June 12 (Bloomberg) -- Jobless claims from white-collar workers in the U.K. rose by 154 percent in the year through May as the recession led banks and other services companies to fire workers, particularly in London and the South East of England.
The number of managers and professionals claiming the Jobseekers’ Allowance increased to 118,700 from 46,700 a year earlier, the Local Government Association said in a report today.
“It’s the South that has seen a sharp rise in the number of managerial job losses,” said Jeremy Beecham, vice-chairman of the association, a lobbying group that represents the interest of local councils. “White-collar workers are by no means safe from job cuts, and increasing numbers of them are being forced onto Job Seekers’ Allowance.”
Britain’s economy is hemorrhaging workers in a recession predicted by Prime Minister Gordon Brown’s government to be the worst since World War II. Service industries account for 80 percent of all jobs in Britain, and in financial services 40 percent of workers are based in London and the South East.
The number of jobless based on International Labour Organization methods rose 244,000 in the three months through March, the biggest increase since 1981, government figures show. Economists say unemployment, currently 2.22 million, may continue to rise long after the recession has ended and peak above 3 million.
The number of manual and skilled trade workers seeking jobless benefits increased by 77 percent to 589,000, the Local Government Association said.
Thursday, June 11, 2009
Infosys Is Ready to Boost Staff in Case of ‘Hire American’ Law
June 12 (Bloomberg) -- Infosys Technologies Ltd., India’s second-largest provider of software services, plans to boost hiring in the U.S. if a proposal to restrict the country’s work visas becomes law, said B. G. Srinivas, a company executive.
The recruitment would be in addition to existing projects, Srinivas said yesterday in an interview from London, where the senior vice president heads the company’s operations in Europe and manufacturing-services unit worldwide. Bangalore-based Infosys has budgeted 1,000 new U.S. employees by the end of 2010.
“We have already started the hiring engine, but we haven’t hired yet,” Srinivas said in the telephone interview. “All actions have been taken, including locations where this hiring will happen, what kind of profiles -- those plans are in place and we can execute at any time.”
Infosys, whose clients include General Electric Co. and General Motors Corp., has about 10 percent of its 104,900 employees in the U.S., mainly Indians on H-1B foreign work visas. The proposal by Senators Dick Durbin of the Democratic Party and Republican Charles Grassley would require the company to replace half of them with Americans. They submitted the bill in April as the U.S. battles its highest unemployment rate since 1983.
“The first signs of protectionism are there,” Krishnakumar Natarajan, the chief executive officer of Infosys’s smaller rival MindTree Ltd., said in an interview this week in Bangalore. “The sentiment is clearly, ‘Hey, when there are job losses here, why should they go outside?’”
A possible U.S. law limiting foreign visas comes as Armonk, New York-based International Business Machines Corp., the world’s largest provider of computer services, adds staff in India and challenges Infosys, larger rival Tata Consultancy Services Ltd. and their peers in their home market.
Infosys has risen 57 percent in Mumbai trading this year, compared with a 62 percent gain at Tata Consultancy. The benchmark Bombay Sensitive Index has advanced 62 percent.
The Durbin-Grassley bill “obviously is a concern if it gets implemented in full and with no time lag,” Srinivas said. “Over a period of two years, we can easily manage.”
The recruitment would be in addition to existing projects, Srinivas said yesterday in an interview from London, where the senior vice president heads the company’s operations in Europe and manufacturing-services unit worldwide. Bangalore-based Infosys has budgeted 1,000 new U.S. employees by the end of 2010.
“We have already started the hiring engine, but we haven’t hired yet,” Srinivas said in the telephone interview. “All actions have been taken, including locations where this hiring will happen, what kind of profiles -- those plans are in place and we can execute at any time.”
Infosys, whose clients include General Electric Co. and General Motors Corp., has about 10 percent of its 104,900 employees in the U.S., mainly Indians on H-1B foreign work visas. The proposal by Senators Dick Durbin of the Democratic Party and Republican Charles Grassley would require the company to replace half of them with Americans. They submitted the bill in April as the U.S. battles its highest unemployment rate since 1983.
“The first signs of protectionism are there,” Krishnakumar Natarajan, the chief executive officer of Infosys’s smaller rival MindTree Ltd., said in an interview this week in Bangalore. “The sentiment is clearly, ‘Hey, when there are job losses here, why should they go outside?’”
A possible U.S. law limiting foreign visas comes as Armonk, New York-based International Business Machines Corp., the world’s largest provider of computer services, adds staff in India and challenges Infosys, larger rival Tata Consultancy Services Ltd. and their peers in their home market.
Infosys has risen 57 percent in Mumbai trading this year, compared with a 62 percent gain at Tata Consultancy. The benchmark Bombay Sensitive Index has advanced 62 percent.
