Posts Tagged ‘India’

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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AT&T eyes 25% stake in India’s BSNL as 3G comes to the fore

att-logo-orangeAccording to the Economic Times of India, domestic US telecom giant AT&T is in talks with state controlled Bharat Sanchar Nigam (BSNL) regarding placing an investment, that would see the company make a comeback in one of the fastest growing telecoms sectors. With mobile penetration advancing from 2% in 2005 to over 40% in 2009, still leaving plenty of room for growth.

AT&T (NYSE: T), which has been expanding its mobility business globally, quit the Indian mobile sector in 2005, selling its 33% stake in Idea Cellular following it’s merger with Cingular Wireless. It received around $250 million from the stake in Idea,that stake would now be valued at circa $3.5 billion. So a strategic mistake, that the New Jersey based company looks keen to repair. CEO Randall Stephenson spent much of 2008 in acquisition talks with Reliance, Idea and Aircel Cellular parent Maxis Communications, demonstrating a real desire to take a piece of the action.

BSNL has suffered from lackluster performance, as it’s monopoly has been slowly eroded over time, with new entrants carving up the market, especially in the mobile sector. The launch of 3G licences this year has seen heavyweight MNC telcos taking a greater stake in this huge growth market. Vodafone (UK) acquired Essar, Mobile TeleSystems (Russia) entered the market via Shyam Teleservices,  DoCoMo (Japan) has formed a joint venture with Tata Teleservices, whilst Telenor (Norway) has taken a passive route by acquiring shares in Unitech Wireless & SingTel (Singapore) has also invested heavily in Bharti Aircel, alongside Telia (Sweden) & BT (UK).

The Indian government reiterated plans to publicly list BSNL in July , although a firm time frame has not been committed to. Earlier that month, BSNL chairman Kuldeep Goyal said that the company was exploring a possible stake sale to a foreign firm to raise funds to help it compete better against its domestic rivals; however, he didn’t comment on how large the stake would be.

According to BSNL’s FY 2008 accounts, the value of the company is circa $17Bn. MTNL, the second of the telecom monopolies, which operates purely in Delhi & Mumbai, currently trades on the Bombay Stock Exchange  at Rs95 ($1.95) per share. BSNL would be expected to attain a much hirer premium, as it is the only current national carrier & market watchers have stated that post IP the company could be worth anything from $13Bn & $16.3Bn 65,000. Sources state that AT&T is interested in a 25% stake, so would need to buy in with $3Bn / $4Bn to make this work.

At present BSNL is the leader in all services in its license area, with over than 49 million mobile subscribers (17% market share), 35% fixed line subscribers (85% market share) & 2.5 million broadband subscribers.

I can see this coming off, as AT&T can offer extended network services & serious technical know how to BSNL, an area in which the company has lagged. AT&T India also operates a state of the art IP MPLS network across India that will also help the Indian company to expand it’s offerings into the burgeoning Enterprise market. With the Indian mobile market set to double by 2014, this would also give access to a potentially huge subscriber base of 100 million & dare I say it, a potential launch pad for iPhone.

For BSNL, this could be a great route to forestall the new & legacy players across the sub-continent, particularly in mobile & broadband, more importantly with infrastructure restrictions, LTE could play a defining role for any telecoms carrier in India.

Granted, this is all pure speculation at this point, however, if the rumoured talks firm up, I’ll be taking a long hard look at AT&T again.

Original post can be found at MyStockVoice.com

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MTN-Bharti : a long winding road from India to South Africa

bharti-airtel-mtn-mergerIndia’s Bharti Airtel & South African operator MTN returned to the bargaining table this week, over a merger that could create a $20 billion mobile giant. The potential deal is attractive for both parties & if successful, would create a leading telecommunications service provider group aligning Bharti’s market leading Indian business with MTN’s market leading African and Middle Eastern operations. Combined operations would result in the group enjoying leading positions in three of the fastest growing wireless emerging markets ; India, Africa & the Middle East, with no overlapping footprint & subscriber base of circa 200 million.

