News Highlights - Week of 17 - 21 October 2011
The People's Republic of China's (PRC) gross domestic product (GDP) grew 9.1% year-on-year (y-o-y) in 3Q11, down from 9.5% growth in 2Q11. This is the slowest quarterly GDP growth rate since 2009. The slowdown was due largely to weaker exports. Domestic demand held up relatively well, buoyed by strong industrial production and retail sales growth.
*The Bank of Thailand decided on 19 October to leave its policy rate unchanged at 3.5%. Bangko Sentral ng Pilipinas likewise kept its overnight borrowing and lending rates steady last week at 4.5% and 6.5%, respectively.
*Hong Kong, China's consumer price inflation (CPI) accelerated slightly in September to 5.8% y-o-y from 5.7% in August, after a cooling down from a 15-year high in July. Meanwhile, Malaysia's CPI slightly increased to 3.4% y-o-y in September from 3.3% in the previous month.
*In the PRC, the industrial production growth rate rose to 13.8% y-o-y in September from 13.5% in August, while retail sales grew 17.7% y-o-y in September from 17.0% in August. Meanwhile, department store sales in Japan declined for the third consecutive month in September.
*Remittances to the Philippines from overseas workers grew 11.1% y-o-y in August to reach US$1.7 billion. From January through August, cumulative remittances rose 6.9% y-o-y to reach US$13.0 billion.
*Last week, China National Petroleum Corporation (CPNC) priced CNH3 billion of bonds, which were issued through CNPC's offshore entity CNPC Golden Autumn. The Korea National Oil Corporation issued US$1.0 billion worth of 5-year bonds at a yield of 4.137%. The proceeds from the sale will be used to finance overseas oil projects. Malaysia's Khazanah Nasional Bhd. issued its first Islamic CNH bond amounting to CNH500 million through its special purpose vehicle, Danga Capital Bhd. The issue had a tenor of 3 years and was priced at 2.90%.
*The Philippine Bureau of the Treasury issued PHP110 billion worth of Retail Treasury Bonds (RTBs). Of the total amount, PHP54.97 billion were 10-year bonds and PHP55.12 billion were 15-year bonds. The 10- and 15-year RTBs have coupon rates of 5.75% and 6.25%, respectively.
*The PRC's Baosteel was given approval last week to issue CNH bonds in Hong Kong, China. Baosteel is the first non-financial entity from the mainland given approval to issue CNH bonds. Non-financial mainland entities were previously not allowed to issue CNH bond unless they were issued via an offshore vehicle or subsidiary. Meanwhile, Hong Kong, China's property developer Wharf Holdings plans to issue at least SGD100 million worth of bonds with tenors of 7 years and yield guidance at 4.3%-4.4%.
*Government bond yields fell last week for most tenors in the PRC, Indonesia, the Philippines and Thailand, while yields rose for all tenors in the Republic of Korea and Singapore and for most tenors in Malaysia and Viet Nam. Yield movements were mixed in Hong Kong, China. Yield spreads between 2- and 10- year maturities widened in Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; and Singapore, while spreads narrowed in other emerging East Asian markets.
India is set to demand a review of provisions of capital gains taxation when it meets Mauritius in December second week to renegotiate the Double Tax Avoidance Agreement (DTAA) that was signed way back in 1983.
Under the DTAA, capital gains on sale of assets in India by companies registered in Mauritius can only be taxed in Mauritius. While short-term capital gains are taxed at 10 per cent in India, they are exempt in Mauritius. So, such companies escape paying taxes in both countries.
Revenue department officials claim that the treaty is being misused for round tripping. Here, an investor exploits the tax advantages offered by a country (zero capital gains tax in Mauritius) with which India has a DTAA, takes money out of India and finally brings it back disguised as foreign investment.
The officials, however, said Mauritius "may not agree with our proposals" without a fight.
The final agenda drawn by the revenue department is being vetted by the ministry of external affairs. The move comes amidst the flak the government has been drawing from all quarters including the civil society, Opposition political parties and the Supreme Court over its alleged inaction on curbing black money generation and bringing it back from bank accounts in foreign jurisdictions.
Earlier, India and Mauritius had agreed to review the operations of a Joint Working Group set up in 2006 to strengthen the mechanism for exchange of information under the India-Mauritius tax treaty, besides putting in place adequate safeguards to prevent misuse of the DTAA.
The renegotiation will seek provisions for past information and banking information, the sources added. The tax treaty between the two nations has facilitated huge foreign investment in the country. Many venture capitalists have structured investments in India, taking advantage of the benefits provided by the treaty.
It is to be noted that Mauritius tops the list of countries brining in foreign direct investment in India. According to the Department of Industrial Policy and Promotion, bulk of the FDI inflows into the country between April, 2000 and January, 2011 has happened via Mauritius-based companies. During this period, FDI from Mauritius stood at Rs 2,69,395 crore or 41 per cent of the total FDI inflows into India.
