Billionaire Gupta May Acquire U.S. Drug Brands: Corporate India

By Adi Narayan - Jul 26, 2012

Lupin Ltd. (LPC), the world’s biggest maker of drugs to treat tuberculosis, plans to acquire brands in the U.S. to reduce its reliance on less profitable generic medicines, President Nilesh Gupta said.

The Indian drugmaker founded by billionaire Desh Bandhu Gupta may purchase branded drugs to treat skin diseases and infections, the president said. The company hasn’t identified any acquisition yet, Gupta, son of the founder, said.

Lupin is seeking to maintain its fastest pace of quarterly sales growth in at least three years by adding to its product portfolio in the world’s biggest drug market. The company, named after a leguminous flower, and rivals including Ranbaxy Laboratories Ltd. (RBXY) are shifting strategy to cut their dependence on selling generic versions of medicines as the number of formulations losing patent protection plummets from their peak in 2012.

Purchasing a brand is “the No. 1 priority for the company,” Gupta, who has an MBA from the Wharton School of the University of Pennsylvania, said in a telephone interview on July 24. Lupin will seek to add drugs in the therapeutic segments it has expertise in, he said.

Lupin has advanced 28 percent this year, exceeding the 19 percent gain on the BSE India Healthcare Index. The stock fell 2 percent to 573.95 rupees at 9:52 a.m. in Mumbai.

The Mumbai-based company earned more than five times as much selling branded medicines such as Antara, a treatment for reducing cholesterol, compared with average sales of all its copycat formulations, according to Fortune Equity Brokers Ltd.

Copycat Versions

The drugmaker’s sales rose 44 percent to 22.2 billion rupees ($395 million) in the three months ended June 30, the fastest pace of growth in at least three years, according to data compiled by Bloomberg.

Lupin and larger rivals including Ranbaxy and Dr. Reddy’s Laboratories Ltd. (DRRD) are trying to boost profit by offering products that are similar though not identical to those protected by patents, claiming they are not copycat versions.

The U.S. Food and Drug Administration classifies such formulations as new drugs, and if approved, they can be sold exclusively for as long as three years in the U.S.

“If the product clicks, then you make a lot of money and your margins will be also higher,” Bino Pathiparampil, a pharmaceutical analyst at IIFL Ltd., said in an interview. “The development costs will be far higher than an ordinary generic though.”

Suprax Antibiotic

Lupin, established in 1968 by Chairman Gupta, a masters- degree holder in chemistry, started selling branded products in the U.S. in 2004 after acquiring Suprax antibiotic from Pfizer Inc.’s Wyeth unit. In the year ended March 31, Lupin got 28 percent of its U.S. sales from three branded medicines, while the balance came from generics.

“In this fiscal, they will generate enough cash from the patent expirations,” said Hitesh Mahida, an analyst at Fortune Equity Brokers. The company “may need to acquire a brand and launch it in fiscal 2014.”

Lupin’s sales are occasionally aided by the right to exclusively sell generic versions for six months when a drug loses patent protection, like in the case of the anti-psychotic Geodon. Such opportunities will decline as the number of medicines going off patent drops.

Four drugs with sales exceeding $500 million come off patent in the U.S. in 2016, compared with 10 this year, according to IMS Health Inc. Worldwide, pre-expiry spending on patented drugs will fall to $22 billion in 2016 from $47 billion this year, IMS Health data show.

FDA Approval

Ranbaxy, India’s biggest drugmaker, last month received FDA approval for a patent-protected variation of the generic acne medication isotretinoin. Sold under the brand Absorica, the drug developed by Cipher Pharmaceuticals Inc. (DND) is marketed as an improvement because unlike isotretinoin, it doesn’t have to be taken along with a high-fat meal.

The company, 64 percent owned by Tokyo-based Daiichi Sankyo Co. (4568), is looking to acquire similar products that are “innovative variations” of medicines already on the market, Chief Executive Officer Arun Sawhney said in a July 11 interview in Washington.

“At the moment, we’d be looking at assets that would strengthen our dermatology portfolio,” Sawhney said. These are products that have a “sustainable patronage and are not susceptible to competition from 20 companies on any particular day.”

