FEW people ever penetrate the dark side of money, but Jules Kroll is one of them.
Fortunes plundered, ransoms paid, deals cut — the uncovering of such secrets, and the million smaller confidences that are his history, have made Mr. Kroll a rich man.
It was nearly 40 years ago, when he practically invented the business known as corporate intelligence, that he first came to the attention of crafty boardrooms. At a time when “private eye” still conjured images of cheating spouses and seedy hotels, Mr. Kroll built a sort of private C.I.A. and went corporate. If a Fortune 500 company or an A-list investment house wanted the dirt, it hired Kroll Inc. to dig it up.
Which is why his latest venture seems at once so unusual and yet so very Kroll. At 69, an age when other multimillionaires are working on their backswings, he is getting into — of all things — the credit ratings business.
Yes, credit ratings: gilt-edged triple-A’s, middling double-B’s, ignominious D’s. You might wonder why anyone pays attention to them anymore. After all, the financial crisis of 2008 and 2009 laid bare the conflicts at the heart of the ratings game. The world learned that the three dominant services — Moody’s, Standard & Poor’s and Fitch — had stamped sterling ratings on mortgage investments that turned out to be nearly worthless. It was a lesson that nearly brought down the financial system.
Ratings agencies, to many, seem like Wall Street’s enablers. What is Jules Kroll thinking? This is the man the Haitian government hired to track down financial assets linked to Jean-Claude Duvalier. The man Kuwait hired to ferret out the oil wealth of Saddam Hussein. One of Mr. Kroll’s cases, involving kidnapping, inspired the movie “Proof of Life,” and plans are in the works for HBO and Scott Rudin, the producer of “The Social Network,” to make a pilot for a television series loosely based on his exploits.
Mr. Kroll says that if he can do all of that, why, he can get to the bottom of an investment security, too. He and his son Jeremy, 39, are staking the family name on a venture called Kroll Bond Ratings. They say the business will marry hard-nosed credit analysis with their trademark corporate sleuthing. Maybe the leading ratings agencies — a triumvirate some liken to an oligopoly — can learn a thing or two from the gumshoes of Wall Street.
“They never really looked under the covers, which is what I have done all my life,” Mr. Kroll says. “If they were in any other business, they would be out of business.”
THE pertinent question for Mr. Kroll is why anyone should listen to him on the subject. The fundamental problem with the dominant agencies, their critics say, is that they are paid by the companies whose securities they evaluate, under the so-called issuer-pay model.
Some small ratings services have challenged the establishment by having investors — that is, the people who actually buy securities — pay for ratings. But for all his talk about shaking up this industry, Mr. Kroll is hewing to the status quo. Like Moody’s, S.& P. and Fitch, Kroll Bond Ratings will be paid by the issuers, just as the big three are.
Wall Street types tend to look askance at credit ratings no matter who is providing them. Not even Warren E. Buffett, whose Berkshire Hathaway owns about 12 percent of Moody’s, says he depends on ratings in making investment decisions. Mr. Buffett prefers to make his own judgments on companies, he said last year while appearing before the Financial Crisis Inquiry Commission.
But ratings services, despite their apparent failures, still play a crucial role in the capital markets. Virtually every investor, big or small, is affected by what they do. And even the pros have to pay attention, because ratings often figure into the investment guidelines of big money management firms, banks and insurance companies.
Some wonder if Mr. Kroll is out of his depth this time.
“What does he know about giving me a rating on a security?” asks Richard X. Bove, an analyst at Rochdale Securities.
Others aren’t so quick to write off Mr. Kroll. Michael F. Price, the prominent value investor, is bankrolling Kroll Bond Ratings. So is Frederick R. Adler, one of New York’s most successful venture capitalists. And William L. Mack, the big real estate investor. The venture capital firms Bessemer Venture Partners, RRE Ventures and NewMarket Capital Partners have invested a combined $24 million in it. And Mr. Kroll has personally staked $5 million.
That is pocket change by Wall Street standards. But Rob Stavis, a partner at Bessemer, says Kroll Bond Ratings could well pay off. “We often go after industries where there are significant incumbents when we believe they’re ripe for disruption,” he says. His firm was an early investor in Skype.
Mr. Kroll, for his part, is thinking big — as he always has. He wants to grab 10 percent of this $4 billion-a-year industry within five years.
But even that seemingly modest goal may be a reach. Moody’s and S.& P. each have about 40 percent of the ratings market. The remainder is spread among Fitch and several lesser-known agencies.
“I think it’s a tough industry to break into, but if anyone can do it, it’s Jules Kroll,” says Michael Charkasky, the chief executive of Altegrity, which acquired Kroll Inc. last year. (Mr. Charkasky had worked for Kroll for more than a decade.)
IN the aftermath of the Panic of 1907, a self-taught financial analyst named John Moody pioneered the idea of assigning ratings to public securities. For much of its history, the industry he founded was a relative backwater — a steady if unglamorous moneymaker that tended to attract wonks or analysts who might not land jobs at a Goldman or a Morgan.
Then, in 1975, the Securities and Exchange Commission promulgated rules that anointed a handful of Nationally Recognized Statistical Ratings Organizations. The S.E.C. argued that assessing the safety of investments was so important to the soundness of the nation’s banks and brokerage firms that only respected ratings agencies should be allowed to do the job. In the early 1980s, there were seven of these organizations. By the mid-1990s, mergers had reduced that number to three. The S.E.C. has since added seven, bringing the total to 10.
Kroll Bond Ratings is one of them.
Saturday, February 26, 2011
Friday, February 25, 2011
3 Banks Warn of Big Penalties in Mortgage Inquiries
Several big banks warned investors on Friday that they could face sizable financial penalties as a result of state and federal investigations into abusive mortgage practices.
The disclosures by Bank of America, Wells Fargo and Citigroup came after a furor late last year over how foreclosures were being conducted.
Until now, the banks have emphasized that the foreclosure controversy was mostly a threat to their reputation, rather than a financial worry. But the disclosures, made in the banks’ annual financial filings with the Securities and Exchange Commission, suggest that a settlement with the government may affect both.
State attorneys general and federal regulators began examining the servicers’ practices last fall after reports that some foreclosures were being pursued despite lost or missing documents. In other cases, employees had signed off on thousands of pages of paperwork a month, after only a cursory look.
In some cases, banks mistakenly pursued homeowners who should not have been threatened with foreclosure, while other mortgage holders reported it to be nearly impossible to reach anyone at the banks to discuss their situation.
