Sahara India Pariwar, the Indian conglomerate run by billionaire industrialist Subrata Roy, has been tipped as a leading bidder to buy the Grosvenor House Hotel on Park Lane from Royal Bank of Scotland for about £500m ($799m).
The Indian group is seen by those close to the negotiations as one of the favourites to acquire the well-known London hotel, which is the venue for many of the capital’s larger black tie events, although a final decision has not been made from a shortlist of bidders.
Other parties linked to the deal include sovereign and state wealth funds from Singapore, Qatar and China. The Candy brothers, the upmarket developers, are no longer involved in the process.
RBS took ownership of the hotel in 2003 when Le Meridien collapsed into administrative receivership. It owns a long lease on the 494-bedroom hotel, which is operated by Marriott International.
Sahara was not available for comment; RBS declined to comment. CBRE Hotels is advising on the bids.
Sunday, October 17, 2010
Even Under New Captain, Yahoo Seems Adrift
SAN FRANCISCO — The board of Yahoo, the ailing Web portal, hired Carol A. Bartz as chief executive to apply a little shock therapy.
Carol Bartz, chief of Yahoo. Despite rumblings, Yahoo has a huge audience and is profitable.
Now, nearly two years later, the patient is still suffering from many of the same symptoms: a stagnant business, shrinking market share and a shortage of innovation.
The relative good will that greeted Ms. Bartz when she started at Yahoo is wearing thin. Her turnaround plan has yet to produce significant results, prompting skepticism about her strategy and whether she is right for the job. A number of key executives have recently left.
“She’s been there long enough that you have to question her ability to have the impact that’s needed,” said Lou A. Kerner, an analyst with Wedbush Securities. “But I don’t think there’s any easy fix.”
The news last week that private equity firms were trying to put together a bid for Yahoo adds to the pressure on Ms. Bartz. Those efforts are very preliminary, however, and the success of any deal would depend on several companies agreeing to a complicated transaction, according to sources familiar with the matter who requested anonymity because of the confidential nature of the discussions.
Ms. Bartz has long warned that reviving Yahoo will take some time. She is trying to reverse a slide years in the making, one that analysts say was caused by slow decision-making, stiff competition and a failure to capitalize on the social networking craze.
The challenge is daunting despite Yahoo’s huge audience of more than 600 million worldwide users a month, in part because Google and Facebook have all the momentum.
Blake Irving, Yahoo’s product chief, said he was confident the company would emerge stronger. The steps being taken now will pay off later, he said, and “we’ll be growing like mad.”
Ms. Bartz’s strategy is, in part, to refocus the company on its strengths, like news, sports and finance. Yahoo has invested heavily in content in the last year, hiring dozens of editorial employees and buying Associated Content, a freelance news site, to enhance local news coverage.
E-mail and instant messaging, among Yahoo’s most popular products, are also a priority.
Meanwhile, Ms. Bartz has cut costs by outsourcing services that are no longer central to Yahoo’s strategy. Personals, job listings and real estate are all now largely handled by third parties.
By far, Yahoo’s biggest move has been handing over its search engine and related advertising to Microsoft, its one-time search nemesis. The agreement allows Yahoo to forgo the cost of maintaining search infrastructure while still collecting most of the revenue from the partnership.
Yahoo can now focus on display advertising — banners and other graphical ads — where it remains the industry’s leader.
When Ms. Bartz joined, Yahoo was adrift after a bruising takeover battle with Microsoft. She was charged with regaining the trust of investors, who had attacked the company’s board for failing to accept Microsoft’s bid. She declined to be interviewed for this article.
To be sure, Yahoo’s situation isn’t as dire as some of Silicon Valley’s pundits imply. Yahoo remains profitable — it generated more than $1.3 billion in cash last year — and it still has a vast audience. It is to report third-quarter results on Tuesday.
The problem has more to do with the company’s direction. By many important measures, the business is essentially flat or modestly declining. Revenue for the first half of this year was $3.2 billion, up just 1 percent from a year earlier. And the number of minutes that users in the United States spent on the site in August was down 9 percent from August 2009, according to comScore. It’s a stark contrast with Google and Facebook, both of which continue to make big gains.
One large Yahoo shareholder, who asked not to be named because of his firm’s policy against commenting on investments, said he recently asked some members of Yahoo’s board to replace Ms. Bartz, over frustration with her performance. But they resisted, he said, because they were “afraid of making another bad decision.”
Yahoo responded by issuing a statement that said “we like our strategy and are very confident that we have the right people and are on the right path.”
Industry insiders are divided on what strategy Ms. Bartz should follow.
Salim Ismail, a former Yahoo executive who is now executive director of Singularity University, said Yahoo should convert from a publicly traded company to a private one to escape the pressure of quarterly earnings reports. Only then would executives be free to abolish the company’s complex organizational structure, which he said slows innovation and decision making.
“They’re putting on a Band-Aid when what they really need is major surgery,” he said.
Peter Thiel, a prominent Silicon Valley investor and Facebook board member, countered that Yahoo should not make any drastic moves. Big acquisitions — Twitter and the discount site Groupon are frequently mentioned as potential targets — would be misguided, he said, adding that the company should instead focus on what it does best.
Mr. Irving, a former Microsoft executive who was hired as Yahoo’s product chief six months ago, said Yahoo had much going for it, like its mobile phone initiatives and engineering talent. He talked up plans for more personalized features on the Web site, improved personalization of ads and more cooperation between product teams.
