Transport and businesses across India were severely disrupted on Monday by a dawn-to-dusk strike called by opposition parties to protest against the government’s decision to raise fuel prices.
Many flights, long-distance and local trains, and bus services were cancelled; businesses – from large IT companies such as Infosys and Wipro to small grocery shops – were closed; and trading volumes on the Bombay Stock Exchange plummeted. Many schools and colleges stayed shut and private vehicles stayed off the road.
India’s Hindu nationalist opposition Bharatiya Janata party and the leftist parties had called the national strike in protest at the government’s decision last month to raise fuel prices when Indians were already reeling from double-digit inflation.
Vijay Sharma, a government administration worker from Delhi, explained why he had participated in a BJP rally supporting the protest: “We have nothing left at the end of the week to save, everything is too expensive; the cost of housing, transport, education and food,” he told the Financial Times.
“We also get taxed so much. How are we to meet the ever-increasing demands of our children?”
The BJP, which has been torn by internal rivalries and feuding since its defeat in last year’s parliamentary elections, and the Communist party, which now controls just two states, have vowed to keep up the pressure until the government reverses its decision.
But as it struggles to curb its widening deficit, the government of Manmohan Singh, prime minister, has insisted that it will stand firm, saying India, which imports nearly 80 per cent of its crude oil, can no longer afford the huge cost of keeping domestic fuel prices below world market levels.
“There is no question of a fuel price rollback,” Pranab Mukherjee, finance minister, told Indian journalists shortly before the 12-hour strike began.
Analysts did not expect a repeat of Monday’s disruptive strike, which the Confederation of Indian Industry said cost the economy about $650m (€519m, £431m).
“Honestly, I don’t think the BJP’s heart is in this,” said Pratap Bhanu Mehta, president of the New Delhi-based Centre for Policy Research. “My own sense is that it is largely symbolic.”
The BJP draws its core support from India’s prosperous trading community, which would be hard hit by strikes, and which Mr Mehta described as “the same class that is least worried about this inflation.”
Congress ended state control over petrol prices last month, and vowed gradually to phase out subsidies on diesel, measures that Mr Singh called “much needed reforms”.
The government also raised the prices of still highly subsidised kerosene and cooking gas.
“The subsidies for the petroleum products have reached a level which is not connected to sound financial management of our country,” Mr Singh said a few days after the moves.
“This decision has been taken to put some burden on the common people, but I think it is manageable.”
Even after the price increases – which will save the government an estimated $5.2bn – New Delhi will spend about $11.6bn in the current financial year, holding domestic retail prices of diesel, kerosene and cooking gas below world market prices.
In 2002, the then BJP-led government tried to deregulate India’s state-controlled fuel prices. When global crude prices shot up a few years later, however, the ruling Congress, which had returned to power on a pledge to look out for the “common man,” party ordered state-owned oil marketing companies to hold retail fuel prices down.
However, the government’s top economic advisers, and most economists, were unanimous in seeing the subsidy regime as unsustainable.
“All the political parties have at one time or the other acknowledged that India . . . has to move domestic prices in line with international trends,” Vikram S. Mehta, chairman of Shell India, wrote in a newspaper commentary on Monday.
Higher fuel prices were expected to add to India’s inflation, which rose to10.2 per cent in May. The BJP said it objected to the timing of the fuel price rise, which it said would exacerbate public hardship caused by the increase in prices of food and other items. However, analysts said the Congress probably felt it had to act now, well ahead of state elections.
Monday, July 5, 2010
Rogoff Says China Property Starting to ‘Collapse’
July 6 (Bloomberg) -- China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.
As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” said Rogoff, speaking in an interview with Bloomberg Television in Hong Kong. He also said that while recoveries across the global economy are “very slow,” the danger of a return to recession isn’t “elevated.”
Rogoff’s concern echoes that of investors, who sent China’s benchmark stock index to its worst loss in more than a year last week. China’s data have been a focus because the nation has led the global recovery from the worst postwar recession.
The Shanghai Composite Index tumbled 6.7 percent last week, and dropped 0.8 percent yesterday to close at 2,363.95. In the U.S., the world’s largest economy, the benchmark Standard & Poor’s 500 index capped a ninth day of declines in 10 sessions on July 2 after a government report showed fewer private-sector American jobs were created in June than forecast.
Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.
Sales Dive
The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 percent in May from the previous month. The increase in prices, at an annual 12.4 percent in May according to a government survey of 70 cities, was down from a 12.8 percent advance in April.
“You’re starting to see that collapse in property and it’s going to hit the banking system,” said Rogoff, 57, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker. “They have a lot of tools and some very competent management, but it’s not easy.”
Premier Wen Jiabao’s government has been trying to cool the economy to alleviate the threat of asset-price bubbles. The central bank has told lenders to set aside more money as reserves, and targeted a 22 percent cut in credit growth at banks this year, to 7.5 trillion yuan ($1.1 trillion).
Growth Outlook
Economists at banks from Goldman Sachs Group Inc. to BNP Paribas SA and China International Capital Corp. have lowered their gross domestic product forecasts for China in recent weeks. Goldman last week cut its growth forecast for China this year to 10.1 percent from 11.4 percent because of the government’s monetary tightening measures.
Property prices will probably fall in some regions of China in about three months, said Xu Shaoshi, minister of Land and Resources, according to a Securities Times story yesterday. Values are now stagnant, Xu also said, according to the report.
Rogoff in February said that real estate values in Beijing and Shanghai had “taken a departure from reality,” and a real- estate bubble bursting would be the most likely cause of a slump in Chinese growth to as low as 2 percent at some point in the coming decade.
His view clashes with that of Stephen Roach, chairman of Morgan Stanley Asia Ltd., who said last month the property boom in China isn’t a bubble. While portions of the market such as high-end apartments are overheating, residential demand will remain robust as rural Chinese migrate to bigger cities, according to Roach.
‘Just a Sliver’
“This is just a sliver of the property boom,” Roach said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance, citing that each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. “This property has not overheated and the demand for this property is very, very solid.”
A bust could impair the nation’s banking system, and China’s financial regulator said June 15 that it saw growing credit risks in the real-estate industry, warning of increasing pressure from non-performing loans.
Risks associated with home mortgages are rising and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report.
Bank Earnings
The record credit expansion last year helped propel earnings at the nation’s lenders, with financial institutions reporting 668.4 billion yuan of combined profits in 2009, a 15 percent gain from a year earlier, according to the CBRC.
China’s five largest state-controlled banks have announced plans to raise as much as $54.5 billion of capital by selling bonds and shares after they extended record loans last year to support a government-led stimulus plan.
Agricultural Bank of China Ltd., which is in the midst of a $20.1 billion initial public offering in Shanghai and Hong Kong, told investors yesterday that real-estate loans are among the biggest risks facing the industry.
Weaker growth in China, as well as decisions by developed countries to tighten fiscal policy, may slow the global economic recovery, which Rogoff said is unlikely to slide into a so- called double-dip recession.
Rich nations will reduce their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since the Organization for Economic Cooperation and Development began keeping records in 1970, according to JPMorgan Chase & Co. economists. The budget squeeze will lop 0.9 percentage point off growth in 2011.
Double-Dip Risk
“The bad news is the recoveries are very slow,” Rogoff said. At the same time, “the fact that we’re not growing super fast, doesn’t necessarily say well therefore we’re about to enter something worse.”
