Reliance Industries will work with BP to address issues in ramping up production at its KG-D6 basin in India, its chairman said on Friday, referring to slowing gas production that has dampened the energy giant's growth outlook.The conglomerate also plans to invest aggressively in its retail business and will launch cash-and-carry, or wholesale outlets, Mukesh Ambani said at the company's annual shareholder meeting.Reliance, the largest listed firm in India, is controlled by Mukesh Ambani, the world's ninth richest man with a net worth estimated at $27 billion, according to Forbes.The company is looking to expand in sectors such as telecom, retail, power, financial services and hospitality."Reliance is endowed with a strong balance sheet and depth of talent," Ambani said, adding that the company was "uniquely placed to pursue multiple growth opportunities."Last year, Reliance made a dramatic return to the telecom business with the $1 billion acquisition of Infotel Broadband, the only company to win a nationwide licence for broadband wireless spectrum in a government auction."Broadband - and broadband enabled digital services - is the next big leap forward in the digital transformation of our knowledge economy," Ambani said to shareholders.He said the company plans to build broadband infrastructure spanning industries such as education, healthcare and financial services.But energy is still the company's mainstay.Its D6 block in the Krishna Godavari basin off India's east coast is its biggest gas producer, but output has slipped due to technical problems to about 52 million cubic metres a day (mcmd) from 60 mcmd in 2010 and short of a target of 80 mcmd.In February, Reliance agreed to sell a stake in 23 of its oil and gas blocks, including some in the KG basin, to BP in a $7.2 billion deal, and is expected to benefit from BP's deepwater exploration expertise."After the government approvals for BP-Reliance partnership, KG-D6 reservoir will be jointly assessed to address technical issues in ramping up production," Ambani said."Meanwhile, vigorous efforts are underway to accelerate development process of other discoveries," he said, referring to the company's Mahanadi block off the country's east coast and the Cambay block in the western Indian state of Gujarat.Ambani also said the company would be free of net debt by the end of fiscal year 2012. As of March 31, its long-term debt stood at $12.4 billion, and its cash and cash equivalents were $9.5 billion.Shares in Reliance, valued at $68.8 billion, turned negative after rising as much as 1.7 percent before the meeting, as the lack of any major announcement by Ambani disappointed investors."People were expecting him (Mukesh Ambani) to make major comments on future plans," said Arun Kejriwal, director at research firm KRIS. "Nothing significant has been spoken."Shares were down 0.5 percent at 946.70 rupees by 12:29 p.m. (0659 GMT) in a Mumbai market that was little changed.They have fallen more than 10 percent so far in 2011, contributing significantly to the comparative 9.8 percent fall in the main index, in which the stock has the heaviest weight. (Reuters)
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Falling gas output and a rising subsidy burden are expected to weigh on the respective outlooks of energy major Reliance Industries and explorer Oil and Natural Gas Corp, taking the shine off their likely strong fourth-quarter earnings.Crude oil prices rose 16.8 per cent in the March quarter, which should help Reliance, India's largest-listed firm, significantly expand refining and petrochemicals margins.Rising crude prices are also likely to boost profits at state-run ONGC."Crude oil prices continue to be on an upward trend and that is good news for both companies," said Ambareesh Baliga, chief operating officer at Way2Wealth Securities."But concerns remain for both -- gas output in case of Reliance and subsidy burden for ONGC, which is why the stocks have been under pressure," he said.Record ProfitReliance is expected to report 17 per cent growth and its highest-ever quarterly net profit, with gross margins at its flagship refining business expected to touch $10 a barrel for the March quarter, analysts said.The company posted a refining margin of $7.5 per barrel a year ago, and $9 a barrel in the December quarter. The refining segment contributes nearly 70 percent of the company's revenues.Near-term prospects for the petrochemicals-to-retail conglomerate are likely to depend on its gas production, which currently accounts for just 6-7 percent of revenues but had been expected to contribute significantly in the financial year that began on April 1.The Directorate General of Hydrocarbons said in March Reliance was pumping 53 million standard cubic metres per day (mscmd) from the D6 block off India's east coast -- already less than the 60 mscmd it produced last year, and far off peak capacity of 80 mscmd.Last month, Reliance warned the upstream regulator that gas output from key fields in its main producing block may further drop 12 percent next year, a source told Reuters.The concerns over Reliance's gas production have for months dampened growth outlook for the Indian energy giant and kept its shares under pressure.Shares in the company, valued by the market at $75.1 billion, have declined nearly 5 percent so far in 2011, contributing significantly to the comparative 7 percent fall in the main index, in which the stock has the heaviest weight.In February, Reliance agreed to sell a stake in 23 oil and gas blocks in the KG basin to BP PLC in a $7.2 billion deal, and is expected to benefit from BP's deepwater exploration expertise in the medium term.The company, controlled by Mukesh Ambani, the world's ninth-richest man according to Forbes magazine, is also looking to widen beyond its existing businesses into telecom, retail, power and financial