Slowdown may continue till 2010, says RBI

Slowdown may continue till 2010, says RBI
The Times of India, April 28, 2009, Page 20

New Delhi: Warning that the worst may not be over yet, Reserve Bank Governor D Subbarao has said the global economic recession may not only continue through 2009 but could prolong to the next year as well.

“Even with current levels of policy intensity, the trough of the global recession is not seen until the end of 2009 and could get pushed out further if the policy responses fail to gain traction,” Subbarao said at the International Monetary Fund-World Bank spring meetings.

Leading the Indian delegation to the International Monetary and Financial Committee meet in Washington, he said India is expected to grow at 6.5% to 6.7% in 2008-09, and the real GDP growth for 2009-10 would be about 6%. A statement by RBI further quoted Subbarao as saying, “The most frequently asked question today is whether the worst is behind us. While there are incipient signs of business confidence and consumer spending trying to gain toehold, rising unemployment, high inventories and financial stress weigh heavily on overall demand conditions,” Subbarao said. PTI

‘India, China to lead Asian recovery’

‘India, China to lead Asian recovery’
The Times of India, April 28, 2009, Page 20

New Delhi: Driven by India and China, the emerging Asian economies no longer witness slump, which will lead the global recovery, UK financial services major Barclays said on Monday. “The slump in activity in emerging Asia is over. We believe the region returned to positive growth of the aggregate level in the first quarter of 2009 — driven by China and India — and the recovery is broading to the more open industrial economies in 2009,” Barclays Capital, an investment banking arm of Barclays, said.

Barclays capital included 10 Asian economies — India, China, Taiwan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Hong Kong.Barclays expected the recovery in Asia to arrive slightly earlier than the rest of the world, reflecting stronger balance sheets. PTI

India likely to grow at 6%, says Montek

India likely to grow at 6%, says Montek
The Times of India, April 28, 2009, Page 20

Washington: India is expected to record a gross domestic product (GDP) growth rate of 6% in this financial year (2009-10), which will improve further in the next fiscal with likely recovery in the global economy, Planning Commission deputy chairman Montek Singh Ahluwalia said on Friday.

“Next year they (IMF) expect the global economy to improve. I am hoping that our economy will also be able to improve,” he said on the sidelines of the G-20 ministerial meeting.

Although RBI too projected a growth rate of 6% during the current financial year, many global agencies like IMF and World Bank expect the Indian economy to expand by only 5.25% and 4%, respectively.

Noting that the global economy is passing through a very severe phase, Ahluwalia said, “We are weathering it better than most countries.” The India economy during 2008-09, according to advance estimates for national income released by the Central Statistical Organisation (CSO) in February, was estimated to grow by 7.1%, down from 9% in the previous fiscal. PTI

Banks continue to park surplus funds with RBI despite rate cut

Banks continue to park surplus funds with RBI despite rate cut
The Hindu Business Line, April 28, 2009, Page 1

Borrowing at a lower rate under CBLO mechanism, making a tidy spread.

K. Ram Kumar, Mumbai

Parking surplus funds with the Reserve Bank of India continues to be an attractive option for banks despite the 25 basis points cut effected in the reverse repo rate last week.

Banks, particularly Government owned, are borrowing against their surplus holding of government securities at a lower rate under Clearing Corporation’s Collateralised Borrowing and Lending Obligation (CBLO) mechanism and deploying the funds at a higher rate with RBI.

By doing so, banks are making a tidy spread of 50-100 basis points a day.

Consider this: If a bank had borrowed on Monday against its surplus government securities holding at the weighted average interest rate of 2.72 per cent under CBLO and parked the funds at RBI’s Reverse Repo (R/R) window at 3.25 per cent, it stands to make a gain of 53 basis points (100 basis points equals 1 per cent) in just a day.

CBLO is a discounted money market instrument which enables banks and other market participants to borrow and lend funds via electronic book entry. It imposes an obligation on the borrower/lender to return the money borrowed/receive the money lent, at a specified future date. The underlying charge on securities is held in custody (with CCIL) for the amount borrowed/lent.

