India Weekly Snippets - May 17 2008

India's external fundamentals are strong: Moody's

Moody's Investors Service said that the Indian economy's external fundamentals are strong enough to withstand a wide range of potential shocks, including sudden reversals in short-term capital flows, a sharp slowdown in global growth, and weak government finances, or a slowing in structural reforms on account of a fractious political landscape. The Moody's report said that the strong fundamentals, combined with a private-sector induced upturn in savings and investment and a rising rate of potential growth, support the Government's foreign currency sovereign bond rating of Baa3 and local currency bond rating of Ba2. "The government's local currency bond rating of Ba2 balances a high level of indebtedness with a favorable debt structure," said Aninda Mitra, a Moody's VP/Senior Analyst and author of the report. "At the same time, concerns about the size and servicing burden of the government debt is somewhat mitigated by the latter's high local currency content, long tenor, growing domestic savings and a stable creditor base dominated by domestic institutions," added Mitra.

April indirect tax receipts up 11% yoy

Indirect tax collections grew 11% in the first month of the current fiscal year despite a decline in excise collection, the Government said. Excise duty collection fell by 3.9% to Rs64.1bn in April from Rs66.73bn a year ago. Customs duty collection grew by 24.9% to Rs90.18bn in April against Rs72.21bn in the same month last year, thanks to high growth in imports. Total indirect tax collection (excluding service tax) rose by 11% to Rs154.28bn as against Rs138.94bn during the period. Excise duty collection has been falling short of target for quite some time. Revised estimates for collections under this head had to be cut to Rs1.28 trillion for 2007-08 from Rs1.3 trillion in the budget estimates. Even this truncated target could not be met and the Centre could collect only Rs1.25 trillion from excise duty during the year.

No wheat imports this year: Pawar

The Government won't import wheat this year as procurement from the domestic market reached a record, Agriculture Minister Sharad Pawar said. "There's no question of importing this year," Pawar told reporters in New Delhi. The Government imported 1.8mn tons of wheat in 2007. Procurement of wheat is all set to reach 20mn tons as against the target of 15mn tons in the current marketing season. "Though we have a target of 15mn tons, we will reach at 20mn tons. If we reach 20mn tons, wheat imports will not be required," the Agriculture Minister Pawar said on the sidelines of a function organised by industry chamber CII. Pawar said he had discussed wheat procurement with all state governments and the Food Corporation of India (FCI) and the assessment is based on their feedback. Separately, Pawar said the Government does not plan to ban futures trading in more agricultural commodities. The Government last week banned trading in soybean oil, potatoes, chick peas and natural rubber to cool down inflation. "The decision to ban four commodities was taken by the FMC. I think the situation will not be there to extend it beyond four months. I don't think any new commodities will be included in the list," Pawar said.

SEBI clears alternative payment for public/rights issue

The SEBI Board approved the concept of marking lien on bank account as an alternative mode of payment in public / rights issues. The concept will enable the application money to remain in the bank account of the applicant till such time the allotment is finalized and thus eliminate the refund process. The Board also decided to enhance the minimum net worth requirement for registration as a portfolio manager from the existing Rs5mn to Rs20mn and to give effect to the requirement of maintaining continuous networth separately for portfolio management activities. It was also decided that Portfolio Managers should not float a scheme or pool the resources of the client in a way which is akin to mutual fund activity. They would be required to keep assets of each client separately and not in a pooled manner. A time frame of six-months from the date of notification has been given to convert their operations managed on pooled basis to individual basis.

Reliance Infratel, MCX get SEBI nod for IPOs: reports

Market regulator SEBI reportedly cleared the Initial Public Offering (IPO) of Reliance Infratel and Multi Commodity Exchange (MCX). While Reliance Infratel is likely to raise between Rs50-60bn from the IPO, MCX may mobilise up to Rs7bn. Reliance Infratel, a Anil Dhirubhai Ambani Group (ADAG) company is reportedly looking to offload a 10% stake to the public. The company, which is 95% owned by Reliance Communications (RCOM), is planning to offer about 89.16mn shares. It may be recalled that Reliance Infratel had earlier sold a 5% stake to a clutch of investors, including HSBC and George Soros' Quantum Fund. Meanwhile, the MCX issue is aimed at part funding its proposed infrastructure and technological investments. The commodity exchange will raise money partly through issuing fresh equity and partly through offer for sale by Financial Technologies (FT), one of the chief promoters of MCX, and Corporation Bank. Post IPO, FT's stake in MCX will fall to 26% from the current 32%. In February, FT had sold a 5% stake in MCX to NYSE Euronext.