services.Subsidy Weighs On ONGCONGC is expected to report a 34 percent jump in quarterly net profit, helped by higher prices of crude oil and gas. Net average realisations could rise to $58 a barrel from $51 a year ago, analysts said.However, the company will not be able to reap the full rewards of high world oil prices as it has to share the subsidy burden in the form of discounts to state-run refiners.India granted autonomy to state-run refiners in June to fix retail prices for petrol, but the government continues to control prices of diesel, cooking gas and kerosene.ONGC's subsidy burden for the quarter could nearly double to 97 billion rupees from 50 billion rupees a year ago, said Jagdish Meghnani, sector analyst at Alchemy Share and Stock Brokers. The subsidy is expected to rise further in the current year.The following table includes net profit forecasts from a Reuters poll of brokerages and the year-to-date performance of the companies' shares:Poll contributors: Angel Broking, Alchemy, Edelweiss Capital, Macquarie, Prabhudas Lilladher, Indiainfoline, Motilal Oswal, IDFC, Bank of America-Merrill Lynch, Elara Capital.(Reuters)
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The deal is likely to come through within the next two weeks, a source with direct knowledge of the matter said on Tuesday."Pipavav is talking to a large international player. It would take about one or two weeks for the deal," the source said.India's largest shipyard by market capitalisation hopes to sell the shares at a 20 per cent premium to its current market price, the source, who declined to be identified ahead of a public announcement, told Reuters.At the current market price, this would come to more than 100 rupees a share.Earlier on Tuesday, Pipavav shares rose nearly 10 per cent after a television channel reported the firm was in talks to sell a stake. At 2:30 pm the shares were up 8.64 per cent at 88.65 rupees in the Mumbai market.Pipavav Shipyard's promoters currently hold about 45 per cent in the firm, data from the stock exchange showed.(Reuters)
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Adani group has submitted an expression of interest to build two new coal terminals in Australia's Queensland region, next to its Abbot Point Coal Terminal, a senior executive said on Wednesday."We are looking to build greenfield ports next to Abbott Point, because there is huge demand for ports in Queensland," B Ravi, chief financial officer at Mundra Port and Special Economic Zone, the group's port operating arm, told Reuters.Mundra expects to make some progress for the new terminals in the next six months, Ravi said. He did not disclose the investment involved.Earlier this month, Mundra acquired the Abbot Point Coal Terminal in Australia for about $1.9 billion in an all cash deal. The company is now in talks with banks to refinance the debt taken on for the deal, Ravi said.(Reuters)
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Petronet LNG has signed a preliminary 25-year deal with Russia's Gazprom to buy as much as 2.5 million tonnes a year of liquefied natural gas (LNG) to meet surging demand in Asia's third-largest economy.Based on market prices of $10 per million British thermal units, the deal could be worth about $1.3 billion a year, or $32.5 billion over 25 years."We will now negotiate pricing, volume, supply timings etc. Discussions on these would begin in a month's time and we want to expedite this and complete the deal as soon as possible," A. K. Balyan, chief executive at Petronet, told Reuters.India's trillion-dollar economy is already the world's eighth-largest importer of LNG, and those imports could rise as much as five-fold in the next decade as its domestic gas output falls and demand surges.Petronet currently receives 7.5 million tonnes per year of LNG from Qatar's Rasgas under a long term deal at its 10 million tonne a year regassification terminal at Dahej in western Gujarat state.It also has a deal to buy 1.5 million tonnes of LNG annually from Australia's Gorgon project from 2014, to be regassified at its 5 million tonnes a year terminal at Kochi.Kochi terminal is expected to start operations in October-December 2012. Petronet is also studying the possibility of a third plant in eastern India."This MOU (memorandum of understanding) is a key step in diversifying our LNG supply portfolio and this relation will go long way in developing mutually beneficial relation between the two companies," Balyan said in the statement.(Reuters)
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A 46-nation export control group has acted to bar states that shun a global anti-nuclear weapons pact from obtaining technology which can be used to make atomic bombs, diplomats and experts say.Last week's decision by the Nuclear Suppliers Group to tighten guidelines for transfers of sensitive uranium enrichment and reprocessing technology may irritate nuclear-armed India, after Washington helped it win a waiver from NSG rules in 2008.The NSG -- which includes the United States, Russia, China, European Union countries and some others -- tries to ensure that nuclear exports are not diverted for military purposes.India already has enrichment and reprocessing capabilities and does not need more advanced equipment of this type. But the amended rules may still be seen as a blow for the Asian power, weapons proliferation expert Daryl Kimball said."The Indians are going to cry foul. They want to be able to say that they are under no nuclear technology trade restrictions and that they are a responsible nuclear power," said Kimball, director of the Washington-based Arms Control Association."It is about prestige. It is not about any technical need."India has so far not commented about the revised NSG guidelines, which have yet to be made public.To import nuclear goods, all nations except the five officially recognised