By Roxana Tiron and Tony Capaccio - Mar 24, 2012 9:31 AM GMT+0530
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Robert Bales, the U.S. Army staff sergeant accused of murdering 17 Afghan civilians, was given a security clearance even though he’d had previous financial troubles and scrapes with the law.
Bales, 38, who served in Iraq three times before being sent to Afghanistan, held a secret-level clearance, according to two U.S. military officials who had access to his records and asked not to be named because the details have not been made public.
While secret is a common, mid-level clearance, it may have given Bales access to classified material that according to the government’s definition, could cause “serious damage” to national security if disclosed to unauthorized sources. Two other military officials familiar with the clearance program, also speaking on condition of anonymity, said they were troubled that Bales held a clearance with a record that could expose him to blackmail or bribery.
About 90 percent of active-duty military personnel in Afghanistan and Iraq have a security clearance, according to Evan Lesser, managing director of Clearancejobs.com, a website that matches U.S. clearance-holders with prospective employers.
“It’s not abnormal that Mr. Bales had a security clearance,” said Lesser, whose website is part of New York- based Dice Holdings Inc. (DHX) “Military personnel in Afghanistan and Iraq and most of the Middle East are probably going to have some level of security clearance.”
More than 2 million government workers, including military personnel, held confidential or secret security clearances as of October 2010, according to a report from the U.S. Director of National Intelligence. The Defense Department issues more than 80 percent of all clearances, according to information posted on clearancejobs.com.
Bales’s Troubles
Bales, who was charged yesterday with 17 counts of premeditated murder, enlisted in the Army on Nov. 8, 2001. Court records show he was arrested in 2002 at a hotel in Tacoma, Washington, in an investigation of an assault on a woman. Bales pleaded not guilty and underwent 20 hours of anger management counseling, and the charge was dismissed.
Bales was involved in a drunken altercation with a woman and her boyfriend in 2008 after making comments about her, a police report and the woman involved say. Bales wasn’t charged in the incident outside a bowling alley in Tacoma, Washington, near the Joint Base Lewis-McChord where he was stationed, according to police and court records.
Before he joined the military, Bales swindled an Ohio couple of more than $600,000 when he served as their stockbroker, according to records of the Financial Industry Regulatory Authority, an industry group. He was ordered in 2003 to pay more than $1.3 million in damages to the couple.
‘Need to Know’
The charges against Bales in the Afghanistan shootings don’t accuse him of misusing his clearance. John Henry Browne, a Seattle lawyer for Bales in the Afghan case, didn’t immediately reply to an e-mail seeking comment.
It’s unclear when Bales received his secret clearance or whether he held a higher-level top secret clearance for his job. There are three levels of security clearances: confidential, secret and top secret. The most closely held secrets are classified top secret and controlled on a “need to know” basis as what’s called sensitive compartmented information.
Bales may have failed to report some of his financial and legal troubles when applying for a clearance, the officials famiiar with the clearance program said. Providing false information on an application for a security clearance is a violation of both the U.S. criminal law and the Uniform Code of Military Justice.
Clearance Backlog
Screeners reviewing Bales’s application may have ignored blots on the soldier’s record or failed to check his information thoroughly, the officials said. The wars in Afghanistan and Iraq created an enormous backlog in the clearance system, so some applications have gotten less scrutiny than they once did, especially at the secret level, one of the officials said.
More than 512,000 government employees and contractors were approved for confidential or secret clearances in fiscal 2010, according to the report from the Director of National Intelligence.
“There is a large number of cleared personnel,” Steven Aftergood, the director of the Project on Government Secrecy at the Federation of American Scientists, said in an interview. “Just keeping tabs on that is an enormous task. Every one of them not only needs to go through initial review, but needs to go through periodic review.”
Classified Technology
Radios and weapons systems often contain classified technology, so even low-ranking soldiers have to be cleared to use them, and enlisted personnel often get a secret clearance as they gain seniority, an Army reservist with a secret clearance said in an interview. Almost every soldier deployed overseas has a clearance, said the soldier, who spoke on condition he not be named because he wasn’t authorized to speak publicly.
Because Bales was working with members of the Army’s Special Forces in Afghanistan, he may have had access to sophisticated equipment, such as advanced night vision gear and sensors used to detect people and improvised explosive devices, said the officials who spoke on condition of anonymity.
Although secret clearances are now considered routine, the release of information classified as secret can still cause significant damage if given to the wrong people, said one official, citing the case of Army Private First Class Bradley Manning, who’s on trial for passing State Department cables and other secret material to the Wikileaks website.
‘Background Check’
Applicants for secret clearances undergo “a fairly extensive background check,” Lesser said in an e-mail. Such clearances must be reviewed every 10 years, he said.
The most common investigation for a secret clearance includes a national agency check combined with a credit search and checks with local law enforcement agencies where the applicant has lived, worked or studied, according to Lesser. The investigation includes inquiries to current and past employers, schools and references and covers the preceding five years.
In 2009, Bales and his wife, Karilyn, defaulted on a mortgage for one of their two properties in Washington state, and they recently attempted to sell the other for less than what they owe on it. At one point, the couple owed more than $500,000 on the two homes.
Mortgage problems aren’t necessarily a red flag for security clearances, Lesser said. Financial considerations boil down to whether the person’s financial troubles are due to their own actions, such as gambling, risky business decisions and spending sprees beyond the person’s means, Lesser said.
‘Close Attention’
The military “pays close attention to debt and other financial issues when it comes to screening applicants for security clearance to handle sensitive information,” Lieutenant Colonel James Gregory, a Defense Department spokesman, said in an e-mail. “A person with big debts is more likely to accept money in exchange for revealing secrets. So that’s why financial things are, if not the biggest, one of the biggest reasons that a clearance would not be granted or be revoked.”
Even so, the military takes a “whole person” approach when granting a clearance, weighing an individual’s past and present behavior, considering favorable as well as unfavorable conduct, Gregory said. “The military also considers the circumstances and recency of the conduct, as well as the presence of rehabilitation or positive behavioral changes,” he said.
To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net
To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net
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Saturday, March 24, 2012
Friday, March 23, 2012
U.S. Wants Iran Oil Buyers to Pledge Cuts or Risk Sanctions
By Indira A.R. Lakshmanan and Pratish Narayanan - Mar 23, 2012
The Obama administration wants China, India and 10 other nations to present plans detailing how they will curtail Iranian oil imports, saying past cuts aren’t enough to win them an exclusion from new U.S. sanctions.
Secretary of State Hillary Clinton this week granted Japan and European Union countries six-month, renewable exemptions from the measures that take effect June 28, crediting them with “significantly reducing” imports from the Persian Gulf nation.
While China and India, the two biggest buyers of Iran’s crude, have made cuts in recent months and years, they were not granted exemptions. The distinction is that the EU and Japan offered assurances they will go beyond past reductions and continue to curb purchases from the world’s fourth biggest producer, U.S. officials say.
“What we are looking for is for countries to come to us and tell us if they believe that they should be in that category that deserves an exemption, what are the kinds of significant reductions that they are willing to pursue,” said Carlos Pascual, the State Department’s special envoy and coordinator for international energy affairs.
Japan, the No. 3 importer of Iranian oil, detailed to the U.S. its plans to boost purchases from alternative suppliers, the U.S. officials said. China, India, South Korea, Turkey and eight other buyers of Iranian crude haven’t yet made similar pledges, and past cuts alone can’t be taken as evidence of future intent, said four U.S. officials who spoke on condition of anonymity because diplomatic discussions are private.
