Eveninger - May 23 2008
Saturday, May 24, 2008
Anil Ambani group company Reliance Communications (RCom) has initiated talks with South Africa's largest telecom operator, MTN Group. The company officials have discussed the possibility of acquiring majority stake with MTN executives on Thursday, according to sources close to the development.
This follows Bharti Airtel, which was in "exploratory" talks with the South African company, pulling out of the deal.
According to sources, RCom has formally approached MTN Group on Thursday and the company has started discussions for a possible takeover.
When contacted, an RCom spokesperson declined to comment.
This is the second attempt by RCom to acquire MTN Group, as earlier last year the company had initiated talks with the South African company. RCom chairman Anil Ambani had met MTN Chief Executive Officer Phuthuma Nhleko last year, even though the talks were not "successful".
Bharti has decided to disengage from the ongoing talks with the South African telecom major, MTN, to explore the possibility of a merger between the two "emerging markets" telecom giants.
Bharti has already conveyed its decision to pull out of the talks to the MTN board, after discussions that continued till late last night could not achieve a breakthrough.
According to a statement issued by the Bharti group, the decision to pull out of the talks was prompted by its consideration that the new structure proposed by the MTN board would not have been in the interest of Bharti Airtel's minority shareholders and in its plans for growth as an Indian telecom multinational.
A few weeks ago and at the invitation of MTN board, Bharti had entered into exploratory discussions on the possibility of combining the two 'emerging market' telecom giants. A number of structures were discussed and evaluated between the lead bankers on both sides. An in-principle agreement was also reached on May 16 and a term sheet was initialled between the two lead bankers.
On May 21, according to the Bharti statement, the agreed term sheet was presented to the MTN Board.
However, MTN has now presented a completely different structure, from what was agreed. This new structure envisages Bharti Airtel becoming a subsidiary of MTN and exchange of majority shares of Bharti Airtel held by the Bharti family and Singtel, in exchange for a controlling stake in MTN.
Bharti believes that this "convoluted way of getting an indirect control of the combined entity would have compromised the minority shareholders of Bharti Airtel and also would not capture the synergies of a combined entity".
Bharti also believed that its vision of transforming itself from a home grown Indian company to a true Indian multinational telecom giant, symbolising the pride of India, would have been severely compromised.
The Bharti statement also pointed out that the reference price at which MTN shares were to be transacted was agreed and frozen at the point of starting the discussion and Bharti would like to confirm that there was no further discussion on the share price of MTN, at any point.
This is in line with Bharti's highly disciplined approach towards any acquisition and consistent with Bharti's philosophy that it will not engage in a bidding war at any stage, the statement noted. Bharti had obtained letters of confidence from over a dozen internationally reputed bankers from the US and Europe to provide funds of over $60 billion to facilitate the proposed merger.
Crude oil and inflation worries have been playing party poopers over the past several weeks. This trend is unlikely to change for a while, which will in turn keep investors edgy. On local front, the Government is under pressure to consider a hike in retail fuel prices. Whether it actually materialises or not remains to be seen as the Left parties have already issued a warning to the Congress coalition. Still, given the huge losses being suffered by public sector oil marketing companies, the Government will have to workout some way of resolving the crisis. A hike, howsoever small will push up inflation, which crossed 8% in the week ended March 15. On the flip side, if the Government is unable to hike fuel prices, the oil PSUs will be hit further.
The Government finds itself in a very tough situation and it will take a Herculean task for it to get out of it. Internationally, crude oil will remain the bugbear for markets across the globe. It will require a sharp drop in oil prices for the markets to regain their footing. Predictions from top global brokerages are not encouraging. So, one must brace for a bumpy ride in the near term. FIIs remaining net sellers is another cause for concern as is the weakness in the rupee (not for exporters though). Next week, we will have the F&O expiry, which will increase volatility in the market. The US market is shut for a holiday on Monday. The market is likely to be choppy with a negative bias.
SBI to resume tractor loans with immediate effect
State Bank of India (SBI) found itself in the eye of a raging storm after newspapers reported that the public sector banking giant had decided to suspend fresh loan disbursements for buying tractors and other agriculture equipment. "The bank has put on hold financing New Tractor and Farm Mechanisation activities with immediate effect in view of the very high overdues in this sub-segment of agri advances," SBI said in a May 16 circular. The decision will be reviewed based on the progress achieved in reduction of overdues in due course," it added. The circular sparked a major uproar across the country, with farmers, tractor manufacturers and political parties criticizing the bank's move. The outrage reached alarming proportion and eventually SBI had to withdraw the circular. "We regret that our circular dated May 16, concerning tractor loans has been misunderstood and has given rise to concern," SBI Chairman OP Bhatt said. The intent was to sensitise the borrowers to avail the facility under the loan waiver scheme that was announced by the government, in the Union Budget, said Anup Banerjee, deputy MD and head of agri business at SBI. The bank would have resumed lending after the loan waivers were executed, he said. Finance Minister P. Chidambaram said the circular was withdrawn at his behest as it was poorly worded and not justified.
