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Showing posts from April, 2009

Why does China pile up on US treasuries?

Knowledge@Wharton has an article on some of the possible reasons.
China may also be accumulating massive amounts of foreign reserves as a result of the Asian Economic Crisis in 1997, when it watched the IMF impose strict conditions on bailout recipients. "In my view, that's a major contributor" to China's ballooning reserve of foreign exchange, says Allen. "I think most Asian countries looked at what happened and decided that they hadn't been treated fairly. So that's why they have been accumulating trillions of dollars in reserves."

China's trade surplus could swell to $325 billion this year, an ING Group economist told Bloomberg on April 23. According to Bloomberg, China's currency reserves fell $32.6 billion in January, $1.4 billion in February, then went up $41.7 billion in March.

But a lot of China-watchers assert that China purchases U.S. Treasuries as a way of manipulating its currency. "The way the Chinese manage the value of the …

When the shoe is on the other foot...

From a promotion for a masterclass for US PE fund managers titled "How To Keep Relationships with LPs Harmonious - Despite Recession, Credit Crunch, Mark-to-Market, Capital Calls, & Other Causes of Frustration, Anger, Mud-Slinging, & Divorce":
In this post-Madoff world, there are two concepts LPs like me have gotten more and more concerned about. First is transparency. Believe it or not, I know LPs who have started to go around their GPs and contact managers of portfolio companies directly to confirm their fundamentals first-hand. Would you know if your LPs did that? And frankly, do they have a reason to?

The second word? Liquidity. With capital call defaults an industry-wide problem, you need to ask yourself - are you prepared with creative remedies? Or are you likely to be caught off-guard?

...I’ve watched as fund managers try to sugarcoat bad news — which never works. Or they fail to communicate as openly as they should -- which makes tempers flare and attorney p…

Nominate Indian Startups for The World Economic Forum's Tech Pioneers Program

Venture Intelligence is happy to invite you to nominate companies you are associated with in India to The World Economic Forum's 'Technology Pioneers' Program 2010. The Program, started in 2000, with the goal of identifying new technologies that will have a dramatic and sustainable impact on business and society, has achieved the distinction of being the most prestigious recognition in the world of technology.

Last year, Bangalore-based mobile payments company JiGrahak Mobility Solutions was selected as one of the 34 "Technology Pioneers" for 2009. Another tech firm that does a lot of its development out of India - Nivio - was also named.

To be selected as a Technology Pioneer, a company must be involved in the development of "life-changing technology". In addition, it must demonstrate visionary leadership, show signs of being a long-standing market leader and its technology must be proven. WEF solicits nominations for the Technology Pioneers program fro…

Corporate India and the downturn

Sumant Sinha, COO of Suzlon Energy and formerly a top executive at the Aditya Birla Group, writes in the Economic Times how Corporate India should deal with the "unprecedented times" we are passing through currently.
(The large business groups) realised the good times were leaving them behind given their relatively risk averse nature, belatedly tried playing catch up, but only ended up coming to the party late. Hence, most of their large acquisitions such as Corus, JLR, or Novelis were very late in the cycle. These acquisitions suffered from the worst of all worlds — they were closed at peak valuations but their financing ran into the post-Lehman environment. Hence, these companies are saddled with huge financing issues in terrible financial markets and a very weak operating environment.

...At the same time, stresses in the system will generally increase before diminishing. To my mind, the worst is yet to come, and we will have one or two more downdrafts before we go into a …

"Indian corporate tax rate way above global average"

As part of a debate in the Economic Times, Amit Mitra of FICCI, makes the case for why corporate taxes are too high in India.
The average tax rate globally stands at 25.9% in 2008 while that of India stands at 33.9%. This figure includes a 10% surcharge and a 3% education cess. In other words, corporate tax rate in India is almost eight percentage points higher than that of the global average. And this, without adding the impact of Dividend Distribution Tax (DDT) and Fringe Benefits Tax (FBT) levied on corporates.

Furthermore, the global average tax rate has been coming down over the years. In 2006 it was 27.2%, down to 26.8% in 2007. Unfortunately, India has moved in the opposition direction. The DDT was raised from 12.5% to 15%, education cess from 2% to 3% and ESOPS were subjected to FBT. Even for MAT companies, the rate has gone up and its base widened.

...A look at the tax rates of other countries does reveal that Indian companies are charged higher tax rates. For instance, the cor…

How much will a Third Front govt. affect the economy?

Business Standard has a debate on this topic.

Amit Tandon, Managing Director of Fitch Ratings India, presents the optimistic view:
Will a Third Front government spell economic disaster? Will steel plants shut in Jharkhand? Will companies stop making cars in Tamil Nadu? Will software no longer be written in Bangalore? Will ships not sail from Mumbai? Will doctors not operate? Will teachers not teach? Go back in time. Did FIIs not come back, after vowing to stay away from India, after we exploded a nuclear device? Did banks not shut shop in the 1990’s, only to line up on Mint Street, wanting to open branches again? The pace may vary, but a billion-plus people will always create their own forward-momentum.
Nirmal Jain, Chairman and Managing Director of India Infoline, is highly concerned about a fractured outcome:
We are passing through a massive global financial crisis. Under these circumstances, if the country’s financial management is in the hands of corrupt politicians who are in a hurry…

Is Pantaloon getting into a debt squeeze?

