plans to allow overseas retailers including Wal-Mart Inc. (WMT) to expand in the country, undermining efforts to revive growth and deepening a yearlong paralysis in policy making. The BSE India Sensitive Index (SENSEX) has slumped 21 percent this year, faster than the 19 percent drop in the MSCI Emerging Markets Index.
“India may continue to underperform emerging markets for now because policy inaction and corruption scandals are pushing investors away,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asia and emerging-market strategist, said in an interview to Bloomberg UTV today. “Growth is slowing and headline inflation” hasn’t come down as fast as expected.
The Sensex slumped 274.78, or 1.7 percent, to 16,213.46 at the 3:30 p.m. close in Mumbai, its steepest two-day loss since Sept. 23. The gauge, which lost 3.8 percent this week, rallied the most in 2 1/2 years last week on speculation the central bank may boost cash as China cut the reserve ratio for banks for the first time since 2008. As many as 26 of the 30 stocks (MXAPJ) in the measure retreated today.
Euro Concerns
Asian stocks declined for a second day, with the MSCI Asia Pacific Index (MXAP) losing 2 percent on economic reports indicating Europe’s debt crisis is contributing to slower growth in Japan, South Korea and China. Japan’s Nikkei 225 Stock Average (NKY) sank 1.5 percent after a report showed the nation’s economy grew less last quarter than the government’s initial estimate. South Korea’s Kospi Index (KOSPI) declined 2 percent after producer prices rose at the slowest pace in a year in November.
European leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting fund to halt two years of debt-driven turmoil in financial markets and dispel concerns that the 17-nation euro currency is on the brink of unraveling. Europe is India’s biggest trading partner.
The Sensex was Asia’s worst performer yesterday after Reserve Bank of India Deputy Governor Subir Gokarn said Dec. 7 the central bank won’t compromise on its fight to tame inflation to ease a cash deficit. Policy makers are concerned that adding cash by freeing up a part of the reserves held by banks will fan inflation that has stayed above 9 percent all year, even after seven interest-rate increases.
Food Prices
Still, food inflation slowed to the lowest level in more than three years in the week ended Nov. 26, the trade ministry said yesterday, giving the central bank more scope to pause rate increases when it meets Dec. 16.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. fell 1.6 percent to 4,866.7. Its December futures traded at 4,882.25. The BSE-200 Index (BSE200) lost 1.4 percent.
Reliance retreated 3 percent to 755.70 rupees, the lowest close since Nov. 25. Nomura downgraded the stock to ‘neutral’ from ‘buy’ and cut its price estimate 18 percent to 870 rupees, citing a likely slowdown in earnings.
Sterlite Industries (India) Ltd. (STLT), the biggest copper maker, slumped 3.3 percent to 101.30 rupees. Bharat Heavy Electricals Ltd. (BHEL), India’s biggest power-equipment maker, slid 3.3 percent to 263.75 rupees, extending yesterday’s 5.7 percent retreat. Bajaj Auto Ltd. (BJAUT), the second-biggest motorcycle maker, lost 3.3 percent to 1,670.35 rupees and Mahindra & Mahindra Ltd. (MM), the biggest sports-utility vehicle maker, sank 3.7 percent to 703.25 rupees.
Sensex Target
CLSA Asia-Pacific Markets yesterday reduced its 12-month Sensex target to 17,000 from 18,200, citing lower earnings and a “political logjam.” The brokerage cut its earnings estimate for Sensex companies by 3 percent to 1,269 rupees per share for the year to March 2013, joining Credit Suisse Group AG, which on Dec. 7 pared its forecast by 7 percent to 1,300 rupees.
The Sensex trades at 13.9 times future earnings, down from 21.5 times in March 2010. The MSCI Emerging Markets Index (MXEF) is valued at 9.6 times.
India’s economy grew 6.9 percent in the September quarter, the slowest pace in two years, as rising borrowing costs and accelerating inflation cooled demand. Industrial production in October may drop 0.7 percent, the first contraction since June 2009, according to the median estimate of 24 economists in a Bloomberg survey. The government will release the data Dec. 12.
Foreign funds have reduced holdings of domestic shares by $2.4 billion from a record $104.4 billion in July, contributing to the slide in stocks and the rupee, which tumbled to a record 52.73 per U.S. dollar on Nov. 22.
The currency slid 6.7 percent in November, the most since March 1992, and is heading for its second-worst year against the dollar since 1991, when Singh, then India’s finance chief, began a shift toward free-market policies.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 8, 2011
India’s HCL Targets ‘Aggressive’ Acquisitions Amid European Debt Crisis
By Beth Mellor - Dec 8, 2011
HCL Technologies Ltd., an Indian provider of technology services whose clients include Deutsche Bank AG and GlaxoSmithKline Plc (GSK), said the European debt crisis will help it to buy and partner with local companies.
The New Delhi-based company targets deals in the Nordic countries, Germany and France because continental Europe is the “biggest growth area for us,” Chief Executive Officer Vineet Nayar said in an interview in HCL’s London office. Clients often want to work with a local vendor and HCL will pursue “aggressive partnerships in the local markets and aggressive acquisitions,” he said.
