News Highlights - Week of 10 - 14 October 2011
Last week the Philippines accepted a total of US$1.3 billion in a buyback of EUR- and US$-denominated bonds. In line with the buyback exercise, the government raised US$50 million through the reopening of its bonds maturing on 23 October 2034 with a coupon of 6.375%. The Bureau of the Treasury also launched its second retail treasury bond offering of the year. On the corporate front, Banco De Oro Unibank Inc. issued PHP6.5 billion worth of unsecured subordinated notes that qualify as Tier 2 capital. Finally, in response to the weakening global economy the Philippine government unveiled a PHP72.1 billion fiscal stimulus package to boost the country's growth through the first half of 2012.
*In the People's Republic of China (PRC), the Ministry of Railways sold CNY10 billion worth of 5-year bonds and CNY10 billion worth of 20-year bonds. These bonds qualify for the 50% reduction in the tax on interest income as recently announced by the National Development Reform Council. The Export-Import Bank of Korea issued KRW170 billion worth of 1-year zero-coupon bonds and Shinhan Bank issued KRW100 billion of 2-year bonds. In Malaysia, Kuala Lumpur Kepong sold MYR300 million worth of 5-year Islamic bonds, while TRIplc issued MYR240 million worth of medium-term notes in several tranches that were guaranteed by Danajamin Nasional.
*Bank Indonesia's Board of Governors cut the benchmark rate by 25 basis points to 6.50% in its meeting on 11 October. The Bank of Korea's Monetary Policy Committee decided to maintain its 7-day repurchase rate at 3.25% in its meeting on 13 October. The Monetary Authority of Singapore announced that it will continue with a policy of modest and gradual appreciation of the Singapore dollar, but will reduce the slope of the policy band to the prevailing level of the nominal effective exchange rate.
*Inflation in the PRC fell in September to 6.1% year-on-year (y-o-y) from 6.2% in August. Growth in the PRC's producer price index also eased to 6.5% y-o-y from 7.3% in August.
*Singapore's economy expanded 5.9% y-o-y in 3Q11, according to advance estimates released last week by the Ministry of Trade and Industry. Meanwhile, Malaysia's industrial production index rose 3.0% y-o-y in August following a revised 0.5% y-o-y decline in July. Also, manufacturing sales posted 10.8% y-o-y growth in August compared with revised 9.5% growth in July.
*The PRC posted a trade surplus of US$14.5 billion in September, the smallest since May, due to weakening demand from developed economies. Export growth fell to 17.1% y-o-y in September from 24.5% in August. In the Philippines, exports fell 15.1% y-o-y to US$4.1 billion in August, the steepest decline since September 2009.
*The M3 money supply in the Philippines grew 9.4% y-o-y to PHP4.3 trillion in August. Liquidity was fueled by the expansion of net foreign assets at a pace of 21.7% y-o-y on sustained inflows from overseas Filipino remittances and portfolio and direct investments.
*Government bond yields fell for all tenors in Indonesia and for most tenors in the PRC, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam. The yield spread between the 2-year and 10-year maturities narrowed for most emerging East Asian markets while it widened for Hong Kong, China; Malaysia, and Thailand.
The U.S. State Department on Thursday said it could not confirm that former Libyan leader Muammar Gaddafi has been captured and wounded in both legs.
Muammer Gaddafi "We've seen the media reports but can't confirm them," State Department spokeswoman Beth Gosselin told Reuters. Reuters reported that the deposed Libyan leader had been captured and wounded in both legs, citing National Transitional Council official Abdel Majid. "He's captured. He's wounded in both legs... He's been taken away by ambulance," the senior NTC military official told Reuters by telephone.
Gaddafi was captured and wounded near his hometown of Sirte at dawn on Thursday as he tried to flee in a convoy which NATO warplanes attacked, Majid said. The senior NTC military official told Reuters by telephone that the head of Gaddafi's armed forces Abu Bakr Younus Jabr had been killed during the capture of the Libyan ex-leader.
Muammer Gaddafi "We've seen the media reports but can't confirm them," State Department spokeswoman Beth Gosselin told Reuters. Reuters reported that the deposed Libyan leader had been captured and wounded in both legs, citing National Transitional Council official Abdel Majid. "He's captured. He's wounded in both legs... He's been taken away by ambulance," the senior NTC military official told Reuters by telephone.
Gaddafi was captured and wounded near his hometown of Sirte at dawn on Thursday as he tried to flee in a convoy which NATO warplanes attacked, Majid said. The senior NTC military official told Reuters by telephone that the head of Gaddafi's armed forces Abu Bakr Younus Jabr had been killed during the capture of the Libyan ex-leader.
