Turmoil in financial markets, slower growth in high-income countries, and rising inflation have all adversely affected growth prospects for developing countries over the near term. Most countries have shown impressive resilience in this turbulent environment, and growth for developing countries as a group is expected to moderate from 7.8% in 2007 to a still strong 6.5% in 2008. However, vulnerable countries that depend on foreign capital flows are likely to experience a sharper slowdown. Moreover, despite strong production growth at the aggregate level, higher food and energy prices have caused real incomes to decline, significantly increasing the hardships faced by the very poor, particularly in urban centers.
A recent article in the Wall Street Journal noted that if one were to examine the historical performance of the S&P 500, one would find that the stock market is trading at the same level at which it was doing so nine years ago. Commodities markets, on the other hand, have been in a bull trend. Some of the major drivers that have contributed in this stupendous growth of commodity markets globally are
- Increasing influence of Asian demand, particularly from rapidly industrializing China and India
- Increase in commodities prices in international markets as a result of demand growth, reinforced by tight supply capacities, tense geopolitical conditions (especially with respect to the oil market) and intense speculative activity
- With the rise in prices of crude oil, metals and minerals, commodity prices reached record historical levels in nominal terms in 2006, which increased by more than 30% between 2005 and 2006 (and by 80% from 2000 to 2006).
- Numerous developing countries rely on commodities for export revenues, and commodity production and trade provide employment for more than 2.5 billion people worldwide.
- The considerable rise in prices has had an impact on incomes of developing countries. It is estimated that extra revenues resulting from commodity exports were around 6.7 percentage points of GDP for oil-exporting countries and about 3 percentage points for countries exporting mining products.
- Increases in demand from developing countries stimulated by a particularly vigorous commodity consumption per unit of GDP compared to that of developed countries, faster economic growth, and increasing population
- "Globalization" of securities and commodities markets
- Baby boomers are in the middle of their peak savings years and have been one of the major causes of huge inflows of money into the stock market and into mutual funds.
- The increased use of food crops for production of bio-fuels is an important factor that led to large increases in the prices of vegetable oils and grains in 2007, which in turn contributed to an overall 15 percent increase in the index of agricultural prices and a 20 percent rise in food prices.
- The prices of metals have increased more than other commodity prices over the last four years, largely because of an especially strong demand in China.
- Shortages of equipment and skilled workers have significantly increased development costs, and ore grades are deteriorating.
The report on “Indian Commodities Trading Market” offers an in-depth analysis of the Global Commodities Trading Market vis-à-vis the Indian Commodities Trading Market. It discusses the overall structure of the Global Commodities Market as well as Indian Commodities Market from an insider perspective and provides a comprehensive study on macro and micro factors driving the growth of this market.
The report furnishes up-to-date facts and figures following meticulous observation with an aim to provide you with real insights into the commodity trading market as it stands today; the knowledge one needs to stand out and make informed decisions. The expanse of such insights into the past and present scenario percolates down to every known commodity currently traded. A conscious effort has been made to provide an overview of all there is to know and know of in the volatile market whilst a detailed product-wise and segment-wise is used in conjunction to expand. Taking into account that Price and Risk being the key drivers of the market, the report presents an exclusive section which maps price growth trend behaviour, factors triggering such behaviour, tracking relative performance of commodities , effects on the market players directly or indirectly using composite indexes from leading sources, the use of various hedging tools such as forwards and options and the relative performance in comparison, the implication and significance of the various regulatory bodies, commissions and statutory acts to highlight a few.
Table of Contents
Section I: Commodities Trading – An Overview
1. How Commodities Market Evolved – Historical Perspective
2. How Commodities Trading Market Works
2.1 Involved Parties
2.2 Types of Contracts
2.3 Participants in derivative contracts
2.4 Trading Techniques in Commodities Market
2.4.1 Ready Delivery Market
2.4.2 Specific Delivery Market
2.4.3 Futures Market
2.4.4 Auction Market
2.5 Requirement & Benefits of Commodity Derivatives
Section II: Commodities Market – An Analysis
1. Global Commodities Market – An Overview
1.1 Commodities Trading vis-à-vis Role of Investment Banks
1.1.1 Barclays Capital Commodities - Profile
1.1.2 BNP Paribas Commodity Futures – Profile
1.1.3 Citi Global Commodities – Profile
1.1.4 DB Commodity Services LLC - Profile
1.1.5 Goldman Sachs Commodities – Profile
1.1.6 J.P. Morgan’s Global Commodities Group – Profile
1.1.7 Merrill Lynch Global Commodities (MLCI) - Profile
1.1.8 UBS's Commodities Group
1.2 Energy Trading vis-à-vis Energy Trading In-house Divisions
1.2.1 RBS Sempra Commodities
1.2.2 Chevron’s Supply & Trading
1.2.3 LITASCO (LUKOIL International Trading and Supply Company)
1.2.4 Koch Supply & Trading
1.2.5 AEP Energy Services (Subsidiary of American Electric Power Company, Inc.)
1.2.6 Duke Energy Trading and Marketing (DETM)
1.2.7 Shell Trading (US) Company
1.2.8 Reliant Energy Securities & Commodities Trading Center
1.3 Commodity ETFs and ETNs
1.4 Commodity Trading vis-à-vis Sovereign Wealth Funds (SWFs)
1.4.1 History of SWFs
1.4.2 Driving Factors, Issues, Trends & Opportunities
1.4.3 Sources of Capital
1.4.4 How & where the money is invested – Market Size & Projections
1.4.5 Fund Rankings: Largest Funds by Assets under Management
2. Global Commodities Market Analysis
2.1 Global Commodities Market Size & Forecast
2.2 Commodity Market Profiles – Quick Points (Profile, Producers, Consumers, Largest Markets, Price Performance & Top Companies)
2.2.1 Aluminium Market
2.2.2 Cocoa Market
2.2.3 Coffee Market
2.2.4 Copper Market
2.2.5 Cotton Market
2.2.6 Gold Market
2.2.7 Nickel Market
2.3 Global Commodities Indexes – Performance Analysis
2.3.1 Dow Jones - AIG Commodity Indices
2.3.2 Merrill Lynch Commodity index eXtra (MLCX)
2.3.3 S&P GSCI™ Composite Index
2.3.4 Reuters/Jefferies-CRB® Indices
3. Issues, Trends & Opportunities
3.1 Impact of higher commodity prices
3.2 Movement of oil prices
3.3 Performance of agriculture commodities
3.4 Companies turn to top derivatives dealers for help in hedging
3.5 Carbon to be the biggest global commodity market by 2012
3.6 Renewed interest from investors
3.7 More sophisticated tools & platforms
3.8 Investment banks are major players
3.9 ETFs, changing the equation of Commodities Investment
3.10 China – Major Demand Driver of Global Commodities
3.11 Macro-Economic Driving Factors
3.12 Factors affecting pricing of base metals
3.12.1 Lead (75% y-o-y growth)
3.12.2 Tin (66% y-o-y growth)
3.12.3 Zinc (40% y-o-y decline)
3.12.4 Nickel (4% y-o-y decline)
Section III: Indian Commodities Trading Market
1. Indian Commodities Market – An Overview
2. Indian Commodities Market Size – An Analysis
2.1 MCX vs. SENSEX – A Comparative Analysis
3. Indian Commodities Market – Performance Analysis
3.1 Aluminium Market – Future Contract Value (Jan 07 – Jul 08)
3.2 Coffee Market – Robusta Futures Contract Value (Jan 07 – Aug 08)
3.3 Copper Market – Copper Futures Contract Value (Jan 07 – Jul 08)
3.5 Crude Oil Market – Crude Oil Futures Contract Value (Jan 07 - Aug 08)
3.6 Gold Market – Futures Contract Value (Jan 07 – Aug 08)
3.7 Chana (Chickpea) Market – Futures Contract Value (Jan 07 – May 08)
3.8 Nickel Market – Futures Contract Value (Jan 07 – Jul 08)
3.9 Zinc Market – Futures Contract Value (Jan 07 – Jul 08)
3.10 Lead Market – Price Performance (Jan 07 – Aug 08)
3.11 Cardamom Market – Futures Contract Value (Jan 07 – Jul 08)
3.12 Jeera (Cumin Seed) Market – Futures Contract Value (Jan 07 – Jul 08)
3.13 Lead Market – Futures Contract Value (Jan 07 – Jul 08)
3.14 Mentha Oil Market – Futures Contract Value (Jan 07 – Jul 08)
3.15 Natural Gas Market – Futures Contract Value (Jan 07 – Jul 08)
4. Government Regulations, Initiatives and Reforms
4.1 Setting up a Committee on Role of Futures Trading in 1993
4.2 Setting up of Forward Market Commission in 1953
4.3 Forward Contracts (Regulation) Act, 1952
4.4 Forward Contracts (Regulation) Amendment Bill, 2006
4.5 Forward Contracts (Regulation) Amendment Ordinance, 2008
4.6 Commodities Trading Tax
4.7 Import duty cut & export duty hike in Metals industry
5. Issues, Trends & Opportunities
5.1 Commodity Trends: Hurt by economic slowdown
5.2 Multi Commodity Exchange (MCX) launched currency futures trading
5.2 Hedging ban a slow political process to kill futures market
5.3 Commodity investment goes retail
5.4 Unresolved Issues and Future Prospects
5.5 Scrap now being considered a waste commodity
5.6 Commodity and Equity Markets have been moving in tandem
5.7 Indian Bt Cotton to hit market soon
5.8 Warehousing to take giant leap in India
List of Charts
Chart 1: Mode of Financing in Commodities Trading
Chart 2: Business Operations Model of a Trading Process in a Commodity Exchange
Chart 3: SWFs Market Projections (2007-2012)
Chart 4: Comparison of AUM of SWFs and Asset Managers, Private Equity and Hedge Funds ($ billions)
Chart 5: Sovereign Wealth Fund Deal Volume (1997-2007)
Chart 6: Sector-wise growth: Exchange trade of commodity derivatives by volume (03-06)
Chart 7: World’s leading Commodity Exchanges in developing countries – 2006 Contracts ($millions)
Chart 8: Major base metal commodity exchanges & emerging markets
Chart 9: Base Metal Price Trend – 2006 vs. Present Price
Chart 10: Cocoa Monthly Averages of Daily Prices (Oct 07- Oct 08)
Chart 11: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Chart 12: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Chart 13: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Chart 14: MLCX Weights as of January 2008
Chart 15: MLCXTR outperformance vs. SPGCCITR & DJAIGTR
Chart 16: Reuters/Jefferies CRB® Total Return Index: Jan 82 – Sep 08 (monthly close)
Chart 17: Forecast of China's Share of the Growth in Demand for Global Commodities- 2009
Chart 18: Types of Commodities Traded in India
Chart 19: MCX vs. SENSEX – Comparative Analysis (Jan 06-Sep 08)
Chart 20: India's Aluminium Futures Contract in Value (Rs. Crore) (Jan 07 – Jul 08)
Chart 21: India's Coffee Robusta Futures Contract in Value (Rs. Lakhs) (Jan 07 – Aug 08)
Chart 22: India's Copper Futures Contract in Value (Rs. Crore)
Chart 23: India's Crude Oil Futures Contract in Value (Rs. Crore)
Chart 24: India's Gold (1Kg) Futures Contract in Value (Rs. Crore)
Chart 25: India's Gold (100g) Futures contract in Value (Rs. Crore)
Chart 26: India's Chana (Chickpea) Futures Contract in Value (Rs. Crore)
Chart 27: India's Nickel Futures Contract in Value (Rs. Crore)
Chart 28: India's Zinc Futures Contract in Value (Rs. Crore)
Chart 29: India's Lead Futures Contract in Value (Rs. Crore)
Chart 30: India's Cardamom Futures Contract in Value (Rs. Crore)
Chart 31: India's Jeera (Cumin Seed) Futures Contract in Value (Rs. Lakhs)
Chart 32: India's Lead Futures Contract in Value (Rs. Crore)
Chart 33: India's Mentha Oil Futures Contract in Value (Rs. Crore)
Chart 34: India's Natural Gas Futures Contract in Value (Rs. Crore)
List of Tables
Table 1: The Global Economic Outlook (2006-2010)
Table 2: Major Global Commodity Exchanges
Table 3: Major Asian Commodity Exchanges
Table 4: Major European Commodity Exchanges
Table 5: Commodity Traders – List of top banks, Financial Institutions & other top companies
Table 6: Fund Rankings: Largest Funds by Assets under Management
Table 7: Global Commodity Prices – Monthly & Yearly Averages (Jan 06 - Sep 08)
Table 8: Commodity Forecast Nominal Prices (2007-2020)
Table 9: World Cocoa Market Estimates (in million metric tons) – 2002-2008
Table 10: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Table 11: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Table 12: Comparison of Commodity Indexes
Table 13: Dow Jones AIG Total Return Performance %
Table 14: Dow Jones AIG Excess Return Performance %
Table 15: Dow Jones AIG Yearly Returns (1990-2008)
Table 16: DJGI AIG Commodity Index - Commodity Weightings
Table 17: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Table 18: S&P GSCI™ Components and Dollar Weights (%)
Table 19: S&P GSCI™ Index Values
Table 20: Commodity Exchanges in India
Table 21: Trend of Commodities in National Commodity & Derivatives Exchange (Oct 08)
Table 22: Trend of Commodities in Multi Commodity Exchange of India (Oct 08)
Table 23: Trend of Metals in Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) (Oct 08)
Table 24: Trend of Oil Commodities traded in NYMEX (Oct 08)
Table 25: Trend of Metal commodities traded in NYMEX (Oct 08)
Pages: 186
Showing posts with label Investment. Show all posts
Showing posts with label Investment. Show all posts
Thursday, November 13, 2008
Thursday, July 24, 2008
US Institutional Fixed Income Asset Management Industry
Market Size
# The U.S. fixed income market is one of the largest securities markets in the world with more than $29.2 trillion in outstanding debt according to SIFMA as of September 31, 2007.
# The average daily dollar value traded rose from $274.0 billion in 1996 to $508.9 billion in 2001 and $889.8 billion in 2006.
Market Segmentation
# The retail fixed income market accounts for approximately 70 percent of the total fixed income transactions and is expected to expand as 75+ million baby boomers enter retirement and begin shifting investment assets from growth to preservation strategies. Institutional fixed income market accounts for the remaining 30% of the total market share. (Source: Knight Capital Group, Inc.)
Institutional asset management industry has become an important feature of modern financial markets, with the scale of this business’s importance readily apparent from the size of assets under management by different types of institutional asset managers. The growth of the professional asset management industry has been a key feature of the structural changes in the international financial system, a development with implications for many different aspects of the financial landscape - market turnover, securities issuance, international capital flows, market stability, industrial organization and corporate governance. A wide variety of institutional investors, with professional asset managers, has emerged - pension funds, insurance companies (life and non-life), and investment companies (of all kinds).
Market Trends
The sources of profitability & growth in the industry are shifting rapidly as evidenced by the following major trends:
=> With asset management involving a delegation process, shaping appropriate incentive structures is essential for aligning the incentives of owners of funds with those of the institutional managers of these funds.