Clinical Trials

Acquisition of branded drugs may boost costs at Lupin, according to Balaji Prasad, a Mumbai-based analyst at Barclays Plc. Selling such products requires a network of pharmaceutical sales representatives to approach physicians across the U.S. to promote the medicine over an existing, and often cheaper generic. The FDA may also require companies to conduct clinical trials on patients.

That can be a challenge for Indian drugmakers, who have mostly built their expertise in selling drugs to bulk buyers such as pharmacy chains and don’t have experience in conducting clinical trials on a large number of patients.

“It’s not going to be an easy strategy,” Barclays’ Prasad said by phone. “Making those changes to the drugs and selling it will require clinical trials and significant upfront investment.”

Lupin has a network of 170 sales representatives in the U.S. to sell its branded portfolio, Gupta, 38, said. The company’s future acquisitions are likely to be in an area that doesn’t require a large number of sales personnel, he said.

The company is focusing on brands that “don’t need 500 representatives to cover a good number of doctors,” Gupta said.

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Exxon May Lead Drop in Global Oil Profits on Lower Prices By Will Kennedy and Brian Swint - Jul 24, 2012

The world’s largest oil companies are poised to report a drop in second-quarter earnings after crude prices declined for the first time in three years.

Exxon Mobil Corp. (XOM), the world’s biggest oil company by market value, will probably say tomorrow net income dropped 13 percent from a year earlier to $9.3 billion dollars, based on the average of five analysts’ estimates compiled by Bloomberg. Royal Dutch Shell Plc (RDSA), Europe’s top oil producer, is expected to see profit decline 4 percent after adjusting for certain gains and losses.

“We expect earnings to be down and for companies to miss the current consensus,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “The oil price is the single biggest factor, and U.S. gas prices were particularly anemic. The one area that looks good is refining margins.”

Brent crude futures, a benchmark oil price used by much of the world, fell 7 percent from a year earlier to average $108.76 a barrel in the second quarter, the first year-on-year decline since 2009 as economic growth slowed in China and concerns mounted that the European debt crisis will erode demand.

Oversupplies from burgeoning shale-field output in the U.S. pushed natural-gas prices down 46 percent to average $2.354 per million British thermal units. Slumping prices more than offset gains in production, including the return of Libyan fields, and widening refining margins in the U.S. and Europe.

Lackluster Operations

Exxon, Shell, Statoil ASA (STL), BG Group Plc (BG/) and Spain’s Repsol SA (REP) all report tomorrow. Chevron Corp. (CVX) and Total SA (FP) will announce earnings on July 27 and BP Plc (BP/) on July 31.

“With earnings momentum negative, underlying operational performance lackluster and a perception that earnings risk across the reporting season is more heavily weighted to the downside, it is difficult to see 2Q reporting as a positive catalyst for the group,” Deutsche Bank AG analysts said in a July 20 note.

The bank expects earnings across European integrated oil companies to drop 7 percent.

The 13 members of the New York Stock Exchange Arca Oil (XOI) Index, which includes Exxon, Shell and BP, fell an average 14.4 percent in the last 12 months.

BP, Europe’s second-largest oil company, is expected to be among the worst performers in the second quarter, posting a 14 percent drop in adjusted net income, according to analyst estimates compiled by Bloomberg. Maintenance work on production platforms in the Gulf of Mexico and delays starting up fields in Angola restrained output, according to Deutsche Bank. In refining and marketing, profit probably rose 10 percent.

24 Percent Drop

Shell had a better quarter than its London-based rival, driven by gains in production from new fields even as maintenance cut output from the Gulf of Mexico fields and the Pearl gas-to-liquids plant in Qatar.

In the U.S., analysts at Barclays Plc (BARC) said the largest companies probably earned 24 percent less than a year earlier because of the drop in oil and gas prices.

Chevron Corp., the second-largest U.S. producer, is expected to have earned $6.4 billion during the quarter, according to analysts’ estimates.

