California Governor Arnold Schwarzenegger and top lawmakers came up with a compromise to close a $19.1 billion deficit and give the state a budget, ending a record three-month impasse with a vote expected next week on the spending plan.
The accord doesn’t raise taxes, as sought by Democrats, nor does it dismantle the state’s welfare system, proposed by Republicans, the leaders said yesterday. Schwarzenegger and the Democratic and Republican heads of the Senate and the Assembly, known as the Big Five, came to the agreement after a final five- hour negotiating session in the governor’s Sacramento office.
“We have a comprehensive agreement,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. Lawmakers said more information about the substance of the agreement would be released at an Oct. 6 public hearing.
Passage of the plan would clear the way for Treasurer Bill Lockyer to borrow about $10 billion on Wall Street by issuing short-term notes needed to pay bills until tax revenue comes in later in the year. The impasse led Controller John Chiang to warn about paying bills with IOUs as soon as this month. California is the only U.S. state without an enacted budget.
“No one is pleased with the decisions that we had to make, but the reforms that will come out of this will make it worthwhile,” said Aaron McLear, a spokesman for Schwarzenegger. The Republican has said he won’t sign any final budget unless lawmakers agree to roll back state pension benefits to 1999 levels and to seek voter approval of a permanent spending cap and the creation of a contingency reserve, or rainy-day fund.
No Celebration
“It’s give and take, that’s what it is -- nobody is celebrating here,” Steinberg said of yesterday’s agreement. “We have to look at this in the context of a $19 billion deficit on top of the deficits of the last several years.”
Lawmakers and the governor announced Sept. 24 that they had breached a stalemate that had persisted since the state’s fiscal year began July 1, the longest California has ever gone without a spending plan.
Legislative aides briefed on the details said last week’s framework cuts spending by around $8 billion, less than the $12 billion the governor had proposed, and holds education spending about the same as last year’s level, around $49 billion. The framework also would suspend for two years a tax break that let companies deduct part of net operating losses in a previous year from current-year taxes, said the two people briefed on it.
Conflicting Strategies
Schwarzenegger and Republicans wanted to dismantle the state’s main welfare program and slash $12.4 billion of spending. Democrats proposed $5.9 billion in higher taxes and fees combined with $8 billion of spending cuts.
Calling the accord “a no-tax budget that protects California jobs,” Assembly Minority Leader Martin Garrick, a Republican from Carlsbad, said a vote on the plan is expected on Oct. 7.
“Obviously if we are in agreement, then we think it is a budget that will pass,” said Senate Minority Leader Dennis Hollingsworth, a Republican from Murrieta, north of San Diego.
Schwarzenegger, who is approaching the end of his term, and Democrats, who hold a majority in both legislative chambers, disagreed on how much spending to cut and whether to raise taxes to fill the gap. California requires a two-thirds vote in both the Assembly and Senate to pass budgets, and neither party holds enough seats to meet that threshold. That forced lawmakers to agree on a compromise plan before bringing it to a vote.
Short-Term Borrowing
Lockyer, the state treasurer, said Sept. 27 that he was lining up a short-term loan of more than $5 billion from a group of Wall Street banks to tide the state over with enough cash once a budget is enacted. He said the borrowing would be repaid with the short-term notes.
The state’s constitution says lawmakers must send a budget to the governor by June 15, about two weeks before the start of the new fiscal year. The Legislature has met that deadline five times in the last 30 years. The fiscal 2008 budget was sent to Schwarzenegger on Sept. 16 and signed into law on Sept. 23, the latest the state went without a spending plan until this year.
California, with the world’s eighth-largest economy, issued $2.6 billion of IOUs last year after a similar budget stalemate. That was only the second time since the Great Depression that the state had to use warrants to cover costs and conserve cash.
In January, Standard & Poor’s cut California’s credit grade to A-, its lowest among U.S. states, citing fiscal imbalances and recurring cash-flow problems. S&P has said it may reduce the state’s rating again if the budget crisis worsens.
Saturday, October 2, 2010
Side Effects May Include Lawsuits
FOR decades, antipsychotic drugs were a niche product. Today, they’re the top-selling class of pharmaceuticals in America, generating annual revenue of about $14.6 billion and surpassing sales of even blockbusters like heart-protective statins.
While the effectiveness of antipsychotic drugs in some patients remains a matter of great debate, how these drugs became so ubiquitous and profitable is not. Big Pharma got behind them in the 1990s, when they were still seen as treatments for the most serious mental illnesses, like hallucinatory schizophrenia, and recast them for much broader uses, according to previously confidential industry documents that have been produced in a variety of court cases.
Anointed with names like Abilify and Geodon, the drugs were given to a broad swath of patients, from preschoolers to octogenarians. Today, more than a half-million youths take antipsychotic drugs, and fully one-quarter of nursing-home residents have used them. Yet recent government warnings say the drugs may be fatal to some older patients and have unknown effects on children.
