By Rajhkumar K Shaaw and Malavika Sharma - Jan 21, 2012 10:26 PM GMT+0530
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Temasek Holdings Pte (TMSK), Singapore’s state-owned investment comapny, agreed to buy a 4.9 percent stake in India’s Godrej Consumer Products Ltd. (GCPL) for 6.85 billion rupees ($136 million).
Godrej will issue 16.7 million new preferential shares to Baytree Investments (Mauritius) Pte, a unit of Temasek, P. Ganesh, executive vice president of finance at Godrej Consumer, said in a phone interview today. Godrej will sell the shares at 410 rupees a share, the company said in an exchange filing. Godrej’s shares rose 0.7 percent to 402.8 rupees in Mumbai trading yesterday.
Temasek, which managed S$193 billion ($152 billion) as of March 2011, has transformed itself from a holder of stakes in companies controlled by Singapore’s government to an investor with more than two-thirds of its assets based abroad.
Temasek has invested more in emerging markets including China, India, Brazil and Mexico, as developing nations led the global economy’s recovery from its worst recession since World War II, according to its 2011 review. Godrej Consumer’s net income has more than quadrupled in the past three years amid rising consumer spending in the world’s second-most populous nation.
“The growth of the Indian consumer sector and good corporate governance of Godrej must have lured Temasek,” said Arun Kejriwal, a director at Mumbai-based Kejriwal Research & Investment Services. “Godrej wants to be a leader in India as well as be aggressive in smaller emerging markets to diversify its risk.”
Cosmetica Nacional Stake
Separately, Godrej will buy a 60 percent stake in Chile’s Cosmetica Nacional, it said in an exchange filing. Godrej’s Ganesh declined to comment on the value of the deal.
The company will fund the deal, which it will complete by April, using “low-cost overseas debt,” the company said in a statement. Godrej will increase its stake to 100 percent in the next three to five years. The acquisition will increase earnings per share within its first year, the company said. The Mumbai- based company is controlled by billionaire Adi Godrej.
Godrej has announced eight acquisitions since January 2010 as it seeks to increase its overseas sales. The BSE Fast Moving Consumer Goods Index rallied 9.5 percent last year, while the BSE India Sensitive Index, or Sensex, tumbled 25 percent.
Godrej’s profit in the three months ended December 31 increased 41 percent to 1.67 billion rupees from 1.19 billion rupees in the same period a year earlier, the company said in an exchange filing today.
To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net; Stephanie Wong at swong139@bloomberg.net
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Saturday, January 21, 2012
Friday, January 20, 2012
Vodafone’s India Tax Ruling Clears Way for $17.6 Billion IPO By Jonathan Browning and Ketaki Gokhale - Jan 20, 2012
Vodafone Group Plc (VOD)’s court victory in a four-year-long tax dispute in India clears the way for an initial public offering that could value the local unit at as much as 11.3 billion pounds ($17.6 billion).
Yesterday’s decision by India’s top court to dismiss the government’s demand for $2.2 billion in taxes from Vodafone on its 2007 purchase of Hutchison Whampoa Ltd. (13)’s India operations removes a major obstacle for the planned IPO. Vodafone Chief Executive Officer Vittorio Colao said as recently as July that the company hadn’t been able to proceed with a listing as the tax dispute created an “uncertain” regulatory environment.
“It takes the IPO a step closer,” Robin Bienenstock, an analyst at Sanford C Bernstein in London, said in an interview. “This wasn’t a good moment for the Indian government to do something hostile.”
The ruling ends more than four years of uncertainty over whether investors based outside the country can use offshore holding companies to avoid paying Indian taxes. Vodafone, seeking to expand in the world’s second-largest wireless market, last year gained control of the local venture by paying $5.46 billion to buy out its partner Essar Group’s stake.
Vodafone Essar has 146 million customers and a 17 percent market share, making it India’s third-biggest wireless operator behind Bharti Airtel Ltd. (BHARTI) and Reliance Communications Ltd. (RCOM) in a market forecast by researcher Gartner to grow 28 percent to 872 million active subscribers by 2015.
‘Uncertainty’
“The judgment will boost capital investments into India as some tax uncertainty will go away,” said Harish Salve, counsel for Newbury, England-based Vodafone. Vodafone spokesman Simon Gordon declined to comment on the details of a potential Indian IPO.
An IPO may value Vodafone Essar at as much as 11.3 billion pounds, based on about 11 times earnings before interest, taxes, depreciation and amortization, Bienenstock said. Bharti Airtel is trading at about 10 times Ebitda, she said, adding that Vodafone’s local unit has better growth prospects.
Last year’s acquisition of a 33 percent stake in the Indian venture from Essar Group valued Vodafone Essar at $16.5 billion. The sale of a 5.5 percent stake in the local unit to Piramal Healthcare Ltd. (PIHC) last year, to reduce Vodafone’s holding to 74 percent and comply with local ownership rules limiting foreign ownership, valued India’s third-largest mobile-phone carrier at $11.6 billion.
Vodafone rose 1.5 percent to 177.05 pence in London trading yesterday. The stock has gained 2.5 percent in the last 12 months, while the 35-member Bloomberg Europe Telecommunications Index dropped 15 percent.
Keeping a Majority Stake
Colao last year said that an Indian IPO could be similar to the share sale of the company’s South African unit. Vodafone kept a 65 percent stake in Vodacom Group Ltd. after the business was listed in 2009.
Vodafone would raise as much as 3.4 billion pounds if it decided to sell a 30 percent stake of the Indian venture, according to Bienenstock.
“We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system,” Colao said yesterday. “We welcome the Supreme Court’s decision, which underpins our confidence in India. We will continue to grow our Indian business.”
Investments
Vodafone spent 116 billion rupees ($2.3 billion) in 2010 buying licenses for third-generation services after the entry of Norway’s Telenor ASA (TEL) and Japan’s NTT DoCoMo Inc. (9437) pushed voice- call rates to as low as a penny a minute.
The ruling by a Supreme Court panel headed by Chief Justice S.H. Kapadia said that the government can’t seek capital gains tax from Vodafone’s purchase of Hutchison’s wireless assets because the transaction occurred between foreign companies. The court also directed the government to return a 25 billion-rupee deposit Vodafone made on the contested tax bill, plus 4 percent interest.