In the aftermath of a financial crisis, “you don’t get a typical recovery” with a so-called “v-shaped” trajectory of surging output after a decline, he said.
By contrast, Nobel laureate Paul Krugman, a professor of economics at Princeton University, wrote in a June 28 column in the New York Times that the global economy is in a depression caused by a “failure of policy.” Krugman blamed governments for moving to reduce budget deficits rather than focusing on lowering historically high unemployment levels.
Rogoff reiterated his criticism of China’s exchange-rate policy, saying that the June 19 announcement of a resumption of “flexibility” in the yuan was a “master stroke” because it removed the issue from the Group of 20 summit later that month.
China’s history of counting on overseas demand to drive its development needs to change, and it’s unrealistic to expect its export growth will be maintained “at the pace it’s been doing,” Rogoff said. “It’s impossible. At some point they have to redirect their strategy” for economic growth, he said.
As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” said Rogoff, speaking in an interview with Bloomberg Television in Hong Kong. He also said that while recoveries across the global economy are “very slow,” the danger of a return to recession isn’t “elevated.”
Rogoff’s concern echoes that of investors, who sent China’s benchmark stock index to its worst loss in more than a year last week. China’s data have been a focus because the nation has led the global recovery from the worst postwar recession.
The Shanghai Composite Index tumbled 6.7 percent last week, and dropped 0.8 percent yesterday to close at 2,363.95. In the U.S., the world’s largest economy, the benchmark Standard & Poor’s 500 index capped a ninth day of declines in 10 sessions on July 2 after a government report showed fewer private-sector American jobs were created in June than forecast.
Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.
Sales Dive
The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 percent in May from the previous month. The increase in prices, at an annual 12.4 percent in May according to a government survey of 70 cities, was down from a 12.8 percent advance in April.
“You’re starting to see that collapse in property and it’s going to hit the banking system,” said Rogoff, 57, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker. “They have a lot of tools and some very competent management, but it’s not easy.”
Premier Wen Jiabao’s government has been trying to cool the economy to alleviate the threat of asset-price bubbles. The central bank has told lenders to set aside more money as reserves, and targeted a 22 percent cut in credit growth at banks this year, to 7.5 trillion yuan ($1.1 trillion).
Growth Outlook
Economists at banks from Goldman Sachs Group Inc. to BNP Paribas SA and China International Capital Corp. have lowered their gross domestic product forecasts for China in recent weeks. Goldman last week cut its growth forecast for China this year to 10.1 percent from 11.4 percent because of the government’s monetary tightening measures.
Property prices will probably fall in some regions of China in about three months, said Xu Shaoshi, minister of Land and Resources, according to a Securities Times story yesterday. Values are now stagnant, Xu also said, according to the report.
Rogoff in February said that real estate values in Beijing and Shanghai had “taken a departure from reality,” and a real- estate bubble bursting would be the most likely cause of a slump in Chinese growth to as low as 2 percent at some point in the coming decade.
His view clashes with that of Stephen Roach, chairman of Morgan Stanley Asia Ltd., who said last month the property boom in China isn’t a bubble. While portions of the market such as high-end apartments are overheating, residential demand will remain robust as rural Chinese migrate to bigger cities, according to Roach.
‘Just a Sliver’
“This is just a sliver of the property boom,” Roach said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance, citing that each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. “This property has not overheated and the demand for this property is very, very solid.”
A bust could impair the nation’s banking system, and China’s financial regulator said June 15 that it saw growing credit risks in the real-estate industry, warning of increasing pressure from non-performing loans.
Risks associated with home mortgages are rising and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report.
Bank Earnings
The record credit expansion last year helped propel earnings at the nation’s lenders, with financial institutions reporting 668.4 billion yuan of combined profits in 2009, a 15 percent gain from a year earlier, according to the CBRC.
China’s five largest state-controlled banks have announced plans to raise as much as $54.5 billion of capital by selling bonds and shares after they extended record loans last year to support a government-led stimulus plan.
Agricultural Bank of China Ltd., which is in the midst of a $20.1 billion initial public offering in Shanghai and Hong Kong, told investors yesterday that real-estate loans are among the biggest risks facing the industry.
Weaker growth in China, as well as decisions by developed countries to tighten fiscal policy, may slow the global economic recovery, which Rogoff said is unlikely to slide into a so- called double-dip recession.
Rich nations will reduce their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since the Organization for Economic Cooperation and Development began keeping records in 1970, according to JPMorgan Chase & Co. economists. The budget squeeze will lop 0.9 percentage point off growth in 2011.
Double-Dip Risk
“The bad news is the recoveries are very slow,” Rogoff said. At the same time, “the fact that we’re not growing super fast, doesn’t necessarily say well therefore we’re about to enter something worse.”
In the aftermath of a financial crisis, “you don’t get a typical recovery” with a so-called “v-shaped” trajectory of surging output after a decline, he said.
By contrast, Nobel laureate Paul Krugman, a professor of economics at Princeton University, wrote in a June 28 column in the New York Times that the global economy is in a depression caused by a “failure of policy.” Krugman blamed governments for moving to reduce budget deficits rather than focusing on lowering historically high unemployment levels.
Rogoff reiterated his criticism of China’s exchange-rate policy, saying that the June 19 announcement of a resumption of “flexibility” in the yuan was a “master stroke” because it removed the issue from the Group of 20 summit later that month.
China’s history of counting on overseas demand to drive its development needs to change, and it’s unrealistic to expect its export growth will be maintained “at the pace it’s been doing,” Rogoff said. “It’s impossible. At some point they have to redirect their strategy” for economic growth, he said.
US beefs up efforts to secure Kandahar
The US military has deployed its heaviest troop presence in the southern Afghanistan city of Kandahar since the Taliban were ousted in 2001.
The forces form the vanguard of an operation aimed at securing the movement’s heartland.
US paratroopers are building checkpoints on main roads and conducting patrols with Afghan police in an attempt to deny insurgents access to the country’s second-largest city and reassure a population living in fear of suicide bombings.
“Kandahar city, because of the lack of forces, has been an intelligence black hole,” Lieutenant-Colonel David Oclander told the Financial Times, speaking at one of the half-completed checkpoints. “Now we’re going to start work and really get a much better picture from our efforts to get to know our neighbours.”
Lt-Col Oclander commands a battalion of US paratroopers of the 82nd Airborne Division that has fanned out to outposts in the city’s suburbs over the past few weeks. A US infantry battalion typically comprises about 700 troops.
The deployment represents a sharp increase in the number of US troops in Kandahar, which had previously consisted of a small unit deployed to train Afghan police and special forces conducting operations to hunt down insurgent leaders.
The Afghan government has sent 600 officers of the Afghan National Civil Order Police to Kandahar to work alongside the US troops. US officers regard them as better trained than Afghanistan’s mainstream police force, which has a reputation for corruption and ill-discipline.
The police will man the 13 checkpoints that the US paratroopers aim to complete this month. Each installation is like a miniature military base, with living quarters for troops, blast walls and guard towers. Drivers waiting while police search their vehicles for weapons or bomb-making materials will be able to peruse billboards containing pro-government messages and wanted posters featuring Taliban commanders.
Nato commanders regard the campaign to secure Kandahar, a city of an estimated 800,000 people, as critical to their strategy to bring the insurgency under control before US troops are due to start leaving Afghanistan next July.
