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Friday, January 19, 2007

DOMESTIC NEWS & GLOBAL NEWS


Govt may not revise fuel prices this month


The Government would slash domestic retail prices of petrol and diesel only if crude oil prices stabilise under US$50 per barrel for at least a month, Petroleum Minister Murli Deora said. Deora said that prices of petroleum products may not be reviewed at the end of the month, as announced earlier, as the Petroleum Ministry was waiting for the Indian crude basket to stabilise below US$50 a barrel. "We want prices to stabilise below US$50 a barrel at least for a month," Deora told reporters Petroleum Secretary MS Srinivasan had said earlier that the Government would review fuel prices by the end of this month. Deora also said that he would meet Finance Minister P. Chidambaram on Tuesday to discuss budget proposals for the petroleum sector. He said that the Petroleum Ministry had sought a cut in excise duties on petroleum products to lower retail prices, but declined to divulge details. Meanwhile, crude futures in New York were set for a fifth weekly decline, after US stockpiles surged and the International Energy Agency (IEA) cut forecast for global demand because of warmer weather. Oil prices in New York fell under US$50 per barrel, but recovered to trade above the psychological level.

Refined profits for Reliance

Reliance Industries Ltd. stunned the market with a much better than expected performance for the October to December quarter, thanks largely to the sharply higher gross refining margins. The company posted a net profit of Rs27.99bn for the quarter ended December 31, 2006 as against Rs17.76bn for the year-ago quarter. The turnover was up 40% at Rs277.71bn versus Rs198.99bn in the quarter ended December 31, 2005. PBDIT for the quarter stood at Rs47.51bn compared to Rs31.56bn in the corresponding quarter a year earlier. Earnings Per Share (EPS) for the fiscal third quarter were Rs20.1 versus Rs12.7 in the same quarter of the previous financial year. The operating profit margin climbed 170 basis points to 17.7%. Crude throughput was up 18%. However, the base was lower in Q3 FY06 as the refinery was shut for about a month in October and November 2005. Shares of the company climbed on the news and quite a few brokerages raised their price targets on the stock, citing the much improved show from the private sector giant. But, all is not hunky dory for Reliance Industries as the petrochemicals business remains under pressure. While revenues in this segment rose by 48% margins fell sharply from 14.5% to 12.9%.

Tata Steel shares slip on higher bid news

Shares of Tata Steel Ltd. fell by more than 2% on Friday after a financial daily reported that its Board was likely to authorize Chairman Ratan Tata and MD B. Muthuraman to offer as much as 600 pence per share for Corus Group Plc. According to the business newspaper, the Board of India's largest private sector was to meet soon to "enable the management to take the bid up to 600 pence per share." The financial daily reported that Tata Steel was likely to first increase its offer to 530 pence per share and study CSN's response before deciding its future course of action. But a Tata Steel spokesman denied the news. The stock closed down 1.7% at Rs467.6 after being as low as Rs463.25 and as high as Rs479.40. Tata Steel shares are down about 8.5% since Oct. 20, when Corus approved the mumbai-based company's initial offer of 455 pence a share. On Dec. 11, Tata Steel increased its initial bid for Corus by 10% to 500 pence per share. However, Brazil's CSN offered to buy the Anglo-Dutch steel major for 4.9bn, or 515 pence a share in cash. Britain's takeover watchdog has set a January 30 as the deadline for Tata Steel and CSN to make a revised offers for Corus.

India, ASEAN FTA to be signed by July

The much-delayed Free Trade Agreement (FTA) with ASEAN could see the light of day sooner rather than later. The two sides agreed on the broad contours of the agreement, which is expected to be signed by July, Commerce Minister Kamal Nath announced on Jan. 14. Speaking to the media after the conclusion of talks with ASEAN leaders at the tropical Philippines resort of Cebu, Nath said that the two sides had agreed to have a list of products that would not be subject to any tariff cuts till 2022. The negative list will not exceed 5% of India's total trade with ASEAN countries. Likewise, ASEAN will have a negative list which will not cross 5% of its trade with India. On all the other goods that would make up 95% of the trade, there would be either elimination or reduction of duties.
India is expected to bring into this list some 490 items that include rubber and coconut. In addition, India has offered to cut tariffs on about 700 manufactured items to 0-5% over the next 10 to 15 years.

