Sunday, September 27, 2009
No surprise here. As expected, the Federal Reserve left interest rates near zero and said that the world's largest economy is well on the path to recovery. The only major worry is that the current weakness in the job market could continue for a while. The FOMC kept its federal funds rate, an overnight lending rate that guides rates on various consumer and business loans, in a range of 0% to 0.25%. Rates have been at that level since December. "Economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased," the Federal Open Market Committee (FOMC) said at the end of its two-day meeting. It was the first time since August 2008 in which the FOMC said that the US economy has improved from its previous meeting. The Fed reiterated that current economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
Separately, the Fed and US Treasury said they are scaling back emergency programs aimed at combating the worst financial crisis since the Great Depression. The US central bank said it will further shrink auctions of cash loans to banks and Treasury securities to bond dealers, reducing the combined initiatives to US$100bn by January from US$450bn. The Treasury has begun the process of exiting from some emergency programs, the chief of the government’s US$700bn financial-rescue fund said separately. In its policy statement, the Fed said it will complete its planned US$1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.
The promoters of Suzlon Energy Ltd. sold 70mn shares, or approximately 4.5% of the paid-up share capital of the company at Rs96.85 a share. That was a 45% discount to the closing price on Sept. 22. Post the sale, the total promoter group shareholding in Suzlon stands at about 53.08%. The Tanti family raised Rs6.78bn from the sale of shares. Speaking on behalf of the promoter group, Tulsi Tanti stated: "The proceeds raised through the sale of minor stake are intended to be used primarily to infuse funds into the Company as unsecured debt or equity, subject to applicable law, company and requisite approvals. The money thus infused is expected to be used for working capital and other funding requirements of the company."
Sesa Goa Ltd. announced the final terms of the previously announced launch of an offering of Foreign Currency Convertible Bonds (FCCBs). The size of the offering is US$500mn. The FCCBs will have a coupon of 5% per annum, payable semi-annually in arrear and will be convertible into equity shares of the company. The conversion price has been set at Rs346.88 per share, representing a premium of 28% to the reference price of Rs271 per share. Proceeds from the offering will be used to expand the company's mining operations, for exploration for new resources, and to further develop its pig iron and metallurgical coke operations, Sesa Goa said. Use of proceeds will be in accordance with end-use restrictions specified in the External Commercial Borrowing (ECB) regulations issued by the Reserve Bank of India (RBI), it added.
Jaiprakash Associates Ltd. raised Rs11.9bn from the sale of treasury shares. Jaiprakash sold 50mn shares at Rs238.46 apiece. The company could use the proceeds to finance its proposed captive power plants and keep cash ready for a possible acquisition or setting up of cement capacity in Maharashtra and overseas. Jaiprakash Associates executive chairman Manoj Gaur said that the funds will not be used for debt repayment. JAL has a total debt of Rs95bn and a debt-equity ratio of 1:9 now. This is the second tranche of treasury share sale by Jaiprakash Associates, which sold 25mn shares in June to raise Rs5bn.
Cipla raised US$140mn (nearly Rs6.76bn) through a qualified institutional placement (QIP) of shares to fund expansion and retire debt. According to reports, the company said that it would require capital expenditure of around Rs6bn this financial year and the company’s debt stands at Rs9.4bn. Around Rs9.2bn of debt is repayable this year. The company offered to sell shares worth US$110mn, with an option to raise it to US$175mn. The shares were sold an average price of Rs263.75 a piece, resulting in an equity dilution of around 4%.
3i Infotech raised Rs3.18bn through the qualified institutional placement (QIP) route. The QIP issue, which opened on September 17, closed on Sept. 22. The company will issue 37.5mn shares at a price of Rs84.75 a share to the buyers. 3i Infotech had earlier passed an enabling resolution to raise up to Rs5bn in July. "The issue size is relative to the demand and other QIPs in the market at that time, apart from their pricing. Based on all these factors, we decided that raising US$50-65mn would be optimal," said Amar Chintopanth, CFO, 3i Infotech. The funds raised will be used to partially retire the company’s debt.