An epidemic of executive departures at Yahoo is adding to the uncertainty. Three top managers stepped down in the past few weeks, the latest in a series of exits that has almost completely reshuffled the leadership ranks since Ms. Bartz took charge.
Even with the turnover, Mr. Irving said Yahoo’s employees were not feeling demoralized or rudderless, as some critics suggest. He described the product teams as excited and engaged.
“What ends up getting picked up on more are the departures than the new people coming in,” Mr. Irving said.
Though there are plenty of critics, many people still want Yahoo to succeed. Some are sentimental about Yahoo’s early role in popularizing the Internet, while others are rooting for it because it brings more competition to an industry dominated by Google.
Paul Gunning, chief of Tribal DDB, a digital advertising agency, said Yahoo remained a great place for marketers to reach consumers. Some Silicon Valley insiders may consider the company irrelevant, but what’s more important is what millions of mainstream people think, he said, adding: “We’re bullish on them.”
Larry L. Cornett, a former Yahoo search executive who is now a technology consultant with Brilliant Forge, said that he was encouraged by the early stages of Yahoo’s turnaround, but that Ms. Bartz needed to clearly lay out what the company stands for.
“Maybe there’re some conversations internally, but from the outside, there isn’t a crystal-clear definition of what Yahoo means,” Mr. Cornett said.
Carol Bartz, chief of Yahoo. Despite rumblings, Yahoo has a huge audience and is profitable.
Now, nearly two years later, the patient is still suffering from many of the same symptoms: a stagnant business, shrinking market share and a shortage of innovation.
The relative good will that greeted Ms. Bartz when she started at Yahoo is wearing thin. Her turnaround plan has yet to produce significant results, prompting skepticism about her strategy and whether she is right for the job. A number of key executives have recently left.
“She’s been there long enough that you have to question her ability to have the impact that’s needed,” said Lou A. Kerner, an analyst with Wedbush Securities. “But I don’t think there’s any easy fix.”
The news last week that private equity firms were trying to put together a bid for Yahoo adds to the pressure on Ms. Bartz. Those efforts are very preliminary, however, and the success of any deal would depend on several companies agreeing to a complicated transaction, according to sources familiar with the matter who requested anonymity because of the confidential nature of the discussions.
Ms. Bartz has long warned that reviving Yahoo will take some time. She is trying to reverse a slide years in the making, one that analysts say was caused by slow decision-making, stiff competition and a failure to capitalize on the social networking craze.
The challenge is daunting despite Yahoo’s huge audience of more than 600 million worldwide users a month, in part because Google and Facebook have all the momentum.
Blake Irving, Yahoo’s product chief, said he was confident the company would emerge stronger. The steps being taken now will pay off later, he said, and “we’ll be growing like mad.”
Ms. Bartz’s strategy is, in part, to refocus the company on its strengths, like news, sports and finance. Yahoo has invested heavily in content in the last year, hiring dozens of editorial employees and buying Associated Content, a freelance news site, to enhance local news coverage.
E-mail and instant messaging, among Yahoo’s most popular products, are also a priority.
Meanwhile, Ms. Bartz has cut costs by outsourcing services that are no longer central to Yahoo’s strategy. Personals, job listings and real estate are all now largely handled by third parties.
By far, Yahoo’s biggest move has been handing over its search engine and related advertising to Microsoft, its one-time search nemesis. The agreement allows Yahoo to forgo the cost of maintaining search infrastructure while still collecting most of the revenue from the partnership.
Yahoo can now focus on display advertising — banners and other graphical ads — where it remains the industry’s leader.
When Ms. Bartz joined, Yahoo was adrift after a bruising takeover battle with Microsoft. She was charged with regaining the trust of investors, who had attacked the company’s board for failing to accept Microsoft’s bid. She declined to be interviewed for this article.
To be sure, Yahoo’s situation isn’t as dire as some of Silicon Valley’s pundits imply. Yahoo remains profitable — it generated more than $1.3 billion in cash last year — and it still has a vast audience. It is to report third-quarter results on Tuesday.
The problem has more to do with the company’s direction. By many important measures, the business is essentially flat or modestly declining. Revenue for the first half of this year was $3.2 billion, up just 1 percent from a year earlier. And the number of minutes that users in the United States spent on the site in August was down 9 percent from August 2009, according to comScore. It’s a stark contrast with Google and Facebook, both of which continue to make big gains.
One large Yahoo shareholder, who asked not to be named because of his firm’s policy against commenting on investments, said he recently asked some members of Yahoo’s board to replace Ms. Bartz, over frustration with her performance. But they resisted, he said, because they were “afraid of making another bad decision.”
Yahoo responded by issuing a statement that said “we like our strategy and are very confident that we have the right people and are on the right path.”
Industry insiders are divided on what strategy Ms. Bartz should follow.
Salim Ismail, a former Yahoo executive who is now executive director of Singularity University, said Yahoo should convert from a publicly traded company to a private one to escape the pressure of quarterly earnings reports. Only then would executives be free to abolish the company’s complex organizational structure, which he said slows innovation and decision making.
“They’re putting on a Band-Aid when what they really need is major surgery,” he said.
Peter Thiel, a prominent Silicon Valley investor and Facebook board member, countered that Yahoo should not make any drastic moves. Big acquisitions — Twitter and the discount site Groupon are frequently mentioned as potential targets — would be misguided, he said, adding that the company should instead focus on what it does best.
