Saturday, April 21, 2012
Reliance Net Slumps Most in 3 Years as Gasoline Demand Declines By Rakteem Katakey - Apr 20, 2012
Reliance Industries Ltd. (RIL), India’s biggest company by market value, posted the sharpest decline in quarterly profit in more than three years after refining margins narrowed amid slowing global economic growth.
Net income fell 21 percent to 42.4 billion rupees ($814 million), or 12.9 rupees a share, in the three months ended March 31 from 53.8 billion rupees, or 16.4 rupees, a year earlier, the Mumbai-based explorer and refiner said in a stock exchange filing yesterday. The median estimate of 30 analysts compiled by Bloomberg was a profit of 42.8 billion rupees.
A slowdown in China’s economy and Europe’s prolonged debt crisis cut gasoline and diesel demand, adding to the drag on Reliance’s earnings from lower production at India’s biggest natural gas deposit. Reliance, controlled by billionaire Mukesh Ambani, has gained 5.5 percent this year, trailing the 12 percent increase in the benchmark BSE India Sensitive Index.
“Lower gas output and refining margins have pulled down profit again,” said Kamlesh Kotak, vice president of research at Asian Markets Securities Pvt. in Mumbai. “Investors will be looking closely at when they will increase gas output. That holds the key.”
The shares fell 1.5 percent to 730.85 rupees in Mumbai yesterday, giving Reliance a market value of $46 billion. The earnings were announced after trading closed.
The consensus analyst rating for Reliance is the most bearish since January 2011, according to data compiled by Bloomberg. JPMorgan Chase & Co. downgraded the stock to underweight this month, Standard Chartered Plc cut it to “in- line” from outperform last month and Royal Bank of Scotland Group Plc reduced to hold from buy in February.
Refining Margin
The company reported a profit of $7.6 for every barrel of crude it processed into fuels in the quarter, compared with $9.2 a barrel a year earlier, according to the statement.
Reliance operates the world’s largest refining complex, consisting of two adjacent plants that can turn a combined 1.24 million barrels of crude into fuels daily. Crude-processing accounts for almost 65 percent of its revenue.
The facility at Jamnagar in the western state of Gujarat has the capability to turn cheap, low-grade crude into high- value fuels. A narrowing difference between lighter crude oil, which is expensive, and heavier varieties that are cheaper, hurts Reliance’s earnings.
Brent crude in London trading gained 11 percent this year. The June contract $1.16, or 1 percent, to $119.16 a barrel as of 10:57 a.m. New York time yesterday.
Light, Heavy Oils
The average difference between light Brent crude oil and heavier Dubai oil was $2.23 a barrel in the quarter ended March 31, compared with $4.93 a year earlier, according to data compiled by Bloomberg. The spread was $2.62 a barrel in the preceding quarter.
Profit from turning Dubai crude into diesel in Singapore, a regional benchmark, averaged $16.81 a barrel in the quarter, compared with $18.49 a barrel a year earlier and $18.22 in the preceding quarter, according to data from PVM Oil Associates Ltd., a London-based crude and refined-products broker. It fell to a 15-month low of $14.45 a barrel on April 13.
Reliance’s refining profit was also hurt by lower production because of a shutdown in February, Credit Suisse Group AG analyst Sanjay Mookim said in an April 17 report. The company shut a crude distillation unit at the newer 580,000 barrel-a-day facility for three weeks in the quarter.
Reliance had cash and equivalents of 702.5 billion rupees as of March 31, according to the statement, boosted by the sale of stakes in oil and gas fields to BP Plc. (BP/) Total debt was 682.6 billion rupees.
Gas Field
The company sold a 30 percent stake in 21 fields, including the KG-D6 deepwater block in the Bay of Bengal, to London-based BP last year for $7.2 billion.
Reliance’s gas output from KG-D6, the nation’s biggest, fell 23.5 percent in the year ended March 31, according to the statement. Daily output, which peaked at about 60 million cubic meters in June 2010, has dropped because of technical difficulties in the reservoir, Reliance said.
“Operationally, they aren’t doing well at all,” said K. Ravichandran, the Chennai-based co-head of corporate ratings at ICRA Ltd. (ICRA), the local affiliate of Moody’s Investors Service. “The positive thing is they have more cash than debt and that means on the debt side, they won’t have any problems.”
The Chinese economy expanded 8.1 percent in the first quarter this year, the slowest pace since the second quarter of 2009. The government in March cut the growth target to 7.5 percent for this year, after keeping it at 8 percent in the previous seven years.
Oil prices have moved for more than two years on developments in the euro region’s debt crisis and its projected impact on the continent’s energy demand. The crisis that began in Greece has spread to Ireland, Portugal, Italy and Spain.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Friday, April 20, 2012
Unilever Losing to Fakes Selling to Illiterate Indians: Retail
By Malavika Sharma - Apr 19, 2012
Sunita Kumar, a factory worker’s wife in the Indian village of Hazratpur, has added talcum powder and face cream to her little make-up box for weddings and festivals. She doesn’t know they are fake.
Sitting cross-legged on the rough cement floor of her home, head covered by a red and green sari, Kumar said she’s illiterate. She can’t read the label on her tube of Fairy Love lotion, an imitation of a popular brand called Fair & Lovely from Unilever (ULVR)’s Indian subsidiary.
The village of Hazratpur, where open drains flow near poorly paved roads and informal retailers sell under trees, is a symbol of rural India, where high illiteracy allows imitations to siphon sales from companies such as Unilever and its Indian competitor Emami Ltd. (HMN) About a third of India’s villagers can’t read even though rising incomes are expected to boost rural consumer goods sales tenfold to $100 billion by 2025.
“It’s a huge loss to the companies in the sense that they spend so much of money building these brands,” said Saroj Kumar Mohanta, a partner at MART, a consulting firm in New Delhi.
As rural shoppers spend more, companies such as Hindustan Unilever Ltd. (HUVR), the Indian subsidiary of the London- and Rotterdam-based company, are marketing more facewash, conditioners and lipstick in villages. Low familiarity with brand names and illiteracy are allowing fakes to get in the way.
Between 10 percent to 30 percent of the cosmetics, toiletries and packaged food products sold in India are fake, the Federation of Indian Chambers of Commerce and Industry estimates.
High Illiteracy
Winning over rural India is important to Unilever, Procter & Gamble Co. (PG) and Emami because about 69 percent of India’s 1.2 billion people live in villages. Hazratpur, population 2,500, home to farmers, electricians and masons in the North Indian state of Uttar Pradesh, shows how illiteracy is hurting big brands even as rural shoppers become more aspirational in their spending.