Essar's Esmark bid hits roadblock
Essar Steel too was in the limelight as its proposed acquisition of US-based steel company Esmark ran into some trouble. Russia's steelmaker Severstal matched the Essar group’s offer to buy Esmark for US$17 per share, that it said was worth US$1.2bn. The Russian company’ offer came exactly 20 days after Essar Steel Holdings announced its agreement to acquire Esmark. Severstal appointed Merrill Lynch as financial advisor. The Essar offer was approved by the Esmark board but failed to get the support of the United Steel Workers, the main trade union of Esmark. The union's contract allows it to reject any deal that changes control of the US company. Severstal said it has the support of Esmark's main union. Reports suggested that Essar Steel Holdings may raise its bid for Esmark. The Ruias will submit its revised bid after negotiating with the United Steel Workers, according to reports.
Margins under pressure: ACC
There is tremendous pressure on margins because of rising input costs and the company will have to hike prices once the freeze ends in about three months, ACC said. Core margins had fallen 4% in the January-March quarter and would see more erosion in April-June period, officials said. "Given the current situation in the industry, ACC is under tremendous pressure as costs are going up... not incrementally, but leap-frogging," ACC MD Sumit Banerjee said. He said ACC would raise prices after the three-month freeze is over. "If we can, we will," Banerjee said. Earlier this month, ACC had said it would hold prices for 2-3 months after the Government asked cement companies to help contain inflation. ACC's CFO Onne van der Weijde said core margins are being eroded by 1% each month. Core margins, which exclude interest, taxes, depreciation and amortisation, were 26% in the first quarter ended March, he said, adding they fell despite a 9.5% rise in sales. "For the last 12 months, the company's factory-gate prices are falling and costs are increasing. The next nine months will be no different," Weijde said, adding that cost had risen 18-20% in the year ended April.
HP need not make open offer for Mphasis: EDS
Electronic Data Systems Corporation (EDS) said that Hewlett-Packard (HP) will not be required to make an open offer to the shareholders of Mphasis if the proposed merger with it goes through. HP won't be required to make an open offer for buying Mphasis shares under SEBI's takeover regulations, as a result of the exemption contained in section 3(1)(j)(ii) of the regulation, EDS said in a statement. HP and EDS have noted that certain press reports in India appear to suggest that, if the proposed merger is consummated, HP may be required to make a tender offer for shares of Mphasis, which is a subsidiary of EDS, the US company said. On May 14 , HP said that it will acquire EDS for US$13.9bn. Under the terms of the deal, HP will pay US$25 per share in cash for EDS and expects the deal to close in the second-half of 2008. EDS owns 60.9% in Mphasis and according to SEBI regulations, any company buying 15% or more in another company, has to make an open offer for 20% more shares in the target company.
Tata Steel secures permit to find Iron Ore
Tata Steel bagged permit to find iron ore in Jharkhand as it doubles production to 10mn tons. The permit allows Mumbai-based Tata Steel to prospect an 1808- hectare (4,468 acres) area, the Ministry of Mines said in a statement. Last month, Tata Steel was allowed by the nation's highest court to seek the environment ministry's clearance to mine iron ore in a forest area in Chhattisgarh, where the company plans to build a five million-ton plant. Jharkhand, Chhattisgarh and Orissa account for 70% of the country's coal reserves and half its iron ore deposits.
Tanti talk turns REpower shares volatile
Shares of REpower Systems turned volatile amid reports that Suzlon Energy, which had acquired a 34% stake in the German company a year ago, was looking to sell shares in the open market. "We may think of selling some stake in the market as it will lead to value creation," Suzlon chairman Tulsi Tanti was quoted as saying while announcing financial results for the year ended March. Following Tanti's reported remarks, REpower stock fell to €225 in Frankfurt before recovering. On Monday, it had touched a 52-week high of €243.54. However, later in the day, Tanti denied reports about stake sale in REpower. The company also released a clarification in the evening, saying that there was no change in its overall strategy regarding REpower and that it will proceed as originally planned. Suzlon currently holds 33.6% in REpower and has an option to acquire 30.9% from French energy giant Areva and another 23% from Martifer by May 24, 2009.