The new generation of antipsychotics has also become the single biggest target of the False Claims Act, a federal law once largely aimed at fraud among military contractors. Every major company selling the drugs — Bristol-Myers Squibb, Eli Lilly, Pfizer, AstraZeneca and Johnson & Johnson — has either settled recent government cases for hundreds of millions of dollars or is currently under investigation for possible health care fraud.
Two of the settlements, involving charges of illegal marketing, set records last year for the largest criminal fines ever imposed on corporations. One involved Eli Lilly’s antipsychotic, Zyprexa; the other involved a guilty plea for Pfizer’s marketing of a pain pill, Bextra. In the Bextra case, the government also charged Pfizer with illegally marketing another antipsychotic, Geodon; Pfizer settled that part of the claim for $301 million, without admitting any wrongdoing.
The companies all say their antipsychotics are safe and effective in treating the conditions for which the Food and Drug Administration has approved them — mostly, schizophrenia and bipolar mania — and say they adhere to tight ethical guidelines in sales practices. The drug makers also say that there is a large population of patients who still haven’t taken the drugs but could benefit from them.
AstraZeneca, which markets Seroquel, the top-selling antipsychotic since 2005, says it developed such drugs because they have fewer side effects than older versions.
“It’s a drug that’s been studied in multiple clinical trials in various indications,” says Dr. Howard Hutchinson, AstraZeneca’s chief medical officer. “Getting these patients to be functioning members of society has a tremendous benefit in terms of their overall well-being and how they look at themselves, and to get that benefit, the patients are willing to accept some level of side effects.”
The industry continues to market antipsychotics aggressively, leading analysts to question how drugs approved by the Food and Drug Administration for about 1 percent of the population have become the pharmaceutical industry’s biggest sellers — despite recent crackdowns.
Some say the answer to that question isn’t complicated.
“It’s the money,” says Dr. Jerome L. Avorn, a Harvard medical professor and researcher. “When you’re selling $1 billion a year or more of a drug, it’s very tempting for a company to just ignore the traffic ticket and keep speeding.”
NEUROLEPTIC drugs — now known as antipsychotics — were first developed in the 1950s for use in anesthesia and then as powerful sedatives for patients with schizophrenia and other severe psychotic disorders, who previously might have received surgical lobotomies.
But patients often stopped taking those drugs, like Thorazine and Haldol, because they could cause a range of involuntary body movements, tics and restlessness.
A second generation of drugs, called atypical antipsychotics, was introduced in the ’90s and sold to doctors more broadly, on the basis that they were safer than the old ones — an assertion that regulators and researchers are continuing to review because the newer drugs appear to cause a range of other side effects, even if they cause fewer tics.
Contentions that the new drugs are superior have been “greatly exaggerated,” says Dr. Jeffrey A. Lieberman, chairman of the psychiatry department at Columbia University. Such assertions, he says, “may have been encouraged by an overly expectant community of clinicians and patients eager to believe in the power of new medications.”
“At the same time,” he adds, “the aggressive marketing of these drugs may have contributed to this enhanced perception of their effectiveness in the absence of empirical evidence.”
Others agree. “They sold the story they’re more safe, when they aren’t,” says Robert Whitaker, a journalist who has written two books about psychiatric medicines. “They had to cover up the problems. Right from the start, we got this false story.”
The drug companies say all the possible side effects are fully disclosed to the F.D.A., doctors and patients. Side effects like drowsiness, nausea, weight gain, involuntary body movements and links to diabetes are listed on the label. The companies say they have a generally safe record in treating a difficult disease and are fighting lawsuits in which some patients claim harm.
The cases, both civil and criminal, against many of the world’s largest drug makers have unveiled hundreds of previously confidential documents showing that some company officials were aware they were using questionable tactics when they marketed these powerful, expensive drugs.
Such marketing, according to analysts and court documents, included payments, gifts, meals and trips for doctors, biased studies, ghostwritten medical journal articles, promotional conference appearances, and payments for postgraduate medical education that encourages a pro-drug outlook among doctors. All of these are tools that federal investigators say companies have used to exaggerate benefits, play down risks and promote off-label uses, meaning those the F.D.A. hasn’t approved.
While the effectiveness of antipsychotic drugs in some patients remains a matter of great debate, how these drugs became so ubiquitous and profitable is not. Big Pharma got behind them in the 1990s, when they were still seen as treatments for the most serious mental illnesses, like hallucinatory schizophrenia, and recast them for much broader uses, according to previously confidential industry documents that have been produced in a variety of court cases.
Anointed with names like Abilify and Geodon, the drugs were given to a broad swath of patients, from preschoolers to octogenarians. Today, more than a half-million youths take antipsychotic drugs, and fully one-quarter of nursing-home residents have used them. Yet recent government warnings say the drugs may be fatal to some older patients and have unknown effects on children.
The new generation of antipsychotics has also become the single biggest target of the False Claims Act, a federal law once largely aimed at fraud among military contractors. Every major company selling the drugs — Bristol-Myers Squibb, Eli Lilly, Pfizer, AstraZeneca and Johnson & Johnson — has either settled recent government cases for hundreds of millions of dollars or is currently under investigation for possible health care fraud.