The Durbin-Grassley bill “obviously is a concern if it gets implemented in full and with no time lag,” Srinivas said. “Over a period of two years, we can easily manage.”
Wednesday, June 10, 2009
Asian Stocks Rise on Profit Optimism; Nippon Steel, JFE Climb
June 11 (Bloomberg) -- Asian stocks rose, led by steelmakers and energy companies, on speculation industry profits will improve as the global recovery takes hold.
Nippon Steel Corp. jumped 5.7 percent in Tokyo after the Nikkei newspaper reported the company is restarting some idled capacity. China Petroleum & Chemical Corp., the country’s biggest refiner, gained 3.7 percent in Hong Kong as a unit forecast a return to profit. KDDI Corp., Japan’s No. 2 mobile- phone carrier, sank 3.7 percent, leading declines by phone stocks and utilities on speculation investors are shifting funds to companies more likely to benefit from economic growth.
“The outlook for commodities is getting brighter as the economic data improves, especially out of China,” said Nader Naeimi, an investment strategist at AMP Capital Investors in Sydney, which manages about $95 billion. “Asian markets should benefit as economic activity picks up steam and regional trade improves.”
Five stocks declined for every four that rose on the MSCI Asia Pacific Index, which gained 0.6 percent to 105.12 as of 1:37 p.m. in Tokyo. The gauge has climbed 49 percent from a five-year low on March 9, taking valuations of its companies to the highest in more than eight months.
Japan’s Nikkei 225 Stock Average was little changed as the government said gross domestic product shrank at a 14.2 percent annual pace last quarter. South Korea’s Kospi Index gained 1 percent. Australia’s S&P/ASX 200 Index added 0.7 percent.
Taiwan Semiconductor Manufacturing Co., the world’s largest supplier of made-to-order chips, sank 0.9 percent in Taipei after saying sales slumped last month.
Higher Yields
Futures on the Standard & Poor’s 500 Index added 0.5 percent. The gauge lost 0.4 percent yesterday, led by financial companies, as yields on 10-year Treasury notes climbed to the highest level in eight months. Russia’s central bank may switch some of its reserves from U.S. Treasuries to International Monetary Fund bonds, Alexei Ulyukayev, the bank’s first deputy chairman, said yesterday.
The three-month stock rally has driven the average valuations of companies on the MSCI Asia Pacific Index to 1.5 times the book value of assets, the highest since Sept. 26. Analyst profit forecasts have been increasing since the end of March, according to data compiled by Bloomberg.
Nippon Steel climbed 5.7 percent to 393 yen, while JFE Holdings Inc. rose 4.3 percent to 3,370 yen. Kobe Steel Ltd. added 4.9 percent to 193 yen. The three steelmakers are restarting some idled capacity because output at automakers and other manufacturers has hit bottom, the Nikkei reported.
High Valuations
“There are expectations the economy will start to recover later this year and stocks will climb even further,” said Mitsushige Akino, who oversees about $560 million at Ichiyoshi Investment Management Co. in Tokyo. “As valuations are high, optimism alone isn’t enough for investors to buy more.”
Companies on Japan’s Nikkei traded at 42.5 times estimated profit for this fiscal year, the highest level in almost a month, according to gauge compiler Nikkei Inc. The 25-day Toraku index, a measure of daily stock winners and losers in Tokyo, jumped to 135.32 yesterday, above the 130 level that some traders use as a signal to sell.
China Petroleum, known as Sinopec, climbed 3.7 percent to HK$5.93. The company’s Sinopec Shanghai Petrochemical Co. unit said it expects to post a profit for the first half of 2009, compared with a net loss for the same period last year.
Sinopec Shanghai jumped 8.1 percent to HK$2.82 in Hong Kong.
‘Defensive’ Stocks
KDDI fell 3.7 percent to 493,000 yen, while smaller rival Softbank Corp., the sole provider of Apple Inc.’s iPhone in Japan, slid 1.6 percent. CLP Holdings Ltd., Hong Kong’s biggest power utility, sank 0.6 percent to HK$51.80.
Telecommunication companies and utilities are in so-called defensive sectors that are considered to be relatively insulated against an economic downturn. The two industries were the best performing of the MSCI Asia Pacific Index’s 10 groups at the height of the credit crisis in the fourth quarter of 2008.
“People are shifting to cyclical shares from defensive ones on expectations the global economy will recover,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo, which oversees about $88 billion.
Nippon Steel Corp. jumped 5.7 percent in Tokyo after the Nikkei newspaper reported the company is restarting some idled capacity. China Petroleum & Chemical Corp., the country’s biggest refiner, gained 3.7 percent in Hong Kong as a unit forecast a return to profit. KDDI Corp., Japan’s No. 2 mobile- phone carrier, sank 3.7 percent, leading declines by phone stocks and utilities on speculation investors are shifting funds to companies more likely to benefit from economic growth.
