Key infra sectors growth plunges to 2.3%

Growth in six infrastructure industries plummeted to 2.3% in August 2008 as compared to 9.5% a year ago i.e. in August 2007 including crude oil and petroleum refinery, showing depressing performance.

Crude oil showed a negative growth by 1% in August 2008 compared to a positive growth rate of 6.5% in August 2007.

Growth in petroleum refinery products fell sharply to 2.5% in August 2008 from 8.2%, The crude oil production registered a negative growth of 0.9% during April-August 2008-09 compared to 1% during the same period of 2007-08.

Coal production registered a growth of 5.9% in August 2008 compared to growth rate of 8% in August 2007. Coal production grew by 7.3% during April-August 2008-09 compared to an increase of 2.1% during the same period of 2007-08.

Electricity generation registered a growth of 0.8% in August 2008 compared to a growth rate of 9.2% in August 2007.

Cement production showed a growth of 1.9% in August 2008 compared to 16.7% in August 2007.

Finished (carbon) Steel production witnessed a growth of 4.4% in August 2008 compared to 9.6% in August 2007.

We have seen major downside in our markets since January 2008, we are seeing the effect of US sub prime & later collapse of financial institutions there. Our top politician made us to believe that Indian markets are insulated from the US. If these numbers are anything to go by writing is very clear on the wall….

Its not only sentiments and emotions but the very fundamentals that Indian economy is on target & may miss the mark by 1% seems hard to believe.

May be more pain still left to be seen…. Happy Investing

 

 

Reliance Industries: Refining blues

In the June 2008 quarter, RIL posted GRMs of $15.7 per barrel, which disappointed the Street which had pencilled in margins of $16-17 per barrel, given the sharp rise in crude oil prices. Refining contributes about 55 per cent to the company’s revenues which were Rs 1.37 lakh crore in FY08. Moreover, industry watchers believe there could be a slight delay in the output of gas from KG-D6 basin with it now being available only in November or even later.

Analysts say less than robust demand and fresh refining capacity coming into the market—much of it in Asia and the middle east– over the next couple of years, could cause refining margins to fall 20-25 per cent from FY 2008 levels.

Over one million barrels per day (bpd) of crude oil distillation capacity is estimated to come on stream in CY08 while twice that capacity is expected to be commissioned in the following year. GRMs, which were ruling at roughly $15 per barrel in FY08 could, therefore, come off to levels of around $12 per barrel by FY10.

Towards the end of August, Singapore refining margins had dropped sharply the result of a fall in the margins for diesel.

With the new refineries being complex in nature, the demand for middle distillates such as diesel and kerosene is likely to be met. However, margins for diesel could nonetheless remain higher than those for gasoline.

RIL’s petrochemicals business which brings just over 40 per cent of revenues is expected to do well with petrochemicals margins firming up in recent weeks. Also, the risks of the company being asked to pay a windfall tax appear to have receded.

RIL is expected to end FY09 with revenues of around Rs 1.9 lakh crore and a net profit of close to Rs19,000 crore.

BS Report

Reliance, divesting KG D6 Assets ?

Reliance Industries (RIL) has scrapped its plan to transfer 80% of its participatory interest in the famous D-6 block of the Krishna Godavari basin gas field, perhaps the company’s most valued asset, to four of its subsidiaries. The company had sent a letter to the petroleum ministry on Thursday (August 28) withdrawing its earlier application which sought permission to transfer the stake to the subsidiaries. Under the production sharing contract, any contractor (here RIL) is supposed to get the government’s nod for transferring stake in any asset.

In the letter, RIL says that it has organised funds required for the exploration and production of the block, officially known as KG-DWN-98/3, and therefore wants to abandon its plan to transfer its participatory interest to the subsidiaries.

In its application to the ministry for the proposed transfer three months ago, it had said the move was aimed at increasing flexibility in organising finances for the development of the project. RIL’s investment in the KG basin blocks is expected to be around $8 billion. Interestingly, RIL, had got the go-ahead from the Directorate General of Hydrocarbon on this on August 21. The proposal had then been forwarded to the petroleum ministry.

When contacted, a RIL spokesperson confirmed the development. “RIL has raised the requisite financial resources and is no longer pursuing the application for assignment of participating Interest (PI) to the subsidiaries. Implementation of the project has not been hindered,” the spokesperson said.

“However, in view of non-receipt of such approval/confirmation, we have successfully firmed up alternate means of financing and have met the cash requirements of the project…. We are entitled to assign the PI as envisaged in the…PSC but having raised the requisite finance as aforesaid, there is no need at this time for us to pursue the means of financing that would envisage assignment of PI and for the record hereby formally withdraw the..application and request that no further action need be taken thereon,” RIL said in its letter addressed to the joint secretary (exploration) in the ministry of petroleum. ET has a copy of the latter.

Industry experts said RIL’s move could have been partly driven by the criticism of its big shareholders. A few major shareholders, especially the foreign institutional shareholders, had questioned the logic of the proposed move in the past few days after the development came to the fore on Tuesday.

RIL clarified the next day that these four companies, Reliance KG Exploration and development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG, are wholly-owned arms. But there were reports saying at least one of these companies could be part-owned by two top-level RIL executives.

The timing of RIL’s withdrawal from the proposed move assumes significance. RIL has withdrawn the transfer of the participatory interest on Thursday (August 28), four days before the hearing of the legal case between the company and Anil Ambani’s Reliance Natural Resources (RNRL) in the Bombay High Court.

