Coal India Ltd. may sell as much as 151.5 billion rupees ($3.4 billion) of stock in the nation’s biggest initial share sale as investors bet surging energy demand will override environmental delays for new mines.
Fifteen of 18 investors surveyed by Bloomberg News said they plan to bid for shares in the world’s largest coal producer. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, starting Oct. 18, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“Apply to buy as much as you can,” said Manish Sonthalia, who manages $230 million in equities at Motilal Oswal Securities Ltd. in Mumbai, who’s advising investors to bid at the top end of the range. The stock could gain 34 percent in the first year, said Sonthalia.
India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
“We are talking of a company which doesn’t only have one of the largest reserves and production, but also has a large captive market,” said P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai. “That should make this IPO attractive.”
Prime Minister Manmohan Singh’s government plans to sell shares in state-run companies to raise 400 billion rupees this year to trim a budget deficit. The sale of a 10 percent stake in Coal India could help the government meet about 38 percent of the asset-sale target and may surpass the 116 billion rupees raised by billionaire Anil Ambani’s Reliance Power Ltd. in January 2008.
Rising Coal Demand
India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24. The country is building power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30.
The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 million tons, of which 21.75 million is extractable, the share-sale document shows.
Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said on Oct. 13, without providing the new estimates.
The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said. Those delays are a concern for some investors.
Dead Money?
“They have to improve production and get access to new mines under forests,” said Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging market stocks at Helsinki-based Fim Asset Management, which has invested in four Indian IPOs this year, all non-state companies. “Else it will be dead money. You invest and the shares don’t increase later.”
Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia-Pacific Markets estimates.
The insurgents are based in the forests of the eastern state of Chhattisgarh, which has accounted for almost half of the 573 police and civilians killed in Maoist violence in the first half of this year.
‘No-go’ Areas
The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.
“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.
“The no-go areas make up almost 50 percent of their future projections,” said S.K. Chand, a New Delhi-based senior fellow at The Energy and Resources Institute. “Older blocks are dwindling and they need new blocks.”
Thursday, October 14, 2010
Plug-In Cars Pose Riddle for E.P.A.
DETROIT — About two months before two new plug-in cars go on sale in the United States, the federal government is struggling with how to rate the fuel economy of mass-market plug-in vehicles.
How the Environmental Protection Agency rates the two cars, the Chevrolet Volt and Nissan Leaf, could have a big influence on consumers’ perceptions of vehicles that run on electricity. General Motors, which makes the Volt, and Nissan are anxiously awaiting the agency’s decision as they start production of the cars and complete marketing plans for rollouts in December.
Providing the customary city and highway miles-per-gallon information would make little sense for the Volt, which can drive 25 to 50 miles on battery power before its gas engine kicks on, and even less so for the Leaf, which is powered by only a rechargeable battery.
Cathy Milbourn, a spokeswoman for the E.P.A., declined to specify a date when the new ratings might be released, saying only that they would come “shortly.”
The Volt and Leaf must be rated by the E.P.A. and have those ratings shown on window labels before they are sold.
Both Nissan and G.M. are in discussions with the agency about what the fuel economy information on the window stickers of new vehicles will state, company officials said. But they said they were in the dark about the outcome and its timing.
“We don’t have an official position on what they should do,” said Brian Brockman, a Nissan spokesman. “We expect there will be some form of ‘equivalency rating,’ like how many miles the Leaf can get per the number of kilowatt hours charged.”
Thomas G. Stephens, G.M.’s vice chairman for global product operations, said that he expected the agency to determine multiple fuel-economy figures for the Volt, based on the distance driven between battery charges.
“Right now it looks like there’s going to be a lot on the label,” Mr. Stephens said. “They’re trying to figure out what are all the variables that customers are going to see out there.”
The E.P.A. has proposed changing the labels on all new cars, including the possibility of assigning an overall letter grade, in part to address the issue of electric and hybrid vehicles. But the proposal would not take effect until the automakers’ 2012 models. In the meantime, Ms. Milbourn said, the agency was trying to determine “the appropriate information that will go on the 2011 model year label.”
Ms. Milbourn said the agency would use its standard highway and city testing procedures on the Volt. Since 2008, the agency has been using a battery of five test drives that cover a total distance of 43.9 miles.
Pam Fletcher, G.M.’s chief engineer for the Volt’s powertrain, said she expected multiple tests to capture ratings with the battery in various states of charge. The testing takes two days for a typical vehicle but seven days for the Volt, she said.
“There are going to be new and unique numbers to classify the new and unique behavior of this car,” Ms. Fletcher said. “We need to talk about electricity usage and we need to talk about gasoline usage and we need to figure out the best way to do that.”
Ms. Fletcher said she expected the Volt’s window label to at least show a miles-per-gallon equivalency rating for the car when it ran on battery power, as well as a more traditional rating to measure the engine’s efficiency after the battery was drained. In the latter situation, the car should get “some kind of combined fuel economy that’s in the mid- to upper 30s,” she said.
G.M. has said the Volt, which has a 9.3-gallon gas tank, would have about a 310-mile range on a depleted battery, which calculates to 33.3 miles per gallon.
A year ago, G.M. announced to widespread skepticism that it expected the Volt to earn a city rating of 230 miles per gallon based on a draft proposal for new testing procedures. Nissan later calculated the Leaf, using the same method, at 367 miles per gallon. (The vehicle with the highest E.P.A. rating is the Toyota Prius, with 51 miles per gallon in city driving.) The E.P.A. later rejected the formula that resulted in the two estimates.
The Volt became a source of debate this week among some automotive reviewers who test-drove it. Some accused G.M. of lying about the Volt’s design after the company revealed that in some situations — such as at high speeds after the battery has been drained — the gas engine helps propel the car’s wheels, much like a traditional hybrid car.
For years, G.M. described the Volt as an electric car in which gasoline powers a generator, not the wheels.
Mr. Stephens said G.M. had not previously disclosed that detail for competitive reasons until it received a patent on the design, which happened in September.
The questions raised about the Volt’s hybrid credentials are not expected to weigh heavily on potential buyers, said one auto analyst who attended the test-drive in Detroit.
“It might matter to some techno-geeks, but not to anybody else,” said Joseph Phillippi of the firm Auto Trends Consulting in Short Hills, N.J.
The E.P.A. has already weighed in on that topic. Its Web site classifies the Volt as a “plug-in hybrid” while calling the Leaf simply an “electric car.”
How the Environmental Protection Agency rates the two cars, the Chevrolet Volt and Nissan Leaf, could have a big influence on consumers’ perceptions of vehicles that run on electricity. General Motors, which makes the Volt, and Nissan are anxiously awaiting the agency’s decision as they start production of the cars and complete marketing plans for rollouts in December.
Providing the customary city and highway miles-per-gallon information would make little sense for the Volt, which can drive 25 to 50 miles on battery power before its gas engine kicks on, and even less so for the Leaf, which is powered by only a rechargeable battery.
Cathy Milbourn, a spokeswoman for the E.P.A., declined to specify a date when the new ratings might be released, saying only that they would come “shortly.”
The Volt and Leaf must be rated by the E.P.A. and have those ratings shown on window labels before they are sold.
Both Nissan and G.M. are in discussions with the agency about what the fuel economy information on the window stickers of new vehicles will state, company officials said. But they said they were in the dark about the outcome and its timing.
