Wednesday, June 27, 2007
Confirming this, Ericsson officials said, "We are waiting for BSNL to send us the advance purchase order". However, Raja's first announcement as Cabinet minister was that he wanted BSNL to renegotiate the price of its tender from the approved price of $107/line down to $90/line as this would save the exchequer Rs 1,800 crore.
This is despite the fact that the second lowest bidder, Nokia, had reportedly quoted $160/line. The BSNL tender is designed to allow 60% of the contract to the lowest bidder, and the remaining 40% to the second lowest bidder.
According to BSNL sources, the file was sent to Raja for final clearance on May 18, but is yet to be released by him.
The tendering process has already taken over two years with no sense of closure in sight. BSNL sources say a fresh tendering process will result in an irreversible decline in BSNL's status as a mobile operator, with losses of over Rs 7,000 crore, far outweighing Raja's projected Rs 1,800 crore saving.
Here's their math: If the new tender takes two years, BSNL loses 43 million subscribers, at least 12% erosion of market share and Rs 7,000 crore in revenues, considering an average loss of 1.8 million subscribers every month or Rs 300 crore in revenues/month.
The calculations are based on March and May '07 numbers, before and after capacity constraints kicked in. In March '07, when it was not constrained by capacity, BSNL added 2 million GSM lines. In May '07, it just about added 0.24 million subscribers for want of equipment.
That means every month, saturated networks claim 1.8 million subscribers. Similarly, in March 2007, BSNL had 29.2 million subscribers and a 22.36% market share, which dropped to 27.9 million subscribers and a 21.43% share in May 2007, or a loss of 1% every 2 months.
Agrees Nilotopal Basu, prominent leader of the Left parties, "point of presence is the most important parameter in the telecom business. Unless the equipment is procured quickly, the damage will be unprecedented, one that may not allow BSNL the luxury of a quick recovery".
G L Jogi, general secretary of Sanchar Nigam Executives Association points out that in May alone, Hutch Vodafone added 1.5 million new subscribers against BSNLs 0.24 million. Hutch had a total base of over 29.2 million subscribers in May '07 against BSNLs reasonably static 27.9 million. Not surprisingly, the unions threaten nationwide action unless there is immediate resolution.
BSNL (earlier DoT) is India's largest fixed-line operator with over 40 million fixed lines. However, it is quickly losing its premiere status as the second-largest GSM operator after Bharti. It now holds the third position in the GSM space after Hutch Vodafone and overall fourth position in the cellular industry behind Reliance (see chart).
BSNL's order — one of the largest global GSM tenders so far — has been jinxed from the start. However, the story took another unexpected turn when telecom minister, Dayanidhi Maran was unceremoniously removed just 40 days ago, to be replaced by A Raja, also of the DMK.
Earlier, Motorola, which was rejected on technical grounds, moved the Delhi High Court in October 2006. In April 2007, Motorola withdrew its petition, finally removing the barriers for the award of contract to Ericsson and Nokia Siemens.
Under the revised provisions of the foreign direct investment (FDI) policy for critical infrastructure sectors, which include telecom, which is currently being finalised, if a global M&A results in a change of control, management or broad representation in an Indian telecom company, fresh clearance from the FIPB will be necessary.
Additionally, the new FDI policy also proposes that such a deal would require a separate security clearance from the Indian government. The security agencies have said that this rule should apply to 'critical infrastructure sectors' such as telecom.
This issue was widely debated when the government recently considered M&A issues related to Hutchison-Essar Ltd (HEL). The Prime Minister's Office had called for a review of FDI guidelines in all key sectors after the National Security Adviser (NSA) objected to Egyptian service provider Orascom’s bid to obtain an indirect holding in Hutchison-Essar (HEL) through purchase of an equity stake in Hutchison International. The objections raised by the NSA also thwarted Orascom’s attempts to get a board representation in HEL (now Vodafone-Essar).
Mandatory need for FIPB clearance in the case of global M&A deals affecting Indian telecom companies was proposed by the security agencies during the discussions related to HEL. The FIPB, while clearing Vodafone’s acquisition of a 52% stake in HEL, asked the government to rework FDI guidelines to plug the loopholes.
Clear norms for this are expected when the government carries out its proposed review of the FDI policy next month.
Maxis is privately-owned by Malaysian tycoon Ananda Krishnan’s firm Binariang.
Saudi Telecom, which recently said that it aimed to get 10% its revenues from external sources by 2010, has already chalked out big plans for India -- the world’s fastest growing telecom market.
“Saudi Telecom and Binariang's other shareholder will together underwrite a $900-million loan to expand in India where Maxis operates through its Aircel unit,” Saudi Telecom chairman Mohammed al-Jasser was quoted as saying in a statement carried by international wire agencies. "This transaction represents an important step for the company's drive to become an influential player in the global telecom sector," said the statement.