Two of the settlements, involving charges of illegal marketing, set records last year for the largest criminal fines ever imposed on corporations. One involved Eli Lilly’s antipsychotic, Zyprexa; the other involved a guilty plea for Pfizer’s marketing of a pain pill, Bextra. In the Bextra case, the government also charged Pfizer with illegally marketing another antipsychotic, Geodon; Pfizer settled that part of the claim for $301 million, without admitting any wrongdoing.
The companies all say their antipsychotics are safe and effective in treating the conditions for which the Food and Drug Administration has approved them — mostly, schizophrenia and bipolar mania — and say they adhere to tight ethical guidelines in sales practices. The drug makers also say that there is a large population of patients who still haven’t taken the drugs but could benefit from them.
AstraZeneca, which markets Seroquel, the top-selling antipsychotic since 2005, says it developed such drugs because they have fewer side effects than older versions.
“It’s a drug that’s been studied in multiple clinical trials in various indications,” says Dr. Howard Hutchinson, AstraZeneca’s chief medical officer. “Getting these patients to be functioning members of society has a tremendous benefit in terms of their overall well-being and how they look at themselves, and to get that benefit, the patients are willing to accept some level of side effects.”
The industry continues to market antipsychotics aggressively, leading analysts to question how drugs approved by the Food and Drug Administration for about 1 percent of the population have become the pharmaceutical industry’s biggest sellers — despite recent crackdowns.
Some say the answer to that question isn’t complicated.
“It’s the money,” says Dr. Jerome L. Avorn, a Harvard medical professor and researcher. “When you’re selling $1 billion a year or more of a drug, it’s very tempting for a company to just ignore the traffic ticket and keep speeding.”
NEUROLEPTIC drugs — now known as antipsychotics — were first developed in the 1950s for use in anesthesia and then as powerful sedatives for patients with schizophrenia and other severe psychotic disorders, who previously might have received surgical lobotomies.
But patients often stopped taking those drugs, like Thorazine and Haldol, because they could cause a range of involuntary body movements, tics and restlessness.
A second generation of drugs, called atypical antipsychotics, was introduced in the ’90s and sold to doctors more broadly, on the basis that they were safer than the old ones — an assertion that regulators and researchers are continuing to review because the newer drugs appear to cause a range of other side effects, even if they cause fewer tics.
Contentions that the new drugs are superior have been “greatly exaggerated,” says Dr. Jeffrey A. Lieberman, chairman of the psychiatry department at Columbia University. Such assertions, he says, “may have been encouraged by an overly expectant community of clinicians and patients eager to believe in the power of new medications.”
“At the same time,” he adds, “the aggressive marketing of these drugs may have contributed to this enhanced perception of their effectiveness in the absence of empirical evidence.”
Others agree. “They sold the story they’re more safe, when they aren’t,” says Robert Whitaker, a journalist who has written two books about psychiatric medicines. “They had to cover up the problems. Right from the start, we got this false story.”
The drug companies say all the possible side effects are fully disclosed to the F.D.A., doctors and patients. Side effects like drowsiness, nausea, weight gain, involuntary body movements and links to diabetes are listed on the label. The companies say they have a generally safe record in treating a difficult disease and are fighting lawsuits in which some patients claim harm.
The cases, both civil and criminal, against many of the world’s largest drug makers have unveiled hundreds of previously confidential documents showing that some company officials were aware they were using questionable tactics when they marketed these powerful, expensive drugs.
Such marketing, according to analysts and court documents, included payments, gifts, meals and trips for doctors, biased studies, ghostwritten medical journal articles, promotional conference appearances, and payments for postgraduate medical education that encourages a pro-drug outlook among doctors. All of these are tools that federal investigators say companies have used to exaggerate benefits, play down risks and promote off-label uses, meaning those the F.D.A. hasn’t approved.
Hindus and Muslims told to share holy site
An Indian court has ruled that a disputed site sacred to Hindus and Muslims should be divided between the two faiths, in a bid to forge a compromise and end a historic battle that has triggered modern India’s most deadly religious clashes.
At issue is the symbolically potent, now heavily guarded, site in the northern town of Ayodhya. A mosque stood there from the 16th century until 1992, when it was destroyed by a Hindu mob convinced it was built over the birthplace of their deity Ram.
The legal dispute goes back to 1949, when Hindu idols were installed in the mosque and Hindu and Muslim groups began filing rival lawsuits for ownership of the holy ground. The claims have been winding through India’s legal system ever since. To adjudicate, the Allahabad High Court was asked to delve into history, considering evidence from a 17th-century traveller’s diary to a 2002 aerial survey and a 2003 archeological dig.
India rocked as religious dispute turns deadly
1528 Mosque built under Mughal emperor Babar.
1855 Hindu-Muslim clashes over worship at mosque site.
1949 Idols of Hindu god Ram “appear” in mosque. Hindu and Muslim groups file property claims; site declared disputed and locked.
1986 Court orders site unlocked after a Hindu petition for access to worship inside. Rightwing Hindu groups claim victory.