“We don’t have an official position on what they should do,” said Brian Brockman, a Nissan spokesman. “We expect there will be some form of ‘equivalency rating,’ like how many miles the Leaf can get per the number of kilowatt hours charged.”
Thomas G. Stephens, G.M.’s vice chairman for global product operations, said that he expected the agency to determine multiple fuel-economy figures for the Volt, based on the distance driven between battery charges.
“Right now it looks like there’s going to be a lot on the label,” Mr. Stephens said. “They’re trying to figure out what are all the variables that customers are going to see out there.”
The E.P.A. has proposed changing the labels on all new cars, including the possibility of assigning an overall letter grade, in part to address the issue of electric and hybrid vehicles. But the proposal would not take effect until the automakers’ 2012 models. In the meantime, Ms. Milbourn said, the agency was trying to determine “the appropriate information that will go on the 2011 model year label.”
Ms. Milbourn said the agency would use its standard highway and city testing procedures on the Volt. Since 2008, the agency has been using a battery of five test drives that cover a total distance of 43.9 miles.
Pam Fletcher, G.M.’s chief engineer for the Volt’s powertrain, said she expected multiple tests to capture ratings with the battery in various states of charge. The testing takes two days for a typical vehicle but seven days for the Volt, she said.
“There are going to be new and unique numbers to classify the new and unique behavior of this car,” Ms. Fletcher said. “We need to talk about electricity usage and we need to talk about gasoline usage and we need to figure out the best way to do that.”
Ms. Fletcher said she expected the Volt’s window label to at least show a miles-per-gallon equivalency rating for the car when it ran on battery power, as well as a more traditional rating to measure the engine’s efficiency after the battery was drained. In the latter situation, the car should get “some kind of combined fuel economy that’s in the mid- to upper 30s,” she said.
G.M. has said the Volt, which has a 9.3-gallon gas tank, would have about a 310-mile range on a depleted battery, which calculates to 33.3 miles per gallon.
A year ago, G.M. announced to widespread skepticism that it expected the Volt to earn a city rating of 230 miles per gallon based on a draft proposal for new testing procedures. Nissan later calculated the Leaf, using the same method, at 367 miles per gallon. (The vehicle with the highest E.P.A. rating is the Toyota Prius, with 51 miles per gallon in city driving.) The E.P.A. later rejected the formula that resulted in the two estimates.
The Volt became a source of debate this week among some automotive reviewers who test-drove it. Some accused G.M. of lying about the Volt’s design after the company revealed that in some situations — such as at high speeds after the battery has been drained — the gas engine helps propel the car’s wheels, much like a traditional hybrid car.
For years, G.M. described the Volt as an electric car in which gasoline powers a generator, not the wheels.
Mr. Stephens said G.M. had not previously disclosed that detail for competitive reasons until it received a patent on the design, which happened in September.
The questions raised about the Volt’s hybrid credentials are not expected to weigh heavily on potential buyers, said one auto analyst who attended the test-drive in Detroit.
“It might matter to some techno-geeks, but not to anybody else,” said Joseph Phillippi of the firm Auto Trends Consulting in Short Hills, N.J.
The E.P.A. has already weighed in on that topic. Its Web site classifies the Volt as a “plug-in hybrid” while calling the Leaf simply an “electric car.”
Sale of Cairn unit to be test case for India
Sir Bill Gammell, chairman of oil explorer Cairn Energy, is founding patron of a sports charity whose mantra is “winning isn’t everything, but wanting to win is”.
Sir Bill, a former international rugby player, is about to discover how far the will to win can go in India. He is awaiting New Delhi’s sanction for UK-based Cairn’s sale of a $9.6bn controlling stake in its Indian subsidiary to Vedanta, the India-focused mining company.
Anil Agarwal, Vedanta’s billionaire founder, certainly does not lack drive. Over the past 15 years, he has transformed a small family metal fabrication business into a global mining group, mainly by snapping up underperforming state-owned Indian mining firms and strengthening their operations. Now he is launching into oil and gas production.
But Vedanta’s recent regulatory setbacks have raised questions about the UK-listed company’s prospects for extending its control over India’s mineral wealth.
They have cast a shadow over its planned acquisition of Cairn India, with its strategically important oilfields in a country renowned for an energy deficit.
Sir Bill is betting that the high-profile sale of what his executives describe as a world-class asset in the western state of Rajasthan will not get tripped up by the regulators or those that seek to influence them in a sometimes ferociously competitive corporate environment.
In an interview this week, he and Mr Agarwal expressed optimism that New Delhi would approve the sale in a few months.
He said: “I’m completely confident that this transaction will go ahead. It’s really a question of all the stakeholders becoming comfortable ... I think it’s a good deal for both sides.”
But in a country enthralled by the “decision-making process”, protracted delays could test the ties between the two entrepreneurs, as Sir Bill seeks cash for his promising, but costly, Greenland explorations, and Cairn India requires an additional $2bn investment over the next three to four years to double its current production to 240,000 barrels a day.
“If you get stuck, it’s more critical,” Sir Bill says. “It’s important that the business doesn’t get affected by the change in corporate ownership.”
The deal that caught both London investors and the Indian government off guard in August had its inception just weeks earlier, as Mr Agarwal, who was on holiday in Scotland, dropped by to meet Sir Bill for tea and stunned him with an unsolicited offer to buy Cairn India.
In spite of their shared entrepreneurial energies, the two had not previously met. But with two common members on their respective corporate boards, Mr Agarwal was familiar with Sir Bill’s rich Indian oil finds – and had a long-standing aspiration to plunge into the oil business.
“Adding oil is a feather in our cap,” Mr Agarwal says. “Ever since I was young, I was hearing how India needed more and more oil.”
Cairn India, which held an IPO on the Bombay Stock Exchange in 2007 at Rs155 per share, was not technically on the market.
But Sir Bill was considering a sell-off of the maturing Indian business within 18 months to support Cairn’s focus on exploration elsewhere. The Scottish oil explorer found Mr Agarwal’s offer price of Rs355 per share, plus a Rs50 per share “non-compete” premium for Cairn Energy, too good to refuse.
“Cairn didn’t particularly have a plan that we were going to divest at this point in time, but we were offered an attractive price,” Sir Bill says. “Our drivers are: can we double the value every three years?”
So speedy were the negotiations that the Indian government and Cairn’s production partner, state-owned ONGC, were “wrong-footed” by the unexpected deal to sell to Vedanta – a company that has been sparring with New Delhi on issues ranging from bauxite mining in Orissa to its desire to buy out the state’s minority shareholding in two Vedanta-controlled mining companies. “Our partners were upset they hadn’t had prior warning and that caused us some embarrassment,” Sir Bill says. “I have apologised for that.”
Some powerful figures among India’s business community say that the Scottish entrepreneur may have to pay more obeisance to state power brokers, and that Mr Agarwal will likewise have to “grease the wheels” to make the transaction more attractive to the Ministry of Petroleum and the regulators.
Others say the deal is likely to go through on schedule and agree with Sir Bill’s view that the sale of Cairn Energy is an important “test case” for India’s standing as a destination for foreign direct investment and the country’s capital markets.
