Saturday, June 06, 2009
Federal Reserve chairman, Ben S. Bernanke, called for a plan to restore fiscal balance, even as the Barack Obama administration spends its way out of trouble in the aftermath of the worst economic crisis since the Great Depression. Testifying before the House Budget Committee, Bernanke said the US government must address the immediate problems of a crippling recession that has erased trillions of dollars in household wealth, hit investment portfolios and sent unemployment soaring. Still, he said, the government needs to think about putting its fiscal house back in order. "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," he said. "Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance," he added. The deficit is expected to reach US$1.8 trillion this year, the highest projections as a share of gross domestic product (GDP) since World War II. He said that the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending. The Fed chief said deficit concerns are already influencing the prices of long-term Treasuries. Yields on 10-year notes have climbed about 1% since the Fed announced plans in March to buy US$300bn of long-term government bonds.
Venturbay Consultants Pvt Ltd and Tech Mahindra Ltd. announced that the last date by which Letter of Offer will be dispatched to the shareholders has been revised to June 9 from the earlier scheduled date of June 3. Furthermore, last date of withdrawal by shareholders has also been revised to June 26 from the earlier scheduled date June 27. Dates for all other activities of the schedule remains unchanged. The announcement was made by Kotak Mahindra Capital Co., the lead manager to the offer. Tech Mahindra has made the open offer for acquiring an additional 20% stake in Satyam at a price of Rs58 per share. The total cost will be Rs11.55bn. The Securities and Exchange Board of India (SEBI) has cleared the open offer for Satyam by Tech Mahindra. However, the capital market regulator has asked Tech Mahindra to share with the company’s stakeholders the information Satyam had provided to the bidders.
Housing Development & Infrastructure Ltd. (HDIL) said that it has entered in to a joint venture with Mumbai Metropolitan Region Development Authority (MMRDA) for development of 525 acre of land under rental housing scheme at Virar. As per the arrangement, the company will develop approximately 13 million square feet for rental space and hand it over to MMRDA free of cost and remaining about 39 million of sq ft space will be available to the company for free sale. But, the Shiv Sena expressed a strong opposition to the scheme terming it a move to separate Mumbai from the state. Reacting to threats by the hardline saffron party, the state government decided to make domicile a compulsory eligibility criterion in the new rental housing project. Reports said that the government would immediately issue orders allowing only those who have resided in the Mumbai Metropolitan Region (MMR) for the last 15 years to avail a rental home under the scheme. Meanwhile, the MMRDA is opposing any such change in the policy.
Abu Dhabi's state-owned International Petroleum Investment Company (IPIC) sold securities in Barclays worth £1.25bn on June 4. Demand for the reserve capital notes - similar to preference shares - was three times the amount on offer when they were sold on June 3. Earlier this week, the state-backed IPIC had disposed of 1.3 billion shares in Barclays. The shares were sold on June 2 for about £5bn, according to Credit Suisse Securities, handing IPIC a gain of £1.5bn in just seven months. Last year, Barclays secured a £7bn capital injection which was largely backed by oil-rich investors from Abu Dhabi and Qatar, as it sought to avoid taking government funds in a bid to survive the credit crunch. Abu Dhabi's shock move this week to sell came after Barclays shares had surged by about 50% in value since last October. Meanwhile, reports emerged that Singapore investment firm Temasek Holdings has sold its stake in Barclays at a loss of £500-600mn.
Telecommunications and IT Minister A. Raja ruled out a merger of Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL), saying that there are a lot of legal hurdles against the proposed move. Publicly listed MTNL provides telecom services in New Delhi and Mumbai, while BSNL serves the rest of India. Raja said that the Government would consider the listing of BSNL as proposed by the state-run company's Board. He however said that the company's union will also be involved in talks for the same. Estimates suggest that BSNL is worth US$100bn and dilution of 10% stake would help the company raise US$10bn. Raja also said that he would push for an extension of tax sops under Sections 10(A) and 10(B) of the of the Software Technology Parks of India Act for at least another two years. The sops, which were due to lapse in the current financial year, have already been extended by one year.
Monsoon rains so far have been 35% below average till the week ended June 3 after the tropical cyclone Aila lashed the country’s east coasts on May 25, slowing progress of the weather system, according to the Indian Meteorological Department (IMD). The country received 12.5 millimeters of rainfall in the period as against the 50-year average of 19.2 millimeters, the weather bureau said. Rains were 32% below normal in the three months to May 31, the IMD said. The nation received 91 millimeters in the quarter, less than the 134.5 millimeter average, the agency said. Rains were deficient or scanty in 24 out of 36 weather zones last week, and normal in the remainder. The June-September rainfall will be 96% of the so-called long-period average, recorded between 1941 and 1990, a level deemed near normal, the weather bureau said.
The meteorological analysis and numerical weather prediction models suggest further advances of rains over some more parts of Karnataka, Andhra Pradesh and Coastal areas of Orissa during next 48 hour, the IMD says on its web site. The southwest monsoon may revive in two days, after remaining stagnant for the last few days following an early onset over the Kerala coast, the weather bureau said. Scattered to fairly wide spread rainfall activity over west coast of India and northeastern states, is likely from June 7, it added. The monsoon covered Kerala, Tamil Nadu, Karnataka and Andhra Pradesh and some parts of Orissa, West Bengal and Sikkim before stalling on May 25, the IMD said. Rains were meant to move next to Maharashtra.