Similarly, Binariang chairman Raja Arshad Raja Uda in a statement said: "This partnership with Saudi Telecom provides the opportunity to link Maxis, and its operations in Malaysia, India and Indonesia, to one of the largest and most reputable telecommunications operators in the Middle East in a mutually beneficial way."
Saudi Telecom's investment in Maxis will boost the Malaysian company's plans for India. Aircel, India's fifth largest GSM player, stands to gain as Saudi Telecom will infuse the much-needed capital to fund the expansion plans. More so, considering that Maxis had recently said that it would need an additional $3 billion to expand operations in India.
Aircel, with just under 5 million subscribers, holds licences to offer telecom services in nine telecom circles in the country and aims to be a pan-Indian player and expand its presence to all 23 circles by the first half of 2009. As the first step, the company recently launched services in both Himachal Pradesh and Bihar. Aircel was recently been granted both the national and international long-distance licences by the department of telecom (DOT).
Maxis Communications' group chief executive officer Datuk Jamaludin Ibrahim had recently told ET that the company would invest over Rs 2,000 crore in its Indian operations in 2007-08, while adding that it had set a target of reaching 8 million subscribers during this period. In the last fiscal, Maxis had invested about Rs 2,700 crore in Aircel, of which Rs 1,350 crore was paid to the department of telecom (DoT) towards entry fee for licences in 14 new circles in the country, while the remaining was spent on network expansion.
It is also expanding in India, China, and Indonesia in part to tap growing Middle Eastern money flowing to Asia as Arab investors diversify their portfolios and seek higher returns.
"We are seeing a significant shift toward investing in Asia," said Barend Janssens, head of private banking for Asia.
"This is due to the growing wealth of the Indian and Pakistani expatriate community in the Gulf and the religious link with Indonesia and Malaysia."
Wealth in the Middle East among those with more than $1 million of liquid assets would grow to between $2.5 and $3.5 trillion at the end of 2007, from $1.75 trillion at the end of 2005, Janssens said. The market was growing at more than 20pc a year, compared to about 15pc a year in Asia, helped by high oil prices and a buoyant global economy, he said.
Arabs traditionally invested their wealth in the US and Europe but were increasingly targeting Chinese IPOs, Indian equity and real estate markets, and direct investments in Malaysian or Indonesian companies, he said.
A crash in Gulf equity markets last year also encouraged Arab investors to boost investments in Asia, Janssens said.
Tuesday, June 26, 2007
As the coupon of the bonds is set at 3 percent - much higher than the typical 0.8 percent rate offered by local banks on yuan deposits - the response is expected to be robust. The retail order book will be closed on July 6.
Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said after the launch ceremony Tuesday that the second issuance of yuan bonds may come soon.
"The management arrangement for issuing yuan bonds in Hong Kong by mainland financial institutions is already in place. There is actually nothing to stop them from coming," Yam told reporters.
The Export-Import Bank of China, a fully government-owned policy bank under the direct leadership of the State Council, is believed to be the second mainland financial institution preparing to issue yuan bonds in Hong Kong. The bank said earlier its board had approved the issuance, and will proceed with the sale here after obtaining approval from the People's Bank of China.
China Development Bank's two- year yuan bonds were capped at a total size of 5 billion yuan (HK$5.12 billion). The offer will be available for both institutional and individual investors, with a minimum of 1 billion yuan worth already set aside for retail subscriptions.
"If there is demand, the retail portion may increase further," China Development Bank governor Chen Yuan said. "The funds raised from this bond issue in Hong Kong will be used to finance China's fundamental key infrastructure projects."
ICBC (Asia) executive director Stanley Wong Yuen-fai said: "The bond issue aims to attract the 25.5 billion yuan deposits in local banks." Since this is the first yuan bond issue, retail investors will hopefully be given priority, Wong added.
Bank of China (Hong Kong) (2388) chief executive He Guangbei said if the response is overwhelming, it may be hard to match each subscription with one lot. In that case, the allotment will take the form of a lucky draw.
"The issuance of yuan bonds in Hong Kong will broaden the scope of yuan assets of Hong Kong banks and add a new investment tool to Hong Kong's financial market," said People's Bank of China assistant governor Ma Delun. "It also offers a new channel for yuan to flow back to the mainland."
Financial Secretary Henry Tang Ying-yen said the successful issuance of the first lot of yuan bonds in the city is turning a new page for Hong Kong.
"This is a very significant milestone for Hong Kong being the country's international financial center," Tang said.
"It signifies further consolidation and development of the complementarity, as well as cooperation between Hong Kong and the mainland."
Development of the yuan business will continue to proceed gradually.
Yam said the the yuan bond market may not be very active in the early stages. But if there are transactions in yuan bonds between local banks, market activity will heat up.
