Q2 GDP slows to 8.9%
India's economy slowed a little in the second quarter of the current fiscal year due largely to a slowdown in the manufacturing sector, as a series of monetary tightening steps and a steep rise in the rupee started taking some toll on local demand. The GDP grew by 8.9% in the quarter ended September as against the consensus estimates of 8.7%. But, this was lower than the first quarter's expansion of 9.3% and a 10.2% growth in the same quarter last year.
The farm sector growth came in at 3.6% as against 2.9% in the same quarter last year, and 3.8% in the first quarter. The manufacturing sector grew by 8.6% versus a strong 12.3% in the corresponding quarter a year earlier. In the first quarter, manufacturing sector growth stood at 11.9%. Expansion also slowed in the service sector, which grew by 10.2% compared to 11.8% in the second quarter last year.
Mining sector growth shot up from just 3.9% in the July-September quarter of last year to 7.7% this year. The other economic activities which registered significant growth in Q2 of 2007-08 were ‘electricity, gas & water supply’ at 7.3%, ‘construction’ at 11.1%, and ‘community, social and personal services’ at 7.8%.
The GDP growth dipped below 9% for the first time in three quarters, but economists said that the Reserve Bank of India's full-year forecast of 8.5% should be met comfortably. Asia's fourth-biggest economy grew by 9.4% in the fiscal year ended March 2007, its strongest rate in 18 years, and the central bank expects expansion to slow to 8.5% this year. Growth has averaged 8.6% a year in the past four years.
Maharashtra scraps ULCRA
After several months of dithering and dilly-dallying, the Maharashtra Assembly cleared the repealing of the Urban Land Ceiling and Regulation Act (ULCRA), paving the way for the state to get central assistance to some key infrastructure projects. The move will also lead to the release of vast tracts of land in the state, especially in the financial capital Mumbai.
According to rough estimates, 15,000-17,000 acres of land will get unlocked following the move. Across Maharashtra, over 75,000 acres of land will be released. Some experts also said the repealing of the three-decade old law will help soften spiraling property prices in Mumbai, as more space will be available for development. "I expect some softening in prices," HDFC Chairman Deepak Parekh said. But, the jury is still out on whether this will indeed be the case.
Meanwhile, shares of real estate companies with exposure to Mumbai and other companies with substantial land bank in the city shot up amid optimism that the move will lead to faster clearances and more land being available for development. Akruti City, Orbit Corp, HDIL, Peninsula Land, Godrej Industries, Century Textiles and Bombay Dyeing were among the biggest gainers post the announcement.
The Vilasrao Deshmukh Government was keen on getting the assembly's approval to repeal ULCRA as the law was a big stumbling block in obtaining central aid for a slew of key urban infrastructure projects. Without repealing ULCRA, the state could not have accessed funds from the Rs110bn Jawaharlal Nehru National Urban Renewal Mission. The Centre had set March 2008 as the deadline for the abolition of the act.
RBI releases report on Trend and Progress of Banking in India
The Reserve Bank of India today released its Report on Trend and Progress of Banking in India, 2006-07. This Statutory Report provides a detailed account of policy developments and performance of commercial banks, co-operative banks and non-banking financial institutions during 2006-07. The Report also presents a detailed analysis of the Indian financial system from the financial stability viewpoint.
The Report highlights that the major challenge for banks in India in current times is to mobilise enough resources for meeting the demands of a growing economy. Most of business of banks in India is still concentrated in a few urban centres. To mitigate this problem, since 2006, opening of new branches for any bank is approved by the Reserve Bank only on condition that at least half of such new branches are opened in under-banked areas as notified by the Reserve Bank. Many banks now find that the branches in semi-urban and rural areas are also commercially viable. The Report records that there are some States where the credit-deposit ratio is observed to be low. Already some area-specific action plans for accelerated financial deepening have been drawn up with full participation of the State Governments, banks and other local development agencies.
The Reserve Bank would continue to play the role of a catalyst as well as a coordinator in these initiatives of growing cooperation between the States and the banking system. The Report further notes that there remains huge potential for growth in small centres and States with low credit-deposit ratios. The challenge going forward is to increase banking penetration further. Banks, therefore, need to expand their outreach to hitherto under-banked areas/States by re-focussing their strategies and using appropriate technology and delivery channels. Information technology is critical to minimising transaction costs. At policy level, the Reserve Bank, in recent years, has also focussed on democratisation of the financial sector with the aim of ensuring hundred per cent financial inclusion. The Reserve Bank has also made a beginning to enhance financial literacy and impart financial education to enable vast numbers of new entrants into employment and higher incomes to better manage their finances in a rapidly marketising financial sector.
