Maximum city blues

Maximum city blues

Aug 30th 2007 | MUMBAI
From The Economist print edition
Great plans are in place to resuscitate South Asia's biggest city. As ever, the difficulty lies in implementing them
Eyevine

THERE is only one way to see Mumbai. That is by helicopter: whirring low over the rust-brown slums, godowns and Victorian Gothic monuments of India's city of commerce, its historic gateway; then soaring high over the hazy Arabian Sea beyond. It is exhilarating. Moreover, only by helicopter can one cross log-jammed central Mumbai—a distance of around 20km (12.5 miles)—in under two hours.

Mumbai is South Asia's biggest city. By 2015 the UN says it will be the world's second-biggest after Tokyo, with nearly 25m people. Yet already it is choking. Around half the population—of 14m, at a modest estimate—live in slums. Another 3m commute daily from surrounding suburbs. Most come by rail, though the service would be inadequate even if it were not hobbled by a shortage of trains and a surfeit of vagrants. At peak hours, 5,000 commuters cling to trains designed for 1,700. Hundreds die on the tracks each year.

Higher up the economic food-chain, the damage is commensurate. Airliners circle Mumbai by the hour, awaiting space to land. One of the airport's two runways is semi-retired, because 300,000 squatters have built shacks around it. The roads are even worse: Mumbai is traversed by two north-south highways, with no large axis between them. Yet every day an estimated 500 cars are added to the city's jams.

Mumbaikars have long seen the trouble ahead. In recent years, the state and central governments have recognised it too. There is much at stake, for India as well as Mumbai. Its recent high economic growth is an urban phenomenon. Indeed, the failure of rural India is why so many Indians come to town. Huge improvements in urban infrastructure are needed urgently.

Mumbai, moreover, for all its flaws, is the one Indian city with pretensions as an international financial hub. So state and central governments have made vast promises. The plans envisage overhauling laws and regulations and building Mumbai's infrastructure anew. The government of the state of Maharashtra, of which Mumbai is the capital, says this will cost $60 billion and take a decade.

The central government has earmarked $9 billion for Maharashtra's urban infrastructure. The private sector, it is hoped, will stump up most of the rest. Mukesh Ambani's Reliance Industries (purveyor of the helicopter tour) plans to invest $8 billion in a vast manufacturing development—virtually a new city, in Navi (new) Mumbai (see map). Reliance, India's biggest private-sector company, says it will provide 2m jobs.

But there is a problem. To redevelop Mumbai and its hinterland involves moving people. And since in India third-world conditions are dignified (at least in theory) with first-world rights, this causes blockages. The invaders of Mumbai airport, for example, have at least four representatives in Maharashtra's state assembly.

Scrapping lousy laws in corrupt India is similarly fraught: as a rule, the more economic damage they do, the more powerful are the interests defending them. And so hardly a week passes without the stalling of some critical part of Mumbai's redevelopment. Last month was the turn, not for the first time, of one of the most crucial: a scheme to redevelop Dharavi slum, allegedly Asia's biggest, which would involve resettling around 300,000 people.

At its current pace, the redevelopment of Mumbai is probably not keeping up with the city's worsening decrepitude. Yet progress there has been, in three main areas: administrative reform, legal and regulatory reform, and infrastructure. Optimists—whose ranks include some of the redevelopers—say that, as a result, the way will be less tangled ahead.

The city's rulers have already pared back a few trailing branches. Mumbai is run by 16 separate agencies. To help co-ordinate them, the government has formed a redevelopment committee representing them all. But it will achieve little unless the promised axe is wielded on certain laws and building regulations. Two are most heinous. The Urban Land Ceiling Act, a law restricting urban land holdings, has left 2,000 hectares (5,000 acres) of Mumbai in a legal limbo. For three decades these parcels have been locked in the courts, prey to rent-seeking officials. In addition, rent controls ensure that most of Mumbai's best housing is let for peanuts on renewable leases. In such places, the rental market is dead. Denied control of their assets, landlords let splendid buildings crumble. In downtown Mumbai—one of the world's priciest markets for foreigners—3,000 houses stand vacant. Meanwhile, even middle-class immigrants to the city, having no better option, stay in the slums.

The central government says Maharashtra must repeal the urban-land law before it receives its infrastructure money. In July, for the umpteenth time, the state Parliament passed up an opportunity to do so. More promisingly, a law scrapping rent controls has been submitted to Parliament.

