Archive for December, 2008

Indonesia – the long road back

indonesia

The Asian financial crisis in 1997 pushed Indonesia to economic collapse a decade ago. Its overextended banking system imploded, spurring high unemployment, severe rioting and, eventually, the fall of the Suharto government. Weathering an even more calamitous global storm now, Indonesia has managed relatively well.

 

Now, to help it endure the global recession, Indonesia, Asia’s third-most populous nation after China and India, is planning an aggressive economic stimulus, the governor of Indonesia’s central bank said Monday in an interview.

“One of the key actions has to be fiscal stimulus for getting us through this crisis,” Boediono, the governor of Indonesia’s central bank, said

2008 has been a boom year for Indonesia, The energy and mining sector was forecast to book Rp 346 trillion (about 31.2 billion U.S. dollars) in revenue for the state by the end of 2008, up from Rp 225 trillion  in 2007. The sector contributes 36 percent to total state revenues, the biggest slice coming from oil and gas companies, which contributed Rp 303 trillion this year.

Despite these soaring revenues, the Energy and Mineral Resources Ministry has decided to put limits on lower revenue targets for next year. According to the ministry’s secretary general Waryono Karno, the government was looking at about Rp 271 trillion in revenue from the energy and mining sectors for next year. Of the total expected revenue, Rp 227 trillion would be from oil and gas, Rp 43 trillion from mining, and Rp 1.5 trillion from other sources. The ministry said Indonesia had received $28.60 billion in investment commitments for the energy and mining sectors in 2009.

Indonesia, the world’s largest coal exporter, is expected to produce 183 million tons of coal this year, about 134 million tons of which will be exported, China being the largest customer. Production in 2009 is projected to increase to 198 million tons, 145 million of which will be exported.

Indonesia is also theworld’s second largest LNG (Liquid Natural Gas) exporter & should by rights be able to take advantage of growing LNG demand from overseas, which is projected to increase in line with the rise in demand from China. China imports about 5 million tons of LNG every year, and this figure is expected to further increase in the coming years. China has signed a 25-year contract to buy 2.6 million tons of LNG annually from BP‘s LNG terminal project in Tangguh, Papua. The first delivery will be shipped in early 2009.

As the government tries to spur growth, spending will rise nearly twice as fast as the projected inflation rate of 6 percent next year, Mr. Boediono said. Indonesia expects to save $1.5 billion next year from lower spending on fuel subsidies with the decline in oil prices and plans to use the money as a down payment on the stimulus program, he said, but most of the money will be borrowed overseas. Boediono predicted that the Indonesian economy could still manage 5 percent growth next year, which probably would make it one of the better performers in the region. As part of this fundraising, Jakarta plans to issue global bonds next year despite the global slowdown, it would seem that Indonesia is banking  on the US stimulus planto spur the  appetite of  investors in  emerging market assets, including Indonesia.

President Susilo Bambang Yudhoyono called in a speech on Sunday for greater government spending to help maintain consumers’ buying power at a time of stress for the Indonesian economy. The finance ministry plans to increase government spending on road construction and other investment projects by a third next year, to $9.1 billion. Mr. Boediono said that the focus would be on small and medium-size projects that would create jobs quickly. He said education spending would also have to rise because the Indonesian Constitution requires that 20 percent of the government’s budget go to education.

As part of this government sponsored plan & in an effort to move aweay from reliance on mining & energy, 30 state owned companies are slated to be privatised next year via IPO on the Indonesian (IDX) & Jakarta Stock Exchanges (JXE).

“Most of the firms will be privatized via an IPO, except those companies in which the government has only a small proportion of shares,” the Jakarta Post  quoted Muhammad Yasin, Deputy Indonesian State Minister for State Enterprises, as saying.

The program will also include IPOs of flag carrier Garuda Indonesia and Bank Tabungan Negara, construction firms PT Pembangunan Perumahan and PT Waskita Karya are currently waiting for House of Representatives approval for their IPOs, according to Yasin.

 The Indonesian government expects to generate about Rp 10 trillion  ($906 million) from floating 30percent of the shares in each of these companies. Indonesia has 139 state-owned companies that deal with businesses, covering energy, mining, utilities, telecom, banks, services and commodities, which means that there is plenty of opportunity for foreign investors to enter the market & help buoy the economy.

