Archive for the ‘Region: South Asia’ Category

Oil Should Spike Higher Following Saudi Riots and Nigerian Elections in April – Report Attached

Thursday, March 10th, 2011

The following special report on oil (LA Blog Only, leverageacademy.com/blog) discusses the oil market, providing reasons to be bullish  on the commodity given unrest in the Middle East, Nigerian elections in April, and rising domestic consumption in oil producing countries, including Venezuela, Nigeria, and Iran.  According to the article, the rise of oil prices could easily cause the next recession.   In 2010, soft commodities outperformed energy, but that will certainly change given the political headwinds abroad and continued monetary easing in the developed world.  Therefore, the Bernanke “Put,” combined with political unrest will be to blame for continued sharp price increases in the energy commodity sector.

Emerging market demand, especially in China, which now consumes nearly 10mm barrels of oil per day, will also be driving the demand side of the equation.  Money supply in China was also up 19.7% in 2010, because of the rapid credit growth the country has experienced over the past 2 years.

On the supply side, Middle Eastern youth continue to riot, causing political unrest across the globe.  In Egypt, Libya, Morocco, Saudi Arabia, Tunisia, and Bahrain, youth unemployment is over 20%, which is a severe concern, given the oil wealth of these nations.  The Iran crisis could also re-emerge as the country continues to develop nuclear weapons.  As Iran is mostly Shiite, it poses a great threat to its Sunni neighbors, including Saudi Arabia.  Major risks in the area include that the Straights of Hormuz and Malacca could be blocked in the Middle East if major riots break out.  These two passages account for 32 million barrels of crude transport per day.  The Straight of Hormuz alone carries 33% of oil transport by sea.  Furthermore, one should question how much Saudi Arabia can increase supply, as the country overstated its oil reserves by nearly 300 billion gallons in 2010.  Even if it does increase supply, how will this supply be transported to the West if passages are blocked?

There has not been one year in recent history where Nigerian elections have not posed a threat to the country’s oil supply.  Elections are often bloody, and there is no reason for the upcoming 2011 elections being held in April to be different.

To make things worse, the IEA increased its oil demand forecast by 1.6%.

On December 6th, Brent futures were traded in backwardation for the first time in two years, which means that futures with shorter maturities are more expensive than those with longer maturities (similar to an inverse yield curve).  Backwardation occurs in tight markets, whereas contango occurs when there is oversupply.

What will be the effect of these changes in the oil supply/demand equation?  Well, an increase in oil price tends to affect the economy with a time lag of at least 4-6 months.  An increase an oil price of $10 would cause GDP to fall by 25 bps and S&P earnings to fall by $3.00.

According to the IEA, 4.1% of GDP was spent on oil consumption in 2010.  A sustained price above $100 would mean that the percentage would increase to 5%.  Oil at $120 would mean a percentage increase to 6%, which would be devastating.

Special Report Oil March 2011

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Microlending Chaos: Suicides in India Due to Usurious Interest Burdens