1990 In September, L.K. Advani, Hindu nationalist opposition Bharatiya Janata party leader, starts year-long cross-country campaign for construction of a Ram Temple at Ayodhya site, leaving a trail of communal clashes in his wake. In November, security forces fire at thousands of rightwing Hindus trying to storm mosque; 30 killed, mosque partially damaged.
1992 Hindu activists destroy mosque. At least 1,200 killed in riots across India.
2010 In July Allahabad High Court unsuccessfully urges negotiated settlement of dispute.
In their ruling, the judges ordered the site – now controlled by the government – to be divided, with two thirds, including the spot where Hindu idols now stand, going to Hindu groups and one-third to the Muslim community.
Explaining the decision, one judge said the site was the birthplace of Lord Ram “as per the faith and belief of Hindus”, and another said it had an “almost unprecedented” tradition of Hindu worship inside the mosque compound.
Fearing the verdict would reignite simmering inter-religious tensions, India was on high alert on Thursday, with hundreds of thousands of police and paramilitary deployed in sensitive areas.
Rightwing Hindu groups, including the Hindu nationalist opposition Bharatiya Janata party, welcomed what they said was the court’s affirmation of their right to build a grand Ram temple at the site. “It is a significant step,” said L.K. Advani, BJP president, who led an emotional campaign to whip up mass support for a Ram temple, culminating in the destruction of the mosque in 1992 and religious riots that claimed nearly 2,000 lives.
However, the Sunni Waqf Board, which oversees Muslim properties, said it would appeal to India’s Supreme Court. The move means the division of the site will be put on hold indefinitely.
“I don’t believe that this sharing is done on a principle that is legally, historically or socially just,” said Rajeev Dhawan, a Supreme Court lawyer. “In 1992, we saw a mosque being destroyed, and at the end of the day, what the courts said to the minority community is that, ‘this was never yours in the first place; however, we will give you one-third’.”
At issue is the symbolically potent, now heavily guarded, site in the northern town of Ayodhya. A mosque stood there from the 16th century until 1992, when it was destroyed by a Hindu mob convinced it was built over the birthplace of their deity Ram.
The legal dispute goes back to 1949, when Hindu idols were installed in the mosque and Hindu and Muslim groups began filing rival lawsuits for ownership of the holy ground. The claims have been winding through India’s legal system ever since. To adjudicate, the Allahabad High Court was asked to delve into history, considering evidence from a 17th-century traveller’s diary to a 2002 aerial survey and a 2003 archeological dig.
India rocked as religious dispute turns deadly
1528 Mosque built under Mughal emperor Babar.
1855 Hindu-Muslim clashes over worship at mosque site.
1949 Idols of Hindu god Ram “appear” in mosque. Hindu and Muslim groups file property claims; site declared disputed and locked.
1986 Court orders site unlocked after a Hindu petition for access to worship inside. Rightwing Hindu groups claim victory.
1990 In September, L.K. Advani, Hindu nationalist opposition Bharatiya Janata party leader, starts year-long cross-country campaign for construction of a Ram Temple at Ayodhya site, leaving a trail of communal clashes in his wake. In November, security forces fire at thousands of rightwing Hindus trying to storm mosque; 30 killed, mosque partially damaged.
1992 Hindu activists destroy mosque. At least 1,200 killed in riots across India.
2010 In July Allahabad High Court unsuccessfully urges negotiated settlement of dispute.
In their ruling, the judges ordered the site – now controlled by the government – to be divided, with two thirds, including the spot where Hindu idols now stand, going to Hindu groups and one-third to the Muslim community.
Explaining the decision, one judge said the site was the birthplace of Lord Ram “as per the faith and belief of Hindus”, and another said it had an “almost unprecedented” tradition of Hindu worship inside the mosque compound.
Fearing the verdict would reignite simmering inter-religious tensions, India was on high alert on Thursday, with hundreds of thousands of police and paramilitary deployed in sensitive areas.
Rightwing Hindu groups, including the Hindu nationalist opposition Bharatiya Janata party, welcomed what they said was the court’s affirmation of their right to build a grand Ram temple at the site. “It is a significant step,” said L.K. Advani, BJP president, who led an emotional campaign to whip up mass support for a Ram temple, culminating in the destruction of the mosque in 1992 and religious riots that claimed nearly 2,000 lives.
However, the Sunni Waqf Board, which oversees Muslim properties, said it would appeal to India’s Supreme Court. The move means the division of the site will be put on hold indefinitely.
“I don’t believe that this sharing is done on a principle that is legally, historically or socially just,” said Rajeev Dhawan, a Supreme Court lawyer. “In 1992, we saw a mosque being destroyed, and at the end of the day, what the courts said to the minority community is that, ‘this was never yours in the first place; however, we will give you one-third’.”
Delhi on high terror alert as games open
The Commonwealth Games open on Saturday with New Delhi on high alert as western governments warn India of a “particular risk” that terrorists might launch an attack on the event.
As western intelligence agencies keep a close eye on how the games progress, thousands of paramilitary police were being deployed across the capital city for the opening ceremony.