Kumar, who veils her face when men pass by and doesn’t go to the market herself, relies on her husband, Satish, to buy her beauty products. Satish, who has never been to school and can’t read, said he intended to get her the Unilever skin cream brand and didn’t know he was being sold a fake.
His wife’s vanity case included a misspelled version of Kolkata-based Emami’s BoroPlus powder, another copy the factory worker wasn’t aware of. Satish, who earns 5,500 rupees ($107) a month from the factory and some farming on the side, said he likes “good company” brands and doesn’t mind paying up for them. “Even if it is more expensive, I get a good product,” he said of Unilever and its branded competitors.
Increase in Lookalikes
Imitation products “impact revenue of genuine companies,” Hindustan Unilever said in an e-mailed statement. The company, which has seen an increase in lookalikes of its leading brands, conducts market surveillance and provides information to authorities, helping them seize fake goods valued at 560 million rupees in 2011, according to the statement.
Hindustan Unilever, one of the earliest multinationals to enter India in 1888, dominated the beauty and personal-care market with a 33 percent share in 2010, according to Euromonitor International figures. Colgate-Palmolive Co. (CL) had a 6.8 percent share, compared with 5.4 percent for Procter & Gamble, 4.9 percent for Dabur India Ltd. (DABUR) and 1.5 percent for Emami, the data show.
Informal Manufacturers
Rural shoppers like brands because of advertising they see on television, said Ankur Bisen, associate director of retail at New Delhi-based consultancy Technopak. A fake version of Hindustan Unilever’s Fair & Lovely brand can get sold despite that marketing because of the illiteracy of the rural consumer, Bisen said.
About 69 percent of the rural population is literate, according to the Indian government’s census.
MART’s Mohanta said he has seen fake toothpastes sold under the name of “Colagate” and imitation versions of herbal tablets made by Dabur. Small, informal manufacturers and sellers usually create the fake goods, he said. “Even if they close down by one name, they open up by another,” Mohanta said.
Mom-and-pop stores have an incentive to sell fake goods. The counterfeits are made at a lower cost even though they sell at the same price as the regular brand, offering retailers and the manufacturer selling fakes higher profit, according to Anil Rajput, chairman of the FICCI’s Committee on Anti-Smuggling and Counterfeiting.
‘Major Concern’
On a recent Friday afternoon in Hazratpur, women crowded around a small temporary shop set up under a tree, where a man laid out merchandise that included creams, earrings, hairclips and lipsticks on a faded blue sheet.
The salesman, who wouldn’t answer questions, offered his customers “Voroline,” an imitation of Unilever’s Vaseline brand. Also laid out on the sheet were tubes of “Fair & Gomarks” cream that, like Sunita Kumar’s tube, is an imitation of Fair & Lovely.
Dabur said it has helped Indian authorities conduct raids on makers of fake products in several parts of the country.
Counterfeits in India are a “major concern” for the consumer-goods industry, Emami said in a statement. The company keeps innovating on packaging and tries to educate retailers on identifying fakes, it said.
Of course, not all rural shoppers are buying fakes, and increased spending in villages is helping to drive up corporate profits. Rural demand for so-called fast-moving consumer goods will grow to $100 billion in 2025 from $9 billion in 2010, according to Nielsen Co.
Rising Affluence
Hindustan Unilever’s net profit, including that of units, is estimated to rise 12 percent to 25.8 billion rupees in the year ended March 31, according to the median of 16 analyst estimates compiled by Bloomberg. The company will announce its financial results on May 1.
To reach more villages, the company started hiring rural women in 2000 as brand ambassadors who travel to sell directly to nearby villages. Its spending on advertising and promotions rose 16 percent to 28 billion rupees in the 12 months ended March 2011.
Some effects of rising incomes can be seen in Hazratpur, where large, modern houses stand next to tiny, dingy homes. One family proudly pointed to the washing machine for which they use Unilever’s Surf detergent. Kumar, the factory worker’s wife, wore maroon lipstick even as she covered her face when men passed by.
“The generation that is now coming into the consuming class no longer sees austerity as a virtue,” Hindustan Unilever Chief Executive Officer Nitin Paranjpe said in a February interview. “Self indulgence is all right.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunita Kumar, a factory worker’s wife in the Indian village of Hazratpur, has added talcum powder and face cream to her little make-up box for weddings and festivals. She doesn’t know they are fake.
Sitting cross-legged on the rough cement floor of her home, head covered by a red and green sari, Kumar said she’s illiterate. She can’t read the label on her tube of Fairy Love lotion, an imitation of a popular brand called Fair & Lovely from Unilever (ULVR)’s Indian subsidiary.
The village of Hazratpur, where open drains flow near poorly paved roads and informal retailers sell under trees, is a symbol of rural India, where high illiteracy allows imitations to siphon sales from companies such as Unilever and its Indian competitor Emami Ltd. (HMN) About a third of India’s villagers can’t read even though rising incomes are expected to boost rural consumer goods sales tenfold to $100 billion by 2025.
“It’s a huge loss to the companies in the sense that they spend so much of money building these brands,” said Saroj Kumar Mohanta, a partner at MART, a consulting firm in New Delhi.
As rural shoppers spend more, companies such as Hindustan Unilever Ltd. (HUVR), the Indian subsidiary of the London- and Rotterdam-based company, are marketing more facewash, conditioners and lipstick in villages. Low familiarity with brand names and illiteracy are allowing fakes to get in the way.
Between 10 percent to 30 percent of the cosmetics, toiletries and packaged food products sold in India are fake, the Federation of Indian Chambers of Commerce and Industry estimates.
High Illiteracy
Winning over rural India is important to Unilever, Procter & Gamble Co. (PG) and Emami because about 69 percent of India’s 1.2 billion people live in villages. Hazratpur, population 2,500, home to farmers, electricians and masons in the North Indian state of Uttar Pradesh, shows how illiteracy is hurting big brands even as rural shoppers become more aspirational in their spending.
Kumar, who veils her face when men pass by and doesn’t go to the market herself, relies on her husband, Satish, to buy her beauty products. Satish, who has never been to school and can’t read, said he intended to get her the Unilever skin cream brand and didn’t know he was being sold a fake.
His wife’s vanity case included a misspelled version of Kolkata-based Emami’s BoroPlus powder, another copy the factory worker wasn’t aware of. Satish, who earns 5,500 rupees ($107) a month from the factory and some farming on the side, said he likes “good company” brands and doesn’t mind paying up for them. “Even if it is more expensive, I get a good product,” he said of Unilever and its branded competitors.
Increase in Lookalikes
Imitation products “impact revenue of genuine companies,” Hindustan Unilever said in an e-mailed statement. The company, which has seen an increase in lookalikes of its leading brands, conducts market surveillance and provides information to authorities, helping them seize fake goods valued at 560 million rupees in 2011, according to the statement.