Businessworld has a cover story on the mounting debt levels at listed retail firm Pantaloon.
With Rs 362 crore payable every year to meet long-term debt obligations for the next six years, PRIL’s 3 per cent return on capital employed may not be enough. On capital employed of Rs 5,342 crore, PRIL delivered a turnover of Rs 5,295 crore in 2007-08, representing a cash churn of only 0.98 times of capital employed. Internationally, Wal-Mart generates 2.29 times, but then the firm is a global behemoth. PRIL also has Rs 250 crore worth of inventory on its books and many believe the group’s extended discount sales are testimony to this. But Biyani rubbishes such statements and remains rooted to the Indian retail story.

Investor confidence in PRIL has hit a low too. As against a 63.7 per cent drop in the Sensex from its peak, PRIL’s stock has fallen 80 per cent from a high of Rs 876 on 2 January 2008 to 169 on 6 April 2009. Its market cap has dipped from a peak of Rs 12,913 crore in January 2008…

How some Wall Street banks are suddenly profitable

Andrew Ross Sorkin writes in his New York Times column how the US markets have seen through the attempts by Wall Street banks to "to pull a bunny out of the hat" in their latest earnings reports.
Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as “a testament to the value and breadth of the franchise.” Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired last quarter to prices that were higher than Merrill kept them.

...Why can’t anybody read the room here? After all the financial wizardry that got the country — actually, the world — into trouble, why don’t these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine pr…

"Dump the Dow. Track Shanghai Composite"

In his column for the Economic Times, Ruchir Sharma points out how the Chinese market is emerging as a leading indicator for markets and economies across the world.
Over the past couple of years, the Chinese stock market has been acting as the harbinger of global trends. After bubbling up to record high valuations in 2007, it was the first stock market to peak in early October of that year...And, probably most significantly, it was ahead of other stock markets to form a bottom late last year in an almost immediate reaction to the Chinese authorities announcing massive stimulus packages. While investors across the world remained sceptical of whether the Chinese measures would work, the Shanghai stock market continued to rally sharply over the past few months.

...The mention of decoupling conjures up images of the China and the US running off in different directions. That is not what’s going to happen. Decoupling is an evolutionary concept and the Chinese economy will take time to transi…

M&A activity declines 60% during Q1 2009

During the first quarter of 2009, Indian companies were involved in a total of 54 M&A deals - including both cross-border and domestic transactions - compared to 135 deals during the same quarter in 2008 and 89 such deals during immediate previous quarter, according to a study by Venture Intelligence, a leading research service focused on Private Equity and M&A transaction activity in India.

Q1 ’09 witnessed 26 deals with an announced value of $4.6 billion, the Venture Intelligence study revealed. There were 15 inbound and outbound deals each with the rest being domestic acquisitions. Manufacturing was the most active industry with ten deals followed by IT & ITES with seven deals. Healthcare & Life Sciences, Food & Beverages, Telecom and Agri-business were the other industries that witnessed significant M&A activity in Q1 ‘09.

The largest inbound deal saw France-based stationery manufacturer BIC acquiring a 40% stake in Mumbai-based stationery products maker Ce…

Why Corporate India flops at the box office

Businessworld has an article on why corporate India's repeated attempts at film-making have fallen flat.
M&M isn’t the first business group unable to gauge the quicksand of Bollywood. Attracted by the glitz and glam of the tinsel world, the past 6-8 years have seen many corporate groups enter a business quite removed from their core competence. They have ended up burning their fingers and very often exited as fast as they entered.

...Is the film industry resistant to corporates, or do the corporate groups fail to get the Indian film formula right? According to Madhu Mantena, the young producer of the Aamir Khan starrer Ghajini, and head of Saregama Films, corporate groups have wrongly interpreted the relationship between the studio, the film-maker and themselves. “The corporate group creates the studio platform but not the movie; it is the film-maker and his creative team that creates the movie. The studio provides the platform, then carries the movie forward through marketing…

Are the headwinds too strong for Suzlon?

Businessworld has an article featuring the recent technology and financing related challenges facing wind energy firm Suzlon Energy.
The US, which accounts for over 55 per cent of Suzlon’s market, has not placed any new orders since mid-2008. Instead, while global rivals Vestas and Gamesa grew by 48 and 64 per cent, respectively, in terms of order intake in calendar year 2008, Suzlon saw an erosion of 22 per cent.

...The US is key to its health, and Suzlon cannot wish away its problems in this geography. Its handling of the defective blades backlash shows a lack of readiness in handling situations such as this. “Quality of your equipment is your responsibility, which makes or mars your future,” says Kymal. “Every manufacturer goes through such issues,” concurs T. Shivaram, MD and CEO of wind energy equipment maker, Shriram EPC. “However, more tests should have been done for durability instead of rushing to the market with a product.” Suzlon’s orders now mostly come from smaller markets.…

Entrepreneur Interview: Atul Phadnis of What’s On India

N. Sriram of Venture Intelligence recently spoke with Atul Phadnis, Founder and Promoter of What’s On India, a company that focuses on TV Guidance and Electronic Program Guides (EPG) for all the major TV channel networks and operators in India. What’s On recently raised a round of funding from leading venture funds. Excerpts from the interview, the full version of which was published in the Q1'09 Venture Intelligence India Venture Capital Report:

Venture Intelligence: Could you tell us why you went for VC funding? Were there other options?