Insurgents have waged a campaign of intimidation, suicide bombings and assassinations in response, feeding concerns in the west over whether the surge strategy of Barack Obama, the US president, can tame the Taliban.
The fate of the operation will hinge on whether the presence of the US and Afghan security forces can change the mood in a city where fear of the Taliban and disillusionment with the government of Hamid Karzai, Afghan president, run deep.
Resentment of the influence wielded by Ahmed Wali Karzai, President Karzai’s half-brother who chairs Kandahar’s provincial council, has fuelled sympathy for the insurgents in some communities.
The US also plans to deploy thousands of troops to root out insurgents from havens in rural districts to the north and west of the city.
Although the offensive was widely expected to take place this summer, the bulk of these operations are now due to take place later this year.
Some residents were anxious about the prospect of US forces moving into their neighbourhoods, fearing the checkpoints will be targets for attacks. US officers acknowledged that insurgents might be able to circumvent the barriers but said their presence would make it harder for them to influence the city.
The forces form the vanguard of an operation aimed at securing the movement’s heartland.
US paratroopers are building checkpoints on main roads and conducting patrols with Afghan police in an attempt to deny insurgents access to the country’s second-largest city and reassure a population living in fear of suicide bombings.
“Kandahar city, because of the lack of forces, has been an intelligence black hole,” Lieutenant-Colonel David Oclander told the Financial Times, speaking at one of the half-completed checkpoints. “Now we’re going to start work and really get a much better picture from our efforts to get to know our neighbours.”
Lt-Col Oclander commands a battalion of US paratroopers of the 82nd Airborne Division that has fanned out to outposts in the city’s suburbs over the past few weeks. A US infantry battalion typically comprises about 700 troops.
The deployment represents a sharp increase in the number of US troops in Kandahar, which had previously consisted of a small unit deployed to train Afghan police and special forces conducting operations to hunt down insurgent leaders.
The Afghan government has sent 600 officers of the Afghan National Civil Order Police to Kandahar to work alongside the US troops. US officers regard them as better trained than Afghanistan’s mainstream police force, which has a reputation for corruption and ill-discipline.
The police will man the 13 checkpoints that the US paratroopers aim to complete this month. Each installation is like a miniature military base, with living quarters for troops, blast walls and guard towers. Drivers waiting while police search their vehicles for weapons or bomb-making materials will be able to peruse billboards containing pro-government messages and wanted posters featuring Taliban commanders.
Nato commanders regard the campaign to secure Kandahar, a city of an estimated 800,000 people, as critical to their strategy to bring the insurgency under control before US troops are due to start leaving Afghanistan next July.
Insurgents have waged a campaign of intimidation, suicide bombings and assassinations in response, feeding concerns in the west over whether the surge strategy of Barack Obama, the US president, can tame the Taliban.
The fate of the operation will hinge on whether the presence of the US and Afghan security forces can change the mood in a city where fear of the Taliban and disillusionment with the government of Hamid Karzai, Afghan president, run deep.
Resentment of the influence wielded by Ahmed Wali Karzai, President Karzai’s half-brother who chairs Kandahar’s provincial council, has fuelled sympathy for the insurgents in some communities.
The US also plans to deploy thousands of troops to root out insurgents from havens in rural districts to the north and west of the city.
Although the offensive was widely expected to take place this summer, the bulk of these operations are now due to take place later this year.
Some residents were anxious about the prospect of US forces moving into their neighbourhoods, fearing the checkpoints will be targets for attacks. US officers acknowledged that insurgents might be able to circumvent the barriers but said their presence would make it harder for them to influence the city.
Sunday, July 4, 2010
Bharti upbeat on profiting out of Africa
For Sunil Bharti Mittal, the $10.7bn acquisition in June of most of the African assets of Zain of Kuwait was the culmination of more than a decade of trying to enter a market once dubbed “the hopeless continent” by the Economist magazine.
These efforts, which started 12 years ago with a bid by his group, Bharti Airtel, India’s biggest mobile operator, for a telecoms licence in Botswana, have turned him into a staunch believer in Africa’s growth prospects.
EDITOR’S CHOICE
Bharti criticises ‘inflated’ India 3G prices - May-19
Bharti profit falls as competition bites - Apr-28
Protests over Zain African assets sale - Apr-12
Bharti seals deal for Zain networks - Mar-30
Bharti’s tough task in unforgiving market - Mar-30
Bharti awaits green lights for Zain deal - Mar-29
“The next wave is Africa. Minerals and metals, resources – everybody is investing, China’s rushing in there, now Europe is rushing there,” Mr Mittal tells the Financial Times at his headquarters in New Delhi. “You are going to see a lot of action in Africa. It is to my mind the continent of hope.”
The 52-year-old telecoms entrepreneur, who built his mobile company from scratch into a company with nearly 134m subscribers and in the process created a personal fortune estimated by Forbes at $7.8bn, will need all the optimism he can muster for his African adventure.
If successful, the foray could prove visionary at a time when India’s domestic telecom market is suffering from intense competition and the high cost of third-generation spectrum. Bharti is battling proposed regulatory reforms that it argues are unduly burdensome on some of the largest operators.
But if Bharti’s African push is slow to produce results, the group could find itself burdened with debt and struggling to realise Mr Mittal’s ambition of becoming one of the top global telecom companies.
“The company’s leverage and cash-flow protection measures will deteriorate significantly following its largely debt-funded acquisition of Zain Africa,” Standard & Poor’s warned last month after lowering Bharti’s credit rating.
Yet, for Mr Mittal, the acquisition of Zain’s 15 networks in countries including Nigeria and Burkina Faso is not as adventurous as it might first appear.
The assets used to belong to a Sudanese businessman, Mo Ibrahim, who was a business partner of Mr Mittal during the 1990s and once held a stake in Bharti Airtel.
When Mr Ibrahim sold the African assets, then known as Celtel, in 2005, Bharti put in a bid but was trumped by Zain. In the intervening years, the Indian tycoon tried twice to buy South Africa’s MTN before clinching the Zain deal.
Since closing the transaction on June 8, Bharti has held a “leadership conclave” bringing together executives from the 15 African assets it bought. It has begun dispatching Indian executives to Africa. Mr Mittal says there will be up to 50 Indian expatriates out of a total workforce of 6,500 in its African operations.
The immediate challenge is to wring more minutes of usage out of the African networks, particularly in large countries such as Nigeria. In India, it costs below 1 cent a minute to make a call while in the former Zain networks it costs an average of 20 times that.
Mr Mittal said Bharti plans to use its economies of scale and relationships with equipment vendors to extend the coverage of its networks while lowering the cost per minute of calls to help generate more traffic.
Bharti wants to increase its African subscriber numbers to 100m by mid or end-2012 from 42m today and annual revenue to $5bn from $3.6bn now. He also wants to increase earnings before interest, taxation, depreciation and amortisation to $2bn from $1.2bn now.
The deal has been criticised as expensive by analysts, who say it will be earnings dilutive over the next few years.
While Mr Mittal admits Bharti’s debt has risen from minimal levels to just below three times ebitda, he says such levels are normal for most telecom companies. “One good thing is that the new debt we have picked up is at a very good rate, so in some sense our African acquisition costs us in terms of interest outflow every year $200m and that’s pretty comfortable.”
