Gold Holds Near One-Month Low Amid Record Holdings, Dollar Gains By Glenys Sim - Dec 5, 2012

Gold traded little changed after declining to a one-month low as investors’ boosted holdings in exchange-traded products to the highest ever, countering the impact of a stronger dollar.
Spot gold was at $1,692.70 at 9:25 a.m. in Singapore after falling to $1,684.93 yesterday, the least expensive since Nov. 6, as the dollar rallied on speculation that U.S. lawmakers will reach a budget agreement. Holdings in ETPs climbed to 2,627.59 metric tons yesterday, data compiled by Bloomberg show.
A few dozen Republicans joined a bipartisan call to break an impasse between President Barack Obama and House Speaker John Boehner to avoid spending cuts and tax increases in January, known as the fiscal cliff. The Dollar Index, which tracks the greenback against six major partners, halted its longest slump in more than a year yesterday and gained 0.2 percent today.
“Markets are being held hostage by progress on the fiscal cliff in the U.S.,” said Feng Liang, an analyst at GF Futures Co., a unit of the nation’s third-biggest listed brokerage. “There are still bargain hunters for gold below $1,700.”
Gold will probably peak in 2013 and keep declining the following year as U.S. growth accelerates, Goldman Sachs Group Inc. said yesterday. Bullion will be at $1,825 in three months, $1,805 in six months and $1,800 in a year, it said, lowering its three-month forecast from $1,840 and its six- and 12-month outlooks from $1,940, Goldman said in a report.
Gold for December delivery gained as much as 0.2 percent to $1,697.80 an ounce on the Comex in New York, before trading at $1,696.30. The contract slipped to $1,686 yesterday, also the lowest level since Nov. 6.
Cash silver fell for a third day, losing 0.2 percent to $32.8038 an ounce. Spot platinum dropped 0.3 percent to $1,578 an ounce after touching a two-week low of $1,571.15 yesterday. Palladium was little changed at $685.50 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Asian Stocks Swing From Loss to Gain on U.S. Budget Talks

By Jonathan Burgos and Adam Haigh - Dec 4, 2012

Asian stocks swung between gains and losses as President Barack Obama held his ground on raising tax rates for the highest-income Americans, bringing the U.S. budget talks into a stalemate. Ping An Insurance (Group) Co. advanced as HSBC Holdings Plc agreed to sell its stake.
Honda Motor Co. (7267), a Japanese carmaker that gets about 44 percent of sales from North America, declined 1 percent. Western Areas NL sank 4.9 percent in Sydney after the nickel sulphide producer raised A$50 million ($52.4 million) selling shares at a discount. Ping An rose 3.8 percent in Hong Kong after HSBC agreed to sell its entire 15.6 percent stake in China’s second- largest insurer to Thailand’s Charoen Pokphand Group Co. for $9.4 billion.
The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 125.03 as of 11:32 a.m. in Tokyo, erasing losses of as much as 0.3 percent. Almost two shares rose for each that fell on the gauge. The measure advanced last month amid signs China’s economic slowdown may be ending and optimism U.S. lawmakers would agree on a budget deal to avert the so-called fiscal cliff, which would result in more than $600 billion in tax increases and spending cuts taking effect next month.
“The fiscal cliff has the potential to frighten the market until the end of the year, but I don’t think it’ll be substantially surprising,” said Peter Esho, chief market strategist at City Index Ltd., a provider of equities, bonds and currency trading in Sydney. “The market’s consolidating after a good run.”
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Record Brazil Coffee Crop Cuts Costs for Starbucks: Commodities By Marvin G. Perez and Patricia Laya - Dec 3, 2012

Record coffee harvests in Brazil, the biggest grower, are compounding a global glut of arabica used by Starbucks Corp. (SBUX) and Dunkin’ Donuts Inc.
Brazilian farmers will reap 50.8 million bags in 2013, a record for a so-called low-crop season, according to the median of nine analyst estimates compiled by Bloomberg. The harvest reached 55.9 million 60-kilogram (132-pound) bags in 2012, an all-time high for a peak year. Output usually drops in alternate years because of growing cycles. Prices may fall 13 percent to $1.311 a pound by June 30, the average of 14 predictions shows.
Futures slumped about 50 percent since May 2011, as the highest prices in 14 years spurred Brazilian farmers to boost supply. Their exports jumped 54 percent to $8.7 billion in 2011. The flood of beans has continued and stockpiles tracked by the ICE Futures U.S. exchange are headed for the biggest annual gain in more than a decade. Rising costs and concern that economies are slowing encouraged roasters and consumers to favor cheaper robusta beans.
“There’s a significant crop coming from Brazil if the weather continues to be favorable,” said Claudio Oliveira, the head of trading at Castlestone Management LLC in New York, which manages about $500 million of assets. “Abundant supply is the driving force in the market.”

