Wednesday, June 30, 2010
The European Central Bank lent banks 131.9 billion euros (USD 161.4 billion) in three-month funds on Wednesday, below expectations, as banks face the repayment of close to half a trillion euros in 12-month funds.
The ECB said 171 banks borrowed funds at a flat rate of 1% in the operation, which was below expectations in a Reuters poll for demand of 210 billion euros.
The amount is still the highest ever borrowed in a three-month operation but pales beside the 442 billion euros which 1,121 banks must repay to the ECB on Thursday.
The ECB's first-ever one-year loans part of the emergency support it put in place at the height of the financial crisis are not set to be renewed.
The relatively low demand should help ease concerns about bank finances which have rocked stock markets this week.
Analysts had said high demand would send a warning signal, given the ECB is charging a relatively high interest rate compared to market rates.
But it means there is a risk liquidity supplies will drop sharply on Thursday, potentially putting upward pressure on interest rates, although banks also have the chance to borrow unlimited six-day funds at a special operation.
Banks in countries including Greece, Spain and Portugal are increasingly dependent on the ECB for funding as they struggle to borrow from others due to concerns over debt and public finances.
Wednesday, June 30, 2010 Comments
US President Barack Obama urged lawmakers to put a price on carbon pollution in a Senate energy bill on Tuesday at a White House meeting that one senator called a "breakthrough" for the legislation.
Senator Joseph Lieberman, an independent who wrote the bill with Democrat John Kerry, said previously-reluctant senators at the meeting said they would work with Kerry and him and expressed willingness to discuss "limited forms" of carbon pricing.
Putting a price on carbon means requiring companies to pay for the earth-warming carbon dioxide emissions they produce.
"The president was very clear about putting a price on carbon and limiting greenhouse gas emissions," Kerry told reporters after the meeting.
Obama has tried to harness public anger over the Gulf of Mexico oil spill to build support for a bill that would increase US production of renewable fuels and reduce greenhouse gas emissions.
But with congressional elections looming in November, chances that the controversial legislation will pass this year are considered by experts to be slim.
Lieberman said the two senators would reach out to Republicans and Democrats who showed a willingness to compromise on the bill.
"Some of our colleagues, who up until this time have been at least publicly reluctant about the 'polluter pays, putting a price on carbon pollution' (principle), said that they would be willing to discuss limited forms of doing that in this bill," Lieberman said.
"To me that's a breakthrough that Senator Kerry and I want to begin to take advantage of," he said.
Kerry said they were willing to "scale back" their legislation to find support to advance the bill, but he made it clear that both the energy and climate change aspects of the legislation would have to be included.
"We're prepared to compromise further and we are looking for some Republicans and perhaps even some members of our own caucus who will meet us at that place of compromise," Kerry said.
Tuesday, June 29, 2010
“Inflation for the week ending July 26, 2009 is 0.17%” or
“Prices of vegetables reach sky high” are some of the headlines that we come across everyday in our newspapers. So it becomes important for us to understand what inflation is and how it affects our life. It is also important for us to know how to beat this deadly killer.
Inflation and its effect on our lives
Assume the price of 1 kg of tomatoes is Rs 14. If after a month, the price of the same amount of tomatoes becomes Rs. 18, we can say the price of the tomatoes has gone up. This price rise is called as inflation. It is a deadly killer that erodes the value of money, as you are paying more for the same quantity of goods. But not only that, it also erodes the value of our investments and makes all the goods and services beyond the reach of the common man.
Effect of inflation on investments
Our investments are heavily affected by inflation. Assume you have opened a bank deposit offering you 6% interest for one year. Now while closing the deposit account, if the inflation is 8%, you actually end up losing 2% (8-6). It means your investment has lost its value. In order to protect the value of your indexation, you have to use the power of indexation.
Concept of inflation index
The indexation uses the concept that as the inflation erodes the returns from the investment; you should be made to pay tax only on the actual profit made on the investment. To help in calculation of the actual profit earned on the investment, the government has prepared an index known as the cost of inflation index. This index uses 1981-82 as its base, and its value is fixed to be 100. Now for each financial year, this value is declared. This gives you the choice of paying long-term capital gains at 20% along with indexation benefits. Alternately you can pay long-term capital gains tax at the flat rate of 10%.
Calculating capital gains
In order to calculate the profit earned on which the tax should be paid, the ratio of the inflation index when the sale occurs to its value when the purchase is made and is multiplied by the purchase price of the asset. It helps you calculate the indexed cost of acquisition, which is then deducted from the selling price. E.g. you bought an asset for Rs 100 in 2000, when the inflation index was 150. You sold it in 2005 when the inflation index was 300. The ratio of the inflation index when the sale occurred is 300/150 = 2. The indexed cost of acquisition is Rs. 100 x 2 = Rs. 200. The capital gains here are Rs. 300 - Rs. 200 = Rs.. 100. This is the amount on which you will actually be paying tax. Since the indexed cost of acquisition is based on the ratio of the cost inflation index, while actually selling the asset, the tax you actually pay will decrease as this figure increases. As the time passes, the inflation also goes up, thus reducing the taxable amount. If the profit earned is very small, you may not actually have to pay any tax, as all your gains are offset by the rising inflation.
Benefiting from indexation
The most common methods of benefiting from indexation is to prolong booking profits, such that it spreads out over two financial years. This lets you enjoy the indexation benefit for 2 years in one shot. Also remember the indexation benefit can be enjoyed in instances where a long-term capital gains is obtained. Here debt mutual funds score over FDs and bonds, which attract the tax as high as 33%. Also the total income is taxed in case of bonds and FDs but in case of debt funds, it is only the profit is taxed. Also if you opt for systematic withdrawal plan, the total taxable income also reduces, as the capital decreases.
Inflation is a major destroyer of wealth, as it greatly affects your returns. To beat inflation, it is important to benefit from the power of indexing. It lets you reduce your tax liability after taking into account the inflation, and pay tax only on the actual gains you earned. Also remember, longer you remain invested, lower the tax you pay as inflation goes on increasing over the period of time. Besides choose tax-efficient investment options like mutual funds to reduce your tax liability and beat inflation.
Tuesday, June 29, 2010 Comments
For centuries gold has been the ultimate cushion against the dangers of stocks price falls, fluctuating rate changes, inflation, rising/falling real estate prices, natural calamities, wars and more. Gold has been the best way to safeguard your investments against unstable financial markets.
Why is gold such a good investment?
Whether or not gold is a good investment, is a question that does not have a simple answer. Gold has appreciated substantially over the past couple of years. The growth rate of late has been much higher than the conventional rate of appreciation. However, if we look at the past 15-20 years record, it is seen that Gold is a hedge against inflation. Over the last 20 years, the average return from Gold has been around 7%. So, if the past trend continues, one could expect around say 6-9% returns from gold in the long-term.