But while Africa offers challenges and hope in equal measure, Mr Mittal’s Indian home market is proving more troublesome. Bharti is fighting regulatory proposals that would require it to make retrospective payments on spectrum it holds and it must pay nearly $3bn for third generation mobile spectrum it acquired during a recent auction.
On top of this, Bharti faces intense competition from 14 rivals. The latest new entrant is India’s wealthiest man, Mukesh Ambani, who is planning to begin offering fourth generation mobile services in the next few years.
Mr Mittal, however, is sanguine about the prospect of more competition. “Competition is there. There are [already] 14 players, so if there are going to be 15 players, that’s fine.”
Grocery debate
Sunil Bharti Mittal has called for New Delhi to open up grocery stores and other retail formats to foreign direct investment, as the country’s largest business houses struggle to make progress in the sector, write Joe Leahy and Amy Kazmin.
India’s Congress-led coalition government is preparing to reopen public debate on allowing foreign investors into so-called “multi-brand retail” stores, which – like Walmart – sell goods from many manufacturers, as part of a battle against rises in food prices.
At least 30 per cent of Indian farm produce is ruined before it reaches consumers due to the highly inefficient supply chain – in particular a lack of cold chain logistics infrastructure.
“India’s cold chain logistics cannot be fixed unless large-scale investments come in and foreign direct investment [in retail] is one of the good sources for this,” said Mr Mittal, whose company Bharti Enterprises is Walmart’s Indian partner.
The Indian government is expected to soon release a consultation paper on foreign direct investment in retail to try to reach a national consensus on the issue.
Tens of millions of “middlemen”, traders who control the supply chain between farmers and retailers, have staunchly opposed FDI in Indian retail, as have millions of small shop owners who fear corporate retailers will put them out of business.
New Delhi has allowed foreign investors to own up to 51 per cent of “single-brand” retail stores, such as Marks and Spencer, but has restricted foreign companies to owning wholesale outlets only.
Bharti has joined up with Walmart in the wholesale, “cash-and-carry” segment but is keen to see its partner enter the high street.
These efforts, which started 12 years ago with a bid by his group, Bharti Airtel, India’s biggest mobile operator, for a telecoms licence in Botswana, have turned him into a staunch believer in Africa’s growth prospects.
EDITOR’S CHOICE
Bharti criticises ‘inflated’ India 3G prices - May-19
Bharti profit falls as competition bites - Apr-28
Protests over Zain African assets sale - Apr-12
Bharti seals deal for Zain networks - Mar-30
Bharti’s tough task in unforgiving market - Mar-30
Bharti awaits green lights for Zain deal - Mar-29
“The next wave is Africa. Minerals and metals, resources – everybody is investing, China’s rushing in there, now Europe is rushing there,” Mr Mittal tells the Financial Times at his headquarters in New Delhi. “You are going to see a lot of action in Africa. It is to my mind the continent of hope.”
The 52-year-old telecoms entrepreneur, who built his mobile company from scratch into a company with nearly 134m subscribers and in the process created a personal fortune estimated by Forbes at $7.8bn, will need all the optimism he can muster for his African adventure.
If successful, the foray could prove visionary at a time when India’s domestic telecom market is suffering from intense competition and the high cost of third-generation spectrum. Bharti is battling proposed regulatory reforms that it argues are unduly burdensome on some of the largest operators.
But if Bharti’s African push is slow to produce results, the group could find itself burdened with debt and struggling to realise Mr Mittal’s ambition of becoming one of the top global telecom companies.
“The company’s leverage and cash-flow protection measures will deteriorate significantly following its largely debt-funded acquisition of Zain Africa,” Standard & Poor’s warned last month after lowering Bharti’s credit rating.
Yet, for Mr Mittal, the acquisition of Zain’s 15 networks in countries including Nigeria and Burkina Faso is not as adventurous as it might first appear.
The assets used to belong to a Sudanese businessman, Mo Ibrahim, who was a business partner of Mr Mittal during the 1990s and once held a stake in Bharti Airtel.
When Mr Ibrahim sold the African assets, then known as Celtel, in 2005, Bharti put in a bid but was trumped by Zain. In the intervening years, the Indian tycoon tried twice to buy South Africa’s MTN before clinching the Zain deal.
Since closing the transaction on June 8, Bharti has held a “leadership conclave” bringing together executives from the 15 African assets it bought. It has begun dispatching Indian executives to Africa. Mr Mittal says there will be up to 50 Indian expatriates out of a total workforce of 6,500 in its African operations.
The immediate challenge is to wring more minutes of usage out of the African networks, particularly in large countries such as Nigeria. In India, it costs below 1 cent a minute to make a call while in the former Zain networks it costs an average of 20 times that.
Mr Mittal said Bharti plans to use its economies of scale and relationships with equipment vendors to extend the coverage of its networks while lowering the cost per minute of calls to help generate more traffic.
Bharti wants to increase its African subscriber numbers to 100m by mid or end-2012 from 42m today and annual revenue to $5bn from $3.6bn now. He also wants to increase earnings before interest, taxation, depreciation and amortisation to $2bn from $1.2bn now.
The deal has been criticised as expensive by analysts, who say it will be earnings dilutive over the next few years.
While Mr Mittal admits Bharti’s debt has risen from minimal levels to just below three times ebitda, he says such levels are normal for most telecom companies. “One good thing is that the new debt we have picked up is at a very good rate, so in some sense our African acquisition costs us in terms of interest outflow every year $200m and that’s pretty comfortable.”
But while Africa offers challenges and hope in equal measure, Mr Mittal’s Indian home market is proving more troublesome. Bharti is fighting regulatory proposals that would require it to make retrospective payments on spectrum it holds and it must pay nearly $3bn for third generation mobile spectrum it acquired during a recent auction.
On top of this, Bharti faces intense competition from 14 rivals. The latest new entrant is India’s wealthiest man, Mukesh Ambani, who is planning to begin offering fourth generation mobile services in the next few years.
Mr Mittal, however, is sanguine about the prospect of more competition. “Competition is there. There are [already] 14 players, so if there are going to be 15 players, that’s fine.”
Grocery debate
Sunil Bharti Mittal has called for New Delhi to open up grocery stores and other retail formats to foreign direct investment, as the country’s largest business houses struggle to make progress in the sector, write Joe Leahy and Amy Kazmin.
India’s Congress-led coalition government is preparing to reopen public debate on allowing foreign investors into so-called “multi-brand retail” stores, which – like Walmart – sell goods from many manufacturers, as part of a battle against rises in food prices.
At least 30 per cent of Indian farm produce is ruined before it reaches consumers due to the highly inefficient supply chain – in particular a lack of cold chain logistics infrastructure.
“India’s cold chain logistics cannot be fixed unless large-scale investments come in and foreign direct investment [in retail] is one of the good sources for this,” said Mr Mittal, whose company Bharti Enterprises is Walmart’s Indian partner.
The Indian government is expected to soon release a consultation paper on foreign direct investment in retail to try to reach a national consensus on the issue.
Tens of millions of “middlemen”, traders who control the supply chain between farmers and retailers, have staunchly opposed FDI in Indian retail, as have millions of small shop owners who fear corporate retailers will put them out of business.
New Delhi has allowed foreign investors to own up to 51 per cent of “single-brand” retail stores, such as Marks and Spencer, but has restricted foreign companies to owning wholesale outlets only.
