Business
Business Nuggets: India Flourishes
India is the flavor of the day on FT’s emerging market section:
Tata Steel has won the bidding war for Anglo-Dutch steel firm Corus (FT.com, BBC reports). The combined company will be the fifth largest in the world:
Britain’s Takeover Panel said Tata had won after offering 608p per share, valuing Corus at £5.75bn ($11.3bn).
This is surprising as reports in Indian newspapers suggested Tata had financing for a price around 550p per share. Several analysts had suggested anything in the range of 600p would be ‘value destroying‘. I wonder if the price was too high?
India’s central bank is worried about an overheating economy. The RBI has been raising interest rates continuously since September 2004. The latest rise brings the repo rate to 7.5 per cent, and the RBI has also doubled bank provisioning requirements:
It said: “Demand pressures appear to have intensified, reflected in rising inflation, high money and credit growth, elevated asset prices, strains on capacity utilisation, some indications of wage pressures and widening of the trade deficit.â€
The India Economy Blog has a good post on the subject.
India’s sovereign rating was upgraded by S&P yesterday (FT.com, The Hindu) from ’speculative’ to ‘investment’ grade, with a ’stable’ outlook. S&P is the last major rating agency to upgrade India’s rating. The rating upgrade comes over 15 years after the 1991 balance of payments crises. Here’s why S&P may have been hesitatant (via FT):
India has been a conundrum for rating agencies, which have had to weigh up its weak public finances against its rapid growth, surging foreign exchange reserves, low external debt and easy access to a captive domestic debt market.
India’s public finances are much weaker than those of comparably rated sovereigns. It has a ratio of public debt to GDP – at 85 per cent – that is more than three times higher than China’s. Its interest bill consumes 30 per cent of revenues.
UBS bought the Indian mutual fund unit of Standard Chartered (FT.com). UBS has so far been largely absent from India, though it has a substantial presence in Asia Pacific. However, with a booming economy swelling the ranks of the rich, private banking is big business in India, and this move may herald changes to come:
UBS said: “The acquisition is a milestone in our plan to build a major presence in India’s growing funds management industry and demonstrates UBS’ broader commitment to this important market.â€
Discussion
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i do think the price is a bit too high, it depends on global steel prices remaining stable, and demand increasing, which depends on chinese growth, which in turn depends on the american economy.
the american economy is headed for the softest of soft landings, which is likely to lead to a slowdown in both chinese and us economies, and therefore slight correction in steel prices?
therefore tata might have bit a lot more than it can chew. but then knowing tata, they might live through the downturn, because of their operational efficiency, a few bad years wont ruin them, and when the next cyclical upturn happens, they will be poised to take advantage as the lowest cost producer of steel with huge capacity.