Dollar Debt Lures Tata, JSW as Rupee Stabilizes: Corporate India

By Anurag Joshi and Abhishek Shanker - Jul 8, 2014

Tata Steel Ltd. (TATA), Essar Oil Ltd. (ESOIL) and JSW Steel Ltd. are among Indian companies racing to cut debt costs as the lowest rupee volatility in three years makes it cheaper to refinance local loans overseas.
Tata Steel, the nation’s biggest maker of the alloy, said last week that it plans to replace some of its more expensive rupee obligations with borrowings abroad. JSW Steel, India’s No. 3 maker, said it is seeking to save as much as 1 percentage point in interest costs by reducing debt denominated in the local currency to 50 percent of total, from 60 percent.
A stable local currency is tempering exchange-rate risk and offering savings as companies want the Reserve Bank of India to cut the highest interest rates among major Asian economies and help revive the $1.8 trillion economy. The narrowest swings in the rupee since June 2011 are reducing hedging costs and boosting the appeal of refinancing, said Alan Greene, a Singapore-based analyst at Moody’s Investors Service.
“This is a favorable time for companies to refinance rupee debt by borrowing dollars overseas as the local currency will continue to be stable and steady in the foreseeable future,” said Prabal Banerjee, Mumbai-based president of international finance at Essar Group, a conglomerate engaged in energy, steel and business process outsourcing.

Hungry Market

Essar Oil, the group’s energy unit, said earlier this year that it is “dollarizing” its rupee debt to reduce interest costs and had plans to convert the equivalent of $1.3 billion of its rupee-denominated debt into dollars. Tata Power Co. (TPWR), the electricity utility unit of India’s largest business group, said last month it plans a $205 million, three-year loan to refinance its maturing debt.
Tata Steel sought an approval from shareholders to increase its borrowing limits and to raise debt from international markets.
“The market is hungry for Indian names at the moment,” Moody’s Greene said in an interview. “If the economy is turning around, they should be making better profits and be able to service their debt.”
Steelmakers to consumer-goods manufacturers in India are expecting policymakers to spur the economy as inflation causes interest rates to stay at the highest among major Asian economies. Gross domestic product rose 4.7 percent in the year to March 31, following a 4.5 percent increase in the previous 12 months. Consumer inflation averaged more than 9.5 percent since the start of 2012.

Volatility Slump

Prime Minister Narendra Modi, who was sworn into office on May 26, has vowed to reverse the slowdown, rein in inflation and take unpopular decisions necessary to mend state finances. He has pledged to build 100 new cities, provide houses to all citizens by 2022, introduce high-speed trains and low-cost airports for smaller towns.
His government will present its first budget on July 10.
The rupee has surged 15 percent from an all-time low of 68.845 a dollar reached in August, making it the best rally in the Asia-Pacific region for the period. One-year implied volatility has slumped 409 basis points this year, the most among Asian currencies, to 9.25 percent, according to data compiled by Bloomberg. The gauge was at 9.12 percent on June 27, the least in three years.
“There was too much volatility in the rupee, which was a cause for concern,” Seshagiri Rao, group chief financial officer for JSW, said last month. “The rupee in the range of 58 to 61 is good and a comfortable level.”

Giving Confidence

Indian companies raised $15.1 billion in foreign-currency loans in the first half, the most in such a period since 2011, as borrowing costs abroad fell even as those at home remained at the region’s highest levels.
“This year has seen large refinancing transactions as companies managed favorable rates and extended debt maturities,” Manmohan Singh, Mumbai-based head for debt capital markets for India and South-East Asia at Royal Bank of Scotland Group Plc. “The rupee’s stability and a new government is giving confidence to investors.”
Average costs on rupee-denominated loans exceeded rates on dollar borrowing by at least 8 percentage points amid monetary easing by the U.S. Federal Reserve and the European Central Bank, according to data compiled by Bloomberg.
The cost to protect against foreign-exchange swings is easing as exchange-rate volatility decreases. The price of contracts that fix the conversion rate for buying dollars with rupees in three months dropped 109 basis points, or 1.09 percentage points, from this year’s high of 9.68 percent.

