25.09.2008

• Goldman Sachs gets a breather of an investment from Warren Buffet
• Goldman Sachs Group won the backing of Warren Buffett, the world’s pre-eminent stock picker, as the Wall Street firm seeks to raise cash from investors whose faith in the investment-banking business model has been shaken. For Goldman, the endorsement came at a price.
  
• Berkshire Hathaway, led by the 78-yearold billionaire, is buying $5 billion of perpetual preferred stock with a 10% dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years. The common stock closed on Tuesday at $125.05, providing Buffett with an instant paper profit of $437 million.
• The deal is more a confidence boosting one to Goldman than one that can really alter its fortunes in the short term.
• Buffet being what he is, can't be wrong. So we thought about the venerable i-Banks also till recently. Let's wait and watch. After all, he may be in the know of things that we are not privy to.
• India China border dispute: no deal in sight
• Unable to find a negotiated settlement through the diplomatic channels, India and China appointed special representatives in June 2003 to address the border issue from a political perspective of the overall bilateral relations.
  
• India says China is illegally occupying 43,180 sq kms of Jammu and Kashmir including 5,180 sq km illegally ceded to Beijing by Islamabad under the Sino-Pakistan boundary agreement in 1963. On the other hand, China accuses India of possessing some 90,000 sq km of Chinese territory, mostly in Arunachal Pradesh.
  
• Oscar Fernandes apologizes
• Yesterday we noted with dismay the comments made by him while justifying the violence against the CEO of a Noida based company that resulted in the latter getting killed.
• Better sense appears to have prevailed over the Minister. He apologized for the comments. Mr. Kamal Nath had set the record straight by distancing the Congress party from the comments made by Oscar Fernandes.
• Khairlanji accused get death sentence
• Putting an end to the misery of Bhayyalal Bhotmange, a poor Dalit who saw four of his family members being brutally killed at Khairlanji village nearly two years ago, a local court at Bhandara awarded the death sentence to six of the eight convicts.
  
• The incident, which put Maharashtra to shame, took place on September 29, 2006. A frenzied mob of 50 villagers attacked the house of Bhaiyyalal Bhotmange and lynched four members of his family, including his wife Surekha, daughter Priyanka and sons Sudhir and Roshan, over a land dispute.
  
• The victims were beaten to death and their bodies thrown into a canal in the village. Bhaiyyalal fled to a village nearby.
  
• Considering the political heat that the killings had generated, the state government had handed over investigations to the Central Bureau of Investigation (CBI).
  
• A chargesheet was filed only against 11 of the original 47 accused and 36 were discharged. Three of them were acquitted under the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989.
  
• The acquittal, under the ST/SC Act, drew strong reactions from Dalit organisations which demanded a re-trial.
• What is LIVE EARTH? Remember anything about it?
• It is the global initiative to spread awareness about the issue of global warming. It will be conducting its first Live Earth India Concert in Mumbai on December 7 this year.
  
• The initiative, spearheaded by former US vice president Al Gore and supported by many, including an Emmy Award-winning producer Kevin Wall, will raise money to fund environmental scientist Rajendra Pachauri’s ‘Light a billion lives’ campaign.
  
• The campaign aims to provide solar lamps to people in rural areas and promote the use of renewable sources of energy. Mr Pachauri estimates that his campaign would cost $20 billion.
• Some measures that the GoI has taken to ensure easy funding for infrastructure
• The government has relaxed the norms for raising debt from abroad. Private infrastructure developers can now borrow long term up to $500 million a year for rupee expenditure. Earlier, infrastructure companies could raise no more than $100 million a year.
• The policy has also relaxed the interest rate ceiling for such borrowings to 450 basis points above LIBOR.
• I have been betting that the US will not be an attractive destination for investing the surplus forex reserves that countries of the world generate in their trade with the US. The scenario as reported in ET today strengthens my bet:
• The government may need to do much more in the coming months to minimise the impact of the Wall Street meltdown on India. For one, it must seriously start looking more positively at various sovereign wealth funds (SWF) from China and West Asia which are keen to invest (both debt and equity) in Indian infrastructure. These sovereign wealth funds are flush with money (about $2.5 trillion) and are looking for good investment opportunities in Asia where returns are impressive. India must access both debt and equity from SWFs. Many stressed Wall Street banks are also tapping Asian SWFs. So the government need not be excessively suspicious of SWFs wanting to invest in infrastructure projects. India will need a lot more of debt and equity capital from abroad to drive its infrastructure projects than it gets today.
  