“Although oil remains elevated in absolute terms, Brent was down, while exploration and production volumes will be seasonally lower,” Nomura analysts led by Theepan Jothilingam said in a research note. “In the U.S., Henry Hub prices remained depressed throughout the quarter.” Henry Hub in Erath, Louisiana, is the delivery point for futures traded on the New York Mercantile Exchange.

Oil demand in U.S. and China, which together consume almost one-third of the world’s crude, stagnated at 28.2 million barrels a day, little changed from a year earlier, according the International Energy Agency.

To contact the reporters on this story: Will Kennedy in London at wkennedy3@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Maruti Suzuki Imposes Lockout at India Plant After Riot By Karthikeyan Sundaram and Siddharth Philip - Jul 23, 2012

Maruti Suzuki India Ltd. (MSIL), the country’s largest carmaker, fell in Mumbai trading after the company said it’s locking out a factory near New Delhi, pending the conclusion of a probe into a deadly riot last week.
The shares dropped as much as 5.4 percent to 1,085.90 rupees, leading India’s Sensitive Index lower. Suzuki Motor Corp. (7269), which owns a majority stake in Maruti Suzuki, declined as much as 2.9 percent to 1,381 yen in Tokyo trading.
Chairman R.C. Bhargava on July 21 ruled out an early resumption of the factory, which accounts for about 40 percent of the company’s manufacturing capacity, though he didn’t give an estimate as to how long the stoppage will last. Last week’s violence, which resulted in the death of a Maruti Suzuki general manager and at least 70 injuries, has led one of the nation’s biggest business lobbies to say the incident has undermined India’s reputation as an investment destination.
“It’s a matter of deep concern for a country that seeks to project itself as offering an environment that is business- friendly,” R.V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry, said in an e-mailed statement July 21, calling for authorities to deal “firmly” with the situation.
The automaker won’t import cars to make up for the loss of production at its Manesar factory, Bhargava told reporters in New Delhi July 21. The latest production stoppage is the fourth in the past year at Manesar factory.

Relocating Production

All 3,000 union workers at the plant will be charged with murder and attempted murder for the mob attack that caused the death of Awanish Kumar Dev, a human resources general manager, Indian police said July 19.
Maruti has no plans to relocate the plant out of Manesar in northern Haryana state, Bhargava said. A factory at Gurgaon, about 12 miles northeast of Manesar, is operating at full capacity, he said. Suzuki has said production facilities weren’t damaged by the unrest.
“This is bad news for Maruti as it may take as little as five days or as long as 50 days to identify the rogue elements in the workers who did this,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd. in Mumbai. “It also shows the trust deficit between the management and the workers. This lockout comes at a very efficient factory that produces some of Maruti’s most popular models.”

Bad Timing

The lockout comes amid a slowdown in car sales in India as high gasoline prices and interest rates deter buyers. The Society of Indian Automobile Manufacturers on July 10 cut its forecast for growth to a range of 9 percent to 11 percent for the year ending March 31, 2013, from an estimate of 10 percent to 12 percent given in April.
India’s economic growth slowed to the weakest in almost a decade in the quarter ended March and the rupee slumped to a record low amid a paralysis in policy making that has hurt efforts to spur investment as a global recovery falters. The government’s recent setbacks include the December suspension of plans to let foreign companies such as Wal-Mart Stores Inc. (WMT) open supermarkets, and abandoning of plans to allow investment in the pension and insurance industries.
The rioting at Maruti “may definitely impact the investment in India in the short run,” Malvinder Singh, chairman of the Confederation of Indian Industry’s northern region, said on July 20.

Minister Visit

Narendra Modi, chief minister of India’s Gujarat state, who’s on a visit to Japan, will meet Suzuki officials at Hamamatsu on July 25, according to an e-mailed statement. Modi’s visit has fueled speculation that he would convince Maruti Suzuki to consider a bigger plant than the 250,000-unit it has announced in the state, the Press Trust of India reported July 20.
Shinzo Nakanishi, managing director of Maruti, said July 21 that Suzuki is expanding in Gujarat, not shifting production there.
Maruti’s board in October approved buying as much as 1,400 acres (567 hectares) of land for future expansion in Gujarat, where General Motors Co. (GM), Tata Motors Ltd. (TTMT) and Ford Motor Co. (F) either have plants or are building factories.
Gujarat’s Minister of State for Industries Saurabh Patel said media reports that Maruti may shift parts of its Manesar plant to the state was “far from truth and a figment of imagination.” Maruti’s decision to invest in Gujarat was made long ago, he said in a statement on government’s website.