=> As the industry is still regarded as an evolving business, its strong recent growth is expected to continue well into the foreseeable future. As a result, structural changes in the industry, to the extent that they affect asset managers’ incentives, are likely to have their effect on their decision-making and, possibly, market outcomes. Ongoing industry trends have therefore an obvious potential to change institutional investor behaviour in ways that can be important for global financial markets.
=> Traditional products are now trapped in a vise-like squeeze, with higher alpha and "cheap beta" products again capturing almost all asset growth;
=> The most successful traditional firms dramatically grew both their revenues and profits from alternatives, with these products now accounting for more than one-third of institutional revenues – up from almost nothing only five years ago;
=> As a result of both these trends, retail and institutional net prices have now almost fully converged, with major implications for client segment attractiveness;
=> The defined benefit market is far from dead, but flows are undergoing a radical shift, with higher-alpha, fixed income and cheap beta products the main sources of growth.
Consequences
While the industry overall remains highly profitable, firms that are unable to adapt to these changes will have a hard time maintaining future growth and profitability. Indeed, a direct consequence of the shifting sands of growth and profitability is that most firms continue to struggle to gain real operating leverage.
=> Even in this rapidly moving environment, the effective use of scale remains the dominant characteristic of the most successful asset management firms. Players pursuing any one of three "winning" business models – at-scale, multi boutique and focused-asset players – remain almost twice as profitable as those that do not. Moreover, firms following these models appear better positioned than their peers to adapt to the shifting sources of industry growth and profitability.
=> These rapid industry shifts pose a real challenge for firms' middle and back offices. Indeed, operations and technology have taken on a new strategic imperative, in particular around innovation, customer service, and efficiency; with leading asset managers already recognizing that the payoff for aggressively managing O&T has never been more compelling than it is today.
=> Broadening array of asset classes: The rise in professionally managed assets, both in absolute terms and as a share of overall financial wealth, was complemented by rising interest in non-core markets and, recently, some growth in funds placed with unregulated asset managers.
Sources: McKinsey and CGFS
# The U.S. fixed income market is one of the largest securities markets in the world with more than $29.2 trillion in outstanding debt according to SIFMA as of September 31, 2007.
# The average daily dollar value traded rose from $274.0 billion in 1996 to $508.9 billion in 2001 and $889.8 billion in 2006.
Market Segmentation
# The retail fixed income market accounts for approximately 70 percent of the total fixed income transactions and is expected to expand as 75+ million baby boomers enter retirement and begin shifting investment assets from growth to preservation strategies. Institutional fixed income market accounts for the remaining 30% of the total market share. (Source: Knight Capital Group, Inc.)
Institutional asset management industry has become an important feature of modern financial markets, with the scale of this business’s importance readily apparent from the size of assets under management by different types of institutional asset managers. The growth of the professional asset management industry has been a key feature of the structural changes in the international financial system, a development with implications for many different aspects of the financial landscape - market turnover, securities issuance, international capital flows, market stability, industrial organization and corporate governance. A wide variety of institutional investors, with professional asset managers, has emerged - pension funds, insurance companies (life and non-life), and investment companies (of all kinds).
Market Trends
The sources of profitability & growth in the industry are shifting rapidly as evidenced by the following major trends:
=> With asset management involving a delegation process, shaping appropriate incentive structures is essential for aligning the incentives of owners of funds with those of the institutional managers of these funds.
=> As the industry is still regarded as an evolving business, its strong recent growth is expected to continue well into the foreseeable future. As a result, structural changes in the industry, to the extent that they affect asset managers’ incentives, are likely to have their effect on their decision-making and, possibly, market outcomes. Ongoing industry trends have therefore an obvious potential to change institutional investor behaviour in ways that can be important for global financial markets.
=> Traditional products are now trapped in a vise-like squeeze, with higher alpha and "cheap beta" products again capturing almost all asset growth;
=> The most successful traditional firms dramatically grew both their revenues and profits from alternatives, with these products now accounting for more than one-third of institutional revenues – up from almost nothing only five years ago;
=> As a result of both these trends, retail and institutional net prices have now almost fully converged, with major implications for client segment attractiveness;
=> The defined benefit market is far from dead, but flows are undergoing a radical shift, with higher-alpha, fixed income and cheap beta products the main sources of growth.
Consequences
While the industry overall remains highly profitable, firms that are unable to adapt to these changes will have a hard time maintaining future growth and profitability. Indeed, a direct consequence of the shifting sands of growth and profitability is that most firms continue to struggle to gain real operating leverage.
=> Even in this rapidly moving environment, the effective use of scale remains the dominant characteristic of the most successful asset management firms. Players pursuing any one of three "winning" business models – at-scale, multi boutique and focused-asset players – remain almost twice as profitable as those that do not. Moreover, firms following these models appear better positioned than their peers to adapt to the shifting sources of industry growth and profitability.
=> These rapid industry shifts pose a real challenge for firms' middle and back offices. Indeed, operations and technology have taken on a new strategic imperative, in particular around innovation, customer service, and efficiency; with leading asset managers already recognizing that the payoff for aggressively managing O&T has never been more compelling than it is today.
=> Broadening array of asset classes: The rise in professionally managed assets, both in absolute terms and as a share of overall financial wealth, was complemented by rising interest in non-core markets and, recently, some growth in funds placed with unregulated asset managers.
Sources: McKinsey and CGFS
Wednesday, July 2, 2008
Indian Insurance Market
Authors: Nishith Srivastava & Akash Rakyan
Indian economy is the 12th largest in the world, with a GDP of $1.25 trillion and 3rd largest in terms of purchasing power parity. With factors like a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, it is on the fulcrum of an ever increasing growth curve.
Insurance is one major sector which has been on a continuous growth curve since the revival of Indian economy. Taking into account the huge population and growing per capita income besides several other driving factors, a huge opportunity is in store for the insurance companies in India. According to the latest research findings, nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subjected to weak social security and pension systems with hardly any old age income security. As per our findings, insurance in India is primarily used as a means to improve personal finances and for income tax planning; Indians have a tendency to invest in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small--4-5%. This in itself is an indicator that growth potential for the insurance sector is immense. It’s a business growing at the rate of 15-20% per annum and presently is of the order of $47.9 billion.
India is a vast market for life insurance that is directly proportional to the growth in premiums and an increase in life density. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. Competition in this market is increasing with companies continues effort to lure the customers with new product offerings. However, the market share of private insurance companies remains very low -- in the 10-15% range. Even to this day, Life Insurance Corporation (LIC) of India dominates Indian insurance sector. The heavy hand of government still dominates the market, with price controls, limits on ownership, and other restraints.
In 2000, Indian insurance market size was $21.71 billion. Between 2000 and 2007, it had an increase of 120% and reached $47.89 billion. Between 2000 and 2007, total premiums maintained an average growth rate of 11.96% and the CAGR growth during this time frame has been 11.96%. It was one of the most consistent growth patterns we have noticed in any other emerging economies in Asian as well as Global markets.
Major Driving Factors
=> Growing demand from semi-urban population
=> Entry of private players following the deregulation
=> Rising demand for retirement provision in the ageing population
=> The opening of the pension sector and the establishment of the new pension regulator
=> Rising per capita incomes among the strong middle class, and spreading affluence
=> Growing consumer class and increase in spending & saving capacity
=> Public private partnerships infrastructure development
=> Dearth of innovative & buyer-friendly insurance products
=> Success of Auto insurance sector
Emerging Areas
=> Healthcare Insurance & Pension Plans
=> Mutual fund linked insurance products
=> Multiple Distribution Networks .i.e. Bancassurance
The upward growth trend started from 2000 was mainly due to economic policies adopted by the then Indian government. This year saw initiation of an era of economic liberalization and globalization in the Indian economy followed by several reforms and long-term policies that created a perfect roadmap for the success of Indian financial markets. On the basis of several macroeconomic factors like increase in literacy rate & per capita income, decrease in death rate and unemployment, better tax rebates, growing GDP etc., we estimate that the Indian insurance sector will grow by $28.65 billion and reach $76.54 billion by 2011 with a CAGR of 12.44% and a growth of 59.82%.
The Indian life insurance market generated total revenues of $41.36 billion in 2007, this representing a compound annual growth rate (CAGR) of 11.84% for the period spanning 2000-2007. Life insurance market had a growth of $22.46 billion within a period of 7 years with a growth rate of 118.24%. Estimated life premiums rose from INR1,470,800 million ($36.77 billion) in 2006 to INR1,301,540 million ($32.54billion) in 2005. We envisage that life premiums in 2011 will be $65.96 billion, a growth larger than they were in 2007. The performance of the market is forecast to accelerate, with an anticipated CAGR of 9.78% for the four-year period 2007-2011 expected to drive the market to a value of $65.96 billion by the end of 2011. There would be a growth of $24.6 billion i.e. 59.48% in the next 4 years.
Non-life premiums in India were $6.53 billion in 2007. Gross written premium (GWP) in the Indian non-life insurance market reached a value of $5.75 billion in 2006, this representing an annual growth of 13.55% for the period spanning 2006-2007. Estimated non-life premiums rose from INR230 billion ($5.75 billion) in 2006 to INR261 billion ($6.53 billion) in 2007. We anticipate that non-life premiums will grow by a CAGR of 9.40% between 2007-2011. We are looking for non-life premiums to rise by $405 million over the five years to the end of 2011 with a growth rate of 62.02%.
Topics covered in the report
=> Trend analysis of Indian economy and growing macroeconomic factors and
=> India’s position in the context of emerging countries
=> Historical growth trends & growth drivers of Insurance & its sub-sectors in India and outlook till 2011.
=> Market size of insurance sector (total, life & non-life) since 2000 till 2007
=> Market forecast of insurance sector (total, life & non-life) between 2007 and 2011
=> Key issues & challenges, major trends & opportunities
=> Government’s initiatives to promote & regulate the insurance market
=> Competitive landscape and market share of top players
=> And many more...
Table of Contents
METHODOLOGY & RESEARCH APPROACH
EXECUTIVE SUMMARY
1. INDIA
1.1. ECONOMY
1.1.1. Performance in FY2007
1.1.2. Growing Per Capita Income
1.1.3. Macroeconomic trends
1.1.4. Future predictions
1.2. GOVERNMENT POLICIES
2. INDIAN INSURANCE SECTOR
2.1. MARKET OVERVIEW
2.1.1.Insurance Sector vs. Macro-economic factors
2.2. MARKET PERFORMANCE & FORECAST (2000-2011)
2.2.1. Indian Insurance Market
2.2.1.1.Indian Life Insurance Market
2.2.1.2. Indian Non-Life Insurance Market
2.3.DRIVING FACTORS
2.3.1. Opening of Pension sector
2.3.2. Growing Per Capita Income & Changing Demographics
2.3.3. Macro-Economic and Demographic Growth Drivers
2.3.4. Other Major Drivers
2.4. TRENDS, ISSUES AND OPPORTUNITIES – AN ANALYSIS
2.4.1. Major Issues
2.4.2. Emerging sectors for Insurance
2.4.3. Emergence of Multiple Distribution Networks
2.4.4. Consolidation of Distribution Strategy
2.4.5. Targeting niche customer base with customized products
2.4.6. Stagnating premium growth and underlying opportunity
2.4.7. The Deregulation of the Insurance Market in India (w.e.f. Jan 1,07)
2.4.8. Proposed stages of removal of the tariffs
2.4.9. Insurance sector driving Indian CRM market
2.4.10. Product Preferences among Consumers
2.4.11. Success of Auto Insurance Sector
2.4.12. Other major hurdles
2.5. GOVERNMENT REGULATIONS
2.5.1. Insurance Acts
2.5.2. Government backed insurance schemes
2.5.3. Reforms in Insurance Sector
2.6. COMPETITIVE LANDSCAPE
2.6.1. Competition in Life Insurance Sector
2.6.1.1. Market Share & Segmentation
2.6.1.2. Life Insurance - Five Forces Analysis
2.6.2. Competition in Non-Life Insurance Sector
2.6.2.1. Market Share & Segmentation
2.6.2.2. Non-Life Insurance - Five Forces Analysis
2.7. COMPANY PROFILES – TOP PLAYERS
2.7.1. Bajaj Allianz General Insurance Co. Ltd
2.7.2. ICICI Lombard General Insurance Company
2.7.3. IFFCO-TOKIO General Insurance (ITGI)
2.7.4. National Insurance Company Limited
2.7.5. The New India Assurance Co. Ltd.
2.7.6. The Oriental Insurance Company Limited
2.7.7. Reliance General Insurance
2.7.8. Royal Sundaram Alliance Insurance Co. Ltd
2.7.9. Tata AIG General
2.7.10.United India Insurance Company Limited
2.7.11.Bajaj Allianz Life Insurance Company Limited
2.7.12.ICICI Prudential Life Insurance Company
Pages: 127
Format: PDF
List of Charts
Chart 1: GDP growth, per capita income and size of country by GDP in 2014f
Chart 2: Macroeconomic Data & Factors
Chart 3: Government Debt- India (% of GDP)
Chart 4: Annual Inflation Rate (CPI) - India %
Chart 5: Total Premium Growth vs. GDP Growth (%) – 2000-2007e
Chart 6: Life Insurance vs. Non-Life Insurance vs. Total Premium vs. GDP (%) – 2000-2008f
Chart 7: India Insurance Market Value ($ billion): 2000-2007e
Chart 8: India Insurance Market Value Forecast ($ billion): 2008-2011f
Chart 9: India Insurance Market: Segment Share (2007e)
Chart 10: India Life Insurance Market Value ($billion): 2000-2007e
Chart 11: Asia-Pacific Life Insurance Market Segmentation: % share in 2006e
Chart 12: India Life Insurance Market Share: % Share, by Value, 2006-2007e
Chart 13: India Life Insurance Market Value Forecast ($billion): 2008-2011f
Chart 14: India Non-Life Insurance Market Value ($billion): 2000-2007e
Chart 15: India Non-Life Insurance Market Value Forecast ($billion): 2007-2011f
Chart 16: Sub-sector share of Non-life Insurance Market in India (2007e)
Chart 17: India Non-life Insurance Market Share: % Share, by Value, 2006-2007e
Chart 18: Market Share of leading life insurance companies in India (% share) – 2007e
Chart 19: India Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Chart 20: India Non-Life Insurance Market Segmentation (%share & $billion value): 2006-2007e
Chart 21: India Non-Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
List of Tables
Table 1: GDP Growth (2002-07)
Table 2: Total Premium Growth & GDP Growth (%) – 2000-2007
Table 3: Growth (%): Life Insurance vs. Non-Life Insurance vs. Total Premium vs. GDP (%) – 2000-2008f
Table 4: India Insurance Market Value ($billion): 2000-2007e
Table 5: India Insurance Market Value Forecast ($ billion): 2008-2011f
Table 6: India Life Insurance Market Value ($billion): 2000-2007e
Table 7: Asia-Pacific Life Insurance Market Segmentation: % share in 2006
Table 8: India Life Insurance Market Share: % Share, by Value, 2006-2007e
Table 9: India Life Insurance Market Value Forecast ($billion): 2008-2011f
Table 10: India Non-Life Insurance Market Value ($billion): 2000-2007e
Table 11: India Non-Life Insurance Market Value Forecast ($billion): 2007-2011f
Table 12: India Non- Life Insurance Market Share: % Share, by Value, 2006-2007e
Table 13: India Insurance Market Segmentation (%share & $billion values): 2006-2007e
Table 14: India Insurance Market Segmentation (%share & $billion value): 2010-2011f
Table 15: Market Share of leading life insurance companies in India – 2007e
Table 16: India Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Table 17: India Non-Life Insurance Market Segmentation (%share & $billion value): 2006-2007e
Table 18: India Non-Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Indian economy is the 12th largest in the world, with a GDP of $1.25 trillion and 3rd largest in terms of purchasing power parity. With factors like a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, it is on the fulcrum of an ever increasing growth curve.
