India Pledges to Cut Deficit, Cap Debt to Avert Downgrade By Kartik Goyal, Pradipta Mukherjee and Jeanette Rodrigues - Nov 24, 2012

India Pledges to Cut Deficit, Cap Debt to Avert Downgrade

By Kartik Goyal, Pradipta Mukherjee and Jeanette Rodrigues - Nov 24, 2012

Top Indian officials said they will cut the widest budget deficit among the world’s largest emerging markets and curb public debt, as the Asian nation seeks to avert a credit-rating downgrade.
The government is “optimistic” it will rein in the shortfall for the year through March 31 to 5.3 percent of gross domestic product from the previous year’s 5.8 percent, and has no plan “at the moment” to increase its record borrowing program, Finance Minister Palaniappan Chidambaram said yesterday. The deficit will be cut 0.6 percent annually for the next five years, Chakravarthy Rangarajan, chief economic adviser to Prime Minister Manmohan Singh, said yesterday in Kolkata.
“I would like to, with all the conviction and command, reiterate that the government is fully committed to contain the fiscal deficit within 5.3 percent,” Economic Affairs Secretary Arvind Mayaram said yesterday at a conference in Mumbai. “We have a clear program of disinvestment and we are confident of meeting our targets,” he said, about 90 minutes before Chidambaram spoke in the western city of Pune.
Credit Agricole CIB said last week that financial markets are pricing in an increasing likelihood of a credit rating downgrade to junk status. The threat of losing the nation’s investment-grade sovereign ranking prompted Singh to reduce fuel subsidies in mid-September to tackle the fiscal gap, and boost investment by allowing foreign investment in retailing and aviation.
Standard & Poor’s and Fitch Ratings lowered India’s sovereign credit outlook this year, citing a widening budget deficit, and a slump in economic growth and investment in Asia’s third-biggest economy. Both companies rank India’s debt BBB-, the lowest investment grade.

Growth Outlook

The government is also looking to curtail expenditure, Mayaram, one of the top bureaucrats in the finance ministry, said in a speech at a conference on Asian capital markets .
The $1.8 trillion economy is likely to expand 5.5 percent in the three months ended September, Chidambaram said, matching the preceding quarter’s expansion. Economists predict GDP will increase 5.3 percent from a year earlier, according to the median estimate in a Bloomberg survey before data due Nov. 30.
Central bank Governor Duvvuri Subbarao last month cut the Reserve Bank of India’s growth forecast for the current fiscal year to 5.8 percent, the slowest pace in a decade, from 6.5 percent. He raised the monetary authority’s estimate for gains in wholesale prices to 7.5 percent from 7 percent.
The RBI has kept benchmark borrowing costs unchanged at 8 percent at its last four policy reviews to curb the worst inflation among the so-called BRIC nations, comprising Brazil, Russia, India and China.
An auction of wireless spectrum this month helped raise 94 billion rupees ($1.7 billion), less than 25 percent of the target, straining state finances. The auction isn’t yet complete and the government is confident of meeting its goal of raising 400 billion rupees from the sale, Chidambaram said yesterday.
“Fiscal consolidation is a necessary pre-requisite for sustained growth,” Rangarajan said in a speech to businessmen.
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Pradipta Mukherjee in Kolkata at pmukherjee7@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Asian Currencies Gain as Economic Outlook for Region Improves

By Lilian Karunungan - Nov 23, 2012

Asian currencies had their first weekly gain in a month, led by the Philippine peso, on optimism regional economic growth is starting to pick up.
A preliminary Chinese manufacturing index released Nov. 22 indicated output may have expanded for the first time in 13 months, while data on Nov. 20 showed Taiwanese export orders climbed more than estimated in October. Malaysia reported Nov. 16 that gross domestic product rose 5.2 percent in the third quarter, compared with the 4.8 percent increase forecast in a Bloomberg survey.
“Growth momentum in Asia is clearly taking off,” said Enrico Tanuwidjaja, an economist at Royal Bank of Scotland Group Plc in Singapore. “We have seen some slowing down but not a collapse. That’s why Asian currencies are supported.”
The Bloomberg-JPMorgan Asia Dollar Index rose 0.2 percent in the past five days after declining for the previous three weeks. The peso strengthened 0.7 percent this week to 41.052 per dollar, South Korea’s won appreciated 0.6 percent to 1,086.11 and Malaysia’s ringgit climbed 0.5 percent to 3.0590. China’s yuan gained 0.11 percent to 6.2285.
Overseas investors pumped a net $625 million into Thai, Philippine and South Korean stocks this week through Nov. 22, exchange data show.
“Funds continue to come into Asia, which supports regional currencies,” said Kozo Hasegawa, a Bangkok-based foreign- exchange trader at Sumitomo Mitsui Banking Corp. “Data out of China are improving, providing some relief to investors to buy emerging-market assets.”

