PE investments fall 75% in 1 Year

PE investments fall 75% in 1 Year
The Financial Express, Corporates & Markets, May 13, 2009, Section I, Page 1

Mumbai: The downturn in the Indian private equity investment market still continues. For the month of April 2009, private equity investors invested $276 million in 16 deals compared to 31 deals announced with an investment of $1,050 million in April 2008. The total amount invested comes to $829 million in 60 deals in April 2009.

The average deal size decreased to $21 million in April 2009 as compared to $39 million in April 2008. About 88% of the number of private equity deals were in the unlisted companies in April 2009 as compared to 86% in 2008, according to the first PE investment report released for April by JM Financial.

Last month, telecom, media & entertainment and infrastructure sectors witnessed the highest activities in terms of deal values, accounting for 22%, 19% and 18% respectively of the total PE investments.

However, according to an earlier study by Venture Intelligence, the IT & ITeS industry registered 13 deals worth $95 million during Q1 2009, followed by manufacturing (with 4 deals worth $36 million) and BFSI (3 deals worth $53 million).

Top deals for the month include $52 million by 3i and Oman Investment Fund in Neo Sports Broadcasting Pvt Ltd; $50 million by IDFC Project Equity in SPVs of Ashoka Buildcon Ltd; $40 million by Axious Investments in Quippo Telecom Infrastructure Ltd and $30 million by Navis Capital in Edutech.

For the quarter ended March 31, 2009, PE firms’ investments fell 87% to $526 million across 36 deals. The corresponding period of last year had witnessed 133 deals totalling $3.9 billion and deals in first quarter of 2009 remains lower compared to the immediate previous quarter which had seen $1.2 billion investments.

About $11.5 billion was invested in 292 deals in 2008 as compared to $15.9 billion in 290 deals in 2007. Last year, real estate, telecom and financial services sectors witnessed the highest activities in terms of deal values accounting for 31%, 11% and 9% respectively of the total PE investments.

Economy-market disconnect

Economy-market disconnect
The Economic Times, Editorial, May 13, 2009, Page 14

Hope Triumphs Over Experience

ON A day when the sensex vaulted 475 points, industrial production data showed a shocking 2.3% decline in March. For two months the world economy has performed dismally, yet stock markets have shot up 40-50% across continents. This glaring disconnect requires a cogent explanation. The standard explanation is that confidence is surging globally as the economy is bottoming out, and will soon rise. History shows that markets start rising four to eight months before the real economy does. However, history also shows that many market rallies during a long recession are temporary, and soon reversed. Four of the biggest bull runs occurred in 1929-33, in the depth of the Great Depression, as investors kept betting on a new bull market that did not come. Optimism can be self-fulfilling: if enough people think the worst is over and so start spending and lending on a big scale, the recession will indeed end. But the International Monetary Fund, not usually a market bear, projects that the current Great Recession will continue till 2011. The IMF projects a fall in world GDP for the first time ever in 2009, followed by an increase of 1.9% in 2010 — and any global increase less than 2% constitutes a global recession. So, even if the real economy has indeed bottomed, no V-shaped recovery may follow. The recovery may be weak, halting and lengthy. The IMF estimates that Indian GDP in 2009-10 will grow by only 4.8%, down from an estimated 6.5% in 2008-09.

The markets have caught fire as the latest news suggests economies are no longer falling off a cliff, and that free fall is being followed by gentler decline. Yet even gentler decline is recessionary. The latest US data suggest credit card losses could hit $82-181 billion by late 2010. Commercial real estate is crashing. And corporate bond defaults are spreading. India is better off than the US, yet dismal industrial data suggest Indian banks could soon face rising defaults. The economy-market disconnect must end soon. Either the real economy will look up, or else markets will fall again. We can hope for the best, but should prepare for the worst.