“This allows Vodafone to focus more on the Indian operations, focus more on getting more subscribers, being more profitable rather than fighting on the tax side of it,” Romal Shetty, executive director of the telecommunications division at KPMG’s Indian unit, told Bloomberg UTV. “It’s a shot in the arm. But even from an industry perspective, it’s a boost.”
The Supreme Court’s tax decision, with its close political links, may also help to ease further regulatory limits on Vodafone’s Indian operations, enabling future acquisitions, said Will Draper, an analyst at Espirito Santo in London.
‘Setting the Tone’
“The Indian government is setting the tone by saying we might need to play a little fairer with the mobile industry,” he said.
Vodafone, the world’s largest mobile-phone company, had fought to dismiss the tax claim from its $10.7 billion purchase of Hutchison Whampoa’s phone assets since 2007. The Indian tax department sought 112.2 billion rupees in capital gains tax on Vodafone International Holdings BV’s purchase of Hutchison’s wireless operations in the country.
The operator still opposes a government decision to terminate its roaming agreements with other carriers in the country after the telecommunications ministry stated the contracts are a “breach of rules.”
The roaming decision shows the contradictory nature of the regulators in India, Bienenstock said. “It’s not a linear path to good and transparent regulation,” she said. “But it’s certainly a step forward.”
To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Yesterday’s decision by India’s top court to dismiss the government’s demand for $2.2 billion in taxes from Vodafone on its 2007 purchase of Hutchison Whampoa Ltd. (13)’s India operations removes a major obstacle for the planned IPO. Vodafone Chief Executive Officer Vittorio Colao said as recently as July that the company hadn’t been able to proceed with a listing as the tax dispute created an “uncertain” regulatory environment.
“It takes the IPO a step closer,” Robin Bienenstock, an analyst at Sanford C Bernstein in London, said in an interview. “This wasn’t a good moment for the Indian government to do something hostile.”
The ruling ends more than four years of uncertainty over whether investors based outside the country can use offshore holding companies to avoid paying Indian taxes. Vodafone, seeking to expand in the world’s second-largest wireless market, last year gained control of the local venture by paying $5.46 billion to buy out its partner Essar Group’s stake.
Vodafone Essar has 146 million customers and a 17 percent market share, making it India’s third-biggest wireless operator behind Bharti Airtel Ltd. (BHARTI) and Reliance Communications Ltd. (RCOM) in a market forecast by researcher Gartner to grow 28 percent to 872 million active subscribers by 2015.
‘Uncertainty’
“The judgment will boost capital investments into India as some tax uncertainty will go away,” said Harish Salve, counsel for Newbury, England-based Vodafone. Vodafone spokesman Simon Gordon declined to comment on the details of a potential Indian IPO.
An IPO may value Vodafone Essar at as much as 11.3 billion pounds, based on about 11 times earnings before interest, taxes, depreciation and amortization, Bienenstock said. Bharti Airtel is trading at about 10 times Ebitda, she said, adding that Vodafone’s local unit has better growth prospects.
Last year’s acquisition of a 33 percent stake in the Indian venture from Essar Group valued Vodafone Essar at $16.5 billion. The sale of a 5.5 percent stake in the local unit to Piramal Healthcare Ltd. (PIHC) last year, to reduce Vodafone’s holding to 74 percent and comply with local ownership rules limiting foreign ownership, valued India’s third-largest mobile-phone carrier at $11.6 billion.
Vodafone rose 1.5 percent to 177.05 pence in London trading yesterday. The stock has gained 2.5 percent in the last 12 months, while the 35-member Bloomberg Europe Telecommunications Index dropped 15 percent.
Keeping a Majority Stake
Colao last year said that an Indian IPO could be similar to the share sale of the company’s South African unit. Vodafone kept a 65 percent stake in Vodacom Group Ltd. after the business was listed in 2009.
Vodafone would raise as much as 3.4 billion pounds if it decided to sell a 30 percent stake of the Indian venture, according to Bienenstock.
“We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system,” Colao said yesterday. “We welcome the Supreme Court’s decision, which underpins our confidence in India. We will continue to grow our Indian business.”
Investments
Vodafone spent 116 billion rupees ($2.3 billion) in 2010 buying licenses for third-generation services after the entry of Norway’s Telenor ASA (TEL) and Japan’s NTT DoCoMo Inc. (9437) pushed voice- call rates to as low as a penny a minute.
The ruling by a Supreme Court panel headed by Chief Justice S.H. Kapadia said that the government can’t seek capital gains tax from Vodafone’s purchase of Hutchison’s wireless assets because the transaction occurred between foreign companies. The court also directed the government to return a 25 billion-rupee deposit Vodafone made on the contested tax bill, plus 4 percent interest.
“This allows Vodafone to focus more on the Indian operations, focus more on getting more subscribers, being more profitable rather than fighting on the tax side of it,” Romal Shetty, executive director of the telecommunications division at KPMG’s Indian unit, told Bloomberg UTV. “It’s a shot in the arm. But even from an industry perspective, it’s a boost.”
The Supreme Court’s tax decision, with its close political links, may also help to ease further regulatory limits on Vodafone’s Indian operations, enabling future acquisitions, said Will Draper, an analyst at Espirito Santo in London.
‘Setting the Tone’
“The Indian government is setting the tone by saying we might need to play a little fairer with the mobile industry,” he said.
Vodafone, the world’s largest mobile-phone company, had fought to dismiss the tax claim from its $10.7 billion purchase of Hutchison Whampoa’s phone assets since 2007. The Indian tax department sought 112.2 billion rupees in capital gains tax on Vodafone International Holdings BV’s purchase of Hutchison’s wireless operations in the country.
The operator still opposes a government decision to terminate its roaming agreements with other carriers in the country after the telecommunications ministry stated the contracts are a “breach of rules.”
The roaming decision shows the contradictory nature of the regulators in India, Bienenstock said. “It’s not a linear path to good and transparent regulation,” she said. “But it’s certainly a step forward.”