Haven't made any bid for MTN: Bharti Airtel

Bharti Airtel reiterated that its talks with South Africa's MTN Group are exploratory in nature and that it has not made any bid for acquiring Africa's biggest wireless telecom operator. "The company has not made any bid nor is there any requirement to make a bid, as has been incorrectly speculated and reported," Bharti Airtel said. The company also reiterated that the discussions with MTN may or may not lead to any transactions. "Bharti Airtel and MTN are holding talks to combine the strengths of the two leading emerging markets players and accordingly veering towards possible structures to achieve this objective," the New Delhi-based company said. Bharti Airtel submitted an indicative bid for a controlling share in MTN at about 165 South African rand per share, the Financial Times reported on May 5. On May 9, the Dow Jones Newswires reported that Bharti Airtel was considering a bid of 175 rand a share. But, this week, Dow Jones said Bharti Airtel may not pay more than US $45bn for all of MTN, though the South African operator is seeking US $50bn. Meanwhile, some industry observers and merchant banking experts believe that the deal could happen through a merger. A financial daily reports that Bharti Airtel is exploring the possibility of buying 100% of MTN through a scheme of arrangement. It will offer MTN shareholders cash as well as stock. Reports also said that Bharti Airtel had offered the post of Chairman to Matamela Cyril Ramaphosa, the non-executive chairman of MTN. Sunil Mittal, the chairman of Bharti Group, is likely to be group CEO and deputy chairman of the new entity.



SC seeks explanation on Singur land acquisition

The Supreme Court (SC) asked for replies from Tata Motors, the West Bengal government and others as to why fertile multi-crop agricultural land was acquired for the company's small-car project at Singur. A bench headed by the Chief Justice, K.G. Balakrishnan, while issuing notice to Tata Motors, the state government and the West Bengal State Industrial Development Corporation (WBSIDC) posted the matter for further hearing in July. According to reports, Kedar Nath Yadav, a practicing lawyer, had filed a petition, seeking immediate halt to the Nano car project. Yadav had challenged the Calcutta High Court's decision that upheld as legal the acquisition of land at Singur by the West Bengal government. The acquisition of fertile multi-crop agricultural land by the state government in various parts of the state for a number of industrial projects violated farmers' rights guaranteed by the constitution, Yadav argued in his petition. The land acquisition by state also goes against the provisions of Land Acquisition Act, 1894, he said.

Upaid wins case against Satyam Computer

Online and mobile payments service leader, Upaid Systems, announced that the Court of Appeal in London affirmed a January High Court Judgment in Upaid's favour against Satyam Computer Services, soundly rejecting the Indian software leader's effort to block Upaid's fraud and forgery claims in a Texas court. The decision confirms an earlier High Court judgment in favour of Upaid on all points. This ruling allows Upaid's lawsuit against Satyam alleging forgery, fraud, misrepresentation, and breach of contract, and what Satyam admits are "extremely large sums of money", to proceed to a US trial by jury in a Texas federal court. Satyam said it is confident that it has merits in the case involving Upaid Systems, and would contest the case. It is premature to make any judgment on the quantification of any potential damages, Satyam said, adding that the matter is sub-judice. The Hyderabad-based IT major said it is considering all its legal options as regards the dismissed appeal in a London court.

Bajaj, Renault and Nissan form JV company

Rajiv Bajaj, MD of Bajaj and Carlos Ghosn, President & CEO of Renault and Nissan, announced they will form a joint-venture company to develop, produce and market the car code-named "ULC" with wholesale price range starting from US$2500. The new JV will be 50% owned by Bajaj Auto, 25% by Renault and 25% by Nissan. Targeting the growing Indian new vehicle market, ULC will be made at an all-new plant to be constructed in Chakan in Maharashtra. Initial planned capacity will be 400,000 units per year. Sales will start in early 2011 in India, as a primary market, with growth potential in other emerging markets around the world. The feasibility has already extended into Joint Product Development and the project is on line to meet targeted performance and cost, the companies said.

