Tangled in diplomacy, EU struggles to frame new financial rules

BRUSSELS (Reuters) – When it takes six hours to draft a single sentence in a 100-page document, you know things are moving slowly.
In meeting rooms of embassies across Brussels, diplomats are haggling over the finer details of dozens of reforms more than four years after the financial crisis that devastated European banks and triggered the euro zone’s struggle with debt.
While the United States agreed in 2010 an initial framework to prevent financiers taking the kind of risks that sparked the deepest global recession since the 1930s, the European Union‘s response is often tangled in backroom diplomacy.
“Bailout is a naughty word these days but we haven’t created a system to deal with failing banks without one,” said a diplomat from a northern European country who is working on around 15 different EU dossiers to regulate finance. “We are still spending hours arguing over the wording of a sentence.”
The crisis revealed how regulators and even top bank executives on both sides of the Atlantic failed to grasp the risks in the complex financial architecture they helped build.
But agreeing new laws among the bloc’s 27 member countries and the European Parliament is becoming so burdensome that diplomats worry Europe‘s defenses will not be in place should a new crisis hit.
German lender IKB was the first casualty of the financial crash in mid-2007, imploding after pursuing what one banker described as an “all you can eat” strategy, snapping up U.S. subprime mortgage debt.
By the time the worst of the crisis was over in Europe, more than 50 lenders had to be rescued by their governments.
The EU responded with rules governing hedge funds and banker pay. But it has yet to outline a framework law for dealing with banks threatened with collapse, a reform many analysts believe is central in ensuring that bank bondholders – and not the taxpayer – pay to rescue banks in future.
The delicate state of Europe’s banks, which have been faced with the possibility of a chaotic Greek debt default, is partly to blame.
Banks still have trillions of euros of risky loans on their books, and it has taken the near-unlimited offer of funds from the European Central Bank to prevent another credit freeze.
LEEWAY OR LIMIT?
Michel Barnier, the former French foreign minister given the task of leading an overhaul of EU financial regulation two years ago, is due to present his bank salvage plan sometime this year.
But even when he does, the proposed legislation could take three years to become law.
“We can’t afford any more delays,” Olle Schmidt, a liberal who is leading financial reform efforts in the European parliament. “If Europe is to be able to react swiftly to another crisis, these defenses must be in place.”
Diplomats have also clashed over proposed rules governing the amount of capital banks must keep in reserve to cover the risks of lending. This is crucial in preventing another credit boom of the kind that led to the financial crash.
Britain wants more leeway to impose stricter standards on capital than the EU, while France wants the limit capped, reflecting the different way the crisis affected the two neighboring countries.
“The French banking system did OK, albeit with public support, whereas British banks took some serious hits,” said Sony Kapoor, founder of think tank Re-Define.
Overhauling banking is just one of the dossiers keeping diplomats up late at night in the glass and steel buildings of Brussels’s European quarter – working in tandem with colleagues in their home capitals.
While EU leaders have held 17 summits over the past two years to resolve the sovereign debt debacle, diplomats are sifting their way through proposals for regulating derivatives, trading, insider dealing, credit rating agencies and banker pay.
And with most working groups held in English, non-native speakers often struggle to grasp the highly technical issues.
One official recalled an embarrassing misunderstanding, when an ambassador appeared to describe a discussion on hedge funds as being “like a short shit in a long bath.” Participants later concluded he meant “a short sheet on a long bed.”
“Sometimes you understand the words but you don’t understand the meaning,” said one eastern European diplomat.
The final legal text is often as mystifying as the process that created it. “They are unreadable,” said Eddy Wymeersch, a former regulator, commenting on hedge fund rules. “It is just page after page of legalese.”
Bruce Stokes, an analyst with think tank the German Marshall Fund, believes Washington works faster because directly elected members of Congress and not bureaucrats draft legislation. “Brussels is not that accountable,” he said.
Washington drew up the Dodd-Frank act in 2010, a framework for financial reform that includes sweeping changes including bans on banks trading on their own account.
Fleshing out the full detail of these rules will, however, require further work and the European Commission points to its success in moving earlier on banker pay and bank capital.
In Europe, much of the responsibility for rewriting the rulebook for finance falls to the Commission, proposing and writing the first draft of laws that are then sent to European countries and the bloc’s parliament for approval.
“The European legislative system is designed far more for incremental adjustment than for major reform,” said Nicolas Veron, an expert in financial policy who works in both Washington and Brussels. “It’s more bureaucratically driven, but that doesn’t mean that the outcome is not political.”
With things moving so slowly, those working on the dossiers say the new regulations are in danger of being overtaken by events.
“I’ll be retired by the time all of this is done,” said one banker, whose job it is to predict the direction of legislation. “It’s not the kind of work I’d recommend.”
(Writing by Robin Emmott; additional reporting by Claire Davenport, editing by Mike Peacock)

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UK Private Equity Sector Will Be Unhappy With Pre-Budget Report

08 December 2006

Private equity funds will have good reason to feel disappointed following the Chancellor’s failure to redress the unfair retrospective legislation which will attack their fund returns, claim business and financial advisers Grant Thornton.
As a result of restrictions on the deductibility of finance costs in investee companies from April 2007, funds will see a significant increase in tax costs which in many cases could not have been predicted when their investments were made.
Stephen Quest, head of tax transactions at Grant Thornton, comments: “The taxation of private equity funds has been in a state of flux for the last two years. The market needs stability to enable deals to be completed with a degree of certainty. Clarity in this area would have provided a boost to the private equity sector which has brought so much to the British
economy over the last year.”
In light of the unchanged conditions, says Grant Thornton, the major issues facing the private equity market remain the deductibility of interest, withholding tax, and the tax treatment of management teams.
For portfolio companies, the most draconian measure to impact funds is the retrospective application of the transfer pricing regulations to the financing of investee companies. From April 2007, amounts payable to private equity
funds in respect of finance deemed not to be available on an arm’s length basis may not qualify for a deduction for corporation tax relief. The effect on returns is significant and unfair; the new rules can increase the cost of finance by 3-5% for investee companies, despite the fact that at the time finance was put in place no such legislation existed.
Quest says: “We had hoped to see a Pre-Budget in which the Chancellor put this right. His failure to do so will result in private equity funds taking a hit in April. It also sets a dangerous precedent and undermines the basis upon which funds will make investment decisions in the future.”
As regards withholding tax, Grant Thornton says that significant uncertainty exists as to whether withholding tax needs to
operate on interest paid on many international fund structures. This needs to be clarified as soon as possible.
For management teams, the treatment of ratchets remains worrying. AlthoughiIn August 2006, HMRC provided welcome confirmation that the British Venture Capital Association (BVCA) safe harbour would apply to ‘ratchets’
where management teams acquire sweet equity, the Pre-Budget Report has failed to address the thorny issue of post-acquisition changes to ratchets which cause so much difficulty when private equity investments are re-financed.
Grant Thornton says that tax law remains unclear with regard to earn-outs. Quest remarks: “The tax law in this area is in a considerable mess with uncertainty as to whether future receipts are taxed on a current or deferred basis. There is urgent need for a reform in this area.”
Stephen Quest concludes, “Private equity has become a mainstream and permanent factor in capital markets and deserves a fiscal regime that is consistently applied and delivers certainty to the funds in assessing investment opportunities in the UK. It remains the case that there is significant uncertainty and this is disrupting the flow of funds into the UK market. We hope that there will be substantive changes in the next Budget and that the introduction of retrospective attack on pre-2005 investments is dropped.”
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PRESS DIGEST – Financial Times – Feb 3