Lashkar-e-Taiba, a Pakistan-based militant group, is thought to pose the greatest threat. It was responsible for the Mumbai attacks in 2008, which killed 131 people and left hundreds more injured at the city’s five-star hotels and its main railway station.
Western diplomats say they have no information on any specific threat to the games. But the UK government is one of a number that are warning travellers of a possible terrorist attack during the tournament.
Western intelligence agencies are also concerned that the last-minute rush to complete the sports venues might compromise security preparations.
“There is a high threat from terrorism throughout India, including a particular risk that terrorists will attempt attacks in the run-up to and during the games,” said a British government official. “Restaurants, hotels, railway stations, markets, and places of worship ... will continue to be potential targets.”
Roads leading to the various sports venues were lined with security forces on Friday. The entrances to the walled stadiums resembled military bases, with armed guards behind sandbagged positions.
Sentries watched from newly erected towers, while visitors to the athletes’ village, including ministers, were being vigorously frisked. The Indian air force has established an air security screen and New Delhi’s airspace will be closed during the game’s opening and closing ceremonies.
“We cannot be complacent about security,” said Tejinder Khanna, the city’s lieutenant-governor, after the Australian sports minister’s vehicle had been stopped from entering the athletes’ village for lack of accreditation. “There is no concession for anybody.”
As western intelligence agencies keep a close eye on how the games progress, thousands of paramilitary police were being deployed across the capital city for the opening ceremony.
Lashkar-e-Taiba, a Pakistan-based militant group, is thought to pose the greatest threat. It was responsible for the Mumbai attacks in 2008, which killed 131 people and left hundreds more injured at the city’s five-star hotels and its main railway station.
Western diplomats say they have no information on any specific threat to the games. But the UK government is one of a number that are warning travellers of a possible terrorist attack during the tournament.
Western intelligence agencies are also concerned that the last-minute rush to complete the sports venues might compromise security preparations.
“There is a high threat from terrorism throughout India, including a particular risk that terrorists will attempt attacks in the run-up to and during the games,” said a British government official. “Restaurants, hotels, railway stations, markets, and places of worship ... will continue to be potential targets.”
Roads leading to the various sports venues were lined with security forces on Friday. The entrances to the walled stadiums resembled military bases, with armed guards behind sandbagged positions.
Sentries watched from newly erected towers, while visitors to the athletes’ village, including ministers, were being vigorously frisked. The Indian air force has established an air security screen and New Delhi’s airspace will be closed during the game’s opening and closing ceremonies.
“We cannot be complacent about security,” said Tejinder Khanna, the city’s lieutenant-governor, after the Australian sports minister’s vehicle had been stopped from entering the athletes’ village for lack of accreditation. “There is no concession for anybody.”
Thursday, September 30, 2010
Singh Shunned as Daiwa Buying Indonesia, KBC Favoring Brazil: India Credit
India is lagging behind Brazil and Russia in attracting debt investors as a lack of sovereign dollar issues and regulatory hurdles deter firms from Daiwa SB Investments to KBC Asset Management SA.
Indian debt attracted $419 million of net inflows from global, high-yield and emerging-market bond funds this year through Sept. 22, according to data compiled by EPFR Global, a research firm tracking companies managing $13 trillion in Cambridge, Massachusetts. That’s 1.4 percent of the $31 billion funneled into emerging-market bond funds. Brazilian debt lured $3.6 billion and Russia attracted $2.3 billion, the data show.
While record buying of Indian bonds this year led Prime Minister Manmohan Singh to raise the overseas investor limit by 50 percent to $30 billion on Sept. 23, regulators have yet to allocate individual debt quotas for international funds more than a week after the change. At the Securities and Exchange Board of India’s auction Aug. 12, the limit for each entity to buy government bonds was 1 billion rupees ($22 million) and 10 billion rupees for company debt.
“There isn’t enough liquidity in India’s bond market and they still have regulations, making us reluctant to buy,” said Kei Katayama, who helps oversee $53.2 billion as head of foreign fixed-income at Daiwa SB in Tokyo.
Daiwa SB says comparable yields and fewer rules make Indonesian securities more attractive, while Luxembourg-based KBC Asset Management favors Brazilian dollar bonds.
Yield Advantage
India’s 10-year local-currency government bonds yielded 7.847 percent, compared with 11.89 percent in Brazil, 7.59 percent in Indonesia, 7.38 percent in Russia and 3.32 percent in China, according to data compiled by Bloomberg. Similar debt offers 2.52 percent in the U.S. and 0.93 percent in Japan.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened to 532 basis points, or 5.32 percentage points, from 526 a week earlier. The spread, which has averaged 318 in the past decade, reached a two-year high of 556 on Aug. 26. The spread between Brazil’s 10- year dollar debt and Treasuries has narrowed to 119 from 150 in the past month.
The government’s decision to expand the quota triggered a rally in government bonds and the rupee.
Bond, Rupee Rally
India’s benchmark 10-year bonds rose every day after the government raised the cap on debt investment to post their first monthly gain since June, pushing yields to the lowest level in more than six weeks. Yields on 7.8 percent notes due in 2020 fell eight basis points last month, according to the central bank’s trading system.
