Weekly News - June 27 2008

India, Pak, Iran to discuss pipeline in July

Officials from India, Pakistan and Iran will meet next month to discuss construction of the much-delayed US$7.6bn pipeline to transport natural gas from Iran to the sub-continent, Petroleum Secretary M.S. Srinivasan said. Iran and India are yet to agree on the delivery point of the natural gas, Srinivasan told reporters in New Delhi. India wants Iran to deliver gas at the border it shares with Pakistan, he said, adding that Pakistan has said it has no problem with India's stand. The three countries want to build 2,100-kilometer long natural gas pipeline by December 2012 after a decade of delays.

Apr-June direct tax collections up 43% yoy

The collection from corporate income tax and personal income tax as on June 21, stood at Rs494.11bn, exhibiting a growth rate of 43.45% over the same period of the previous year. Collection from corporate income tax stood at Rs306.55bn, reflecting a growth rate of 39.8% over the year-ago period, while personal income tax receipts were up nearly 50% at Rs187.56bn. The buoyancy in the tax collection is significant considering the fact that refunds to the tune of Rs108.1bn have been issued till date at a growth rate of 33.7% over previous year. The advance tax payments by top companies have shown a healthy growth. The highest contribution has come from ONGC followed by SBI and SAIL indicating that the growth is visible in almost all sectors of economy.

SBI raises PLR by 50 bps

State Bank of India (SBI) hiked its Prime Lending Rate (PLR), the rate it receives from its best borrowers, for the first time in 15 months after the RBI increased the repo rate and CRR by 50 basis points to tame inflation. SBI will hike its PLR by 50 basis points to 12.75% from June 27, the country's biggest bank said in a statement. Axis Bank raised its PLR by 50 bps to 15.25%. The private sector bank also announced a 50- basis- point hike in floating home loan rates to 11% with effect from July 1. According to reports, HSBC has hiked its deposit rates by up to 75 bps with immediate effect.

IndusInd Bank has increased its PLR by 0.5% to 16.25% with effect from June 19. The bank also increased its deposit rates by 25-50 bps across tenures. Punjab National Bank (PNB) is likely to raise its deposits and lending rates from July 1 by 50 bps. At present, the bank's PLR is 12.5%. Union Bank has hiked term deposit rates by up to 100 bps. Earlier, HDFC Bank, J&K Bank and Yes Bank had increased their PLRs following the RBI's decision to raise the repo rate by 25 bps on June 11.

Govt unveils new potash, phosphate policy
The Cabinet Committee on Economic Affairs (CCEA) considered and approved the proposal of the Department of Fertilizers (DOF) relating to the Concession Scheme on de-controlled P&K fertilizers. The new policy is effective April 1. The scheme is substantially based on the recommendations of the Tariff Commission and provides a realistic framework for computing input cost, conversion and handling. It will encourage the P&K fertilizer industry to meet the long term needs of the agriculture sector. Indigenous DAP has been brought at par with imported DAP for the purposes of calculation of concession. Providing concession to indigenous DAP on the basis of Import Parity Price (IPP) will ensure competitiveness and provide a rational basis for payment of concession.

Govt asks RIL to prioritize gas supply

The Government chalked out an order of priority which Reliance Industries Ltd. (RIL) should adhere to while pumping natural gas from KG D6 block in the Krishna Godavari basin, off the east coast. RIL is expected to commence production from September. It will initially be about 25 mmscmd, and is expected to gradually increase to 40 mmscmd by March 2009. The EGoM has decided that the existing gas based urea plants, which are now getting gas below their full requirement, should be supplied gas so as to enable full capacity utilization. A maximum quantity of 3 mmscmd should be supplied to existing gas based LPG plants. Up to 18 mmscmd natural gas should be supplied to power plants.

Idea Cellular will acquire the promoters' 40.8% stake (281,489,350 shares of Rs10 each) in Spice Communications at Rs77.30 per share. Spice also approved a merger with Idea. As per the merger terms, Spice shareholders will receive 49 shares of Idea for every 100 shares held. In addition, the Idea-TM International Berhad combine will make an open offer for acquiring an additional 20% stake in Spice at Rs77.30 per share. TM International Berhad currently holds 39.2% in Spice. Idea will also sell a 14.99% stake to TM International Berhad on a preferential basis at Rs156.96 per share. It will also pay Rs5.44bn to Spice promoters as a non-compete fee. Post the Spice acquisition, Idea will become a debt free company, and will be the fifth-biggest wireless operator just behind BSNL.