India's merchandise exports declined 33.2% in April from a year earlier to US$10.74bn, the Commerce & Industry Ministry said. In rupee terms, exports were down 16.4% at Rs643.4bn. Imports fell by 36.6% to US$15.75bn in April while in rupee terms the same were down by 20.6% at Rs788.32bn. This takes the trade deficit for the month to US$5bn from US$8.75bn in April last year. Oil imports declined by a whopping 58.5% to US$3.63bn in April and non-oil imports fell by 24.6% to US$12.11bn. Meanwhile, media reports showed that merchandise exports have fallen by 30% in May, the eight straight month of decline. Quick estimates put out by the Commerce Ministry showed that May exports fell to US$10.8bn from US$15.5bn in the year-earlier period. Commerce & Industry Minister Anand Sharma said that there would be measures in the Union Budget and in the foreign trade policy, to be announced in August, to help alleviate some of the pain being felt the sector, the worst victim in India of the global recession.
The market seems to be cruising on a vehicle without reverse gear. Sooner than later, some speed-breakers could come up which the advancing market may find tough to drive through. Given that we had the longest rally in recent years, some rest could be considered for the bulls. The IIP numbers may turn out to be better than the previous months which could give a further fillip after a brief correction if any. Inflation numbers have become a non-event for the time being. With no other major news, the market could get provoked by petty issues. Stay guarded and take some profit home. Having said that, Monday morning should at least be a good one with US markets rising on the back of a surprisingly better jobs data. From thereon, the market will be at the mercy of global cues, besides of course liquidity and risk appetite of the bulls. A lot will be reported about the forthcoming budget over the next few days. Though President's parliament address has made things amply clear about the new Government's thinking on policy front, budget will be an event to watch out for.
General Motors (GM), once the crown jewel of America's flourishing industrial sector and the world's No.1 automaker till not too long ago, filed for Chapter 11 bankruptcy on June 1. The Detroit auto major submitted its reorganization papers to a federal clerk in Lower Manhattan. This marked the largest bankruptcy filing in the history of American industry. US President Barack Obama marked the lowest point in GM's 100-year history - its bankruptcy filing - by barely mentioning it, instead focusing his remarks on the second chance GM will have to become a viable company with more government aid. He described the investment of more billions of taxpayer dollars in GM as necessary to avert a calamity that could hurt millions of people.
The Obama administration will commit another US$30bn on top of the US$19.4bn it has already given GM to cover its losses and fund its operations. The US government will get a 60% equity stake in the new company after restructuring, as well as US$8.8bn in debt and preferred stock. A trust established to fund health care benefits for retirees of the United Auto Workers (UAW) union will own 17.5%, and get the right to purchase another 2.5%.
The governments of Canada and Ontario will lend US$9.5bn and receive 12% of the equity in the new GM. Finally, bondholders who lent GM US$27bn will forgo much of what they are owed and instead get a 10% share of the new company plus the right to secure another 15%. In addition, investors who own 54% of those bonds have agreed to not fight plans for a quick bankruptcy.
GM employs 230,000 people around the world, building more than 20,000 vehicles a day. GM said it aims to emerge from Chapter 11 by August, shorn of much of its debt, four of its eight brands, and surplus plants and dealers.
Meanwhile, GM's European arm will be shielded from the bankruptcy after an 11th hour deal reached on May 30 that will see Magna International, the Canadian parts supplier, take over the business with financial backing from the German government. Fiat withdrew from talks with Berlin. GM's European operations include the Opel and Vauxhall brands. Under the signed Memorandum of Understanding (MoU) between GM and Magna, shares in GME will be transferred to a trust to protect it from a GM insolvency. GME will also receive €1.5bn in credit guarantees from the German government to keep it afloat while GM and Magna negotiate a final deal.
The United Progressive Alliance (UPA) Government is committed to maintaining high economic growth with low inflation particularly in relation to prices of essential agricultural and industrial commodities, President Pratibha Patil told a joint session of parliament on June 4. The Government will ensure that the growth process is not only accelerated but also made socially and regionally more inclusive and equitable, Patil said in her customary address.
The current financial year is expected to see a slowdown of growth on account of the global recession, but a range of measures taken by the Government in the past few months of its last term have begun to show results, Patil said. The immediate priority is to focus on management of the economy that will counter the effect of the global slowdown by a combination of sectoral and macro-level policies, the President said. The Government will focus attention on sectors that are adversely affected, especially Small and Medium Enterprises, Exports, Textiles, Commercial Vehicles, Infrastructure and Housing, according to the President. This will be accompanied by measures to achieve a countercyclical expansion in public investment in infrastructure sectors, including public-private partnerships, she said.
Infrastructure development will be a key focus area for the next five years, the President said, adding that public investment in infrastructure is of paramount importance. The Government will develop a roadmap for listing and people-ownership of public sector undertakings while ensuring that the Centre equity does not fall below 51%. The UPA will also steadfastly observe fiscal responsibility so that the ability of the Centre to invest in essential social and economic infrastructure is continuously enhanced.
The roadmap for moving towards a Goods and Services Tax (GST) will be vigorously pursued. The Government is fully seized of the issue of illegal money of Indian citizens outside the country in secret bank accounts. It will vigorously pursue all necessary steps in coordination with the countries concerned, the President said.
The Government intends to add at least 13,000 MW of new power generating capacity each year through a mix of coal, hydel, nuclear and renewable resources. The pace of oil and gas exploration will be intensified and India’s oil diplomacy will be aggressively pursued, Patil said. Reforms in the coal sector, for which a detailed blueprint has been prepared, will be pursued with urgency, she added. The international civil nuclear agreements will be operationalised with various countries even as domestic sources of uranium are exploited and work continues on the indigenously designed fast breeder and thorium reactors.