‘Herd Behavior’

The peso approached the strongest level since March 2008 yesterday after central bank Assistant Governor Cyd Amador told reporters in Manila Nov. 22 the monetary authority has allowed some appreciation in the currency as it sees “very strong’’ overseas remittances and inflows into business-process outsourcing. The bank will maintain an orderly foreign-exchange market, while keeping a flexible exchange-rate policy, she said.
The won pared its weekly advance, falling for a third day, as concern the government will act to stem currency gains offset optimism the Chinese economy is recovering.
South Korean Deputy Finance Minister Choi Jong Ku said Nov. 22 there is “herd behavior” in the currency market and the government will take action to curb excessive fluctuations. The won has rallied 6.1 percent against the dollar this year.
“There’s risk appetite in the market with data from China, but caution against government intervention will restrict won gains,” said Kim Dong Young, a Seoul-based currency dealer for Industrial Bank of Korea. (024110)
Elsewhere, Thailand’s baht rose 0.2 percent this week to 30.69 per dollar and Indonesia’s rupiah fell 0.3 percent to 9,655. Taiwan’s dollar strengthened 0.4 percent to NT$29.171, India’s rupee lost 0.6 percent to 55.5150 and Vietnam’s dong was little changed at 20,853.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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ONGC Said to Plan Bond Sale to Fund Azeri Stake: Corporate India By Rakteem Katakey - Nov 20, 2012

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, is planning to sell dollar bonds to fund a $1 billion acquisition in Azerbaijan, according to a person with direct knowledge of the matter.
The company’s overseas unit ONGC Videsh Ltd. may raise almost the entire acquisition cost selling the notes next quarter, the person said, asking not to be identified because a final decision hasn’t been made. The planned sale will be the New Delhi-based parent’s biggest borrowing in three years.
ONGC Videsh, which needs $20 billion of investment to boost overseas production more than sixfold by 2030, is seeking cheaper funds abroad as rupee borrowing costs are about twice as much. The state-owned company is unable to lend to its unit as the discount it gives on crude oil sales to Indian refiners on government orders is depleting its cash reserves.
“Parent ONGC needs the cash for their own capital expenditure,” Kamlesh Kotak, Mumbai-based vice president of research at brokerage firm Asian Markets Securities Pvt. said by phone yesterday. “It makes a lot of sense to raise debt in dollars because earnings from the field will be in dollars and that guards against currency fluctuations.”
ONGC Videsh agreed to buy a 2.72 percent interest in the Azeri, Chirag and Guneshli fields in Azerbaijan from Hess Corp. (HES), as well as a 2.36 percent stake in the Baku-Tbilisi-Ceyhan pipeline, according to a Sept. 8 statement. The acquisition will add to ONGC’s overseas reserves by 9 percent and increase production by about 11 percent.
The deal may close in the first quarter of 2013, according to the statement.

Biggest Since Imperial

ONGC Chairman Sudhir Vasudeva and Finance Director A.K. Banerjee didn’t answer two calls each to their mobile phones seeking comment.
The Azerbaijan purchase is ONGC’s biggest since 2009, when it bought Imperial Energy Plc, which has assets in Russia, for 1.4 billion pounds ($2.2 billion). The takeover was financed by selling one-year commercial paper for 52.5 billion rupees ($951 million).
The explorer refinanced that debt a year later through a $200 million loan and a bond and commercial paper sale in India equivalent to $800 million. ONGC and its units have 48.1 billion rupees of debt outstanding, including 34.4 billion rupees borrowed by ONGC Videsh, according to data compiled by Bloomberg.

Dollar Debt Premiums

ONGC Videsh’s plans to sell foreign currency bonds follows Bharat Petroleum Corp. and NTPC Ltd. (NTPC) as average premiums for the nation’s dollar debt over U.S. government debt fell 32 basis points to 388 this quarter, HSBC Holdings Plc data show. It was 367 basis points on Oct. 25, the narrowest since May 2011, according to the data.
Indian companies have raised $9.39 billion selling bonds overseas so far this year, compared with $9.17 billion in the same period last year, according to data compiled by Bloomberg.
Bharat Petroleum, India’s second-biggest state-run refiner, sold $500 million of 10-year bonds last month at a yield of 4.625 percent. NTPC, the biggest electricity generator, raised a similar amount priced to yield 4.75 percent in September.
ONGC’s long-term foreign-currency debt is rated Baa1 by Moody’s Investors Service, the third-lowest investment grade. Bharat Petroleum and NTPC are rated Baa3, the lowest investment grade.

