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Saturday, August 28, 2010

Yet another Nano goes up in flames

New Delhi: Barely three months after Tata Motors certified the Nano as "absolutely safe'', a car went up in flames at a parking lot in Aurobindo Marg on Friday. The driver managed to get out on seeing sparks. In two minutes, only a charred frame remained.
    The car, which belonged to a Supreme Court advocate, had just pulled into the parking lot around 11.30 am when driver Patrick John noticed sparks coming from the engine. "I was

waiting in the car, having just parked it. The entire car was destroyed in two minutes flat,'' said John. The car had done 34,000 km and was serviced once.
    Two similar incidents were reported in Vadodara and Mumbai earlier this year. In May, Tata Motors said the accidents were due to unrelated reasons and that the car was safe. The company has called a probe into Friday's incident; a spokesperson from Mumbai said a Tata team would inspect the vehicle.
    Automobile experts said the fire was possibly not endemic to the Nano.

The car, parked at Delhi's Aurobindo Marg, was charred in 2 minutes

Tuesday, August 24, 2010

ON FUNDS ROUTE Capital protection gains currency

The market for equity-linked debentures appears to be looking up as strong returns from stock markets appear difficult from present levels. However, it will be a while before these schemes gain the fervour seen in the heady days before the crash of 2008, feels Santosh Nair

TILL THREE years ago, capitalprotected schemes were in vogue. The novelty of this product was that it promised (subject to a host of conditions in the fine print of the offer document) to protect investor's capital, while at the same time offered a pre-defined percentage of the upside in the stock market. The instrument, also known as equity-linked debentures (ELDs) in market terminology, was issued by the non-banking finance arms of large financial services firms, notably foreign banks such as Citi, Merrill Lynch, Deutsche, Barclays and JPMorgan. Share prices appeared to be over-heating towards the latter half of 2007, and many wealthy individuals along with some of the not-so-wealthy investors were keen to grow their money earned from the bull market, but without risking their principal. These capital-protected schemes seemed to be just the right answer to their requirement. Sensing an opportunity for juicy fund management fees without undue risks, some mutual fund houses too began offering this product. They would collect money from investors and invest the entire corpus in equity-linked debentures issued by the NBFC arms of large banks.
    Three years on, conditions once again appear favourable for capital protection schemes. Fund managers and brokers feel share valuations are expensive relative to historical average, and the risk of a sharp correction is high, given the fragile mood in world markets.
    The market for ELDs has started warming up, and there have been quite a few issuances in the past few months. Issuers, though, admit that the size of the market is smaller than what it used to be at its peak three years back. As these debentures are privately placed, there is no exact data available. But officials at three foreign banks whose NBFC arms issue this product, estimate the market size to be around $1-1.25 billion currently, compared to around $2 billion around the time the stock market peaked in 2008. Issuers cite different reasons for this trend.
    "These products (capital-protected
schemes) are issued by NBFCs to meet their capital requirements," says a senior official at one of the ELD-issuing non-banking finance company. "Till two years back, these firms had huge appetite for funds. Since then, they have trimmed their balance sheets by a god measure, and they no longer require that kind of funds. That is the key reason why the ELD market has shrunk," he says.
    But there are other reasons as well. Domestic mutual funds, once big buyers of ELDs, have all but turned their backs on this product following the financial markets crisis in 2008. They now mostly buy only the nonconvertible debentures issued by NBFCs.
    Fund managers say they have become wary of fancy derivative structures in general, after the money market crisis of October 2008, which saw investors in liquid schemes suffer a loss of capital.
    In a typical ELD, the NBFC which raises 100, lends 75% of it at 12-14%, which then grows to 100 in three years. The remaining 25% is then deployed in index futures and index options (or stock futures and stock options, depending on the underlying to which the returns are linked) to capture a promised percentage of stock market returns.
    Last week, the Securities and Exchange Board of India issued guidelines for mutual funds barring them from not only writing option contracts, but also restraining them from purchasing "instruments with embedded written options."
    Some NBFC officials say this rule is ambiguous, but unless clarified, mutual funds will not buy capital-protected schemes. Some other officials say the rule is ridiculous. "What is the interpretation if a mutual fund buys a fixed coupon rate bond, which usually have put and call options. Should they stop buying them as well?" asks an official at a foreign bank. Industry officials say, globally, wealth management firms, asset management companies, corporates and sophisticated individual investors are the biggest buyers of structured notes—the generic term for any customised financial product comprising multiple asset classes.
    They say, in India, this market is likely to
grow at a sedate rate, unless the current regulations are amended. "Insurance companies, and now even mutual funds, cannot buy this product because of regulatory issues. So whatever growth, has to come from high net worth individuals," says an official at one of the foreign bank-controlled NBFCs. "Today, structured notes comprise 5% or less of a wealthy individual's portfolio. Going forward, at some point, it might become 10% and even 20%. That is when this market will take off. For that to happen, interest rates have to moderate. These products are a big hit overseas because the interest rates there are very low, and investors have to take risks for getting better returns," he added.
    Today, portfolio managers, including asset management companies, which manage the money of their high net worth clients, are the major buyers of ELDs.
    Some market watchers caution that even high net worth individuals who subscribe to these products do not fully understand the features. Besides, the high commission on the product is a major reason why broking firms push the product to their wealthy clients, they add. "These do not fall under the purview of the Reserve Bank or Sebi," says Rajeev Thakkar, chief executive and director, Parag Parikh Financial Advisory Services. "Also, the credit risks are not fully understood. The common assumption is that the foreign parent will stand guarantee if there is a credit default, which is incorrect," Mr Thakkar adds. On their part, the NBFCs claim that the product is unregulated because it caters to investors with a large ticket size and is a privately-placed instrument. But they add that "regulatory acknowledgement" would be a good thing for the product because it could then be offered to a larger audience.
    According to Thakkar, regulation is needed because the market will keep expanding, and with that, related risks too could increase over a period.
    "There should be disclosures on the end use of the funds, and also limits on how much leverage the firms issuing such products can take," says Mr Thakkar.
    santosh.nair@timesgroup.com 


Will Anil Agarwal beat Mukesh?

To become and stay number one, Anil Agarwal should follow Mukesh's lead, and jump into the race for shale gas. That is the commodity of the future, says Swaminathan S Anklesaria Aiyar

