Vedanta Billionaire Agarwal Risks 30% Return by Tracking BHP

Mining billionaire Anil Agarwal, who delivered 30 percent gains to shareholders in the past five years, plans to spend $9.6 billion to replicate the strategy of BHP Billiton Ltd., a rival that’s posted smaller returns.

Agarwal’s Vedanta Resources Plc plans to buy a controlling stake in Cairn India Ltd. and get access to the nation’s biggest onshore oilfield. His first foray into petroleum will echo the structure of BHP, the Australian mining company that first ventured into oil in 1967 and delivered average annual gains of 20 percent since 2005.

The acquisition may compromise Vedanta’s growth after the company takes on $6.5 billion in debt to finance the purchase, said Jeremy Cave, an analyst at MF Global Securities Ltd. in London. Standard & Poor’s and Moody’s Investors Service are reviewing Vedanta’s credit ratings, and its shares slid 14 percent in the two weeks following the deal’s announcement.

BHP’s “diversification is spread around the world, whereas Vedanta’s assets are concentrated in India so there’ll be more risk attached,” said Walter Rossini, a fund manager at Aletti Gestielle Sgr SpA in Milan, who helps manage $350 million including shares in Vedanta’s Sterlite Industries and in Cairn India. “From the point of view of a shareholder, I would prefer a bit of the cash on Vedanta’s books comes to me.”

Founding Vedanta

Agarwal, 56, was born in Patna in Bihar state as the son of a cable and wire maker. Leaving school at 15, he took charge of his father’s business before establishing Vedanta in 1976 as a scrap-metal dealership in Mumbai, a job that showed him the importance of raw materials in industry, he said in an August interview in London.

Agarwal began to build his metals empire by acquiring copper-cable producer Shamsher Sterling Corp. from the king of Nepal in 1979, obtaining a bank loan for the $1,070 purchase. Adding Australian copper mines in 1999, aluminum and zinc producers over the next three years and iron-ore exporter Sesa Goa Ltd. for $981 million in 2007, the entrepreneur parlayed his scrap-metal startup into a $30 billion group of companies.

BHP also began as a minerals producer, focusing on silver, lead and zinc before moving into energy, and now has oil and gas operations from the Gulf of Mexico to Pakistan. The expansion proved lucrative, with underlying profit from its petroleum unit almost doubling since 2005. BHP bought Billiton Plc in 2001 for $11.6 billion.

BHP succeeds by buying “very large assets” to supply a significant chunk of a commodity, keeping production costs down and forcing out smaller rivals, said Cave at MF Global.

Financing Costs

Vedanta, which intends to fund part of the Cairn deal with cash from its Sesa Goa unit as well as bank loans, faces higher financing costs in pursuit of an expansion into oil.

Companies with credit ratings below investment grade, such as Vedanta, pay average loan interest margins of 413 basis points over benchmark rates, compared with 307 basis points in 2007, according to data compiled by Bloomberg.

The cost of borrowing for investment-grade companies such as BHP has dropped. BHP, bidding to acquire Potash Corp. of Saskatchewan Inc., is paying a margin of 70 to 140 basis points on a $25 billion one-year loan that can be extended by a year, it said Aug. 20. BHP has cut debt by 41 percent to $3.3 billion.

Vedanta, which agreed in May to pay Anglo American Plc $1.34 billion for zinc mines in Africa and Ireland, is snapping up assets even after announcing a doubling in its share buyback program. The London-based company this year raised its buyback plan to $825 million from $350 million, Agarwal said in Vedanta’s annual report.

Shift to Oil

“Why do a deal?” said Paul Cliff, a London-based analyst at Nomura Holdings Inc., after the Cairn deal was announced. “There is no previous experience in oil and gas. It’s a concern for investors because Vedanta is a metals and mining house with one of the most aggressive organic-growth profiles.”

Vedanta has an $8 billion plan to increase its aluminum smelting and refining capacity sixfold. The company also intends to spend $20 billion in India over four years on mines and power plants, it said in 2008.

“We struggle to identify synergies from the transaction and see little link between Cairn India and Vedanta’s existing energy-generation assets, and we do not view it as a hedge on energy,” Fawzi Hanano, an analyst at UBS AG, said last month.