Also, another aspect that we should look at is a weakening currency. No matter which country you originate from, there is a chance that your country’s currency will suffer a downfall at a particular point of time. Gold, on the other hand, retains its true value and can help you protect your riches because it does not rely on the state of the country’s economic, whether it is on the up or downtrend. Therefore, investing a small portion of one’s investment portfolio in gold would be a good idea.
How can one invest in gold?
Gold can be bought in various forms and the decision should be based on the reason you need gold. If you see this purely as an investment, you can either buy it in the form of physical gold — bars, biscuits and or coins or even in a dematerialized form.
For most Indians, gold purchases usually mean buying jewellery. However, the disadvantage of buying gold in the form of jewellery is that its resale is not always a profitable proposition.
Here are some other ways of investing in gold:
Gold ETFs
You can invest in gold by buying Gold Exchange Traded Funds (ETFs). Being ETFs, these funds are listed and traded on the stock exchange i.e. investors can buy and sell them like any other stock on the stock exchange, on a real- time basis. All you need is a demat account and a share trading account with a broker or sub-broker who deals in stocks. These are traded in units of one. That means you can buy one or more units at a time. Each unit represents approximately the market value of one gram of gold.
Gold ETFs are traded close to real-time gold prices in the market, that is, ETF prices move up and down with the market price of gold in the conventional marketplace. Your expenses in an ETF would be very low: you would pay securities transaction tax (STT), brokerage /service tax, and the like, which are unlikely to exceed around 1% of market price. You’d hold gold in demat form in your demat account, just as you hold shares. If you decide to sell your ETF units, you can do so through your stock broker or sub-broker and the charges would be the same as what you paid while buying the ETF. Thus an ETF is very convenient, and you need not worry about the purity of the gold, secure storage, insurance against theft, and so on.
Physical gold
This is the traditional way to invest in gold. Investors can buy gold and then store it in a bank’s locker. If you are one of those people who keep buying gold jewellery for a marriage of a daughter or son, a better option would be to buy gold ETF units now at the current price of gold, hold them in your demat account, and sell them in the future, whenever you want, and use the money to buy jewellery then. In this way, you will be protecting yourself from rising gold prices, while also sparing yourself anxiety about the purity and safety of your gold. You can keep accumulating gold at a slow rate, perhaps even one gram at a time.
It is evident that gold is an asset class that you can rarely go wrong with. Therefore, think seriously about investing in gold.
Bangalore: Mahindra & Mahindra (M&M), the diversified business group with significant interest in automotive and information technology (IT), is looking at setting up an aircraft financing arm in Australia to boost the sale of aircraft being manufactured by Gippsland Aeronautics, which is now part of the Mahindra group.
The over-$6.3 billion diversified business group is mulling to use its non-banking financial arm Mahindra & Mahindra Financial Services (Mahindra Finance) to set up an independent or partly-owned financial services entity in Australia to finance the customers who want to buy aircraft built by Australian aircraft producer Gippsland Aeronautics that is part of Mahindra Aerospace.
In December last year, M&M, along with Kotak Private Equity, had acquired two Australian companies, including Gippsland Aeronautics and aerospace component maker Aerostaff Australia. These acquisitions were made by its under-subsidiary Mahindra Aerospace with a total commitment of $37.4 million over the next five years.
"Most aircraft in the world are financed by a financing company. Now that Mahindra Finance exists in India and helps the sale of tractors and SUVs, it is possible that Mahindra Finance can look at setting up something in Australia independently or as a minority or as a majority," said Hemant Luthra, president of Mahindra Systech, which looks after the aviation business of the company.
Gippsland, which produces two- to 20-seater aircraft, has sold 250 of its aircraft in 32 countries, a majority of them in Australia. M&M believes with a financing arm in place, the orderbook of Gippsland will improve dramatically, as easy finances can be made available to the customers.
Luthra said owing to its (smaller) size, Gippsland was not able to make financial arrangements earlier. "I think the order book will improve dramatically because so far they (Gippsland) could not get its own financing and financial arrangements. Now that they can make a financial arrangement on the back of the Mahindra ownership, they will become a very strong proposition," said Luthra, who is also a member of the management board of M&M.
Post the acquisition, M&M has also committed to infuse a working capital to the tune of Rs 200 crore for the running of Gippsland's business. It is quite possible that the company may set aside a part of this fund for the financing purpose, Luthra added.
According to the company, Gippsland's eight- to 10-seater aircraft, including the single engine GA8 Airvan, are in biggest demand among buyers in Australia and other countries. These aircraft, which are capable of landing and taking off from unpaved and short runways, can be used for disaster relief, pilgrimage, corporate travels, air surveillance at costs per seat kilometre that approach road transport and are half of jet travel.
After the acquisition of Gippsland, M&M is also infusing working capital to design and develop a 18-seater general aviation aircraft, which could not be done earlier because of unavailability of working capital.
With the acquisition, the necessary certification has been transferred from the Australian government to Mahindra Aerospace, which is now building a team of both Australian and Indian engineers to take up the programme. "Our estimate is that the 18-seater aircraft will be ready for take off in calendar 2012. We have to built four prototypes which will be destructively tested to test the ruggedness," said Luthra.
Meanwhile, M&M plans to transfer some aircraft designing works like wings, tanks and interior to the plant it has proposed to set up in India. The company said it could take at least three years for its plant in India to become fully-equipped to completely design and develop the aircraft. "It will happen step-by-step," said Luthra.
According to a study done by M&M in partnership with management consulting firm AT Kearney, about $5 billion of general aviation aircraft are being sold every year, out of which more than half are turboprop aircraft, like the ones being developed by Gippsland.
Business Standard
New Delhi: The popular perception is that companies in India are taking jobs away from Americans but the numbers on the ground tell a different story.
In the last five years alone, 90 Indian companies have created 16,576 jobs in the US by investing $5.5 billion in new companies and saved over 40,000 jobs by making 372 acquisitions and investing $21 billion (for 272 deals).
These were some of the interesting findings of a recent study on How America Benefits from Economic Engagement with India by the India-US World Affairs Institute of Washington, the Robert H Smith School of Business, University of Maryland and the Federation of Indian Chambers of Commerce & Industry.
These were some of the interesting findings of a recent study on How America Benefits from Economic Engagement with India by the India-US World Affairs Institute of Washington, the Robert H Smith School of Business, University of Maryland and the Federation of Indian Chambers of Commerce & Industry.
Authored by Professor Vinod Jain of the University of Maryland and Kamlesh Jain, director of research & education at the India-US World Affairs Institute, the study covers India's foreign direct investments into the US and US exports to India, as well as an assessment of their impacts on the American economy.