Thursday, October 28th, 2010
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One of the big trends in finance over the past five years, has been microlending, lending to poor families and entrepreneurs in emerging economies at high interest rates. Lenders justify the rates by claiming that they need to cover the higher costs of originating these loans.  Unfortunately, due to the high investor inflows and saturation of this asset class, it looks more like the subprime industry than a financing vehicle for the underprivileged.  Poor families in India are now on the hook to pay off loans less than $200 at interest rates upwards of 100%.  We call this usury, loan sharking, or payday loans in the United States.  What Mohammad Yunus started with Grameen Bank is certainly not the viewpoint many private equity investors have in this asset class.  As a result, in response to dozens of suicides in India, local government officials have asked borrowers to actually stop paying back their loans, which has put a “black mark” on investing in these loans for the time being…we will see what comes of this twist in an effort which originally was started to benefit the impoverished.  Since when was it cool to take advantage of the powerless?  I guess this isn’t new at all…
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According to a recent article in the WSJ, “Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.
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Local politicians, meanwhile, have blamed dozens of suicides on microlenders and are urging borrowers not to pay back what they owe.
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Though so far the backlash has been confined to a southern Indian state of Andhra Pradesh, what happens there is frequently a bellwether for microlending in India, and programs around the world. Hyderabad, the state capital, is home to some of the world’s biggest microlenders, including SKS Microfinance Ltd., Spandana Sphoorty Financial, Basix & Share Microfin Ltd. The state accounts for about 30% of the loans for all of India, one of the world’s biggest microfinance markets.
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“This is potentially going to devastate lending to rural areas for a long time,” said Vikram Akula, founder and chairman of SKS Microfinance, India’s largest microlender by loan volume, which recently listed its shares in India. “We are confident that we will survive, but certainly this is going change how things could and should be done.”
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The son of Satyama Ayrene, left, hanged himself. It was because he owed money to loan sharks, she says, not that his wife owed $220 to microlenders. At right is Ms. Ayrene’s daughter-in-law Laxmi Narsamma
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Microcredit is the lending of tiny amounts of money, usually less than $200, to entrepreneurs who use the loans to start or expand small businesses such as a vegetable stand or a bicycle repair shop. Most microcredit firms lend money through women’s groups and reach out to borrowers who are either too far from or too poor to borrow from a bank. The repayment rate on the loans have tended to be better than that of richer borrowers. Interest rates, however, can be high, from 25% to 100% a year, mostly due to the cost of administering millions of tiny loans in remote areas.
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The crisis is in some ways reminiscent of recent debt problems in the U.S. Microfinance is targeted at a population that is overlooked by the mainstream banking industry, the same social niche targeted by payday and subprime lenders in the U.S.
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As the microfinance industry has grown, it has attracted international capital that has greatly boosted the size of the industry, much as payday lending and subprime borrowing soared until two years ago in the U.S. In a significant move that showed international investors’ interest in the industry, SKS recently sold $350 million of its shares on the Indian stock market.
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But along with that has come concern among politicians, regulators—and indeed some in the industry—that unfettered expansion was leading to poor lending practices, multiple loans to the same borrowers, and fears of widespread repayment problems.
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While they have been much in demand wherever they have been introduced as they provide a kinder, cheaper alternative to the village loan shark, some economists are skeptical about whether the small loans actually help lift people out of poverty.
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And in regions where there are more than one microlender competing for clients, some experts are concerned that the poor are being encouraged to take on more debt than they can bear.
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Private-Equity Money
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So far, the repayment rate across the microlending industry has remained extremely high. But Andhra Pradesh’s payment strike could presage a turn—and put the capital that has flooded into the industry at risk. Mainstream Indian and international banks have backed the microlending industry in India with more than $4 billion of loans this year, with private-equity funds pouring more than $250 million into the industry in India last year alone.
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The repayment strike is a rare black mark for an industry that has long been viewed as a social benefit. One of the industry’s leaders, Mohammed Yunus of Grameen Bank in Bangladesh, won the Nobel Peace Prize in 2006 for pioneering the system. The industry has spread across emerging Asia, Africa and South America. India, with its giant population and hundreds of millions of people living in poverty, is one of the most important markets.
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The industry also was the first to reach out to those that make less than $1 a day. It had been so successful that it has spawned efforts to bring everything from insurance to cellphones to solar lights to groceries to the poor.
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Andhra Pradesh slapped new restrictions on the industry that effectively shut it down last week. While a state court order put the restrictions on hold and allowed the lenders back in the field this week, close to half of all borrowers are continuing to avoid payments, microlenders say.
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State officials say they are trying to protect the poor from usurious interest rates and heavy-handed practices, which they say have triggered more than 70 suicides in the state.
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Microlending companies say that often where they have investigated suicides attributed to their lending, they have found that microloans were among the smallest of the many problems of the people that have killed themselves.
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In Sankarampet village about 2½ hours from Hyderabad, Satyama Ayrene is still in mourning over the death of her son who hanged himself. While local police say they have been told to investigate whether microdebt caused the death, Ms. Ayrene says it was the $2,200 he owed loan sharks that was bothering him, not the $220 his wife owed to a microlender.
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Misplaced Blame?
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“He did not commit suicide because of the [microloan] companies,” said Ms. Ayrene, 55 years old. “He was burdened with loans from the local moneylenders and didn’t know how to pay them back.”
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Microlenders say they are being punished for the success at reaching the poor and that if the resistance continues, many of them will go out of business. Many have been taking steps to create good will to try to avert the situation from worsening. The biggest lenders who account for the majority of borrowing say they will cap their rates at around 24% and form a fund to help troubled borrowers reschedule their loan payments.
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They say they are ready to comply with more government restrictions as long as they are given time to meet new requirements. But in the meantime, the industry has ground to a halt.
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When SKS agents arrived in a village called Shanti Nagar about 150 miles from Hyderabad, the capital of Andhra Pradesh, on Wednesday morning, they could tell right away something was wrong. The borrowing group of 20 women was milling around the dusty village square, instead of sitting in order in a circle with their weekly payments as SKS procedure requires.
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While the group wanted to pay its loans, they had been forbidden by a local political leader and their husbands, the women said.
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The political leader, A. Subramanyam, arrived and told the SKS agents not to harass his neighbors.
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“I told them if they don’t have the money, they don’t have to pay,” said Mr. Subramanyam. “I have seen them sell their wedding jewelry to pay the installments, why should they do that? No one here has prospered with these loans.”
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Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.

Local politicians, meanwhile, have blamed dozens of suicides on microlenders and are urging borrowers not to pay back what they owe.

