India’s two-year-old market for currency futures is growing faster than that for stocks after attracting individual investors with transaction costs that are almost 50 percent lower.
The average volume of bets on the rupee’s value at a future date jumped more than threefold this year to $3.2 billion a day on the National Stock Exchange of India Ltd., which introduced the contracts in September 2008. Average daily turnover in the decade-old equity derivatives market rose 56 percent to $22 billion, according to the bourse’s website.
“Currency trading can be a thriller,” said Aarukettil Krishnankutty Sugunan, a 61-year-old glass and plywood merchant based in the southern Indian city of Kochi. “Broker fee and margin amounts are very low in rupee, and that allows me to make bigger bets.”
Investors are moving into futures as the median forecast of 16 analysts surveyed by Bloomberg shows the rupee will climb 2.6 percent by the end of March, outperforming Asia’s most-traded currencies except the South Korean won and the Philippine peso. One-month volatility, a measure of exchange-rate swings used to price options, is the second highest in the region at 9.5 percent, increasing scope for traders to make a profit.
The rupee’s 2.3 percent gain this year was driven by inflows from overseas investors seeking to benefit from the nation’s higher yields. India’s three-year government bond yield of 7.37 percent is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 12.67 percent. Comparable securities offer 3.27 percent in China and 6.95 percent in Russia.
Geojit BNP Paribas Financial Services Ltd., a brokerage partly owned by France’s largest bank, charges 200 rupees ($4.40) as commission on a foreign-exchange investment of 1 million rupees, compared with 385 rupees for stock futures.
Lower Margin Requirements
The brokerage requires individuals to put down 3 percent of planned rupee-futures investments, known as a margin payment, compared with at least 10 percent for equity derivatives. Rupee derivatives are also exempt from a securities transaction tax that is levied on all other exchange-traded securities, Renjith R.G., the Mumbai-based head of sales at Geojit BNP Paribas, said in an interview on Dec. 16.
“It’s much easier for short-term traders to enter and exit currency futures because of the lower margin requirements,” Renjith said. “The absence of a transaction tax helps reduce the broker fee.”
Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
India’s currency was the world’s most-traded in the futures markets in the first half of 2010, followed by the dollar and the euro, according to data from the Washington-based Futures Industry Association.
Investment Inflows
The rupee appreciated 1.3 percent against the dollar this month, the biggest advance after Taiwan’s dollar among Asia’s 10-most traded currencies, according to data compiled by Bloomberg. The currency dropped 0.3 percent to 45.47 per dollar yesterday on concern tensions on the Korean peninsula will damp demand for emerging-market assets.
Ten-year bonds declined yesterday on speculation a cash shortage in the banking system will lower appetite for debt. The yield on the 7.80 percent bonds due May 2020 climbed two basis points, or 0.02 percentage point, to 7.97 percent at the 5 p.m. close in Mumbai, according to the central bank’s trading system.
Government Bonds
India’s government bonds returned 5 percent this year, compared with 1.5 percent earned on Chinese debt, according to indexes compiled by London-based HSBC Holdings Plc. Global investors have poured an unprecedented $38 billion this year into stocks and bonds of Asia’s third-biggest economy, data from the Securities & Exchange Board of India show.
Credit-default swaps on State Bank of India, the nation’s biggest lender, have slid 23 basis points this month to 156, according to data provider CMA. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Countering Risk
The inflows have pushed up the implied volatility on one- month dollar-rupee options to an average 11 percent since the start of 2008, compared with 5.2 percent over the previous three years, data compiled by Bloomberg show.
The jump in the rupee’s volatility increased the need for a wider range of tools to guard against adverse exchange-rate fluctuations, Divya Malik Lahiri, a spokeswoman for the National Stock Exchange, said in an interview on Dec. 16.
“Rupee futures have been very helpful in countering currency risk in commodity trade,” Salu Cholayil Kuriakose, a 38-year-old coffee trader based in Sultan Bathery in the southern state of Kerala with exports to Belgium and the U.K., said in a Dec. 3 interview. “We simply didn’t have access to practical and cost-effective means for hedging foreign-exchange risk earlier.”
Options contracts signal investors have turned more optimistic on the rupee. The premium paid for options offering protection against possible declines in the currency in a month declined to 180 basis points yesterday from 220 on Nov. 30, data compiled by Bloomberg show.
‘Exceeded Expectations’
The so-called risk-reversal rate was 146 for Russia’s ruble and 311 basis points for Brazil’s real. The measure for China was at negative 11 basis points, meaning investors are more bearish on the dollar than on the yuan.
Exchange-rate futures have grown in popularity after companies in India suffered losses on customized derivative contracts as the credit crisis of 2008 fueled a surge in foreign-exchange swings. Hong Kong-based brokerage CLSA Ltd. estimated the same year that the nation’s firms would lose $4 billion on derivatives.
Apart from the National Stock Exchange, rupee futures are traded on the Multi Commodity Exchange of India Ltd., the Bombay Stock Exchange and the three-month-old United Stock Exchange. The Mumbai-based bourses offer contracts for trading India’s currency against the dollar, the euro, the pound and the yen.
“The growth in currency futures so far has exceeded all expectations,” National Stock Exchange’s Lahiri said. “Retail participation will increase with more awareness.”
Monday, December 20, 2010
Indian investors frustrated by red tape
Economic growth rates of near 9 per cent in India are reviving interest in Asia’s third-largest economy among private equity groups. However, they warn that delays in project execution and high valuations are hobbling investment in a market dominated by family-owned companies.
Venture capital and private equity fund flows are forecast to reach as much as $17bn this year in India, Asia’s most volatile market for this investment class.
That would be near the pre-financial crisis high-water mark of $19bn in 2007 and more than four times 2009 levels, according to a study by Bain & Co, the consultancy. In two years, private equity market growth could exceed 25 per cent as investments flow into badly needed infrastructure development.