India’s rupee appreciated 4.7 percent in September to 44.94 per dollar, the best performer in Asia after South Korea’s won.
Erste Sparinvest in Vienna said it will consider entering the Indian market after the policy changes.
“I like India as a fundamental story and there’s potential,” said Christian Gaier, who helps manage 1.33 billion euros ($1.8 billion) in emerging-market debt at Erste Sparinvest. “We are confident India will take more steps to open the market.”
India’s economy expanded 8.8 percent last quarter, the same pace as Brazil. Inflation slowed to an eight-month low of 8.5 percent in August after central bank Governor Duvvuri Subbarao raised benchmark interest rates five times since March. The government forecasts the budget deficit will drop to 5.5 percent of gross domestic product in the year to March 31 from 6.9 percent, the steepest cut in 19 years.
No Benchmark
India, which has no sovereign bonds denominated in dollars, euros or yen, isn’t included in JPMorgan Chase & Co.’s bond indexes tracking 41 countries in emerging markets that are benchmarks followed by some of the world’s biggest bond funds.
International investors hold $5 billion of rupee sovereign notes compared with $20.2 billion of overseas holdings in Indonesian rupiah government debt, government statistics show. Holdings of Brazil government domestic debt by foreign investors rose 9.5 percent in August to the equivalent of $9.2 billion.
“India isn’t a benchmark name,” said Lazlo Belgrado, who helps manage $800 million of emerging-market dollar bonds at KBC Asset Management SA in Luxembourg. “It isn’t a particularly strong credit within emerging markets, and you do have to deal with the cost of controls to invest locally there.”
Finance Secretary Ashok Chawla declined to comment yesterday in New Delhi when asked why the country isn’t selling debt denominated in dollars and euros.
Indian government bonds returned 0.7 percent last month, the fourth-best among 10 local-currency debt markets outside Japan, according to HSBC Holdings Plc indexes. The notes returned 3.8 percent this year.
India’s credit rating is BBB- at Standard & Poor’s and Baa3 at Moody’s Investors Service, on par with Brazil.
“There are other countries people can freely invest in and out, and can make money,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., which manages about $24 billion. “We don’t have to enter India’s debt market for now. Many investors probably take a wait-and-see stance.”
Indian debt attracted $419 million of net inflows from global, high-yield and emerging-market bond funds this year through Sept. 22, according to data compiled by EPFR Global, a research firm tracking companies managing $13 trillion in Cambridge, Massachusetts. That’s 1.4 percent of the $31 billion funneled into emerging-market bond funds. Brazilian debt lured $3.6 billion and Russia attracted $2.3 billion, the data show.
While record buying of Indian bonds this year led Prime Minister Manmohan Singh to raise the overseas investor limit by 50 percent to $30 billion on Sept. 23, regulators have yet to allocate individual debt quotas for international funds more than a week after the change. At the Securities and Exchange Board of India’s auction Aug. 12, the limit for each entity to buy government bonds was 1 billion rupees ($22 million) and 10 billion rupees for company debt.
“There isn’t enough liquidity in India’s bond market and they still have regulations, making us reluctant to buy,” said Kei Katayama, who helps oversee $53.2 billion as head of foreign fixed-income at Daiwa SB in Tokyo.
Daiwa SB says comparable yields and fewer rules make Indonesian securities more attractive, while Luxembourg-based KBC Asset Management favors Brazilian dollar bonds.
Yield Advantage
India’s 10-year local-currency government bonds yielded 7.847 percent, compared with 11.89 percent in Brazil, 7.59 percent in Indonesia, 7.38 percent in Russia and 3.32 percent in China, according to data compiled by Bloomberg. Similar debt offers 2.52 percent in the U.S. and 0.93 percent in Japan.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened to 532 basis points, or 5.32 percentage points, from 526 a week earlier. The spread, which has averaged 318 in the past decade, reached a two-year high of 556 on Aug. 26. The spread between Brazil’s 10- year dollar debt and Treasuries has narrowed to 119 from 150 in the past month.
The government’s decision to expand the quota triggered a rally in government bonds and the rupee.
Bond, Rupee Rally
India’s benchmark 10-year bonds rose every day after the government raised the cap on debt investment to post their first monthly gain since June, pushing yields to the lowest level in more than six weeks. Yields on 7.8 percent notes due in 2020 fell eight basis points last month, according to the central bank’s trading system.
India’s rupee appreciated 4.7 percent in September to 44.94 per dollar, the best performer in Asia after South Korea’s won.
Erste Sparinvest in Vienna said it will consider entering the Indian market after the policy changes.
“I like India as a fundamental story and there’s potential,” said Christian Gaier, who helps manage 1.33 billion euros ($1.8 billion) in emerging-market debt at Erste Sparinvest. “We are confident India will take more steps to open the market.”
India’s economy expanded 8.8 percent last quarter, the same pace as Brazil. Inflation slowed to an eight-month low of 8.5 percent in August after central bank Governor Duvvuri Subbarao raised benchmark interest rates five times since March. The government forecasts the budget deficit will drop to 5.5 percent of gross domestic product in the year to March 31 from 6.9 percent, the steepest cut in 19 years.