Financial Times
GLENCORE AND XSTRATA CLOSE TO MERGER DEAL
Glencore and Xstrata (Dusseldorf: XTR.DU – news) have launched merger talks to create a $88 billion commodities trading and mining giant with the financial muscle to sweep up some of its biggest rivals. http://www.ft.com/cms/s/0/a672e172-4d6c-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
BT SET TO LAUNCH ‘ULTRA-FAST’ INTERNET
“Ultra-fast” broadband using direct fibre-optic connections will become available to most British homes and businesses next year, after a significant technological breakthrough by BT , the UK telecoms group. http://www.ft.com/cms/s/0/f7cad70c-4da6-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
SNB STANDS FIRM ON SWISS FRANC CAP
The independence of the Swiss National Bank risks being compromised due to political pressure following the departure of Philipp Hildebrand as chairman, the central bank’s acting chairman has warned. http://www.ft.com/cms/s/0/4109d3c8-4dbb-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
DEUTSCHE BANK CONCERNED BY ECB LOANS
Deutsche Bank (Xetra: 514000 – news) has risked a clash with the European Central Bank by indicating it sees a stigma attached to the long-term help offered to banks to try to ease the euro zone’s funding crisis. http://www.ft.com/cms/s/0/ad4e2782-4cda-11e1-8b08-00144feabdc0.html#axzz1ksWapJt6
SPANISH BANKS TOLD TO FIND BILLIONS
Spanish banks must find 50 billion euros ($65.86 billion)from profits and capital this year to finance a clean-up of their balance sheets or agree to merge with another bank by May to gain an extra year’s grace, according to Spain’s economy minister Luis de Guindos. http://www.ft.com/cms/s/0/34a3a576-4dc7-11e1-a66e-00144feabdc0.html#axzz1ksWapJt6
RECESSION PREDICTED TO RETURN TO UK
The British economy will suffer a modest contraction this year, according to an influential academic institute that is the first to forecast a return to outright recession for the UK. http://www.ft.com/cms/s/0/a891b292-4dc3-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
CHINA’S STATE GRID TO TAKE 25 PERCENT IN REN
State Grid Corporation of China is to acquire 25 percent of Portugal’s national power grid in the second large-scale Portuguese acquisition by a Chinese energy group in six weeks. http://www.ft.com/cms/s/0/41a0c572-4dba-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
CHINA CONSIDERING DEEPER INVOLVEMENT IN EFSF
China is considering how to get “more deeply involved” in resolving Europe (Chicago Options: ^REURUSD – news) ‘s debt crisis by co-operating more closely with European rescue funds, Chinese premier Wen Jiabao said on Thursday. http://www.ft.com/cms/s/0/7b5870fa-4d63-11e1-b96c-00144feabdc0.html#axzz1ksWapJt6
($1 = 0.6321 British pounds) (Reporting by Stephen Mangan)
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American Natural Energy Corporation Announces Capital Raise and Closing of Financing Agreement

TULSA , OK, Feb. 1, 2012 /CNW/ – American Natural Energy Corporation (“ANEC”) (TSX Venture: ANR.U) announced that it intends to seek to raise additional capital, subject to TSX Venture Exchange approval. The terms of such transaction will involve the sale of up to 10 million Units consisting of 1 share of ANEC’s Common Stock at a price of USD$0.10 per share and 1 warrant for the purchase of 1 share of ANEC’s common stock exercisable at USD $0.20 per share for total proceeds of up to $1.0 million . If completed, such a transaction will result in dilution to the present holders of ANEC’s Common Stock. The offer and sale of such securities by ANEC to the subscribers has not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Act”), and such securities may not be offered or sold in the United States absent registration under the Act or an available exemption from the registration requirements. Such offer and sale of its securities is intended to be made pursuant to the exemption from the registration requirements of the U.S. Securities Act afforded by Regulation D and in reliance upon Regulation S under that Act and will result in the issuance of “restricted securities” as defined in Rule 144 under the Act. There can be no assurance that ANEC will be successful in raising the additional capital through the sale of its Common Stock.
The additional capital will supplement the first tranche of $1 million provided for under the terms of the previously announced drilling fund term sheet. The first tranche of $1 million available under that financing closed and was funded today. The capital raise and drilling financing are for the development of ANEC’s proven oil reserves. In connection with the transaction, ANEC issued 1.76 million shares of common stock of the Corporation to the investor in respect of investment banking services. The shares of common stock were acquired relying on the prospectus exemption under British Columbia securities laws contained in BC Instrument 72-503. As a result of the acquisition of shares, the investor owns and controls common stock of ANEC, representing approximately 11% of the issued and outstanding shares of common stock of ANEC. The shares of common stock were acquired for investment purposes in connection with the debenture transaction and the investor has no present intention to acquire ownership of or control over additional securities of ANEC. ANEC was represented by Crucible Capital Group, Inc., Member FINRA/SIPC, in the transaction.
ANEC is a Tulsa , Oklahoma based independent exploration and production company with operations in St. Charles Parish , Louisiana. For further information please contact Michael Paulk , CEO at 918-481-1440 or Steven P. Ensz, CFO at 281-367-5588.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This Press Release may contain statements which constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, including statements regarding the plans, intentions, beliefs and current expectations of ANEC, its directors, or its officers with respect to the future business, well drilling and operating activities and performance of ANEC. Forward-looking statements also include the plans and intentions of ANEC to offer and sell shares of its Common Stock and its ability to complete such a transaction. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The actual results and outcome of events may differ materially from those in the forward-looking statements as a result of various factors. The levels of and fluctuations in the prices for natural gas and oil and the demand for those commodities, the outcome of ANEC’s development and exploration activities, including the success of its current and proposed well drilling activities and the availability of capital to pursue those activities could affect ANEC and its future prospects. ANEC’s inability to raise additional capital would adversely affect its ability to pursue its drilling program and its liquidity. Important additional factors that could cause such differences are described in ANEC’s periodic reports and other filings made with the Securities and Exchange Commission and may be viewed at the Commission’s Website at http://www.sec.gov/.
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Asia Private Equity Weekly News, January 30, 2011