Argentina belatedly reacts to financial crisis

presidente-kirchner

Fresh woes have hit the government of Argentina’s Peronista President Christine Kirchner this week, as natural gas giant Transportadora de Gas del Norte (TGN) defaulted on  a debt payment of roughly $22 million and would seek a broad restructuring, citing difficulties related to government price controls, higher costs and the depreciation of the peso aginst global currencies, in particular the US dollar.

This has forced the government to intervene, as reported in Bloomberg.com yesterday. In a statement on Monday, TGN said the Luxembourg exchange had suspended trading of two of its bonds, “due to uncertainty over the company’s financial situation.”

The government will “undertake a complete audit of the company” during a 120-day period, Planning Minister Julio de Vido told reporters  in Buenos Aires. Roberto Pons, an acknowledged energy regulation specialist, will ensure that “consumers rights aren’t affected by the company’s decisions,” he said.

TGN is one of the two largest transporters of natural gas in Argentina, delivering approximately 40% of the country’s total gas consumption and more than 50% of Argentine total gas exports. TGN has an exclusive license to operate the northern Argentina gas pipeline system for a term of 35 years.

Meanwhile, the farmers crisis has reinvigorated itself, with Argentinian soya producers once again vigourously lobbying the governemnet to relax the export tax on soya products, which was implemented earlier this year whilst commodities prices were soaring. In March, a three-week farmers strike over the soybean levy caused food shortages across the country. Farmers blocked roads, preventing trucks delivering produce to supermarkets in Buenos Aires and other major cities. Argentina is the world’s third biggest soybean exporter, with an annual harvest estimated to be worth $24bn (£12bn), the bulk of which is exported. Last year, it earned $13bn from exports of the grain. Kirchner had levied a 45% tax on soya exports in an effort to boost public funds.

Since then, sporadic strikes by farmers have impacted the Argentinian economy, a series of climb downs on the tax rate has not been able to sate the farmers. Yesterday Kirchner announced a new set of measures to boost the economy.Regarding the agricultural sector, the cut in export duties will apply only to wheat and corn, which will see their rate cut by 5% on export tax to 23% and 20% respectively. Soy export tax will not be cut from the existing 35%, however the president intimated this may change.

This is on the back of a number of a number of efforts to stimulate the slowing economy, early December saw the car industry receiving a $900M fillip to help underwrite car loans. Kirchner also managed to force through a new bill which basically nationalised the pensions industry, transferring $23 billion in private pension funds to the state, an estimated 25% of Argentina’s 40 million citizens contribute to the private funds. Their $4.5 billion in annual contributions will go to the government as well.

In mid-December, Kirchner announced an expanded stimulus plan, which will see the Argentine government committing to invest up to 111 billion pesos ($32.65 billion) in infrastructure projects from now to 2011 as a way of shoring up Argentina’s economic growth against the pounding it is taking from the financial crisis.

She said that this plan “is the most ambitious” in Argentine history and will create some 380,000 jobs with investment in infrastructure that reaches a “record” 5 percent of gross domestic product. Of the plan’s total investment up to 2011 in the energy, transportation and housing sectors, among other works, some $20.88 billion “already have the financial structure needed to carry them out,” the president said.

At 55% of GDP, Argentina’s public debt is very large. But the cost of servicing it has been low, partly because of the tough restructuring  imposed on bondholders. Even so, to service its debts, the government needs to find an extra $2.5 billion or so in 2009. It cannot tap the international capital markets, because it has still not settled with some bondholders nor its sovereign creditors in the Paris Club. Instead, it is relying on Hugo Chávez. This month Venezuela’s president bought another $1 billion in Argentine bonds (taking his total purchases to $7 billion). The latest bonds pay interest of 15%—the same rate agreed by Domingo Cavallo, a former finance minister, in a notorious bond swap which precluded the 2001 financial collapse.

China stocks up on energy & raw materials while prices are depressed

001320d123b90949ce3308 China has embarked on an ambitious spending spree in order to help stave off recessionary pressures & attempt to maintain a growth target of  8% in 2009. Following on from its massive $585M stimulus package, announced in early November, news of deals in energy & metals has been flowing over the last week. When the stimulus package was originally announced, we heard this from our friends at RBS :

“Whats important here is just how quickly that money hits the street,” said Ben Simfendorfer, chief China economist for Royal Bank of Scotland, speaking on CNBC

Well it would seem not to have taken too long, as we have news that apart from pulling forward the long anticipated 3G rollout, as reported on MyStockVoice in an earlier post, China is beginning to stockpile oil & gas via imports whilst building an inventory of  aluminium & other metals from domestic producers.