DEAR Anil Agarwal,
The Indian media are agog you are set to overtake Mukesh Ambani as India's biggest corporate promoter. You have made a massive $9.6 billion bid for 60% of Cairn India, which produces oil in Rajasthan and few other places. You will need to borrow heavily for the acquisition, but if you succeed your assets will exceed those of Mukesh. However, the ONGC may put in a higher bid for Cairn. Will you bid even higher?
    Times News Network calculates that after you acquire Cairn India and launch your proposed IPO for Sterlite Energy, your holdings will be worth close to Rs 1,67,000 crore. This will beat Mukesh's Rs 1,45,275 crore.
    But it's one thing to become number one through expensive acquisitions based on huge debt, and quite another to stay number one. Mukesh has embarked on a new strategy that could leave you far behind.
    He got into oil long before you by acquiring a small stake in the Panna, Mukta and Tapti fields. Using this to build up his knowhow, he then explored for and found enormous offshore gas reserves in the Krishna-Godavari basin. He also struck some oil in the KG basin, and a bit more in the Cambay basin. But these paled in comparison with his gas finds. Other exploration companies soon confirmed that India had far more gas than oil.
    However, Mukesh believes that the fuel of the future could be something else altogether: shale gas. Reliance Industries Ltd generates a huge cash flow, and Mukesh could have made a bid for Cairn long before you did. He could have bought oil companies abroad. Instead he opted to buy stakes in three shale gas companies in the US. He paid $1.7 billion for a minority stake in Atlas Energy's Marcellus Shale deposit; $1.3 billion for a 45% stake in a Texas shale gas field of Pioneer Natural resources; and $392 million for a 60% stake in Carrizo's shale gas asset in Pennsylvania.
    Your purchase of Cairn India is wide
ly seen as a risky bet on the future price of oil. The high price you have paid can be justified only if oil prices rise much faster than markets expect. You assume that Sebis's proposed rule — obliging acquirers to pay non-compete fees to minority shareholders as well as the majority — will not apply to you, and this could be very costly mistake.
    You bring to Cairn no experience or skills in oil. If your aim is to acquire such experience and skills, you could have done so much more cheaply by taking small stakes in oil companies, and then learning by doing.
    Mukesh is following a learning-bydoing strategy in shale gas. His American investments will give him handson experience and knowhow in "fracking", the special technology used for shale gas drilling. Once he masters this, he will be well placed to outbid all rivals when the Indian government opens up shale gas blocks for exploration in the near future.
    The potential of shale gas is huge.
Shale is a common sedimentary deposit, and India has major shale formations with gas potential in the Gangetic plain, Assam, Punjab, Rajasthan, Gujarat, Tamil Nadu and Andhra Pradesh. The cost of extraction is low, and so is the risk of dry wells. Mukesh is betting that by becoming shale gas king of India he will also become the energy king, far bigger than oil producers like ONGC or Cairn.
    THE markets seem to prefer Mukesh's strategy to yours. Vedanta shares fell steeply after your announcement that you were buying Cairn India. But RIL shares shot up when it announced it was buying shale gas assets from Atlas Energy. More recently, Bharat Petroleum Corporation Ltd decided to buy two shale gas assets from Norwest Energy in Australia, and its share price shot up 8% the next day.
    Why? Because shale gas is now seen as a revolutionary game changer. Oil is found only in a few places, and is concentrated in the Middle East. But shale
is among the most common sedimentary rocks globally. In the US shale gas has within a decade increased US gas reserves from 30 years of consumption to 100 years. Vast stretches of Europe and Asia have shale deposits. China believes it has 45,000 billion cubic metres of shale gas, more than Russia's entire proven gas reserves.
    One consequence of the shale gas cornucopia is that the US price of gas, which was traditionally one-seventh that of oil, has crashed to one-eighteenth that of oil. The gas glut is here to stay. And as countries across the globe master the technology, gas will drag down the price of oil within five to seven years.
    The cost of oil exploration in deep waters keeps rising, and new safety measures after the BP disaster will raise it further. But onshore drilling for shale gas is cheap, and can be economic even if gas falls to just $3/mmbtu, the historical equivalent of oil at $20/barrel.
    This means that betting on a high future oil price is risky. In the short-term oil may indeed shoot up if there are geopolitical problems, like an Israeli attack on Iran's nuclear facilities. But in less than a decade, abundant shale gas will drag down the price of oil. That is why the markets are more enthusiastic about Mukesh's approach than yours.
    Starting from modest origins, Dhirubhai Ambani dreamed of becoming number one in India, and achieved that aim. You too, Mr Agarwal, started modestly from a small business family in Patna. You have been accused of violating several environmental norms, but these charges pale in comparison with charges of crony capitalism against the Ambanis. In a remarkably short time you overhauled Kumar Birla in non-ferrous metals and iron ore, and are now aiming to overhaul Mukesh Ambani.
    Maybe the ONGC will outbid you, maybe not. But to become and stay number one, you should follow Mukesh's lead, and jump into the race for shale gas. That is the commodity of the future.

GTL, RCOM to convert 6k-cr loans into equity in JV; to issue shares worth $1 b

GTL Infrastructure and the tower subsidiary of Reliance Communications (RCOM) will convert around 6,000 crore of loans from promoters into equity and issue fresh shares worth $1 billion ( 4,700 crore) to investors to create a combined tower entity with a manageable level of debt, two people familiar with developments told ET. Reliance Communications is in talks with GTL Infrastructure to merge its telecom towers into the listed, Manoj Tiridkar-controlled tower company.
    The transaction, which is likely to be announced in a few weeks, is somewhat different from the one being discussed in June, as the two companies have sought to bring down the debt on the books of the merged entity. In interactions with the media after the deal was announced in June, RCOM had talked about transferring round 15,000 crore of its debt to the new tower company but many analysts said this will strain its finances because GTL Infrastructure had closed an 8,000 crore-acquisition of Aircel's towers earlier this year by taking on nearly 4,500 crore of debt.
    Since then, the two companies have sought to tweak the deal to cut the debt the combined entity will have to bear. To achieve this, GTL Infra that has around 2,000 crore of promoter debt, will convert this to equity prior to the merger, the people said. Reliance Communications' promoters for their part will also convert loans worth 3,700-3,900 crore to equity in their tower subsidiary. This stake will possibly be held by Reliance Communications, one of the two said.
    The entities will then be merged to form a company that will retain the name GTL Infrastructure, with around 84,000 telecom towers, with an average of 1.5 slots rented out to telecom operators on
each tower. The net debt of the company will be close to 17,000 crore at this stage.
    The Global group spokesman said he did not wish to comment. "Upon closure of the deal appropriate details will be shared through notification to the exchanges, thus at this stage we do not wish to comment on this matter." An email to RCOM went unanswered.
    The value of RCOM's towers is estimated at 28,000-30,000 crore while GTL Infrastructure is valued at 9,000-10,000 crore. As a result, RCOM's share in the combined entity will be higher. Global group will shell out 3,000 crore to increase its stake in the company. The cash will go to the owner of the stake, either RCOM or its promoters.
    To further reduce debt, GTL Infrastructure plans to induct a strategic or private equity investor. The company plans to sell between 12% and 15% stake in the combined entity for $1 billion. The new investor will get freshly issued shares, diluting stake
of all shareholders equally. At this point,
GTL Infrastructure will have between
12,000-13,000 crore of debt resulting in a
debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio of four-to-five times. Globally, telecom tower companies have a debt to EBITDA ratio of around six.
    GTL Infrastructure has first right to provide Aircel, a cellular operator majority owned by Malaysia's Maxis, a place on its tower for the next 20,000 slots required by the telecom operator.
    As part of the RCOM deal, it will get the first right to provide the next 40,000 to 50,000 slots to RCOM – India's second largest telecom operator by number of subscribers. As a result, within a year, the average number of tenants on each tower will be 1.8, the first person said.
    The company formed by the merger is likely to have revenues of just under than $1 billion and an EBITDA margin of around 65%, he said.