Mr. Irving, a former Microsoft executive who was hired as Yahoo’s product chief six months ago, said Yahoo had much going for it, like its mobile phone initiatives and engineering talent. He talked up plans for more personalized features on the Web site, improved personalization of ads and more cooperation between product teams.
An epidemic of executive departures at Yahoo is adding to the uncertainty. Three top managers stepped down in the past few weeks, the latest in a series of exits that has almost completely reshuffled the leadership ranks since Ms. Bartz took charge.
Even with the turnover, Mr. Irving said Yahoo’s employees were not feeling demoralized or rudderless, as some critics suggest. He described the product teams as excited and engaged.
“What ends up getting picked up on more are the departures than the new people coming in,” Mr. Irving said.
Though there are plenty of critics, many people still want Yahoo to succeed. Some are sentimental about Yahoo’s early role in popularizing the Internet, while others are rooting for it because it brings more competition to an industry dominated by Google.
Paul Gunning, chief of Tribal DDB, a digital advertising agency, said Yahoo remained a great place for marketers to reach consumers. Some Silicon Valley insiders may consider the company irrelevant, but what’s more important is what millions of mainstream people think, he said, adding: “We’re bullish on them.”
Larry L. Cornett, a former Yahoo search executive who is now a technology consultant with Brilliant Forge, said that he was encouraged by the early stages of Yahoo’s turnaround, but that Ms. Bartz needed to clearly lay out what the company stands for.
“Maybe there’re some conversations internally, but from the outside, there isn’t a crystal-clear definition of what Yahoo means,” Mr. Cornett said.
Friday, October 15, 2010
Rupee's Volatility `Will Kill' India Exporters, Infosys' Balakrishnan Says
Infosys Technologies Ltd., India’s second-largest software exporter, said the central bank must intervene to reduce the volatility of the rupee, Asia’s best performing currency in the past month, to assist exporters.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said today in Bangalore, where the company is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
Central bank Governor Duvvuri Subbarao said today that the Reserve Bank of India may intervene if inflows are lumpy and volatile and disrupt the economy. India is among the latest to signal it will stem currency gains after central banks from Brazil to Israel and Thailand intervened in foreign-exchange markets.
Infosys, which draws the majority of its revenue in dollars and euros from clients based in the U.S. and Europe, suffers a 40 basis points drop in operating margin for every one percent movement in the rupee against the dollar, the company said.
The local currency has gained 5.3 percent in the past 30 days as global investors have poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from an economy growing at an annual pace exceeding 8 percent.
“I think exporters have to get used to the volatile currency environment,” Balakrishnan said. “At the same time, the RBI has to step in at some point because this kind of volatility is unsustainable. I am not the RBI governor, but if I was, I’d do it now.”
The rupee gained 0.1 percent to 44.08 against the dollar at 3:49 p.m. in Mumbai today.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said today in Bangalore, where the company is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
Central bank Governor Duvvuri Subbarao said today that the Reserve Bank of India may intervene if inflows are lumpy and volatile and disrupt the economy. India is among the latest to signal it will stem currency gains after central banks from Brazil to Israel and Thailand intervened in foreign-exchange markets.
Infosys, which draws the majority of its revenue in dollars and euros from clients based in the U.S. and Europe, suffers a 40 basis points drop in operating margin for every one percent movement in the rupee against the dollar, the company said.
The local currency has gained 5.3 percent in the past 30 days as global investors have poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from an economy growing at an annual pace exceeding 8 percent.
“I think exporters have to get used to the volatile currency environment,” Balakrishnan said. “At the same time, the RBI has to step in at some point because this kind of volatility is unsustainable. I am not the RBI governor, but if I was, I’d do it now.”
The rupee gained 0.1 percent to 44.08 against the dollar at 3:49 p.m. in Mumbai today.
Rum Battle in Caribbean Leaves Tax Hangover
Rum and politics have made a fiery mix since America’s earliest days, when a young politician named George Washington won election to the House of Burgesses in colonial Virginia with the help of spiked punch at the polls.
There have been rum wars involving pirates and slave traders, and rumrunners who made a mockery of Prohibition.
Now the spirit once called Kill-Devil has set off a bitter dispute between two United States islands, Puerto Rico and the Virgin Islands, over a tax that the federal treasury collects on rum.
The fight began when the Virgin Islands persuaded the world’s largest distiller, which said it was leaving Puerto Rico, to move to St. Croix by offering a staggering $2.7 billion in tax incentives. The new distillery, for Captain Morgan spiced rum, will provide no more than 70 permanent jobs on the south shore of St. Croix — but it will entitle the Virgin Islands to collect billions in rum tax revenue from Washington.
That bounty comes at the expense of Puerto Rico, where 90 percent of the revenue from the rum tax had been used for public projects and social services rather than corporate incentives. The Virgin Islands has promised to give nearly half its tax revenue back to the distiller, the British company Diageo, prompting a series of charges and countercharges between neighbors roughly 50 miles apart in the Caribbean.
The aftershocks could even change what people drink in the United States. The tax incentives are so generous that Virgin Island producers might ultimately try to use highly subsidized sugar cane to make blended whiskeys, vodka and gin, distillers on the mainland say. That could threaten the jobs of grain farmers and distilleries in the American heartland.
The deal could also cost American taxpayers. With Puerto Rico’s economy reeling and its government budget already strained, some island officials say they cannot rule out needing to ask Washington for aid to cover basic expenses once covered by the rum tax.