Meanwhile, India’s media are rife with speculation that powerful Indian business interests are keen to obstruct the acquisition of the highly lucrative oil assets by a man they see as an upstart and unwelcome rival. But Mr Agarwal believes India’s elite business circle is like “a crowded train compartment. Everyone says, ‘there’s no room, there’s no room’, but eventually people make room and soon they are talking and sharing lunch.”
Sir Bill, a former international rugby player, is about to discover how far the will to win can go in India. He is awaiting New Delhi’s sanction for UK-based Cairn’s sale of a $9.6bn controlling stake in its Indian subsidiary to Vedanta, the India-focused mining company.
Anil Agarwal, Vedanta’s billionaire founder, certainly does not lack drive. Over the past 15 years, he has transformed a small family metal fabrication business into a global mining group, mainly by snapping up underperforming state-owned Indian mining firms and strengthening their operations. Now he is launching into oil and gas production.
But Vedanta’s recent regulatory setbacks have raised questions about the UK-listed company’s prospects for extending its control over India’s mineral wealth.
They have cast a shadow over its planned acquisition of Cairn India, with its strategically important oilfields in a country renowned for an energy deficit.
Sir Bill is betting that the high-profile sale of what his executives describe as a world-class asset in the western state of Rajasthan will not get tripped up by the regulators or those that seek to influence them in a sometimes ferociously competitive corporate environment.
In an interview this week, he and Mr Agarwal expressed optimism that New Delhi would approve the sale in a few months.
He said: “I’m completely confident that this transaction will go ahead. It’s really a question of all the stakeholders becoming comfortable ... I think it’s a good deal for both sides.”
But in a country enthralled by the “decision-making process”, protracted delays could test the ties between the two entrepreneurs, as Sir Bill seeks cash for his promising, but costly, Greenland explorations, and Cairn India requires an additional $2bn investment over the next three to four years to double its current production to 240,000 barrels a day.
“If you get stuck, it’s more critical,” Sir Bill says. “It’s important that the business doesn’t get affected by the change in corporate ownership.”
The deal that caught both London investors and the Indian government off guard in August had its inception just weeks earlier, as Mr Agarwal, who was on holiday in Scotland, dropped by to meet Sir Bill for tea and stunned him with an unsolicited offer to buy Cairn India.
In spite of their shared entrepreneurial energies, the two had not previously met. But with two common members on their respective corporate boards, Mr Agarwal was familiar with Sir Bill’s rich Indian oil finds – and had a long-standing aspiration to plunge into the oil business.
“Adding oil is a feather in our cap,” Mr Agarwal says. “Ever since I was young, I was hearing how India needed more and more oil.”
Cairn India, which held an IPO on the Bombay Stock Exchange in 2007 at Rs155 per share, was not technically on the market.
But Sir Bill was considering a sell-off of the maturing Indian business within 18 months to support Cairn’s focus on exploration elsewhere. The Scottish oil explorer found Mr Agarwal’s offer price of Rs355 per share, plus a Rs50 per share “non-compete” premium for Cairn Energy, too good to refuse.
“Cairn didn’t particularly have a plan that we were going to divest at this point in time, but we were offered an attractive price,” Sir Bill says. “Our drivers are: can we double the value every three years?”
So speedy were the negotiations that the Indian government and Cairn’s production partner, state-owned ONGC, were “wrong-footed” by the unexpected deal to sell to Vedanta – a company that has been sparring with New Delhi on issues ranging from bauxite mining in Orissa to its desire to buy out the state’s minority shareholding in two Vedanta-controlled mining companies. “Our partners were upset they hadn’t had prior warning and that caused us some embarrassment,” Sir Bill says. “I have apologised for that.”
Some powerful figures among India’s business community say that the Scottish entrepreneur may have to pay more obeisance to state power brokers, and that Mr Agarwal will likewise have to “grease the wheels” to make the transaction more attractive to the Ministry of Petroleum and the regulators.
Others say the deal is likely to go through on schedule and agree with Sir Bill’s view that the sale of Cairn Energy is an important “test case” for India’s standing as a destination for foreign direct investment and the country’s capital markets.
Meanwhile, India’s media are rife with speculation that powerful Indian business interests are keen to obstruct the acquisition of the highly lucrative oil assets by a man they see as an upstart and unwelcome rival. But Mr Agarwal believes India’s elite business circle is like “a crowded train compartment. Everyone says, ‘there’s no room, there’s no room’, but eventually people make room and soon they are talking and sharing lunch.”
Wednesday, October 13, 2010
Indian Oil CFO Says Yield Decline Will Boost Competitiveness: India Credit
Indian Oil Corp., the country’s biggest state refiner, is winning the confidence of bond investors it needs to buy energy resources and power the world’s third fastest growing major economy.
The yield on New Delhi-based Indian Oil’s $500 million of notes due in 2015 has tumbled to 2.9 percent since they were issued in January at 4.82 percent. That’s a bigger drop than the 1.04 percentage-point decline in the yield on 2013 bonds of Cnooc Ltd., China’s biggest offshore oil and gas explorer.
“Indian oil companies are looking for assets and lower borrowing costs help raise the money and make us competitive,” Serangulam V. Narasimhan, Indian Oil’s finance director, said in an interview yesterday. “We can go anytime overseas to raise money. There is a lot of appetite.”
Lower funding costs would help Indian companies compete for overseas purchases, challenging China as the two nations scour the world for energy assets. Reliance Industries Ltd. is selling bonds this week, while Oil & Natural Gas Corp. plans to borrow $10 billion over a decade for acquisitions, taking advantage of record global demand for Indian assets.
“India will become more aggressive in acquisitions overseas as the economy continues to grow,” said Dharmakirti Joshi, chief economist at Mumbai-based Crisil Ltd., the Indian unit of Standard & Poor’s. “Cheaper debt can give Indian companies that advantage and make them more aggressive in buying assets.”
Reliance Borrowing
India has lost out to Chinese competitors, which can get loans at discounted rates from state-run banks. Cnooc will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, the biggest acquisition of a U.S. oil and gas asset by a Chinese company, according to company statements.
Reliance was reviewing the assets and considered investing, three people with direct knowledge of the matter said Sept. 17. They declined to be identified because the deliberations weren’t announced.
Reliance, controlled by Mukesh Ambani, Asia’s richest man, has been more acquisitive this year, spending $3.4 billion to buy three shale gas assets in the U.S. The explorer plans to use proceeds from the sale of dollar-denominated bonds to refinance loans and for investments, Moody’s Investors Service said.
India’s energy use may more than double by 2030 from 2007 to the equivalent of 833 million metric tons of oil, while China’s demand may jump 87 percent to 2.4 billion tons, according to the Paris-based International Energy Agency.
Spurned Bid
Indian Oil and state-run Oil India Ltd. bid to buy Gulfsands Petroleum Plc, a U.K. company with assets in Syria and the Gulf of Mexico, in March at a valuation of about 380 million pounds ($603 million). Gulfsands spurned the offer on March 19, calling it “wholly inadequate.”
Indian Oil plans to buy fields in Africa as part of a $1 billion overseas investment plan, Chairman Brij Mohan Bansal said in July.
State-run Chinese companies spent a record $32 billion last year acquiring energy and resources overseas, versus India’s single $2.1 billion investment by ONGC, the nation’s biggest energy explorer, to buy Imperial Energy Corp., according to data compiled by Bloomberg.