Bharti has joined up with Walmart in the wholesale, “cash-and-carry” segment but is keen to see its partner enter the high street.
Asia Stocks, Commodities Snap Declines; Won Gains on Goldman
July 5 (Bloomberg) -- Asian stocks snapped four days of decline while commodities and the won gained on optimism the region will continue to grow even as there are mounting concerns about the pace of the global recovery.
The MSCI Asia Pacific Index gained 0.2 percent to 111.90 as of 11:30 a.m. in Tokyo. Oil increased for the first time in six days and copper advanced in London for a second day. Futures on the Standard & Poor’s 500 Index rose 0.3 percent. The U.S. benchmark declined 0.5 percent on Friday.
Investor optimism rose as valuations became more compelling following the MSCI Asia Pacific Index’s 13 percent decline since this year’s April 15 peak and after Premier Wen Jiabao said China will ensure “steady and relatively fast” growth. Gains were muted by the 125,000 decline in U.S. payrolls last month and after European Central Bank President Jean-Claude Trichet pressed governments to trim their budget deficits, saying this was needed to boost confidence.
“The outlook for growth around the world is certainly not as optimistic as it was a few months ago,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “There will be the longer-term participants in the market who are viewing this decline in price as a good time to get long.”
Japan’s Nikkei 225 Stock Average rose 0.4 percent as the weaker yen boosted Japanese companies’ revenue from overseas when they are repatriated. The Shanghai Composite Index retreated 0.7 percent.
Centennial Takeover
Centennial Coal Co. surged 33 percent in Sydney after Banpu Pcl agreed to buy the 80 percent of Centennial it doesn’t already own. CSR Ltd., Australia’s No. 2 building-products maker, climbed 3.2 percent after agreeing to sell its Sucrogen sugar unit to Wilmar International Ltd. for A$1.75 billion ($1.5 billion). Canon Inc., the world’s biggest maker of cameras, gained 0.9 percent in Tokyo as the yen weakened against the euro.
China Cosco Holdings Co., the nation’s biggest shipping company by market value, fell 1.3 percent as the Baltic Dry Index, a measure of commodity-shipping costs, extended the longest losing streak since August 2005.
Crude oil rose 0.8 percent to $72.69 a barrel in New York, recovering from its biggest weekly decline in eight. Three-month delivery copper climbed as much as 1.6 percent to $6,510 a metric ton on the London Metal Exchange.
Goldman Boosts Won
South Korea’s won strengthened for the first time in five days after Goldman Sachs Group Inc. raised its 2010 economic growth forecast. The won led gains among regional currencies, having last week recorded the biggest loss as purchasing managers’ surveys showed manufacturing growth was slowing in the U.S., Europe and China.
The won strengthened 0.6 percent to 1,221.60 per dollar in Seoul, after sliding 1.1 percent last week, according to data compiled by Bloomberg.
The Bank of Korea will keep its benchmark interest rate at a record-low 2 percent at a review this week, according to seven of 10 economists surveyed by Bloomberg. Three predicted a quarter of a percentage point increase.
“Offshore players are selling dollars more than expected,” said Ha Jun Woo, a currency trader for Daegu Bank Ltd. in Seoul. “We’re also seeing preemptive bets ahead of the central bank’s monetary policy meeting. If interest rates rise, that will push investors to sell dollars and buy the won.”
Euro Weakens
The euro declined from near its strongest level in six weeks amid speculation the sovereign debt crisis in Europe will force the region’s central bank to keep interest rates at a record low.
The euro fell 0.2 percent to $1.2542 in Tokyo, from $1.2566 on July 2, when it reached $1.2612, the most since May 21. The yen traded at 87.91 per dollar from 87.75 last week in New York, after climbing to 86.97 on July 1, the strongest since Dec. 2. It bought 110.13 per euro from 110.27.
“The ECB will be forced into a lower-for-longer stance on its monetary policy,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “We are still very bearish on the euro and expect a move toward $1.15 by the end of the year.”
The MSCI Asia Pacific Index gained 0.2 percent to 111.90 as of 11:30 a.m. in Tokyo. Oil increased for the first time in six days and copper advanced in London for a second day. Futures on the Standard & Poor’s 500 Index rose 0.3 percent. The U.S. benchmark declined 0.5 percent on Friday.
Investor optimism rose as valuations became more compelling following the MSCI Asia Pacific Index’s 13 percent decline since this year’s April 15 peak and after Premier Wen Jiabao said China will ensure “steady and relatively fast” growth. Gains were muted by the 125,000 decline in U.S. payrolls last month and after European Central Bank President Jean-Claude Trichet pressed governments to trim their budget deficits, saying this was needed to boost confidence.
“The outlook for growth around the world is certainly not as optimistic as it was a few months ago,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “There will be the longer-term participants in the market who are viewing this decline in price as a good time to get long.”
Japan’s Nikkei 225 Stock Average rose 0.4 percent as the weaker yen boosted Japanese companies’ revenue from overseas when they are repatriated. The Shanghai Composite Index retreated 0.7 percent.
Centennial Takeover
Centennial Coal Co. surged 33 percent in Sydney after Banpu Pcl agreed to buy the 80 percent of Centennial it doesn’t already own. CSR Ltd., Australia’s No. 2 building-products maker, climbed 3.2 percent after agreeing to sell its Sucrogen sugar unit to Wilmar International Ltd. for A$1.75 billion ($1.5 billion). Canon Inc., the world’s biggest maker of cameras, gained 0.9 percent in Tokyo as the yen weakened against the euro.
China Cosco Holdings Co., the nation’s biggest shipping company by market value, fell 1.3 percent as the Baltic Dry Index, a measure of commodity-shipping costs, extended the longest losing streak since August 2005.
Crude oil rose 0.8 percent to $72.69 a barrel in New York, recovering from its biggest weekly decline in eight. Three-month delivery copper climbed as much as 1.6 percent to $6,510 a metric ton on the London Metal Exchange.
Goldman Boosts Won
South Korea’s won strengthened for the first time in five days after Goldman Sachs Group Inc. raised its 2010 economic growth forecast. The won led gains among regional currencies, having last week recorded the biggest loss as purchasing managers’ surveys showed manufacturing growth was slowing in the U.S., Europe and China.
The won strengthened 0.6 percent to 1,221.60 per dollar in Seoul, after sliding 1.1 percent last week, according to data compiled by Bloomberg.
The Bank of Korea will keep its benchmark interest rate at a record-low 2 percent at a review this week, according to seven of 10 economists surveyed by Bloomberg. Three predicted a quarter of a percentage point increase.
“Offshore players are selling dollars more than expected,” said Ha Jun Woo, a currency trader for Daegu Bank Ltd. in Seoul. “We’re also seeing preemptive bets ahead of the central bank’s monetary policy meeting. If interest rates rise, that will push investors to sell dollars and buy the won.”
Euro Weakens
The euro declined from near its strongest level in six weeks amid speculation the sovereign debt crisis in Europe will force the region’s central bank to keep interest rates at a record low.
The euro fell 0.2 percent to $1.2542 in Tokyo, from $1.2566 on July 2, when it reached $1.2612, the most since May 21. The yen traded at 87.91 per dollar from 87.75 last week in New York, after climbing to 86.97 on July 1, the strongest since Dec. 2. It bought 110.13 per euro from 110.27.