Blame Game

Maruti and the workers’ union have blamed each other for the Manesar incident.
According to Maruti, the dispute began July 18 after a worker beat up a supervisor on the shop floor. The union then prevented management from taking disciplinary action, blocking managers from leaving the factory after work, Maruti Suzuki said. Workers attacked managers after talks to resolve the dispute failed, with employees setting property on fire and ransacking offices, according to the company.
The union has said it was keen to have a dialogue with the company to resolve the matter and that workers were attacked by bouncers working for Maruti while discussions were ongoing with guild leaders.
“Following the incidents of violence and arson at the Manesar facility, the management believes that if employees are asked to report for work at the facility, their lives will be endangered,” Maruti said in an e-mailed statement on July 21.
Ram Meher Singh, president of the Maruti Suzuki Workers Union, and Sarabjeet Singh, the general secretary, could not be reached for comments yesterday as their mobile phones were switched off.
To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Reliance Profit Declines on Refining Margin, Lower Gas Output

By Rakteem Katakey - Jul 20, 2012

Reliance Industries Ltd. (RIL), operator of the world’s biggest oil refining complex, reported profit slumped for the third straight quarter on declining natural gas output in India and reduced earnings from fuel sales.
Net income fell 21 percent to 44.7 billion rupees ($809 million) in the three months ended June 30, according to a stock exchange filing yesterday. The median estimate of 28 analysts compiled by Bloomberg was 43.7 billion rupees. Net sales rose 13 percent to 918.8 billion rupees.
Declining earnings have cost Mumbai-based Reliance its position as India’s biggest company by market value. Lower demand for fuels following the European debt crisis and global economic slowdown and reduced output at Reliance’s largest natural gas deposit threaten billionaire Chairman Mukesh Ambani’s target of doubling operating profit within five years.
“Operations are still weak and the outlook for gas output and refining continue to be difficult,” said Juergen Maier, a fund manager in Vienna at Raiffeisen Capital Management, which manages about $1.1 billion in emerging-market assets, including Indian stocks. “Globally economies are slowing down, which makes it difficult to improve the margin for refining.”
Reliance shares fell 0.7 percent to 722.65 rupees at the close yesterday in Mumbai, giving the company a market value of about $43 billion, the third-highest among India’s listed companies. The stock has gained 4.3 percent this year, lagging behind the 11 percent increase in the benchmark Sensitive Index. (SENSEX)

Refining Margin

Daiwa Securities Co. and Antique Stock Broking Ltd. reduced the stock to hold last month. Reliance has eight sell ratings by analysts, 18 holds and 26 buys, according to data compiled by Bloomberg. The number of buy recommendations has dropped to 50 percent of the total, the lowest since December 2010.
Europe’s debt crisis and a slowdown in China’s economy have cut fuel demand, narrowing refining margins for companies including Reliance and China Petroleum & Chemical Corp. (600028) China, the world’s second-biggest oil consumer, has cut local fuel prices three times since May, reducing profit for refiners including PetroChina Co.
Reliance made a profit of $7.6 on every barrel of crude it processed into fuels in the quarter, compared with $10.3 a barrel a year earlier, the company said in a statement.
Profit from turning Dubai crude into fuels in Singapore, a regional benchmark, averaged $3.37 a barrel in the quarter, compared with $5.16 a barrel a year earlier and $4.61 in the preceding quarter, according to data compiled by Bloomberg. The refining margin turned to a loss of 19 cents on June 29, the lowest since Nov. 15, 2010.