“We aren’t happy having such low debt and would like to have an optimum mix,” ONGC Chairman R.S. Sharma said in a telephone interview yesterday. “There are no immediate plans to raise money, but at some point of time, we will.”
ONGC may borrow $10 billion over the next decade to purchase assets overseas, Sharma said earlier this year. In September 2009, China National Petroleum Corp. received a $30 billion loan from China Development Bank at a discounted interest rate to buy energy resources, according to a statement from China National.
Rupee Gains
In India’s corporate bond market, the extra yield investors demand to hold five-year company debt instead of similar- maturity government notes has shrunk to 63 basis points from 81 in May, according to data compiled by Bloomberg.
The rupee has gained 4.5 percent this year, closing at 44.515 per dollar yesterday. Inflows of money forced the government to raise its limit on foreign holdings of debt in the currency by 50 percent last month.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries was at 560 basis points yesterday, the high for the year and up from 374 at the start of 2010.
Uganda Bid
China’s third-largest oil company spent at least $3.8 billion on overseas acquisitions in the past year. State- controlled China Petrochemical Corp. bought a $4.65 billion stake in an oil-sands project in Canada in April.
Uganda may approve Cnooc and Total SA as Tullow Oil Plc’s partners in developing oil projects in the country, Patrick Bitature, chairman of the Uganda Investment Authority, said Oct. 12. The assets include a one-third stake in three blocks in the African nation’s Lake Albert region from Tullow. ONGC jointly bid with Indian Oil and Oil India for the stake and lost out to the Chinese bid, a person familiar with the negotiations said in June, declining to be identified because the talks were private.
Indian Oil plans to sell $2.5 billion of stock to lower debt and fund new plants, Chairman Bansal said this month. Narasimhan said yesterday there’s no timing yet for any possible bond sale, pending the outcome of the stock offering.
The yield on New Delhi-based Indian Oil’s $500 million of notes due in 2015 has tumbled to 2.9 percent since they were issued in January at 4.82 percent. That’s a bigger drop than the 1.04 percentage-point decline in the yield on 2013 bonds of Cnooc Ltd., China’s biggest offshore oil and gas explorer.
“Indian oil companies are looking for assets and lower borrowing costs help raise the money and make us competitive,” Serangulam V. Narasimhan, Indian Oil’s finance director, said in an interview yesterday. “We can go anytime overseas to raise money. There is a lot of appetite.”
Lower funding costs would help Indian companies compete for overseas purchases, challenging China as the two nations scour the world for energy assets. Reliance Industries Ltd. is selling bonds this week, while Oil & Natural Gas Corp. plans to borrow $10 billion over a decade for acquisitions, taking advantage of record global demand for Indian assets.
“India will become more aggressive in acquisitions overseas as the economy continues to grow,” said Dharmakirti Joshi, chief economist at Mumbai-based Crisil Ltd., the Indian unit of Standard & Poor’s. “Cheaper debt can give Indian companies that advantage and make them more aggressive in buying assets.”
Reliance Borrowing
India has lost out to Chinese competitors, which can get loans at discounted rates from state-run banks. Cnooc will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, the biggest acquisition of a U.S. oil and gas asset by a Chinese company, according to company statements.
Reliance was reviewing the assets and considered investing, three people with direct knowledge of the matter said Sept. 17. They declined to be identified because the deliberations weren’t announced.
Reliance, controlled by Mukesh Ambani, Asia’s richest man, has been more acquisitive this year, spending $3.4 billion to buy three shale gas assets in the U.S. The explorer plans to use proceeds from the sale of dollar-denominated bonds to refinance loans and for investments, Moody’s Investors Service said.
India’s energy use may more than double by 2030 from 2007 to the equivalent of 833 million metric tons of oil, while China’s demand may jump 87 percent to 2.4 billion tons, according to the Paris-based International Energy Agency.
Spurned Bid
Indian Oil and state-run Oil India Ltd. bid to buy Gulfsands Petroleum Plc, a U.K. company with assets in Syria and the Gulf of Mexico, in March at a valuation of about 380 million pounds ($603 million). Gulfsands spurned the offer on March 19, calling it “wholly inadequate.”
Indian Oil plans to buy fields in Africa as part of a $1 billion overseas investment plan, Chairman Brij Mohan Bansal said in July.
State-run Chinese companies spent a record $32 billion last year acquiring energy and resources overseas, versus India’s single $2.1 billion investment by ONGC, the nation’s biggest energy explorer, to buy Imperial Energy Corp., according to data compiled by Bloomberg.
“We aren’t happy having such low debt and would like to have an optimum mix,” ONGC Chairman R.S. Sharma said in a telephone interview yesterday. “There are no immediate plans to raise money, but at some point of time, we will.”
ONGC may borrow $10 billion over the next decade to purchase assets overseas, Sharma said earlier this year. In September 2009, China National Petroleum Corp. received a $30 billion loan from China Development Bank at a discounted interest rate to buy energy resources, according to a statement from China National.
Rupee Gains
In India’s corporate bond market, the extra yield investors demand to hold five-year company debt instead of similar- maturity government notes has shrunk to 63 basis points from 81 in May, according to data compiled by Bloomberg.
The rupee has gained 4.5 percent this year, closing at 44.515 per dollar yesterday. Inflows of money forced the government to raise its limit on foreign holdings of debt in the currency by 50 percent last month.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries was at 560 basis points yesterday, the high for the year and up from 374 at the start of 2010.
Uganda Bid
China’s third-largest oil company spent at least $3.8 billion on overseas acquisitions in the past year. State- controlled China Petrochemical Corp. bought a $4.65 billion stake in an oil-sands project in Canada in April.
Uganda may approve Cnooc and Total SA as Tullow Oil Plc’s partners in developing oil projects in the country, Patrick Bitature, chairman of the Uganda Investment Authority, said Oct. 12. The assets include a one-third stake in three blocks in the African nation’s Lake Albert region from Tullow. ONGC jointly bid with Indian Oil and Oil India for the stake and lost out to the Chinese bid, a person familiar with the negotiations said in June, declining to be identified because the talks were private.
Indian Oil plans to sell $2.5 billion of stock to lower debt and fund new plants, Chairman Bansal said this month. Narasimhan said yesterday there’s no timing yet for any possible bond sale, pending the outcome of the stock offering.
Swaps Show China, India, Developing Nations Gaining on G-7: Credit Markets
Credit-default swaps on bonds sold by Brazil, Russia, India and China are closing in on those tied to the world’s largest economies, which are piling on debt in an attempt to stoke growth.
The average cost of contracts protecting debt of the so- called BRICs dropped to 41.4 basis points more than the price of swaps on the Group of Seven countries and last week reached the lowest on record. The extra cost to insure the emerging-market nations’ bonds shrunk from 362 basis points, or 3.62 percentage points, in March 2009.
Record demand for emerging-market bonds is driving down the relative yields that investors seek to own the debt. Fixed- income investors are wagering nations including Brazil and China will continue to fuel the global recovery while the U.S., Japan and some of Europe’s biggest countries wrestle with budget deficits and sluggish growth. Developing nations will grow 6.4 percent next year, while developed economies will expand 2.2 percent, the International Monetary Fund said last week.