Indian companies have been investing abroad, including in the US; with the rise of India Inc., the magnitude and impact of such investments have increased. Some Indian companies to which work was being outsourced earlier are now 'insourcing' such jobs within the US itself, using American workers to perform value-added work.
More than two-thirds of the $5.5 billion of the greenfield investments in the US were made by 10 companies: Essar Steel, JSW Steel, TCS, Welspun Group, Reliance Adlabs, Indage Group, HCL, Flag Telecom, RIL, and Tata Communications. Over 40,000 jobs were created or saved by 85 acquisitions (data for which was available); the number of jobs saved for 372 transactions would be much higher.
Between 2004 and 2009, US exports to India grew 269 per cent, while India's exports to that country grew 136 per cent. US exports to India have grown faster than exports to all other countries. In 2009, India was United States' 17th largest goods export market, and 15th largest supplier of goods imported into the US. Interestingly, in the 1700s, America traded more with India than with all of Europe combined.
The US exports high-tech products such as aircraft, electrical machinery, optic and surgical instruments, chemicals, plastics, pharmaceuticals, vehicles, and railway stock and traffic signal equipment. With the US-India civilian nuclear agreement, US exports to India are likely to grow even faster in the coming years, creating more jobs in the US.
Just manufactured exports to India were linked to 96,000 manufacturing and non-manufacturing jobs in the US in 2009, the study estimates. These numbers do not include agricultural, mining, and services exports, which have their own implications for jobs in the US. For instance, in 2007, the US exported services worth $9.4 billion to India, compared to the goods worth $15 billion that are the focus of this study.
The 2.57 million Indian-Americans also contribute to the US economy and society in many ways. According to a recent survey by the US Census Bureau, there were 231,000 businesses owned by Indian Americans in 2002, which employed 615,000 workers and generated over $89 billion in revenues. Indian immigrant entrepreneurs have founded more engineering and technology companies during 1995-2005 than immigrants from Britain, China, Japan, and Taiwan combined.
Currently, there are almost 10,000 Indian-American owners of hotels/motels in the US, who own 40 per cent of all hotels in the US and 39 per cent of all guest rooms, and employ over 578,600 workers. There are about 50,000 physicians (and 15,000 medical students) of Indian heritage in the US.
Education is one of America's finest exports. The foreign students who come for higher studies to the US not only bring talent, but also contribute to the US economy via tuition and living and other expenses. India has had the largest number of foreign students in the US among all countries of origin for eight years in a row. In 2008, there were 94,563 students from India, who contributed $2.39 billion to the US economy.
The other benefits of engaging with India include noble laureates like Har Gobind Khurana (Medicine, 1968), Amartya Sen (Economics, 1998), CEOs in several corporations like Indra Nooyi (PepsiCo), Vikram Pandit (Citigroup), educators like Pradeep Khosla (dean of engineering, Carnegie Mellon University), Nitin Nohria (dean, Harvard Business School), and journalists like Fareed Zakaria (editor, Newsweek), to name a few.
Business Standard
Mumbai: ICICI Bank on Monday said it would announce its base rate on June 30. The bank also recommended a dividend of 120 per cent at its annual general meeting (AGM) on Monday.
"We just concluded our annual general meeting which saw all resolutions being passed unanimously. We have recommended a dividend of 120 per cent," Chanda Kochhar, managing director and CEO of ICICI Bank, told reporters on the sidelines of the AGM in Vadodara.
Later in the day, speaking in Mumbai, Kochhar said the bank would announce its base rate on June 30. The current rates would be "adjusted according to the base rate," she said after the board meeting in Vodadara. The base rate regime comes into effect from July 1.
According to Kochhar, the dividend recommendation is a result of a rise in the group's consolidated profits. "Our subsidiary, ICICI Life Insurance, has earned profits for the first time in financial year 2009-10, which is a year earlier than we expected," she added.
Meanwhile, ICICI brand had been rated among the Top 50 Global Brands and valued at $ 14.5 billion by BrandZ, a brand management firm, Kochhar said at the AGM.
ICICI Bank, whose extraordinary general meeting had approved the amalgamation of Bank of Rajasthan (BOR), registered profit after tax of Rs 4,025 crore for financial year 2009-10 as against Rs 3,758 crore for 2008-09. The bank booked a consolidated profit after tax of Rs 4,670 crore.
Business Standard
Dubai: Essar Steel is reportedly in talks to acquire Egypt's Kandil Steel. The Indian steel giant is believed to have sent feelers to Kandil Steel and is likely to offer a formal proposal to its management in the near future, a business daily report said, without quoting sources.
Essar Steel Middle East, through its subsidiary, had announced its plans to set up a 2,50,000-tonne processing and service centre in Dubai's Jebel Ali Free Zone in January this year to serve Essar's expanding regional client base in sectors such as automotive, white goods, ship building and engineering.
Indian steel majors are consolidating their presence in the Middle East to cater to the strong demand for steel in the Middle East and North Africa (Mena) region, which has projected a supply shortfall of 15 million tonnes.
Kandil Steel makes cold and hot-rolled coil and sheets, galvanised coils and pipes for outdoor, marine and industrial appliances and caters to the Mena and European markets. It plans to reach a capacity of a million tonnes per year in 2010, the report said.
Last month, Jindal Steel and Power (JSPL) agreed to acquire Oman-based Shadeed Iron and Steel Co from the UAE-based Al Ghaith Holdings, for $464 million, third biggest overseas acquisition by an Indian steel maker.
B Sivakumar, Director of Essar Steel Middle East FZE, said that the proposed facility will be in line with Essar's policy to be closer to its customers. "We have been servicing this market for over a decade now. Establishing a base in the Jebel Ali, one of the regions oldest and largest business hubs, gives us a strategic platform to implement our growth plans in the region," said Sivakumar.
Steel production for the UAE, Saudi Arabia and Qatar is expected to rise to 8.45 million tonnes per annum (MTPA) in 2010, up from 6.8 MTPA in 2009.
PTI
Mumbai/New Delhi: Reliance Infratel, the tower arm of Anil Ambani-led Reliance Communications (RCom), today agreed to merge its 50,000-tower portfolio with GTL Infrastructure in a cash and stock deal, making it arguably one of the largest merger and acquisition transactions in India.
Business Standard was the first to report the likelihood of this transaction in the first week of June. Post the merger, the Manoj Tirodkar-led GTL will become the world's largest independent tower company with 82,500 towers and 125,000 tenancies from 10 operators. On top of this, there is a commitment of close to 75,000 tenancies from both RCom and Aircel over the next 10-15 years.
GTL had in January snapped up Aircel's 17,500-tower portfolio. Anil Ambani will retain a 25 per cent stake in the new entity, but entirely in his personal capacity as a strategic financial investor, a first in Reliance's history.
