Archive for October, 2009

Wind of change comes to Chile

president bacheletLatin American nations are leading their Western counterparts with respect to diversity in renewable energy. Now GDF Suez has opened its 38 MW wind farm facility at Monte Redondo in Chile.

Work on the wind farm began at the start of this year, with more than $100 million being invested, as GDF Suez commits to it’s green credentials in it’s South American operations. According to estimates, Monte Redondo will prevent the emission of 54,000 tones of CO2 per year, whilst providing energy for up to 60,000 homes.

“GDF SUEZ strongly believes in Chile and in the development opportunities it offers. The Group holds broad and multiple areas of expertise in this country and intends to further reinforce them.” said Gerard Mestrallet at the inauguration

Monte Redondo will also assist in providing long term stability in energy prices, as GDF Suez has already entered into a 14 year supply contract for 100 GWh/year, beginning in January 2010. Chile has historically been dependant upon gas imports from Argentina, which have been the subject of much contention, as Argentina seeks to secure it’s own domestic energy requirements & supply has fluctuated from agreed measures.

Chilean President Bachelet said that clean energy investments have grown sharply from a mere 2 MW in 2006 to 250 MW in 2010 & it would seem that this may be only the beginning of a love affair with wind power. By the end of the 2009, a further five new wind parks will begin operating in Chile, increasing the country’s wind energy production by a factor of 10.

These new projects are slated to produce 180 MW of wind energy, dwarfing the existing 20 MW currently produced by Chile’s two existing projects. According to the National Energy Commission, other new wind turbine projects which are currently under review or in planning will soon generate 1,500 MW for the country’s Central Power Grid. To put this into perspective, the country’s largest proposed hydro-electric project, Ralco, will provide 690 MW at full capacity.

It is encouraging to see real commitment from what people in the West term “developing” markets, Chile & Brazil are world leaders in the advancement of renewable energy & also in implementation of green policies down to grass roots level. Perhaps those of us in our ivory towers in Europe & the Us should pay a little more attention to what is being implemented in the southern hemisphere.

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Brazil confirms hydrocarbon strategy

Santos basinMuch has been made of Brazil’s offshore hydrocarbon deposits particularly in the Tupi oil & gas reserves which have been touted by state owned energy firm Petrobras as containing up to 5-8 billion barrels of recoverable oil.

Tupi,which is located in the pre-salt region, is estimated to contain between 5 billion & 8 billion barrels of light crude, & is the world’s biggest new field since a 12-billion-barrel find in Kazakhstan in 2000. The pre-salt region covers an offshore area 800 kilometers long and 200 kilometers wide between the states of Espirito Santo and Santa Catarina, is estimated to contain up to 80 billion barrels of light crude under a thick layer of salt far beneath the ocean floor.

As discussed in a previous article, Petrobras (NYSE: PBR)  & partners including Repsol and BG Group discovered vast deposits of oil under more than 4,000 meters of water, rock and salt in 2006. These deposits are at previously untapped depths and will be costly to extract. It is thought that other reserves may be nearby in other as yet unexplored blocks.

To capitalise, Brazil’s regulatory agency the ANP has announced that it will be excluding Tupi from a new round of block concessions scheduled for spring 2010, as Brazil looks to protect it’s strategic reserves & is currently changing the concession framework for blocks in the area. According to proposed legislation, which is being heavily pushed by President Lula, Petrobras will operate all blocks in pre-salt areas with a minimum 30% stake. Output would belong to the federal government under a production sharing model & participating IOCs will receive a fixed share of the revenues.

This is a canny move & possibly a very good gambit to make, as IOCs are now on the backfoot with new capacity for exploitation becoming scarce. More tellingly, companies such as Royal Dutch Shell, Total, Chevron & Exxon Mobile have come under increasing pressure in countries such as Nigeria & Angola in recent months, especially from Chinese state firms.

Last month, CNOOC, made a bid to acquire concessions in 23 prime blocks in Nigeria, which could see the Chinese state-controlled oil giant securing more than 20% of Nigerian hydrocarbon assets. There has been some speculation that Nigeria may be using the Chinese approach as a heavy hammer to extract more favorable terms on concessions that are due for re-newal, however, it underlines the fact that oil majors must look for more stable environments in which to do business.

ANP Director Nelson Narciso has expressed confidence that oil majors will still be interested in new pre-salt areas despite market uncertainty over the new terms because of both economic & political stability.