AI-Indian merger by March end

The proposed merger of the Government-owned Air India with Indian (erstwhile Indian Airlines) will be completed by March 31, as part of the Government strategy to counter the dominance by private carriers. Civil Aviation Minister Praful Patel said that there would be no loss of jobs or salary cuts after the merger. "The two airlines would gain Rs5bn annually after the merger," Patel said, adding that the cost of the merger would be about Rs1.5bn to Rs2bn. Meanwhile, the empowered Group of Ministers (eGOM) has asked the Civil Aviation Ministry to hold talks with employees of the two state-run carriers before finalising the merger.

No agreement on pipeline yet: Cairn India

Shares of Cairn India rose more than 8% in the week amid reports that ONGC had agreed to partner it in building the pipeline for evacuating the crude from the Rajasthan fields. Reports said that the cost of the pipeline will be shared in 70:30 ratio by Cairn India and ONGC. Reports said that MRPL will no longer be the designated company to buy the crude from Cairn India. Instead, oil will be sold to Reliance Industries Ltd. (RIL) and Essar Oil in Gujarat. The news sent Cairn India's stock higher. The stock ended the week at Rs146.55 as against Rs134.90 on Jan. 12. But, the Indian subsidiary of the UK-based Cairn Energy Plc said it was yet to reach an agreement with ONGC on the construction of the pipeline. Meanwhile, the controversial IPO of Cairn India got into further trouble. Media reports said that market regulator SEBI had sought details of institutional bids and allotments from merchant bankers in the recently concluded public issue.

PFC to mop up nearly Rs10bn from IPO

Power Finance Corporation Ltd. (PFC) plans to raise close to Rs10bn through its proposed Initial Public Offering (IPO). The public sector company, which provides funds to the power sector, plans to issue 117,316,700 equity shares of Rs10 each to the public through a 100% book building process. It will reserve 2,500,000 shares for the employees of the company. PFC fixed a price band of Rs73-85. At the lower end, the company would raise Rs8.56bn, while at the upper end it could mop up over Rs9.97bn. The issue would open on January 31 and would close on February 6. The company would utilise the funds to boost capital for meeting future requirements arising out of the growth of the power sector. Meanwhile, the Government is considering a proposal to disinvest % stake each in three other public sector power sector companies - Power Grid Corporation of India (PGCIL), National Hydroelectric Power Corporation (NHPC) and Rural Electrification Corporation (REC) via the public issue route.

Govt to table bill for raising FDI in insurance

The Government said it would bring legislation in the winter session of parliament starting next month to increase Foreign Direct Investment (FDI) in the insurance sector to 49% from 26% at present. This was told by Finance Minister P. Chidambaram during his meeting with British Chancellor of Exchequer, Gordon Brown in New Delhi. "The Finance Minister, P. Chidambaram indicated that a bill will be introduced in parliament next month to increase FDI limit in insurance to 49% from 26%," Brown told a news conference. CPM General Secretary Prakash Karat said that the Left parties won't back the Centre's bid to increase the FDI in insurance. The issue of raising the FDI cap in the insurance sector has been hanging fire for quite some time owing to stiff opposition from Left parties, key allies in the Congress-led coalition Government. So, it would be interesting to see how the Government goes about convincing the communist leaders on this issue. The Left parties in the past have accused the Government, led by Prime Minister Dr. Manmohan Singh, of bowing to pressure from western nations such as the US and the UK on key economic policies. The remarks by Brown could lead to another showdown between the Government and its key partners.