One of the latest signs of this trend was the decision by 3i, the UK private equity group, to set up a £1.5bn ($2.3bn) infrastructure fund for India next year, targeting investments in ports, roads and power.
However, the bulk of private equity money is coming from the US.
In the five years to 2009, close to $50bn in private equity investment was made in 1,400 Indian companies, with high-profile deals and divestments involving the likes of KKR, Singapore’s Temasek, Providence Capital, TPG Capital and WL Ross & Co.
The growth of Bharti Airtel, Idea Cellular, infrastructure group GMR and SKS Microfinance enjoyed considerable support from mainly foreign private equity investors. Successive investments in Bharti Airtel helped it become India’s largest mobile network: Warburg Pincus invested $290m in 1999, CVC International $210m in 2004, and Temasek $2bn three years ago.
Real estate and pharmaceuticals have traditionally attracted private equity but power and energy, automotive, textiles and entertainment and hospitality are now drawing interest.
But although a fast-growing economy is providing momentum, execution risks and a lack of skills particularly at the middle management level have weighed on private equity transactions.
Though India became the largest market for private equity in Asia in 2007 and 2008, activity there has been far more erratic than in China. In contrast to China’s state-dominated economy, India has a fluid small-business culture that responds quickly to booms but is more precarious when growth falters.
Deal activity in India was the most volatile in Asia in 2004 to 2009, reflecting a turbulent entrepreneurial business environment.
According to Bain, private equity in China grew at a 39 per cent rate compounded between 2004 and 2008, about half the pace of India’s private equity growth rate. But the 68 per cent drop in the value of private equity deals in India during the 2008-09 global financial crisis stands in stark contrast to the 12 per cent decline seen in China.
Grant Thornton, the auditors, believes private equity is back. Last week, its survey of 100 Indian companies showed that merger and acquisition values had risen to more than $45bn from January to November this year. Of these, private equity deals reflected an “improving climate,” totalling $5.27bn in the first 11 months of 2010.
“Indian entrepreneurs are realising the benefits of accessing risk capital from external investors,” says Siddhartha Nigam, a partner at Grant Thornton India. “Private equity is emerging as a logical step before accessing capital markets to not only invest for scale but also get the ‘house in order’ [ahead of a public listing].”
Sanjay Nayar, chief executive of KKR India Advisors, says rising valuations have made it “tough to find obvious value” and that worse, getting things done in India has become harder partly due to greater interference from the state.
Joseph Massey, chief executive of India’s MCX Stock Exchange, also blames much of the execution delay on red tape.
Venture capital and private equity fund flows are forecast to reach as much as $17bn this year in India, Asia’s most volatile market for this investment class.
That would be near the pre-financial crisis high-water mark of $19bn in 2007 and more than four times 2009 levels, according to a study by Bain & Co, the consultancy. In two years, private equity market growth could exceed 25 per cent as investments flow into badly needed infrastructure development.
One of the latest signs of this trend was the decision by 3i, the UK private equity group, to set up a £1.5bn ($2.3bn) infrastructure fund for India next year, targeting investments in ports, roads and power.
However, the bulk of private equity money is coming from the US.
In the five years to 2009, close to $50bn in private equity investment was made in 1,400 Indian companies, with high-profile deals and divestments involving the likes of KKR, Singapore’s Temasek, Providence Capital, TPG Capital and WL Ross & Co.
The growth of Bharti Airtel, Idea Cellular, infrastructure group GMR and SKS Microfinance enjoyed considerable support from mainly foreign private equity investors. Successive investments in Bharti Airtel helped it become India’s largest mobile network: Warburg Pincus invested $290m in 1999, CVC International $210m in 2004, and Temasek $2bn three years ago.
Real estate and pharmaceuticals have traditionally attracted private equity but power and energy, automotive, textiles and entertainment and hospitality are now drawing interest.
But although a fast-growing economy is providing momentum, execution risks and a lack of skills particularly at the middle management level have weighed on private equity transactions.
Though India became the largest market for private equity in Asia in 2007 and 2008, activity there has been far more erratic than in China. In contrast to China’s state-dominated economy, India has a fluid small-business culture that responds quickly to booms but is more precarious when growth falters.
Deal activity in India was the most volatile in Asia in 2004 to 2009, reflecting a turbulent entrepreneurial business environment.
According to Bain, private equity in China grew at a 39 per cent rate compounded between 2004 and 2008, about half the pace of India’s private equity growth rate. But the 68 per cent drop in the value of private equity deals in India during the 2008-09 global financial crisis stands in stark contrast to the 12 per cent decline seen in China.
Grant Thornton, the auditors, believes private equity is back. Last week, its survey of 100 Indian companies showed that merger and acquisition values had risen to more than $45bn from January to November this year. Of these, private equity deals reflected an “improving climate,” totalling $5.27bn in the first 11 months of 2010.
“Indian entrepreneurs are realising the benefits of accessing risk capital from external investors,” says Siddhartha Nigam, a partner at Grant Thornton India. “Private equity is emerging as a logical step before accessing capital markets to not only invest for scale but also get the ‘house in order’ [ahead of a public listing].”
Sanjay Nayar, chief executive of KKR India Advisors, says rising valuations have made it “tough to find obvious value” and that worse, getting things done in India has become harder partly due to greater interference from the state.
Joseph Massey, chief executive of India’s MCX Stock Exchange, also blames much of the execution delay on red tape.
Sunday, December 19, 2010
China signs $35bn in deals with Pakistan
Chinese premier Wen Jiabao has unveiled $35bn in economic deals with Pakistan, as part of a plan to commercially integrate the nation with China’s western region.
During a visit to Pakistan, Mr Wen on Sunday promised to create a deep alliance between Islamabad and Beijing based on economic co-operation that would tie the south Asian nation to China’s economic transformation. Mr Wen unveiled $20bn in government-to-government contracts and another $15bn in private sector deals.