On infrastructure, there is less good news. The first 5.6km stage of a project to build a road over the sea, along Mumbai's western coast, is 60% completed, three years overdue and so far has cost double its $150m budget. The delay follows a costly redesign, after local fishermen protested that the road impeded their boats. Construction of an 11km metro, budgeted at some $500m, has not yet started—a year after Manmohan Singh, the prime minister, inaugurated its site by breaking a coconut over it. The government is in a legal battle to acquire a plot of land to store the metro's trains.

In Dharavi, the government has done all it can to avoid such headaches. Its plan is broadly in line with existing slum redevelopment policy. It would see Dharavi's low-lying shanties bulldozed and replaced by apartment blocks. Each unhoused family would be given title to a flat of 225 square feet (21 square metres). The leftover land would be split between the developer, as his fee, and the government. Previous slum redevelopments needed the approval of 70% of the affected slum-dwellers. Dharavi's, however, have been given no choice.

Worse, anyone who arrived there after 1994 will be ineligible for resettlement. Moreover, Dharavi is a peculiarly commercialised slum. Its cottage industries—including garments and handicrafts—earn millions of dollars in annual exports alone. After the redevelopment, Dharavi's traders would be offered space for rent. But much of the slum's industry will be lost.

It is nonetheless hard to know what the government could do better. The existing slum policy was launched a decade ago, with the aim of redeveloping all of Mumbai's slums by 2007. So far, 500,000 slum-dwellers have been resettled. But 2m new ones have arrived in the city.

Reliance would rejoice at any such progress. Its new city was supposed to extend over nearly 15,000 hectares, comprising two special economic zones (SEZs). These are tax havens for export-driven industries, introduced by the government last year. But the scheme has hit the skids. After skirmishes over a proposed SEZ in West Bengal in January, the government changed the rules. So Reliance will have to lop 5,000 hectares off Navi Mumbai, and will have no government help acquiring land. “Why do they worry about my bloody SEZ?” fumes Anand Jain, Mr Ambani's partner in the project. “Why not have ten SEZs and solve all Mumbai's problems?” As if he didn't know.

Will try and resurrect this blog shortly.

Havent had the time to update this blog frankly. Hence the long gap between posts.

~The Sensex is at 14000+, and is steadily moving up, depsite concerns of overheating. India's GDP growth is almost at 9%
~Tata took over Corus, by overpaying quite a bit.The Birlas took over Novelis (Think i got that right.)
~I'm almost out of B-School.

Operation Corus.

This article is about Tata Steel taking over Corus of the UK. This makes the Tata Group company the 5th largest steel producer in the world. Several analysts are pondering over the need for such a takeover. Possibilities include to guard against future hostile bids, acheive scale, entry into the European market and so on.
From various sources including DNA ,Economic Times and Zee News

In the biggest foreign takeover by an Indian company, Tata Steel and Corus Group on Friday reached an agreement on the acquisition of the European steel giant by the Indian firm for 4.3 billion pounds (Rs 36,500 crore).

The board of directors of both the companies approved the acquisition of Corus at a price of 455 pence per share in cash, paving the way for creating the world`s fifth largest steel entity with a capacity of 23.5 million tonnes per year.

"Corus directors consider the terms of the acquisition to be fair and reasonable, so far as shareholders are concerned. The directors intend to unanimously recommend that Corus shareholders vote in favour of the scheme," a joint statement released by Tata Steel and Corus said.

The acquisition will be made by Tata Steel UK, a wholly-owned indirect subsidiary of Tata Steel. The Indian firm has also been able to satisfactorily address the concerns of Corus` two main pension funds.

"This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion," Tata Group chief Ratan Tata said.

"We have compatible cultures of commitment to stakeholders and complimentary strengths in technology, efficiency, product mix and geographical spread," he said.

Corus Chairman Jim Leng said the combination with Tata represented "the right partner at the right time at the right price and on the right terms.

"This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment," Leng said.

The Tata-Corus deal comes close on the heels of the acquisition of Luxembourg-based Arcelor by Rotterdam-based Mittal Steel, owned by India-born industrialist L N Mittal. Arcelor-Mittal is now the world`s largest steel company with a combined output of about 110 million tonnes per year.

"The combined entity would be better equipped to remain at the leading edge of the fast changing steel industry," Ratan Tata said.

Leng said the deal with Tata followed talks with a number of Brazilian and Russian companies over the past one year.

The price of 455 pence per Corus shares is a premium of 26.2 per cent to the average closing price of 360.5 pence per Corus share for the twelve months period ended October 4, when the two sides first confirmed of the negotiations.

Tata Steel would fund the deal through its own cash resources and loans. The company is likely to raise about 1.8 billion pounds on its own and would get a loan of about 3.3 billion pounds from Deutche Bank, ABN Amro and credit issue.