The combined enterprise value of Reliance Infratel and GTL Infra -- including debt and equity of the two -- is about $11 billion (Rs 50,000 crore). This includes Reliance Infratel's debt of an estimated Rs 18,000 crore. This debt will now get transferred to GTL, drastically reducing RCom's debt burden. The total debt in RCom, after the recent payment for the 3G spectrum licence, is Rs 33,000 crore.
There will be substantial value creation for the two million RCom shareholders as they will get free shares of GTL Infra. The swap ratio is being decided. "This is a classic example of a large conglomerate and a mid-size company with competence agreeing to work together in a partnership. There will be no compromise on our independence and neutrality of operations," a GTL spokesperson said.
Over the weekend, both parties agreed on a non-binding arrangement. Independent valuers and auditors will now take about two months to complete the exercise and will help finalise the swap ratio. A definitive agreement will be signed between the two parties after that. The closure of the transaction can be expected three months from then.
"Keeping in mind (that) there will be a court process in the merger, we expect the deal should conclude by November," said a person with direct knowledge of the process. People involved in the transaction told Business Standard that RCom towers, with an average tenancy of 1.7, will attract a per tower enterprise value of Rs 52-55 lakh.
This means a portfolio of 50,000 towers would translate to an enterprise value of Rs 26,000-27,500 crore for Reliance Infratel. This is a significant premium to the Aircel tower deal that saw an enterprise value of Rs 45 lakh per tower. Aircel's average tenancy was 1.2.
Reliance Infratel will retain its optic fibre cable (OFC) network and divest only the physical towers into the merged entity. People close to the development said the OFC network was independently valued at close to Rs 6,500 crore. Combining that would have become unwieldy and GTL also wanted to principally remain just a tower company.
Also, such a move would have meant the transfer of the network management centre, a critical nerve centre for all telecom companies. RCom, therefore, was unwilling to part with it.
Some people involved in the transaction said post the merger, Tirodkar's Global Group would emerge the single largest shareholder of the merged entity with 30-33 per cent holding. This will be routed through the current promoter group, which includes Global Holding Corporation and GTL Ltd.
The existing financial investors of Reliance Infratel since July 2007 -- George Soros, HSBC, Fortress Capital, New Silk, Galleon, DA Capital and GLG Capital -- may continue but their stake will get diluted.
GTL Infra, added the people quoted above, is likely to divest 10-15 per cent in favour of a strategic investor who will also bring in the needed equity. Talks are on with a clutch of strategic investors such as Saudi Telecom and global private equity investors such as Blackstone. But, such a deal is still some time away.
"What is interesting is that an Ambani has decided to divest his business and continue as a strategic financial investor. That's unprecedented in Reliance history and it also shows how the outlook towards businesses are changing," a Hong Kong-based telecom analyst with a leading foreign brokerage firm said on condition of anonymity.
TOWER POWER
* Reliance Infratel to merge its 50,000 telecom towers with GTL Infra
* Deal size: Rs 50,000 crore; via cash, stock
* Rel Infratel to retain optical fibre network
* Global Group to be the single largest shareholder of the merged entity
* Anil Ambani to invest in personal capacity, to have 24-26% stake
* New strategic partners may pick up 12-20% stake
* Management control with GTL, merged tower firm to remain neutral and independent
How will Tirodkar and GTL Infra raise the cash? Sources said the initial cash payout for GTL will be Rs 15,000 crore. This will principally be towards picking up the Rs 18,000-crore tab of Reliance Infratel's debt. GTL Infra has approached SBI Caps to help it in debt financing of close to Rs 12,000 crore. GTL Infra's promoter will also infuse Rs 3,000 crore equity. The operating cash flow of the merged entity will be used as collateral to raise the debt.
The balance amount will be made through share swaps between GTL Infra's promoter and existing shareholders of RCom. A 10-12 per cent stake dilution to a strategic investor in the short term will also assist GTL minimise the debt burden.
Standard Chartered was the exclusive financial advisor of GTL in this transaction. Post the deal, Global Group is expected to cross revenues of $2.5 billion, a total balance sheet of $12 billion and earnings before interest, taxes, depreciation and amortisation of $1.2 billion.
Business Standard
GTL had in January snapped up Aircel's 17,500-tower portfolio. Anil Ambani will retain a 25 per cent stake in the new entity, but entirely in his personal capacity as a strategic financial investor, a first in Reliance's history.
The combined enterprise value of Reliance Infratel and GTL Infra -- including debt and equity of the two -- is about $11 billion (Rs 50,000 crore). This includes Reliance Infratel's debt of an estimated Rs 18,000 crore. This debt will now get transferred to GTL, drastically reducing RCom's debt burden. The total debt in RCom, after the recent payment for the 3G spectrum licence, is Rs 33,000 crore.
There will be substantial value creation for the two million RCom shareholders as they will get free shares of GTL Infra. The swap ratio is being decided. "This is a classic example of a large conglomerate and a mid-size company with competence agreeing to work together in a partnership. There will be no compromise on our independence and neutrality of operations," a GTL spokesperson said.
Over the weekend, both parties agreed on a non-binding arrangement. Independent valuers and auditors will now take about two months to complete the exercise and will help finalise the swap ratio. A definitive agreement will be signed between the two parties after that. The closure of the transaction can be expected three months from then.
"Keeping in mind (that) there will be a court process in the merger, we expect the deal should conclude by November," said a person with direct knowledge of the process. People involved in the transaction told Business Standard that RCom towers, with an average tenancy of 1.7, will attract a per tower enterprise value of Rs 52-55 lakh.
This means a portfolio of 50,000 towers would translate to an enterprise value of Rs 26,000-27,500 crore for Reliance Infratel. This is a significant premium to the Aircel tower deal that saw an enterprise value of Rs 45 lakh per tower. Aircel's average tenancy was 1.2.
Reliance Infratel will retain its optic fibre cable (OFC) network and divest only the physical towers into the merged entity. People close to the development said the OFC network was independently valued at close to Rs 6,500 crore. Combining that would have become unwieldy and GTL also wanted to principally remain just a tower company.
Also, such a move would have meant the transfer of the network management centre, a critical nerve centre for all telecom companies. RCom, therefore, was unwilling to part with it.
Some people involved in the transaction said post the merger, Tirodkar's Global Group would emerge the single largest shareholder of the merged entity with 30-33 per cent holding. This will be routed through the current promoter group, which includes Global Holding Corporation and GTL Ltd.
The existing financial investors of Reliance Infratel since July 2007 -- George Soros, HSBC, Fortress Capital, New Silk, Galleon, DA Capital and GLG Capital -- may continue but their stake will get diluted.
GTL Infra, added the people quoted above, is likely to divest 10-15 per cent in favour of a strategic investor who will also bring in the needed equity. Talks are on with a clutch of strategic investors such as Saudi Telecom and global private equity investors such as Blackstone. But, such a deal is still some time away.