Source : ET, INfraline

RIL to start crude production from KG basin next month

With a FPSO (Floating, Production, Storage and Offloading) vessel set to stream into Kakinada from Singapore shortly , Reliance Industries Ltd is gearing up to extract crude from its Krishna Godavari basin wells by the second half of September.

The MA Fields in the D-6 block in the KG basin will produce about 40,000 barrels a day. The crude evacuated through pipeline grid set up will be shipped through tankers to refineries, according to RIL officials.

However, the gas produced from the KG wells will be pumped back into the wells as there is no possibility to store the gas. Meanwhile, the onshore gas processing facility at Gadimoga is nearing completion. “After the FPSO moves to Kakinada shores from Singapore, within a couple of weeks we expect production to commence from these wells. Initially, it could be about 15,000 barrels a day to be gradually ramped up to 40,000 barrels a day,” the official explained.

Asked about the gas production in the KG basin (Doubling India’s Gas Supply ny 2010), the official said that most of the installations and pipeline work of 1,400 km from Kakinada to Bharuch had been completed barring small link-ups.  

The undersea equipment has been procured. It is likely that by the fourth quarter of this year, the gas wells will be ready for production,Dhirubhai-I, the floating oil production unit chartered by Reliance, has been built by converting a large tanker in Singapore.

According to information reaching here from Singapore, the floating unit left Jurong yard last Wednesday and is scheduled to arrive at the eastern coast of India by Friday.

The floating oil unit is on a 10-year charter from the Norwegian company Aker and the initial contract value was $750 million. Aker will also operate and maintain the FPSO under a separate five-year contract.

Once the FPSO is anchored and connected to the oil wells, which is expected to take at least two weeks, oil production from a developed field can commence within a month, said an oil industry expert.

Unlike normal tankers, which need dry-docking at least every two years, the FPSO is designed to operate for 10 years without dry-docking.

Dhirubhai-I can process 60,000 barrels of oil and 15 million cu m of gas a day and can store 1.3 million barrels of oil.

The 8.86 lakh dwt tanker –S.T.Polar – was originally built in the US. The refitting at the Singapore yard is expected to extend the 25-year-old vessel’s life by 15 years.

As reported In Business Line 

Monetary Policy- Just Pain, No gain: Critics By SS Bhalla

Monetary authorities should not practise ideology, especially since monetarist ideology has been made obsolete by globalisation and development

Let us examine why Mr Reddy’s policies are most likely to be wildly off the mark. With the CPI inflation rate around 7 per cent, Reddy increased the repo rate to 9 per cent, besides also increasing the credit reserve ratio (money deposited by banks with the RBI for which they receive zero interest!) by 25 basis points. Given the consumer price inflation rate of 7.5 per cent, this implies a real interest rate of 1.5 per cent. This move was welcomed by the economists of almost all foreign investment banks. Surely this high approval rating suggests that Mr Reddy is wildly on, rather than wildly off.

 The bottom line: Don’t take the comments of foreign, or domestic, investment banks on the RBI seriously.

Two explicit statements of Reddy reflect his views. India has been overheating at least since April 2005 and, second, a surefire way to correct this overheating is to control money supply growth. This growth has been a few percentage points above the RBI mantra constant of 17 per cent. When the RBI sounded the first alarm bells of overheating (in 2005), unknown to the RBI, and the rest of us, was the fact that the investment rate in India had registered 32 per cent of GDP, and the savings rate was 31 per cent. Both these important macro parameters had already increased by 8 percentage points since 2000. If India indeed started overheating in 2005, then, in subsequent years, two effects should have been observed — a higher inflation rate, due to excess demand, and/or a stable, if not lower, rate of investment and savings. On both counts, the RBI assessment was off — the investment and savings rates continued to substantially increase, and inflation remained stable (according to the WPI, the rate declined; stable according to the GDP deflator, and the CPI registered an increase in the inflation rate of 1.5 percentage points).

The RBI still thinks in overheating terms because for it there is only one variable — the rate of growth of money supply. For something held so sacred, it is strange to find that the monetarist model (i.e. inflation is a function of the rate of growth of output and the rate of growth of money supply) finds little, actually zero, analytical support from Indian data. To be sure, there are some quasi research papers that relate the levels, rather than the rate of growth, of these variables. But estimating relationships between levels is akin to stating that the number of TVs causes mental illness — both go up steadily over time.

Maybe the RBI is just doing what officials of other fast-growing economies are doing. This won’t necessarily make the actions right, but it would mean that the RBI is following the global herd — and we all know that nobody can hold you responsible if you follow the crowd. (But then you can’t be a Volcker, either!). China has stopped raising rates and settled at a negative real rate of around -3.5 per cent. Korea just raised rates by 25 basis points, but to a level of -0.75 per cent real rate. Thus, Indian firms face a cost of capital some 2 to 5 percentage points higher than its competitors. Both New Zealand and the Czech Republic have lowered rates by 25 basis points each. Both cited the fact that the inflation is global, probably conjectured (different than the RBI) that $150/barrel oil should not be the reference price for monetary policy, and therefore cut rates to provide for inclusive growth to its citizens.

