Saturday, December 24, 2011

Merry Christmas and a Happy 2012!!!

Wishing all readers of WealthWisdom a Merry Christmas and a Peaceful & Prosperous 2012!!

Paras Adenwala
Editor, WealthWisdom

Note: New posts would resume from the 3rd of January, 2012.

Reliance linked to covert investments

 A legal battle in London has revealed that a conglomerate controlled by Anil Ambani, the Indian telecoms tycoon, used a Mauritius-based fund to make covert investments in one of its own companies, triggering calls in India for a full investigation.
UK regulators have found that Mr Ambani’s Reliance Group, spanning interests from financial services to infrastructure, invested $250m in the offshore fund that in 2007 bought securities linked to one of the companies within the group, in violation of Indian law.
The complex chain of investments, long the subject of media speculation in India, is now at the centre of a disciplinary action brought by the UK’s Financial Services Authority against the former private bankers at UBS who set up the investment fund.
The long-running case has already established serious compliance failings at UBS, the Swiss bank whose flagship wealth management arm competes fiercely for the business of billionaires such as Mr Ambani. The bank paid an £8m fine in 2009 for control weaknesses on its “Asia II” private banking desk based in London, which dealt with “mega clients” such as Mr Ambani and several other Indian tycoons.
So far, only Mr Ambani’s group has been publicly identified as using this structure. But one Indian investor with knowledge of the vehicle claimed that as many as 25 Indian businessmen had used similar funds.
One former senior UBS private banker, Jaspreet Ahuja, last week accepted a £150,000 fine for facilitating the $250m investment by three Reliance group companies into a Mauritius-based vehicle; his manager, Sachin Karpe, is challenging a proposed £1.25m penalty over the same events in a London tribunal.
But the FSA’s finding that the fund, known as “Pluri Cell E”, subsequently invested in “Indian-listed equities and derivatives” of another company in the Reliance Group stable raised fresh questions about the structure, legal experts said.
Mr Ambani remains one of India’s most high-profile business leaders. His empire was forged from the division of the original Reliance group, established by his father, after a protracted battle with his elder brother, Mukesh, in 2005.
Under Indian law, Indian nationals and companies are not allowed to invest in domestic stocks through the vehicles at issue in this caseexcept in limited circumstances.
Mr Ambani is not party to the UK tribunal and has not been charged by the FSA with wrongdoing. He denies any knowledge – or authorisation – of the transaction. In India, Mr Ambani, several Reliance Group directors and two Reliance companies paid Rs500m ($11m) to the country’s financial regulator, the Securities and Exchange Board of India, in January to settle an inquiry into whether they violated overseas borrowing rules and misrepresented financial statements. They did not admit liability.
However, two legal experts contacted by the Financial Times, speaking on condition of anonymity, said that while Mr Ambani had been investigated by SEBI, some of the corporate activities examined by the UK’s FSA could also raise concerns at the Reserve Bank of India.
Using an offshore fund covertly to invest in companies in which an individual or group already holds a significant interest without declaring it would violate both SEBI and RBI rules, experts said.
A former senior Indian official, also speaking on condition of anonymity, said: “The Reserve Bank of India has always been against Indian corporates raising money abroad and then pumping those funds into their own companies ... The Ambani case, as well as many others, should be properly investigated and the Right to Information Act should be used to open up cases which have been closed or settled.”
India’s powerful RTI legislation provides citizens with broad rights to access information held by government ministries and agencies. The law is widely respected, and is also backed by stiff fines for the improper withholding of information.
According to the documents published by the FSA last week, Pluri Cell E bought derivatives, known as equity swaps, whose underlying shares referenced an unnamed Reliance company. Separate documents published by SEBI in 2010 name Pluri Cell E as the ultimate beneficiary of derivatives whose underlying security was Reliance Communications, one of India’s largest mobile operators.
While former UBS bankers arranged the investment, UBS compliance officials did not know the ultimate owners of the Pluri vehicle were companies within the Reliance group, and never signed off on the investment, the FSA found.
In January 2007, Pluri Cell E closed out its swaps and bought global depositary receipts in the same Reliance company, according to the FSA. These were worth $300m by the end of October 2007. GDRs are securities issued by non-UK companies that are listed on the London Stock Exchange and track underlying domestic shares.
The FSA maintained that $250m was invested in Pluri Cell E from December 4, 2006 until October 9, 2007. During this period, Reliance Communications shares rose from Rs443.80 to Rs706.95 rupees, according to Bloomberg data.
At that time, the company entered into a bidding war for its rival, Hutchison Essar, which was ultimately acquired by Vodafone in February 2007. ­However, Reliance’s offer was all cash and would
not have been directly affected by the rise in the company’s share price.
The FSA’s findings were published in the penalty notice issued last Friday against Mr Ahuja, who worked with Mr Karpe on setting up the Pluri investment.
While the notice against Mr Ahuja did not identify the client, the disciplinary case against Mr Karpe, which is continuing, had already named the client as Mr Ambani’s Reliance Group.
A spokesman for the Reliance Group drew a distinction between corporate and individual responsibility, emphasising that investments with UBS had been made by companies, not Mr Ambani himself. He said there was no regulatory charge that Mr Ambani used Pluri Cell E to invest in his own company.
“Whether or not some of the companies in the group made structured investments of that nature; the legal implications thereof; and the circumstances in which such investments came to be made; are an entirely separate matter, which has already been settled with Indian regulators,” the spokesman said.
Both Mr Ahuja and Mr Karpe have claimed that senior UBS officials were aware of their activities on behalf of Reliance Group, and that the structure used in the Pluri investment had been used previously for other clients.
It emerged during Mr Karpe’s tribunal hearing that Kurt Kumschick, formerly one of UBS’s top private bankers in Asia who died earlier this month, told Mr Karpe and Mr Ahuja that Mr Ambani’s status as a “mega client” may justify setting up the investment.
“If the ultimate [owner] is our mega client ... then it will be a business decision if we are comfortable with the structure and want to go ahead with this transaction or not,” he wrote in an email in 2007.
“I would support the decision to go ahead based on the following: [...] our mega client is among the top three industrialist [sic] in India with enormous influence in the country and able to interact with regulators and authorities.”
UBS denies any of its executives sanctioned the Pluri investment, and is supporting the FSA’s case against Mr Karpe.
Bernhard Buchs, UBS’s global head of wealth planning, testified in Mr Karpe’s tribunal last week that the bank stopped structuring offshore vehicles for clients that wanted to invest in Indian stocks in 2005, after regulations in India “evolved”.
(Source: Financial Times)

Friday, December 23, 2011

Newspapers turn to tablet apps

Publications are now turning to tablet-optimised apps to bolster their online presence.
The demise of the print media has been written about many times over in the past. While TV news is a whole different ball game, the challenges posed by the explosion of real time news on the Web have, surprisingly, been embraced by print media to bolster their business. But, till recently, news delivered on the Web by the mainstream print media wasn't to its satisfaction or that of the reader. Now, the big question is – will this year's tablet revolution be the harbinger of good tidings for print to finally make its online story work?
Recent developments such the encouraging sales of the Amazon Kindle Fire, the emergence of HTML 5 and the surging sales of Apple's iPad (coupled with iOS 5's ‘Newsstand' feature) have magazines and newspapers excited. Magazines such as Wired have seen several early birds flocking to their tablet offering. The big question for readers is does the tablet format make sense for them? And why is it such an exciting proposition for publications?

Stepping out of the pages

Over the last decade, news media companies have had a lot of promising new means to deliver content. First among these was the Internet, which helped speed up content delivery and increased the amount of content delivered. Readers had a great time and found themselves flooded with more free content from leading names than they could handle. Unfortunately, those delivering the content found very little flexibility in pricing it – readers who had been lapping up free content so far were very reluctant to pay for it.
For many traditional print media houses, the internet has so far been a voluminous experiment with little cash to show for it. The fact that they managed to deliver a lot more news a lot faster to the reader counted for little. The primary cash cow was the cover price that physical newspapers and magazines charged, coupled with ad revenues. Now, media houses hope that the tablet can be the missing link between the Internet and an actual hard-copy reading experience. They hope that the versatility offered by the tablet form factor will help convert a loyal ‘print' reader into someone who is willing to pay for the tablet version of the magazine or newspaper.
Flexibility and relatively low cost of delivery could make tab-tailored versions of content the preferred mode of delivery for publications.