“As long as the production sharing agreements are preceded by a fair competition, there is no reason for not being happy with Brazil,” he said. “I expect that if everything goes well, by the end of next year we’ll be in a position to start the bidding for the new pre-salt round”

Lula has a knack of getting his way, as he is seen as being instrumental in pulling Brazil out of the global recession via his socialist policies, which have been very popular with Brazil’s citizens. Our view is that the IOCs will be forced to accept these terms on the pre-salt fields, whilst picking up other concessions in more mature blocks as a sap. We have been bullish on Petrobras for a good while & we see no rason to change that view on the basis of this news.

 

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EU toughens stance on FTA, India could miss the boat

european unionAfter nearly three years of negotiations, Indian & The European Union (EU) hopes of concluding a Free Trade Agreement by the close of this year are fading fast.

It is thought unlikely that Delhi & Brussels can hammer out any meaningful resolutions before the EU-India Summit next month.

The talks have historically been bogged down over a number of issues; for example Europe wants India to sign up to stringent food safety criteria, which Delhi is reluctant to enforce on it’s own producers & also wants India to relax rules on foreign investment & ownership in Indian companies.

Additionally, India has made great efforts to ring fence government procurement including public utilities at state, provincial & local government level as it seeks to onshore these areas for Indian service companies. At the same time, India is also trying to get Europe to relax it’s Schengen controls with regards to Indian nationals seeking employment across the 27 member states, as Europe has it’s own issues regards catering to emigration from new member states to more develpoed countries, it obviously wants to keep this issue at arms length.

None of this wrangling has been helped by the financial crisis, expecially from a European point of view, whilst India has also been distracted as it attempts to jockey for position with China on a global scale, whilst on a domestic level social movements, including fishermen & labor unions, are building up strong campaigns against the Free Trade Agreement.

What should not be ignored is that India is being forced to again become more competitive in global markets if it wisheds to continue it’s economic growth plans. Plenty of other Asian economies are looking to Europe as destinations for products & export markets, not just China. Another area of contention that has not yet received any significant attention from Delhi is sustainable developmentclimate change issues raised by members of the European Parliament, who in turn, are being pressured by environmental groups across the Union.

The bottom line is that the EU is India’s largest trading partner, accounting for approximately €77 billion in trade in goods & services in 2008, whereas India is ranked tenth in the list of EU’s main trading partners. Understandably the EU is concerned at India’s attempts to force what is effectively one way economic traffic further. The danger for India is that it’s near neighbours in SE Asia including Korea, Taiwan & emerging tigers Malysia, Indonesia & Vietnam will get a head start.

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Nokia launches first handset on China Mobile 3G standard

nokia logoHere at Emerging Voice, we have been following the the whole Nokia / China Mobile / 3G story for a good while, you can pick up on some of those previous posts here : Nokia in China

Today, Nokia has finally launched it’s first TD-SCDMA compliant handsets the Nokia 6788, which was built from the ground up for China Mobile.


Nokia (NYSE: NOK) today announced the Nokia 6788, its first device for TD-SCDMA – China’s domestic 3G standard, at an event in Beijing. The Nokia 6788 is the result of close collaboration between Nokia and the world’s largest mobile phone operator, China Mobile.

Speaking at the event, said Olli-Pekka Kallasvuo, CEO of Nokia: “Nokia sees TD-SCDMA as being central to the successful evolution of 3G in China, and so is fully committed to this 3G standard. With a wide range of integrated China Mobile applications, the Nokia 6788 marks a new level of collaboration with China Mobile and offers enriched experiences to China’s 3G users. Nokia plans to introduce more TD-SCDMA phones in the near future, further boosting the development of this 3G standard in China.”

“We are excited to see the launch of Nokia 6788,” said Mr. Lu Xiangdong, Vice President of China Mobile Communications Corporation. “With extensive experience in the China market, Nokia will provide Chinese consumers with TD-SCDMA solutions that are perfectly catered to their needs. Such cooperation between the world’s largest operator and the world’s leading mobile phone manufacturer will provide an important boost to the development of TD-SCDMA in China.”

The Nokia 6788 is specifically designed for China Mobile’s (NYSE: CHL) network and offers rich data services. It is an all-in-one device that provides its users with faster Internet speeds and download times. Featuring a 5-megapixel (2592 x1944) camera with a dual-LED flash, a 2.8″ QVGA display, and the hugely-successful Symbian S60 platform, the Nokia 6788 allows people to instantly share the things that matter to them most.

& here’s some pics

Nokia 6788

we apologise for the Engadget style of this post, but it’s been a long time coming !!

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Malaysia : expanding bonds

flag of malaysiaAlready one of the largest bond markets in Asia, Malaysia is working to expand its bond activity horizontally and vertically, extending the scope of existing products while planning to offer new products to attract more funds.

As part of these efforts the Malaysian stock exchange is looking to encourage wider bond activity, having announced plans to launch a secondary trading platform for bonds, including Islamic paper.