“We’d have to make it up one way or another,” said Puerto Rico’s resident commissioner, Pedro R. Pierluisi, the island’s nonvoting delegate to Congress. “It’s not going to be pretty.”
The billions of dollars at stake are the result of a quirk in the tax code that was intended to aid the islands while preventing their offshore distilleries from gaining an unfair advantage over competitors in the states.
Because rum producers in the islands are exempt from federal excise taxes, the government imposed an “equalization tax” on Puerto Rican rum producers in 1917 and gave the money to the commonwealth. In 1954, the United States extended the arrangement to the Virgin Islands.
For half a century, the program allowed the islands to replenish their depleted treasuries and pay for infrastructure, schools and social services. Puerto Rico used less than 10 percent of the $450 million it received last year to provide marketing support and production subsidies to rum companies, according to government officials, leaving the rest for the island.
In 2007, Diageo explored a possible move of its Captain Morgan production to Honduras or Guatemala, where labor costs and supplies were cheaper.
At the same time, Diageo approached the governor of the Virgin Islands, John P. de Jongh Jr., about moving to St. Croix. The two signed a deal the following year. It requires Diageo to stay in the Virgin Islands for 30 years in return for incentives so rich they are double the cost of actually producing the rum.
Diageo, based in Britain, will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes for the length of the deal, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.
The generous subsidies have led to charges by some Puerto Rican officials and Virgin Islands residents that the governor was misled into using public money for corporate welfare.
“We’re not against big businesses,” said Michael J. Springer Jr., a candidate for the Virgin Islands Senate, “but for the government of the Virgin Islands to give that much money to a foreign corporation when it was intended to help the residents and their communities, is outrageous. In the meantime, the government is borrowing to pay its operating expenses.”
There have been rum wars involving pirates and slave traders, and rumrunners who made a mockery of Prohibition.
Now the spirit once called Kill-Devil has set off a bitter dispute between two United States islands, Puerto Rico and the Virgin Islands, over a tax that the federal treasury collects on rum.
The fight began when the Virgin Islands persuaded the world’s largest distiller, which said it was leaving Puerto Rico, to move to St. Croix by offering a staggering $2.7 billion in tax incentives. The new distillery, for Captain Morgan spiced rum, will provide no more than 70 permanent jobs on the south shore of St. Croix — but it will entitle the Virgin Islands to collect billions in rum tax revenue from Washington.
That bounty comes at the expense of Puerto Rico, where 90 percent of the revenue from the rum tax had been used for public projects and social services rather than corporate incentives. The Virgin Islands has promised to give nearly half its tax revenue back to the distiller, the British company Diageo, prompting a series of charges and countercharges between neighbors roughly 50 miles apart in the Caribbean.
The aftershocks could even change what people drink in the United States. The tax incentives are so generous that Virgin Island producers might ultimately try to use highly subsidized sugar cane to make blended whiskeys, vodka and gin, distillers on the mainland say. That could threaten the jobs of grain farmers and distilleries in the American heartland.
The deal could also cost American taxpayers. With Puerto Rico’s economy reeling and its government budget already strained, some island officials say they cannot rule out needing to ask Washington for aid to cover basic expenses once covered by the rum tax.
“We’d have to make it up one way or another,” said Puerto Rico’s resident commissioner, Pedro R. Pierluisi, the island’s nonvoting delegate to Congress. “It’s not going to be pretty.”
The billions of dollars at stake are the result of a quirk in the tax code that was intended to aid the islands while preventing their offshore distilleries from gaining an unfair advantage over competitors in the states.
Because rum producers in the islands are exempt from federal excise taxes, the government imposed an “equalization tax” on Puerto Rican rum producers in 1917 and gave the money to the commonwealth. In 1954, the United States extended the arrangement to the Virgin Islands.
For half a century, the program allowed the islands to replenish their depleted treasuries and pay for infrastructure, schools and social services. Puerto Rico used less than 10 percent of the $450 million it received last year to provide marketing support and production subsidies to rum companies, according to government officials, leaving the rest for the island.
In 2007, Diageo explored a possible move of its Captain Morgan production to Honduras or Guatemala, where labor costs and supplies were cheaper.
At the same time, Diageo approached the governor of the Virgin Islands, John P. de Jongh Jr., about moving to St. Croix. The two signed a deal the following year. It requires Diageo to stay in the Virgin Islands for 30 years in return for incentives so rich they are double the cost of actually producing the rum.
Diageo, based in Britain, will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes for the length of the deal, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.
The generous subsidies have led to charges by some Puerto Rican officials and Virgin Islands residents that the governor was misled into using public money for corporate welfare.
“We’re not against big businesses,” said Michael J. Springer Jr., a candidate for the Virgin Islands Senate, “but for the government of the Virgin Islands to give that much money to a foreign corporation when it was intended to help the residents and their communities, is outrageous. In the meantime, the government is borrowing to pay its operating expenses.”
Rupee Gains `Not a Concern' as Infosys Calls for Intervention
A rally in the Indian rupee, Asia’s best performer in the past month, is “not a matter of concern,” yet, Finance Minister Pranab Mukherjee said, allaying concerns expressed by Infosys Technologies Ltd. that a strengthening currency will hurt exports.
“I would not like to have any unrealistic appreciations or depreciations,” Mukherjee, 74, said in an interview to Bloomberg UTV at Birbhum in the eastern Indian state of West Bengal yesterday. “We should watch the situation but it’s not a matter of concern. We need not press the panic button.”