Potential targets are probably more “open for acquisition” as a result of the current economic crisis, Nayar said. HCL’s order pipeline is “bigger than ever before” and the company plans to expand offerings for data analysis and cloud computing, which let clients rent software delivered over the Web rather than install it on their own machines.
Indian IT and software companies are benefitting from rising corporate spending on computer services and from governments trying to improve efficiency with technology as budget cuts bite. HCL bought U.K. software provider Axon Group for $658 million in 2008, its biggest ever deal. Indian rival Tata Consultancy Services Ltd. (TCS) said in September it was weighing acquisitions in France, Germany, Japan and the U.S.
“All large Indian IT companies are looking at the M&A game more closely, given that valuations have come down in Europe,” said Standard Chartered analyst Pankaj Kapoor, who has an “outperform” rating on HCL shares.
Search for Value
Before today, HCL had dropped 8.4 percent in Mumbai trading this year, valuing the company at $5.6 billion.
HCL doesn’t plan to expand its U.K. presence and would only be interested in British companies with a strong continental European footprint, Nayar said.
HCL is also benefitting from the current economic climate as more companies and governments are ditching their existing information technology service providers and searching for partners that offer better value, he said.
The $1 trillion information technology services market is “at the beginning of a phase of further disruption, similar to the one the low-cost airlines have brought in the transportation industry,” because of “low-cost” cloud-computing services, researcher Gartner Inc. said Dec. 1.
Gartner in October predicted worldwide enterprise IT spending will rise by 3.9 percent to $2.7 trillion in 2012. While growth will slow from a predicted 5.9 percent increase in 2011, the researcher said that “despite the global economic challenges, enterprises will continue to invest in IT.”
Phone-Hacking Probe
The HCL CEO reiterated that the company is cooperating with the U.K. Home Affairs committee and Metropolitan Police in a phone-hacking inquiry at News Corp.’s U.K. publishing unit.
HCL, which won a five-year contract to manage News International’s data center and networks in 2009, said in a letter to U.K. lawmakers this year it was asked for assistance in deleting e-mails nine times between April 2010 and July 2011.
In January 2011, the month when News Corp. began handing information to the police, the company requested help to “truncate a particular database,” according to the letter. HCL said it wasn’t able to handle the request and suggested another company.
Nayar said it is “common practice across all customers” for IT services providers to be asked to delete data, and that “only the customer knows what the data is.” He also said that “we don’t store the data and therefore the actual deletion was done by some other agency.”
To contact the reporter on this story: Beth Mellor in London at bmellor@bloomberg.net
To contact the editor responsible for this story: Simon Thiel in London at sthiel1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
HCL Technologies Ltd., an Indian provider of technology services whose clients include Deutsche Bank AG and GlaxoSmithKline Plc (GSK), said the European debt crisis will help it to buy and partner with local companies.
The New Delhi-based company targets deals in the Nordic countries, Germany and France because continental Europe is the “biggest growth area for us,” Chief Executive Officer Vineet Nayar said in an interview in HCL’s London office. Clients often want to work with a local vendor and HCL will pursue “aggressive partnerships in the local markets and aggressive acquisitions,” he said.
Potential targets are probably more “open for acquisition” as a result of the current economic crisis, Nayar said. HCL’s order pipeline is “bigger than ever before” and the company plans to expand offerings for data analysis and cloud computing, which let clients rent software delivered over the Web rather than install it on their own machines.
Indian IT and software companies are benefitting from rising corporate spending on computer services and from governments trying to improve efficiency with technology as budget cuts bite. HCL bought U.K. software provider Axon Group for $658 million in 2008, its biggest ever deal. Indian rival Tata Consultancy Services Ltd. (TCS) said in September it was weighing acquisitions in France, Germany, Japan and the U.S.
“All large Indian IT companies are looking at the M&A game more closely, given that valuations have come down in Europe,” said Standard Chartered analyst Pankaj Kapoor, who has an “outperform” rating on HCL shares.
Search for Value
Before today, HCL had dropped 8.4 percent in Mumbai trading this year, valuing the company at $5.6 billion.
HCL doesn’t plan to expand its U.K. presence and would only be interested in British companies with a strong continental European footprint, Nayar said.
HCL is also benefitting from the current economic climate as more companies and governments are ditching their existing information technology service providers and searching for partners that offer better value, he said.
The $1 trillion information technology services market is “at the beginning of a phase of further disruption, similar to the one the low-cost airlines have brought in the transportation industry,” because of “low-cost” cloud-computing services, researcher Gartner Inc. said Dec. 1.
Gartner in October predicted worldwide enterprise IT spending will rise by 3.9 percent to $2.7 trillion in 2012. While growth will slow from a predicted 5.9 percent increase in 2011, the researcher said that “despite the global economic challenges, enterprises will continue to invest in IT.”
Phone-Hacking Probe
The HCL CEO reiterated that the company is cooperating with the U.K. Home Affairs committee and Metropolitan Police in a phone-hacking inquiry at News Corp.’s U.K. publishing unit.