HONG KONG, Jan 30 (Reuters) – News and developments in
Asia private equity from Reuters News for Lunar New Year and the
week ending January 27.
JANUARY 27
INDIAN CONSUMER products maker Jyothy Laboratories
has raised 5.5 billion rupees ($110 million) through a 5-year
loan from Axis Bank to refinance part of the debt it
incurred to acquire a controlling stake in the Indian unit of
Henkel AG, Managing Director Ullas Kamath said.
SOUTH KOREAN regulators endorsed Hana Financial Group Inc’s
3.9 trillion won ($3.48 billion) acquisition of
Korea Exchange Bank, paving the way for U.S. private
equity firm Lone Star’s sale of the local lender and closing the
final chapter of a drawn out and acrimonious saga.
JANUARY 26
SHARES IN solar wafer maker Comtec Solar fell over
5 percent after the Shanghai-based company agreed to buy back
convertible bonds issued to TPG Capital, in a sign that
a glut in the industry is putting expansion plans on hold.
JANUARY 25
PT BANK Himpunan Saudara 1906, a small Indonesian
lender, plans to expand in Southeast Asia’s biggest economy by
bringing in a strategic investor through a rights issue next
year.
JANUARY 24
MOUNT KELLETT Capital Management has agreed to invest $225
million in Australia’s Lynas Corp through a convertible
bond, giving the rare earths miner a cheaper source of funding
to finish building its flagship plant in Malaysia, which is
awaiting a licence to open.
BC PARTNERS-owned health club operator Fitness First is set
to meet lenders to discuss a potentially looming covenant breach
as well as its debt maturities, Thomson Reuters LPC reported,
citing sources close to the company.
JANUARY 23
INDIA’S RED Fort Capital has raised $500 million for its
real estate private equity fund, aimed at tapping increasing
demand for housing and commercial spaces in Asia’s third largest
economy, its top official said.
JANUARY 20
BARING PRIVATE Equity Asia acquired 15 percent of Magic
Holdings, a unit of listed Huan Han Bio-Pharmaceutical Holdings
Ltd, for around HK$451 million ($58 million), Hua Han
said in a statement.
TPG and Singapore sovereign fund GIC will invest
around $115 million in China sportwear maker Li Ning Co Ltd
through a convertible bond, giving much needed capital
to a company whose stock fell more than 60 percent last year.
CARLYLE GROUP has sold 18 million shares in China
Pacific Insurance (Group) Co Ltd, taking its holding
below 5 percent, CPIC said.
PT ANCORA Indonesia Resources, a resources-focused
investment firm, aims to take advantage of the nation’s coal
boom by tripling its ammonium nitrate production, said the
firm’s chief executive.
ASIAN INVESTORS will account for over 20 percent of central
London office property deals this year, attracted by the British
capital’s safe-haven allure, transparency and high returns,
property consultancy Jones Lang LaSalle said.
JANUARY 19
JAPAN’S UNISON Capital cut the size of one of the largest
private equity funds in Japan by around a quarter to 107 billion
yen ($1.4 billion) in October due to limited opportunities for
new deals, two sources familiar with the matter said.
BLACKSTONE GROUP LP said that it is actively pursuing
further property investments in China, after a fund it controls
turned a profit on the sale of its stake in a real-estate joint
venture with Evergrande Real Estate Group Ltd.
INDIA’S KINGFISHER Airlines is in talks with Hong
Kong-based distressed debt firm SC Lowy Financial for a possible
investment, a sign the cash-strapped carrier may be running out
of more attractive traditional funding options.
JANUARY 18
OLYMPUS CAPITAL said it has invested 5 billion rupees (about
$98.7 million) for a significant minority stake in Indian
healthcare firm, DM Healthcare Pvt Ltd.
JANUARY 17
HEDGE FUNDS owning a large chunk of the $2.8 billion debt in
Australia’s Nine Entertainment, owned by buyout firm CVC
, have prepared a proposal to convert their debt into
equity in the TV network, a source told Reuters, in a plan that
would wipe out most of CVC’s equity.
NEW SILK Route Partners, an Asia-focused private equity
fund, said it picked a significant minority stake in educational
support services provider Varsity Education Management Pvt Ltd
for an undisclosed sum.
ANALYSIS-OLYMPUS Corp should be the easiest of
takeover targets: a profitable business with its share price in
tatters, its management in utter disgrace and its balance sheet
in need of fresh capital. But not in Japan.
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PRESS DIGEST – Financial Times – Jan 19

Financial Times
FEARS RISE OVER LOOMING COMMERZBANK AND MPS FISCAL PLANS
European regulators are convinced that two of the continent’s banks, Commerzbank (Other OTC: CRZBF.PK – news) and Monte dei Paschi (Milan: BMPS.MI – news) , will fail to produce credible plans to plug capital deficits by Friday’s deadline, exposing both to the risk of full or partial nationalisation. http://www.ft.com/cms/s/0/7e956578-4202-11e1-9506-00144feab49a.html#axzz1jYRS14J4
RBS PAY PLANS TEST RESOLVE ON REWARDS
David Cameron’s pledge to curb executive pay and stop “rewards for failure” is set to face its biggest test, as Royal Bank of Scotland prepares to offer a bonus of more than 1 million pound to its chief executive, even though the state-controlled bank’s share price has almost halved in a year. http://www.ft.com/cms/s/0/eb2aa428-41c1-11e1-a586-00144feab49a.html#axzz1jYRS14J4
CAIRN INVESTORS CRITICISE CHIEF’S BONUS
Some of the biggest shareholders in Cairn Energy (LSE: CNE.L – news) , the oil group, are marshalling support to vote down a pay award worth nearly 2.5 million pounds for the Edinburgh-based oil group’s chief executive-turned-chairman Bill Gammell. http://www.ft.com/cms/s/0/e499aca4-41e8-11e1-a586-00144feab49a.html#axzz1jYRS14J4
LSE IN U-TURN ON ITALIAN STOCKS
The London Stock Exchange plans to shift the trading system used for trading Italian stocks back to Milan after complaints from Italian banks and brokers that their trades had been slowed down by taking place in the UK capital. http://www.ft.com/cms/s/0/c0a28298-41f3-11e1-a1bf-00144feab49a.html#axzz1jYRS14J4
WPP HOPING FOR US ELECTION BOOST
WPP (LSE: WPP.L – news) saw a stronger than expected finish to 2011, according to Martin Sorrell, chief executive, as the marketing services group looks forward to improving conditions in the U.S. ahead of a lucrative period of election campaign spending. http://www.ft.com/cms/s/0/eaeb582e-41fb-11e1-a1bf-00144feab49a.html#axzz1jYRS14J4
SEVEN CHARGED OVER WALL STREET INSIDER TRADING
Seven hedge fund portfolio managers and analysts have been charged in a $61.8 million insider trading scheme as U.S. authorities escalate their crackdown on Wall Street corruption. http://www.ft.com/cms/s/0/f8ef1b2c-41d3-11e1-a1bf-00144feab49a.html#axzz1jYRS14J4
IMF REQUESTS $500 BILLION FOR BAIL OUT LOANS
The International Monetary Fund has asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies, which it estimates will generate demand for bail out loans totalling $1 trillion over the next two years. http://www.ft.com/cms/s/0/b0d1a476-41e3-11e1-a586-00144feab49a.html#axzz1jYRS14J4
GERMANY’S CENTRAL BANK TO SELL LEHMAN LOANS
Germany’s central bank is set to sell almost 2 billion euros ($2.6 billion) of property loans left over from the collapse of Lehman Brothers, in a deal that marks the latest sign of the growing appetite for distressed real estate debt. http://www.ft.com/cms/s/0/55c10ddc-41e4-11e1-a586-00144feab49a.html#axzz1jYRS14J4
PAYPAL DRIVES EBAY’S GROWTH
Ebay (NasdaqGS: EBAY – news) reported strong revenue growth in the fourth quarter of 2011, driven mainly by its payment arm, PayPal, which the company expects to be at the centre of its innovation in the coming year. http://www.ft.com/cms/s/0/cbf677f0-422d-11e1-9506-00144feab49a.html#axzz1jYRS14J4
($1 = 0.6490 British pounds) (Reporting by Stephen Mangan)
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Back a Lawsuit, Get a Return

An investor-financed suit against Chevron won a judgment of $18.2 billion Lou DeMatteis/Redux