Under the terms of the deal Bharti will acquire a 49% shareholding in MTN, in turn MTN and its shareholders would acquire a 36% percent economic interest in Bharti, of which 25% would be held by MTN, the remainder held directly by MTN shareholders, with the long term goal being a fully merger. The two companies have agreed to continue exlusive discussions until the end of July, at which time any issues will be resolved or other potential partners will be engaged.

Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse. Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders.”

“The rationale for this potential transaction between MTN and Bharti is highly compelling,” said Phuthuma Nhleko, CEO of MTN. “We are excited at the prospect of teaming up with Bharti, India’s number one wireless operator and one of the most strongly capitalised players amongst its emerging market peer group. This would create a highly visible commercial partnership between South Africa and India,”

Bharti & MTN have been here before, almost exactly a year ago. Previous talks were torpedoed by a lack of clear understanding on control between the two companies. At the last minute, MTN proposed a different structure where Bharti was to become a subsidiary of MTN. Bharti retreated from the deal on the basis that it felt MTNs position was a way of gaining indirect control of the combined entity, which would have compromised the minority shareholders of Bharti. This time round it has been made clear from the start that Bharti will be the primary vehicle for both Bharti and MTN to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East. Most importantly, Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN.

When this was announced earlier this week, I decided to hold off on posting, as I wanted to see what would forthcoming once the dust had settled & also to get a better feel for some of the more convoluted relationships involved. One of the potential major hurdles to this deal from my perspective was the stance of Singapore Telecom (SingTel) which owns a 30% stake in Bharti Airtel. Bloomberg reported that SingTel would end up with a diluted position of 20% at the end of any full merger between the two. However it would seem that this could be offset by synergies across all of the combined networks of Bharti, MTN & SingTel. In addition to its strong domestic business, SingTel owns Australian carrier SingTel Optus & holds significant stakes in carriers in Bangladesh, Indonesia, Pakistan, Thailand, and the Philippines, commanding upwards of 290 million subscribers themselves. In the same Bloomberg report, SingTel spokesman Peter Heng states that “SingTel will remain a significant shareholder and strategic partner in Bharti post any successful transaction. We will continue to equity account for Bharti, in its enlarged form post the transaction if this is successful.”

Another potential challenge that was aired, is opposition by minority shareholders in MTN, however it has been reported today that the Mikati family which owns a 10% stake in MTN via the M1 Group, has said it will back the deal. The majority shareholder in MTN is South Africa’s state pension fund PIC, with a holding of 13.5%, to date there has been no statement from them. Other minority shareholders of MTN include Allan Gray, Polaris, Coronation and Stanlib, it would seem that these companies are not so bullish on the deal, at least not until further details come clear.

The South African press also gave some weight to the position of the highly politicised trade union federation COSATU (Congress of South African Trade Unions) which recently tried to scupper the full takeover of Telkom’s stake in Vodacom by Vodafone. However, COSATU spokesman, Mr Patrick Craven, has said the MTN deal was a different situation to that of the national carrier ;  “Telkom has always been 50% owned by the public & the move was part of our policy agenda against privatisation. MTN has always been a private company”

So it would seem that conditions are favourable to the potential transaction going forward, which would bring to fruition a long held ambition for Bharti to move into Africa, which remains the most underdeveloped of emerging markets regards telecoms. By leveraging across the combined networks of Bharti Airtel, MTN, SingTel & the Bridge Alliance (11 major operatots in Asia-Pac), the new Bharti-MTN will become a major powerhouse & definitely a very attractive investment for those involved in Global & Emerging Markets.

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Nokia to remain the market leader … helped by Emerging Market expansion

nokiaNokia the worlds biggest manufacturer of mobile devices , still enjoys a 40% global market share, dwarfing it’s nearest competition; Motorola (NYSE : MOT), Sony-Ericsson, Samsung, & LG. The company is particularly strong on an international basis, with top market share in practilally all markets served. More importantly, from a MyStockVoice perspective, 80% of sales come from outside the US. With recent advances in 3G licensing in Asia, notably Vietnam, India & China, Nokia (NYSE : NOK) looks well set to come out as the real winner from the mobile broadband explosion.