Inclusive growth is not a throwaway concept, though for the RBI (and the government?) it probably is. At least as indicated by their actions. The fat cats in industry are able to obtain credit from the international market at considerably cheaper rates than those mandated by the RBI. It is the middle classes, and the poor, who suffer from the high real cost of credit. And especially when this domestic high cost of credit does precious little to affect the international price of oil and commodities. These prices will determine the future course of Indian inflation, which most emphatically will not be affected by the sledge hammer RBI monetary policy. Unfortunately, the RBI’s policies can negatively affect GDP growth. Pain with no gain is what we have with the RBI.

The author is Chairman, Oxus Investments, a New Delhi-based asset management company. The views expressed are personal.

Monetary Policy: 2008

MEASURES ANNOUNCED

• Repo Rate increased by 50 bps from 8.5 per cent to 9 per cent
• CRR to be hiked by 25 bps to 9 per cent with effect from August 30, 2008
• Bank Rate kept unchanged at 6 per cent
• Reverse Repo Rate under the liquidity adjustment facility (LAF) kept unchanged at 6 per cent

OBJECTIVES

• To ensure credit growth at 20 per cent and deposit growth 17.5 per cent
• Get inflation down from current 11.89-12 per cent to 7 per cent by March 31, 2009. On medium-term, bring it down to 3 per cent.
• Emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.
• Moderate monetary expansion and plan for money supply growth of 17 per cent in FY09.
• Help the growth of non-food credit, including investments in shares, bonds, debentures and commercial paper to reach around 20 per cent.
• Give liquidity management priority in the hierarchy of policy objectives.
• Bring about 17.5 per cent growth in aggregate deposits
• Banks should focus on stricter credit appraisals on a sectoral basis

REASONS FOR THE MEASURES

Domestic:

• Y-o-Y basis, CPI-based inflation for agricultural and rural labourers grew to 8.8 per cent and 8.75 per cent respectively in June 2008 from 7.8 per cent and 7.5 per cent a year ago.
• Money supply (M3) increased by 20.5 per cent y-o-y on July 4, 2008, lower than 21.8 per cent a year ago.
• The price of the Indian basket of crude oil increased from $99.4 per barrel in March 2008 to $141.5 on July 3, 2008 before declining to $121.9 on July 25, 2008.

International:

• Exports increased by 21.7 per cent in US dollar terms during the first two months of the current financial year, as compared to 24.2 per cent in the corresponding period of the previous year.
• Imports rose by 31.8 per cent as compared to 37.9 per cent in the corresponding period of the previous year.
• POL imports increased by 48.6 per cent on account of the surge in crude oil prices as compared to 25.7 per cent in the corresponding period of the previous year. As a result, the merchandise trade deficit widened to $20.7 billion during April-May 2008.
• During the current financial year up to July 25, 2008, the rupee depreciated by 5.4 per cent against the dollar, by 5 per cent against the euro, by 5.2 per cent against the pound sterling and by 1.3 per cent against the Japanese yen.

Sourec : RBI Press Release

Indian Ports: Poised to handle 21 M TEU

Congested ports and other creaky transport infrastructure have become a growing problem for Asia’s third-largest economy and the world’s second-fastest growing large economy after China.

The Indian government plans to double cargo handling capacity at the country’s ports to 1.5 billion metric tonnes (mt) per by 2012.

If the current growth rate of 19% is kept to, India’s container throughput is estimated to hit some 21 million TEUs per year by 2016.

India could handle up to 1.5 billion tonnes of cargo per year by 2012

The investments, through public-private partnerships, would total some $25 billion, APVN Sharma, Secretary for the Department of Shipping in the Ministry of Shipping, Road Transport and Highways, told local press.

A 2007-2008 Global Competitiveness Report from the World Economic Forum highlighted ‘inadequate supply of infrastructure’ and ‘inefficient government bureaucracy’ as the two leading problems in doing business in India.

Meanwhile, latest official statistics showed container throughput at India’s 12 major ports grew 19.03% year-on-year for fiscal 2008.

The 12 major ports handled 6.60 million TEUs in the 12 months up to March 2008, out of which Navi Mumbai’s Jawaharlal Nehru port (Nhava Sheva) handled 4.06 million TEUs, accounting for more than 61% of the total throughput.

Singapore, the world’s busiest port, moved nearly 24 million boxes at its terminals last year, while India’s biggest port, JNPT handles around 4.06 million twenty-foot containers a year.

The other 11 major ports are located at Mumbai, Kolkata, Paradip, Vizag, Ennore, Chennai, Tuticorin, Kochi, Mangalore, Mormugao and Kandla.

According to a Live Mint.com report, “container cargo represents only about 30% by value of India’s external trade—pale when compared with the global containerized cargo average of 70-75%.”

Krishnapatnam port, close to the sea trade lanes linking Asia to the Persian Gulf and Europe, is dedicated to Nation in July 2008 and will be completed by 2011.

It will have an initial annual capacity of 1 million twenty-foot containers, Mahesh Goel, the head of Krishnapatnam Port Company’s container business, told Reuters in an interview.

The company hopes that within 10 years around 60 percent of its container traffic will be coming from trans-shipments — cargo moved from small, regional feeder ships on to large vessels that can carry close to 10,000 containers and serve the world’s main trade routes between Asia, America and Europe. “Initially, trans-shipment will make up 5-10 percent of total container volume but we are aiming to bring that to 60 percent by 2016/17,” he said, adding that Indian ports were lacking the infrastructure to manage large numbers of containers. Port operators tend to focus on achieving high volumes of container trans-shipments because margins are low.

