Bharti Profit Misses Estimates as Finance Costs Increase By Adi Narayan and Ameya Karve - Feb 1, 2013

Bharti Airtel Ltd. (BHARTI) said third-quarter profit slumped, missing analyst estimates, after a weaker rupee boosted interest and network equipment costs for India’s largest mobile-phone operator.
Net income declined 72 percent to 2.84 billion rupees ($53 million) in the three months ended Dec. 31, New Delhi-based Bharti said today. That trailed the 8.39 billion-rupee median of 29 analysts’ estimates compiled by Bloomberg.
Billionaire Chairman Sunil Mittal said market conditions had been challenging in recent quarters due to pricing pressures and rising input costs that damped margins. Mittal last month cut free talk time and revamped management as Bharti prepares for license renewal payments and regulatory changes.
“No clear positive trend is emerging yet,” Sudip Bandyopadhyay, managing director at Mumbai-based Destimoney Securities Pvt. said by phone. “We will have to see a couple of more quarters before we can say that they have come out of the woods.”
Shares of Bharti slumped 3 percent, the most since Dec. 21, to 329.40 rupees at the close in Mumbai trading. The stock was the biggest decliner today on the 27-company MSCI Asia ex-Japan Telecommunication Services Index.

Finance Costs

Revenue rose 9.5 percent to 202.4 billion rupees, compared with the median estimate of 203 billion rupees. Net finance costs, including foreign exchange fluctuation, increased to 13.3 billion rupees in the three-month period, from 7.9 billion rupees a year earlier, Bharti said.
Bharti plans to sell $1 billion of bonds by June, Group Chief Financial Officer Sarvjit Singh Dhillon said today.
The Indian rupee was the worst performer after the Japanese yen among Asia’s 11 most-traded currencies against the dollar last quarter. The rupee fell 3.9 percent, pushing up interest costs on Bharti’s overseas debt.
“Issues like making it compulsory for incumbents to participate in auctions to renew licenses” spur a negative view for telecommunications stocks, Harit Shah, a Mumbai-based analyst at Nirmal Bang Equities Pvt., wrote in a Jan. 7 report. Shah, who recommends investors sell Bharti, said India’s plans to redistribute wireless spectrum and abolish roaming charges were also likely to significantly impact revenue of operators.
Customers spent more time on Bharti’s networks in India and Africa last quarter, Bharti said. Total minutes on the network rose 12 percent from a year earlier to 284 billion, the company said.
“The worst seems to be getting over with corrections taking place in customer acquisition practices and the tariffs,” Mittal said in the statement today. “Moreover, on the data front, it is heartening to see strong growth quarter- on-quarter and across geographies.”
Bharti, 32.3 percent owned by Singapore Telecommunications Ltd. (ST), on Jan. 15 named Gopal Vittal as chief executive officer for South Asia and India from March 1.
To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Ameya Karve in Mumbai at akarve@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