To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, January 19, 2012
Asia Stocks, Korean Won Gain on Stronger Economy By Lynn Thomasson - Jan 19, 2012
Asian stocks rose, heading for a fifth weekly advance, and South Korea’s won strengthened after U.S. jobless claims fell to the lowest level in almost four years and Spanish and French borrowing costs declined.
The MSCI Asia Pacific Index (MXAP) increased 0.8 percent as of 9:46 a.m. in Tokyo, bringing its five-day advance to 2.8 percent. The Nikkei 225 Stock Average jumped 1.4 percent, while Standard & Poor’s 500 futures were little changed. The won climbed 0.3 percent to 1,133.78 per dollar for a fourth day of gains. Gold lost 0.2 percent and the greenback touched a two-week low versus the euro.
Asian stocks have rallied 12 percent since a two-year low in October and copper reached a 17-week high yesterday amid speculation that China may take steps to stimulate growth in the world’s second-largest economy. Google Inc. reported lower-than- estimated fourth-quarter revenue and profit, while American Express Co. said card spending reached a record and International Business Machines Corp.’s forecast for 2012 earnings exceeded analysts’ projections.
France sold 7.97 billion euros of notes with the average yield on the benchmark two-year notes sliding to 1.05 percent from 1.58 percent in October. Spain issued debt due 2022 at an average of 5.403 percent, down from 6.975 percent in November.
The S&P 500 added 0.5 percent to 1,314.5 yesterday, the highest closing level since July 26, and the Nasdaq-100 Index reached an almost 11-year high. Schlumberger Ltd., General Electric Co. and SunTrust Banks Inc. are among U.S. companies scheduled to report fourth-quarter results today.
Initial jobless claims fell by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed yesterday.
Google Inc. (GOOG) plunged as much as 10 percent in trading after the close of U.S. exchanges. The owner of the world’s most popular Internet search engine reported fourth-quarter revenue and profit that missed analysts’ estimates as an economic slowdown in Europe crimped international sales.
To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The MSCI Asia Pacific Index (MXAP) increased 0.8 percent as of 9:46 a.m. in Tokyo, bringing its five-day advance to 2.8 percent. The Nikkei 225 Stock Average jumped 1.4 percent, while Standard & Poor’s 500 futures were little changed. The won climbed 0.3 percent to 1,133.78 per dollar for a fourth day of gains. Gold lost 0.2 percent and the greenback touched a two-week low versus the euro.
Asian stocks have rallied 12 percent since a two-year low in October and copper reached a 17-week high yesterday amid speculation that China may take steps to stimulate growth in the world’s second-largest economy. Google Inc. reported lower-than- estimated fourth-quarter revenue and profit, while American Express Co. said card spending reached a record and International Business Machines Corp.’s forecast for 2012 earnings exceeded analysts’ projections.
France sold 7.97 billion euros of notes with the average yield on the benchmark two-year notes sliding to 1.05 percent from 1.58 percent in October. Spain issued debt due 2022 at an average of 5.403 percent, down from 6.975 percent in November.
The S&P 500 added 0.5 percent to 1,314.5 yesterday, the highest closing level since July 26, and the Nasdaq-100 Index reached an almost 11-year high. Schlumberger Ltd., General Electric Co. and SunTrust Banks Inc. are among U.S. companies scheduled to report fourth-quarter results today.
Initial jobless claims fell by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed yesterday.
Google Inc. (GOOG) plunged as much as 10 percent in trading after the close of U.S. exchanges. The owner of the world’s most popular Internet search engine reported fourth-quarter revenue and profit that missed analysts’ estimates as an economic slowdown in Europe crimped international sales.
To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, January 18, 2012
Sugar Traders Bet Biggest Glut in Five Years Ending: Commodities By Isis Almeida and Swansy Afonso - Jan 18, 2012
Traders are betting that the biggest sugar glut since 2007 will shrink in the next harvest, reversing expectations from six months ago and ending the largest decline in prices in a decade.
Raw sugar for March 2013 is trading at a premium of 3.9 percent to the July 2012 contract on ICE Futures U.S. in New York, compared with a 6.6 percent discount six months ago. The switch is reflecting a change in outlook even before forecasts for the next season from the International Sugar Organization or U.S. Department of Agriculture. Prices may rise as much as 12 percent to 27 cents a pound by Dec. 31, according to the median of 21 analyst and trader estimates compiled by Bloomberg.
Futures fell 27 percent last year, the most since 2001, as a glut emerged after three consecutive annual shortages. Traders are now focused on the prospect for crops in India and Brazil, which account for 38 percent of output. The predicted rally may curb a drop in global food prices tracked by the United Nations that drove costs to a 14-month low in December.
“Sugar is moving from an expected surplus to concern about supply,” said Bruno Lima, a Campinas, Brazil-based senior risk management consultant at INTL FCStone, a trader and adviser to commodity producers and consumers. “There’s a lot of sugar now and this is reflected in the lower price for July, while March 2013 futures are higher because Brazilian producers are concerned about the crop and there’s speculation output could shrink in other countries like India.”
World Index
The sweetener rose 3.2 percent to 24.05 cents this year as of yesterday, versus a 3.6 percent drop in the Standard & Poor’s GSCI Agriculture Index (SPGSAG) of eight commodities. The MSCI All- Country World Index of equities rose 3.1 percent as Treasuries returned 0.3 percent, a Bank of America Corp. index shows.
Hedge funds and other large speculators raised their net- long position, or bets on higher prices, by 15 percent to 50,403 futures and options since wagers reached a four-year low at the end of last month, data from the Commodity Futures Trading Commission show.
The harvest in India, the second-biggest producer after Brazil, may drop as much as 4 million metric tons in the 12 months ending in September 2013, from 25 million to 26 million tons this season, if millers are unable to pay farmers for cane, said London-based ED&F Man Holdings Ltd., which trades sugar across 40 countries. The decline is more than the European Union imports in a year, USDA data show.
Three-Decade High
Decreasing output may require the country to be an importer of sugar, said Kona Haque, a commodities analyst at Macquarie Group Ltd. in London. Futures exceeded 30 cents in 2010, a three-decade high at the time, after shortages drove India to tap overseas markets. The nation was last a net importer in 2009-2010, according to the USDA.