“Emerging markets don’t have the problems that developed markets are having right now,” said Mikhail Foux, a credit strategist at Citigroup Inc. in New York. “They don’t have the heavy debt load. They’re growing. A lot of them export commodities, and the price of commodities is increasing. Their populations are young and growing. So people feel really good about emerging markets in general.”
The average cost of swaps on BRIC nations has fallen 9 basis points since the start of the year to 116 basis points, while the G-7 average jumped 15 to 74, according to data provider CMA. The G-7 average includes swaps on the U.S., U.K., France, Germany, Italy and Japan. Swaps on Canada are not actively traded.
Extra Yield
Elsewhere in credit markets, a gauge of corporate credit risk in the U.S. tumbled to the lowest since May. The world’s biggest missile maker, Raytheon Co., planned to sell $2 billion of bonds and the cost of protecting Standard Chartered Plc debt from default fell to the lowest in two months after the bank said it would raise about 3.3 billion pounds ($5.2 billion) of equity.
The extra yield investors demand to own company bonds instead of similar maturity government debt fell 1 basis point to 168 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. That’s the lowest since reaching the same level May 13 and down 13 basis points since Aug. 31. Yields averaged 3.36 percent yesterday.
Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 4.2 basis points to a mid-price of 92.8 as of 1:04 p.m. in New York, the lowest since May 3, according to index administrator Markit Group Ltd.
Bad Loans
The contracts, which typically fall as investor confidence improves and decline as it deteriorates, have dropped 13.8 basis points since Sept. 30, CMA data show.
The cost to protect debt issued by JPMorgan Chase & Co. fell 0.2 basis point to 83, according to broker Phoenix Partners Group, after the first of the largest U.S. banks to report earnings said its profit exceeded analyst estimates. Provisions for bad loans shrank offsetting an 11 percent decline in revenue.
Third-quarter net income climbed to $4.42 billion, or $1.01 a share, from $3.59 billion, or 82 cents, in the same period a year earlier, the New York-based company said today in a statement. Twenty-two analysts surveyed by Bloomberg estimated adjusted earnings of 88 cents a share.
“It wasn’t as impressive as everybody was hoping,” said Andrew Kuan, senior trader at Primus Asset Management in New York.
Raytheon Offering
Contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Raytheon will issue 5-, 10- and 30-year securities to buy back 5.5 percent debt due November 2012 and 5.375 percent notes maturing in April 2013, the Waltham, Massachusetts-based company said today in a regulatory filing that didn’t specify the size or timing of the offering.
The defense contractor will sell the debt as soon as today, according to a person familiar with the transaction, who declined to be identified to be identified as terms aren’t set.
Credit-default swaps on Standard Chartered fell 2.5 basis points to 78.5, according to data provider CMA, as investors speculated the company won’t sell as many bonds to boost capital. Its shares dropped 1.7 percent to 1,876 pence in London.
Temasek Involvement
Standard Chartered’s 1.25 billion euros ($1.8 billion) of 3.625 percent senior unsecured notes due 2015 rose, pushing the yield versus benchmark government debt 7 basis points lower to 131, according to HSBC Holdings Plc prices on Bloomberg.
Investors in Standard Chartered will be offered one new share at 1,280 pence for every eight they already own, the London-based bank said in a statement today. That’s a third less than yesterday’s closing price. Temasek Holdings Pte, Standard Chartered’s largest shareholder with a 17.7 percent stake, will subscribe to its portion of the sale, the bank said.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debentures fell 7 basis points to 247 basis points, the lowest since April 26, according to JPMorgan index data.
Outperformance
A record $40.5 billion has flowed into emerging-market bond funds this year, more than four times the full-year high of $9.7 billion in 2005, according to data from research firm EPFR Global.
Emerging economies are outperforming developed nations as European leaders seek to contain debt crises in Greece and Ireland and as the U.S., which has a $1.3 trillion budget deficit, tries to jumpstart an economy that grew at an annual rate of 1.7 percent in the second quarter.
By contrast, Brazil’s economy may expand 7.5 percent this year, up from a previous forecast of 7 percent, Finance Minister Guido Mantega said yesterday in New York.
“Brazil is enjoying high quality, sustainable growth, because it doesn’t generate macroeconomic imbalances,” Mantega said. “Investment today is growing almost three times faster than the economy and we’re increasing productivity.”
‘Flowing Aggressively’
Brazilian companies are selling record amounts of perpetual bonds, which allow issuers to repay principal at their discretion. Mexico sold $1 billion of 100-year-notes last week in the first such sale by a Latin American government.
“Money is flowing more aggressively into emerging-market credit, and the quality of new issues is starting to reflect that,” said Ashish Shah, co-head of global credit investment at AllianceBernstein LP in New York. “That’s the classic way bubbles get built.”
Mexico Central bank Governor Agustin Carstens said the debt won’t lead to a bubble. The Mexican economy is “solid” and inflation has been better than expected, he said in Mexico City yesterday.
An index of swaps on 15 governments in central and eastern Europe, the Middle East and Africa exceeds a benchmark of western European creditworthiness by a record low 50 basis points, down from 161 in February, according to CMA.
China’s Exports
The Markit iTraxx SovX CEEMEA Index has fallen more than 20 basis points since it started trading in January and about 75 from its May peak to 195, while the Markit iTraxx SovX Western Europe Index rose 55 to 144.5, CMA prices show.
The record flow of cash into emerging economies has prompted some policymakers to act to slow the trend. Brazil doubled to 4 percent a tax it charges on some foreign inflows last week. The real has gained 4.5 percent this year to 1.6699 per dollar as prices on the commodities it exports climb. Sugar futures have jumped 52 percent since the end of June and yesterday reached the highest level since February.
China’s economy will likely grow 9.9 percent this year from a year earlier and will grow 10 percent in 2011, the Caijing Magazine reported yesterday, citing a report issued by the Chinese Academy of Social Sciences.
China’s exports are expected to increase by 27.3 percent this year and imports to rise 35.7 percent, bringing the country’s trade surplus to $165 billion this year, Caijing said, citing the report.
The average cost of contracts protecting debt of the so- called BRICs dropped to 41.4 basis points more than the price of swaps on the Group of Seven countries and last week reached the lowest on record. The extra cost to insure the emerging-market nations’ bonds shrunk from 362 basis points, or 3.62 percentage points, in March 2009.
Record demand for emerging-market bonds is driving down the relative yields that investors seek to own the debt. Fixed- income investors are wagering nations including Brazil and China will continue to fuel the global recovery while the U.S., Japan and some of Europe’s biggest countries wrestle with budget deficits and sluggish growth. Developing nations will grow 6.4 percent next year, while developed economies will expand 2.2 percent, the International Monetary Fund said last week.
“Emerging markets don’t have the problems that developed markets are having right now,” said Mikhail Foux, a credit strategist at Citigroup Inc. in New York. “They don’t have the heavy debt load. They’re growing. A lot of them export commodities, and the price of commodities is increasing. Their populations are young and growing. So people feel really good about emerging markets in general.”
The average cost of swaps on BRIC nations has fallen 9 basis points since the start of the year to 116 basis points, while the G-7 average jumped 15 to 74, according to data provider CMA. The G-7 average includes swaps on the U.S., U.K., France, Germany, Italy and Japan. Swaps on Canada are not actively traded.