The local currency has advanced 5.2 percent in the past month and become Asia’s best performer, prompting Infosys, the nation’s second-largest software maker, to say the trend will “kill the export industry.” Reserve Bank of India Governor Duvvuri Subbarao said yesterday the central bank will intervene if inflows are “lumpy and volatile” and disrupt the economy.
Subbarao said on Oct.9 that India’s current-account deficit has boosted the nation’s ability to absorb inflows and therefore the central bank “did not feel” the need to intervene like most emerging markets.
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Foreign Flows
The rupee gained as global investors poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from India’s economic expansion.
Exchange rates dominated the annual meeting of the International Monetary Fund in Washington last week on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. Central banks intervene by buying or selling their currencies to influence exchange rates.
Infosys called on the central bank to intervene and reduce the volatility of the currency.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said yesterday in Bangalore, where Infosys is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country. I’m not the RBI governor, but if I was, I’d do it now.”
India has allowed its currency to gain even as central banks from Brazil to Israel and Thailand intervened in foreign- exchange markets. Japan sold yen last month for the first time since 2004 and Brazil warned of a global “currency war.”
Intervention Signal
Reserve Bank Deputy Governor Subir Gokarn signaled yesterday the central bank may intervene in the currency markets to shield exporters.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” Gokarn said at a conference organized by Bloomberg UTV in the north Indian city of Chandigarh.
Subbarao said yesterday that the Reserve Bank may intervene if the inflows disrupt the economy.
“That remains our policy but I cannot comment when we will intervene or when we will not,” Subbarao said after the central bank’s board meeting in Chandigarh.
Economists including Jahangir Aziz of JPMorgan Chase & Co. said recent concerns about the strengthening currency “appear to be overblown.”
‘Little Sensitivity’
“Exports show little sensitivity to changes in the exchange rate,” Aziz wrote in a note dated Oct. 14. “Changes in external demand have a much larger impact.”
India’s merchandise exports have grown 28.6 percent in the five months through August, according to commerce ministry data.
Mukherjee said funds are flowing into emerging markets such as India because of a “slow recovery” in the U.S. and Europe.
“As soon as the recovery in Europe and America begins, I think the inflow will be a little reduced,” he said.
The Bombay Stock Exchange’s Sensitive Index has rallied 15 percent this year to near a record, making it the best performer among the world’s 10 biggest stock markets.
“Of course, I would not like to have any volatility in the stock market. Already it is there little bit,” Mukherjee said, when asked if the government plans to check foreign investments into the stock market. “At what time the cap is to be put, that is a matter of assessment.”
He said the central bank, the stock market regulator and the government are all “watching this” and “as and when the situation demands, we will intervene.”
“I would not like to have any unrealistic appreciations or depreciations,” Mukherjee, 74, said in an interview to Bloomberg UTV at Birbhum in the eastern Indian state of West Bengal yesterday. “We should watch the situation but it’s not a matter of concern. We need not press the panic button.”
The local currency has advanced 5.2 percent in the past month and become Asia’s best performer, prompting Infosys, the nation’s second-largest software maker, to say the trend will “kill the export industry.” Reserve Bank of India Governor Duvvuri Subbarao said yesterday the central bank will intervene if inflows are “lumpy and volatile” and disrupt the economy.
Subbarao said on Oct.9 that India’s current-account deficit has boosted the nation’s ability to absorb inflows and therefore the central bank “did not feel” the need to intervene like most emerging markets.
India’s current-account deficit widened to a record $13.7 billion in the three months ended June 30 as an accelerating economy boosted imports of oil and machinery. The International Monetary Fund on Oct. 6 raised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent it estimated in July.
Foreign Flows
The rupee gained as global investors poured a record $23 billion into local shares and $10 billion in rupee debt this year to profit from India’s economic expansion.
Exchange rates dominated the annual meeting of the International Monetary Fund in Washington last week on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. Central banks intervene by buying or selling their currencies to influence exchange rates.
Infosys called on the central bank to intervene and reduce the volatility of the currency.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Chief Financial Officer V. Balakrishnan said yesterday in Bangalore, where Infosys is based. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country. I’m not the RBI governor, but if I was, I’d do it now.”
India has allowed its currency to gain even as central banks from Brazil to Israel and Thailand intervened in foreign- exchange markets. Japan sold yen last month for the first time since 2004 and Brazil warned of a global “currency war.”
Intervention Signal
Reserve Bank Deputy Governor Subir Gokarn signaled yesterday the central bank may intervene in the currency markets to shield exporters.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” Gokarn said at a conference organized by Bloomberg UTV in the north Indian city of Chandigarh.
Subbarao said yesterday that the Reserve Bank may intervene if the inflows disrupt the economy.
“That remains our policy but I cannot comment when we will intervene or when we will not,” Subbarao said after the central bank’s board meeting in Chandigarh.
Economists including Jahangir Aziz of JPMorgan Chase & Co. said recent concerns about the strengthening currency “appear to be overblown.”
‘Little Sensitivity’
“Exports show little sensitivity to changes in the exchange rate,” Aziz wrote in a note dated Oct. 14. “Changes in external demand have a much larger impact.”
India’s merchandise exports have grown 28.6 percent in the five months through August, according to commerce ministry data.
Mukherjee said funds are flowing into emerging markets such as India because of a “slow recovery” in the U.S. and Europe.
“As soon as the recovery in Europe and America begins, I think the inflow will be a little reduced,” he said.