Worst Performer

Futures fell 34 percent to $1.507 this year, the biggest retreat of the 24 commodities tracked by Standard & Poor’s GSCI Spot Index, which gained 0.9 percent. Most agricultural products advanced this year, with records in corn and soybeans as drought parched crops from Australia to Russia to the U.S. The MSCI All- Country World Index of equities rose 11 percent. Treasuries returned 2.7 percent as of Nov. 30, a Bank of America Corp. index shows.
Brazil had record harvests in two of the past three seasons, almost doubling output in about a decade and now accounting for 38 percent of global supply, U.S. Department of Agriculture data show. About 72 percent of the country’s crop was arabica this year and the rest robusta, typically used in espressos.
Minas Gerais, Brazil’s top arabica-growing state, harvested 25.87 bags per hectare this year, up from 18.75 bags in 2004, according to Conab, the government’s crop forecasting agency. That’s adding to a global crop the USDA estimates will expand 7.5 percent to a record 147.9 million bags this season.

Frost Risks

Frost during Brazil’s winter in June and July may limit the drop in prices, said Marco Antonio dos Santos, an agronomist with Sao Paulo-based forecaster Somar Meteorologia. The last severe frost to limit output was in 1994, when a low-season harvest plunged 36 percent the following season, according to data from the International Coffee Organization in London.
“A lot of the optimism about Brazil’s crop has pretty much been factored in, and any weather disturbances could take off 3 to 4 million bags,” said James Cordier, the Tampa, Florida- based founder of Optionsellers.com, a Commodity Trading Advisor.
Economic stimulus by central banks and governments from China to Europe to the U.S. also may revive global growth and boost demand for all commodities, said Kona Haque, an analyst with Macquarie Bank Ltd. in London. Some markets are already expanding, including in Brazil itself, where consumption jumped 12 percent in the three years to 2011, ICO data show.
Arabica cost almost three times more than robusta by September 2011, from a premium of about 39 percent in 2008. That’s since narrowed to about 74 percent as roasters switched blends to use the cheaper beans. Robusta traded on London’s NYSE Liffe exchange rallied 5.4 percent to $1,907 a metric ton (86.5 cents a pound) this year.

Robusta Switch

Robusta will rise to 46 percent of global coffee demand this year, from 40 percent in 2010, according to Volcafe. Consumption of the cheaper bean will rise 6 percent to 66.6 million bags this season as arabica advances 1 percent to 78.6 million, the Winterthur, Switzerland-based company estimates.
The demand is encouraging more robusta supply, which Volcafe predicts will exceed demand by 1.4 million bags in 2012-2013, led by gains from Vietnam and Indonesia. Arabica output will surpass consumption by 6.3 million bags, Volcafe estimates.
Hedge funds and other large speculators had their most bearish bets on arabica since at least 2006 in the week ended Nov. 20, U.S. Commodity Futures Trading Commission data show. They have been wagering on lower prices in all but two weeks since February.

OECD Estimate

The 34-member Organization for Economic Cooperation and Development warned of the risk of a “major” global recession on Nov. 27, and the International Monetary Fund has cuts 2013 global growth forecasts twice since July, to 3.6 percent. Growth in coffee consumption will slow to 2 percent this year, from 4.5 percent in 2011, according to the USDA.
The 17-nation euro area tumbled back into recession last quarter, and economists surveyed by Bloomberg expect Japan to do the same this quarter. U.S. leaders have yet to resolve the so- called fiscal cliff of automatic taxes rises and spending cuts, which the Congressional Budget Office has warned risks shrinking the world’s biggest economy.
While that may be slowing growth in coffee consumption, it’s also lowering prices. Starbucks, the world’s largest coffee-shop owner, will have “significantly lower” costs at the end of its fiscal year in September than at the start, Chief Financial Officer Troy Alstead told analysts on a conference call Nov. 1. The Seattle-based company expects to save $100 million this year from “favorable commodity costs,” he said. Shares of the company advanced 13 percent this year.