The review also includes more basic practices, including scrutiny of whether the original loans were made properly and whether modifications of existing home loans have been done fairly.
“The current environment of heightened regulatory scrutiny has the potential to subject the corporation to inquiries or investigations that could significantly adversely affect its reputation,” Bank of America said in the filing.
The state and federal inquiries “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs,” Bank of America said.
Wells Fargo said in its filing that it was “likely that one or more of the government agencies will initiate some type of enforcement action,” including possible “civil money penalties.”
Citigroup acknowledged that federal and state regulators were investigating its foreclosure processes, which could result in increased expenses, fines and other legal remedies like a program to reduce the principal amount owed on some loans. While Citigroup has determined that “the integrity of its current foreclosure process is sound and there are no systemic issues,” it warned that it could be adversely affected by industrywide regulatory or judicial action.
Since last fall, a task force of federal bank regulators has been reviewing the foreclosure practices and internal controls of the 14 largest mortgage servicers. The examination has already identified a range of sloppy practices at all the servicers, including inadequate staffing, lax oversight of outside law firms and other vendors hired to assist with the foreclosure process, and errors with documentation.
In testimony before a Senate banking committee last week, John Walsh, the acting comptroller of the currency, which oversees national banks, said his agency and other federal regulators had ordered the servicers to take corrective actions.
“We expect that our actions will comprehensively address servicers’ identified deficiencies and will hold servicers to standards that require effective and proactive risk management of servicing operations, and appropriate remediation for customers who have been financially harmed by defects in servicers’ standards and procedures,” he said.
The banks have not yet received any formal proposals from either the attorneys general or the regulators. But a proposed settlement is expected to be ironed out in the coming weeks and then presented to the banks.
The banks are eager to put the foreclosure controversy behind them. Earlier this month, Bank of America’s chief executive, Brian T. Moynihan, said the bank was creating a special unit to hold billions of dollars in defaulted mortgages and other toxic debt.
Despite reports in recent days that a global settlement of the mortgage accusations was being floated by the Obama administration, for $20 billion or more, some bank officials and regulators expressed skepticism Friday that the eventual hit to the banks will be that high.
Indeed, many regulators in Washington are wary of too punitive a settlement for fear of hobbling their recovery just as they are turning around. Memories of the financial crisis in the fall of 2008 and the subsequent federal bailout are still vivid.
Still, even if any settlement with regulators and the attorneys general does not run into the tens of billions, the financial consequences of the housing boom and subsequent bust will haunt the banks for years. Private investors are seeking to force financial institutions to buy back tens of billions of dollars’ worth of mortgages in default, arguing the original loans were made improperly.
Over the last year, the biggest banks have set aside several billion dollars each to cover potential claims stemming both from the foreclosure mess and lawsuits by private investors holding soured mortgages.
The disclosures by Bank of America, Wells Fargo and Citigroup came after a furor late last year over how foreclosures were being conducted.
Until now, the banks have emphasized that the foreclosure controversy was mostly a threat to their reputation, rather than a financial worry. But the disclosures, made in the banks’ annual financial filings with the Securities and Exchange Commission, suggest that a settlement with the government may affect both.
State attorneys general and federal regulators began examining the servicers’ practices last fall after reports that some foreclosures were being pursued despite lost or missing documents. In other cases, employees had signed off on thousands of pages of paperwork a month, after only a cursory look.
In some cases, banks mistakenly pursued homeowners who should not have been threatened with foreclosure, while other mortgage holders reported it to be nearly impossible to reach anyone at the banks to discuss their situation.
The review also includes more basic practices, including scrutiny of whether the original loans were made properly and whether modifications of existing home loans have been done fairly.
“The current environment of heightened regulatory scrutiny has the potential to subject the corporation to inquiries or investigations that could significantly adversely affect its reputation,” Bank of America said in the filing.
The state and federal inquiries “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs,” Bank of America said.
Wells Fargo said in its filing that it was “likely that one or more of the government agencies will initiate some type of enforcement action,” including possible “civil money penalties.”
Citigroup acknowledged that federal and state regulators were investigating its foreclosure processes, which could result in increased expenses, fines and other legal remedies like a program to reduce the principal amount owed on some loans. While Citigroup has determined that “the integrity of its current foreclosure process is sound and there are no systemic issues,” it warned that it could be adversely affected by industrywide regulatory or judicial action.
Since last fall, a task force of federal bank regulators has been reviewing the foreclosure practices and internal controls of the 14 largest mortgage servicers. The examination has already identified a range of sloppy practices at all the servicers, including inadequate staffing, lax oversight of outside law firms and other vendors hired to assist with the foreclosure process, and errors with documentation.
In testimony before a Senate banking committee last week, John Walsh, the acting comptroller of the currency, which oversees national banks, said his agency and other federal regulators had ordered the servicers to take corrective actions.
“We expect that our actions will comprehensively address servicers’ identified deficiencies and will hold servicers to standards that require effective and proactive risk management of servicing operations, and appropriate remediation for customers who have been financially harmed by defects in servicers’ standards and procedures,” he said.
The banks have not yet received any formal proposals from either the attorneys general or the regulators. But a proposed settlement is expected to be ironed out in the coming weeks and then presented to the banks.
The banks are eager to put the foreclosure controversy behind them. Earlier this month, Bank of America’s chief executive, Brian T. Moynihan, said the bank was creating a special unit to hold billions of dollars in defaulted mortgages and other toxic debt.
Despite reports in recent days that a global settlement of the mortgage accusations was being floated by the Obama administration, for $20 billion or more, some bank officials and regulators expressed skepticism Friday that the eventual hit to the banks will be that high.
Indeed, many regulators in Washington are wary of too punitive a settlement for fear of hobbling their recovery just as they are turning around. Memories of the financial crisis in the fall of 2008 and the subsequent federal bailout are still vivid.
Still, even if any settlement with regulators and the attorneys general does not run into the tens of billions, the financial consequences of the housing boom and subsequent bust will haunt the banks for years. Private investors are seeking to force financial institutions to buy back tens of billions of dollars’ worth of mortgages in default, arguing the original loans were made improperly.
Over the last year, the biggest banks have set aside several billion dollars each to cover potential claims stemming both from the foreclosure mess and lawsuits by private investors holding soured mortgages.