The next cane harvest in the center-south of Brazil, the main growing region, will probably reach 480 million tons to 520 million tons, according to Datagro Ltd., a Sao Paulo-based research company. Production this season fell 11 percent to 492.23 million tons by Jan. 1, the first drop in a decade, according to data from industry association Unica.
While global supply will exceed demand by 6 million tons in the 12 months ending in September, combined shortages in the past three seasons reached about 20 million tons, said Keith Flury, an analyst at Rabobank International in London. Consumption rose every year since 1994, USDA data show.
Australian Crop
Less production from India and Brazil may be met by bigger crops elsewhere. Australia, the third-biggest exporter, may increase sugar output by 15 percent to 4.5 million tons in the harvest from June as cane acreage expands 5 percent, according to Sydney-based Commonwealth Bank of Australia.
Brazil’s crops could escape damage from La Nina, a phenomenon that causes heavier rainfall in Asia and drier weather in South America. La Nina may have peaked, bringing a return to normal rainfall, Bryce Anderson, an agricultural meteorologist with DTN Telvent in Omaha, Nebraska, said Jan. 11. An undamaged crop may mean a surplus of as much as 6 million tons, said Paul Deane, an agricultural economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Hedge funds are less bullish than they have been for most of the past four years, when the average net-long position was more than twice as big as it is now.
India’s stockpiles should be large enough to prevent imports, said Jayantilal B. Patel, the president of the New Delhi-based National Federation of Cooperative Sugar Factories Ltd. Reserves may reach 5 million tons at the end of this season, said Kishor Shah, the chief financial officer of Kolkata-based Balrampur Chini Mills Ltd. (BRCM), the nation’s second-largest producer.
Uttar Pradesh
Cane prices set by Uttar Pradesh, the biggest cane-growing state, rose as much as 19 percent in the past year while the cost of refined sugar in Mumbai was little changed and global rates slumped. That’s left the country’s mills struggling to pay farmers, who in turn may choose to plant other crops next season, said G.S.C. Rao, president of the New Delhi-based Sugar Technologists’ Association of India, which advises the industry.
The anticipated rally in prices may raise costs for food companies. Nestle SA (NESN), whose brands include Smarties and Aero, spends about 1.5 billion Swiss francs ($1.6 billion) a year on sugar, according to Millicent Molete, a spokeswoman. Shares of the Vevey, Switzerland-based company fell 0.6 percent this year.
Production could stagnate in the 27-nation European Union because of the level of inventories carried over from this season, said Fabienne Pointier, an analyst at Kingsman SA, a Lausanne, Switzerland-based broker and researcher. The region consumes about 11 percent of the world’s sugar.
Dry Weather
Cane production in Thailand, the second-largest shipper, may decline from a record in the year starting in November because of dry weather, said Prasert Tapaneeyangkul, the secretary-general of the Office of the Cane & Sugar Board in Bangkok. He declined to provide a forecast.
China, the second-biggest consumer after India, will import the sweetener to replenish stockpiles that were diminished by state sales intended to curb inflation, the National Development and Reform Commission, the nation’s top economic planning agency, said in November. Purchases rose 48 percent to 2.4 million tons in the first 11 months of 2011, customs data show.
“There is growing speculation that over the next few months we will see the buildup of cane-payment arrears, which could be the precursor of a fall in next year’s Indian crop,” said Farideh Bromfield, the London-based head of commodities research at ED&F Man. “Brazil can’t be overlooked as the poor rate of investment there doesn’t bode well for continued growth in sugar production.”
To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Raw sugar for March 2013 is trading at a premium of 3.9 percent to the July 2012 contract on ICE Futures U.S. in New York, compared with a 6.6 percent discount six months ago. The switch is reflecting a change in outlook even before forecasts for the next season from the International Sugar Organization or U.S. Department of Agriculture. Prices may rise as much as 12 percent to 27 cents a pound by Dec. 31, according to the median of 21 analyst and trader estimates compiled by Bloomberg.
Futures fell 27 percent last year, the most since 2001, as a glut emerged after three consecutive annual shortages. Traders are now focused on the prospect for crops in India and Brazil, which account for 38 percent of output. The predicted rally may curb a drop in global food prices tracked by the United Nations that drove costs to a 14-month low in December.
“Sugar is moving from an expected surplus to concern about supply,” said Bruno Lima, a Campinas, Brazil-based senior risk management consultant at INTL FCStone, a trader and adviser to commodity producers and consumers. “There’s a lot of sugar now and this is reflected in the lower price for July, while March 2013 futures are higher because Brazilian producers are concerned about the crop and there’s speculation output could shrink in other countries like India.”
World Index
The sweetener rose 3.2 percent to 24.05 cents this year as of yesterday, versus a 3.6 percent drop in the Standard & Poor’s GSCI Agriculture Index (SPGSAG) of eight commodities. The MSCI All- Country World Index of equities rose 3.1 percent as Treasuries returned 0.3 percent, a Bank of America Corp. index shows.
Hedge funds and other large speculators raised their net- long position, or bets on higher prices, by 15 percent to 50,403 futures and options since wagers reached a four-year low at the end of last month, data from the Commodity Futures Trading Commission show.
The harvest in India, the second-biggest producer after Brazil, may drop as much as 4 million metric tons in the 12 months ending in September 2013, from 25 million to 26 million tons this season, if millers are unable to pay farmers for cane, said London-based ED&F Man Holdings Ltd., which trades sugar across 40 countries. The decline is more than the European Union imports in a year, USDA data show.
Three-Decade High
Decreasing output may require the country to be an importer of sugar, said Kona Haque, a commodities analyst at Macquarie Group Ltd. in London. Futures exceeded 30 cents in 2010, a three-decade high at the time, after shortages drove India to tap overseas markets. The nation was last a net importer in 2009-2010, according to the USDA.
The next cane harvest in the center-south of Brazil, the main growing region, will probably reach 480 million tons to 520 million tons, according to Datagro Ltd., a Sao Paulo-based research company. Production this season fell 11 percent to 492.23 million tons by Jan. 1, the first drop in a decade, according to data from industry association Unica.