No Benchmark
India, which has no sovereign bonds denominated in dollars, euros or yen, isn’t included in JPMorgan Chase & Co.’s bond indexes tracking 41 countries in emerging markets that are benchmarks followed by some of the world’s biggest bond funds.
International investors hold $5 billion of rupee sovereign notes compared with $20.2 billion of overseas holdings in Indonesian rupiah government debt, government statistics show. Holdings of Brazil government domestic debt by foreign investors rose 9.5 percent in August to the equivalent of $9.2 billion.
“India isn’t a benchmark name,” said Lazlo Belgrado, who helps manage $800 million of emerging-market dollar bonds at KBC Asset Management SA in Luxembourg. “It isn’t a particularly strong credit within emerging markets, and you do have to deal with the cost of controls to invest locally there.”
Finance Secretary Ashok Chawla declined to comment yesterday in New Delhi when asked why the country isn’t selling debt denominated in dollars and euros.
Indian government bonds returned 0.7 percent last month, the fourth-best among 10 local-currency debt markets outside Japan, according to HSBC Holdings Plc indexes. The notes returned 3.8 percent this year.
India’s credit rating is BBB- at Standard & Poor’s and Baa3 at Moody’s Investors Service, on par with Brazil.
“There are other countries people can freely invest in and out, and can make money,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., which manages about $24 billion. “We don’t have to enter India’s debt market for now. Many investors probably take a wait-and-see stance.”
Asian Stocks Rise as Australian Commodity Shares Gain, Japanese Banks Drop
Asian stocks rose, driving the MSCI Asia Pacific Index to a fifth consecutive weekly advance, as increased crude-oil prices and gold near a record high boosted commodity companies.
BHP Billiton Ltd., Australia’s biggest oil producer, climbed 1.7 percent and Woodside Petroleum Ltd. gained 0.9 percent in Sydney. Newcrest Mining Ltd., Australia’s No. 1 gold producer, advanced 0.7 percent. Mizuho Financial Group Inc. and Resona Holdings Inc. led Japanese banks lower after Morgan Stanley MUFG Securities Co. cut their investment ratings.
The MSCI Asia Pacific Index gained 0.3 percent to 126.62 as of 10:16 a.m. in Tokyo, with about three shares advancing for every two that declined. The index gained 8.4 percent last month, the largest monthly advance since July 2009. The 12 percent climb in the three months ended yesterday was the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average rose 0.6 percent today, while the broader Topix index fell 0.2 percent. Australia’s S&P/ASX 200 Index increased 0.5 percent. South Korea’s Kospi Index climbed 0.3 percent. Markets are closed in Hong Kong and China for a public holiday.
Futures on the Standard & Poor’s 500 Index increased 0.3 percent. The gauge fell 0.3 percent yesterday in New York, trimming its biggest September gain since 1939, as investors sold some of the month’s best-performing shares amid speculation that the improving economic data will reduce the need for the Federal Reserve to stimulate growth.
U.S. Economic Reports
U.S. stocks climbed yesterday morning after data showed the economy grew at a 1.7 percent annual rate in the second quarter, faster than the 1.6 percent previously estimated. Initial jobless claims fell to 453,000 in the week ended Sept. 25, less than the median forecast of economists surveyed by Bloomberg News. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 60.4 in September, exceeding the highest estimate of economists surveyed by Bloomberg News.
BHP Billiton rose 1.7 percent to A$39.57, and Woodside Petroleum advanced 0.9 percent to A$44.28. Newcrest rallied 0.7 percent to A$39.93.
Crude oil for November delivery rose 2.7 percent yesterday in New York to settle at a seven-week high of $79.97 a barrel, while gold futures gained 0.5 percent yesterday to a record.
Mizuho Financial fell 2.5 percent to 119 yen and Resona lost 4.1 percent to 718 yen after Morgan Stanley MUFG cut their ratings to ”underweight.” Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded lender, retreated 1 percent to 385 yen.
BHP Billiton Ltd., Australia’s biggest oil producer, climbed 1.7 percent and Woodside Petroleum Ltd. gained 0.9 percent in Sydney. Newcrest Mining Ltd., Australia’s No. 1 gold producer, advanced 0.7 percent. Mizuho Financial Group Inc. and Resona Holdings Inc. led Japanese banks lower after Morgan Stanley MUFG Securities Co. cut their investment ratings.
The MSCI Asia Pacific Index gained 0.3 percent to 126.62 as of 10:16 a.m. in Tokyo, with about three shares advancing for every two that declined. The index gained 8.4 percent last month, the largest monthly advance since July 2009. The 12 percent climb in the three months ended yesterday was the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average rose 0.6 percent today, while the broader Topix index fell 0.2 percent. Australia’s S&P/ASX 200 Index increased 0.5 percent. South Korea’s Kospi Index climbed 0.3 percent. Markets are closed in Hong Kong and China for a public holiday.