Asian Stocks Decline This Week as Oil Price Soars on Unrest in Middle East
Asian stocks fell this week amid concern instability in the Middle East and North Africa may derail a global economic rebound, reversing gains last week on signs the recovery was strengthening.
Hyundai Engineering & Construction Co., which gets 38 percent of sales from the Middle East, sank 6.2 percent in Seoul. Qantas Airways Ltd., Australia’s largest airline, slumped 6.3 percent in Sydney and Air China Ltd. tumbled 14 percent in Hong Kong as unrest in Libya drove fuel prices above $100 a barrel for the first time in two years. Toyota Motor Corp., the world’s largest carmaker, fell 3.4 percent in Tokyo.
“Share prices will have a tough time rebounding as long as investors have their eyes on the risks stemming from the uncertainty in the Middle East,” said Kenji Sekiguchi, general manager at Mitsubishi UFJ Asset Management Co., which oversees about $75 billion.
The MSCI Asia Pacific Index dropped 2.1 percent to 136.86 this week as Middle East rulers attempted to contain uprisings that have overthrown leaders in Tunisia and Egypt and spread to Bahrain, Yemen and Libya. That rolled back last week’s 3 percent gain after U.S. and Japanese central banks raised their growth outlooks and companies posted better-than-estimated earnings.
Japan’s Nikkei 225 Stock Average fell 2.9 percent this week; Australia’s S&P/ASX 200 Index lost 2 percent; while South Korea’s Kospi Index and Hong Kong’s Hang Seng Index sank 2.5 percent. China’s Shanghai Composite Index retreated 0.7 percent.
Middle East Uncertainty
“There’s uncertainty about what’s going on in the Middle East,” said Yasushi Noguchi, a strategist in Tokyo at SMBC Friend Securities Co. “Investors will increasingly be taking a wait-and-see stance.”
Hyundai Engineering slumped 6.2 percent to 75,500 won in Seoul. Samsung Engineering Co., which won contracts in Bahrain and Saudi Arabia this month, dropped 4.6 percent to 187,500 won. Chiyoda Corp., a contractor that gets almost half of its income from the Middle East, sank 4.5 percent to 721 yen in Tokyo.
Airline stocks and carmakers slumped as oil traded near the highest in more than two years amid concern crude supplies will be disrupted by the turmoil in the Middle East and North Africa.
Early in the week, Libyan leader Muammar Qaddafi vowed to fight a growing rebellion in a country that holds Africa’s largest oil reserves until his “last drop of blood.” The leader’s position weakened after a close adviser abandoned him, opponents consolidated their control of the country’s oil-rich east, and Switzerland froze some of his assets.
Qaddafi responded by reinforcing his defenses in and around the capital, Tripoli, with tanks and mercenaries.
Airlines, Carmakers Drop
Qantas plunged 6.3 percent to A$2.38 in Sydney as the risk of higher fuel prices curbed the earnings outlook for airlines. Cathay Pacific Airways Ltd. sank 9.6 percent to HK$17.70 in Hong Kong. Air China Ltd., the world’s biggest carrier by market value, tumbled 14 percent to HK$7.04. Toyota fell 3.4 percent to 3,755 yen in Tokyo.
“We’re having a natural reaction to the unrest with oil going above $100,” Todd Martin, Societe Generale’s Asia equity strategist, said in a Bloomberg Television interview in Hong Kong this week.
The MSCI Asia Pacific Index is little changed this year. The price of stocks in the gauge fell to an average of 13.7 times estimated earnings on Feb. 24, the lowest level since September.
Hyundai Engineering & Construction Co., which gets 38 percent of sales from the Middle East, sank 6.2 percent in Seoul. Qantas Airways Ltd., Australia’s largest airline, slumped 6.3 percent in Sydney and Air China Ltd. tumbled 14 percent in Hong Kong as unrest in Libya drove fuel prices above $100 a barrel for the first time in two years. Toyota Motor Corp., the world’s largest carmaker, fell 3.4 percent in Tokyo.
“Share prices will have a tough time rebounding as long as investors have their eyes on the risks stemming from the uncertainty in the Middle East,” said Kenji Sekiguchi, general manager at Mitsubishi UFJ Asset Management Co., which oversees about $75 billion.
The MSCI Asia Pacific Index dropped 2.1 percent to 136.86 this week as Middle East rulers attempted to contain uprisings that have overthrown leaders in Tunisia and Egypt and spread to Bahrain, Yemen and Libya. That rolled back last week’s 3 percent gain after U.S. and Japanese central banks raised their growth outlooks and companies posted better-than-estimated earnings.
Japan’s Nikkei 225 Stock Average fell 2.9 percent this week; Australia’s S&P/ASX 200 Index lost 2 percent; while South Korea’s Kospi Index and Hong Kong’s Hang Seng Index sank 2.5 percent. China’s Shanghai Composite Index retreated 0.7 percent.
Middle East Uncertainty
“There’s uncertainty about what’s going on in the Middle East,” said Yasushi Noguchi, a strategist in Tokyo at SMBC Friend Securities Co. “Investors will increasingly be taking a wait-and-see stance.”
Hyundai Engineering slumped 6.2 percent to 75,500 won in Seoul. Samsung Engineering Co., which won contracts in Bahrain and Saudi Arabia this month, dropped 4.6 percent to 187,500 won. Chiyoda Corp., a contractor that gets almost half of its income from the Middle East, sank 4.5 percent to 721 yen in Tokyo.
Airline stocks and carmakers slumped as oil traded near the highest in more than two years amid concern crude supplies will be disrupted by the turmoil in the Middle East and North Africa.
Early in the week, Libyan leader Muammar Qaddafi vowed to fight a growing rebellion in a country that holds Africa’s largest oil reserves until his “last drop of blood.” The leader’s position weakened after a close adviser abandoned him, opponents consolidated their control of the country’s oil-rich east, and Switzerland froze some of his assets.
Qaddafi responded by reinforcing his defenses in and around the capital, Tripoli, with tanks and mercenaries.
Airlines, Carmakers Drop
Qantas plunged 6.3 percent to A$2.38 in Sydney as the risk of higher fuel prices curbed the earnings outlook for airlines. Cathay Pacific Airways Ltd. sank 9.6 percent to HK$17.70 in Hong Kong. Air China Ltd., the world’s biggest carrier by market value, tumbled 14 percent to HK$7.04. Toyota fell 3.4 percent to 3,755 yen in Tokyo.