Ranbaxy launches operations in Yemen
Ranbaxy Laboratories said it has commenced operations in Yemen, introducing its products to around 350 doctors. Ranbaxy has tied up with Pharma Ltd. (Natco) as business partner for its Yemen operations. Pharma is one of the pioneers in the healthcare sector in Yemen. Ranbaxy has robust plans for the Yemen market and will focus on therapy areas such as Anti infectives, Gastro-intestinal, Cholesterol lowering and Anti-Allergic categories. Ranbaxy is the first Indian company to have established such a major presence in
Educomp Solutions picks 51% stake in Learning.com
Educomp Solutions announced that it has acquired a 51% stake in leading US-based elearning company Learning.com. The majority stake has been acquired at an investment of US$24.5mn, which included the purchase of existing shares as well as an infusion of new capital. Founded in 1999, Learning.com is the premier provider of Web-delivered curriculum and assessment, and partners with schools and districts throughout US to improve student learning outcomes. It currently serves nearly two million students in schools across the US. This investment provides Educomp with unparalleled distribution access to over 800 districts and 2mn students across the US and leverages its substantial content development and IP capabilities to reach out to North American markets.
Firstsource wins 3-year order from Bharti Airtel
Firstsource Solutions, one of the leading global BPO services providers and Bharti Airtel, India's largest private telecom services provider, signed a three-year outsourcing agreement. Firstsource will provide a suite of BPO services covering both voice and backoffice in areas such as customer accounting, VAS provisioning, fraud & credit monitoring, customer service, collections, customer retention and the likes to Airtel from its centres in Chennai and Mumbai. It will set up centres in Vashi, New Bombay and Chennai for Airtel and expects to have over 1000 employees in the first year focused on providing services in English and 8 other regional languages to Airtel’s customers.
Tale of two dubious re-listings
An obscure company by the name KGN Industries caught the attention of most market players after its shares zoomed to a jaw-dropping Rs55,000 in a matter of just a few minutes on May 21. KGN, which is an NBFC (formerly known as Royal Finance) got re-listed and resumed trading at Rs72 on the BSE. Early in the session trading was light, but as time progressed bids for the stock slowly inched towards the Rs1,000 mark. Within no time, the stock's prices surged from Rs10,000 to Rs55,000. Since it was the day of re-listing, as per current rules no circuit-breakers were in place, allowing the stock a free run. Fortunately, BSE officials found that orders were being placed at unrealistic prices. As a result, trading in the scrip was suspended after nearly two-and-half hours of trading. KGN stock closed at Rs15,001 on thin volumes of just 827 shares. As if that wasn't enough market participants were stunned to witness another dubious re-listing the very next day. This time, the beneficiary was a company called Sylph Technologies. The company's shares got re-listed at Rs152, and then surged to an intra-day high of Rs800. The stock had closed at Rs0.80 per share before getting suspended. Sylph Tech closed the day at Rs200 amid volume of only 6,500 shares. Shares of KGN was locked in 5% lower circuit on Friday, slipping from its high to end at Rs4,863. The total number of shares traded on the counter was only 36 shares.
High food prices have particularly hit vulnerable populations in many countries that spend a substantial part of their income on food, according to a report released today by the UN Food and Agriculture Organization (FAO).
The latest Food Outlook indicates that the food import bill of the Low Income Food Deficit Countries (LIFDCs) is expected to reach US$169bn in 2008, 40% more than in 2007. FAO calls the sustained rise in imported food expenditures for vulnerable country groups “a worrying development,” and says that by the end of 2008 their annual food import basket could cost four times as much as it did in 2000.
International prices of most agricultural commodities have started to decline, but they are unlikely to return to the low price levels of previous years, Food Outlook reports. The FAO food price index has remained stable since February 2008, but the average of the first four months of 2008 is still 53 percent higher when compared to the same period a year ago.
Hunger likely to worsen:
“Food is no longer the cheap commodity that it once was. Rising food prices are bound to worsen the already unacceptable level of food deprivation suffered by 854 million people,” said FAO Assistant Director-General Hafez Ghanem . “We are facing the risk that the number of hungry will increase by many more millions of people.”
Despite a favourable global production outlook, the expected price decline in many basic agricultural commodities during the new 2008/2009 season is likely to be limited, because of the need to replenish stocks and an increase in utilization. Due to rising utilization, more than one good season is required to replenish stocks and reduce price volatility.
Record output expected in 2008 world cereal production:
FAO’s latest forecast for world cereal production in 2008 points to a record output, now at nearly 2192 million tonnes, including milled rice, up 3.8 percent from 2007. Among major cereals, the tight wheat supply is likely to improve most, given the prospects for better harvests in 2008. Despite record production levels in several crops, tight markets will probably lead to continued price volatility during the season.