Gold Extends Worst Monthly Losing Run Since May Before U.S. Jobs

By Glenys Sim - Jan 31, 2013

Gold extended the longest run of monthly losses since May before a report that may show U.S. employers added jobs last month, reducing the appeal of bullion as a haven. Platinum was set to snap four weeks of gains.
Spot gold fell as much as 0.2 percent to $1,660.75 an ounce, and traded at $1,661.25 at 9:38 a.m. in Singapore, dropping for a second day. Gold retreated 0.7 percent in January for a fourth monthly drop. Platinum, down 1.3 percent this week, fell after a 9 percent gain last month that was the best showing in a year.
U.S. employers probably added 165,000 workers last month after a 155,000 increase in December, analysts forecast before the report today. Gold is still 0.2 percent higher this week after data showed the U.S. economy unexpectedly shrank in the fourth quarter, consumer confidence slipped and jobless claims rose, while the Federal Reserve maintained asset purchases.
“Economic data around the world continue to provide mixed signals and gold will react according to market sentiment,” said Huang Fulong, an analyst at CITICS Futures Co., a unit of China’s largest listed brokerage. “The market will be range- bound before the jobs number later.”
Gold dropped 0.8 percent yesterday, the most since Jan. 24, after a report showed U.S. consumer spending rose. Data today showed a Chinese manufacturing gauge unexpectedly fell last month as export orders contracted and production slowed, signaling a recovery has yet to gain momentum.
Gold for April delivery traded at $1,662.20 on the Comex in New York from $1,662 yesterday. Bullion held in exchange-traded products is little changed this week, totaling 2,612.263 metric tons yesterday, according to data compiled by Bloomberg.
Cash silver fell 0.2 percent to $31.405 an ounce, after slumping 1.8 percent yesterday, the most in a week. The metal is still up 0.7 percent this week as sales of American Eagle silver coins jumped to a monthly record in January.
Spot platinum slid 0.3 percent to $1,673.25 an ounce, trading above gold for a ninth day, the longest such run since September 2011. Palladium fell 0.2 percent to $741.75 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Distressed Firms Lure Tata’s First Special Fund: Corporate India

By Bhuma Shrivastava - Jan 30, 2013

Tata Capital Ltd., the finance unit of India’s largest business group, plans to raise as much as 5 billion rupees ($94 million) for its first fund that will invest in equities of distressed companies.
Tata Capital Special Situations Fund has attracted five state-run banks to invest in the fund, which may be fully subscribed by March, T.A. Ramkumar, head of Tata Capital’s special situations investment business, said in an e-mail. He declined to identify the banks.
The highest borrowing costs among major emerging economies and slowing growth in gross domestic product have crimped earnings and the ability of Indian companies to pay debt and raise capital. Rising bad loans are the biggest risk to the banking system in Asia’s third-largest economy, according to Kotak Mahindra Bank Ltd.’s billionaire Chairman Uday Kotak.
“This is an ideal time to raise money for such a fund,” said Mahendra Swarup, president of Indian Private Equity & Venture Capital Association. “One can then be ready as more assets get into trouble and opportunities arise in the next two to three years.”
Ramkumar didn’t disclose names of companies or industries in which the fund will invest. Loans to the infrastructure and mining industries are particularly under duress, Kotak said in an interview in Davos.
“The No. 1 focus and concern for the system, the banking system, is rising bad loans,” Kotak, 53, said in an interview with Bloomberg Television while attending the World Economic Forum. “A lot of large corporates have got themselves over- leveraged, and that’s where the pain is.”

Working Capital

The fund was marketed to banks because they would benefit if a company is revived, said Ramkumar. Tata Capital manages about $1 billion in four other private equity funds, according to the company’s website.
More than 700 Indian companies, including Kingfisher Airlines Ltd. (KAIR) and wind turbine maker Suzlon Energy Ltd. (SUEL), had negative working capital, indicating their current liabilities exceed cash and other short-term assets, as of March 31, the highest since at least 2000, according to data compiled by Bloomberg.
“This could be a different strategy for banks to reduce their non-performing loans,” said Swarup. “It can emerge as an alternative to corporate debt restructuring for small and medium enterprises.”
State Bank of India, the nation’s biggest lender, is planning to sell part of its 492 billion rupees of soured loans to boost asset quality. Bad loans at Indian banks widened to 3.25 percent as of June 30 from 2.94 percent in March, the Reserve Bank of India said in report on Oct. 2.