Worker Protests

Agarwal is no stranger to opposition to his expansion plans. His acquisition of Indian state companies Bharat Aluminium Co. and Hindustan Zinc Ltd. in 2001 prompted protests from opposition parties and workers, who staged a two-month strike on concern the new owner may cut jobs.

“Each time, he has managed to settle” these conflicts, said Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd. in New Delhi. He has a “very compelling rags-to-riches story that has been tested many times.”

The mining mogul is yet to convince India’s political elite that he’s best-placed to develop the country’s petroleum and mineral riches. The Oil Ministry responded to Vedanta’s Cairn bid by asking state-owned Oil & Natural Gas Corp. to study a counter-offer.

Buying Cairn India would give Vedanta access to Rajasthan’s Mangala oilfield, which produces about 125,000 barrels a day, equivalent to about 19 percent of the country’s annual output.

“India is always hungry for energy and that makes it a big market,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi, India, said Sept. 7. Still, “investors would be concerned because this is a new business for them. Success is not guaranteed.”

H.P. Settles Lawsuit Against Hurd

SAN FRANCISCO — A fierce and public feud between Oracle and Hewlett-Packard, two of the world’s largest technology companies, has ended after all of two weeks.

Oracle’s president, Mark Hurd, delivered a keynote address during the 2010 Oracle Open World conference in San Francisco on Monday.

On Monday, the companies announced a settlement to a dispute that centered on Oracle’s hiring of Mark V. Hurd, the former chief executive of H.P., as a president. H.P. sued Mr. Hurd this month, claiming he would violate agreements to protect H.P.’s secrets by taking on such a high-level role at Oracle. The parties declined to reveal details about the settlement but said Mr. Hurd would protect H.P.’s confidential information.

However, in a filing with the Securities and Exchange Commission on Monday, H.P. said it had modified its separation agreement with Mr. Hurd. He effectively waived about half the compensation owed him. Mr. Hurd agreed to give up his rights to the 330,177 performance-based restricted stock units granted to him on Jan. 17, 2008, and to the 15,853 time-based restricted stock units granted on Dec. 11, 2009.

Although most legal analysts said H.P. had had little chance of winning its case, the lawsuit immediately strained the business relationship between the two companies. Oracle and H.P. have a long history of selling technology together. About 40 percent of Oracle’s business software runs on computing systems sold by H.P., and the companies have 140,000 customers in common. After the lawsuit was filed — 19 hours after Oracle hired Mr. Hurd — Lawrence J. Ellison, Oracle’s chief executive, warned that H.P.’s actions threatened to derail the companies’ longstanding partnership.

The companies took pains on Monday to say that the business relationship was again on firm footing. “H.P. and Oracle have been important partners for more than 20 years and are committed to working together to provide exceptional products and service to our customers,” Cathie A. Lesjak, the chief financial officer and interim chief executive at H.P., said in a statement. “We look forward to collaborating with Oracle in the future.”

Mr. Ellison said in his statement, “Oracle and H.P. will continue to build and expand a partnership that has already lasted for over 25 years.”

“The partnership is clearly very important here,” said David M. Hilal, senior managing director at FBR Capital Markets. “It’s undoubtedly an effort to kiss and make up.”

Mr. Hilal said Mr. Hurd would probably be prohibited from making decisions at Oracle that would allow him to use confidential information from H.P., like its acquisition plans. The relationship between the two companies began to fray after Mr. Hurd resigned from H.P. last month.

In an e-mail to The New York Times, Mr. Ellison, a close friend of Mr. Hurd’s, lambasted H.P.’s board for the way it had handled the departure. Mr. Hurd left H.P. after the board investigated his relationship with a marketing contractor and found that her name had been left off expense report items and that Mr. Hurd had violated the company’s code of conduct.

“In losing Mark Hurd, the H.P. board failed to act in the best interest of H.P.’s employees, shareholders, customers and partners,” Mr. Ellison wrote.

This month, Oracle hired Mr. Hurd to succeed Charles E. Phillips Jr. as a president at the company. While the legal matter has been resolved, Oracle and H.P. will continue to have a more tense business relationship than in the past.