“We’re having a natural reaction to the unrest with oil going above $100,” Todd Martin, Societe Generale’s Asia equity strategist, said in a Bloomberg Television interview in Hong Kong this week.
The MSCI Asia Pacific Index is little changed this year. The price of stocks in the gauge fell to an average of 13.7 times estimated earnings on Feb. 24, the lowest level since September.
India Says Economy May Grow as Much as 9.25% Next Year Amid Inflation Risk
India’s finance ministry said economic growth may accelerate to as much as 9.25 percent in the next financial year, the fastest pace since 2008, and signaled a cut in the budget deficit to help slow inflation.
“With continued growth momentum, the prospects for sustaining and deepening the fiscal consolidation process remain bright,” the annual Economic Survey prepared by advisers to Finance Minister Pranab Mukherjee said yesterday. “Inflation is clearly the dominant concern.” Mukherjee is due to unveil the budget on Feb. 28 for the year starting April 1.
India needs to narrow the fiscal deficit alongside interest- rate increases to curb inflation that has been “uncomfortably high” this year, the ministry said. The gap in the nation’s finances will be the highest in 2011 among the so-called BRIC economies that include Brazil, Russia, India and China, according to the International Monetary Fund.
“The budget will focus on reducing the fiscal deficit and taming inflation,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “The government may unwind the fiscal stimulus announced during the global financial crisis.”
Shankar expects Mukherjee to raise excise and service taxes, both currently at 10 percent, by one percentage point.
Stocks Gain
The Bombay Stock Exchange’s Sensitive Index rose 0.4 percent in Mumbai yesterday. The rupee gained 0.3 percent to 45.32 against the dollar. The yield on the 8.13 percent bond due in September 2022 was little changed at 8.13 percent.
India is the world’s fastest-growing major economy after China, according to Bloomberg data. China’s economic growth may be 9 percent this year, the People’s Daily reported on Feb. 25, citing the State Council’s Development Research Center.
“The reduced fiscal deficits will permit greater availability of credit to sustain growth, while tighter monetary policy starts to transmit its impact in reducing inflation,” the Indian finance ministry’s report said.
India’s benchmark wholesale-price inflation rate averaged 9.4 percent in the nine months through December, which is the most in the past decade, the report said. Inflation slowed to 8.23 percent in January, and “this trend may continue in the next two months,” it said. The economy may expand 8.6 percent in the year ending March 31, the government said Feb. 7.
‘Unacceptable’ Inflation
“The present level of inflation is unacceptable,” Kaushik Basu, the chief economic adviser in the finance ministry told reporters in New Delhi yesterday. “We want to bring it down much further.”
Prime Minister Manmohan Singh’s government is under pressure to contain price gains as inflation erodes the spending power of the more than three-quarters of Indians the World Bank estimates live on less than $2 a day.
Thousands of workers from across India rallied by trade unions marched toward the country’s parliament in central New Delhi on Feb. 23 protesting rising food prices, low wages and job insecurity.
The Reserve Bank of India, which has raised its benchmark repurchase rate seven times in the past year, estimated last month that inflation will slow to 7 percent by March 31. The repurchase rate is 6.5 percent. The central bank on Jan. 25 signaled it will raise borrowing costs further.
Anti-Inflation Stance
“Current growth and inflation trends warrant persistence with an anti-inflationary monetary stance,” the finance ministry said.
The state-controlled Indian Railways left passenger and freight charges unchanged in its budget yesterday, a move Prime Minister Singh said will help tackle inflation.
India’s federal budget deficit may narrow to 4.8 percent of gross domestic product in the year ending March 31, less than the earlier target of 5.5 percent of GDP, the finance ministry report showed. The IMF estimates a deficit of 8.5 percent of GDP by including the shortfall in state government budgets.
Mukherjee has room to maneuver in the budget because less bonds are due for repayment and the government earned double the targeted amount from the sale of phone licenses to companies including Vodafone Group Plc in the previous year.
Eight of 12 economists in a Bloomberg News survey predict policy makers will cut borrowing in the year starting April 1. The finance ministry may have 4.3 trillion rupees ($95 billion) in gross borrowing, about 5 percent less than planned this fiscal year, CLSA Asia-Pacific Markets said.
Policy Aim
“The issue of maintaining an environment where the cost and availability of credit is supportive of growth momentum, while ensuring that inflation falls back to more comfortable target levels, will be at the centre stage of policy consideration in the near term,” according to the report.
The ministry said that the inflation outlook depends on food prices and “demand-side pressures” in the economy.
“The domestic food price situation could be exacerbated by the increase in global food prices because of dependency on import of some food items like edible oil,” the report said.
Growth may accelerate as India’s savings and investment rates “have turned around,” the report said.
The savings rate rose to 33.7 percent in the year ended March 31, 2010, from 32.3 percent in the previous year, while the investment rate climbed to 36.5 percent, the report showed.
“Since savings and investments now show a positive momentum and the government is implementing a gradual exit from the stimulus package, the savings and investment rates are likely to rise further,” according to the report. “Hence, it is expected that the economy’s growth will breach the 9 percent mark in 2011- 12.”
“With continued growth momentum, the prospects for sustaining and deepening the fiscal consolidation process remain bright,” the annual Economic Survey prepared by advisers to Finance Minister Pranab Mukherjee said yesterday. “Inflation is clearly the dominant concern.” Mukherjee is due to unveil the budget on Feb. 28 for the year starting April 1.
India needs to narrow the fiscal deficit alongside interest- rate increases to curb inflation that has been “uncomfortably high” this year, the ministry said. The gap in the nation’s finances will be the highest in 2011 among the so-called BRIC economies that include Brazil, Russia, India and China, according to the International Monetary Fund.
“The budget will focus on reducing the fiscal deficit and taming inflation,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “The government may unwind the fiscal stimulus announced during the global financial crisis.”
Shankar expects Mukherjee to raise excise and service taxes, both currently at 10 percent, by one percentage point.
Stocks Gain
The Bombay Stock Exchange’s Sensitive Index rose 0.4 percent in Mumbai yesterday. The rupee gained 0.3 percent to 45.32 against the dollar. The yield on the 8.13 percent bond due in September 2022 was little changed at 8.13 percent.
India is the world’s fastest-growing major economy after China, according to Bloomberg data. China’s economic growth may be 9 percent this year, the People’s Daily reported on Feb. 25, citing the State Council’s Development Research Center.
“The reduced fiscal deficits will permit greater availability of credit to sustain growth, while tighter monetary policy starts to transmit its impact in reducing inflation,” the Indian finance ministry’s report said.
