R-ADAG looks to buy AIG’s life insurance business in Asia

R-ADAG has set its eyes on acquiring the life insurance business of AIG in Asia (ex-India); this comes close after Group Company Reliance Money acquiring 15% stake in Hong Kong Mercantile Exchange, which came on the back of a partnership with local firm Goldride Securities, for distributing financial products and services. Rumors have it that Citibank, acting on behalf of AIA, has approached ADAG to buy out AIA. ADAG is likely to be one of several bidders looking to buy these AIG businesses The AIG deal if goes through, could well be the second-largest overseas buyout by an Indian firm pegged at an asking price of around $10 bn, ADAG however is valuing between $5-6 bn. This deal would also make Reliance the largest life insurer in South-East Asia.

AIG has been going through tough times in recent times, last month, the US nationalised AIG, which was on the brink of collapse by acquiring 80% in the insurance giant with an $85 bn loan and restructured its top management. AIG, which had assets in excess of $1 trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. Globally, AIG operates majorly as AIA while in some markets like Australia and New Zealand, it functions as AIG. AIG’s move to sell AIA is at variance with its earlier statement to retain a continuing ownership interest in its foreign life insurance operations. Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110 b in 2007, life insurance generated $53.6 bon and general insurance $51.7 bn. Asset management and other financial services are comparatively smaller business areas of AIG globally.

Meanwhile R-ADAG already has a life insurance company venture in India, viz Reliance Life Insurance. It is an associate company of Reliance Capital, the flagship financial services firm of the group, which has interests in asset management, stock broking, insurance, proprietary investments, private equity and other activities in financial services. In India, AIG has a 24:76 life insurance JV. This business is unlikely to be part of the proposed deal with Reliance-ADAG, as the Tatas may have a right of first refusal in any sale by AIG.

Nokia to Manufacture Telecommunications Equipment in Chennai

Nokia Siemens Network is also heading for Chennai to manufacture and distribute mobile communication infrastructure equipment. Earlier, another Telecom giant Motorola had chosen Chennai to set up it manufacturing base for mobile phones in India. The present investment by Nokia is not for mobile phones, but for the base station equipment.

Nokia would be investing USD 70mn in its Chennai facility to manufacture Base Station Controllers, Flexi EDGE BTS, Microwave Radio, Access line-card products and other telecom equipment. The company is also planning to increase the production of units to 4,000 per month in span of next six to nine months.

India is increasingly attracted electronics and telecommunications equipment manufacturers for several reasons including engineering design capabilities and also to cater the growing telecommunications market more efficiently.

Domestic automobile sales grows marginally in September

Half yearly (Apr-Sep) Sales also rise

Domestic vehicle sales show marginal increase in sales in both September as well as half year ended September. The pre-festival season sales for the automobile industry showed that most segments recording a marginal increase due to increased marketing initiatives, coupled with inventory push. As per the figures released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales in the country increased by 2.8% to 108,823 units during September 2008, as compared to 1,05,822 units in the year-ago month, while motorcycle sales rose by 15.2% to 632,369 units, as against 548,816 units in the corresponding month a year ago. Total two-wheeler sales in September also soared by 14.5% at 7,78,424 units, compared with 6,79,766 units in the same month last year. Commercial vehicle sales, however, decreased marginally in last month to 42,698 units from 43,091 units in the year-ago period.

A company wise breakup of the sales figures show that companies such as Hyundai, Mahindra & Mahindra (M&M) and Hero Honda posted impressive growth in wholesale dispatches to dealers as they tried to push inventory for the Diwali and Navaratri festivals. Boosted by a healthy demand for its i10 model, Hyundai Motor India (HMIL) reported 23% growth for September, selling 22,311 units in the domestic market. M&M also reported an upswing in sales, registering 31% growth by selling more than 16,000 units of Scorpio, Bolero and other models. Demand for Logan, a product jointly manufactured by M&M and Renault, however, faltered as sales slipped by nearly 20% compared with those in the same period last year. Skoda Auto sold 1,213 units, recording growth of 34% against sales of 900 units in September 2007. Sales were generally helped by the Fabia hatchback. Maruti-Suzuki, the country’s biggest car-maker, however posted dismal growth of 2.5% for the month, selling 64,682 units in the domestic market.

Among companies with decline in sales, Tata Motors, posted a decline of almost 9% in domestic sales as a ramp-up in production of its new Indica Vista marred growth. The company sold 16,586 units of passenger vehicles during the month as against 18,216 units in the same period last year. General Motors posted a decline of 10% for the month under review, selling 5,154 units as against 5,751 units in the year-ago period. Honda Siel Cars India also saw a 45% drop in sales at 3,104 units compared with 5,674 units, mainly owing to a halt in production of the outgoing City model, which was replaced by a new model that was launched in the last week of September.

