Saturday, 29 October 2016

Weekend Update 29/10/2016 – Getting It Wrong.

I was borrowing money from 30 leading banks. How could they all be so wrong? I’m only a simple businessman.

Sir Freddie Laker. The Laker Airways bankruptcy.

Did fired Tata Chairman Cyrus Mistry get it wrong when he said Tata Group’s net worth of USD 26 billion might be impaired by as much as USD 18 billion?  Bloomberg suggests it might depend on whether he wants to see his 18.4% stake in Tata Sons Ltd sold on to other investors. It’s a funny old world in high finance.

In any great organization it is far, far safer to be wrong with the majority than to be right alone.

John Kenneth Galbraith.

A Tata-Mistry Divorce May Cost $16 Billion

By Andy Mukherjee  Oct 28, 2016 2:25 AM EDT
This week's acrimonious separation between the chairman of Tata Group and its majority owners may now be heading for a divorce. Ratan Tata, who returned to head the conglomerate after ousting Cyrus Mistry, is looking for a partner to buy the ex-chairman's stake, Bloomberg News reported Thursday.

Should Mistry agree to sell, how much can he hope to get for his family's 18.4 percent of Tata Sons Ltd.?
India's Tata Group, which saw a boardroom coup this week, might look for a friendly buyer for ousted chairman Cyrus Mistry's 18.4 percent stake

Bear in mind that following his dismissal, Mistry raised some very serious allegations about both the holding company and several of its biggest publicly traded units. In hitting back at the board that fired him, Mistry said the group's net worth of $26 billion could be impaired by as much as $18 billion -- shrinking to just $8 billion -- should writedowns be needed at businesses like Tata Steel Ltd.'s European operations; Tata Motors Ltd.'s passenger car business (ex-Jaguar Land Rover, the jewel in the empire's crown); Indian Hotels Co.'s overseas Taj properties; one of Tata Power Ltd.'s plants; and a floundering wireless telecom venture with NTT Docomo Inc.

As a seller, Mistry is unlikely to behave anything like a spurned chairman trying to score debating points. To maximize value, he might say he overestimated the risk of Armageddon. He might even admit the possibility that Ratan Tata's return to a conglomerate he chaired for two decades will reinvigorate the operating companies. 

Maybe Tata can't repeat a near sevenfold increase in book value over the period 2004-2012, but if global steel demand stabilizes, there's a fair chance the group's assets could reach a book value of $28 billion after a year. In the base-case scenario, the coffee-to-cars-to-software conglomerate won't be any worse off, and its assets would be worth in 2017 what they are today: $26 billion.

Not That Pricey

Now suppose that status quo has a likelihood of 50 percent, while the probability of a massive writedown is 20 percent, and that of an improvement is 30 percent. That gives a one-year-forward book value of $23 billion.  Considering that General Electric Co. trades at three times its estimated book value for next year, and companies in the more diversified Tata Group sell at 4.8 times, Mistry could perhaps ask for a halfway-house multiple of 3.75 times, valuing his 18.4 percent stake at a little under $16 billion.

Only a patient investor who cares more about growth than current income would be willing to write that check. After all, the dividend received from operating companies yielded just 1.6 percent on Tata Sons' investment last year, according to the Economic Times. An investor who paid a multiple of 3.75 to relieve Mistry of his stake would earn a divided yield of 0.4 percent.

In under reported China news this week, American “bullying” in South East Asia is pushing yet more Asian governments towards China. President Xi became a “core” leader, similar to Mao. America’s next President needs to tread softly.

“China is a sleeping giant. Let her sleep, for when she wakes she will move the world.”


China's Xi anointed 'core' leader, on par with Mao, Deng

Thu Oct 27, 2016 | 8:59am EDT
China's Communist Party gave President Xi Jinping the title of "core" leader on Thursday, putting him on par with past strongmen like Mao Zedong and Deng Xiaoping, but it signaled his power would not be absolute.
A lengthy communique released by the party following a four-day, closed-door meeting of senior officials in Beijing stressed maintaining the importance of collective leadership.

The collective leadership system "must always be followed and should not be violated by any organization or individual under any circumstance or for any reason", it said.

But all party members should "closely unite around the Central Committee with Comrade Xi Jinping as the core", said the document, released through state media.

The "core" leader title marks a significant strengthening of Xi's position ahead of a key party congress next year, at which a new Standing Committee, the pinnacle of power in China, will be constituted.

Since assuming office almost four years ago, Xi has rapidly consolidated power, including heading a group leading economic reform and appointing himself commander-in-chief of the military, though as head of the Central Military Commission he already controls the armed forces.

Sri Lanka to sell 80 percent of southern Hambantota port to Chinese firm

Fri Oct 28, 2016 | 5:58am EDT
Sri Lanka will sell to a Chinese company 80 percent of a $1.5-billion port in its south, where China has also been offered an investment zone, in a bid to cut the country's debt burden, Finance Minister Ravi Karunanayake said.

The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the $8 billion in debt the Indian Ocean island owes to China.

The Hambantota port was built with the help of Chinese loans and contractors in 2010 under former leader Mahinda Rajapaksa, as part of efforts to boost development of infrastructure after the conclusion of a 26-year-long civil war in 2009.