“The ECB will be forced into a lower-for-longer stance on its monetary policy,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “We are still very bearish on the euro and expect a move toward $1.15 by the end of the year.”
Asia Convertible Slump Means Citi Sees 25% Gain: Credit Markets
July 5 (Bloomberg) -- The worst quarter for Asian equities in more than a year has pushed yields on convertible bonds higher than some debt that can’t be exchanged for stock, prompting strategists to predict gains of 25 percent or more as the region’s economy posts the fastest growth in the world.
“Upside of 25 percent from here would be a conservative estimate and it could be as much as 50 percent,” Kim Wong, Citigroup Inc.’s head of convertible bond trading for Asia, said in a telephone interview from Hong Kong.
The debt lost 3.92 percent in May and June as measured by Bank of America Merrill Lynch indexes, while the MSCI Asia Pacific Index of stocks fell 10.4 percent. PT Bumi Resources’ $375 million of equity-linked notes due 2014 yield 16 percent, compared with 11.3 percent for its $300 million of bonds due 2016, according to Exane SA and ING Groep NV prices. Shares in Indonesia’s biggest coal producer fell 16.4 percent to 1,880 rupiah (21 cents) in Jakarta this year through June 30.
With the economy in the Asia-Pacific region forecast by Barclays Capital to grow 7.6 percent this year, faster than the 4.7 percent for the world overall, the securities are a bargain, according to Swiss bank Lombard Odier Darier Hentsche & Cie. Some 250 convertible dollar-denominated bonds are outstanding in Asia-Pacific excluding Japan, compared with 3,406 that can’t be exchanged for equity, according to data compiled by Bloomberg.
‘Reward Looks Good’
“If equity markets recover strongly you could make 50 percent, 60 percent” on the debt, Nathalia Barazal, a money manager who helps oversee 3 billion euros ($3.8 billion) of equity-linked securities globally at Lombard Odier, said in a phone interview from Geneva. “If they don’t, you’ve still got a bond with the safety net of a positive yield, so either way the risk versus reward looks good.”
Convertible bonds are notes that can convert to stock at a predetermined ratio. When stocks fall, the option to convert loses its value, pushing prices down.
Elsewhere in credit markets, the cost of protecting Asian and Australian bonds from default fell, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 2 basis points to 136 basis points, according to Credit Agricole CIB. The Markit iTraxx Australia index dropped 3 basis points to 133 basis points, the lowest in a week, according to Nomura Holdings Inc. and CMA DataVision.
The extra yield investors demand to own corporate bonds rather than government debt rose 2 basis points last week to an average of 197 basis points, or 1.97 percentage points, based on Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The spread has fluctuated between 190 and 201 basis points since May 25 after widening from the low this year of 142 on April 21. Yields ended last week at 3.98 percent, compared with 3.99 percent on June 25.
‘Sobering Reassessment’
Corporate bond sales tumbled last week as credit-default swap indexes jumped. General Motors Co. is seeking a $5 billion revolving line of credit as concern that the economy will slow leads investors to shun loans.
“In the beginning of April it felt like we were off to the races again,” said Tom Newberry, the New York-based head of global leveraged-finance at Credit Suisse Group AG, the fourth- biggest underwriter of leveraged loans this year. There’s since been a “sobering reassessment,” he said.
Companies issued about $10.8 billion of bonds worldwide in the five-day period ended July 2, a drop of 57 percent from the previous week, data compiled by Bloomberg show. That’s the least in five weeks and below this year’s average of $25.3 billion.
Swaps Jump
Credit-default swaps tied to U.S. corporate bonds jumped the most in six weeks. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, climbed 8.6 basis points to 122.75 basis points, the biggest weekly rise since the period ended May 21, according to Markit Group Ltd.
In London the Markit iTraxx Europe Index of swaps on 125 investment-grade companies rose 0.7 basis point to 127.04. The indexes typically increase as investor confidence deteriorates and fall as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of bonds and loans.
GM is talking with banks about setting up a revolving line of credit of $5 billion or more, said two people with knowledge of the plan. The Detroit-based automaker may use the line to pay business costs while using cash to refinance more expensive debt, said one of the people, who asked not to be identified because the talks are private.
GM also wants a credit line to establish relationships with banks, the people said. Noreen Pratscher, a GM spokeswoman, declined to comment.
Loans, Convertibles
The automaker is seeking the loan as prices for the debt weaken. The S&P/LSTA US Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, fell 0.93 cent last week to 87.88 cents on the dollar. The index lost 3.7 percent last quarter after gaining 4.7 percent in the first three months of the year.
Convertible bonds overall have lost 1.48 percent this year after gaining 36.3 percent in 2009 as stocks rallied amid a recovery in the economy. The securities lost 29.3 percent in 2008, Bank of America Merrill Lynch index data show. The firm’s broad corporate bond gauge has gained 5.07 percent following an increase of 16.3 percent in 2009.
Equity-linked securities have been hurt along with stocks amid concern that Europe’s sovereign debt crisis and attempts by governments to reduce spending will slow economic expansion. The MSCI World Index of stocks has tumbled 11.45 percent in 2010.
Asia Recovery
The average yield on equity-linked bonds from Europe, the Middle East and Africa has “almost doubled” since January, providing new opportunities for investors, said Barclays Capital equity-linked analyst Angus Allison, citing the London-based bank’s EMEA Convertibles index.
Asian convertibles may be more attractive than those of Europe and the U.S. because the region’s relative economic strength should translate into a faster equity market recovery, according to Barazal at Lombard Odier, which also runs an Asian convertible bonds fund worth $350 million.
“If it’s growth, budget deficits, whatever you’re looking at in Europe, Asia looks better,” Barazal said. “We’re overweight Asia because the fundamentals are good.”
PT Berlian Laju Tanker’s $125 million of 2015 convertible bonds yield 28.2 percent, compared with 19.7 percent for its $400 million of non-convertible bonds due 2014, according to Mizuho Securities Co. and BNP Paribas SA prices.
Concentration Risk
SM Investment Corp., the Philippines company which owns the country’s largest bank by assets and its biggest shopping mall operator, has $300 million of 2012 convertible bonds yielding 4.4 percent, Nomura prices show. Its $350 million of 2013 bonds which aren’t convertible yield 4.1 percent, BNP prices show.
Infratil Ltd., the New Zealand investor in energy and transport companies, has NZ$77.3 million ($53.2 million) of 2012 convertible bonds yielding 10.2 percent, New Zealand Exchange Ltd. prices show. Its NZ$20 million of 2011 notes which aren’t convertible yield 7.9 percent.
The size of Asia’s convertible bond market means volatility is higher than in other parts of the world, according to James Simmons, a money manager at hedge fund Enhanced Investment Products Ltd. The firm doesn’t own any equity-linked notes.
“The vast majority of the market is concentrated in the hands of a small number of people, all of whom act at the same time,” he said in a phone interview from Hong Kong. “I’m not saying equities won’t go up or credit spreads won’t tighten, just that I think you’re not being paid enough to take on that kind of additional risk right now.”
“Upside of 25 percent from here would be a conservative estimate and it could be as much as 50 percent,” Kim Wong, Citigroup Inc.’s head of convertible bond trading for Asia, said in a telephone interview from Hong Kong.