Though no exact timeline has been set for the move, Raja Teh Maimunah Raja Abdul Aziz, Bursa Malaysia‘s global head of Islamic capital markets, said the introduction of a secondary bond trading platform was a response to demand from retail investors and would improve transparency.

“The only way to bring retailers on would be through the exchange,” she said in an interview with the Reuters news agency in early October. “The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.”

Once issued, there is little trading in most Islamic bonds, with Raja Teh describing the focus on fixed income as a defensive investment. Defensive or not, there are some, such as Mohd Razlan Mohamed, the chief executive officer of Malaysian Rating Corporation Berhad (MARC), who question the timeliness of the proposed secondary trading platform.

“The local markets are not ready for a secondary trading system for three reasons, investors can invest in bond funds already, which provides them with exposure; there are cost implication for bond issuers, this will drive up costs; and thirdly, this is for sophisticated investors only, most don’t understand a lot of the existing products on the market.”

For Steven Choy, the chief executive officer of Cagamas Berhad, Malaysia’s national mortgage corporation and leading securitisation house, said there needed to be more issuance to develop the secondary bond market.

“We are already the largest in South-east Asia, the third in Asia, but it is mostly buy-and-hold insurance companies who want long term-paper and they do not trade. Therefore, we need more depth and issuance,” he told OBG.

The government has moved to address the question of issuance, setting up Danajamin Nasional, a state-owned institution tasked with providing financial guarantees to issues of private debt and Islamic securities, in March this year as part of its economic stimulation programme.

The agency was provided with a paid-in capital of $290m when established, a figure officials said could be doubled, and its charter allows it to offer insurance for investment-grade public debt or Islamic securities totalling up to $4.3bn.

On October 8, Prime Minister Datuk Seri Najib Razak told a press conference that Danajamin had already received seven applications so far, though he did not clarify whether these had been finalised.

While the government believes Danajamin will broaden the base of the bond sector and encourage more investors to buy into the market, not all agree, taking issue with the agency’s focus on the already well-served triple-A bonds segments.

Cagamas’ CEO warns that rather than strengthen the bond market, Danajamin could have an adverse effect by targeting triple-A bonds to the exclusion of others.

“Danajamin’s role in the market has been to distort it. If they issue for only triple-A bonds then who will buy BB for example,” said Choy.

With the economic crisis having hit at lesser rated bonds, there has been a drying up of credit for smaller companies, according to Razlan.

“Up until Q2 2008 business was good, but then risk aversion set in and investors did not even want to know about single-A rated bonds, they would only look at triple-A bonds,” he said. “No one wanted to invest or underwrite these bonds yet they form 30-40% of the market. This was not because of a lack of liquidity but risk aversion.”

Tan Sri Datuk C Rajandram, the executive deputy chairman of Rating Agency Malaysia Holdings (RAM), concurs, saying that the demand side has become more risk averse, with bonds lower than AA not coming onto the market.

“The economy is down and so the requirement for funding has also dropped. Much will depend on the stimulus packages,” he said in an interview with OBG. “Everyone is avoiding the corporate sector, with no attraction to place bonds on the market, even though in Malaysia banks are very liquid.”

Though most experts agree that there are high levels of liquidity in the market, more needs to be done to increase the appeal of bonds below triple-A. According to a report issued on October 9 by MARC, the value of newly rated bonds assigned and announced in Malaysia for the first nine months of the year totalled $9.3bn, mainly at the top of the ratings range.

While this trend is expected to continue in the short term, with the Malaysian economy set to move out of recession and post solid growth next year, investors could be less adverse to a bit of risk, and more enthused for bonds.

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ChiNext launch poses problems as well as opportunities

MARKETS-CHINA-STOCKS-RECORDThis week, China will be launching a ground breaking new secondary market & trading platform that hopes to help smaller technology companies attract investment in domestic IPOs.

Small & Medium Sized Enterprises (SME’s), are the mainstay of the Chinese economy, as they provide the largest employment base as China moves towards a more enterprise based economy. However, smaller companies have found it difficult to raise funding, as the large commercial banks concentrate on state owned enterprises.

Shenzen based ChiNext, which is being hailed as a Nasdaq style trading board will begin trading on Friday 30th October in the hope that traded entities will be able to take advantage of excessive liquidity, expecially in retail investment markets. It is believed that investors will be attracted to new opportunities to stake a claim in up & coming tech startups, but also by the more relaxed trading environment, as companies listed on ChiNext will not face the Byzantine rules that are applied to A & B class share issues in Shanghai.

“The launch of ChiNext represents a milestone in the development of China’s financial markets and is an important part of the government’s plans to boost support for small and medium-sized firms,” said Jing Ulrich, Managing Director of China equities at JP Morgan, Hong Kong. “The board will provide an additional source of financing for younger companies while broadening the options available to investors.”

