Sunday, December 30, 2012

RBI: Rate cut on the anvil.

The signal for reversal of monetary policy stand by the Reserve bank will come only when inflation shows definite signs of decline, Prime Minister's Economic Advisory Council chairman C Rangarajan said today.

He also said that high inflation over the last couple of years was due to supply side constrains but that did not mean that monetary policy had no role to play in such condition. Rangarajan was delivering the P R Brahmananda Memorial Lecture on 'Dynamics of Inflation' at a conference by the Indian Economic Association.

"It is true that the extraordinarily high level of inflation in the last three years was due to severe supply side constrains, particularly of agricultural products, but that did not mean that monetary policy or for that matter fiscal policy had no role to play in such conditions," he said.

The PMEAC chief added: "Food price inflation, if it persists long enough, gets generalised. Non-food manufacturing inflation has also remained high since April 2010 and at times crossed 8 per cent, despite a declining growth rate. Thus, monetary policy, along with fiscal policy. has to play part in containing overall demand pressures."

The changes in the monetary policy cannot have a direct impact on food inflation but it can have a moderating influence by containing demand pressure, he stated. Maintaining that inflation level of 5 per cent is acceptable in the Indian context, Rangarajan said the present level was way above acceptable limit. It might take more than a year to bring it down to 6 per cent, he added.

Rangarajan said: "The signal for reversal of the policy will be given when inflation showed definite signs of decline". A former RBI governor, he also said that since the beginning of 2012-13 fiscal, there has been no tightening but only easing of policy in small steps. He said the contention that high growth warranted high inflation was wrong, pointing out that in the three years when the country grew at more than 9 per cent, the average inflation was only 5.2 per cent.

The inflation based on Wholesale Price Index in November was 7.24 per cent. During 2012, the highest rate of price rise was witnessed in August when inflation stood at 8.01 per cent. However, retail inflation, based on Consumer Price Index remained close to double digit at 9.90 per cent in November.

The government expects inflation to moderate during the January-March quarter and March-end at 6.8-7 per cent. Although it would still remain above the RBI's comfort level of 5-6 per cent, a rate cut is on the anvil as RBI is expected to work towards boosting growth.

The central bank had hiked key policy rates 13 times by 3.75 per cent between March 2010 to October 2011 to tame the rising inflation. As inflation showed some signs of easing thereafter, RBI lowered policy rates by 0.50 per cent in April 2012.


Friday, December 28, 2012

India Real Estate Outlook; 2013.