Trailing Estimates

While the benchmark S&P BSE Sensex index comprising 30 stocks of top Indian companies has rallied 23 percent this year on optimism Modi will take steps to revive demand, the slowdown has dented profits. Some are selling some of their assets, while others are refinancing debt.
Sales at 29 of the 30 Sensex companies in the three months ended March was 1.8 percent below analysts’ estimates, according to data compiled by Bloomberg. Four companies, including Maruti Suzuki India Ltd., reported a drop.
Profit margins or earnings as a percentage of sales before interest, taxes, depreciation, and amortization at Tata Steel’s Indian operations were near a 11-year low at 31.1 percent in the year ended March 31, while JSW Steel (JSTL)’s was 17.9 percent compared with 17.1 percent last year, which was the lowest in at least five years.
Tata Steel and JSW Steel are among producers adding capacity even as the pace of consumption declined for a third consecutive year to less than 1 percent in the year ended March 31 as infrastructure projects stalled and local car sales faltered.
“Balance sheets continue to remain stressed so in that sense whatever refinancing-related things can help them in saving interest costs or elongating pay-back periods will be an overall positive,” said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Pvt.
To contact the reporters on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Sam Nagarajan, Dick Schumacher

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India 10-Year Bond Yield Near 2-Week Low Before Federal Budget

By Shikhar Balwani - Jul 7, 2014

India’s 10-year bond yield was near a two-week low on optimism the government will unveil steps to improve public finances in this week’s budget.
Finance Minister Arun Jaitley will keep the fiscal deficit target at 4.5 percent of gross domestic product in the July 10 budget, unchanged from what the previous administration estimated in February, according to the median forecast in a Bloomberg News survey. Prime Minister Narendra Modi will seek to borrow about 6 trillion rupees ($100.2 billion) in the year through March 2015, little changed from the interim budget’s goal of 5.97 trillion rupees, the survey showed.
“Markets are anticipating that the overall tone of the budget will focus on fiscal consolidation,” said Harish Agarwal, a fixed-income trader in Mumbai at FirstRand Ltd. “Investors are expectedly in a wait-and-watch mode ahead of the key event.”
The yield on the 8.83 percent notes due November 2023 was at 8.66 percent as of 10:10 a.m. in Mumbai, little changed from July 4 and a two-week low reached on July 2, according to the central bank’s trading system. The rate dropped eight basis points last week after a three-week advance.
The government’s recent decisions to raise fuel prices and rail fares have spurred speculation it will seek to improve finances by boosting revenue and reducing energy subsidies. India can’t afford populist policies and needs fiscal discipline for sustainable economic growth, Jaitley said last week.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point, or 0.01 percentage point, to 8.35 percent, data compiled by Bloomberg show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Andrew Janes

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India Drought Odds Seen Increasing by Skymet on Monsoon By Prabhudatta Mishra - Jul 4, 2014

The chances of a drought in India, the world’s second-biggest rice and sugar producer, are rising as monsoon rainfall is seen the lowest in five years, according to Skymet Weather Services.
The odds of a drought are 60 percent now, compared with 25 percent in April, Skymet’s Chief Executive Jatin Singh told reporters in New Delhi today. Monsoon, which accounts for more than 70 percent of the annual rainfall, will be 91 percent of a 41-year average of 89 centimeter (35 inches) this year, he said. That will be least since the 78 percent in 2009, according to data from Skymet, a private forecaster.
Showers in June were the lowest since 2009, delaying sowing of crops from corn to lentils and soybeans and threatening to stoke food prices in Asia’s third-largest economy. An estimated 833 million people out of the 1.2 billion population depend on agriculture for their livelihood and the sector accounts for 14 percent of the nation’s gross domestic product.
“Both acreage and production will be less in many crops,” Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities Ltd., said by phone from Hyderabad. “While domestic stockpiles of rice, wheat and sugar are at comfortable levels, there will be problems in oilseeds and pulses.”
Monsoon crop area has declined 35 percent to 13.1 million hectares (32.4 million acres) as of June 27 from a year earlier after rains were delayed over most of India, according to Agriculture Ministry. Rainfall in June was 43 percent less than the average between 1951 and 2000, according to the India Meteorological Department.