China wants to diversify its relationship with Pakistan – which is based on supplying arms – to build infrastructure that would help China secure land access to the Arabian Sea. Such transport links would boost Chinese exports to the Middle East and Europe, and help secure energy and commodity imports from the Middle East and Africa.
The agreements outstrip the $16bn in deals China signed with India when Mr Wen recently visited Delhi. They are also a firm signal that Pakistan has an alternative to the US, which considers Pakistan a key – but not always reliable – ally in the fight against Islamic extremism and supplies considerable financial and military assistance.
The wide-ranging deals announced include the development of oil, gas and mineral resources in Pakistan. China also agreed to help Pakistan develop a space industry, expertise in oceanology, and more electronics and heavy industry.
The deals also include Chinese investment in the Karakoram Highway, which connects Islamabad to the north-western Chinese province of Xinjiang.
“This will be an important step for China to build road and rail links to eventually link Xinjiang to Pakistan’s southern coast along the Indian Ocean,” said a Pakistani official.
Mr Wen described the friendship between Beijing and Islamabad as “solid as a rock”, an affirmation that causes anxiety in India which views ties between China and Pakistan with increasing suspicion as a strategy to isolate it in south Asia.
Senior Pakistani officials applauded the magnitude of the Chinese engagement, saying the Chinese premier’s visit – the first in five years – represented Beijing’s most concerted attempt to help transform Pakistan’s economy.
Mr Wen told Pakistan’s parliament that China wanted to forge “deeper, closer and stronger” ties with Pakistan. The Chinese premier said “China and Pakistan will remain brothers for ever” in spite of Pakistan’s vulnerability to Islamist insurgency.
Shortly after Mr Wen spoke, Chaudhary Nisar Ali, leader of the opposition in parliament, said: “You can go to any corner of our country and ask anyone about China and they will only say, China is a true friend. We [politicians] may have our differences but there is no difference on China.”
But other senior politicians were careful not to interpret Chinese assistance as undermining efforts to secure a lasting peace with arch-rival India. Yusuf Raza Gilani, Pakistan’s prime minister, said the warmth of the bilateral relationship between his country and neighbouring China was “not directed against any country”.
During a visit to Pakistan, Mr Wen on Sunday promised to create a deep alliance between Islamabad and Beijing based on economic co-operation that would tie the south Asian nation to China’s economic transformation. Mr Wen unveiled $20bn in government-to-government contracts and another $15bn in private sector deals.
China wants to diversify its relationship with Pakistan – which is based on supplying arms – to build infrastructure that would help China secure land access to the Arabian Sea. Such transport links would boost Chinese exports to the Middle East and Europe, and help secure energy and commodity imports from the Middle East and Africa.
The agreements outstrip the $16bn in deals China signed with India when Mr Wen recently visited Delhi. They are also a firm signal that Pakistan has an alternative to the US, which considers Pakistan a key – but not always reliable – ally in the fight against Islamic extremism and supplies considerable financial and military assistance.
The wide-ranging deals announced include the development of oil, gas and mineral resources in Pakistan. China also agreed to help Pakistan develop a space industry, expertise in oceanology, and more electronics and heavy industry.
The deals also include Chinese investment in the Karakoram Highway, which connects Islamabad to the north-western Chinese province of Xinjiang.
“This will be an important step for China to build road and rail links to eventually link Xinjiang to Pakistan’s southern coast along the Indian Ocean,” said a Pakistani official.
Mr Wen described the friendship between Beijing and Islamabad as “solid as a rock”, an affirmation that causes anxiety in India which views ties between China and Pakistan with increasing suspicion as a strategy to isolate it in south Asia.
Senior Pakistani officials applauded the magnitude of the Chinese engagement, saying the Chinese premier’s visit – the first in five years – represented Beijing’s most concerted attempt to help transform Pakistan’s economy.
Mr Wen told Pakistan’s parliament that China wanted to forge “deeper, closer and stronger” ties with Pakistan. The Chinese premier said “China and Pakistan will remain brothers for ever” in spite of Pakistan’s vulnerability to Islamist insurgency.
Shortly after Mr Wen spoke, Chaudhary Nisar Ali, leader of the opposition in parliament, said: “You can go to any corner of our country and ask anyone about China and they will only say, China is a true friend. We [politicians] may have our differences but there is no difference on China.”
But other senior politicians were careful not to interpret Chinese assistance as undermining efforts to secure a lasting peace with arch-rival India. Yusuf Raza Gilani, Pakistan’s prime minister, said the warmth of the bilateral relationship between his country and neighbouring China was “not directed against any country”.
Social Networks Meant for Social Good, at a Price
Over the last year or so, there has been an explosion of online intermediaries promising to help nonprofit groups raise money and awareness.
Crowdrise, Jumo, Causecast, Causes on Facebook and others try to use social networking and crowdsourcing to build interest in charities and causes, and to help them attract donations.
“2010 has really been the year of the social network for social good,” said Katya Andresen, chief operating officer at Network for Good, a nonprofit that handles processing and other administrative chores for many of the new sites.
In a recent study of online giving, Network for Good found that the experience when donating online is important to people. “I think many of these new sites are trying to make online giving, which is rather transactional in nature, an experience of greater intimacy, and that’s valuable,” Ms. Andresen said.
But to many in the nonprofit world, the value of the sites remains to be seen. For one thing, they hand partial control over charity brand names and trademarks to users who are often unknown to the nonprofit groups they support. And virtually all of them ask users to pay to donate.
“I think of them as disintermediaries because they stand between a nonprofit and its supporters, and what most of our clients’ value is establishing that direct connection,” said Gene Austin, chief executive of Convio, a company that provides technology to help nonprofits manage donor relations. “It’s especially concerning if they’re taking a cut on top of capturing eyeballs and individuals.”
To Mr. Austin and others, the new sites operate on a model that evokes memories of the United Way a decade ago. That organization began to lose ground when donors questioned why they should make donations through United Way — and give it a percentage of the money — when they could give directly to a charity.