While global supply will exceed demand by 6 million tons in the 12 months ending in September, combined shortages in the past three seasons reached about 20 million tons, said Keith Flury, an analyst at Rabobank International in London. Consumption rose every year since 1994, USDA data show.
Australian Crop
Less production from India and Brazil may be met by bigger crops elsewhere. Australia, the third-biggest exporter, may increase sugar output by 15 percent to 4.5 million tons in the harvest from June as cane acreage expands 5 percent, according to Sydney-based Commonwealth Bank of Australia.
Brazil’s crops could escape damage from La Nina, a phenomenon that causes heavier rainfall in Asia and drier weather in South America. La Nina may have peaked, bringing a return to normal rainfall, Bryce Anderson, an agricultural meteorologist with DTN Telvent in Omaha, Nebraska, said Jan. 11. An undamaged crop may mean a surplus of as much as 6 million tons, said Paul Deane, an agricultural economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Hedge funds are less bullish than they have been for most of the past four years, when the average net-long position was more than twice as big as it is now.
India’s stockpiles should be large enough to prevent imports, said Jayantilal B. Patel, the president of the New Delhi-based National Federation of Cooperative Sugar Factories Ltd. Reserves may reach 5 million tons at the end of this season, said Kishor Shah, the chief financial officer of Kolkata-based Balrampur Chini Mills Ltd. (BRCM), the nation’s second-largest producer.
Uttar Pradesh
Cane prices set by Uttar Pradesh, the biggest cane-growing state, rose as much as 19 percent in the past year while the cost of refined sugar in Mumbai was little changed and global rates slumped. That’s left the country’s mills struggling to pay farmers, who in turn may choose to plant other crops next season, said G.S.C. Rao, president of the New Delhi-based Sugar Technologists’ Association of India, which advises the industry.
The anticipated rally in prices may raise costs for food companies. Nestle SA (NESN), whose brands include Smarties and Aero, spends about 1.5 billion Swiss francs ($1.6 billion) a year on sugar, according to Millicent Molete, a spokeswoman. Shares of the Vevey, Switzerland-based company fell 0.6 percent this year.
Production could stagnate in the 27-nation European Union because of the level of inventories carried over from this season, said Fabienne Pointier, an analyst at Kingsman SA, a Lausanne, Switzerland-based broker and researcher. The region consumes about 11 percent of the world’s sugar.
Dry Weather
Cane production in Thailand, the second-largest shipper, may decline from a record in the year starting in November because of dry weather, said Prasert Tapaneeyangkul, the secretary-general of the Office of the Cane & Sugar Board in Bangkok. He declined to provide a forecast.
China, the second-biggest consumer after India, will import the sweetener to replenish stockpiles that were diminished by state sales intended to curb inflation, the National Development and Reform Commission, the nation’s top economic planning agency, said in November. Purchases rose 48 percent to 2.4 million tons in the first 11 months of 2011, customs data show.
“There is growing speculation that over the next few months we will see the buildup of cane-payment arrears, which could be the precursor of a fall in next year’s Indian crop,” said Farideh Bromfield, the London-based head of commodities research at ED&F Man. “Brazil can’t be overlooked as the poor rate of investment there doesn’t bode well for continued growth in sugar production.”
To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, January 17, 2012
Tata Consultancy Net Beats Estimates on Orders By Anoop Agrawal and Ketaki Gokhale - Jan 17, 2012
Tata Consultancy Services Ltd. (TCS), Asia’s largest software-services provider, reported profit that beat analysts’ estimates as businesses sought savings through outsourcing and the rupee’s decline boosted overseas earnings.
Net income rose 23 percent to 28.9 billion rupees ($570 million) in the quarter ended Dec. 31 from 23.5 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement yesterday. Analysts predicted 28.3 billion rupees, the median of 35 estimates compiled by Bloomberg.
Chief Executive Officer N. Chandrasekaran said yesterday Tata Consultancy expects to win more orders as customers increase spending on optimism the “worst” may be over. The company, which won its second-biggest order from pension provider Friends Life in November, may get more deals from the U.S. where the economy is showing signs of “stability,” according to Manoj Singla of Religare Capital Markets Ltd.
“That along with a stable U.K. should help the order book,” said Singla, managing director and co-head of research at Religare. “Together, they would cover a significant portion of TCS’s revenue (WPRO) for the coming months.”
U.S. gross domestic product is projected to expand 2.3 percent this year from a 1.8 percent pace in 2011, according to the median of 70 economists surveyed by Bloomberg News from Jan. 6 to Jan. 11.
Revenue rose 37 percent to 132 billion rupees in the third quarter from 96.6 billion rupees a year earlier. The median of 45 analysts’ estimates was 132.1 billion rupees.
Currency’s Decline
The Indian rupee depreciated 7.7 percent in the quarter ended Dec. 31, the worst performance among major Asian currencies. A weaker rupee boosts the value of overseas earnings during repatriation.
Tata Consultancy dropped 0.5 percent to 1,103.95 rupees at the close of trading in Mumbai yesterday, compared with a 1.7 percent advance in the benchmark Sensitive Index. (SENSEX) The earnings were announced after the close of trading. Infosys, India’s second-largest software exporter, gained 0.8 percent.
“Our clients are increasing their spending budgets which gives us hope to be optimistic,” said Chandrasekaran. “We are expecting to close deals and the pipeline is very strong.”
Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. (C) and Singapore Airlines Ltd., added 40 customers during the quarter, ending with a total of 1,003.
Volume Gains
The company, which derived 53.3 percent of its revenue from companies in North America, 15 percent from the U.K., and 10.5 percent from continental Europe in the third quarter, had a 3.2 percent increase in volume in the three months ended Dec. 31 from the previous period.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Volume at Infosys grew 3.1 percent over the quarter, Chief Executive Officer S.D. Shibulal said Jan. 12.
Infosys shares fell the most in nine months on Jan. 12 after the Bangalore-based software-services provider cut its full-year sales forecast in dollar terms for a second time because of weaker economic growth in markets including Europe.
Sales in the year ending March 31 will range from $7.029 billion to $7.033 billion, Infosys said last week, paring an earlier projection.