As per the deal, at least 75 per cent Corus shareholders must tender their shares for Tata Steel to complete the transaction. The Indian firm has also been able to address the concerns of Corus` two pension schemes - the Corus Engineering Steels pension scheme and British Steel pension scheme - by increasing its contribution rate and paying additional funds.

Corus is Europe`s second largest steel producer, after Arcelor-Mittal, with revenues of 9.2 billion pounds in 2005 and steel output of 18.2 million tons in UK and Netherlands.

Tata Steel is India`s largest private sector steel firm with revenues of 5.0 billion dollars in 2005-06 and steel production of 5.3 million tonnes across India and South-East Asia. Tata Sons, Tata Steel and other Tata firms had combined revenues of about 22 billion dollars in 2005-06.

Tata Steel shares up 4%

Tata Steel stocks surged across the board on the bourses on Friday, on massive buying by funds and investors triggered by reports that Anglo-Dutch steelmaker Corus has accepted the company`s 4.3 billion pounds (Rs 36,500 crores) takeover bid.

Country`s largest steel maker, Tata Steel stocks shot up by Rs 19.30, or about 4 per cent at rs 521 at noon with over 55 lakh shares changing hands on the bourses.

The counter also recorded 112 block deals, placing the benchmark Sensex higher by 88 points at 12,811.59.

Tata Steel to be 40 mt company by 2012

Exuberant over acquisition of Corus, Tata Group said it would make Tata Steel a 32 billion dollar entity by 2011-12 with a combined capacity of 40 million tonnes annually from about 24 million tonnes now.

The acquisition of Anglo-Dutch giant Corus would not affect Tata Steel`s massive ongoing expansion programme in India and abroad, Tata Group Chairman Ratan Tata said after announcing the acquisition agreement.

"While financing the deal, it has been taken care that no plan either in India or expansion in Jamshedpur and overseas expansion will be affected," he said, adding the deal is expected to be completed by the middle of January next year.

Tata Steel has a capacity of 5 million tonnes per year at present, while Corus has a capacity of 18.2 mtpa. The combined entity becomes the world`s fifth largest steel producer.

Elaborating on the financing, company officials said Tata Steel would pump in 3.88 billion dollar through its subsidiary - Tata Steel UK. The balance of about 5.63 billion dollars would be raised as debt from financial institutions including ABN Amro Bank, Deutsche Bank and credit issue.

Under the agreement, Ratan Tata would become Chairman of Corus Group. Jim Leng, who is currently the Chairman, would be the Deputy Chairman of Corus and Tata Steel.

Tata Steel Managing Director B Muthuraman, Tata Sons Director Ishaat Hussain and Arun Gandhi would join Corus board, while the European firm would also have three representatives in the board of Tata Steel.

On the apprehensions raised by credit rating agencies that the deal may affect Tata Steel`s financial risk profile, Tata said, "we believe that the offer we have made is right and at fair value. We believe it is the right offer."

Upbeat over an agreement reached by Tata Steel for acquiring Corus Group in an $8.09 billion deal, the biggest by an Indian company abroad, domestic steel players hailed the takeover as a stamp of authority of Indian entrepreneurs in overseas market.
According to India's largest steel producer Steel Authority of India Limited, the takeover shows the confidence of Indian entrepreneurs.
"It shows the competitive and financial strength of Indian entrepreneurs to go overseas and acquire assets," Sushil Maroo, Director (Finance), Jindal Steel and Power Limited said, similar feelings were echoed by SAIL Chairman SK Roongta who added that it shows the confidence of Indian entrepreneurs in overseas markets.
Consolidation of steel businesses by NRI steel tycoon LN Mittal and now by Tata Group will help the steel industry to tide over fluctuations in the market. "This is good for the sector and also for the country," Maroo added.
Corus Group's Board backed Tata Steel's 455 pence a share bid to takeover the Anglo-Dutch steelmaker. The deal valued at $8.09 billion would make Tata Steel the world's fifth largest steel producer.
Maroo of JSPL said that the Tata-Corus deal would also fire ambitions of many other Indian entrepreneurs.

TATA Steel and Corus may find it difficult to achieve the synergies and cost reductions they are hoping to generate by combining their operations into the world's fifth-biggest entity , analysts warned on Wednesday.

"The strategic rationale is difficult to comprehend ," Merrill Lynch said in a report on Wednesday . "Despite an arguably attractive offer of 455 pence per share, the potential Corus acquisition does not offer cost synergies or a growing market ," the note added.

"While the acquisition can quickly catapult Tata Steel towards global scale, with little immediate benefits visible, we expect concerns on likely dilution , integration issues, longer-term opportunity loss to weigh on the stock price in the near term," brokerage firm CLSA Asia Pacific Markets said.