’Significant Reduction’
The new sanctions law, enacted Dec. 31, doesn’t define what constitutes the “significant reduction” needed to qualify for an exemption from penalties. U.S. officials say they haven’t quantified it because there’s no rule of thumb or percentage of cuts that applies to all cases. Each country has different energy needs, and all will be reviewed on a case-by-case basis, the officials said.
If a country doesn’t prove it’s making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system.
The first round of exemptions, issued to EU nations and Japan and valid until Sept. 16, were meant to set an example to others, said Victoria Nuland, a spokeswoman for the State Department. The EU banned new oil contracts with Iran on Jan. 23 and embargoed all Iranian oil effective July 1.
Japan’s Cuts
Publicly available data shows Japan made “seasonally adjusted” cuts of between 15 percent and 22 percent in the second half of last year compared with the same period in 2010, depending on the data source, Pascual testified before Congress March 20.
Japan bought 53 million barrels (8.4 million kiloliters) of oil from Iran from July through December 2011, compared with 64 million barrels (10.2 million kiloliters) in the same period of 2010, according to Japanese government statistics. That’s a 17.6 percent reduction. Japan’s finance minister, Jun Azumi, said his government welcomed the U.S. exemption and intends to “keep reducing oil imports at a certain pace.”
The American sanctions are among dozens of measures taken by the U.S. and the EU since November to ratchet up economic pressure on Iran’s leaders in an effort to persuade them to abandon any illicit part of their nuclear program. The U.S., Europe and Israel have accused Iran of seeking the capability to build a nuclear weapon. Iran says its program is solely for civilian energy and medical research.
Under Pressure
The Obama administration is under pressure to turn the screws on Iran even tighter as Israel warns that it’s prepared to take military action to prevent Iran from developing nuclear weapons.
The administration should accelerate the sanctions on Iran that are due to take effect in June, Representative Mike Rogers, a Michigan Republican who is chairman of the House Intelligence Committee, said today on Bloomberg Television.
In addition, Rogers said, because neither Iran nor Israel believes the U.S. is seriously considering military action, the administration should signal that it’s willing to use force, for example by holding military exercises in the region and pre- positioning equipment that would be needed to strike Iran’s suspect nuclear facilities.
“This is as serious a problem as I’ve ever seen,” Rogers said.
Oil prices in New York have risen 7.2 percent this year, while Brent crude in London has climbed 15.6 percent, partly due to concerns over supply disruptions from escalating tension between Iran and the U.S. and its allies.
Nuclear Program
U.S. officials say they are in talks with the 12 importers that haven’t received exemptions, and are hopeful they’ll reach an understanding with each of them. South Korea, the No. 4 buyer of Iranian crude, has requested an exemption, and U.S. diplomats say they’re optimistic that officials in Seoul will pledge future cutbacks before the June 28 deadline.
South Korea is seeking exclusion from the sanctions, a government official from the Asian nation said March 21. Talks may be held before May, according to the official, who is involved in the discussions and spoke on condition of anonymity because the information is confidential.
South Africa has “downscaled” Iran imports, partly in response to requests from the U.S., and also to diversify supplies, Clayson Monyela, a spokesman for the Department of International Relations and Cooperation, said yesterday.
China, India
While China and India, the world’s fastest-growing major economies, supported four rounds of United Nations sanctions on Iran over its nuclear program, neither has endorsed the unilateral sanctions imposed by the U.S.
Indian Oil Minister Jaipal Reddy and Foreign Secretary Ranjan Mathai have said the South Asian nation will continue to buy from Iran. Still, India’s oil imports from Iran will be less than 125 million barrels (17 million tons) in the year ending March 31, Mathai said. That would be at least 8 percent lower than imports for the 12 months ended March 2011 and 20 percent below 2010 levels, according to government data.
India has been “following a general policy of diversifying our oil imports,” Mathai said. Iran is currently India’s second-biggest crude supplier. India needs to take care of local consumer interests, and isn’t planning to cut Iranian crude imports, oil minister Reddy said today.
While India hasn’t asked its refiners to stop purchasing Iranian crude, the government has told processors in the South Asian nation to seek alternative supplies and gradually reduce dependence on the Persian Gulf state because of increasing pressure from the U.S., said three Indian officials with direct knowledge of the situation.
Mangalore Refinery
India reduced purchases from Iran every year since the 12 months ended March 2009, according to government figures presented to parliament this week. Imports are poised to fall further as its biggest buyer of Iranian oil, state-owned Mangalore Refinery & Petrochemicals Ltd. (MRPL), plans to cut its term contract by about 15 percent compared with the previous 12 months, two people with direct knowledge of the matter said.
China, the biggest buyer of Iranian crude, cut imports by 45 percent in February compared with the previous month to the lowest level since May 2010, after a disagreement over payment terms between Iran and China International United Petroleum & Chemical Co., the nation’s biggest oil trader. China reduced Iran imports by 14.3 percent in January and 4.5 percent in December, customs data show.
Barter Deals
“China has been importing Iranian crude through normal channels based on our own needs for economic development,” Hong Lei, a foreign ministry spokesman, said at a media briefing yesterday, when asked if the Asian country was considering import cuts from Iran. “China has always been against unilateral sanctions, based on domestic laws, imposed by any one country on another. We especially do not accept unilateral sanctions that are forcibly imposed on a third-party country.”
Sanctions have made it increasingly difficult to insure, ship and pay for Iranian oil. India has used a Turkish bank to route payments to Iran, dealt in currencies such as the rupee and yen, and asked Iran to secure its own ship insurance.
Efforts to arrange barter deals to pay for Iranian oil may be perceived by some in Washington as a means to skirt sanctions, one U.S. envoy said. India and Iran are considering bartering commodities and other products for crude through a rupee account with state-run UCO Bank (UCO), said two people with knowledge of the matter.
“Despite whatever the Indians say about decreasing Iranian oil imports, there are other ways they can continue to get it, through Iraq and Afghanistan, for example,” Barbara Slavin, a senior fellow on Iran at the Atlantic Council, a research institute in Washington, said in an interview. “India has such energy needs, they can’t comply with these sanctions.”
To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Obama administration wants China, India and 10 other nations to present plans detailing how they will curtail Iranian oil imports, saying past cuts aren’t enough to win them an exclusion from new U.S. sanctions.
Secretary of State Hillary Clinton this week granted Japan and European Union countries six-month, renewable exemptions from the measures that take effect June 28, crediting them with “significantly reducing” imports from the Persian Gulf nation.
While China and India, the two biggest buyers of Iran’s crude, have made cuts in recent months and years, they were not granted exemptions. The distinction is that the EU and Japan offered assurances they will go beyond past reductions and continue to curb purchases from the world’s fourth biggest producer, U.S. officials say.
“What we are looking for is for countries to come to us and tell us if they believe that they should be in that category that deserves an exemption, what are the kinds of significant reductions that they are willing to pursue,” said Carlos Pascual, the State Department’s special envoy and coordinator for international energy affairs.
Japan, the No. 3 importer of Iranian oil, detailed to the U.S. its plans to boost purchases from alternative suppliers, the U.S. officials said. China, India, South Korea, Turkey and eight other buyers of Iranian crude haven’t yet made similar pledges, and past cuts alone can’t be taken as evidence of future intent, said four U.S. officials who spoke on condition of anonymity because diplomatic discussions are private.