By Paul M. Barrett
The white-wigged sages of British jurisprudence outlawed investing in someone else’s lawsuit for fear that feudal lords would manipulate their subjects’ litigation for profit or mere sport. The 18th century British jurist William Blackstone condemned such investment, known as champerty, for “pervert[ing] the process of law into an engine of oppression.”
Restrictions on champerty faded as the law evolved. In the U.S., the Supreme Court held in the 1960s that civil rights organizations have a constitutional right to invest in other people’s lawsuits that further the advocacy groups’ aims. More recently, many states have loosened rules to allow consumer-finance firms to lend money for legal cases. The companies that have done litigation finance to date have mostly made loans to plaintiffs’ lawyers pursuing slip-and-fall and auto-accident suits, often charging interest rates of 20 percent or higher.
Now litigation finance is moving up the corporate food chain. Larger and more sophisticated investment outfits, such as Burford Group and Juridica Capital Management in the U.K. specialize in making bets on bigger-dollar cases. Parabellum Capital recently opened its doors in New York after being spun off from the legal finance group at investment bank Credit Suisse. “We’re looking at a company’s lawsuit against another company as an asset on the corporate balance sheet that can be monetized in the short run, while we take an interest in, and some of the risk in, the long-run outcome,” says Christopher Bogart, chief executive officer of Burford and a former executive vice-president and general counsel of Time Warner.
Working out of Manhattan offices so new the art is still indicated only by blue tape on bare walls, Bogart runs a $300 million fund that made new commitments to legal cases totaling $35 million in just the last three months of 2011. “Another way of understanding what we do is that we provide corporate finance for assets that traditionally weren’t subject to finance,” he says. “We’re making the litigation marketplace more efficient.” His investors include Invesco UK, Reservoir Capital Group, and Scottish Widows Investment Partnership.
No data exist on how much is invested in ligitation finance. Burford’s analysis of figures gathered by American Lawyer magazine shows that the 200 largest U.S. law firms bill about $33 billion annually related to litigation, Bogart says. That excludes the cost of verdicts and settlements as well as the billings of tens of thousands of smaller law firms.
Litigation finance, which fertilizes lawsuits that otherwise might settle quickly or die altogether, “is poised for growth worldwide,” Cassandra Burke Robertson, associate professor of law at Case Western Reserve, wrote in an article published in November 2011.
While Bogart doesn’t like discussing Burford’s investments for the record, he points to one widely publicized case that concluded in 2010. The firm invested $6 million in a breach-of-contract lawsuit between two Arizona real estate developers. The winner, Gray Development, paid more than $18 million to Burford—a 200 percent return. Gray would not have been able to afford its highly regarded New York law firm, Simpson Thacher & Bartlett, without an infusion of outside capital, Bogart says. A spokesman for Gray did not return a phone message seeking comment.
In another case, Burford provided $4 million in financing in November 2010 that helped keep alive a lawsuit filed against Chevron on behalf of residents of the rain forest in eastern Ecuador who allege large-scale contamination from a predecessor company’s oil drilling. The investment allowed the plaintiffs’ team to augment its legal firepower by hiring Washington-based law firm Patton Boggs, which normally represents large corporations. Burford quickly sold off its stake in the case, eliminating its downside risk while retaining an interest in any winnings. In February 2011, a provincial Ecuadorian court imposed an $18.2 billion judgment on Chevron; an appellate court has upheld that verdict. The oil company has said it will continue to contest the judgment.
The bottom line: Burford Group has raised $300 million to invest in litigation. It put $35 million to work in the last three months of 2011.
Barrett is an assistant managing editor and senior feature writer at Bloomberg Businessweek.
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Tatas’ unlikely golden goose

When Tata Motors acquired Jaguar Land Rover, it was pilloried for poor judgement. Now, JLR is a roaring success.

Alongside his warning last week that Tata Group expansion plans would have to be tempered by the troubled global environment, Mr Ratan Tata noted that in its drive to take heed of risks, it shouldn’t lose out on good opportunities.
Four years ago, the “good” opportunity that the company didn’t pass up provoked much tut-tutting. When Tata Motors first took Jaguar Land Rover off Ford’s hands for $2.3 billion in 2008, many asked: how could a company known for commercial vehicles and cheap cars, and for whom there were no obvious synergies in the acquisition, do any better than a gargantuan of the global auto world, which had pumped billions into the iconic brand?
Those that didn’t tut then, certainly did a few months later, when the financial crisis struck and sales at JLR plunged. Even worse, Tata Motors had taken out a $3-billion bridge loan to finance the acquisition, and struggled to refinance its debts, which remained firmly high. Attempts to secure financial support from the British government failed, forcing the Tata Group to pump its own funds into the company.
In March 2009, Tata Motors posted a Rs 25.1 billion loss for the year. “Troublesome trophy” declared the Financial Times, adding that it “raised questions about the wisdom of fast-growing companies from emerging markets acquiring their developed-world counterparts in struggling sectors.”
Those “questions” have now been turned on their head: far from being a trophy, JLR survived the crisis to become the biggest earnings contributor to Tata Motors, something that has continued — and is expected to continue — through this second round of the crisis.
For the year ending March, Umesh Karne at BRICS Securities expects JLR to make a net profit of Rs 71 billion, against a group profit of Rs 79.5 billion, with sales up 14 per cent, and a further rise of 8 per cent the following year.

Turnaround factors

JLR seems to be preparing itself for such an upbeat scenario. The threatened closure of one of its British plants never happened; the company has since announced plans to expand the workforce at its Solihull plant, and build an engine factory near the city of Wolverhampton, a move that will gradually reduce its dependence on Ford engines. It’s in talks over a joint venture in China.
It’s easy to look for one reason for this remarkable turnaround, but there are a number of answers. Firstly, Tata Motors wasn’t afraid to seek external assistance, bringing in KPMG and Roland Berger Strategy Consultants to design a turnaround for the immediate, medium and short term. In 2009, the company unveiled a business plan, which involved aggressive cost cutting (reducing employee numbers, more efficient IT systems and marketing spend), changes to cash flow management, and a multi-year plan for product launches.
Luckily, there was lots of room for improvement. Ian Fletcher, an automotive analyst at IHS Global Insight, who worked for JLR under Ford, argues that the American firm had a “feast and famine” approach, lavishing cash on JLR at points, while starving it of investment at others. Cash was often directed in unhelpful ways, such as a Jaguar F1 programme.
“If you want to make a profit don’t put millions into racing it round a car track,” Mr Fletcher says. “You need to build a car that people want and charge what you can get away with.”

Restoring ‘Cool’

Building a coveted car also proved challenging in the Ford years: its launch of the X-Type — which was known to some in the industry as a “Ford Mondeo with a pretty frock” — was just one example, while others such as the “S” type were seen as overly retro, and unappealing to audiences below the age of 50. (By contrast BMW and Mercedes were able to attract mid to late 30s buyers too).
Under Tata, the XF and XJ updates did much to restore the company’s “cool” reputation while the launch of the Discovery in 2009 proved timely for the recovery. Tata Motors’ pledge to pump 1.5 billion pounds a year up until 2014, into a total of 40 new product actions — including new vehicles, and updates — has added to that credibility and created a buzz (rumours that it was considering expanding its Halewood plant had observers asking whether it could mean a new compact Jaguar was on the cards).
Part of the problem in the past was too much interference from Ford: something that Tata Motors has reversed. Tata brought in (and retained from Ford days) senior engineers and management, with many years of experience, particularly in the German industry, pretty much leaving them to their own devices, but with the assurance of having the sizable resources and support of the Tata Group behind them.
The CX-16 concept car that wowed audiences at the Frankfurt auto show last year was a case in point. “10 years ago, something with such cutting-edge technology would have been left on the drawing board,” says Mr Fletcher.