‘Pruning Business’
Software-service providers including Tata Consultancy may have weaker volume growth starting from the fourth quarter, Madhu Babu, an analyst at Sunidhi Consultancy Services Pvt. said.
“Banks are pruning some of their business,” said Babu. “So the immediate impact will be that volumes will get impacted in the banking and financial services vertical.”
Worldwide spending on information technology services will grow at a slower 3.1 percent pace after climbing 6.9 percent in 2011 to an estimated $874 billion, researcher Gartner Inc. said on Jan. 5.
Tata Consultancy added a net 11,981 employees during the quarter, for a total of 226,751, according to the statement.
Workers left Tata Consultancy at a rate of 12.8 percent in the quarter ended Dec. 31, down from 14.4 percent for the same period last year. Infosys reported employee attrition of 15.4 percent for the period.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Hari Govind at hgovind@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Net income rose 23 percent to 28.9 billion rupees ($570 million) in the quarter ended Dec. 31 from 23.5 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement yesterday. Analysts predicted 28.3 billion rupees, the median of 35 estimates compiled by Bloomberg.
Chief Executive Officer N. Chandrasekaran said yesterday Tata Consultancy expects to win more orders as customers increase spending on optimism the “worst” may be over. The company, which won its second-biggest order from pension provider Friends Life in November, may get more deals from the U.S. where the economy is showing signs of “stability,” according to Manoj Singla of Religare Capital Markets Ltd.
“That along with a stable U.K. should help the order book,” said Singla, managing director and co-head of research at Religare. “Together, they would cover a significant portion of TCS’s revenue (WPRO) for the coming months.”
U.S. gross domestic product is projected to expand 2.3 percent this year from a 1.8 percent pace in 2011, according to the median of 70 economists surveyed by Bloomberg News from Jan. 6 to Jan. 11.
Revenue rose 37 percent to 132 billion rupees in the third quarter from 96.6 billion rupees a year earlier. The median of 45 analysts’ estimates was 132.1 billion rupees.
Currency’s Decline
The Indian rupee depreciated 7.7 percent in the quarter ended Dec. 31, the worst performance among major Asian currencies. A weaker rupee boosts the value of overseas earnings during repatriation.
Tata Consultancy dropped 0.5 percent to 1,103.95 rupees at the close of trading in Mumbai yesterday, compared with a 1.7 percent advance in the benchmark Sensitive Index. (SENSEX) The earnings were announced after the close of trading. Infosys, India’s second-largest software exporter, gained 0.8 percent.
“Our clients are increasing their spending budgets which gives us hope to be optimistic,” said Chandrasekaran. “We are expecting to close deals and the pipeline is very strong.”
Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. (C) and Singapore Airlines Ltd., added 40 customers during the quarter, ending with a total of 1,003.
Volume Gains
The company, which derived 53.3 percent of its revenue from companies in North America, 15 percent from the U.K., and 10.5 percent from continental Europe in the third quarter, had a 3.2 percent increase in volume in the three months ended Dec. 31 from the previous period.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Volume at Infosys grew 3.1 percent over the quarter, Chief Executive Officer S.D. Shibulal said Jan. 12.
Infosys shares fell the most in nine months on Jan. 12 after the Bangalore-based software-services provider cut its full-year sales forecast in dollar terms for a second time because of weaker economic growth in markets including Europe.
Sales in the year ending March 31 will range from $7.029 billion to $7.033 billion, Infosys said last week, paring an earlier projection.
‘Pruning Business’
Software-service providers including Tata Consultancy may have weaker volume growth starting from the fourth quarter, Madhu Babu, an analyst at Sunidhi Consultancy Services Pvt. said.
“Banks are pruning some of their business,” said Babu. “So the immediate impact will be that volumes will get impacted in the banking and financial services vertical.”
Worldwide spending on information technology services will grow at a slower 3.1 percent pace after climbing 6.9 percent in 2011 to an estimated $874 billion, researcher Gartner Inc. said on Jan. 5.
Tata Consultancy added a net 11,981 employees during the quarter, for a total of 226,751, according to the statement.
Workers left Tata Consultancy at a rate of 12.8 percent in the quarter ended Dec. 31, down from 14.4 percent for the same period last year. Infosys reported employee attrition of 15.4 percent for the period.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Hari Govind at hgovind@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, January 16, 2012
Asian Stocks Rise on French Debt Sale, China’s Policy Outlook as GDP Slows By Yoshiaki Nohara - Jan 16, 2012
Asian stocks rose after a report that showed China’s economy is slowing boosted speculation the government may take extra measures to spur growth amid concerns about Europe’s debt crisis.
Country Garden Holdings Co. (2007), a real estate developer, rose 4.5 percent in Hong Kong after China’s economy grew a faster- than-estimated 8.9 percent in the fourth quarter from a year earlier. Canon Inc. (7751), a Japanese camera maker that depends on Europe for about a third of its sales, rose 0.6 percent after France sold debt at a lower cost even after its credit rating was cut. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s No. 2 publicly traded bank, rose 1.2 percent after it won a bid to buy Royal Bank of Scotland Group Plc’s aircraft-leasing unit.
The MSCI Asia Pacific Index gained 1 percent to 116.75 as of 11:16 a.m. in Tokyo, rebounding from a 1.1 percent decline yesterday, the biggest since Dec. 19. About five stocks rose for each that fell on the gauge. European Central Bank President Mario Draghi yesterday said loans offered last month to the region’s banks helped avoid “a major credit crunch.”
“It does seem like markets are taking a glass-half-full view of Europe and they seemed to be very impressed by the liquidity that’s coming out of” the ECB, said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages $150 billion. “Anecdotally, we are hearing China’s senior leadership is very, very concerned about the outlook in Europe, which tells you the bias is to ease policy more than they have already.”
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Country Garden Holdings Co. (2007), a real estate developer, rose 4.5 percent in Hong Kong after China’s economy grew a faster- than-estimated 8.9 percent in the fourth quarter from a year earlier. Canon Inc. (7751), a Japanese camera maker that depends on Europe for about a third of its sales, rose 0.6 percent after France sold debt at a lower cost even after its credit rating was cut. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s No. 2 publicly traded bank, rose 1.2 percent after it won a bid to buy Royal Bank of Scotland Group Plc’s aircraft-leasing unit.