The Bombay Stock Exchange’s Sensitive Index has rallied 15 percent this year to near a record, making it the best performer among the world’s 10 biggest stock markets.
“Of course, I would not like to have any volatility in the stock market. Already it is there little bit,” Mukherjee said, when asked if the government plans to check foreign investments into the stock market. “At what time the cap is to be put, that is a matter of assessment.”
He said the central bank, the stock market regulator and the government are all “watching this” and “as and when the situation demands, we will intervene.”
Essar plans $2bn Nigeria investment
Essar, the Indian conglomerate, is planning an investment of $2bn or more in Nigerian power plants if Africa’s most populous nation sticks to reform plans designed to overcome crippling energy shortages, people familiar with the matter said.
Several engineering and power groups have been linked with potential Nigerian investments in the months since Goodluck Jonathan, president, unveiled a blueprint to attract the tens of billions of dollars required to meet the electricity needs of the country’s 150m people.
Essar’s interest is among the most ambitious and would see it invest in power capacity of at least 2,000 megawatts, equivalent to two-thirds of Nigeria’s entire average output at present, at an estimated cost of $2bn.
“The feeling is that this market has a lot of potential,” said one person with knowledge of Essar’s plans.
But the person echoed the view of other potential investors who have warned that projects will only materialise if the government drives through market reforms to make the power sector commercially viable.
Once the reforms were in place, the person with knowledge of the plans said Essar was “ready to go”.
Essar would primarily seek to build new power plants but might also look to purchase assets in the planned privatisation of the Power Holding Company of Nigeria, the stricken former monopoly which is to be broken up into six generation companies, a transmission network and 11 regional distribution companies.
“Essar is looking for the right opportunity to invest several billion dollars in Nigeria,” a person familiar with the matter said. “They are working closely with the government and are ready to get things started as soon as possible.”
“They are definitely interested,” added a senior Nigerian power official of the Indian group.
Nigeria endures one of the world’s lowest rates of electricity production per capita, despite being a key oil and gas supplier to the US and Europe.
Officials forecast that on current trends the lack of power would cost the country an annual $130bn in thwarted economic activity over the coming years, hampering Nigeria’s ambitions to join the big emerging economies.
Thursday’s conference for potential investors at the presidential palace in Abuja, the capital, drew delegates from Chinese and Indian groups as well as western engineering companies such as Siemens and Rolls-Royce.
Nigerian financiers and others thought to include investors from the UK and the Gulf are looking to make power investments under the new regulatory regime, which aims to tap the country’s vast untapped stocks of natural gas.
India’s Power Grid Corporation, Canada’s Manitoba Hydro and Ireland’s Electricity Supply Board are the final three bidders hoping to manage the transmission network.
The sale of the distribution companies and power stations is scheduled to be concluded by May.
Essar said it was “looking at growth and investment opportunities … in India and other emerging and growing economies”.
Another person familiar with the situation said the Nigerian investment would come through Essar Energy, the London-listed group majority-owned by Mumbai-based Essar group.
Several engineering and power groups have been linked with potential Nigerian investments in the months since Goodluck Jonathan, president, unveiled a blueprint to attract the tens of billions of dollars required to meet the electricity needs of the country’s 150m people.
Essar’s interest is among the most ambitious and would see it invest in power capacity of at least 2,000 megawatts, equivalent to two-thirds of Nigeria’s entire average output at present, at an estimated cost of $2bn.
“The feeling is that this market has a lot of potential,” said one person with knowledge of Essar’s plans.
But the person echoed the view of other potential investors who have warned that projects will only materialise if the government drives through market reforms to make the power sector commercially viable.
Once the reforms were in place, the person with knowledge of the plans said Essar was “ready to go”.
Essar would primarily seek to build new power plants but might also look to purchase assets in the planned privatisation of the Power Holding Company of Nigeria, the stricken former monopoly which is to be broken up into six generation companies, a transmission network and 11 regional distribution companies.
“Essar is looking for the right opportunity to invest several billion dollars in Nigeria,” a person familiar with the matter said. “They are working closely with the government and are ready to get things started as soon as possible.”
“They are definitely interested,” added a senior Nigerian power official of the Indian group.
Nigeria endures one of the world’s lowest rates of electricity production per capita, despite being a key oil and gas supplier to the US and Europe.
Officials forecast that on current trends the lack of power would cost the country an annual $130bn in thwarted economic activity over the coming years, hampering Nigeria’s ambitions to join the big emerging economies.
Thursday’s conference for potential investors at the presidential palace in Abuja, the capital, drew delegates from Chinese and Indian groups as well as western engineering companies such as Siemens and Rolls-Royce.
Nigerian financiers and others thought to include investors from the UK and the Gulf are looking to make power investments under the new regulatory regime, which aims to tap the country’s vast untapped stocks of natural gas.
India’s Power Grid Corporation, Canada’s Manitoba Hydro and Ireland’s Electricity Supply Board are the final three bidders hoping to manage the transmission network.
The sale of the distribution companies and power stations is scheduled to be concluded by May.
Essar said it was “looking at growth and investment opportunities … in India and other emerging and growing economies”.
Another person familiar with the situation said the Nigerian investment would come through Essar Energy, the London-listed group majority-owned by Mumbai-based Essar group.
Thursday, October 14, 2010
Rupee Credit-Default Swaps Join Yuan to Become Asia's First: India Credit
India and China are poised to become the first emerging markets in Asia to trade credit-default swaps on local-currency debt as investors seek protection against losses from funding projects in the region’s fastest-growing economies.