Govt to up ECB limit to US$22bn

With India Inc. firing on all cylinders and given the tight liquidity in the domestic market, the Government is all set to increase the cap on External Commercial Borrowing (ECB) for the current fiscal year. The Centre is likely to hike the ECB limit, from the current US$18bn to US$22bn, owing to huge demand for overseas funds from Indian companies expanding rapidly to cash in on the economic boom. A notification to this effect is expected soon. The total amount raised through the ECB route till December 31, 2006 is US$14.3bn. Proposals for another US$6-7bn are awaiting clearance by a high-level committee. The move is expected to help companies like Reliance Communications Ltd., which proposes to raise US$4bn. Apart from Reliance Communications, India Infrastructure Finance Company Ltd., the Special Purpose Vehicle set up by the Government last year, is also expected to raise a sizable amount. IDFC has also started the process to raise money via ECBs.

NCAER ups FY07 GDP growth forecast

With the manufacturing and services sectors on a roll, the National Council for Applied Economic Research (NCAER) said it was revising upwards its FY07 economic growth forecast to 8.4%. NCAER raised its GDP growth forecast from 8.1%. This is the third upward revision in the GDP growth projection by the economic think tank. The Indian economy grew by 8.4% in the year 2005-06. It expanded at an annual pace of 9.1% in the first six months of FY07. NCAER expects the agriculture growth to moderate to 2.7% from 3.9% in 2005-06. Industrial output is estimated to grow at 9.1% this fiscal, up from 8.7% in 2005-06, while the services sector is expected to grow by 10.2%, marginally higher than a year before. NCAER expects inflation to be at the lower end of the 5-5.5% range set by the Reserve Bank of India (RBI).

Moody's warns on capacity constraints

Meanwhile, Moody's Investors Service said India was unlikely to sustain the high GDP growth of close to 9% for long due to capacity constraints. There are several signs of overheating in the economy such as high growth in credit and widening currency account deficit, in addition to concerns over fiscal deficit. Also, inflation is likely to be above RBI’s comfort zone of 5-5.5%. As a result, a further upgrade in India’s sovereign rating outlook is unlikely, Moody's said. India’s robust economic momentum seems to defy the constraints posed by the country’s inadequate infrastructure, and an inefficient government sector, said Kristin Lindow, Senior Credit Officer at Moody’s. And, such a rapid growth and structural impediments cannot coexist. Still, Moody's reaffirmed India's sovereign ratings outlook saying that the country's local currency rating suffers owing to the heavy borrowings by the Government and large budget deficits.

ONGC confirms gas finds in KG, Mahanadi basins

Its official now. Oil & Natural Gas Corp Ltd. (ONGC) has put an end to the protracted drought in discovering new hydrocarbon assets. The public sector oil & gas giant confirmed recent media reports that it had struck natural gas in Krishna Godavari basin and the Mahanadi basin off the country's east coast. "I can confirm a huge gas find in ultra deepwater in KG Basin and a commercial discovery in Mahanadi basin," Petroleum Minister Murli Deora said. The finds are commercially viable, and details would be announced at a suitable time, said ONGC Chairman RS Sharma. But he added that the KG Basin discovery was posing a few 'technological challenges' and that it was scouting for a strategic partner. "We are in talks with Petrobras of Brazil, ENI of Italy, Norsk Hydro of Norway, Malaysia's Petronas and BG of the UK for a strategic tie-up," Sharma said. He also said that the company was willing to offer the partner equity stake in the block KG-DWN-98/2. "Western firms don't just come for charity, we will offer them equity," Sharma said.

Saudi Aramco may buy 26% in Paradip refinery

In line with the growing trade ties between India and Saudi Arabia, oil major Saudi Aramco is likely to pick up a 26% stake in Indian Oil Corp. Ltd.'s (IOC) proposed Paradip grass-root refinery. The 15-MT refinery is expected to go on stream by 2012 at an investment of Rs250bn. According to IOC Chairman Sarthak Behuria the issue was discussed between Petroleum Minister Murli Deora and Ali Al-Niami, Saudi Arabia's Oil Minister. However, Behuria declined to divulge further details. The move is part of the Government's decision to offer Saudi Aramco a stake in three upcoming refineries at Bina, Bhatinda and Paradip. Saudi Aramco has also invited Indian state-run oil companies to invest in refineries in Saudi Arabia. While BPCL is building the Bina refinery in Madhya Pradesh, HPCL is putting up a refinery at Bhatinda in Punjab and IOC is setting up one at Paradip in Orissa.