Folgers Brand

J.M. Smucker Co. (SJM), the maker of the Folgers brand, expects lower costs for commodities including coffee to be “favorable” for earnings, CFO Mark R. Belgya told investors Nov. 16. The Orrville, Ohio-based company will report an 18 percent gain in net income to $541.8 million in its fiscal year ending in April, the mean of eight analyst estimates compiled by Bloomberg show. Shares of the company rose 14 percent this year.
More sales and lower commodity prices are helping franchisees to be “more profitable than ever,” Nigel Travis, Chief Executive Officer of Canton, Massachusetts-based Dunkin’ Brands Group Inc. (DNKN) told investors Oct. 25. The fast-food chain, with more than 10,000 stores, sells about 1.5 billion cups of coffee a year and buys only arabica.
“When you go back a few years, except for a few spikes in the middle of last year, coffee likes to be between $1 and $1.20,” said Michael Smith, the president of T&K Futures and Options in Port St. Lucie, Florida. “We’re way above the mean of where it’s supposed to be. I think it could come down to a $1 in the first quarter of next year.”
To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net; Patricia Laya in New York at playa2@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

Hedge Funds Increase Bullish Bets Most Since August: Commodities By Elizabeth Campbell - Dec 2, 2012

Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.
Speculators and money manager increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.9 percent in November, the first monthly gain since August.
The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The U.S. probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed.
“I wouldn’t say that it was a green light all ahead for commodities, but the market is turning slowly based primarily on improved real numbers out of China that outweigh slowdowns in Europe and the U.S.,” said Adrian Day, who manages about $170 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. China is “overwhelmingly the most important factor,” he said.

Price Gains

The S&P GSCI rose less than 0.1 percent last week, led by gains in industrial metals and agriculture. The MSCI All-Country World Index of equities advanced 0.9 percent and the dollar fell 0.1 percent against a basket of six trading partners. Treasuries returned 0.4 percent, a Bank of America Corp. index shows.
The U.S. economy, the world’s biggest, expanded 2.7 percent in the three months ended Sept. 30, more than economists forecast, according to Commerce Department data on Nov. 29. The S&P/Case-Shiller index of property values in 20 U.S. cities showed that home prices in the 12 months ended September advanced by the most since July 2010.
Confidence in China’s economy rose to the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will improve the financial climate, according to the Bloomberg investor poll. Manufacturing in the country rose to the highest level in seven months in November, the National Bureau of Statistics said Dec. 1.

Tax Deadlock

A deadlock between President Barack Obama and Republicans in Congress over $600 billion in spending cuts and tax increases has extended over a year. Missing the deadline at the end of December means the economy goes over the so-called fiscal cliff and probably will tumble into a recession, the Congressional Budget Office reiterated Nov. 8.
“Until investors see the big overall grand bargain, investor sentiment and business decision-making will be somewhat uncertain,” said Chad Morganlander, a Florham Park, New Jersey- based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “It just means that there’s going to be a lackluster demand for commodities with very little reacceleration of economic activity.”

Debt Crisis

Germany, Europe’s largest economy, probably will face a recession as the sovereign-debt crisis roiling its neighbors extends into 2013, according to the Bloomberg Global Poll. About 18 percent of global copper demand comes from Europe, and the region consumes 22 percent of the world’s oil, according to estimates from Barclays and BP Plc. The 17-nation euro zone fell back into recession in the third quarter.
Money managers withdrew $42 million from non-precious-metal commodity funds in the week ended Nov. 28, according to Cameron Brandt, the director of research for Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious- metal funds had a net inflow of $530 million. Investors raised bets on a gold rally by 13 percent to the highest since Oct. 16, CFTC data show. Silver holdings climbed 12 percent.
Holdings in exchange-traded products backed by gold rose to a record for an 11th day Nov. 30. U.S. Mint sales of American Eagle gold coins more than doubled in November to the highest since July 2010. The metal has advanced 9.3 percent this year, headed for a 12th annual gain.

Farm Goods

A measure of net-longs for 11 U.S. farm goods rose 9.1 percent, the biggest gain since Oct. 23, CFTC data show. The Standard & Poor’s GSCI Agriculture Index of eight farm products jumped 0.8 percent last week, the second consecutive increase.
Bullish bets on cattle more than doubled to the highest since Sept. 18. Futures jumped to a record $1.32925 a pound on Nov. 23 in Chicago trading amid shrinking supplies of beef and rising demand. The U.S. cattle herd was the smallest since at least 1973 as of July 1 as ranchers culled animals during the worst drought since 1956.
Corn holdings rose 2.7 percent to the highest since Oct. 23, and wagers on a wheat rally surged 35 percent, the biggest increase since June 26, CFTC data show. Wheat futures jumped 32 percent this year in Chicago as dry weather cut global production to a five-year low.
“The global economy continues to expand next year,” said Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. “Commodities will not have a ‘shoot the lights out’ year but it should be a profitable year for commodities.”
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan in New York at pmckiernan@bloomberg.net