Insurance is one major sector which has been on a continuous growth curve since the revival of Indian economy. Taking into account the huge population and growing per capita income besides several other driving factors, a huge opportunity is in store for the insurance companies in India. According to the latest research findings, nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subjected to weak social security and pension systems with hardly any old age income security. As per our findings, insurance in India is primarily used as a means to improve personal finances and for income tax planning; Indians have a tendency to invest in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small--4-5%. This in itself is an indicator that growth potential for the insurance sector is immense. It’s a business growing at the rate of 15-20% per annum and presently is of the order of $47.9 billion.
India is a vast market for life insurance that is directly proportional to the growth in premiums and an increase in life density. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. Competition in this market is increasing with companies continues effort to lure the customers with new product offerings. However, the market share of private insurance companies remains very low -- in the 10-15% range. Even to this day, Life Insurance Corporation (LIC) of India dominates Indian insurance sector. The heavy hand of government still dominates the market, with price controls, limits on ownership, and other restraints.
In 2000, Indian insurance market size was $21.71 billion. Between 2000 and 2007, it had an increase of 120% and reached $47.89 billion. Between 2000 and 2007, total premiums maintained an average growth rate of 11.96% and the CAGR growth during this time frame has been 11.96%. It was one of the most consistent growth patterns we have noticed in any other emerging economies in Asian as well as Global markets.
Major Driving Factors
=> Growing demand from semi-urban population
=> Entry of private players following the deregulation
=> Rising demand for retirement provision in the ageing population
=> The opening of the pension sector and the establishment of the new pension regulator
=> Rising per capita incomes among the strong middle class, and spreading affluence
=> Growing consumer class and increase in spending & saving capacity
=> Public private partnerships infrastructure development
=> Dearth of innovative & buyer-friendly insurance products
=> Success of Auto insurance sector
Emerging Areas
=> Healthcare Insurance & Pension Plans
=> Mutual fund linked insurance products
=> Multiple Distribution Networks .i.e. Bancassurance
The upward growth trend started from 2000 was mainly due to economic policies adopted by the then Indian government. This year saw initiation of an era of economic liberalization and globalization in the Indian economy followed by several reforms and long-term policies that created a perfect roadmap for the success of Indian financial markets. On the basis of several macroeconomic factors like increase in literacy rate & per capita income, decrease in death rate and unemployment, better tax rebates, growing GDP etc., we estimate that the Indian insurance sector will grow by $28.65 billion and reach $76.54 billion by 2011 with a CAGR of 12.44% and a growth of 59.82%.
The Indian life insurance market generated total revenues of $41.36 billion in 2007, this representing a compound annual growth rate (CAGR) of 11.84% for the period spanning 2000-2007. Life insurance market had a growth of $22.46 billion within a period of 7 years with a growth rate of 118.24%. Estimated life premiums rose from INR1,470,800 million ($36.77 billion) in 2006 to INR1,301,540 million ($32.54billion) in 2005. We envisage that life premiums in 2011 will be $65.96 billion, a growth larger than they were in 2007. The performance of the market is forecast to accelerate, with an anticipated CAGR of 9.78% for the four-year period 2007-2011 expected to drive the market to a value of $65.96 billion by the end of 2011. There would be a growth of $24.6 billion i.e. 59.48% in the next 4 years.
Non-life premiums in India were $6.53 billion in 2007. Gross written premium (GWP) in the Indian non-life insurance market reached a value of $5.75 billion in 2006, this representing an annual growth of 13.55% for the period spanning 2006-2007. Estimated non-life premiums rose from INR230 billion ($5.75 billion) in 2006 to INR261 billion ($6.53 billion) in 2007. We anticipate that non-life premiums will grow by a CAGR of 9.40% between 2007-2011. We are looking for non-life premiums to rise by $405 million over the five years to the end of 2011 with a growth rate of 62.02%.
Topics covered in the report
=> Trend analysis of Indian economy and growing macroeconomic factors and
=> India’s position in the context of emerging countries
=> Historical growth trends & growth drivers of Insurance & its sub-sectors in India and outlook till 2011.
=> Market size of insurance sector (total, life & non-life) since 2000 till 2007
=> Market forecast of insurance sector (total, life & non-life) between 2007 and 2011
=> Key issues & challenges, major trends & opportunities
=> Government’s initiatives to promote & regulate the insurance market
=> Competitive landscape and market share of top players
=> And many more...
Table of Contents
METHODOLOGY & RESEARCH APPROACH
EXECUTIVE SUMMARY
1. INDIA
1.1. ECONOMY
1.1.1. Performance in FY2007
1.1.2. Growing Per Capita Income
1.1.3. Macroeconomic trends
1.1.4. Future predictions
1.2. GOVERNMENT POLICIES
2. INDIAN INSURANCE SECTOR
2.1. MARKET OVERVIEW
2.1.1.Insurance Sector vs. Macro-economic factors
2.2. MARKET PERFORMANCE & FORECAST (2000-2011)
2.2.1. Indian Insurance Market
2.2.1.1.Indian Life Insurance Market
2.2.1.2. Indian Non-Life Insurance Market
2.3.DRIVING FACTORS
2.3.1. Opening of Pension sector
2.3.2. Growing Per Capita Income & Changing Demographics
2.3.3. Macro-Economic and Demographic Growth Drivers
2.3.4. Other Major Drivers
2.4. TRENDS, ISSUES AND OPPORTUNITIES – AN ANALYSIS
2.4.1. Major Issues
2.4.2. Emerging sectors for Insurance
2.4.3. Emergence of Multiple Distribution Networks
2.4.4. Consolidation of Distribution Strategy
2.4.5. Targeting niche customer base with customized products
2.4.6. Stagnating premium growth and underlying opportunity
2.4.7. The Deregulation of the Insurance Market in India (w.e.f. Jan 1,07)
2.4.8. Proposed stages of removal of the tariffs
2.4.9. Insurance sector driving Indian CRM market
2.4.10. Product Preferences among Consumers
2.4.11. Success of Auto Insurance Sector
2.4.12. Other major hurdles
2.5. GOVERNMENT REGULATIONS
2.5.1. Insurance Acts
2.5.2. Government backed insurance schemes
2.5.3. Reforms in Insurance Sector
2.6. COMPETITIVE LANDSCAPE
2.6.1. Competition in Life Insurance Sector
2.6.1.1. Market Share & Segmentation
2.6.1.2. Life Insurance - Five Forces Analysis
2.6.2. Competition in Non-Life Insurance Sector
2.6.2.1. Market Share & Segmentation
2.6.2.2. Non-Life Insurance - Five Forces Analysis
2.7. COMPANY PROFILES – TOP PLAYERS
2.7.1. Bajaj Allianz General Insurance Co. Ltd
2.7.2. ICICI Lombard General Insurance Company
2.7.3. IFFCO-TOKIO General Insurance (ITGI)
2.7.4. National Insurance Company Limited
2.7.5. The New India Assurance Co. Ltd.
2.7.6. The Oriental Insurance Company Limited
2.7.7. Reliance General Insurance
2.7.8. Royal Sundaram Alliance Insurance Co. Ltd
2.7.9. Tata AIG General
2.7.10.United India Insurance Company Limited
2.7.11.Bajaj Allianz Life Insurance Company Limited
2.7.12.ICICI Prudential Life Insurance Company
Pages: 127
Format: PDF
List of Charts
Chart 1: GDP growth, per capita income and size of country by GDP in 2014f
Chart 2: Macroeconomic Data & Factors
Chart 3: Government Debt- India (% of GDP)
Chart 4: Annual Inflation Rate (CPI) - India %
Chart 5: Total Premium Growth vs. GDP Growth (%) – 2000-2007e
Chart 6: Life Insurance vs. Non-Life Insurance vs. Total Premium vs. GDP (%) – 2000-2008f
Chart 7: India Insurance Market Value ($ billion): 2000-2007e
Chart 8: India Insurance Market Value Forecast ($ billion): 2008-2011f
Chart 9: India Insurance Market: Segment Share (2007e)
Chart 10: India Life Insurance Market Value ($billion): 2000-2007e
Chart 11: Asia-Pacific Life Insurance Market Segmentation: % share in 2006e
Chart 12: India Life Insurance Market Share: % Share, by Value, 2006-2007e
Chart 13: India Life Insurance Market Value Forecast ($billion): 2008-2011f
Chart 14: India Non-Life Insurance Market Value ($billion): 2000-2007e
Chart 15: India Non-Life Insurance Market Value Forecast ($billion): 2007-2011f
Chart 16: Sub-sector share of Non-life Insurance Market in India (2007e)
Chart 17: India Non-life Insurance Market Share: % Share, by Value, 2006-2007e
Chart 18: Market Share of leading life insurance companies in India (% share) – 2007e
Chart 19: India Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Chart 20: India Non-Life Insurance Market Segmentation (%share & $billion value): 2006-2007e
Chart 21: India Non-Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
List of Tables
Table 1: GDP Growth (2002-07)
Table 2: Total Premium Growth & GDP Growth (%) – 2000-2007
Table 3: Growth (%): Life Insurance vs. Non-Life Insurance vs. Total Premium vs. GDP (%) – 2000-2008f
Table 4: India Insurance Market Value ($billion): 2000-2007e
Table 5: India Insurance Market Value Forecast ($ billion): 2008-2011f
Table 6: India Life Insurance Market Value ($billion): 2000-2007e
Table 7: Asia-Pacific Life Insurance Market Segmentation: % share in 2006
Table 8: India Life Insurance Market Share: % Share, by Value, 2006-2007e
Table 9: India Life Insurance Market Value Forecast ($billion): 2008-2011f
Table 10: India Non-Life Insurance Market Value ($billion): 2000-2007e
Table 11: India Non-Life Insurance Market Value Forecast ($billion): 2007-2011f
Table 12: India Non- Life Insurance Market Share: % Share, by Value, 2006-2007e
Table 13: India Insurance Market Segmentation (%share & $billion values): 2006-2007e
Table 14: India Insurance Market Segmentation (%share & $billion value): 2010-2011f
Table 15: Market Share of leading life insurance companies in India – 2007e
Table 16: India Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Table 17: India Non-Life Insurance Market Segmentation (%share & $billion value): 2006-2007e
Table 18: India Non-Life Insurance Market Segmentation (%share & $billion value): 2010-2011f
Tuesday, May 6, 2008
20 Indian firms among world's top 100 in outsourcing
According to Silicon India:
Reflecting strong growth of the Indian industry, 20 Indian firms have successfully made it to the list of top 100 outsourcing companies in the world.
The latest '2008 Global Outsourcing 100', compiled by the International Association of Outsourcing Professionals (IAOP) that features 20 Indian firms has five of them - Infosys (ranked 3), TCS (6), Wipro (7), Genpact (9) and Tech Mahindra (10) among the top 10. All five are leading software service providers.
In the list, Accenture is on the top slot and IBM comes second. Companies on the list averaged $1.7 billion in annual sales and engaged 27,000 employees across the world.
Other Indian companies in the list are HCL Technology (11) Mastek (16), WNS Global Services (19), Hexaware (22), ExlService (26), 24/7 Customer (28), Cambridge (36), ITC Infotech (40), KPIT Cummins (42), Patni (46), Zensar (53), MindTree (54), Mphasis (56), Aditya Birla Minacs (62), FirstSource Solutions (73) and VCustomer (84).
According to IAOP, the key strength of Wipro and TCS is their 'employee management' while 'executive leadership' is cited as the strong point of Infosys and Genpact.
On the other hand, 'outsourcing experience' is attributed as the main strength of Tech Mahindra and HCL Technologies. The power balance in the outsourcing industry is shifting. Global competition in outsourcing is intensifying and that was reflected in this years ranking with companies from 19 countries vying for recognition, IAOP's Managing Director, thought leadership and who head the judges panel, Jagdish Dalal said.
In last year's list, there were five Indian firms in the top 10 - Wipro, Infosys, Genpact, Tech Mahindra and Cambridge.
Reflecting strong growth of the Indian industry, 20 Indian firms have successfully made it to the list of top 100 outsourcing companies in the world.
The latest '2008 Global Outsourcing 100', compiled by the International Association of Outsourcing Professionals (IAOP) that features 20 Indian firms has five of them - Infosys (ranked 3), TCS (6), Wipro (7), Genpact (9) and Tech Mahindra (10) among the top 10. All five are leading software service providers.
In the list, Accenture is on the top slot and IBM comes second. Companies on the list averaged $1.7 billion in annual sales and engaged 27,000 employees across the world.
Other Indian companies in the list are HCL Technology (11) Mastek (16), WNS Global Services (19), Hexaware (22), ExlService (26), 24/7 Customer (28), Cambridge (36), ITC Infotech (40), KPIT Cummins (42), Patni (46), Zensar (53), MindTree (54), Mphasis (56), Aditya Birla Minacs (62), FirstSource Solutions (73) and VCustomer (84).
According to IAOP, the key strength of Wipro and TCS is their 'employee management' while 'executive leadership' is cited as the strong point of Infosys and Genpact.
On the other hand, 'outsourcing experience' is attributed as the main strength of Tech Mahindra and HCL Technologies. The power balance in the outsourcing industry is shifting. Global competition in outsourcing is intensifying and that was reflected in this years ranking with companies from 19 countries vying for recognition, IAOP's Managing Director, thought leadership and who head the judges panel, Jagdish Dalal said.
In last year's list, there were five Indian firms in the top 10 - Wipro, Infosys, Genpact, Tech Mahindra and Cambridge.
Tuesday, December 25, 2007
Forecasts for the economy & markets in 2008
Author: Abheek Barua, Chief Economist, HDFC Bank
Source: Rediff
Since this is my last piece this year I thought I would write about the forecasts I have made for the global economy and financial markets for 2008. There is an important caveat, of course. The global macroeconomic and financial environment remains terribly volatile and a number of these predictions could go wrong.
Let me get to the forecasts. The jury appears to be still out on whether the US is headed for a recession next year (going by the textbook, a situation in which GDP growth turns negative for two successive quarters) or whether swift action by the US Federal Reserve is likely to prevent such a situation. US consumption data like retail numbers occasionally surprise positively and US inflation is far from dead. However, despite this bit of fuzziness I remain somewhat sanguine about the following trends.
Whether it qualifies technically as recession or not, the US is likely to see a marked slowdown at least in the first half of 2008, which could last well into the second half of the year. Besides, despite central banks' best efforts, it will take a while for American and European banks to resume lending to each other and to even slightly risky borrowers. Thus, I see the credit squeeze in the US and Europe continuing and perhaps even getting worse in the near term.
The US slowdown is likely to have knock-on effects on the global economy and world GDP growth is likely to moderate. More specifically the result of sharp currency appreciation, harder interest rates and a credit squeeze will begin to take a toll on euro-zone growth. The UK is well into a cyclical downturn.