"What is interesting is that an Ambani has decided to divest his business and continue as a strategic financial investor. That's unprecedented in Reliance history and it also shows how the outlook towards businesses are changing," a Hong Kong-based telecom analyst with a leading foreign brokerage firm said on condition of anonymity.
TOWER POWER
* Reliance Infratel to merge its 50,000 telecom towers with GTL Infra
* Deal size: Rs 50,000 crore; via cash, stock
* Rel Infratel to retain optical fibre network
* Global Group to be the single largest shareholder of the merged entity
* Anil Ambani to invest in personal capacity, to have 24-26% stake
* New strategic partners may pick up 12-20% stake
* Management control with GTL, merged tower firm to remain neutral and independent
How will Tirodkar and GTL Infra raise the cash? Sources said the initial cash payout for GTL will be Rs 15,000 crore. This will principally be towards picking up the Rs 18,000-crore tab of Reliance Infratel's debt. GTL Infra has approached SBI Caps to help it in debt financing of close to Rs 12,000 crore. GTL Infra's promoter will also infuse Rs 3,000 crore equity. The operating cash flow of the merged entity will be used as collateral to raise the debt.
The balance amount will be made through share swaps between GTL Infra's promoter and existing shareholders of RCom. A 10-12 per cent stake dilution to a strategic investor in the short term will also assist GTL minimise the debt burden.
Standard Chartered was the exclusive financial advisor of GTL in this transaction. Post the deal, Global Group is expected to cross revenues of $2.5 billion, a total balance sheet of $12 billion and earnings before interest, taxes, depreciation and amortisation of $1.2 billion.
Business Standard
New Delhi: Africa’s largest mobile service provider MTN Group is in talks with India’s Loop Telecom to purchase a stake in the company, which owns mobile telephony licences in 21 circles.
Loop Telecom has been looking for a strategic investor for some time now and people close to the development said the telecom operator was willing to sell up to 45 per cent stake in the firm.
Loop, in which the Ruias of Essar Group have a less than 10 per cent holding, had also held talks with billionaire serial investor C Sivasankaran. The non-resident Indian investor had in the 1990s sold his Sterling Cellular to the Ruias, marking the group's entry into telecom.
MTN has been negotiating with Loop through merchant bankers, the people quoted said. A deal with Loop will provide MTN an entry into the giant India telecom market that is adding 14-15 million mobile phone users every month. The Johannesburg-based company had earlier made three attempts to enter India -- twice with Bharti Airtel and once with Reliance Communications -- all of which remained unsuccessful.
Loop began scouting for a partner after it was reportedly cleared by the Department of Telecommunications (DoT) earlier this month from charges of violating cross-holding restrictions.
DoT had launched investigations against Loop, which was awarded a pan-India unified service access license in 2008, following complaints that the Essar Group held more than 10 per cent stake in the company. Current regulations prevent telecom operators from owning more than 10 per cent in another operator in the same circle. Essar holds 33 per cent stake in the country's second-largest mobile firm, Vodafone Essar.
A Loop Telecom spokesperson said: "As a policy, we do not comment on market speculations." An e-mail questionnaire to MTN, and several reminders, failed to elicit any response.
When reached in London, Sivasankaran said he was not looking at any investment in the telecom sector or in Loop. Sivasankaran continues to be in the telecom business through S-Tel, a joint venture with Bahrain Telecommunications. The firm has licences to provide telecom services in smaller circles across the country.
Business Standard
Thursday, June 24, 2010
The Munich-based Ifo institute reported that its business climate index had risen from 101.5 in May to 101.8 this month - the highest level since May 2008.
The unexpected rise - almost certainly boosted by a weaker euro - highlights the robustness of the export-led upswing underway in Germany. It will help calm fears that Europe's economic recovery will be blown off course by fiscal austerity programmes and weaknesses in the continent's banking system. "The economic recovery is continuing," said Hans-Werner Sinn, Ifo's president.
Germany is under international pressure to support its economic recovery and to take steps that boost domestic demand and thus lift prospects across the 16-country eurozone. The Ifo index's increase is unlikely to deflect much of the criticism, however, especially as it is not yet clear how long the upswing will last.
The latest rise was driven by an improvement in businesses' assessment of current conditions. Expectations about the next six months sank back to levels last seen in March, suggesting that business fears growth will slow over the rest of the year.
Optimism among German industrialists has brightened recently on the back of a surge in orders, particularly from beyond the eurozone. German companies pride themselves on selling on the quality of their products, not just the price. But they have also drawn comfort from a fall of more than 8% in the euro on a trade-weighed basis in the past year.
"The German export engine is running smoothly, making Germany the economic powerhouse of the eurozone," said Carsten Brzeski, European economist at ING in Brussels.
Last week, the DIHK German chambers of commerce forecast Germany's economy to grow by 2.3% this year - with exports up by 10%. German companies have wound down government-financed short-time working schemes that helped avoid large-scale redundancies during the recession, and now falling unemployment is also helping boosting domestic demand.
However, growth in German gross domestic product in the second quarter of this year was boosted by a rebound in construction after a severe winter. Last week, the Mannheim-based ZEW institute reported German investor confidence had tumbled this month at a rate not seen since the collapse of Lehman Brothers investment bank in late 2008. That also pointed to gloomier times ahead.
Thursday, June 24, 2010 Comments
Tuesday, June 22, 2010
But that euphoria was checked as investors took a more considered view on the impact the move would have on economic fundamentals
Hong Kong: Asian stocks retreated on Tuesday as investors booked profits a day after China’s weekend decision to give its currency more flexibility triggered a risk rally.
China’s move on the yuan had set off optimism that a stronger yuan would lift its purchasing power for foreign goods such as commodities, a boon to the global economy given the nation’s vast appetite for raw materials.
But that euphoria was checked as investors took a more considered view on the impact the move would have on economic fundamentals.
“The potential boost that might be given to consumption is likely to be subtracted from what will happen to exports,” said Emil Wolter, head of regional strategy at Royal Bank of Scotland.
“But the bottom line is that the market is making a huge deal of an insubstantial occurrence,” he said, adding that the yuan move had triggered a rally because it came after stocks registered their worst May in 12 years and at a time when there were large short positions.
“Sell in May and go away” is an old stock market adage which refers to the seasonal weakness in shares.
Beijing set the mid-point for the yuan’s daily trading range at a 5-year high on Tuesday, which gave the markets a brief respite from the selling but kept most indexes in the red.
On Tuesday, the MSCI index of Asia Pacific ex-Japan stocks was down 0.7%, hovering around the day’s lows. Losses in technology and resources provided the main drag.
China’s central bank set the yuan’s daily mid-point at 6.7980 against the dollar on Tuesday, the highest level since the yuan’s revaluation in July 2005, signalling it could allow the yuan to rise further.