According to banking sources, the central bank had cut the reverse repo rate on April 21 with the express intention of pushing banks to lend to the productive sectors of the economy. However, due to slack credit offtake, banks with surplus Statutory Liquidity Ratio (SLR) portfolio are making the most of the arbitrage opportunity thrown up by the interest rate differential between CBLO and RBI’s R/R window.

Notwithstanding the reverse repo rate cut, during the last four working days after the RBI’s rate cut, banks, on an average, have parked around Rs 1 lakh crore daily with the RBI.

As of March-end 2009, scheduled commercial banks’ investment in Statutory Liquidity Ratio (SLR) securities — the slice of net demand and time liabilities (NDTL) that banks necessarily have to park in government securities — increased to 28.1 per cent from 27.8 per cent a year ago.

Banks, according to RBI, as of March-end 2009, were holding excess government securities worth Rs 1,13,817 crore or 2.7 per cent over the prescribed SLR of 24 per cent of NDTL.

Considering that at the beginning of April CBLO has seen rates as low as 0.50 per cent, banks would have made a killing, earning a clean return of 3 per cent in just a day.

“Feeble credit offtake coupled with the fear of bad loans going up in the current scenario of economic slowdown is prompting banks to park their surplus funds with the RBI. Not many bankable loan proposals are coming our way. So, it’s a Hobson’s choice for us,” said a senior public sector bank official.

As per RBI’s statistics, scheduled commercial banks have collectively lent Rs 1,429 crore in the fortnight ended April 10, 2009. This, according to bankers, is an indication of a slowdown.

Pointing out that banks continue to flood the central bank’s reverse repo window with surplus liquidity despite the cut in the interest rate, market players feel that the regulator may move to curtail the tendency of banks to park surplus funds by imposing a cap.

JP Associates to raise Rs 4k cr

JP Associates to raise Rs 4k cr
Financial Express – Corporates & Markets, April 28, 2009, Page XVI

Agencies, Corporate Bureau, Mumbai

Construction firm Jaipraksh Associates Ltd on Monday said its board had approved raising Rs 4,000 crore through private placement/public issue of non-convertible debentures in one or more tranches.

The company, in a statement to the BSE, said, “The funds are to be used for capital expenditure and working capital needs.”

JP Associates shares on Monday were up 3.58% or Rs 4.50 to close at Rs 130.30 on the Bombay Stock Exchange. Meanwhile, the company also announced that it has reported a growth of 83.12 % in its net profit to Rs 385.32 crore for the fourth quarter ended March 31, 2009 against Rs 210.41 crore in the corresponding quarter last year.

The company’s total income from operations jumped 59.94 % during the quarter at Rs 2,151.67 crore. Total income from operations for the corresponding quarter last fiscal was Rs 1,345.28 crore. For the fiscal 2008-2009, the company’s net profit increased 44.54 % at Rs 881.22 crore as compared with Rs 609.67 crore recorded in 2007-2008.

Total income from operations for the last fiscal went up 44.54 % at Rs 6,015.26 crore, compared with Rs 4,161.38 crore in the previous financial year. JP Associates’ FY09 earning per share, EPS stood at Rs 7.44.

The company has also announced that the board of directors of the company at its meeting held on April 27, 2009, inter alia, declared the second interim dividend of Re 0.30 (15%) per equity share of Rs 2/- for the year 2008-2009. Manoj Gaur, executive chairman of Jaiprakash Associates, said the company is guiding Rs 11,000 crore revenues for financial year 2010. This will be distributed among the three divisions; viz;, cement, which would contribute almost Rs 5,500 crore; engineering and construction (E&C), comprising hydropower and expressway construction division, will contribute almost Rs 4,800 crore while real estate will give about Rs 1,000 crore.

Gaur added that the company expects to maintain profitability of about 29-31% on a gross operating margin (GOP) basis.