Capital Expenditure

“ONGC will probably get a better rate than Bharat Petroleum as it has a stronger balance sheet and has very little debt now,” said Hemant Dharnidharka, head of credit research at SJS Markets Ltd. in Bangalore. “Raising the money wouldn’t be a problem as there’s a lot of cash currently available with banks.”
ONGC is spending 335.8 billion rupees on a capital expenditure plan in the year ending March 31 and 340.1 billion rupees next year, the person said. ONGC had net cash reserves of about 120 billion rupees as on March 31 and that may decline to about 40 billion rupees at the end of this financial year, Finance Director Banerjee said Nov. 8.
The company reported its biggest profit decline in almost four years after it gave $63.05 discount on every barrel of crude it sold to Indian state-run refiners in the quarter ended Sept. 30, according to a Nov. 8 statement. Its selling price of $46.80 a barrel in the three months was 43 percent lower than a year earlier.

‘Cash Squeeze’

“There’s a squeeze in their cash position and that’s worrisome,” said Neelabh Sharma, a Mumbai-based analyst with BOB Capital Markets Ltd., a unit of state-run Bank of Baroda. (BOB) “This will continue for another year at least when they may start increasing oil production.”
The lower profit has made ONGC the worst performer in the 10-member BSE Oil & Gas Index (BSEOIL) this month. The shares have declined 1.8 percent this year compared with a 19 percent increase in the benchmark Sensitive Index. (SENSEX)
The government orders ONGC and smaller rival Oil India Ltd. (OINL) to sell crude oil to refiners including Indian Oil Corp. at a discount to partly compensate them for selling fuels below cost. The discounts have affected ONGC’s ability to acquire assets overseas, Chairman Vasudeva said in August.
ONGC is mandated by the Indian government to acquire oil and gas assets around the world to help meet the nation’s energy needs. Demand in Asia’s second-biggest energy consumer is forecast to more than double by 2035 to 49.2 quadrillion British thermal units from 24.4 last year, according to the U.S. Energy Information Administration.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

India Investment Opening at Stake as Singh Confronts Ex-Allies By Bibhudatta Pradhan - Nov 19, 2012

Indian Prime Minister Manmohan Singh faces an opposition onslaught when parliament resumes this week, with rivals vowing to block the biggest opening to foreign investment in 10 years as the government bids to stoke growth.
The Trinamool Congress party, a former Singh ally, said it will push for a vote of no confidence in the government when parliament meets Nov. 22 over its move to allow foreign supermarket chains to hold a majority stake in retail outlets. The main opposition Bharatiya Janata Party is planning a nationwide protest tomorrow, targeting Singh’s administration over rising prices, graft and the retail plan.
Singh’s Congress party needs to rally its 10-member ruling coalition and win support from parties outside of the minority government to push through steps that will also enable foreign companies to hold bigger stakes in insurance firms and invest in the pension sector. Failure to win lawmakers’ support could extend 24 months of policy paralysis that have contributed to growth slowing to near a three-year low and threaten to undermine the government ahead of elections due by May 2014.
“If these important bills get through, the market will cheer as they have been waiting for this for a long time,” said Mumbai-based U.R. Bhat, managing director of Dalton Capital Advisors India, a unit of Dalton Strategic Partnership LLP in London which manages $2 billion in assets globally. “If they don’t, the government’s credibility will be lost. They will be perceived as a lame duck.”

Rupee Bets

Overseas funds boosted holdings of rupee debt to a record $32.9 billion last week, following Singh’s proposals to open up the economy and improve public finances. India’s economic expansion will accelerate to 6 percent next year from 4.9 percent in 2012, helped by a boost to confidence from the policy revamp, the International Monetary Fund said last month.
The government is reaching out to political parties to win backing for its legislative agenda, Finance Minister Palaniappan Chidambaram said Nov. 16. Chidambaram, whose appointment for a third term in charge of the finance ministry in July helped Singh, 80, convince party colleagues to back the reform agenda, said he hoped the parliament’s winter session would be “a productive one.”
Trinamool, headed by West Bengal Chief Minister Mamata Banerjee, quit in September as Singh’s largest coalition ally to protest the retail opening, saying the move would force small shopkeepers out of business and drive down prices paid to farmers for their produce.
One communist party has said it will back Trinamool in any confidence vote, while the BJP, whose support would be needed to defeat the government, will discuss its options at a meeting today, party spokesman Prakash Javadekar said. The group opposes Singh’s steps to attract more foreign direct investment, he said.