Indian Stocks Climb to 19-Month High on Reforms, Growth Outlook By Rajhkumar K Shaaw - Nov 30, 2012

Indian stocks climbed to a 19-month high on optimism the government will extend an economic-policy overhaul to bolster investment after growth slowed last quarter to match a three-year low.
The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.9 percent to 19,339.90 at the close, taking this month’s advance to 4.5 percent. Volumes on the measure were almost triple the 30-day average, data compiled by Bloomberg show. Housing Development Finance Corp. (HDFC), the biggest mortgage lender, extended gains from a record. Bharat Heavy Electricals Ltd. (BHEL) and Jindal Steel & Power Ltd. (JSP) jumped more than 5 percent each.
Data today showed gross domestic product grew 5.3 percent in the three months to Sept. 30 from a year ago, in line with the median of 42 estimates in a Bloomberg survey and down from 5.5 percent in the previous quarter. The government yesterday agreed to opposition demands for a vote on its plan to allow overseas companies to set up supermarkets, paving way for the functioning of parliament after four days of adjournments.
“The market is playing for the next fiscal year and the measures the government is trying to push will bear fruit going forward,” said Shishir Bajpai, senior vice president at IIFL Wealth Management Ltd. in Mumbai. “There is intent from the government on economic reforms.” IIFL has $1.8 billion in stocks under management and advisory.

Foreign Fund Purchases

The Sensex has increased 25 percent this year, driven by foreign flows and economic policy measures. Offshore investors bought $360 million more local stocks than they sold yesterday, the most in two months, taking monthly inflows to $1.7 billion, exchange data show. They have purchased a net $19.8 billion of shares this year, the highest among 10 Asian markets tracked by Bloomberg, excluding China, the data show.
The flows propelled the local currency to its first weekly gain since October. The rupee advanced 2.3 percent this week to 54.2650 per dollar, paring its loss in November to 0.8 percent.
Housing Development Finance, the biggest mortgage lender, soared 2.6 percent to 843.50 rupees. ICICI Bank Ltd. (ICICIBC), the No.3 lender by value, added 1.7 percent to 1,099.85 rupees. State Bank of India, the second-largest by market value, added 1.8 percent to 2,170.3 rupees. The 14-member Bankex index increased 1.5 percent to its highest level since December 2010.
“If the economy improves then the stress on their balance sheets comes down,” IIFL’s Bajpai said. “Banks’ earnings will further improve if non-performing assets come down.”

Metal Producers

Sterlite Industries (India) Ltd. (STLT), the biggest copper and zinc producer, surged 3 percent to 108.55 rupees, extending this week’s rally to 12.5 percent, the best performer among the 30 Sensex stocks. Aluminum maker Hindalco Industries Ltd. (HNDL) rose 3.1 percent to 116.6 rupees. Tata Steel Ltd. (TATA), the largest producer of the alloy, gained 2.5 percent to 386.2 rupees.
Bharat Heavy, the biggest power-equipment maker, jumped 5.5 percent to 234.35 rupees, its steepest climb since Oct. 4. Jindal Steel rallied 5.8 percent to 403.05 rupees. Oil & Natural Gas Corp. (ONGC), the largest state-owned oil explorer, soared 4.4 percent to 264.95 rupees, erasing this year’s loss.
The Sensex is the second-best performer since Jan. 1 among global benchmark gauges with at least $1 trillion in market value, data compiled by Bloomberg show. The measure has fallen in December only once in the past nine years, the data show.
“The momentum is with the market and there are a lot of tailwinds like reform expectations and foreign inflows,” Dilip Bhat, joint managing director of Prabhudas Lilladher Pvt., told Bloomberg TV India today.

