India Inc. Battered by Credit Crisis

[BanglaBhoot]

These days when KPMG's Mumbai corporate finance head Rohit Kapur meets Indian chief executives, he finds a marked difference in the corner suite talk. Until recently, Indian bosses were still firming up their mergers-and-acquisition shopping itinerary. No longer. "Now they talk of rationalizing their business portfolio and monetizing assets to expand their core businesses," he says.

Until a few months ago, India's conglomerates had been scouring the world for M&A targets. Thanks to a long bull run in the Indian stock market and easy availability of finance, cash-flush companies were on an acquisition rampage (BusinessWeek.com, 5/15/08) from the U.S. to Australia, scooping up everything from cinemas to design houses to consumer-products companies. Indian companies spent $90 billion on M&A since 2007, according to Hong Kong research firm Dealogic. Among the most prominent was Reliance—Anil Dhirubhai Ambani Group (Reliance—ADAG), which invested $500 million in DreamWorks Studio in June and in the past two years made acquisitions ranging from cinemas in the U.S. to social networking sites in India.

But as the credit crunch deepens, Indian companies that shopped around the world are feeling the strain. Tata Motors (TTM), aluminum maker Hindalco, and turbine maker Suzlon Energy saw recent rights issues flop. Suzlon Energy withdrew a $360 million rights offering on Oct. 27, citing an adverse market response. The company also shelved plans to set up a tower manufacturing facility in India.
Buying Sprees

The companies had been raising the money to pay off loans for big-ticket global purchases. Tata Motors acquired Jaguar and Land Rover (BusinessWeek.com, 3/26/08) from Ford (F) in March for $2.3 billion. Sister company Tata Steel had acquired Anglo-Dutch steelmaker Corus for $12.1 billion in January 2007. Hindalco spent $6.3 billion for Atlanta aluminum rolled products maker Novelis early last year. Suzlon had been on a buying spree too, buying Belgium's Hansen Transmissions in 2006 and Germany's REPower Systems in May 2007 for $1.6 billion. Suzlon had been trying to raise $360 million to buy out the minority shareholders in REPower.

Now companies are struggling to come up with the cash to pay for these deals. India Inc. has $45 billion in foreign-currency borrowings used for expansion and acquisitions when rocketing stock valuations in the domestic market made external borrowing more appealing. But in today's tough financial environment, the buying sprees and expansion plans have come to haunt companies. The Indian market is down 54% since January, and many of the companies' shares have plunged below the prices offered by their rights issues.

"Over 80% of Indian companies' foreign-currency convertible bonds are under water, and nowhere close to conversion prices" says Devina Mehra, managing director of First Global Securities in Mumbai.

Companies that didn't follow through on deals are now counting their blessings. For instance, telecom operators Bharti Airtel and Reliance-ADAG, two ardent suitors (BusinessWeek.com, 5/27/08) that had been wooing South African telecom company MTN Group in May, must be relieved they didn't see the deals through. On Oct. 10, cash-rich Infosys Technologies (INFY) tamely gave up its hold on British consulting company Axon when local competitor HCL outbid it for $789 million, saving Infosys $719 million.
Scrambling to Renegotiate Deals

Hit by a credit squeeze at home, companies that succeeded in making deals are looking at alternate routes for financing. Tata Motors and Hindalco, for instance, are raising money by selling some family jewels and unlocking the cross-holdings within group companies. Tata Motors, which owns stakes in subsidiaries like Tata Daewoo and Tata Technologies, has said it would unravel some of its investments. Hindalco, which has a stake in mobile operator Idea Cellular, has said it also will unlock cross-holdings.

Suzlon, according to the company's chief operating officer, Sumant Sinha, is hopeful the company will be able to get bank financing. Like most central banks, the Reserve Bank of India has slashed banks' reserve requirements, lowered lending rates, eased curbs on external commercial borrowings, and asked domestic banks to spruce up their lending to boost the markets and economic activity. Although few banks are making loans to companies, "borrowing from the market should be more comfortable now," says Sinha.