Essar Steel withdraws bid for Esmark

Essar Steel withdrew its bid to acquire US-based Esmark. Severstal would now acquire Esmark for US$19.25 per share for a total value of US$1.25bn including debt. Esmark gave its union a time period of three days till June 26 to submit the bid. The United Steelworkers union would have to come up with a competing offer for Esmark, failing which Essar could revive its earlier bid, which was already approved by the Esmark Board, the report added.

Sun Pharma exercises options to acquire Taro Pharma

Sun Pharmaceutical Industries announced that a subsidiary of Sun Pharma has exercised the option to acquire all the shares held by the controlling shareholders of Taro Pharmaceuticals Industries Ltd. Sun Pharma will in the next few days commence a Tender Offer for all ordinary shares as required by the option agreement. The agreement also requires that Sun Pharma specifically commence its Tender Offer at US$7.75 per share. Sun Pharma filed an action in the Supreme Court of New York against Taro and its full Board of Directors. The action asserting fraud claims against Taro and its directors asks the court to order the controlling shareholders to honor their promises under the option agreement.

GMR announced the signing of definitive documentation for the acquisition of 50% stake in InterGen NV, a leading global power generation company, for US$1.1bn. GMR Infrastructure (Malta) Ltd. signed the share purchase agreement with AIG Highstar to acquire the stake in InterGen. The acquired firm has power plants located across the UK, the Netherlands, Mexico, Australia and the Philippines, with total net capacity (net of auxiliary) of 12,756 MW. The deal is subject to regulatory approvals and is expected to close in the third quarter of 2008. This is the largest ever acquisition of a global energy utility by an Indian company. It is the most competitive acquisition at US$360,000 per MW which is half the current cost of similar facility. InterGen had total proportional turnover of about US$1.65bn and total proportional EBITDA of US$613mn for the year ended December 2007.



Reid & Taylor to get funds from GIC arm

S. Kumars Nationwide Ltd. (SKNL) said that it's wholly owned unlisted subsidiary, Reid & Taylor (India) Ltd. has received an investment of Rs9bn from Indivest Pte Ltd, an affiliate of GIC Special Investments. GIC SI will invest in Reid & Taylor through a fresh issue of shares and warrants. Post-conversion of warrants, GIC SI would own 25.4% of Reid & Taylor, valuing it at Rs35.4bn. S.Kumars will own 74.6% of Reid & Taylor post investment from GIC SI. The investment will help to substantially strengthen Reid & Taylor and S. Kumars businesses. It will also help boost their ability to grow in the luxury fabric & apparel and other textile segments, S.Kumars said.

Citi selling Indian BPO biz: report

Citigroup is reportedly planning to sell off its Indian BPO subsidiary, Citigroup Global Services, and its technology and infrastructure outsourcing arm Citos. The top US bank, which has been one of the worst hit by the sub-prime cum credit crisis, could be close to finalizing a deal with IBM, a financial daily said. French IT company Capgemini, and India's leading IT services firm Tata Consultancy Services (TCS) are the other two contenders, the newspaper said. The deal, if concluded, is expected to be worth around US $800mn, the paper said. Citigroup Global Services had been put on sale last year, but the transaction did not materialize, the business daily added.

Cairn to invest US$2bn on Rajasthan fields, pipeline

Cairn India plans to spend US$2bn to develop oil fields in Rajasthan and build a crude pipeline over the next 18 months, Chairman Bill Gammell said. A project to develop fields in Rajasthan will cost US$850mn, Gammell said in Mumbai. Cairn India started construction on a 600-kilometer pipeline to transport crude oil from its Rajasthan fields to the country's west coast. Oil production from the Mangala field is expected to start in the second half of 2009, Gammell said. The output from the Bhagyam and Aishwariya fields will start in 2010.