Moody’s, Goldman

Prime Minister Manmohan Singh’s government, striving to avert a credit-rating downgrade, snapped months of paralysis in September by curbing fuel subsidies and giving retailers such as Wal-Mart Stores Inc. the chance to set up stores.
Opposition led by the Bharatiya Janata Party accused the government of reneging on a promise to win legislative support for the retail policy. Singh’s administration gave ground after talks with allies and regional parties that have signaled they are unlikely to vote against the ruling bloc.
Moody’s Investors Service maintained its stable outlook on India’s investment-grade credit rating and Goldman Sachs Group Inc. yesterday raised local shares to overweight.
The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of India Ltd. added 0.9 percent to 5,879.85. The 50-stock measure will reach 6,600 by December next year, Goldman said, joining Morgan Stanley and JPMorgan Chase & Co. in predicting a positive outlook for Indian equities for 2013.
The Sensex may rally to 23,069 by December 2013, Morgan Stanley analysts led by Ridham Desai wrote in a Nov. 26 report. JPMorgan said Nov. 19 that Indian stocks are its top selection among the so-called BRIC nations next year.
The Sensex is valued at 15.8 times estimated earnings, compared with the MSCI Emerging Markets Index’s 11.7 times, according to data compiled by Bloomberg.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Indonesia Poised to Top India as World’s Largest Palm Oil User By Yoga Rusmana and Ranjeetha Pakiam - Nov 28, 2012

Indonesia, the world’s biggest producer of palm oil, is set to surpass India as the largest user next year as economic growth boosts demand.
Consumption may climb 13 percent to 8.5 million metric tons from 7.5 million tons this year, Indonesia’s Deputy Trade Minister Bayu Krisnamurthi said by text message. That exceeds U.S. government estimates of 7.95 million tons for India and 7.87 million tons for Indonesia in the 2012-2013 year.
Rising demand for palm used in everything from instant noodles to candy and fuel may curb exports that rose 2.9 percent in October from a month earlier. The economy expanded at more than 6 percent in the past eight quarters as President Susilo Bambang Yudhoyono raised spending, luring investors such as Unilever (UNA) and L’Oreal SA. Palm use in the world’s fourth most populous country jumped 51 percent in the past four years as wheat climbed about 21 percent and sugar rose about 15 percent, U.S. Department of Agriculture estimates show.
“We’ve seen very strong demand growth from Indonesia,” said Erin Fitzpatrick, a London-based analyst at Rabobank International. “You certainly can see that story continuing,” she said by phone Nov. 27.
The country may surpass Germany and the U.K. by 2030 to be the world’s seventh-largest economy, generating $1.8 trillion in sales for agriculture, consumer and energy companies by that year, McKinsey & Co. said in September. McKinsey estimates consumer spending in urban areas will rise 7.7 percent a year to $1.1 trillion by 2030, according to the report.

L’Oreal, Unilever

L’Oreal (OR), the world’s largest cosmetic maker, expects to boost sales in Indonesia by as much as 35 percent in the next five years, Vismay Sharma, the company’s country head, said Oct. 29. The Paris-based company is investing $128 million to build its largest factory globally in West Java province.
Unilever plans to spend $150 million building a factory in Sei Mangkei, North Sumatra, that will produce ingredients for soaps and shampoos, said Sancoyo Antarikso, a Jakarta-based director at the unit of the second-largest consumer-goods maker.
Consumer-product companies like Unilever and noodle-maker PT Indofood CBP Sukses Makmur (ICBP) will benefit from a government plan to raise minimum wages, according to John Rachmat, an analyst at PT Mandiri Sekuritas, in a Nov. 22 report.
The Jakarta province will increase the minimum by 44 percent to 2.2 million rupiah ($229) a month in 2013 from this year, said Mandiri Sekuritas. East Kalimantan will boost the wage by 49 percent to 1.75 million rupiah, while Papua, the eastern most province, will raise it by 8 percent to 1.71 million rupiah, according to the report.

Blending Rate

Consumption will increase as Indonesia raises the blending rate of palm-based biofuel in petroleum diesel to 7.5 percent from 5 percent, said Sahat Sinaga, executive director of the Indonesian Vegetable Oil Industry Association, said by phone Nov. 27. Demand from oleochemicals is also increasing, he said.
Palm-oil refining capacity may climb to more than 30 million tons next year, exceeding output, as companies step up investments following tax changes, Andreas Bokkenheuser, a Singapore-based analyst at UBS AG said last month. Investors are planning $1 billion of investments following the duty reduction, Sinaga said then.
Capacity has gained “significantly” this year, said Krisnamurthi on Nov. 27, without specifying the increase.
The government cut taxes in October last year to boost processed exports as it seeks to raise the value of commodity shipments to spur growth and create jobs. Indonesia, which is rich in minerals such as nickel, bauxite and copper, also started a ban on ore exports by some miners in May, with exemption for companies planning smelters. Those shipments are subject to a 20 percent tax.
To contact the reporters on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net; Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Telenor Said to Hold Talks to Merge India Unit With Tata By George Smith Alexander and Ketaki Gokhale - Nov 27, 2012