’Significant Reduction’
The new sanctions law, enacted Dec. 31, doesn’t define what constitutes the “significant reduction” needed to qualify for an exemption from penalties. U.S. officials say they haven’t quantified it because there’s no rule of thumb or percentage of cuts that applies to all cases. Each country has different energy needs, and all will be reviewed on a case-by-case basis, the officials said.
If a country doesn’t prove it’s making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system.
The first round of exemptions, issued to EU nations and Japan and valid until Sept. 16, were meant to set an example to others, said Victoria Nuland, a spokeswoman for the State Department. The EU banned new oil contracts with Iran on Jan. 23 and embargoed all Iranian oil effective July 1.
Japan’s Cuts
Publicly available data shows Japan made “seasonally adjusted” cuts of between 15 percent and 22 percent in the second half of last year compared with the same period in 2010, depending on the data source, Pascual testified before Congress March 20.
Japan bought 53 million barrels (8.4 million kiloliters) of oil from Iran from July through December 2011, compared with 64 million barrels (10.2 million kiloliters) in the same period of 2010, according to Japanese government statistics. That’s a 17.6 percent reduction. Japan’s finance minister, Jun Azumi, said his government welcomed the U.S. exemption and intends to “keep reducing oil imports at a certain pace.”
The American sanctions are among dozens of measures taken by the U.S. and the EU since November to ratchet up economic pressure on Iran’s leaders in an effort to persuade them to abandon any illicit part of their nuclear program. The U.S., Europe and Israel have accused Iran of seeking the capability to build a nuclear weapon. Iran says its program is solely for civilian energy and medical research.
Under Pressure
The Obama administration is under pressure to turn the screws on Iran even tighter as Israel warns that it’s prepared to take military action to prevent Iran from developing nuclear weapons.
The administration should accelerate the sanctions on Iran that are due to take effect in June, Representative Mike Rogers, a Michigan Republican who is chairman of the House Intelligence Committee, said today on Bloomberg Television.
In addition, Rogers said, because neither Iran nor Israel believes the U.S. is seriously considering military action, the administration should signal that it’s willing to use force, for example by holding military exercises in the region and pre- positioning equipment that would be needed to strike Iran’s suspect nuclear facilities.
“This is as serious a problem as I’ve ever seen,” Rogers said.
Oil prices in New York have risen 7.2 percent this year, while Brent crude in London has climbed 15.6 percent, partly due to concerns over supply disruptions from escalating tension between Iran and the U.S. and its allies.
Nuclear Program
U.S. officials say they are in talks with the 12 importers that haven’t received exemptions, and are hopeful they’ll reach an understanding with each of them. South Korea, the No. 4 buyer of Iranian crude, has requested an exemption, and U.S. diplomats say they’re optimistic that officials in Seoul will pledge future cutbacks before the June 28 deadline.
South Korea is seeking exclusion from the sanctions, a government official from the Asian nation said March 21. Talks may be held before May, according to the official, who is involved in the discussions and spoke on condition of anonymity because the information is confidential.
South Africa has “downscaled” Iran imports, partly in response to requests from the U.S., and also to diversify supplies, Clayson Monyela, a spokesman for the Department of International Relations and Cooperation, said yesterday.
China, India
While China and India, the world’s fastest-growing major economies, supported four rounds of United Nations sanctions on Iran over its nuclear program, neither has endorsed the unilateral sanctions imposed by the U.S.
Indian Oil Minister Jaipal Reddy and Foreign Secretary Ranjan Mathai have said the South Asian nation will continue to buy from Iran. Still, India’s oil imports from Iran will be less than 125 million barrels (17 million tons) in the year ending March 31, Mathai said. That would be at least 8 percent lower than imports for the 12 months ended March 2011 and 20 percent below 2010 levels, according to government data.
India has been “following a general policy of diversifying our oil imports,” Mathai said. Iran is currently India’s second-biggest crude supplier. India needs to take care of local consumer interests, and isn’t planning to cut Iranian crude imports, oil minister Reddy said today.
While India hasn’t asked its refiners to stop purchasing Iranian crude, the government has told processors in the South Asian nation to seek alternative supplies and gradually reduce dependence on the Persian Gulf state because of increasing pressure from the U.S., said three Indian officials with direct knowledge of the situation.
Mangalore Refinery
India reduced purchases from Iran every year since the 12 months ended March 2009, according to government figures presented to parliament this week. Imports are poised to fall further as its biggest buyer of Iranian oil, state-owned Mangalore Refinery & Petrochemicals Ltd. (MRPL), plans to cut its term contract by about 15 percent compared with the previous 12 months, two people with direct knowledge of the matter said.
China, the biggest buyer of Iranian crude, cut imports by 45 percent in February compared with the previous month to the lowest level since May 2010, after a disagreement over payment terms between Iran and China International United Petroleum & Chemical Co., the nation’s biggest oil trader. China reduced Iran imports by 14.3 percent in January and 4.5 percent in December, customs data show.
Barter Deals
“China has been importing Iranian crude through normal channels based on our own needs for economic development,” Hong Lei, a foreign ministry spokesman, said at a media briefing yesterday, when asked if the Asian country was considering import cuts from Iran. “China has always been against unilateral sanctions, based on domestic laws, imposed by any one country on another. We especially do not accept unilateral sanctions that are forcibly imposed on a third-party country.”
Sanctions have made it increasingly difficult to insure, ship and pay for Iranian oil. India has used a Turkish bank to route payments to Iran, dealt in currencies such as the rupee and yen, and asked Iran to secure its own ship insurance.
Efforts to arrange barter deals to pay for Iranian oil may be perceived by some in Washington as a means to skirt sanctions, one U.S. envoy said. India and Iran are considering bartering commodities and other products for crude through a rupee account with state-run UCO Bank (UCO), said two people with knowledge of the matter.
“Despite whatever the Indians say about decreasing Iranian oil imports, there are other ways they can continue to get it, through Iraq and Afghanistan, for example,” Barbara Slavin, a senior fellow on Iran at the Atlantic Council, a research institute in Washington, said in an interview. “India has such energy needs, they can’t comply with these sanctions.”
To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, March 21, 2012
Vedanta Offers $3.4 Billion for Full Control of Indian Units
By Rajesh Kumar Singh and Abhishek Shanker - Mar 22, 2012
Billionaire Anil Agarwal’s Vedanta Group has offered 170 billion rupees ($3.4 billion) to buy the Indian government’s remaining stakes in Hindustan Zinc Ltd. (HZ) and Bharat Aluminium Co., a ministry official said.
A panel of bureaucrats from ministries, including law, corporate affairs, finance and mining, met yesterday and decided to seek the advice of a group of ministers on the proposal, Vishwapati Trivedi, secretary at the Ministry of Mines, told reporters in New Delhi.
Buying the stakes will give Vedanta’s Mumbai-based unit Sterlite Industries (India) Ltd. (STLT) control over a combined 964,000 metric tons of annual zinc and lead-producing capacity and full ownership of a 2 million ton-a-year bauxite mine. The government is seeking to narrow its fiscal deficit through steps including asset sales and capping of expenses.
“This will be positive for Sterlite,” Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt., said in Mumbai. He has an outperform recommendation on Sterlite and expects the shares to rally 59 percent in 12 months. “The cash that Sterlite will spend will come back in the form of surplus from Hindustan Zinc.”