Niche focus

The trouble with Ford’s approach was that it understood and applied volume manufacturing, but not the global niche marketing and product that JLR needed to be successful, and which Tata Motors embraced through its hands-off approach, says Professor Peter Cooke, Professor of Automotive Management at Buckingham University.
“Fundamentally, Jaguar and Land Rover have to be global niche products,” he says. Now each product is targeted at specific niche audiences, such as the high-spending city dweller in the case of the Range Rover Evoque, the petit SUV, 15,000 of which have been sold since its launch in September.
As a result, Tata seems to be pushing demand in all the right directions: China is now JLR’s third largest and fastest growing market, accounting for around 16 per cent of sales, while demand in Russia, Brazil and India continues to grow.
Overall, with the investment from Tata Motors, JLR was able to position itself in the right space, just in time for the upswing that came in 2009. It is not the only luxury branded car to be doing well: Bentley saw sales rise 37 per cent in 2011, again driven by China, and is preparing for further growth with plans to expand its range.
There are, of course, challenges: currency movements, which have in the past worked well for JLR’s profitability, have hurt it in recent months, with the appreciation of the pound against the dollar. As a result, JLR profits for the quarter ending in September fell 2.1 per cent. Moreover, the financial climate will make the quality and timing of its 40 product actions all the more important.
The success of JLR doesn’t make or break the case for acquisitions of distressed foreign companies (There is only so much a company can do in the face of unremittingly weakened demand, as has been the case with Tata Steel’s European operations). But it does go to show, bad timing is often overrated. After all, had it waited a few months more, Tata Motors would never have secured the financing to acquire the company that has turned out to be its golden goose.
blfeedback@thehindu.co.in
(This article was published on January 8, 2012)

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Jacob Ballas to invest Rs 200 cr in Religare Finvest

New Delhi, Jan 3: Private equity fund Jacob Ballas has announced that it has agreed to invest Rs 200 crore in Religare Finvest Ltd, an MSME-focussed non-banking financial services arm of Religare Enterprises.
“The capital infusion will be in the form of compulsory convertible preference shares and would be the second equity investment in Reliance Finvest Ltd (RFL) in quick succession after Avigo Capital invested Rs 150 crore in November 2011,” the company said in a statement released yesterday.
“We are pleased to announce this capital infusion by Jacob Ballas in Religare Finvest Ltd,” Religare Enterprises’ Group CEO Shachindra Nath said.
The PE funding is expected to help the company meet its growing capital requirements.
Jacob Ballas Fund is advised by Jacob Ballas Capital India Private Ltd, a leading private equity advisor with a 19-member team, advising three India-focused Mauritius based private equity funds.
Investors in the Funds comprise predominantly leading international institutions such as insurance companies, sovereign wealth funds, pension funds, banks, funds of funds as well as reputed international family investment offices.
The Funds have generated ten liquidity events from its portfolio including full and partial exits.
Mr Nath said the investment (by Jacob Ballas) is not only an external endorsement of the operating model but also demonstrates that despite macro headwinds in challenging times there are value seeking investors for fundamentally strong business models.
“This move also positions us well to capitalise on the existing business opportunities while delivering superlative value for all our stakeholders. We welcome Jacob Ballas to the Religare family,” Mr Nath added.
Religare Finvest provides debt capital to MSMEs (micro, small and medium enterprises) in form of loans against property, working capital loans, loans against plant and machinery, vehicles and construction equipments and loan against marketable securities.
The company has more than 25,000 MSME accounts and its loan book stood at Rs 11,380 crore as on September 30, 2011. (UNI)
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Yearly Horoscope of 2012 for the Zodiac Sign:

Sagittarius     Scorpio     Libra    Virgo    Leo     Cancer     Gemini     Taurus     Aries     Pisces     Aquarius     Capricon

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Rockin’, shocking: the market’s hits, hype and horrors

CBD awards 2011

Most understated $3.335 billion record half-year cash net profit … Ralph Norris, Commonwealth Bank. Illustration: John Shakespeare

It was a year overshadowed by Greeks with cash-flow problems, Americans with rising debt ceilings and financial markets in turmoil. But it was a year of achievement too. It is time for CBD to announce its annual awards, presented by Scott Rochfort. The winners are …

Best remuneration package for a company valued below $100 million: JEREMY PHILIPS

The incredibly shrinking marketing company Photon Group did not let its $59.7 million full-year loss inhibit its ability to pay its chief executive $3.97 million in total remuneration for the year to June 30. Not bad for a chief executive of a company not big enough to get inside the the ASX 300.

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Most understated $3.335 billion record half-year cash net profit: COMMONWEALTH BANK

”Yes, we are a profitable organisation but not excessively so,” the bank’s former chief executive, Ralph Norris, right, said in February. The bank went on to report a $6.8 billion full-year cash net profit.

Most sensitive announcement of the year: BLUESCOPE STEEL

The steelmaker announced plans to lay off 1000 workers in Australia the same day it reported a $1.05 billion loss and disclosed its senior executives – including managing director Paul O’Malley – were paid $3 million in cash bonuses.

The non-float of the year: NINE ENTERTAINMENT

It was meant to be the blockbuster listing of the year. But it turned out to be a turkey. The advisers of the CVC Asia Pacific-owned television and magazine company went from putting out feelers on a hypothetical $5 billion listing to entering frantic negotiations on the group’s mountain of debt.

The makeover of the year: NATHAN TINKLER

The billionaire electrician and coal baron shed his goatie and about 40 kilograms as part of his moves to streamline his operations. Following a management reshuffle at his part-owned Aston Resources, Tinkler’s media minders were also keen to circulate a more corporate-looking Tinkler wearing a suit and tie.

Most timely share sale of the year: ALAN ROBERTSON

The chief executive of the biotech Pharmaxis sold half of his shareholding in the company just days before its shares plunged 74 per cent in one day.
Just after Robertson disclosed he had offloaded 500,000 shares for $1.48 million, Pharmaxis announced that it received a ”negative trend vote” over its application for its cystic fibrosis treatment in the European Union.
”Although this is not the final stage in the application process, we are clearly disappointed with the outcome of this trend vote,” Robertson said in a statement.

Most logical argument for the non-disclosure of executive pay packets: GRAHAM BRADLEY

The former president of the Business Council of Australia (aka CEOs Union) warned that the disclosure of executive salaries in annual reports was pushing up wages. ”The inflation of executive salaries has got to do with the fact that everybody has got that information. That reduces the leverage of boards,” Bradley explained. ”I think it has caused inflation,” said Bradley, who has saw his own fees as the chairman of Stockland jump from $325,000 to $500,000 since late 2005.

Most unconvincing ‘grassroots’ campaign: CASH CONVERTERS

The ASX-listed pawn-shop chain declared the ”grassroots action has only just begun” when it issued a press release in September complaining about the federal government’s plans to cap fees charged on pay-day loans. ”We know this misguided legislation has hit a raw nerve with all consumers who deal with regulated and reputable lenders around Australia,” Cash Converters’ managing director, Peter Cumins, said as the company launched the website nocap.com.au.

Most humble comment of the year: RUPERT MURDOCH

”This is the most humble day of my life,” the News Corporation executive chairman told a British parliamentary inquiry into his company’s involvement in a phone-hacking scandal.