• When SWFs start investing in India, or for that matter in other emerging economies, it is bound to reduce the availability of investments for US. This will have an adverse impact on the value of the US dollar and it will start losing value against other currencies. I am looking at a one to two year time frame for this to happen.
• Look at our savings rate and potential it holds!
• The Indian economy’s saving rate is a little over one third of annual output. This translates into around $400 billion of investible resources.
• Households invest a part of these savings on their own and these are not available to the corporate sector for their investment. But the portion that is available is large and can meet most of corporate India’s investment needs. When domestic investment falls short of domestic savings, the gap is met through import of the rest of the world’s savings, in the form of a current account deficit on the balance of payments. Provided someone is willing to finance this current account deficit. The convulsing global financial system might make such financing difficult in the conventional fashion. The government must seek out unconventional methods.
• What an analysis coming from TK Arun! I can't agree with him more.
  
• Theft and power give-aways that have made the power sector financially unviable are to blame for the power sector’s woes, not any global crisis.
  
• State monopoly over coal mining, not global finance, is to blame for shortage of coal.
  
• Allocation of mining leases on the basis of patronage rather than transparent procedure is to blame for years of delay that would-be steel producers face when they seek iron ore.
  
• A lethargic legal system is to blame for the nation’s natural gas resources staying trapped underground, hostage to a battle between two brothers, even as gas shortage damages the economy.
  
• Let us set our own house in order, and prepare for a slower external world.
• Record mobile user addition
• India has added 9.16 mn mobile users in August .
• India is world's second-largest wireless market. The total wireless subscriber base, which includes GSM, CDMA and WLL(F), stood at 305.24 million at the end of August 2008.
  
• The total number of telephone connections added was 9.03 million (both fixed line and wireless) during August 2008, compared with 9.06 million connections added in July 2008.
  
• The total number of telephone connections reaches 343.87 million at the end of August 2008, compared with 334.84 million in July 2008.
  
• With this growth, the overall tele-density has reached 29.83% at the end of August 2008, against 29.08% in July 2008.
• While the financial world burns, we never let go an opportunity to learn about a new concept
• We look at CLNs today. Credit Linked Notes.
• CLNs are customised credit derivatives in the unregulated over the counter (OTC) market, issued by a bank or financial institution backed special purpose vehicle or trust. They are structured to allow the issuer to transfer a part of the credit risk to investors, who are willing to bear such a risk in return for higher yield. These deals are done outside the country, as OTC derivative contracts have no legal standing in India.
  
• This is how a CLN broadly works. A company borrows a certain amount from a bank or makes a convertible offering to that bank. Having loaned the funds, the bank then issues CLNs, which are subscribed to by investors looking for above average returns. The CLN-issuing bank then invests the proceeds in low-risk-papers, thereby partially mitigating risks. The coupon or rate of return of the CLN is linked to the performance or financial strength of the specified asset or the borrower. But, the investor stands the risk of incurring a loss if either of the bank or the company defaults.
• Not clear about the concept? Hope this graphic makes it very clear to you.
• Why are we learning about CLNs now?
• Lehman Brothers had subscribed to FCCBs of some Indian companies and, at the time of the issuance, issued CLNs to investors including some international banks and overseas arms of Indian banks.
• Now, with Lehman going bankrupt, investors have been left guessing as to what is in store for their investments through such credit derivatives. These investors are concerned whether they would receive even half of this invested amount. There is uncertainty over how much an investor in a CLN-referenced FCCB can claim after such bankruptcies. Some clarity will emerge after the bankruptcy court reaches upon a decision with this regard, experts say.
• Investment Deposit Ratio of banks
• Investment deposit ratio (IDR) is the ratio of investments in government bonds and other approved securities as a per cent of total time and demand deposits. Amount of bond investment for every hundred rupee worth deposits.
• For many of the Indian banks this has gone below the 30% mark for the first time in recent years in view of the huge demand for government bonds from non-bank participants like insurance companies, bond houses and provident funds.
• Know the antecedents of Henry Paulson, the US Treasury Secretary?
• He is the ex-boss of Goldman Sachs.
• He advised back in 1997-98 Asian currency crisis that some of the banks in Asia have to be allowed to go bankrupt.
• Now he had done just the opposite.
• You know China’s financial institutions were slow to buy the mortgage-related securities that triggered the US meltdown, incurring just $4.3 billion in losses and writedowns, according to data compiled Bloomberg.
  
• Globally, banks have written down more than $520 billion as the credit crisis led to the demise or makeover of Wall Street’s five biggest investment banks.
• Today Goldman says that India has more to fear from a rise in crude prices than from the ongoing financial crisis. Though I too would agree with this view, the advice coming as it does from Goldman, now rings hollow and makes me skeptical.
• Heard on the Wall Street
  
• We needed the best and the brightest to get us into this mess, and we’ll need the best and the brightest to get us out of it.
• That's the case for no drop in salaries for the i-Bankers!!