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Saturday, December 19, 2009
Dubai gets last minute aid from Abu Dhabi
Abu Dhabi gave US$10bn in loan to Dubai for repaying part of the debt held by Dubai World and its property unit Nakheel. Out of this, US$4.1bn will be used to repay Nakheel's Islamic bond, or sukuk, that matures. The remainder of the funds will be used to finance Dubai World's needs up until the end of April 2010. "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices," Sheikh Ahmed bin Saaed al-Maktoum said in a statement. "Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come," Saaed al-Maktoum said. Abu Dhabi is the largest member of the United Arab Emirates federation and a major oil exporter.
Dubai rocked world markets in late November when it requested a freeze on debt payments by Dubai World in order to restructure the conglomerate. Nakheel's bond had been seen by many as a litmus test for Dubai's ability to repay more than US$80bn of government and corporate debt. Media speculation that Nakheel's debt woes could soon be over helped boost shares in Dubai last week. In its statement, Dubai said that it will focus on addressing the concerns of Dubai World's creditors and will start discussions with creditors and contractors shortly. Separately, reports stated that the United Arab Emirates (UAE) central bank will be there to inject liquidity as needed into banks that face exposure to Dubai World
Time Warner to acquire NDTV Imagine
Time Warner Inc said that it will acquire NDTV Imagine Ltd. from NDTV Networks Plc, an indirect subsidiary of NDTV Ltd., for US$126.5mn (about Rs5.92bn). "The acquisition will be made by Turner Asia Pacific Ventures, a Time Warner company, and Imagine will become a key part of Turner's operations in the Asia-Pacific region," Time Warner said in a statement. Imagine is one of the leading Hindi general entertainment channels and also owns other entertainment assets in India. Turner Asia Pacific Ventures Inc. will get around 92% stake in Imagine. The remaining 8% stake in Imagine will be held by the current management, participants in its employee stock ownership plan and NDTV Networks Plc. After the deal closes, Imagine will continue to be led by Sameer Nair as CEO. Turner Asia Pacific will invest US$76.5mn for 87.4% stake in Imagine from NDTV Networks Plc and another minority shareholder. However, it did not disclose how it intends to acquire the remaining 5%. Turner Asia Pacific would also put in a further US$50mn as primary capital infusion to fund business. NDTV Chairman Prannoy Roy said, "NDTV Group will be in a position to be cash-surplus and debt -free on a consolidated basis." The sale by NDTV would also mark the conclusion of restructuring of its subsidiary, NDTV Networks Plc, Roy said.
Hindustan Unilever alters trademark pact with Unilever
Hindustan Unilever announced that its Board of Directors approved amendments to the existing Technical Collaboration Agreement (TCA) with Unilever Plc to include: (i) additional product categories where technical inputs are provided by Unilever and (ii) products of specified categories manufactured by third party manufacturers where technical inputs developed by Unilever are made available to the third party manufacturer. In addition, the company's Board approved a trademark license agreement with Unilever which provides for payment of trademark royalty at the rate of 1% of net sales on specific brands, where Unilever owns the trade mark and HUL is the licensed user. The above amendments are within the Government of India guidelines for payment of royalty. The revised TCA and the trademark license agreement will come into effect from January 1, and will enable the company to continue to leverage Unilever's capabilities to further build and grow the business in India.
Suzlon repays acquisition loan
Suzlon Energy repaid US$780mn (around Rs37bn) acquisition loan. This has also made the company achieve a net reduction in overall debt by US$350mn (around Rs17bn). The payment was made from proceeds of a partial stake sale in Hansen Transmissions International NV, in addition to a new five-year US dollar denominated loan of US$465mn (around Rs21.9bn) from State Bank of India (SBI). The company did not elaborate on the loans that have been repaid. But the firm had raised finances to acquire Hansen and Germany’s Repower Systems. "This transaction concludes the first phase of our refinancing exercise. We have achieved an overall improvement in our debt profile, with reduction of nearly 15%. We continue to work towards optimising our capital structure," said Sumant Sinha, COO of Suzlon Energy. The company in is filing to the stock exchanges said that the new five-year US$456mn loan provides for a two-year moratorium on repayments of principal as well as two-year holiday on debt covenants.