The zinc maker has cash and equivalents of $3.35 billion, according to data compiled by Bloomberg.
Pavan Kaushik, spokesman at Hindustan Zinc, declined to comment. Senjam Raj Sekhar, a spokesman at Vedanta Resources Plc (VED), didn’t respond to two calls made to his mobile phone and a text message seeking comments.
Government Stake
Vedanta offered 150 billion rupees for one company and 20 billion rupees for the other, Trivedi said, without identifying them. The government’s 29.5 percent stake in Hindustan Zinc is valued at 162 billion rupees at the current share price.
Hindustan Zinc fell 0.2 percent to 130 rupees at 9:19 a.m. in Mumbai trading, giving it a market value of $10.8 billion. Sterlite gained 0.3 percent to 115.80 rupees.
Sterlite, the nation’s biggest copper producer, owns 64.9 percent of Hindustan Zinc. The company may complete the transaction this year, Agarwal said on Feb. 25. It bought 51 percent of Bharat Aluminium, which owns the bauxite mine, in 2001 and a majority stake in Hindustan Zinc a year later.
Lack of full control at Hindustan Zinc has undermined decision-making at Vedanta. In 2010, Vedanta’s plan to buy Anglo American Plc (AAL)’s Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government didn’t ratify the deal. Vedanta completed the purchase through Sterlite.
Combining Units
Agarwal is combining the group’s publicly traded Indian units into a new company after an $8.67 billion purchase of oil producer Cairn India Ltd. (CAIR), Vedanta said Feb. 25. Sesa Goa Ltd. (SESA), India’s largest iron-ore exporter, will absorb Sterlite in an all-share deal.
Vedanta Aluminium Ltd. and Madras Aluminium Co. will also be merged into the new company, Sesa Sterlite.
Vedanta plans to transfer debt of $5.9 billion to Sesa Sterlite, reducing outstanding loans by 61 percent to $3.8 billion and cutting debt-service costs by $300 million for the year ending March 31, 2013, the company said.
India’s budget deficit may widen to 5.9 percent of gross domestic product in the year ending March, compared with a target of 4.6 percent. Finance Minister Pranab Mukherjee aims to cut the shortfall to 5.1 percent of GDP in the next fiscal year.
To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Billionaire Anil Agarwal’s Vedanta Group has offered 170 billion rupees ($3.4 billion) to buy the Indian government’s remaining stakes in Hindustan Zinc Ltd. (HZ) and Bharat Aluminium Co., a ministry official said.
A panel of bureaucrats from ministries, including law, corporate affairs, finance and mining, met yesterday and decided to seek the advice of a group of ministers on the proposal, Vishwapati Trivedi, secretary at the Ministry of Mines, told reporters in New Delhi.
Buying the stakes will give Vedanta’s Mumbai-based unit Sterlite Industries (India) Ltd. (STLT) control over a combined 964,000 metric tons of annual zinc and lead-producing capacity and full ownership of a 2 million ton-a-year bauxite mine. The government is seeking to narrow its fiscal deficit through steps including asset sales and capping of expenses.
“This will be positive for Sterlite,” Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt., said in Mumbai. He has an outperform recommendation on Sterlite and expects the shares to rally 59 percent in 12 months. “The cash that Sterlite will spend will come back in the form of surplus from Hindustan Zinc.”
The zinc maker has cash and equivalents of $3.35 billion, according to data compiled by Bloomberg.
Pavan Kaushik, spokesman at Hindustan Zinc, declined to comment. Senjam Raj Sekhar, a spokesman at Vedanta Resources Plc (VED), didn’t respond to two calls made to his mobile phone and a text message seeking comments.
Government Stake
Vedanta offered 150 billion rupees for one company and 20 billion rupees for the other, Trivedi said, without identifying them. The government’s 29.5 percent stake in Hindustan Zinc is valued at 162 billion rupees at the current share price.
Hindustan Zinc fell 0.2 percent to 130 rupees at 9:19 a.m. in Mumbai trading, giving it a market value of $10.8 billion. Sterlite gained 0.3 percent to 115.80 rupees.
Sterlite, the nation’s biggest copper producer, owns 64.9 percent of Hindustan Zinc. The company may complete the transaction this year, Agarwal said on Feb. 25. It bought 51 percent of Bharat Aluminium, which owns the bauxite mine, in 2001 and a majority stake in Hindustan Zinc a year later.
Lack of full control at Hindustan Zinc has undermined decision-making at Vedanta. In 2010, Vedanta’s plan to buy Anglo American Plc (AAL)’s Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government didn’t ratify the deal. Vedanta completed the purchase through Sterlite.
Combining Units
Agarwal is combining the group’s publicly traded Indian units into a new company after an $8.67 billion purchase of oil producer Cairn India Ltd. (CAIR), Vedanta said Feb. 25. Sesa Goa Ltd. (SESA), India’s largest iron-ore exporter, will absorb Sterlite in an all-share deal.
Vedanta Aluminium Ltd. and Madras Aluminium Co. will also be merged into the new company, Sesa Sterlite.
Vedanta plans to transfer debt of $5.9 billion to Sesa Sterlite, reducing outstanding loans by 61 percent to $3.8 billion and cutting debt-service costs by $300 million for the year ending March 31, 2013, the company said.
India’s budget deficit may widen to 5.9 percent of gross domestic product in the year ending March, compared with a target of 4.6 percent. Finance Minister Pranab Mukherjee aims to cut the shortfall to 5.1 percent of GDP in the next fiscal year.
To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, March 20, 2012
India’s Supreme Court Affirms Dismissal of Vodafone Claim
By Ketaki Gokhale and Pratap Patnaik - Mar 20, 2012
India’s Supreme Court reaffirmed its earlier dismissal of a $2.2 billion tax claim on Vodafone Group Plc (VOD) after the government last month petitioned it to reconsider its decision.
A panel of judges comprising Chief Justice S.H. Kapadia, K.S. Radhakrishnan and Swatanter Kumar yesterday rejected a government plea to review the court’s January decision to dismiss a tax claim on Newbury, England-based Vodafone’s 2007 purchase of Hutchison Whampoa Ltd. (13)’s India operations, the court master said citing the chief justice.
The dismissal comes after Finance Minister Pranab Mukherjee last week in his annual budget speech proposed an amendment in the law that will enable the government to retrospectively tax cross-border transactions. Once the government makes the change in the law, it could petition the nation’s top court again, Dinesh Kanabar, deputy chief executive officer at KPMG’s India operations, said.
“The law provides that once the amendment is done, they will override any judgments of the court,” said Kanabar. “Vodafone would, obviously, need to prepare for something like that.”
Vodafone and Hutchison conducted their transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd., a Cayman Islands company controlled by Hong Kong-based Hutchison.
`Unambiguous'
“The Supreme Court’s clear and unambiguous ruling, based on the existing laws of India, reiterates that the Indian tax authority does not have the jurisdiction to tax the transaction,” Vodafone said in an e-mailed statement.
Vodafone rose 2.1 percent to 170.80 pence in London.
India’s Supreme Court on Jan. 20 ruled the government can’t seek capital gains tax from Vodafone because the transaction occurred between foreign companies. The court also directed the government to return a 25 billion-rupee ($495 million) deposit Vodafone made on the contested tax bill, plus 4 percent interest.
The government will immediately return the deposit made by Vodafone, a finance ministry official told reporters in New Delhi yesterday, asking not to identified before a public announcement.