Tax on interest income stands at 20 percent, but is expected to be cut by at least half, Li Zhikun, an analyst with China Jianyin Investment Securities, told the newspaper.
Canceling the tax would be equivalent to hiking the interest rate by 76.5 basis points, Li said.
However, JPMorgan economist Grace Ng said cancellation of the tax was unlikely. "There is no clear sign that the tax on interest income will be completely eliminated. It's not what the market is expecting either," Ng told The Standard. She called the tax reduction simply a "substitute to an interest rate hike."
A tax reduction would likely prompt mainland investors to stockpile their money in bank savings accounts and curb the surge of liquidity in the stock market. The move would follow previous tightening measures such as raising the benchmark deposit and lending rates, and increasing stamp duty on share trading.
This time, however, the State Council decided to put its tax reduction proposal through the NPC, a switch from its previous practice of surprising the market with abrupt policy changes, which often resulted in much market volatility and public outcry.
"The Chinese government is clearly increasing the transparency of its policymaking process," Ng said, adding that such preemptive measures are deemed useful in managing market expectations and minimizing volatility. "The impact [of tax reduction] should be relatively moderate," she said.
The Shanghai Composite Index, which tracks large-cap A and B shares, has jumped 46.3 percent, or 1,257.95 points, year to date, raising concerns about an asset bubble in the equity market and accelerating inflation.
However, previous tightening measures did not seem to dampen investors' enthusiasm, as reflected by the continued migration of deposits.
Data released by the People's Bank of China showed that total household savings declined sharply by 278.4 billion yuan (HK$285.4 billion), or 9.7 percent, last month. Also, according to a recent report released by Shenyin Wanguo Securities, between May 2006 and April 2007 the Shanghai Composite Index was pushed up one point for every 423 million yuan of household deposit migration into the stock market. In other words, the market had absorbed 61 percent of deposit loss in that period.
If the NPC votes to reduce the tax on interest income, such migration of deposits is expected to slow down.
The Shanghai Composite Index rose 0.82 percent, or 32.29 points, Tuesday to close at 3,973.37.
The 18 projects are also likely to generate investment returns of 18 to 20 percent per year upon completion, the same rate of return it is seeing from its finished projects in Shanghai, he said.
Its portfolio of mainland properties should grow to account for 50 percent of Hang Lung's rental revenues in five years, up from just 30 percent now, Chan said.
The increased rental income, combined with the sales proceeds from its residential projects in Hong Kong, are likely to be enough to finance the project over the coming years.
"I can do all 18 projects with no borrowing, potentially I can do that. Of course, I don't know when I'm going to sell all my Hong Kong residential development projects," he said.
"If the market conditions are such that it makes sense for me to drag it out a little, then the cash inflow will be a bit slower. In which case I may borrow some, but it is unlikely."
Shares in Hang Lung have risen almost 37 percent this year, beating a 7percent rise in Cheung Kong (Holdings) (0001), and a 5 percent gain by Sun Hung Kai Properties (0016), its larger rivals. The blue-chip Hang Seng Index has risen about 9 percent. Hang Lung shares gained 0.2 percent Tuesday to HK$27.10.
Hang Lung, Hong Kong's No3 real estate firm by market value, currently has about half of the 18 projects it hopes to complete in the mainland under way, with budgets for these projected at about HK$24 billion, Chan said.
These include commercial complexes in cities including Shenyang, Tianjin, Jinan, Changsha and Wuxi.
While mainland authorities have attempted to cool price gains in major markets with administrative measures, Chan noted these were targeting the residential sector, while Hang Lung's focus was on commercial properties, such as malls and offices.
The company recently raised the number of targeted projects in the mainland to 18 from 12. Chan said that for the time being he was not ready to commit his China team beyond this.
"I'd be happy to do more. The only thing is I don't want to write a check that is too big and [that I] cannot deliver," he said.
The real estate executive expects to fund a large portion of the expansion into the mainland with sales of completed luxury residential developments in Hong Kong. Chan said the sales were likely to happen over the next three years and raise at least HK$20 billion.
With an effectively debt-free balance sheet, Hang Lung is in no rush to sell the properties, he said. But he noted the firm had sold more than 90 percent of the units in its AquaMarine development and about a quarter of the properties in its Harbourside project. But the firm has not sold a single one of the 1,800 units in its Long Beach project.
"I'm not capital-constrained ... the likelihood of the high end property market going up is higher than the likelihood of the market going down. So why bother to sell them so fast?" he said.
Chan said it made sense to then put that capital into the mainland, noting its Shanghai projects were earning 18 to 20 percent annual returns now that they were up and running.
Cheung Kong, meanwhile, expects China to account for a third of its property earnings by 2010, with one executive saying asset price bubbles are encouraging middle class homebuyers.