As noted in the Report, there is also a need for the banking sector to increase the flow of credit to agriculture and small scale industries. To address this issue, the Reserve Bank has at policy level already modified the definition of the priority sector in April 2007. Priority sector is now restricted to advances to highly employment intensive sectors such as agriculture, small industry, educational loans for students and low cost housing.
The Report observes that to raise capital from the market continuously to sustain their operations in a fast growing economy is a challenge for banks. They also need to be vigilant about maintaining their profitability in future. Banks’ net interest margins have come under pressure in recent years. This is the outcome of increased competition and reflects an improvement in the efficiency of the banking sector. However, the impact of reduced margins on the profitability of banks has been disguised by strong volume growth in the last few years. In order to maintain their profitability in future, therefore, banks would have to contain operating costs, apart from searching for non-interest sources of income.
In an increasingly global and competitive financial world, a major challenge for banks is to institute appropriate risk management systems to manage such risks and for the Reserve Bank to understand the changing forms of risk and adapt its regulatory and supervisory responsibilities appropriately while maintaining financial stability.
Operations and Performance of Commercial Banks
The main points emerging from the analysis presented in the Chapter entitled 'Operations and Performance of Commercial Banks' are:
Bank credit growth remained robust for the third year in succession, although there was some moderation. Deposit growth of commercial banks accelerated due mainly to term deposits. Higher net accretion in deposits than expansion in credit, resulted in moderate growth of investment portfolio as well
Net profits of scheduled commercial banks increased on the back of rise in interest income and containment of operating expenses
Non-performing assets ratio, both on a gross and net basis, declined further
The capital to risk-weighted ratio of SCBs was sustained at the previous year’s level despite strong growth increase in risk-weighted assets emanating largely from credit expansion
Consequent upon the amalgamation of 147 RRBs into 46 new RRBs, sponsored by 19 banks in 17 States, the total number of RRBs declined from 196 to 95 as at August 31, 2007 .
Developments in Co-operative Banking
The major points emerging from the analysis of balance sheets, financial performance and soundness indicators of co-operatives in the Chapter titled, 'Developments in Co-operative Banking' are:
Assets of urban co-operative banks (both scheduled and non-scheduled) increased moderately during 2006-07.
Net profits of scheduled UCBs declined during 2006-07 in contrast to an increase in the previous year mainly on account of increase in provisions, contingencies and taxes
Asset quality of UCBs improved significantly during 2006-07
In the short-term structure of rural co-operative banks, while the operating profits of StCBs declined during 2005-06, their net profits increased significantly mainly on account of substantial decline in provisioning. The balance sheets of DCCBs expanded moderately. Their profits witnessed a sharp decline. During 2005-06, total profits earned by profit-making PACS increased, while the losses made by loss making PACS declined.
In the case of long-term structure, the operating profits of state co-operative agriculture and rural development banks (SCARDBs) registered a sharp rise
Asset quality of StCBs, DCCBs and SCARDBs declined, while that of PCARDBs improved significantly
The SHG-Bank linkage programme continued to make significant progress as 0.6 million new SHGs were credit linked by the banking system during 2006-07 taking the cumulative number of SHGs credit linked to 2.86 million.
Non-Banking Financial Institutions
The Chapter outlines major policy developments and analyses the business operations and financial performance of financial institutions (FIs), non-banking financial companies (NBFCs), and primary dealers (PDs).
The main points emerging from the analysis in this Chapter are:
Financial assistance sanctioned and disbursed by FIs continued to expand during 2006-07. While sanctions grew at a lower rate as compared with previous year, disbursements witnessed a sharp rise
The combined balance sheets of FIs during 2006-07 expanded at a high rate as compared with the previous year. On the asset side, loans and advances continued to expand, albeit with some moderation
While non-interest income of FIs increased significantly during 2006-07, the operating expenses of FIs registered a decline, resulting in a sharp rise in operating profits.