The government on Feb. 17 filed a petition to review the Supreme Court’s decision, seeking to overturn the January ruling.
The Indian tax department sought 112.2 billion rupees in capital gains levy from Vodafone, saying the company should have withheld the tax from its payment to Hutchison.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Pratap Patnaik in New Delhi at ppatnaik2@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
India’s Supreme Court reaffirmed its earlier dismissal of a $2.2 billion tax claim on Vodafone Group Plc (VOD) after the government last month petitioned it to reconsider its decision.
A panel of judges comprising Chief Justice S.H. Kapadia, K.S. Radhakrishnan and Swatanter Kumar yesterday rejected a government plea to review the court’s January decision to dismiss a tax claim on Newbury, England-based Vodafone’s 2007 purchase of Hutchison Whampoa Ltd. (13)’s India operations, the court master said citing the chief justice.
The dismissal comes after Finance Minister Pranab Mukherjee last week in his annual budget speech proposed an amendment in the law that will enable the government to retrospectively tax cross-border transactions. Once the government makes the change in the law, it could petition the nation’s top court again, Dinesh Kanabar, deputy chief executive officer at KPMG’s India operations, said.
“The law provides that once the amendment is done, they will override any judgments of the court,” said Kanabar. “Vodafone would, obviously, need to prepare for something like that.”
Vodafone and Hutchison conducted their transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd., a Cayman Islands company controlled by Hong Kong-based Hutchison.
`Unambiguous'
“The Supreme Court’s clear and unambiguous ruling, based on the existing laws of India, reiterates that the Indian tax authority does not have the jurisdiction to tax the transaction,” Vodafone said in an e-mailed statement.
Vodafone rose 2.1 percent to 170.80 pence in London.
India’s Supreme Court on Jan. 20 ruled the government can’t seek capital gains tax from Vodafone because the transaction occurred between foreign companies. The court also directed the government to return a 25 billion-rupee ($495 million) deposit Vodafone made on the contested tax bill, plus 4 percent interest.
The government will immediately return the deposit made by Vodafone, a finance ministry official told reporters in New Delhi yesterday, asking not to identified before a public announcement.
The government on Feb. 17 filed a petition to review the Supreme Court’s decision, seeking to overturn the January ruling.
The Indian tax department sought 112.2 billion rupees in capital gains levy from Vodafone, saying the company should have withheld the tax from its payment to Hutchison.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Pratap Patnaik in New Delhi at ppatnaik2@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, March 19, 2012
Subbarao Boosts RBI Transparency as India Bond Buying Climbs
By Kartik Goyal - Mar 19, 2012
The Reserve Bank of India’s tomes on interest-rate policy made Subir Gokarn despair when he was a Standard & Poor’s economist. Now a deputy governor, he’s part of the biggest communication overhaul in the bank’s 77-year history.
“That really wasn’t the best way to do it,” Gokarn, 52, who joined the RBI in 2009, said in an interview in Mumbai last month. “Keep it short, keep it straightforward, so it takes five, 10 minutes to read and most people read it.”
Snappier, more frequent reviews of rate decisions and the introduction of guidance on future direction are part of an effort by Governor Duvvuri Subbarao to make monetary policy more predictable and credible in Asia’s third-largest economy. The campaign hasn’t been flawless: Gokarn wrong-footed analysts Jan. 5 by signaling that a reduction in lenders’ cash-reserve ratios would be “premature,” only to cut them 19 days later.
At stake is reducing the RBI’s gap with practices abroad as foreign investors have an increasing role in India’s government- debt market, with their holdings soaring more than sixfold since Subbarao, 62, took over in September 2008.
“The RBI has improved significantly in terms of clarity and frequency of market communication,” said Jahangir Aziz, chief India economist for JPMorgan Chase & Co., who previously worked at the International Monetary Fund. “There have been rather glaring flip flops by the RBI at times while the market for a long time -- and in some cases even now -- hasn’t fully got used to the new rhetoric.”
Briefings Started
On Subbarao’s watch the Reserve Bank has doubled the number of scheduled monetary policy meetings each year, to eight. It now releases minutes of a key advisory committee, and started regular media and analyst briefings.
“The changes that the RBI has enacted have helped improve the perception of external investors,” said Dhawal Dalal, Mumbai-based head of fixed income at DSP Blackrock Investment Managers Pvt., a joint venture with the world’s largest money manager. “They are trying to make the system safer.”
A relaxation of limits on purchasing Indian debt saw international investment in government and corporate debt surge to a record $31.5 billion in February, from $5.1 billion in the month Subbarao succeeded Yaga Venugopal Reddy, according to data compiled by Bloomberg. In November, authorities boosted the ceiling on foreign buying to $60 billion.
Investors also have been lured by yields on benchmark 10- year government securities that are more than twice that of China and South Korea and about four times the rate on similar- maturity U.S. Treasuries.
Bond Lure
Indian government bonds are Asia’s second-best performers this year after Indonesia, among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc.
Subbarao, who pledged greater clarity after taking office, increased the number of scheduled monetary policy reviews in July 2010. Two months later, the central bank gave its first guidance on future action, saying tightening to damp inflation had “taken the monetary situation close to normal.”
In February 2011, the bank began releasing the minutes of the 12-person technical advisory committee on monetary policy, which includes seven outside advisers, along with Subbarao, Gokarn, and other RBI officials. The records revealed that the governor sometimes went against external guidance, such as on Jan. 24, when he left borrowing costs unchanged for a second month even after most outside advisers called for a cut.
ICICI Sees Clarity
“There is more clarity in the language of the policy statements and forward guidance on policy actions,” said N.S. Kannan, chief financial officer of ICICI Bank Ltd., India’s second-largest lender. Subbarao “has made the RBI more transparent through an effective communication policy,” he said.
As India’s economy increased sixfold from 1993, central bank practices struggled to keep up, retaining a preference for the 100-page policy documents full of repetitions and ambiguities that disheartened Gokarn. India’s gross domestic product has risen to 10th in the world, from 15th in 1993, reaching $1.84 trillion last year, according to IMF data.
Pressure for overhauling the RBI’s policy making escalated when the global financial crisis deepened in 2008, requiring faster action than afforded by the bank’s four scheduled rate- setting meetings. The Reserve Bank embarked upon a string of changes to rates or lenders’ reserve requirements at 11 unscheduled meetings in a period of about three years.
A total cut of 400 basis points off the cash reserve ratio and 425 basis points off the repurchase rate after Lehman Brothers Holdings Inc. collapsed in September 2008 “didn’t go down well with the market because of the surprise element,” Subbarao said in a speech in New Delhi in January 2011.
‘Unclear and Guarded’
“Earlier the RBI was quite secretive, even the language was very unclear and guarded,” said Tushar Pradhan, who manages about $1 billion as chief investment officer at HSBC Asset Management (India) Pvt. “The RBI has found that more information helps.”
As recently as 2005, monetary-policy reviews were held on a semiannual basis. Central banks worldwide have overhauled their communication strategies since that time, with the U.S. Federal Reserve accelerating publication of minutes of policy meetings and introducing press briefings, and the Reserve Bank of Australia and Banco de Mexico starting releases of minutes.
“The changes are part of the opening up of India’s economy and markets to the world -- a necessary process if India is to meet its aspirations of becoming a global power,” said Bimal Jalan, who led the RBI for almost six years, until September 2003.