India’s benchmark wholesale-price inflation rate averaged 9.4 percent in the nine months through December, which is the most in the past decade, the report said. Inflation slowed to 8.23 percent in January, and “this trend may continue in the next two months,” it said. The economy may expand 8.6 percent in the year ending March 31, the government said Feb. 7.
‘Unacceptable’ Inflation
“The present level of inflation is unacceptable,” Kaushik Basu, the chief economic adviser in the finance ministry told reporters in New Delhi yesterday. “We want to bring it down much further.”
Prime Minister Manmohan Singh’s government is under pressure to contain price gains as inflation erodes the spending power of the more than three-quarters of Indians the World Bank estimates live on less than $2 a day.
Thousands of workers from across India rallied by trade unions marched toward the country’s parliament in central New Delhi on Feb. 23 protesting rising food prices, low wages and job insecurity.
The Reserve Bank of India, which has raised its benchmark repurchase rate seven times in the past year, estimated last month that inflation will slow to 7 percent by March 31. The repurchase rate is 6.5 percent. The central bank on Jan. 25 signaled it will raise borrowing costs further.
Anti-Inflation Stance
“Current growth and inflation trends warrant persistence with an anti-inflationary monetary stance,” the finance ministry said.
The state-controlled Indian Railways left passenger and freight charges unchanged in its budget yesterday, a move Prime Minister Singh said will help tackle inflation.
India’s federal budget deficit may narrow to 4.8 percent of gross domestic product in the year ending March 31, less than the earlier target of 5.5 percent of GDP, the finance ministry report showed. The IMF estimates a deficit of 8.5 percent of GDP by including the shortfall in state government budgets.
Mukherjee has room to maneuver in the budget because less bonds are due for repayment and the government earned double the targeted amount from the sale of phone licenses to companies including Vodafone Group Plc in the previous year.
Eight of 12 economists in a Bloomberg News survey predict policy makers will cut borrowing in the year starting April 1. The finance ministry may have 4.3 trillion rupees ($95 billion) in gross borrowing, about 5 percent less than planned this fiscal year, CLSA Asia-Pacific Markets said.
Policy Aim
“The issue of maintaining an environment where the cost and availability of credit is supportive of growth momentum, while ensuring that inflation falls back to more comfortable target levels, will be at the centre stage of policy consideration in the near term,” according to the report.
The ministry said that the inflation outlook depends on food prices and “demand-side pressures” in the economy.
“The domestic food price situation could be exacerbated by the increase in global food prices because of dependency on import of some food items like edible oil,” the report said.
Growth may accelerate as India’s savings and investment rates “have turned around,” the report said.
The savings rate rose to 33.7 percent in the year ended March 31, 2010, from 32.3 percent in the previous year, while the investment rate climbed to 36.5 percent, the report showed.
“Since savings and investments now show a positive momentum and the government is implementing a gradual exit from the stimulus package, the savings and investment rates are likely to rise further,” according to the report. “Hence, it is expected that the economy’s growth will breach the 9 percent mark in 2011- 12.”
Thursday, February 24, 2011
Rising Oil Prices Pose New Threat to U.S. Economy
The American economy just can’t catch a break.
Last year, as things started looking up, the European debt crisis flustered the fragile recovery. Now, under similar economic circumstances, comes the turmoil in the Middle East.
Energy prices have surged in recent days, as a result of the political violence in Libya that has disrupted oil production there. Prices are also climbing because of fears the unrest may continue to spread to other oil-producing countries.
If the recent rise in oil prices sticks, it will most likely slow a growth rate that is already too sluggish to produce many jobs in this country. Some economists are predicting that oil prices, just above $97 a barrel on Thursday, could be sustained well above $100 a barrel, a benchmark.
Even if energy costs don’t rise higher, lingering uncertainty over the stability of the Middle East could drag down growth, not just in the United States but around the world.
“We’ve gone beyond responding to the sort of brutal Technicolor of the crisis in Libya,” said Daniel H. Yergin, the oil historian and chairman of IHS Cambridge Energy Research Associates. “There’s also a strong element of fear of what’s next, and what’s next after next.”
Before the outbreak of violence in Libya, the Federal Reserve had raised its forecast for United States growth in 2011, and a stronger stock market had helped consumers be more confident about the future and more willing to spend.
But other sources of economic uncertainty besides oil prices have come into sharper focus in recent days. After a few false starts, housing prices have slid further. New-home sales dropped sharply in January, as did sales of big-ticket items like appliances, the government reported Thursday.
Though the initial panic from last year has faded, Europe’s deep debt problems remain, creating another wild card for the global economy. Protests turned violent in Greece this week in response to new austerity measures.
Budget and debt problems at all levels of American government also threaten to crimp the domestic recovery. Struggling state and local governments may dismiss more workers this year as many face their deepest shortfalls since the economic downturn began, and a Congressional stalemate over the country’s budget could even lead to a federal government shutdown.
“The irony is that we just barely got ourselves up and off the ground from the devastating financial crisis,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, who had been optimistic about the country’s prospects. “The recovery itself is less than two years in, and we haven’t yet seen jobs make a decent comeback. Now we’re being hit with this new, very ominous event, so the timing couldn’t be worse.”
Most economists are not yet talking about the United States dipping back into recession, and it is too soon to tell how far the pro-democracy protests that have roiled Egypt, Bahrain and Libya will spread. For now, most analysts are not predicting that Iran and Saudi Arabia, repressive governments that also happen to be two of the world’s biggest oil producers, will catch the revolutionary fever.
“But revolutions are notoriously difficult to forecast,” said Chris Lafakas, an economist at Moody’s Analytics who focuses on energy. Disruptions of oil supplies in Saudi Arabia and Iran in particular, he said, “would be catastrophic for prices. Saudi Arabia alone could cause maybe a 20 to 25 percent increase in oil prices overnight.”
In the last week, oil prices have risen more than 10 percent and even breached $100 a barrel. A sustained $10 increase in oil prices would shave about two-tenths of a percentage point off economic growth, according to Dean Maki, chief United States economist at Barclays Capital. The Federal Reserve had forecast last week that the United States economy would grow by 3.4 to 3.9 percent in 2011, up from 2.9 percent last year.
Higher oil prices restrain growth because they translate to higher fuel prices for consumers and businesses. Mr. Lafakas estimates that oil prices are on track to average $90 a barrel in 2011, from $80 in 2010, an increase that would offset nearly a quarter of the $120 billion payroll tax cut that Congress had intended to stimulate the economy this year.