Spot yuan rose to as high as 6.7900 in early trade, up 0.11% from the close on Monday, when it jumped 0.42%. But by mid-day it was down 0.17%.
Tuesday’s fixing initially reignited demand for riskier currency trades, with the Australian dollar and the euro jumping to the day’s high against the dollar. But that rise was short-lived and by noon the euro dipped 0.1% to $1.2298.
The Australian dollar rose as high as $0.8834, up from around $0.8765 just before the mid-point was announced. The Australian dollar then dipped to $0.8782, up 0.23% on the day.
Financial markets have also turned cautious ahead of Britain’s budget which will be announced later on Tuesday.
As the sovereign debt crisis spreads through Europe, rating agencies have warned even Britain’s triple-A status could be at risk if the finance minister’s plans to cut the record deficit are found wanting.
“Investors are growing more cautious on the view that the magnitude of the yuan’s new flexibility may not be as big as the market had earlier hoped,” said Lee Sun-yeb, a market analyst at Shinhan Investment Corporation in Seoul.
“It seems the market is taking a bit of breather following its recent sharp gains, as it nears the earlier high. Foreign buying has also halted.”
Japan’s Nikkei share average was down 1%.
The Korea Composite Stock Price Index fell half a% as foreigners dumped shares amid growing risk aversion. Foreign investors turned sellers on Tuesday snapping their seven-session buying streak.
Oil prices fell 0.8% toward $77 on speculation that a gradual appreciation of the yuan would have a limited impact on China’s petroleum imports in the short term.
China’s stock market, one of the world’s worst performers this year, managed to cling on to gains after the previous day’s surge. The Shanghai Composite Index was up 0.3%, after rising 2.9% on Monday to its highest close in 3 weeks.
And analysts expect more volatility ahead as the central bank’s move comes a day after it kept the mid-point unchanged.
“The authorities want to say they are showing a more hands off approach and more flexibility in the markets but the reality is they are introducing more intraday volatility in the market,” said Craig Chan, senior FX strategist at Nomura International.
Tuesday, June 22, 2010 Comments
Khazanah may extend offer period for Parkway; Fortis has untill 30 July to decide on counterbid; Indian banks will loan Fortis up to $2 bn
Singapore: RiskMetrics, an independent advisory firm, on Monday recommended that Parkway investors approve a proposal allowing a partial takeover bid by Malaysian sovereign wealth fund Khazanah.
The firm said Khazanah’s offer price of $3.78 a share exceeded Parkway’s share price prior to the offer, and shareholders would still be free to decide whether or not to accept Khazanah’s offer after the vote.
“This resolution, if approved, does not mean that Khazanah’s partial takeover offer will be successful. This resolution, if passed, will allow the bid to be made,” RiskMetrics said in a report.
Shareholders of Singapore-listed Parkway, Asia’s largest hospital operator by market capitalisation, have until 8 July to approve a proposal to let Khazanah raise its stake in Parkway to 51.5% from around 24%.
Eighth July is also the deadline for shareholders to accept Khazanah’s partial offer for Parkway shares, although the Malaysian state investor may opt to extend the offer period amid speculation Indian healthcare firm Fortis is lining up a counter offer.
While Khazanah only needs acceptance from 27% of Parkway shareholders to gain control of the Singapore firm, it needs the go-ahead to make its partial offer from 50% of shareholders other than the Malaysian state investor.
Fortis, which owns just over 25% of Parkway, has received assurance from Indian banks including State Bank of India and Axis Bank of up to $2 billion in loans, the Economic Times newspaper reported on Monday.
Singapore’s securities regulator last week gave Fortis until 30 July to state whether it intends to make a full offer for Parkway.
The Securities Industry Council also said Khazanah had the option to extend the closing date for its partial offer from 8 July to 10 days after 30 July in order to give shareholders a chance to assess their options.
Irda intends to raise the life insurance component in Ulips substantially and make it mandatory
Mumbai: Fresh from its victory in the regulatory turf war over unit-linked insurance policies (Ulips), the Insurance Regulatory and Development Authority (Irda) is set to overhaul the norms governing these popular financial products.
Ulips are hybrids that combine elements of mutual funds and insurance, and have drawn regulatory attention because of fears that they have been pushed down the throats of investors by selling agents who earn fat commissions from insurance companies.
Two Irda officials told Mint on Monday the regulator will soon declare stringent norms on front-loading of commissions, surrender charges, risk cover, top-up benefits, and fixed gains or sum assured for Ulips.
The Economic Times had reported on Monday that the regulator will introduce new rules to make these products attractive to investors.
The most significant reform will be a cut in the commissions that insurance companies pay agents selling Ulips—from the current 57.5% over five years to 30-32%.
In January, Irda asked insurers to manage expenses in such a way that the difference between the amount paid to policyholders and the fund value should not be more than 3 percentage points for Ulips up to 10 years.
For policies above 10 years, it was capped at 2.25 percentage points. The move, however, could not prevent insurers from paying hefty commissions to the agents upfront.
“The insurers were playing a trick with the policyholders by offering the benefit of Ulip charge limits only at the maturity of the product. We will now order the insurers to maintain a difference of at least 3.3 percentage points between gross yield and net yield on Ulip investments through out the duration of the policy and not only at the maturity,” said one of the Irda officials on condition of anonymity.
“Our proposal should bring down the first-year agent commission from 35% to 10-15%,” added the official. For pension plans, the first-year commission, will come down from 7.5% to about 5.5%.
Cut in surrender charges
Surrender charges, too, will be reduced to curb mis-selling.
Currently, policyholders hardly get any money if they withdraw their policy prematurely.
On the other hand, the insurers, too, stand to lose if the surrender charges are drastically reduced as insurers spend on customer acquisition and product development.
Irda wants to strike a balance by capping surrender charges as a percentage of annual premium to benefit the policyholders and allow insurers to charge 15-20% of the premium as so-called amortization cost when a policy is surrendered.
Amortization is an accounting practice of spreading the cost of selling and managing a policy over its lifespan. Till now, there is no limit on amortization in case of a surrender. The combination of hefty surrender charge and amortization cost leaves virtually nothing for the policyholder in case of premature withdrawal.
In May, the regulator had proposed to cap first-year surrender charges at 12.5% for Ulips with a term of less than 10 years and 15% for those above 10 years.
The charges were proposed to be capped at 10% and 12.5%, respectively, of the fund value for surrenders in the second year, while the seventh year onwards there would be no surrender cost.
The insurers were pushing for a hike in these limits, but the regulator now plans to tighten it further. It will order insurers to deduct 10-15% of the annual premium only as the surrender charge and return the entire remaining fund value to the policyholder even in case of premature withdrawals.