More importantly, it is expected that ChiNext will also draw in private equity & venture capital firms, which are critical to helping startups gain a foothold in global markets. According to Jackson Wong from Tanrich Securities, these investment vehicles will be more likely to take part, since they have more routes to cash out on their investments, with an avid pool of retail investors ready to speculate.

“The launch of the growth enterprise board is an important step towards implementing the national strategy on promoting innovation,” Shang Fulin, chairman of the China Securities Regulatory Commission, said last week. The first 28 companies to list on the board, ranging from software to medical equipment makers, have raised 16 billion yuan (US$2.3 billion) in their initial public offerings — more than double initial forecasts.

Well known China investor Jim Rogers (he of the dickie bow) according to this report from CCTV is watching the new bourse with great interest, although he hasn’t invested in any of the companies that will IPO this week, any move he makes in the near future is bound to be followed by Sinophile investors

So far, more than 9 million people have opened  trading accounts with the ChiNext platform, fuelling fears that there may be some price fluctuations in the offing. According to CCTV.com, the average price-earnings ratio for 28 companies  due to list on Friday is 56, which is a hefty premium on the average 25 encountered on comparable listings on the Shanghai A list.

Wang Yiwen, GM of Shanghai Deding Investment Management  said, “The IPO prices for those firms have been set very high. This will cause pricing and trading issues for the secondary market. Take the SME board at the A-share market as an example. When the SME board starting trading in June 2004, 8 firms got listed. Their share prices all opened and ended higher on that day. But prices soon started declining after 5 to 10 trading days, with some losing nearly half their values.”

So it would seem that we will see some initial decay, but all in all, this is an exciting move for China’s retail investors individually & global investors as a whole. Hopefully ChiNext will give some small domestic companies a financial springboard which will allow thenm to accelerate growth before performing secondaries in Hong Kong & on the NASDAQ & NYSE in the future.

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Growth in Russian economy, but no champagne corks yet

russian economyRussia’s economy may have expanded as much as 4% in the last quarter of 2009 following a timid return to growth in the third quarter, according to Deputy Economy Minister Andrei Klepach speaking at a conference in Moscow last week.

The economy may show “quite strong growth” of between 3% & 4% in the fourth quarter from the previous three months, Klepach said. This is an interesting claim, and doubly so given that Klepach has been quite cautious so far this year in his claims. Evidently the rising price of oil and the return of some financial flows into Russia is firing up optimism.

GDP expanded 0.6 percent in the third quarter as compared to the second quarter according to Economy Ministry data out this week. Whilst the economy also grew 0.5%  between August and September, with month-on-month growth being due to a “good grain harvest,” increased meat production and an improvement in manufacturing output, the Economy Ministry said.

Nonetheless the economy still managed to register an annual decline of 9.4%, compared with a 10.9%  record annual contraction in the second quarter.

Certainly foreign investment into Russia is on the rebound. On Oct. 19th Klepach predicted the country may see a small capital inflow this month, and no net outflow in the fourth quarter. This compares with a net capital outflow of $31.5 billion in the third quarter. In September, the net outflow was $6 billion, down from $16 billion in July. This indicates that foreign investors are returning to Russia’s capital markets, while Russian companies and banks are increasingly able to access international markets. However,  this improvement isn’t necessarily great cause for celebration. The increase in foreign investment is largely being driven by bank lending and portfolio investment, which can easily go into reverse.

This must most certainly be one of the reasons behind Russia’s central bank recent decision to lower key interest rates by half a percentage point for the second time in a month, in a bid to both stimulate lending & also to stem the inflow of funds & the rise in the value of the ruble which is making the work of restoring competitiveness to the manufactured sector all the more difficult.

Six million Russians were added to the government’s official poverty count in the first quarter. By the end of 2009, 17.4% of the population or 24.6 million people will be living beneath the subsistence level of $185 per month, almost 5% more than before crisis, according to World Bank estimates. Unicredit analysts forecast that the number of Russians with disposable incomes of more than $1,000 per month will fall 48% this year to about 13.6 million, or roughly 10% of the population.

Russia’s consumer prices were flat in August, the lowest monthly reading in four years, but annual inflation was still running at 11.6%. Producer prices, on the other hand, are falling fast, and declined an annual 10.8 percent in August, compared with a record 12.3 percent in July. Today’s decision follows the announcement earlier this month that the Russian economy suffered a record economic contraction in the second three months of the year and refelect the growing recognition that the country now faces a painfully slow recovery. Just how painful things might become will form the subject matter of this report.

The full report from Bank Rosii can be accessed here : Country Briefing Report

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