Chasing Friends

Singh has met with leaders of two parties whose backing could help him head off defeat in a no confidence ballot.
Mayawati, the leader of the fourth-largest party in parliament, was routed in polls in her Uttar Pradesh state bastion in May and may not want to face another election soon. The Samajwadi Party, the third-biggest group and Mayawati’s archrival, has given mixed messages, signaling it will continue outside support to the government while opposing the arrival of foreign retailers.
Ahead of the reopening of parliament, Singh Oct. 28 replaced a third of his ministers, drafting in younger lawmakers in an attempt to restore the reputation of an administration tainted by corruption scandals.

Delhi Rally

At a rally in New Delhi on Nov. 4, the prime minister, flanked by Sonia Gandhi and her son Rahul Gandhi, the top two leaders of Congress, defended the changes to investment rules as the only way to generate revenues needed to lift millions out of poverty.
The economy expanded 5.5 percent in the three months through June from a year earlier, close to the 5.3 percent pace of the previous quarter that was a three-year low. Headline inflation has exceeded 7 percent for most of this year, the fastest among BRIC nations, which also include China, Brazil and Russia, and a rate that Reserve Bank of India Governor Duvvuri Subbarao has said exceeds acceptable levels.
Unlike the retail proposals, the pension and insurance sector changes need parliamentary approval before becoming law.
Political wrangling over the retail plan is likely to add to concerns among companies looking to invest in India, said Kishor P. Ostwal, chairman and managing director of CNI Research Ltd. (CNIR) Potential investors “will not enter India in a big way till the 2014 elections are done,” he said, in a reflection of the policy uncertainty. India wants to attract global retailers such as Wal-Mart Stores Inc. (WMT) and Carrefour SA. (CA)

Legislation Backlog

The last session of parliament was the least productive in 17 months, amid clashes between the government and opposition parties over alleged revenue losses linked to the award of coal mining contracts. About 102 bills are pending in parliament, according to New Delhi-based PRS Legislative Research, a monitoring group.
“The BJP and the communists will try to create hurdles to prevent the government from getting the reform bills passed for their own political objectives,” said Satish Misra, a political analyst at the Observer Research Foundation in New Delhi. “Passage of the insurance and pension bills seems difficult.”
To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

Vodafone’s IPO Hinges on $8 Billion Question: Corporate India

By Ketaki Gokhale - Nov 18, 2012

Vodafone India Ltd. (VOD) said it’s “impossible” to proceed with a proposed initial share sale until the government clarifies the price to extend licenses that may amount to as much as $8 billion.
The fees that India’s second-largest mobile phone operator may have to pay could vary by 3 billion pounds ($4.8 billion) depending on how the government prices the permits, skewing the potential market value of the company, according to Chief Executive Officer Marten Pieters. The licenses are due for renewal from November 2014.
“It’s impossible to float the company if you have that kind of swing in your valuation,” Pieters, 59, said in an interview at Bloomberg’s Mumbai office. “We’d get a discount for all this uncertainty. Why as an owner would you want to sell it with a big discount?”
The government’s drive to boost airwave prices amid corruption allegations in awarding spectrum to some operators in 2008 may deter IPO investors, according to Naveen Kulkarni, an analyst at MF Global Sify Securities India Pvt. Mobile-phone companies including Vodafone, which has more users in India than the population of Japan, and Bharti Airtel Ltd. (BHARTI) are struggling to revive growth in a market where 13 competitors have driven call rates to a penny a minute.
“We’re still in a situation where regulatory uncertainty is the order of the day,” said Lawrence Sugarman, an analyst at Liberum Capital Ltd. in London. “When you have that situation, and also such high reserve prices on the spectrum, the companies are going to be quite reluctant to invest.”