Rising gasoline prices have already led Jayme Webb, an office manager at a recycling center in Sioux City, Iowa, and her husband, Ken, who works at Wal-Mart, to cut back on spending.
In the last month, they have canceled their satellite television subscription and their Internet service. They have also stopped driving from their home in rural Moville to Sioux City on weekends to see Ms. Webb’s parents.
Along with making their commutes to work more expensive, rising oil prices have driven up the cost of food for animals and people. So the couple have stopped buying feed for their dozen sheep and goats and six chickens and instead asked neighboring farmers to let them use scraps from their corn fields.
“It’s a struggle,” said Ms. Webb, 49. “We have to watch every little penny.”
A cutback in consumer spending reverberates through the economy by crimping businesses, making it less likely that employers will commit to the additional hiring needed to lower the 9 percent unemployment rate.
“Revenue is down, costs are up, and you can’t make any money,” said R. Jerol Kivett, the owner of Kivett’s Inc., a company that manufactures pews and other church furniture in Clinton, N.C. “You’re just trying to meet payroll and keep people working, hoping the economy will turn. But it just seems like setback after setback after setback.”
Last year, as things started looking up, the European debt crisis flustered the fragile recovery. Now, under similar economic circumstances, comes the turmoil in the Middle East.
Energy prices have surged in recent days, as a result of the political violence in Libya that has disrupted oil production there. Prices are also climbing because of fears the unrest may continue to spread to other oil-producing countries.
If the recent rise in oil prices sticks, it will most likely slow a growth rate that is already too sluggish to produce many jobs in this country. Some economists are predicting that oil prices, just above $97 a barrel on Thursday, could be sustained well above $100 a barrel, a benchmark.
Even if energy costs don’t rise higher, lingering uncertainty over the stability of the Middle East could drag down growth, not just in the United States but around the world.
“We’ve gone beyond responding to the sort of brutal Technicolor of the crisis in Libya,” said Daniel H. Yergin, the oil historian and chairman of IHS Cambridge Energy Research Associates. “There’s also a strong element of fear of what’s next, and what’s next after next.”
Before the outbreak of violence in Libya, the Federal Reserve had raised its forecast for United States growth in 2011, and a stronger stock market had helped consumers be more confident about the future and more willing to spend.
But other sources of economic uncertainty besides oil prices have come into sharper focus in recent days. After a few false starts, housing prices have slid further. New-home sales dropped sharply in January, as did sales of big-ticket items like appliances, the government reported Thursday.
Though the initial panic from last year has faded, Europe’s deep debt problems remain, creating another wild card for the global economy. Protests turned violent in Greece this week in response to new austerity measures.
Budget and debt problems at all levels of American government also threaten to crimp the domestic recovery. Struggling state and local governments may dismiss more workers this year as many face their deepest shortfalls since the economic downturn began, and a Congressional stalemate over the country’s budget could even lead to a federal government shutdown.
“The irony is that we just barely got ourselves up and off the ground from the devastating financial crisis,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, who had been optimistic about the country’s prospects. “The recovery itself is less than two years in, and we haven’t yet seen jobs make a decent comeback. Now we’re being hit with this new, very ominous event, so the timing couldn’t be worse.”
Most economists are not yet talking about the United States dipping back into recession, and it is too soon to tell how far the pro-democracy protests that have roiled Egypt, Bahrain and Libya will spread. For now, most analysts are not predicting that Iran and Saudi Arabia, repressive governments that also happen to be two of the world’s biggest oil producers, will catch the revolutionary fever.
“But revolutions are notoriously difficult to forecast,” said Chris Lafakas, an economist at Moody’s Analytics who focuses on energy. Disruptions of oil supplies in Saudi Arabia and Iran in particular, he said, “would be catastrophic for prices. Saudi Arabia alone could cause maybe a 20 to 25 percent increase in oil prices overnight.”
In the last week, oil prices have risen more than 10 percent and even breached $100 a barrel. A sustained $10 increase in oil prices would shave about two-tenths of a percentage point off economic growth, according to Dean Maki, chief United States economist at Barclays Capital. The Federal Reserve had forecast last week that the United States economy would grow by 3.4 to 3.9 percent in 2011, up from 2.9 percent last year.
Higher oil prices restrain growth because they translate to higher fuel prices for consumers and businesses. Mr. Lafakas estimates that oil prices are on track to average $90 a barrel in 2011, from $80 in 2010, an increase that would offset nearly a quarter of the $120 billion payroll tax cut that Congress had intended to stimulate the economy this year.
Rising gasoline prices have already led Jayme Webb, an office manager at a recycling center in Sioux City, Iowa, and her husband, Ken, who works at Wal-Mart, to cut back on spending.
In the last month, they have canceled their satellite television subscription and their Internet service. They have also stopped driving from their home in rural Moville to Sioux City on weekends to see Ms. Webb’s parents.
Along with making their commutes to work more expensive, rising oil prices have driven up the cost of food for animals and people. So the couple have stopped buying feed for their dozen sheep and goats and six chickens and instead asked neighboring farmers to let them use scraps from their corn fields.
“It’s a struggle,” said Ms. Webb, 49. “We have to watch every little penny.”
A cutback in consumer spending reverberates through the economy by crimping businesses, making it less likely that employers will commit to the additional hiring needed to lower the 9 percent unemployment rate.
“Revenue is down, costs are up, and you can’t make any money,” said R. Jerol Kivett, the owner of Kivett’s Inc., a company that manufactures pews and other church furniture in Clinton, N.C. “You’re just trying to meet payroll and keep people working, hoping the economy will turn. But it just seems like setback after setback after setback.”
Indian rally raises pressure on Singh
Pressure mounted on Manmohan Singh, India’s prime minister, as thousands of workers marched in the capital to protest against inflation.
The opposition has been seeking to capitalise on the weakening position of Mr Singh, who is reeling from a spate of corruption scandals that threaten to undermine his reputation for integrity. His ability to manage the economy is also being called into question as India battles the highest inflation of any major Asian economy.
Wednesday’s march of daily wage labourers, organised by the leftist Centre of Indian Trade Unions, highlighted concerns that Mr Singh had failed to control inflation and that his ruling Congress party was not delivering on its promise of “inclusive growth”, but instead excluding all but a few from the benefits of fast economic growth.