“We are also looking into opening two more ports on India’s east coast and one on the west coast,” he said but declined to give details because the projects are still at an early stage.

 Source : Port word, Ministry of shipping, Mint, Reuters

KG Basin: Doubling India’s Gas Supply by 2010

India, Asia’s third-largest oil consumer, is encouraging use of natural gas to control its oil import bill and rein in inflation but there is not enough supply to satisfy rising demand. Gas demand in India, at around 179 million standard cubic meters a day, is far short of the supply of about 95 mmscmd (including LNG).

Supplies are expected to double by 2010 when KG-D6 reaches peak of 80 mmscmd and flow of additional LNG (read production from RIL K- G Basin blocks) . However, by them demand projections made by Petroleum Ministry see the need for about 230 mmscmd of gas.

K-G Basin Estimated Reserves:The Directorate General of Hydrocarbons, the oil and gas regulator, had earlier said gas reserves in the block amount to 1.38 tcf. Reliance Industries’ block, one of the largest discoveries in the country, in the same basin has reserves of 11.3 tcf.

Patel also said GSPC had booked a capacity of 10 million cubic metres per day (mcmd) in the gas pipeline that Reliance Industries is laying to transport its oil from Andhra Pradesh to Gujarat.

On Shore Terminal at Kakinada: Modi added that 300 acres had been acquired in Kakinada, Andhra Pradesh, to build an onshore gas processing terminal.

GSPC has drawn a master-plan at a cost of Rs 8,000 crore for setting up city gas distribution projects in 40 cities in Gujarat, the company said in a statement recently.

Source: BS, Hindu

Historical leap towards India’s energy security

Reliance is investing $5.2 billion to develop Krishna Godavari, its largest field. Gas produced in the area is expected to more than double the country’s total output.

The Mumbai-based group’s Reliance Petroleum Ltd unit is building the 580,000 barrel-a-day refinery adjacent to a 660,000 barrel-a-day plant owned by the parent. Once complete, Reliance will own the world’s biggest refinery, according to the parent.

Chairman Mukesh Ambani earns more from each barrel of oil than overseas refiners by processing cheaper, lower grades of crude at a plant two days away by ship from Middle East oil fields. Reliance earned $15.5 from processing a barrel of oil into fuel in the quarter ended March 31, compared with $7 for a plant in Singapore, the company said on April 21.

Ambani, the second-richest Indian and the world’s fifth-wealthiest person, according to Forbes magazine, needs higher profits to fund $24 billion of planned investments in chemical projects in the gas-rich Middle East and increase oil and gas exploration to benefit from record energy prices. The expansion will help Reliance triple earnings in the next five years.

As reported in 34th AGM

The World’s Biggest Private Equity Players

By Steve Rosenbush

The private equity industry is growing at a stunning pace, transforming the structure and balance of power in global business. These firms purchase companies privately, without the use of shares that trade publicly on the stock market. Private equity firms have lots of cash and access to vast amounts of cheap debt. Their capital costs are lower than those of publicly held companies, which means they can pay higher prices and win more deals than other sorts of buyers. They can afford to pay CEOs top dollar, drawing managerial talent away from the public markets. Since they don’t have to worry about satisfying public investors with quarterly earnings reports, they can spend three or four years improving the companies they buy, eventually selling the assets at a big profit.

Private equity deal volume reached a record $737.4 billion in 2006, more than doubling the previous record of $352.3 billion set in 2005, according to market researcher Dealogic. There were $631 billion worth of buyouts in the first half of 2007, up 133% from the first half of 2006. Here’s a look at the world’s 15 largest private equity firms, based on total assets under management.

The rankings were compiled by Mark O’Hare, managing director of Private Equity Intelligence, a research group based in London.

 

Blackstone Group

Headquarters: New York

Assets under management:

$49.7 billionProfile: PE leader The Blackstone Group grabbed headlines in 2007 by launching an IPO of its management company, a move that raised $4 billion for the firm and hundreds of millions for its founders. Peter Peterson, the former chairman of Bell & Howell and Lehman Brothers, founded the firm in 1985 with Lehman Brothers mergers-and-acquisitions chief Stephen Schwarzman. The firm started with four people and $400,000 in assets. Today, Schwarzman alone has an estimated personal net worth of $3.5 billion. Blackstone earned a reputation for working with willing targets in the ’80s, when hostile takeovers were common. It also made a practice of putting a significant amount of its own capital at risk in each of its transactions.

Peterson, a former Commerce Secretary in the Nixon Administration, recently has been critical of the Republican Party’s move to the right.

In 2002, Blackstone hired Credit Suisse M&A and private chief Hamilton “Tony” James as president.

Notable deals: Blackstone focused attention on the new private equity era with its stunning initial public offering of Celanese. It took the chemical maker public in 2005, making a five-fold profit less than a year after acquiring the company. After years of focusing on commercial real estate and hotels, the company has expanded into tech buyouts, including the $17.6 billion purchase of Freescale Semiconductor in 2006. Its restructuring business advised Enron last year as well.

Latest play: Its current $20 billion buyout fund is the largest in the world. Blackstone is now in a record $38.8 billion-plus bidding war with Vornado Realty Trust for ownership of Sam Zell’s Equity Office Trust.