Heads of State and Government will address the problem of high food prices and the challenges of climate change, bioenergy and food security at the upcoming June summit in Rome (3-5 June 2008).
Other Commodity Highlights:
Oils and oilseeds
The rise in international prices of oilseeds and oilseed products has accelerated in 2007/08, with values climbing to new record levels in March 2008. World markets have tightened considerably as reduced supply growth for oils and a drop in meal supplies are coinciding with further expansion in demand. First forecasts for the 2008/09 season point towards a strong recovery in global oilseed production, and the resulting oil and meal output should be sufficient to meet global demand.
Generally favourable growing conditions led to a record world sugar production in 2007/08 and although world sugar consumption is foreseen to increase at a sustained rate, it will not be enough to absorb an expected second consecutive global supply surplus. International sugar prices are likely to remain under downward pressure.
Global meat output is expected to grow in 2008 despite high feed prices. Strong economic growth is expected to sustain steadfast consumption in many developing countries.
Global milk production, which is responding to the past year’s high milk product prices, is forecast to grow strongly in 2008. However, there is uncertainty as to where dairy markets will head. Global trade in milk products is anticipated to fall again in 2008 mainly because of reduced exportable supplies. Import demand seems to have faltered because of high dairy product prices due to strong increases in milk output among several importing countries.
Food Outlook forecasts that aquaculture production growth will continue this year with the historic milestone of reaching the same level as the expected capture fisheries in 2008. Prices for wild species from capture fisheries are moving upwards strongly but the price increase for farmed species are expected to be more moderate.
Worldwide potato production could expand over the next decade between 2 and 3 percent annually – with developing countries, especially those situated in Sub Saharan Africa, being the main engine of growth. In China, the world's biggest potato producer, authorities are reviewing proposals for the potato to become one of the country’s major food crops, while India is considering plans to double potato output in the next five to ten years.
Here in India, public sector oil marketing companies unleashed a slew of measures to protect their turf given the Government's reluctance to help them limit the damage from the grim business scenario. According to reports, state-run OMCs suspended new LPG connections, curtailed fuel supplies to dealers and increased the sale of branded fuels to cut their losses. HPCL reportedly warned the Government of huge losses for the year while Numaligarh Refinery - a BPCL JV with the Assam Govt - said it will cut supply to dealers by the end of the month. The Government, however said the steps taken by OMCs did not have its stamp of approval. Petroleum Minister Murli Deora met the Prime Minister and sought his help in tiding over the crisis, while the Petroleum Secretary held a meeting with OMC's head honchos to discuss various options at their disposal.
The Cabinet did meet on Friday, but didn't take any decision on fuel price hike. The Petroleum Secretary said the Cabinet will take a call on fuel prices over the nest few days. The Petroleum Ministry is seeking a Rs10 per litre increase in petrol and Rs5 a litre hike in diesel prices along with cut in customs and excise duties to curb the impact of surging crude prices. Whether its demand is met or not only time will tell. Even a small hike in fuel prices is bound to generate a lot of hue and cry. The Government is in a major bind as any increase in fuel prices will lift inflation, which crossed 8% in the week ended March 15 (revised). On the other hand, a status quo will mean more blood letting for the oil companies. The most likely scenario is that the Centre will go for a small hike fuel prices, and may also tweak duties and ask upstream companies like ONGC to share more burden of the under-recoveries.
Oil prices blazed past the US$135 per barrel mark after a US government report showed a surprising drop in fuel inventories, escalating worries over already fragile global supply scenario. A weak dollar also continued to attract heavy fund buying. To make matters worse, OPEC once again refused to increase supply. OPEC Secretary General Abdullah al-Badri said oil prices could keep rising if factors such as the weakening dollar continue to put pressure on prices. But, he added that OPEC would only act when market fundamentals showed a need to do so.
Billionaire investor T. Boone Pickens said he expects oil to hit US$150 a barrel this year. His comments came after at least five banks raised price forecasts in the past week on expectations that supply constraints will persist. Two weeks back, Goldman Sachs said crude oil could touch US$200 by 2010. The International Energy Agency (IEA) said it may cut long-term supply forecasts as fields deplete faster than expected. However, oil prices fell on the last day of the week as traders sold to benefit from a 20% increase in prices since May 1.
Crude oil for July delivery rose as much as US$1.57, or 1.2%, to US$132.38 a barrel in New York. It was at US$132.08 a barrel at 10:41 a.m. in London, on Friday. Yesterday, oil fell US$2.36, or 1.8%, to settle at US$130.81 after reaching US$135.09 a barrel, the highest on record. Oil prices are up 4.3% so far this week and have doubled in the last one year. Crude prices are likely to carry on rising, futures prices showed. The December 2016 contract is up 7.9% this week