Vedanta Group stocks tumble over mining ban

Mumbai: With the ministry of environment and forest withdrawing permission to Orissa Mining Corporation (OMC) to extract bauxite ore in Kalahandi and Rayagada districts of Orissa, Vedanta Aluminium will have to continue sourcing raw materials from outside the state to run its plant. According to the earlier plan, OMC, a government of Orissa undertaking, was to exclusively supply bauxite ore to Vedanta's alumina plant, a subsidiary of London-listed Vedanta Resources. Now with Vedanta's Orissa plant continuing to source raw materials from outside, it will have to shell out an additional Rs 1,200-1,700 per tonne of raw material on account of logistics cost, a senior company official said.
    As a reaction to the development, the Vedanta Resources stock on the London Stock Exchange tanked nearly 8% in intra-day trade and at 2030 IST was trading at £18.83.
    Earlier in the day, stocks of companies from the same group, four in total, also showed a weak trend in Tuesday's bearish market. While
Sterlite Industries, the group's flagship within India and a sensex stock, lost 4% to Rs 152, Hindustan Zinc too was down 4% at Rs 1,081. Among others, Sesa Goa was down nearly 1% at Rs 325 and Sterlite Technologies was off 1.4% at Rs 103.
    The government decision will also result in Vedanta not being able to use the superiorquality bauxite that is available around its plant in these two districts in Orissa. At pres
ent, the company's alumina plant uses bauxite from Chhattisgarh and other states which add up to its costs. Mukesh Kumar, chief operating officer, Vedanta Aluminium, however, told The Time Of India that "raw material is not an issue''.
    It will request the central government to reconsider its ban on transferring forest lands for mining to OMC, from which Vedanta has an exclusive arran
gement to buy bauxite for its Kalahandi plant. "We are waiting for the final report. We will look at the concerns and address them,'' he said. Since the plant was set up with assurances from the Orissa government for supply of bauxite, the company expects the state government to look at alternate arrangements for raw materials.
    Analysts were not too impressed either. Global broking major Merrill Lynch (ML) feels
that the government decision against Vedanta is negative for the stock in the short term "since the ability to supply own bauxite to the Lanjigarh alumina refinery is necessary to achieve the company's previous cash cost guidance''. While the decision is negative for the company in the short term since this would lead to higher raw material costs for its alumina plant, ML analysts said, it has already accounted for some higher operating costs in its model than what the company had projected. The broking major maintained its 'buy' rating on the stock with the potential for a "25% EPS (earnings per share) accretion'' if the proposed Cairn India transaction is completed.

Govt denies green signal to Vedanta mining plan

Anil Agarwal's Refinery 'Flouted' Environment Act

New Delhi: The Union environment and forests ministry on Tuesday rejected the clearance for Orissa Mining Corporation to mine the Niyamgiri hills for Vedanta's aluminium refinery in Lanjigarh.
    The rejection is the most drastic of the measures taken by the government, which have given the impression that the noose could be tightening around Anil Agarwal's $1.7 billion Orissa operations. The MoEF has decided to slap a showcause notice on the aluminium czar asking why his refinery unit should not be denied the right to expand its plant from one million tonnes per annum to 6 million tonnes per annum. An
other showcause notice has been served on Agarwal asking why his plant should not be shut down for infringements of the Environment Protection Act.
    And if this was not enough, the government, in a move that could possibly choke other supplies of raw material for its refinery, has decided to in
vestigate whether the other mines Vedanta buys bauxite from have environmental clearance. The Forest Advisory Committee (FAC) had reported on Monday that 11 of the 14 did not. IN AND OUT, IN 5 YEARS
2005 | Orissa applies for permission to mine bauxite from Niyamgiri for Vedanta refinery 2007 | MoEF gives 'in principle' clearance 2007-2008 | SC allows one Vedanta subsidiary to apply for bauxite mining, denies another 2009 | Orissa applies to Centre for final forest clearance 2010 | MoEF experts find violations N C Saxena panel says laws flouted with collusion of state govt. Forest Advisory Committee recommends withdrawal of forest clearance Forest clearance rejected, probe ordered

Protesters dressed as Na'vi tribals from the film Avatar, in London in July

Wednesday, August 18, 2010

Tata Motors plans $750-m DVR issue



    TATA Motors, India's largest truck and bus maker, plans to raise $700-750 million through issue of shares with differential voting rights (DVRs). The DVR share issue will be part of the company's plan to raise $1 billion (Rs 4700 crore) to retire debt. DVR shares will be issued with the same terms and conditions of the existing DVRs, two people familiar with the development said.
    "Tata Motors has not taken
any decision. Any report, indicating any decision on the part of the company, is speculative. The automaker is still exploring all options for fund raising," said a company spokesperson. At the board meeting on June 28, 2010, the board, decided to seek shareholders' approval to raise about 4,700 crore through a combination of various securities.
    The fund raising is being considered at a point when the company is being nudged by some of the institutional shareholders to opt for a sponsored overseas issue for its DVR shares.
These investors are unhappy about the discount in Tata Motors DVR shares to the normal shares. A sponsored share issue reduces the supply of shares in the domestic market, thereby boosting prices in times of demand. In a sponsored issue, the company does not issue fresh shares, but only facilitates the sale of shares from existing shareholders to new ones overseas. The shares tended by the existing holders are held by the depository and converted into depository receipts, that are listed overseas. Under the circumstances, a fresh DVR issuance may not go down well with institutional shareholders.
    On Wednesday, Tata Motors' DVR closed at 764.4, about 27% below the ordinary shares which ended at 1047.6. Globally, DVR shares trade at a 10-
15% discount to ordinary shares as they have limited voting rights. DVRs are issued when a company wants to raise money but does not want to cede voting rights. Tata Motors DVR shares were listed in November 2008, and the share price has moved in a tight band since then.
    These DVR shares carry 1/10th of voting right of ordinary shares and give the shareholder 5% higher dividend as compared to ordinary shares. The last DVR issue in 2008 was done by the company at 305 about 10% less than the ordinary share price.

Blackstone powers Moser Baer’s plans

Private Equity Firm Picks Up Minority Stake In Moser Baer Projects For 1,350 Cr

 PRIVATE equity investor Blackstone has picked up a minority stake in Delhi-based Moser Baer Projects for 1,350 crore that will help the privately held firm set up several power projects in India. Moser Baer Projects is owned by the promoters of CD-DVD maker Moser Baer India, who have been trying to diversify their group's business beyond optical storage products. The fund raised from Blackstone will be used for part financing its power projects that are under implementation and requires as much as 30,000 crore.
    Deepak Puri, founder of Moser Baer Projects, said: "India's energy sector will require massive investments to sustain its high growth trajectory going forward."
    Although a late entrant into the power sector, the company has big plans that includes commissioning power generation capacity of 5,000 megawatt (mw) by 2016. This will largely be under coal fired thermal projects that will comprise 80% of the projects besides 500 MW each of solar and hy
dro power capacity. The projects will be funded through a mix of debt, internal accruals and private equity placement.
    Indian power generation companies have been attracting significant investor interest in the past few months as companies are looking to tap the market that has shortage of electricity supply. The high econom
ic growth in the country requires abundant power supply to run factories and investors are betting on this demand to grow significantly in the next few years. A consortium led by Morgan Stanley Infrastructure Partners had bought 44% in Asian Genco for $425 million in March. In the following month Singapore's Temasek had invested $200 million in GMR Energy. For Blackstone this is the second power sector investment in the country in as many months. In July, Blackstone India infused $60 million in Monnet Power. "Infrastructure development continues to remain one of our key investment themes in India If we find good deals, we would not hesitate to invest up to $1 billion," Blackstone India managing director Akhil Gupta said.
    Other sectors that are on the radar of the PE firm include media and FMCG. Blackstone has said it plans to invest about $3 billion in India in the next five years.
    It has invested $1.25 billion in 12 Indian companies so far, including garment maker Gokaldas Exports, Allcargo Global, Nagarjuna Construction, MTAR Technologies, Nuziveedu Seeds, CMS Computers, Emcure Pharma and Intelenet. For the promoters of Moser Baer India this is their second stint with power sector.
    Their flagship public listed group company has a separate solar power subsidiary Moser Baer Photovoltaic that has raised funds from another clutch of private equity investors.