Bharti’s Performance

India’s cabinet decided Aug. 4 that operators will have to pay a minimum of 140 billion rupees ($2.5 billion) to buy wireless channels in the 1,800 megahertz band for the global system for mobile communications, or GSM, networks. That price is only 16 percent lower than the winning rate of high-speed third-generation airwaves in a 2010 auction, Mumbai-based Goldman Sachs Group Inc. analyst Sachin Salgaonkar wrote in a note to clients.
Bharti Airtel rose 2.5 percent to 308.85 rupees at 9:38 a.m. in Mumbai. The shares have dropped 22 percent in the past year making it the third-worst performing stock in the 73- company MSCI India Index (MXIN), which advanced 16 percent in the period. Reliance Communications Ltd. (RCOM), controlled by billionaire Anil Ambani, has lost 15 percent.
Vodafone’s parent Vodafone Group Plc, which acquired Hutchison Whampoa Ltd. (13)’s business in the world’s second-largest mobile-phone market in 2007 for $10.7 billion, is also waiting to resolve a $2.2 billion dispute with Indian tax authorities over the acquisition before selling shares, Chief Executive Officer Vittorio Colao said last year.

Deferred IPOs

Indian companies have also deferred IPOs as growth in Asia’s third-largest economy slows. Just $303 million of IPO deals have been completed this year, data compiled by Bloomberg show.
Pieters, who wants to sell shares “as soon as possible” doesn’t need the IPO to finance the renewal of permits, which will be funded by Vodafone’s shareholders, he said. The unit, based in Mumbai, has invested 510 billion rupees in spectrum and networks in the nation in the last five years, he said. The company has a net debt of 300 billion rupees, Pieters said.
An IPO “would give them a better relationship with the regulators and authorities if there was a tie-in to the Indian population,” Liberum’s Sugarman said. “It’s good from a marketing perspective as well.”
Vodafone has permits for 900 megahertz airwaves in Mumbai and New Delhi that come up for renewal. The company has an option to extend the licenses by 10 years.
Bharti Airtel, India’s biggest mobile-phone operator, will also need to renew its licenses between November 2014 and 2024.

Renewal Permits

The government, which has said it plans to price renewal permits at rates determined at auctions, failed to attract bidders for four areas including Mumbai and Delhi at last week’s Supreme Court-ordered sale of second-generation airwaves. India will attempt to offer the spectrum to companies again before March 31, Telecommunications Minister Kapil Sibal said on Nov. 16.
The Supreme Court earlier this year said spectrum must be auctioned rather than sold and canceled 122 licenses, saying their original allocation had been corrupted by “money power” and some buyers’ “ability to manipulate the system.”
India will ask the telecom regulator to revise the price for the frequencies unsold in last week’s auction, a government official told reporters in New Delhi, asking not to be identified, citing rules.
“Since pricing at the 2G auction was meant to act as a benchmark for deciding the pricing of all other spectrum, any downward revision will have a positive cascading effect” on airwave rates, Sushil Sharma and Pranav Kshatriya, analysts at Brics Securities Ltd., said in a note to clients on Nov. 15.

‘Refarm’ Airwaves

Telecommunications Minister Sibal said this month the government may “refarm” or take away the 900 megahertz spectrum, and instead offer more 1,800 megahertz airwaves to companies seeking to renew their permits. The move may increase costs for carriers, that the industry association says are saddled with a combined debt of more than $23 billion.
The aim is to free up the more efficient 900 megahertz frequencies, that have a wider coverage, and offer it to operators in an auction to provide high-speed fourth-generation data services, Department of Telecommunications Secretary R. Chandrashekhar said on Oct. 17.
Refarming would cost Bharti more than $2.4 billion in reassigning its network radio frequency architecture, according to an Oct. 17 report by Deepti Chaturvedi, a Mumbai-based analyst at CLSA Ltd. The company would see a “significant increase” in operating and capital expenditure, Chaturvedi said.

‘Legal Debate’

Bharti, backed by Singapore Telecommunications Ltd. (ST), would also have to purchase the 900 megahertz spectrum if it choses to keep the airwave, she wrote.
The refarming of airwaves may prompt a “legal debate” among carriers, Pieters said.
“We are of course very interested in retaining our spectrum,” said Pieters. “We also think we are entitled to it. The government seems to think they can simply take it away. We think that that is not what’s written in the license.”
Vodafone will also be “interested” in bidding for the 800 megahertz spectrum that can be used to offer services based on Qualcomm Inc. (QCOM)’s code division multiple access technology, he said. There were no bidders for the sale of the airwaves in the last auction.
The CDMA technology will enable Vodafone to offer 4G services in the country with 907 million cellular phone users, according to Pieters.
A drop in airwave prices and “more regulatory clarity” in the next 12 months will give investors confidence to invest in Vodafone’s IPO, said MF Global’s Kulkarni.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.