High Returns

The fund may also help Tata Capital generate higher returns than normal. The company, a unit of Tata Sons Ltd., predicts an internal rate of return of 30 percent, according to Ramkumar. That compares with 15 percent for private equity funds and the central bank’s 7.75 percent benchmark rate.
New York-based KPS Capital Partners LP’s $2 billion KPS Special Situations Fund III produced a 21 percent net internal rate of return as of March 31, according to data from California Public Employees Retirement System.
High returns are attracting other firms to set up funds to invest in distressed companies. ICICI Venture Funds Management Co., a unit of India’s second-largest bank, set up AION Capital Partners, a special situations fund in 2011 with U.S.-based Apollo Global Management.
Mumbai-based Arth Equity Advisors LLP plans to invest about $75 million in companies facing “incipient stress,” said Sumit Chandwani, managing partner at Arth, which manages $100 million and plans to raise an additional $150 million by December.
“The entry valuations are not fancy,” said Sanjeev Kishan, executive director at PricewaterhouseCoopers. “If they are turned around, the higher returns would be easy.”

Liquidity Crunch

Chandwani said his fund invests in companies that are facing a liquidity crunch or have incurred losses because of derivative transactions, as long as the management has a good corporate governance record. Companies that aren’t able to pay their convertible debt also make good candidates, he said.
“The funds infuse equity, re-balance the capital structure and bring in operational expertise,” said Kishan.
Clearwater Capital Partners LLC’s 2 billion rupee investment in the cash-strapped Diamond Power Infrastructure Ltd. (DIPI) in August 2006 helped the Indian maker of power cables expand into making transformers and transmission towers, said Jayesh Patel, senior manager, finance at the Vadodra-based company.
Clearwater owns about 9 percent of the company that returned to profit in 2008. Firstcall India Equity Advisors Pvt. forecasts Diamond Power will report a record profit of 1.4 billion rupees in the year to March.
“Some companies will always make strategic mistakes,” said Arth’s Chandwani. “And that presents an opportunity for us. We feel this is a less crowded space in the market.”
To contact the reporter on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

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Sesa’s Agarwal Plans $2.4 Billion Liberia Spend: Corporate India

By Abhishek Shanker - Jan 29, 2013

Sesa Goa Ltd. (SESA), India’s largest exporter of iron ore, plans to invest as much as $2.4 billion to develop assets in Liberia in its first overseas expansion after a court-ordered mining ban halted production at home.
The company, controlled by billionaire Anil Agarwal, expects to use the money over the next four years on 30 million metric tons of mining capacity in three properties in the western African nation, Managing Director Prasun Kumar Mukherjee said in a telephone interview. The first part of the project, scheduled to start by March 2014 with 4 million tons of capacity, will be financed through borrowings because restrictions at home have stopped cash flow, he said.
“The Liberia project is progressing on schedule and right now the only issue is how to continuously fund it,” Mukherjee said from his office in Panaji, Goa. “Originally, the idea was to finance it all internally but since one channel has stopped, we are looking at a line of credit.”
Sesa, a unit of Agarwal’s London-based Vedanta Resources Plc (VED), is among Indian miners and steelmakers including Jindal Steel & Power Ltd. (JSP) seeking to secure raw materials abroad after authorities cracked down on mining to protect the environment. The development of the Liberian assets may help reverse Sesa’s fortunes as it struggles with debt close to a record and awaits approvals to resume ore extraction at home, said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai.

Share Performance

Shares of the company rose as much as 0.8 percent to 184.80 rupees as of 9:26 a.m. in Mumbai trading today. The stock has declined 14 percent in the past year, compared with a 16 percent advance in the benchmark BSE Sensitive Index. Sesa’s revenue from iron ore tumbled 99 percent in the quarter ended Dec. 31.
“Africa is one of the best destinations for securing low- cost resources and Sesa is doing exactly that,” Daga said. “If it is able to develop the project as envisaged, the move will benefit the group.”
Sesa said in August 2011 that it would pay $90 million to buy 51 percent of Western Cluster Ltd., which had plans to develop iron-ore deposits and transport infrastructure in Liberia. Last quarter, it bought the remaining stake.
The iron-ore exporter may face challenges and “unforeseen risks” as it embarks on its overseas quest for resources, said Parin Vora, an analyst at Asia Markets Securities Pvt. in Mumbai. Billionaire-lawmaker Naveen Jindal-controlled Jindal Steel, India’s most valuable producer of the alloy, said in June that it terminated a contract that it signed in 2007 to build a $2.1 billion mine in Bolivia after failing to secure land and natural gas.