BRIGHT DEAL
Moser Baer Projects plans to set up power generation capacity of 5,000 mw by 2016
This will largely be under coalfired thermal projects that will comprise 80% of the projects besides 500 mw each of solar and hydro power capacity
Promoters of Moser Baer India have been trying to diversify their group's business beyond optical storage products


Mukesh vs Anil: Round II

THE BIG FIGHT

Anil Agarwal has taken on many rivals in the past — and now, he's stepped into Mukesh Ambani's den

ANIL Agarwal's decision to explore and refine oil — and produce power — may pit the 56-year-old chairman of Vedanta Resources against Reliance Industries, making it the first significant domestic challenge to Mukesh Ambani's dominance.
    Ambani and Agarwal are two sides of the entrepreneurship coin — successful in their chosen fields of petroleum and metals, but hardly compete against each other. A few years from now, they will, if Vedanta has its way in buying a controlling stake in Cairn India.

    "With the entry of an aggressive company like Vedanta, that has the ability to scale up businesses fast, competitiveness in the oil and gas sec
tor would also rise," says Arvind Mahajan, executive director at consulting and auditing firm KPMG.
    Agarwal may have staged a coup in agreeing to buy a 60% stake in Cairn India for 44,800 crore, or $9.6 billion, the asset on which the Ambanis are believed to have set their sights on nearly a decade ago, but the battle has just begun.
    The two business houses may compete head-on in bids for oil & gas blocks whenever they are auctioned, power projects that the government invites bids for, and refining, if Vedanta sets up one to extract the best out of the latest deal.

    Reliance now says it is not interested in Cairn India and it is unlikely to bid for oil blocks for the next few years as it invests over $7 billion in shale gas ventures in the US. But the ultra mega power projects and a refinery by Vedanta could become the potential trouble spots. "RIL and Vedanta will complement each other due to the scarcity in power and hydrocarbon sectors in India," said investment adviser SP Tulsian. "But if Vedanta forays into refining, it can lead to conflict."
    Reliance has a history of dominating businesses with monstrous capacities in any field it ventures into, including
refining and petrochemicals. Its scale of operations leads to such economies that most other businesses become unviable as they struggle to match RIL's prices. Today, it is the nation's biggest refiner and petrochemical maker, from starting as a textile firm four decades ago. Agarwal, who built a scrap trading business into the nation's largest metals company, is neither fish nor fowl.
    "They (Reliance) will continue to be the largest player," said Agarwal in an interview to ET. "But, at the same time, there is enough water in the sea for other players to also do business." Reliance declined to comment for ET's special feature story.
    Whether the potential battle turns out to be one between David and Goliath, or a Waterloo for Vedanta, remains to be seen.


Tuesday, August 17, 2010

Equity culture breaks city walls as affluence spreads

COUNTRY ROADS

Share Of Tier-II & III Cities In Total Traded Turnover Seen On The Rise

  CONTRIBUTION towards traded turnover on stock exchanges from tier-II and III cities is gradually rising, indicating the spread of equity culture beyond the main cities. The four metros — Mumbai, Chennai, Kolkata and Delhi — however, have seen a moderate growth or even a decline in their contribution. This reflects a saturation in the investor population in these places, say brokers.
    Cities like Kochi, Rajkot, Hyderabad and Pune accounted for 5.4% of the total cash turnover of the National Stock Exchange (NSE) in June this year compared to 4.9% in '09-10 and 4% in '08-09, according to city-wise data on the cash market turnover published in Sebi's bulletin for July '10. Many other smaller cities, which are categorised as 'others' in the data, recorded an improvement in their share to 8.1% from 7.4% and 5.7%, respectively.
    According to brokers, many non-metro cities offer scope for expansion of the investing community, due to rising affluence on the back of employment opportunities. As only a small
part of total household savings is currently invested in the stock market, there is a tremendous scope for growth in fund flows which have so far been driven by local and foreign institutional investors.
    "There has been a growing interest in the stock market among people in tier-II and III cities, because of a rise in their disposable income," said D Kannan, executive director (retail equity), Kotak Securities, a leading stock broking firm with a country-wise network of branches. Investment flows from cities like Pune and Kochi have been on the rise, as the local population has benefited from the rapid development of these places, said Mr Kannan.

    Unlike the trend in tier-II and III cities, the four metros have not seen much improvement in their share even though the stock exchanges recorded a sharp rise in securities turnover during the period. While Mumbai continues to dominate the broader picture with the share of
56.2% in June compared to 55.9% in 2008-09, the other three — Delhi, Kolkata and Chennai — saw their contribution decline substantially to 12.2%, 7.3% and 1.7%, respectively, from 15%, 9.2% and 2%. They recorded a fall despite a sharp rise in NSE's turnover from Rs 27.5 lakh crore in '08-09 to Rs 41.2 lakh crore in '09-10. The figure amounted to Rs 11.3-lakh crore in April-July this year.
    CJ George, managing director of Geojit BNP Paribas Financial Services, believes that when brokers branch out to the interiors, they attract a new set of clients as opposed to opening a branch in a city inundated with competition.
"In cases where a broker sets up a new branch in a metropolitan area, he merely tries to gain an existing client of another broker by offering lower brokerage fees, etc., without adding to the actual number of investors. But in our experience, when we set up branches in, say, the suburbs of Kochi or in the interiors of Karnataka such as Gadag, we actually worked towards adding new clients by working at the grassroots." he said.
    "Growth in Mumbai, Kolkata and Delhi has become saturated and with the market appearing to have entered a bullish phase once again, investor interest in smaller cities has begun to rise," said Gaurav Arora, MD of Jaypee Capital Services. Jaypee has a branch in Chandigarh from where it services clients in Punjab. But after witnessing an increased investor interest in Amritsar, another branch was opened there two years ago, after the market picked up from the lows, said Mr Arora.
    vijay.gurav@timesgroup.com 


Nifty likely to face pressure at 5500 level

THE Nifty remained in the range of 5350-5500 for the fifth consecutive week. Weak US data as well as hawkish statements from the US Fed weighed heavy on the sentiment.
    However, better-than-expected results from the banking space provided much-needed support. Major economic data released in recent times both in domestic as well as US market have remained weak. In India, the industrial output rose 7.1% in June 2010, lower than the revised 11.3% rise in May 2010. In the US, an unexpected rise in jobless claims and a sobering revenue outlook from Cisco exemplified the hurdles to economic recovery.

    The highest Call and Put open interest is at 5300 and 5600, respec
tively. Nifty 5500 Call open interest is more than 90 lakh shares and is quite close to 5600 Call open interest. It suggests that the broad range will remain at 5300-5500. The later half of last week witnessed a fresh build-up in 5400 Put options, suggesting the Nifty may find immediate support at 5400. However, in Monday's session, unwinding was seen in 5500 Put options with an increased short build-up in 5500 Call options. It suggests that the Nifty may continue to find a stiff resistance at 5500 in the short-term. The India VIX made its all-time low closing level of 16.74 on Friday. It remained in the range of 16.74-18.11 for the whole week. Important supports may be tested, if VIX starts increasing above 20 levels. Otherwise, the continuance of the rangebound scenario in VIX may keep indices within the range.
    FII inflows have remained robust so far and no major sell-off was seen in the cash market. In the cash market, FIIs have bought approximately to the tune of Rs 13,200 crore since the beginning
of this series. If this trend continues, the Nifty may not breach the major support of 5300 despite volatility spurting up.
    The banking sector has shown good momentum after better-thanexpected results from sector heavyweight SBI. If the Nifty does not hold the immediate support of 5400, profit-booking in banking stocks can't be ruled out. Oil marketing companies seem to have consolidated for fresh upmoves. IOC has already seen good rollover for the next series.