Bharti Airtel eyes Bangladesh's Warid Telecom
Bharti Airtel is reportedly planning to buy a 70% stake in Bangladesh operator Warid Telecom. The size of the acquisition is estimated around US$900mn, according to reports. India’s leading cellular operator has applied to the Bangladesh Telecommunications Regulatory Commission (BTRC) for permission to buy a 70% stake from the Abu Dhabi group, the owner of Warid, the regulatory body’s chairman Zia Ahmed was quoted as saying. A Warid Telecom executive said that Bangladesh' fourth largest telecom operator and Bharti Airtel were in exclusive discussions on similar lines as the deal between Essar group and the Abu Dhabi group. The Essar group announced last month that it is investing in Warid Telecom’s operations in Uganda and the Republic of Congo, valuing them at a total of US$318mn. Akhil Gupta, deputy CEO of Bharti Enterprises Ltd. had earlier said that the company has always been interested in acquisition opportunities in Bangladesh and other markets in South Asia. The development comes just two months after Bharti Airtel failed in its second attempt to merge with South Africa’s MTN. Warid has under 3 million customers, or about 5.5% of the country’s 52 million cellular subscribers. Reports citing Dhabi group CFO Ali Tahir said that Warid expects to seal a deal by mid-January 2010.
DLF merges arm with holding co of DLF Assets
DLF Ltd., the country’s largest property developer, is indirectly acquiring DLF Assets Ltd. (DAL), a promoter owned entity. Now the deal opens the possibility of DAL going ahead with a real estate investment trust (REIT) listing in Singapore that has been pending for over two years now. The fund raised there would be used to retire debt of DAL. As per the deal, the commercial rental business of DLF - DLF Cyber City Developers Ltd. - is being merged with Caraf Builders & Constructions Pvt. Ltd., the promoters’ holding company of DAL. DLF will own around 60% of the merged entity that would in turn own the assets of DAL. The proposed transaction will bring all commercial assets of DLF under one company giving the parent listed firm a revenue stream of around Rs25bn annually and help it hedge against the uncertainties of the property market. Caraf has four rent yielding properties with leased area of over 3 million sq ft besides 96% economic interest in DAL which, in turn, has four SEZ properties with leased area of over 6 million sq ft. DLF Cyber City has commercial buildings with leased area of close to 7 million sq ft besides two malls in Gurgaon and Delhi.
November air passenger traffic up 30% YoY up
The total domestic passengers carried by the Scheduled Airlines of India in November 2009 was 38.98 lakhs, up nearly 30% compared to the corresponding month last year. The total passengers carried by domestic airlines in the October 2009 was 39.69 lakhs. The total passengers carried by the domestic carriers in September 2009 was 35.05 lakhs. Passengers carried by domestic airlines from January to November 2009 were 399.66 lakhs as against 378.99 lakhs in the corresponding period of 2008, thereby registering a growth of 5.45%. Domestic airlines such as Jet Airways and SpiceJet, among others, clocked over 70% flight occupancy in November. Jet Airways recorded a 33% increase in its domestic passenger traffic and 19% in international traffic for November over the previous year, and flew 7.6 lakh passengers domestically and 3.2 lakh passengers on international routes. In terms of market share, the Naresh Goyal-owned airlines Jet and JetLite maintained their lead with a 27% share in November, even though it was down from 27.7% in October. Kingfisher had 21.1% share as compared to 20.7%. However SpiceJet's market share at 12.2% in November was down from the previous month.