 

The Carlyle Group

Headquarters: Washington, D.C.

Assets under management:

$39.8 billionProfile: The Washington-based buyout firm, named for a hotel on the Upper East Side of New York, is run by former IBM chief Louis Gerstner Jr. and loaded with former government officials, including former Securities & Exchange Commission chairman Arthur Levitt, President Clinton’s former chief of staff Mack McLarty, and former Federal Communications Commission chairman Bill Kennard. Former President George H.W. Bush was at the firm, but he retired in 2003. Relatives of Osama bin Laden have been investors in the firm. But Carlyle ended those ties after September 11, even though the family members decried the attack.

Notable deals: The firm recently bought the Dex directory business from Qwest Communications, as well as local phone lines from Verizon Communications. It owns Casema, a Dutch cable company, and the doughnut shop chain, Dunkin’ Brands.

Latest play: Its current fund is $7.9 billion. The company led a $15 billion buyout of car rental agency Hertz several years ago. It went public again in late 2006, selling 28% of its shares to the public. The IPO hasn’t lived up to hopes, though. Carlyle also participated in 2006’s $11 billion buyout of Dutch media concern VNU, which owns the Nielsen media ratings service.

 

Goldman Sachs Private Equity Group

Headquarters: New York

Assets under management:

$39 billionProfile: Goldman’s new CEO, trader Lloyd Blankein, reflects the rising importance of alternative investments such as hedge funds and private equity at Goldman Sachs. Private equity has been a particularly important line of business for the investment bank. Revenue from private equity and related businesses rose 64% last year, to $1.4 billion. Revenue from the more traditional investment banking business rose 42%, to $1.3 billion.

Notable deals: In 2007, Goldman co-led the $27.9 billon buyout of wireless telecom company Alltel. In 2006, Goldman led the $21.6 billion takeover of energy giant Kinder Morgan. Its $8.5 billion fund is the sixth-largest buyout fund in the world.

Latest play: It joined Blackstone and others in the 2006 buyout of Biomet for $10.9 billion.

 

Credit Suisse Customized Fund Investment Group

Headquarters: New York

Assets under management:

$34.1 billionProfile: Credit Suisse acquired investment bank DLJ for $13 billion in 2000. Now DLJ Merchant Banking is the private equity arm of Credit Suisse, which is led by CEO Oswald Grubel. It closed a $2 billion fund last year.

Notable deals: DLJ Merchant Banking acquired Wastequip from CIVC partners for an undisclosed amount in 2005. It sold Wastequip to Odyssey Investment Partners in 2006 for an undisclosed amount.

Latest play: Last year, DLJ Merchant Banking acquired United Site Services, a portable restroom, storage, and fence company, from Odyssey Investment Partners for an undisclosed amount.

 

Kohlberg Kravis Roberts

Headquarters: New York

Assets under management:

$32.9 billionProfile: KKR defined the wheeling and dealing of the late ’80s with its record $31.4 billion takeover of RJR Nabisco. Founded in the 1970s by Bear Stearns alumni Jerome Kohlberg, Henry Kravis, and George Roberts, the firm was known for hostile takeovers. It used junk bonds raised by Drexel Burnham, led by Michael Milken.

Notable deals: KKR has been on a tear in 2007. It is following Blackstone down the path towards an initial public offering. It has also launched a flurry of deals, including the $27.7 billion buyout of First Data, the $20.5 billion acquisition of British retailer Alliance Boots and the $43.8 billion purchase of energy company TXU.

Latest play: It’s using its latest $14.8 billion fund to invest $700 million in Sun Microsystems. And KKR and Texas Pacific have recently weighed a $100 billion takeover of Home Depot, according to The New York Post. KKR is in the process of raising $16.6 billion for its next fund.

 

Texas Pacific Group

Headquarters: Fort Worth

Assets under management:

$31.2 billionProfile: Founded in 1992 by David Bonderman and others, the firm had a hit with its 1992 Burger King buyout. Bonderman, who has taken stakes in companies from Ducati motorcycles to retailer J. Crew, seems comfortable with popular culture. He hired The Rolling Stones to play at his 60th birthday party in 2002 in Las Vegas.

Notable deals: In 2007, TPG co-led the $27.9 billion buyout of wireless phone company Alltel and played a leading role in the $43.8 billion buyout of energy company TXU. TPG and Sony bought out MGM films in 2005. In 2006, TPG and Apollo won a $17 billion deal for Harrah’s Entertainment. It participated in 2006’s $17.6 billion buyout of Freescale Semiconductor and a $10.9 billion buyout of health-care company Biomet.

Latest play: Shareholders are suing to block TPG and partners from completing last year’s $12 billion deal for Spanish-language media giant Univision. The firm’s latest fund is $15 billion.

 

Permira

Headquarters: London

Assets under management:

$26.2 billionProfile: A collection of 18 separate funds, European private equity player Permira has invested in a wide range of companies, from HMV record stores to the Intelsat satellite operation. The firm, led by managing partner Damon Buffini, invests in chemicals, entertainment, media and technology, industrial products, and consumer goods.

Notable deals: Permira participated in the $17.6 billion Freescale buyout in 2006. Other investments in 2006 included personal protection company Aereo Technologies and TV production unit All3media.

Latest play: In December, Permira sold its Rodenstock eyeglass lens company to private equity player Bridgepoint for an undisclosed sum.