Debt virus spreads during make-believe recovery

THE CRISIS APPEARS TO BE OVER BUT UNDER THE SURFACE THE CRACKS IN THE EURO ARE GETTING BIGGER

THE euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success.
    The fevered predictions of the early summer that the euro was doomed, and that Europe's sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over.
    Don't believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd.
    And the big-deficit nations are locked in a downward economic spiral. The euro has bought itself some time, at a huge cost. And yet little has been done to fix the causes of the crisis.
    True, there have been signs in the last month that the situation has stabilised. Last week, the European
Union said the 16 economies sharing the euro grew 1% in the second quarter, the strongest rate of expansion in four years.
    Most of Europe's banks passed the "stress tests," designed to judge their ability to withstand financial-market shocks, easily enough. They have bounced back from the crisis and look in decent shape again.
EURO REBOUND
The euro has also strengthened to $1.28 after reaching $1.19 in June. Even Greek stocks are looking healthier: The ASE Index of leading shares quoted in Athens has bounced back to more than 1,600 from less than 1,400 during the crisis.
    At this rate, even the editors of Germany's mass-market Bild newspaper will soon be congratulating their Greek friends on their sober and responsible approach to economic management. Think again. Here's why we should be sceptical.
    First, the euro area remains as dangerously imbalanced as always. Take a look at those growth figures. In the second quarter, German gross domes
tic product grew 2.2%. Other countries didn't do nearly so well. Greece's economy shrank 1.5%, while Spain registered just 0.2% growth.
    The debt crisis has even helped Germany by weakening the euro, thereby strengthening its exports. It has hardly helped nations like Greece because they don't export much. Instead, the euro area is more lopsided. Germans are getting wealthier, yet they are being forced to subsidise Greeks who are getting poorer. That won't be sustainable for long.
SLOVAKIAN OPPOSITION
Second, opposition to the bailouts may grow.
    Slovakia has understandably refused to ratify its share of the rescue package. Any political system needs to be both fair and reasonable to command support. The terms of the bailout are neither. You can't tell relatively poor, hard-working people who have played by the rules, like the Slovaks, that they have to help out countries that didn't, such as Greece. You might get away with it once or twice, but if the euro area is simply a mechanism
for transferring wealth from the industrious to the feckless, it is hard to see it surviving. The responsible nations are going to want out at some point.
    Slovakia will no doubt be ignored. The EU doesn't pay much attention to protests from its smaller members, particularly from Eastern Europe. But Portugal and Ireland, which will also have to help Greece, may join
the protest soon. Even if they don't, the billions in aid and loan guarantees promised for Greece and the other deficit countries can't be taken for granted. The new government in Slovakia was elected on a platform of opposing the bailout. "Say no to the Greeks" is a great campaign theme and will surely be copied in the region. — Bloomberg

Thinking clearly about inflation

While the measured response of the government to overall inflation is to be admired, its performance with respect to food-price inflation cannot escape criticism, says Arvind Panagariya

THE subject of inflation, which occupied the media and the politicians in 2008 until the global financial crisis put an abrupt end to it, has returned to the centre stage of the policy debate. The big difference, however, is that this time around the government has been much calmer. Previously, the increase in the year-on-year wholesale price index (WPI) to 8% in April 2008 from 4.5% in January 2008 had the government reach out to every conceivable weapon in its arsenal regardless of its suitability for combating inflation. The government's actions included cuts in import duties, bans on exports, appreciation of the rupee, rise in the cash reserve ratio, suspension of the futures trade, cuts in excise duties, export taxes and threats of price controls.
    In the current bout, the WPI inflation has been higher and the reaction of the opposition parties much fiercer. Yet, delightfully, the government has refused to panic. It has firmly carried out the deregulation of petrol prices and, in large part, confined the policy action to monetary instruments. Most importantly, the government has shown great sensitivity to possible adverse impact of overly aggressive actions against inflation on growth, which is so essential to poverty alleviation. The ruckus in the Lok Sabha notwithstanding, finance minister Pranab Mukherjee has boldly stated that excessive hikes in the interest rates would lead to "no investment, growth or job creation."
    Because inflation can cut both ways even from growth perspective, it often poses a dilemma for the policymaker. Undue tightening of monetary policy to contain inflation may choke off investment and therefore growth. At the same time, excessively high inflation rates, which result in highly negative real interest rates, may be detrimental to savings and hence growth. They may also make the relative price signals noisy and distort the allocation of investment. Luckily, so far, the annual increases in the WPI of all commodities, shown in the accompanying chart, give
us no reason to panic. While inflation began to accelerate in February 2010, taking 2009-10 as a whole, the inflation rate has been just 3.8%.
    Admittedly, WPI inflation from February to June 2010 has been in the 10-11% range. But inflation at these rates is scarcely unprecedented. Similar rates had been experienced not just on monthly but annual basis in the first half of the 1990s. Moreover, the current high rates are largely reflective of low rates in the corresponding months in the previous year. Ultra-low monthly inflation rates of –1.0 to 3.5% between February and October 2009 left the base over which the inflation rates for the months of February to October 2010 are calculated low. This fact implies that monthly year-on-year inflation rates will remain high until October 2010.
    While the measured response of the government to overall inflation is, thus, to be admired, its performance with respect to food-price inflation cannot escape criticism. At 14.7% in 2009-10,
wholesale price inflation in food articles has been much higher than the WPI inflation for all commodities. Recent monthly data yield even higher rates: between December 2009 and June 2010, monthly food inflation ranged from 14.6 to 20%.
    NO DOUBT, some factors relevant to this inflation such as crop failures, diversion of grain supplies to biofuels, shifts in cultivation patterns away from food crops and rising food grain demand in India and China are beyond the government's control. Nevertheless, the government's mismanagement must be held responsible for a significant part of the people's plight over this inflation.
    Thus, consider the scale of resources and network the government deploys in food distribution in the name of helping India's poor. Nationwide, it runs a staggering 450,000 fair price shops. Its public distribution system (PDS) currently absorbs a gigantic Rs 47,000
crore (approximately $10 billion) in subsidies annually. This is more than Rs 10,000 per year per rural household below the official poverty line. Above all, the Food Corporation of India (FCI) currently sits on top of a 60.5 million tonnes foodgrain mountain. This supply is sufficient to give every single household in India 21 kilograms of grain every month for a whole year. Sadly, almost 18 million tons or 30% of this stock is stored in the open. If the past experience is any guide, a significant part of the stock will eventually be washed away by rains, eaten by rats and pests or rendered unsuitable for human consumption due to rotting.
    If private traders held even a tiny proportion of this stock, they would become subject to prosecution under the Essential Commodities Act, 1955. But the same does not hold true for the government. Even the failure to release the stock when food prices escalate carries no punishment for it. And, of course, corrupt politicians and officials can deliberately slow down the release of the grain to profit private traders at the expense of the public.
    Most analysts now agree that the solution to the problem is a highly downsized FCI with its operations limited to regions that private traders will not serve. Other needy households should be provided cash subsidy that leaves them free to choose what they buy, when and from whom. The government must also give up its monopoly on international trade in many food items and rely on custom duties to regulate trade flows. Private traders can handle exports and imports at least as efficiently as the government.
    But, alas, the government is moving in the reverse direction. It wants to implement the right to food in a way that gives it the right to distribute more food, further expand the FCI food stocks and put yet more grain in the open for destruction by the rains, rats and pests — all in the name of helping the poor and at the expense of the honest taxpayer!
    (The author is a professor at Columbia
    University)