The MSCI Asia Pacific Index gained 1 percent to 116.75 as of 11:16 a.m. in Tokyo, rebounding from a 1.1 percent decline yesterday, the biggest since Dec. 19. About five stocks rose for each that fell on the gauge. European Central Bank President Mario Draghi yesterday said loans offered last month to the region’s banks helped avoid “a major credit crunch.”
“It does seem like markets are taking a glass-half-full view of Europe and they seemed to be very impressed by the liquidity that’s coming out of” the ECB, said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages $150 billion. “Anecdotally, we are hearing China’s senior leadership is very, very concerned about the outlook in Europe, which tells you the bias is to ease policy more than they have already.”
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, January 15, 2012
Upgrades Beating Downgrades by Narrowest Margin Since Crisis: India Credit By Anoop Agrawal - Jan 15, 2012
Indian companies’ ability to repay debt is deteriorating the most since the financial crisis that tapered in 2009 as the economy slows and the highest borrowing costs in three years erode profits.
Crisil Ltd. (CRISIL), the Indian unit of Standard & Poor’s, raised credit ratings on 13 companies for every 10 that it downgraded last quarter, the smallest number of upgrades to downgrades since the last three months of 2009, according to data compiled by Bloomberg. Ratings for five companies were lowered this month, while one was raised.
Average bond risk for Indian borrowers more than doubled in the past year as Asia’s third-largest economy expanded at the slowest pace since 2009 and the central bank lifted interest rates seven times to slow inflation. Five-year bond yields for AAA-rated companies have jumped 40 basis points since October to yield 100 basis points more than government bonds, while a similar spread in China (GCNY5YR) shrank 21 basis points to 156.
“We have scaled back corporate debt investments because of growing concerns over asset quality and the volatile market conditions,” D.K. Mehrotra, Mumbai-based chairman of Life Insurance Corp. of India, the nation’s biggest fund manager, said in an interview on Jan. 12. “Given the weak domestic and global economic conditions, attractive investment opportunities are going to be difficult to come by.”
Indian Prime Minister Manmohan Singh said on Jan. 8 that India’s gross domestic product will rise about 7 percent in the year ending March 31, less than the 7.5 percent rate of expansion he predicted in December. Growth in the $1.7 trillion economy slowed to 6.9 percent in the three months ended Sept. 30, according to the most recent government data.
‘Further Hurt’
Indian companies’ ability to meet interest payments has fallen to a five-year low because of shrinking earnings, rising borrowing costs and losses in the rupee, Mumbai-based Crisil said in a report published this month.
The Reserve Bank of India boosted the repurchase rate by a record 225 basis points, or 2.25 percentage points, in 2011 to 8.5 percent, the highest level since 2008. The rupee slid 12 percent in the past 12 months versus the dollar in Asia’s worst currency performance. It gained 0.1 percent to 51.53 per dollar on Jan. 13.
“Companies with substantial debt on their balance sheets will be further hurt by rising interest costs and marked-to- market losses on foreign debt and derivatives due to the depreciation of the rupee,” said Prasad Koparkar, Mumbai-based head of industry research at Crisil.
DLF Downgraded
DLF Ltd. (DLFU), INDIA’s largest property developer, was downgraded by Crisil on Dec. 27 after the company’s liabilities minus cash climbed to an all-time high of 242.7 billion rupees in the three months ended Sept. 30, data compiled by Bloomberg show. Nagpur, India-based Bajaj Steel Industries Ltd. (BJST) and textile manufacturer Himatsingka Seide Ltd. (HSS) had their rankings lowered last quarter.
Debt downgrades by Mumbai-based CARE Ratings Ltd. jumped to 169 during the nine months through December, from 84 a year earlier, D.R. Dogra, Managing Director at CARE said in a Jan. 10 e-mail.
Demand for corporate bonds is falling as the credit quality of companies worsens and analysts cut earnings forecasts.
State-owned Life Insurance Corp. bought 300 billion rupees ($5.8 billion) in company debt in the eight months through November, compared with 400 billion rupees invested a year earlier, according to chairman Mehrotra. Bond sales by Indian companies shrank 9 percent to 1.76 trillion rupees in 2011, according to data compiled by Bloomberg.
‘Whirlpool of Pessimism’
“Profitability will be stretched across industries because of high input and borrowing costs,” Vinita Singhania, managing director at New Delhi-based JK Lakshmi Cement Ltd., said in an interview on Jan. 11. “We expect the situation to persist this year and the outcome of these difficulties will be reflected in the performances of companies.”
Profits at the 30 firms that make up the benchmark BSE India Sensitive Index will fall 8.7 percent to 1,150 rupees a share in the 12 months through March, the biggest drop in three years, according to analyst estimates compiled by Bloomberg.
“India today finds itself in the middle of a whirlpool of pessimism,” analysts at Nomura Holdings Inc., including Mumbai- based Prabhat Avasthi, wrote in a research note dated Jan. 12. “Growth would continue to face headwinds. The lagged effects of past tightening are likely to continue to play out in the first half of 2012. The trajectory for earnings through the year would likely slow.”
Bond Risk
Yields on benchmark 10-year government bonds have climbed 56 basis points in the past two years as the Reserve Bank boosted interest rates. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries widened 177 basis points in the period to 632. The yield on the 8.79 percent note due November 2021 fell three basis points last week at 8.19 percent, according to the central bank’s trading system.
The average cost of credit-default swaps insuring against debt defaults by seven Indian issuers climbed 242 basis points in the past year to 452 basis points, according to data provider 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 nation or company fail to adhere to its debt agreements.
Bad Loans
India’s sovereign notes earned 7.6 percent in the past 12 months, while Indonesian securities returned 25 percent in the biggest gain among Asia’s 10 biggest government debt markets outside Japan, according to HSBC Holdings Plc data.
The increasing risk of defaults by companies means bad loans in the nation’s banking system may more than double, according to the central bank.
Non-performing credits may climb to 5.8 percent of total advances in two years from 2.8 percent in September, in the worst-case scenario, the Reserve Bank of India said in a report released on Dec. 22. Bad debts could be as much as 3.5 percent of loans by March 2013 using a “baseline macroeconomic scenario” and between 4.7 percent and 5.8 percent under a “severe macroeconomic stress scenario,” according to the report.