RIL to build refinery in Yemen; ONGC may also join

After making its mark in India, Mukesh Ambani is slowly spreading its energy tentacles abroad. His group's flagship company, Reliance Industries Ltd. (RIL) will build a 50,000 barrels per day refinery in Yemen, Khalid Mahfoudh Dahah, Yemen's Oil Minister said. RIL will partner local company Hood Oil for this refinery. The capacity of the RIL refinery can be doubled later. Construction would begin this year and will take 36 months to complete. RIL already has picked up a stake in two onshore oil Blocks 34 and 37 in Yemen. Hood Oil is its partner in the two blocks. Yemen also invited ONGC to set up a US$1bn oil refinery on its Arabian coast. The refinery would have a capacity of 100,000 barrels per day (bpd). "We have proposed to them to partner in one of the two 100,000 barrels per day refineries being planned. They have said they will think of partnering in the refinery project when they get an oil block in Yemen," Dahah said.

UTI, Benchmark win SEBI approval for Gold ETFs

UTI Asset Management Co. and Benchmark Asset Management Company received the approval from capital market regulator SEBI to launch gold exchange-traded funds (Gold ETFs). The schemes would be open-ended and are proposed to be listed on the NSE. Both UTI and Benchmarks said that the unit of the gold shares would be one gram to attract the maximum retail participation. SEBI asked both UTI and Benchmark to file their offer documents to start attracting investments. Gold ETFs are products through which investors can trade in the precious metal via stock exchanges without physically owning it. This product, which tracks the price of gold in the spot market, will enable investors buy even smaller quantity of the metal, without concerns about quality and physical delivery. There are some 10 bullion ETFs in countries including the US, UK, Australia, Turkey, Singapore and South Africa. Other Indian AMCs which have filed offer documents with the SEBI for Gold ETFs include Kotak Mutual Fund.

Nissan Copper...SEBI clamps down on 40 entities

Market regulator SEBI asked the BSE and the NSE to withhold the profits of about 40 entities in a separate escrow account, while it probed the abnormal rise in price, volume and net deliverable quantity in Nissan Copper Ltd. on Dec. 29, the day it made its debut. At the same time, SEBI asked the exchanges to release the funds and securities payout of Dec. 29 and Jan. 2 immediately with the exception of the 40 entities/clients. Earlier, SEBI had asked exchanges to freeze the payout of shares and funds for all transactions in Nissan Copper on Dec. 29 and Jan. 2, except the trades done by retail investors who had subscribed to the issue. SEBI also barred brokers Matrix Equitrade, RSS Investments, Park Light Securities, Dimensional Securities, Religare Securities and H Nyalchand Financial Services from trading in the shares of Nissan Copper. Three FIIs - Venus Capital Management, ITF Mauritius and VACUF - are also under the SEBI scanner. The regulator also initiated action against merchant banker Keynote Corporate Services and registrar Bigshare Services to ascertain whether they have exercised due diligence in the allotment process.