“The outlook for commodities is getting brighter as the economic data improves, especially out of China,” said Nader Naeimi, an investment strategist at AMP Capital Investors in Sydney, which manages about $95 billion. “Asian markets should benefit as economic activity picks up steam and regional trade improves.”
Five stocks declined for every four that rose on the MSCI Asia Pacific Index, which gained 0.6 percent to 105.12 as of 1:37 p.m. in Tokyo. The gauge has climbed 49 percent from a five-year low on March 9, taking valuations of its companies to the highest in more than eight months.
Japan’s Nikkei 225 Stock Average was little changed as the government said gross domestic product shrank at a 14.2 percent annual pace last quarter. South Korea’s Kospi Index gained 1 percent. Australia’s S&P/ASX 200 Index added 0.7 percent.
Taiwan Semiconductor Manufacturing Co., the world’s largest supplier of made-to-order chips, sank 0.9 percent in Taipei after saying sales slumped last month.
Higher Yields
Futures on the Standard & Poor’s 500 Index added 0.5 percent. The gauge lost 0.4 percent yesterday, led by financial companies, as yields on 10-year Treasury notes climbed to the highest level in eight months. Russia’s central bank may switch some of its reserves from U.S. Treasuries to International Monetary Fund bonds, Alexei Ulyukayev, the bank’s first deputy chairman, said yesterday.
The three-month stock rally has driven the average valuations of companies on the MSCI Asia Pacific Index to 1.5 times the book value of assets, the highest since Sept. 26. Analyst profit forecasts have been increasing since the end of March, according to data compiled by Bloomberg.
Nippon Steel climbed 5.7 percent to 393 yen, while JFE Holdings Inc. rose 4.3 percent to 3,370 yen. Kobe Steel Ltd. added 4.9 percent to 193 yen. The three steelmakers are restarting some idled capacity because output at automakers and other manufacturers has hit bottom, the Nikkei reported.
High Valuations
“There are expectations the economy will start to recover later this year and stocks will climb even further,” said Mitsushige Akino, who oversees about $560 million at Ichiyoshi Investment Management Co. in Tokyo. “As valuations are high, optimism alone isn’t enough for investors to buy more.”
Companies on Japan’s Nikkei traded at 42.5 times estimated profit for this fiscal year, the highest level in almost a month, according to gauge compiler Nikkei Inc. The 25-day Toraku index, a measure of daily stock winners and losers in Tokyo, jumped to 135.32 yesterday, above the 130 level that some traders use as a signal to sell.
China Petroleum, known as Sinopec, climbed 3.7 percent to HK$5.93. The company’s Sinopec Shanghai Petrochemical Co. unit said it expects to post a profit for the first half of 2009, compared with a net loss for the same period last year.
Sinopec Shanghai jumped 8.1 percent to HK$2.82 in Hong Kong.
‘Defensive’ Stocks
KDDI fell 3.7 percent to 493,000 yen, while smaller rival Softbank Corp., the sole provider of Apple Inc.’s iPhone in Japan, slid 1.6 percent. CLP Holdings Ltd., Hong Kong’s biggest power utility, sank 0.6 percent to HK$51.80.
Telecommunication companies and utilities are in so-called defensive sectors that are considered to be relatively insulated against an economic downturn. The two industries were the best performing of the MSCI Asia Pacific Index’s 10 groups at the height of the credit crisis in the fourth quarter of 2008.
“People are shifting to cyclical shares from defensive ones on expectations the global economy will recover,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo, which oversees about $88 billion.
Crisis Sets Back Global Rules When Most Needed, Regulators Say
June 11 (Bloomberg) -- National overhauls of banking and market rules in response to the financial crisis have set back plans by world leaders to create common standards, regulators and industry officials say.
The U.S., European Union and Japan have imposed new rules on banks and investors in response to the turmoil, in some cases undoing years of work to build up global standards, officials said at a conference of the International Organization of Securities Commissions in Tel Aviv this week.
“It will be difficult once the crisis is over to start again with a coherent system of international cooperation,” said Eddy Wymeersch, chairman of the EU’s Committee of European Securities Regulators and supervisory board chairman of the Belgian Banking, Finance and Insurance Commission, in an interview in Tel Aviv.
The single-country responses delay not only initiatives to develop uniform rules pledged by world leaders at the Group of 20 summit in London on April 2. It also complicates efforts by regulators to guard against financial disruptions such as the U.S. subprime-mortgage collapse that triggered the credit crunch.
The differences include divergent approaches between the U.S. and EU -- the world’s two largest economic blocs -- to regulating bank capital, hedge funds and credit-rating companies such as Moody’s Investors Service and Standard & Poor’s, regulators and industry executives say. Japan, the U.S. and Europe have also have imposed varying restrictions on short- selling.