Hindustan Unilever, one of the earliest multinationals to enter India in 1888, dominated the beauty and personal-care market with a 33 percent share in 2010, according to Euromonitor International figures. Colgate-Palmolive Co. (CL) had a 6.8 percent share, compared with 5.4 percent for Procter & Gamble, 4.9 percent for Dabur India Ltd. (DABUR) and 1.5 percent for Emami, the data show.
Informal Manufacturers
Rural shoppers like brands because of advertising they see on television, said Ankur Bisen, associate director of retail at New Delhi-based consultancy Technopak. A fake version of Hindustan Unilever’s Fair & Lovely brand can get sold despite that marketing because of the illiteracy of the rural consumer, Bisen said.
About 69 percent of the rural population is literate, according to the Indian government’s census.
MART’s Mohanta said he has seen fake toothpastes sold under the name of “Colagate” and imitation versions of herbal tablets made by Dabur. Small, informal manufacturers and sellers usually create the fake goods, he said. “Even if they close down by one name, they open up by another,” Mohanta said.
Mom-and-pop stores have an incentive to sell fake goods. The counterfeits are made at a lower cost even though they sell at the same price as the regular brand, offering retailers and the manufacturer selling fakes higher profit, according to Anil Rajput, chairman of the FICCI’s Committee on Anti-Smuggling and Counterfeiting.
‘Major Concern’
On a recent Friday afternoon in Hazratpur, women crowded around a small temporary shop set up under a tree, where a man laid out merchandise that included creams, earrings, hairclips and lipsticks on a faded blue sheet.
The salesman, who wouldn’t answer questions, offered his customers “Voroline,” an imitation of Unilever’s Vaseline brand. Also laid out on the sheet were tubes of “Fair & Gomarks” cream that, like Sunita Kumar’s tube, is an imitation of Fair & Lovely.
Dabur said it has helped Indian authorities conduct raids on makers of fake products in several parts of the country.
Counterfeits in India are a “major concern” for the consumer-goods industry, Emami said in a statement. The company keeps innovating on packaging and tries to educate retailers on identifying fakes, it said.
Of course, not all rural shoppers are buying fakes, and increased spending in villages is helping to drive up corporate profits. Rural demand for so-called fast-moving consumer goods will grow to $100 billion in 2025 from $9 billion in 2010, according to Nielsen Co.
Rising Affluence
Hindustan Unilever’s net profit, including that of units, is estimated to rise 12 percent to 25.8 billion rupees in the year ended March 31, according to the median of 16 analyst estimates compiled by Bloomberg. The company will announce its financial results on May 1.
To reach more villages, the company started hiring rural women in 2000 as brand ambassadors who travel to sell directly to nearby villages. Its spending on advertising and promotions rose 16 percent to 28 billion rupees in the 12 months ended March 2011.
Some effects of rising incomes can be seen in Hazratpur, where large, modern houses stand next to tiny, dingy homes. One family proudly pointed to the washing machine for which they use Unilever’s Surf detergent. Kumar, the factory worker’s wife, wore maroon lipstick even as she covered her face when men passed by.
“The generation that is now coming into the consuming class no longer sees austerity as a virtue,” Hindustan Unilever Chief Executive Officer Nitin Paranjpe said in a February interview. “Self indulgence is all right.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, April 19, 2012
First Dim Sum by Non-Bank Borrower Slashes Costs By Karthikeyan Sundaram and Rachel Evans - Apr 19, 2012
IL&FS Transportation Networks Ltd. (ILFT) may pare borrowing costs by 40 percent selling the first Dim Sum bond from a non-financial Indian company as yields on rupee debt fail to mirror this week’s cut in interest rates.
The toll-road operator is marketing the equivalent of about $100 million of three-year notes at 5.75 percent to refinance a loan raised for the Chongqing Yuhe expressway in China, Danny Samuel, head of structured finance, said by phone yesterday from Mumbai. Yuan-denominated debt sold in Hong Kong pay an average of 4.91 percent, while top-rated three-year rupee bonds of non- bank Indian borrowers yield 9.45 percent. The 1.5 billion rupees ($29 million) of 2014 securities of IL&FS’s parent company yield 9.53 percent, according to price indications compiled by Bloomberg.
Yields on India’s benchmark 10-year government notes are the highest of Asia’s 13 biggest markets, and IL&FS and Power Finance Corp., the nation’s biggest issuer last year, are among companies looking to raise money overseas. While the repurchase rate was unexpectedly lowered half a percentage point this week to 8 percent, Reserve Bank of India Governor Duvvuri Subbarao has indicated costs may need to rise to tame prices.
“The company probably came to the Dim Sum market because of the lower borrowing costs as India’s yields are high due to inflation,” James Su, who oversees two Dim Sum bond funds of $40 million at SinoPac Asset Management (Asia) Ltd. in Hong Kong, said in a phone interview yesterday. “Dim Sum bonds can also get them exposure to new groups of investors.”
Cheaper Funding
Part of the funds raised will be used to refinance a loan that IL&FS Transportation took out to acquire 49 percent of the Chinese project, Samuel said. The four-lane 58.7 kilometer (36.5 miles) highway in Chongqing cost 3.5 billion yuan ($555 million), according to the bond prospectus. The Indian company funded the acquisition through offshore borrowings of about $140 million, the document showed.
“It’s a developing market for one, and it’s at times cheaper than other markets,” Samuel said.
The notes may be ranked BBB-, the lowest investment grade, Fitch Ratings said on a statement on April 13.
Alstom SA, the BBB rated French maker of trains and generators, paid a 4.25 percent coupon on its yuan bonds last month. The yield has since fallen to 4.06 percent, according to SinoPac Securities Asia Ltd.
China is encouraging sales of Dim Sum bonds in its push to make the yuan a global funding tool. Chinese and Hong Kong companies have sold more than 80 percent of Dim Sum bonds to date, quadrupling issuance to 151 billion yuan in 2011.
Average Dim Sum bond yields have fallen from 5.53 percent at the start of the year, according to Bank of America Merrill Lynch indexes.
Lotte, Caterpillar
Global companies are increasing issuance of such securities, with Lotte Shopping Co., America Movil SAB de CV and Caterpillar Inc. leading 56.3 billion yuan of sales this year. Foreign issuers may sell as much as 50 percent of the bonds in 2012, Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole SA in Hong Kong said by phone yesterday.
“IL&FS is following in the footsteps of other foreign companies that have been selling Dim Sum bonds recently,” Kowalczyk said. “It broadens the pool of issuers and by doing so makes the market more attractive.”