Caterpillar to expand manufacturing capacity in India

As part of its strategic plan to increase its manufacturing footprint in the rapidly growing Asia-Pacific region, Caterpillar announced a four-year, US$200mn investment to increase manufacturing capacity in India. The announcement to increase engine and machinery production in India was made during a visit to Caterpillar’s India facilities by Caterpillar Chairman and CEO Jim Owens. Due to the investment in operations and anticipated increases in its business to support a growing base of customers, Caterpillar plans to significantly increase employment in India over the next several years.

Sinclair signs first agreement with Wockhardt

Sinclair Pharma Plc announced that it has concluded its first marketing distribution agreement in India. The agreement was signed with Wockhardt, an Indian pharmaceutical and biotech company employing 7,500 people and sales last year of around US$670mn. The 10 year agreement with Wockhardt initially covers Atopiclair (non steroidal cream for atopic dermatitis), Aloclair (presentations for the treatment of mouth ulcers), Papulex (presentations for the treatment of acne) and Decapinol (product range for the treatment and prevention of gingivitis and plaque). Sinclair will provide finished product to Wockhardt but switch to local manufacturing as soon as possible, which will enhance the margins for Sinclair.

Fed keeps rates unchanged

No surprises here. For the first time in the last nine months, the Federal Reserve did not cut interest rates, as its focus shifts to managing inflation expectations from boosting economic growth. At the end of its two-day policy meeting on June 26, the Fed left its benchmark fed funds rate unchanged. Mounting inflation worries prompted the US central bank to halt its aggressive rate-cutting campaign that began in September 2007.

Between last September and April this year, the Fed cut short-term interest rates by 3.25% to just 2% in an effort to prevent the world's biggest economy from sliding into a recession. But, with chances of a recession receding somewhat, and commodity prices (especially that of crude oil) shooting through the roof, the Fed has had to change its stance, like most central banks around the world. In fact, Dallas Fed chief Richard Fisher voted for a rate hike.

The Fed sharpened its focus on inflation, saying that the risks to the US economy from upward pressure on prices have increased. "The upside risks to inflation and inflation expectations have increased," the FOMC said. At the same time, downside risks to growth appear to have diminished somewhat," it added. However, the Fed did not drop any hints as to when rates will start rising again if inflationary pressures continue to mount. Some economists believe there will be a monetary tightening before the end of the year, while others see no move until next spring, after this November's presidential elections.

European economy slows in May-June

Economic conditions in Europe slowed further in the last two months, according to three closely watched reports. German business confidence fell to the lowest level in more than two years in June on the back of rising crude oil prices and the prospect of higher interest rates. Rising prices are eroding consumer spending while a stronger euro is hurting exports. Separately, a preliminary purchasing managers index (PMI) for the manufacturing and service sectors across the 15-nation eurozone pointed to a contraction in activity in June, according to media reports. Also, business and consumer confidence in the 15 countries that use the euro weakened significantly in June as the European Central Bank prepared to raise its key interest rate.

Japanese economy weakens further

Japan's household spending slumped in May, the ratio of jobs available fell to a three-year low and the inflation rate almost doubled, with a measure of core prices suffering its biggest jump since 1998. Household spending declined 3.2%, the most since September 2006, the statistics bureau said. Core consumer prices, which exclude fruit, fish and vegetables, rose 1.5% from a year earlier after climbing 0.9% in April. Stocks slid to a two-month low on concern that soaring energy costs are sapping global demand for Japanese products. Bonds gained because the risk of a recession may prevent the Bank of Japan (BOJ) from raising its key interest rate from 0.5% even as inflation accelerates. The government downgraded its assessment of industrial production despite output growing for the first time in three months.



Barclays to raise US$8.8bn via share sale

Barclays said it plans to raise around £4.5bn (US$8.85bn) through a private placement of shares to three investors, as it attempts to shore up its capital base in the wake of losses linked to the sub-prime meltdown in the US. Qatar Investment Authority (£1.76bn), Challenger (£533mn), and Sumitomo Mitsui Banking Corp (£500mn) will become new shareholders of Barclays. Existing shareholders China Development Bank and Temasek will also participate in the share sale, as will other institutional shareholders and investors. The share issue will enable Barclays to run capital ratios ahead of its long-standing targets. The Board estimates that, taking into account the proceeds of the share sale, Barclays would have reported a tier one ratio of 8.8% and an equity tier one ratio of 6.3% as at Dec. 2007.