Futures on the Standard & Poor’s 500 Index increased 0.3 percent. The gauge fell 0.3 percent yesterday in New York, trimming its biggest September gain since 1939, as investors sold some of the month’s best-performing shares amid speculation that the improving economic data will reduce the need for the Federal Reserve to stimulate growth.
U.S. Economic Reports
U.S. stocks climbed yesterday morning after data showed the economy grew at a 1.7 percent annual rate in the second quarter, faster than the 1.6 percent previously estimated. Initial jobless claims fell to 453,000 in the week ended Sept. 25, less than the median forecast of economists surveyed by Bloomberg News. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 60.4 in September, exceeding the highest estimate of economists surveyed by Bloomberg News.
BHP Billiton rose 1.7 percent to A$39.57, and Woodside Petroleum advanced 0.9 percent to A$44.28. Newcrest rallied 0.7 percent to A$39.93.
Crude oil for November delivery rose 2.7 percent yesterday in New York to settle at a seven-week high of $79.97 a barrel, while gold futures gained 0.5 percent yesterday to a record.
Mizuho Financial fell 2.5 percent to 119 yen and Resona lost 4.1 percent to 718 yen after Morgan Stanley MUFG cut their ratings to ”underweight.” Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded lender, retreated 1 percent to 385 yen.
Satyam accounts underline scam woe
Satyam Computer Services, the company at the centre of India’s largest corporate scandal, has released its first audited accounts since the scam was revealed in January last year.
It revealed financial irregularities totalling Rs78.5bn ($1.7bn) – nearly double the amount previously known.
The company, which has since been taken over by India’s Mahindra Group and renamed Mahindra Satyam, is recovering from the scandal after severe downsizing.
Satyam also said on Wednesday that the US Securities and Exchange Commission was considering filing a civil suit against the company. Satyam already faces a separate $68m shareholders’ lawsuit underway in New York.
“The division [of enforcement at the SEC] had tentatively concluded that it would recommend to the commissioners of the SEC that it files a civil suit against the company, alleging fraud and other violations,” the notes to the accounts said, adding that no decision had yet been taken by the SEC.
The notes said the auditors had found the possible “diversion” of $41m from an American Depositary Share issue on the New York Stock Exchange in 2001.
The release of the accounts follows a forensic audit by Deloitte on behalf of Mahindra.
B. Ramalinga Raju, the company’s former chairman, threw India’s corporate sector into turmoil on January 7 last year when he confessed in a letter to his board that he had been fixing the company’s accounts for more than six years, including inventing a cash balance of $1bn.
Fearing that the scandal could lead to a meltdown of India’s outsourcing sector the government temporarily took over management of Satyam. The new managers auctioned the company, with the Mahindra Group, one of the country’s most respected conglomerates, taking over and installing new management.
The accounts show the scandal has taken a heavy toll on Satyam, once one of India’s top five IT companies. It made a net loss in the financial year to March 2009 of Rs81.77bn, mainly on account of the financial irregularities. This narrowed to Rs1.25bn in the year to March 2010.
Revenue during the two-year period shrank from Rs88.13bn to Rs54.81bn.
The company said staff numbers have been reduced almost by half from an original 50,000 employees.
The notes accompanying the financial results ran to 25 pages and warned that the auditors had been unable to piece together the whole story of the company, as there was evidence that documents had been destroyed.
It revealed financial irregularities totalling Rs78.5bn ($1.7bn) – nearly double the amount previously known.
The company, which has since been taken over by India’s Mahindra Group and renamed Mahindra Satyam, is recovering from the scandal after severe downsizing.
Satyam also said on Wednesday that the US Securities and Exchange Commission was considering filing a civil suit against the company. Satyam already faces a separate $68m shareholders’ lawsuit underway in New York.
“The division [of enforcement at the SEC] had tentatively concluded that it would recommend to the commissioners of the SEC that it files a civil suit against the company, alleging fraud and other violations,” the notes to the accounts said, adding that no decision had yet been taken by the SEC.
The notes said the auditors had found the possible “diversion” of $41m from an American Depositary Share issue on the New York Stock Exchange in 2001.
The release of the accounts follows a forensic audit by Deloitte on behalf of Mahindra.
B. Ramalinga Raju, the company’s former chairman, threw India’s corporate sector into turmoil on January 7 last year when he confessed in a letter to his board that he had been fixing the company’s accounts for more than six years, including inventing a cash balance of $1bn.
Fearing that the scandal could lead to a meltdown of India’s outsourcing sector the government temporarily took over management of Satyam. The new managers auctioned the company, with the Mahindra Group, one of the country’s most respected conglomerates, taking over and installing new management.
The accounts show the scandal has taken a heavy toll on Satyam, once one of India’s top five IT companies. It made a net loss in the financial year to March 2009 of Rs81.77bn, mainly on account of the financial irregularities. This narrowed to Rs1.25bn in the year to March 2010.
Revenue during the two-year period shrank from Rs88.13bn to Rs54.81bn.
The company said staff numbers have been reduced almost by half from an original 50,000 employees.
The notes accompanying the financial results ran to 25 pages and warned that the auditors had been unable to piece together the whole story of the company, as there was evidence that documents had been destroyed.
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