Oracle’s acquisition this year of Sun Microsystems thrust it into the computer hardware business, one of H.P.’s strong suits.

At the Oracle Open World customer event here this week, Oracle executives talked at length about their plans to conquer the hardware market. Mr. Ellison, in particular, made an impassioned pitch on Sunday evening, just minutes after Ann M. Livermore, an H.P. executive vice president in charge of enterprise computing, delivered a similar message to the audience.

Oracle executives have voiced their interest in acquiring more hardware companies, and H.P. remains on the prowl, making some recent big-ticket purchases. H.P. has made three major acquisitions since Mr. Hurd left the company: 3Par, a computer storage company, for $2.35 billion; ArcSight, a computer security company, for $1.5 billion; and Stratavia, a privately held database and application automation company, for an undisclosed amount.

H.P. also remains in the hunt for a new chief executive.

India’s Sahara in talks to rescue MGM

Sahara India Pariwar, an Indian media-to-sports conglomerate, is in talks to rescue Metro-Goldwyn-Mayer, the debt-ridden Hollywood studio, in a move that would deepen ties between Bollywood and Hollywood.

The Indian group, controlled by billionaire industrialist Subrata Roy, is prepared to pay up to half of the $3.7bn debt accumulated by the famed US film studio, which owns ‘Gone with the Wind’ and the James Bond series, according to a person familiar with the matter, Sahara would receive an equity stake in the company in return.

Sahara had no official comment on Monday except to confirm that the two companies were in talks. “On mutual interest, discussions are on, but it is too early to comment on the issue,” it said, stressing that the talks were at an early stage.

Shares in Sahara One Media and Entertainment, a listed subsidiary of Sahara India Pariwar, rose as much as 5.49 per cent in early trading on Monday in Mumbai, while the Bombay Stock Exchange’s benchmark Sensex traded up 1.27 per cent.

MGM has been in the hands of its lenders for almost a year after it became unable to service its huge debt, amassed when it was taken over in 2005 by a consortium comprising private equity firms, Sony and Comcast.

Several potential buyers have had their eye on MGM in the past year, including Anil Ambani, the Indian billionaire who controls Reliance Big Entertainment, Lions Gate Entertainment, Time Warner and Spyglass Entertainment.

However, no one has yet come forward with a credible offer and creditors are preparing to take over the studio next month in a streamlined bankruptcy.

Mr Roy – one of India’s most flamboyant businessmen with strong political contacts and many friends in Mumbai’s glamorous film circle – has been looking for ways to bring Bollywood closer to Hollywood, according to people close to him.

Sahara, which sponsors the national cricket and hockey teams, recently spent a record $370m to buy a cricket team in the Indian Premier League, and was in talks to acquire Liverpool Football Club before it abandoned discussions in August.

India's IPOs May Draw More Foreign Investors, Oppenheimer Says

Indian share sales are drawing more interest from overseas investors following a flood of equity issuances by Chinese companies this year, according to Oppenheimer Investments Ltd.

As many as four Indian companies may sell shares in the U.S. in the next 12 months after MakeMyTrip Ltd. became the first Indian IPO in the U.S. since 2006, Chetan Bhatia, managing director of Oppenheimer, said in an interview in Singapore yesterday. Oppenheimer helped manage the $70 million share sale for the Gurgaon, India-based online travel company, whose shares surged 89 percent on the first day of trading last month.

“Indian deals seem to be more palatable to investors right now than some of the Chinese deals,” Bhatia said. “There’s been lots of a heating up of capital there and in part, there’s maybe some flight of capital from China to India.”

Indian companies may raise about $12.3 billion from equity issuances by yearend, lagging behind only China in Asia, according to estimates by Citigroup Inc. A total $116 billion will be raised between now and the end of 2010 from IPOs and other offerings in the region, taking the total this year to a record $291 billion, the brokerage said.

Agricultural Bank of China Ltd., the nation’s largest lender by customers, raised $22.1 billion in a July initial public offering, the world’s largest ever. The shares yesterday closed at 2.6 yuan in Shanghai, below the IPO price of 2.68 yuan and at HK$3.75 in Hong Kong, compared with the HK$3.20 paid by IPO investors.