Deals continue to pour

Tata Steel Ltd. said it was acquiring Rawmet Ferrous Industries Pvt. Ltd. at an enterprise value of Rs1.01bn, with Rs413.1mn going towards the equity of the Kolkata-based unlisted company. The company expects the transaction to be completed by the end of February. Rawmet has a ferro alloy plant at Anantapur near Cuttack, Orissa, with two 16.5 MVA electric arc furnaces that have the capacity to produce about 50,000 tons of high carbon ferro chrome annually. Pantaloon Retail India Ltd. said that its wholly-owned subsidiary Future Office Products, has acquired Officedge, an online B2B office products company providing contract delivery services to corporate customers on a pan India basis. Shares of Krebs Biochemicals & Industries Ltd. rose after Ranbaxy Laboratories Ltd. said it was planning to acquire a 14.9% stake in the Hyderabad-based company. Ranbaxy would buy the stake in Krebs Biochemical through a preferential allotment of 10.5 lakh shares at Rs85 per share. Morgan Stanley invested about Rs6.75bn (US$150mn) in Mumbai-based Oberoi Constructions. The quantum of stake sale was not disclosed. According to reports, Oberoi Constructions is valued at US$1bn by Kotak Mahindra Investment Bank, which has brokered the deal.

M&M, Honda unveil plans for new plants

Mahindra & Mahindra Ltd. (M&M) said it would set up a new plant at Chakan near Pune to manufacture commercial vehicles under the Joint Venture (JV) with US-based International Truck and Engine Corp. An agreement to this effect was signed by the company with the Maharashtra Government. M&M plans to spend Rs25bn on the proposed plant, which would have an initial capacity of 250,000 units per annum, said Pawan Goenka, President (Automotive Sector). He said that production would begin in two years. M&M has a 51% stake in the joint venture with Navistar International. Honda to build second car plant in Rajasthan Honda Siel Cars India (HSCI) selected Rajasthan for setting up its second car plant in India. The second plant will manufacture HSCI's small car in the Indian market and will have an initial capacity of 50,000 units per annum. The new plant will also have a Suppliers' Park, which will house Honda's network of ancillary units.

TCS, ABG Shipyard, Areva T&D bag big orders

Tata Consultancy Services Ltd. (TCS) announced that it had signed an agreement with Banco Pichincha, Ecuador's largest private bank, to provide a comprehensive outsourcing solution valued at over US$140mn over the next five years. Banco Pichincha, a renowned regional leader in adopting innovation and new technology, has over 1.5mn clients, a loan portfolio of over US$1.5bn and over 232 branches spanning Ecuador, Peru, Colombia, Panama, Spain and the US. ABG Shipyard Ltd. said it had bagged an order worth Rs10.31bn (US$229mn) from Pacific First Shipping Pte. Ltd., Singapore. The order is for the construction of 9 Anchor Handling Tug Supply (AHTS) vessels and 3 Dry Bulk carriers. The last delivery will take place in December 2009. With this, the company has started accepting orders for its upcoming Dahej Shipyard where it can make vessels up to 120,000 DWT. Also, the company's order book position as on date stands at about Rs34.76bn. Areva T&D India Ltd. announced on Thursday that it had won fresh orders worth Rs25.2bn from Reliance Petroleum Ltd. (RPL), National Aluminium Company Ltd. (NALCO) and General Electricity Company of Libya (GECOL).

Oil falls under US$50; will touch US$100 says Jim Rogers

Crude oil futures in New York were set for a fifth weekly decline, after US stockpiles surged and the International Energy Agency (IEA) cut forecast for global demand because of warmer weather. Light, sweet crude for February delivery was quoting at US$50.57 per barrel in after-hours electronic trading on the New York Mercantile Exchange (NYMEX) at 12:56 p.m. in London. On Jan. 18, it closed down US $1.76, or 3.4%, at US $50.48, after touching US $49.90, the lowest intraday price since May 25, 2005. The five-week losing streak would be the longest since a six-week drop ending Dec. 11, 1998. The February oil contract expires on Jan. 22. The more actively traded March contract was US $52.03 a barrel. Brent crude oil for March settlement rose 41 cents to US $52.16 a barrel on the ICE Futures exchange in London. Meanwhile, Jim Rogers said that crude will resume its upward march towards US $100 per barrel after a correction. "I'm just not smart enough to know how far down it will go and how long it will stay, but I do know that within the context of the bull market, oil will go over US$100," Rogers, who predicted the start of the commodities rally in 1999, told Bloomberg in an interview. "It will go over US $150. Whether that is in 2009 or 2013, I don't have a clue, but I know it's going to happen."