IDBI Bank Ltd. was the first Indian issuer to sell Dim Sum bonds, raising 650 million yuan in November offering 4.5 percent notes due 2014. ICICI Bank Ltd., the country’s second-biggest lender, issued 210 million yuan of 4.625 percent notes maturing in 2015 last month.
Rupee Yields
IL&FS Transportation’s parent company, Infrastructure Leasing & Financial Service Ltd., provides financing for road and power projects.
Elsewhere in the markets, the yield on India’s benchmark 8.79 percent sovereign notes due November 2021 climbed six basis points to 8.41 percent. The rupee declined 0.7 percent to 52.145 per dollar, paring its gains this year to 1.8 percent.
The extra yield on India’s 10-year notes over similar-dated U.S. Treasuries widened to 644 basis points from a seven-month low of 601 reached on March 14, according to data compiled by Bloomberg. One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, added one basis point to 7.91 percent, data compiled by Bloomberg show.
Bond Risk
The cost of protecting the debt of State Bank of India, seen as a proxy for the sovereign, against non-payment climbed in the past month. Five-year credit-default swaps on the lender rose 38 basis points to 339, 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.
Three-year notes of non-financial companies rated AAA by Crisil Ltd., the Indian unit of Standard & Poor’s, fell seven basis points to 9.44 percent on April 17, after the rate cut. Yields have dropped from 9.67 percent since the end of last month, the data show.
IL&FS’s interest and finance charges have more than doubled over the past three years, rising from 1.74 billion rupees for the financial year ended March 2009 to 4.98 billion rupees for the year ending March 2011, the bond’s marketing materials show. The company had 93.9 billion rupees of borrowings as of Dec. 31, the circular shows.
Deutsche Bank AG, Royal Bank of Scotland Group Plc and UBS AG are managing the sale for Mumbai-based IL&FS, according to a stock exchange filing on April 13. Export-Import Bank of India, a policy lender wholly-owned by the Indian government, will guarantee up to $114 million in connection to the sale.
Inflation Pressures
Power Finance, the biggest issuer last year, is considering selling its first bonds overseas since 1999 “supposing international markets offer cheaper rates,” Chairman Satnam Singh said in an interview April 16.
Subbarao lowered the benchmark rate to support economic growth, which was 6.1 percent in the three months to December, the slowest pace in more than two years. The central bank Governor said in an interview with Bloomberg UTV April 18 that the chances of a further lowering of rates are small. “The probability of a hike will depend on inflation and demand pressures resurging,” he said.
“Investors are going to sell assets of those countries that are not aiming to reduce inflation, which is not the case in India,” Tadashi Tsukaguchi, a senior fund manager at Mizuho Securities Co. which manages more than $100 million in Tokyo, said in a phone interview yesterday. “There is chance U.S. growth will remain moderate in the near term and therefore we believe companies like IL&FS have made choice of Dim Sum over the dollar.”
To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The toll-road operator is marketing the equivalent of about $100 million of three-year notes at 5.75 percent to refinance a loan raised for the Chongqing Yuhe expressway in China, Danny Samuel, head of structured finance, said by phone yesterday from Mumbai. Yuan-denominated debt sold in Hong Kong pay an average of 4.91 percent, while top-rated three-year rupee bonds of non- bank Indian borrowers yield 9.45 percent. The 1.5 billion rupees ($29 million) of 2014 securities of IL&FS’s parent company yield 9.53 percent, according to price indications compiled by Bloomberg.
Yields on India’s benchmark 10-year government notes are the highest of Asia’s 13 biggest markets, and IL&FS and Power Finance Corp., the nation’s biggest issuer last year, are among companies looking to raise money overseas. While the repurchase rate was unexpectedly lowered half a percentage point this week to 8 percent, Reserve Bank of India Governor Duvvuri Subbarao has indicated costs may need to rise to tame prices.
“The company probably came to the Dim Sum market because of the lower borrowing costs as India’s yields are high due to inflation,” James Su, who oversees two Dim Sum bond funds of $40 million at SinoPac Asset Management (Asia) Ltd. in Hong Kong, said in a phone interview yesterday. “Dim Sum bonds can also get them exposure to new groups of investors.”
Cheaper Funding
Part of the funds raised will be used to refinance a loan that IL&FS Transportation took out to acquire 49 percent of the Chinese project, Samuel said. The four-lane 58.7 kilometer (36.5 miles) highway in Chongqing cost 3.5 billion yuan ($555 million), according to the bond prospectus. The Indian company funded the acquisition through offshore borrowings of about $140 million, the document showed.
“It’s a developing market for one, and it’s at times cheaper than other markets,” Samuel said.
The notes may be ranked BBB-, the lowest investment grade, Fitch Ratings said on a statement on April 13.
Alstom SA, the BBB rated French maker of trains and generators, paid a 4.25 percent coupon on its yuan bonds last month. The yield has since fallen to 4.06 percent, according to SinoPac Securities Asia Ltd.
China is encouraging sales of Dim Sum bonds in its push to make the yuan a global funding tool. Chinese and Hong Kong companies have sold more than 80 percent of Dim Sum bonds to date, quadrupling issuance to 151 billion yuan in 2011.
Average Dim Sum bond yields have fallen from 5.53 percent at the start of the year, according to Bank of America Merrill Lynch indexes.
Lotte, Caterpillar
Global companies are increasing issuance of such securities, with Lotte Shopping Co., America Movil SAB de CV and Caterpillar Inc. leading 56.3 billion yuan of sales this year. Foreign issuers may sell as much as 50 percent of the bonds in 2012, Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole SA in Hong Kong said by phone yesterday.
“IL&FS is following in the footsteps of other foreign companies that have been selling Dim Sum bonds recently,” Kowalczyk said. “It broadens the pool of issuers and by doing so makes the market more attractive.”
IDBI Bank Ltd. was the first Indian issuer to sell Dim Sum bonds, raising 650 million yuan in November offering 4.5 percent notes due 2014. ICICI Bank Ltd., the country’s second-biggest lender, issued 210 million yuan of 4.625 percent notes maturing in 2015 last month.
Rupee Yields
IL&FS Transportation’s parent company, Infrastructure Leasing & Financial Service Ltd., provides financing for road and power projects.
Elsewhere in the markets, the yield on India’s benchmark 8.79 percent sovereign notes due November 2021 climbed six basis points to 8.41 percent. The rupee declined 0.7 percent to 52.145 per dollar, paring its gains this year to 1.8 percent.
The extra yield on India’s 10-year notes over similar-dated U.S. Treasuries widened to 644 basis points from a seven-month low of 601 reached on March 14, according to data compiled by Bloomberg. One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, added one basis point to 7.91 percent, data compiled by Bloomberg show.