“Moving toward a more donor-driven, pass-through model didn’t raise more money,” said Brian Gallagher, chief executive of the United Way of America.
Now, the United Way raises money around three core issues — education, health and income — which it addresses with proprietary programs. Its “pass-through” business, Mr. Gallagher said, has remained stagnant for the last five or six years.
“What we learned is that folks will pay you if they think they’re getting more value for what you’re offering,” Mr. Gallagher said, describing what his organization had learned. “They won’t pay you because you’re part of the commodity in the middle.”
The young entrepreneurs behind the new sites say their organizations are more than middlemen. “Saying the people can donate on an organization’s Web site misses the fact that nonprofits have to advertise to get people there, do marketing in various places to convince them to donate, cover credit card fees and pay for technology associated with their Web site and payment processing,” said Matthew Mahan, a representative of Causes.
Chris Hughes, the founder of Jumo, said his site was primarily about helping people connect with one another and with organizations around social missions, not about fund-raising.
“Jumo makes it easier for people to find an organization and stay in touch with it,” said Mr. Hughes, who is also a founder of Facebook. “That has a value.”
Crowdrise pitches itself as a tool to improve an individual’s fund-raising campaign, whether that is a celebrity like Barbra Streisand, who is raising money for the Cedars-Sinai Women’s Heart Center, or a person like Christine (Crowdrise users usually use only their given name), who is using the site to raise $60,000 for the Leukemia and Lymphoma Society.
“To us, Crowdrise is a complement or additive to whatever users are already doing,” said Robert Wolfe, one of its founders. “We don’t see this as a place for a charity to raise money for operational funds. It’s more for projects.”
Crowdrise, Jumo, Causecast, Causes on Facebook and others try to use social networking and crowdsourcing to build interest in charities and causes, and to help them attract donations.
“2010 has really been the year of the social network for social good,” said Katya Andresen, chief operating officer at Network for Good, a nonprofit that handles processing and other administrative chores for many of the new sites.
In a recent study of online giving, Network for Good found that the experience when donating online is important to people. “I think many of these new sites are trying to make online giving, which is rather transactional in nature, an experience of greater intimacy, and that’s valuable,” Ms. Andresen said.
But to many in the nonprofit world, the value of the sites remains to be seen. For one thing, they hand partial control over charity brand names and trademarks to users who are often unknown to the nonprofit groups they support. And virtually all of them ask users to pay to donate.
“I think of them as disintermediaries because they stand between a nonprofit and its supporters, and what most of our clients’ value is establishing that direct connection,” said Gene Austin, chief executive of Convio, a company that provides technology to help nonprofits manage donor relations. “It’s especially concerning if they’re taking a cut on top of capturing eyeballs and individuals.”
To Mr. Austin and others, the new sites operate on a model that evokes memories of the United Way a decade ago. That organization began to lose ground when donors questioned why they should make donations through United Way — and give it a percentage of the money — when they could give directly to a charity.
“Moving toward a more donor-driven, pass-through model didn’t raise more money,” said Brian Gallagher, chief executive of the United Way of America.
Now, the United Way raises money around three core issues — education, health and income — which it addresses with proprietary programs. Its “pass-through” business, Mr. Gallagher said, has remained stagnant for the last five or six years.
“What we learned is that folks will pay you if they think they’re getting more value for what you’re offering,” Mr. Gallagher said, describing what his organization had learned. “They won’t pay you because you’re part of the commodity in the middle.”
The young entrepreneurs behind the new sites say their organizations are more than middlemen. “Saying the people can donate on an organization’s Web site misses the fact that nonprofits have to advertise to get people there, do marketing in various places to convince them to donate, cover credit card fees and pay for technology associated with their Web site and payment processing,” said Matthew Mahan, a representative of Causes.
Chris Hughes, the founder of Jumo, said his site was primarily about helping people connect with one another and with organizations around social missions, not about fund-raising.
“Jumo makes it easier for people to find an organization and stay in touch with it,” said Mr. Hughes, who is also a founder of Facebook. “That has a value.”
Crowdrise pitches itself as a tool to improve an individual’s fund-raising campaign, whether that is a celebrity like Barbra Streisand, who is raising money for the Cedars-Sinai Women’s Heart Center, or a person like Christine (Crowdrise users usually use only their given name), who is using the site to raise $60,000 for the Leukemia and Lymphoma Society.
“To us, Crowdrise is a complement or additive to whatever users are already doing,” said Robert Wolfe, one of its founders. “We don’t see this as a place for a charity to raise money for operational funds. It’s more for projects.”
First-Time Solar Producers May Imperil India's Clean Energy Push
India’s first solar auction, designed to boost clean energy in the world’s fourth-biggest polluter, may risk failure after winners were selected without experience or proof that they can keep projects afloat earning low margins.
A woolen yarn maker, an animation company and an industrial pipes supplier with no experience building power plants were among 37 winners of the government auction announced Dec. 13. The lowest bidders quoted prices that mean they may struggle to earn an attractive profit, said Bloomberg New Energy Finance analyst Bharat Bhushan.
“These projects aren’t going to get built,” Anmol Singh Jaggi, director of Gensol Consultants Pvt., which funds renewable energy projects, said in an interview. “I don’t see how they’ll get financed or get returns.”
India, which averages 300 sunny days a year, aims to generate 20 gigawatts of solar power by 2022, equivalent to 12 percent of its total electricity production today. A setback may delay solar’s development in Asia’s second-fastest growing major economy at a time when equipment makers, including Arizona-based First Solar Inc., face a potential supply glut and seek new markets as European countries slash solar subsidies.
The three largest projects went to companies experienced in building power plants: Lanco Infratech Ltd., KVK Energy Ventures Pvt. and Rajasthan Sun Technique, a unit of billionaire Anil Ambani’s Reliance Power Ltd. Abengoa SA, which has built plants in Spain and the U.S., and Acme Group, which is building a 10- megawatt solar thermal plant in India, were passed over.