The demonstration drew an estimated 40,000 people from across India. It was the biggest protest in Delhi since a march against corruption this year drew many, mostly middle class, people on to the streets.
Sushilabai Marawi, a farm labourer from the western state of Maharashtra, said: “We earn R120 ($2.65) a day. How can we afford to eat when costs are so high, from rice and wheat to sugar and vegetables? We want to send a message to the leaders of this country.”
The left and right are levelling severe criticism against Mr Singh’s tolerance of high inflation before the national budget on Monday. Mr Singh, 78, has pleaded on national television that he is not a “lame duck” prime minister.
The Hindu nationalist Bharatiya Janata party, emboldened by its victory this week in forcing the government to agree to a parliamentary investigation into a high profile telecoms scandal, has launched a stinging attack on Mr Singh’s pedigree as one of India’s top financial bureaucrats.
“What use is your experience as a distinguished economist if you are unable to really save the common man from the entire gambit of inflation that has set in in the last three years?” asked Arun Jaitley, a senior BJP leader.
Yashwant Sinha, a former BJP finance minister, challenged the government’s prized high growth strategy, arguing it was counterproductive if it was also accompanied by high inflation. He warned India had returned to a period of over-stimulating “excesses”, reminiscent of 20 years ago, by running wide fiscal and current account deficits.
Last week, Mr Singh publicly acknowledged more could have been done to curb inflation. But he said his government had wanted to keep intact India’s growth story and the recovery from the global financial crisis.
The prime minister had initially forecast that inflation, currently at 8.2 per cent, would fall to below 6 per cent by the end of last year. He has since revised his forecast to 7 per cent by the end of March.
The opposition has been seeking to capitalise on the weakening position of Mr Singh, who is reeling from a spate of corruption scandals that threaten to undermine his reputation for integrity. His ability to manage the economy is also being called into question as India battles the highest inflation of any major Asian economy.
Wednesday’s march of daily wage labourers, organised by the leftist Centre of Indian Trade Unions, highlighted concerns that Mr Singh had failed to control inflation and that his ruling Congress party was not delivering on its promise of “inclusive growth”, but instead excluding all but a few from the benefits of fast economic growth.
The demonstration drew an estimated 40,000 people from across India. It was the biggest protest in Delhi since a march against corruption this year drew many, mostly middle class, people on to the streets.
Sushilabai Marawi, a farm labourer from the western state of Maharashtra, said: “We earn R120 ($2.65) a day. How can we afford to eat when costs are so high, from rice and wheat to sugar and vegetables? We want to send a message to the leaders of this country.”
The left and right are levelling severe criticism against Mr Singh’s tolerance of high inflation before the national budget on Monday. Mr Singh, 78, has pleaded on national television that he is not a “lame duck” prime minister.
The Hindu nationalist Bharatiya Janata party, emboldened by its victory this week in forcing the government to agree to a parliamentary investigation into a high profile telecoms scandal, has launched a stinging attack on Mr Singh’s pedigree as one of India’s top financial bureaucrats.
“What use is your experience as a distinguished economist if you are unable to really save the common man from the entire gambit of inflation that has set in in the last three years?” asked Arun Jaitley, a senior BJP leader.
Yashwant Sinha, a former BJP finance minister, challenged the government’s prized high growth strategy, arguing it was counterproductive if it was also accompanied by high inflation. He warned India had returned to a period of over-stimulating “excesses”, reminiscent of 20 years ago, by running wide fiscal and current account deficits.
Last week, Mr Singh publicly acknowledged more could have been done to curb inflation. But he said his government had wanted to keep intact India’s growth story and the recovery from the global financial crisis.
The prime minister had initially forecast that inflation, currently at 8.2 per cent, would fall to below 6 per cent by the end of last year. He has since revised his forecast to 7 per cent by the end of March.
Investors Fleeing India Complicate Singh's Push for Asset Sales
Indian Prime Minister Manmohan Singh, who’s halfway to his fiscal-year target for share sales with 35 days to go, may have to set a more ambitious goal for the next 12 months even as investors shun the country’s stocks.
India’s government may seek a record 500 billion rupees ($11 billion) in the year starting April 1 as it tries to shrink the fiscal deficit, said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai. Finance Minister Pranab Mukherjee will propose the fiscal budget on Feb. 28.
Singh’s administration delayed at least three sales of shares in state-owned companies in 2010 even as foreign investors poured a record $29 billion into Indian stocks. With few options for mending government finances, Singh may turn to banks including Citigroup Inc. to accelerate privatizations -- a process made tougher as persistent inflation and unrest in the Middle East dents demand for emerging-market equities.
“Last year was one of the best for the market and they couldn’t meet their target,” said Rakesh Arora, head of India research at Macquarie Group Ltd. in Mumbai. “There is no way foreign investors will be able to match the money they put into India in 2010,” Arora said in an interview on Feb. 22.
India’s Sensitive Index has fallen 14 percent this year, the worst performance among Asian benchmarks in local currency terms, according to data compiled by Bloomberg. The gauge fell 3 percent yesterday, the most in more than 15 months, as food- price gains accelerated. Foreign investors have sold a net $1.58 billion of Indian shares since Jan. 1, the data show.
Pending Sales
Singh, 78, raised 227.6 billion rupees since the start of this fiscal year through shares of companies including Coal India Ltd., the world’s biggest producer of the fuel. The sale of a 5 percent stake in Oil & Natural Gas Corp., scheduled for next month, may add another 113 billion rupees to state coffers, based on New Delhi-based ONGC’s closing price yesterday.
That would still leave the government 15 percent short of its fiscal-year target of 400 billion rupees.
Proposed sales of stakes in Indian Oil Corp., the country’s biggest refiner, and Steel Authority of India Ltd., its second- largest producer of the alloy, may help raise about 104 billion rupees next fiscal year, according to data compiled by Bloomberg. The Department of Disinvestment has also hired bankers for Power Finance Corp., a lender to Indian utilities, and Hindustan Copper Ltd., India’s only miner of the metal.
India’s cabinet in November 2009 approved a plan requiring the government to reduce its stake in profitable state-run companies to a maximum 90 percent. That made about 60 state-run companies eligible for sales, the finance ministry said at the time, including miner and power producer Neyveli Lignite Corp., National Fertilizers Ltd. and MMTC Ltd., the nation’s biggest state-run trading company.