Bond Risk
The cost of protecting the debt of State Bank of India, seen as a proxy for the sovereign, against non-payment climbed in the past month. Five-year credit-default swaps on the lender rose 38 basis points to 339, 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.
Three-year notes of non-financial companies rated AAA by Crisil Ltd., the Indian unit of Standard & Poor’s, fell seven basis points to 9.44 percent on April 17, after the rate cut. Yields have dropped from 9.67 percent since the end of last month, the data show.
IL&FS’s interest and finance charges have more than doubled over the past three years, rising from 1.74 billion rupees for the financial year ended March 2009 to 4.98 billion rupees for the year ending March 2011, the bond’s marketing materials show. The company had 93.9 billion rupees of borrowings as of Dec. 31, the circular shows.
Deutsche Bank AG, Royal Bank of Scotland Group Plc and UBS AG are managing the sale for Mumbai-based IL&FS, according to a stock exchange filing on April 13. Export-Import Bank of India, a policy lender wholly-owned by the Indian government, will guarantee up to $114 million in connection to the sale.
Inflation Pressures
Power Finance, the biggest issuer last year, is considering selling its first bonds overseas since 1999 “supposing international markets offer cheaper rates,” Chairman Satnam Singh said in an interview April 16.
Subbarao lowered the benchmark rate to support economic growth, which was 6.1 percent in the three months to December, the slowest pace in more than two years. The central bank Governor said in an interview with Bloomberg UTV April 18 that the chances of a further lowering of rates are small. “The probability of a hike will depend on inflation and demand pressures resurging,” he said.
“Investors are going to sell assets of those countries that are not aiming to reduce inflation, which is not the case in India,” Tadashi Tsukaguchi, a senior fund manager at Mizuho Securities Co. which manages more than $100 million in Tokyo, said in a phone interview yesterday. “There is chance U.S. growth will remain moderate in the near term and therefore we believe companies like IL&FS have made choice of Dim Sum over the dollar.”
To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, April 18, 2012
Vodafone Left as Sole Bidder for C&W After Tata Drops Offer Plan
By Jonathan Browning - Apr 18, 2012
Vodafone Group Plc (VOD) is left as the only potential bidder for Cable & Wireless Worldwide Plc (CW/) after Tata Communications Ltd. (TCOM) failed to agree on a price and decided against making an offer for the U.K. network operator.
Talks about a potential bid from Vodafone are continuing and the British mobile-phone operator has until 5 p.m. today to make a firm offer, Cable & Wireless said yesterday. The stock has risen 88 percent since Vodafone publicly expressed interest on Feb. 13, boosting Cable & Wireless’ value to 1 billion pounds ($1.6 billion).
“It leaves Vodafone in a pretty strong position,” said Stewart Gordon, an analyst at Berenberg Bank in London. “It’s lowered the prospect of a knockout bid but there’s clearly still some serious negotiations to be had.”
Vodafone is pursuing a European fixed-line acquisition for the first time since 2010, when it ended talks with Kabel Deutschland Holding AG (KD8), Germany’s largest cable-operator. The Newbury, England-based company may use Cable & Wireless’s fiber network to boost its fixed-line system in the U.K. and relieve the strain of surging data traffic. A Vodafone spokesman declined to comment yesterday.
“This is the benefit of Vodafone having waited up to the end of the deadline to see what Tata does, with them left as the sole public bidder,” said Nick Brown, an analyst at Espirito Santo Investment Bank. “It’s paid off for them to wait if that’s their intention.”
Pressure on Shares
Tata Communications had won deadline extensions, alongside Vodafone, for a potential bid and had secured $2 billion to help finance an offer. The company “has been unable to reach agreement with C&W on an offer price and therefore confirms that it does not intend to make an offer,” it said in a separate statement yesterday.
Brown predicted Cable & Wireless shares will drop in London trading today, unless Vodafone decide to announce a bid beforehand. Yesterday, Cable & Wireless shares gained 2.6 percent to 37.05 pence.
In the last two years, Cable Wireless lost 60 percent of its market value. In November, Cable & Wireless suspended future dividend payments as sales fell in its traditional voice network and it announced that John Pluthero was stepping down as CEO after less than six months at the helm. The operator said Feb. 16 that profitability in its voice business was declining as contracts were renegotiated.
Data Push
The U.K. is Vodafone’s only major European market in which it lacks a fixed-line network. The operator, which said in February that data revenue climbed 13 percent in the U.K. in the last quarter of 2011 as more customers bought smartphones, is seeking to shift traffic onto fixed lines to reduce the burden on its wireless network.
For Tata Communications, there was little headroom within its funding, Gordon said. “It always struck me that a bid of about 40 pence was going to be a push.”
Purchasing Cable & Wireless would have complemented Tata Communications’ operations in emerging markets including South Africa (SBK), the Middle East and Asia. Tata Group, which controls the telecommunications company, has acquired companies in the U.K. including Jaguar Land Rover Plc and Corus Group Plc.
To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Vodafone Group Plc (VOD) is left as the only potential bidder for Cable & Wireless Worldwide Plc (CW/) after Tata Communications Ltd. (TCOM) failed to agree on a price and decided against making an offer for the U.K. network operator.
Talks about a potential bid from Vodafone are continuing and the British mobile-phone operator has until 5 p.m. today to make a firm offer, Cable & Wireless said yesterday. The stock has risen 88 percent since Vodafone publicly expressed interest on Feb. 13, boosting Cable & Wireless’ value to 1 billion pounds ($1.6 billion).
“It leaves Vodafone in a pretty strong position,” said Stewart Gordon, an analyst at Berenberg Bank in London. “It’s lowered the prospect of a knockout bid but there’s clearly still some serious negotiations to be had.”
Vodafone is pursuing a European fixed-line acquisition for the first time since 2010, when it ended talks with Kabel Deutschland Holding AG (KD8), Germany’s largest cable-operator. The Newbury, England-based company may use Cable & Wireless’s fiber network to boost its fixed-line system in the U.K. and relieve the strain of surging data traffic. A Vodafone spokesman declined to comment yesterday.
“This is the benefit of Vodafone having waited up to the end of the deadline to see what Tata does, with them left as the sole public bidder,” said Nick Brown, an analyst at Espirito Santo Investment Bank. “It’s paid off for them to wait if that’s their intention.”
Pressure on Shares
Tata Communications had won deadline extensions, alongside Vodafone, for a potential bid and had secured $2 billion to help finance an offer. The company “has been unable to reach agreement with C&W on an offer price and therefore confirms that it does not intend to make an offer,” it said in a separate statement yesterday.