GSM operators add 11mn new users in Nov
The GSM-based cellular service providers have reported subscriber additions of 11.08mn during November, as against addition of 10.32mn in October, the Cellular Operators Association of India (COAI) said. With this, the cumulative All India GSM subscriber base has now grown to 366.78mn in November, up from 355.25mn in October, the lobby group for GSM operators said. Among the companies, Vodafone Essar added 2.78mn new users in November, taking its total base to 88.61mn while market leader Bharti Airtel saw its total base rise by 2.8mn to 116.01mn. Idea Cellular added 2.55mn new customers, boosting its subscriber base to 55.91mn, while Aircel increased its base by 1.61mn to 29.35mn. BSNL added 1.22mn new customers, taking its reach to 55.19mn. Loop Mobile added 50,303 new subscribers, taking its total to 2.6mn. MTNL added 73,019 new customers, boosting its total base to 4.51mn. Bharti Airtel continues to be the top GSM operator in the country, with a market share of 31.63% followed by Vodafone Essar at 24.16%, BSNL at 15.05% and Idea at 15.24%.
Moody's ups outlook on India's local currency rating
Moody's Investors Service changed the outlook on the Indian government's Ba2 local currency rating to positive from stable. At the same time, the ceiling on banks' foreign currency deposits has been raised to Ba1 from Ba2 to better reflect the robust external position of India. The change in the outlook on the local currency government bond rating was prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact. Moody's latest action, however, does not affect the outlook on the government's foreign currency bond ratings, which remains stable at Baa3. Such decision therefore paves the way for a possible narrowing of the gap between the local currency and the foreign currency bond ratings of the government of India. The outcome of the next phase of India's fiscal responsibility act, and the precise nature and extent of the government's fiscal consolidation program will be critical in determining the near-term course of changes in sovereign ratings. A convincing approach whereby the benefits of economic growth better translate into lower debt metrics will be key to our judgment. Moody's last rating action on India was taken on 22 January 2004, at which time it upgraded the foreign currency ratings to Baa3 from Ba1.
Exports turnaround in November
After several months of declines, the country's merchandise exports turned positive in November 2009, logging a growth rate of 18% in dollar terms as compared to the year-ago period. Commerce Secretary, Rahul Khullar, said that the country shipped goods worth US$13.2bn in November 2009 against US$11.16bn in the same month a year ago. However, hedging his remarks with circumspection, Khullar said that exports in November have turned positive not due to a great shift in demand but because of base-side effect, as exports were at rock-bottom level last year this time.
Khullar pointed out that the country's exports during April-November 2009 at US$104.25bn are still 22.23% lower than the figure in the corresponding period of 2008 at US$134.2bn. "One should not get carried away by the November number to jump to any conclusion as you may end up making the wrong prognosis," Khullar said. Stating that it is too early to claim that Indian trade is out of the woods, Khullar said that the January-March quarter holds the key to deciding how exports would fare for the whole year. However, he said that the country's merchandise exports would be in the range of US$165bn to US$170bn this fiscal year as compared with US$182.6bn in 2008-09.
BSE-NSE to extend trading amid protests
Things would not be the same for stock market participants like traders, brokers, banks and others come January 4. A major rivalry between BSE and NSE to garner more volumes and thus boost profits has ensured that trading in the cash as well as derivatives segments will begin at 9 am. The game of one-upmanship was kicked off by BSE when it decided to advance the trading hours by 10 minutes, to 9:45 am, from Dec. 18. Two days later, the NSE decided to go a step ahead by saying that it would open trading from 9 am. The NSE move sparked widespread uproar, mostly among local brokers. Some even accused the exchanges of announcing the move to boost their bottomlines and to appease the foreign shareholders. Others complained about the lack of adequate infrastructure and other systemic problems to support the move. All this forced both the exchanges to defer the plan to advance trading up to January 4. A lot will be said and written about the extended trading time in the coming days. But, that may not prevent BSE and NSE from going ahead with their planned move. Which means that the new year will begin on a different note for all connected with the stock markets.