Compulsory cover
In yet another significant proposal that will not only make Ulips attractive, but also distinguish them from mutual funds, Irda intends to increase the life insurance component in Ulips substantially and make it mandatory.
Currently, there are a number of Ulip schemes where either there is no insurance cover or the maximum insurance cover is only five times the premium paid. The regulator plans to make the insurance cover mandatory.
According to the plan, the life insurance component has to be at least 10 times the premium paid for policies up to 10 years and at least 1.05 times the annual premium for policies of 20 years and above.
For policies between 10 and 20 years, there will be yet another option—insurance cover of 0.5 times the policy term, multiplied by the annual premium. If the insurers are not comfortable with either of this, they will be required to provide a health cover of at least Rs1 lakh for each year of Ulip.
“The Ulip as we know will no longer exist. All stakeholders such as insurers, agents and policyholders need to wake up and adjust themselves to this new reality. Till now, the focus has been on investments and returns. Now, we could see a shift towards life cover and protection,” said an insurance consultant who did not want to be identified as he is closely associated with Irda.
Pension plans
In yet another significant move, Irda is set to pass an order for insurers to have a guaranteed yield of at least 4.5% on the total premium paid for every equity-linked pension plan in the industry.
At present, linked pension plans do not come with guaranteed sum assured. “The plan is to offer investors something more than 3.5% that is offered by savings bank deposits. To start with, we will ask insurers to offer a guaranteed return of at least 4.5%,” added the official.
The currency issue is likely to feature at the summit of the Group of 20 nations in Canada on 26-27 June, with many expected to seek further clarification from Beijing
Shanghai: China’s surprise move to relax currency controls ahead of this weekend’s G-20 summit buoyed global markets and sent the yuan to a five-year peak on Monday, but caution returned as analysts questioned how far Beijing’s new currency flexibility would go.
Stock markets surged after China loosened the yuan’s 23-month-old peg to the US dollar, easing a policy aimed at steadying its economy during the global downturn and paving the way for the currency to appreciate over the long-term as demanded by the United States and other major trade partners.
The unexpected move sent the yuan up 0.42% to 6.7976 per dollar on Monday, both the biggest daily gain and the highest close since China revalued the currency and introduced a managed float regime in 2005.
But initial optimism was quickly tempered with caution as officials, analysts and investors sought to determine the extent of China’s willingness to rethink policies which have turned it into a global export powerhouse.
“We’re obviously encouraged, but we’ll be monitoring the progress,” White House spokesman Bill Burton said in Washington. “Implementation here is going to be key, and so we’re just going to be keeping an eye on that.”
A senior US official, briefing reporters on condition of anonymity, said China’s gradual approach to yuan flexibility was a prudent step that could both manage expectations and deter massive speculative buying of Chinese assets.
The official said it was promising that China seemed ready to allow the exchange rate to respond to market forces, and that the test now was how far and how fast Beijing would permit the yuan to move.
US stocks, which had risen in step with world markets on the new yuan policy, succumbed to late-day selling and ended fractionally lower as an overall bearish tone undercut the early news out of China.
“Markets were unable to sustain that euphoria as they looked into the details,” said John Brady, senior vice president at MF Global in Chicago.
China’s central bank ruled out a one-off revaluation of yuan and suggested it was close to fair value -- a hint change will be gradual and may not satisfy critics who say China keeps its currency artificially undervalued by as much as 25 to 40 percent in order to gain unfair trade advantage.
The currency issue is likely to feature at the summit of the Group of 20 nations in Canada on 26-27 June, with many expected to seek further clarification from Beijing.
“Some countries will want to see more detail and perhaps even a schedule of some sort,” Canadian finance minister Jim Flaherty told reporters in New York on Monday.
Despite the Chinese move, G-20 leaders were expected to encounter further divisions over strategies to rebalance the global economy - a top G-20 goal since the global financial crisis of 2007-2009.
With pressure high from industry groups who want to see China’s huge trade surplus brought down fast, China’s sharpest critics in the US Congress were also unlikely to be mollified.
“China’s action to allow the yuan to rise slightly today is a drop in a huge bucket. And the truth is, we’ve seen China take actions like this before when the spotlight is on, and then revert back to old tricks,” Senator Sherrod Brown, a Democrat from Ohio, said in a statement.
Nevertheless, Beijing’s move on the yuan -- although small by comparison with freely floating currencies -- provided an unexpected boost ahead of the G20 meeting.
The People’s Bank of China (PBOC), after setting the mid-point for Monday’s trading range, let the yuan rise at one point as much as 0.47%, just shy of the 0.5% limit which had been rarely tested in the past.
Traders said it was unlikely the yuan would see gains on the same scale in coming days, with Tuesday’s mid-point setting serving as an important barometer of how much more appreciation the central bank is willing to stomach.
China’s economic strength gave policymakers confidence to ease the peg, but they remain worried demand for China’s exports is not on a solid footing given risks like Europe’s debt woes.
Chinese Commerce Ministry spokesman Yao Jian told the official Xinhua news agency that yuan reform could put pressure on exports initially, as firms were likely to face higher material costs, but would yield long-term benefits.
The Chinese move may also cut pressure on the Obama administration to formally label Beijing a currency manipulator -- a public embarrassment China’s leaders hope to avoid.
Markets, for their part, started out optimistic although some early gains petered out.
European shares rose to a seven-week closing high while Asian currencies and stocks both rose and U.S. Treasuries fell on expectations that China’s move would ease political tensions with the West and encourage investors to snap up riskier assets.
“This can be viewed as a vote of confidence by the Chinese officials in the strength and the resilience of the Chinese economy and that is being taken as positive,” said Klaus Wiener, head of research at Generali Investments.
But US investors saw early bravado give way to doubt, pushing the Dow Jones industrial average down 0.08 percent to 10,442.41, with the Standard & Poor’s 500 Index and Nasdaq Composite Index both seeing similar small declines.
Commodities markets also saw gains pared after sharp early jumps driven by hopes that a stronger yuan would fuel Chinese demand for everything from copper and oil to soybeans. Even gold, which hit record highs earlier in the session, ended lower on profit-taking
Many economists see China’s currency strengthening further in coming days but at a very modest pace, further diluting hopes for big market gains.
A Reuters poll of 33 economists showed they expected the yuan to end the year at 6.67 per dollar, a rise of 2.4% from late last week before China’s policy announcement and similar to the appreciation implied by offshore non-deliverable forwards.
Thursday, June 17, 2010
Washington: New US claims for jobless aid rose last week while consumer prices notched their largest decline in nearly 1-1/2 years in May, suggesting interest rates will remain ultra low to nurse the fragile economic recovery.
Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 472,000 as manufacturing, construction and education sectors shed workers, the Labor Department said on Thursday.