The debt lost 3.92 percent in May and June as measured by Bank of America Merrill Lynch indexes, while the MSCI Asia Pacific Index of stocks fell 10.4 percent. PT Bumi Resources’ $375 million of equity-linked notes due 2014 yield 16 percent, compared with 11.3 percent for its $300 million of bonds due 2016, according to Exane SA and ING Groep NV prices. Shares in Indonesia’s biggest coal producer fell 16.4 percent to 1,880 rupiah (21 cents) in Jakarta this year through June 30.
With the economy in the Asia-Pacific region forecast by Barclays Capital to grow 7.6 percent this year, faster than the 4.7 percent for the world overall, the securities are a bargain, according to Swiss bank Lombard Odier Darier Hentsche & Cie. Some 250 convertible dollar-denominated bonds are outstanding in Asia-Pacific excluding Japan, compared with 3,406 that can’t be exchanged for equity, according to data compiled by Bloomberg.
‘Reward Looks Good’
“If equity markets recover strongly you could make 50 percent, 60 percent” on the debt, Nathalia Barazal, a money manager who helps oversee 3 billion euros ($3.8 billion) of equity-linked securities globally at Lombard Odier, said in a phone interview from Geneva. “If they don’t, you’ve still got a bond with the safety net of a positive yield, so either way the risk versus reward looks good.”
Convertible bonds are notes that can convert to stock at a predetermined ratio. When stocks fall, the option to convert loses its value, pushing prices down.
Elsewhere in credit markets, the cost of protecting Asian and Australian bonds from default fell, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 2 basis points to 136 basis points, according to Credit Agricole CIB. The Markit iTraxx Australia index dropped 3 basis points to 133 basis points, the lowest in a week, according to Nomura Holdings Inc. and CMA DataVision.
The extra yield investors demand to own corporate bonds rather than government debt rose 2 basis points last week to an average of 197 basis points, or 1.97 percentage points, based on Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The spread has fluctuated between 190 and 201 basis points since May 25 after widening from the low this year of 142 on April 21. Yields ended last week at 3.98 percent, compared with 3.99 percent on June 25.
‘Sobering Reassessment’
Corporate bond sales tumbled last week as credit-default swap indexes jumped. General Motors Co. is seeking a $5 billion revolving line of credit as concern that the economy will slow leads investors to shun loans.
“In the beginning of April it felt like we were off to the races again,” said Tom Newberry, the New York-based head of global leveraged-finance at Credit Suisse Group AG, the fourth- biggest underwriter of leveraged loans this year. There’s since been a “sobering reassessment,” he said.
Companies issued about $10.8 billion of bonds worldwide in the five-day period ended July 2, a drop of 57 percent from the previous week, data compiled by Bloomberg show. That’s the least in five weeks and below this year’s average of $25.3 billion.
Swaps Jump
Credit-default swaps tied to U.S. corporate bonds jumped the most in six weeks. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, climbed 8.6 basis points to 122.75 basis points, the biggest weekly rise since the period ended May 21, according to Markit Group Ltd.
In London the Markit iTraxx Europe Index of swaps on 125 investment-grade companies rose 0.7 basis point to 127.04. The indexes typically increase as investor confidence deteriorates and fall as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of bonds and loans.
GM is talking with banks about setting up a revolving line of credit of $5 billion or more, said two people with knowledge of the plan. The Detroit-based automaker may use the line to pay business costs while using cash to refinance more expensive debt, said one of the people, who asked not to be identified because the talks are private.
GM also wants a credit line to establish relationships with banks, the people said. Noreen Pratscher, a GM spokeswoman, declined to comment.
Loans, Convertibles
The automaker is seeking the loan as prices for the debt weaken. The S&P/LSTA US Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, fell 0.93 cent last week to 87.88 cents on the dollar. The index lost 3.7 percent last quarter after gaining 4.7 percent in the first three months of the year.
Convertible bonds overall have lost 1.48 percent this year after gaining 36.3 percent in 2009 as stocks rallied amid a recovery in the economy. The securities lost 29.3 percent in 2008, Bank of America Merrill Lynch index data show. The firm’s broad corporate bond gauge has gained 5.07 percent following an increase of 16.3 percent in 2009.
Equity-linked securities have been hurt along with stocks amid concern that Europe’s sovereign debt crisis and attempts by governments to reduce spending will slow economic expansion. The MSCI World Index of stocks has tumbled 11.45 percent in 2010.
Asia Recovery
The average yield on equity-linked bonds from Europe, the Middle East and Africa has “almost doubled” since January, providing new opportunities for investors, said Barclays Capital equity-linked analyst Angus Allison, citing the London-based bank’s EMEA Convertibles index.
Asian convertibles may be more attractive than those of Europe and the U.S. because the region’s relative economic strength should translate into a faster equity market recovery, according to Barazal at Lombard Odier, which also runs an Asian convertible bonds fund worth $350 million.
“If it’s growth, budget deficits, whatever you’re looking at in Europe, Asia looks better,” Barazal said. “We’re overweight Asia because the fundamentals are good.”
PT Berlian Laju Tanker’s $125 million of 2015 convertible bonds yield 28.2 percent, compared with 19.7 percent for its $400 million of non-convertible bonds due 2014, according to Mizuho Securities Co. and BNP Paribas SA prices.
Concentration Risk
SM Investment Corp., the Philippines company which owns the country’s largest bank by assets and its biggest shopping mall operator, has $300 million of 2012 convertible bonds yielding 4.4 percent, Nomura prices show. Its $350 million of 2013 bonds which aren’t convertible yield 4.1 percent, BNP prices show.
Infratil Ltd., the New Zealand investor in energy and transport companies, has NZ$77.3 million ($53.2 million) of 2012 convertible bonds yielding 10.2 percent, New Zealand Exchange Ltd. prices show. Its NZ$20 million of 2011 notes which aren’t convertible yield 7.9 percent.
The size of Asia’s convertible bond market means volatility is higher than in other parts of the world, according to James Simmons, a money manager at hedge fund Enhanced Investment Products Ltd. The firm doesn’t own any equity-linked notes.
“The vast majority of the market is concentrated in the hands of a small number of people, all of whom act at the same time,” he said in a phone interview from Hong Kong. “I’m not saying equities won’t go up or credit spreads won’t tighten, just that I think you’re not being paid enough to take on that kind of additional risk right now.”
Petraeus says Afghan war at critical stage
General David Petraeus warned on Sunday that the west was facing a “critical moment” in Afghanistan as he assumed command of a 130,000-strong force suffering record casualties in its escalating war with the Taliban.
The US general faces the task of proving that President Barack Obama’s decision to nearly triple American troop numbers can salvage the war in spite of mounting insurgent violence and growing disenchantment with the conflict among Nato allies.
“We are in this to win,” Gen Petraeus told western and Afghan officials gathered at a change-of-command ceremony at the Kabul headquarters of Isaf, the Nato-led force in Afghanistan. “We have arrived at a critical moment.”
Gen Petraeus takes over the force with only six months to demonstrate the US surge in Afghanistan is making progress ahead of a strategy review planned by the White House in December. Mr Obama has said American troops will start to withdraw in a year’s time, but the insurgency appears stronger than at any point since the US invasion in 2001.
In Washington, top Republican senators used Gen Petraeus’ swearing-in to speak out against Mr Obama’s withdrawal plan.