Did India Inc. go overboard on M&As? "Many of the companies' decisions might have been right six months ago. Today it's a humbling experience for them, as nobody saw the crisis coming" says Rohit Kapur, corporate finance head of advisory firm KPMG India. However, others say India ignored the writing on the wall. Ashu Dutt, the Asia M&A head of Northbridge Capital, says the long bull run in India "spoiled" companies. "In a bull market, rational views get smothered by the easy availability of liquidity," he adds.

Companies that got into debt traps are now scrambling to renegotiate their deals and debts. Sterlite Industries, the Indian arm of Vedanta Resources, the London-listed metals corporation, won the $2.6 billion bid for bankrupt American copper miner Asarco in June. With copper prices tumbling since then, a Sterlite manager says the company is close to wrapping up the deal at a renegotiated price which is lower.

And there's plenty of renegotiating that'll happen now. The way out, say analysts, is simple: Keep your wallet shut. Indian companies need to reduce costs and become innovative in their product development, marketing, and operational costs, say analysts. But can they? Or will India's companies fumble and lose their way into global oblivion? Bankers have a solution: It's time for some serious business rationalization, says J.M. Financial's Kampani. "If Indian companies have global ambitions," he says, "then they better face and rough out the global crisis, too."

India Inc. Battered by Credit Crisis - BusinessWeek

 

[BanglaBhoot]

S&P 500’s Drop Leaves 64 Industries, 483 Companies With Losses

Nov. 21 (Bloomberg) -- The worst annual decline in the Standard & Poor’s 500 Index has dragged down every industry in the benchmark gauge and 97 percent of its stocks.

All 64 of the S&P 500’s so-called level-three categories, groups such as “distributors” and “leisure equipment” with as few as one company, dropped in 2008. Among 500 stocks, 483 slipped as the index fell 49 percent, poised for the biggest yearly retreat ever.

“There seems to be no bottom,” Laszlo Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, said on Bloomberg Television. “We have no tools that tell us where to go now.”

More stocks decreased in the current bear market than in the 49 percent rout after the technology bubble burst in 2000. The breadth of declines this year is leaving investors without defensive strategies to protect against losses that erased more than $8 trillion from U.S. equities in 2008.

During the S&P 500’s retreat between March 2000 and October 2002, nine industries climbed, including two -- tobacco and health-care -- that rose more than 80 percent. Since the S&P 500 peaked in October 2007, seven stocks in the index advanced, according to data compiled by Bloomberg. At least 10 times as many rose in the 2000-2002 sell-off.

UST Inc., the Stamford, Connecticut-based snuff maker being acquired by Altria Group Inc., increased the most since the S&P 500 peaked last October, gaining 40 percent. By comparison, 35 stocks in the S&P 500 doubled during the bear market that began in March 2000.

Biggest Drops

American International Group Inc. posted the year’s biggest tumble in the S&P 500 as losses from mortgage-backed securities forced the government to arrange a bailout of the New York-based insurer. Shares from Bear Stearns Cos. to Lehman Brothers Holdings Inc., once among the biggest New York-based brokerages, disappeared from the market as credit crisis worsened and led to $965 billion in global losses.

The S&P 500 reached an 11-year low yesterday after jobless claims approached the highest level since 1982 and the Federal Reserve said manufacturing in the Philadelphia area shrank. Bank losses shrunk the economy and sent the gauge down 52 percent from its Oct. 9, 2007, record of 1,565.15.

“None of us know at what point we’ve sufficiently priced in all of the negative economic news,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., which oversees $1.3 trillion in San Francisco.

Among industries in the S&P 500, biotechnology companies have fallen the least with a 3.6 percent drop. Thirty-two lost more than 50 percent, led by 90 percent decline in thrifts and mortgages.

Yesterday’s Drop

The S&P 500 slid 6.7 percent to 752.44 yesterday after economic reports showed a deepening recession. New York-based Citigroup Inc. plunged 26 percent to $4.71.

A year ago, 11 companies in the S&P 500 traded at less than $10 a share. Now, 111 do.

“It’s certainly dysfunctional markets, not tied to anything but the vagaries of emotions,” said James Paulsen, who helps oversee about $220 billion as chief investment strategist at Wells Capital Management Inc. in Minneapolis. “The fundamentals of the world aren’t changing as fast as these prices are.”