The company’s scale allows it to produce what is now regarded as a commodity product (low-end cell phones) at a much cheaper prices than it’s competitors. Nokia’s dominace in the mobile handset market sees it  earning roughly 15% profit even on entry-level units, while it’s most profitable competitor, Samsung, reputedly earns slightly above 13%.

Nokia is also working on growing it’s service offerings, expanding into music & games, whilst adding compatible location based services (LBS)with the recent acquisition of NAVTEQ. The strategy being that Nokia can earn incremental revenue from these services whilst building brand loyalty/customer lock-in, as users become accustomed to Nokia’s services & will opt to replace their existing handset & existing services with another Nokia model instead of migrating to a competitor.

From a financial point of view, Nokia holds an enviable position. The current balance sheet shows €5.5 billion against about €4.4 billion in debt, 70% of which is in short term notes.  Return on capital is pretty impressive to date, since 2004, ROIC is over 160%, & standard return on capital is equally impressive at 75%. Operating margins run at circa 13%, with free cash flow at 9%. For the long term investor, Nokia also has a track record of delivering a dividend yield of close to 4%. That said, the dividend rate was cut by 20% in January to reflect the impact of the gloabl downturn.

Nokia is clearly facing some major competition in the high end “smartphone” category, which is judged to be the fastest growing sub-sector of the market. While Nokia is still the world’s biggest smartphone maker, competitors Apple (Nasdaq : AAPL) with the iPhone & Research in Motion (Nasdaq : RIMM) with its Blackberry range have both  quickly gained market share , whilst Asian manufacturers such as HTC are also proving to be a thorn in the flesh.

My take is that if Nokia can crack some key markets in SE Asia, India & China, they will be able to surpass their upstart rivals, although in China, native handset makers will obviously have a first pass; e.g. TD-SCDMA with China Mobile . Nokia has a long track record with Vodafone, Orange & Telefonica, all of whom are increasingly active in Emerging Markets. With a retrospective look at the last quarters results & with the current overly sold price, I am looking at Nokia as a winner, 6 moth personal target price of $18.50 on the ADR

GSM standard warms up Indian market, as Reliance announces country wide network

INDIA-TELECOM-RELIANCE-AMBANIIndian mobile giant Reliance Communications (RCom) has announced the launch of a nationwide enhanced GSM network that will cover over 1 billion people, the widest one-time launch. Reliance’s new network is expected to be activated within 5 days and offer seamless coverage on major railway routes, national and state highways through dedicated mobile towers, the network is connected to Reliance owned fibre network for unlimited capacity, both in India and internationally via its Reliance Global subsidiary. 

“In 2003, Reliance changed the face of the telecom sector in India”, said Mr. Anil Ambani, Chairman, Reliance Communications. “Through our nationwide GSM launch coupled with Reliance’s continued focus on our No. 1 CDMA network, we will once again endeavor to re-write the rules of the industry by offering our customers an unbeatable proposition across coverage, quality, service breadth, handset range and above all, value”.

It is envisaged that the GSM launch which will supplement RCom’s existing CDMA infrastructure, will not only help in adding additional net revenue subscribers, but also allow the carrier to garner a greater share of valuable GSM roaming revenues, as it battles with Vodafone Essar & Bharti Airtel alongside state controlled MTNL for market share in the burgeoning sub-continent market. MTNL has already “soft launched” GSM services in early December as previously discussed, Tata Teleservices will also be looking to launch GSM services in partnership with NTT DoCoMo as discussed in DoComo looks to India for growth.

The Department of Telecommunications plans to auction radio bandwidth, or spectrum, for 20 of India’s 22 telecom service areas electronically. A separate auction will be held for selling radio bandwidth for broadband wireless access, or Wi-Max, two days after the 3G spectrum auction. The government has set the starting auction price at $408 million for 3G radio bandwidth across India, with an expected minimum of 5 blocks being bought. 