Ranbaxy forms research alliance with Merck

Ranbaxy Laboratories said it had signed a Product Development Agreement with Merck & Co., providing for a drug discovery and clinical development collaboration for new products in the anti-infective field. Ranbaxy and Merck will work together to develop clinically validated anti-bacterial and anti-fungal drug candidates. Ranbaxy will carry out drug discovery and clinical development through Phase IIa clinical trials, with Merck conducting development and commercialization of drug candidates thereafter. The collaboration will begin this year with an initial term of five years and can be extended mutually thereafter by the parties. Under the terms of the agreement, Ranbaxy will be paid an undisclosed upfront sum with the potential to receive payments totaling more than US$100mn associated with achievement of various R&D and regulatory approval milestone for each target included in the collaboration.

RCOM forms JV with Alcatel - Lucent

Reliance Communications (RCOM) and Alcatel - Lucent announced forming a global joint venture. Combining the unique strengths of Alcatel - Lucent and RCOM, the JV would foray in the fast growing US$16bn (Rs640bn) Managed Network Services industry and will cater to telecom operators, both CDMA and GSM, across the globe. The first assignment of this JV will be to provide Managed Services for RCOM's nationwide CDMA and GSM networks in India. The JV will support the expansion and growth of RCOM, within and outside India. A new legal entity is being farmed as part of the JV. Alcatel-Lucent will have the operational control of the new entity. RCOM is represented in the JV through its wholly own subsidiary. The JV would thereafter expand its operations in the global arena.

NTPC eyes coal mines in Indonesia

NTPC plans to buy majority stakes in one or two coal mines in Indonesia, Chairman R.S. Sharma said. The public-sector company may decide on buying the stakes by March, Sharma told reporters in New Delhi. NTPC has selected three banks to advise it on the acquisition, Sharma said, without giving names. The company seeks to buy assets with reserves of 200mn tons to 300mn tons, he added. "We have already appointed three merchant bankers for this and our endeavour is to finalise the stake purchase by the end of this financial year," Sharma said. Separately, NTPC decided to allocate 0.5% of distributable profit annually for its "Research and Development Fund for Sustainable Energy". This fund will be used for sponsoring / undertaking research leading to development of green and clean technologies. The research may include development of

China rocked by major quake

A strong earthquake measuring 7.9 on Richter scale rattled southwest China, causing buildings to shake in Beijing. The quake hit Wenchuan County of China's Sichuan province, less than 100 km from the provincial capital of Chengdu, the US Geological Survey said. It struck 90 kms west-northwest of Chengdu at 2:28 p.m. local time on May 12 at a depth of 10 kilometers, the USGS said. The effect of the quake was felt as far away as Thailand. The cost of the devastating earthquake in China, which killed nearly 15,000 people, is likely to exceed US$20bn, according to leading disaster modelling firm AIR Worldwide. The earthquake was the worst to hit China in 32 years. AIR warned that the full extent of the damage could take weeks to discover. Rescue workers struggled to reach some of the worst affected areas and tens of thousands of people were still buried under collapsed buildings. The number of deaths announced so far rose to 19,500 in Sichuan province, the centre of the earthquake.

Markets still not completely stable: Bernanke

Though financial markets have stabilised in the past few weeks they still remain stressed, Federal Reserve chairman Ben S. Bernanke said. The Fed's liquidity measures appear to have contributed to some improvement in financing markets, Bernanke said. However, he added that conditions in financial markets are still far from normal. Bernanke noted some improvements in the markets for certain mortgage-backed securities, such as those backed by Fannie Mae and Freddie Mac, as well as some fixed-rate mortgages and corporate debt. Moreover, the Fed's extraordinary decision in March to let investment firms go to the Fed for emergency loans seems to have bolstered confidence, Bernanke said. The central bank has taken a number of steps to help ease the credit crunch. Still, there are strains involving a widely used interest rate called the London interbank offered rate, or Libor, Bernanke said. And funding pressures have also been evident in the strong participation of commercial banks in a Fed auction program that has made billions of dollars available in short-term cash loans, he said. The Fed policymakers stand ready to further increase the size of these loans in the future if warranted by financial developments, Bernanke added.