News on tab

Number crunching indicates that the tablet experiment has already had some success. However, it is a nascent market and tablet and smartphone ownership makes it a niche product for news delivery. News Corp, which owns Wall Street Journal, has stated it has 2 lakh subscribers to its digital edition, accessing the content from the Apple iPad and Android tablets.
Financial Times also claims to have a similar number of digital subscribers. In 2010, they racked up 9 lakh downloads of their Android and iPhone apps. That number is estimated to be double its daily print circulation. Barring these papers, which have successfully built up impressive online reader counts while socking away a good portion of content behind a pay-wall, almost all Indian newspapers (and their foreign counterparts) have struggled to find a price at which their online operations warrant a more sizable bet.
The allure, however, remains strong, given the presence of a bevy of Indian magazines - mainstream and niche - through the Apple Newsstand, third-party apps such as Magzter, Newsy and social networking-oriented news apps like Flipboard, Pulse etc. . Struggling print players such as New York Times and The Guardian are also ratcheting their presence on tablets and social media. If the app-store downloads are anything to go by, there's a strong indication that a well-designed app for the tablet makes media content stand out from the crowd. It gets readers hooked in a way that a zillion favourite bookmarks on the Web could not. But does that translate into actual paying subscribers? Will advertisers be ready to pay a premium for embedded ads in apps?

The economics

As things stand, a publication looking to hop on to the tablet bandwagon pays a 30 per cent cut to Apple or a slightly lower figure to Google or Amazon. Maintaining a symbiotic relationship between content providers and app store owners will be a big challenge because of the lower ‘price versus revenue' flexibility that this medium offers.
The fast emerging social model which Facebook recently introduced has seen The Guardian and Washington Post rack up 4 and 3.5 million users respectively. The revenue potential is strong. Making content stand out as distinctly as possible and having users hooked to the content, provides a strong case for print media to present to advertisers as well . This is why news media organisations are excited about what a tablet can do for them.
By 2015-16, Gartner expects a tablet user base of over 500 million tablets, a vast majority of which will be sold in 2015. The sheer volume comes with a inbuilt captive crowd of content-seekers, many of whom are likely to be willing payers for tablet-based media content. One reason why early adoption might be hindered is because habits such as reading a newspaper are hard to change. Also, shelling out the upfront cost of a tablet is a sizeable entry barrier in getting readers onboard.


But widening the base of tablet owners and getting more readers hooked to the medium will be the key to making this a viable platform. Tablets provide readers and content providers with a product which mimics the best of the paper and electronic medium much like the Kindle did for books. Colour reproduction and layouts, when designed for a tablet, outdo the appeal of the paper format. Also, the ability to throw in associated content such as archives and videos seamlessly makes the tablet a value-for-money proposition for media producers as well as the readers.
Getting the right balance between providing premium content and an affordable price tag for the tablet strategy is the challenge that remains for media outfits. But, at least we are speaking of the possibility of pricing content now. That is one small step for readers and one giant leap for the print media-kind.
(Source: Business Line)

Pulses imports likely to remain high on rising demand

Driven by rising consumption, India's pulses imports for the current financial year may stay at last year's levels of around 3 million tonnes. This is despite a record-high output in the 2010-11 crop year, which stood at 18 million tonnes.
“Total imports in the current fiscal are expected to be around the same as in 2010-11,” said Mr Rajiv Agarwal, Secretary, Ministry of Consumer Affairs, Food and Public Distribution. The high imports are on account of growing consumption of pulses, a major source of protein for a large populace.
Besides, rising income levels, the adequate availability and lower prices of pulses are also seen aiding consumption. Mr Agarwal was speaking at the launch of the Global Pulses Conclave 2012, to be held in Mumbai in February next year.
The imports for the April-October period of current fiscal stood at 1.659 million tonnes as against 1.628 million tonnes in the corresponding period last year. “The current trend shows that imports are likely to be at last year's levels,” Mr Agarwal said.
India had imported about 3 million tonnes of pulses in 2010-11, lower than the previous year's 3.5 million tonnes. However, the pulses trade estimates that imports this year will be lower on account of higher domestic output and the over 20 per cent devaluation of rupee making imports costlier.
“We expect the imports to be in the range of 2.5 to 3 million tonnes this year,” said Mr Pravin Dongre, President of the India Pulses and Grains Association. Importers have so far absorbed the impact of the rupee decline, Mr Dongre said. “If the rupee falls further, then importers will have to start passing on the costs to consumers,” he added.
The country had produced a record high of 18 million tonnes of pulses in 2010-11 crop year as against 14.66 million tonnes in the previous year. In the current year, the Government had set a production target of 17 million tonnes, a marginal decline on account of inadequate rains in certain States such as Karnataka, Andhra Pradesh and Maharashtra.
(Source: Business Line)

New indices show dip in railway freight growth, recovery in airline sector

Railway's freight services have dipped to a six-year low, while airlines seem to have recovered from worldwide recession of 2008-09, the first ever experimental set of Indices of Service Production (ISP) released by the Government show.
The Ministry of Statistics and Programme Implementation has prepared the indices on the lines of the Index of Industrial Production (IIP). The new set of indices has been calculated with 2004-05 as base year.
The indices have been compiled for the financial years 2005-06 to 2010-11 and were prepared to provide inputs for policy formulation, an official statement said.
The index for railways explains its financial woes. Railways earn approximately two-third of its revenue from freight, but the new index says that the growth in freight traffic has nosedived from 2009-10 to 2010-11. Although this segment did see recovery in the preceding two years, but the dip in industrial production and mining activities brought the growth down.
On the other hand, passenger services during 2005-06 to last fiscal year witnessed the highest growth in 2008-09, the year of the global financial crisis. Interestingly all the four quarters of 2008-09 recorded figures better than the previous one.
The indices for airlines show that average yearly growth hit a high of 34.4 per cent in 2005-06 and plummeted to a low in 2008-09. The last two quarters (October-December and January-March) of 2008-09 were worst for the industry, when growth rates turned negative. Even the first quarter of 2009-10 had flat growth. However, following quarters made a good recovery bringing the airlines back on the growth path.
Such an emerging trend brought the largest domestic carrier (in terms of market size), Jet Airways into profit at the end of fiscal year 2010-11 after two successive years of losses. The company is again in the red during the current fiscal year, but for different reasons.
Among the listed carriers, Spice Jet recorded profit in 2009-10 and 2010-11, but is now in the red, while Kingfisher has logged losses every quarter since listing on the bourses.
(Source: Business Line)

Banks scramble to attract NRE deposits

Banks are trying to outbid each other in the race to garner NRI deposits.
A number of banks have either doubled or trebled the rates they were offering just a few days ago on NRI deposits. This follows the deregulation of rates by the Reserve Bank of India.
This outbidding to contract remittance money is a function of regulatory and governmental ‘overbearing,' says the regional regional head of a leading public sector bank.
He said rates are being kept up, thanks to the tremendous peer pressure to corner the precious funds.
Karnataka Bank has quoted 9 per cent-plus for one year. On Friday, State Bank of Travancore upped the ante by offering over 8 per cent for the same tenor.
IndusInd Bank has increased its rates on NRE deposits to 9.25 per cent from 3.82 per cent. Karur Vysya Bank has increased its rate to 10 per cent.