Advance Tax Numbers
| Company | Q3FY09 (Rs bn) | Q3FY08 (Rs bn) |
| Reliance Ind | 8.5 | 4.5 |
| Tata Steel | 6.5 | 2.6 |
| ICICI Bank | 3.0 | 6.3 |
| SBI | 18.0 | 17.0 |
| ACC | 1.1 | 1.3 |
| TCS | 1.8 | 1.3 |
| Lupin | 0.3 | 0.2 |
| Yes Bank | 0.9 | 0.4 |
| Ultratech Cem | 0.9 | 0.7 |
| Dena Bank | 0.7 | 0.6 |
| Indusind Bank | 0.7 | 0.2 |
| BOB | 3.3 | 2.2 |
| BOI | 1.0 | 3.7 |
| Central Bank | 1.4 | 1.6 |
| M&M Finance | 0.8 | 0.4 |
| Tata Chemicals | 0.4 | 0.8 |
| Bajaj Auto | 3.2 | 0.5 |
| Tata Power | 0.8 | 0.3 |
| Ambuja Cem | 1.4 | 1.4 |
| IDBI | 0.7 | 0.2 |
| Asian Paints | 1.2 | 0.5 |
| PNB | 6.2 | 5.1 |
| SCI | 0.1 | 0.1 |
Weekly Newsletter - Dec 19 2009
After a topsy-turvy, but extremely tepid few weeks, the market is desperately looking for some fresh and decisive clues. Chances are that the same may not be forthcoming given that there are only a few trading sessions left in the year, and there will also be a few holidays. In that case, the market will remain choppy and listless in a range and its movement will hinge on mostly global developments. Locally, the big event to keep an eye on will be a possible RBI announcement on monetary tightening since food inflation has shot through the roof. The best strategy will be to stay away from the markets for the rest of the month and start fresh next year. The immediate factors that will drive sentiment in the new year will be the latest quarterly earnings, trend in fund flows, global markets, possible twist in RBI policy and of course the budget. The new year will also herald extension in trading hours. Till then, enjoy the normal trading time and the holidays.
Food inflation flares up at nearly 20%
Last time around, the UPA government managed to emerge largely unscathed despite its inability to reign in spiraling prices. But, this time it appears to be a little different, with most opposition parties closing ranks to pile up the pressure on the Government on the issue of rising food prices. For its part, the Government said that it was also concerned by the sharp jump in food prices and partly blamed the drought and floods. It also assured that it will take steps to contain inflation, including imports. An early hike in interest rates by the Reserve Bank of India (RBI) also seems to be on the cards, especially if prices don't show any sign of easing in the coming days and weeks. This was suggested by C. Rangarajan, the former RBI governor and the chief of the Prime Minister's economic advisory council.
Food prices rose 19.95% in the year to Dec 5, picking up from a 19.05% rise a week earlier, weekly data showed, rising at a time when there is normally a seasonal dip. The data reinforced expectations that the central bank could tighten the monetary policy before its scheduled policy meeting at the end of January. "Food prices are going up, this is an area of concern. We have to take some appropriate measures... but best could be done by augmenting supply through imports," Finance Minister Pranab Mukherjee said. Containing inflation is high on the Government's agenda and it is monitoring the price situation, the Finance Minister said.
Even prices of non-food manufactured products are expected to rise as the Indian economy picks up pace. Supply-side inflation could turn into demand-side inflation. Monthly data for November showed manufacturing prices rising at an annual rate of 4%, a sign that companies have regained the pricing power on the back of the faster than anticipated economic recovery. The annual wholesale price inflation, which stood at 1.34% in October, rose to 4.78% in November, and it could reach 7-8% by the end of the fiscal year in March, above the RBI's forecast of 6.5%. Most economists expect a 50 basis points hike in the CRR, probably before the January policy meeting while policy rates may be revised up in the regular policy meeting.
