Thai policy flip-flop rattles Asia
Thailand was the focus of attention across the world, as a seemingly exaggerated reaction from its central bank to a sharp rise in its currency, the baht, brought back unhappy memories of the 1997 Asian financial crisis. On Dec. 18, the Bank of Thailand slapped unleashed a series of steps aimed at curbing the runaway gains in baht against the dollar as it was hurting the country's exports. The central bank told banks to lock up 30% of new foreign-currency deposits for a year to curb speculation and imposed penalties on overseas investments held for less than a year. The central bank responded to exporters who said the baht's 12.5% gain this year was hurting demand from overseas by making their goods more expensive.
A day after, Thailand's SET Index sank 16% to its lowest since Oct. 29, 2004. This was the biggest decline in Thai stocks since Aug. 7, 1990. The Thai currency had its biggest two-day decline since April 2005. Other regional markets too crashed amidst fears of a repeat of the 1997 financial crisis when a similar crash in baht had sparked off a regional financial crisis. The baht too dropped the most in three years after the Bank of Thailand's announcement. The bloodbath across Asian markets forced the Thai central bank to reverse part of its measures aimed at protecting exporters.
Thailand's Finance Minister Pridiyathorn Devakula said controls would remain on foreign investments in bonds and commercial paper but would not apply to equities. It also diluted its currency restrictions by excluding purchases of land, condominiums and other such property by foreigners from the restrictions. The Bank of Thailand has no further plans to place curbs on investor funds, Governor Tarisa Watanagase said later. The partial rollback propped up the mood across regional markets, but Thailand's reputation with global investors suffered a big blow.
The exercise dented the credibility of Thailand's recently installed military government. The 'two steps forward one step back' approach of the Thai central bank also proved that in today's scenario, central bankers cannot afford to have a high-handed approach towards markets, as the latter have become too powerful. A more subtle handling is a much better option given the high degree of globalisation. The events in Thailand and its fallout on the regional markets will certainly discourage other governments from considering similar measures.
Vodafone shows interest in Hutch
It's official now. Vodafone Group Plc, the world's largest mobile-phone company, is considering a proposal to acquire a controlling stake in Hutchison Essar Ltd., India's fourth-largest mobile phone operator. "The process is at an early stage and may not lead to a transaction", Newbury, England-based Vodafone said in a Regulatory News Service statement. Vodafone said that such a transaction would be consistent with its stated strategy of seeking selective acquisition opportunities in developing markets. Earlier, media reports had suggested that The Board of Vodafone had given a green signal to CEO Arun Sarin to pursue a multi-billion dollar bid for Hutch Essar. The deal is likely to value Hutch at up to US$13.5bn (£7bn), the reports stated.
Meanwhile, Hutchison Telecommunications International Ltd. said it has been approached by various potentially interested parties regarding a possible sale of its equity interests in Hutchison Essar. The Hong Kong-based company said that no agreement in respect of such possible sale had been entered into. The company reiterated that there was no assurance that a sale may result from these approaches. Shares of Hutchison Telecommunications rose while that of Vodafone fell.
It will take some time for a final deal to fructify, as three different suitors have thrown in their hats in the ring for the Indian unit of Hong Kong billionaire Li Ka-shing's Hutchison Telecommunications. Besides Vodafone, the other contenders are Reliance Communications Ltd., part of the Reliance-Anil Dhirubhai Ambani Group (ADAG), and Maxis of Malaysia. Reports say that Reliance Communications has tied up with private equity majors Blackstone and Texas Pacific for the Hutch Essar bid. In a related development Hutch Essar held a Board meeting on Friday, but didn't discuss the offers. "We did have a board meeting, but it was a routine internal quarterly meeting," Hutchison Essar Managing Director Asim Ghosh told reporters in Mumbai.
For Vodafone, any offer for Hutch Essar will hinge on it wriggling out of a one-year non-competition clause with its existing partner Bharti Airtel Ltd. Vodafone bought a 10% stake in the Bharti Airtel last year, but could sell it to help fund a takeover of Hutch. Meanwhile, Reliance Communications has sounded out its bankers to arrange the finances for the bid. ABN Amro, Barclays, Deutsche Bank and Citigroup have been roped in by the ADAG firm to finance the company's ambitious purchase. The Ruia family, which controls the 33% stake of the Essar Group in Hutch Essar, have not decided whether to sell out. Media reports say that the Ruias could even decide to buy out its JV partner.