US bankruptcy judge rejected attempts by Sterlite Industries Ltd. to sweeten its offer for US copper miner Asarco LLC, and recommended for the second time that rival bidder Grupo Mexico SAB de CV regain control of the company. Sterlite, however, maintained it was still in the race to acquire the copper miner. In court papers, US Bankruptcy Judge Richard Schmidt recommended that a US district court judge in Brownsville, Texas approve Grupo Mexico's US$2.48bn offer to repay Asarco's creditors in full, saying that it was too late for Sterlite to make changes to its offer. "Considering the volatile commodities market and world economy, time is of the essence in moving this case toward confirmation and consummation," Schmidt wrote. He had first recommended Grupo Mexico's bid in August, saying that it would offer more recovery to Asarco's creditors than Sterlite's plan. After the judge's recommendation in August, Sterlite raised its offer for Asarco to US$2.56bn and said it would let Grupo Mexico out of an US$8bn potential legal liability stemming from the 2003 transfer of Asarco's stake in Peruvian miner Southern Copper Corp. The district court sent the issue back to the bankruptcy court to determine whether Sterlite's latest offers should be considered, leading to Judge Schmidt's latest recommendation.
Reliance Communications (RCOM) said its telecom tower subsidiary Reliance Infratel has filed the draft red herring prospectus (DRHP) for its initial public offering (IPO) with capital market regulator Securities & Exchange Board of India (SEBI). Reliance Infratel, a passive telecom infrastructure provider, is planning an IPO for divesting 15.60 crore equity shares of Rs 10 each for cash at a premium to be decided through a 100% book building process. The net issue would constitute 10% of the post-issue paid-up equity capital of the company.
The estranged Ambani brothers found a new battle front to cross swords over even as the larger war on the gas supply from the KG-D6 block awaits the Supreme Court's verdict. Reliance Industries Ltd. (RIL) issued a notice to a power plant run by ADAG owned Reliance Infrastructure Ltd., threatening to stop gas supplies for non-payment of dues for the first fortnight of September. Reliance Infrastructure, which buys 0.56 mmscmd of KG-D6 gas, paid marketing margin on gas till last month but discontinued it this month. It operates the 220 MW Samalkot power plant in the East Godavari region. The plant requires 1.1mn standard cubic meters a day (mmscmd) of gas of which RIL is supplying half on a fall-back basis though the agreement was for 0.19 mmscmd at a price of US$4.2 per million British thermal unit. RIL is charging US$0.135 per million British thermal unit marketing margin on sale of gas from its eastern offshore KG-D6 fields, a levy which was opposed by NTPC. RIL said that the marketing margin it charges is uniform for all the 40-odd customers and is lower than the US$0.17 per mmBtu margin charged by GAIL. Meanwhile, the Power Ministry said it did not approve of RIL charging marketing margin on gas it sold, saying such levies are paid where distribution chain is involved.
The number of telephone subscribers in India increased to 494.07mn at the end of August 2009 from 479.07mn in July 2009, thereby registering a growth rate of 3.13%. With this, the overall tele-density in India reaches 42.27 Wireless Segment. Wireless subscriber base increased from 441.66mn in July 2009 to 456.74mn at the end of August 2009 at a monthly growth rate of 3.4%. Wireless Tele-density stands at 39.08. Wireline subscriber base declined from 37.41mn in July 2009 to 37.33mn at the end of August 2009. BSNL and MTNL, the PSU operators, own 85.8% of the wireline market share. While major private wireline service providers have increased their subscriber base, BSNL-MTNL lost 0.14mn subscribers in the month. Wireline tele-density is 3.19. Total broadband subscriber base increased from 6.8mn in July 2009 to 6.98mn in August 2009.
India's inflation rose for the second straight week, the annual rate of inflation, stood at 0.37% for the week ended September 12, as compared to 0.12% for the previous week ended September 5, and 12.42% during the corresponding week of last year. The Wholesale Price Index (WPI) for 'All Commodities' for the week ended September 12, rose by 0.2% to 242.6 from 242.0 for the previous week. The Government announced that it has revised inflation for the week ended July 18 to -0.54% from -1.54%.