China hikes reserve requirement again

The Chinese central bank raised banks' reserve requirement for the fourth time this year to soften inflation which accelerated further last month due to rising food costs. The reserve requirement rose to a record 16.5% of deposits from 16%, the People's Bank of China said. The increase takes effect on May 20 and is aimed at curbing excess liquidity and soaring inflation. The hike came only a few hours after official data showed that China's consumer price index (CPI) accelerated at a faster-than-expected 8.5% pace in April from the year-ago period. The increase will freeze about 208bn yuan (US$30bn) in the banking system, and may help cool the world's fastest-growing economy. Having said that, a 7.5% increase in the reserve requirement since the start of last year has failed to stop lending growth. The central bank has kept the benchmark one-year lending rate unchanged at a nine-year high of 7.47% this year after six increases in 2007. The government has also slowed the pace of yuan gains since April.

Eurozone economy grows faster than expected

Germany and France, two of eurozone's biggest economies, paced economic growth in the EU during the first quarter, despite a global credit crisis and a slowdown in the United States. GDP in the euro area increased 0.7% from the previous three months, when it rose 0.4%, the European Union's Luxembourg-based statistics office said. The reading exceeded average forecast of a 0.5% gain. Germany's economy surged to the fastest pace in 12 years and growth in France surpassed expectations, even as Spain suffered its weakest expansion in almost eight years. While Italy doesn't report GDP data until May 23, economists said it may already have slipped into a recession. The ECB has resisted pressures to cut interest rates to boost growth in the wake of the US slowdown and turbulence in financial markets. It has indicated it is in no rush to cut rates and wants to contain inflation. Figures published showed euro-area inflation eased to 3.3% in April from a 16-year high of 3.6% in March, still well above the ECB's 2% ceiling. ECB President Jean-Claude Trichet said last week inflation will remain high for some time and moderate only gradually



Japanese GDP growth beats forecast

Japan's economy grew at a faster than expected pace in the first quarter of the year, marking its third consecutive expansion amid strong exports to Asia and other emerging markets. A rebound in private residential investment also helped the world's second-biggest economy to weather a slowdown in the US. Gross Domestic Product (GDP) in the January-March period rose 0.8% from the last quarter, or 3.3% annualised, the Cabinet Office said today. Economists had expected the Japanese economy to grow 0.7% for the quarter. Fourth-quarter growth was revised to 2.6% from 3.5%, the Cabinet Office said. Finance Minister Fukushiro Nukaga and Economy Minister Hiroko Ota said they're concerned about the outlook for business investment, which fell 0.9% last quarter. The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates. Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5% at the end of their next meeting on May 20 and most economists say borrowing costs will stay unchanged this year.

Icahn mounts proxy war against Yahoo

Yahoo shares surged after activist shareholder Carl Icahn launched a campaign to overthrow the Internet giant's board as part of an effort to restart deal talk with Microsoft. Icahn said he owns the equivalent of 59mn Yahoo shares, and has permission to acquire up to US$2.5bn worth. He created a slate of 10 nominees for board seats, including Mark Cuban and Frank Biondi Jr. All 10 of Yahoo's directors are up for re-election at the annual meeting on July 3. In a letter to Yahoo's board, Icahn said that a combination with Microsoft is by far the most sensible path if the Internet company wants to take on Google. "The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft,'' said Icahn, 72. "I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.'' Yahoo said it was right to reject Microsoft's US $47.5bn offer and that its directors are the most qualified to boost the company's value. Icahn has a significant misunderstanding of Microsoft's offer and the response of Yahoo's board, Yahoo chairman Roy Bostock said. He said Yahoo is willing to consider any proposals, including from Microsoft, that offer shareholders full value. Yahoo's board met more than 20 times to review Microsoft's offer and other options, keeping an open mind and an open ear," Bostock said.