Nobel Laureate

Liberia, devastated by civil wars from 1989 to 2003 that killed an estimated 250,000 people, is recovering under Ellen Johnson-Sirleaf, a Nobel laureate who became the nation’s first female president in 2006. The economy almost doubled to $1.1 billion in 2012 from $600 million in 2006, according to the central bank.
The West African nation, where ArcelorMittal and OAO Severstal operate iron ore mines, is in the process of changing its old mining policies to boost investments.
“The best strategy would be to move in gradually, develop part of the project, assess risks and start early cash flow,” said Nirmal Bang’s Daga. “If all things remain positive, go full steam ahead to complete the plan.”
The strength of the parent, Vedanta, will give Sesa enough financial flexibility to raise debt financing for capital expenditure, said Mumbai-based Sankalp Baid, an analyst at India Ratings & Research, a local unit of Fitch Ratings.

Total Debt

Net debt at Sesa was about 40 billion rupees ($743 million) as on Dec. 31, while cash and equivalent stood at 2 billion rupees, according to Mukherjee. Total debt rose to a record 43.7 billion rupees in the quarter to Sept. 30, 2011, according to data compiled by Bloomberg.
“Liberia is a new territory for the group and it’s best to wait and watch how the project progresses,” said Baid.
Sesa’s decision to invest overseas became necessary after India’s Supreme Court in October suspended extraction in the western state of Goa pending a probe into violations of mining norms. The ban followed a similar action in neighboring Karnataka in August 2011. The court in September allowed opening of some Karnataka mines, excluding those owned by Sesa.

Ban Hearing

The top court is scheduled to hear the case of Karnataka mines on Feb. 1.
“In the case of Karnataka, our reclamation and rehabilitation plan has been approved and we are now hopeful that we will be allowed to restart mining,” Mukherjee said. “I’m sure that by March we’ll find some cash inflow from Goa business also, apart from Karnataka,” he told investors on an earnings call on Jan. 25.
Agarwal is in the process of combining three group companies -- Vedanta Aluminium Ltd., Sterlite Industries (India) Ltd. and Sesa -- to cut costs, revamp debt and boost operational synergies.
Sesa reported a 28 percent drop in third-quarter profit. Group net income fell to 4.97 billion rupees in the three months ended Dec. 31, from 6.92 billion rupees a year earlier, it said in a statement Jan. 24. The profit was mainly due to its 20 percent share in earnings of unit Cairn India Ltd. (CAIR)
“We are continuously driving our Liberian project and have decided to first start at lower capacity for early cash flow,” Mukherjee said. “Since it’s a new geography we want to start fast and cover all possible risks and see how the operations go.”
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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RBI Signals India Rate-Cut Limits as Policy Revamped: Economy By Kartik Goyal - Jan 28, 2013

The Reserve Bank of India signaled elevated inflation is limiting room to cut interest rates even as its focus may shift to spurring growth as the government implements an overhaul of economic policies.
“The scope for supportive monetary policy action is constrained,” the Reserve Bank of India said in a report yesterday ahead of its interest-rate decision in Mumbai today. “However, as reform actions get executed, monetary policy could increasingly focus on growth revival.”
The central bank report suggests there are “clear risks” to Goldman Sachs Group Inc.’s expectations for a front-loading of rate cuts this month, economist Tushar Poddar said in a note yesterday. While the government has vowed to curb the budget gap to damp price pressures, costlier diesel and risks from a trade deficit will limit the central bank to a 25 basis-point rate cut, according to 30 of 35 analysts in a Bloomberg News survey.
“Going forward, the central bank’s actions are going to be based on the government’s ability to execute a credible deficit- cut plan,” said Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd. (YES) “Given the tone of the statement, aggressive easing from the central bank is highly unlikely.”
Rao forecasts Governor Duvvuri Subbarao will lower the repurchase rate to 7.75 percent from 8 percent. India’s inflation eased to a three-year low in December even as it remained the fastest in major emerging markets at 7.18 percent.
Prime Minister Manmohan Singh’s government has overhauled economic policies since mid-September to pare subsidies, lure more foreign investment and spur infrastructure projects.