Low-Grade Crude

Reliance’s two adjacent refining plants at Jamnagar in the western state of Gujarat can turn a combined 1.24 million barrels of crude into fuels daily. The facilities are capable of turning cheap, low-grade crude into high-value fuels. A narrowing difference between lighter crude oil, which is typically expensive, and heavier varieties that are cheaper, hurts Reliance’s earnings.
The average difference between light Brent crude oil and heavier Dubai oil was $2.53 a barrel in the quarter ended June 30, compared with $6.06 a year earlier, according to PVM Oil Associates Ltd., a London-based crude and refined-products broker. The spread fell to $1.37 a barrel on June 12, the lowest since March 15.

Spending Plan

Reliance is spending $8 billion to boost petrochemical capacity and $4 billion on a plant to make a combustible gas to power its refineries, according to an April 20 presentation on its website. The gas plant will widen its refining margin by as much as 40 percent in three years by cutting the use of more expensive imported gas, Ambani told shareholders June 7.
Reliance had cash and equivalents of 707.32 billion rupees as of June 30, the company said in the statement. Debt stood at 732.13 billion rupees.
Reliance is also struggling to raise output from its gas field, off the east coast in the Bay of Bengal. Niko Resources Ltd. (NKO), which owns a 10 percent stake in the KG-D6 block, cut the estimate for its share of proved and probable gas reserves to 193 billion cubic feet as of March 31, according to a June 20 statement, which didn’t provide year-earlier figures.
Reliance had 104 billion cubic meters, or 3.7 trillion cubic feet, of proved gas reserves at all its assets as of March 31, according to its annual report. The explorer reduced its estimate of reserves by 6.7 percent, or 12.4 billion cubic meters, according to the report.
Gas output from KG-D6 fell 33.1 percent to 104.4 billion cubic feet in the quarter because of technical difficulties in the reservoir, Reliance said.
Reliance plans to invest 1 trillion rupees in the company’s Indian assets, including petrochemicals and telecommunications, in the next five years to double operating profit, Ambani told shareholders on June 7.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Weakest Monsoon Since 2009 to Shrink India Rice Harvest

The rice harvest in India, the world’s second-biggest producer, is set to drop from an all-time high as the weakest monsoon in three years slows planting, potentially boosting global prices. Futures climbed for the first time in four days.
“It will be difficult to match last year’s record rice production,” said Samarendu Mohanty, a senior economist at the International Rice Research Institute in Manila. Output was 104.3 million tons in the year ended June 30.
A 22 percent shortfall in monsoon rains delayed sowing of crops from rice to cotton, stoking a rally in commodity prices and threatening to accelerate India’s inflation that exceeded 7 percent for a fifth straight month in June. Dry weather from the U.S. to Australia has parched fields, pushing up corn, wheat and soybean prices on concern global supplies will be curbed. Costly rice, staple for half the world, may increase global food prices forecast by the United Nations to advance this month.
“The whole grains complex of wheat, corns, soybeans are forcing rice prices higher as well,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity- markets newsletter in Sydney. “Indian production is very important for the market.”
Rice planting in India dropped 19 percent to 9.68 million hectares (24 million acres) this year from 12.04 million hectares a year earlier, the farm ministry said July 13. The country is estimated to export 8 million tons of rice in 2011-2012, according to the U.S. Department of Agriculture, accounting for about 25 percent of the global trade.

FAO Forecast

World grain production will be lower in 2012 than expected a month ago, the United Nations’ Food & Agriculture Organization said July 5. Farmers across the world will harvest 2.4 billion tons of grain this year, 23 million tons less than forecast on June 7, it said. A drop in the Indian harvest “will have an impact on global prices” this year, Mohanty said in an e-mail.
Rice for September delivery rose 1.2 percent to $15.68 per 100 pounds on the Chicago Board of Trade by 2:09 p.m. in Mumbai. Futures, which reached a two-month high of $15.765 on July 16, have advanced 5.5 percent this year.
A smaller Indian crop and potential curbs on exports may help Thailand, the world’s biggest shipper, boost sales, rice institute’s Mohanty said.
Thailand’s government has bought 9.5 million tons of unmilled rice from farmers between March 1 and July 9 under a state purchase program, the ministry of commerce said July 10.