Brown predicted Cable & Wireless shares will drop in London trading today, unless Vodafone decide to announce a bid beforehand. Yesterday, Cable & Wireless shares gained 2.6 percent to 37.05 pence.
In the last two years, Cable Wireless lost 60 percent of its market value. In November, Cable & Wireless suspended future dividend payments as sales fell in its traditional voice network and it announced that John Pluthero was stepping down as CEO after less than six months at the helm. The operator said Feb. 16 that profitability in its voice business was declining as contracts were renegotiated.
Data Push
The U.K. is Vodafone’s only major European market in which it lacks a fixed-line network. The operator, which said in February that data revenue climbed 13 percent in the U.K. in the last quarter of 2011 as more customers bought smartphones, is seeking to shift traffic onto fixed lines to reduce the burden on its wireless network.
For Tata Communications, there was little headroom within its funding, Gordon said. “It always struck me that a bid of about 40 pence was going to be a push.”
Purchasing Cable & Wireless would have complemented Tata Communications’ operations in emerging markets including South Africa (SBK), the Middle East and Asia. Tata Group, which controls the telecommunications company, has acquired companies in the U.K. including Jaguar Land Rover Plc and Corus Group Plc.
To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, April 16, 2012
RBI Signals Fastest BRIC Inflation Constrains Rate Cuts
By Kartik Goyal - Apr 17, 2012
India’s central bank said price pressures must be restrained even as policy needs to shift to help growth, signaling that elevated inflation will limit the magnitude of interest-rate cuts forecast to begin today.
“Monetary policy has to recognize the need for keeping inflation expectations anchored in an environment of significant upside risks to inflation, while shifting the balance of policy to arrest the deceleration in growth momentum,” the Reserve Bank of India said yesterday in a review of the economy ahead of its rate decision in Mumbai due at 11 a.m. today.
Costlier credit, policy gridlock and a weaker global recovery have sapped India’s expansion, spurring predictions of reductions in borrowing costs. At the same time, an increase in oil prices, rupee weakness and government spending may fan price pressures, with inflation slowing less than estimated in March to 6.89 percent.
“They are still concerned about inflation,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “It kind of reinforces that the room for big cuts is not there,” while not ruling out a rate cut today, he said.
India’s rupee, which tumbled 16 percent last year as growth decelerated and the nation’s trade gap widened, fell 0.7 percent to 51.6775 per dollar yesterday. The BSE India Sensitive Index of stocks rose 0.3 percent. The yield on the 8.79 percent note due November 2021 fell 1 basis point, or 0.01 percentage point, to 8.46 percent.
Tread With Care
“Overall, monetary policy has to tread with care in working towards reviving growth, while not exacerbating inflation and other risks,” the Reserve Bank said. Inflation is set to remain at about current levels in 2012-2013, it said.
Seventeen of 25 respondents in a Bloomberg News survey expect the monetary authority to reduce borrowing costs by 0.25 percentage point to 8.25 percent today, while three foresee a 0.5 percentage-point cut. Inflation has eased from more than 9 percent recorded in most of 2011.
Five economists in the Bloomberg survey predict India will keep rates unchanged for a fourth straight meeting, joining neighbors from Pakistan to Indonesia in leaving them on hold as it juggles growth risks with price pressures.
India’s anticipated monetary easing today would contrast with Asian neighbors including Thailand and Indonesia that have halted rate cuts as inflationary pressures gain. Bank of Korea Governor Kim Choong Soo this week urged major central banks to plan an orderly withdrawal of excess liquidity and said that further easing may hurt emerging economies and the global economic recovery.
China Threat
Still, China’s growth slowdown may limit the region’s economic recovery. Singapore’s exports unexpectedly dropped in March as shipments of electronics eased and petrochemical sales fell amid a decline in demand from China, a report today showed. Non-oil domestic exports fell 4.3 percent from a year earlier, after a revised 30.4 percent increase in February.
Foreign direct investment in China dropped for a fifth straight month in March as economic growth slowed, with inbound investment falling 6.1 percent from a year earlier to $11.76 billion, a report by the Ministry of Commerce showed today.
In Australia, the central bank said a weaker expansion flowing through to slower inflation would increase prospects for the first interest-rate cut this year, minutes of its April 3 meeting showed. The minutes reaffirmed that the next rate reduction hinges on an April 24 report on first-quarter inflation, as recent data indicates the economy is growing slower than the central bank predicted.
Mining Boom
The Reserve Bank of Australia decided against lowering borrowing costs at its three meetings this year as the global recovery stabilizes and a mining boom sustains domestic growth.
U.K. inflation probably held at 3.4 percent in March, while Euro-area inflation was 2.6 percent, according to Bloomberg News surveys ahead of reports today.
In the U.S., industrial production may have risen 0.3 percent in March from the previous month, according to the median forecast in a Bloomberg News survey ahead of a report today. Home starts increased to a 705,000 annual rate in March following a 698,000 pace the prior month, according to a Bloomberg survey median.
India’s economy may expand 7.2 percent in the financial year through March 31, 2013, according to a survey compiled by the central bank of forecasts from other organizations, yesterday’s report showed. The previous survey in January projected growth of 7.3 percent. Inflation may average 6.9 percent, the survey said, compared with an earlier 6.5 percent estimate.
Growth Estimate
Asia’s third-largest economy expanded 6.1 percent in the fourth quarter, the least in almost three years, hurt by declining investment and moderating consumer spending after the Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year to fight inflation.
While growth is likely to improve “moderately” in 2012- 2013, “depressed new investment may keep the pace of recovery slow,” the Reserve Bank said. Demand needs to be managed so that the current-account deficit doesn’t widen further and pressure the balance of payments, it said, adding that allowing higher petroleum-product prices would help that process.
The March climb in the benchmark wholesale-price index exceeded the median 6.65 percent estimate in a Bloomberg News survey of 33 economists, data showed yesterday. Indian inflation remains the fastest in the so-called BRIC group of largest emerging economies that also includes Brazil, Russia and China.
Supply-Side Constraints
“We will be addressing supply-side constraints that substantially impact food inflation,” Finance Minister Pranab Mukherjee said in New Delhi yesterday.
Central bank Governor Duvvuri Subbarao has already reduced the amount of deposits lenders must set aside as reserves twice in 2012 to alleviate a cash squeeze that threatens expansion. The Reserve Bank has lowered the cash reserve ratio by a combined 125 basis points to 4.75 percent.
Passenger car sales grew at the slowest pace in three years in the 12 months through March as higher rates crimped demand for products by automakers such as Maruti Suzuki India Ltd., maker of almost half the cars sold in the country.
Prime Minister Manmohan Singh’s government, grappling with fiscal and trade gaps and depressed industrial output, faces one of the most challenging periods since taking office in 2004.