No place for India on global high Streets


A DAY after a new report by Morgan Stanley said India was poised to emerge as the fastest-growing economy by 2012-13, the country does not figure among the most favoured destinations for buying stocks in the eyes of global fund managers, reinforcing the widely-held belief that the local markets are among the most expensive in the world.
    According to the BoA Merrill
Lynch survey of 187 global fund managers in August, Russia and Turkey are the most favoured markets for a large number of fund managers who invest in emerging markets across the world. Interestingly, India—perceived to be among the most expensive markets globally—barely finds a mention in the report. So much so that fund managers eyeing Asia-Pacific are underweight on India, though they have reduced their bearish view slightly in August.
    These fund managers are 'over
weight' on these two markets by a wide margin. Brazil, Indonesia, Thailand and Mexico are their other favourites. Indian is only marginally 'overweight' on this list. Taiwan, Malaysia and China, which has overtaken Japan as the second-largest economy in the world, figure in the list of 'underweights'. Analyst estimates for the earnings per share of the BSE 30-share Sensex in the current financial year range between 950-1,050.
REALITY BITES
The Overweights
Russia, Turkey, Brazil, Indonesia, Thailand and Mexico. India is only marginally overweight.
The Underweights
Taiwan, Malaysia and China
The Least Favourite
Australia remains the least favoured market in the region.
Less bearish on global scene
This translates into a forward price earning multiple of 17-19 times, which market participants say is slightly on the higher side compared to historic valuations. And while most of the mid-cap stocks in India have done well, the benchmark indices have been stuck in a narrow range for the
past six months.
    "China is still the most favoured market for Asia-Pac investors. Hong Kong and Korea have been raised to overweight, whilst positions in Taiwan have
been cut to neutral. Australia remains the least favoured markets in the region," the survey said.
    At the broader level, fund managers' outlook on the emerging markets has improved this month, largely due to a more positive view on the Chinese economy. A net 38% of the respondents are overweight on the region, up from 34% in July. But this is way off the 53% overweight seen in November last year, the survey said.

    "A net 39% of EM (emerging market) investors believe global liquidity and domestic demand will be the most important drivers of EM equity prices. The recent run of weak US economic data has also affected their views: a net 78% think US demand will be the least important driver, up from 40% last month and one of the worst readings since April
'09," the survey said.
    Overall, fund managers are less bearish on the global economy now than they were in June and July. However, they remain cautious on global growth and risk.

    "A mere 5% of investors forecast stronger global growth in the next 12 months, but a large 78% majority do not expect another recession," the survey said. In July, 12% of the fund managers had said they expected the global economy to deteriorate.
    Among other findings of the survey, there has been a sharp drop in investors' appetite for US and Japanese equities, but a recovery in demand for euro-zone equities.

Cairn’s charm offensive fails to woo miffed govt

CEO Gammell Meets Oil Ministry Top Brass

CAIRN Energy has mounted a charm offensive to win over an oil ministry upset seemingly over the UK oil firm's failure to keep it and state-owned ONGC in the loop over the proposed sale of its Indian unit.
    Cairn's founder and CEO, Bill Gammell, flew into India on Tuesday and held meetings with oil minister Murli Deora, petroleum secretary S Sundareshan and ONGC chairman RS Sharma to apprise them about the deal involving the sale of up to 60% stake in Cairn India to London-listed miner Vedanta Resources for as much as $9.6 billion ( 44,890 crore).

    But the government showed little sign that it will bless the deal by the Scottish company, and officials kept up the pressure on the two parties, citing reasons ranging from Vedanta's "inexperience" in the oil business to national security.
    Emerging from one of the meetings, Mr Gammell told reporters that he had had
"very friendly and open discussions" and Cairn would seek "necessary consents and approvals" vital for the consummation of the deal.
    Cairn also sought to defuse tensions saying the deal with Vedanta would allow its Indian arm "to chart out its future course independently, with an Indian group as the majority owner". The government can the
oretically veto the deal on grounds the new owner does not have any oil exploration experience, although experts say chances of that happening are slim.
    Shares in Cairn India closed 1.74% up on BSE at 338.65.
    However, the government continued with its sabre-rattling, with one minister even
going as far as suggesting a rival bid by a consortium of public sector oil firms led by ONGC, although the state-run firm's chairman said his company was a publicly-listed entity and would take decisions based purely on commercial reasons.
LIQUID WEALTH CAIRN INDIA ASSETS
1 Rajasthan oil fields (RJ-ON-90/1)—90% of company's asset value
Cairn India holds 70% interest and operator in the block
ONGC is 30% partner in the block
Current production 125,000 bpd Potential to achieve 240,000 bpd
2 Ravva (Block PKGM-1), KG basin, operator with 22.5% interest
Crude oil & natural gas production from Ravva commenced in 1993
3 Block CB/OS-2, the Cambay basin, 40% interest
Natural gas production commenced from Lakshmi in 2002 and from Gauri in 2004
Production of commingled crude oil from Gauri commenced in '05

4
Equity interests in eight exploration blocks:
operator in 5 & 3 non- operated
RIL rules out a counter-bid
AS OF today, there is no thinking of a counter-bid. We will not be swayed by sentiments. We have to take hard business decisions," Mr Sharma told ET.
    Another potential bidder, Reliance Industries, categorically ruled out a counter-bid, and investment bankers familiar with the transaction said Vedanta had decided to move ahead after satisfying itself that Mukesh Ambanicontrolled Reliance was not keen on doing a deal itself.
    ONGC, the country's biggest oil producer, has a 30% share in Cairn's oil fields in Rajasthan, the most notable among them being the Mangala field in Barmer where the discovery of oil in 2004 catapulted Edinburgh-based Cairn from a minnow to a significant player in the oil sector.
    Cairn is cashing out of India, where it is the second-biggest private oil producer with a daily output of 125,000 barrels, to concentrate on Greenland while Vedanta, controlled by London-based billionaire businessman Anil Agarwal, hopes to transform it
self from a pure-play miner to a resources group of the likes of Anglo-Australian mining giant BHP Billiton.
    Oil ministry officials said the government was keen to ensure ONGC does not get a raw deal because of the proposed transaction, especially since it had invested more than $1 billion in developing the Rajasthan fields and to build a pipeline to carry oil to the Gujarat coast.
    Petroleum secretary Mr Sundareshan said the production-sharing contract stated that "any assignment of block to a different party would require concurrence of the government", although he added the ministry would study any proposal received from the parties "on merits and take a view".
    "ONGC has not raised any concerns yet as there is still no official proposal before us," he said, adding that the government would also have to take into account other production-sharing contracts that Cairn has in addition to the Rajasthan block. Cairn India has operations in a total of 12 blocks across India, including in Gujarat and Andhra Pradesh.

Thursday, August 12, 2010

Vedanta in talks to buy into Cairn India to fuel new biz

VEDANTA Resources has signalled a shift in its corporate strategy of focusing only on metals and power generation, by opening talks with UK-based oil major Cairn Energy to buy a part of its stake in the Indian arm. The negotiations, which are still at an early stage, could gross $1.5 billion if the talks are fruitful, people familiar with the development said Cairn Energy is also believed to be talking to other players, including some large Indian and global resource firms, as part of its fund-raising plans.
    According to Vedanta, its talks with Cairn Energy are still at an early stage and may not result in a deal "Discussions are ongoing and there can be no certainty the contemplated acquisition will occur, or of the terms of any such acquisition," the compa
ny said in a statement. "A further announcement will be made when appropriate."
    Vedanta has so far focused on its core metals mining and power generation business despite robust cash reserves of nearly $7.5 billion. The move to acquire stake in an oil business indicates the company's willingness to have a presence in all segments of the resources industry.