‘Contagion’
“Everyone knows that we have to cooperate as closely as possible, because of contagion,” said Hans Hoogervorst, head of Dutch financial regulator AFM and vice chairman of IOSCO’s main standard-setting body, the Technical Committee. In an interview at the conference, he said, “This is a more serious problem than the H1N1 flu that came from Mexico.”
The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered more than $1.46 trillion of writedowns and credit losses at banks and other financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg.
The turmoil that arose two years ago has slowed a drive between 2005 and 2007, when many countries adopted Basel II global banking standards and international accounting standards took hold in more than 100 countries. U.S. regulators meanwhile were moving toward applying the global rules.
Lost Momentum
“We have lost a little bit of momentum and we will have to start it over again,” Wymeersch said. As a result, he said, business “is going to be more costly. If you want to do capital raising it will be more costly. If you want to establish banks, you have duplication of supervision, and so on.”
Since the credit crunch, the EU has proposed bank-capital revisions ahead of the Basel, Switzerland, committee that writes banking rules. U.S. policy makers also have forced through changes to accounting rules, that some say are out of sync with a review by the international standard-setters.
“Progress in global convergence in regulatory standards has ground to a halt,” Richard Britton, a consultant on regulatory issues to the International Capital Market Association, said in an interview in Tel Aviv. “The hope must be that, as the world economy recovers from the crisis,” the momentum from 2005-2007 “will be regained.”
To get back on track, the G-20 has called on the Financial Stability Board of central bankers and finance ministers to coordinate efforts to stiffen regulations for banks, hedge funds, and other parties.
“Whatever we do, no matter how we design future regulation, we will continue having a level playing field,” Mario Draghi, FSB chairman and governor of the Bank of Italy, said at the conference yesterday. “That’s the most important thing and it’s the thing that’s most in danger right now.”
The U.S., European Union and Japan have imposed new rules on banks and investors in response to the turmoil, in some cases undoing years of work to build up global standards, officials said at a conference of the International Organization of Securities Commissions in Tel Aviv this week.
“It will be difficult once the crisis is over to start again with a coherent system of international cooperation,” said Eddy Wymeersch, chairman of the EU’s Committee of European Securities Regulators and supervisory board chairman of the Belgian Banking, Finance and Insurance Commission, in an interview in Tel Aviv.
The single-country responses delay not only initiatives to develop uniform rules pledged by world leaders at the Group of 20 summit in London on April 2. It also complicates efforts by regulators to guard against financial disruptions such as the U.S. subprime-mortgage collapse that triggered the credit crunch.
The differences include divergent approaches between the U.S. and EU -- the world’s two largest economic blocs -- to regulating bank capital, hedge funds and credit-rating companies such as Moody’s Investors Service and Standard & Poor’s, regulators and industry executives say. Japan, the U.S. and Europe have also have imposed varying restrictions on short- selling.
‘Contagion’
“Everyone knows that we have to cooperate as closely as possible, because of contagion,” said Hans Hoogervorst, head of Dutch financial regulator AFM and vice chairman of IOSCO’s main standard-setting body, the Technical Committee. In an interview at the conference, he said, “This is a more serious problem than the H1N1 flu that came from Mexico.”
The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered more than $1.46 trillion of writedowns and credit losses at banks and other financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg.
The turmoil that arose two years ago has slowed a drive between 2005 and 2007, when many countries adopted Basel II global banking standards and international accounting standards took hold in more than 100 countries. U.S. regulators meanwhile were moving toward applying the global rules.
Lost Momentum
“We have lost a little bit of momentum and we will have to start it over again,” Wymeersch said. As a result, he said, business “is going to be more costly. If you want to do capital raising it will be more costly. If you want to establish banks, you have duplication of supervision, and so on.”
Since the credit crunch, the EU has proposed bank-capital revisions ahead of the Basel, Switzerland, committee that writes banking rules. U.S. policy makers also have forced through changes to accounting rules, that some say are out of sync with a review by the international standard-setters.
“Progress in global convergence in regulatory standards has ground to a halt,” Richard Britton, a consultant on regulatory issues to the International Capital Market Association, said in an interview in Tel Aviv. “The hope must be that, as the world economy recovers from the crisis,” the momentum from 2005-2007 “will be regained.”
To get back on track, the G-20 has called on the Financial Stability Board of central bankers and finance ministers to coordinate efforts to stiffen regulations for banks, hedge funds, and other parties.
“Whatever we do, no matter how we design future regulation, we will continue having a level playing field,” Mario Draghi, FSB chairman and governor of the Bank of Italy, said at the conference yesterday. “That’s the most important thing and it’s the thing that’s most in danger right now.”