SouFun

SouFun Holdings Ltd., the operator of China’s biggest property website, surged 73 percent in New York Stock Exchange trading on its Sept. 17 debut. The company raised $125 million selling shares at the top of its price range. At least three other Chinese companies are scheduled to price U.S. IPOs this month, according to data compiled by Bloomberg.

“The conduit from China to the U.S. is much more established,” Oppenheimer’s Bhatia said. Over the next 12 months, about 10 to 15 Chinese companies will sell shares in the U.S., with further capital raising by firms that are already listed, he said.

Oppenheimer is seeking to bring industrial, education and health-care companies from China to the market and is planning deals for Indian infrastructure, medical-related, travel and consumer companies that can benefit from the nation’s economic growth and spending patterns, Bhatia said. He didn’t name specific companies.

Japanese Playing a New Video Game: Catch-Up

CHIBA, Japan — A supersonic hedgehog and a plumber named Mario may have been unlikely heroes, but they once dominated video games. Only the Japanese could make innovative games like those, developers here used to boast. The West just didn’t get it.

Keiji Inafune, head of global research and development at Capcom, says, “Japan is at least five years behind” and “Capcom is barely keeping up.”

Warp ahead 20 years, though, and much of Japan’s game industry is in a rut.

Sonic the Hedgehog and Mario still sell games. But more recent Japanese attempts to establish franchises, like White Knight Chronicles from Sony or Monster Hunter from Capcom, have not made a mark in the United States and Europe. Instead, the blockbuster hits now come from the West: Call of Duty and Guitar Hero from Activision Blizzard, for example, and Grand Theft Auto from Take-Two Interactive.

That is why a growing group of Japanese game developers are asking a once-unthinkable question: can they learn from the West to get back on top of the $60 billion global video game business?

“I look around Tokyo Games Show, and everyone’s making awful games; Japan is at least five years behind,” said Keiji Inafune, 45, head of global research and development at Capcom and one of Japan’s most prominent game designers.

“Capcom is barely keeping up,” he said in an interview at the show, which ended Sunday. “I want to study how Westerners live, and make games that appeal to them.”

From the mid-1980s through the 1990s, most big console-game franchises were born in Japan, including Nintendo’s Mario and Pokémon, Sonic the Hedgehog from Sega and Gran Turismo from Sony.

But the biggest new game franchises of the last decade have been from outside Japan, including Halo by Microsoft, and the hits from Activision Blizzard and Take-Two Interactive.

Last year, the world’s best-selling game by far was Call of Duty: Modern Warfare 2, which sold 11.86 million copies in the United States, Japan and Britain, according to NPD Group, the market research company.

Global sales numbers for the entire industry are hard to come by. But Japan’s share of the world’s video game market, both hardware and software, has fallen to slightly more than 10 percent in 2009, from estimates as high as 50 percent in 2002, based on figures from the Entertainment Software Association, the Japan External Trade Organization, and the research companies DFC Intelligence and Enterbrain.

The West’s dominance was evident here at the Tokyo Game Show, which has lost much of its global clout in recent years. Despite excitement at the 2010 show over coming titles from Japanese publishers, like Ni no Kuni from Level 5 and The Last Guardian from Sony, Japan’s game developers were mainly wringing their hands.

Nintendo has been the major exception, a Japanese game company that has remained dominant. The company, based in Kyoto, reinvented the industry with its Wii home console and wandlike remote, which was introduced in 2006, luring new casual players into the market while setting an industry standard in motion control.

The Wii Sports Resort game was the world’s second-biggest game in 2009, selling 7.57 million copies. Its soon-to-be-released Nintendo 3DS, a portable console with a 3-D display that does not require special glasses, is the industry’s most anticipated hardware release in years.

But because the best-selling games on Nintendo consoles are largely made by Nintendo, the rest of the Japanese game industry has been excluded from that action.

Meanwhile, Japan’s domestic game market is shrinking, down by 20 percent since 2007, to 549 billion yen ($6.4 billion) in 2009, according to Enterbrain.

During that time, the market in the United States surged to a record $21.4 billion in 2008 before a recession-driven decline to $19.7 billion in 2009. But that was still a total increase of 10 percent over two years for the American market, according to NPD.