Regulators in the two nations say they intend to limit the contracts to bondholders to deter speculators and avoid a repeat of the global financial crisis that was partly blamed on the $615 trillion over-the-counter derivatives market. That conflicts with the wishes of the industry’s trade group.
India needs money for a planned $1 trillion investment in roads, ports and power plants, while yuan bond sales climbed to a record this year. The cost of swaps protecting against a default by State Bank of India was 166.8 basis points yesterday, compared with 123.5 for Bank of China Ltd. and 43.9 for U.S. government debt, according to data provider CMA in New York.
“The ability to use credit-default swaps as a way to hedge India infrastructure risk is a positive development,” said Scott Bennett, the Singapore-based head of regional credit at the Asia unit of Aberdeen Asset Management Plc, which oversees $261 billion globally. Restrictions against speculation would help reduce volatility, he said in an interview this week.
The International Swaps and Derivatives Association, an industry trade group known as ISDA, said in a draft report to the Reserve Bank of India on Oct. 4 that there should be no restrictions because “speculators are necessary for markets to be more liquid, efficient and complete.”
Proposed Regulations
The Reserve Bank of India will prepare regulations after talks with investors and banks, according to a statement on its website dated Aug. 4.
“We are hopeful of starting it by the first week of January,” Shyamala Gopinath, the deputy governor of the central bank, said in the northern Indian city of Chandigarh yesterday. “We are working on the reporting platform. We are assessing various suggestions and feedback on the introduction of credit- default swaps.”
China will introduce credit-default swaps by the end of the year to help banks manage risk, though it won’t permit contracts on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, said in New York last month.
China Association
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
The People’s Bank of China formed the association in 2007 to help develop the country’s over-the-counter financial markets. No one was available for comment when Bloomberg News made a telephone call to its main office in Beijing yesterday.
India Prime Minister Manmohan Singh said March 23 that the country wants investors to provide half the $1 trillion needed for infrastructure spending in the five years starting April 2012. Road Transport and Highways Minister Kamal Nath said in an Oct. 5 interview with Bloomberg-UTV that pension funds in Canada and Europe pledged to invest in bonds issued by road projects.
Default swaps “will bring back those investors into the market who are comfortable with the market risk but not with credit risk,” Hitendra Dave, head of global markets for HSBC Holdings Plc in India, said in an interview on Oct. 11.
Draft Guidelines
The central bank said in draft guidelines issued on Aug. 4 that it will allow banks, financial firms, primary dealers, insurance companies and mutual funds to buy and sell credit protection. Home-loan firms, provident funds and listed corporations will only be able to buy protection.
ISDA says foreign institutional investors who hold rupee bonds should be able to sell protection as it would lead to a more actively traded market. It is “concerned whether there will be sufficient depth and liquidity given the proposed restrictions on the type of instrument and, more importantly, the permitted participants,” Jacqueline Low, ISDA’s Singapore- based senior counsel for Asia, said in an e-mail to Bloomberg News on Oct. 13.
India’s central bank postponed introducing default swaps in 2003, citing a need for banks to improve their risk-management practices, and held off again in 2008 as global credit markets seized up.
Busiest Year
The corporate bond market in India is poised for its busiest year since Bloomberg began tracking it in 1999. Sales have climbed to 1.52 trillion rupees ($34.5 billion), surpassing a previous record of 1.48 trillion rupees set last year. Chinese bond sales rose to 1.53 trillion yuan ($230 billion) from 1.47 trillion yuan in the same period of 2009.
The yield on India’s 7.8 percent note due May 2020 rose to 8.02 percent yesterday from 8.014 percent, according to central bank data. The extra yield investors demand to hold top-rated five-year company debt instead of similar-maturity government notes has shrunk to 65 basis points from 86 basis points this year, Bloomberg indexes show.
Securities & Exchange Board of India data show overseas investors more than doubled purchases of Indian debt this year to $10.5 billion as of Oct. 8 to benefit from growth in Asia’s third-biggest economy. Gross domestic product expanded 8.8 percent last quarter from a year earlier, the most since 2007 and the fastest pace among major economies after China’s 10.3 percent and Brazil’s 8.81 percent.
Likely Companies
The surge in inflows spurred Prime Minister Singh to increase the cap on international holdings of rupee bonds last month by 50 percent to $30 billion.
“Any state-run company, whether in the infrastructure or manufacturing space, will be a lovely candidate” for credit- default swaps, Krishnamurthy Harihar, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company, said in an interview yesterday.
Power Finance Corp Ltd. and Rural Electrification Corp Ltd. would be suitable candidates to have contracts written on their debt, he said.
Power Finance, based in New Delhi, sold 9.5 billion rupees of 7.89 percent bonds last month that mature in 2012. Their yield fell to 7.866 percent yesterday, according to Barclays Plc prices on Bloomberg. The yield on Rural Electrification’s 18 billion rupees in 8.75 percent bonds due July 2025 was little changed at 8.735 percent.
The rupee advanced 4.6 percent since Aug. 4 to trade at 44.15 per dollar yesterday, according to data compiled by Bloomberg. The currency has strengthened 5.4 percent this year.
“India’s strong domestic savings pool should help meet infrastructure funding,” Sukumar Rajah, who manages $5 billion of Asian equities as chief investment officer at Franklin Templeton Investments, said in a telephone interview yesterday from Chennai. “This should throw up large opportunities for global investors.”