    Vedanta, through various group companies, is one of India's leading producers of zinc, aluminium and copper. The company's negotiations are to buy a part of Cairn's 62% stake in Cairn India, say around 10%, and increase it later.
    Indian government officials have been made aware of the talks. Cairn India CEO Rahul Dhir is set to meet Union petroleum secretary S Sundarasen on Friday, and Cairn is also expected to be a part of the discussions, said people familiar with
the development.
    According to clause 28.2 of the model production-sharing contract, companies that have acquired exploration blocks under the New Exploration Licensing Policy need to inform the government of any change in shareholding pattern.
    "The government needs to be assured that the new stakeholder is financially credible and is in a position to meet
all liabilities and guarantees," said the petroleum ministry officials. The UK energy major was guarded in its comments. David Nisbet, a spokesman of Cairn, said, "At the moment, we have only initiated talks. There are confidentiality agreements and this is all we can say at this moment."
SPREADING WINGS
Branching Out : Vedanta has been scouting for possible buys in the oil and gas sector for the past two years, in an attempt to diversify from its core metal play.
Deep Pockets : With cash reserves of about $7.5 billion, Vedanta is seen well placed to pick up a stake.
Digging Deep : Cairn Energy Plc is looking to raise funds for its plans to drill exploration wells off the coast of Greenland.
Options Open : Cairn Energy Plc is reportedly in talks with other companies, including large Indian and global resource firms, as part of its plan to raise funds for future expansion.
News surprises market
NEWS of Vedanta's talks, however, surprised the market. "Vedanta is probably dipping its feet to test the waters," said P Phani Sekhar, a fund manager with Mumbai-based Angel Broking. "They will make a financial investment from a strategic point of view to see how it pans out. If it does well, only then they might take a serious look at energy resources," he added.
    Vedanta has been exploring diversification plans for some time now. According to the people cited earlier, the metals company has been looking at the oil and gas sector for the past two years, as it is a major part of the energy resource umbrella.
    Shares of Cairn India ended up 2.4% at 340.60 on BSE, on a day when the broader index rose only marginally.
    Vedanta chairman Anil Agarwal, ranked 10th on the annual Sunday Times Rich List of the wealthiest people in the UK, made his fortune mainly by acquiring state-owned facilities and turning them around through strong controls over costs.
    In an interview with ET NOW, Deepesh Pandey, co-head of investments at IIFL Capital, said: "The group (Vedanta) is fairly ambitious, aggressive and since you are sitting on a lot of capital, this is a move which could possibly
happen. So we will have to wait and watch. It is just an expression of intent. It is still too early to speculate what they would intend to do but they definitely have the capital and the ambition to do this."
    Cairn Energy needs money to fund its drilling plans in exploration wells off the coast of Greenland. International media reports suggested that Cairn is betting $400 million this year on striking oil off Greenland. The waters off the icy coasts may hold 50 billion barrels of crude and gas, according to the US Geological Survey, enough to meet Europe's energy demand for two years.
    In 2009, Cairn Energy sold 10% to Malaysia's Petronas.
    Cairn entered India as an investor in 1998-99 by buying into the Ravva field from Australian-based Command Petroleum. In December 2006, Cairn India raised $2 billion through a public offer. It currently produces 180,000 barrels of oil equivalent daily from its operations, including Barmer, Rawa and Mangla.
    The company's first success was in 1998-2003 when it struck oil in onland Barmer, Rajasthan, which Cairn had bought from Shell that had abandoned the block after failing to find oil or gas. Two years down the line, Cairn struck the biggest onshore oil find for India in the last 20 years in the same Rajasthan block.



Monday, August 9, 2010

Oil’s not well, say alarmed citizens

Slick Nearing Raigad District, Clean-Up Could Take A Month

The authorities claimed on Monday that the oil scare had passed. Coast Guard IG S P S Basra said, "As far as the oil spill is concerned, things are under control.'' The police and Raigad collectorate officials also denied the district was affected, but locals of some of coastal villages in Alibaug taluka, Raigad district, claimed to have spotted signs of the oil spill reaching their shores on Monday.
    Alibaug-based environmentalist, Surendra Waman Dhawale, of the Shambhuraje Yuva Kranti group, told TOI: "Till Monday evening there was no serious sign of the oil coming towards our coast. However, we have reports from local fishermen in Awas, Mandwa and Kihim villages that small oil patches were seen on these beaches.'' But Raigad collector Subhash Sonawane asserted, "We are keeping a close watch on the Raigad beaches, but there is no sight of the floating fuel oil here,'' he said. Mahindra Dalvi, of Thal Gram Panchayat in Alibaug taluka, informed: "Our fishermen have been told not to go out in the sea to fish, while consumers have been advised not to eat it, as it may be contaminated. This has further affected the income of the locals.''
    The chief manager (operations) of Jawaharlal Nehru Port Trust (JNPT) S N Maharana, informed that of the 1219 containers on the stricken ship, 31 were filled with chemicals. However, various agencies are working round-the-clock to ensure that there is no chemical leakage from the epicentre of the accident site in the sea. About 512 containers were on the ship's deck and the rest in the hold. The hold, said environment minister Suresh Shetty, was still intact.
    Neutralising the spilled oil before it reaches the mangroves and the sea-coast; removing containers floating or lodged on the rocky seabed are the two priorities before the government. The entire clean-up
operation could take a month. "The priority is to ensure the spill does not reach either the mangroves or the coast,'' Shetty added.
    Tehsildars in all the coastal areas in Mumbai, Thane and Raigad district right from Raj Bhavan to Rewas-Mandwa, have been asked to collect water samples and test them for oil. "If oil is found in any place then the protocol that has been set to tackle the spill will be set into motion,'' said Shetty adding the Coast Guard was in charge of neutralising the oil spill. The Chitra has tilt
ed 75 degrees and is resting on rocks, making entry into the ship difficult.
    Technicians of Smith Salvage Company, the official salvagers of M S Chitra had arrived on Sunday from Singapore and they would concentrate on removing the containers from the hold.
    J S Saharia, chief, disaster management, said the collision between the two cargo ships M S Chitra and M V Khalija occurred because of a miscommunication between the Vessel Traffic Management System (that guides ships to and from the
harbour) and the two ships.
    Meanwhile a 45-year-old constable attached to Mumbai's Marine police drowned in the Arabian Sea after he fell off a speed boat near the shore. Ramesh Tukaram More and four other policemen were posted near Ghadyal dock. "On Monday morning, More's colleagues reported he was missing,'' said Quaiser Khalid, DCP (port zone). Divers later found his body around 2.30 pm, he added. His body has been sent for post-mortem.