As Japanese development studios struggle with declining sales, analysts say they are falling behind their American rivals in sheer investment power. A budget for a blockbuster game in the United States can approach $50 million, a figure few Japanese developers can now match.

“Japan used to define gaming,” said Jake Kazdal, a longtime developer who has worked at Sega in Tokyo and the American game publisher Electronic Arts. “But now many developers just do the same thing over and over again.”

Part of Japan’s problem, Mr. Kazdal said, is a growing gap in tastes between players there and overseas. The most popular games in Japan are linear, with little leeway for players to wander off a defined path. In the United States, he said, video games have become more open, virtual experiences.

“Smarter developers in Japan are trying to reach out to the West,” Mr. Kazdal said. “They’re collaborating and trying to make games that have more global appeal.”

But Japanese developers have sometimes hit snags trying to tailor games to Westerners. Take Shadow of Rome, the 2005 action game Capcom made for European and American markets.

Banks Seeking Most Cash Since July Drive Up Borrowing Costs: India Credit

Banks in India are increasing borrowing from the central bank to the most since July as a shortage of cash drives short-term interest rates higher.

Financial institutions borrowed a daily average of 294 billion rupees ($6.4 billion) last week, after depositing 69 billion a day in the previous week, Reserve Bank of India data show. Overnight lending rates climbed to a six-month high of 6.10 percent on Sept. 17, from 5.25 percent a week earlier, as companies pay taxes this month and people withdraw cash ahead of religious holidays. That was the biggest jump since the period ended June 5.

Banks have borrowed more than they deposited with the monetary authority for four straight months, the longest stretch since the collapse of Lehman Brothers Holdings Inc., as Governor Duvvuri Subbarao reins in money-supply growth to help cool inflation in the world’s second-most populous nation. Subbarao increased interest rates for the fifth time this year last week, sending yields on 10-year Indian bonds toward a two-year high, above those of China and Russia and below those of Brazil.

“Until inflation begins to dissipate, the central bank may continue to keep cash conditions tight,” Abheek Barua, chief economist in New Delhi at HDFC Bank Ltd., India’s third largest, said in a Sept. 16 interview. “The RBI has a plethora of policy options to ease liquidity including easing reserve requirements and raising foreign investment limit on debt, but they are deliberately keeping it tight.”

Subbarao is concerned that higher rates have failed to stop record lending. He is trying to slow inflation, which surged to 11 percent in April before slowing to 8.5 percent in August, as measured by wholesale prices. The Reserve Bank is still worried by the pace of price increases, Deputy Governor Subir Gokarn said in an e-mailed statement in New Delhi on Sept. 17.

Inflation, Lending

Loans to companies including Essar Steel Ltd. and Videocon Industries Ltd. climbed 36 percent to 2.1 trillion rupees this year, the most since Bloomberg started compiling the data in 2002. State Bank of India and ICICI Bank Ltd., the nation’s two biggest, have raised their lending rates by 0.5 percentage point this year, less than the 1.25 percentage-point increase in the central bank’s benchmark repurchase rate.

India’s banks may push up their rates by 50 to 100 basis points by December, helping bring down inflation to about 5.5 percent by the end of 2010, said HDFC’s Barua.

Last week’s borrowing by banks was the most since they sought an average 642 billion rupees a day in the week ended July 23, central bank data show. Indian companies withdrew funds before the Sept. 15 deadline to pay corporate tax. Consumers may also tap savings before the Hindu festivals of Dussehra in October and Diwali in November.

The last time banks were net borrowers for four consecutive months was between May and November in 2008, as the global financial crisis deepened.

Yields Rise

The cash reserve ratio, the proportion of deposits lenders should keep with the central bank, was last increased by 0.25 percentage point to 6 percent on April 26. International holdings of India’s rupee debt climbed 120 percent this year to $16.6 billion as of Sept. 16, approaching the $20 billion limit, according to data from the Securities & Exchange Board of India.

The yield on India’s benchmark 10-year bond rose 7 basis points, or 0.07 percentage point, last week to 7.98 percent. While the rate has climbed 39 basis points in 2010, it has slid 14 basis points from a high of 8.12 percent on April 27. Similar- maturity bonds yield 3.23 percent in China, 7.56 percent in Russia and 11.83 percent in Brazil.