Asian countries agree on trading bloc

Move over US and EU. Here comes Asia. With the two major western powers refusing to resolve differences with developing nations, Asia decided to form a large trading zone to rival the US and EU. The trend of forming regional trade agreements picked up momentum, with Asia's key economies saying they would start planning a free trade zone stretching from India to New Zealand, after China gave up its resistance against such a move. Leaders of 16 nations endorsed the plan for a trade zone including India, Australia and New Zealand at a meeting in Cebu, in the Philippines. Japan, the region's largest economy, will fund a study into the proposal. The 16 countries that would be included in the free trade area are Japan, China, India, South Korea, Australia, Indonesia, Thailand, New Zealand, Malaysia, Singapore, the Philippines, Vietnam, Brunei, Laos, Cambodia and Myanmar. The free trade area would include countries with economic output of US$9 trillion and a combined population of three billion - almost half the world's people. However, experts cautioned that it will take years for the plan to become a reality and that Asian leaders should try to revive the WTO talks. Setting up so many regional agreements could lead to chaos and the move will undermine the multilateral system. Meanwhile, China signed a free trade agreement covering 60 services industries with 10 Southeast Asian nations. The pact, which covers everything from transport to energy services, will come into effect on July 1.

BOJ keeps rates unchanged

The Bank of Japan (BOJ) left the benchmark interest rate unchanged for a sixth month running as it collects more evidence of strength in the world's second-largest economy. Policy makers kept the overnight lending rate unchanged at 0.25% in a six-to-three vote, the Japanese central bank said in a statement today in Tokyo. Economic growth and inflation were slower than the forecasts made in the semi-annual assessment made in October, the BOJ said. The central bank wants more time to study consumer spending and other economic data like consumer price inflation before moving to lift borrowing rates at its meeting in February. The Government will publish fourth-quarter GDP data in the middle of next month, a week before the BOJ meeting on Feb. 20-21. Investors increased their bets that the BOJ will lift rates in February to a 69% chance, up from 42% before the decision, according to Credit Suisse. The Swiss investment bank calculates the chances of a quarter-point rate increase based on trading in contracts for the exchange of interest payments.

GE unveils 2 big-ticket deals

General Electric Co. (GE), the world's largest aircraft engine maker, agreed to buy the aerospace business of Smiths Group Plc, Britain's third-largest aerospace company, for US$4.8bn in cash. Smiths will return US$2.1bn to shareholders. GE and Smiths also announced plans for a joint venture called Smiths GE Detection. Smiths Aerospace has more than 11,000 employees and posted revenue of US$2.4bn in 2006. GE also said it will buy two of Abbott Laboratories Inc.'s diagnostics business units for US$8.13bn in cash. GE said it would buy Abbott's primary in-vitro diagnostics businesses and its Point-of-Care diagnostics business. Abbott's molecular diagnostics and diabetes-care businesses are not part of the transaction. GE said that fourth-quarter profit rose, boosted by growth across all its units except GE Industrial. The industrial unit's results were hurt by weak performance in the plastics business, which may be put up for sale, the company said. GE also said it overstated its earnings dating back to 2001 by a total of US $343 mn, as a result of its accounting for interest rate swaps.

Airbus bagged less orders than Boeing in 2006

Airbus won orders for 824 airliners last year, well short of both Boeing's 1,050 tally and its own industry record of 1,111 in 2005. But, Airbus delivered 434 planes compared to its US-based rival's 398. Despite the production crisis that is hurting the double-decker A380, year 2006 was the best year ever in terms of deliveries and the second best year in terms of sales, said EADS co-CEO Louis Gallois, who also heads Airbus. Meanwhile, EADS said the two-year delay to the Airbus A380 was proving costlier than expected, sending shares lower. EADS said an unspecified fourth-quarter accounting charge tipped Airbus into an operating loss for 2006 that will "roughly balance" earnings before interest and tax from other divisions. Full-year results will be released March 9.