atomic weapons states must usually place nuclear sites under safeguards of the International Atomic Energy Agency, the U.N. nuclear watchdog, NSG guidelines say.But when Washington sealed a nuclear supply accord with India in 2008, it won a unique exemption after contentious negotiations. India gained access to technology and fuel while it was allowed to continue its nuclear weapons programme.The landmark civilian nuclear cooperation agreement ended India's atomic isolation following its 1974 nuclear test and could mean billions of dollars in business for U.S. firms.The revised NSG rules -- under discussion for years and adopted at a June 23-24 meeting in the Dutch town of Noordwijk -- do not apply to trade in reactors or in the uranium needed to fuel them, experts say.But an added condition stipulates that only parties to the nuclear Non-Proliferation Treaty (NPT) can get uranium enrichment or spent fuel reprocessing equipment and technology.(Reuters)
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The move by Vedanta Resources Plc and Cairn Energy to cut the price of their long-pending deal could signal the end-game as the two firms edge closer to agreeing to India's demands of sharing royalty payments, analysts said on Tuesday. Cairn Energy agreed last August to sell a majority stake in Cairn India to Vedanta in a deal that was valued at up to $9.6 billion, but the deal, which would be one of the largest in India's energy sector, has been delayed due to a disagreement over royalty payments. India's oil ministry has been pushing for Cairn India to share royalty payments with state-run Oil and Natural Gas Corp, which has a 30-per cent holding in the Cairn-operated fields in western India but pays 100 per cent of the royalties. Vedanta and Cairn on Monday agreed to remove a non-compete fee that would cut the price of a 40 per cent stake in Cairn India by around $630 million in a move that has fueled optimism about the deal. "Although yesterday's changes to the deal weigh on Cairn's valuation, the announcement indicates that negotiations are moving forward," Morgan Stanley said in a note to clients. "In particular, we believe they signal that Vedanta is willing to accept new, expected government conditions, which removes an important roadblock that has so far prevented Cairn from realising the value of Cairn India," Morgan Stanley analysts said in the note. Vedanta and Cairn late Monday said they had agreed to remove a non-compete provision and a related fee of 50 rupees per share, cutting the price tag for the total 40 per cent stake being sold to $6.02 billion from $6.65 billion. While the price cut is likely aimed at placating the Indian government, Cairn also agreed to sell 10 per cent of its India unit to Vedanta in a deal that would bring Vedanta's stake to nearly 30 per cent. "The fact that Vedanta will have nearly a third of Cairn India after buying 10 per cent more by next month, they won't be desperate for the government's approval for the remaining 30 per cent stake to take controlling stake," said Jagannadham Thunuguntla, head of research at SMC Global in New Delhi. Vedanta has already swept up an 18.5 per cent stake in Cairn India from an open offer and from Malaysia's Petronas. Cairn India Shares Down Shares in Cairn India, which have fallen nearly 13 per cent since the announcement of the deal, fell as much as 2.4 per cent to 301.90 rupees on Tuesday, as investors worried about loss of revenue due to royalty payments. "Removal of the non-compete provision stems from a lack of clarity over the issue of royalties payments...which we believe could remain an overhang," Goldman Sachs said in a research note. "We also believe clarity on Cairn India's long-term growth strategy under a new parent would be important for investors - particularly in light of the substantial annual free cash flow.. and the absence of stated or clear investment opportunities," Goldman said. Cairn Energy and Vedanta Resources shares rose nearly 2.5 per cent each in the London market. The Indian government is yet to approve the deal. A ministerial panel has referred it back to the cabinet with a recommendation. A government source told Reuters last month that the panel would recommend the operators of Cairn Energy's key Indian oil field share the royalty burden in proportion to their stake in the project. The cabinet has been expected to meet to decide on the deal, but the meeting has been delayed the past few weeks. "They (Cairn, Vedanta) must be aware of the outcomes being discussed by the Group of Ministers, and are trying to be proactive," said Deepak Pareek, oil & gas analyst at brokerage Prabhudas Lilladher. Analysts have estimated impact of royalty-sharing at 65 to 70 rupees a share, but crude oil prices have moved up since the deal was signed last August. As part of changes announced on Monday, the deal will complete in two tranches, with Vedanta buying an initial 10 per cent stake by July 11. "Lowering the deal value is an indication that Vedanta is preparing to take the burden of the royalty payments as that's the main issue that has delayed the approval for the deal," Thunuguntla said. (Reuters)