“Steel and textiles are additions to the list of sectors that are under stress in the last quarter because of borrowing costs and tough financial market conditions,” M.D. Mallya, Mumbai-based chairman and managing director at state-owned Bank of Baroda, said in an interview on Jan. 9. “Corporate performances weakened in the last quarter. The situation may continue this quarter because funding costs aren’t easing.”
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Crisil Ltd. (CRISIL), the Indian unit of Standard & Poor’s, raised credit ratings on 13 companies for every 10 that it downgraded last quarter, the smallest number of upgrades to downgrades since the last three months of 2009, according to data compiled by Bloomberg. Ratings for five companies were lowered this month, while one was raised.
Average bond risk for Indian borrowers more than doubled in the past year as Asia’s third-largest economy expanded at the slowest pace since 2009 and the central bank lifted interest rates seven times to slow inflation. Five-year bond yields for AAA-rated companies have jumped 40 basis points since October to yield 100 basis points more than government bonds, while a similar spread in China (GCNY5YR) shrank 21 basis points to 156.
“We have scaled back corporate debt investments because of growing concerns over asset quality and the volatile market conditions,” D.K. Mehrotra, Mumbai-based chairman of Life Insurance Corp. of India, the nation’s biggest fund manager, said in an interview on Jan. 12. “Given the weak domestic and global economic conditions, attractive investment opportunities are going to be difficult to come by.”
Indian Prime Minister Manmohan Singh said on Jan. 8 that India’s gross domestic product will rise about 7 percent in the year ending March 31, less than the 7.5 percent rate of expansion he predicted in December. Growth in the $1.7 trillion economy slowed to 6.9 percent in the three months ended Sept. 30, according to the most recent government data.
‘Further Hurt’
Indian companies’ ability to meet interest payments has fallen to a five-year low because of shrinking earnings, rising borrowing costs and losses in the rupee, Mumbai-based Crisil said in a report published this month.
The Reserve Bank of India boosted the repurchase rate by a record 225 basis points, or 2.25 percentage points, in 2011 to 8.5 percent, the highest level since 2008. The rupee slid 12 percent in the past 12 months versus the dollar in Asia’s worst currency performance. It gained 0.1 percent to 51.53 per dollar on Jan. 13.
“Companies with substantial debt on their balance sheets will be further hurt by rising interest costs and marked-to- market losses on foreign debt and derivatives due to the depreciation of the rupee,” said Prasad Koparkar, Mumbai-based head of industry research at Crisil.
DLF Downgraded
DLF Ltd. (DLFU), INDIA’s largest property developer, was downgraded by Crisil on Dec. 27 after the company’s liabilities minus cash climbed to an all-time high of 242.7 billion rupees in the three months ended Sept. 30, data compiled by Bloomberg show. Nagpur, India-based Bajaj Steel Industries Ltd. (BJST) and textile manufacturer Himatsingka Seide Ltd. (HSS) had their rankings lowered last quarter.
Debt downgrades by Mumbai-based CARE Ratings Ltd. jumped to 169 during the nine months through December, from 84 a year earlier, D.R. Dogra, Managing Director at CARE said in a Jan. 10 e-mail.
Demand for corporate bonds is falling as the credit quality of companies worsens and analysts cut earnings forecasts.
State-owned Life Insurance Corp. bought 300 billion rupees ($5.8 billion) in company debt in the eight months through November, compared with 400 billion rupees invested a year earlier, according to chairman Mehrotra. Bond sales by Indian companies shrank 9 percent to 1.76 trillion rupees in 2011, according to data compiled by Bloomberg.
‘Whirlpool of Pessimism’
“Profitability will be stretched across industries because of high input and borrowing costs,” Vinita Singhania, managing director at New Delhi-based JK Lakshmi Cement Ltd., said in an interview on Jan. 11. “We expect the situation to persist this year and the outcome of these difficulties will be reflected in the performances of companies.”
Profits at the 30 firms that make up the benchmark BSE India Sensitive Index will fall 8.7 percent to 1,150 rupees a share in the 12 months through March, the biggest drop in three years, according to analyst estimates compiled by Bloomberg.
“India today finds itself in the middle of a whirlpool of pessimism,” analysts at Nomura Holdings Inc., including Mumbai- based Prabhat Avasthi, wrote in a research note dated Jan. 12. “Growth would continue to face headwinds. The lagged effects of past tightening are likely to continue to play out in the first half of 2012. The trajectory for earnings through the year would likely slow.”
Bond Risk
Yields on benchmark 10-year government bonds have climbed 56 basis points in the past two years as the Reserve Bank boosted interest rates. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries widened 177 basis points in the period to 632. The yield on the 8.79 percent note due November 2021 fell three basis points last week at 8.19 percent, according to the central bank’s trading system.
The average cost of credit-default swaps insuring against debt defaults by seven Indian issuers climbed 242 basis points in the past year to 452 basis points, according to data provider 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 nation or company fail to adhere to its debt agreements.
Bad Loans
India’s sovereign notes earned 7.6 percent in the past 12 months, while Indonesian securities returned 25 percent in the biggest gain among Asia’s 10 biggest government debt markets outside Japan, according to HSBC Holdings Plc data.
The increasing risk of defaults by companies means bad loans in the nation’s banking system may more than double, according to the central bank.
Non-performing credits may climb to 5.8 percent of total advances in two years from 2.8 percent in September, in the worst-case scenario, the Reserve Bank of India said in a report released on Dec. 22. Bad debts could be as much as 3.5 percent of loans by March 2013 using a “baseline macroeconomic scenario” and between 4.7 percent and 5.8 percent under a “severe macroeconomic stress scenario,” according to the report.
“Steel and textiles are additions to the list of sectors that are under stress in the last quarter because of borrowing costs and tough financial market conditions,” M.D. Mallya, Mumbai-based chairman and managing director at state-owned Bank of Baroda, said in an interview on Jan. 9. “Corporate performances weakened in the last quarter. The situation may continue this quarter because funding costs aren’t easing.”
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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