The company expects FY 2010 revenues to jump more than two-third, driven by growth in all of its three business segments of construction, cement and real estate, Its executive chairman said.

“We are on way for 70 % -plus growth in FY10,” Gaur told reporters. JP Associates in December last year said it will merge Jaypee Hotels, Jaiprakash Enterprises, JP Cement, and Gujarat Anjan with self.

Jaiprakash Associates said its board approved amalgamation of Jaypee Cement, Gujarat Anjan Cement, Jaypee Hotels and Jaiprakash Enterprises with the flagship company. As per the amalgamation plan, Jaiprakash Associates would issue one share of Rs 2 each to the shareholders of Jaypee Cement for every 10 shares of Rs 10 each held in the company. Also, Gujarat Anjan Cement shareholders would be offered one share of Rs 2 each in Jaiprakash Associates for every 11 shares of Rs 10 held in the subsidiary.

Real Estate Intelligence Report, Monday, April 27, 2009

IMF, World Bank meet as signs of recovery seen

IMF, World Bank meet as signs of recovery seen
The Hindu Business Line, April 26, 2009, Page 4

WASHINGTON (AFP) – Top IMF and World Bank officials hold annual meetings Saturday and Sunday in the shadow of the worst global slump since the 1930s but with perhaps the first signs of recovery peeping through.

A banking crisis that started in the United States in mid-2007 has spread like wildfire to push the world deep into a recession which the IMF said earlier this week would see the global economy contract 1.3 percent this year.

The IMF forecast marked a dramatic downgrade of previous estimates and set the tone for the meetings of the top steering committees of the 185-member International Monetary Fund and its sister institution the World Bank.

But on Friday, the Group of Seven major economies said the worst might finally be over -- although the outlook remained clouded and difficult.

"Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging," a G7 statement said.

"Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist."

The G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- said they were "committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again."

US Treasury Secretary Timothy Geithner, the G7 host, said that "without underestimating the challenges we still face, there are signs that the pace of deterioration in economic activity and trade flows has eased."

He too cautioned against any simple optimism that the worst global slump since the 1930s would be over quickly.

"We are right to be somewhat encouraged but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy (in September)," he said in a statement.

A subsequent meeting of the Group of 20, which includes the G7 and developing countries such as Brazil, China, India and Russia, ended without a statement.

The financial crisis was sparked by a credit boom based on the US subprime or higher risk home loan market which collapsed in mid-2007 as weaker borrowers could not keep up payments when the economy began to slow.

Many banks were heavily exposed and in order to limit their losses, cut lending, causing the economy to slow.

An already bad situation turned much worse with the collapse of giant US investment bank Lehman Brothers in September, tightening the screw in a global credit crunch which has plunged the world economy into recession.

The more positive G7 tone follows data showing that the downturn is easing but many officials remain reluctant to give the all-clear, warning that more bad news is to come which could blight any "green shoots" of recovery.

Others also warn that recovery or not, the human cost of the crisis is very high, still rising and should not be forgotten.

On Friday, a World Bank/IMF report said the crisis means up to 90 million more people will remain trapped in extreme poverty this year while the chronically hungry could top one billion.

Cos go for mini perms to beat credit squeeze

Cos go for mini perms to beat credit squeeze
The Financial Express, April 27, 2009

Sunny Verma, Arun S

Amidst the ongoing credit squeeze, the financial community in India has found a novel way to fund infrastructure projects that need long-term loans, going up to 20 years. A clutch of leading institutional financiers has started offering ‘mini perms’, short for mini permanent loans, to finance infrastructure and commercial real estate development projects. In such a project-finance arrangement, a financier provides loans up to a particular duration, say seven years, with an understanding that at that stage the loan will get refinanced.

The idea is at the time of refinance, the strength of the cash flows of a project would be adequate for a new financier to step in, Anita Marangoly George, director (infrastructure), International Finance Corporation (IFC), told FE.