Earlier, Finance Minister Pranab Mukherjee had said India is constructively engaged with Mauritius to update the existing DTAA convention in line with international practices.
So far, as many as 81 tax treaties with foreign countries have been amended to enable better flow of financial information and 14 tax information exchange agreements signed.
Ballooning Natural Gas Supply-Demand Deficit to Fuel LNG Imports: ICRA
India's natural gas supply has been adversely impacted in 2011-12 due to fall in KG D6 production to 46.6 MMSCMD in H1 2011-12 from 55.9 MMSCMD in 2010-11. KG D6 production is likely to remain at subdued levels over the next couple of years, especially in comparison to the earlier anticipated production of 60-80 MMSCMD.
Regarding domestic gas production in the medium term, Mr. K. Ravichandran, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA stated, "Domestic natural gas supplies are expected to increase to around 153 MMSCMD by 2014-15 from 143 MMSCMD in 2010-11. The current estimate is about 22% lower than our previous estimates of 195 MMSCMD primarily due to lower KG-D6 production and delays anticipated in commissioning of KG satellite fields."
On the demand front, despite the significantly high potential across several sectors, the realisable demand for natural gas will be a function of gas supplies in the market at reasonable price, the price competitiveness of gas as compared to alternative fuels, timely commissioning of the proposed transmission pipeline infrastructure, and regulatory initiatives in the power sector. ICRA believes that demand will increase from new customers once the bottlenecks in the trunk pipeline are cleared in the near to medium term. Overall, ICRA expects gas demand to rise to around 410 MMSCMD by 2019-20 from the actual consumption of around 177 MMSCMD in 2010-11.
Commenting on increasing domestic supply-demand gap, Mr. Ravichandran mentioned "India needs to secure additional supply of LNG on a long-term basis, especially in view of less-than-anticipated domestic supply and possible shortage of LNG after a couple of years. India's reliance on LNG is expected to increase further, which will pose significant risks in a scenario of tight LNG supply demand scenario, leading to low availability and high prices of spot LNG."
As regards gas allocation and pooling, an inter-ministerial committee has recently recommended i) preferential allotment of available domestic natural gas to core sectors, that is, fertiliser and power sectors, along with a certain amount reserved for the CGD/CNG sector, ii) cap on domestic gas allocation to certain other sectors and iii) inferred gas price to be used as benchmark for domestic gas pricing. The committee has not suggested any form of pooling at the all-India level across industries but the objective has been assumed to be served by indirect pooling at the end of consumers, with price-sensitive sectors (fertiliser/power/CGD) getting a higher share of cheaper domestic gas. ICRA believes that the policy recommendations, if accepted, will provide more clarity to gas usage mix and pricing, which in turn would help companies across industries to formulate their capital expenditure plans (capex) and future requirements of natural gas.
As R-LNG is an expensive fuel as compared to domestic gas and domestic/imported coal, it is critical for a power producer to tie-up domestic gas for a large share of fuel requirements. ICRA believes that the additional demand from power (around 32 MMSCMD by 2012-13) along with lower KG D6 production pose significant fuel supply risk for gas-based power producers over the medium term. Commenting on this, Mr. Ravichandran stated "If the recommendations of the recent Inter-Ministerial Committee are accepted and implemented by the GoI, the fuel supply risk might be partly mitigated as the new power plants could get domestic gas allocation to the extent of 60-70%". ICRA expects that levellised tariff for a new gas based power plant would be competitive in comparison to those based on imported coal, if R-LNG share as percentage of total gas requirement remains about 30-40%.
Regarding the credit outlook for ICRA-rated companies in the Indian downstream natural gas sector, most of them are in the process of implementing large capex programmes, considering that the sector is viewed to have good long-term demand prospects. While the large capex is a credit concern, track record of executing projects of a similar nature, comfortable capital structure, regulated returns and steady cash flows are the mitigating factors from the credit perspective.
" The prospect of a potential recession in both the United States and Europe has recently increased, driving a sharp reduction in global risk appetite. Traditionally, a slowdown in developed countries - and
a decline in risk appetite - have had an adverse impact on emerging economies and their asset values. However, in the aftermath of the 2008 global financial crisis, many emerging countries were able to recover from the economic slowdown more quickly than developed economies, with the advent of counter-cyclical fiscal and monetary policies, as well as a dramatic increase in global liquidity. Can this
scenario be repeated?