 

Warburg Pincus

Headquarters: New York

Assets under management:

$28.2 billionProfile: The company traces its roots to the Warburg banking family of Germany. When founder Eric Warburg retired in the mid-1960s, partner Lionel Pincus turned the firm into a private equity powerhouse.

Notable deals: The company’s investments span health care, technology, media and entertainment, consumer goods, real estate, industrial products, financial services, and energy. In 2006, Warburg and European private equity giant Cinven agreed to acquire Dutch cable TV company Essent for more than $2 billion.

Latest play: The firm participated in the management-led $8.3 billion buyout of professional services firm Aramark, which closed on Jan. 26, 2007.

 

HarbourVest Partners

Headquarters: Boston

Assets under management:

$22.2 billionProfile: HarbourVest was formed in 1997 to succeed Hancock Venture Capital. It’s owned entirely by management. The firm is run by a team of three senior managing directors, Edward Kane (at right), D. Brooks Zug, and Kevin Delbridge.

Notable deals: HarbourVest and private equity firm AlpInvest Partners said last year that they established a new fund, Paragon Partners Secondary, targeting opportunities in Germany.

Latest play: In January, the firm said it closed two new funds that invest in other private equity firms. Such vehicles are known as “funds of funds.” Its European fund raised more than its $2 billion, and its Asian fund raised nearly $500 million. Both exceeded their targets.

 

Apollo Management

Headquarters: New York

Assets under management:

$21.9 billionProfile: Drexel Burnham veteran Leon Black founded Apollo in 1990. Black studied history and philosophy at Dartmouth, where he graduated summa cum laude. Besides billions of dollars worth of real estate deals, Black has served on a number of boards, from the Museum of Modern Art and Lincoln Center to Sirius Satellite Radio.

Notable deals: Apollo and Texas Pacific are in the process of closing their $17.1 billion bid for Harrah’s.

Latest play: In December, 2006, Apollo bid $6.6 billion for Realogy Corp., which operates Coldwell Banker and other real estate franchises. Apollo’s latest fund has $10.1 billion.

 

Bain Capital Partners

Headquarters: Boston

Assets under management:

$21.1 billionProfile: Bain was founded in 1984 by Mitt Romney, who went on to become governor of Massachusetts. He followed in the path of his father who combined politics and business, by serving as governor of Michigan and the head of American Motors. Mitt Romney has indicated he may run for president as a Republican in 2008. Bain Capital was spun off from Bain Consulting. It got off to a fast start by investing in the office supply store Staples.

Notable deals: Last year, Bain was part of a group that took control of the semiconductor unit at Philips known as NXP. Last year, Bain teamed with Thomas Lee to offer $19 billion for Clear Channel Communications. That deal is under shareholder consideration.

Latest play: In 2006, Bain worked with KKR, Blackstone, and others in the $33 billion buyout of the HCA hospital company.

 

Oaktree Capital Management

Headquarters: Los Angeles

Assets under management:

$19.8 billionProfile: Oaktree was established in 1995 by a half-dozen veterans of Trust Company of the West. The firm is more than 90% owned by nine principals and 75 senior employees, including co-founder Howard Marks.

Notable deals: Oaktree won approval last year to buy a 33% stake in Cannery Casino Resorts in Las Vegas. The value of the deal wasn’t disclosed.

Latest play: The company is said to be considering a sale of its Pegasus aircraft leasing business, according to news reports. The deal could be worth $1.5 billion, according to Bloomberg News.

 

Apax Partners

Headquarters: London

Assets under management:

$19.2 billionProfile: Co-founder Alan Patricof got in early on Apple Computer and AOL. The firm now operates in Europe, the U.S., and Israel and invests in a wide range of businesses, from clothing designer Tommy Hilfiger to food company Grupo Panrico of Spain. In addition to his work as an investor, Patricof has been a major fund-raiser for the Democrats.

Notable deals: In 2006, Apax and others took control of TDC, the Danish tech and telecom company, for more than $11.5 billion.

Latest play: On Jan. 26, Apax said it sold its Molnlycke health-care group to Morgan Stanley and others for more than $2.5 billion.

 

CVC Capital Partners

Headquarters: London

Assets under management:

$18.1 billionProfile: CVC was launched in 1981. It’s run by managing partner Javier Jaime, a veteran of British private equity powerhouse 31. CVC operates throughout Europe and Asia. Its holdings include Formula One racing. The company says it likes to acquire companies that have market-leading positions, strong management, stable cash flows, and the opportunity to grow through acquisition.

Notable deals: CVC acquired Debenhams, the British department store chain, for about $3 billion in 2003 and sold off a chunk to the public last year in a $3 billion-plus IPO.

Latest play: Last September, CVC’s Asian fund paid $2.7 billion to buy DCA Group, a nursing home company in Australia.

 

Lehman Brothers Holdings

Headquarters: New York

Assets under management:

$17 billionProfile: The investment bank has a significant business of making private equity and venture investments, especially in the tech area. It also raises money for other private equity firms and makes investments in other private equity funds.

Notable deals: Lehman’s investments have included comScore Networks, a company that tracks the popularity of Web sites. It also invested in GameFly, on online gaming company.

Latest play: Last September, Lehman, led by CEO Richard Fuld, closed its latest private equity fund, which has $1.6 billion in cash.