Economic Test
The effectiveness of the increased transparency is being tested as Subbarao contends with slowing expansion amid elevated inflation. Prime Minister Manmohan Singh’s government last month lowered its forecast for gross domestic product growth to 6.9 percent for the fiscal year through March, the weakest since 2009, when the world was pulling out of recession.
India’s benchmark wholesale-price index increased 6.95 percent in February from a year before, quickening from 6.55 percent in January. While retaining a bias toward easing policy in future, the central bank said in a March 15 statement that “notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions.’
Finance Minister Pranab Mukherjee said March 18 that he expects “policy rates to be reversed by the central bank in coming months.” Subbarao said in 2011 it’s an established practice for the central bank governor to meet the prime minister and the finance minister informally close to the policy decision.
Gokarn’s Signal
Among the bank’s challenges is managing periodic liquidity shortages in India’s banking system, which have prompted two reductions in the cash-reserve ratio so far this year.
Gokarn told journalists on Jan. 5 that cutting the ratio -- the proportion of deposits lenders must hold in reserve -- would send a “premature” signal of a change in monetary policy. The RBI then lowered it by half a percentage point on Jan. 24, surprising 16 of 21 economists surveyed by Bloomberg who predicted no change.
While “more frequent communication is positive,” the central bank is “talking too much, too often across many different channels, which causes confusion,” said Rajeev Malik, a senior economist at CLSA Asia-Pacific Markets in Singapore.
Interest-rate swaps, a gauge of investors’ expectations for borrowing costs, also show the market isn’t always buying the bank’s rhetoric, according to Aziz at JPMorgan.
Swaps Market
The swaps rose as much as 18 basis points from Jan. 24, to 8.23 percent, even after the Reserve Bank signaled it’s more likely to cut interest rates. In September last year, the swaps fell to 7.6 percent while the central bank was raising rates.
“There have been long periods when the overnight swap spreads have diverged substantially from the RBI’s policy guidance and subsequent policy action,” said Aziz, a former adviser at the Ministry of Finance in New Delhi. “One doesn’t see that happening very often for example in the U.S. or Australia.”
The new openness doesn’t stop at the doors of the central bank’s headquarters in Mumbai. Subbarao and his four deputies visit villages across India to promote financial literacy in a nation where more than two thirds of the 1.2 billion population live on less than $2 a day. The officials also hold town-hall events where investors can question their decisions.
For investor Mahendra Jajoo, the move toward transparency is a reflection of the rapid changes the country has experienced in the past few decades, since Singh as finance minister in the early 1990s helped lead an effort to reduce regulation and barriers to trade and investment.
“My grandfather used to wear dhoti-kurta, my father shifted to wearing trousers and I wear jeans,” said Jajoo, chief investment officer for fixed income at Pramerica Asset Managers Ltd. which oversees $600 million. “I can’t say that my grandfather’s sense of dressing was bad. He was a person of his time. This is what the RBI has done. The current governor has responded very fast to the changing needs of the time.”
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Reserve Bank of India’s tomes on interest-rate policy made Subir Gokarn despair when he was a Standard & Poor’s economist. Now a deputy governor, he’s part of the biggest communication overhaul in the bank’s 77-year history.
“That really wasn’t the best way to do it,” Gokarn, 52, who joined the RBI in 2009, said in an interview in Mumbai last month. “Keep it short, keep it straightforward, so it takes five, 10 minutes to read and most people read it.”
Snappier, more frequent reviews of rate decisions and the introduction of guidance on future direction are part of an effort by Governor Duvvuri Subbarao to make monetary policy more predictable and credible in Asia’s third-largest economy. The campaign hasn’t been flawless: Gokarn wrong-footed analysts Jan. 5 by signaling that a reduction in lenders’ cash-reserve ratios would be “premature,” only to cut them 19 days later.
At stake is reducing the RBI’s gap with practices abroad as foreign investors have an increasing role in India’s government- debt market, with their holdings soaring more than sixfold since Subbarao, 62, took over in September 2008.
“The RBI has improved significantly in terms of clarity and frequency of market communication,” said Jahangir Aziz, chief India economist for JPMorgan Chase & Co., who previously worked at the International Monetary Fund. “There have been rather glaring flip flops by the RBI at times while the market for a long time -- and in some cases even now -- hasn’t fully got used to the new rhetoric.”
Briefings Started
On Subbarao’s watch the Reserve Bank has doubled the number of scheduled monetary policy meetings each year, to eight. It now releases minutes of a key advisory committee, and started regular media and analyst briefings.
“The changes that the RBI has enacted have helped improve the perception of external investors,” said Dhawal Dalal, Mumbai-based head of fixed income at DSP Blackrock Investment Managers Pvt., a joint venture with the world’s largest money manager. “They are trying to make the system safer.”
A relaxation of limits on purchasing Indian debt saw international investment in government and corporate debt surge to a record $31.5 billion in February, from $5.1 billion in the month Subbarao succeeded Yaga Venugopal Reddy, according to data compiled by Bloomberg. In November, authorities boosted the ceiling on foreign buying to $60 billion.
Investors also have been lured by yields on benchmark 10- year government securities that are more than twice that of China and South Korea and about four times the rate on similar- maturity U.S. Treasuries.
Bond Lure
Indian government bonds are Asia’s second-best performers this year after Indonesia, among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc.
Subbarao, who pledged greater clarity after taking office, increased the number of scheduled monetary policy reviews in July 2010. Two months later, the central bank gave its first guidance on future action, saying tightening to damp inflation had “taken the monetary situation close to normal.”
In February 2011, the bank began releasing the minutes of the 12-person technical advisory committee on monetary policy, which includes seven outside advisers, along with Subbarao, Gokarn, and other RBI officials. The records revealed that the governor sometimes went against external guidance, such as on Jan. 24, when he left borrowing costs unchanged for a second month even after most outside advisers called for a cut.
ICICI Sees Clarity
“There is more clarity in the language of the policy statements and forward guidance on policy actions,” said N.S. Kannan, chief financial officer of ICICI Bank Ltd., India’s second-largest lender. Subbarao “has made the RBI more transparent through an effective communication policy,” he said.
As India’s economy increased sixfold from 1993, central bank practices struggled to keep up, retaining a preference for the 100-page policy documents full of repetitions and ambiguities that disheartened Gokarn. India’s gross domestic product has risen to 10th in the world, from 15th in 1993, reaching $1.84 trillion last year, according to IMF data.
Pressure for overhauling the RBI’s policy making escalated when the global financial crisis deepened in 2008, requiring faster action than afforded by the bank’s four scheduled rate- setting meetings. The Reserve Bank embarked upon a string of changes to rates or lenders’ reserve requirements at 11 unscheduled meetings in a period of about three years.
A total cut of 400 basis points off the cash reserve ratio and 425 basis points off the repurchase rate after Lehman Brothers Holdings Inc. collapsed in September 2008 “didn’t go down well with the market because of the surprise element,” Subbarao said in a speech in New Delhi in January 2011.
‘Unclear and Guarded’
“Earlier the RBI was quite secretive, even the language was very unclear and guarded,” said Tushar Pradhan, who manages about $1 billion as chief investment officer at HSBC Asset Management (India) Pvt. “The RBI has found that more information helps.”
As recently as 2005, monetary-policy reviews were held on a semiannual basis. Central banks worldwide have overhauled their communication strategies since that time, with the U.S. Federal Reserve accelerating publication of minutes of policy meetings and introducing press briefings, and the Reserve Bank of Australia and Banco de Mexico starting releases of minutes.