The capital adequacy ratio of FIs continued to be significantly higher than the minimum prescribed. Asset quality of FIs improved during the year.
Total assets of NBFCs (excluding RNBCs) expanded at a higher rate during 2006-07 as compared to 2005-06
Financial performance of NBFCs turned around during 2006-07. This was entirely on account of sharp rise in fund based income, which offset the sharp increase in operating expenditure and financial expenditure
Asset quality of various types of NBFCs as reflected in the various categories of NPAs (sub-standard, doubtful, loss) remained broadly at the previous year’s level
The increase in income of RNBCs during 2006-07 was more than the increase in the expenditure, as a result of which the operating profit of RNBCs increased
The liabilities/ assets of non-deposit taking systemically important non-banking finance companies (with asset size of Rs. 100 crore and above) (NBFCs-ND-SI) increased during the year ended March 2007 over the previous year
The gross NPAs to total assets ratio of NBFCs-ND-SI declined during the year ended March 2007
As a result of sharp increase in expenditure, net profits of PDs declined during 2006-07
The CRAR of PDs continued to be much in excess of the stipulated minimum of 15 per cent of aggregate risk-weighted assets
Financial Stability
The main points that emerge from the analysis of Chapter on Financial Stability are:
Financial markets remained orderly during 2006-07, barring some occasions when the money market turned volatile mainly due to large capital inflows and movements in Government cash balances. However, orderly conditions were restored
The activity in the money market has witnessed further significant migration from the uncollateralised to the collateralised segment during 2006-07
Foreign exchange markets showed a two-way movement during 2006-07
Yields in Government securities market hardened during the latter part of 2006-07 and the first half of 2007-08, reflecting domestic developments as well as global events
The net mobilisation of resources by mutual funds under equity oriented schemes during 2006-07 declined, reflecting the risk aversion tendency among investors particularly in view of the stock market touching record peaks.
The stock markets registered large gains with occasional bouts of volatility due mainly to global developments.
Continuing the upward trend during 2007-08, the BSE Sensex closed at an all-time high level of 19976 on November 2, 2007.
The volume and value of transactions through RTGS increased manifold
Empowered panel approves dual GST
The Empowered Committee of State Finance Ministers cleared a dual Goods and Services Tax (GST) - both at central and state level. GST is proposed to be introduced in April 2010. The empowered panel would send its recommendations to the Centre next month after the state finance ministers give their views in writing, group's chairman Asim Dasgupta said. There would be more than one slab of tax for goods, but a single rate for services within the GST framework. At the central level, the rates would be decided by the Union Government. The Centre and the States would attempt to keep them uniform. Set offs would also be available against tax paid on inputs at both central and state levels. Dasgupta said states and the centre will fix their respective GST rates after ensuring their will be no revenue loss from the proposed changes. GST at the state level will subsume as many taxes on goods and services as possible and feasible. However, exact rates at the state and central level would be decided later.
FM announces more sops for rupee-hit exporters
Finance Minister P. Chidambaram announced more relief measures for exporters hit badly by the steep appreciation in the rupee versus the dollar this year. The Finance Minister announced additional subsidy of 2% in pre-shipment and post-shipment credit to Leather, Marine, Textiles and Handicrafts sectors. The latest interest rate subsidy is in addition to the 2% offered earlier this year. The additional interest rate subsidy is valid till March 31. The Centre exempted storage and warehousing services, specialised cleaning services (fumigation & disinfection) and business exhibition from service tax.
The Government also slashed customs duty on polyester staple fibre and polyester filament yarn from 7.5% to 5% and on other manmade fibres from 10% to 5%. Customs duty on intermediates for PSF and PFY - polyester chips, DMT, PTA and MEG was reduced from 7.5% to 5%. On Paraxylene (a raw material for PTA), the customs duty is being lowered from 2% to nil. There is no change in customs duty for nylon chips, nylon yarn, caprolactum, rayon grade wood pulp and acrylonitrile.
SEBI amends DIP guidelines for Fast Track Issues
Capital market regulator SEBI announced amendments in the Disclosure and Investor Protection Guidelines to enable listed companies faster access to capital through follow-on public issues and rights issues. These companies, subject to meeting certain specific requirements, have been allowed to make ‘fast track issues’, whereby they need not file draft offer document with SEBI and stock exchanges. Some of the eligibility requirements for Fast Track Issues include an average free-float (non-promoter holding) of at least Rs100bn, a trading history of at least three years, redressal of at least 95% of total investor grievances, and absence of prosecution proceedings or show cause notices against the company or its promoters by SEBI.