Extra Yield
Elsewhere in credit markets, a gauge of corporate credit risk in the U.S. tumbled to the lowest since May. The world’s biggest missile maker, Raytheon Co., planned to sell $2 billion of bonds and the cost of protecting Standard Chartered Plc debt from default fell to the lowest in two months after the bank said it would raise about 3.3 billion pounds ($5.2 billion) of equity.
The extra yield investors demand to own company bonds instead of similar maturity government debt fell 1 basis point to 168 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. That’s the lowest since reaching the same level May 13 and down 13 basis points since Aug. 31. Yields averaged 3.36 percent yesterday.
Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 4.2 basis points to a mid-price of 92.8 as of 1:04 p.m. in New York, the lowest since May 3, according to index administrator Markit Group Ltd.
Bad Loans
The contracts, which typically fall as investor confidence improves and decline as it deteriorates, have dropped 13.8 basis points since Sept. 30, CMA data show.
The cost to protect debt issued by JPMorgan Chase & Co. fell 0.2 basis point to 83, according to broker Phoenix Partners Group, after the first of the largest U.S. banks to report earnings said its profit exceeded analyst estimates. Provisions for bad loans shrank offsetting an 11 percent decline in revenue.
Third-quarter net income climbed to $4.42 billion, or $1.01 a share, from $3.59 billion, or 82 cents, in the same period a year earlier, the New York-based company said today in a statement. Twenty-two analysts surveyed by Bloomberg estimated adjusted earnings of 88 cents a share.
“It wasn’t as impressive as everybody was hoping,” said Andrew Kuan, senior trader at Primus Asset Management in New York.
Raytheon Offering
Contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Raytheon will issue 5-, 10- and 30-year securities to buy back 5.5 percent debt due November 2012 and 5.375 percent notes maturing in April 2013, the Waltham, Massachusetts-based company said today in a regulatory filing that didn’t specify the size or timing of the offering.
The defense contractor will sell the debt as soon as today, according to a person familiar with the transaction, who declined to be identified to be identified as terms aren’t set.
Credit-default swaps on Standard Chartered fell 2.5 basis points to 78.5, according to data provider CMA, as investors speculated the company won’t sell as many bonds to boost capital. Its shares dropped 1.7 percent to 1,876 pence in London.
Temasek Involvement
Standard Chartered’s 1.25 billion euros ($1.8 billion) of 3.625 percent senior unsecured notes due 2015 rose, pushing the yield versus benchmark government debt 7 basis points lower to 131, according to HSBC Holdings Plc prices on Bloomberg.
Investors in Standard Chartered will be offered one new share at 1,280 pence for every eight they already own, the London-based bank said in a statement today. That’s a third less than yesterday’s closing price. Temasek Holdings Pte, Standard Chartered’s largest shareholder with a 17.7 percent stake, will subscribe to its portion of the sale, the bank said.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debentures fell 7 basis points to 247 basis points, the lowest since April 26, according to JPMorgan index data.
Outperformance
A record $40.5 billion has flowed into emerging-market bond funds this year, more than four times the full-year high of $9.7 billion in 2005, according to data from research firm EPFR Global.
Emerging economies are outperforming developed nations as European leaders seek to contain debt crises in Greece and Ireland and as the U.S., which has a $1.3 trillion budget deficit, tries to jumpstart an economy that grew at an annual rate of 1.7 percent in the second quarter.
By contrast, Brazil’s economy may expand 7.5 percent this year, up from a previous forecast of 7 percent, Finance Minister Guido Mantega said yesterday in New York.
“Brazil is enjoying high quality, sustainable growth, because it doesn’t generate macroeconomic imbalances,” Mantega said. “Investment today is growing almost three times faster than the economy and we’re increasing productivity.”
‘Flowing Aggressively’
Brazilian companies are selling record amounts of perpetual bonds, which allow issuers to repay principal at their discretion. Mexico sold $1 billion of 100-year-notes last week in the first such sale by a Latin American government.
“Money is flowing more aggressively into emerging-market credit, and the quality of new issues is starting to reflect that,” said Ashish Shah, co-head of global credit investment at AllianceBernstein LP in New York. “That’s the classic way bubbles get built.”
Mexico Central bank Governor Agustin Carstens said the debt won’t lead to a bubble. The Mexican economy is “solid” and inflation has been better than expected, he said in Mexico City yesterday.
An index of swaps on 15 governments in central and eastern Europe, the Middle East and Africa exceeds a benchmark of western European creditworthiness by a record low 50 basis points, down from 161 in February, according to CMA.
China’s Exports
The Markit iTraxx SovX CEEMEA Index has fallen more than 20 basis points since it started trading in January and about 75 from its May peak to 195, while the Markit iTraxx SovX Western Europe Index rose 55 to 144.5, CMA prices show.
The record flow of cash into emerging economies has prompted some policymakers to act to slow the trend. Brazil doubled to 4 percent a tax it charges on some foreign inflows last week. The real has gained 4.5 percent this year to 1.6699 per dollar as prices on the commodities it exports climb. Sugar futures have jumped 52 percent since the end of June and yesterday reached the highest level since February.
China’s economy will likely grow 9.9 percent this year from a year earlier and will grow 10 percent in 2011, the Caijing Magazine reported yesterday, citing a report issued by the Chinese Academy of Social Sciences.
China’s exports are expected to increase by 27.3 percent this year and imports to rise 35.7 percent, bringing the country’s trade surplus to $165 billion this year, Caijing said, citing the report.
Ex-Overseer of Auto Industry Accepts Ban in S.E.C. Deal
Steven Rattner, the former car czar, has agreed to a settlement with the Securities and Exchange Commission over kickback claims involving the New York State pension fund, a person with knowledge of the negotiation said Wednesday.
Mr. Rattner will accept a multiyear ban from the securities industry and pay a fine of more than $5 million, the person said. He is still in negotiations over a similar settlement with the office of the New York attorney general, Andrew M. Cuomo.
The settlement, which is expected to be announced on Thursday, caps a multiyear investigation by the government into kickbacks paid to officials with New York’s pension fund. Earlier this month, Alan G. Hevesi, the state’s former comptroller, pleaded guilty to a corruption charge involving the state fund.
The Quadrangle Group, the private equity firm co-founded by Mr. Rattner, settled with the S.E.C. and Mr. Cuomo’s office in the spring and issued a statement disavowing Mr. Rattner’s conduct. The firm agreed to pay $7 million to the pension fund and $5 million to the Securities and Exchange Commission.
Mr. Rattner refused a similar offer to settle with the S.E.C. last spring, because he did not want to accept the ban from the industry. Quadrangle had been cooperating in the government’s investigation of Mr. Rattner. Since leaving his post with the Obama administration’s auto task force over a year ago, Mr. Rattner has been advising Mayor Michael R. Bloomberg of New York on his personal finances and writing a book about his tenure as car czar. That book, “Overhaul” was released last month.
A spokesman for the S.E.C. declined to comment.
The accusations against Mr. Rattner settle on his agreement to help finance a low-budget film called “Chooch” that was being produced by a brother of David J. Loglisci, the chief investment officer of the state’s pension. One of Quadrangle’s private equity funds owned a company called GT Brands that distributed movies and Mr. Rattner used that company to complete the deal. Mr. Loglisci pleaded guilty to securities fraud in March.