HCL, which won a five-year contract to manage News International’s data center and networks in 2009, said in a letter to U.K. lawmakers this year it was asked for assistance in deleting e-mails nine times between April 2010 and July 2011.
In January 2011, the month when News Corp. began handing information to the police, the company requested help to “truncate a particular database,” according to the letter. HCL said it wasn’t able to handle the request and suggested another company.
Nayar said it is “common practice across all customers” for IT services providers to be asked to delete data, and that “only the customer knows what the data is.” He also said that “we don’t store the data and therefore the actual deletion was done by some other agency.”
To contact the reporter on this story: Beth Mellor in London at bmellor@bloomberg.net
To contact the editor responsible for this story: Simon Thiel in London at sthiel1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, December 7, 2011
Singh Retail Retreat ‘Nail in the Coffin’ for India Opening By Andrew MacAskill and Kartik Goyal - Dec 7, 2011
Prime Minister Manmohan Singh’s decision to backtrack on plans to let overseas retailers expand in India may undermine efforts to revive growth and curb inflation, while deepening a yearlong paralysis in government.
The 79-year-old Singh, credited with sparking India’s economic transformation when finance minister two decades ago, yesterday bowed to opposition protests that had forced repeated adjournments of parliament since the Nov. 24 move to allow foreign investment in multibrand retail. Finance Minister Pranab Mukherjee told lawmakers the decision was suspended until a consensus could be reached.
The reversal indefinitely puts off an influx of foreign investment from companies including Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) that are bidding to enter the $396 billion market, at a time when the rupee is already trading near a record low. It also adds to a list of unfinished economic initiatives that includes a proposed tax overhaul and changes to how land is acquired for infrastructure projects.
“It is frustrating to look at unresolved issues and know that they’re resolvable if you can get some leadership and orientation around them,” John Flannery, chief executive officer for General Electric Co. (GE)’s India unit, said in an interview yesterday.
India’s $1.7 trillion economy expanded last quarter at the slowest pace in almost two years after the central bank raised interest rates to slow inflation. The rupee has fallen almost 14 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession.
Local Suppliers
In an attempt to kick start the economy, Singh had approved allowing overseas companies including Carrefour SA (CA) to own as much as 51 percent of retailers selling more than one brand, as long as they sourced 30 percent of their products from local suppliers. International retailers are currently restricted to wholesale operations.
Singh argued that opening the retail sector to foreign investors would tame inflation and reduce food wastage in a country where 40 percent of vegetables rot before they can be sold. Foreign companies would bring expertise growing crops and developing a supply chain to keep food fresh, he said at a rally of his ruling Congress party in New Delhi last month.
The government immediately ran into resistance from its two largest coalition partners, Trinamool Congress and the Dravida Munnetra Kazhagam, as well as from opposition parties. Small shopkeepers, who said the plan would wipe out their jobs, joined a one-day union strike Dec. 1 to protest the move.
‘Even More Cautious’
“For anyone hoping that this government would do something, it’s effectively another nail in the coffin,” said Robert Prior-Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “They will be even more cautious in taking reforms forward than they were before.”
The government has just 10 days left of a crucial session during which it’s seeking to sign into law proposals to set up an anti-graft agency with power to punish civil servants. Transparency activists say they will renew protests that roiled the government in August if the bill isn’t passed this year.
The government has failed to push through any major pieces of legislation since the middle of last year after being embroiled in corruption charges, including allegations against a former minister, bureaucrats and businessmen over a 2008 sale of mobile-phone licenses. Opposition lawmakers’ protests against the government’s failure to check graft had disrupted the previous three sessions of parliament.
‘Political Suicide’
While Singh may have bought breathing space for his administration, both have been badly damaged, said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management.
“This is political suicide on the part of the Congress government,” Bhalla said in a phone interview. “The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.”
Shares of Indian retailers that could have tied up with foreign companies fell in Mumbai trading yesterday. Shoppers Stop Ltd. (SHOP) dropped 4.9 percent to 349.65 rupees and Trent Ltd. (TRENT) fell 0.7 percent to 956.2 rupees. The benchmark BSE India Sensitive Index gained 0.4 percent.
The government’s decision was “deeply disappointing” and “highly regressive,” Harsh Mariwala, president of the Federation of Indian Chambers of Commerce, said in a statement.
The rupee touched a record low of 52.73 to the dollar on Nov. 22 as overseas funds turned net sellers of stocks amid slowing growth, rising interest rates and the failure of policy makers to rein in prices. Benchmark inflation has stayed above 9 percent all year.
Ambani Call
“We currently have a run on the rupee because we have a total loss of confidence in the government’s capacity to govern,” said Prem Shankar Jha, an independent political analyst and former aide to former Prime Minister Vishwanath Pratap Singh. “The failure to push through FDI in retail is symbolic of the government’s lack of ability” to win arguments.
Reliance Industries Ltd. (RIL) Chairman Mukesh Ambani, India’s richest man, last month urged the government to prioritize laws to bolster the economy.
Major economic changes in the remaining two years of Singh’s second term are unlikely, said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. That may rule out opening pension, insurance and aviation sectors to foreign investment, he said.