‘Unbeatable' rates

Officials said, banks are looking to retain the increasingly fleet-footed customers by offering what they think are ‘unbeatable' rates. The remittance inflow would last only for such time as the exchange arbitrage holds.
In Kerala, for instance, the customers do not park money for long, and tend to consume it or spend on real estate. They need compelling logic to stay anchored with their respective banks.
While the Kerala-based banks have just about doubled the rate on the one-year deposit, their counterparts in Tamil Nadu have increased the rate almost in tune with the domestic term deposit rate.
“It's because of competition. The RBI is also encouraging the mop up of such deposits and the increase in the rate offering will not affect our Net Interest Margin as the percentage of NRE deposit to the total is negligible,” says Mr A. K. Jagannathan, Managing Director and CEO of Thoothukudi-headquartered, Tamilnad Mercantile Bank.
Lakshmi Vilas Bank's Managing Director, Mr Somasundaram, said that the volume of NRE deposit to the total was still small and there was, therefore, the need to tap the potential.

Effect on NIM

“Our revised rates for the different time-buckets are almost in tune with the domestic term deposit rate and we do not foresee this hike to have much of an impact on our NIM, which is already under pressure.”
A South Indian Bank spokesperson said that NRE deposits stood at Rs 800 crore out of the total deposits of Rs 33,340 crore. “Since the revised rates would be applicable only for those that come up for renewal and fresh deposits, we do not foresee any pressure on our NIM.”
Bankers, by and large, said that they would be able to maintain the NIM post the revision in the rates. While some banks have already increased the interest rates by 100 to 200 per cent more than the existing rates, more banks are expected to follow suit.
(Source: Business Line)

Steel exports halve, imports treble in Nov

At 184,000 tonnes, steel exports in November hit the lowest point this financial year. Imports have surged to 879,000 tonnes, the highest point in the year.

In its latest data published by the Joint Plant Committee, the government body tracking steel in the country, says companies exported 184,000 tonnes in November, which was 203,000 tonnes less, sequentially and nearly half of the exports in November 2010.
Imports, however, shot up sharply to 879,000 tonnes against 279,000 tonnes in the same month last year. Sequentially, imports were up by 519,000 tonnes.
Ravindra Deshpande, research analyst, Elara Capital (India) Pvt Ltd said, "Global steel prices have corrected a lot, but the domestic prices have been firm. Despite the rupee depreciation, it is profitable to import steel and that is why we have seen a spurt in imports."
The steel export in the April-November period has risen 32 per cent. At 241,000 tonnes, April saw the least steel exports. At 879,000 tonnes, November has seen the highest import surpassing July (605,000 tonnes), by close to 50 per cent.
April registered the lowest imports at 330,000 tonnes.
An official from a steel company, seeking anonymity, said, "Yes, imports in November went up and have hurt us since we are already reeling with low demand in this period." He, however, ruled out any price cuts by the domestic steel makers. In April-November, imports have fallen by 20 per cent, or one million tonnes.
Another analyst tracking the sector said, "Steel prices globally have softened by 15-20 per cent, but this hasn't affected domestic prices yet. Although demand is slowing, companies are not ready to cut prices because of the inflated raw material bills."
Domestic production also fell sequentially in November.

According to the report, India produced a total of 5.46 million tonnes steel in November against 5.89 million tonnes in October.
The production in April-November, at 46.14 million tonnes, went up 7.9 per cent. Real consumption growth in the given period stood at a mere 3.9 per cent.
(Source: Business Standard)

Investors in renewable energy sector planning to turn part-time farmers

Investors in the renewable energy sector are planning to turn part-time farmers. Land-intensive solar power projects may witness plantations around panels and modules, with project developers exploring possibilities to grow low-rise and underground crops like beets, radishes, carrots, onion and potato along side the solar power panels. They are checking out the potential of plantations under the shades of solar panels, which is being experimented overseas.

US-based Kiran Energy, Gujarat's Shashwat Green Fuels & Technologies (SGFT) and Gurgaon-based Moser Baer are some of the project developers inclined towards agriculture. Solar Energy Association of Gujarat founder chairman and Kiran Energy resident director Pranav Mehta intends to even file a patent for innovation in agriculture alongside of the solar power project.

Kiran Energy is commissioning 20-mw of solar power project in Gujarat and more capacity addition is on cards for Rajasthan. "It is an emerging concept and more developers may follow after success at some of the project sites. Project developers would have to look at alternative uses of free space with a decreasing solar power tariff," said Mehta.

India is aiming at commissioning 20,000 mw of solar power generation capacity by 2020 at an investment of about Rs 3 lakh crore, which will require about 1 lakh acre of land as one mw cover 4-6 acre of area. Developers often commission projects on agriculture land instead of barren area to garner handsome profits after 25 year of life of solar panels. Almost 1,000 mw of solar power projects will be commissioned in Gujarat alone in the next few months while Rajasthan too has ambitious targets.

"We will grow cumin for optimum use of land. It will keep solar modules cool and prevent dust covering the panels. We also intend to set up 3-4 greenhouses on surplus land," said SGFT business development head Karan Dangayach. SGFT is setting up one mw solar project covering four acre in Surendranagar district.

Moser Baer India group head of corporate communications Abhinav Kanchan said, "In Italy, Moser Baer commissioned a 4.99mw greenhouse solar park alongside agricultural activities. We are open for replicating the same model in India at suitable project sites."

Meanwhile, Gujarat and Punjab plan to commission solar power projects on canal networks. It will reduce demands for land for solar projects and prevent stealing and evaporation of water resources besides keeping the canals clean.
(Source: Economic Times)

Lending idle blue chips: Rich investors lend stocks in choppy Street

Stock lending and borrowing (SLB), which has been a non-starter all this while, is gradually becoming popular among rich investors. An unpredictable market is driving these investors to lend their blue chips to short-sellers.

Investors who have 'idle' shares, especially, in banking, IT, infrastructure and oil & gas sectors, can earn 4% to as high 15% annualised returns if they lend stocks to traders who want to engage in reverse arbitrage or go plain short on stocks, according to brokers. The trend of lending stocks on the SLB platform is catching up among investors who have long-term stock portfolios. The number of SLB transactions has gone up steadily from about 200 trades in January to over 1,600 in November this year.

"Investors are seeing this as an opportunity to earn risk-free income. Investors with idle shares (stocks that are held for long-term value appreciation) in their portfolios are lending stocks to short-sellers. We're selling this idea to our investors as well," said Anshu Kapoor, head of wealth management, Edelweiss Financial Services.

A stock-lending mechanism enables lending of idle securities by the investors through the clearing house of stock exchanges. Suppose, a stock is quoting at Rs 1,600 in the spot market and Rs 1,580 in futures. A trader can borrow the shares, sell them in the cash market, buy futures to cover the price risk and then later buy back the shares from the spot market to return them to the lender. Lenders get back the shares on the first Thursday of the month.

The difference from arbitrage less the lending charges is the profit that traders make. The screen-based exchange-traded platform allows two parties to lend and borrow stock for a fixed period maturity.

It is an "all-win" situation for the lender as he earns lending fees and also retains all ownership benefits of the stock, which include dividend payouts and bonus issues. The lender gets his shares back on the specified date (fixed at the time of lending shares) and he does not have to pay securities transaction tax while lending shares.

"I earned Rs 2 lakh last year and more than Rs 3 lakh this year from lending shares. The stocks that I have so far lent are SBI, L&T, Axis, TCS, Infosys and sometimes Ranbaxy," said Ravi Adukia, an investor based in Mumbai If one looks at the bid spreads on NSE's January contract series, borrowers are willing to pay Rs 5 per share as lending fee for 100 shares of Aban Offshore; on the other side, lenders are demanding a fee of Rs 9 per 200 shares of Aban Offshore.

Punj Lloyd shares are being asked for Rs 0.16 per share for 150 shares, but lenders are willing to lend Punj Lloyd only if they get Rs 4.50 per share for 250 shares. Axis Bank, Bank of Baroda, Tata Motors, Mundra Port, ONGC, Asian Paint, Dr Reddy's and TCS are among stocks that are offered for lending on NSE.

It is mostly traders and offshore institutions that borrow shares through the SLB platform. In normal course, traders look at this option when stock prices are trading at apremium to stock futures. If the view of the trader is overly negative, he'll go in for a 'plain short'; in plain short, the trader borrows the stock through the SLB facility and sells them at prevailing spot market price. By doing so, the trader hopes to return the borrowed stock (to the lender) by buying from the market at lower-than-current prices at a later date.