“The changes are part of the opening up of India’s economy and markets to the world -- a necessary process if India is to meet its aspirations of becoming a global power,” said Bimal Jalan, who led the RBI for almost six years, until September 2003.
Economic Test
The effectiveness of the increased transparency is being tested as Subbarao contends with slowing expansion amid elevated inflation. Prime Minister Manmohan Singh’s government last month lowered its forecast for gross domestic product growth to 6.9 percent for the fiscal year through March, the weakest since 2009, when the world was pulling out of recession.
India’s benchmark wholesale-price index increased 6.95 percent in February from a year before, quickening from 6.55 percent in January. While retaining a bias toward easing policy in future, the central bank said in a March 15 statement that “notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions.’
Finance Minister Pranab Mukherjee said March 18 that he expects “policy rates to be reversed by the central bank in coming months.” Subbarao said in 2011 it’s an established practice for the central bank governor to meet the prime minister and the finance minister informally close to the policy decision.
Gokarn’s Signal
Among the bank’s challenges is managing periodic liquidity shortages in India’s banking system, which have prompted two reductions in the cash-reserve ratio so far this year.
Gokarn told journalists on Jan. 5 that cutting the ratio -- the proportion of deposits lenders must hold in reserve -- would send a “premature” signal of a change in monetary policy. The RBI then lowered it by half a percentage point on Jan. 24, surprising 16 of 21 economists surveyed by Bloomberg who predicted no change.
While “more frequent communication is positive,” the central bank is “talking too much, too often across many different channels, which causes confusion,” said Rajeev Malik, a senior economist at CLSA Asia-Pacific Markets in Singapore.
Interest-rate swaps, a gauge of investors’ expectations for borrowing costs, also show the market isn’t always buying the bank’s rhetoric, according to Aziz at JPMorgan.
Swaps Market
The swaps rose as much as 18 basis points from Jan. 24, to 8.23 percent, even after the Reserve Bank signaled it’s more likely to cut interest rates. In September last year, the swaps fell to 7.6 percent while the central bank was raising rates.
“There have been long periods when the overnight swap spreads have diverged substantially from the RBI’s policy guidance and subsequent policy action,” said Aziz, a former adviser at the Ministry of Finance in New Delhi. “One doesn’t see that happening very often for example in the U.S. or Australia.”
The new openness doesn’t stop at the doors of the central bank’s headquarters in Mumbai. Subbarao and his four deputies visit villages across India to promote financial literacy in a nation where more than two thirds of the 1.2 billion population live on less than $2 a day. The officials also hold town-hall events where investors can question their decisions.
For investor Mahendra Jajoo, the move toward transparency is a reflection of the rapid changes the country has experienced in the past few decades, since Singh as finance minister in the early 1990s helped lead an effort to reduce regulation and barriers to trade and investment.
“My grandfather used to wear dhoti-kurta, my father shifted to wearing trousers and I wear jeans,” said Jajoo, chief investment officer for fixed income at Pramerica Asset Managers Ltd. which oversees $600 million. “I can’t say that my grandfather’s sense of dressing was bad. He was a person of his time. This is what the RBI has done. The current governor has responded very fast to the changing needs of the time.”
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, March 18, 2012
Biggest Budget Miss Since 2009 Hurts Confidence: India Credit
By V. Ramakrishnan, Kartik Goyal and Jeanette Rodrigues - Mar 19, 2012
Indian Finance Minister Pranab Mukherjee missed his budget-deficit target by the most in three years and announced a 12 percent increase in debt sales, sending bond yields to a two-month high.
The shortfall in finances in the year ending March will be 5.9 percent of gross domestic product, 1.3 percentage points more than the goal, Mukherjee said in a March 16 speech in parliament. That was the biggest margin of failure since falling short of the aim by 3.5 percentage points in the 12 months through March 2009, the height of the global financial crisis.
Goldman Sachs Asset Management Ltd. and FIM Asset Management Ltd. said the budget didn’t do enough to restore the credibility of Mukherjee, who pledged to cut the deficit to 5.1 percent of GDP in the 12 months starting April. The yield on 10- year bonds had the biggest weekly increase since January to 8.43 percent last week, compared with 3.55 percent in China, where the 2012 deficit was 1.5 percent of GDP.
“There is nothing in this budget that’s going to make people believe that India is now on a more credible long-term fiscal path,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an interview to Bloomberg UTV on March 16. “Some of the concerns and risks that many people would have had before the budget, stay in place.”
India missed its deficit target three times in the last 10 years. Mukherjee fell short of his revenue goal for the current fiscal year as economic growth slowed and the government met only 35 percent of a program to raise 400 billion rupees ($8 billion) by selling state assets. Asia’s third-largest economy is likely to grow 6.9 percent in the year through March, the least in three years, Mukherjee told parliament.
Rating Constrained
Standard & Poor’s, which ranks India’s bonds at BBB-, the lowest investment grade, said the deficit target for the next fiscal year is “still quite high.” The shortfall has been the “single-most constraining factor” in improving the country’s ratings, Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P, said in an interview on March 16.
The finance ministry plans to sell a record 5.69 trillion rupees of debt the next fiscal year, compared with 5.1 trillion rupees in the 12 months ending March 31. Underwriters had to buy unsold bonds at nine auctions this fiscal year, central bank data show, signaling demand didn’t match supply of notes. The government will set the first-half borrowing target on March 23, Shaktikanta Das, additional secretary in the ministry, said on March 16.
Yields on 10-year (GIND10YR) sovereign debt jumped 14 basis points, 0.14 percentage point, last week after data on the website of the Controller General of Accounts showed India’s budget gap widened to 4.35 trillion rupees in the 10 months through January, exceeding the full-year target of 4.13 trillion rupees. A year earlier, the shortfall was 58.3 percent of the annual goal.
‘Always Overspends’
“I doubt they can achieve the fiscal-deficit target,” Robert Prior-Wandesforde, a Singapore-based director of Asian economics at Credit Suisse Group AG, said in an interview on March 16. “We know from history that the government always overspends relative to its targets.”
The shortfall will reach 5.8 percent of GDP in the year starting April, he predicts. The finance ministry has exceeded its budgeted spending target in eight of the last 10 years, according to government data.
The yield on the 8.79 percent note due November 2021 fell one basis point today after climbing seven basis points on March 16. The extra yield investors seek to hold the notes instead of U.S. Treasuries has rebounded 11 basis points from an eight- month low of 601 reached on March 14, data compiled by Bloomberg show.
Spectrum Sale
Rupee-denominated bonds handed investors a loss of 0.3 percent in March, compared with a 0.2 percent return on yuan notes, according to indexes compiled by HSBC Holdings Plc. India’s revenue collection was 69.5 percent of the full-year target in the 10 months through January, compared with 92.2 percent a year earlier, official data showed this month. The rupee advanced 0.2 percent today to 50.0885 per dollar after declining 0.7 percent last week, according to data compiled by Bloomberg.
India may cut the fiscal deficit more than budgeted, benefiting from the sale of telecom spectrum, according to Gordon Rodrigues, an investment director at HSBC Global Asset Management, a unit of Europe’s biggest bank that oversees $25 billion of Asian fixed-income assets. The spectrum sales may earn India 400 billion rupees in the year starting April 1, R. Gopalan, the top bureaucrat in the department of economic affairs at the Ministry of Finance, said on March 16.