Regulators in the two nations say they intend to limit the contracts to bondholders to deter speculators and avoid a repeat of the global financial crisis that was partly blamed on the $615 trillion over-the-counter derivatives market. That conflicts with the wishes of the industry’s trade group.
India needs money for a planned $1 trillion investment in roads, ports and power plants, while yuan bond sales climbed to a record this year. The cost of swaps protecting against a default by State Bank of India was 166.8 basis points yesterday, compared with 123.5 for Bank of China Ltd. and 43.9 for U.S. government debt, according to data provider CMA in New York.
“The ability to use credit-default swaps as a way to hedge India infrastructure risk is a positive development,” said Scott Bennett, the Singapore-based head of regional credit at the Asia unit of Aberdeen Asset Management Plc, which oversees $261 billion globally. Restrictions against speculation would help reduce volatility, he said in an interview this week.
The International Swaps and Derivatives Association, an industry trade group known as ISDA, said in a draft report to the Reserve Bank of India on Oct. 4 that there should be no restrictions because “speculators are necessary for markets to be more liquid, efficient and complete.”
Proposed Regulations
The Reserve Bank of India will prepare regulations after talks with investors and banks, according to a statement on its website dated Aug. 4.
“We are hopeful of starting it by the first week of January,” Shyamala Gopinath, the deputy governor of the central bank, said in the northern Indian city of Chandigarh yesterday. “We are working on the reporting platform. We are assessing various suggestions and feedback on the introduction of credit- default swaps.”
China will introduce credit-default swaps by the end of the year to help banks manage risk, though it won’t permit contracts on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, said in New York last month.
China Association
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
The People’s Bank of China formed the association in 2007 to help develop the country’s over-the-counter financial markets. No one was available for comment when Bloomberg News made a telephone call to its main office in Beijing yesterday.
India Prime Minister Manmohan Singh said March 23 that the country wants investors to provide half the $1 trillion needed for infrastructure spending in the five years starting April 2012. Road Transport and Highways Minister Kamal Nath said in an Oct. 5 interview with Bloomberg-UTV that pension funds in Canada and Europe pledged to invest in bonds issued by road projects.
Default swaps “will bring back those investors into the market who are comfortable with the market risk but not with credit risk,” Hitendra Dave, head of global markets for HSBC Holdings Plc in India, said in an interview on Oct. 11.
Draft Guidelines
The central bank said in draft guidelines issued on Aug. 4 that it will allow banks, financial firms, primary dealers, insurance companies and mutual funds to buy and sell credit protection. Home-loan firms, provident funds and listed corporations will only be able to buy protection.
ISDA says foreign institutional investors who hold rupee bonds should be able to sell protection as it would lead to a more actively traded market. It is “concerned whether there will be sufficient depth and liquidity given the proposed restrictions on the type of instrument and, more importantly, the permitted participants,” Jacqueline Low, ISDA’s Singapore- based senior counsel for Asia, said in an e-mail to Bloomberg News on Oct. 13.
India’s central bank postponed introducing default swaps in 2003, citing a need for banks to improve their risk-management practices, and held off again in 2008 as global credit markets seized up.
Busiest Year
The corporate bond market in India is poised for its busiest year since Bloomberg began tracking it in 1999. Sales have climbed to 1.52 trillion rupees ($34.5 billion), surpassing a previous record of 1.48 trillion rupees set last year. Chinese bond sales rose to 1.53 trillion yuan ($230 billion) from 1.47 trillion yuan in the same period of 2009.
The yield on India’s 7.8 percent note due May 2020 rose to 8.02 percent yesterday from 8.014 percent, according to central bank data. The extra yield investors demand to hold top-rated five-year company debt instead of similar-maturity government notes has shrunk to 65 basis points from 86 basis points this year, Bloomberg indexes show.
Securities & Exchange Board of India data show overseas investors more than doubled purchases of Indian debt this year to $10.5 billion as of Oct. 8 to benefit from growth in Asia’s third-biggest economy. Gross domestic product expanded 8.8 percent last quarter from a year earlier, the most since 2007 and the fastest pace among major economies after China’s 10.3 percent and Brazil’s 8.81 percent.
Likely Companies
The surge in inflows spurred Prime Minister Singh to increase the cap on international holdings of rupee bonds last month by 50 percent to $30 billion.
“Any state-run company, whether in the infrastructure or manufacturing space, will be a lovely candidate” for credit- default swaps, Krishnamurthy Harihar, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company, said in an interview yesterday.
Power Finance Corp Ltd. and Rural Electrification Corp Ltd. would be suitable candidates to have contracts written on their debt, he said.
Power Finance, based in New Delhi, sold 9.5 billion rupees of 7.89 percent bonds last month that mature in 2012. Their yield fell to 7.866 percent yesterday, according to Barclays Plc prices on Bloomberg. The yield on Rural Electrification’s 18 billion rupees in 8.75 percent bonds due July 2025 was little changed at 8.735 percent.
The rupee advanced 4.6 percent since Aug. 4 to trade at 44.15 per dollar yesterday, according to data compiled by Bloomberg. The currency has strengthened 5.4 percent this year.
“India’s strong domestic savings pool should help meet infrastructure funding,” Sukumar Rajah, who manages $5 billion of Asian equities as chief investment officer at Franklin Templeton Investments, said in a telephone interview yesterday from Chennai. “This should throw up large opportunities for global investors.”
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