Tatas’ nano housing plan takes off in style

Tatas’ nano housing plan takes off in style
The Economic Times, May 13, 2009, Page 20

Sells 3,500 Applications In First Two Days Of Booking, Website Receives 15 lakh Hits In Four Days Of Announcement

Sanjeev Choudhary NEW DELHI

TATA Group has sold around 3,500 application forms for its low-cost housing project, Shubh Griha near Mumbai, in the first two days of booking, threeand-a-half times the number of apartments the company is planning to build under the project, a company executive said.

The pricing of the project has taken many by surprise. Its Shubh Griha website has received 15 lakh hits in four days since announcement of the project. This includes 6.7 lakh hits from the US and 3.3 lakh hits from India, as per the executive.

“The response only reflects the huge demand for housing in that segment,” Tata Housing managing director Brotin Banerjee said, adding that the company had already sold off all printed forms in just two days. Ten branches of State Bank of India started selling forms across Mumbai on Monday.

The bank branches located in the western suburbs linked to Boisar have seen better sales of application forms, a senior marketing executive said, adding that the company was receiving enquiries from many other cities, including Delhi and Bangalore.

Being able to generate a good response for a housing project located quite away from the city limits is significant, given the current state of slowdown in the real estate sector. Most realty companies have seen their sales shrink dramatically in the past six months as economic slowdown and high cost of borrowing dissuaded aspiring buyers. India’s largest realty company DLF sold just 600 apartments in the Rs 30-50 lakh category during the January-March quarter.

Tata Housing, a subsidiary of Tata Sons, announced last Wednesday that it will build 1,000 apartments at Boisar, around 35 km from Virar and 100 km from southern end of Mumbai, under Shubh Griha brand for a price tag of Rs 3.9-6.7 lakh. Tata is offering three types of houses: one room kitchen of 283 sq ft and 360 sq ft and one bed room, hall, kitchen of 465 sq ft. The forms can be purchased and bookings made till May 25 after which the company will take a month to scrutinise forms and announce the list of allotees through a draw. The application form comes for Rs 200 with Rs 10,000 being the booking amount. “The Shubh Griha project has enhanced the group’s brand equity. Our projects in other cities too will get a favourable response from home buyers and investors,” another senior marketing executive at Tata Housing said.

Tata Housing is not as established a builder as DLF, Unitech or Hiranandani, in the residential segment. The company has done limited number of housing projects so far, mostly in joint venture with local developers.

BUILDING BLOCKS

The pricing of the project has taken many by surprise. Enquiries are also pouring in from Bangalore & Delhi
Given the current state of the realty sector, good response for a project located away from the city is significant
India’s largest realty company DLF sold just 600 apartments in the Rs 30-50 L category during the January-March quarter

DLF promoters up stake for sale on good response

DLF promoters up stake for sale on good response
Business Standard, May 13, 2009, Page 1

Arun Kumar / New Delhi

Bid process started late Tuesday evening; to be concluded on Wednesday.

Strong response from institutional buyers has prompted the promoter family of India’s largest real estate company DLF to raise the shareholding it had put up for sale from 100 million shares or 6 per cent to 168 million shares or nearly 10 per cent to raise Rs 3,850 crore from qualified institutional investors, including foreign investors.

The process, which is being overseen by Deutsche Bank and JP Morgan, started late Tuesday evening and is expected to close before the stock market opens on Wednesday.

The price band for the issue is Rs 223-230. Sources, however, said the issue is expected to conclude at roughly Rs 228 per share. DLF’s Tuesday closing prices on the Bombay Stock Exchange was Rs 236.25.

The transaction will be concluded through bulk deals on the stock exchanges on Wednesday, sources said. Routing bulk deals through the stock markets would save the K P Singh family capital gains tax of 20 per cent plus surcharge, said bankers close to the transaction. Trading on the market would attract only the Securities Transaction Tax of 0.125 per cent.

Proceeds from the sale are expected to be invested in DLF Assets Ltd (DAL), the promoter-owned real estate trust, which is in the midst of restructuring. Of this, around Rs 2,100 crore will be used to pay hedge fund DE Shaw, which had invested $400 in 2007 through optionally convertible preference shares. The rest will be used to repay part of DAL’s Rs 5,400 crore debt to DLF Ltd.