The pension investigation had focused on allegations that friends and aides of the Mr. Hevesi reaped millions of dollars from investment companies seeking state business. Mr. Hevesi resigned in 2006 after pleading guilty to a felony related to his use of state workers to chauffeur his wife. Quadrangle has acknowledged paying more than $1 million in fees to a political consultant, Henry Morris, in exchange for his help in landing a state investment contract. Mr. Morris was a longtime aide to Mr. Hevesi.
Mr. Rattner organized those payments, according to the attorney general’s office, which said that he also arranged for GT Brands to distribute the low-budget film.
Mr. Rattner and his wife are prominent donors to the Democratic Party. Mr. Rattner was an investment banker at Lazard before becoming a co-founder of Quadrangle in 2000. Early in his career, Mr. Rattner worked as a reporter for The New York Times.
Mr. Rattner will accept a multiyear ban from the securities industry and pay a fine of more than $5 million, the person said. He is still in negotiations over a similar settlement with the office of the New York attorney general, Andrew M. Cuomo.
The settlement, which is expected to be announced on Thursday, caps a multiyear investigation by the government into kickbacks paid to officials with New York’s pension fund. Earlier this month, Alan G. Hevesi, the state’s former comptroller, pleaded guilty to a corruption charge involving the state fund.
The Quadrangle Group, the private equity firm co-founded by Mr. Rattner, settled with the S.E.C. and Mr. Cuomo’s office in the spring and issued a statement disavowing Mr. Rattner’s conduct. The firm agreed to pay $7 million to the pension fund and $5 million to the Securities and Exchange Commission.
Mr. Rattner refused a similar offer to settle with the S.E.C. last spring, because he did not want to accept the ban from the industry. Quadrangle had been cooperating in the government’s investigation of Mr. Rattner. Since leaving his post with the Obama administration’s auto task force over a year ago, Mr. Rattner has been advising Mayor Michael R. Bloomberg of New York on his personal finances and writing a book about his tenure as car czar. That book, “Overhaul” was released last month.
A spokesman for the S.E.C. declined to comment.
The accusations against Mr. Rattner settle on his agreement to help finance a low-budget film called “Chooch” that was being produced by a brother of David J. Loglisci, the chief investment officer of the state’s pension. One of Quadrangle’s private equity funds owned a company called GT Brands that distributed movies and Mr. Rattner used that company to complete the deal. Mr. Loglisci pleaded guilty to securities fraud in March.
The pension investigation had focused on allegations that friends and aides of the Mr. Hevesi reaped millions of dollars from investment companies seeking state business. Mr. Hevesi resigned in 2006 after pleading guilty to a felony related to his use of state workers to chauffeur his wife. Quadrangle has acknowledged paying more than $1 million in fees to a political consultant, Henry Morris, in exchange for his help in landing a state investment contract. Mr. Morris was a longtime aide to Mr. Hevesi.
Mr. Rattner organized those payments, according to the attorney general’s office, which said that he also arranged for GT Brands to distribute the low-budget film.
Mr. Rattner and his wife are prominent donors to the Democratic Party. Mr. Rattner was an investment banker at Lazard before becoming a co-founder of Quadrangle in 2000. Early in his career, Mr. Rattner worked as a reporter for The New York Times.
Tuesday, October 12, 2010
Reliance 3G Bond Risk Tumbling as Loans Fund License Binge: India Credit
Reliance Communications Ltd.’s creditworthiness is improving at the fastest pace since June as it refinances $1.9 billion of debt and investors gain confidence in the ability of Indian cell phone companies to fund record spending.
Credit-default swaps on India’s second-largest mobile phone operator dropped 109 basis points last week to 421 basis points, the most since the five days ending June 18, according to prices quoted by CMA. Billionaire Anil Ambani’s company approached banks seeking dollar funding to cut costs, a person with direct knowledge of the plan said Oct. 11.
Indian mobile operators such as Tata Teleservices Ltd. need to persuade lenders they can repay almost 1 trillion rupees ($22 billion) of debt after bidding twice as much as the government projected for third-generation mobile phone licenses. Reliance Communications bond risk reached 766 basis points on June 8, a level comparable with that of European phone companies when they loaded up on debt to pay $100 billion for permits to offer faster services.
“The company is witnessing a revival in its mobile services business,” said Piyush Choudhary, an analyst at Indiabulls Securities Ltd. in Mumbai. “Reliance Communications’ cash-flow ability is expected to improve since the peak capital expenditure cycle is behind it.”
Default Swaps
A decade ago, France Telecom SA and Deutsche Telekom AG bid so aggressively for European 3G licenses that they reported record losses. Credit swaps on France Telecom debt surged to 638 basis points in June 2002 and have since fallen to 61. Reliance Communications swaps trade at 416, the highest among Asian mobile phone operators tracked by CMA.
Tom Wright, a spokesman for France Telecom in Paris, declined to comment.
Philipp Blank, a spokesman for Deutsche Telekom, said the company couldn’t comment on auctions or companies involved in auctions in other countries.
A one basis-point increase on a credit-default swap protecting $10 million of debt from default for five years costs the investor who wants to buy a contract an extra $1,000 annually. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Competition among 15 phone companies including Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit has already driven call rates as low as one U.S. penny a minute. The nine Indian operators were forced to seek short-term financing to pay $11 billion for 3G licenses in May.
Ambani said at an annual shareholders meeting on Sept. 28 that he aims to rid his flagship company of debt within three years in part by cutting capital expenses and selling the Reliance Infratel Ltd. tower unit.
Debt Triples
Reliance Communications’ net debt more than tripled to about 310 billion rupees as of Sept. 30, from 100 billion rupees on March 31, 2008, according to ICRA Ltd., a New Delhi-based affiliate of Moody’s Investors Service.
The company reported a record 85 percent drop in profit in the quarter to June. Net income at competitor Bharti Airtel, the nation’s biggest operator, fell 32 percent as it increased investment in Africa to counter slowing growth in India.
“As long as their operating performance supports their ability to service debt, they shouldn’t face any constraints with refinancing,” said Manoj Mohta, head of Mumbai-based Crisil Research, a unit of McGraw-Hill Cos.
‘Top Pick’
Reliance Communications is the worst-performing stock over the past 12 months in the 89-company Bloomberg World Telecommunications Index, falling 12 percent. The index gained 6 percent in the same period.
The stock’s slide makes it attractive for investors as the operator focuses on expanding its coverage in the world’s second-biggest wireless phone market, UBS AG analysts led by Suresh Mahadevan wrote in a note to clients on Oct. 11. Gartner Inc. predicts mobile services in India will grow at an annual rate of 17 percent in the four years through 2013.
The company is “well-positioned to ride the wireless data boom,” UBS said, adding it has the potential to cut debt in coming years with more free cash flow. “Reliance Communications is our top pick in the India mobile phone sector as it has been a big laggard.”
Combined Burden
Himanshu Shah, an analyst with HDFC Securities Ltd. in Mumbai, estimates the industry’s combined debt burden has peaked at 1 trillion rupees, according to a Sept. 20 note to clients.