“The government is now facing more challenges from its coalition partners to carrying out reforms than it is from opposition parties,” Shankar said in an interview.
Disappointments
After leading Congress to its biggest victory in two decades at elections in 2009, Singh has disappointed the businesspeople and analysts who expected him to build on his 1990s’ dismantling of India’s state-dominated economy. Instead, his government has continued a focus on direct support for the nation’s poor, in a country where more than three-quarters of the people live on less than $2 a day.
Singh enacted a jobs plan in 2006 that gives 100 days’ work to any rural household that requests it, and this year indexed the pay rates to the pace of inflation.
Welfare systems, which include a food security bill that will provide cheap grain to nearly three-quarters of India’s 1.2 billion people, have been promoted by Rahul Gandhi. He probably will lead the ruling party into the 2014 election, according to Eurasia Group, after taking over as party president from his mother, Sonia Gandhi. She was treated overseas in August for a medical condition neither the family nor the party will discuss.
Faced with at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state, the government may refrain from making controversial decisions, said Religare’s Shankar.
After those regional ballots “we will be heading into general elections and the closer we get to that, the less likely you are likely to bring out reforms,” Shankar said.
“This is the beginning of the end for this Congress government,” said Bhalla of Oxus. “The government is floundering. The opposition knows these guys are extremely vulnerable and they are just going to keep on attacking them.”
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net
To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The 79-year-old Singh, credited with sparking India’s economic transformation when finance minister two decades ago, yesterday bowed to opposition protests that had forced repeated adjournments of parliament since the Nov. 24 move to allow foreign investment in multibrand retail. Finance Minister Pranab Mukherjee told lawmakers the decision was suspended until a consensus could be reached.
The reversal indefinitely puts off an influx of foreign investment from companies including Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) that are bidding to enter the $396 billion market, at a time when the rupee is already trading near a record low. It also adds to a list of unfinished economic initiatives that includes a proposed tax overhaul and changes to how land is acquired for infrastructure projects.
“It is frustrating to look at unresolved issues and know that they’re resolvable if you can get some leadership and orientation around them,” John Flannery, chief executive officer for General Electric Co. (GE)’s India unit, said in an interview yesterday.
India’s $1.7 trillion economy expanded last quarter at the slowest pace in almost two years after the central bank raised interest rates to slow inflation. The rupee has fallen almost 14 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession.
Local Suppliers
In an attempt to kick start the economy, Singh had approved allowing overseas companies including Carrefour SA (CA) to own as much as 51 percent of retailers selling more than one brand, as long as they sourced 30 percent of their products from local suppliers. International retailers are currently restricted to wholesale operations.
Singh argued that opening the retail sector to foreign investors would tame inflation and reduce food wastage in a country where 40 percent of vegetables rot before they can be sold. Foreign companies would bring expertise growing crops and developing a supply chain to keep food fresh, he said at a rally of his ruling Congress party in New Delhi last month.
The government immediately ran into resistance from its two largest coalition partners, Trinamool Congress and the Dravida Munnetra Kazhagam, as well as from opposition parties. Small shopkeepers, who said the plan would wipe out their jobs, joined a one-day union strike Dec. 1 to protest the move.
‘Even More Cautious’
“For anyone hoping that this government would do something, it’s effectively another nail in the coffin,” said Robert Prior-Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “They will be even more cautious in taking reforms forward than they were before.”
The government has just 10 days left of a crucial session during which it’s seeking to sign into law proposals to set up an anti-graft agency with power to punish civil servants. Transparency activists say they will renew protests that roiled the government in August if the bill isn’t passed this year.
The government has failed to push through any major pieces of legislation since the middle of last year after being embroiled in corruption charges, including allegations against a former minister, bureaucrats and businessmen over a 2008 sale of mobile-phone licenses. Opposition lawmakers’ protests against the government’s failure to check graft had disrupted the previous three sessions of parliament.
‘Political Suicide’
While Singh may have bought breathing space for his administration, both have been badly damaged, said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management.
“This is political suicide on the part of the Congress government,” Bhalla said in a phone interview. “The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.”
Shares of Indian retailers that could have tied up with foreign companies fell in Mumbai trading yesterday. Shoppers Stop Ltd. (SHOP) dropped 4.9 percent to 349.65 rupees and Trent Ltd. (TRENT) fell 0.7 percent to 956.2 rupees. The benchmark BSE India Sensitive Index gained 0.4 percent.
The government’s decision was “deeply disappointing” and “highly regressive,” Harsh Mariwala, president of the Federation of Indian Chambers of Commerce, said in a statement.
The rupee touched a record low of 52.73 to the dollar on Nov. 22 as overseas funds turned net sellers of stocks amid slowing growth, rising interest rates and the failure of policy makers to rein in prices. Benchmark inflation has stayed above 9 percent all year.
Ambani Call
“We currently have a run on the rupee because we have a total loss of confidence in the government’s capacity to govern,” said Prem Shankar Jha, an independent political analyst and former aide to former Prime Minister Vishwanath Pratap Singh. “The failure to push through FDI in retail is symbolic of the government’s lack of ability” to win arguments.