John McCain, the former Republican presidential candidate, said that having a “date certain” for starting to withdraw troops from Afghanistan “sounds an uncertain trumpet”.
“I’m all for dates of withdrawal, but that’s after the strategy succeeds, not before. That’s a dramatic difference,” Mr McCain told ABC news from Kabul, adding that the date would allow the Taliban and al-Qaeda to wait out the US troops.
“I know enough about warfare,” said Mr McCain, a Vietnam veteran. “I know enough about what strategy and tactics are about. If you tell the enemy that you’re leaving on a date certain, unequivocally, then that enemy will wait until you leave.”
His concerns were echoed by Lindsey Graham of South Carolina, a moderate Republican and former air force officer, who said that setting a deadline could lead to “confusion and uncertainty”.
“Gen Petraeus needs this monkey off his back,” Mr Graham said.
“In my view, if people think we’re going to leave, we have no chance of winning,” Mr Graham told CBS, adding that the deadline had “hurt our friends and emboldened our enemies”.
“If you overemphasise a deadline that is not realistic, you’re making the enemy a lot more bold, you’re prolonging the war,” Said Tayeb Jawad, the Afghan ambassador in Washington, told CNN. “That deadline should be based on the reality on the ground. We should give a clear message to the enemy, to the terrorists who are threat to everyone, that the United States, NATO and Afghans are there to finish this job.”
Gen Petraeus takes over from General Stanley McChrystal, who was forced to resign last month after he and his aides were quoted in a Rolling Stone article making disparaging remarks about Obama administration officials.
Gen Petraeus, who oversaw the war in Afghanistan as head of US Central Command, paid tribute to his predecessor and said he would retain his focus on protecting the population and avoiding civilian casualties. However, Gen Petraeus said he would examine civilian and military policies to determine where “refinements might be needed”.
The remarks suggest he might adjust some of the restrictions on the use of force imposed by Gen McChrystal under his strategy to try to bolster popular support for international forces and the government of President Hamid Karzai.
Gen McChrystal’s limitations on the use of air power and artillery succeeded in reducing the level of civilian casualties inflicted by his troops, but sometimes proved unpopular among soldiers who felt they handed advantages to insurgents.
Afghanistan
Afghanistan
FT in depth: news and analysis on developments in Afghanistan
Gen Petraeus noted that last month was the bloodiest of the war for the Nato-led force, which lost 102 troops, more than half of them Americans.
“As you and our Afghan partners on the ground get into tough situations, we must employ all assets to ensure your safety, keeping in mind, again, the importance of avoiding civilian casualties,” he said.
The general has earned a reputation in Washington for saving the US war effort in Iraq by overseeing a troop surge in 2007, although experts debate the extent to which his strategy was responsible for the ensuing reduction in violence.
Among his biggest challenges in Afghanistan will be resolving the tension between a US strategy based on rallying the population behind the Afghan state and concerns that Mr Karzai’s administration is incapable of delivering reforms needed to win greater support.
The Obama administration has also yet to persuade Pakistan to make a potentially decisive contribution by cracking down on safe havens used by Afghan insurgents linked to its powerful security establishment.
Gen Petraeus re-iterated the US justification for its Afghan campaign, saying the country should never again be allowed to become a haven for al Qaeda, the Islamist terror network, or allied groups planning attacks abroad.
The US general faces the task of proving that President Barack Obama’s decision to nearly triple American troop numbers can salvage the war in spite of mounting insurgent violence and growing disenchantment with the conflict among Nato allies.
“We are in this to win,” Gen Petraeus told western and Afghan officials gathered at a change-of-command ceremony at the Kabul headquarters of Isaf, the Nato-led force in Afghanistan. “We have arrived at a critical moment.”
Gen Petraeus takes over the force with only six months to demonstrate the US surge in Afghanistan is making progress ahead of a strategy review planned by the White House in December. Mr Obama has said American troops will start to withdraw in a year’s time, but the insurgency appears stronger than at any point since the US invasion in 2001.
In Washington, top Republican senators used Gen Petraeus’ swearing-in to speak out against Mr Obama’s withdrawal plan.
John McCain, the former Republican presidential candidate, said that having a “date certain” for starting to withdraw troops from Afghanistan “sounds an uncertain trumpet”.
“I’m all for dates of withdrawal, but that’s after the strategy succeeds, not before. That’s a dramatic difference,” Mr McCain told ABC news from Kabul, adding that the date would allow the Taliban and al-Qaeda to wait out the US troops.
“I know enough about warfare,” said Mr McCain, a Vietnam veteran. “I know enough about what strategy and tactics are about. If you tell the enemy that you’re leaving on a date certain, unequivocally, then that enemy will wait until you leave.”
His concerns were echoed by Lindsey Graham of South Carolina, a moderate Republican and former air force officer, who said that setting a deadline could lead to “confusion and uncertainty”.
“Gen Petraeus needs this monkey off his back,” Mr Graham said.
“In my view, if people think we’re going to leave, we have no chance of winning,” Mr Graham told CBS, adding that the deadline had “hurt our friends and emboldened our enemies”.
“If you overemphasise a deadline that is not realistic, you’re making the enemy a lot more bold, you’re prolonging the war,” Said Tayeb Jawad, the Afghan ambassador in Washington, told CNN. “That deadline should be based on the reality on the ground. We should give a clear message to the enemy, to the terrorists who are threat to everyone, that the United States, NATO and Afghans are there to finish this job.”
Gen Petraeus takes over from General Stanley McChrystal, who was forced to resign last month after he and his aides were quoted in a Rolling Stone article making disparaging remarks about Obama administration officials.
Gen Petraeus, who oversaw the war in Afghanistan as head of US Central Command, paid tribute to his predecessor and said he would retain his focus on protecting the population and avoiding civilian casualties. However, Gen Petraeus said he would examine civilian and military policies to determine where “refinements might be needed”.
The remarks suggest he might adjust some of the restrictions on the use of force imposed by Gen McChrystal under his strategy to try to bolster popular support for international forces and the government of President Hamid Karzai.
Gen McChrystal’s limitations on the use of air power and artillery succeeded in reducing the level of civilian casualties inflicted by his troops, but sometimes proved unpopular among soldiers who felt they handed advantages to insurgents.
Afghanistan
Afghanistan
FT in depth: news and analysis on developments in Afghanistan
Gen Petraeus noted that last month was the bloodiest of the war for the Nato-led force, which lost 102 troops, more than half of them Americans.
“As you and our Afghan partners on the ground get into tough situations, we must employ all assets to ensure your safety, keeping in mind, again, the importance of avoiding civilian casualties,” he said.
The general has earned a reputation in Washington for saving the US war effort in Iraq by overseeing a troop surge in 2007, although experts debate the extent to which his strategy was responsible for the ensuing reduction in violence.
Among his biggest challenges in Afghanistan will be resolving the tension between a US strategy based on rallying the population behind the Afghan state and concerns that Mr Karzai’s administration is incapable of delivering reforms needed to win greater support.
The Obama administration has also yet to persuade Pakistan to make a potentially decisive contribution by cracking down on safe havens used by Afghan insurgents linked to its powerful security establishment.
Gen Petraeus re-iterated the US justification for its Afghan campaign, saying the country should never again be allowed to become a haven for al Qaeda, the Islamist terror network, or allied groups planning attacks abroad.
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