SEBI also made amendments to allow all categories of investors to apply for Indian Depository Receipt (IDR) issues, subject to at least 50% of the issue being subscribed by QIBs, and the balance being made available for subscription to other categories of investors. The minimum application value in IDR has been reduced from Rs2 lakh to Rs20,000. SEBI also introduced a provision in the DIP guidelines, permitting companies making public issues to issue securities to retail investors at a discounted price not exceeding 10% of the price at which securities are issued to other categories of public. Quoting of PAN in application forms for public/ rights issues has been made mandatory, irrespective of the value of application.
Govt okays SBI Rights Issue
The Government approved the Rights Issue of the State Bank of India (SBI) to enable the country's largest bank to boost its capital and meet the growing demand for credit in a fast expanding economy. The Government will issue bonds for subscribing to the SBI Rights Issue, Information & Broadcasting Minister Priya Ranjan Dasmunsi said. The issue would be completed within the current financial year, he added. SBI hopes to raise up to Rs180bn before the end of the current fiscal year. The actual number of shares to be subscribed, the total amount subscribed, coupon rate and tenure of the securities, and other modalities will be worked out by the Government in consultation with SBI. The additional growth of the bank due to its increased capital base will also have multiplier effect on the overall performance of the bank, which will gain in terms of its position in the industry, ratings and increased valuation of its stock, besides boosting the economy at large, the Government said in a statement. The transaction will be completed within the current financial year and a Securities Redemption Fund will be created thereafter.
Cabinet approves 11th Five Year Plan draft
The Union Cabinet approved the draft document of the 11th Five Year Plan (2007-12). The same will now be placed before the National Development Council (NDC). The decision would enable the operationalisation of the 11th Plan in full. The Government has decided to convene a meeting of the NDC on December 19 to approve the 11th Plan. The Planning Commission had cleared the draft 11th Plan document on November 9 with a target of 9% annual GDP growth, up from 7.6% in the Tenth Plan. Among other things, the 11th Plan proposes to increase agriculture growth to 4% from around 2% in the previous plan. It also aims to reduce poverty by 10%, generate 70mn new employment opportunities and reduce unemployment among educated persons to less than 5%. The 11th Plan has also fixed certain important targets which include taking industrial and services sector growth to 9-11% and investment rate to 36.7%.
Credit bureau, TransUnion unveil credit score
The Credit Information Bureau India Ltd. (CIBIL) and TransUnion announced the development of the CIBIL TransUnion Score. This is the first generic credit score developed for India and will help banking and financial institutions to better evaluate the credit worthiness of their customers. It will predict the likelihood of a customer becoming a defaulter in more than 91 days on one or more lines of credit, including credit cards, personal, home and auto loans within the next year. "By introducing this generic score with TransUnion, CIBIL is helping financial institutions minimize future defaults as well as potentially reduce consumer abuse of the credit system, while allowing access to credit at better terms and conditions for good borrowers," said S. Santhanakrishnan, Chairman of CIBIL.
TRAI recommendations for IPTV services
The Telecom Regulatory Authority of India (TRAI) released the draft recommendations on provisioning of IPTV services. Telecom service providers having license to provide triple play services and ISPs with net worth of more than Rs1bn can provide IPTV service without requiring any further registration. Similarly, registered cable TV operators can provide IPTV service without requiring any further license. IPTV operators would be permitted to transmit channels in exactly the same form (unaltered) for which the broadcasters have received uplinking/downlinking permission from the Government. The operators should transmit only those channels that have been approved by the Information and Broadcasting Ministry, according to TRAI. The I&B Ministry and the IT Ministry should regulate the content provided using IPTV.