In the two-wheeler segment, market leader Hero Honda extended its lead over rival Bajaj Auto, recording a 22% rise in sales at 3.85 lakh units compared with 3.14 lakh units in the corresponding month last year. Second placed Bajaj Auto sold 2.18 lakh units, reported 6% growth. Meanwhile, TVS Motors, reported rise of 16% in the domestic market, selling 1.19 lakh units last month as against 1.02 lakh units in the same month last year.

For the half year to September, domestic passenger vehicles sales remained marginally high; car sales in April-September recorded a 5.39% increase at over six lakhs units despite the increase in interest rates on auto loans and commodity prices which kept many consumers away from buying vehicles. The sales of commercial vehicles during April-September remained challenging as medium and heavy commercial vehicle declined marginally 1.57% at 1.15 lakh units. As banks remained cautious in lending and credit became difficult to obtain, the demand of heavy commercial vehicles reduced. In contrast, light commercial vehicles recorded a robust 10% growth at 1.06 lakh units. Taking advantage of last year’s low volume base, two wheeler sales remained on a healthy track. Scooters sales grew 7.24% at 5.6 lakh units, motorcycles were up 12% at 30.63 lakh units, Mopeds grew by 6.05% and electric two-wheelers segment grew by 56.14%. Half yearly data ended September also showed production growth of 12.70% over similar period last year, which is higher than last year's growth in this period.

Kingfisher-Jet Collaboration ends Liberalisation with Cartelisation

The Kingfisher-Jet Air deal is cruel reminder how corporates can masquerade collaboration for cartelisation. Though there is nothing wrong in the cost rationalization objective of the deal. But, as pointed out by the two owners of the airlines that the deal will directed towards route rationalization. In other words two airlines will effectively kill competition on smaller routes, where only either of the airlines will fly at certain point of time. This will reduce the option available to the customers and will eventually kill the price difference available to customers.

The new alliance will have the quasi power in deciding the ticket pricing. The impact will be on airline service cost for ‘B & C class’ cities, where fare may rise more steeply than those in four metros. The fare reduction mantra which both these companies is mere public posturing in the current environment and is more aimed at diverting attention from negative response on some of the deal aspects. These heavily loss incurring airlines wouldn’t reduce fares, if they had to, they would have done it when government had announced tariff reduction on ATF.

Montek and Chidambaram mock India’s Economic Scenario

Montek Singh and Mr. Chidambaram for past few days have been giving some really exaggerating statements about the economy. They continue to assert that Indian economy will grow at 8%. Now, how that suppose to happen. The global credit lending is expected to come down drastically during next year and India desperately needs it to continue its infrastructure and capex. Indian companies were already raising debt for international market as credit rates in India were high. How are Indian companies expected to grow at same rate in this inconducive economic environment? Plus they were quick to add how fundamentally strong Indian economy is.

How come economy be fundamentally strong where commodities are playing havoc to the economy, crude prices have endangered the aviation sector and is pushing inflation, housing boom is about to go bust with high credit rates and our exports are threatened due to global slowdown. They were not done yet, they made another comment on liquidity situation.

Yes there is liquidity problem, there are not many ready to lend to consumers and corporates are finding it hard to credit at lower rate (which is next to impossible). There is credit problem in the economy, but what about the money that FIIs have brought into the market by selling share and converting them into dollars! The problem, we don’t think is of liquidity in the capital markets but of leveraging and speculation on cheaply borrowed money. Now that it is difficult to leverage and get cheap credit there aren’t many players to do so in the stock markets. So, we have more and more selling and less numbers of buyers.

Is P-Notes revision aimed at Realty stocks and Politico’s investment confidence?

P-Notes are back. After government cracked down on P-Notes last year to tame the bull-run, now government has revised it guidelines to enable foreign institutional investors to issue Participatory Notes where underlying asset is derivative. SEBI has also struck down the rule which limited the FIIs capacity to issue P-Notes only up to 40% of the value of assets held by a foreign fund.

Is the present move by government to remove restrictions on P-Notes aimed largely at Realty companies? Realty stock index on BSE has declined by 77% since the beginning of the year. It is the biggest decline amongst the sectoral indices on BSE. Last year’s favourite sectors i.e. Realty, Banks and Metals and Capital Goods all have been thrashed in the market this year.

Realty stocks gained prominence in last two years when large number of companies came out with IPOs and soon they were reports of politicians and their families having stakes in these real estate companies. Also, a number of politicians parked their money through hawala channels, which entered the market through P-Notes. Ever since the restrictions were imposed on Realty index has continued to slide. Financial crisis in the US took the shine off from FII and Hedge Funds, which had invested heavily in the real estate companies. P-Notes restriction took the toll of real estate stocks and they started falling like house of cards.

As the politicians lost most of their investments in stock market and the value of their real estate stocks came down to one-third of the investments, the government suddenly felt the need to bring back P-Notes, which it had describes as ‘Hot Money’ that created volatility in the markets. The much despised instrument, which was blamed for the skewed investment trend, is now the rescue measure to resurrect the market in same old way that had led to irrational exuberance in the market. Every one in the government is gung-ho that it will restore the “investors’ confidence”, it is really matter of concern for the individual investors that which ‘Investor’s’ confidence government wants to restore now.