Economic group calls end of downturn
Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00
The first growth in industrial output in more than a year led a respected research group to say the recession passed its trough in March, with the UK economy returning to growth in April and May.
The economy grew by 0.1 per cent in May and by 0.2 per cent in April after contracting by 0.5 per cent in March, said the National Institute for Economic and Social Research.
Martin Weale, director of the NIESR, said the recession had ended "as far as I can tell". He added: "There has been much less downward momentum than we expected."
Overall, NIESR reported that the output of the UK economy fell by 5 per cent between the beginning of the recession in May 2008 and March of this year, leaving the contraction worse than that of the early 1990s, but not as bad so far as the early 1980s recession.
Its verdict that the recession had bottomed out came after industrial production - which includes manufacturing, energy extraction, mining and utilities output - rose by 0.3 per cent in April for the first time in 14 months.
Official data from the Office for National Statistics yesterday showed manufacturing production rose by 0.4 per cent over March and April, albeit after a decline of almost 14 per cent over the previous year.
Other business surveys have recently suggested that the services sector , which makes up about three-quarters of the UK economy, has also returned to modest growth.
The manufacturing data suggest that the second quarter from April to June is likely to see at worst only a small fall in gross domestic product, and may even see growth. That would suggest an earlier return to expansion for the economy than expected by the Treasury, after Alistair Darling, chancellor, predicted in the Budget that a recovery would not begin until the fourth quarter, as did many City economists.
But there are widespread fears that, after stabilising as companies run low on stocks and are forced to increase orders, the economy could take another downwards slide, because consumer and business spending remain weak.
Kate Barker , a member of the Bank of England's interest rate-setting committee, echoed those concerns in an interview with a local newspaper yesterday.
"Some areas of retailing are still doing reasonably well and manufacturing orders are starting to come back, but whether that's a stocking issue or a turn up in final demand isn't so clear," she told the Leicester Mercury . "I think there's a lot of concern about what's going to happen beyond this pick-up."
The improvement in industrial output came as trade figures suggested levels of demand were improving more quickly in the UK than abroad. The trade deficit in traded goods excluding oil jumped to £7bn ($11bn, €8bn) in April, from £6bn in March, as exports rose by less than imports.
The first growth in industrial output in more than a year led a respected research group to say the recession passed its trough in March, with the UK economy returning to growth in April and May.
The economy grew by 0.1 per cent in May and by 0.2 per cent in April after contracting by 0.5 per cent in March, said the National Institute for Economic and Social Research.
Martin Weale, director of the NIESR, said the recession had ended "as far as I can tell". He added: "There has been much less downward momentum than we expected."
Overall, NIESR reported that the output of the UK economy fell by 5 per cent between the beginning of the recession in May 2008 and March of this year, leaving the contraction worse than that of the early 1990s, but not as bad so far as the early 1980s recession.
Its verdict that the recession had bottomed out came after industrial production - which includes manufacturing, energy extraction, mining and utilities output - rose by 0.3 per cent in April for the first time in 14 months.
Official data from the Office for National Statistics yesterday showed manufacturing production rose by 0.4 per cent over March and April, albeit after a decline of almost 14 per cent over the previous year.
Other business surveys have recently suggested that the services sector , which makes up about three-quarters of the UK economy, has also returned to modest growth.
The manufacturing data suggest that the second quarter from April to June is likely to see at worst only a small fall in gross domestic product, and may even see growth. That would suggest an earlier return to expansion for the economy than expected by the Treasury, after Alistair Darling, chancellor, predicted in the Budget that a recovery would not begin until the fourth quarter, as did many City economists.
But there are widespread fears that, after stabilising as companies run low on stocks and are forced to increase orders, the economy could take another downwards slide, because consumer and business spending remain weak.
Kate Barker , a member of the Bank of England's interest rate-setting committee, echoed those concerns in an interview with a local newspaper yesterday.
"Some areas of retailing are still doing reasonably well and manufacturing orders are starting to come back, but whether that's a stocking issue or a turn up in final demand isn't so clear," she told the Leicester Mercury . "I think there's a lot of concern about what's going to happen beyond this pick-up."
The improvement in industrial output came as trade figures suggested levels of demand were improving more quickly in the UK than abroad. The trade deficit in traded goods excluding oil jumped to £7bn ($11bn, €8bn) in April, from £6bn in March, as exports rose by less than imports.
Tuesday, June 9, 2009
India May Increase Key Rates in Early 2010, Goldman Sachs Says
June 10 (Bloomberg) -- India’s central bank may start increasing interest rates in early 2010 as inflation accelerates at more than double the expected pace, Goldman Sachs said.
“Policy easing is at an end,” Tushar Poddar, an economist at Goldman Sachs in Mumbai, said in a report yesterday. “The first rate hikes may come in early 2010 as monetary policy moves from being very loose to a more neutral stance.”