Reliance Power gets LoI for Andhra UMPP
Reliance Power Ltd., a subsidiary of Reliance Energy Ltd. (REL), received the Letter of Intent (LoI) for setting up the 4,000 MW Krishnapatnam ultra mega power project (UMPP) in Andhra Pradesh. Coastal Andhra Power, the Special Purpose Vehicle (SPV) formed by Power Finance Corporation (PFC), awarded the LoI to Reliance Power, which had emerged as the lowest bidder at a price of Rs2.33 per unit. The Anil Dhirubhai Ambani Group company outbid Larsen & Toubro (L&T) and Sterlite Industries, which had quoted Rs 2.68 per kwh and Rs 4.81 kwh, respectively. Reliance Power has already secured the Sasan ultra mega power plant in Madhya Pradesh, which would be run on domestic coal. The Krishnapatnam project is to be operated on imported coal and would require an investment of more than Rs160bn. Andhra Pradesh will receive 1,600 MW, while Maharashtra, Tamil Nadu and Karnataka will get 800 MW each from the project.
Tata Steel announces group recast
Tata Steel announced a new organization structure effective from January 1. Tata Steel Group comprises two entities - Tata Steel (including Tata Steel Thailand and NatSteel Asia) and Corus Group Ltd. Ratan Tata, the Chairman of Tata Steel will continue to lead the Strategy and Integration Committee. Jim Leng, B Muthuraman, Philippe Varin, Dr. Tridibesh Mukherjee, Rauke Henstra, Hemant Nerurkar, Koushik Chatterjee and Jean-Sebastien Jacques are members of this committee. A Group Centre has been created for functions that are to be performed with a common approach across the Tata Steel Group. These functions are Technology & Integration, Finance, Strategy, Corporate Relations & Communications and Global Minerals. The executives responsible for these functions will report to the Managing Director (MD) of Tata Steel and the CEO of Corus. Both Tata Steel and Corus entities will have Executive Committees chaired by the MD, B Muthuraman and the CEO, Philippe Varin, respectively. A Joint Executive Committee for Tata Steel Group will meet quarterly to review overall performance. This committee will be co-chaired by the MD of Tata Steel and the CEO of Corus.
RIL denies reports on RNRL acquisition
Reliance Natural Resources Ltd. (RNRL) shares climbed after a business newspaper reported that the Ambani brothers had resolved their differences over a controversial gas supply agreement. The Bombay High Court has directed the two camps to settle the long-running dispute amicably in four months. The newspaper reported that both sides are believed to have arrived at some concrete proposals, and according to one such plan Reliance Industries Ltd. (RIL) could eventually buy out RNRL. In return, Anil Ambani-promoted Reliance Energy Ltd. (REL) will purchase gas from RIL at a higher price, the financial daily stated. As per the current contract between the two parties, RNRL is supposed to buy gas from RIL at US$2.34 per mmbtu. If the two companies cannot arrive at a common meeting point on all commercial aspects of the gas sale and purchase agreement by February 15, they are likely to return to the court. But, both RIL and RNRL denied that there was any plan, or any talks between ADAG and RIL involving the acquisition of RNRL.
Hexaware to probe forex fraud
Hexaware Technologies Ltd. announced that its Board of Directors had appointed a special committee to conduct an internal investigation and make recommendations for changes to its foreign exchange management practices. The action was due to certain actively concealed and potentially fraudulent foreign exchange option transactions conducted by one official, Hexaware said. The official, who exercised unauthorised fiduciary powers, was immediately suspended, pending investigation. Hexaware said it will make provision between US$20-25mn to cover any potential exposure as a result of these transactions. Reports suggested that the company had roped in consultant Jamal Mecklai to work with it on minimising the negative impact of the forex transactions. Hexaware is also understood to have deferred its plans for the share buyback till the investigation on the ongoing forex issue is complete.
Its raining deals on the street
US-based oil & gas giant Chevron Corp. said it was evaluating options on what to do with its 5% stake in Reliance Petroleum Ltd. (RPL), and could even sell the same. Chevron, which has an option to increase its stake in RPL to 29%, may not do so, a business daily reported. "Chevron continues to evaluate its options with its ownership in RPL," Bangkok-based spokeswoman Nicole Hodgson was quoted as saying. "We will provide specific project updates when definitive decisions are made," she added. Reliance Industries Ltd. (RIL) said on Nov. 23 that it had sold a 4% stake in RPL for about Rs40.2bn. After the sale, RIL still holds 70.99% in RPL, which sold stock at Rs60 in an Initial Public Offering (IPO) in April 2006. Chevron bought 5% in RPL at Rs 60 per share before the latter's Rs27-bn public issue.