"Instances of stock borrowing goes up when investors are bearish about investing in markets," said Arun Kejriwal of Kris Capital.
(Source: Economic Times)

Auteur Multiplexes making movie experience unique

Two months after launching uberluxury theatre Director's Cut, PVR Cinemas chairman and MD Ajay Bijli says it's too early to chart the concept's expansion, but adds luxury movie viewing is here to stay. "With the growing luxury real estate developments in the country, we are looking to expand luxury cinema concept to pockets with high-affluent population," says Bijli.

He is not alone. Multiplex rivals such as Big Cinemas, Cinepolis and Inox, too, plan to expand their luxury screens - offering reclining premium seating and dining options and much more at a high premium - across metros and big cities, following good initial response from consumers. Big Cinemas COO Ashish Saksena says, "All the multiplex players have now perfected their high-end cinema concepts and are ready to expand."

After changing the way urban Indians watched movies over the past decade-anda-half, multiplex chains now look to woo the new, affluent and highly-aspirational consumers with premium auditoriums and luxury services.

It turns out that there are many takers for 5-star comfort in theatres.

Monica Garg, an image consultant in the Capital, has become a regular at PVR Director's Cut at Vasant Kunj, where she and her friends can book an entire auditorium for themselves, request for movies on demand, watch classics and dine from an elaborate buffet at a movie-themed restaurant. "For me watching a movie is also the time to catch up with friends, time away from my busy schedule," says Garg, who recently got to interact with Rockstar director Imtiaz Ali at the theatre.

Ali too loved his interaction with the audience at Director's Cut. "A wholesome entertaining movie-going experience is what filmmakers want for their audience and cinemas are where we would want our audience to watch our movies," he says. PVR reports 60% occupancy at Director's Cut, which is higher than a normal multiplex.

"While formalising the concept of Director's Cut, we constantly asked ourselves what can we offer to the affluent Indian who owns the best of gadgets and home theatres, so that they can come out for a unique movie-viewing experience," says Bijli.

Not happy with luxury reclining chairs in the market, PVR built plush seats for Director's Cut in-house and patented the technology. "One cannot get away with premium pricing strategy if you are not offering the best," says Bijli.

Luxury in cinemas is not just about legroom. Multiplex operators strive to provide the best of food, ambience and content, and give consumers the option to watch a movie exclusively with a select group of friends or family. PVR Cinemas and Big Cinemas have auditoriums with just 25 seats.

The cost of building high-end screens is about 40-50% higher than normal cinemas. "The investment on such screens is high and it's like setting up a mini manufacturing plant with high initial investment and a moderate-to-long payback period," says Ashesh Jani, partner, Deloitte Haskins & Sells.

While tickets are priced at a big premium, companies say, food is the most important factor in this business. And the trickiest. While the menus have to be innovative, they need to be easy to eat while watching a movie. "One cannot serve curries or strong-smelling food to the consumer while they are watching the movie," says Ashish Saksena of Big Cinema, whose luxury formats include Cine Diner and 180 Degrees. "Also serving in the middle of the movie disturbs other audiences," he adds.

Inox Leisure CEO Alok Tandon says, "Food and services are the most important factor in high-end cinemas. We change our menus on a weekly basis and have trained staff who plan these menus and keep a stringent check on the standards." Another potential income source is advertising.

High-end cinemas offer a captive audience for high-end luxury product marketers. "For luxury brands, such an audience is the right target audience to reach out," says Ashish Marda, joint MD of Cinepolis, the Mexican multiplex chain that will introduce its globally-tested VIP Cinemas in the country next year.

He says the affluent consumer in India is looking for options to splurge. His proof: most cinema watchers at its Amritsar multiplex buy extra large serving of soft drinks even though most of them don't finish it.

The number of multiplex screens in the country is expected to double to around 1,800 screens by 2015, according Ernst & Young estimates.

Globally, chains like Cinepolis, CJ CGV and Village Roadshow have launched such formats, with limited success. But analysts say the format may be a success in India. "Such formats work well in places with high economic disparity," a media analyst says on condition of anonymity.

PVR's Bijlee agrees: "One-size-fits-all strategy cannot be used in a country with demographic disparity."
(Source: Economic Times)

India's roads sector seems headed for consolidation

India's roads sector seems headed for consolidation, with smaller and more aggressive bidders piling up orders that have run into viability issues, leaving the field clear for bigger players to shop around for distressed projects.

Experts say this is evident in the fact that cash-strapped infrastructure developers are in the market looking for equity investment in as many as 40 projects. Many of these projects are up for sale because of lower-than-expected toll collection, rising cost of credit and bottlenecks in land acquisition. A few highly leveraged developers are also scouting for investors to raise funds to finance other projects.

Lanco Infratech is believed to be keen to exit its roads business completely while companies such as Hyderabad-based IVRCL Assets and Holdings and Nashik-headquartered construction company Ashoka Buildcon are keen to induct strategic investors. "We will see an increase in the number of roads projects that will be on the block as construction needs deep pockets and other sources of funding have dried up," said Jai Mavani, partner, real estate and infrastructure at PwC.

Though analysts foresee consolidation in the sector, they say the process is likely to be slow because there are very few strategic buyers and they are being very careful in picking projects.

"Banks are keen that projects should fall into safer hands from their perspective. That's why they are talking to a few of us. While we are looking at all these opportunities, we are not rushing because we want to be responsible," said R Shankar Raman, chief financial officer of Larsen & Toubro.

Bigger players haven't been rushing to acquire projects in the primary market either. Since April, National Highways Authority of India has awarded 19 projects aggregating around 3,000 km, of the 59 projects that it plans to award this fiscal, to talling 7,994 km with a total cost of about Rs 60,000 crore. Most of these projects have been snapped up by the newer players at bids that seem to defy business sense and often end up being unviable.

"That is why we have been able to win only one out of 10 projects," said R Shankar Raman of Larsen & Toubro, which had among the highest hit rates in the industry earlier at 20%.

Reliance Infrastructure, which had bagged two NHAI projects last year, has not been able to win any project this year primarily because it aims to maintain its internal rate of return of 20%. "People see a lot of opportunity in the roads space and are ready to pay a premium to build a portfolio. We have a good portfolio of 11 projects and would not want to dilute our returns," said Sudhir Hoshing, chief executive of the Reliance Infrastructure's roads business.

Even Bangalore-based GMR Infrastructure, which bagged the Kishangarh-Udaipur-Ahmedabad NHAI project in September quoting an aggressive premium of Rs 630 crore, has decided to go slow. "Our plate is full with $2 billion road projects totalling 6,300 km on the build, operate and transfer model and we would not like to bid for more projects in near term," said A Subbarao, group CFO of GMR.

Large players have indicated that they are in no hurry to add new projects given high interest rates. They would rather conserve balance sheet strength for larger projects where bidding is likely to be less aggressive," said a Standard Chartered equity research report.

Traditionally, NHAI has been awarding projects with grants to make them viable. However, developers are increasingly quoting bids with either very low grant requirement or in some cases very high premium to make their bid competitive. The premium on a project indicates the developer's assessment of how lucrative the project is and the confidence that the toll revenue will be more than the total cost.

"We believe such aggressive bids will continue in the near future until some players face problems to achieve financial closure. The difference between grants and premiums is increasing and this is negative for the industry," said Ankush Mahajan, analyst with KRChoksey Institutional Research, in a recent sector note. This spells a longer wait, and possibly even lower valuations, for developers caught between ambitious bids and unviable projects. "We are looking at new proposals every day," said Hoshing of Reliance Infrastructure, "Some of these are projects that we have looked at earlier when NHAI had invited bids and we know they are not viable. So, we will wait and watch."
(Source: Economic Times)

Illegal mining: Odisha may have a Bellary in backyard

Illegal mining of iron ore beyond the permissible limits brought the mining industry in Bellary, Karnataka, to a grinding halt, with huge losses to the steel industry and thousands of people out of work. That scenario may now be repeated in Odisha, which produces a third of the country's iron ore, and where a state government team is investigating cases of mining contractors taking out and shipping ore illegally.