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With a $2.2 billion order book to build nearly 4,000 km (2,500 miles) of road lanes across India and its bank credit tapped out, KMC Constructions turned to private equity for funding. "I have a limitation on how many projects I can take, how much borrowing I can do," said Shashank Shekhar, vice president for business development at KMC Constructions, which in March landed a $111.5 million investment in a subsidiary from UK-based 3i India Infrastructure Fund."So you must go for private equity to capture more and more and stretch your capacity," he said.Private equity investors are poised to play a faster-growing role in financing much-needed infrastructure projects in a country infamous for clogged roads and power outages and lacking a mature local bond market to provide long-term project funding. Indian companies that long balked at the idea of yielding a degree of control and ownership to private equity players are showing more appetite for deals, in part because of the scarcity of alternatives given high borrowing rates and an unwelcoming equity market.Friendlier government policies are also helping to make building projects easier, though delays and red tape remain problematic. Private equity investment in infrastructure in India has grown from about $1 billion in 2006 to $4 billion last year, a recent Bain & Company report found, predicting activity could grow 25-50 percent a year over the next three years."Low levels of deal activity in the past had less to do with a lack of willingness to invest than with bottlenecks in the project pipeline and the need for a smoother government process for approving deals," the report said."Those barriers are now beginning to fall." Private equity represents a modest share of the $1 trillion government says must be spent on infrastructure in 2012-2017, about half of which would come from private sector funds, compared with a target of one-third in the previous five years.The government is on course to meet its target to fund a third of infrastructure growth privately in the five years to 2012, but there are wide disparities between different sectors.Telecoms has received 82 per cent of funds from private hands, compared with just 16 per cent in roads and 4 per cent in railways, government data showed in a review last year.For commercially unviable projects, the government injects more cash, known as viability gap funding (VGF), as an incentive to the builder, or can sweeten a deal with lucrative real estate concessions alongside a road or a metro line.To bring more funding into the sector, the government also plans to roll out a much-awaited $11 billion debt fund that could tap sovereign and insurance funds.Missed TargetsNew Delhi has missed many of its targets both for construction and funding in the past. Red tape and corruption are notorious, while delays over land acquisition and environmental clearances can derail billion-dollar projects."The challenge is to make sure we are able to present opportunities to investors in a commercially robust and viable form," said Anoop Seth, co-head of Asian infrastructure at AMP Capital, a unit of top Australian wealth manager AMP.Last week, Morgan Stanley's global infrastructure fund said it was investing up to $200 million in a joint venture with a unit of Spain's Grupo Isolux Corsan, which holds rights to build three highway projects in India."Before the global financial crisis, investors looked at India cautiously, and to be fair a lot of the infrastructure projects back then were very nascent," said Gautam Bhandari, who heads the Morgan Stanley India infrastructure fund."The reality is much of the India infrastructure story is still in its first innings and this is a baseball game so there are nine innings. It has ways to go," Bhandari said.The largest infrastructure-related private equity deal in India is a $982 million investment for a 20 percent stake in a power project in Orissa built by GMR Energy, a unit of GMR Infrastructure, by a consortium led by IDFC India Infrastructure Fund in 2009, according to research firm Preqin.Cash Up FrontIndian infrastructure firms such as KMC, whose projects include a 225-kilometre, six-lane highway from the outskirts of Delhi to Jaipur, typically build a road and operate it, collecting toll fares for a fixed period under the build-operate-transfer (BOT) model, which needs lots of cash up front."One of the reasons why I had to go for private equity was when we started picking up BOT projects, I was completely under-capitalised in terms of equity requirements," said KMC Managing Director Goutham Reddy. KMC also considered an initial public offering, but Reddy worried over the market price. "The IPO market in the last two years has not exactly been great," he said.Other funding options are limited. Commercial banks in India mostly issue shorter-term loans and since infrastructure projects typically have an investment life of more than 15-20 years, the banks run the risk of high asset-liability mismatch.Relatively high borrowing rates in India also make debt raising an expensive option for the companies. The Indian capital market has also not been very kind to infrastructure firms on worries about delays in project execution and long payback periods in a thinly regulated sector."Because the market is imposing a discipline that you better have something running before coming to an IPO, it is helping the dialogue between private equity players and developers in trying to get the projects to some stage of completion or some stage of construction before they hit the market," Bhandari said.The slew of big-ticket infrastructure projects have raised the return expectations of the private equity players, raising the cost of capital for the companies who are in urgent need of capital to start the projects.On the other hand, competitive bidding processes for major public utility projects will likely moderate the returns for private equity funds, Gopal Sarma of Bain & Company said. "They will have the comfort of quasi-monopoly assets, but on the flipside given that these are public utilities there is going to be some natural banding of returns," he said."Given that a lot of these are going to be competitively bid out ... you're not going to see high 20s returns, you're probably going to see late teens, early teens returns -- slightly more moderate than what you would have in normal private equity, so that's one of the things that private equity needs to get accustomed to."(Reuters)
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