Goldman Sachs joins Barclays Plc in predicting that the Reserve Bank of India, which has cut rates to record lows amid the global recession, may soon change its stance and begin raising borrowing costs to ward off inflation. Central bank Governor Duvvuri Subbarao said last month that it might be time to start thinking about reversing “expansionary” policies.
Subbarao has slashed India’s policy repurchase rate by 425 basis points since October and lowered the reverse repurchase rate by 275 basis points. The reductions, combined with three government stimulus packages, are worth about 7 percent of gross domestic product, according to central bank estimates.
“Policy remains very loose,” Poddar said. “Additional cuts would be a mistake as it would affect demand when it is already rising and risk stoking inflationary pressures.”
Signs of a recovery in Asia’s third-largest economy are already emerging.
The $433 billion economy expanded 5.8 percent in the three months to March 31 from a year earlier, matching the growth pace of the previous quarter and beating the 5 percent median forecast of economists surveyed by Bloomberg News.
‘Stronger Recovery’
Growth can rebound to a 9 percent pace as higher government spending counters the impact of the worst worldwide economic slump since the Great Depression, Prime Minister Manmohan Singh told parliament in New Delhi yesterday. Finance Minister Pranab Mukherjee is due to unveil the government’s budget in early July.
“The initial conditions for a domestic demand-led recovery are now in place,” Sonal Varma, an economist at Nomura Securities Co. in Mumbai, said in a report yesterday. “The economy should see a stronger recovery from the fourth quarter of 2009 onwards.”
An index of composite leading indicators for the Indian economy compiled by the Organisation for Economic Cooperation and Development rose 0.4 point in April from the previous month, the first increase in 16 months.
“Tentative signs of a trough” have emerged in the Indian economy, the Paris-based OECD said in a June 8 report.
Rising domestic demand will exert upward pressure on prices, Poddar said. He expects Indian inflation to reach 6.5 percent in the year ending March 31, 2010, compared with a previous forecast of 3 percent.
Price Pressures
India’s benchmark wholesale price index rose 0.48 percent in the week to May 23 from a year earlier, holding below 1 percent for the 12th straight week.
Other price measures have not been so benign. Consumer prices paid by industrial workers rose 8.03 percent in March from a year earlier, after gaining 9.63 percent in February.
India has four consumer price indices and uses the wholesale price index as the benchmark as the other gauges don’t capture the aggregate price picture.
Higher oil prices will also add to inflationary pressures in India, Poddar said, adding that Goldman Sachs’ commodity research team has increased its forecast for crude to $85 a barrel at year-end 2009 from a previous prediction of $65. The price target for the end of 2010 is $95 a barrel.
“India is particularly vulnerable to oil prices as it imports a majority of its oil needs,” Poddar said. A 10 percent increase in the nation’s administered price of crude oil would add 0.6 percent to the benchmark wholesale price inflation index, he said.
“Policy easing is at an end,” Tushar Poddar, an economist at Goldman Sachs in Mumbai, said in a report yesterday. “The first rate hikes may come in early 2010 as monetary policy moves from being very loose to a more neutral stance.”
Goldman Sachs joins Barclays Plc in predicting that the Reserve Bank of India, which has cut rates to record lows amid the global recession, may soon change its stance and begin raising borrowing costs to ward off inflation. Central bank Governor Duvvuri Subbarao said last month that it might be time to start thinking about reversing “expansionary” policies.
Subbarao has slashed India’s policy repurchase rate by 425 basis points since October and lowered the reverse repurchase rate by 275 basis points. The reductions, combined with three government stimulus packages, are worth about 7 percent of gross domestic product, according to central bank estimates.
“Policy remains very loose,” Poddar said. “Additional cuts would be a mistake as it would affect demand when it is already rising and risk stoking inflationary pressures.”
Signs of a recovery in Asia’s third-largest economy are already emerging.
The $433 billion economy expanded 5.8 percent in the three months to March 31 from a year earlier, matching the growth pace of the previous quarter and beating the 5 percent median forecast of economists surveyed by Bloomberg News.
‘Stronger Recovery’
Growth can rebound to a 9 percent pace as higher government spending counters the impact of the worst worldwide economic slump since the Great Depression, Prime Minister Manmohan Singh told parliament in New Delhi yesterday. Finance Minister Pranab Mukherjee is due to unveil the government’s budget in early July.
“The initial conditions for a domestic demand-led recovery are now in place,” Sonal Varma, an economist at Nomura Securities Co. in Mumbai, said in a report yesterday. “The economy should see a stronger recovery from the fourth quarter of 2009 onwards.”
An index of composite leading indicators for the Indian economy compiled by the Organisation for Economic Cooperation and Development rose 0.4 point in April from the previous month, the first increase in 16 months.