Debt Champions
In the past (Q4) quarter, AAPL increased its cash, short and long-term investments from $76.2 billion to $81.6 billion (which, however, skeptics will point out was only half the cash growth rate from Q2 to Q3). In 2011 alone, the company that Steve Jobs built generated $22 billion in total cash. Ironically, that is precisely how much the company's market cap is lower by in the after hours session. If AAPL is unsure what to do with all that cash, which would make it the world's biggest hedge fund, it could hire all the stock experts on Twitter, and become the best funded trading operation in the world, which would naturally be buying its own stock all day long (and, if it were to hire a few JPM/BofA/MS traders, buy CDS on itself). Alas, for the CDS plan to work, it would need to issue some debt: the company is still completely debt free.
Everyone has heard of the Big Mac [7]Index, the Misery Index [8], even
the Shoe Thrower [9]Index. But the Book Cooking Index? This latest
addition to the compendium of oddly named yet extremely fascinating
"indices" is based around the statistical irregularity known as
Benford's law, according to which within sets of numbers that span
orders of magnitude, the distribution of first digits is strikingly
regular: numbers beginning in 1 occur about 30% of the time, those
beginning in 2 about 18% of the time, falling to roughly 5% of the
time for the number 9. Specifically, as noted by the keenly observant
Jialan Wang of Washington University in St. Louis, "there are more
numbers in the universe that begin with the digit 1 than 2, or 3, or
4, or 5, or 6, or 7, or 8, or 9. And more numbers that begin with 2
than 3, or 4, and so on. This relationship holds for the lengths of
rivers, the populations of cities, molecular weights of chemicals, and
any number of other categories." The most curious application of this
law resides in the field of corporate fraud, "because deviations from
the law can indicate that a company's books have been manipulated."
Here is where things get interesting for fraudulent corporate America:
the inquisitive Wang "downloaded quarterly accounting data for all
firms in Compustat, the most widely-used dataset in corporate finance
that contains data on over 20,000 firms from SEC filings" and "used a
standard set of 43 variables that comprise the basic components of
corporate balance sheets and income statements." Her results were, in
a word, startling.
Summary:
International Financial Reporting Standards (IFRS) provide the basis
for financial reporting to the capital markets in an increasing number
of countries around the world. Over 100 countries either use or are
adopting IFRS. Those companies already on IFRS have their own
challenges as the pace of standard- setting from the International
Accounting Standards Board (IASB) has been intense in recent years
with a constant flow of changes for companies to keep up with.
One of the major challenges of any reporting framework is how best to
implement it in the context of a specific company or industry. IFRS is
a principles based framework and short on industry guidance. PwC looks
at how IFRS is applied in practice by oil and gas companies. This
publication identifies the issues that are unique to the oil and gas
companies industry and includes a number of real life examples to
demonstrate how companies are responding to the various accounting
challenges along the value chain.
Of course, it is not just IFRS that are constantly evolving but also
the operational issues faced by oil and gas companies with the heavy
demand for capital and risks faced by the industry driving more
cooperative working relationships.
We look at some of main developments in this context with a selection
of reporting topics that are of most practical relevance to oil and
gas companies' activities. The new standards on joint arrangements,
consolidated financial statements and disclosure of interests in other
entities will be of particular interest to companies in the oil and
gas sector.
The debate about specific guidance for exploration, evaluation,
development and production of oil and gas continues. This publication
does not describe all IFRSs applicable to oil and gas entities but
focuses on those areas that are of most interest to companies in the
sector.
The ever-changing landscape means that management should conduct
further research and seek specific advice before acting on any of the
more complex matters raised. PwC has a deep level of insight into and
commitment to helping companies in the sector report effectively. For
more information or assistance, please do not hesitate to contact your
local office or one of our specialist oil and gas partners
Scam 2.0: $40bn of black money may have come back to India
On Tuesday, Bihar Chief Minister Nitish Kumar flagged off Lal Krishna Advani's Jan Chetna Yatra, one of whose aims to is pressure the government to act against corruption and bring back the black money stashed abroad.
Here's a thought: Maybe Advani can take a break and chat up some smart cookies in Mumbai during his yatra. It seems some of the black money has already come back and is nesting in our own backyard. It is sloshing about in the stock markets and bank accounts.
Here's the stunner: The amounts involved could be as large as USD 40-45 billion and this is money that came back just in one year, 2010-11.
Three analysts from Kotak Securites have probably struck paydirt in unearthing a scam that will be bigger than the 2G, Commonwealth and multiple illegal mining scams put together.
Howzatt?
Well, the trio—Sanjeev Prasad, Sunita Baldawa and Amit Kumar—have been poring over our export numbers and foreign investor inflows and have proved that it just does not add up. And if it does, maybe all the fuss kicked up about Swiss banks and illegal funds abroad has sent black money scurrying back to home base.