The culprit in both cases seems to be the abuse of 'raising contracts', agreements between mine owners and operators permitting an individual or a group of individuals owning a mine to outsource the extraction and sale of ore to a third party with expertise.

In Karnataka, the Bellary brothers - Janardhan, Karunakara and Somasekhara Reddy - have been accused of abusing these contracts by forcing reluctant mine owners into agreements and producing and exporting large quantities of the ore beyond permissible limits. All these activities were done in the name of the mine owner, so very little could be traced back to the Bellary brothers, who interestingly, owned no mines in Karnataka.

An investigation later found that 45 of the 90 mining leases had violated norms forcing the Supreme Court to order a suspension, bringing the industry to a halt in that district.

A similar pattern has been now noted by Odisha officials in the state. Rule 37 of the Mineral Concessions Rules, 1968, permit raising contracts but without the transfer of ownership and financial control of the mine. But in Keonjhar and other districts of Odisha, that is exactly what seems to have happened, government officials say.

"Our team has submitted a report on eight such mines which we are studying. We have sent notices to three miners and will be auditing some more," a senior Odisha official of the mines ministry told ET recently.

Eight more are to be scrutinised for similar violations. The state government suspects some contractors took over mines and shared profits with the original lease-holder. "It suits lease-holders who have been living far from the mines. They could make money without lifting a finger," says one of Keonjhar's older miners.

The easy money could come to an end if investigators find conclusive proof of wrongdoing. The steel industry, whose dependence on locally produced ore is quite high, would be devastated with a Bellary-style suspension.

Companies such as JSW were forced to cut production and import expensive iron ore after the Supreme Court order and the last thing they would want is something similar in another big oreproducing state. Odisha produces a third of the 225 million tonnes of iron ore produced in India, compared with Karnataka's 65 million tonnes. Ore from Odisha also goes to the big steel plants in eastern and central India.

The Tatas, Steel Authority of India, the state's own company Orissa Mining Corporation, Adhunik, as well as Birla's Essel Mining own blocks in the state. Odisha-based miners such as Indrani Patnaik, KJS Ahluwalia and RP Sao have been asked to explain their arrangement with their common contractor, Thriveni Earth Movers.

A fact-finding team of 16 accountants sent by the state has also questioned others such as Kabita Agrawal, Aryan Mines, Mala Roy Mines, the Rita Singhpromoted MESCO's Mideast Integrated Steel and Sarda Mines.

The Justice Shah Commission, which is examining the illegalities in iron ore and manganese mining across the country, also visited some of these mines during its recent trip to the Joda-Barbil area in Keonjhar. The Shah Commission officials specifically wanted to know the nature of the mine's arrangement with the contractor and the question of control.

Thriveni is one of the seven contractors employed by us. I can't possibly hand over my mine to seven contractors. I spend five days of the week here in Keonjhar, the local directorgeneral, mines, can vouch for that. We are paying taxes, taking care of the regulatory clearances and investing," KJS Ahluwalia's Nuagaon mine CEO, Prashant Ahluwalia, says.

Sarda's hill-top 6 million tonne Thakurani iron ore is linked directly to Jindal Steel's 4.5 million tonne pellet plant at the base of the hill via a 1.8-km covered conveyor belt. JSPL buys the entire production. What's not converted into pellets is consumed at its 3 million tonne DRI plant in Raigarh, in neighbouring Jharkhand. "We have a pure buyer-seller arrangement with JSPL. The lease is ours and we are operating the mines," says Arjun Saraswat, one of the four directors at Sarda Mines.

Kabita Agrawal Mines General Manager Himanshu Shekhar Mohanty said it wasn't possible to violate rules. "Our mines have been non-operational since 1997, as we don't have forest clearance.

Where is the question of employing a raising contractor?" he asked. The terms of the raising contract are stipulated in Rule 37, 37A and 46 of the Mineral Concession Rules and are governed by covenants specified in the mining lease deed. Under the mining rules, a lessee cannot transfer his concession without prior approval from the state and the Centre. Sub-leasing or outsourcing is allowed only to the extent that financial and management control and certain other key responsibilities are retained by the lessee.
(Source: Economic Times)

National Highways Authority of India bonds to deliver high capital gains when rates fall

The Rs 10,000-crore National Highways Authority of India, or NHAI, bond offering, which opens for subscription on December 28, offers a good opportunity to investors to lock in funds at higher yields and earn tax-free interest income, according to wealth managers.

Apart from coupon rates in excess of 8%, NHAI bonds will start delivering high capital gains once interest rates start moving downwards, they say.

Forty per cent of the Rs 10,000-crore issue is earmarked for institutional investors, 30% for retail investors and high net worth individuals. The bonds will have differential coupon rates of 8.2% for 10 years and 8.3% for 15 years, say merchant bankers.

"The NHAI issue presents a good opportunity for investors to lock money in triple-Arated sovereign-like bonds at higher yields. Apart from high coupon rates and safety, these bonds will be very liquid because of the large float. Investors will easily be able to buy and sell these bonds on the exchange," said Raghvendra Nath, managing director at Ladderup Wealth Management.

According to Mr Nath, investors should take a long-term view on this bond issuance. These should be a part of the core fixed income portfolio, he said.

National Highways Authority of India will use the issue proceeds to part fund land acquisitions, meeting viability gap funding and annuity payments among others.

According to wealth managers, tax-free bonds - even if it bears a lower pay-out rate than G-Secs and corporate bonds - are good bets for investors in the current scenario as not many asset classes are generating near-8% risk adjusted (tax-free) returns. Despite 10-year G-secs and bank fixed deposits yielding 8.3% and 9.25%, respectively, wealth managers expect the bond to attract investments because of its tax-free status.

"An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits, which are currently giving about 9% (pretax) returns," said Jaideep Hansraj, executive vice-president & business head at Kotak Wealth Management.

Also, with interest rates expected to slide over the next few months, money managers are hoping to generate higher returns by selling these bonds at a relatively higher coupon rate.

In the event of a fall in interest rates, wealth managers expect 5-10% price appreciation on premature encashment of the bond.
(Source: Economic Times)

Central America Lures Sportswear Makers

Sportswear producers such as Adidas AG (ADS) are turning to Central America to complement China as a source for apparel as the region’s proximity to the U.S. allows for quick turnaround of orders during peak seasons.
With China’s garment factories producing more for its own growing middle class and wages there rising, companies have begun moving production back to countries within Central America and the Caribbean that also benefit from duty-free access to the U.S. market.
Adidas, the world’s second-biggest sporting goods maker, plans to increase fivefold to about 45 million items a year by 2015 its production in the region, said Gregg Nebel, Adidas Group’s head of social and environmental affairs for the Americas, in a telephone interview from his office in Seattle.
“The real shift for us was driven by a need to have shorter lead time,” said Nebel. “We’ve been reallocating our production volume needs back into Central America,” he said.“Some of that is being pulled back from Asia.”
U.S. apparel imports from the six nations of the Dominican Republic-Central America Free Trade Agreement, or DR-CAFTA, were up 2.6 percent in the 12 months through October, compared with a 3 percent drop from China in that same period, according to the U.S. Commerce Department’s International Trade Administration.
Imports of apparel from China last posted an annual decline in 2008, when the recession dried up global trade. China accounts for about 41 percent of U.S. clothing imports, down from 42 percent last year. DR-CAFTA accounts for about 13 percent of U.S. apparel imports, up from 12 percent in 2009.

‘Chasing’ Inventory

Carlos Arias, president of Guatemala’s textile and apparel exporters’ association, expects the region’s producers to profit from last-minute inventory replenishment, known as “chasing,”in the holiday and post-holiday season that runs to the end of January.
Quick turnarounds -- goods shipped from Central America by sea can take two to three days instead of about two weeks from China -- are also important at other peak shopping periods, such as the back-to-school season, apparel makers say.
“We are seeing interest in some of our customers in looking at the region as a permanent chase region,” said Arias, who is also president of Guatemala City-based Denimatrix LP, one of the region’s biggest jeans producers. “They are looking to control inventories better and react faster.”