“Tentative signs of a trough” have emerged in the Indian economy, the Paris-based OECD said in a June 8 report.
Rising domestic demand will exert upward pressure on prices, Poddar said. He expects Indian inflation to reach 6.5 percent in the year ending March 31, 2010, compared with a previous forecast of 3 percent.
Price Pressures
India’s benchmark wholesale price index rose 0.48 percent in the week to May 23 from a year earlier, holding below 1 percent for the 12th straight week.
Other price measures have not been so benign. Consumer prices paid by industrial workers rose 8.03 percent in March from a year earlier, after gaining 9.63 percent in February.
India has four consumer price indices and uses the wholesale price index as the benchmark as the other gauges don’t capture the aggregate price picture.
Higher oil prices will also add to inflationary pressures in India, Poddar said, adding that Goldman Sachs’ commodity research team has increased its forecast for crude to $85 a barrel at year-end 2009 from a previous prediction of $65. The price target for the end of 2010 is $95 a barrel.
“India is particularly vulnerable to oil prices as it imports a majority of its oil needs,” Poddar said. A 10 percent increase in the nation’s administered price of crude oil would add 0.6 percent to the benchmark wholesale price inflation index, he said.
Asia Bondholders Face Pain as Bankruptcies Climb, Lawyers Say
June 10 (Bloomberg) -- The number of failed companies in Asia, particularly in China and Indonesia, will rise sharply in coming months, leaving many bondholders with little chance of recovering their money, according to insolvency lawyers.
“I’m getting one to two decent-sized jobs a month and I don’t see the pipeline turning off anytime soon,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said in an interview today.
Defaults and bankruptcies in the Asia-Pacific region have risen to 67 this year, from 16 in the same period last year, according to data compiled by Bloomberg, while banks in Asia have written off $38.5 billion since the global credit crisis began in 2007. Petitions to wind up companies in Hong Kong jumped 57 percent from March to April, according to the Official Receiver’s Office, bringing the total number of petitions and winding-up orders in the city this year to 408.
McDonald, who has worked on insolvencies including NV De Indonesische Overzeese Bank, PT Central Proteinaprima and Anglo Starlite Insurance Co., said a constant problem for bondholders is the way many companies were set up, with an operating entity in either mainland China or Indonesia, and the parent company based offshore in the British Virgin or Cayman Islands.
“That’s the classic holding structure of many companies in Asia. You appoint a liquidator in Hong Kong and all the local banks jump on the assets in China,” he said. “These companies have structures which for any practical purpose put bondholders out of the money from day one.”
Banks First
Bondholders of Asia Aluminum Holdings Ltd. could get 20 cents on the dollar or less while Chinese banks will probably recoup all they’re owed, the metal company’s provisional liquidators Ferrier Hodgson Ltd. said on May 14. Asia Aluminum was placed into provisional liquidation by a Hong Kong court in March after bondholders rejected a debt restructuring plan.
Shareholders of Indonesian shrimp producer PT Central Proteinaprima, or CP Prima as it is known, agreed on May 12 to a debt-conversion plan and rights offer which bondholder groups, including one known as Red Dragon, say may cause overseas noteholders to lose control of the company, a claim CP Prima denies. The Jakarta-based company owes bondholders $525 million, according to Bloomberg data.
David Zemans, managing partner of Milbank Tweed Hadley & McCloy LLP’s Singapore office, said it was often difficult for bondholders with strong cases to rely on local legal systems. Many of the bondholders he represents are owed money in Indonesia, he said.
Legal Systems
“It’s unlike other jurisdictions, where you have some reasonable sense of confidence documents will be interpreted in accordance with how they’re meant to be interpreted,” Zemans said. “You have to go in with your eyes wide open.”
Non-performing loans in Indonesia, the largest Southeast nation, rose 11 percent this year to 61.7 trillion rupiah ($6.1 billion), the central bank’s data shows.
In Singapore, the number of petitions filed to wind up companies rose 55 percent from March to April, according to the city-state’s Insolvency & Public Trustee’s Office, a unit of the Ministry of Law.
Offers from struggling companies to buy back debt at low prices are on the rise, McDonald said.
On June 4, China Glass Holdings Ltd. had its rating cut to Ca, the second-lowest level, by Moody’s Investors Service, after China’s second-largest maker of flat glass offered to buy back $100 million bonds maturing in 2012 for up to 50 cents on the dollar.
Caving In
“Moody’s views the transaction as a distressed exchange and the Ca rating reflects the high economic loss for the noteholders,” Moody’s analyst Wonnie Chu said in an e-mailed statement yesterday.
Distressed companies often hope bondholders would simply “cave in,” McDonald said. “If the noteholders are banks it’s a little different as they have strong risk committees and can’t, or will not, just write off money like that. Others do end up saying ‘Well, we need the cash, we’d rather write it off and move on,’” he said.