‘Returns Not Important’
“The returns aren’t very important at this stage,” said Alok Nigam, Lanco’s vice president of business development. “What we wanted to ensure was we got a berth in the National Solar Mission.”
“Are these tariffs really sustainable on a long-term basis?” Nigam said. “I have my doubts.”
Under auction rules, project developers offering to sell their electricity at the cheapest rates were selected. The lowest solar photovoltaic bid price came in at 10.95 rupees (24 cents) per kilowatt-hour and the lowest solar thermal bid was 10.49 rupees per kilowatt-hour, offering discounts of more than 30 percent to government-proposed rates.
The auction awarded 470 megawatts of solar thermal capacity and 150 megawatts of photovoltaic capacity. New Energy Finance’s Bhushan said the seven solar thermal winners, including Lanco, KVK Energy and Rajasthan Sun, quoted bids that may be below the levelized cost of generation in India. The lowest photovoltaic rates may be at cost, he said.
Knitwear Maker, Animation
Levelized analysis compares the costs of energies produced from different sources after accounting for expenses such as financing and installation.
Bid winners included Oswal Woollen Mills Ltd., Kolkata- based Amrit Animation Pvt. and Megha Engineering & Infrastructures Ltd., which makes water-pumping equipment.
Oswal Woollen, based in Ludhiana, Punjab state, said in an e-mailed statement that it has run a 15-megawatt bio-gas plant and that concerns about its ability to build a solar facility were unfounded. “We will be more aggressive in the successful implementation of our solar energy plant,” it said. “You have to wait for only nine months.”
Megha Engineering has no experience in solar or building conventional power projects though it has “good financial strength,” R. Balaji, an engineer at the company’s power division, said by telephone. No website or contact details could be found immediately for Amrit Animation.
Skills Untested
Companies weren’t evaluated on their technical skills, Deepak Gupta, secretary at the New and Renewable Energy ministry, said Nov. 29. To prevent irresponsible bidding, companies had to pay bid bonds on projects and will be charged fines for delays or failure to build.
“I don’t think there’s a problem,” Gupta said after the auction. “There’s no reason why we shouldn’t reach our target.” The bids were probably accounting for declining equipment costs and cheaper financing, he said.
“I personally don’t believe it can happen” at these rates, said Petra Leue-Bahns, chief financial officer of Ecolutions Gmbh, a Frankfurt-based renewable energy investment company. Borrowing costs, banks’ reluctance to lend and a shortage of mandatory domestic equipment may also prevent projects from getting off the ground, she said.
“From the perspective of a risk-averse institutional investor, the whole story seems like a work-in-progress still,” Leue-Bahns said.
Costs, Complexities
Developers may be underestimating the cost and complexity of setting up solar plants, according to Mumbai-based Tata Power Co., India’s largest non-state electricity developer, which shunned the auction. “We do hope that the people who are bidding those numbers understand what it means to set up a solar project,” Executive Director Banmali Agrawala said in an interview. “It’s not a piece of cake.”
The auction drew bids for more than eight times the 620 megawatts of capacity offered as companies sought to benefit from government subsidies and power needs in India where peak electricity demand outstripped supply by more than 10 percent this year, according to the Central Electricity Authority.
The Asian Development Bank announced it plans to partially guarantee commercial bank loans to $425 million worth of solar investments in India to help the sector take off. “But the projects have to be credible,” said Sujata Gupta, head of the bank’s private sector group in India.
“What’s going to determine this market is projects that get done, that get financed, that get finished,” said Rana Mookherjee, senior director of project finance at Fremont, California-based Solaria Corp., which is making modules in India. “Success is what’s going to help this market take off.”
A woolen yarn maker, an animation company and an industrial pipes supplier with no experience building power plants were among 37 winners of the government auction announced Dec. 13. The lowest bidders quoted prices that mean they may struggle to earn an attractive profit, said Bloomberg New Energy Finance analyst Bharat Bhushan.
“These projects aren’t going to get built,” Anmol Singh Jaggi, director of Gensol Consultants Pvt., which funds renewable energy projects, said in an interview. “I don’t see how they’ll get financed or get returns.”
India, which averages 300 sunny days a year, aims to generate 20 gigawatts of solar power by 2022, equivalent to 12 percent of its total electricity production today. A setback may delay solar’s development in Asia’s second-fastest growing major economy at a time when equipment makers, including Arizona-based First Solar Inc., face a potential supply glut and seek new markets as European countries slash solar subsidies.
The three largest projects went to companies experienced in building power plants: Lanco Infratech Ltd., KVK Energy Ventures Pvt. and Rajasthan Sun Technique, a unit of billionaire Anil Ambani’s Reliance Power Ltd. Abengoa SA, which has built plants in Spain and the U.S., and Acme Group, which is building a 10- megawatt solar thermal plant in India, were passed over.
‘Returns Not Important’
“The returns aren’t very important at this stage,” said Alok Nigam, Lanco’s vice president of business development. “What we wanted to ensure was we got a berth in the National Solar Mission.”
“Are these tariffs really sustainable on a long-term basis?” Nigam said. “I have my doubts.”
Under auction rules, project developers offering to sell their electricity at the cheapest rates were selected. The lowest solar photovoltaic bid price came in at 10.95 rupees (24 cents) per kilowatt-hour and the lowest solar thermal bid was 10.49 rupees per kilowatt-hour, offering discounts of more than 30 percent to government-proposed rates.
The auction awarded 470 megawatts of solar thermal capacity and 150 megawatts of photovoltaic capacity. New Energy Finance’s Bhushan said the seven solar thermal winners, including Lanco, KVK Energy and Rajasthan Sun, quoted bids that may be below the levelized cost of generation in India. The lowest photovoltaic rates may be at cost, he said.
Knitwear Maker, Animation
Levelized analysis compares the costs of energies produced from different sources after accounting for expenses such as financing and installation.