Expert speak
A senior ONGC officer says the best way to deal with an oil spill is to neutralise it with chemical dispersants like acids (hydrofluoric), phosphorus compounds, acidic and caustic gases, and organic compounds
One At A Time
Clearing navigational channels of the containers is first priority
This will be done using a crane, which will lift containers to a barge, and they will be taken to JNPT
There are nearly 500 containers at sea, 11 near Raigad
Oil from the ship will have to drained out next
Finally, the ship will be towed away by tugs
Salvagers have flown in experts from Rotterdam with booms to control the oil slick, but Coast Guard officials said it was not just enough as slick has spread
Main channels of JNPT and MbPT have been closed down
MbPT is allowing only small vessels
MbPT chairperson Rahul Asthana said it will take two days before the port can be opened for operations
Chief of staff of western naval command, vice-admiral Pradeep Chauhan said helicopters and ships are searching for containers that have sunk. Even the Port Trust has hired sonar-equipped boats

Global Remedies
Bioremediation | Micro-organisms or biological agents are used to break down or remove oil Controlled Burning | It can only be done in low wind, and causes air pollution Dispersants | They cluster around oil globules and allow them to be carried away in the water Dredging | Used for oils dispersed with detergents and other oils denser than water Skimming | Requires calm sea Solidifying | Solidifiers change physical state of spilled oil from liquid to semi-solid or rubber-like material that floats on water, making removal oil easy Vacuum & Centrifuge | Oil can be sucked up with water, and then a centrifuge used to separate the two
With inputs from Mateen Hafeez

Wednesday, August 4, 2010

Tata panel to steer hunt for Ratan’s successor

5-Member Team To Pick Head Of $70-B Group Before Dec 2012

THE search for a successor to Ratan Tata gathered momentum after India's biggest conglomerate said a five-member panel would select its next chairman. Mr Tata, 72, head of the $70-billion salt-to-software group, who has built the world's cheapest car and has taken the group global, will step down in December 2012, creating a vacancy for the what is widely regarded as the top job in corporate India. The statement from Tata Sons, the group's holding company, said the five-person panel included what it described as one "external member". It did not name them.
Two of the five represent two trusts that are major shareholders of Tata Sons, while two are directors of Tata Sons, according to people close to the development.
The trusts, named after Ratan Tata and Dorabji Tata, are major shareholders of Tata Sons. Tata Sons owns majority of TCS, India's largest software maker, and has large holdings in companies such as Tata Steel and Tata Power.
Tata Group veteran NA Soonawalla, who is a member of the Ratan Tata and Dorabji trusts, is part of the panel, people close to the development said. RK Krish
nakumar, the vice-chairman of Tata Tea and Indian Hotels, and a director of Tata Sons, is representing the group holding company. There is speculation that Keki Dadiseth, the former director of Unilever, could also be on the panel.
    "Other directors such as Arun Gandhi, R Gopalakrishnan, Ishaat Hussain are not part of the panel," said a top Tata group executive. Mr Tata would act as a mentor to the panel, the people said. He is believed to have consulted prominent leaders like Henry Shacht, ex-global CEO of Cummins, and Agnellis of Fiat.
    There is no clarity on the identity of the external consultant. The name of a prominent management guru is doing the rounds.
    The successor would be chosen based on his ability to grapple with the complexities of a globalised environment, according to the Tata Sons statement. "It would certainly be easier if that candidate were an Indian national. But now that 65% of our revenues come from overseas, it could also be an expatriate sitting in that position with justification now," Mr Tata had said in an interview with the Wall Street Journal.
    There has been speculation about the chances of Arun Sarin, the former boss of Vodafone PLC, and Indra Nooyi, the current CEO of PepsiCo. "You might want an Indian who has worked outside India. This is a great international business," said Nigel Nicholson, professor, department of organisational behaviour, London Business School.
Noel Tata may still get top job
    AT THE helm since 1991, Mr Tata has led a spectacular international foray, resulting in 65% of the group's revenues coming from abroad. In 2007, Tata Steel paid $13 billion to buy Anglo-Dutch steelmaker Corus, while Tata Motors paid $2.3 billion to acquire Jaguar Land Rover the next year. In all the Tata Group's 98 operating companies have annual revenues of $71 billion and 357,000 employees, according to its website.
    The selection process for a prospective candidate would consider suitable persons from within the Tata companies, other professionals in India as well as persons overseas with global experience, said the release. "It is expected that the final selection would be made in adequate time to effect a smooth transition and change of leadership before Ratan N Tata's retirement at the end of December 2012."
    The group is also talking to international consultants in its search for a successor.

    Tatas, like GE, are a large conglomerate with even a more complex web of companies, so they need a leader of the stature of Jack Welch to steer it, according to an official with a global search firm.
    The decision to choose the successor through a panel casts some doubt over the elevation of Mr Tata's halfbrother Noel as the successor. It was widely speculated that Noel Tata's re
cent appointment as head of Tata International was precursor to the younger Tata's likely ascension to the top job.
    Some Tata Group observers feel Noel Tata is still a strong contender for the post, considering the fact that he is the only person who can take the Tata legacy forward. "There will be resistance to bring someone from outside. Noel will be eventually chosen. The panel gives a legitimacy to the succession plan," said an investment banker close to the Tata Group.
    Ratan Tata's great grandfather Jamshetji Nusserwanji Tata, born to a Parsi family in Navsari, Gujarat, founded the group. Dorabji Tata succeeded Jamshetji as the chairman of the Tata group. JRD Tata, who is considered as the architect of modern business in India, took the group to greater heights.

    The recent spate of global acquisitions has resulted in expatriates getting the top job at group companies. The head of Tata Motors is now a former GM official. It remains to be seen if the top job goes abroad.
    Mr Nicholson says that an insider might eventually win out. "Outsiders are most needed when you want a radical change of direction or to revitalise the culture. Here, I see the emphasis is most likely to be on continuity — this is a brilliant family business. It sends a strong signal of faith in the culture to appoint an internal successor, but never if it compromises on quality. You have to have good people."


Tata Motors board may get new faces

TATA Motors is likely to elevate its chief finance officer and the head of its commercial vehicles business to its board, as India's largest automobile company looks to induct more executive directors.
    The officials being considered for such an elevation are the current CFO, C Ramakrishnan, and the chief of the commercial vehicle division,
Ravi Pisharody, according to persons close to the group corporate centre.
    Ralph Speth, the CEO of Jaguar Land Rover, the UK-based luxury carmaker, acquired by the Tatas, may also be considered, they said.
    Carl-Peter Forster and PM Telang, the managing director of India operations, are currently the two executive directors on the Tata Motors board. This plan is in line with the arrangement at other companies in the Tata fold where
three-to-four functional heads who run strategic business units have positions on the board, the same people cited earlier said.
    A Tata Motors spokesperson said he did not want to comment on the possible board appointments. In a statement issued on Wednesday evening, Tata Motors said non-executive director R Gopalakrishnan was not stepping down from the board.
Tata Motors may follow Tata Power's model
INSTEAD, the statement, explained, he had not offered himself for re-election to the Tata Motors board to enable the company to accommodate additional executive directors.
    The statement was in response to an ET story dated August 3 that said more executive directors would be inducted to the board. The move is also to retain the requisite ratio of independent directors, the release explained.
    At present, the Tata Motors board comprises four non-executive directors, seven independent directors and two executive directors.
    Tata Motors' passenger vehicle division currently does not have a president after the exit of Rajiv Dube, who has moved to the Aditya Birla Group.
    After Mr Dube's exit, his post was split into two, with S Krishnan heading the marketing division as senior vice president and Girish Wagh in charge of production.
    Earlier, Ravi Kant was the executive director of passenger cars before he was made managing director of Tata Motors He is currently the vice-chairman.
    Tata Motors could likely take a leaf out of what was implemented at Tata Power. Out of a board strength of 14 directors, the utility has four executive directors, including the managing director, and the heads of finance, operations and business and strategy.
    The maker of Nano cars in March had appointed Carl-Peter Forster, a General Motors veteran, as its CEO. His appointment will have to be ratified by shareholders at the forthcoming annual general meeting to be held on September 1.

 

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