In the budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013.
“Fiscal consolidation as envisaged in the latest budget is subject to risks, especially with respect to subsidies,” the central bank said. “Tax revenues may also be adversely affected if the economic climate remains subdued.”
The current-account deficit reached $19.6 billion in the three months through December, the worst quarterly performance on record.
Policy reversals have further hindered Singh’s economic agenda, including the suspension in December of plans to open India’s retail industry to foreign companies.
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.
India’s central bank said price pressures must be restrained even as policy needs to shift to help growth, signaling that elevated inflation will limit the magnitude of interest-rate cuts forecast to begin today.
“Monetary policy has to recognize the need for keeping inflation expectations anchored in an environment of significant upside risks to inflation, while shifting the balance of policy to arrest the deceleration in growth momentum,” the Reserve Bank of India said yesterday in a review of the economy ahead of its rate decision in Mumbai due at 11 a.m. today.
Costlier credit, policy gridlock and a weaker global recovery have sapped India’s expansion, spurring predictions of reductions in borrowing costs. At the same time, an increase in oil prices, rupee weakness and government spending may fan price pressures, with inflation slowing less than estimated in March to 6.89 percent.
“They are still concerned about inflation,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “It kind of reinforces that the room for big cuts is not there,” while not ruling out a rate cut today, he said.
India’s rupee, which tumbled 16 percent last year as growth decelerated and the nation’s trade gap widened, fell 0.7 percent to 51.6775 per dollar yesterday. The BSE India Sensitive Index of stocks rose 0.3 percent. The yield on the 8.79 percent note due November 2021 fell 1 basis point, or 0.01 percentage point, to 8.46 percent.
Tread With Care
“Overall, monetary policy has to tread with care in working towards reviving growth, while not exacerbating inflation and other risks,” the Reserve Bank said. Inflation is set to remain at about current levels in 2012-2013, it said.
Seventeen of 25 respondents in a Bloomberg News survey expect the monetary authority to reduce borrowing costs by 0.25 percentage point to 8.25 percent today, while three foresee a 0.5 percentage-point cut. Inflation has eased from more than 9 percent recorded in most of 2011.
Five economists in the Bloomberg survey predict India will keep rates unchanged for a fourth straight meeting, joining neighbors from Pakistan to Indonesia in leaving them on hold as it juggles growth risks with price pressures.
India’s anticipated monetary easing today would contrast with Asian neighbors including Thailand and Indonesia that have halted rate cuts as inflationary pressures gain. Bank of Korea Governor Kim Choong Soo this week urged major central banks to plan an orderly withdrawal of excess liquidity and said that further easing may hurt emerging economies and the global economic recovery.
China Threat
Still, China’s growth slowdown may limit the region’s economic recovery. Singapore’s exports unexpectedly dropped in March as shipments of electronics eased and petrochemical sales fell amid a decline in demand from China, a report today showed. Non-oil domestic exports fell 4.3 percent from a year earlier, after a revised 30.4 percent increase in February.
Foreign direct investment in China dropped for a fifth straight month in March as economic growth slowed, with inbound investment falling 6.1 percent from a year earlier to $11.76 billion, a report by the Ministry of Commerce showed today.
In Australia, the central bank said a weaker expansion flowing through to slower inflation would increase prospects for the first interest-rate cut this year, minutes of its April 3 meeting showed. The minutes reaffirmed that the next rate reduction hinges on an April 24 report on first-quarter inflation, as recent data indicates the economy is growing slower than the central bank predicted.
Mining Boom
The Reserve Bank of Australia decided against lowering borrowing costs at its three meetings this year as the global recovery stabilizes and a mining boom sustains domestic growth.
U.K. inflation probably held at 3.4 percent in March, while Euro-area inflation was 2.6 percent, according to Bloomberg News surveys ahead of reports today.
In the U.S., industrial production may have risen 0.3 percent in March from the previous month, according to the median forecast in a Bloomberg News survey ahead of a report today. Home starts increased to a 705,000 annual rate in March following a 698,000 pace the prior month, according to a Bloomberg survey median.
India’s economy may expand 7.2 percent in the financial year through March 31, 2013, according to a survey compiled by the central bank of forecasts from other organizations, yesterday’s report showed. The previous survey in January projected growth of 7.3 percent. Inflation may average 6.9 percent, the survey said, compared with an earlier 6.5 percent estimate.
Growth Estimate
Asia’s third-largest economy expanded 6.1 percent in the fourth quarter, the least in almost three years, hurt by declining investment and moderating consumer spending after the Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year to fight inflation.
While growth is likely to improve “moderately” in 2012- 2013, “depressed new investment may keep the pace of recovery slow,” the Reserve Bank said. Demand needs to be managed so that the current-account deficit doesn’t widen further and pressure the balance of payments, it said, adding that allowing higher petroleum-product prices would help that process.
The March climb in the benchmark wholesale-price index exceeded the median 6.65 percent estimate in a Bloomberg News survey of 33 economists, data showed yesterday. Indian inflation remains the fastest in the so-called BRIC group of largest emerging economies that also includes Brazil, Russia and China.
Supply-Side Constraints
“We will be addressing supply-side constraints that substantially impact food inflation,” Finance Minister Pranab Mukherjee said in New Delhi yesterday.
Central bank Governor Duvvuri Subbarao has already reduced the amount of deposits lenders must set aside as reserves twice in 2012 to alleviate a cash squeeze that threatens expansion. The Reserve Bank has lowered the cash reserve ratio by a combined 125 basis points to 4.75 percent.
Passenger car sales grew at the slowest pace in three years in the 12 months through March as higher rates crimped demand for products by automakers such as Maruti Suzuki India Ltd., maker of almost half the cars sold in the country.
Prime Minister Manmohan Singh’s government, grappling with fiscal and trade gaps and depressed industrial output, faces one of the most challenging periods since taking office in 2004.
In the budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013.
“Fiscal consolidation as envisaged in the latest budget is subject to risks, especially with respect to subsidies,” the central bank said. “Tax revenues may also be adversely affected if the economic climate remains subdued.”
The current-account deficit reached $19.6 billion in the three months through December, the worst quarterly performance on record.
Policy reversals have further hindered Singh’s economic agenda, including the suspension in December of plans to open India’s retail industry to foreign companies.
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, April 15, 2012
Infosys May Spend Up to $500 Million on European Deal
By Cornelius Rahn - Apr 15, 2012
Infosys Ltd. (INFO), which sits on the largest cash pile among India’s computer-services providers, is prepared to spend as much as $500 million on a single European acquisition.