Slap down of the year: WENDI MURDOCH

Rupert Murdoch’s wife showed she had far quicker reflexes than anyone else – including the police – who attended the same British parliamentary inquiry into the phone-hacking scandal. ”Mr Murdoch, your wife has a very good left hook,” the Labour MP Tom Watson said after Mrs Murdoch slapped down an intruder who attacked her husband with a shaving foam pie.

Most unorthodox use of an Australian punk song: GUY DEBELLE

The Reserve Bank of Australia head guitarist and assistant governor urged investors to check out the lyrics of a song by the Saints.
”Investors need to heed the seminal words of the Saints’ Know Your Product and do the necessary due diligence,” Debelle, right, told the Australian Securitisation Forum at the Sydney Hilton last month.
The lyrics to the song include: ”Cheap advertising, you’re lying. Never gonna get me what I want. I said, smooth talking, brain washing. Ain’t never gonna get me what I need.”

Best typo by a mining explorer: AMPELLA MINING

The mining explorer issued an update to the market in February where it failed to remove one sentence from the editing process. Next to the section of the update where it discussed a four-kilometre gold anomaly was the comment in brackets: ”Can you please fix this up to make it sound technical.”

Best use of a word count: OM Holdings

The manganese miner rebuffed a requisition of meeting – seeking to install former NSW Liberal leader Peter Debnam and the investment banker Malcolm McComas as directors – on technical grounds. The Bermuda-domiciled OM said the requisition of meeting lodged by the Ukrainian billionaire Gennady Bogolyubov’s Consolidated Minerals was ”technically not compliant” with Bermudan law. It claimed the notice of meeting broke Section 79-1b of the Bermudan Companies Act, which states that notices of meeting cannot be ”more than 1000 words with respect to the matter referred to in any proposed resolution or the business to be dealt with at that meeting”.

Most impressive use of benchmarking: PACIFIC BRANDS

The Pacific Brands chairman, James MacKenzie, explained why the salary of his chief executive, Sue Morphet, below, was benchmarked against two companies (Myer and David Jones) that each had market capitalisations three times the size of the struggling underpants and singlet company.
”It is acknowledged that the current market capitalisations of some of those companies are higher than Pacific Brands, but your board’s view is that they represent the most comparable organisations and the ones against which Pacific Brands would have to [and does] compete for talent,” he explained. Morphet received $2.75 million in remuneration last financial year.

Most underwhelming sharemarket debut of the year: ALTIUS MINING

The gold explorer’s first day as a public company was one its chief executive, Alexander King, would like to forget. Its shares went from 20¢ to 8.8¢ on their first day of trading.

Most defiant comments made to an annual meeting: REG KERMODE

The 85-year-old Cabcharge executive chairman said he had no plans to retire at the company’s annual meeting where a strong vote was recorded against the remuneration report. ”I know everybody wants me to die,” Kermode, below, told the meeting. ”I have no intention to die at the present time – some of you can keep on wishing.”

Most self-complimentary send-off: TONY D’ALOISIO

The former Australian Securities and Investments Commission chairman crowed in the year of his departure about how the recent spate of corporate collapses was only slightly more damaging than the collapses after the 1987 sharemarket crash.
”These totalled [about] $66 billion [between 2007 and mid-2009], representing a slightly greater proportion of GDP than the $20 billion lost in the major collapses during the turmoil of the late 1980s,” he said.

Most holy acquisition: NEWS CORPORATION

The Rupert Murdoch-led media organisation bought the Nashville Bible publisher Thomas Nelson for an estimated $200 million. ”We want our products to be a means by which God breathes new life into His world,” notes the publisher on its website.

Non-comeback of the year: PHIL SULLIVAN

The former chief executive of the collapsed Gold Coast financial concern City Pacific re-emerged from a three-year hibernation to offer ”unpaid assistance” to an unnamed group of investors seeking to topple the managers who toppled City Pacific as the managers of Sullivan’s former flagship mortgage fund in 2009. Sullivan, above, marked his return by explaining that he was not responsible for the collapse of his old firm nor the problems related to the still frozen First Mortgage Fund. ”Only when the world’s finances and banking system hit the wall with the onset of the banking credit squeeze and the global financial crisis did City Pacific see rough water, along with every other mortgage and property-based fund worldwide,” he said. Sullivan later said he was in no way involved in a proposal to install the Taree firm Stacks as the managers of the fund. By November, Stacks dropped its bid and Sullivan was nowhere to be seen.

Most spirited attack on a big bank: JOHN TRIMBLE

The chief executive and chairman of the Australia’s only listed exotic dancing company, Planet Platinum, pulled no punches when describing his relationship with the NAB.
”They are just disgusting,” said Trimble. ”You wouldn’t believe the charges they hit us with. I could have gone to a loan shark and got 25 per cent.”
The Showgirls Bar 20 owner officially launched a national search for a ”bank with an entrepreneurial attitude that conforms with commercial reality and negotiations, enabling our enterprises to operate in a normal business-like manner”.

Best country song about an Australian airline: TIGER AIRWAYS AND ITS WE DON’T CARE-WAYS

The Singapore Airlines-backed budget airline inspired the Texas country musician Dale Watson, above, to write a new song about its customer service standards. Watson was charged $500 excess baggage for a crate of CDs that Tiger ended up losing. The song came out just in time for Tiger’s mid-year grounding by the aviation safety regulator.

Best PowerPoint presentation: ARUN JAGATRAMKA

The Gujarat NRE Coking Coal chairman picked up the award for a second year running thanks to a presentation he gave at the open day of his Russell Vale operations in October.
Jagatramka covered ”the story of five extraordinary women and the wars that paid tribute to their love”. One was the women was Eva Braun (aka Mrs Adolf Hitler). ”Married in a bunker, she died by taking cyanide, but kept her love alive … for a man the world hates.”
Jagatramka’s presentation also warned of the potential consequences if society was forced off coal. ”Global climate change is a truth that we all must face, but we need to ensure that facts and figures are not used to forcefully slaughter the human civilisation in a fashion similar to the Y2K scare at the beginning of this millennium, which turned out to be one of the biggest hoax calls in the modern era,” it said.

Catfight of the year: PAUL ZAHRA and MARK McINNES

The former David Jones chief executive and his replacement engaged in a war of words over who was to blame for the retailer’s recent poor performance. ”I gave 15 years to the company and it was a large part of my career – as a shareholder I’ve lost 30 per cent of my investment since Paul became CEO,” McInnes moaned to The Australian Financial Review. Zahra had earlier expressed his dismay over the closure of DJs online retailing website in 2003, when McInnes was in charge.

Most straightforward profit update: NICK MOORE

”Subject to market conditions continuing to return to more normal levels, as well as other factors including the timing of completion on transactions and normal year-end procedures, we currently anticipate the second-half result to be approximately 35 per cent up on the subdued first half and the second-half result to be approximately 5 per cent down on the previous corresponding period,” the Macquarie chief executive said in February.

Most excuse-laden profit downgrade: REDHILL EDUCATION

The newly-listed English school operator saw its shares crash in February when it blamed several factors for the slashing of its prospectus forecasts.
They included the ”deepening impact of restrictive federal government international student policy changes”, the ”increasingly negative reputation of Australia” and the ”continued and sustained increase in the Australian dollar”. It also noted: ”The government had been expected to address the adverse impact of its policies on the international student sector but this has not occurred.”

Recipient of the biggest attack from the banana industry: SAUL ESLAKE

The Grattan Institute economist felt the fury of the banana industry after suggesting that the rise in fruit and vegetable prices early in the year would go to growers unaffected by the floods and cyclones.
”His comments prove that he has a clear lack of knowledge of the banana industry and the devastating effects that imports would have on our industry,” said the Australian Banana Growers Council chairman, Patrick Leahy, in a statement entitled ”Economist’s attack on bananas unwarranted and ill-informed.”