The economy: India’s GDP was revised downward consistently in the last three quarters of 2012. In 2013, this trend will prevail, though the quantum of revision will be lower. The country’s economic environment will certainly improve in 2013, with a corresponding (though lagging) gain in momentum for real estate. The most tangible benefits of economic improvements on the Indian real estate space will be seen in the second half of 2013.
The average inflation rate (based on the wholesale price index, or WPI) moderated to 7.4 percent in the third quarter of 2012.
This can be seen as sensibly low when compared with the average CPI, which remained at 10.2 percent. As a result of the slight moderation in WPI inflation, the Reserve Bank of India started softening banks’ cash reserve ratio to improve the credit situation.
Further easing of liquidity with the prime objective of reviving the GDP is expected in the first half of 2013. Base rates, which peaked in the third quarter of 2012, are likely to start falling in the fourth quarter on the heels of monetary easing by the RBI.
Residential: Property prices in this segment have breached affordability limits in cities like Mumbai. Nevertheless, developers will have to factor in the ground realities of the business while debating the lowering of prices to catalyse sales in 2013.
Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders are already beset with the increased costs of licence costs and cost of construction.
However, it became evident in 2012 that homes are not selling at the current price points, and developers do need to recalibrate their bottom lines while still remaining viable as businesses. It is extremely doubtful that the previously offered freebies and other such incentives will prove to be much of a booster in the current environment. Since the only way to catalyse healthier sales at this point is offering buyers tangible financial relief, we are likely to see drastic trimming of frills in projects to make them more marketable from a pricing point of view, and innovative payment schemes.
Developers will also offer buyers attractive pre-launch benefits in a bid to accelerate sales momentum in the initial months following a launch.
Developers with large-scale projects with a greater share of unsold inventory will be under greater pressure to offer discounts than those with smaller projects and limited inventories.
Although most of the cities of India will see an increase in residential launches in 2013, the southern cities of Bangalore and Chennai will witness a decline in launches as compared to 2012 year to date. It is important to note that these two cities recorded a historical high in terms of the number of launches during 2012.
To illustrate —Pune has recorded an average of close to 6,000 units per quarter over the past three years (2010-2012YTD). This is more than twice the average quarterly launches recorded during the period 2007-2009. As a market that has grown too fast in such a short time, launches in Pune will be moderate in the near term.
Commercial: The fact that the major cities of Mumbai, NCR-Delhi, Bangalore and Chennai saw 72.5 percent of the total commercial space absorption in 2012 is a telling one, and indicates the forward path. These cities will grab the lion’s share of contribution in total commercial space absorption in 2013, certainly within the range of 74-76 percent.
In terms of commercial real estate investment potential, Mumbai, Bangalore and Delhi NCR will continue to be of highest interest to big ticket investors focused on real estate in 2013. We also expect investor-driven demand to remain upbeat in Chennai, Hyderabad and Pune. Mumbai will see the highest share of commercial corporate property transactions from companies focused on their own occupancy needs. The Delhi NCR region, will be more popular with high net-worth and institutional investors.
We expect 2013 to bring a larger-than-usual number of NRI investors into the commercial space arena. This is because NRIs are currently enthused by the prevailing exchange rate benefits and the fact that commercial real estate capital values are still 15-25 percent under their 2007-08 peak levels.
Retail: In 2013, new organised retail project completions will increase significantly (by 109 percent year on year). Chennai, Hyderabad, Kolkata and Pune will be among the major contributors to this increase, with a 53 percent share of the country’s overall mall supply for 2013. The primary reason is that a sizeable amount of supply that was expected to reach completion in 2012 has been pushed to 2013. Altogether, India’s major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million square feet of mall space in 2013. Mumbai, NCR-Delhi, Bangalore and Chennai will together contribute 70 percent of the total retail space absorption. Other cities like Pune, Hyderabad and Kolkata will account for the remaining 30 percent.
The government’s nod to FDI in multi-brand retail will be a major driving factor for increased activity in 2013. Since the policy opens the portals to major MNC retail brands in India, the organised retail sector will see a major transformation in terms of its overall contribution in the mid-term.
This, in turn, will positively impact the absorption of retail space over the next 12-24 months. The absorption is forecast to touch 6.8 million square feet and 7.1 million square feet in 2013 and 2014, respectively.
That said, the benefits of the much-awaited FDI decision will not become fully evident in 2013, as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards. Mall developers are expecting a massive increase in demand for their projects in 2013. However, those whose shopping centres do not meet the requirements of international brands in terms of location, overall size, design, professionally managed operations will fail to see any action.
Policy: The much-debated policy on FDI into the multi-brand retail sector was finally implemented in September 2012. The policy now permits FDI of up to 51.0 percent into this sector, which is likely to boost the retail real estate market with the entry of international products, practices and technologies into India. Back-end retail infrastructure such as logistics and warehousing (both of which are critical growth catalysts for the retail sector) will receive a significant boost from this policy, as 50 percent of the total FDI into the retail sector is directed at these segments.
The power exchange and civil aviation (and also broadcasting) sectors have been permitted FDI in a bid to improve efficiency and productivity. At a time when liquidity is down and the performance of various sectors is deteriorating, a shot in the arm for power and aviation will have positive (albeit only over the long term) ramifications on the real estate sector, as well.
The Direct Tax Code (DTC), a major evolutionary step in the country’s taxation system, will change the entire financial landscape of India. As it spells major change, it will require a fairly in-depth study from an occupier’s perspective before all its implications can be understood and assimilated. The government has deferred the implementation of DTC from 2014 to 2015, which gives occupiers more time to capitalise on their expansion decisions while carefully negotiating with developers.
The delay in the implementation of DTC has resulted in a good portion of the office space demand for IT SEZs to spill over from 2013 to 2014. With the demand for IT SEZ space to remain healthy in the next 12-18 months, we expect the developers of IT SEZs to focus on execution and completion of projects for the duration, to ensure ready supply to match the immediately upcoming demand.