Telenor ASA (TEL), the Nordic region’s biggest phone operator, is in talks with Tata Teleservices Ltd. to combine their operations in India, three people with direct knowledge of the matter said.
Japan’s NTT DoCoMo Inc. (9437), which owns a 26 percent stake in Tata Teleservices, is likely to remain a shareholder in the merged entity, said one person, who asked not to be identified because the information is private. Any deal will depend on new takeover rules currently being considered by India’s telecom regulator, the people said.
The combination would create India’s fourth-largest operator by users and may give Telenor access to airwaves in all areas of the world’s second-biggest mobile phone market. Mobile- phone companies including Telenor, which had its spectrum canceled, and Tata Teleservices are struggling to revive growth in a nation where 13 competitors have driven call rates to a penny a minute.
“Some type of merger there would help, if it’s allowed, as they could utilize their size to get a better position in the market,” said Thomas Nielsen, an analyst at Pareto Securities ASA in Oslo. “India has been a challenging market for Telenor for years with tough pricing competition and a more difficult regulatory environment than the carrier may have been hoping for.”
Telenor shares fell 1.3 percent to 114.8 kroner at the close in Oslo yesterday, paring this year’s gain to 17 percent.

Russian Snag

Telenor agreed to buy a 60 percent stake in India’s Unitech (UT) Wireless for $1.07 billion four years ago before getting embroiled in a dispute with partner Unitech Ltd.
Telenor’s international expansion has also faced snags in Russia, where it has a 43 percent holding in VimpelCom Ltd. (VIP) Russia, which didn’t want Telenor to be the largest owner, agreed to withdraw legal claims against Telenor last week after VimpelCom co-owner Altimo increased its stake in the Russian mobile carrier to 47.9 percent.
Running the combined operation in India may be tough as the management will have to deal with three owners, according to Abhishek Anand, an analyst at Centrum Broking Pvt. in Mumbai.
“Telenor Group never comments on rumors or speculation,” Telenor spokesman Glenn Mandelid wrote in an e-mail. Tata Teleservices doesn’t comment on market speculation, the company said in an e-mail.
“We are going to maintain our stake for the time being,” Junpei Toya, a spokesman for NTT DoCoMo, said by telephone. Toya declined to comment on the prospect of a merger between Tata Teleservices and Telenor.
Under an agreement, Telenor may have the option of buying out the Japanese company in a few years, one person said.

New Rules

NTT DoCoMo paid 130.7 billion rupees ($2.4 billion) for its stake in Tata Teleservices in 2009, according to data compiled by Bloomberg. The two companies sell mobile-phone services under the Tata DOCOMO brand.
The nature of any agreement between the companies depends on whether new guidelines in India require a merged entity to return startup spectrum, or the airwaves used for mobile communications, to the government, the people said.
The new rules will be placed before the Cabinet for approval, Telecommunications Minister Kapil Sibal said on Nov. 1, without specifying when the government may take a decision.
Tata Teleservices, part of India’s biggest business group, had 78.4 million mobile connections and Uninor, Telenor’s Indian brand, had 42.2 million connections at the end of September, according to data from the nation’s telecommunications regulator.

Sun Pharma

A merger between the companies would create India’s largest operator after Bharti Airtel Ltd. (BHARTI), Vodafone India Ltd. and Anil Ambani’s Reliance Communications Ltd. (RCOM), the data show.
Telenor agreed to sell a 26 percent stake in the Indian operations to Lakshdeep Investments & Finance Pvt., controlled by Sudhir Valia, executive director at Sun Pharmaceutical Industries Ltd. (SUNP), it said last month.
The company’s venture with its former partner, Unitech, a New Delhi-based real estate developer, was terminated after its spectrum licenses became invalid on Sept. 7. The licenses were revoked by India’s highest court over a corruption scandal.
In the auction of 2G mobile spectrum that ended Nov. 14, Telenor secured licenses and spectrum to operate in six of India’s 22 telecom zones -- Maharashtra, Gujarat, Andhra Pradesh, Uttar Pradesh west, Uttar Pradesh east and Bihar. Telenor’s Indian unit, Telewings Communications Pvt., spent 40.2 billion rupees at the auction, outspending Bharti and Vodafone.
Tata Teleservices dropped out of an auction of CDMA airwaves scheduled to begin after the GSM auction.
To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net