‘Exploring the Possibility’

Nike Inc., the world’s largest sporting-goods maker, is“exploring the possibility of sourcing” from Nicaragua “with a small number of strategic partners,” Nike spokeswoman Mary Remuzzi said in a statement.
Beaverton, Oregon-based Nike already has contracted with factories in Honduras, El Salvador and the Dominican Republic, according to the company’s website.
Donald Blair, chief financial officer at Nike, said on a conference call this week that improved inventory management was enabling the company to keep a better handle on discounting.“As we start to see our supply chain smooth out, we’re going to also see that those discount levels can be managed out.”
Nike this week reported second-quarter profit that topped analysts’ estimates as sales of running shoes surged in North America. Nike shares, up 11 percent for the year, fell 1.6 percent yesterday to $94.82 in New York trading.
Managing inventory is key to controlling costs, said supply chain expert Jeff Streader, an operating partner at Marlin Equity Partners LLC in El Segundo, California. “Competitiveness is having the right product at the right time.”

Quicker Turnaround Times

The shift from China allows companies to save by keeping fewer goods in warehouses, relying instead on Latin American producers for quicker turnaround times. Free-trade agreements with Colombia and Panama signed into law in October by PresidentBarack Obama may accelerate the process.
Retail inventory-to-sales ratios in the U.S. were at 1.32 months’ supply in October, the lowest since record-keeping began in 1980 and down from a seven-year high of 1.62 months’ supply in December 2008, at the height of the financial panic, according to Commerce Department data.
“Rather than bringing in all of the goods for holidays up front, we’re seeing more of a flow,” Streader said. “Inventory is money.”
Global retailers and the major brands are also concerned that producers in China may cut back on exports and focus increasingly on the country’s growing domestic market, said Walter Wilhelm, a Salt Lake City-based apparel and footwear consultant. The cost of production in China is also rising, he said.

China’s Rising Wages

Twenty-one regions in China, including Beijing and special economic zone Shenzhen, raised minimum wages by an average 22 percent this year, the government said in Beijing on Oct. 25. Shenzhen’s minimum monthly wage of 1,320 yuan ($208) is the highest in the country.
The minimum wage in Guatemala is about $230 a month, while in Nicaragua it’s about $134 a month for workers in special industrial zones, according to the governments’ websites.
The end of quotas on textile and garment exports fromdeveloping countries to developed nations on January 1, 2005, caused the loss of thousands of jobs in Central America, as well as in the U.S., as China gobbled up share of the U.S. market.
Aided by the launch of DR-CAFTA in 2006, some of those jobs are returning to member nations, which include the Dominican Republic, Costa Rica, Honduras, Nicaragua, Guatemala and El Salvador.

Recovering Jobs

Guatemala, which saw its apparel and textile-related employment plummet to about 80,000 in 2008 from about 120,000 in 2004, has now recovered to about 92,000 jobs, according to Arias.
In Nicaragua, 70,000 workers are employed in textile operations and another 10,000 may be hired next year, Dean GarcĂ­a, executive director of the Nicaraguan Association of Textile and Apparel Industries, said in a telephone interview from Managua.
Central America is forecast to grow 4 percent next year, compared with an estimated 3.9 percent this year, theInternational Monetary Fund said in September.
Herzogenaurach, Germany-based Adidas Group, which has 14 contracted production sites in the CAFTA region, will see much of its growth in Honduras, El Salvador and Nicaragua, Nebel said. Adidas rose 1.2 percent yesterday to 50.13 euros, extending its gain for the year to 2.3 percent, in Frankfurt trading.
Apparel maker Augusta Manufacturing SA has begun a pilot program to produce sportswear in Nicaragua for Adidas and plans to hire about 1,000 workers through next year, Javier Chamorro Rubiales, executive director of the official Nicaraguan investment promotion agency, said in a telephone interview from Managua. Another Adidas supplier is set to begin production early next year and will generate about 1,000 jobs in the country by the end of 2012, Chamorro said.
“We are rebuilding the industry in a post-China environment as our customers are looking to balance their sourcing,” Arias said.
(Source: Bloomberg)

Nothing Predicted Happened as Men Conspired With Nature in 2011

Rampaging natural catastrophes, global financial calamities, the deaths of despots and desperados, the passing of America’s greatest modern technical innovator and roiling protests that shook the Arab world and occupied Wall Street -- they made 2011 a year that will beremembered for its almost unrelenting turmoil.
While earthquakes, tsunamis, nuclear meltdowns, tornadoes, wildfires, flood and hurricanes roared from the natural world, a tidal wave of sovereign debt threatened to fracture the economic one, shaking the foundations of the 18-year-old European Union and its common currency and whipsawing U.S. equity markets in the process. Uprisings known collectively as the Arab Spring spread from Tunisia in January to rock Egypt, liberate Libya and threaten the Assad regime in Syria.
It was a bad year to be a dictator or terrorist. Hosni Mubarak of Egypt is on trial in the country he once ran, Libyan dictator Muammar Qaddafi was hunted down and killed by rebels and Osama bin Laden, mastermind of the 9/11 attacks, was shot to death by U.S. Navy Seals in a raid on his Pakistan compound. A missile fired by a U.S. drone in Yemen killed al-Qaeda operative Anwar al-Awlaki, a U.S.-born Muslim cleric accused of helping to plot attacks on Americans.
This month, the U.S. ended the war in Iraq after almost nine years, with the last combat troops rolling out on Dec. 18. That, and bin Laden’s death, were among the “notable” positive developments in a year few will be sorry to see go, said Lee Clarke, a professor of sociology at Rutgers University in New Brunswick, New Jersey.

‘Uncertainty Everywhere’

“What seems most compelling about so many of the events of 2011 is their uncanny similarity to the narrative that began to unspool in 1932, when the full shock of the Great Depression’s impact began to be fully absorbed,” said David M. Kennedy, the Pulitzer-prize winning historian and McLachlan Professor of History emeritus at Stanford University. “The implosion of over-stressed established regimes, the demonstrated obsolescence of vested ways of thinking, the emergence of new leaders, new ideas, new institutions, new ways of life -- the ‘new normal’ in realm after realm around the world.”
It suggests that “the age of American global hegemony is almost certainly winding down,” Kennedy said, and that 2011“might mark the definitive end of the post-World War II and post-Cold War eras, and prove the portal to a future in which there are many more powerful and ambitious players on the world stage, more bitter political contestation at home, and more uncertainty everywhere than at any time since the 1930s.”

‘Scary Year’

Still, James E. Mueller, a historian at the University of North Texas Mayborn School of Journalism in Denton, said he thinks perspective is in order.
“My take on 2011, and most years, is that we’ve seen it all before,” said Mueller, who is writing a book on the events leading to the 1876 Battle of the Little Bighorn, where George Custer and his 7th Calvary Regiment were routed by Indian tribes. The country was in deep recession, Native American uprisings threatened to uproot settlers from much of the West and former Confederate army units were fighting an insurgency throughout the South, with omens of rekindling the Civil War.
“That was a scary year,” Mueller said. “Life is always tough, the news is always sensational, but we seem to always muddle through somehow.”
The U.S. wasn’t immune from protest in 2011, though it came in gentler form than it did for Egypt or Libya. In September, members of the Occupy Wall Street movement began camping in Lower Manhattan’s Zuccotti Park. Organizers said they wanted to bring attention to U.S. income equality and what they consider to be the corrosive role of Wall Street in the economic crisis.

Nuclear Meltdown

The occupation ended on Nov. 15 when police moved in, took down tents and arrested about 200 protesters. The movement sparked similar protests in other cities around the globe.
Worldwide in 2011, natural disasters, led by the March 11 Japan earthquake and tsunami, took a $350 billion chunk out of the economy, according to reinsurer Swiss Re Ltd. Insurers were, in a way, lucky, with Swiss Re saying they are on the hook for only $108 billion of those losses.
The Japanese temblor and giant wave, which set off the Fukushima nuclear power-plant meltdown, amounted to the costliest of the calamities, with more than 15,000 dead and 3,400 missing, according to Japan’s National Police Agency, and $35 billion in insured damages.
One month before, a magnitude-6.3 quake struck Christchurch, New Zealand’s second-largest city, toppling buildings, trapping office workers and killing 181 people. Damage was estimated at $12 billion.