Export Review

India will review its farm-good export rules after 15 days and consider setting limits on food crops that traders can stockpile to check a rally in prices of oilseeds and grain, Food Minister K.V. Thomas said July 18.
“With the monsoon playing hide and seek, it is a challenge for our farmers and scientists to maintain the food-grain output achieved in last two years,” Farm Minister Sharad Pawar said July 16 in New Delhi. The country won’t ban exports of rice and wheat as it has ample stockpiles, he said.
Monsoon, which accounts for more than 70 percent of India’s annual rainfall, is the worst since 2009 when showers were 22 percent less than a 50-year average. Rainfall in July, the wettest month in the June-September rainy season, may miss a June forecast for a normal rain, L.S. Rathore, director general of the India Meteorological Department, said July 16.
Food-grain production reached a record 257.44 million tons in the year ended June 30 after a second year of normal rains boosted harvests, the farm ministry said July 17. That prompted the government to lift curbs on exports of the grains last year. Non-basmati shipments totaled 5.25 million tons since September, according to the food ministry.

‘Happy Situation’

State reserves of rice are more than double the amount required to run welfare programs and emergencies and the government should take advantage of the price-rally to boost exports, said Atul Chaturvedi, chief executive of Adani Wilmar Ltd. Rice inventory was 30.7 million tons, compared with 26.9 million tons a year earlier, government data showed.
“In this scenario of rising prices, India is actually in a happy situation,” Chaturvedi said. “India should sell more rice and wheat in the global market to benefit from the rally in prices. The government should not ban exports.”
More than 235 million farmers depend on the monsoon for crops such as rice, peanuts, soybean and cotton. Sowing of monsoon crops begins in June and harvesting starts in September.
To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Bloomberry Poaches Filipinos in Macau for Casino: Southeast Asia By Clarissa Batino and Norman P. Aquino - Jul 19, 2012

Bloomberry Resorts Corp. (BLOOM) is poaching Filipino talent from Macau as it prepares to lure Chinese gamblers from the world’s largest gaming hub to its $1 billion casino resort in Manila.

The company has already enticed more than 400 Philippine nationals from Macau and Singapore to work at its Solaire Manila Resort & Casino, which will target Chinese and local players, Chief Operating Officer Michael French said in a July 18 interview. Solaire needs as many as 4,500 workers and will open in the first quarter of 2013.

Solaire’s recruitment efforts show how Macau faces rising competition for casino workers and high-stake gamblers from smaller hubs such as the Philippines and Singapore. Visitors from mainland China boosted revenue in the former Portuguese colony by 42 percent to $34 billion in 2011, as casino operators from Las Vegas Sands Corp. (LVS) to Wynn Resorts Ltd. (WYNN) expanded.

“A Chinese high-roller is used to a style in Macau,” said French, referring to high-stake betters. “So why not hire someone who has been in that market for two or three years, who knows how these gamers think, understands the service style and the mentality of the Chinese gamer, and bring them back?”

The Philippine casino market is set to expand into a $3 billion industry by 2015 from $1.3 billion last year, CLSA Asia- Pacific Markets estimates.

“The Philippines’ gain is Macau’s loss,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. (BDO) in Manila, of Solaire’s push to draw more workers from Macau.

Talent Shortage

The jobless rate in the former Portuguese colony of about 500,000 people is 2 percent, the lowest since Bloomberg began tracking the data in 2002, making it harder for local casino operators to find workers. By contrast, the Philippine unemployment rate was 6.9 percent in June.

Bloomberry holds one of four licenses the Philippines awarded to operate gambling and hotel complexes in the 110- hectare (272-acre) Entertainment City Manila. Japanese billionaire Kazuo Okada, Genting Hong Kong Ltd. (GENHK) and the SM Group of the Philippines’ richest man Henry Sy also have permits.

The company’s loss widened to 99 million pesos ($2.4 million) in the first two months of 2012 from 17.51 million pesos a year earlier as costs rose more than sixfold. The stock is down 66 percent this year amid plans to sell more shares to meet regulatory rules on the public ownership of companies.