After the transaction, the promoters’ stake will drop to 78.6 per cent from the current 88.5 per cent. Asked about the sale, DLF Vice-Chairman Rajiv Singh said, “I am not in a position to react because bankers are advising us on the issue.”

Meanwhile, in a separate transaction DLF is expected to acquire DAL for Rs 7,500 crore. This effectively means DAL will have to incur a loss of Rs 2,500 crore, since it acquired assets from DLF for Rs 10,000 crore in 2007-08.

Apart from DE Shaw, DAL raised $700 million from Symphony Capital through optionally convertible preference shares with a coupon rate of 4 to 6 per cent to fund the asset acquisition from DLF.

D E Shaw was assured of an exit route from DAL after a planned listing on the stock exchange in two years. That route has closed since the real estate market has crashed and is unlikely to see a revival of interest from equity investors in the near future.

Although the due diligence of DAL is complete, sources said the transaction would be concluded after DE Shaw is paid. DAL, after getting the fund infusion from promoters is expected to pay off DE Shaw so to conclude the transaction, sources said.

Real Estate Intelligence Report, Tuesday, May 12, 2009

Economy to bounce back, 9% growth within 6 mths: Mohan

Economy to bounce back, 9% growth within 6 mths: Mohan
The Financial Express, May 12, 2009, Page 2

fe Bureau, Mumbai

Unwinding of monetary as well as the fiscal policy would happen only after the global economy gets rekindled, says RBI deputy governor Rakesh Mohan.

“It is obviously the case that given the kind of expansion that has taken place in the balance sheets in some of the most significant Central banks of the world, unwinding would be done when needed,” he said on the sidelines of 101st annual general meeting of the Indian Merchants Chamber in Mumbai on Monday.

Mohan who predicted that India is likely to bounce back to 9% growth within six months time, said the speed of the downturn of the global economy has been arrested although the global economy is not yet witnessing an upturn.

One of the on-going consequences of the current crises will be that a great deal of re-thinking would happen within governments and Central banks as to how monetary policies ought be conducted, how financial sector regulations should be done, how these two are related etc.

Responding to the media criticism on his `alleged conservative attitude’ while framing the policies in the RBI , he said, “It’s to be noted that doing reform in the country’s real sector is far different than pursuing reforms in the sensitive financial services sector. It’s good to sacrifice some of the ardent reformative approaches many a times in the interest of the nation.” Mohan said

Listing the lessons, the world needs to learn from the recent downturn, he said, “We should now avoid high volatility in monetary policies and take appropriate response of monetary policy to asset prices. One has to manage capital flow volatility, look for signs of over leveraging and go for active dynamic financial regulations. Also, one has to actively look for regulatory arbitrage incentives or possibilities.’’

Commenting on his resignation from the Central bank, he said, “I receive an offer from the American University that I could not refuse. Every one has to have a time to retire and so I did.”
Shankar Acharya, honorary professor, Indian Council for Research on International Economic Relations said that the current fiscal would be a bad year for India. the slow and painful recovery would happen after 2010 probably. In this fiscal, the country would grow at 5-6% and 7-8% growth is likely in medium to longer run.

CPI, WPI-based inflation seen converging

CPI, WPI-based inflation seen converging
The Hindu Business Line, May 12, 2009, Page 15

Expected to be at around 5% by end of 2009-10.

K.R. Srivats, New Delhi

Former Reserve Bank of India (RBI) Governor, Dr Y.V. Reddy, sees the wholesale price index (WPI) and the consumer price index (CPI) converging around five per cent by end of fiscal 2009-10.

“I am sticking my neck out. My own hunch is they (WPI and CPI) will converge. CPI will start coming down,” Dr Reddy told Business Line in an interview. He is here to launch his book India and the Global Financial Crisis: Managing Money and Finance.

Asked the basis for such a prediction, Dr Reddy said that it was the lagged effect of the various price changes that had happened. He also said that his comment on convergence was without reference to the spillover consequences of monetary and fiscal measures.