Reliance Industries Ltd. (RIL) Chairman Mukesh Ambani, India’s richest man, last month urged the government to prioritize laws to bolster the economy.
Major economic changes in the remaining two years of Singh’s second term are unlikely, said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. That may rule out opening pension, insurance and aviation sectors to foreign investment, he said.
“The government is now facing more challenges from its coalition partners to carrying out reforms than it is from opposition parties,” Shankar said in an interview.
Disappointments
After leading Congress to its biggest victory in two decades at elections in 2009, Singh has disappointed the businesspeople and analysts who expected him to build on his 1990s’ dismantling of India’s state-dominated economy. Instead, his government has continued a focus on direct support for the nation’s poor, in a country where more than three-quarters of the people live on less than $2 a day.
Singh enacted a jobs plan in 2006 that gives 100 days’ work to any rural household that requests it, and this year indexed the pay rates to the pace of inflation.
Welfare systems, which include a food security bill that will provide cheap grain to nearly three-quarters of India’s 1.2 billion people, have been promoted by Rahul Gandhi. He probably will lead the ruling party into the 2014 election, according to Eurasia Group, after taking over as party president from his mother, Sonia Gandhi. She was treated overseas in August for a medical condition neither the family nor the party will discuss.
Faced with at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state, the government may refrain from making controversial decisions, said Religare’s Shankar.
After those regional ballots “we will be heading into general elections and the closer we get to that, the less likely you are likely to bring out reforms,” Shankar said.
“This is the beginning of the end for this Congress government,” said Bhalla of Oxus. “The government is floundering. The opposition knows these guys are extremely vulnerable and they are just going to keep on attacking them.”
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net
To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, December 6, 2011
Asia Stocks Gain on Europe Optimism By Kana Nishizawa and Toshiro Hasegawa - Dec 6, 2011
Asian stocks (MXAPJ) rose on speculation the European leaders meeting this week in Brussels will step up efforts to fight the debt crisis to stave off lower national credit ratings that will make funding bailouts more costly.
Nintendo Co., a maker of video-game players that gets 34 percent of its sales in Europe, rose 1.2 percent in Osaka after a report that sales of a handheld game machine will reach target ahead of schedule. Meiji Holdings Co., a Japanese dairy-products producer, gained 3.6 percent after slumping the most since March 15 yesterday on a report radioactive cesium was found in some its products. Hyundai Development Co. (012630), a South Korean builder, rose 3.3 percent after a report the government will announce measures to spur housing markets.
“There is an expectation in the market that Europe will advance measures to overcome the debt issues,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “While there’s a sense of expectation in the market, investors still want to see the results of meetings this week of the European Union and European Central Bank.”
The MSCI Asia Pacific Index (MXAP) rose 0.6 percent to 117.29 as of 9:46 a.m. in Tokyo. All 10 industry groups on the measure gained, with about four stocks advancing for each that dropped.
Japan’s Nikkei 225 Stock Average (NKY) rose 0.8 percent. Australia’s S&P/ASX 200 index gained 0.7 percent after its economy grew more than estimated during the third quarter. South Korea’s Kospi Index advanced 0.5 percent.
To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Nintendo Co., a maker of video-game players that gets 34 percent of its sales in Europe, rose 1.2 percent in Osaka after a report that sales of a handheld game machine will reach target ahead of schedule. Meiji Holdings Co., a Japanese dairy-products producer, gained 3.6 percent after slumping the most since March 15 yesterday on a report radioactive cesium was found in some its products. Hyundai Development Co. (012630), a South Korean builder, rose 3.3 percent after a report the government will announce measures to spur housing markets.
“There is an expectation in the market that Europe will advance measures to overcome the debt issues,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “While there’s a sense of expectation in the market, investors still want to see the results of meetings this week of the European Union and European Central Bank.”
The MSCI Asia Pacific Index (MXAP) rose 0.6 percent to 117.29 as of 9:46 a.m. in Tokyo. All 10 industry groups on the measure gained, with about four stocks advancing for each that dropped.
Japan’s Nikkei 225 Stock Average (NKY) rose 0.8 percent. Australia’s S&P/ASX 200 index gained 0.7 percent after its economy grew more than estimated during the third quarter. South Korea’s Kospi Index advanced 0.5 percent.
To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, December 5, 2011
Asian Stocks Drop as S&P Puts Euro Nations on Downgrade Watch By Kana Nishizawa and Norie Kuboyama - Dec 5, 2011
Asian stocks fell, with a benchmark gauge headed for its first loss in seven days, after Standard & Poor’s said it may cut credit ratings on Germany, France and 13 other members of the euro amid the worsening debt crisis.
STX Pan Ocean Co., a South Korean shipping line, dropped 4.8 percent in Seoul after saying a leak was found in its vessel. Toyota Motor Corp. (7203), the world’s biggest carmaker by market value, slid 1.4 percent in Tokyo. Tosoh Corp., a maker of chemical products, slid 4.4 percent after Mizuho Securities Co. cut its rating on the stock to “neutral” from “buy.” Newcrest Mining Ltd. (NCM), an Australian gold producer, declined 2.7 percent after Deutsche Bank AG cut its rating to “hold” from “buy.”