As I have argued in earlier columns, I think it is impossible for Asian economies to remain immune to a downturn in the developed economies and growth rates will soften in this region as well. I honestly don't know much about Latin America but I think it is sensible to assume that what applies to Asia applies to these economies as well.
Global energy and food prices are likely to remain elevated in the first quarter but are likely to dip subsequently as demand compression on the back of slowing world demand begins to reflect in prices. I am, for example, convinced that concerns about fresh oil supplies and oil peaks notwithstanding, slower global growth is fundamentally incompatible with oil prices at over ninety dollars a barrel.
The same logic might just apply to other assets including stocks. If indeed the signs of global slowdown become more acute, large investors might begin to dump equities and hold on to safer assets like treasury bonds. If there is growing aversion to equities as an asset class, Asian markets (including Indian stock markets) will also take a hit. The slide in stock prices will not be due to risk-aversion alone.
If global growth slows, the slowing down will begin to impact the top line and bottom line growth of companies across economies. That in turn will buttress the negative sentiment towards risky assets. The bottom line: be prepared for a "correction" in the Indian stock market next year.
There is a potential offset. The US Fed is likely to follow a policy of phased quarter percentage point cuts in its target interest rate - I expect the American central bank to cut the Fed funds rate thrice next year. Thus while inflation risks will weigh on the Fed's mind, I expect growth concerns to dominate and spur the Fed to cut rates some more. I expect the European Central Bank to hold interest rates until the second half and then start cutting signal rates.
My bank's research team has forecast two rate cuts next year, possibly in the second half. The Bank of England is likely to be swifter with two quarter percentage point cuts in the first half of 2008. We also expect more direct liquidity both through unilateral cash infusion by central banks and perhaps through more co-ordinated intervention.
The question is: what happens to all this liquidity when central banks turn on their cash spigots? If investors remain terribly risk-averse, a lot of it would go into low-risk government bonds.
US treasury bond prices will continue to move up and yields will decline as this process continues. Besides, if US assets keep getting cheaper and cheaper, investors will sniff a bargain and start buying these assets. In fact, some of the bigger funds have already started picking up chunks of the American financial industry where valuations have hit rock-bottom. Asian sovereign investment funds, for instance, are bailing out cash-strapped American banks, picking up significant equity stakes in the process.
Finally, there is also a chance that some of the money will start finding its way into emerging financial markets where growth rates, at least in relative terms, will remain high in comparison with the rest of the world. What happens then? My prediction is that emerging markets including India are likely to get buffeted by the crosswinds of rising global liquidity and cheaper interest rates, on one side, and concerns about slowing growth, on the other. This means two things.
Our stock markets will remain volatile for a while to come and sharp upswings could be followed by a quick downturn. Ditto for the currency markets. The interplay of these opposing forces also means that these markets will be stuck in a range. Thus I do not see the possibility of prolonged phases of decline, nor do I see the prospect of an untrammelled bull run.
What will take the markets out of the doldrums? Since the problems of the US economy lie at the heart of all the problems, it will take some clarity on the situation there to do this. Any strong signal that the US cycle has bottomed out will lead to a quick re-pricing of risk and realignment of asset prices.
Source: Rediff
Since this is my last piece this year I thought I would write about the forecasts I have made for the global economy and financial markets for 2008. There is an important caveat, of course. The global macroeconomic and financial environment remains terribly volatile and a number of these predictions could go wrong.
Let me get to the forecasts. The jury appears to be still out on whether the US is headed for a recession next year (going by the textbook, a situation in which GDP growth turns negative for two successive quarters) or whether swift action by the US Federal Reserve is likely to prevent such a situation. US consumption data like retail numbers occasionally surprise positively and US inflation is far from dead. However, despite this bit of fuzziness I remain somewhat sanguine about the following trends.
Whether it qualifies technically as recession or not, the US is likely to see a marked slowdown at least in the first half of 2008, which could last well into the second half of the year. Besides, despite central banks' best efforts, it will take a while for American and European banks to resume lending to each other and to even slightly risky borrowers. Thus, I see the credit squeeze in the US and Europe continuing and perhaps even getting worse in the near term.
The US slowdown is likely to have knock-on effects on the global economy and world GDP growth is likely to moderate. More specifically the result of sharp currency appreciation, harder interest rates and a credit squeeze will begin to take a toll on euro-zone growth. The UK is well into a cyclical downturn.
As I have argued in earlier columns, I think it is impossible for Asian economies to remain immune to a downturn in the developed economies and growth rates will soften in this region as well. I honestly don't know much about Latin America but I think it is sensible to assume that what applies to Asia applies to these economies as well.
Global energy and food prices are likely to remain elevated in the first quarter but are likely to dip subsequently as demand compression on the back of slowing world demand begins to reflect in prices. I am, for example, convinced that concerns about fresh oil supplies and oil peaks notwithstanding, slower global growth is fundamentally incompatible with oil prices at over ninety dollars a barrel.
The same logic might just apply to other assets including stocks. If indeed the signs of global slowdown become more acute, large investors might begin to dump equities and hold on to safer assets like treasury bonds. If there is growing aversion to equities as an asset class, Asian markets (including Indian stock markets) will also take a hit. The slide in stock prices will not be due to risk-aversion alone.
If global growth slows, the slowing down will begin to impact the top line and bottom line growth of companies across economies. That in turn will buttress the negative sentiment towards risky assets. The bottom line: be prepared for a "correction" in the Indian stock market next year.
There is a potential offset. The US Fed is likely to follow a policy of phased quarter percentage point cuts in its target interest rate - I expect the American central bank to cut the Fed funds rate thrice next year. Thus while inflation risks will weigh on the Fed's mind, I expect growth concerns to dominate and spur the Fed to cut rates some more. I expect the European Central Bank to hold interest rates until the second half and then start cutting signal rates.
My bank's research team has forecast two rate cuts next year, possibly in the second half. The Bank of England is likely to be swifter with two quarter percentage point cuts in the first half of 2008. We also expect more direct liquidity both through unilateral cash infusion by central banks and perhaps through more co-ordinated intervention.
The question is: what happens to all this liquidity when central banks turn on their cash spigots? If investors remain terribly risk-averse, a lot of it would go into low-risk government bonds.
US treasury bond prices will continue to move up and yields will decline as this process continues. Besides, if US assets keep getting cheaper and cheaper, investors will sniff a bargain and start buying these assets. In fact, some of the bigger funds have already started picking up chunks of the American financial industry where valuations have hit rock-bottom. Asian sovereign investment funds, for instance, are bailing out cash-strapped American banks, picking up significant equity stakes in the process.
Finally, there is also a chance that some of the money will start finding its way into emerging financial markets where growth rates, at least in relative terms, will remain high in comparison with the rest of the world. What happens then? My prediction is that emerging markets including India are likely to get buffeted by the crosswinds of rising global liquidity and cheaper interest rates, on one side, and concerns about slowing growth, on the other. This means two things.
Our stock markets will remain volatile for a while to come and sharp upswings could be followed by a quick downturn. Ditto for the currency markets. The interplay of these opposing forces also means that these markets will be stuck in a range. Thus I do not see the possibility of prolonged phases of decline, nor do I see the prospect of an untrammelled bull run.
What will take the markets out of the doldrums? Since the problems of the US economy lie at the heart of all the problems, it will take some clarity on the situation there to do this. Any strong signal that the US cycle has bottomed out will lead to a quick re-pricing of risk and realignment of asset prices.
Sunday, September 23, 2007
BPO Sector Outlook
According to:
Dick Vleesenbeek
- Talent shortages are driving labour markets to become increasingly more global, competitive, and employee-driven
- BPO predicted to be an $80B industry by 2009/10
- RPO (subset of BPO) estimated to grow into a $20B by 2009/10
- Vendor Management Solutions (Managed Service Provider) Market predicted to grow to be $4.2B by 2009/10
- Clients are searching for true global solutions and partners
- Trend toward complex, comprehensive solutions (workforce management models) to blend the expertise of internal/external partners
- The trend toward solutions providing off-shoring and shared service components continues
- Staffing and consulting firms face an environment of evolving legislation, increasing consolidation, and technological advancements impacting the business
Atul Subbiah
Manager - M&A Strategy at Deloitte Consulting
1. The coming of age of the major Indian suppliers
2. The unbundling of contracts where deal size is getting smaller
3. Contracts are getting shorter and work is being spread across multiple providers
4. Large deals are being split, with an increase in number of multi vendor contracts leveraging the near shore and offshore options
5. Large outsourcing contracts signed in the 1990s are coming up for re-bidding
Sunmeet Jolly
A Dropping Dollar may affect the attractiveness and ROI in Outsourcing Industry. The trend needs to be watched carefully over next 2-3 years. Rising wages in Outsourcing Providing Countries also adds to the marging pressures. But Demand for Outsourced Services will definitely increase as projected by Analyst firms. Its likely to become a high volume game and we can see some consolidation on vendor side.
Deverick McIntyre PMP
Industry Leader on China's IT & outsourcing industry
Packaged ITO+BPO+ Infrastructure Management Outsourcing is a significant new trend. We have seen this type of consolidation especially in the Financial Services industry, where, for example, the IT system supporting the outsourced business process is hosted and administered by the same vendor.
It makes sense for many clients to consolidate the BPO and IT contracts with the one vendor to achieve synergies and manage risks. This is not good news for pure BPO players, however for the large Indian outsourcers such as Infosys, TATA and Wipro, as well as international players IBM, Accenture, Cap Gemini etc, it is a perfect fit with their broad solution sets.
Packaged IT/BPO contracts are much larger than pure BPO deals and this trend has led to the increasing use of sourcing consultants such as TPI, Everest Group or smaller players such as TaidaL for thorough due diligence.
The other equally important new trend is contract pricing based on client business revenue/risk. Mainly seen in ITO contracts, the trend to package ITO with BPO will result in more innovative BPO contracts using client business based pricing. It is an interesting trend which has come about as clients force consulting companies pushing solutions to "put their money where their mouth is" and invest in the outcome. "If this solution is good for my business then partner with us in the upside (and downside) risk"
Hossam Elgamal
General Manager of GNSE Group
the Global Business Process Outsourcing sector and just after the launch of the latest ATKearny report, shows a tough competition between different emerging players and existing well established ones like India.
this competition is certainly in the favor of the business, shaping up the processes, increasing the quality and diversifying the options and resources in such global industry.
the result in the coming 1-3 years would certainly be a more rewarding choice to clients with less risk and a more framed quality of delivery, more important an observation that is taking place currently where giant players (indian ones like Satyam, TATA, WIPRO...) are having competency centers outside India to diversify their offering, minimize the risk, better control the cost and benefit more of the other countries benefits... thus becoming truely global... which in turn would lead those countries of choice to learn from the experience, build the expertise and start becoming important players in that market..
but mostly important is the fact that Clients will benefit further and more clearer from the BPO, which will come to a maturity stage.
a) the emerging significant developments/trends would be the diversifications of the countries for large BPO players, and the globalizations in the true meaning of the services.
b) driving this trend are: 1. the clients experience and need for better risk management, further more options and choices, better quality, managed cost. 2. the Giant BPO players need to maintain competitive advantage, and capitalizing on the globalization opportunity 3. the Awarness of the emerging countries in that industry, their government support, and their industry maturity.
c) as i said, the key players are moving more agressively into a globalized diversified offering, not standing still in one country only. example for that WIPRO and SATYAM moved recently to open competency centers with 1000s of resources in Egypt, as the government is agressively supporting the initiative by providing incentives, and building the capacity of the local resources, while cost is very competitive and mastering arabic as well as different european languages help providing a competitive advantage!!
Source: LinkedIn
Dick Vleesenbeek
- Talent shortages are driving labour markets to become increasingly more global, competitive, and employee-driven
- BPO predicted to be an $80B industry by 2009/10
- RPO (subset of BPO) estimated to grow into a $20B by 2009/10
- Vendor Management Solutions (Managed Service Provider) Market predicted to grow to be $4.2B by 2009/10
- Clients are searching for true global solutions and partners
- Trend toward complex, comprehensive solutions (workforce management models) to blend the expertise of internal/external partners
- The trend toward solutions providing off-shoring and shared service components continues
- Staffing and consulting firms face an environment of evolving legislation, increasing consolidation, and technological advancements impacting the business
Atul Subbiah
Manager - M&A Strategy at Deloitte Consulting
1. The coming of age of the major Indian suppliers
2. The unbundling of contracts where deal size is getting smaller
3. Contracts are getting shorter and work is being spread across multiple providers
4. Large deals are being split, with an increase in number of multi vendor contracts leveraging the near shore and offshore options
5. Large outsourcing contracts signed in the 1990s are coming up for re-bidding
Sunmeet Jolly
A Dropping Dollar may affect the attractiveness and ROI in Outsourcing Industry. The trend needs to be watched carefully over next 2-3 years. Rising wages in Outsourcing Providing Countries also adds to the marging pressures. But Demand for Outsourced Services will definitely increase as projected by Analyst firms. Its likely to become a high volume game and we can see some consolidation on vendor side.
Deverick McIntyre PMP
Industry Leader on China's IT & outsourcing industry
Packaged ITO+BPO+ Infrastructure Management Outsourcing is a significant new trend. We have seen this type of consolidation especially in the Financial Services industry, where, for example, the IT system supporting the outsourced business process is hosted and administered by the same vendor.
It makes sense for many clients to consolidate the BPO and IT contracts with the one vendor to achieve synergies and manage risks. This is not good news for pure BPO players, however for the large Indian outsourcers such as Infosys, TATA and Wipro, as well as international players IBM, Accenture, Cap Gemini etc, it is a perfect fit with their broad solution sets.
Packaged IT/BPO contracts are much larger than pure BPO deals and this trend has led to the increasing use of sourcing consultants such as TPI, Everest Group or smaller players such as TaidaL for thorough due diligence.
The other equally important new trend is contract pricing based on client business revenue/risk. Mainly seen in ITO contracts, the trend to package ITO with BPO will result in more innovative BPO contracts using client business based pricing. It is an interesting trend which has come about as clients force consulting companies pushing solutions to "put their money where their mouth is" and invest in the outcome. "If this solution is good for my business then partner with us in the upside (and downside) risk"
Hossam Elgamal
General Manager of GNSE Group
the Global Business Process Outsourcing sector and just after the launch of the latest ATKearny report, shows a tough competition between different emerging players and existing well established ones like India.
this competition is certainly in the favor of the business, shaping up the processes, increasing the quality and diversifying the options and resources in such global industry.
the result in the coming 1-3 years would certainly be a more rewarding choice to clients with less risk and a more framed quality of delivery, more important an observation that is taking place currently where giant players (indian ones like Satyam, TATA, WIPRO...) are having competency centers outside India to diversify their offering, minimize the risk, better control the cost and benefit more of the other countries benefits... thus becoming truely global... which in turn would lead those countries of choice to learn from the experience, build the expertise and start becoming important players in that market..
but mostly important is the fact that Clients will benefit further and more clearer from the BPO, which will come to a maturity stage.
a) the emerging significant developments/trends would be the diversifications of the countries for large BPO players, and the globalizations in the true meaning of the services.
b) driving this trend are: 1. the clients experience and need for better risk management, further more options and choices, better quality, managed cost. 2. the Giant BPO players need to maintain competitive advantage, and capitalizing on the globalization opportunity 3. the Awarness of the emerging countries in that industry, their government support, and their industry maturity.
c) as i said, the key players are moving more agressively into a globalized diversified offering, not standing still in one country only. example for that WIPRO and SATYAM moved recently to open competency centers with 1000s of resources in Egypt, as the government is agressively supporting the initiative by providing incentives, and building the capacity of the local resources, while cost is very competitive and mastering arabic as well as different european languages help providing a competitive advantage!!