“WPI and CPI should be looked together and you should look at it for the next 12-18 months. One should recognise that it (convergence) is possible,” he said.

On inflation expectations, Dr Reddy said that given our history, it is very difficult to convince people that in India there is deflation threat or inflation is coming down. “I agree that there is an exit problem for fiscal and monetary… but we have multiple instruments and it should be possible to handle excess liquidity”.

Asked to comment about the central bank’s decision to raise interest rates in June 2008, Dr Reddy replied “please read my book”.

On RBI

In his introduction to the book, Dr Reddy writes that RBI taking responsibility, even if decisions had been taken in deference to the government’s wishes, is relevant both for the conduct of monetary policy and select actions on the regulatory front.

“The RBI articulated a need for careful consideration of the monetary policy in response to high inflation, as explained in detail in the governor’s remarks on inflation in Pune on June 23, 2008. However, the RBI announced monetary measures on June 24, 2008. Both statements explained in detail the dilemmas and time-dimensions involved, and indicated the complexities in the conduct of monetary policy and communications with the financial markets.

“These statements illustrate that once expectations had been built in financial markets around the government’s preferences, which is what happened vis-À-vis that led to the statements made above, the RBI had to fulfill those expectations as far as possible to avoid giving an impression of serious differences”

To a question on ‘financial protectionism’ in developed countries, Dr Reddy said that his book had “very clearly” addressed this topic. He highlighted that the global wisdom on the financial sector was changing and global rules of the game were likely to change.

“Financial institutions in advanced economies are now being heavily subsidised (capital). The earlier rules of the game were based on the assumption that there was a level playing field and government should not interfere.

“Now you have a situation, where it is quite possible that reasonably healthy banks in developed economies will also be taken over. Because… the level-playing field has been removed. This also applies to free trade agreements where there are financial services agreements. All of them were based on the ground that markets were operating normally with a level-playing ground”.

Cautious and tightfisted

Cautious and tightfisted
Business Standard, the strategist, May 12, 2009, Page 1

Byravee Iyer / Mumbai

As the downturn tightens its grip, consumers shy away from spending. Consumer confidence takes a beating in India and the world over.

In the October 2008 round of the Nielsen Global Consumer Confidence Survey, things still looked upbeat. The financial markets were facing their worst crunch ever. Still, India was way ahead of the pack as the nation of most confident consumers on earth. Its score of 114 on the Nielsen Consumer Confidence Index was several laps ahead of the global average of 84.

The latest edition of the Nielsen survey shows that the confidence of the Indian consumer has been seriously dented, notwithstanding the government’s fiscal stimulus and stray signs of economic recovery. India has ceded the top spot to Indonesia. It is now, in fact, ranked third — Denmark has come second.

Worse still, it has now become a part of the double-digit consumer confidence crowd. At 99, 15 points lesser than last time, it is the lowest India has scored in the last six rounds of the survey. (The fall this time round has been steeper; in the previous round, it had fallen eight points from 122.) The elite club of triple-digit consumer confidence countries now has only two members — Indonesia (104) and Denmark (102).

Gloom and hope

Meanwhile, global consumer confidence has fallen seven points to 77. (As a result, the gap between India’s score and the global average is now down to 22 from 30 in the last round.) No fewer than 49 of the 50 countries surveyed have registered a fall in consumer confidence. Taiwan is the only country to go against the grain — its consumer confidence is up three notches to 63.

To add to the gloom, about 77 per cent of consumers surveyed by Nielsen globally think their economy is in recession, up from 63 per cent in October last year.

In India, only 28 per cent of the respondents think their economy is not in recession. (Technically, India is facing a slowdown in growth and not a recession where there is a decline in the gross domestic product.) In other words, as many as 72 per cent could feel India is in recession. (In contrast, 65 per cent of Chinese polled in the survey feel their economy is not in recession.) Of those who believe the country is in recession, more than half (56 per cent) think it will come out of recession in the next 12 months.