“People want to move away from risk assets,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $20 billion. “The market is unstable and has been moving up and down like a seesaw. Investors buy stocks (MXAPJ) on good news after a plunge and are selling unless the news moves in the right direction. The downgrade news is a bad story in the middle of such movements.”
The MSCI Asia Pacific Index fell 0.5 percent to 117.64 as of 10:21 a.m. in Tokyo, set to end its longest winning streak since Oct. 13. All but one of 10 industry groups on the measure declined, with more than twice as many stocks retreating as gaining.
Japan’s Nikkei 225 Stock Average (NKY) fell 0.7 percent. Australia’s S&P/ASX 200 index retreated 0.6 percent, while South Korea’s Kospi Index fell 0.8 percent.
The MSCI Asia Pacific Index sank 14 percent this year through yesterday, compared with less than 0.1 percent drop by the S&P 500 and a 12 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.7 times for the S&P 500 and 10.6 times for the Stoxx 600.
To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
STX Pan Ocean Co., a South Korean shipping line, dropped 4.8 percent in Seoul after saying a leak was found in its vessel. Toyota Motor Corp. (7203), the world’s biggest carmaker by market value, slid 1.4 percent in Tokyo. Tosoh Corp., a maker of chemical products, slid 4.4 percent after Mizuho Securities Co. cut its rating on the stock to “neutral” from “buy.” Newcrest Mining Ltd. (NCM), an Australian gold producer, declined 2.7 percent after Deutsche Bank AG cut its rating to “hold” from “buy.”
“People want to move away from risk assets,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $20 billion. “The market is unstable and has been moving up and down like a seesaw. Investors buy stocks (MXAPJ) on good news after a plunge and are selling unless the news moves in the right direction. The downgrade news is a bad story in the middle of such movements.”
The MSCI Asia Pacific Index fell 0.5 percent to 117.64 as of 10:21 a.m. in Tokyo, set to end its longest winning streak since Oct. 13. All but one of 10 industry groups on the measure declined, with more than twice as many stocks retreating as gaining.
Japan’s Nikkei 225 Stock Average (NKY) fell 0.7 percent. Australia’s S&P/ASX 200 index retreated 0.6 percent, while South Korea’s Kospi Index fell 0.8 percent.
The MSCI Asia Pacific Index sank 14 percent this year through yesterday, compared with less than 0.1 percent drop by the S&P 500 and a 12 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.7 times for the S&P 500 and 10.6 times for the Stoxx 600.
To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, December 4, 2011
Failure to Cut Record Debt Pushes Developer Yields Above 20%: India Credit By Pooja Thakur - Dec 4, 2011
India’s biggest developers are failing to rein in record debt as borrowing costs above 20 percent and the worst economic slump since 2009 erode earnings.
DLF Ltd., the largest builder, had liabilities (DLFU) minus cash of 242.7 billion rupees ($4.7 billion) last quarter, an all-time high, data compiled by Bloomberg show, as the company delayed asset sales. Net debt at Godrej Properties Ltd. (GPL), the fourth- biggest by market value, reached unprecedented levels as the central bank raised interest rates to a three-year high. Developers sold debt at between 18.5 percent and 23 percent this quarter, National Securities Depositary Ltd. data show.
India’s real-estate industry needs to repay 1.8 trillion rupees of debt in the next two to three years and the risk of defaults will increase, according to U.K. property broker Knight Frank LLP. Los Angeles-based KB Home’s 2015 notes yield 9.3 percent and 2016 dollar debt of China’s Agile Property Holdings Ltd. offers 13.4 percent.
“Debt is rising to fund the core business in the absence of operating cash flows,” Bhaskar Chakraborty, an analyst at Mumbai-based brokerage IIFL Ltd., said in an interview on Nov. 30. “The next financial year is going to be worse than this one for builders, seeing the state of the industry with dwindling sales and high interest costs.”
Total profit at India’s five biggest developers fell to the lowest level in at least a year in the three months ended Sept. 30, data compiled by Bloomberg show, as the slowing economy and rising interest rates hurt sales.
Asia’s third-largest economy expanded 6.9 percent from a year earlier, the smallest advance in more than two years, government data on Nov. 30 showed. Profit growth at the 30 companies that make up India’s benchmark share index slowed to 7 percent last quarter from 17 percent in the prior period.
Falling Demand
Property demand has slumped in India’s biggest cities as the Reserve Bank of India raised borrowing costs by 375 basis points, or 3.75 percentage points, since March 2010 to slow inflation. The average mortgage rate at Mumbai-based Housing Development Finance Corp., India’s biggest mortgage lender, is currently 16.5 percent, according to the company’s website.
Central bank Governor Duvvuri Subbarao last raised the repurchase rate by 25 basis points to 8.5 percent on Oct. 25, the only policy maker in the biggest emerging markets to continue raising rates this quarter. Brazil has lowered its benchmark rate by a total 100 basis points since August to 11.5 percent.
‘Ridiculous Proportions’
Rate increases have reached “ridiculous proportions,” Niranjan Hiranandani, managing director of Hiranandani Constructions, a Mumbai-based developer, said on Sept. 22.