Bloomberg.com: Worldwide

 

[daredevil]

IMO, India is not affected as much as US and China got affected till now. Don't know what will be the outlook for next coming months.

 

[Nihat]

Munshi sir , you know that only those countries are effected which have an Industry .

In the long run India and China will be better off and better prepared for this crisis . India becuase it's economy is domestic driven to a large extent and demand is Internal for a lot of the Industries and not entirely dependent on West or Export Oriented.

China because of the saving nature of it's citizens and overall prudent approach coupled with the massive Forex reserves.

Bangladesh and Pakistan have no reason to fear for reasons mentioned at the beginning.

Asia will be the Ultimate winner to come out from this.

 

[BanglaBhoot]

Asia will be the Ultimate winner to come out from this.

I hope so but I doubt the Western powers will make it easy for Asia to rise and overtake them. China does, however, have the US by the b***** but how effective their dollar reserves and treasury bonds will be is another question.

 

[daredevil]

I hope so but I doubt the Western powers will make it easy for Asia to rise and overtake them. China does, however, have the US by the b***** but how effective their dollar reserves and treasury bonds will be is another question.

China having the US by b***s is too far fetched. If US goes down, so does China along with it. Without any value to US dollars and treasury bonds, China is simply holding tissue money. So, China has much higher stakes to keep the US economy going just as much as US wants.

 

[Nihat]

China does, however, have the US by the b*****

that is wholly incorrect . China develops through Exports and FDI and the source of these is the US (majorly) as they are a consumption oriented economy.

 

[digitaltiger]

The Economy turmoil is a global phenomenon and Asian economies are affected due to spill over effect of US and EU economies.
But as “Nihat” Rightly said “Indian and most of the Asian economies are domestic driven so the impact will be less and recoverable”. (Hope So)

 

[BanglaBhoot]

India's tourism begins to feel the global pinch

NEW DELHI,Nov 24, (bdnews24.com/Reuters) - "Incredible India" is what the country's energetic promotional campaign calls it. But behind the glossy brochures is an increasingly hard fight to entice foreign tourists.

The worst financial crisis in 80 years, high oil prices and a slew of militant attacks has hit an industry that has basked in double-digit growth numbers of both domestic and foreign tourists in recent years, according to data from the Ministry of Tourism.

October saw an increase of just 1.8 percent in the number of foreign tourist arrivals compared to the same time in 2007, prompting the Indian government to ask hotels to slash their prices by 10 to 15 percent in the hope of keeping demand high.

"We are seeing the early stages of a slackening of the market," Madhavan Menon, the managing director of Thomas Cook India Ltd, told Reuters, adding that: "2009 is going to be a difficult year."

A slump risks undermining India's enormous growth potential in the tourism sector, which the U.N.'s World Tourism Organisation (UNWTO) said has also been let down in the past by a lack of adequate accommodation and poor infrastructure.

Despite its vast size, diversity, and array of historical monuments, India still ranks at no. 42 in the world's holiday destinations of choice -- below much smaller countries like Belgium (33rd) and Hungary (26nd), a UNWTO report said.

Even so, India's tourism industry is thought to contribute around 6 percent of the country's GDP and give employment to more than 40 million people.

As the tourist season kicks off in the winter months, both domestic and foreign travellers are still flocking to the famed Taj Mahal, with over 300,000 visiting the 17th century mausoleum in October alone.

But because many of the 5 million foreign tourists who came to India in 2007 were from the United States and Britain -- among the hardest-hit countries in the global economic slowdown -- some travel agents and hoteliers are nervous.

BETTING ON THE RUSSIANS

Even though tourist numbers are officially growing, operators say the data could be misleading, as foreign tourists and corporations made advanced bookings months before the financial crisis took hold.

"As compared to last year, we have received far fewer queries for the next tourist season," Mahatam Singh of Touraids said.

The luxurious Raj Palace hotel in the desert state of Rajasthan says it is reaching out to the super-rich from Russia and the Middle East to make up for a "major downfall" in British and U.S. visitors.

Middle East sheikhs and princes book up entire hotels in the pink walled city of Jaipur even if they do not use all the rooms, says Ankur Rara, the general manager of the Raj Palace hotel.