On their part, several leading producers of consumer goods say sales are robust and at least the next three months look good. (Few companies now venture to predict the future beyond a quarter, thanks to the market volatilities of the past six months.) “At Samsung, we have not seen drop in sales for any product category. In fact, at the end of the first four months of the year, we are still maintaining growth of over 25 per cent in terms of our sale of consumer electronics,” says Samsung India Deputy Managing Director Ravinder Zutshi.

Maruti Suzuki Chairman R C Bhargava had recently said that his company, which is the country’s largest producer of cars, had seen record production in March and things looked good for the next three months. Pawan Munjal, the managing director and CEO of Hero Honda, India’s largest two-wheeler company, says sales are looking good till the next festival season which will end with Diwali in North India some time in November. “We should grow at a healthy pace till then,” says he.

Much of this growth of course is going to come from small towns and villages — markets that haven’t borne the brunt of the economic slowdown. Good rains, the farm loan waiver and the rural welfare schemes have all added to the purchasing power there. Still, it has failed to lift the mood of the Indian consumer, the Nielsen survey shows.

On the jobs front, India is the second most optimistic country in the world after Indonesia. Six per cent Indians believe this is an excellent time for jobs, while as many as 41 per cent feel it is a good time for jobs. This is not surprising since India has not seen the kind of large-scale layoffs that have happened in the West. “If you are an employee, Asia is the place to be. And in Asia, India is the place to be,” says Mercer Asia Pacific Head Peter Promnitz. Conservative Indian companies are still handing out conservative annual increments. Consequently, 62 per cent of the Indians surveyed are optimistic about their personal finances over the next 12 months. Little surprise then, 40 per cent Indians say this is a good time to buy the things they want or need.

“I would say that the consumer has certainly become cautious in his spending. Impulse purchase may have come down. However, need-based purchase still continues, which has contributed to growth in the sector,” explains Samsung’s Zutshi.

Savings spree

But that hardly makes Indian consumers big spenders of money, according to the Nielsen survey, for a majority of them now prefer to put their spare cash into savings. As many as 66 per cent of those polled say they will save, up from 58 per cent in the last Nielsen survey. Thirty-three per cent say they will also invest in shares and mutual funds, down from 42 per cent last time. Twenty-two per cent will also put their money into retirement funds, up from 20 per cent in the previous survey. The import is significant — people are nervous about the stock markets and feel retirement planning is a better way to secure the future.

Indians, therefore, are tightfisted when it comes to buying new clothes, going on holidays, as well as spending on out-of-home entertainment and home improvement. It’s safe to assume that Indian consumers are cautiously optimistic.

Beating India in the savings department are Singapore and Hong Kong at 75 per cent and 74 per cent, respectively. In fact, nearly half the global respondents (48 per cent) say they will now put spare money into their savings kitty. This is two percentage points more than the last round of the survey. Paying off debts too has risen two percentage points to 32 per cent. The downturn, it appears, has had a serious impact on lifestyle in many parts of the world. No doubt, extravagance has stalled and the population of individuals with no spare cash has risen. Only retirement fund investments remain flat at 10 per cent.

Things are different in China, Thailand and Singapore as citizens of these countries still burn their spare cash on holidays and vacations. Retail therapy continues to pay off in Russia, Brazil and China as more than 35 per cent of respondents there say they will spend their money on new clothes.

What worries?
When it comes to concerns, India has quite a few, including job security and the economy. Job security is the biggest concern for big savers in Singapore, Hong Kong, UAE, Vietnam, Spain and Hungary. The global concern over job security is up from 9 per cent to 22 per cent.

India is the second-most worried nation when it comes to terrorism. Sixteen per cent Indians say it is their top-most concern. The November terror attacks on Mumbai and the rise of the Taliban in neighbouring Pakistan have shaken them.

Overall, the biggest global concern is the economy, which is up from 20 points to 23 points. Another leading concern is increasing fuel prices, particularly for the US — the world’s largest fuel consumer. France, Russia and New Zealand are most concerned about increasing food prices. Footloose and fancy-free are The Netherlands, Norway and Denmark with no concerns at all.