DLF said it has formed an equal partnership with Aman Resorts, whereby it will acquire a controlling interest in the Aman Resorts group. The entire transaction, when completed, is estimated to be valued at US$400mn with an assumed debt of about US$150mn. Overseas Hotels, a subsidiary of DLF, will make the investment in Aman Resorts. Aman Resorts is the world's leading hospitality and lifestyle business and currently owns and operates 22 luxury hotels, many with residences, in 12 countries.
Nirma said that it had entered into a definitive agreement to acquire US-based natural soda ash producers Searles Valley Minerals Operations Inc. and Searles Valley Minerals Inc. (collectively known as SVM). Nirma agreed to purchase SVM from an affiliate of Sun Capital Partners Inc. and other minority shareholders. Nirma did not disclose the consideration paid for the US acquisition. SVM has a combined production capacity of over 1.9mn tons. It sells 80% of its production to domestic customers and exports the balance.
Bharat Petroleum Corporation Ltd. (BPCL) said its Board had approved a proposal for the acquisition of a 2.5% stake in Oil India Ltd. (OIL) from the Government. BPCL will acquire 5,350,110 shares of OIL at a price equivalent to the issue price proposed to be offered to the public in its forthcoming Initial Public Offering (IPO). The sale and purchase will be completed within 48 hours after the issue price is fixed through the 100% Book Building issue and approved by the OIL Board. Meanwhile, Indian Oil Corporation Ltd (IOC) Board also approved the Share Purchase Agreement with the Govt. of India for acquiring 1,07,00,220 shares of OIL, which constitutes 5% of the latter's pre-issued paid-up capital.
Mundra Port and Special Economic Zone (SEZ) made a spectacular debut on the bourses on Nov. 27. The stock of the Adani Group promoted private port operator crossed Rs1,000 despite the overall weakness in the market. The stock opened at Rs770 on the Bombay Stock Exchange (BSE) as against the issue price of Rs440 per share. The scrip finished the maiden trading day at Rs961.70 after being as high as Rs1150. It closed the week at Rs923. The company raised around Rs1.77bn from the public issue. The IPO was subscribed over 115 times. The company received bids for 4.66bn shares as against the issue size of 40.25mn shares. The QIB portion was subscribed almost 160 times while the HNI category was subscribed 156 times and Retail portion 16 times. Mundra Port offered shares to local and overseas investors in a range of Rs400 to Rs440 per share. The company is likely to utilise the IPO proceeds to part finance the construction of basic infrastructure in the proposed SEZ at Mundra, besides a terminal for coal and other cargo.
US Govt ups Q3 GDP growth estimate
The US economy expanded at the fastest pace in four years during the third quarter, growing at a real annual rate of 4.9%, the Commerce Department said in making its second estimate of growth for the three-month period. The upward revision to the GDP, in line with Wall Street expectations, was due to larger inventory building and a better trade balance. A month ago, the Government had pegged third-quarter GDP at 3.9%. The US publishes three estimates of GDP, adding more complete information with each passing month. However, some Wall Street economists expect a sharp slowdown in the current quarter due to a partial reversal in both trade and inventories. Housing remained a severe drag on growth in the third quarter, subtracting a full percentage point from the growth rate. It was the seventh straight quarter that housing contracted.
Japan's industrial output rebounds in October
Japan's industrial production grew by a seasonally adjusted rate of 1.6% in October from the previous month, when it had fallen by 1.4%, the Trade Ministry said. The consensus forecast by economists saw an increase of 1.5%. The production index climbed to 112.1, the highest since the current gauge was set in 2000, the Japanese Trade Ministry said. Export growth doubled to 13.9% in October from a year earlier, spurred by higher imports by China and Europe. The rise in output was mainly due to a recovery in cars and semiconductor production equipment in response to firm domestic and overseas demand, an official at the Trade Ministry said. The Trade Ministry maintained its assessment on output for the third straight month, saying it was on a moderate rising trend. Output in October-December is expected to expand 1.7% from the previous quarter, the Trade Ministry said.