"For them money is not a problem."

India's tourism ministry says domestic demand will continue to grow at a high level, despite analysts' predictions economic growth could slow to below 7 percent in the year to March 2009 from 9 percent or higher in the past three years.

Although crude oil prices have fallen to around $50 a barrel, government-set retail fuel prices remain uncomfortably high, and tour operators say this and high air fares will take a toll on domestic tourism, which accounts for the vast majority of visits.

A general economic slowdown may be affecting all sectors of Indian tourism.

Rinku Tripathi, a farmer from Uttar Pradesh, could just about afford to take his family on a $100 holiday to see the historic Mughal monuments in India's capital, but for others in his village it has become an unaffordable luxury.

"Everybody wants to come to Delhi. But because of their financial position they can't come right now."

MILITANT ATTACKS

A string of militant attacks on Indian cities in 2008 scared some domestic and foreign visitors away from traditional hotspots, with the United States and Britain advising their citizens to be vigilant and avoid certain cities altogether.

Sheela, a woman who did not want to give her second name, earns a living by painting elaborate henna patterns onto the palms of visitors at a park by New Delhi's India Gate monument.

After deadly bomb blasts rocked the capital in September, she only has a quarter of the customers compared to this time last year, and can only charge half the amount -- $5 per tattoo.

"Before the blasts, both sides of the park were completely full."

That said, the effects of security fears tend to be localised and short-lived, because "the world has got used to terrorist attacks", according to Menon of Thomas Cook India Ltd.

But months of anti-India demonstrations and violent clashes between Indian troops and Muslim protesters across the picturesque state of Kashmir have brought tourism, one of the state's biggest industries, to a standstill.

Authorities say hotel occupancy has come down from 100 percent in June to almost zero in October across the restive region, where about 30 percent of its 10 million people depend directly or indirectly on tourism.

"Tourism in Kashmir has vanished again," said Azeem Tuman, the president of the Kashmir Houseboat Owners Association.

However, the setbacks to India's holiday industry are "not alarming", says Devesh Chaturvedi, the director of India's Ministry of Tourism, adding that "the tourists will still come but may reduce their spending".

The ministry has set itself a target of doubling the number of foreign tourist arrivals to 10 million per year by 2010, when India hosts the Commonwealth Games.

But with officials worried Commonwealth Games infrastructure and accommodation may not be ready on time, the estimates of a doubling of tourism in two years may be rather optimistic.

bdnews24.com/mhb/1346 hrs.

India's tourism begins to feel the global pinch :: :: bdnews24.com ::

 

[BanglaBhoot]

Credit Crunch Hurts India's Wealthiest, Too

By REUTERS

MUMBAI (Reuters) - These are painful times for India's tycoons, the Forbes Asia Rich List said recently.

A falling stock market, a weak rupee and slowing economic growth have shaved about 60 percent off the wealth of India's 40 richest people, it said in its annual compilation, with their net worth plunging to $139 billion from $351 billion a year ago.

No small change that, and it's got to hurt.

"They're definitely feeling the pain," said Sonu Bhasin, president of retail finance at Axis Bank, and head of the bank's private banking and wealth management divisions, which have nevertheless continued to add new clients in recent months.

"Everyone's hurting, everyone's in a panic, but the wealthy get noticed more and their concerns get addressed," she said.

An economy that grew at about 9 percent in the last three years and a six-year bull run on the stock market helped mint new millionaires in Asia's third-largest economy, a rich class who splashed out on luxury cars, yachts and sprawling vacation homes.

India had 123,000 millionaires in 2007 and showed the fastest pace of expansion, a Merrill Lynch/Capgemini report said.

But a stock market rout has meant local investors have "notionally lost almost a year's GDP," Credit Suisse said.

Bhasin's clients, who are high net-worth individuals, are seeking more professional advice now, and also favoring more traditional investment options such as bank deposits, she said.

"They are seeking safety: fixed deposits are making a huge comeback, and there is also some interest in gold," Bhasin said.

"We've always told clients making money is a boring exercise. Now they're being more realistic and willing to be bored."