The difference in yields between the debt and similar- maturity U.S. Treasuries widened to 5.25 percentage points on Sept. 17 from 5.10 percentage point a week earlier. This compares with an average 3.17 points in the past decade. The measure peaked at 5.56 points on Aug. 26.

Worst Performers

Returns from Indian government bonds fell 0.25 percent this month, losing the most after Singapore and Hong Kong among 10 local-currency debt markets outside Japan, according to indexes compiled by London-based HSBC Holdings Plc, Europe’s largest bank. The notes returned 3 percent this year, the worst performance in the region excluding Japan.

The cost of fixing rates on money for three years in the market for so-called interest-rate swaps, climbed 25 basis points last week to 6.77 percent, data compiled by Bloomberg show. It had dropped 42 basis points in the previous six weeks.

In raising rates, the Indian central bank “suggested that the path of policy normalization was over, which we interpret as signaling a long pause,” Piero Ghezzi, the global head of foreign-exchange strategy at Barclays Capital in London, wrote in a Sept. 17 report.

The rupee appreciated 1.4 percent last week to 45.845 per dollar, the most since the five-day period ended June 18, as the benchmark Sensitive Index of shares surged 4.2 percent.

Subbarao may seek more curbs on credit in November, including tighter rules for loans to property developers, said Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., a lender part owned by Rabobank Nederland NV and HSBC.

“The RBI is making sure that liquidity stays tight,” Ramit Bhasin, the Mumbai-based head of markets in India at Royal Bank of Scotland NV, said in a Sept. 17 interview.

Gunmen attack tourist bus in New Delhi

India’s security arrangements for next month’s Commonwealth Games came under renewed scrutiny on Sunday, after gunmen fired on a tourist bus outside a New Delhi mosque, wounding two Taiwanese visitors.

The pair of motor-bike riding gunmen shot at a group of Taiwanese visitors outside the vast Jama Masjid, Delhi’s most important Islamic site, and a popular tourist attraction in the city’s congested old quarter.

Police, hunting for the culprits, said they did not yet know the motive, and could not comment on whether the assault was linked to the many terror attacks that have rocked New Delhi and other Indian cities in recent years.

New Delhi’s chief minister, Sheila Dixit, urged calm, even as the city was put on high alert. “I appeal to everybody, please do not panic,” Ms Dixit said. “An incident like this is something worrying but nothing to panic about.”

But with the start of the Commonwealth Games just two weeks away, the shooting has reignited concern over whether India – still haunted by the devastating Mumbai terror attack of two years ago- is ready to provide adequate security for visiting athletes and spectators.

“Even if it just a totally random, one-off incident, you would expect that if people are just turning up in Delhi, their antennae are going to be fluttering around this issue,” said one Commonwealth diplomat.

The BBC said on Sunday it had received an e-mail from an Islamist group, the Indian Mujahideen, in which it warned of attacks during the games, which will further fuel security concerns.

India faces a high risk of terror attacks from groups like the Pakistan-based Lashkar e-Taiba, the force behind attacks in Mumbai in November 2008, during which 131 people were killed, and hundreds more injured, at two five-star hotels and the city’s main railway station.

The US State Department said in an advisory this month it had no intelligence of any specific threat to the Commonwealth games, but has warned of the high, continuing threat of terrorism across the country.

Security experts fear the sports tournament– which will draw athletes and spectators from 55 Commonwealth countries - could be a tempting target for radical groups.

MS Gill, the sports minister, said last week that security would be “not just 100 per cent but 120 per cent foolproof,” with at least 100,000 security personal deployed to safeguard the event. New Delhi has already stepped up its police presence across New Delhi, with advance teams for the games already arriving.

However, Sunday’s shooting will draw renewed attention to the security at sites that are not games venues, but could draw foreign visitors during the competition. “Lots of security measures have already been taken,” said Ms Dixit. “Whereever there is an inadequacy about it, that hole has to be plugged.”

The shooting is the latest jolt to Delhi’s efforts to stage the games, which have also been plagued by long delays in completing venues, allegations of corruption and an epidemic of mosquito-born dengue fever, which is expected to peak next month.