El Nino Impact

Even if rainfall returns to normal, it won’t be enough to bridge the deficit, Singh said. A warming of temperatures in the Pacific Ocean, typically associated with an El Nino, is the main reason for below-average rainfall, he said. The nation may get 93 percent of an average 28 centimeter rain in July and 98 percent each in August and September, he said.
Climate models indicate an El Nino is likely to develop by spring, which starts in September, and there’s a 70 percent chance of the pattern this year, Australia’s Bureau of Meteorology said on July 1.
El Ninos, caused by the periodic warming of the tropical Pacific, occur every two to seven years and are associated with warmer-than-average years. The last El Nino was from 2009 to 2010, and since then the Pacific has either been in its cooler state, called La Nina, or neutral.
Rainfall was 22 percent below the 50-year average in 2009 in India, reducing food-grain output and more than doubling inflation from the previous year, official data show. The seasonal showers are the main source of irrigation for the nation’s 263 million farmers because about 55 percent of crop land is rain dependent. Monsoon rainfall will be 7 percent below average this year as the El Nino emerges, the meteorological department predicts.
To contact the reporter on this story: Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Thomas Kutty Abraham, Ovais Subhani

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Oil Heads for Second Weekly Drop as Crude Supply Concerns Fade By Ben Sharples - Jul 3, 2014

West Texas Intermediate and Brent headed for a second weekly drop amid speculation that Iraq’s crude production will remain unaffected by violence and as Libya prepares to resume exports from two terminals.
WTI futures were little changed in New York after falling for a sixth day yesterday, the longest losing streak since May 2012. Fighting in Iraq hasn’t spread to the south, home to more than three-quarters of its output. Libya will start shipping from Es Sider and Ras Lanuf at full capacity after taking back control from rebels, according to National Oil Corp. Hurricane Arthur is approaching the U.S. East Coast and may reduce driving over the Fourth of July holiday.
“The dying down of geopolitical tensions is clearly depressing oil prices,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone today. “The market is removing some of the risk premium. West Texas has now fallen below the key support level of $105.25 a barrel, meaning that risks are now on the downside.”
WTI for August delivery was at $103.97 a barrel in electronic trading on the New York Mercantile Exchange, down 9 cents, at 1:21 p.m. Sydney time. The contract slid 42 cents to $104.06 yesterday, the lowest close since June 6. The volume of all futures traded was about 51 percent below the 100-day average. Prices have declined 1.7 percent this week.

Iraq Conflict

Brent for August settlement was 5 cents lower at $110.95 a barrel on the London-based ICE Futures Europe exchange. The contract has decreased 2.1 percent this week, the most since January. The European benchmark crude traded at a premium of $6.98 to WTI, compared with $7.56 on June 27.
Fighting in Iraq has been concentrated in the north, where insurgents from a breakaway al-Qaeda group, now known as the Islamic State, captured the city of Mosul in June. The nation, the second-largest producer in the Organization of Petroleum Exporting Countries, will ship 2.8 million barrels a day this month, close to a record high, loading programs obtained by Bloomberg show.
In Libya, shipments will resume “as soon as possible” at the two ports and talks on crude sales will start with international companies, Mohamed Elharari, a spokesman for state-run National Oil, said yesterday. The country has become OPEC’s smallest producer the past year because of unrest.
Hurricane Arthur strengthened to a Category 2 storm as it reached the U.S. coast, according to the National Hurricane Center. The system made landfall at Cape Lookout, North Carolina, packing maximum sustained winds of 100 miles (161 kilometers) per hour, the center said in an advisory at 11:30 p.m. Eastern time yesterday.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Ramsey Al-Rikabi, Yee Kai Pin

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India’s BSE Halts Bourse on Network Failure as NSE Keeps Trading

By Rajhkumar K Shaaw and Santanu Chakraborty - Jul 3, 2014

Trading on India’s BSE Ltd. exchange was disrupted by a technical error for at least the third time since April, hampering efforts by Asia’s oldest bourse to compete with National Stock Exchange of India Ltd.
The BSE closed its markets because of a “network outage,” Yatin Padia, an exchange spokesman, said in a text message today. The bourse’s network service vendor is working to resolve the issue and trading will resume once that’s done, he said. The exchange has been halted for more than an hour since Chief Executive Officer Ashishkumar Chauhan said in a text message it would be back up in a “few minutes.”
The BSE, India’s largest bourse until 1995, handles about 17 percent of trading in cash equities and and about 20 percent in derivatives. The benchmark S&P BSE Sensex Index (SENSEX) last traded 0.3 percent higher at 25,928.26 before the halt. The 50-stock CNX Nifty Index rose 0.2 percent as of 11:13 a.m. in Mumbai as trading on NSE was unaffected.
The BSE “should take full advantage of the technologies available and try and make the system work in every situation,” Deven Choksey, managing director of Mumbai-based K.R. Choksey Shares & Securities Ltd., said by phone.
Today’s halt follows a trading system snag that delayed order execution on the BSE twice in April, after the bourse started a new platform to increase speed.
To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Phani Varahabhotla