Home sale registrations in Mumbai, India’s most-expensive real-estate market, fell 25 percent in October, according to Kejal Mehta, an analyst at brokerage Prabhudas Lilladher Pvt. Sales in New Delhi and its surrounding areas declined 18 percent to 18 million square feet in the quarter ended Sept. 30, while unsold units climbed to a record 221 million square feet, according to Liases Foras Real Estate Rating & Research Pvt.
Benchmark five-year bond yields for AAA rated firms surged 61 basis points in 2011 to 9.59 percent by Dec. 2, according to data compiled by Bloomberg. Similar yields in China fell two basis points to 4.88 percent.
Higher interest rates are also boosting developers’ debt costs, adding to the pressure on profits. DLF, based in New Delhi, paid a record 5.26 billion rupees of interest in the third quarter, up from 4.96 billion rupees in the prior period, data compiled by Bloomberg show. Similar costs rose 11 percent to 1.91 billion rupees for Housing Development & Infrastructure Ltd. (HDIL), the nation’s third-biggest builder.
‘Under Pressure’
Kumar Urban Development Pvt. and Neptune Developers Ltd. borrowed at rates from 19 percent to 20 percent in the past three months, according to data from the National Securities Depository. Total net debt of 11 Indian developers rose 19 percent from a year earlier to 403 billion rupees last quarter, according to Mumbai-based Edelweiss Securities Ltd.
“The majority of the companies will be under pressure to generate enough cash flows to service debt obligations,” Aashiesh Agarwaal and Adhidev Chattopadhyay, analysts at the brokerage, wrote in a Nov. 21 research note.
Profits at Indian developers shrank 23 percent last quarter from a year earlier, after falling 20 percent in the three months ended June 30, according to Edelweiss. Net income at DLF slid 11 percent to 3.72 billion rupees in the quarter ended Sept. 30 from a year earlier, the company said in a stock exchange filing on Nov. 10.
Challenging Environment
“The environment is quite challenging and continues to deteriorate and our results basically reflect these conditions,” DLF’s Executive Director Saurabh Chawla said in a conference call with analysts on Nov. 11.
The average cost of five-year credit-default swaps on the debt of seven Indian borrowers jumped 199 basis points this year to 398 basis points, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Yields on India’s 10-year sovereign bonds gained 75 basis points this year to 8.67 percent, the biggest increase after Vietnam in Asia. They fell five basis points in Mumbai on Dec. 2, according to the central bank’s trading system. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries has widened 193 basis points in 2011 to 655.
‘Sword Hanging’
Rupee-denominated bonds are the worst performers this year after Taiwan among 10 Asian local-currency debt markets tracked by HSBC Holdings Plc. The notes returned 3.9 percent, compared with the 19.3 percent earned by Indonesian debt. The rupee lost 4.4 percent this quarter, the biggest decline among Asian currencies, to 51.21 per dollar.
Slowing sales and rising funding costs are forcing real- estate companies to sell assets to raise cash.
“Debt at developers is still a massive sword hanging over their heads,” Amit Goenka, Mumbai-based national director of capital transactions at the Indian unit of Knight Frank, said in an interview on Dec. 2. “Asset sales are taking place in a large way as developers look to exit non-core assets and even core assets that are non-performing.”
DLF is planning to sell “non-core” assets, Chairman K.P. Singh said in an interview with Bloomberg UTV on Dec. 2. The company aims to raise as much as 100 billion rupees from sales of hotels and land and will use the funds to trim debt by 35 billion rupees this fiscal year. Housing Development & Infrastructure is planning to sell unfinished projects in Mumbai and South India, Hari Prakash Pandey, a Mumbai-based vice president, said on a conference call with analysts on Nov. 11.
“We are looking if we can exit from some of these projects,” said Pandey. “The situation has become difficult, with the RBI tightening interest rates. It is important to protect our balance sheet and keep leveraging under control.”
To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
DLF Ltd., the largest builder, had liabilities (DLFU) minus cash of 242.7 billion rupees ($4.7 billion) last quarter, an all-time high, data compiled by Bloomberg show, as the company delayed asset sales. Net debt at Godrej Properties Ltd. (GPL), the fourth- biggest by market value, reached unprecedented levels as the central bank raised interest rates to a three-year high. Developers sold debt at between 18.5 percent and 23 percent this quarter, National Securities Depositary Ltd. data show.
India’s real-estate industry needs to repay 1.8 trillion rupees of debt in the next two to three years and the risk of defaults will increase, according to U.K. property broker Knight Frank LLP. Los Angeles-based KB Home’s 2015 notes yield 9.3 percent and 2016 dollar debt of China’s Agile Property Holdings Ltd. offers 13.4 percent.
“Debt is rising to fund the core business in the absence of operating cash flows,” Bhaskar Chakraborty, an analyst at Mumbai-based brokerage IIFL Ltd., said in an interview on Nov. 30. “The next financial year is going to be worse than this one for builders, seeing the state of the industry with dwindling sales and high interest costs.”