Citi gets US $7.5bn cash from Abu Dhabi
The beleaguered American financial sector received a vote of confidence even as investors worldwide remained concerned about the housing mess in the US, and its impact on the credit markets. Citigroup announced that it had received US$7.5bn from the Abu Dhabi Government to shore up its balance sheet after writing off billions of dollars in losses linked to the sub-prime mortgages. The biggest US bank said it would sell US$7.5bn in equity units convertible into common shares to the Abu Dhabi Investment Authority, with the capital injection equivalent to 4.9% of Citigroup's total shares outstanding. Citigroup will pay an annual yield of 11% on the convertible securities. The Abu Dhabi Investment Authority will help Citigroup strengthen its capital base, Win Bischoff, the New York-based bank's acting CEO said in a statement. "This investment also enables us to access capital in an efficient manner," he said. Bischoff said the funds would be used to expand the bank's business and fit with other steps taken recently to strengthen its capital base. The Abu Dhabi Investment Authority will have no role in the management or governance of Citigroup, including no right to designate a member of the company's board. Separately, E*Trade, the US online discount broker which has expanded into mortgage securities and credit facilities, received a US $2.5bn cash infusion from the Citadel Investment Group. The US$17bn hedge fund is known for swooping into troubled companies and buying their holdings at steep discounts.
Philips to acquire Genlyte for US$2.7bn
Royal Philips Electronics announced it had entered into a definitive merger agreement with North American luminaires company Genlyte Group Inc. Accordingly, Philips will commence a tender offer to acquire all of the issued and outstanding shares of Genlyte for US$95.50 per share, or about US$2.7bn (€1.8bn) to be paid in cash upon completion. The proposed transaction builds on Philips’ earlier acquisition of Color Kinetics and provides the company with a leading position in the North American luminaires (also known as ‘lighting fixtures’) market. The deal vaults Philips ahead of General Electric in the share of America's lighting market and adds to its presence in the country's expanding market for energy-saving light bulbs.
Nokia ups global market share in Q3
Nokia increased its market share for the fifth consecutive quarter, while Samsung Electronics upstaged Motorola as the world's second-biggest mobile handset manufacturer, a survey by research firm Gartner showed. Nokia increased third-quarter market share in unit sales to 38.1% from 35.1% in the same period a year earlier, according to the Gartner report. Samsung increased its share to 14.5% from 12.2%. Motorola's share fell to 13.1% from 20.7%. Apple's iPhone sold more than one million units in the quarter ended September, capturing about 2.5% share in North America. Sony Ericsson boosted its share to 8.8% from 7.8% in the third quarter a year earlier. LG had 7.1% of the global market, up from 6% a year earlier. Meanwhile, Gartner said global wireless handset sales will rise to 1.13bn units or slightly higher this year, a growth of about 14%, in line with its previous forecast. Global mobile handset sales rose 15% to 289mn units in the July-September quarter, led by Asia-Pacific, Eastern Europe, the Middle East and Africa. Unit sales are expected to rise 10-15% this quarter from the previous three months.
Other key global news
Morgan Stanley's Zoe Cruz, co-president and previously considered a potential successor to CEO John Mack, is leaving the Wall Street firm. Morgan Stanley said that effective Dec. 1, Walid Chammah and James Gorman will become co-presidents, reporting to Mack. Cruz, the highest-paid female executive on Wall Street, is leaving Morgan Stanley after 25 years. She assumed her current position in February 2006, after having served as acting president since July 2005.
Rio Tinto announced a package of measures, including a boost to its share dividend, that bolsters its defence against BHP Billiton's hostile takeover. It also reasserted its belief that the offer price from its larger mining rival was undervalued. Still, BHP Billiton remained confident about the success of its bid to combine with Rio Tinto.
Northern Rock, a distressed British bank, named a consortium led by Sir Richard Branson's Virgin Money as the preferred bidder for its purchase. The consortium promises to pay back immediately £11bn (US$23bn), or almost half, of the money lent to Northern Rock by the Bank of England in a rescue package. Northern Rock shareholders objecting to Virgin's deal threw their support behind a rival bid being mooted by Olivant, a private-equity firm.
Ping An Insurance, a Chinese insurer, took a 4.2% stake in Fortis, a Belgian-Dutch financial company, becoming its largest shareholder. Chinese finance companies are estimated to have spent around US $17bn this year buying stakes abroad, including some in Blackstone Group, Bear Stearns and Barclays.
Eni SpA, Italy's biggest oil company, agreed to buy Burren Energy Plc for 1,230 pence a share, valuing the entire existing issued share capital of the British firm at approximately £1.74bn.