Telecom Reprieve
The government has also been considering an initial share sale for former phone monopoly Bharat Sanchar Nigam Ltd. since at least 2003. A 10 percent stake would raise $10 billion, the company’s finance director estimated in January 2008. The government hasn’t decided on the initial share sale, Telecommunications Secretary P.J. Thomas said in July.
Singh’s administration won a reprieve on meeting its privatization target in the current financial year because of the 1.06 trillion rupees it raised from the sale of wireless permits and spectrum, said Sahay. Tax revenue also climbed 20 percent in the first 10 months of the fiscal year, driven by India’s economic growth.
The push to meet asset-sale targets may be “much stronger” in the new financial year, Sahay said.
India’s budget deficit may drop to 4.8 percent of gross domestic product by March 2012, from an estimated 5.2 percent by the end of next month, Chakravarthy Rangarajan, chairman of Singh’s Economic Advisory Council, said this month. That compares with 2.7 percent for the year to March 2008.
Diminishing Demand
A renewed push by Singh to sell state companies could be complicated by diminished demand for emerging-market equities. The MSCI Emerging Markets Index lost 6 percent this year, even as the MSCI World Index rose 4 percent through yesterday.
Indian companies raised 41 billion rupees in share sales since Dec. 31, less than a fifth of the amount collected in the same period of 2010, according to data compiled by Bloomberg. Citigroup is the top-ranked arranger of stock offerings in the country this year, maintaining the lead it had in 2010, followed by Deutsche Bank AG and HSBC Holdings Plc, the data show.
Intensified efforts to sell state-backed companies may spell trouble for private firms seeking to go public, said Abhishek Saraf, an analyst at Deutsche Bank in Mumbai. State companies paid underwriters near-zero fees in 2010, while commissions for private share sales averaged 3.5 percent, Bloomberg data show.
Government-owned companies also typically sell shares at lower valuations than private enterprises, said Jagannadham Thunuguntla, an analyst at SMC Global Securities Ltd.
“Disinvestment deals are more likely to go through than private paper,” said Saraf. That’s because the government may be more willing to ease up on pricing than company owners, he said.
India’s government may seek a record 500 billion rupees ($11 billion) in the year starting April 1 as it tries to shrink the fiscal deficit, said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai. Finance Minister Pranab Mukherjee will propose the fiscal budget on Feb. 28.
Singh’s administration delayed at least three sales of shares in state-owned companies in 2010 even as foreign investors poured a record $29 billion into Indian stocks. With few options for mending government finances, Singh may turn to banks including Citigroup Inc. to accelerate privatizations -- a process made tougher as persistent inflation and unrest in the Middle East dents demand for emerging-market equities.
“Last year was one of the best for the market and they couldn’t meet their target,” said Rakesh Arora, head of India research at Macquarie Group Ltd. in Mumbai. “There is no way foreign investors will be able to match the money they put into India in 2010,” Arora said in an interview on Feb. 22.
India’s Sensitive Index has fallen 14 percent this year, the worst performance among Asian benchmarks in local currency terms, according to data compiled by Bloomberg. The gauge fell 3 percent yesterday, the most in more than 15 months, as food- price gains accelerated. Foreign investors have sold a net $1.58 billion of Indian shares since Jan. 1, the data show.
Pending Sales
Singh, 78, raised 227.6 billion rupees since the start of this fiscal year through shares of companies including Coal India Ltd., the world’s biggest producer of the fuel. The sale of a 5 percent stake in Oil & Natural Gas Corp., scheduled for next month, may add another 113 billion rupees to state coffers, based on New Delhi-based ONGC’s closing price yesterday.
That would still leave the government 15 percent short of its fiscal-year target of 400 billion rupees.
Proposed sales of stakes in Indian Oil Corp., the country’s biggest refiner, and Steel Authority of India Ltd., its second- largest producer of the alloy, may help raise about 104 billion rupees next fiscal year, according to data compiled by Bloomberg. The Department of Disinvestment has also hired bankers for Power Finance Corp., a lender to Indian utilities, and Hindustan Copper Ltd., India’s only miner of the metal.
India’s cabinet in November 2009 approved a plan requiring the government to reduce its stake in profitable state-run companies to a maximum 90 percent. That made about 60 state-run companies eligible for sales, the finance ministry said at the time, including miner and power producer Neyveli Lignite Corp., National Fertilizers Ltd. and MMTC Ltd., the nation’s biggest state-run trading company.
Telecom Reprieve
The government has also been considering an initial share sale for former phone monopoly Bharat Sanchar Nigam Ltd. since at least 2003. A 10 percent stake would raise $10 billion, the company’s finance director estimated in January 2008. The government hasn’t decided on the initial share sale, Telecommunications Secretary P.J. Thomas said in July.
Singh’s administration won a reprieve on meeting its privatization target in the current financial year because of the 1.06 trillion rupees it raised from the sale of wireless permits and spectrum, said Sahay. Tax revenue also climbed 20 percent in the first 10 months of the fiscal year, driven by India’s economic growth.
The push to meet asset-sale targets may be “much stronger” in the new financial year, Sahay said.
India’s budget deficit may drop to 4.8 percent of gross domestic product by March 2012, from an estimated 5.2 percent by the end of next month, Chakravarthy Rangarajan, chairman of Singh’s Economic Advisory Council, said this month. That compares with 2.7 percent for the year to March 2008.
Diminishing Demand
A renewed push by Singh to sell state companies could be complicated by diminished demand for emerging-market equities. The MSCI Emerging Markets Index lost 6 percent this year, even as the MSCI World Index rose 4 percent through yesterday.
Indian companies raised 41 billion rupees in share sales since Dec. 31, less than a fifth of the amount collected in the same period of 2010, according to data compiled by Bloomberg. Citigroup is the top-ranked arranger of stock offerings in the country this year, maintaining the lead it had in 2010, followed by Deutsche Bank AG and HSBC Holdings Plc, the data show.
Intensified efforts to sell state-backed companies may spell trouble for private firms seeking to go public, said Abhishek Saraf, an analyst at Deutsche Bank in Mumbai. State companies paid underwriters near-zero fees in 2010, while commissions for private share sales averaged 3.5 percent, Bloomberg data show.
Government-owned companies also typically sell shares at lower valuations than private enterprises, said Jagannadham Thunuguntla, an analyst at SMC Global Securities Ltd.
“Disinvestment deals are more likely to go through than private paper,” said Saraf. That’s because the government may be more willing to ease up on pricing than company owners, he said.
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