Twin Deficits

Singh is trying to revive an economy expanding at the weakest pace in a decade and tame fiscal and current-account gaps that have increased the risk of a credit-rating downgrade.
The rupee, up about 2.7 percent since the policy changes began, weakened 0.4 percent to 53.915 a dollar at the 5 p.m. close in Mumbai yesterday. The BSE India Sensitive Index was little changed. The yield on the 8.15 percent bonds maturing in June 2022 dropped to 7.86 percent from 7.89 percent on Jan. 24.
“The balance of macroeconomic risks suggest continuation of the calibrated stance while increasingly focusing on growth risks,” the central bank said in the report. “Reforms since September 2012 have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy.”
Smaller Steps?
Aside from inflation, a record current-account deficit of $22.31 billion in the quarter ended Sept. 30, as well as the fiscal shortfall, are constraints on easing, it said. The government aims to narrow the budget gap to 5.3 percent of gross domestic product in the 12 months through March, from 5.8 percent.
The use of “calibrated” in the central bank’s comments suggests that the RBI may be more comfortable in easing in steps of 25 basis points rather than a front-loaded easing, said Poddar at Goldman Sachs.
“While we continue to expect a cumulative 50 basis points of easing in the first quarter, and indeed in calendar 2013, there are clear risks to our forecast of a 50 basis-point rate cut in the Jan. 29 policy meeting,” the economist said.

Moderating Inflation

The Reserve Bank said if inflation trends down, “monetary policy could increasingly shift focus” to aid expansion. While higher diesel tariffs may lead to price pressures, inflation may continue to moderate this quarter, it said.
Subbarao has kept the repurchase rate at 8 percent since a 50 basis-point cut in April last year. He has cut the cash reserve ratio four times since the start of 2012. The central bank signaled in December it may ease policy in coming months to aid growth.
The economy may expand 5.5 percent in the year through March 2013, based on a compilation of forecasts from other organizations, yesterday’s report showed. October’s projection was 5.7 percent. Inflation may average 7.5 percent, based on the compilation, compared with an earlier 7.7 percent estimate.
Subbarao will lower borrowing costs to 7.5 percent, four analysts said in the Bloomberg survey. One forecast no change.
“Even if inflation recedes further, the wide CAD may slow the pace and extent to which monetary policy can be eased,” the central bank said in yesterday’s report, referring to the current-account deficit.

Diesel Prices

India on Jan. 17 partially freed diesel prices from state control to curb fuel subsidies. A rise of 0.45 rupees a liter every month until March 2014 will add around 64 basis points to benchmark inflation, Nomura Holdings Inc. said.
The Finance Ministry forecasts economic growth of as little as 5.7 percent in 2012-2013, the least since 2002-2003. The expansion will reach 6.5 percent in 2013-2014, according to the median of 30 estimates in a Bloomberg News survey.
Elsewhere in Asia today, a government report showed New Zealand’s annual trade deficit unexpectedly narrowed in December as imports fell to an eight-month low. In Australia, a private report showed business confidence for December rebounded by the most since 2001 after the central bank’s sixth interest-rate cut in 14 months.
In Europe later today, reports may show retail sales in Spain declined in December from a year earlier, a French consumer confidence measure was unchanged from its December reading, and a German import price index may have fallen last month for the third time in the past four months, surveys of economists showed.
In the U.S., private reports may show home prices in November posted their biggest year-on-year advance since August 2006, while consumer confidence as measured by the New York- based Conference Board likely weakened in January for a third straight month, surveys showed.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net