The index for Primary Articles group rose by 0.2% to 275.3 from 274.7 for the previous week. The index for ‘Food Articles’ group rose by 0.1% to 280.3 from 279.9 for the previous week. The index for 'Non-Food Articles' group rose by 0.5% to 239.8 from 238.7 for the previous week.
The index for Fuel & Power group rose marginally to 343.5 from 343.4 for the previous week due. The index for Manufactured Products group rose by 0.3% to 208.8 from 208.1 for the previous week. The index for 'Food Products' group declined by 0.1% to 241.7 from 241.9 for the previous week.
The index for 'Machinery & Machine Tools' group rose by 0.5% to 173.3 from 172.4 for the previous week.
The World Bank has approved US$4.3bn in loans for India to help it bolster its tardy infrastructure and help shore up the capital of some public sector banks. The loans are part of the World Bank's US$14bn in crisis related lending for Asia's third-largest economy over three years through 2012. The World Bank would provide US$2bn to India's banking sector in order to expand the volume of credit available to the local companies. The World Bank also approved US$1.2bn for the India Infrastructure Finance Co. Ltd. to spur private financing for public-private partnerships in infrastructure, and to stimulate the development of a long-term local currency debt financing market. In addition, the World Bank approved US$1bn to address India's acute power shortages by assisting the Powergrid Corp of India with its investment program. It also provided US$150mn to Andhra Pradesh to improve water supply and sanitation services for 2,600 villages across six districts. India can attain a GDP growth of between 5.5% and 6.5% in FY10, but this depends a great deal on how quickly the global economy recovers, World Bank country director for India, Roberto Zagha was quoted as saying.
The rising indices need some rest and the coming week offers plenty. With three working days, the bulls and bears may prefer to have some action on the street rather than remain on the sidelines. The US market seems to be lacking clear direction for now following mixed signals from data on consumer confidence, home sales and orders for durable goods. The outcome of the G20 Summit is unlikely to have a big impact. In any case, G20 leaders have reiterated their pledge to maintain the unprecedented stimulus measures unless there is absolute certainty over economic recovery.
Back home, the RBI too has made similar remarks, promising to keep the status quo to offset the adverse impact from a poor monsoon. For more on what the central bank will do one will have to wait till next month-end's half-yearly policy decision.
Though the base effect does come to play, the index of six core industries having a combined weight of 26.7% in the Index of Industrial Production (IIP) registered a growth of 7.1% (provisional) compared to a growth of 2.1% in August 2008. All eyes will now be on the August IIP data, which will be out on Oct. 12. By that time, one will have known the initial trends in quarterly results. Anticipation of better quarterly numbers may ensure that investors don’t get very light, lest they miss out another expected bull run.
An increase in public spending, a quicker than expected return of capital inflows, stronger industrial production, and signs of improved business confidence will lift economic growth to 6% in India this year, up from an earlier estimate of 5%, said the Asian Development Bank (ADB). The Asian Development Outlook 2009 Update (ADO Update) said that while agricultural output for 2009 is expected to remain stunted and exports weak, adroit economic management in the form of fiscal stimulus packages and accommodative monetary policy has minimized damage from the global financial crisis and is supporting a relatively strong economic expansion again. The report forecasts growth of 7% for 2010, also an upward revision from the 6.5% projection in March.
"The Government's strong fiscal stimulus, complementing the Reserve Bank of India's (RBI) aggressive monetary policy easing, has successfully brought last year’s economic slowdown to an end," said ADB Chief Economist Jong-Wha Lee.
Growth in the first quarter of 2009 reached 6.1%, a modest rise on the previous two quarters, with the upturn reflecting a recovery in industrial growth to 5% from less than 2% in the previous six months. The company net profits grew strongly and ECBs rose 19% in June, the highest expansion since Sept. 2008. Weak agricultural output in the second and third quarter is likely to weigh on growth, although the report said a rebound is expected in the final quarter.