Bigger groups had more chance of success, according to Zemans.
“There are always situations where bondholders decide to cut bait, but in situations where there are unifying factors, like a very difficult borrower and/or clear upside to holding the bonds, bondholders are usually able to find common ground,” he said.
The absence of any formal structure to deal with companies on the brink of bankruptcy in Asia is a huge issue, McDonald said. Countries including China and Indonesia have no Chapter 11 equivalent, or any other similar reorganization proceedings to deal with businesses finding it hard to stay solvent, he said.
“When a business gets sick, the first thing it needs is emergency working capital,” said McDonald. “But unless there’s some certainty surrounding the security you obtain when you do put money in, why would anyone help?”
“I’m getting one to two decent-sized jobs a month and I don’t see the pipeline turning off anytime soon,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said in an interview today.
Defaults and bankruptcies in the Asia-Pacific region have risen to 67 this year, from 16 in the same period last year, according to data compiled by Bloomberg, while banks in Asia have written off $38.5 billion since the global credit crisis began in 2007. Petitions to wind up companies in Hong Kong jumped 57 percent from March to April, according to the Official Receiver’s Office, bringing the total number of petitions and winding-up orders in the city this year to 408.
McDonald, who has worked on insolvencies including NV De Indonesische Overzeese Bank, PT Central Proteinaprima and Anglo Starlite Insurance Co., said a constant problem for bondholders is the way many companies were set up, with an operating entity in either mainland China or Indonesia, and the parent company based offshore in the British Virgin or Cayman Islands.
“That’s the classic holding structure of many companies in Asia. You appoint a liquidator in Hong Kong and all the local banks jump on the assets in China,” he said. “These companies have structures which for any practical purpose put bondholders out of the money from day one.”
Banks First
Bondholders of Asia Aluminum Holdings Ltd. could get 20 cents on the dollar or less while Chinese banks will probably recoup all they’re owed, the metal company’s provisional liquidators Ferrier Hodgson Ltd. said on May 14. Asia Aluminum was placed into provisional liquidation by a Hong Kong court in March after bondholders rejected a debt restructuring plan.
Shareholders of Indonesian shrimp producer PT Central Proteinaprima, or CP Prima as it is known, agreed on May 12 to a debt-conversion plan and rights offer which bondholder groups, including one known as Red Dragon, say may cause overseas noteholders to lose control of the company, a claim CP Prima denies. The Jakarta-based company owes bondholders $525 million, according to Bloomberg data.
David Zemans, managing partner of Milbank Tweed Hadley & McCloy LLP’s Singapore office, said it was often difficult for bondholders with strong cases to rely on local legal systems. Many of the bondholders he represents are owed money in Indonesia, he said.
Legal Systems
“It’s unlike other jurisdictions, where you have some reasonable sense of confidence documents will be interpreted in accordance with how they’re meant to be interpreted,” Zemans said. “You have to go in with your eyes wide open.”
Non-performing loans in Indonesia, the largest Southeast nation, rose 11 percent this year to 61.7 trillion rupiah ($6.1 billion), the central bank’s data shows.
In Singapore, the number of petitions filed to wind up companies rose 55 percent from March to April, according to the city-state’s Insolvency & Public Trustee’s Office, a unit of the Ministry of Law.
Offers from struggling companies to buy back debt at low prices are on the rise, McDonald said.
On June 4, China Glass Holdings Ltd. had its rating cut to Ca, the second-lowest level, by Moody’s Investors Service, after China’s second-largest maker of flat glass offered to buy back $100 million bonds maturing in 2012 for up to 50 cents on the dollar.
Caving In
“Moody’s views the transaction as a distressed exchange and the Ca rating reflects the high economic loss for the noteholders,” Moody’s analyst Wonnie Chu said in an e-mailed statement yesterday.
Distressed companies often hope bondholders would simply “cave in,” McDonald said. “If the noteholders are banks it’s a little different as they have strong risk committees and can’t, or will not, just write off money like that. Others do end up saying ‘Well, we need the cash, we’d rather write it off and move on,’” he said.
Bigger groups had more chance of success, according to Zemans.
“There are always situations where bondholders decide to cut bait, but in situations where there are unifying factors, like a very difficult borrower and/or clear upside to holding the bonds, bondholders are usually able to find common ground,” he said.
The absence of any formal structure to deal with companies on the brink of bankruptcy in Asia is a huge issue, McDonald said. Countries including China and Indonesia have no Chapter 11 equivalent, or any other similar reorganization proceedings to deal with businesses finding it hard to stay solvent, he said.
“When a business gets sick, the first thing it needs is emergency working capital,” said McDonald. “But unless there’s some certainty surrounding the security you obtain when you do put money in, why would anyone help?”
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