 

Source : Business Week, dealogic 

NELP VII : Future of Oil exploration

In the recently concluded NELP VII round of bidding under the new exploration licensing policy (NELP) the government has offered 57 oil & gas blocks under NELP-VII. This included 19 deepwater blocks, 29 are onland blocks and nine blocks are in shallow water. 

NELP So far

In previous six rounds, the government awarded 162 blocks. So far, the largest commitment of $3.32 billion investment was received in under NELP-VI where 52 blocks was awarded. Under NELP rounds, 49 oil and gas discoveries have already been made in Cambay onland, North East Coast and Krishna Godavari deepwater areas, accreting over 600 million tonnes of reserves.

NELP VII

Out of 19 deepwater blocks, GVK-BHP got seven blocks, ONGC bagged three blocks and Cairn has been lucky with one deepwater block and BP-RIL bagged one. There has been no takers for seven deepwater blocks. The bidding round (launched on December 13, 2007) was originally scheduled to be closed on April 11. The deadline was first extended to April 25, later it was changed to May 16 and finally to June 30. 

Big player Missing from Show

Big oil companies like ExxonMobil, Chevron, Total and Shell, among others, preferred to stay away.

New entrants like LN Mittal (one block with HPCL), BHP Billiton (seven blocks with GVK group), RIL-British Petroleum combine(one deepwater block).

DGH Response

“Response for gas expecting blocks are lukewarm because of lack of clarity on policy related issues,” said Director General of Hydrocarbons VK Sibal on the response and the bids. Exploration companies have taken a conservative approach and have bid cautiously, given the uncertainties in the tax regime, an analyst said.

“The bidding was low and the response was lukewarm,” a senior official from the director general of hydrocarbons said. While 12 blocks, out of a total of 57, failed to get even a single bid, as many as 19 got just one bid. As many as seven of the no-show blocks were in the deep water region. The response for the smaller fields, however, was relatively good.

Source : DGH, Media Reports, Industry

PCPIR, Kakinada AP: $85 Billion Investment

Hyderabad: ONGC Ltd has decided to exit the proposed refinery-cumpetrochemicals project at Kakinada in Andhra Pradesh, making way for the GMR Group, which will hold 51% equity in the project that was originally to cost Rs 31,000 crore.

The project is part of Andhra Pradesh’s Petroleum Chemical and Petrochemical Investment Region (PCPIR) proposed over 600 square miles and envisaged to attract investments worth Rs 340,000 crore over the next ten years.

GMR’s entry is expected to put PCPIR on the fast-track now.

However, the refinery project is likely to cost close to Rs 40,000 crore with GMR indicating that it would like to increase the capacity upwards of 20 million tonnes to make it more viable, sources privy to the proceedings of a board meeting today told DNA Money.

It is understood that GMR has proposed a higher capacity upwards of 20 million tonnes of refining to make the export oriented project more viable.

Reliance Industries had started its own refinery with a capacity of 30 million tonnes and was now going in for an expansion, it was pointed out at the board meeting held on Monday.

ONGC had hiked the initial proposal of 7.5 million tonnes to 15 million tonne and 4.5 lakh tonne per annum petrochemcial complex within the PCPIR to improve viablilty.

But unhappy with the AP government’s reluctance to grant tax sops to the tune of Rs 16,000 crore over eight years, ONGC had been dilly-dallying with the proposal for some time. The two had signed an agreement for the project in September 2006.

ONGC subsidiary Mangalore Refinery and Petrochemcials Ltd (MRPL), held 46% in project, while the Infrastructure Leasing & Financial Services Ltd and the Kakinada Sea Ports Ltd were to hold 51%. The Andhra Pradesh Industrial Infrastructure Corporation (APIC) was to own the remaining 3%.

With the enty of GMR, as per the revised equity structure IL&FS and the Kakinada Sea Ports will hold 46%,while APIC will continue to have its 3% equity. “All issues were resolved at a board meeting on Monday,” Sam Bob, principal secretary, industries department, AP, told DNA Money.

“Apart from GMR, the Hundujas and Essar were the other contenders for the project and we decided on the former seeing their past record,” Bob said. GMR will have management control of the project and will come up with its own detailed project report based on the initial work done by ONGC.

“It is good that we now have GMR in the picture which is a local company and known for its speedy implementation of project,” said APIC vice chairman and managing director B P Acharya.

Another refinery proposed to be developed by the HPCL near Achutapuram near Visakhapatnam at the other end of the proposed PCPIR, is the second anchor for the ambitious special zone.

“The project will be undertaken through a special purpose vehicle of the GMR Holdings Group,” a GMR official said, adding that the group believes the project will help it achieve its overall growth objectives apart from delivering value and creating jobs.

Source : DNA

foreign exchange reserve: India

Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations. Large reserves of foreign currency allow a government to manipulate exchange rates – usually to stabilize the foreign exchange rates to provide a more favourable economic environment.                                                                                                                                                                                                           

India’s total foreign exchange reserve have increased from USD 5.8 billion at the end of March 1991 to USD  313 billion plus  at the end of April 2008. The spectacular rise in reserves has drawn attention to the issue of what is an adequate level of reserve for the country.  Several factors may explain how much foreign exchange reserves a country wants to hold.  

One factor is related to the size of international financial transactions that occur there; that is, reserves holdings are likely to increase both with the size of the country’s population and with its standard of living.  