Most savvy attempt to stay in the job: NICK COLLISHAW

The Mirvac chief executive headed off calls for him to be replaced after agreeing to cut his base pay from a hefty $2 million to a still reasonably hefty $1.5 million. ”In response to concerns about executive remuneration in our sector and particularly around the Mirvac Group and the alignment of employee interests with securityholder returns, I initiated discussions with the Mirvac board around amending the employment contract that I entered into in August 2008,” said Collishaw when he unveiled a first-half loss of $12.7 million in February.

Best new term: PLATYPUS MOMENT

The Reserve Bank’s head of financial stability, Luci Ellis, said the term concocted by Nassim Nicholas Taleb to describe unforeseen and freakish events – Black Swan – was not the best phrase on which to test financial stability.
”You can’t imagine scenarios that are by definition unimaginable,” she said. Ellis picked a far more freakish (to European eyes) Australian creature to describe her new phrase.
Ellis said it was behaviour that appeared ”too ridiculous to be true, and yet it is true” that policymakers needed to be on the lookout for.
”When you have that feeling, you are having what I have come to describe as a Platypus Moment.”

Tree battle of the year: PHILIP SALTER and PETER MATTICK

The founders of the junkmail company Salmat faced protests over their Taphouse pub group’s plans to prune a historic fig in the car park of the Chinderah Tavern in northern NSW. ”Specialist veteran tree experts have advised the extensive pruning planned would be an indirect death knell,” warned Tweed Shire Council’s Greens councillor Katie Milne ahead of a protest at the tree.

Proposed personal insolvency agreement of the year: BILL IRELAND

The founder of Challenger and the capsized Mariner Corp failed in his attempt to get his creditors to agree to a proposed personal insolvency agreement where he would pay back his creditors at least 0.25¢ in the dollar. ”I envisage an optimistic market for 2011 and consider that my capacity to earn income under a PIA will be greater than under bankruptcy,” explained Ireland about his proposal to repay at least $150,000 of his $72.9 million in personal debts. He also proposed to divert half of his income over the next three years to his creditors.

Best attempt to avoid and Irish accent being mistranslated: ALAN JOYCE

The Qantas chief in February added the word ”fokker” to his blacklist of words (which already includes ”third”) when he discussed the airline’s purchase of 10 F100 (aka Fokker 100) aircraft.

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India tycoon’s got tons of cash, nowhere to invest

“I love India, but my customer is not going to wait” … Ajay Pirama. Photo: AP/Rafiq Maqbool

Ajay Piramal is sitting on a mountain of cash. Yet the billionaire Indian tycoon, working in one of the world’s fastest growing economies, is struggling to figure out what to do with the money.
The problem isn’t opportunity, he said. It’s India.
“Every large investment, there was no transparency,” Piramal said.

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His dilemma is a worrying sign for India. With the country mired in corruption, bureaucratic red tape and unclear and changing government policies, many of the men who made their billions here are saying maybe it’s time to quit India. It’s got to be easier to do business elsewhere.
In May last year, Piramal’s healthcare business sold its generic drug operations to US pharmaceutical giant Abbott Laboratories for $3.8 billion. Piramal, a tall big man in a country that still measures prosperity by girth, was eager to set that cash pile to work. He wanted to expand one of his chemical plants, but was told it would take five years.
“The same plant could be set up in China in two years,” he said. “I love India, but my customer is not going to wait.”
India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
In part this reflects the confidence and aptitude of India’s maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India’s big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
The frustration of India’s business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles – to pick a few of the top complaints – has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s. “If you are an honest businessman in India, it’s very difficult to start up anything,” said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. “Companies are going to operate where they see the best opportunities and efficiency for their capital.”
Increasingly, that’s outside India.
In 2008, foreigners poured roughly twice as much direct investment into India – $33 billion – as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad – twice as much as foreigners invested in India – a trend that’s continued this year.
There is another, unspoken element to all the complaints. To the extent that business in India ran on corruption, some of the old, dirty ways of doing things are being disrupted, freezing India’s already glacial bureaucracy, business leaders say.
Scandals in the staging of the Commonwealth Games, the pilfering of homes meant for war widows and the irregular auction of cellphone spectrum that cost the country billions has sent parliamentarians and even a Cabinet minister to prison.
With Indians tiring of the incessant graft, tens of thousands of middle-class protesters poured into the streets and pushed an anti-corruption bill onto the floor of Parliament.
Steelmakers can’t get enough iron ore because a massive mining scandal in the southern state of Karnataka prompted a court to order the closure of illicit mines that account for a fifth of iron ore production in the country.
The bureaucrats – even the honest ones – are reportedly so scared of being punished they are refusing to make the decisions needed to make the country run.
Piramal is not unpatriotic. Each room in his executive suite is named after an Indian epic hero: Arjuna, the most pure; Dhananjay, acquirer and master of wealth. There’s a quote from the Upanishads scriptures on the wall.
His office sits in a one million square foot office park in Mumbai his family built. The buildings around him – white with blue glass that flashes back the unforgiving sun – bear his own name in large black letters: Piramal Towers.
Piramal had the will and the means to build power plants and roads.
Instead, his Piramal Group’s largest investment to date has been in one of the office park’s tenants: the Indian subsidiary of the British telecom giant Vodafone Plc.
Last September, when he got the first payout, of $2.2 billion, from Abbott, the phone started ringing.
“Because people knew we had money, we had so many people approaching us for projects in the infrastructure sector,” he said. “These people had no experience and no knowledge and no track record of having built a business in any area. And yet they were coming to us saying we have licenses and approvals. That just didn’t sound right or smell right.”
Each day, they paraded through his office: The investment banker who decided to build a 500 megawatt power plant, the coal trader assured of a government coal allocation, small-time miners with pretty presentations promising land, licenses and financing.
“They’d name politicians from the center and the state who had it all tied up for them,” he said. “It didn’t sound right. Obviously there were things going on in the system.”
Road and port projects weren’t much better, he said.
Piramal also looked at investing in engineering and infrastructure services companies, but couldn’t make sense of their books.
“We couldn’t find anything,” he said. “People get greedy. In their desire to get good valuations they resort to, if I can say, creative accounting.”
Today, India’s infrastructure companies are known as great wealth destroyers.
“Infrastructure investment has become untouchable, a sure way of losing money,” said Jagannadham Thunuguntla, head of research at SMC Global Securities. He calculates that four of India’s top infrastructure companies – GMR Infrastructure, GVK Power and Infrastructure, Lanco Infratech and Punj Lloyd – have lost over 80 percent of their value since 2007. A fifth, Larson & Toubro is down 50 percent.
Piramal may have dodged a bullet, but shareholders in Piramal Healthcare aren’t happy. Despite a $600 million special dividend and share buyback, the share price has sagged since the Abbott deal was announced on May 21 last year. They’d like to see the Abbott cash productively deployed. Instead, much of it is sitting in fixed deposit accounts.
Piramal said he really does want to run a pharmaceutical company and be the first Indian company to discover a world-class drug – despite his dabbling in telecom, financial services and real estate financing. It’s just that pharma can’t absorb all his cash. He plans to sell the 5.5 percent stake he picked up in Vodafone Essar for $640 million in a few years, when Vodafone Essar issues shares in an initial public offering, he said.
He has also launched Piramal Capital, to make real estate and infrastructure loans, and spent about $50 million to acquire IndiaReit, a real estate investment company.
Meanwhile, his thoughts have turned to Boston, where he set up IndUS Growth Partners with a professor from Harvard Business School to look for buying opportunities in the US, in security, financial services and biotechnology. And he said he’s still planning to spend over a billion dollars on biotechnology acquisitions in North America and Europe.
“India was going more towards capitalism than socialism,” Piramal said. “I think we’re going back. Capitalism went to too much excess. Corruption levels went to the extreme.”
He said he’ll announce his first overseas acquisition by March.
AP
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George Osborne’s airport hint has Thames estuary in a spin