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WTI Trades Near Three-Week Low Before Supply Data; Brent Steady By Ben Sharples - Jul 1, 2014

West Texas Intermediate crude traded near the lowest price in almost three weeks before stockpile data that may signal the strength of fuel demand in the U.S., the world’s biggest oil consumer. Brent was steady in London.
Futures were little changed in New York after declining 3 cents yesterday. U.S. crude inventories probably fell last week while gasoline supplies rose, according to a Bloomberg News survey before data from the Energy Information Administration today. The first tropical storm of the Atlantic hurricane season formed off Florida. Fighting in Iraq hasn’t spread to the south, home to more than three-quarters of its oil production.
“Markets are watching to see what’s happening in the U.S. now that we’re in drive-time,” David Lennox, a resource analyst at Fat Prophets in Sydney, said of the nation’s peak gasoline demand season in the summer. “The southern part of Iraq at this point has been free from fighting.”
WTI for August delivery was at $105.45 a barrel in electronic trading on the New York Mercantile Exchange, up 11 cents, at 1:47 p.m. Sydney time. The contract slid to $105.34 yesterday, the lowest close since June 11. The volume of all futures traded was about 58 percent below the 100-day average. Prices have gained 7.1 percent this year.
Brent for August settlement was 7 cents higher at $112.36 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.90 to WTI, compared with $6.95 yesterday.

Oil Stockpiles

U.S. crude inventories probably shrank by 2.4 million barrels to 385.7 million in the week ended June 27, while gasoline supplies expanded by 550,000 barrels, according to the median estimate of 10 analysts surveyed before the EIA report. The peak driving season typically starts on Memorial Day, which was May 26 this year, and runs through Labor Day on Sept. 1. 

India’s Sensex Rises to Three-Week High Led by Metal, Automakers

By Santanu Chakraborty - Jul 1, 2014

India’s benchmark stock index rose toward a three-week high, led by metal producers and automakers, after capping their best quarterly advance in almost five years.
Hindalco Industries Ltd. (HNDL) climbed to a three-year high after CLSA Asia-Pacific Markets forecast the company’s share price will double in four years. Mahindra & Mahindra Ltd. (MM) added 1.6 percent as vehicle makers rose before monthly sales figures.
The S&P BSE Sensex (SENSEX) rose 0.4 percent to 25,516.34 at 10:03 a.m. in Mumbai. The gauge advanced 14 percent in the quarter ended June 30, the most since the three months through September 2009, as international investors bought Indian stocks on expectations a new government under Prime Minister Narendra Modi will curb Asia’s fastest consumer inflation and boost an economy growing at near the slowest pace in a decade. The government presents its federal budget on July 10.
“Investors are buying cyclicals amid anticipation that the federal budget will propose measures to boost infrastructure and revive growth,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said by phone from Kerala, south India. “There is still steam left in the rally and we expect positive momentum to continue as some of the stocks are not too aggressively priced.”

PMI Data

Manufacturing in India grew for an eighth consecutive month in June, according to the HSBC Holdings Plc and Markit Economics purchasing managers index today. The gauge rose to 51.5, the highest level since February, from 51.4 in May. A reading of more than 50 indicates expansion.
The Nifty climbed 0.3 percent to 7,637.35. Hindalco surged 4.5 percent after CLSA raised its rating on the stock to buy, saying the stock will surge on a “multi-year deleveraging cycle.” Tata Steel Ltd. (TATA) advanced 2.2 percent while copper producer Sesa Sterlite Ltd. (SSLT) gained 2.7 percent.
Mahindra advanced the most in four weeks. Maruti Suzuki India Ltd. (MSIL) and Tata Motors Ltd. increased at least 1 percent. Automakers announce monthly sales numbers today.
Shares of Indian Oil Corp. (IOCL) advanced 1.3 percent after the company said yesterday it will raise gasoline prices by 1.69 rupees (3 cents) per liter, and diesel by 0.50 rupees per liter, effective today.
Overseas investors bought a net $37.8 million of Indian shares on June 27, extending this year’s inflow to $9.92 billion, the highest after Taiwan among eight Asian markets tracked by Bloomberg.
The Sensex has surged 20 percent this year, the best performer among the world’s 10 biggest markets, and trades at 15.6 times projected 12-month profits. The MSCI Emerging Markets Index is valued at 11 times.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Matthew Oakley, Allen Wan

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