But the port, and a nearby airport, also Chinese-financed, had been seen as a white elephant because it was not financially viable, the current government has said.

"For somebody like the Chinese, it is the silk route transit point," Karunanayake told a meeting of the country's Foreign Correspondents Association late on Thursday.

China's interest in the port is seen as part of its ambitions to build a "Maritime Silk Route" to the oil-rich Middle East and onwards to Europe.

That makes some countries, including India and the United States, nervous, with Sri Lanka sitting near shipping lanes through which much of the world's trade passes en route to China and Japan.

Malaysia to buy navy vessels from China in blow to U.S.

Fri Oct 28, 2016 | 5:52am EDT
Malaysia will sign a contract to purchase Littoral Mission Ships from China when Prime Minister Najib Razak visits Beijing next week, according to a Facebook posting by the country's Ministry of Defence.
The text of a speech to be delivered by Malaysian defense minister Hishammuddin Hussein was posted on Facebook on Tuesday, but was later removed after Reuters asked a defense ministry spokesman for comment.

The purchase of the patrol vessels, if it proceeds, would be Malaysia's first significant defense deal with China and comes amid rising tensions in the South China Sea and as the United States and China compete for influence in the region.

China's foreign ministry spokesman Lu Kang said on Friday he was "unclear on the specifics of the situation". But responding to a Reuters question at the daily ministry briefing he noted China and Malaysia "continue to cooperate and communicate regularly across all spheres".

Malaysia's ties with the United States became strained after the Department of Justice filed lawsuits linked to a money-laundering investigation at state fund 1Malaysia Development Berhad (1MDB), which Najib founded and had overseen as chairman of its advisory council.

Najib is traveling to China on Sunday for a week-long visit.

"On November 5, 2016, the Defence Ministry will sign a contract for the procurement of Littoral Mission Ships (LMS) with SASTIND (the State Administration for Science, Technology and Industry for National Defense), which is an important part of the schedule during the Prime Minister's official visit to China," the Facebook post quotes Hishammuddin saying.

However, a video recording of the speech at the Malaysian defense ministry by Hishammuddin does not mention this contract.

A defense ministry spokesman declined to comment and the prime minister's office did not immediately respond to requests for comment.

Littoral Mission Ships are fast patrol vessels that can be equipped with a helicopter flight deck and carry missiles. They are primarily used for coastal security, maritime patrol and surveillance, but can also be deployed for disaster relief and search and rescue operations.

China claims most of the South China Sea as its territory. But Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have rival claims to parts of the waterway, which commands strategic sea lanes which carry some $5 trillion worth of trade a year.

Ties between Malaysia and China reached a new peak in December when China came to Najib's rescue with a $2.3 billion deal to buy assets of scandal-hit state fund 1MDB, helping ease Najib's concern over the firm's mounting debt.

Najib is traveling with dozens of government leaders and business people to China. In a statement on Wednesday, he said Malaysia was committed to strengthening friendship with China and pushing ties to "new highs".

Philippines says China vessels have left Scarborough Shoal

Fri Oct 28, 2016 | 7:41am EDT
Chinese ships are no longer at the disputed Scarborough Shoal in the South China Sea and Philippine boats can resume fishing, the Philippine defense minister said on Friday, calling the Chinese departure a "welcome development".

Philippine fishermen could access the shoal unimpeded for the first time in four years, Defence Secretary Delfin Lorenzana said, capping off a startling turnaround in ties since his country rattled China in 2013 by challenging its maritime claims at an international tribunal.

The departure of the Chinese coastguard comes after President Rodrigo Duterte's high-profile visit to Beijing and follows his repeated requests for China to end its blockade of the shoal, a tranquil lagoon rich in fish stocks.

"Since three days ago there are no longer Chinese ships, coastguard or navy, in the Scarborough area," Lorenzana told reporters.

    "If the Chinese ships have left then it means our fishermen can resume fishing in the area."

Though the Scarborough Shoal is comprised of only a few rocks poking above the sea some 124 nautical miles off the Philippine mainland, it is symbolic of the country's efforts to assert its maritime sovereignty claims.

Lorenzana did not explain the circumstances of the Chinese vessels leaving the shoal, which was the centerpiece of a case Manila filed in 2013 at the Permanent Court of Arbitration in the Hague.

Asked on Friday about the return of Philippine fishermen to the shoal, China's Foreign Ministry spokesman Lu Kang made no mention of a coastguard withdrawal.

The two countries "were able to work together on issues regarding the South China Sea and appropriately resolve disputes," Lu told a regular briefing.

The Hague court in July declared that despite the Scarborough Shoal being located within the Philippines' 200 nautical mile exclusive economic zone, no one country had sovereign rights to it, so that all claimants may fish there.

China has refused to recognize the case or the award, which also invalidated the nine-dash line on Chinese maps denoting its claims to most of the South China Sea.

China seized Scarborough Shoal - claimed by Beijing as Huangyan island and by Manila as Panatag - in 2012.