Another nano from Tatas

Another nano from Tatas
The Economic Times, May 12, 2009, Page 12

A Big Boost For Affordable Housing

TATA’S Nano experiment could become a movement in reaching affordable products to the bottom of the consumer pyramid. It is indeed heartening that the Tatas are extending the concept of Nano to housing. Tata Housing, a subsidiary of Tata Sons, has announced a project near Mumbai that would build homes costing Rs 3.9 lakh and Rs 6.7 lakh. Tata’s foray into housing at the lower end underlines the increasing realisation that demand is a lot more stable in the lower income groups. These groups have their own income-expenditure dynamics that is not fully exposed to the vagaries of the increasingly globalised Indian economy. Telecom, though not in the same category as housing, is a good example of the robust demand at the lower end. As telecom operators have moved away from the saturated urban markets to small towns and rural areas, growth has accelerated — subscriber additions crossed 15 million in March. True, every additional subscriber lowers their average realisation per subscriber, but there is addition to the bottom line too. Similarly, houses in sub-Rs 10 lakh category may not carry big margins, but the demand is bound to be massive. Even the government estimates the bulk of the 25 million housing unit shortage to be in the lower income category.

The entry of a large and credible corporate such as the Tatas at the lower end of the market can crystallise this potential demand. More importantly, it could galvanise other serious developers to come into this segment and drop prices to gain market share. Though companies like DLF and Unitech are going into more affordable housing, they are nowhere near testing the market for under Rs 10-lakh housing unit. For this to happen policy must also create an enabling framework. Clear property titles and relationships with financiers would enable a big developer to arrange funds for their buyers. The government will have to free up land for creating more towns. Availability of more land would bring down prices. Tatas’ housing project, for instance, is about 100 km away from Mumbai. An efficient mass rapid transport system can make such projects more attractive to those who cannot afford housing within the city limits.

No loans, DDA to buy Games Village flats

No loans, DDA to buy Games Village flats
The Times of India, May 12, 2009, Page 5

New Deal To Translate Into Rs 700-Crore Bailout Package For Recession-Hit Developer

TIMES NEWS NETWORK

New Delhi: After weeks of uncertainty, DDA has finalized a bailout formula for the Commonwealth Games Village project, mired in financial difficulties caused by the recession.

The project had got stuck mid-way as the builders — Emaar MGF — failed to raise the required funds. It will now be given a boost of about Rs 700 crore. This fund, says DDA, will not be a loan but the purchase price of 333 flats that it will buy from Emaar MGF. A part of the fund, which will be given in installments based on various stages of completion of the project, will be handed over immediately.

DDA spokesperson Neemo Dhar maintained that the fund was not to be seen as a loan, but as a price for the flats which DDA will dispose of later along with the flats that were to be handed over to the agency as a part of the original deal. Dhar said: ‘‘Out of the 1100 flats that are to be built, two-thirds were to be handed over to us after completion. Now, the 333 flats will form an additional part of the number which will be coming to DDA.’’

Meanwhile, Emaar MGF is heaving a sigh of relief as the project gets off the ground once again. When tenders were floated for the project, the company had signed the deal at a staggering Rs 435 crore for the land alone. The deal required the project to be built by the company, with the clause that it would sell off its share of flats at market rates to raise funds. However, its attempt to sell the flats ran into a financial wall earlier this year. The flats, which were being offered at a market price of Rs 12,500 per square foot, reportedly found few buyers prompting Emaar MGF to go to DDA for a bailout.

Emaar MGF spokesperson said: ‘‘DDA’s decision to invest in the Games Village is a very positive development and signifies the national importance of the project. This move is a firm step in ensuring the completion of the prestigious Village.’’ He added that the company was ‘‘committed to the timely delivery of the Games Village’’. Incidentally, the land development body is now purchasing the flats at Rs 11,000 per sq ft, a rate that was arrived at by a panel of experts from HUDCO, CPWD, NDCC and DDA.