Bid winners included Oswal Woollen Mills Ltd., Kolkata- based Amrit Animation Pvt. and Megha Engineering & Infrastructures Ltd., which makes water-pumping equipment.
Oswal Woollen, based in Ludhiana, Punjab state, said in an e-mailed statement that it has run a 15-megawatt bio-gas plant and that concerns about its ability to build a solar facility were unfounded. “We will be more aggressive in the successful implementation of our solar energy plant,” it said. “You have to wait for only nine months.”
Megha Engineering has no experience in solar or building conventional power projects though it has “good financial strength,” R. Balaji, an engineer at the company’s power division, said by telephone. No website or contact details could be found immediately for Amrit Animation.
Skills Untested
Companies weren’t evaluated on their technical skills, Deepak Gupta, secretary at the New and Renewable Energy ministry, said Nov. 29. To prevent irresponsible bidding, companies had to pay bid bonds on projects and will be charged fines for delays or failure to build.
“I don’t think there’s a problem,” Gupta said after the auction. “There’s no reason why we shouldn’t reach our target.” The bids were probably accounting for declining equipment costs and cheaper financing, he said.
“I personally don’t believe it can happen” at these rates, said Petra Leue-Bahns, chief financial officer of Ecolutions Gmbh, a Frankfurt-based renewable energy investment company. Borrowing costs, banks’ reluctance to lend and a shortage of mandatory domestic equipment may also prevent projects from getting off the ground, she said.
“From the perspective of a risk-averse institutional investor, the whole story seems like a work-in-progress still,” Leue-Bahns said.
Costs, Complexities
Developers may be underestimating the cost and complexity of setting up solar plants, according to Mumbai-based Tata Power Co., India’s largest non-state electricity developer, which shunned the auction. “We do hope that the people who are bidding those numbers understand what it means to set up a solar project,” Executive Director Banmali Agrawala said in an interview. “It’s not a piece of cake.”
The auction drew bids for more than eight times the 620 megawatts of capacity offered as companies sought to benefit from government subsidies and power needs in India where peak electricity demand outstripped supply by more than 10 percent this year, according to the Central Electricity Authority.
The Asian Development Bank announced it plans to partially guarantee commercial bank loans to $425 million worth of solar investments in India to help the sector take off. “But the projects have to be credible,” said Sujata Gupta, head of the bank’s private sector group in India.
“What’s going to determine this market is projects that get done, that get financed, that get finished,” said Rana Mookherjee, senior director of project finance at Fremont, California-based Solaria Corp., which is making modules in India. “Success is what’s going to help this market take off.”
Telenor urges clean-up of India rules
Telenor has warned India that its unpredictable regulatory environment risks deterring foreign investment after the Norwegian mobile operator was drawn into a scandal over telecoms licences that has rocked the Indian government.
Jon Fredrik Baksaas, chief executive, urged India to “clean up the mess” surrounding telecoms regulation and said operators would not make big decisions over further investment without greater clarity.
“This is very negative for the industry, it is negative for foreign direct investment and it is negative for customers because to expand mobile coverage will take longer with this kind of uncertainty,” he told the Financial Times.
Telenor is one of several operators facing possible licence cancellations in India as part of an investigation into suspected irregularities during the allocation of second-generation spectrum two years ago.
The scandal caused the resignation of Andimuthu Raja as telecoms minister amid claims the government lost $39bn by handing out licences too cheaply.
Mr Baksaas insisted Telenor had done nothing wrong. “We have fulfilled our side of the deal in terms of deploying resources. We expect the government to honour their commitments.”
He said the dispute fitted a broader pattern of regulatory uncertainty in India. “The weakness that we’ve seen recently in many sectors – not just telecoms – is something India needs to sort out because it hurts India’s reputation internationally.”
Telenor is one of several foreign operators active in India’s fiercely competitive mobile industry, alongside Vodafone of the UK, DoCoMo of Japan and Singapore Telecommunications among others.
India is the world’s second-largest mobile industry by subscribers after China, with more than 600m users and it is forecast to almost double in size by 2015, according to official estimates.
Telenor secured its Indian licences as part of the acquisition of Unitech, a local telecoms company, in 2008. It had 13.5m Indian subscribers at the end of October.
The Oslo-based group is one of the world’s biggest emerging market mobile operators with a presence in 11 markets from Hungary to Malaysia.
Investors have shown little enthusiasm for Telenor’s Indian business amid concern over the heavy capital expenditure and low margins associated with the market.
“We went into India at the same time as the financial crisis in the autumn of 2008, which was a period when investors were shying away from emerging market risk,” recalls Mr Baksaas.
He added: “We are not very proud of the effect that had on the stock price.”
He insisted that Telenor remained committed to its Indian strategy but said decisions over further investment – such as whether to take part in predicted industry consolidation – would depend on the regulatory environment.
Shares in Telenor are up 15 per cent so far this year and Mr Baksaas said it had started to “win back investors’ trust”.
Jon Fredrik Baksaas, chief executive, urged India to “clean up the mess” surrounding telecoms regulation and said operators would not make big decisions over further investment without greater clarity.
“This is very negative for the industry, it is negative for foreign direct investment and it is negative for customers because to expand mobile coverage will take longer with this kind of uncertainty,” he told the Financial Times.
Telenor is one of several operators facing possible licence cancellations in India as part of an investigation into suspected irregularities during the allocation of second-generation spectrum two years ago.
The scandal caused the resignation of Andimuthu Raja as telecoms minister amid claims the government lost $39bn by handing out licences too cheaply.
Mr Baksaas insisted Telenor had done nothing wrong. “We have fulfilled our side of the deal in terms of deploying resources. We expect the government to honour their commitments.”
He said the dispute fitted a broader pattern of regulatory uncertainty in India. “The weakness that we’ve seen recently in many sectors – not just telecoms – is something India needs to sort out because it hurts India’s reputation internationally.”