RBI Governor D. Subbarao has said that monetary policy is not the right tool to fix supply problems, particularly in essential food items. However, he has also noted the risk that if soaring food prices are factored into expectations for other prices it would create inflation pressures through the economy. Even if there is some tightening by the RBI, it is unlikely to make a major dent in the overall economic activity. Hence, we don't expect any tightening to have a serious impact on credit growth or economic growth as policy rates are still far below their long-term averages.
Low volumes may cause volatility
Low volumes may cause volatility on the bourses as 2009 draws to a close. US and other major overseas markets begin the year-end holiday season next week which means that the activity of foreign institutional investors will be low key. Expectations of good Q3 December 2009 results may cap downside on the bourses.
Many corporates have paid higher advance tax in the third installment of 15 December 2009 which hints at good Q3 December 2009 results from India Inc. As per reports, advance tax revenue from major companies rose 36% to Rs 10700 crore in the third quarter of the current fiscal against Rs 7900 crore in the same period last fiscal. There were about 2,800 companies that paid higher tax in the quarter under review, while about 700 companies paid less.
The total tax payment for the three quarters of the fiscal 2010 increased by 32% to Rs 27200 crore (Rs 20,600 crore). There were 6,500 companies which paid higher tax, while 1,500 reduced the outgo.
Among top firms, energy major Reliance Industries has paid Rs 850 crore for the October-December 2009 quarter, much higher than Rs 450 crore in the corresponding period last year. The second-largest private lender, HDFC Bank, has paid Rs 400 crore compared to Rs 300 crore a year ago.
India's biggest commercial bank in terms of branch network State Bank of India has paid Rs 1,795 crore as advance tax in the third quarter of FY 2010 against Rs 1700 crore paid in the same period last year. Bank of Baroda has paid Rs 355 crore, much higher than Rs Rs 220 crore.
Tata Steel nearly trebled its tax payment to Rs 650 crore from Rs 250 crore. Aditya Birla Group company Grasim Industries, which had hived off its cement business for a merger with the group company UltraTech Cement, has doubled its advance tax payment to Rs 150 crore from Rs 75 crore.
Companies pay advance tax on their estimated earnings every year in four installments. The December 15 installment is crucial since companies pay 30% of their estimated tax outgo by that time, while on a cumulative basis, it amounts to 75% of their annual tax outgo. The remaining 25% is paid by March 15. Among auto companies, Mahindra & Mahindra paid Rs 195 crore, against Rs 4.5 crore in the same quarter last year and Tata Motors paid Rs 100 crore in the third quarter against nil advance tax payment in the same quarter last year.
The surge in advance tax in the third installment is partly due to a low base effect. It may be recalled that the global financial crisis had hit corporate earnings in Q3 December 2008.
Meanwhile, the Reserve Bank of India may tighten the monetary policy to help stem rising prices. This could be by way of a hike in the cash reserve ratio (CRR), which is currently at 5%. CRR is the portion of deposits that banks have to park with the central bank as cash. However, the central bank may refrain from raising key policy rates as the interest rate differential between India and the US and the Euro Zone, could lead to a further rise in capital inflow.
A further surge in capital inflow may send the rupee surging which in turn could hit the labour intensive textiles, gems & jewellery, and small & medium enterprises (SME) segments. Foreign funds have lapped up Indian stocks this year amid signs the economy is recovering from last year's global financial crisis. The economy could grow more than 7.75% in the fiscal year to March 2010, the finance ministry said on Friday, 18 December 2009. The GDP grew 7.9% in the July-September 2009 quarter.
Food prices rose 19.95% in the year to 5 December 2009, picking up from a 19.05 % rise a week earlier, weekly data showed on Thursday, 17 December 2009. The government is under pressure from opposition parties and allies to contain inflation, especially politically sensitive food prices which are hurting poorer sections in the country.
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