Among Macau casino operators, Sands China (1928) Ltd. is up 7.3 percent, SJM Holdings Ltd. (880) has gained 13 percent and MGM China Holdings Ltd. (2282) has added 10 percent.

Even Split

Locals will make up a majority of Bloomberry’s patrons in the first year, and it will take two years to three years to increase the share of international gamblers, French said. His ideal client mix is an even split of local and foreign gamblers, who are mostly interested in high-stakes betting. Such high- rollers can bet as much as $1 million per trip and at times, per hand in baccarat, he estimates.

Philippine casinos such as Bloomberry “won’t probably get the top high rollers,” said Richard Laneda, an analyst at Manila-based CitisecOnline. “But these can bring in the lower end of the VIP market in Macau or Singapore.”

Philippine billionaire Enrique Razon, Bloomberry’s chairman, said on June 25 that the company will compete with integrated casino resorts in Macau, Singapore and other developments in Asia. Entertainment City Manila can in a shorter period surpass the gains made by Singapore, where the gaming industry generated $6.5 billion in revenue in 2011, Razon said at that time.

Lower Tax Rate

A lower charge or levy for casino operators in the Philippines than in Macau and Singapore will help Bloomberry and other Manila casinos, French said in the interview. The Philippines collects a regulatory fee of 15 percent to 17 percent on revenue from so-called high rollers compared with Macau’s 40 percent and Singapore’s 25 percent, he estimates.

Manila is also more accessible than Macau, and improvements in infrastructure and rising investor confidence should bolster its allure, he said.

The Philippines estimates the Manila casino development will add 1 million tourists each year and employ 40,000. Bloomberry plans to hold one more job fair each in Macau and Singapore to fill the remaining 150 management positions in the group, targeting Filipinos who have gained experience working in casinos, hotels and luxury liners, French said.

Overseas Filipinos

About 1.3 million citizens left the Philippines last year for jobs overseas, according to government data. Money Filipinos abroad sent home made up almost 10 percent of the economy that grew to $225 billion last year.

The country’s economy grew 6.4 percent in the first quarter, the fastest pace in Southeast Asia. Economic expansion in the three months ended June remained healthy, central bank Governor Amando Tetangco said on July 13.

Money sent home by more than 9.4 million Filipinos abroad is the Philippines’ largest source of foreign exchange after exports. Cash transfers climbed to a record $20.1 billion in 2011 and the central bank expects remittances to rise 5 percent this year.

Bloomberry is bringing in Filipinos with at least two years of experience and an understanding of the business, French said.

Solaire’s senior vice president for gaming operations is a returning Filipino who has worked for hotels in the Chinese city and Singapore, and its director for hotel services comes from Macau operator Galaxy Entertainment Group Ltd. (27), French said. Its vice president for table games is a Filipina coming home after years overseas.

“This is not a case of a bunch of expatriates running the company,” French said. “We’re bringing in Filipinos who understand the business and these are world-class folk.”

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net Norman P. Aquino in Manila at naquino1@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net Lars Klemming at lklemming@bloomberg.net

Jindal to Invest $6.3 Billion as Bolivia Fails: Corporate India By Rajesh Kumar Singh - Jul 18, 2012

Jindal Steel & Power Ltd. (JSP), India’s second-biggest steelmaker by value, will spend 350 billion rupees ($6.3 billion) to expand production at home and in Oman after scrapping a deal to develop a Bolivian iron ore mine.

Factory capacity will more than quadruple to 13 million metric tons by 2015, V.R. Sharma, chief executive officer of the steel business, said yesterday in a phone interview. The company, which runs a 3 million ton-a-year mill in India’s central state of Chhattisgarh, is building a 5 million ton plant in the eastern state of Orissa, a 3 million ton mill in Jharkhand and a 2 million ton facility in Oman, he said.

Jindal, run by billionaire lawmaker Naveen Jindal, said June 17 it terminated a contract to build the $2.1 billion El Mutun mine, joining Tata Steel Ltd. (TATA) and Steel Authority of India Ltd. (SAIL) in failing to develop projects overseas. Indian steelmakers have sought resources in Africa, Canada, the U.S. and Australia and explored markets in Europe, the Middle East and Southeast Asia to set up new capacity.