Telenor is one of several foreign operators active in India’s fiercely competitive mobile industry, alongside Vodafone of the UK, DoCoMo of Japan and Singapore Telecommunications among others.
India is the world’s second-largest mobile industry by subscribers after China, with more than 600m users and it is forecast to almost double in size by 2015, according to official estimates.
Telenor secured its Indian licences as part of the acquisition of Unitech, a local telecoms company, in 2008. It had 13.5m Indian subscribers at the end of October.
The Oslo-based group is one of the world’s biggest emerging market mobile operators with a presence in 11 markets from Hungary to Malaysia.
Investors have shown little enthusiasm for Telenor’s Indian business amid concern over the heavy capital expenditure and low margins associated with the market.
“We went into India at the same time as the financial crisis in the autumn of 2008, which was a period when investors were shying away from emerging market risk,” recalls Mr Baksaas.
He added: “We are not very proud of the effect that had on the stock price.”
He insisted that Telenor remained committed to its Indian strategy but said decisions over further investment – such as whether to take part in predicted industry consolidation – would depend on the regulatory environment.
Shares in Telenor are up 15 per cent so far this year and Mr Baksaas said it had started to “win back investors’ trust”.
Default Swaps Show State Bank Beating China, Russia Rivals: India Credit
The cost of protecting State Bank of India’s debt from default fell for 11 straight days, the longest stretch of declines since at least 2004, as lenders’ willingness to extend loans underscores an improving economy.
Credit-default swaps on Mumbai-based State Bank dropped 55 basis points, or 0.55 percentage point, in the past six months to 155 on Dec. 16, CMA data show. Bank of China Ltd. contracts fell 24 basis points to 118 while those for OAO Sberbank, Russia’s largest lender, declined 11 to 188.
The perceived creditworthiness of India’s biggest bank improved faster than for lenders in the other largest emerging markets as companies step up borrowing for construction projects. Prime Minister Manmohan Singh is targeting 9 percent growth for at least the next three decades and plans to spend about $1 trillion on roads, ports and public infrastructure.
“India’s Reserve Bank has been prompt in raising rates to head off inflation, the economy is strong, non-performing loan ratios are under control and bank credit-default swaps are reflecting that,” Vijay Chander, Hong Kong-based head of credit strategy at Standard Chartered Plc, said in an interview.
International bond sales in India climbed to $11.2 billion this year from $2.4 billion in 2009, with bank debt accounting for 60 percent, according to data compiled by Bloomberg. New bond sales from Indian banks could reach as much as $7 billion next year, according to Nomura Holdings Inc. As India seeks funds for key infrastructure projects “foreign capital may prove even more useful,” International Monetary Fund Managing Director Dominique Strauss-Kahn said in a Dec. 2 speech.
Infrastructure Demand
“There’s greater demand for infrastructure lending,” Nondas Nicolaides, senior banking analyst with Moody’s Investors Service, said in a phone interview from Limassol, Cyprus. “India is an economy with such great growth potential that I don’t see a problem for even the smaller banks selling dollar bonds.”
The outlook for India’s banking system is conducive to high credit growth as economic expansion returns to pre-crisis levels and deposits increase, Moody’s said in a report Dec. 16.
The yield on Bank of India’s $500 million of 4.75 percent notes due in September 2015 fell 41 basis points to 235 more than Treasuries since Dec. 1, BNP Paribas SA prices show. The decline compares with a 55 basis point drop for Bank of Moscow OJSC’s $750 million of 6.699 percent notes due in March 2015. The yield on Banco Santander Brasil SA’s $500 million of 4.5 percent bonds, due April 2015, fell 46 basis points to 266 over the same period.
‘Not Much Downside’
Indian banks that “underperformed” in the recent Asian corporate bond rally now look good value, according to Royal Bank of Scotland Group Plc research.
“For credit investors I don’t see much downside,” Kristine Li, Asia-Pacific credit strategist at Royal Bank of Scotland said in an interview from Singapore. “Indian banks have better fundamentals in terms of asset quality and earnings stability, and the tighter spreads versus Russia and Brazil are well justified.”
Indian dollar bonds returned 9.4 percent this year. The extra yield investors demand to hold the notes rather than U.S. Treasuries fell six basis points last week and dropped 80 basis points to 334 this half, according to HSBC Holdings Plc’s Asia Dollar Bond Index for India, in which banks have a 71 percent weighting. That compares with a 99 basis-point decrease for dollar bonds of Asian banks, JPMorgan Chase & Co.’s Financials Blended Spread index show.
A rise in dollar funding costs meant some Indian banks postponed sales. Union Bank of India may delay a planned sale of notes on rising London interbank rates, Chairman M.V. Nair said in New Delhi last week.
‘Aggressive on Pricing’
“Indian banks tend to be market opportunistic and relatively aggressive on new issue pricing,” Li said, citing domestic liquidity as another risk. With “more money flowing into emerging markets, spreads compressing across Asian banks and Indian banks showing strong earnings results, their credit ought to catch up with the rest of Asian banks,” Li said.
BES Investimento do Brasil SA’s $500 million of 5.625 percent notes due March 2015, rated the second-lowest Baa2 investment-grade by Moody’s, are trading at a yield of 506 basis points more than Treasuries, according to Trace. Similar-rated 4.75 percent bonds due October 2015 from Vadodara, Gujarat-based Bank of Baroda trade at a spread of 272 basis points, BNP Paribas prices show.
Regulators seeking to rein in the sort of risks that caused the financial crisis reached a compromise in Switzerland in September that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply.
Rupee Falls
The Basel Committee on Banking Supervision wants banks to hold enough assets that can be converted into cash to meet their needs in a “severe liquidity stress scenario,” according to a document. While India’s central bank hasn’t said whether it will adopt the so-called Basel III accord, banks are “well positioned to make the transition to a stricter capital regime,” Moody’s said in its report.