Zhang Guobao, the head of the National Energy Administration, said in remarks published on Monday that China would actively push forward the construction of the second phase of state strategic oil reserves after having largely completed the first phase. China has completed the planning of the second phase of government storage facilities that would be able to hold up to 26.8 million cubic metres of oil, or some 170 million barrels, but has not disclosed whether construction has begun. Nor has the government disclosed if the tank farms set up in four locations in the first phase, with total capacity of some 102 million barrels, have been fully filled.

The world’s second-largest oil user will also take advantage of opportunities resulting from the financial crisis and weak energy market to expand energy cooperation with neighboring countries and major energy producers, Zhang said.

State controlled Sinopec (NYSE – SNP) recently completed the construction of oil storage tanks with a capacity of 3.8 million cubic metres in the coastal province of Zhejiang & has also announced a mutual supply agreement with fellow oil giant CNPC  . Similarly, rival PetroChina (NYSE – PTR) has begun to fill a new facility of 1 million cubic metres in the northwestern Xinjiang region in partnership with Kazakhstani oil firm KazMunay. Zhang also confirmed that China will push forward the construction of the proposed China-Myanmar oil and gas pipelines while also proceeding with the China-Central Asia gas pipes and the second phase of the China-Kazakh oil lines.

Meanwhile, counterparts at the State Reserve Bureau (SRB), have announced that will buy 300,000 tons of aluminum at 12,300 yuan (about $1,750) per ton in January 2009 to push up prices and support producers, as reported by Rednet. China’s aluminium producers, like their competitors worldwide and their peers in other base metals, have been forced to shut down some production to cope with the impact of the global economic crisis, which has crippled demand. 

“Aluminium prices were encouraged on the reserve purchase news,” said analyst Jia Zheng at Southwest Futures. “The decided purchase volume seems to be lower than expected but we are looking forward to more movement by the reserve bureau.”

 

Chinese officials have said they plan to buy up resources and materials to support producers, who are smarting from prices that have fallen below the cost of production, rumours abound that this buy up on aluminium could reach a total of 1 million tons by April 2009. The major recipient for this windfall will be state controlled Chinalco subsidiary Chalco (NYSE – ACH), who is reported to be receiving 50% of the order, whilst the remainder will be shared by seven regional producers.

 On the same day as the SRB announced the procurement plan, Bao Steel Group, China’s top steel maker, raised its February steel prices by 100 yuan/ton to 300 yuan/ton, this is widely believed to be in response to a previous SRB announcement that  another 3 trillion yuan ($400M)would be set aside for railway infrastructure construction projects and post-quake reconstruction efforts, the investments are expected to increase steel demand by 200 million tons in 2009. This could also be potential good news for other steel majors, particularly Mittal Steel (NYSE – MT), which acquired a 37% stake in government owned  Hunan Valin, Mittal  already has a $100 million steel plant under construction in the northeast China port city of Yingkou, Liaoning province.

Update 1 (30/12/08) : Myanmar signs gas deal with SKorea, India, China as reported in The Times of India

Military-run Myanmar has signed a deal with South Korean and Indian companies to pipe natural gas from the energy-rich nation’s offshore fields to China, state media reported Monday.

“The agreement was signed to export natural gas to China from Shwe natural gas project at Block A-1 and A-3 at Rakhine coastal region through pipelines,” the New Light of Myanmar newspaper said. The paper gave no other details of the project, but Beijing media reported last month that China was planning to start construction on a gas pipeline to Myanmar in early 2009.

 

Saudi Telecom unveils $10B warchest

KUWAIT-SAUDI-TELECOM

State owned fixed line monopoly Saudi Telecom (STC) unveiled a $10b facility, which will be used to take part in a number of Middle Eastern license acquisitions which are due to be launched in 2009.

“”We can do SR40bn of acquisitions in the next few years. We have no problems with doing that at all”” Khalid al-Ghurair, Saudi Telecom Mobile  has SR40bn ($10.7bn) available for the acquisition of new licences and stakes in other operators, Khalid al-Ghurair, general manager for financial planning and budgeting at the company, tells.

In January, Bahrain and Iran will award new licences or management contracts. Tunis has set a deadline of 5 May for bids for a new telecoms licence, and Algeria, Morocco and Iraq have also committed themselves to auctions. In addition, Lebanon is planning to issue management contracts for two mobile telecoms networks before the end of the year, and Jordan is also planning to auction its first 3G network in 2009. The number of licences on offer means that regional operators will be under pressure to find funding to take advantage of as many of the growth opportunities as possible.

