Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading

Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Banks

Corporate India frets over debt levels


Posted on October 22, 2014

Bloomberg Photo Service 'Best of the Week': A man looks at a large screen showing television coverage of Narendra Modi, prime ministerial candidate of the Bharatiya Janata Party (BJP), during the Indian general election, and the latest figures for the S&P BSE Sensex and the CNX Nifty index at the lobby of the Bombay Stock Exchange (BSE) in Mumbai, India, on Friday, May 16, 2014. Indian stocks rose to all-time highs in a volatile trading session as early vote counting showed the main opposition alliance set for the biggest election win in 30 years. Photographer: Vivek Prakash/Bloomberg©Bloomberg

Anil Ambani may be feeling a little smug. Barely two weeks after India’s election in May, the canny billionaire rushed to raise around $800m in equity for Reliance Communications, his heavily indebted mobile telecoms operation. Always a shrewd operator, he sensed that India’s post-election optimism might not last.

Rival industrialists such as billionaire Gautam Adani also began readying fundraising plans, hoping to patch up their balance sheets, which had been damaged in the country’s recent downturn. Few, however, have yet managed to follow Mr Ambani’s lead.

    Now, with foreign investors growing nervous about the global economy, the risk is that corporate India may already have missed its chance to raise capital – and, with it, an opportunity to kick off a virtuous cycle of debt repayment and deleveraging. “The idea that capital markets are going to bail out all these overleveraged companies, that moment is probably now gone,” says the head of one global investment bank in Mumbai.

    At one level, such gloom seems odd. India’s prospects are improving. Prime Minister Narendra Modi appears to have rediscovered his zeal, following victories in regional elections last weekend. His government has unveiled new reforms in recent days, including ending diesel subsidies and raising gas prices. Business leaders are enthused. Economic data are moving in the right direction too.

    But global economic difficulties are also real enough, making fund managers less likely to take risky bets in emerging economies. India’s industrial and banking sectors remain badly undercapitalised. Major conglomerates – such as London-listed Vedanta and Mr Ambani’s wider Reliance Group – carry heavy debts. Many smaller infrastructure and power businesses are barely solvent. Indian banks are also struggling with bad loans, and must raise $200bn by 2018, according to the rating agency Fitch.

    All of this matters because India’s economic fortunes are unlikely to recover until these industrial groups increase their spending, which has collapsed over recent years. Even an optimist like Arundhati Bhattacharya, chairman of State Bank of India, says such a recovery is unlikely for at least a year. If investors get spooked, and equity markets close up, it will take longer still.

    Podcast

    Narendra Modi and his plan to transform India

    Generic podcast

    India’s prime minister has grabbed the headlines with high profile meetings with leaders of the US, Japan and China, and announcing a successful satellite mission to Mars. Many see him as the best hope India has had for years to transform the country into an industrial power. Victor Mallet, South Asia bureau chief, talks to Fiona Symon about Mr Modi’s ambitions and the things that stand in his way.

    Investors have reason to be wary. Those brave enough to back struggling Indian conglomerates over recent months have done badly. RCom’s stock is down by around a third since June. GMR Infrastructure and Jaiprakash Associates – two other troubled industrial groups that managed to raise funds following India’s election – have also seen sharp falls.

    Further signs of nerviness may also dent government plans to sell stakes in larger state-backed businesses, such as miner Coal India and energy explorer ONGC. Whether these move ahead now depends partly on Mr Modi’s willingness to sell at a generous discount. Even if he does, it will only complicate the task facing capital-hungry businesses by crowding out their own attempts to raise funds.

    Optimism about Mr Modi’s administration and signs of an improving economy seem unlikely to counteract wider worries about a global slowdown – or any further rise in anxiety about the state of developing economies.

    Worse, Indian companies in sectors ranging from power and steel to aluminium and mining are yet to see much of an improvement in their operating environments. Many have encountered worsening conditions in 2014 – notably those caught in the aftershocks of a supreme court ruling last month, cancelling more than 200 coal mining licences belonging to private sector businesses.

    If equity fundraising becomes less likely, however, it makes other steps to curb debts even more important. Some of these can only come from Mr Modi’s government. Others lie in the hands of bankers and industrialists – such as a willingness to write down past debts, or sell off assets at reasonable valuations.

    Either way, the path forward for Indian companies will be difficult. Hopes that a post-election market boom combined with “big bang” reforms from Mr Modi would quickly cure longstanding problems of indebtedness were always far-fetched. India’s industrialists took years to get into this hole. It will take just as long to dig themselves out.

    james.crabtree@ft.com