Contracts protecting debt of ICICI Bank Ltd., India’s second-largest lender, fell 21 basis points this month to 193 basis points, after reaching a two-month low of 191.5 last week, CMA prices show. The bank’s default swaps have dropped 62 basis points since July 1.
The rupee fell last week after two weeks of gains. The rupee lost 0.7 percent during the week to 45.3550 per dollar. Indian markets were closed Dec. 17 for a holiday.
Government bonds rose in the week, driving yields to the lowest level in a month and a half, after the central bank said it would repurchase 480 billion rupees ($10.6 billion) of debt over four weeks to boost cash at banks.
The yield on the 7.80 percent note due May 2020 fell 12 basis points to 7.95 percent, according to the central bank’s trading system. The yield decreased 13 basis points.
Credit-default swaps on Mumbai-based State Bank dropped 55 basis points, or 0.55 percentage point, in the past six months to 155 on Dec. 16, CMA data show. Bank of China Ltd. contracts fell 24 basis points to 118 while those for OAO Sberbank, Russia’s largest lender, declined 11 to 188.
The perceived creditworthiness of India’s biggest bank improved faster than for lenders in the other largest emerging markets as companies step up borrowing for construction projects. Prime Minister Manmohan Singh is targeting 9 percent growth for at least the next three decades and plans to spend about $1 trillion on roads, ports and public infrastructure.
“India’s Reserve Bank has been prompt in raising rates to head off inflation, the economy is strong, non-performing loan ratios are under control and bank credit-default swaps are reflecting that,” Vijay Chander, Hong Kong-based head of credit strategy at Standard Chartered Plc, said in an interview.
International bond sales in India climbed to $11.2 billion this year from $2.4 billion in 2009, with bank debt accounting for 60 percent, according to data compiled by Bloomberg. New bond sales from Indian banks could reach as much as $7 billion next year, according to Nomura Holdings Inc. As India seeks funds for key infrastructure projects “foreign capital may prove even more useful,” International Monetary Fund Managing Director Dominique Strauss-Kahn said in a Dec. 2 speech.
Infrastructure Demand
“There’s greater demand for infrastructure lending,” Nondas Nicolaides, senior banking analyst with Moody’s Investors Service, said in a phone interview from Limassol, Cyprus. “India is an economy with such great growth potential that I don’t see a problem for even the smaller banks selling dollar bonds.”
The outlook for India’s banking system is conducive to high credit growth as economic expansion returns to pre-crisis levels and deposits increase, Moody’s said in a report Dec. 16.
The yield on Bank of India’s $500 million of 4.75 percent notes due in September 2015 fell 41 basis points to 235 more than Treasuries since Dec. 1, BNP Paribas SA prices show. The decline compares with a 55 basis point drop for Bank of Moscow OJSC’s $750 million of 6.699 percent notes due in March 2015. The yield on Banco Santander Brasil SA’s $500 million of 4.5 percent bonds, due April 2015, fell 46 basis points to 266 over the same period.
‘Not Much Downside’
Indian banks that “underperformed” in the recent Asian corporate bond rally now look good value, according to Royal Bank of Scotland Group Plc research.
“For credit investors I don’t see much downside,” Kristine Li, Asia-Pacific credit strategist at Royal Bank of Scotland said in an interview from Singapore. “Indian banks have better fundamentals in terms of asset quality and earnings stability, and the tighter spreads versus Russia and Brazil are well justified.”
Indian dollar bonds returned 9.4 percent this year. The extra yield investors demand to hold the notes rather than U.S. Treasuries fell six basis points last week and dropped 80 basis points to 334 this half, according to HSBC Holdings Plc’s Asia Dollar Bond Index for India, in which banks have a 71 percent weighting. That compares with a 99 basis-point decrease for dollar bonds of Asian banks, JPMorgan Chase & Co.’s Financials Blended Spread index show.
A rise in dollar funding costs meant some Indian banks postponed sales. Union Bank of India may delay a planned sale of notes on rising London interbank rates, Chairman M.V. Nair said in New Delhi last week.
‘Aggressive on Pricing’
“Indian banks tend to be market opportunistic and relatively aggressive on new issue pricing,” Li said, citing domestic liquidity as another risk. With “more money flowing into emerging markets, spreads compressing across Asian banks and Indian banks showing strong earnings results, their credit ought to catch up with the rest of Asian banks,” Li said.
BES Investimento do Brasil SA’s $500 million of 5.625 percent notes due March 2015, rated the second-lowest Baa2 investment-grade by Moody’s, are trading at a yield of 506 basis points more than Treasuries, according to Trace. Similar-rated 4.75 percent bonds due October 2015 from Vadodara, Gujarat-based Bank of Baroda trade at a spread of 272 basis points, BNP Paribas prices show.
Regulators seeking to rein in the sort of risks that caused the financial crisis reached a compromise in Switzerland in September that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply.
Rupee Falls
The Basel Committee on Banking Supervision wants banks to hold enough assets that can be converted into cash to meet their needs in a “severe liquidity stress scenario,” according to a document. While India’s central bank hasn’t said whether it will adopt the so-called Basel III accord, banks are “well positioned to make the transition to a stricter capital regime,” Moody’s said in its report.
Contracts protecting debt of ICICI Bank Ltd., India’s second-largest lender, fell 21 basis points this month to 193 basis points, after reaching a two-month low of 191.5 last week, CMA prices show. The bank’s default swaps have dropped 62 basis points since July 1.
The rupee fell last week after two weeks of gains. The rupee lost 0.7 percent during the week to 45.3550 per dollar. Indian markets were closed Dec. 17 for a holiday.
Government bonds rose in the week, driving yields to the lowest level in a month and a half, after the central bank said it would repurchase 480 billion rupees ($10.6 billion) of debt over four weeks to boost cash at banks.
The yield on the 7.80 percent note due May 2020 fell 12 basis points to 7.95 percent, according to the central bank’s trading system. The yield decreased 13 basis points.
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