STC is pretty much a late comer to the international market, its hand being forced when its mobile monopoly was broken in 2005. It lost its mobile service monopoly to Etihad Etisalat (Mobily) in 2005, while a consortium led by Kuwait’s Mobile Telecommunications Co (Zain). made the highest bid for a third mobile license in March, offering $6.11 billion. Mobily was able to capture 30 percent of the market within 18 months of starting operations.

In response, STC made some acquisition plays in 2007 , when it acquired a 25 % stake in Malaysia’s Maxis and 26 % of Kuwait’s third mobile licence. Earlier this year, STC acquired a 35% stake in Saudi based Oger Telecom, which brought interests in Turkey (Turk Telekom / Avea) & South Africa (CellC). Further regional acquisitions will probably remain at the same level, STC seems comfortable with taking non-controlling stakes & spreading it’s exposure.

“”We could have gone for majority with Maxis, majority with Kuwait and majority with Oger Telecom, but we are very cautious,”” says Al-Ghurair. “”We are not risk takers.”” In total, Saudi Telecom spent SR24.5bn on the three international deals. It has built up debt of 1.3 times its earnings before interest, tax, depreciation and amortisation (ebitda), partly through the acquisitions, according to Standard & Poor’s.

 

STC has enjoyed monopoly status regards fixed line, up until this year, regulators have now opened the market & there are three new players planning to launch services in 2009. The Optical Communications Company (OCC) is a joint venture between local partners, Verizon (NYSE – VZ) & MSV favourite Millicom International, with other franchises being put together by Hong Kong’s PCCW  (HK – 0008) & regional player Batelco (Bahrain Telecom). The Kingdom remains a strong growth opportunity for fixed line operations as less than 17% of the population currently enjoy fixed services & internet penetration remains at circa 4%.

Verizon has just announced that it will be investing $3B into the OCC joint venture, whilst the PCCW consortium has failed to raise cash via an IPO as expected, due to poor market conditions. Part of the pre-requisite for any of the deals is for the Saudi state pension fund to take a 5% stake, which until now it has demurred to do.

STC received good ratings earlier this  year, Standard & Poor’s Ratings Services assigned STC with ‘A+’ long-term and ‘A-1’ short-term foreign currency corporate credit ratings. Moody’s Investors Services assigned A1 long term local and foreign currency issuer ratings, which will obviously help buoy shareholder confidence & also help in capital markets for the upcoming licensing round. Local competitors such as Zain, have exhausted themselves financially with recent rapid growth in Asian & African markets, which should allow STC to make some real penetration in 2009.

The main competition for me will be Emirates based EtiSalat, which has access to some deep pockets, as it is effectively owned by the Al-Makthoum family, EtiSalat has already managed to acquire a license in Iran & has been expanding into Africa for some time. If STC is to compete, I think they will have to look at raising more than $10B & the S&P / Moodys ratings will surely come into play to that effect. Whatever the outcome at a business level, I can only conclude that this is good for the Middle Eastern region, freeing up access & allowing mass communication on a greater scale.

UPDATE (05/01/09) : Saudi Telecom eyes government stake in Batelco

Saudi Telecom Co (STC) is eyeing the Bahraini government”s 36.7 percent stake in Bahrain Telecommunications Co (Batelco), a Kuwaiti newspaper said on Sunday. Local newspapers said in an unsourced report that the Saudi firm had submitted a request to Bahrain”s biggest telecoms operator to buy the stake.An STC spokesman could not be reached for comment while a Batelco spokeswoman declined to comment on the report because it related to shareholder issues.
Mumtlakat Holding Co, the investment arm of the Bahraini government, holds a 36.7ـpercent stake in Batelco, according to its website. Mumtalakat”s spokesman Adel AlـAnsari could not immediately comment on the newspaper report.
Batelco is a shareholder in Etihad Atheeb Telecommunications Co, one of three firms licensed to operate new fixedـline networks which would end STC”s monopoly status in this segment.

UPDATE 2 : (29/01/09)  : From Mobile News on WordPress : STC Bags 3rd Mobile Licence in Bahrain

The Telecommunications Regulatory Authority (TRA) today announced that Saudi Telecommunications Company (STC) is the successful bidder for the third mobile Licence in Bahrain with a bid of Bahraini Dinars eighty six million six hundred eighty seven thousands (BD 86,687,000.000)