The report noted that growth for 2009 will continue to be driven by Government expenditure, with the combination of countercyclical fiscal policies and renewed investor confidence expected to sustain an expansion in private consumption and investment. The impact of difficult weather conditions on rural incomes and consumption will be partly offset by budgetary programs to aid households in the rural areas and possible supplementary support, the ADB said.
In a potential blow to the Bharti Airtel's efforts to create the world's third largest wireless telecom company, capital market regulator SEBI announced a proposal to alter the takeover regulations. The watchdog said that anyone holding GDRs or ADRs with voting rights of 15% must offer to buy 20% from minority holders. In an "informal guidance" in June, SEBI had said that holders of ADRs or GDRs may not have to offer to buy an additional 20% from minority shareholders unless these instruments are converted into ordinary shares.
In tune with market developments, the Board decided to amend the Takeover Regulations to provide that where the ADR/ GDR holders are entitled to exercise voting rights on the shares underlying GDRs /ADRs by virtue of clauses in the depositary agreement or otherwise, open offer obligations shall be triggered upon crossing the threshold limits, SEBI said in a statement. "If you are holding an ADR or GDR with voting rights, you have to make an open offer," said SEBI Chairman C.B. Bhave.
Bharti's proposed takeover of MTN involves issuance of GDRs to the South African telecom firm and its shareholders, which would add up to 36% of the Indian company. But, Bharti said it would seek exemption for MTN from making an offer. In a statement, India’s largest mobile phone firm said that the deal structure with MTN would be fully compliant with laws in both countries. "All relevant approvals, including exemption from open offer from SEBI if required, would be sought at an appropriate time," it said.
Bharti has extended the negotiation deadline twice to buy a 49% stake in MTN, offered a slew of concessions recently to seal a US$23bn deal that would have 200 million customers. The deadline to conclude a deal is September 30.
The Finance Ministry formed a four-member committee to meet South African officials who are visiting India this week to discuss the Bharti-MTN deal. Finance Minister Pranab Mukherjee said that the Indian Government backs the proposed merger of Bharti with MTN, but would require full convertibility of the Indian currency and the resolution of legal issues. India does not have full convertibility on the capital account.
South African officials told Indian policymakers that the latest change in takeover rules would make it difficult for MTN to complete its merger with Bharti. South African officials, who met SEBI, RBI and Finance Ministry officials in Mumbai, sought exemption from a clause that mandates the purchase of a 20% stake from minority holders if an entity’s stake in a company touches 15%.
Despite a positive start to the holiday-shortened week, the Sensex ended with marginal losses owing to selective profit taking. Markets witnessed stock-specific activity because of derivatives expiry-related cues. The Sensex neared the 17,000-mark during the course of the week as the index touched a high of 16,943 on Tuesday. However, after slipping to a low of 16,495, the index finally ended the week with a marginal loss of 48 points at 16,693.
Among the index stocks - Maruti and SBI jumped over 11.5 per cent each to Rs 1,641 and Rs 2,139, respectively. HDFC, Sun Pharma, HDFC Bank, Tata Motors, DLF and Grasim surged 7-9 per cent each. Bharti Airtel and ONGC, however, were down nearly 2 per cent.
The market will continue to remain up as long as the Sensex holds the 16,400 level. A breach of this level could see the index drop towards 14,800. Next week, trading activity may remain low owing to holidays at the start and end of week - Dussehra and Gandhi Jayanti, respectively. Expect the index to move more or less in the range of 16,970-16,400 unless there is any major external influence.
The Nifty regained the 5,000-mark on Tuesday after a gap of 16 months. The index after touching a high of 5,036, slipped to a low of 4,904. It finally settled with a loss of 17 points at 4,959.
The Nifty is currently in the rising channel and may find considerable support around 4,825, which is also its short-term (20-day) daily moving average (DMA). The medium-term (50-day) DMA is at 4,655.
Next week, the index may find support around 4,910-4,890-4,875 and resistance around 5,010-5,025-5,040.