Tata Teleservices, the Indian partner of NTT DoCoMo Inc., said on June 2 it plans to borrow as much as 20 billion rupees to expand its existing network, a week after Idea Cellular Ltd. said it’s looking to raise foreign-currency debt.
Dollar-denominated debt sales in India this year reached $7.4 billion as of Oct. 11, up from $1.5 billion in the same period in 2009. Local-currency sales in India reached 1.51 trillion rupees, versus 1.48 trillion rupees for all of 2009 as the extra yield top-rated companies must pay to borrow for five years in relation to the government’s cost narrowed to 66 basis points from 87 at the end of last year, according to data compiled by Bloomberg.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month and 45 basis points since the end of May to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil. A basis point is 0.01 percentage point.
‘No Concern’
The rupee has gained 4.1 percent this year and 3.8 percent since May, reaching 44.68 per dollar yesterday. The currency will climb 3.4 percent to 43.2 by the end of 2011, according to the median forecast in a Bloomberg survey of 14 analysts.
Reliance Communications started talks other potential investors after a non-binding agreement with GTL Infrastructure Ltd. to sell 50,000 phone towers lapsed on Aug. 31. The operator is also considering an initial public offering of its tower unit, it said in an e-mail on Sept. 6, without specifying names.
The board has given preliminary approval for the sale of a 26 percent stake to a strategic or private equity investor, the company said June 6.
“A combination of strategic and financial initiatives would result in a large cash infusion and significantly bring down debt levels in the next few quarters,” Ambani told shareholders on Sept. 28.
Risk assessor ICRA has a long-term rating on Reliance Communications of LAA+, its second-highest, meaning “high safety” with “modest” risks.
“There’s no concern over its ability to repay its debt,” said Vikas Aggarwal, an analyst at ICRA. “It’s also part of the Reliance group, which gives it significant flexibility.”
Credit-default swaps on India’s second-largest mobile phone operator dropped 109 basis points last week to 421 basis points, the most since the five days ending June 18, according to prices quoted by CMA. Billionaire Anil Ambani’s company approached banks seeking dollar funding to cut costs, a person with direct knowledge of the plan said Oct. 11.
Indian mobile operators such as Tata Teleservices Ltd. need to persuade lenders they can repay almost 1 trillion rupees ($22 billion) of debt after bidding twice as much as the government projected for third-generation mobile phone licenses. Reliance Communications bond risk reached 766 basis points on June 8, a level comparable with that of European phone companies when they loaded up on debt to pay $100 billion for permits to offer faster services.
“The company is witnessing a revival in its mobile services business,” said Piyush Choudhary, an analyst at Indiabulls Securities Ltd. in Mumbai. “Reliance Communications’ cash-flow ability is expected to improve since the peak capital expenditure cycle is behind it.”
Default Swaps
A decade ago, France Telecom SA and Deutsche Telekom AG bid so aggressively for European 3G licenses that they reported record losses. Credit swaps on France Telecom debt surged to 638 basis points in June 2002 and have since fallen to 61. Reliance Communications swaps trade at 416, the highest among Asian mobile phone operators tracked by CMA.
Tom Wright, a spokesman for France Telecom in Paris, declined to comment.
Philipp Blank, a spokesman for Deutsche Telekom, said the company couldn’t comment on auctions or companies involved in auctions in other countries.
A one basis-point increase on a credit-default swap protecting $10 million of debt from default for five years costs the investor who wants to buy a contract an extra $1,000 annually. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Competition among 15 phone companies including Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit has already driven call rates as low as one U.S. penny a minute. The nine Indian operators were forced to seek short-term financing to pay $11 billion for 3G licenses in May.
Ambani said at an annual shareholders meeting on Sept. 28 that he aims to rid his flagship company of debt within three years in part by cutting capital expenses and selling the Reliance Infratel Ltd. tower unit.
Debt Triples
Reliance Communications’ net debt more than tripled to about 310 billion rupees as of Sept. 30, from 100 billion rupees on March 31, 2008, according to ICRA Ltd., a New Delhi-based affiliate of Moody’s Investors Service.
The company reported a record 85 percent drop in profit in the quarter to June. Net income at competitor Bharti Airtel, the nation’s biggest operator, fell 32 percent as it increased investment in Africa to counter slowing growth in India.
“As long as their operating performance supports their ability to service debt, they shouldn’t face any constraints with refinancing,” said Manoj Mohta, head of Mumbai-based Crisil Research, a unit of McGraw-Hill Cos.
‘Top Pick’
Reliance Communications is the worst-performing stock over the past 12 months in the 89-company Bloomberg World Telecommunications Index, falling 12 percent. The index gained 6 percent in the same period.
The stock’s slide makes it attractive for investors as the operator focuses on expanding its coverage in the world’s second-biggest wireless phone market, UBS AG analysts led by Suresh Mahadevan wrote in a note to clients on Oct. 11. Gartner Inc. predicts mobile services in India will grow at an annual rate of 17 percent in the four years through 2013.
The company is “well-positioned to ride the wireless data boom,” UBS said, adding it has the potential to cut debt in coming years with more free cash flow. “Reliance Communications is our top pick in the India mobile phone sector as it has been a big laggard.”
Combined Burden
Himanshu Shah, an analyst with HDFC Securities Ltd. in Mumbai, estimates the industry’s combined debt burden has peaked at 1 trillion rupees, according to a Sept. 20 note to clients.
Tata Teleservices, the Indian partner of NTT DoCoMo Inc., said on June 2 it plans to borrow as much as 20 billion rupees to expand its existing network, a week after Idea Cellular Ltd. said it’s looking to raise foreign-currency debt.
Dollar-denominated debt sales in India this year reached $7.4 billion as of Oct. 11, up from $1.5 billion in the same period in 2009. Local-currency sales in India reached 1.51 trillion rupees, versus 1.48 trillion rupees for all of 2009 as the extra yield top-rated companies must pay to borrow for five years in relation to the government’s cost narrowed to 66 basis points from 87 at the end of last year, according to data compiled by Bloomberg.
The yield on India’s benchmark 10-year bond has climbed 16 basis points this month and 45 basis points since the end of May to 8.01 percent. Similar-maturity bonds yield 3.4 percent in China, 7.34 percent in Russia and 12.16 percent in Brazil. A basis point is 0.01 percentage point.
‘No Concern’
The rupee has gained 4.1 percent this year and 3.8 percent since May, reaching 44.68 per dollar yesterday. The currency will climb 3.4 percent to 43.2 by the end of 2011, according to the median forecast in a Bloomberg survey of 14 analysts.
Reliance Communications started talks other potential investors after a non-binding agreement with GTL Infrastructure Ltd. to sell 50,000 phone towers lapsed on Aug. 31. The operator is also considering an initial public offering of its tower unit, it said in an e-mail on Sept. 6, without specifying names.
The board has given preliminary approval for the sale of a 26 percent stake to a strategic or private equity investor, the company said June 6.
“A combination of strategic and financial initiatives would result in a large cash infusion and significantly bring down debt levels in the next few quarters,” Ambani told shareholders on Sept. 28.
Risk assessor ICRA has a long-term rating on Reliance Communications of LAA+, its second-highest, meaning “high safety” with “modest” risks.
“There’s no concern over its ability to repay its debt,” said Vikas Aggarwal, an analyst at ICRA. “It’s also part of the Reliance group, which gives it significant flexibility.”
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