Wednesday, December 26, 2012

Griffin Coal to get AUD 50m from Bluewaters Power.

Griffin Coal, the Australian subsidiary of Indian infra giant Lanco, is set to get AUD 50 million as an upfront payment from Bluewaters Power in the third week of January next year towards long-term coal supply agreement, a senior official of Lanco Group has said.

Chief Financial Officer of Lanco Infratech T Adibabu said the amount would help Griffin Coal to meet its financial requirements for the next seven to eight months.

"The agreement with Bluewaters helps the company (Griffin Coal) operate on its own. The company will get AUD 50 million cash immediately as upfront fee between January 15 and 20," Adibabu told PTI.

The Supreme Court of Western Australia last week gave its nod for the Griffin Coal to enter into revised Coal Supply Agreement (CSA) with the Bluewaters power which is set to be sold to a Japanese consortium of Sumitomo Corp and Kansai Electric Power Co for an enterprise value of around USD 1.2 billion.

Under the agreement, Griffin Coal will supply 1.8 million tonnes of coal for over 25 years to Bluewaters Power Station. The agreement with Bluewaters will fetch Griffin coal additional amount of AUD 150 million (in NPV terms) for the entire course of the agreement including about AUD 50 Million upfront, a senior Lanco Group official had said earlier.

Griffin Coal Mining Company which was taken over Lanco for AUD 730 million in March last year is currently dependent on the parent company for working capital requirements.

"Griffin Coal, which is depending on its parent company Lanco for working capital requirements, can operate on its own for next seven or eight months without any funding requirement," Adibabu said.

James Riordan Company Secretary and Chief Financial Controller of Griffin Coal in an affidavit to the Australian court said the coal miner forecasts that for the year ended November 30, 2013, it will be cash positive by around AUD 80 million on a stand-alone basis based on the agreements it had with Bluewaters and future agreement with other companies.

Lanco India made AUD 132 million of funds available to Griffin Coal from July 2011 to October 2012, approximately AUD 10 million per month. 


Monday, December 24, 2012

Australian Court Favours Lanco

Power producer Lanco Infratech Ltd said on Monday the Supreme Court of Western Australia ruled in its favour in a lawsuit filed by Perdaman Chemicals and Fertilisers Pty Ltd.
In effect, the court allowed Lanco’s Australian subsidiary Griffin Coal Mining Co. Pty Ltd to revise a coal supply agreement (CSA) withGriffin Power entities, which includes Bluewaters Power Station that is being acquired by Japanese companies.
Lanco, through its Australian subsidiary Lanco Resources Australia, acquired Griffin Coal Mining and Carpenter Mine Management for A$720 million in February 2011. Last year, Griffin produced more than 3 million tonnes of coal.
Griffin Coal has a long-term fuel supply agreement with Bluewaters that it sought to revise. But Perdaman challenged this as part of a A$3.5 billion lawsuit it filed against Lanco after the Indian company cancelled a supply agreement Perdaman had with Griffin Coal.
Lanco, in a statement to BSE on Monday, said the court rejected Perdaman’s plea and that “the revised CSA will result in a gain of approximately A$150 million in net present value (NPV) terms, including a substantial upfront payment to Griffin Coal Mining Company Pty Ltd”.
The state of Western Australia too had urged the court to reject Perdaman’s request, saying cessation of operations at Bluewaters would remove 431.8 megawatts of generating capacity from the grid.
“This is a positive development for Lanco. Griffin is coming to a good shape...We will be getting more revenues once the revised CSA is in place,” said Lanco chief executive for business development,Nagaprasad Kandimalla.
A revised pact is expected to be signed by the middle of January, Kandimalla said, but refused to give details of the pricing.
Lanco has subsidized the operations of the coal unit, which made a loss of A$43 million in the year ended 31 March. Lanco invested around A$132 million between 14 July 2011, and 23 October this year in the unit, the company said.