Volatility of international receipts and payments, insofar as reserves are intended to help cushion the economy; that is, reserve holdings are likely to increase with more volatility in a country’s export receipts.  

A third factor is vulnerability to external shocks; reserve holdings are likely to increase with a country’s average propensity to import, which is a measure of the economy’s openness and vulnerability to external shocks.  

Finally, a country’s tolerance for greater exchange rate flexibility should reduce its demand for reserves, because its central bank would not need a large reserve stockpile to manage a fixed exchange rate; therefore, reserve holdings are likely to be lower the more variable the country’s exchange rate is.

There is a growing debate about the need to hold so many reserves. Those who support holding large reserve balances argue that the cost of doing so is small compared to the economic consequences of a sharp depreciation in the value of the currency that is often associated with financial crises in emerging markets.  

With a large stockpile of foreign exchange reserves, a country’s monetary authority can buy up its currency in the foreign capital markets, which helps to uphold its value.

Currency Valuation: forces on play

What are Currency Appreciations and Depreciations?

If nominal exchange rates change so that one Dollar buys more Rupees, then the dollar has appreciated in nominal terms. And the Rupee has correspondingly depreciated in nominal terms because a Rupee can buy fewer U.S. Dollars.

If the real exchange rate between the U.S. and India changes, which can occur because of changes in the nominal exchange rate or relative goods prices in the two countries, or both, then there is a real (purchasing power) appreciation of one currency relative to the other.

What Determines Exchange Rates?

Nominal exchange rates are determined by supply and demand in the foreign exchange market—the market for international currencies. Suppliers and demanders of currencies trade in the foreign exchange market, and trading determines prices (i.e., nominal exchange rates). 

The exchange rate between the dollar and the rupee varies from minute to minute as participants in the foreign exchange markets adjust the amounts of currencies they demand from and supply to the market. Those adjustments are responses to changes in economic conditions or news that might influence future conditions. Economic conditions  (See :Indian Trade and Its Impact on Economy) that seem most relevant to exchange rate determination include relative interest rates, inflation rates (see Inflation: Impact on Economy), and output-growth rates across countries.

Who Demands and Who Supplies Currencies in the Foreign Exchange Market?

There are many players in foreign exchange markets. Consider the exchange rate between the Dollar and the Rupee. Who demands Rupees and supplies dollars? The list includes:

Ø  U.S. companies that import from India, they have Dollars but need Rupees to purchase goods produced in India and imported to the U.S.

Ø  U.S. investors who invest in Indian assets.

Ø  Speculators who have Dollars but want Rupees because they believe the Rupee will appreciate.

Ø  Indian companies who remit Dollar profits back from U.S. operations to headquarters in India and want to convert them to Rupees.

 On the other side of the market, who demands dollars and supplies yen? The list includes:

Ø  Indian companies that import from the U.S. They have Rupees but need Dollars to purchase goods produced in the U.S. and imported to India.

Ø  Indian investors who invest in the U.S. They have rupees but need Dollars to purchase assets denominated in Dollars.

Ø  Speculators who have Rupees but want dollars because they believe the Dollar will appreciate.

Ø  U.S. companies who remit Rupees profits back to the U.S. and want to convert them into Dollars.

 

Inflation : Impact on Economy

Understanding inflation is crucial to investing because inflation can reduce the value of investment returns. Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates, to government programs, tax policies, and interest rates.
What is Inflation?
Inflation is a sustained rise in overall price levels. Moderate inflation is associated with economic growth, while high inflation can signal an overheated economy.

What Causes Inflation?
Economists do not always agree on what spurs inflation at any given time. However, certain forces clearly contribute to inflation.

• Rising commodity prices are perhaps the most visible inflationary force because when commodities rise in price, the costs of basic goods and services generally increase.
• Higher oil prices, in particular, can have the most pervasive impact on an economy. This, in turn, means that the prices of all goods and services that are transported to their markets by truck, rail or ship will also rise.
• Exchange rate movements can presage inflation. As a country’s currency depreciates, it becomes more expensive to purchase imported goods, which puts upward pressure on prices overall.
• Over the long term, currencies of countries with higher inflation rates tend to depreciate relative to those with lower rates. Because inflation erodes the value of investment returns over time, investors may shift their money to markets with lower inflation rates.

How Can Inflation Be Controlled?
Central banks, attempt to control inflation by regulating the pace of economic activity. Management of the money supply by central banks in their home regions is known as monetary policy. Raising and lowering interest rates is the most common way of implementing monetary policy.

• Lowering short-term rates encourages banks to borrow from the central banks and from each other, effectively increasing the money supply within the economy. Banks, in turn, make more loans to businesses and consumers, which stimulates spending and overall economic activity. As economic growth picks up, inflation generally increases. Raising short-term rates has the opposite effect: it discourages borrowing, decreases the money supply, dampens economic activity and subdues inflation.
• Central banks can also tighten or relax banks’ reserve requirements. Banks must hold a percentage of their deposits with the central banks as cash on hand. Raising the reserve requirements restricts banks’ lending capacity, thus slowing economic activity, while easing reserve requirements generally stimulates economic activity.
• The federal government at times will attempt to fight inflation through fiscal policy. The government can attempt to fight inflation by raising taxes or reducing spending, thereby putting a damper on economic activity; conversely, it can combat deflation with tax cuts and increased spending designed to stimulate economic activity.