Authored by Bunt Ghosh, Head of Emerging Market Strategy and Risk, Anja Hochberg, Head of Investment Strategy for the CIO Office and Adrian Zürcher, Emerging Market and Equity Strategist for the CIO Office, the paper discusses how emerging markets - while not immune from a potential global slowdown - may again have the capacity to successfully respond to the current market environment with similar counter-cyclical measures"
Download the full paper at
If you can't access the same
Read
Nokia, The world's largest cellphone maker will unveil its first phones using Microsoft software on Wednesday, hoping they will kick-start a rescue of its ailing smartphone business.
Nokia is widely expected to launch two to three new models using the software, including the Searay which was first shown in a leaked video months ago and looks very similar to its current N9 handset.
The Finnish company, left in the dust by Apple and Google in the booming smartphone market, decided to ditch its aging Symbian platform in favor of Microsoft's software in a risky deal in February that spooked investors.
Nokia has not rushed with the new phones.
Nimbler rivals HTC, Fujitsu and Samsung Electronics have beaten it with models using the latest Windows software, Mango.
Nokia and Microsoft have said they would focus on close co-operation with operators to support the platform.
"Operators really want to have another company on the scene: they don't want Google and Apple to rule the mobile universe," said Magnus Jern, chief executive of Barcelona-based mobile app development firm Golden Gekko.
Analyst Carolina Milanesi from research firm Gartner said Nokia should price its first models below those of Samsung and HTC, and then market them heavily.
"Price is going to be the key — you need to give a bit of the carrot to consumers and developers," she said.
Nokia's market value has halved since February as investors are unsure whether it can ever regain the market share it has lost.
Its third-quarter results beat low expectations, sparking hopes that the company can survive a painful revamp, but smartphone sales still dropped 38 percent from a year ago.
Nokia said last week that its first Windows phone would reach selected markets this year, but declined to say whether more than one model would be launched this week.
With Microsoft software, Nokia hopes to gain the kind of attention Apple and Google have attracted from software developers that enrich their devices.
There are some initial positive signs.
"We are seeing Windows being acknowledged as platform No 3," said Golden Gekko's Jern, adding that Microsoft and Nokia, are subsidizing app development to kick-start the new platform.
"We are working on 10 applications of which five are paid by Nokia," Jern said.
Research firm Strategy Analytics expects Microsoft to double its share of the Western European smartphone market during 2012 to 12.3 percent, helped by the Nokia partnership.
The 12.3 percent forecast for Microsoft's software refers to its use across several mobile phone makers and compares with the much higher market share Nokia's Symbian platform alone previously enjoyed — it controlled 41 percent of the West European market as recently as the first half of 2010.
The annual Nokia World media and industry event in London on Wednesday includes speakers from the world's largest carriers: China Mobile, Vodafone, Orange and MTN.
Heineken maintain its Q4 outlook as company sees strong Q3 beer sell.
The judge presiding over the spot-fixing trial has instructed the jury at a London Court on Tuesday to accept that Mohammad Amir and agent Mazhar Majeed were involved in fixing.
Former Pakistan Test captain Salman Butt and fast bowler Mohammad Asif face charges of conspiracy to cheat, and conspiracy to obtain and accept corrupt payments, following a Lord's Test in August last year when they allegedly conspired with Majeed, Amir and other people unknown to bowl pre-planned no-balls. Butt and Asif deny the charges.
The comments came as the judge began his summary of the trial at Southwark Crown Court and were the first official guidance given to the jury on Amir and Majeed. However, the judge added that their apparent guilt should not bias the fate of Butt and Asif.
"You can proceed on the basis that Majeed and Amir were involved in the spot-fixing at Lord's, as all parties agree that is the case," Justice Cooke told the jury. "But don't be concerned at their absence."
"You should return true verdicts according to the evidence. Don't let sympathy enter your verdicts and don't speculate on what you might have heard outside of this courtroom. You should base your decision on the evidence alone and draw inferences, which I mean by drawing common sense conclusions."
Earlier, Butt's lawyer Ali Bajwa completed his closing arguments, stressing that it was possible for no-balls to have been fixed without the knowledge of his client.
He suggested there was a criminal conspiracy between Majeed and Amir and possibly Asif, but insisted that Butt played no part in any spot-fixing that might have occurred.
"The prosecution doesn't want the truth to get in the way of a jolly good theory but you have to go on evidence, not suspicion. Guess work cannot play a part in your deliberations," Bajwa said.
In his closing, Asif's lawyer Alexander Milne urged the jury to "follow the money" after police failed to find any marked cash from an undercover reporter in his client's room during initial police raids.
"Where did that 150,000 Pounds (that Majeed took from the undercover reporter) go?" Milne asked the jury. "It went to Mr Butt and Mr Amir. It's up to you members of the jury what conclusions you draw from that but none of that money went to Mr Asif.
"If Majeed was that keen to pay Mr Asif, he would have found a way. If you follow the money, you will find that it does not lead to Mr Asif," Milne added.