Fox Star Inks deal with ‘Singh is King’ producer for India foray

Even though there is global financial and credit turmoil going on, Hollywood production studios entry into Indian film industry continues unabated. The latest to join the bandwagon includes Fox Star Studios, a JV between Twentieth Century Fox and Star, who have entered into a multiple-film deal with producer and director of the latest blockbuster film ‘Singh is King’ Vipul Amrutlal Shah. 'Singh Is King' released in August, starring the current most bankable star ‘Akshay Kumar’ went on to cast its magic all over India as well as in foreign countries, including neighboring Pakistan. The movie also is considered to have got the biggest opening ever for a Hindi movie with a global box office figure of $16.1mn. Shah has also directed hit films earlier which include Namastey London, Ankhein and Waqt.

The deal includes the development and production of an action movie and a romantic comedy and a first look deal on Shah’s future projects. The visual film effects event film will be supported by a team of top visual effects directors from Hollywood and supervised by Fox’s multiple award-winning in-house visual effects team. Vipul Shah said that these kinds of associations are the future of Indian cinema and the Indian film makers should team up with the best technical and creative talent from around the globe while yet keeping the Indian soul in the films. The director is now working on Salman Khan and Ajay Devgan starrer 'London Dreams,' again one of the biggest films in the line up for 2009.

The deal follows similar deals by leading Hollywood production houses viz. Walt Disney and Sony Pictures Entertainment that have struck similar production deals in India. Disney is producing a Bollywood version of its High School Musical film while Sony recently released Saawariya, its first stab at a three-hour Bollywood epic. With growth slowing in the US film industry, Hollywood studios are looking to new markets such as India, South Korea and Russia. The main reason for more companies looking towards the Indian film Industries is due to the expectation that Indian film industry will double in size over next five years, that is from $2.4 bin in 2007 to $4.4 bn in 2012.

An exception to this trend has been Anil Ambani, which recently was covered by Indiabusinessbazaar last month, he has gone westwards, inking a $1.5 bn deal with Steven Spielberg’s Dreamwork’s.

Reliance Big Entertainment hits it BIG

Axon accepts HCL’s higher bid over Infosys

Axon has opted to go for the higher bid of India’s fifth largest IT services firm HCL Technologies as against the earlier bid by the India’s second largest IT firm Infosys. This was communicated by Axon to the London Stock exchange, which said that, “The Board is pleased that HCL has recognised the quality of the Axon business and has announced its intention to make an offer. Accordingly, the Board has withdrawn its recommendation of the Infosys Offer and intends unanimously to recommend the HCL Offer when it is made.”

Axon also said that it gave Infosys a period of 60 hours to mull over the bid made by HCL. During the 60 hour period Axon is prevented from varying or amending its recommendation has now elapsed. In August this year, Infosys had announced a cash offer of 600 pence per share of Axon Group or GBP407 mn. But in September HCL rivaled the offer for 650 pence, 8.3% higher than Infosys bid and valuing Axon for GBP 441 mn.

Infosys however has said it is keeping its options open on making a counter-bid for Axon. Speculations are rife that the revised bid by Infosys may moderately increase in the range of 7-8% over the HCL offer; this counter offer can be expected when Infosys unveils its quarterly results on October 3.

Both the bidders are targeting European companies as they want to reduce their dependence on America, especially with the prospects of recession looming large in the US, and to increase our revenues from Europe and the rest of the world. SAP implementation and its importance has also been an important factor in this deal as Axon specialises in serving software developed by the German firm SAP and advise clients such as Vodafone and Barclays on implementation. If HCL is successful in acquiring Axon, it will be catapulted to the 12th position in terms of SAP implementation globally, while Infosys’ successful bid will make it the 10th largest SAP player. Among other things, the proposed purchase would be the biggest overseas acquisition ever by an Indian IT company.

India to sign FTA with European Union and ASEAN

Indian government will be signing two trade agreements with two major trade blocks in next six months. India will free trade agreements with European Union (EU) and Association of South East Asian Nations (ASEAN). India will formalize India-EU Trade and Investment agreement by beginning of next year. The agreement is expected to double the Indo-EU trade to Euro100 Bn in next five years.

Similarly, India is also expected to sign free trade agreement with ASEAN for trade in goods. This agreement will be signed during India-ASEAN summit and it will also base for commencing talks on agreement in investments and services. India already had a FTA with one of the ASEAN member, Thailand. India already has trade imbalance with ASEAN block. India’s exports to ASEAN for last financial year stood at USD16 Bn, while’s India’s imports from ASEAN nations stood at USD24 Bn.

India already has trade imbalance with ASEAN and post FTA regime is expected to widen this gap. But, India expects boost its position through the trade agreement as it is facing stiff competition from countries like China.