Source: LinkedIn
Monday, August 13, 2007
Indian M&A Deals Update (Mar-July 07)
North America and Asia were the favourite hunting grounds of India Inc on global acquisition chase as the takeovers deals in these region touched $7 billion and $4.2 billion in the first four months of 2007-08, according to Assocham Eco Pulse Study (AEP). India Inc's global acquisition deals have been worth $15.3 billion. Deals with US-based companies worth $5.1 billion were accomplished during the period April-July 2007 as tracked by the AEP in Study on Mergers & Acquisitions during April-July 2007-08. Tata Group was at the forefront with their total deal values worth $2.13 billion in steel, hospitality and automotives sector. Essar Group acquired Minnesota Steel for $1.65 billion in the US. Reliance Communication expanded to US communications market by acquiring Yipes for $300 million while Infosys plans to acquire Phillips Global for $200 million. Another big acquisition was that of Globeleq by D S Construction for $542 million.
"The equation of business relations with the western countries is undergoing a significant change. Indian business leaders are aiming inorganic expansion through the most industrialised country of the world", said Venugopal Dhoot, President, Assocham, commenting on the success of Indian entrepreneurs in acquiring high value companies based in US. Metal companies in Canada were traced by the Indian bluechips with the war chest of $1.7 billion. Whereas Essar Global acquired Algoma Steel for $1.58 billion, Aditya Birla acquired announced take over of Utkal Alumina International for $0.19 billion. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a joint venture with Vietnam Steel with 65% stake for $3.5 billion. Indonesia, Israel and Singapore are the other nations.
12 August 2007, Excerpts sourced from Financial Express
"The equation of business relations with the western countries is undergoing a significant change. Indian business leaders are aiming inorganic expansion through the most industrialised country of the world", said Venugopal Dhoot, President, Assocham, commenting on the success of Indian entrepreneurs in acquiring high value companies based in US. Metal companies in Canada were traced by the Indian bluechips with the war chest of $1.7 billion. Whereas Essar Global acquired Algoma Steel for $1.58 billion, Aditya Birla acquired announced take over of Utkal Alumina International for $0.19 billion. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a joint venture with Vietnam Steel with 65% stake for $3.5 billion. Indonesia, Israel and Singapore are the other nations.
12 August 2007, Excerpts sourced from Financial Express
Thursday, June 14, 2007
Auction websites changing traditional M&A processes in India & the World
Investment bankers have found a new rival in executing merger and acquisition deals in the form of the Internet, which allows sale or purchase of a company at the the click of a mouse.
Marking a significant coming-of-age for the e-commerce industry, online auction platforms like eBay are no more just about selling or buying consumer goods. In fact, entire companies are being sold and acquired on these websites in a simpler, faster and cheaper way than the traditional methods involving a plethora of investment bankers and advisors.
The trend is catching up fast in India as well after a number of successful deals in the US and other countries.
A Lucknow-based telecom firm is seeking bids for 25% stake in the company on eBay India website, a retail outlet in Kharagpur is on sale for a minimum of Rs18 lakh, while another electric vehicle manufactruing firm from the country is also soliciting potential buyers on the website.
Besides, an operational job portal Alphacareer.com, based in Bangalore, has also listed itself for sale on the eBay USA website and is seeking buyers from across the world.
Another e-commerce website focussed on sale and purchase of a business, Biz Buy Sell, has a US-based company seeking buyer for its fully-staffed Indian software developement subsidiary in Mumbai at a base price of $500,000.
There are several other such examples on some of these auction sites.
Inference
Market experts believe prospects for such deals in India should improve further, given the growing number of Internet users and increasing awareness about such websites.
According to web traffic tracking firm comScore, India is already one of the ten most populous countries in terms of Internet users and is growing at a sharp rate.
Source: PTI
Marking a significant coming-of-age for the e-commerce industry, online auction platforms like eBay are no more just about selling or buying consumer goods. In fact, entire companies are being sold and acquired on these websites in a simpler, faster and cheaper way than the traditional methods involving a plethora of investment bankers and advisors.
The trend is catching up fast in India as well after a number of successful deals in the US and other countries.
A Lucknow-based telecom firm is seeking bids for 25% stake in the company on eBay India website, a retail outlet in Kharagpur is on sale for a minimum of Rs18 lakh, while another electric vehicle manufactruing firm from the country is also soliciting potential buyers on the website.
Besides, an operational job portal Alphacareer.com, based in Bangalore, has also listed itself for sale on the eBay USA website and is seeking buyers from across the world.
Another e-commerce website focussed on sale and purchase of a business, Biz Buy Sell, has a US-based company seeking buyer for its fully-staffed Indian software developement subsidiary in Mumbai at a base price of $500,000.
There are several other such examples on some of these auction sites.
Inference
Market experts believe prospects for such deals in India should improve further, given the growing number of Internet users and increasing awareness about such websites.
According to web traffic tracking firm comScore, India is already one of the ten most populous countries in terms of Internet users and is growing at a sharp rate.
Source: PTI
Capital flows can hurt India competitiveness - RBI
Large capital inflows could result in overvaluation of India's currency and erode competitiveness of traditional and goods sectors in the long term, deputy governor of the Reserve Bank of India (RBI) said on Thursday.
Rakesh Mohan, in a paper for a Bank of France seminar in Paris posted on the RBI's Web site www.rbi.org.in, said large remittances and a sustained spurt in software exports were complicating exchange rate management. "(These) coupled with capital inflows have the potential for possible overvaluation of the currency and the resultant erosion of long-term competitiveness of other traditional and goods sectors," Mohan said.
India is part of the way through a three-phase, five-year plan towards greater capital account convertibility. Mohan said opening up the capital account meant market participants needed to be better able to absorb greater volatility and shocks.
"In the context of progress towards further capital account convertibility, the market participants are going to be faced with increased risks on multiple accounts: volatility in capital flows, volatility in asset prices, increased contagion and state of ability of legacy institutions in managing risks."
Source: Reuters
Rakesh Mohan, in a paper for a Bank of France seminar in Paris posted on the RBI's Web site www.rbi.org.in, said large remittances and a sustained spurt in software exports were complicating exchange rate management. "(These) coupled with capital inflows have the potential for possible overvaluation of the currency and the resultant erosion of long-term competitiveness of other traditional and goods sectors," Mohan said.
India is part of the way through a three-phase, five-year plan towards greater capital account convertibility. Mohan said opening up the capital account meant market participants needed to be better able to absorb greater volatility and shocks.
"In the context of progress towards further capital account convertibility, the market participants are going to be faced with increased risks on multiple accounts: volatility in capital flows, volatility in asset prices, increased contagion and state of ability of legacy institutions in managing risks."
Source: Reuters
Prospects of Semiconductor Production in India
According to Gartner, semiconductor manufacturing in India is currently limited, and although there are no operational wafer fab plants in the country right now, five fab plants have been proposed, with approved ones targeted to go live between 2009 and 2010.
Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.
In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.
Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).
To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.
He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.
Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.
Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.
India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.
Source: Gartner
Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.
In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.
Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).
To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.
He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.
Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.
Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.
India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.
Source: Gartner
India’s airline sector anticipating more consolidation
India’s booming airline industry will see further consolidation by 2010 amid growing competition, rising costs and over-capacity along key routes, an industry body said on 13 June.
At least fourteen new airlines such as Easy Air, Trans India and Star Air are seeking government approval to launch operations.
From just three private airlines in 2003, the number has jumped to ten, including low-cost carriers such as SpiceJet, Go Air, Paramount Airways and IndiGo. “Carrier rationalisation along key routes is required, as we see over-concentration of seat capacity along main routes,” said Kapil Kaul, chief executive with responsibility for the Indian subcontinent at the Centre for Asia Pacific Aviation (CAPA) on 13 June.
“Greater consolidation is expected to continue... in the form of strategic alliances, market exits and buyouts of smaller airlines,” he said on the last day of a three-day aviation summit in India’s financial capital. India’s low-cost carriers (LCCs) captured 35% of market share in April this year, Kaul said.
These budget carriers are likely to double their market share by 2010 -- one of the highest in the world, the CAPA said in a recent report on the Indian subcontinent. The performance of two new LCCs -- Air India Express and JetLite (formerly Air Sahara) -- in the domestic market is likely to be closely watched.
“The overall picture in India for present is one of growth, but against a backdrop of extreme, and mounting, unprofitability,” the CAPA report said. India’s airline industry lost 500 million dollars in the year ending March 2007, spurring domestic players to buy rivals.
The country’s largest domestic carrier Jet Airways bought competitor Air Sahara for nearly 340 million dollars in April, followed by a deal between Kingfisher and Air Deccan airlines in May.
India’s airlines have expanded aggressively in recent years, with about 480 aircraft on order for delivery through to 2012.
Source: Wall Street Journal
At least fourteen new airlines such as Easy Air, Trans India and Star Air are seeking government approval to launch operations.
From just three private airlines in 2003, the number has jumped to ten, including low-cost carriers such as SpiceJet, Go Air, Paramount Airways and IndiGo. “Carrier rationalisation along key routes is required, as we see over-concentration of seat capacity along main routes,” said Kapil Kaul, chief executive with responsibility for the Indian subcontinent at the Centre for Asia Pacific Aviation (CAPA) on 13 June.
“Greater consolidation is expected to continue... in the form of strategic alliances, market exits and buyouts of smaller airlines,” he said on the last day of a three-day aviation summit in India’s financial capital. India’s low-cost carriers (LCCs) captured 35% of market share in April this year, Kaul said.
These budget carriers are likely to double their market share by 2010 -- one of the highest in the world, the CAPA said in a recent report on the Indian subcontinent. The performance of two new LCCs -- Air India Express and JetLite (formerly Air Sahara) -- in the domestic market is likely to be closely watched.
“The overall picture in India for present is one of growth, but against a backdrop of extreme, and mounting, unprofitability,” the CAPA report said. India’s airline industry lost 500 million dollars in the year ending March 2007, spurring domestic players to buy rivals.
The country’s largest domestic carrier Jet Airways bought competitor Air Sahara for nearly 340 million dollars in April, followed by a deal between Kingfisher and Air Deccan airlines in May.
India’s airlines have expanded aggressively in recent years, with about 480 aircraft on order for delivery through to 2012.
Source: Wall Street Journal
Chip industry cuts 2007 growth forecast
The Semiconductor Industry Assn. cut its forecast for the market's growth this year to 1.8% on Wednesday, citing falling prices for memory chips and microprocessors.
Sales of processors will drop 1.6% to $32.6 billion, the San Jose-based group said. Revenue from flash memory chips, used in digital cameras and music players, will be little changed, the trade association said. It had earlier forecast a 10% rise in total chip sales this year.
The SIA's revised outlook mirrors that of other forecasters, who have said that although semiconductor makers are selling more chips, too much production and competition are pulling down prices. Last month, research firm Gartner Inc. cut its growth projection for this year to 2.5%. Trade group WSTS Inc. expects a 2.3% sales gain.
"End markets continue to be strong, with consumers realizing major benefits from lower chip prices," SIA President George Scalise said. A fall in the price of processors and memory chips is "the major factor contributing to lower growth than previously projected."
The SIA expects industry sales to reach a record $252 billion this year and grow to $306 billion in 2010.
Samsung Electronics Co., the world's second-largest chip maker, and other manufacturers suffered a 33% decline in the average selling price of dynamic random access memory chips between December and April, according to the SIA. DRAM provides the main memory for personal computers.
The market for processors, the "brains" of PCs, faces increasing price competition between Intel Corp., the world's largest chip maker, and Advanced Micro Devices Inc., the SIA said. PC sales are still expected to grow 10% this year to 255 million units.
Source: Bloomberg
Sales of processors will drop 1.6% to $32.6 billion, the San Jose-based group said. Revenue from flash memory chips, used in digital cameras and music players, will be little changed, the trade association said. It had earlier forecast a 10% rise in total chip sales this year.
The SIA's revised outlook mirrors that of other forecasters, who have said that although semiconductor makers are selling more chips, too much production and competition are pulling down prices. Last month, research firm Gartner Inc. cut its growth projection for this year to 2.5%. Trade group WSTS Inc. expects a 2.3% sales gain.
"End markets continue to be strong, with consumers realizing major benefits from lower chip prices," SIA President George Scalise said. A fall in the price of processors and memory chips is "the major factor contributing to lower growth than previously projected."
The SIA expects industry sales to reach a record $252 billion this year and grow to $306 billion in 2010.
Samsung Electronics Co., the world's second-largest chip maker, and other manufacturers suffered a 33% decline in the average selling price of dynamic random access memory chips between December and April, according to the SIA. DRAM provides the main memory for personal computers.
The market for processors, the "brains" of PCs, faces increasing price competition between Intel Corp., the world's largest chip maker, and Advanced Micro Devices Inc., the SIA said. PC sales are still expected to grow 10% this year to 255 million units.
Source: Bloomberg
Wednesday, June 13, 2007
Indian M&A Deals - H1 2007 update
According to data compiled by global consultancy firm Grant Thornton, 42 cross-border deals with an announced value of $4.11 billion were carried out by Corporate India in May, while 32 domestic M&As garnered just $0.26 billion to their kitty.
The total number of M&A deals announced in May was worth $4.37 billion, with United Spirits buying out Whyte & Mackay for $1.11 billion, and Suzlon Energy’s controlling stake in REpower for 1.7 billion dollars, being the most significant deals of the month, Thorton said.
The M&A deals in the month totalled 74 with announced values of $4.37 billion as against 57 deals worth $3.98 billion in April, Thornton’s Dealtracker report said.
Out of the total cross-border deals, 30 were outbound with Indian companies acquiring businesses outside the country for a value of $3.79 billion.
There were 12 inbound deals (international companies acquiring Indian businesses) with an announced value of close to $0.32 billion. Besides, the total number of private equity deals announced during the month stands at 24 with an announced value of $1.56 billion as against 23 deals with a total announced value of $0.44 billion in April.
Some top deals
Canadian steel maker Algoma’s shareholders approved the $1.74 billion sale of the company to Essar Steel Holdings, clearing the way for a deal struck in mid-April. Algoma said it expects the acquisition to be completed by June 18.
May’s largest deals were United Spirits’ acquisition of Scottish beverage maker Whyte and Mackay for $1.2 billion and Suzlon Energy’s purchase of a controlling stake in Germany’s RE Power for $1.7 billion.
According to Grant Thornton Corporate Advisory Services - The average size of acquisitions in 2007 has been about $160 million to $180 million but that number has been inflated by a few multibillion-dollar deals. Out of the 287 M&A deals reported so far this year, only about 20 have been worth more than $160 million.