Though so far the backlash has been confined to a southern Indian state of Andhra Pradesh, what happens there is frequently a bellwether for microlending in India, and programs around the world. Hyderabad, the state capital, is home to some of the world’s biggest microlenders, including SKS Microfinance Ltd., Spandana Sphoorty Financial, Basix & Share Microfin Ltd. The state accounts for about 30% of the loans for all of India, one of the world’s biggest microfinance markets.

“This is potentially going to devastate lending to rural areas for a long time,” said Vikram Akula, founder and chairman of SKS Microfinance, India’s largest microlender by loan volume, which recently listed its shares in India. “We are confident that we will survive, but certainly this is going change how things could and should be done.”"

UBS Research on India in 2025

Friday, March 5th, 2010

Research covers savings rate, skilled work force, infrastructure investments, Korean analogy, and wage growth.

Great global macro read.

India 2025 (UBS Research)

Bharti Telecom Purchases Zain’s African Assets for $10.7 Billion

Monday, February 15th, 2010

bharti

Zain, one of the largest telecom giants in the middle east, just agreed to offload its African assets to India’s Bharti Airtel, in one of the largest Indian mergers in history.  The deal is valued at $10.7 billion U.S.  Zain spent more than $12 billion to enter Africa over the past decade.  Bharti also agreed to buy 70 percent of Bangladesh’s Warid Telecom for an initial investment of $300 million.  The deal was reached because Zain was tired of underperforming telecom assets in Nigeria and Kenya.  It presents the opportunity for Bharti to turn things around.  ~I.S.

Kuwaiti telecom group Zain has agreed to offload its African assets to India’s Bharti Airtel, Kuwait’s state news agency said on Sunday, in a deal valued at $10.7 billion.

Deals

The deal marks one of the biggest cross-border transactions in the Middle East in years and a turning point in the long-running saga around the third-biggest telecoms operator in the region.

“If the transaction values the African operations at $10.7 billion, it would be a nice premium,” said analyst Simon Simonian at investment bank Shuaa Capital. “We expect Zain to pay a special dividend to shareholders from the proceeds.”

The Kuwaiti bourse suspended trading in Zain shares before the open but optimism that the deal would be approved sparked a rally in Kuwaiti shares, pusing the benchmark index up 1.8 percent, in its biggest gain in 6 months.

The sale of Zain’s African positions would mark a strategic reversal that saw the local player rise to international status and then revert to that of a regional player. Zain has spent more than $12 billion alone to expand in Africa since 2005.

Zain’s expansion from Burkina Faso to Zambia and its ubiquitous logo has transformed it into a symbol of national pride synonymous with Kuwait’s faltering aspirations to diversify its economy beyond the oil sector.

“Zain grew a little bit too fast and was facing some growing pains in the past two years,” Simonian said.

Confirmation that India’s Bharti was the bidder showed the telecom operator was back in the hunt for emerging market acquisitions after its planned $24 billion merger with South Africa’s MTN failed in September.

In October, Akhil Gupta, deputy group CEO at the Indian mobile operator’s parent, said Bharti would look at buying a stake in Zain if there was an opportunity.

Last month, Bharti agreed to buy 70 percent of Bangladesh’s Warid Telecom for an initial investment of $300 million. It also set up a new unit to drive its foreign expansion, focused on opportunities in emerging markets where it can replicate its low-price, high-volume model.

Bharti’s home mobile market is facing margin pressures from intense competition and price wars, resulting in lower tariffs and shrinking profits.

TRANSFORMATION

Analysts have pointed to Zain’s underperforming assets in Nigeria and Kenya as a burden on the group but said its large presence in sub-Saharan Africa harbored valuable growth.

The group pulled back from an expansion spree in 2009 and rejected an offer from France’s Vivendi for its African assets. It then halted talks to sell the assets to appease potential buyers of a 46-percent stake in the parent company.

A consortium of Asian investors has been trying to buy the 46 percent stake from Kuwaiti family conglomerate Kharafi Group for 2 dinars per share, or about $13.7 billion, although selling the African operations would likely end that initiative.

In one indication of an imminent deal, Zain last week appointed Nabil bin Salama as the firm’s chief executive, replacing Saad al-Barrak, seen as the driving force behind the growth into 23 countries across Africa and the Middle East.

Barrak resigned earlier this month amid uncertainty about the fate of the sale of the parent company stake.

Last May, Zain announced a rare cut of 2,000 jobs of its 15,500 workforce, signaling that the heyday of expansion might be over.

Africa represents about 62 percent of Zain’s 64.7 million customers but only 15 percent of the groups’s net profit. Zain operates in 24 countries including Saudi Arabia and Nigeria.

Shares in Zain have risen 23 percent since February 4.

(Article by Thomas Atkins, Editing by Mike Nesbit)

For more information, please visit Reuters…

~I.S.