Dan Milmo and
Patrick Collinson

The Thames hub as envisaged by Norman Foster’s design company. Photograph: Foster & Partners/PA

There is a geometric beauty to the view from Kent’s Isle of Grain, as alignments of mudflat, estuary and sky dominate a horizon that, in the wake of this week’s autumn statement, could soon be scarred by dozens of airliners in the cause of economic prosperity.
George Osborne dropped the clearest hint yet that the government is warming to the notion of an airport on the Thames estuary, possibly built on this peninsula, as he pledged to “explore all options for maintaining the UK’s aviation hub status”. For residents of Grain village, it was confirmation that kickstarting the British economy poses a threat to their homes. “It’s ridiculous,” says Jackie Jones, a housewife and Grain resident of 21 years, walking her two dogs on the shoreline. “The economy has gone downhill so much that something has to happen. But I am not sure that pouring billions of pounds into this is the way forward.”
The chancellor begs to differ. He is sold on the idea that infrastructure investment can boost the UK by providing economic links for business and unlocking cash from British pension funds. He also unveiled a memorandum of understanding with the National Association of Pension Funds and the Pension Protection Fund to invest up to £20bn in projects such as power stations and high-speed rail lines, as well as the four-runway airport that would be built right over a quiet village in north Kent. A national infrastructure plan published this week mentioned 500 projects. All they need now is the money.
The Thames airport, unthinkable even a year ago, is becoming ever more feasible. Boris Johnson has campaigned for a new London hub airport in the face of increasingly weak opposition from the Conservative party. Tuesday saw the government come close to conceding that London’s mayor has given them a get-out from opposing new runways at Heathrow, Gatwick and Stansted.
Johnson’s main lobbyist on a new airport is Daniel Moylan, deputy chairman of Transport for London, which runs the capital’s tubes and buses. He says: “I welcome the fact that the chancellor has said Britain must have a modern hub airport, and confirmed that there will be no expansion at Heathrow. This gives impetus to the search for a new location and the mayor is keen that it should be to the east of London. An urgent debate needs to take place.” Johnson has pushed his own idea of a floating airport – dubbed “Boris Island” – situated opposite Grain and off the Isle of Sheppey.
The renowned architect Lord Foster made an arresting contribution last month with proposals for a £50bn hub on Grain, in a project drawn up by his Foster & Partners, economics consultancy Volterra and planning specialist Halcrow. As well as an airport carrying 150 million passengers a year, it includes a new Thames flood barrier and a high-speed rail line that will connect to the High Speed One and High Speed Two routes. The plans are suitably futuristic but £50bn is a towering bill, dwarfing even the £32bn needed to build the HS2 route from London to Birmingham, Manchester and Leeds. For all the infrastructure headlines in the wake of Osborne’s statement, it was only a sketch of complex planning and funding needs.
There is, however, optimism about funding. Ben Hamer, an executive director at Halcrow, says initial discussions about the project have already taken place with sovereign wealth funds – the investment arms of rich states – and major banks. The issue for Halcrow is getting cross-party political backing. That, in turn, will help secure the seed funding to get the project up and running, followed by the multibillion-pound investment in constructing the site.
“If the government says it would love a Thames hub airport that would be a very strong market signal to investors that the risk of getting this through planning are going to be acceptable,” Hamer says, adding that there has been strong interest from Asia in the project. “They are looking for flagship projects.”
He also says that general interest from the financial sector appeared to be strong, and will be further bolstered by the chancellor’s announcement of a pension-fund-backed infrastructure programme. “We are having discussions with finance houses and we have invested a lot of our own time and energy on preparing the ground for funding.”
One scenario could involve the government taking the financial risk out of building the airport by paying a construction firm an agreed sum, plus costs, to put it together. Underwritten by the state, this would keep the cost of capital low. The asset would be handed over to the state on completion and sold to UK pension funds on a 30-year-lease – rather like High Speed One, the lease for which has been sold for £1.4bn to a Canadian grouping of the investment firm Borealis Infrastructure and the Ontario Teachers’ Pension Plan fund. The new airport owner would pay off its multibillion-pound investment by pocketing the revenues over the ensuing three decades.
The issue with this plan is the involvement of the government at the beginning. In the absence of public money – a fair assumption under current spending constraints – construction of a Thames hub would rely on loans raised from the banking sector. But with beleaguered banks determined to shrink their balance sheets – and warned this week by Bank of England governor Mervyn King to put aside even more capital – the proposal could remain stuck in the mud.
One possible solution lies in the national infrastructure plan. Osborne pledged just £5bn in new government cash for infrastructure projects but indicated that UK pension funds were ripe with untapped financial potential.
“We need to put to work the many billions of pounds that British people save in British pension funds, and get those savings invested in British projects. You could call it British savings for British jobs,” he said in the autumn statement, adding that the government was exploring guarantees and ways of letting city mayors borrow against future tax receipts in an echo of the vast municipally funded works that built Britain’s water, sewerage and road network in the Victorian era, as well as hospitals and schools.
Pension funds, which face the challenge of paying out fixed incomes to retirees when investment returns are at historic lows, like the concept of projects with reliable long-term income streams, such as toll roads and bridges. Airport landing fees and rentals from retail premises and parking could form an attractive income. Last week saw the creation of the Insurers’ Infrastructure Investment Forum, a joint initiative between the Association of British Insurers and the government, whose first task will be to create A-grade “infrastructure bonds” that will be attractive to pension funds.
But relying on pension funds for financing airport construction is still a remote prospect. Richard Abadie, infrastructure partner at PricewaterhouseCoopers, and a one-time Treasury official overseeing public-private partnerships, says: “You have to ask: why isn’t pension fund investment in infrastructure happening already? They don’t believe the returns are high enough, and they don’t want to take construction risk. It’s banks that traditionally take on project finance risk and only after that will pension funds and insurers invest in the long-term cash flow to match their liability profiles. But the banks are under huge pressure to reduce their balance sheets.” He cited RBS’s recent decision to sell £5bn of its project finance loans to Mitsubishi, and new ‘Basel III’ bank capital requirements that will further constrain lending.
An alternative is for Britain to create a state infrastructure bank to channel loans into major projects. It could be structured along the lines of the European Investment Bank or state banks that are behind huge construction projects in Brazil, India, Mexico and some US states.
Until then, Lord Foster’s island airport may remain on the drawing board. Decades ago, the original estuary airport project was opposite Grain, on the north bank of the Thames at Maplin Sands. It was conceived in the boom years of the early 1970s, and in 1973 an act paving the way for construction was passed in parliament. But the project was one of the earliest casualties of the 1973-4 oil crisis and subsequent recession. As a new credit crunch beckons, proponents of the scheme will be hoping that history does not repeat itself – although the residents of Grain will not agree.

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