Deal activity is likely to remain brisk in technology and pharmaceuticals. Telecom, which saw one of the largest inbound acquisitions of the year when British giant Vodafone agreed to buy Hutchison Telecom’s stake in Hutchison Essar for $11.1 billion, is another possible venue for more deals, but it would likely consist of fewer transactions with larger value.
India is the world’s fastest-growing cellular market, adding over 6 million subscribers a month.
World Bank’s private sector arm, International Finance Corporation (IFC) invested 30 million dollars in Kanoria Chemicals and Electrotherm India in May.
Private equity investor Sequoia Capital invested about $7 milion in IT firm Minglebox.com, while Reliance Capital picked up a stake in Precision Wires for $4.12 million, the data show.
Some of the major inbound cross-border deals include French banking major BNP Paribas’s acquisition of 45 per cent stake in financial services firm Sundaram Home Finance for $45.81 million.
Besides, Standard Chartered Bank bought 49 per cent stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100 per cent for $100 million.
In March and April, there were 111 M&A deals with a total value of about $6.12 billion. These included 62 domestic deals with a value of $0.73 billion. The number of inbound cross-border deals has been 17 with a value of $1.98 billion and the number of outbound cross border deals was 32 with a value of $3.41 billion.
The total number of M&A deals announced in May was worth $4.37 billion, with United Spirits buying out Whyte & Mackay for $1.11 billion, and Suzlon Energy’s controlling stake in REpower for 1.7 billion dollars, being the most significant deals of the month, Thorton said.
The M&A deals in the month totalled 74 with announced values of $4.37 billion as against 57 deals worth $3.98 billion in April, Thornton’s Dealtracker report said.
Out of the total cross-border deals, 30 were outbound with Indian companies acquiring businesses outside the country for a value of $3.79 billion.
There were 12 inbound deals (international companies acquiring Indian businesses) with an announced value of close to $0.32 billion. Besides, the total number of private equity deals announced during the month stands at 24 with an announced value of $1.56 billion as against 23 deals with a total announced value of $0.44 billion in April.
Some top deals
Canadian steel maker Algoma’s shareholders approved the $1.74 billion sale of the company to Essar Steel Holdings, clearing the way for a deal struck in mid-April. Algoma said it expects the acquisition to be completed by June 18.
May’s largest deals were United Spirits’ acquisition of Scottish beverage maker Whyte and Mackay for $1.2 billion and Suzlon Energy’s purchase of a controlling stake in Germany’s RE Power for $1.7 billion.
According to Grant Thornton Corporate Advisory Services - The average size of acquisitions in 2007 has been about $160 million to $180 million but that number has been inflated by a few multibillion-dollar deals. Out of the 287 M&A deals reported so far this year, only about 20 have been worth more than $160 million.
Deal activity is likely to remain brisk in technology and pharmaceuticals. Telecom, which saw one of the largest inbound acquisitions of the year when British giant Vodafone agreed to buy Hutchison Telecom’s stake in Hutchison Essar for $11.1 billion, is another possible venue for more deals, but it would likely consist of fewer transactions with larger value.
India is the world’s fastest-growing cellular market, adding over 6 million subscribers a month.
World Bank’s private sector arm, International Finance Corporation (IFC) invested 30 million dollars in Kanoria Chemicals and Electrotherm India in May.
Private equity investor Sequoia Capital invested about $7 milion in IT firm Minglebox.com, while Reliance Capital picked up a stake in Precision Wires for $4.12 million, the data show.
Some of the major inbound cross-border deals include French banking major BNP Paribas’s acquisition of 45 per cent stake in financial services firm Sundaram Home Finance for $45.81 million.
Besides, Standard Chartered Bank bought 49 per cent stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100 per cent for $100 million.
In March and April, there were 111 M&A deals with a total value of about $6.12 billion. These included 62 domestic deals with a value of $0.73 billion. The number of inbound cross-border deals has been 17 with a value of $1.98 billion and the number of outbound cross border deals was 32 with a value of $3.41 billion.
Thursday, May 31, 2007
VC Update - Q1 FY07
According to the MoneyTree Report by PricewaterhouseCoopers and the national Venture Capital Association based on data by Thompson Financial, in the first quarter of the year 2007, venture capitalists invested $7.1 billion into 778 deals, which was the highest quarterly dollar amount since the fourth quarter of the year 2001. Compared with the fourth quarter of the year 2006, deal value actually declined in the quarter, which indicates venture capitalists' eagerness to put more dollars into each round.
While Biotechnology ranks as the number one industry for investment, the Life Science sector had an extremely strong quarter. Since the fourth quarter of the year 2002, later stage investing also jumped in the quarter to the highest dollar level. First time financings remained quite stable, increasing slightly over last quarter.
Tracy Lefteroff, the global managing partner of the venture capital practice at PricewaterhouseCoopers said, "This quarter, the breadth of investing in a wide variety of industry segments and in companies across varying stages of maturity indicates a healthy balance between short- and long-term opportunities".
According to Mark Heesen, the president of the National Venture Capital Association, right now the Life Science sector is getting a lot of attention but it is an industry that is indeed scalable. To get through the regulatory process, biotech and medical device companies needs a large amount of capital and the Venture Capital industry is responding to this demand.
Investments in Later Stage companies augmented considerably in the first quarter of the year 2007 with $3.0 billion dollars going into 245 deals. In over six years, this was the highest dollar level. Funding dollars for Early Stage companies declined 30% in Q1 to $1.1 billion in 259 companies. Investments in Expansion Stage companies experienced a modest increase in dollar in Q1, growing nearly 9% to $2.9 billion invested into 274 deals.
Compared with the preceding quarter, fewer companies received funding for the first time in Q1 2007. Nevertheless, the dollar value of the rounds was collectively higher. In the first quarter of the year 2007, US based venture capitalists invested $83 million into 2 deals in India and $137 million into 18 deals in China.
Sourced from Big4.com
While Biotechnology ranks as the number one industry for investment, the Life Science sector had an extremely strong quarter. Since the fourth quarter of the year 2002, later stage investing also jumped in the quarter to the highest dollar level. First time financings remained quite stable, increasing slightly over last quarter.
Tracy Lefteroff, the global managing partner of the venture capital practice at PricewaterhouseCoopers said, "This quarter, the breadth of investing in a wide variety of industry segments and in companies across varying stages of maturity indicates a healthy balance between short- and long-term opportunities".
According to Mark Heesen, the president of the National Venture Capital Association, right now the Life Science sector is getting a lot of attention but it is an industry that is indeed scalable. To get through the regulatory process, biotech and medical device companies needs a large amount of capital and the Venture Capital industry is responding to this demand.
Investments in Later Stage companies augmented considerably in the first quarter of the year 2007 with $3.0 billion dollars going into 245 deals. In over six years, this was the highest dollar level. Funding dollars for Early Stage companies declined 30% in Q1 to $1.1 billion in 259 companies. Investments in Expansion Stage companies experienced a modest increase in dollar in Q1, growing nearly 9% to $2.9 billion invested into 274 deals.
Compared with the preceding quarter, fewer companies received funding for the first time in Q1 2007. Nevertheless, the dollar value of the rounds was collectively higher. In the first quarter of the year 2007, US based venture capitalists invested $83 million into 2 deals in India and $137 million into 18 deals in China.
Sourced from Big4.com
Monday, April 30, 2007
Now Mittal is eyeing the Oil Industry
Excerpts sourced from Wall Street Journal
Lakshmi Mittal, the global steel business giant, is setting his sights on another elemental commodity: oil. Some of the strategic initiatives by him in the recent times validate this statement:
# In the past year, the London mogul's private investment company, Mittal Investments, has joined with India's state-owned Oil & Natural Gas Corp. for several overseas joint ventures in oil field exploration.
# It also has teamed with large oil firms in Russia and France to develop reserves in Africa and Asia.
# Last year in Nigeria, ONGC and Mittal successfully bid for promising and sought-after oil-exploration acreage. Part of their pitch: a commitment to invest some $6-billion (U.S.) to build, among other things, a refinery, a power plant and a railroad in the country.
# Mittal Investments holds a 48.02-per-cent stake in two joint ventures – ONGC Mittal Energy Ltd. and ONGC Mittal Energy Services Ltd. – while ONGC owns a 49.98-per-cent stake in those ventures, with the balance held by investment firm SBI Capital Markets Ltd.
# Has teamed with Russia's OAO Lukoil Holdings and Total SA of France, paving the way for more deals in Africa and Central Asia. Mittal Investments also is getting into oil refining, recently announcing a $720-million investment for a 49 per cent stake in an oil-refinery project to be built by state-run refiner Hindustan Petroleum Corp. in northern India.
Mittal and ONGC
ONGC has had several prospective deals fall through, sometimes being outbid by others for new oil fields. ONGC's oil-and-gas portfolio outside India is thinly spread around the world, including modest projects in places like Myanmar, Sudan and the Russian Far East. That is where Mr. Mittal comes in. The joint venture gives ONGC a partner who is a specialist in deal making and who also has access to capital, thanks to his reputation on Wall Street. It “improves [ONGC's] ability to go into these overseas areas more effectively,” said Luke Parker of Wood Mackenzie, an Edinburgh oil-consulting firm. The partnership between Mittal and ONGC has plans to move further into energy trading and shipping, and it could stretch to 21 countries in coming years, according to the parties.
Analysis
Mittal is venturing in Oil sector in a similar manner in which he, over the past two decades, built a tiny Indonesian metals mill into Mittal Steel Co., which will finalize its merger with Arcelor SA of Luxembourg this summer.
Because Mr. Mittal is a force to be reckoned with in the global commodities business, his moves are sending ripples through the oil industry. In spite of these apprehensions in the market, Mr. Mittal is quiet about his intentions. “The family is making investments to diversify the portfolio,” he said in a recent interview, declining to elaborate. “It is a very infant stage. There is nothing much to talk about.”
On the contrary, industry insiders don’t feel threatened by these initiatives. According to billionaire Wilbur Ross, who sits on the board of Mittal Steel of the Netherlands “I don't think that he is going to be able to consolidate the whole world's oil industry; that's a big bite even for him. I think he is doing it partly to help India and partly to make money.”
Any foray into oil comes with risks. While the steel business is cyclical – prices swing with the global economy – there is no business with bigger boom-and-bust cycles than oil. Today's lofty oil prices have inflated the cost of everything from older oil fields to new exploration licenses worldwide, boosting the entry costs for newcomers. If oil prices fall significantly – or crash, as they have after every other boom – it will be much harder to make money from Mittal's investments. Meantime, salaries and other costs have soared, pinching the biggest, most efficient companies, such as Exxon Mobil Corp., Royal Dutch Shell PLC and BP PLC.
There are some parallels between the steel industry of the 1990s and oil today. Like steel was then, oil today is poised for consolidation and is dominated in many countries by state-owned companies. However, the differences are formidable. When Mr. Mittal started building his steel business, many steelmakers were considered dinosaurs and could be bought cheaply. By contrast, the oil business is brimming with highly valued assets and pumping at near full throttle to meet today's demand.
Lakshmi Mittal, the global steel business giant, is setting his sights on another elemental commodity: oil. Some of the strategic initiatives by him in the recent times validate this statement:
# In the past year, the London mogul's private investment company, Mittal Investments, has joined with India's state-owned Oil & Natural Gas Corp. for several overseas joint ventures in oil field exploration.
# It also has teamed with large oil firms in Russia and France to develop reserves in Africa and Asia.
# Last year in Nigeria, ONGC and Mittal successfully bid for promising and sought-after oil-exploration acreage. Part of their pitch: a commitment to invest some $6-billion (U.S.) to build, among other things, a refinery, a power plant and a railroad in the country.
# Mittal Investments holds a 48.02-per-cent stake in two joint ventures – ONGC Mittal Energy Ltd. and ONGC Mittal Energy Services Ltd. – while ONGC owns a 49.98-per-cent stake in those ventures, with the balance held by investment firm SBI Capital Markets Ltd.
# Has teamed with Russia's OAO Lukoil Holdings and Total SA of France, paving the way for more deals in Africa and Central Asia. Mittal Investments also is getting into oil refining, recently announcing a $720-million investment for a 49 per cent stake in an oil-refinery project to be built by state-run refiner Hindustan Petroleum Corp. in northern India.
Mittal and ONGC
ONGC has had several prospective deals fall through, sometimes being outbid by others for new oil fields. ONGC's oil-and-gas portfolio outside India is thinly spread around the world, including modest projects in places like Myanmar, Sudan and the Russian Far East. That is where Mr. Mittal comes in. The joint venture gives ONGC a partner who is a specialist in deal making and who also has access to capital, thanks to his reputation on Wall Street. It “improves [ONGC's] ability to go into these overseas areas more effectively,” said Luke Parker of Wood Mackenzie, an Edinburgh oil-consulting firm. The partnership between Mittal and ONGC has plans to move further into energy trading and shipping, and it could stretch to 21 countries in coming years, according to the parties.
Analysis
Mittal is venturing in Oil sector in a similar manner in which he, over the past two decades, built a tiny Indonesian metals mill into Mittal Steel Co., which will finalize its merger with Arcelor SA of Luxembourg this summer.
Because Mr. Mittal is a force to be reckoned with in the global commodities business, his moves are sending ripples through the oil industry. In spite of these apprehensions in the market, Mr. Mittal is quiet about his intentions. “The family is making investments to diversify the portfolio,” he said in a recent interview, declining to elaborate. “It is a very infant stage. There is nothing much to talk about.”
On the contrary, industry insiders don’t feel threatened by these initiatives. According to billionaire Wilbur Ross, who sits on the board of Mittal Steel of the Netherlands “I don't think that he is going to be able to consolidate the whole world's oil industry; that's a big bite even for him. I think he is doing it partly to help India and partly to make money.”
Any foray into oil comes with risks. While the steel business is cyclical – prices swing with the global economy – there is no business with bigger boom-and-bust cycles than oil. Today's lofty oil prices have inflated the cost of everything from older oil fields to new exploration licenses worldwide, boosting the entry costs for newcomers. If oil prices fall significantly – or crash, as they have after every other boom – it will be much harder to make money from Mittal's investments. Meantime, salaries and other costs have soared, pinching the biggest, most efficient companies, such as Exxon Mobil Corp., Royal Dutch Shell PLC and BP PLC.
There are some parallels between the steel industry of the 1990s and oil today. Like steel was then, oil today is poised for consolidation and is dominated in many countries by state-owned companies. However, the differences are formidable. When Mr. Mittal started building his steel business, many steelmakers were considered dinosaurs and could be bought cheaply. By contrast, the oil business is brimming with highly valued assets and pumping at near full throttle to meet today's demand.
Thursday, April 26, 2007
US Energy Trading Market
Market Size & Forecast
According to a report titled "U.S. Energy Trading," by technology consulting firm Celent
=> The U.S. energy trading market shrank from $1.8 trillion in 2001 to $1.3 trillion in 2002, but will approach $1.7 trillion in 2008 as banks and hedge funds pick up where failed energy merchants left off.
=> Energy trading grew at an extraordinary rate in the late 1990s, only to decrease dramatically in late 2001 and 2002 as Enron Corp. and other failed energy merchant firms collapsed.
=> About 17 percent of the energy trading market is traded electronically, with short-term natural gas contracts being the most heavily traded via this medium.
=> Celent estimates that electronic trading will account for 29 percent of the market by 2008.