Infosys may make another attempt to acquire a company of that size after it walked away from a plan to buy U.K.-based Axon Group Plc for 407 million pounds ($645 million) in 2008, said Chandrashekar Kakal, the company’s global head of business IT services.
“We do have cash, but we are looking for a company which adds to our capability and becomes complementary to our growth rather than becoming a laggard,” he said in an April 13 phone interview.
Infosys’s war chest of about $4 billion is more than twice the size that of bigger peer Tata Consultancy Services Ltd. (TCS) Indian software companies, after a decade of growth fuelled by the outsourcing of jobs from the U.S., are turning to acquisitions to expand into Europe, currently the second-largest source of their revenues. Making purchases in Europe may help Bangalore-based Infosys achieve a target of getting 40 percent of its sales from the region, up from about 22 percent.
In 2008, Infosys decided against further pursuing a plan to buy Axon after its bid was trumped by New Delhi-based HCL Technologies Ltd. In 2006, Infosys spent $115 million to purchase Citigroup Inc.’s stake in Progeon Ltd., a back-office service provider controlled by Infosys.
Bidding Competition
The company may also make a number of smaller purchases worth about $30 million to $50 million each, Kakal said, adding that such companies would be easier to integrate. He declined to identify any potential targets or specify sectors where acquisitions may be made.
Infosys, which designs and builds software programs and provides back-office support to clients including U.K. phone company BT Group Plc (BT/) and oil company BP Plc, was founded by seven engineers in 1981 with $250 they borrowed from their wives.
Kakal, who joined the company in 1999, oversees Infosys’ development, maintenance, testing and infrastructure management services with about 60,000 employees, according to the company’s website.
While Forrester Research Inc. (FORR) forecasts that western and central Europe will have the world’s slowest growth in technology spending in 2012, Infosys says that Indian outsourcing companies could benefit as businesses in Europe need to cut costs.
European Push
Infosys Chief Financial Officer V. Balakrishnan said in a Feb. 29 interview that opportunities for acquisitions are increasing because more European companies have “broken” cost structures. India’s second-biggest software exporter is looking to buy companies that own intellectual property as well as niche consulting firms and corporations that will boost business in France and Germany, he said at the time.
Companies and governments in France and Germany spent a combined $178 billion on information-technology goods and services last year, according to Forrester Research. Together, that made them the world’s third-largest technology market.
The Indian service provider has made inroads into the German market after switching from a sales approach that used almost exclusively English speakers to one that employs 20 percent local consultants, with offshore staff being limited to about 60 percent, Franz-Josef Schuermann, who heads Infosys’s operations in the country, said in the joint interview with Kakal. The company is currently benefitting from the growth of online retailing in the region, he said.
Growth Needed
Worldwide spending on information-technology services will rise 1.3 percent to $856 billion in 2012, slowing from a 6.5 percent increase last year, according to an April 5 report by Stamford, Connecticut-based research firm Gartner Inc.
Infosys also needs to boost growth after the company last week forecast sales that missed analysts’ estimates.
Sales in the year that began April 1 may be between 384.3 billion rupees ($7.5 billion) and 391.4 billion rupees, Infosys said in a statement April 13. Analysts expected revenue of 396.3 billion rupees for the period, the median of 64 estimates compiled by Bloomberg. The company also reported fourth-quarter sales that were lower than analysts predicted.
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Infosys Ltd. (INFO), which sits on the largest cash pile among India’s computer-services providers, is prepared to spend as much as $500 million on a single European acquisition.
Infosys may make another attempt to acquire a company of that size after it walked away from a plan to buy U.K.-based Axon Group Plc for 407 million pounds ($645 million) in 2008, said Chandrashekar Kakal, the company’s global head of business IT services.
“We do have cash, but we are looking for a company which adds to our capability and becomes complementary to our growth rather than becoming a laggard,” he said in an April 13 phone interview.
Infosys’s war chest of about $4 billion is more than twice the size that of bigger peer Tata Consultancy Services Ltd. (TCS) Indian software companies, after a decade of growth fuelled by the outsourcing of jobs from the U.S., are turning to acquisitions to expand into Europe, currently the second-largest source of their revenues. Making purchases in Europe may help Bangalore-based Infosys achieve a target of getting 40 percent of its sales from the region, up from about 22 percent.
In 2008, Infosys decided against further pursuing a plan to buy Axon after its bid was trumped by New Delhi-based HCL Technologies Ltd. In 2006, Infosys spent $115 million to purchase Citigroup Inc.’s stake in Progeon Ltd., a back-office service provider controlled by Infosys.
Bidding Competition
The company may also make a number of smaller purchases worth about $30 million to $50 million each, Kakal said, adding that such companies would be easier to integrate. He declined to identify any potential targets or specify sectors where acquisitions may be made.
Infosys, which designs and builds software programs and provides back-office support to clients including U.K. phone company BT Group Plc (BT/) and oil company BP Plc, was founded by seven engineers in 1981 with $250 they borrowed from their wives.
Kakal, who joined the company in 1999, oversees Infosys’ development, maintenance, testing and infrastructure management services with about 60,000 employees, according to the company’s website.
While Forrester Research Inc. (FORR) forecasts that western and central Europe will have the world’s slowest growth in technology spending in 2012, Infosys says that Indian outsourcing companies could benefit as businesses in Europe need to cut costs.
European Push
Infosys Chief Financial Officer V. Balakrishnan said in a Feb. 29 interview that opportunities for acquisitions are increasing because more European companies have “broken” cost structures. India’s second-biggest software exporter is looking to buy companies that own intellectual property as well as niche consulting firms and corporations that will boost business in France and Germany, he said at the time.
Companies and governments in France and Germany spent a combined $178 billion on information-technology goods and services last year, according to Forrester Research. Together, that made them the world’s third-largest technology market.
The Indian service provider has made inroads into the German market after switching from a sales approach that used almost exclusively English speakers to one that employs 20 percent local consultants, with offshore staff being limited to about 60 percent, Franz-Josef Schuermann, who heads Infosys’s operations in the country, said in the joint interview with Kakal. The company is currently benefitting from the growth of online retailing in the region, he said.
Growth Needed
Worldwide spending on information-technology services will rise 1.3 percent to $856 billion in 2012, slowing from a 6.5 percent increase last year, according to an April 5 report by Stamford, Connecticut-based research firm Gartner Inc.
Infosys also needs to boost growth after the company last week forecast sales that missed analysts’ estimates.
Sales in the year that began April 1 may be between 384.3 billion rupees ($7.5 billion) and 391.4 billion rupees, Infosys said in a statement April 13. Analysts expected revenue of 396.3 billion rupees for the period, the median of 64 estimates compiled by Bloomberg. The company also reported fourth-quarter sales that were lower than analysts predicted.
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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