“The budget measures are a move in the right direction in terms of the fiscal deficit,” Hong Kong-based Rodrigues said in an interview on March 16. “There is a possibility the government may actually do better than what they said as proceeds from a 4G spectrum auction and 2G rebidding have not been taken into account. So there’s less implementation risk in this budget.”
Investment Outflows
Still, global investors have cut holdings of Indian debt by $634 million since Feb. 29, pulling money out of the local market for the first time in six months, exchange data show.
The cost of protecting the debt of State Bank of India, seen as a proxy for the sovereign, against non-payment climbed this month. Five-year credit-default swaps on the lender now cost 305 basis points, compared with 300 at the end of February, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value in exchange for the underlying debt should a company fail to adhere to its agreements.
Prime Minister Manmohan Singh’s government is facing hurdles to his policies from its largest coalition partner, Trinamool Congress. The ally’s leader, Mamata Banerjee, opposed a plan to raise passenger rail fares, proposed by her party colleague Railway Minister Dinesh Trivedi this week.
‘No Roadmap’
The government was forced to scrap plans to allow foreign retailers like Wal-Mart Stores Inc. (WMT) into India in December amid opposition from its allies, including Trinamool. Singh shelved proposals to allow foreign direct investment in pensions in December after Trinamool refused support.
“As a foreigner, I am disappointed because there is no roadmap for reforms and no indication of how the most difficult task of curbing the deficit will be met,” Taina Erajuuri, a Helsinki-based money manager at FIM that oversees about 1.1 billion euros ($1.4 billion) of emerging-market assets, said in an interview on March 16. “The government may not be able to meet its deficit target because of deepening global uncertainties.”
The 10-year yield may climb to 8.6 percent in three months, she predicted.
To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net.
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Indian Finance Minister Pranab Mukherjee missed his budget-deficit target by the most in three years and announced a 12 percent increase in debt sales, sending bond yields to a two-month high.
The shortfall in finances in the year ending March will be 5.9 percent of gross domestic product, 1.3 percentage points more than the goal, Mukherjee said in a March 16 speech in parliament. That was the biggest margin of failure since falling short of the aim by 3.5 percentage points in the 12 months through March 2009, the height of the global financial crisis.
Goldman Sachs Asset Management Ltd. and FIM Asset Management Ltd. said the budget didn’t do enough to restore the credibility of Mukherjee, who pledged to cut the deficit to 5.1 percent of GDP in the 12 months starting April. The yield on 10- year bonds had the biggest weekly increase since January to 8.43 percent last week, compared with 3.55 percent in China, where the 2012 deficit was 1.5 percent of GDP.
“There is nothing in this budget that’s going to make people believe that India is now on a more credible long-term fiscal path,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an interview to Bloomberg UTV on March 16. “Some of the concerns and risks that many people would have had before the budget, stay in place.”
India missed its deficit target three times in the last 10 years. Mukherjee fell short of his revenue goal for the current fiscal year as economic growth slowed and the government met only 35 percent of a program to raise 400 billion rupees ($8 billion) by selling state assets. Asia’s third-largest economy is likely to grow 6.9 percent in the year through March, the least in three years, Mukherjee told parliament.
Rating Constrained
Standard & Poor’s, which ranks India’s bonds at BBB-, the lowest investment grade, said the deficit target for the next fiscal year is “still quite high.” The shortfall has been the “single-most constraining factor” in improving the country’s ratings, Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P, said in an interview on March 16.
The finance ministry plans to sell a record 5.69 trillion rupees of debt the next fiscal year, compared with 5.1 trillion rupees in the 12 months ending March 31. Underwriters had to buy unsold bonds at nine auctions this fiscal year, central bank data show, signaling demand didn’t match supply of notes. The government will set the first-half borrowing target on March 23, Shaktikanta Das, additional secretary in the ministry, said on March 16.
Yields on 10-year (GIND10YR) sovereign debt jumped 14 basis points, 0.14 percentage point, last week after data on the website of the Controller General of Accounts showed India’s budget gap widened to 4.35 trillion rupees in the 10 months through January, exceeding the full-year target of 4.13 trillion rupees. A year earlier, the shortfall was 58.3 percent of the annual goal.
‘Always Overspends’
“I doubt they can achieve the fiscal-deficit target,” Robert Prior-Wandesforde, a Singapore-based director of Asian economics at Credit Suisse Group AG, said in an interview on March 16. “We know from history that the government always overspends relative to its targets.”
The shortfall will reach 5.8 percent of GDP in the year starting April, he predicts. The finance ministry has exceeded its budgeted spending target in eight of the last 10 years, according to government data.
The yield on the 8.79 percent note due November 2021 fell one basis point today after climbing seven basis points on March 16. The extra yield investors seek to hold the notes instead of U.S. Treasuries has rebounded 11 basis points from an eight- month low of 601 reached on March 14, data compiled by Bloomberg show.
Spectrum Sale
Rupee-denominated bonds handed investors a loss of 0.3 percent in March, compared with a 0.2 percent return on yuan notes, according to indexes compiled by HSBC Holdings Plc. India’s revenue collection was 69.5 percent of the full-year target in the 10 months through January, compared with 92.2 percent a year earlier, official data showed this month. The rupee advanced 0.2 percent today to 50.0885 per dollar after declining 0.7 percent last week, according to data compiled by Bloomberg.
India may cut the fiscal deficit more than budgeted, benefiting from the sale of telecom spectrum, according to Gordon Rodrigues, an investment director at HSBC Global Asset Management, a unit of Europe’s biggest bank that oversees $25 billion of Asian fixed-income assets. The spectrum sales may earn India 400 billion rupees in the year starting April 1, R. Gopalan, the top bureaucrat in the department of economic affairs at the Ministry of Finance, said on March 16.
“The budget measures are a move in the right direction in terms of the fiscal deficit,” Hong Kong-based Rodrigues said in an interview on March 16. “There is a possibility the government may actually do better than what they said as proceeds from a 4G spectrum auction and 2G rebidding have not been taken into account. So there’s less implementation risk in this budget.”
Investment Outflows
Still, global investors have cut holdings of Indian debt by $634 million since Feb. 29, pulling money out of the local market for the first time in six months, exchange data show.
The cost of protecting the debt of State Bank of India, seen as a proxy for the sovereign, against non-payment climbed this month. Five-year credit-default swaps on the lender now cost 305 basis points, compared with 300 at the end of February, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value in exchange for the underlying debt should a company fail to adhere to its agreements.
Prime Minister Manmohan Singh’s government is facing hurdles to his policies from its largest coalition partner, Trinamool Congress. The ally’s leader, Mamata Banerjee, opposed a plan to raise passenger rail fares, proposed by her party colleague Railway Minister Dinesh Trivedi this week.
‘No Roadmap’
The government was forced to scrap plans to allow foreign retailers like Wal-Mart Stores Inc. (WMT) into India in December amid opposition from its allies, including Trinamool. Singh shelved proposals to allow foreign direct investment in pensions in December after Trinamool refused support.
“As a foreigner, I am disappointed because there is no roadmap for reforms and no indication of how the most difficult task of curbing the deficit will be met,” Taina Erajuuri, a Helsinki-based money manager at FIM that oversees about 1.1 billion euros ($1.4 billion) of emerging-market assets, said in an interview on March 16. “The government may not be able to meet its deficit target because of deepening global uncertainties.”
The 10-year yield may climb to 8.6 percent in three months, she predicted.
To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net.
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