=> As the U.S. energy trading market matures, the report found, banks and hedge funds should help drive solid, steady growth as market participants become increasingly comfortable using risk management tools.
According to Energy Insights, an IDC company
=> Energy trading in liquid hydrocarbons will continue to be robust, buoyed by high prices and increased volatility.
=> Trading in electricity and natural gas will recover from the post-Enron slump.
=> Altogether, Energy Insights forecasts the market to grow by 30% during 2002-2006, with oil and gas majors and financial service firms dominating the trading markets, but with asset-based traders - particularly in power - reengaging.
=> Further on the horizon, increased participation of financial institutions in energy commodity trading will bring program trading in 2008 to 2010.
Trends & Issues
Renewed interest from investors
The industry that Enron made infamous - energy trading - is springing to life again. Volatile energy markets and record-high commodity prices are prompting renewed interest from investors eager to play in the sector. That has pushed banks and a growing number of hedge funds to hire more energy traders and brainy quantitative minds to back their bets on energy prices. In Houston, New York and London, a scramble for top trading talent has ensued that rivals the cutthroat hiring frenzy of the late 1990's. "The whole market is hot right now," said Justin Pearson, managing director of Human Capital, a search firm based in London for energy traders. "Everybody is talking about expansion."
More sophisticated tools & platforms
Industry participants are now paying far more attention to counterparty credit risk, using clearing mechanisms such as the Intercontinental Exchange and the New York Mercantile Exchanges ClearPort platform. Price transparency has improved and banks and hedge funds have become increasingly prominent, providing desperately needed liquidity.
Banks playing an important role
With that revival come questions from some financial market analysts about whether energy trading will be better able to withstand another potential meltdown. While banks have stepped in with their superior balance sheets, credit ratings and trading skills to fill the liquidity void left by Enron, the latest ramp-up in trading has also been marked by an air of secrecy underscored by the proliferation of hundreds of hedge funds that are speculating on everything from crude oil to electricity in both regulated and unregulated markets. Many funds are being aided by investments from banks, which are also buying up distressed power plants and other remnants of the collapsed sector.
Investment banks are major players
Wall Street banks are notoriously fickle about their commitment to commodities trading. Two dominant players among banks, Morgan Stanley and Goldman Sachs, for example, participate in both the physical and financial energy markets and provide risk management products for clients and their own accounts. A number of other banks have also recently opened energy trading desks. Hedge funds and other speculators, meanwhile, have been drawn into the financial markets by the recent rise in crude oil, gasoline and diesel prices, as well as the long-term trend toward higher and more volatile prices for crude oil and petroleum products, among other commodities. In 2004, Goldman and Morgan Stanley earned about $2.6 billion combined from commodities trading, most of that from energy, according to Sanford C. Bernstein & Company in New York.
Top Companies with In-house Energy Trading Divisions
Sempra Energy Trading ® Corp. (SET) Wholly owned subsidiary of Sempra Energy)
Sempra Energy Trading ® Corp. (SET) is a full-service energy trading company - one of the largest in North America. It markets and trades physical and financial energy products: crude oil and refined products, natural gas and natural gas liquids, power, coal, emissions and ethanol. Sempra Energy Trading ® has more than 1200 customers worldwide. Our customer base includes most of the major oil, gas and power companies in North America, Europe, Asia and South America. Its high-volume financial transactions can involve over 100 billion cubic feet (bcf) of natural gas daily. That translates to approximately one half of all the natural gas consumed daily in the U.S. and Canada. SET is a wholly owned subsidiary of Sempra Energy, a Fortune 500 energy services holding company based in San Diego, California.
Chevron’s Supply & Trading
Supply & Trading manages Chevron's global supply chain, supplying crude oil and refined products to the company's global refining and marketing network. In addition, Supply & Trading markets aviation fuels, marine fuels and marine lubricants.
Supply & Trading plays a critical role around the globe, optimizing system assets, trading and marketing crude oil and refined products, and managing associated risk across the global supply chain.
Headquartered in Houston, it has regional hubs in London, Singapore and Cape Town. Crude and Products Supply & Trading conducts business in nearly 70 countries and trades more than 200 different grades of crude oil and petroleum products.
LITASCO (LUKOIL International Trading and Supply Company)
LITASCO (LUKOIL International Trading and Supply Company) is the international arm of LUKOIL for marketing, supply and trading. It is composed of various companies that are coordinated by and report to LITASCO Geneva, the Group's parent company. The LITASCO Group is made up of subsidiaries and branches in the United States, Netherlands, Sweden, Germany, Middle East,and Singapore. In total, the LITASCO Group is present in thirteen different countries.
LITASCO is one of the world's major traders of crude oil and refined petroleum products. The company's purchases and sales include spot, term, exchange and other arrangements such as swaps, and cover a wide range of locations and counterparts in order to optimize revenues while ensuring security of supply, flexibility and cost competitiveness. LITASCO deals with more than two thousand suppliers and customers, including all of world's major oil corporations.
The activities of the LITASCO Group are split into four main areas:
# Marketing and distribution of LUKOIL crude and petroleum products internationally.
# Supply and logistical optimization of crude oil to LUKOIL refineries located outside of Russia, and of petroleum products to the LUKOIL retail network in Eastern Europe, the Caucasus, and Baltic States.
# Entrepreneurial third party of crude oil and refined products from a global network of trading offices.
# International business development and coordination.
Koch Supply & Trading
Koch companies have interests in and access to major international trading regions in the United states, Europe, Asia and the Middle East. Koch Supply & Trading companies offer customers innovative risk management tools and help businesses worldwide manage margins, cash flow, grade spread and inventory, as well as provide supply, trading, technical and operating services.
Products traded by Koch Supply & Trading companies include:
# Petroleum & chemicals: crude oil, petrochemicals such as benzene, toluene, mixed xylenes, paraxylenes and styrene; diesel, jet and residual fuels, and intermediate feedstocks such as naphtha, vacuum gasoil and straight run fuel oil.
# Risk management products: structured risk management products such as derivatives, cross-commodity and other hedging products.
# Natural gas & gas liquids: natural gasoline, butane, ethane, propane, olefins such as ethylene and propylene, and plastics.
Active on a number of international exchanges such as NYMEX , LME, IPE, SPCEX, NYBOT, CBOT, CME, EUREX, LIFFE
AEP Energy Services (Subsidiary of American Electric Power Company, Inc.)
AEP Energy Services, Inc. is a national energy company engaged in the marketing and trading of energy commodities and related services. Specifically, the company analyzes and projects current and future market clearing prices for various energy commodities; trades energy commodities and associated financial instruments in both regional and national energy markets; and, markets energy supplies and related services to both the wholesale and large industrial segments of the energy market. AEP Energy Services, Inc. is a wholly owned subsidiary of American Electric Power (AEP), one of the nation’s largest investor owned utilities.
Duke Energy Trading and Marketing (DETM)
Duke Energy Trading and Marketing (DETM) is a joint venture in which Duke Energy Corporation has a 60 percent interest. DETM markets natural gas, electricity and other energy-related products to a wide range of customers.
Southern Company Energy Marketing (a unit of Southern Company)
Southern Company Energy Marketing is jointly owned by Southern Energy Inc. and Vastar Resources Inc. Southern Company Energy Marketing provides energy marketing, risk management and financial services and other energy-related commodities, products and services to customers in North America. Southern Energy’s parent company, Southern Company (NYSE: SO), is one of the largest producer of electricity in the United States.
Shell Trading (US) Company
Shell Trading (US) Company is a corporation that acts as the single market interface for Royal Dutch Shell companies and affiliates in the United States. It became operational in August 1998 and has offices in Houston, TX (headquarters); Dallas, TX; Denver, CO; Midland, TX; and San Antonio, TX; and has an affiliated Shell Trading company in Calgary, Alberta. Shell Trading Highlights:
# Buys and sells more than five million barrels per day of hydrocarbons
# One of the largest physical traders of hydrocarbons in the United States
# One of the world's largest energy trading company
Its portfolio includes the buying and selling of physical crude oil, finished products, and feedstocks, as well as trading various paper products, both on exchanges (The New York Mercantile Exchange and The Chicago Mercantile Exchange) as well as over the counter. Through its operations, Shell Trading (US) Company buys and sells more than five million barrels of hydrocarbons per day in physical markets, making it one of the largest petroleum supply organizations in the United States and the world. Specific businesses include acquisition, sales and trades of domestic crude oil and products; lease crude oil acquisition and marketing; marine chartering; and risk management services.
Reliant Energy Securities & Commodities Trading Center
The company has a wholesale energy trading and marketing business that ranks among the top five in the U.S. in combined electricity and natural gas volumes and has a presence in most of the major power regions of the U.S. It also has power generation and wholesale trading and marketing operations in Western Europe. The Reliant Energy Trading Center is located on the first floor of the Jerry and Kay Cox Graduate Business Center. The facility seats up to 40 students at computer workstations. It is outfitted with two Bloomberg terminals, four independent LED projectors, a SMART Technology system and two drop-down screens. The center also features the Kiodex Risk Workbench, a state-of-the-art trading and risk management platform.
Some other major players that operate in energy & commodities trading on various exchanges are:
• El Paso Energy
• Totalfina Elf
• Continental Power Exchange
• Calpine Corporation
• Exelon Corporation
• Dominion Resources, Inc.
• Southern Company
• Constellation Energy Group, Inc.
• Mirant Corporation
Top Companies from Financial Services Sector
• Deutsche Bank AG
• Goldman Sachs
• Morgan Stanley Dean Witter
• SG Investment Banking
• Bank of America
• American International Group
List of Exchanges for Global Commodity Trading
• Chicago Board of Trade
• Chicago Mercantile Exchange
• Euronext.liffe
• Kansas City Board of Trade
• London Metal Exchange
• Minneapolis Grain Exchange
• New York Mercantile Exchange
• New York Board of Trade
• Winnipeg Commodity Exchange
For a list of other commodity exchanges, please click on the following link:
http://en.wikipedia.org/wiki/Commodities_exchange
List of online Commodity Exchanges
IntercontinentalExchange, Inc. (NYSE: ICE)
Web: https://www.theice.com
APX Inc.
Web: http://www.apx.com
Enporion, Inc.
Web: http://www.enporion.com
Petroleum Place, Inc.
Web: http://www.petroleumplace.com
According to a report titled "U.S. Energy Trading," by technology consulting firm Celent
=> The U.S. energy trading market shrank from $1.8 trillion in 2001 to $1.3 trillion in 2002, but will approach $1.7 trillion in 2008 as banks and hedge funds pick up where failed energy merchants left off.
=> Energy trading grew at an extraordinary rate in the late 1990s, only to decrease dramatically in late 2001 and 2002 as Enron Corp. and other failed energy merchant firms collapsed.
=> About 17 percent of the energy trading market is traded electronically, with short-term natural gas contracts being the most heavily traded via this medium.
=> Celent estimates that electronic trading will account for 29 percent of the market by 2008.
=> As the U.S. energy trading market matures, the report found, banks and hedge funds should help drive solid, steady growth as market participants become increasingly comfortable using risk management tools.
According to Energy Insights, an IDC company
=> Energy trading in liquid hydrocarbons will continue to be robust, buoyed by high prices and increased volatility.
=> Trading in electricity and natural gas will recover from the post-Enron slump.
=> Altogether, Energy Insights forecasts the market to grow by 30% during 2002-2006, with oil and gas majors and financial service firms dominating the trading markets, but with asset-based traders - particularly in power - reengaging.
=> Further on the horizon, increased participation of financial institutions in energy commodity trading will bring program trading in 2008 to 2010.
Trends & Issues
Renewed interest from investors
The industry that Enron made infamous - energy trading - is springing to life again. Volatile energy markets and record-high commodity prices are prompting renewed interest from investors eager to play in the sector. That has pushed banks and a growing number of hedge funds to hire more energy traders and brainy quantitative minds to back their bets on energy prices. In Houston, New York and London, a scramble for top trading talent has ensued that rivals the cutthroat hiring frenzy of the late 1990's. "The whole market is hot right now," said Justin Pearson, managing director of Human Capital, a search firm based in London for energy traders. "Everybody is talking about expansion."
More sophisticated tools & platforms
Industry participants are now paying far more attention to counterparty credit risk, using clearing mechanisms such as the Intercontinental Exchange and the New York Mercantile Exchanges ClearPort platform. Price transparency has improved and banks and hedge funds have become increasingly prominent, providing desperately needed liquidity.
Banks playing an important role
With that revival come questions from some financial market analysts about whether energy trading will be better able to withstand another potential meltdown. While banks have stepped in with their superior balance sheets, credit ratings and trading skills to fill the liquidity void left by Enron, the latest ramp-up in trading has also been marked by an air of secrecy underscored by the proliferation of hundreds of hedge funds that are speculating on everything from crude oil to electricity in both regulated and unregulated markets. Many funds are being aided by investments from banks, which are also buying up distressed power plants and other remnants of the collapsed sector.
Investment banks are major players
Wall Street banks are notoriously fickle about their commitment to commodities trading. Two dominant players among banks, Morgan Stanley and Goldman Sachs, for example, participate in both the physical and financial energy markets and provide risk management products for clients and their own accounts. A number of other banks have also recently opened energy trading desks. Hedge funds and other speculators, meanwhile, have been drawn into the financial markets by the recent rise in crude oil, gasoline and diesel prices, as well as the long-term trend toward higher and more volatile prices for crude oil and petroleum products, among other commodities. In 2004, Goldman and Morgan Stanley earned about $2.6 billion combined from commodities trading, most of that from energy, according to Sanford C. Bernstein & Company in New York.
Top Companies with In-house Energy Trading Divisions
Sempra Energy Trading ® Corp. (SET) Wholly owned subsidiary of Sempra Energy)
Sempra Energy Trading ® Corp. (SET) is a full-service energy trading company - one of the largest in North America. It markets and trades physical and financial energy products: crude oil and refined products, natural gas and natural gas liquids, power, coal, emissions and ethanol. Sempra Energy Trading ® has more than 1200 customers worldwide. Our customer base includes most of the major oil, gas and power companies in North America, Europe, Asia and South America. Its high-volume financial transactions can involve over 100 billion cubic feet (bcf) of natural gas daily. That translates to approximately one half of all the natural gas consumed daily in the U.S. and Canada. SET is a wholly owned subsidiary of Sempra Energy, a Fortune 500 energy services holding company based in San Diego, California.
Chevron’s Supply & Trading
Supply & Trading manages Chevron's global supply chain, supplying crude oil and refined products to the company's global refining and marketing network. In addition, Supply & Trading markets aviation fuels, marine fuels and marine lubricants.
Supply & Trading plays a critical role around the globe, optimizing system assets, trading and marketing crude oil and refined products, and managing associated risk across the global supply chain.
Headquartered in Houston, it has regional hubs in London, Singapore and Cape Town. Crude and Products Supply & Trading conducts business in nearly 70 countries and trades more than 200 different grades of crude oil and petroleum products.
LITASCO (LUKOIL International Trading and Supply Company)
LITASCO (LUKOIL International Trading and Supply Company) is the international arm of LUKOIL for marketing, supply and trading. It is composed of various companies that are coordinated by and report to LITASCO Geneva, the Group's parent company. The LITASCO Group is made up of subsidiaries and branches in the United States, Netherlands, Sweden, Germany, Middle East,and Singapore. In total, the LITASCO Group is present in thirteen different countries.