BILLIONAIRE NO MORE

The reality is harsh for steel baron Lakshmi Mittal, chief of Arcelor Mittal, the world's top steelmaker, who gave up his No. 1 position on the Forbes list because of crashing prices.

The new No. 1, Mukesh Ambani, chief of India's top private company Reliance Industries, has a net worth of about $21 billion, Forbes estimates, down 58 percent from last year.

That does not seem to have hit construction of his $1 billion home on Mumbai's Altamount Road, among the most expensive stretches of residential real estate in the world, even though other luxury apartments in the city are finding few takers.

"In the home segment of more than 100 million rupees ($2 million), demand is very weak because it is linked to big bonuses and stock market returns, which have taken a hit," said Abhisheck Lodha, a director at developer Lodha Group in Mumbai.

Real estate tycoons such as top realtor DLF's KP Singh have seen the biggest wealth erosion this year, Forbes noted, while windmill maker Suzlon's founders have lost their billionaire status and flamboyant liquor baron Vijay Mallya, head of the UB Group, has dropped off the Forbes list on losses to his airline.

"Business founders were the worst hit as the largest shareholders," said the Credit Suisse report, which estimated the top 20 business groups in India have lost about 71 percent of the value of their listed investments, or $226 billion, this year.

ART, CARS, WINE

But while the notional value of their wealth has taken a hit, India's billionaires still have plenty of loose change for luxury cars, art and wines.

Sales of cars priced at more than 2 million rupees have remained strong, bucking the slump in overall car sales.

Car sales fell nearly 7 percent from a year ago in October, but Mercedes-Benz has already met its full-year target with a 47 percent increase, while BMW's sales have more than doubled.

Perhaps the wealthy will drive their new cars to the upcoming Osian's auction of modern and contemporary Indian art and craft.

Chairman Neville Tuli is confident there will be bidders for at least half the collection even "in a worst-case scenario," compared to auctions in New York recently, where sales were less than half what they were a year ago and a majority of works were offered at prices far below their presale estimates.

"The Indian economy is stronger than the economies of Europe and the United States, so our art market's stronger," Tuli said, noting there were several new guests at the recent preview.

"The art market's really dependent on collectors who, irrespective of what is happening in the rest of the world, will still allocate resources to art. That's their first priority."

As for premium spirits, demand is strong, said Vishal Kadakia at importer Wine Park and de facto head of the Bombay Wine Club.

"The alcohol industry is probably the most recession-proof."

"When times are bad, everyone wants a drink," he said.

($1=50 rupees)

http://www.nytimes.com/reuters/world/international-us-india-credit-rich.html?_r=1

 

[jeypore]

I hope so but I doubt the Western powers will make it easy for Asia to rise and overtake them. China does, however, have the US by the b***** but how effective their dollar reserves and treasury bonds will be is another question.

China has US by What? You forget China largest customer is US. If you US decide not to buy from China, then where it is going to go, and will it have the same growth rate. That is why you are hearing in Chinese news that China must create it's internal economy.

 

[BanglaBhoot]

When the world economy recovers and China is able to disengage itself from the American consumer and create internal demand it will be China that will hold the dominant position in world affairs.

 

[jeypore]

When the world economy recovers and China is able to disengage itself from the American consumer and create internal demand it will be China that will hold the dominant position in world affairs.

Mr. Munshi for China to create internal economy, it needs to create lots of small business and entrepreunerships. I just don't see that right know because clearly China geared itself for foreign investment for export purpose. To create this there is a paradigm shift in people thinking, and trying to come out of communism mind set will not allow to do this.


This where India will be further ahead after the global financial crises because it does have these foundations in place.

 

[Nihat]

When the world economy recovers and China is able to disengage itself from the American consumer and create internal demand it will be China that will hold the dominant position in world affairs.

China is an export based economy , if it dis-engages from the US then it looses it's beggest Customers , whatever happened to basic economic Mr. Munshi.

 

[BanglaBhoot]

I am not an economist but I still do not think your logic holds. China has enough reserves and momentum to get it through this crisis and adapt itself to the new climate. The Indian economy is nowhere near as resilient as the Chinese one and it will be hit very hard by the global slowdown.