India, the world’s second-largest mobile-phone services market after China, added more than 10 million subscribers for the third straight month in November and is set to attract more operators as it prepares to auction licenses for starting high- speed wireless services next year.

Telecom Regulatory Authority of India Chairman Nripendra Misra said in October, operators in the U.S., the U.K., France, Italy and Australia may bid for permits to offer the so-called third-generation, or 3G, services, further increasing competition.

RCom, which has a market capitalisation of $9.6 billion, is one of the few major telecom companies in India without a foreign partner. Earlier this year, Reliance & South Africa’s MTN Group failed to reach a deal in tie-up talks aimed at creating a top-10 global telecoms group. As of the end of November 2008, The operator had almost 60 million customers, while Bharti had 83 million and Vodafone’s Indian unit Essar had almost 59 million subscribers.

“We see no reason why we shouldn’t have a 100 million customers,” Ambani said.

Without a principal partner to assist in choosing & delivering GSM Value Added Services (VAS) to run across this new network, I feel that Reliance could well face an uphill struggle. However, in early December, there were rumours reported that up to 26% of the operator may become available as secondary shares. A potential suitor could be France Telecom who failed in a bid to acquire the Nordics Telia-Sonera last summer, they have a fair war chest available to them & I could see the Orange brand making an appearance on the sub-continent. Like the 3G situation in China, this will run & we will be sure to come back & look again as the story unfolds.

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.

 

Emirates & India pair up on Indonesian aluminium venture

nalcoIndia’s largest aluminum maker, state owned National Aluminum Company  (NALCO), and United Arab Emirates government-linked RAK Minerals and Metals Investment (RMMI) plan to invest $4 billion  to build a smelter and supporting infrastructure, including a power plant, in Tanjung Api-api, South Sumatra, Indonesia. $2.5 billion  of the planned investment will be spent on the smelter and the remaining $1.5 billion on a power plant, a port and railway. The smelter is designed to process 1 million tons of alumina a year and is expected to produce 0.5 million tons of aluminum annually. The alumina will be imported from India, which produces about 2.1 million tons of alumina per year. The proposed dealwill see RMMI taking a 24% stake in the Sumatran based project signed by NALCO & the Indonesian province last December.

RMMI signed a seperate infrastructure investment deal in February with the South Sumatran Government. This involves the Emirates firm investing into the Tanjung Api-Api industrial city project, which encompasses a new seaport, railway infrastructure & industrial complexes for the exploitation of coal, rubber & palm oil resources. In return for the investment, RMMI will receive fast track approvals for land acquisition & associated planning developments, additionally, the MOU commits the Sumatran Government to facilitating the acquisition of mineral off take agreements, as South Sumatra is the largest coal producing area in Indonesia, this is a very attractive deal for RMMI.

Madhu Koneru, Managing Director, RMMI, said: ‘This is one of the most exciting turnkey projects that RAKIA is undertaking and we believe that it has the potential to become a catalyst for our future organic growth in Asia. We are getting extra ordinary support and encouragement from Governmental authorities and leaders of Republic of Indonesia, including the citizens and regional administration of Banyu Asia regency and South Sumatra Province, which can help RAKIA and RMMI to implement this project within record time.’

Nalco, India’s key aluminium producer and a public listed company (BOMBAY – NALU)  –  in which the Government of India holds majority stake, has  25 years of experience in mining bauxite, alumina refining, power generation and aluminium smelting. The company operates an opencast bauxite mine of 4.8 million mtpa, which serves the alumina refinery at Damanjodi. The capacity of the mine will go up to 6.3 million mtpa by middle of next year under an expansion project that is currently in progress. The excess capacity of alumina refining, will be used to feed the new project in Sumatra.

 

“The smelter requires a lot of electricity and we have a lot of energy in India…but still we find that it make senses to put the power plant near coal mining here in Indonesia,” B.L. Bagra, NALCO’s director, told reporters. He said the power plant will help to keep the cost of production from the aluminium smelter competitive.