LITASCO is one of the world's major traders of crude oil and refined petroleum products. The company's purchases and sales include spot, term, exchange and other arrangements such as swaps, and cover a wide range of locations and counterparts in order to optimize revenues while ensuring security of supply, flexibility and cost competitiveness. LITASCO deals with more than two thousand suppliers and customers, including all of world's major oil corporations.
The activities of the LITASCO Group are split into four main areas:
# Marketing and distribution of LUKOIL crude and petroleum products internationally.
# Supply and logistical optimization of crude oil to LUKOIL refineries located outside of Russia, and of petroleum products to the LUKOIL retail network in Eastern Europe, the Caucasus, and Baltic States.
# Entrepreneurial third party of crude oil and refined products from a global network of trading offices.
# International business development and coordination.
Koch Supply & Trading
Koch companies have interests in and access to major international trading regions in the United states, Europe, Asia and the Middle East. Koch Supply & Trading companies offer customers innovative risk management tools and help businesses worldwide manage margins, cash flow, grade spread and inventory, as well as provide supply, trading, technical and operating services.
Products traded by Koch Supply & Trading companies include:
# Petroleum & chemicals: crude oil, petrochemicals such as benzene, toluene, mixed xylenes, paraxylenes and styrene; diesel, jet and residual fuels, and intermediate feedstocks such as naphtha, vacuum gasoil and straight run fuel oil.
# Risk management products: structured risk management products such as derivatives, cross-commodity and other hedging products.
# Natural gas & gas liquids: natural gasoline, butane, ethane, propane, olefins such as ethylene and propylene, and plastics.
Active on a number of international exchanges such as NYMEX , LME, IPE, SPCEX, NYBOT, CBOT, CME, EUREX, LIFFE
AEP Energy Services (Subsidiary of American Electric Power Company, Inc.)
AEP Energy Services, Inc. is a national energy company engaged in the marketing and trading of energy commodities and related services. Specifically, the company analyzes and projects current and future market clearing prices for various energy commodities; trades energy commodities and associated financial instruments in both regional and national energy markets; and, markets energy supplies and related services to both the wholesale and large industrial segments of the energy market. AEP Energy Services, Inc. is a wholly owned subsidiary of American Electric Power (AEP), one of the nation’s largest investor owned utilities.
Duke Energy Trading and Marketing (DETM)
Duke Energy Trading and Marketing (DETM) is a joint venture in which Duke Energy Corporation has a 60 percent interest. DETM markets natural gas, electricity and other energy-related products to a wide range of customers.
Southern Company Energy Marketing (a unit of Southern Company)
Southern Company Energy Marketing is jointly owned by Southern Energy Inc. and Vastar Resources Inc. Southern Company Energy Marketing provides energy marketing, risk management and financial services and other energy-related commodities, products and services to customers in North America. Southern Energy’s parent company, Southern Company (NYSE: SO), is one of the largest producer of electricity in the United States.
Shell Trading (US) Company
Shell Trading (US) Company is a corporation that acts as the single market interface for Royal Dutch Shell companies and affiliates in the United States. It became operational in August 1998 and has offices in Houston, TX (headquarters); Dallas, TX; Denver, CO; Midland, TX; and San Antonio, TX; and has an affiliated Shell Trading company in Calgary, Alberta. Shell Trading Highlights:
# Buys and sells more than five million barrels per day of hydrocarbons
# One of the largest physical traders of hydrocarbons in the United States
# One of the world's largest energy trading company
Its portfolio includes the buying and selling of physical crude oil, finished products, and feedstocks, as well as trading various paper products, both on exchanges (The New York Mercantile Exchange and The Chicago Mercantile Exchange) as well as over the counter. Through its operations, Shell Trading (US) Company buys and sells more than five million barrels of hydrocarbons per day in physical markets, making it one of the largest petroleum supply organizations in the United States and the world. Specific businesses include acquisition, sales and trades of domestic crude oil and products; lease crude oil acquisition and marketing; marine chartering; and risk management services.
Reliant Energy Securities & Commodities Trading Center
The company has a wholesale energy trading and marketing business that ranks among the top five in the U.S. in combined electricity and natural gas volumes and has a presence in most of the major power regions of the U.S. It also has power generation and wholesale trading and marketing operations in Western Europe. The Reliant Energy Trading Center is located on the first floor of the Jerry and Kay Cox Graduate Business Center. The facility seats up to 40 students at computer workstations. It is outfitted with two Bloomberg terminals, four independent LED projectors, a SMART Technology system and two drop-down screens. The center also features the Kiodex Risk Workbench, a state-of-the-art trading and risk management platform.
Some other major players that operate in energy & commodities trading on various exchanges are:
• El Paso Energy
• Totalfina Elf
• Continental Power Exchange
• Calpine Corporation
• Exelon Corporation
• Dominion Resources, Inc.
• Southern Company
• Constellation Energy Group, Inc.
• Mirant Corporation
Top Companies from Financial Services Sector
• Deutsche Bank AG
• Goldman Sachs
• Morgan Stanley Dean Witter
• SG Investment Banking
• Bank of America
• American International Group
List of Exchanges for Global Commodity Trading
• Chicago Board of Trade
• Chicago Mercantile Exchange
• Euronext.liffe
• Kansas City Board of Trade
• London Metal Exchange
• Minneapolis Grain Exchange
• New York Mercantile Exchange
• New York Board of Trade
• Winnipeg Commodity Exchange
For a list of other commodity exchanges, please click on the following link:
http://en.wikipedia.org/wiki/Commodities_exchange
List of online Commodity Exchanges
IntercontinentalExchange, Inc. (NYSE: ICE)
Web: https://www.theice.com
APX Inc.
Web: http://www.apx.com
Enporion, Inc.
Web: http://www.enporion.com
Petroleum Place, Inc.
Web: http://www.petroleumplace.com
Thursday, April 19, 2007
Why India is “the investment story of the century”
Excerpts of an interesting article published in Moneyweek on the investment scenario in India.
After October's 11% correction, investors are wondering whether it's safe to jump back in to India. In valuation terms at least, the market looks reasonable on a prospective p/e of 15, below its long-term average, according to Jacqueline Aldhous of Forsyth Partners.
But the key point to remember is that while there is always a risk of further slides, trying to time downswings means investors will miss out on “a slice of a secular bull market” that could run for 20 to 30 years, says David Fuller on Fullermoney.com.
The long-term story is certainly compelling. Aldhous points out that, thanks to India's highly educated and English-speaking population, the country is growing its presence in key global service industries, such as IT and pharmaceuticals.
But perhaps the most encouraging part of the story, says Stephen Roach of Morgan Stanley, is the potential for a strong long-term boost to consumption - a crucial prerequisite for sustainable growth and a feature lacking in most of the developing world, which depends largely on exports.
Private consumption already accounts for 64% of Indian GDP, and with banks concentrating on mortgage and credit-card offerings and rural reform set to boost real incomes, consumption could rise even further from here.
India has the “balanced growth foundation that China would die for”: China's growth is skewed towards exports and fixed investment, but India, says Fuller, is “the investment story of the century”.
Sourced: Moneyweek.com
After October's 11% correction, investors are wondering whether it's safe to jump back in to India. In valuation terms at least, the market looks reasonable on a prospective p/e of 15, below its long-term average, according to Jacqueline Aldhous of Forsyth Partners.
But the key point to remember is that while there is always a risk of further slides, trying to time downswings means investors will miss out on “a slice of a secular bull market” that could run for 20 to 30 years, says David Fuller on Fullermoney.com.
The long-term story is certainly compelling. Aldhous points out that, thanks to India's highly educated and English-speaking population, the country is growing its presence in key global service industries, such as IT and pharmaceuticals.
But perhaps the most encouraging part of the story, says Stephen Roach of Morgan Stanley, is the potential for a strong long-term boost to consumption - a crucial prerequisite for sustainable growth and a feature lacking in most of the developing world, which depends largely on exports.
Private consumption already accounts for 64% of Indian GDP, and with banks concentrating on mortgage and credit-card offerings and rural reform set to boost real incomes, consumption could rise even further from here.
India has the “balanced growth foundation that China would die for”: China's growth is skewed towards exports and fixed investment, but India, says Fuller, is “the investment story of the century”.
Sourced: Moneyweek.com
Tuesday, April 3, 2007
Private equity to drive 2007 Merger and Acquisition (M&A) activity
Excerpts sourced from Law Times
2006 set a record for mergers and acquisitions worldwide. Deals totaled $3.79 trillion, 38% higher than in 2005, and 55 of the transactions were valued at more than $10 billion each, according to data from Thomson Financial. Europe was one of the big players, registering 39% more deals than in 2005 for a total of $1.43 trillion. The U.S. came in at $1.56 trillion, 36% higher than the year before. Private equity firms were major movers in this trend, responsible for 20% of global M&A activity and 27% of activity in the U.S., according to Thomson.
According to KPMG, the value of all M&A deals in Canada during 2006 hit US$173.6 billion, rising 26 per cent from 2005. The top five deals accounted for one-third of that activity or US$60 billion. They included:
• Xstrata PLC's US$18-billion acquisition of Falconbridge Ltd.
• Cia Vale do Rio Doce SA's US$1- billion acquisition of Inco Ltd.
• Barrick Gold Corp.'s US$10-billion acquisition of Placer Dome Inc.
• Goldcorp Inc.'s US$8.7-billion acquisition of Glamis Gold Ltd.
• Arcelor SA's $5.2-billion acquisition Dofasco Inc.
What will be the situation in 2007
Torys LLP, Blake Cassels & Graydon LLP, and KPMG LLP have all weighed in with studies examining upcoming mergers and acquisitions activity in 2007. They expect activity to increase and predict that private equity deals will play a more prominent role in capital market activity this year.
In the past two years, U.S. private equity firms have raised more than US$357 billion and Canadian firms have raised more than Cdn$7 billion. The markets are awash in private equity waiting to be deployed.
"Private equity firms have already become a bigger player in deals. The Blakes study found that 5.4 per cent of deals in 2005 involved private equity. By the third quarter of 2006, that had grown to 14.1 per cent."
The proliferation of private equity players means there are more bidders at the table. While deals used to attract two or three offers, now there can be as many as 10 parties expressing interest. Each one requires legal representation and for the party selling the asset, it means competitive bids and upward pressure on valuations — a good thing for the seller and a not so good thing for the buyer.
In its study, Torys notes that private equity will have growing impact this year in various areas. The first is going-private transactions. As public companies look to get out from under daunting market regulation, private equity is the savior.
The amount of private equity capital available and the fact many firms are banding together to do "club" deals — where they join forces to bid and pitch deals — means the size of a going-private transaction is almost meaningless.
Torys also expects pension funds to continue to invest more of their assets in private equity. That will spur them to do their own deals and they will also play a more prominent role in club deals.
Demographics are another factor giving rise to private equity deals in the coming decade. The first wave of baby boomers is hitting their 60s and those who have built successful businesses need to start thinking about an exit strategy. They will either have to pass the company down to their kids or sell out to management, a competitor, or an investment bank.
So what industries will be hot in 2007? For that we can look to the Blakes study. Its respondents felt that M&A activity of all types will rise in the coming year. The hottest sector will remain energy, followed by mining, and industrials and manufacturing.
The latter category will be a sweet spot for business law firms of all sizes, as the study notes that transactions in this sector tend to be in the US$20- to $150-million range. One-third of the Canadian investment bankers surveyed predict that deals in the industrial and manufacturing sector will attract more interest from foreign firms.
As for technology and telecom, interestingly, U.S. investment bankers are more optimistic than Canadians about the prospects for technology and telecom companies. Twenty per cent of U.S. bankers expect it will be the sector with the most consolidation, whereas 40 per cent of our investment bankers predict it will be the industry with the least amount of consolidation.
2006 set a record for mergers and acquisitions worldwide. Deals totaled $3.79 trillion, 38% higher than in 2005, and 55 of the transactions were valued at more than $10 billion each, according to data from Thomson Financial. Europe was one of the big players, registering 39% more deals than in 2005 for a total of $1.43 trillion. The U.S. came in at $1.56 trillion, 36% higher than the year before. Private equity firms were major movers in this trend, responsible for 20% of global M&A activity and 27% of activity in the U.S., according to Thomson.
According to KPMG, the value of all M&A deals in Canada during 2006 hit US$173.6 billion, rising 26 per cent from 2005. The top five deals accounted for one-third of that activity or US$60 billion. They included:
• Xstrata PLC's US$18-billion acquisition of Falconbridge Ltd.
• Cia Vale do Rio Doce SA's US$1- billion acquisition of Inco Ltd.
• Barrick Gold Corp.'s US$10-billion acquisition of Placer Dome Inc.
• Goldcorp Inc.'s US$8.7-billion acquisition of Glamis Gold Ltd.
• Arcelor SA's $5.2-billion acquisition Dofasco Inc.
What will be the situation in 2007
Torys LLP, Blake Cassels & Graydon LLP, and KPMG LLP have all weighed in with studies examining upcoming mergers and acquisitions activity in 2007. They expect activity to increase and predict that private equity deals will play a more prominent role in capital market activity this year.
In the past two years, U.S. private equity firms have raised more than US$357 billion and Canadian firms have raised more than Cdn$7 billion. The markets are awash in private equity waiting to be deployed.
"Private equity firms have already become a bigger player in deals. The Blakes study found that 5.4 per cent of deals in 2005 involved private equity. By the third quarter of 2006, that had grown to 14.1 per cent."
The proliferation of private equity players means there are more bidders at the table. While deals used to attract two or three offers, now there can be as many as 10 parties expressing interest. Each one requires legal representation and for the party selling the asset, it means competitive bids and upward pressure on valuations — a good thing for the seller and a not so good thing for the buyer.
In its study, Torys notes that private equity will have growing impact this year in various areas. The first is going-private transactions. As public companies look to get out from under daunting market regulation, private equity is the savior.
The amount of private equity capital available and the fact many firms are banding together to do "club" deals — where they join forces to bid and pitch deals — means the size of a going-private transaction is almost meaningless.
Torys also expects pension funds to continue to invest more of their assets in private equity. That will spur them to do their own deals and they will also play a more prominent role in club deals.
Demographics are another factor giving rise to private equity deals in the coming decade. The first wave of baby boomers is hitting their 60s and those who have built successful businesses need to start thinking about an exit strategy. They will either have to pass the company down to their kids or sell out to management, a competitor, or an investment bank.
So what industries will be hot in 2007? For that we can look to the Blakes study. Its respondents felt that M&A activity of all types will rise in the coming year. The hottest sector will remain energy, followed by mining, and industrials and manufacturing.
The latter category will be a sweet spot for business law firms of all sizes, as the study notes that transactions in this sector tend to be in the US$20- to $150-million range. One-third of the Canadian investment bankers surveyed predict that deals in the industrial and manufacturing sector will attract more interest from foreign firms.
As for technology and telecom, interestingly, U.S. investment bankers are more optimistic than Canadians about the prospects for technology and telecom companies. Twenty per cent of U.S. bankers expect it will be the sector with the most consolidation, whereas 40 per cent of our investment bankers predict it will be the industry with the least amount of consolidation.
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