The unexpected rise in claims was the latest data to suggest the recovery from the worst downturn since the 1930s might have lost some steam. Analysts, however, see little chance of the economy slipping back into recession.
Analysts polled by Reuters had expected claims to fall to 450,000. Last week’s data was in the survey period for the government’s closely monitored employment report for June. A Labor Department official said states had reported claims in manufacturing, construction and education sectors.
In a second report, the department said its seasonally adjusted Consumer Price Index fell 0.2% last month, the largest decline since December 2008, after dipping 0.1% in April.
“The rise in jobless claims is consistent with the view that the recovery is going to be fairly moderate. We are not going to get the kind of job growth and therefore GDP growth, which is going to generate inflation,” said Jim Demasi, chief fixed income strategist at Stifel Nicolaus & Co. in Baltimore.
US stock index futures pared gains and the US dollar extended losses after the data. US Treasury debt prices rose.
The slow labor market recovery is putting a damper on the economy’s revival, which started in the second half of 2009.
After falling rapidly last year, jobless claims have made little progress in 2010. Analysts see this as a sign that while layoffs have abated, companies are still not confident enough to add to payrolls, indicating unemployment will remain uncomfortably high for sometime.
Others believe that unemployment benefits, which have been extended because of the gravity of the jobless situation, may be inadvertently contributing to keeping claims elevated.
A near 10% unemployment rate is hurting President Barack Obama’s approval ratings, and dissatisfaction with the economy could cost the Democratic Party control of Congress in November’s mid-term elections.
With unemployment still high and inflation pressures muted, the Federal Reserve is expected to extend its pledge for low interests rates. The US central bank, which meets on Tuesday and Wednesday, is not seen lifting overnight interest rates from near zero until next year.
Analysts polled by Reuters had forecast consumer prices slipping 0.2% in May. In the 12 months to May, the CPI rose 2%, slowing from the 2.2% rise the prior month, also in line with market expectations.
In May, energy prices fell 2.9%, the largest decline in more than a year. With energy costs falling, gasoline prices tumbled 5.2% - the biggest drop since December 2008. Food costs were flat for the first time since October.
Excluding the volatile energy and food prices, the closely watched core measure of consumer inflation edged up 0.1% after being flat in April.
Analysts had expected core prices to rise 0.1%. The monthly core inflation rate was bumped up by increases in costs at hotels and motels, and for apparel, tobacco, medical care and used vehicles.
In the 12 months to May, the core inflation rate rose 0.9% after increasing by the same margin in April. The rise was also in line with market expectations.
Reuters
Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 472,000 as manufacturing, construction and education sectors shed workers, the Labor Department said on Thursday.
The unexpected rise in claims was the latest data to suggest the recovery from the worst downturn since the 1930s might have lost some steam. Analysts, however, see little chance of the economy slipping back into recession.
Analysts polled by Reuters had expected claims to fall to 450,000. Last week’s data was in the survey period for the government’s closely monitored employment report for June. A Labor Department official said states had reported claims in manufacturing, construction and education sectors.
In a second report, the department said its seasonally adjusted Consumer Price Index fell 0.2% last month, the largest decline since December 2008, after dipping 0.1% in April.
“The rise in jobless claims is consistent with the view that the recovery is going to be fairly moderate. We are not going to get the kind of job growth and therefore GDP growth, which is going to generate inflation,” said Jim Demasi, chief fixed income strategist at Stifel Nicolaus & Co. in Baltimore.
US stock index futures pared gains and the US dollar extended losses after the data. US Treasury debt prices rose.
The slow labor market recovery is putting a damper on the economy’s revival, which started in the second half of 2009.
After falling rapidly last year, jobless claims have made little progress in 2010. Analysts see this as a sign that while layoffs have abated, companies are still not confident enough to add to payrolls, indicating unemployment will remain uncomfortably high for sometime.
Others believe that unemployment benefits, which have been extended because of the gravity of the jobless situation, may be inadvertently contributing to keeping claims elevated.
A near 10% unemployment rate is hurting President Barack Obama’s approval ratings, and dissatisfaction with the economy could cost the Democratic Party control of Congress in November’s mid-term elections.
With unemployment still high and inflation pressures muted, the Federal Reserve is expected to extend its pledge for low interests rates. The US central bank, which meets on Tuesday and Wednesday, is not seen lifting overnight interest rates from near zero until next year.
Analysts polled by Reuters had forecast consumer prices slipping 0.2% in May. In the 12 months to May, the CPI rose 2%, slowing from the 2.2% rise the prior month, also in line with market expectations.
In May, energy prices fell 2.9%, the largest decline in more than a year. With energy costs falling, gasoline prices tumbled 5.2% - the biggest drop since December 2008. Food costs were flat for the first time since October.
Excluding the volatile energy and food prices, the closely watched core measure of consumer inflation edged up 0.1% after being flat in April.
Analysts had expected core prices to rise 0.1%. The monthly core inflation rate was bumped up by increases in costs at hotels and motels, and for apparel, tobacco, medical care and used vehicles.
In the 12 months to May, the core inflation rate rose 0.9% after increasing by the same margin in April. The rise was also in line with market expectations.
Reuters
Thursday, June 17, 2010 Comments
Investors to get 1 share of parent for every 5 held in unit; merger to enhance efficiency, profitability.
Shareholders in the unit will get one share of the parent for every five held, it said in a statement to the stock exchange.
Post-merger Bajaj Hindusthan will have sugarcane crushing capacity of 136,000 tonnes crushed per day, distillery capacity of 800 kilo litres a day and surplus bagasse based co-generation capacity of 150 megawatt, it said.
The merger “will strengthen Bajaj Hindusthan’s position in India’s sugar sector... resulting in rationalisation of operations, better profitability, enhanced production and a stronger competitive position,” Kushagra Bajaj, joint managing director, said in the statement.
For the sugar year ended September 2009, Bajaj Hindusthan swung to a profit of Rs579.2 million from a loss of nearly Rs200 crore. Sales were nearly flat at Rs2,000 crore.
The unit narrowed losses to Rs89.3 million in 2008-09 compared with 757.4 million a year ago.
Further gains such as reduced operating costs arising from the synergies of a combined operation will benefit the parent company in terms of financial strength and flexibility, it added.
Bajaj Hindusthan’s stake in the unit will be held in a trust as treasury stock, it said.
Analysts said the move was neutral as investors in the unit do not get a premium. Besides, Bajaj Hindusthan is a majority stakeholder in the unit with the same management control.
“The share swap ratio is neutral. This is just an exercise on paper. The whole move is neutral in my opinion,” said Pranshu Mittal, analyst with Centrum Broking.
Shares of Bajaj Hindusthan Sugar extended losses, closing down nearly 2% in a firm Mumbai market while Bajaj Hindusthan ended up 1.9% at Rs116.
Reuters
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