“The termination of the Bolivian project is positive for the company as it will help divert investments to more fruitful projects,” said Niraj Shah, an analyst at Mumbai-based Fortune Equity Brokers India. “It was surprising how Jindal got such a big deposit without any competition from mining heavyweights BHP Billiton Ltd. (BHP) and Rio Tinto. It always looked fraught with risk.”

Shah, who has a buy recommendation on the stock, said he did not count the Bolivian project in its valuation.

The shares of New Delhi-based Jindal rallied 2.6 percent to 426.55 rupees at the close in Mumbai yesterday. The stock has declined 5.9 percent this year, compared with an 11 percent gain in the benchmark Sensitive Index. (SENSEX)

‘Not Smooth’

“There are challenges in India, but things are not smooth elsewhere either,” Sharma, 59, said. “The growth markets for steel are India and Southeast Asia and our projects are well placed to feed this market.”

Jindal signed an accord in 2007 with the Bolivian government to develop 20 billion tons of iron ore reserves at El Mutun, build a 1.7 million ton steel mill, a sponge iron plant and an iron pellet factory. India’s iron ore reserves total about 8 billion tons.

Jindal, which has already spent about 150 billion rupees on the new projects, will buy iron ore fines from miners in India, including NMDC Ltd. (NMDC), and convert it into pellets for use in the furnaces, Sharma said. Unlike most of its rivals, Jindal operates a pellet plant and is building two more to expand its capacity for turning fines into pellets.

Tax, Freight

Iron ore fines, dust that currently does not find a market in India, comprise more than 90 percent of the nation’s iron ore exports. An increase in export duty and railway freight and a drop in prices of iron ore are hampering overseas sales, said R.K. Sharma, secretary general at the Federation of Indian Mineral Industries, a lobby group for the mining industry.

“Miners will be seeking more and more customers within the country,” Sharma said in an interview.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin fell 0.9 percent to $128.30 a ton yesterday, the lowest price since Nov. 8, according to data from The Steel Index Ltd. Prices are down 7.4 percent this year. Iron ore will average $143 a ton this year, with the short-term outlook dependent on economic stimulus from China, the world’s largest importer, researcher Wood Mackenzie Ltd. said.

Price Volatility

Jindal’s strategy to buy its entire iron ore requirement from external suppliers will expose the company to price volatility and uncertain shipments, said Giriraj Daga, an analyst with Nirmal Bang Securities Ltd. in Mumbai. The stock has suffered also because of the company’s failure to secure coal supplies for its steel and power businesses, he said.

“You don’t think of making money from a steel plant which is totally dependent on the market for iron ore,” Daga said.

While demand for cars, houses and appliances is stoking steel consumption in India, work on new capacity has slowed because of farmer opposition to land acquisition and delays in environmental and mining approvals. Local projects by producers such as Steel Authority of India, Tata Steel and Essar Steel Ltd. have been delayed and face cost overruns, said A.S. Firoz, chief economist at the steel ministry.

“The constraints are numerous and there’s no change except for further deepening of some of the problems over the past few months,” Firoz said in a telephone interview. “Companies are facing difficulties in getting land, capital, raw material and skilled labor.”

Power Delay

The Bolivian setback also comes at a time when Jindal’s plan to expand its power business is facing delays because of the slow pace of government clearances and inadequate fuel supplies.

A lack of coal and gas has prompted Indian power-generation companies, including Adani Power Ltd., GVK Power & Infrastructure Ltd. and Reliance Power Ltd. (RPWR), to defer projects with a total capacity of 42 gigawatts. NTPC Ltd. (NTPC), the nation’s biggest generator, has scaled back plans to add coal-fired capacity by 42 percent in the five years ending 2017.

Jindal is racing to add 1,200 megawatts of generation capacity at Chhattisgarh, half of the planned expansion at the site, to avail tax breaks valid until March 2013, according to Nirmal Bang Securities’ Daga. Operating income from Jindal’s power business was lower than from the steel operations in the year ended March 31, the first time in four years.

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net