India, it seems, is the ultimate safe haven for Indians' black wealth.
Of course, Messrs Prasad, Baldawa and Kumar do not put it quite that way. This is what they say in a research report dated 10 October:
"Our study of exports data of major engineering companies (including automobiles and metals) shows that the increase in their exports does not reconcile with the steep increase in official exports data. In fact, the gap is quite substantial."
How substantial? The official export data shows 79% year-on-year export growth in 2010-11. Exports by engineering companies in the BSE 500 (the cream of India Inc) show just 11% growth. If you want to know the difference in dollars, the engineering export jump accounts for USD 30 bn (up from USD 38 billion to USd 68 billion). The figures for the BSE 500 show a jump of just Rs 61 billion (rupees, not dollars). Converted at the rate of USD 1= Rs 44, this is just USD 1.38 billion.
Where did the rest of the $28-and-odd billion come from?
From itsy-bitsy small engineering companies that are not in the BSE 500? Or was so much of illegal ore mined and sent by the Reddy brothers and their ilk in Goa, Odisha, Karnataka, and Jharkhand?
Or, as the Kotak trio suggest, could be it all be overinvoiced exports? The report says:
"Some reports have alleged that some individuals may have been compelled to bring back funds through the official route by simply overinvoicing exports or even resorting to fraudulent exports thanks to (1) increased international scrutiny of unaccounted funds in bank accounts in Switzerland and other financial centres, and (2) heightened debate in India about action against unaccounted overseas wealth."
The Kotak report offers two "egregious" examples as exhibits A and B in its effort to show that something's clearly wrong. In 2010-11, exports of metals and metal products soared from $13 bn to $ 29 bn. But figures for 22 such companies in the BSE 500 show a growth of just Rs 37 bn (yes, rupees again, not dollars). This growth is less than $1 bn. So how did overall exports of metal and metal products rise $16 bn?
Egregious example B relates to "copper articles" whose exports grew by a whopping four times or more from Rs 8,500 crore to Rs 36,700 crore. How did this miracle happen in a metal India is not known to export normally? China apparently bought a whole lot of it.
So there is a strong possibility of there being a China angle to the skulduggery as well. Are the Chinese in cahoots with Indian black money vendors? Is China an alternative safe haven for Indian crooks?
The second route used by the black moneymongers is possibly the foreign institutional investment (FII) route. The Three Kotak Musketeers have smelt a rat here, too.
According to them, 2010-11 foreign investor flows added up to $22 billion, according to official figures. But a cross-check with international sources like exchange-traded funds and EPFR Global (which tracks $ 15 trillion in global investment flows) shows that not more than $4.5 billion came to India. Though it is obvious that EPFR data is not 100 percent foolproof, since its sometimes excludes sovereign and private equity funds, the gap of $17.5 billion is simple too huge to be explained by normal data omissions.
Drawing a cautious conclusion, the Kotak trio calls for better disclosures by FIIs in view of the implications for India's foreign exchange reserves and balance-of-payments. "More extensive disclosures could well counter any potential concerns that flows could be camouflaging (1) hot money/illicit, unaccounted or black money from overseas accounts of resident Indians, and (2) high levels of proprietary positions of global investment banks, and (3) round-tripped money from Indian companies."
Put another way, there is a strong possibility that hot money has flowed back into India as things have gotten hotter abroad. In recent months, the Swiss authorities have signed deals with UK and Germany to levy a tax on accounts held by UK and German nationals. In India, the finance ministry has been waffling about double-tax treaties and ruling out amnesty schemes when they could have done the same deal with the Swiss banks. At worst, we would at least have got some additional revenues.
Firstpost has reported on how there is the growing possibility of international whistleblowers publishing lists of Indans with accounts in Swiss banks, which could unmask many politicians, film stars, and even cricketers.
Firstpost has also published several reports on black money, and reported on how the Indian economy had suddenly become an export tiger by showing huge leaps in exports to China, Hong Kong and the Middle East, among other places. In 2011-12, we have seen 53 percent growth in exports (April-August), with July alone showing a spectacular 81 percent.
The unreality of these figures has been clear for some time now, and Commerce Secretary Rahul Khullar has been predicting a slowdown for a few months now. In August, he said he expected a slowing of exports "with almost immediate effect" and that India "would be lucky" to achieve 20 percent export growth in 2011-12, The Financial Express reported.
Far from scripting a huge export success story, the government is working on policies to assist exporters.
Quite clearly, officials know something about the export boom that the official figures do not tell.
Looks like the Kotak Trio have done what the finance ministry could not: find out where the money is. It is here – at least a huge chunk of it.