Torrential Rain

The U.S. took a beating from natural disasters as well, suffering $52 billion in damage through November, according to the federal National Climatic Data Center.
The biggest hit came from tornadoes roaming across the Ohio Valley and Southeastern U.S. in April that killed 321, pummeled metropolitan areas such as Tuscaloosa, Alabama, and Chattanooga, Tennessee, and resulted in $10.3 billion in losses. In August, Hurricane Irene dropped torrential rain across Connecticut,Vermont and other parts of the Northeast, resulting in flooding that caused at least 45 deaths and $7.3 billion damages, the center said in a report.
Then Virginia and much of the East Coast were shaken by a5.8 magnitude earthquake that rattled the ground in more than 11 states, though it caused minimal damage. The tremor, whose epicenter was 84 miles southwest of Washington, was the largest to strike Virginia since 1897.

Debt Crises

While worldwide natural catastrophes garnered headlines, world leaders sought to avoid financial disasters. The European debt crisis, simmering since late 2009, escalated in April asPortugal joined Greece in seeking a bailout; Ireland followed in November. With hundreds of billions of dollars in sovereign debt and the stability of Spain and Italy in question, European leaders on Dec. 19 shored up their anti-crisis arsenal, channeling 150 billion euros ($196 billion) to the International Monetary Fund.
Prospects that the euro zone could fall apart have been at the heart of world stock market volatility. The costs would be“horrific,” Paul Donovan, deputy head of global economics at UBS AG, told Bloomberg Television Dec. 16, risking “a global depression on the scale of the 1930s.”
The U.S. had its own debt struggles. In August, Standard & Poor’s lowered the country’s long-term sovereign debt rating to AA+ from AAA, as Congress reached an 11th-hour accord to raise the $14.3 trillion debt ceiling. The change came, the ratings company said, because the debt deal wouldn’t “stabilize the government’s medium-term debt dynamics.” The Obama administration called the move “political.”

Fed Documents

So far, the downgrade seems to have hurt little but America’s pride. Dollar-denominated financial assets have been appreciating since the Aug. 5 decision, according to data compiled by Bloomberg. Government bonds have returned 3.8 percent, the dollar has gained 7.2 percent relative to a basket of currencies and the S&P 500 Index of stocks has rallied 3.7 percent. Borrowing costs have fallen to record lows, with the average monthly yield in November on 10-year notes below 2 percent for the first time since 1950. The U.S. was seen as the best performing market in the world among international investors in a Bloomberg poll this month.
U.S. economic policy was in the news in March when the Supreme Court upheld a lower-court decision and ordered theFederal Reserve to release the details of emergency loans it made to banks in 2008. The records had been sought by Bloomberg News’s parent company, Bloomberg LP, in a lawsuit after the Fed refused a federal Freedom of Information Act request.

Hacking Scandal

The data showed, among other things, that banks took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. On their neediest day, Dec. 5, 2008, the banks were in trouble so deep they required a combined $1.2 trillion, Bloomberg reported.
Across the Atlantic, another media company became a story. News Corp., controlled by Rupert Murdoch, closed its News of the World tabloid in July after revelations that staffers had been involved in hacking the mobile phone of a slain crime victim.
The scandal has led to at least 16 arrests, among them Andy Coulson, a former News of the World editor and one-time communications chief for Prime Minister David Cameron, and the resignation of several senior Murdoch lieutenants. On Dec. 20, the company’s British publishing unit said it resolved seven civil lawsuits over the interception of celebrities’ voice-mail messages to get scoops for the tabloid.
Throughout the year, the world was riveted by violent crimes, and sensational allegations.

Mass Shootings

In January, Representative Gabrielle Giffords, an Arizona Democrat, was shot in the head in Tucson while she met with constituents at a supermarket. The alleged gunman, 22-year-old Jared Lee Loughner, killed six people, including a federal judge, and wounded 12 others besides Gifford. Loughner potentially faces the death penalty.
In May, Dominique Strauss-Kahn, the French national heading the International Monetary Fund, quit after sexual assault allegations by a New York hotel worker landed him in jail under $5 million bond. Charges were dropped in August after prosecutors decided the accuser had repeatedly lied. The ex-IMF chief still faces a civil lawsuit over the matter.
Another mass shooting captured global attention in July. In Norway, 32-year-old Anders Behring Breivik set off a bomb in Oslo and later attacked a summer camp, murdering 77 civilians, many of them teenagers, some as young as 14.
London Riots
While Breivik had written extensively about what he called“cultural Marxism” and rising “Islamization” in his country, Norwegian forensic psychiatrists in November declared him insane at the time of the attack, saying he suffered from paranoid schizophrenia. He faces lifelong compulsory psychiatric treatment and likely will avoid a prison term, authorities said.
The next month, riots spread across London, Manchester and other cities and towns in the U.K., killing five, resulting in more than 3,300 arrests and causing an estimated $328 million in damage. British police, caught by surprise, were criticized for not stepping in more quickly or firmly in some cases. The uprisings’ causes -- with some blaming racism and poverty, others a culture of entitlement -- are still being debated.
The riots cast a pall across Britain in what had been a year uplifted by the April 29 marriage of Prince William to Kate Middleton in Westminster Abbey. As many as 1 million people lined London’s streets, and an estimated 2 billion watched on television. By some estimates, the wedding added about 620 million pounds ($971 million) to the country’s tourism revenue.

Steve Jobs

In the U.S. one of America’s leading public schools, Penn State University, was rocked in November when Jerry Sandusky, a former assistant to legendary football coach Joe Paterno, was accused of sexually assaulting or having inappropriate contact with at least eight underage boys on or near school property over a 15-year period. A grand jury returned a 40-count indictment against Sandusky, who has said he is innocent. The university fired Paterno and President Graham Spanier, saying neither had done enough after the allegations first surfaced.
The death in October of Apple Inc. co-founder Steve Jobs, who had pancreatic cancer, precipitated a global outpouring. Mourners flocked to Apple stores from New York to Hong Kong, while a crowd gathered in San Francisco’s Mission Dolores Park for an iPhone-lit vigil.
Jobs wasn’t simply a pivotal player in ushering in the age of personal computers, he was a digital visionary who changed the way music and movies are distributed and who, with the invention of the iPhone, took the concept of the cell phone to heights unimagined by competitors. He was 56.
Another death, of North Korean dictator Kim Jong Il on Dec. 17, elevated to the head of the nuclear state his son, Kim Jong Un, about whom little is known, including his exact age.
As the year drew to a close, President Barack Obama marked the end of the war in Iraq with a military ceremony at Joint Base Andrews outside Washington. An estimated 4,500 U.S. personnel were killed and about 32,000 were wounded in the conflict. The war cost the U.S. more than $800 billion.
(Source: Bloomberg)

Asian Growth Forecasts Cut by Fitch as Singapore Output Declines: Economy

Singapore’s industrial productionunexpectedly declined in November, adding to evidence of a weakening Asian outlook that prompted Fitch Ratings to cut its growth forecasts for the region.
The island’s output fell for the first time in six months, putting pressure on policy makers to support growth even as a separate report showed inflation accelerated in November. Emerging Asia will expand 6.8 percent in 2012, Fitch said in a report distributed today, less than its June forecast of 7.4 percent. The company raised its 2011 and 2012 estimates for inflation in the region.
Asian nations from Thailand to Indonesia and Malaysia have reduced interest rates or left them unchanged in recent meetings to shield their economies from the protracted European debt crisis even as inflation remains elevated. Singapore’s central bank, which uses the exchange rate to manage price gains, said in October it will slow gains in the currency, and Manulife Asset Management predicts pressure for the Singapore dollar to appreciate will ease.
“We’re already seeing slower growth across Asia and the deterioration will probably be more evident in the first half,”said Edward Lee, regional head of rates strategy at Standard Chartered Plc. “Inflation is the problem here as it’s been high and relatively sticky. It’s difficult for policy makers but they’ll have to focus on growth” and most central banks will have to keep easing monetary policy, he said.