Total profit at India’s five biggest developers fell to the lowest level in at least a year in the three months ended Sept. 30, data compiled by Bloomberg show, as the slowing economy and rising interest rates hurt sales.
Asia’s third-largest economy expanded 6.9 percent from a year earlier, the smallest advance in more than two years, government data on Nov. 30 showed. Profit growth at the 30 companies that make up India’s benchmark share index slowed to 7 percent last quarter from 17 percent in the prior period.
Falling Demand
Property demand has slumped in India’s biggest cities as the Reserve Bank of India raised borrowing costs by 375 basis points, or 3.75 percentage points, since March 2010 to slow inflation. The average mortgage rate at Mumbai-based Housing Development Finance Corp., India’s biggest mortgage lender, is currently 16.5 percent, according to the company’s website.
Central bank Governor Duvvuri Subbarao last raised the repurchase rate by 25 basis points to 8.5 percent on Oct. 25, the only policy maker in the biggest emerging markets to continue raising rates this quarter. Brazil has lowered its benchmark rate by a total 100 basis points since August to 11.5 percent.
‘Ridiculous Proportions’
Rate increases have reached “ridiculous proportions,” Niranjan Hiranandani, managing director of Hiranandani Constructions, a Mumbai-based developer, said on Sept. 22.
Home sale registrations in Mumbai, India’s most-expensive real-estate market, fell 25 percent in October, according to Kejal Mehta, an analyst at brokerage Prabhudas Lilladher Pvt. Sales in New Delhi and its surrounding areas declined 18 percent to 18 million square feet in the quarter ended Sept. 30, while unsold units climbed to a record 221 million square feet, according to Liases Foras Real Estate Rating & Research Pvt.
Benchmark five-year bond yields for AAA rated firms surged 61 basis points in 2011 to 9.59 percent by Dec. 2, according to data compiled by Bloomberg. Similar yields in China fell two basis points to 4.88 percent.
Higher interest rates are also boosting developers’ debt costs, adding to the pressure on profits. DLF, based in New Delhi, paid a record 5.26 billion rupees of interest in the third quarter, up from 4.96 billion rupees in the prior period, data compiled by Bloomberg show. Similar costs rose 11 percent to 1.91 billion rupees for Housing Development & Infrastructure Ltd. (HDIL), the nation’s third-biggest builder.
‘Under Pressure’
Kumar Urban Development Pvt. and Neptune Developers Ltd. borrowed at rates from 19 percent to 20 percent in the past three months, according to data from the National Securities Depository. Total net debt of 11 Indian developers rose 19 percent from a year earlier to 403 billion rupees last quarter, according to Mumbai-based Edelweiss Securities Ltd.
“The majority of the companies will be under pressure to generate enough cash flows to service debt obligations,” Aashiesh Agarwaal and Adhidev Chattopadhyay, analysts at the brokerage, wrote in a Nov. 21 research note.
Profits at Indian developers shrank 23 percent last quarter from a year earlier, after falling 20 percent in the three months ended June 30, according to Edelweiss. Net income at DLF slid 11 percent to 3.72 billion rupees in the quarter ended Sept. 30 from a year earlier, the company said in a stock exchange filing on Nov. 10.
Challenging Environment
“The environment is quite challenging and continues to deteriorate and our results basically reflect these conditions,” DLF’s Executive Director Saurabh Chawla said in a conference call with analysts on Nov. 11.
The average cost of five-year credit-default swaps on the debt of seven Indian borrowers jumped 199 basis points this year to 398 basis points, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Yields on India’s 10-year sovereign bonds gained 75 basis points this year to 8.67 percent, the biggest increase after Vietnam in Asia. They fell five basis points in Mumbai on Dec. 2, according to the central bank’s trading system. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries has widened 193 basis points in 2011 to 655.
‘Sword Hanging’
Rupee-denominated bonds are the worst performers this year after Taiwan among 10 Asian local-currency debt markets tracked by HSBC Holdings Plc. The notes returned 3.9 percent, compared with the 19.3 percent earned by Indonesian debt. The rupee lost 4.4 percent this quarter, the biggest decline among Asian currencies, to 51.21 per dollar.
Slowing sales and rising funding costs are forcing real- estate companies to sell assets to raise cash.
“Debt at developers is still a massive sword hanging over their heads,” Amit Goenka, Mumbai-based national director of capital transactions at the Indian unit of Knight Frank, said in an interview on Dec. 2. “Asset sales are taking place in a large way as developers look to exit non-core assets and even core assets that are non-performing.”
DLF is planning to sell “non-core” assets, Chairman K.P. Singh said in an interview with Bloomberg UTV on Dec. 2. The company aims to raise as much as 100 billion rupees from sales of hotels and land and will use the funds to trim debt by 35 billion rupees this fiscal year. Housing Development & Infrastructure is planning to sell unfinished projects in Mumbai and South India, Hari Prakash Pandey, a Mumbai-based vice president, said on a conference call with analysts on Nov. 11.
“We are looking if we can exit from some of these projects,” said Pandey. “The situation has become difficult, with the RBI tightening interest rates. It is important to protect our balance sheet and keep leveraging under control.”
To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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