Atul Phadnis: We went for VC funding for two reasons: largely to scale up our current operations and also to expand into some of the newer but related areas.

VI: What were the key challenges you faced in raising VC funds?

AP: We entered the market in 2005 at an inflection point of the analog Indian television industry going digital. At the time, we faced two key challenges. One was lack of comparable benchmarks from other markets. While these bench…

Limited Partner Focus: Asia Alternatives

Founded in early 2006, Asia Alternatives is an Asia-focused Private Equity Fund of funds. Asia Alternatives recently raised a $950 million second fund (as a successor to its $515 million first fund). Venture Intelligence recently spoke to Rebecca Xu, a Co-Founder and Managing Director who co-leads Asia Alternatives’ Hong Kong office, and Praneet Garg, Investment Associate who is responsible for the firm's fund investments and direct co-investments in India. Extracts from the interview, the full version of which is published in the Q1 '09 Venture Intelligence Roundup report.

Q: When do you expect the PE deal making activity to recover?

Rebecca Xu: Investing pace has slowed down in every market in Asia. There are currently a lot of uncertainties in the overall economies and the PE markets, causing our GPs to be extremely cautious in deal making. Public market valuations have come down significantly but private market valuation correction is still lagging in some markets. Our GPs …

Interview with Srinivas Chidambaram of Jacob Ballas Capital

Founded in 1995, Jacob Ballas is an India-focused Private Equity Fund which raised a $440 million third fund in September 2008. Venture Intelligence recently spoke to Srinivas Chidambaram, Managing Director of Jacob Ballas Capital. Extracts from the interview, the full version of which is published in the Q1 '09 Venture Intelligence Roundup report.

VI: Do you see any change in the perception of Limited Partners towards India?

SC: Limited Partners have bigger issues at stake. Though the share of the emerging markets in their allocation has been increasing, still, emerging market PE is still a very small part of their exposure. The slowdown clearly has some impact and the political instability and corporate earnings will be a concern in the short term. However, in the long term, India is a market which will give superior returns.

VI: What is your outlook on the Indian PE market for the next 3-5 years?
SC: Private Equity, if anything, has become more relevant. India has a very young PE…

Private Equity appetite for slowdown-resilient Education Cos. soars

Press Release

Over 80% of Private Equity and Venture Capital investors surveyed by Venture Intelligence in its newly released “Private Equity Pulse – Education” report, plan to make an investment in Education companies during the next 6-8 months. With an estimated $40 billion market for private institutions and a CAGR of 8.6%, it is no surprise that PE & VC investors are looking to ramp up the 30 investments (worth over $300 million) they have already made in Education-related companies, the Venture Intelligence report indicates.

“In the current uncertain economic environment, the attractive and predictable rates of return of the Education industry, is serving as a magnet for PE investors,” points out Arun Natarajan, CEO of Venture Intelligence. “In fact, in another poll which we had done in end 2008 among PE investors, Education had received thrice as many votes as the next favorite sector in terms of attractiveness for investments in 2009,” Mr. Natarajan added.

Despite the overal…

The New Normal in Fund Raising

Using an analogy with the pharmaceuticals trials process, "Super LP" Chris Douvos has some new advice for GPs raising a fund in the current environment.
...I've got a confession to make: I'm worried that I've been giving people the wrong blanket advice by telling cats who have some money raised -- but perhaps not as much as they'd like -- to wrap up fundraising, get back to investing, and live to fight another day. After all, fund size is a function of time. If you raise half the amount of capital you'd like, deploy it at the same pace in about half the time. Then come back when the sand has been lubricated out of the gears of the financial system. Sure, there's a bit of a fee stream impact, but the brain drain associated with dealing with institutional investors right now is just way too high.

But then I had this epiphany: it's not just that there's sand in the gears, it's also that many investors are changing their entire evaluation par…

"Next Govt. has the opportunity to decouple India"

Moneycontrol.com has an interesting video of a debate on the impact the forthcoming elections featuring Ridham Desai of Morgan Stanley, Vallabh Bhansali of Enam Securities and Rakesh Jhunjhuwala of Rare Enterprises.
Desai: Its coming at a point which is quite critical in our economic cycle, we are facing very difficult global situation. So the world is not going to help us, our fiscal deficit has expanded and there were a lot of numbers debated in the previous session. Our own estimate is that on a consolidated basis that number is around 12.6% for the year that ended yesterday.

On a projected basis things are looking slightly better because of the crude oil, the fertilizer deficit is reducing but we don’t know how much tax revenues will fall. The point is that we are starting with a situation where fiscal deficit is high and at the same time we need to spend money. So I don’t disagree with the political comments that we need to spend money as a government, it’s a difficult government b…