Singapore Dollar

The Singapore dollar has fallen 0.6 percent against its U.S. counterpart this year, joining most Asian currencies in depreciating as the worsening global outlook threatens demand for the region’s exports. The island’s currency rose 0.2 percent to S$1.2909 per U.S. dollar at 2:54 p.m. local time today.
Asian stocks rose today, with a benchmark index set for its highest close since Dec. 13 after data showed a drop in U.S. jobless claims yesterday. The MSCI Asia Pacific Index (MXAP) advanced 0.8 percent.
In the U.S., reports today may show personal spending, durable-goods orders and new home sales rose in November, according to Bloomberg surveys.
Still, Taiwan may say today industrial production fell in November for the first time since 2009. Output dropped 2.8 percent last month from a year earlier, according to the median estimate of 13 economists surveyed by Bloomberg News.

Vietnam Inflation

Vietnam’s inflation slowed for a fourth month in December, a report showed today, adding to the case for the central bank to lower interest rates even as the nation grapples with the quickest price gains in Asia. Prices rose 18.13 percent in December from a year ago, compared with a 19.83 percent pace reported earlier for November.
In Europe, Russia will probably leave interest ratesunchanged for a third month today as central bank Chairman Sergey Ignatiev seeks to keep inflation in check before presidential elections in March. The refinancing rate will remain at 8.25 percent after two quarter-point increases this year, according to 20 of 22 economists in a Bloomberg survey.
Consumer confidence in Italy probably deteriorated in December, according to another survey.
Singapore’s government forecasts economic growth will slow next year. Manufacturing, which accounts for more than a fifth of the Singapore economy, fell 9.6 percent from a year earlier after a revised 22.2 percent increase in October, the Economic Development Board said. The median of 13 economists surveyed by Bloomberg News was for a 12.2 percent gain.

Policy Outlook

Singapore’s inflation rate was 5.7 percent in November, matching the fastest pace of price gains since 2008, the Department of Statistics said in a separate report.
“Food and housing costs, along with wage inflation have remained elevated for the past few months, adding to inflationary pressures,” said Cheng Duan Pang, head of fixed income at Manulife Asset Management in Singapore. Still, “we expect upward pressure on the Singapore dollar to reduce as the market will form expectations that monetary policy could revert to a neutral stance as inflationary pressures ease” amid slowing growth, he said.
Fitch raised its 2011 inflation estimate for Emerging Asiaby 0.3 percentage point to 5.9 percent and increased its 2012 forecast to 4.9 percent from 4.7 percent, even as it lowered growth forecasts.
“The deterioration in the outlook for the world economy and the lagged impact of policy tightening in some countries, including the region’s two giants, China and India” prompted the cut in GDP forecasts, credit analysts led by Andrew Colquhoun, head of Asia-Pacific sovereigns, said in the report.

China Forecast

Fitch cut its 2012 growth forecast for China to 8.2 percent from 8.5 percent previously. In India, where the ratings company says inflation and monetary tightening are weighing on investment, it predicts the economy will expand 7.5 percent in the year ending March 2013, compared with an earlier estimate of 8.2 percent.
“Both China and India face a combination of slowing activity and stubbornly high inflation, underlining the risks that can arise from allowing inflation to rise above desired ranges,” the Fitch analysts said. “Moreover, the Indian rupeeweakened to an all-time low against the U.S. dollar of around 52 in November 2011. If sustained, this level could give a further upward kick to inflation in 2012 and complicate policy management still further.”
(Source: Bloomberg)

Thursday, December 22, 2011

Mongolia Spending Risks Commodities Bust: IMF

Mongolia’s economy, which grew 20.8 percent last quarter, risks contraction along with a global downturn in commodity prices partly due to a surge in state spending, according to the International Monetary Fund.
Government spending jumped 50 percent in real terms to 6.3 trillion tugrik ($4.6 billion) this year, pushing inflation in the $8.4-billion-economy to 14 percent, Steven Bennett, IMF’s head of Mongolia coverage, said in an interview in Tokyo. That may drive up borrowing costs and cut the profitability of mining projects, Mongolia’s biggest industry, he said.
“The global economy is in a dangerous phase and what that means for Mongolia is a higher-than-normal chance that commodity prices fall,” Bennett said. “Their spending plans could not be realistically financed if there was a repeat of the 2008 shock. They’d have to cut spending. This is ‘boom-bust’ policy-making.”
Mongolia, which needs to invest as much as $68 billion within four years in new mines, roads, and housing, contracted by 1.3 percent in 2009 due to the global economic crisis. As the country’s development bank begins the sale of Mongolia’s first state-guaranteed foreign bonds this month, investors are cutting their bets on commodities to a 31-month low.
A struggling U.S. economy and a slowdown in China will join a looming recession in Europe to reduce commodity demand,“creating significant risks for emerging market investors,”Bank of America Corp. said this month in its 2012 outlook.

Country Risk

China’s top coking coal supplier in July, Mongolia turned to the IMF for a $224 million loan to help survive the 2008 global economic crisis. Mongolia expanded 6.4 percent last year and is on course for 16.9 percent growth this year, according to the IMF.
“It’s looking a lot like what happened in 2008, when there were several years of rapid increases in government spending at a time when mineral prices were high,” Bennett said. With the global economy also starting to resemble the 2008 downturn, the country risks seeing its resource revenue shrink, he said.
The rise in state spending, which now accounts for two-thirds of Mongolia’s economy outside of mining, compared with 53 percent in 2007, comes ahead of parliamentary elections in June. It also anticipates a 2013 startup of the Oyu Tolgoi mine, which operator Rio Tinto Group (RIO) has said is one of the world’s biggest untapped copper and gold finds and potentially a source of 30 percent of Mongolia’s gross domestic product by 2020.

Inflation Concern

Government spending is on course to accelerate inflation to an average 18.7 percent in 2012 from 10.2 percent this year, IMF said in a Nov. 29 report. Wages are estimated to rise 80 percent over three years through 2012, Bennett said. IMF strips out food and administered prices from inflation metrics to focus on“aggregate demand,” he said.
Mongolia’s proposed budget for 2012 “would set an all time record for expenditure growth,” World Bank’s lead Mongolia economist Rogier van den Brink said in a Dec. 16 blog posting on the bank’s website. A continued boom in foreign investment in Mongolia is not guaranteed next year, while the risks to the global and especially China’s economy continue to grow as commodity prices stumble, he said.
Investor enthusiasm for Mongolia has waned since the summer as Europe’s sovereign debt crisis deepened and concerns about resource nationalism grew. In September, a group of Mongolian lawmakers called for a revision of the Oyu Tolgoi mine accord with Rio Tinto and partner Ivanhoe Mines Ltd., which had taken six years to conclude.

Losing Ground

From being the world’s best performer in the 12-months to April, the MSE Top 20 Index of Mongolia has since plunged 18 percent, more than the benchmarks in the U.K. and the U.S. The tugrik, the second-biggest gainer against the dollar in the year to April 1, has lost 13.6 percent since then, ranking at 158 in terms of global currency returns.
Standard & Poor’s credit-rating company on Dec. 19 revised its outlook on Mongolia to positive, saying it may raise the BB-long-term sovereign rating should the country’s fiscal, monetary and banking rules reduce “vulnerabilities in these areas.”
The credit company also praised Mongolia for introducing a fiscal responsibility law, which is supposed to limit budget deficits to 2 percent of gross domestic product from 2013.
That’s one goal Mongolia will struggle to meet under current spending plans, IMF’s Bennett said. After next year’s spending increase, which may be around 15 percent, Mongolia will need to cut expenditure by the same percentage in 2013 to comply with the law, he said.
“You’re really putting the economy on a roller coaster,”Bennett said.
(Source: Bloomberg)