The previous administration's pursuit of the case infuriated China, but it appears to have changed its stance since Duterte took office and started praising Beijing, often in the same sentences as his perplexing verbal attacks on longtime ally the United States.

Reuters exclusively reported on the eve of Duterte's visit to China that Beijing would consider granting Philippine fishermen conditional access to the shoal.

Australia’s largest private trade delegation to visit China

More than 200 delegates will be on the visit to Shanghai aimed at building on the A$160 billion trade relationship between Australia and China
October 29, 2016

SYDNEY: Australia’s largest ever private trade delegation was due to arrive in China on Sunday.
More than 200 delegates, including Queensland state ministers, agricultural producers and exporters will be on the visit to Shanghai aimed at building on the A$160 billion (Dh441 billion; $120 billion) trade relationship between Australia and China.

“We have brought together businesses from banks to exporters and freight companies,” Ben Lyons, the group’s leader, said in a statement.

Among the high profile members of the “AccessChina” delegation are Qantas Airways Ltd and both National Australia Bank and Australia and New Zealand Bank’s agri-business units.

Qantas Freight, which is looking to expand capacity in Asia, is hosting a networking dinner that Lyons said would help “educate the Shanghai business community on our regional capability when combined with an international freight provider”.

The group left from Wellcamp Airport, a new A$200 million privately built air freight facility in Queensland, which will begin weekly freight-only flights next month. Cathay Pacific will operate the service from Wellcamp and Hong Kong.

Australia has been pushing to become the “delicatessen of Asia”, tapping its favourable climate to send crates of produce such as figs and edible flowers to store shelves across the increasingly affluent region.

But finding space on flights has proven a headache for some Australian producers, who say freight export capabilities are not keeping up with growing demand for products from Asia’s middle class.

“They couldn't hit an elephant at this distance."

Union General John Sedgwick just before he was shot dead. May 1864.

We close for the week with Jason in California musing on the effect of October’s falling US auto sales on the presidential election, although this morning candidate Clinton seems to have a bigger problem with the FBI and emails again. The next few days look interesting.

U.S. October Auto Sales Forecast By JD Power to Materially Decline Y.O.Y,  With Potential Election Impacts
N. Jason Jencka October 28th, 2016 8:15 pm ET
The automotive industry in the U.S. is one that occupies a cultural space greater than beyond its certainly broad macro-economic impact. From the politically charged debates of 2008-2009 over the Federal bailouts of General Motors and Chrysler to the constant and combative lobbying surrounding fuel economy targets, the auto industry is uniquely politicized. In the 2016 Presidential race, the Trump campaign has repeatedly chastised Ford for planning to end passenger car production in the U.S. (largely in favor of Mexico) and used this move as evidence of a broken trade framework.

This set of circumstances adds particular importance to developments within the auto industry leading up to the November 8th election. It happens that October auto industry sales figures are expected to drop ~7% from the record levels of 2015. Should this forecast be realized in the coming days, the Clinton campaign may face difficulties in promoting the automotive recovery as an example of an Obama-era success to be built upon by electing their candidate. This dynamic is of particular impact in the industrial “rust belt” states of Ohio and Michigan. Ohio has historically been an electoral bellwether as no Presidential candidate has been elected without winning the state since John F. Kennedy defeated Richard Nixon in 1960. The 2016 outcome is, of course, yet to be determined but the relationship between the auto industry and politics is one that is certainly worth watching.

The American Presidency Project, The University of California-Santa Barbara

N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada.His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe.In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.

Clinton Urges FBI to Swiftly Explain Fresh Probe of E-Mails

October 28, 2016 — 6:15 PM BST Updated on October 29, 2016 — 3:27 AM BST
Hillary Clinton demanded that the FBI immediately explain its decision to reopen an investigation into her use of private e-mails as secretary of state and said she’s confident that the renewed inquiry will show no wrongdoing.

“The American people deserve to get full and complete facts,” Clinton told reporters in Des Moines, Iowa, hours after her presidential campaign was rocked by a letter from FBI Director James Comey telling lawmakers of the revived inquiry. “If they’re going to be sending this kind of letter that is only going originally to Republican members of the House, they need to share whatever facts they have with the American people.”

The politically explosive development came less than two weeks before the presidential election, providing a boost to Republican nominee Donald Trump as most national polls showed him lagging behind. Comey said he can’t say how long the review would take -- raising the possibility that Clinton could go into Election Day with the new probe unresolved and still hanging over her campaign.

The Federal Bureau of Investigation acted after investigators unearthed new e-mails through a separate probe of Clinton aide Huma Abedin’s estranged husband, former Representative Anthony Weiner. The bureau is probing illicit messages that Weiner allegedly sent to a 15-year-old girl in North Carolina.

That inquiry gave it access to a computer believed to have been used by both Weiner and Abedin, according a U.S. official who asked not to be identified discussing a pending investigation. Now the FBI is looking into whether Abedin’s e-mails are work-related and whether they contain classified information.

The more than 1,000 e-mails included exchanges between Abedin and Clinton, the Washington Post reported, citing a law enforcement official it didn’t identify.

I am not a crook.

President Nixon. November 17th 1973.

No comments:

Post a Comment