While companies can easily get refinance based on their balance sheet strength, lenders are reluctant on the project side — which are mostly executed through special purpose vehicles — until the project and its cash flows are adequate.

Mini perms help to bridge this gap in sectors such as power, commercial real estate, airports and ports. “We are starting to see that Indian companies are reluctant to tie themselves in, for example, at high rates. So they are taking five-year loans and then refinancing,” George said. Ultra mega power projects (UMPPs) that need financing for upwards of 18 years will particularly benefit from this structure.

Experts, however, note that the success of mini perms would depend on interest costs at the time of refinance. “We all need huge credit and are keen on long-term credit at competitive rates from a good source. But if mini-perm is about refinancing, not many would be keen if the interest rate is high at that particular point of time,” said NTPC Ltd CMD RS Sharma. Pointing out that NTPC has gone for refinancing earlier too, Sharma, however, said the company only goes for balance sheet-financing and not project-financing.

A UMPP requires an investment of Rs 16,000-20,000 crore. The government has so far awarded three projects—to Tata Power at Mundra in Gujarat and to Reliance Power at Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh.

It took almost a year for both Sasan and Mundra projects to achieve financial closure.

IFC, which loaned $450 million to Tata’s Mundra project, says it is not keen on financing any more UMPPs. Along with SBI and Macquarie, IFC has recently set up a $1-billion infra fund to pick up stakes in projects, which will also bid for greenfield projects, George said.An official of PFC, which is offering a 20-year loan with a 15-year repayment period, said the manner of servicing the debt was crucial for mini perms. The repayment period on PFC’s loan starts from six months after the completion of construction, while the interest period starts from the day the loan is approved.

According to Jaidit Brar of McKinsey & Company, it is interesting to explore new financing options but they should not adversely affect the return profile of a developer undertaking the project. Funding needs of India’s infrastructure sector are estimated at $500 billion until 2012, of which the power sector alone requires $150 billion.

Low-cost switch is paying off: Unitech

Low-cost switch is paying off: Unitech
Sunday Business Standard, April 26, 2009, Page 3

Neeraj Thakur / New Delhi

Unitech Ltd, the country’s second-biggest property developer, says its strategy to focus on affordable residential housing for mid-income consumers is getting an encouraging response.

It launched its second mid-income housing project in Gurgaon early this week after closing sales of an earlier one on the nearby Sohna Road. It said it sold over 500 apartments at its planned township, called North Town, in Chennai two weeks earlier.

“We have launched the project after getting a good response for the recently launched projects in Gurgaon and Chennai. The launch of new mid-income residential housing projects has improved the operating cash flow of the company,” said an official who did not wish to be identified.

Due to cash crunch and almost no demand for some of its luxury projects, Unitech had stopped the launch of new projects for about five months. It has now changed its strategy.

The company says it is also planing to launch projects in the range of Rs 5-10 lakh an apartment in Gurgaon, Chennai and Kolkata, among other places.

Earlier this month, Unitech raised $325 million (Rs 1,625 crore) from selling new shares to institutions. It plans to use a part of the money to develop its affordable housing segment. The developer plans to launch 40 such projects during the fiscal year ending 2010, aggregating 30 million sq ft.

The company is trying to keep prices in the range of Rs 30-50 lakh, which calls for a price of close to Rs 3,000 per sq. ft. The new project, ‘The Residencies’, is located in Sector 33 of Gurgaon and offers two and three-bedroom apartments at a basic price of Rs 3,295 a sq ft.

The cost of a two-bedroom apartment with a “super area” of 1,100 sq ft would be a little over Rs 36 lakh, while a three-bedroom apartment of 1,535 sq ft would cost a bit over Rs 50 lakh.

Without disclosing the number of apartments to be launched, the official said, “We are testing the market with a soft launch and will decide the apartments to be developed in a few days”.

DLF launches initiative to pacify retailers

DLF launches initiative to pacify retailers
Business Standard, April 27, 2009, Page 5