Tata Steel on Tuesday said that it has made an indicative, non-binding , all-cash bid for Corus at 455 pence per share, valuing the European giant at an enterprise value of about $10bn. A final offer is expected sometime soon.

On Wednesday, Standard & Poor's (S&P ) placed Tata Steel's BBB corporate long-term corporate credit rating on credit watch with negative implications. S&P also placed Tata Steel's BBB foreiogn currency rating on credit watch with negative impications. "In S&P's view, the size of the acquisition and the potential cash outflow of about $10bn that Tata Steel may make in its offer to Corus could have an advser impact on its financial risjk profile," said S&P credit analyst Anshukant Taneja. A successful acquisition, however, can potentially improve the business profile of the merged entity. In resolving the Creditwatch placement, S&P will seek further information on the progress of the offer and the potential means of financing.

Analysts tracking the sector said the "extended timescale for visible benefits" is likely to affect the stock price performance. Tata's main purpose behind the acquisition is to help Corus cut costs by providing it access to cheap raw materials such as iron ore and steel slabs. Corus has little access to iron ore mines and its steel slab-making facilities turn out products that are more expensive than those in developing countries. Tata's acquisition gameplan has been to use its low-cost mines and slab-making facilities to supply to plants near growing markets around the world. According to World Steel Dynamics, Indian steel slab producers have a 22% cost advantage over European companies . While it takes $78 per tonne in India, the cost in Europe is about $100 per tonne.

However, Tata Steel does not have any spare slab-making capacity. It is establishing new capacity of about 1.8mt, but that is completely dedicated to NatSteel of Singapore and Millennium Steel of Thailand. Tata's new slab plant is likely to come up only by about '10 when the 6mt Orissa plant gets commissioned. Till then, analysts say, there will be little benefits. Even if Tata Steel finds a way to export slabs, freight costs from India to Europe are higher than those from Russia to Europe. This means that Tata Steel could be better off setting up a slab-making facility on the fringes of EU than in far away India.

There is also a problem with iron ore. A huge controversy is raging in the country over whether or not to ban exports of iron ore. Several domestic companies, including Tata Steel, have said ore exports should be banned and the mineral should be used to make value-added steel.

The government, analysts say, is unlikely to allow iron ore exports in large quantities. Plus Tata Steel itself would need new iron ore mines which could take about three years or so.

Corus is a high-cost operation and its plants, especially in the UK, are not considered very efficient . Tata Steel may face a difficult choice in dealing with this issue even as a whisper of plant closures or job losses is likely to produce a public outcry.

Corus, at the price of 455 pence per share, is valued higher than Tata Steel, though its earnings performance has been considerably weaker. As of '06-07 , Corus at the takeover price is valued 11.3 times price-to-earnings ratio and 6.5 times at EV/EBITDA per tonne, compared with Tata Steel's 7.4 times PER and 4.2 times.

Since the proposed Tata Steel special purpose vehicle (SPV) is likely to be merged with Tata Steel, that could dilute equity. Tata Steel also, thanks to this acquisition, will have to dilute equity further for raising money for its new expansion plans in Orissa and Jharkhand.

"As Tata will pay significantly high valuation for acquiring Corus and will have to dilute at lower valuation it may result in value destruction for existing shareholders," Mumbai-based Brics Securities said in a report.

End of the good times?

Rather Ominous sounding article on the recent stock market corrections et al.
From Rediff columns dated June 10th '06


The change of mood is dramatic. The stock market seeks lower levels every day, and the same people who thought a month ago that a Sensex level of 12,000 was stretched but not unreasonable, now argue that the market will settle at or near 8,000.

Everyone expects interest rates to go up, in part because of the signals from the United States, and the effect will be to cool bank lending - which means slower growth in both consumption and investment.

Then, there is growing concern over the country's trade and current account deficits, especially since oil prices show no signs of softening from their current levels. This, coupled with the pulling out of money by foreign institutional investors, translates into pressure on the rupee - which has already fallen against a soft dollar and could fall further.

And while inflation is still quite low, it will climb now that petrol and diesel prices have been hiked. In short, whether it is the market for stocks, debt or currency, expectations have changed. Added to that are the macro-economic concerns about oil prices, inflation and the trade deficit.

That's not all. It turns out that more than half the companies saw a drop in profits last year (as reported by this newspaper yesterday), a disconcerting fact that was masked by the superb performance of the corporate giants, so the upbeat corporate story doesn't look quite so generalised any more.

As if to underline that point, some sectors are beginning to play to a new tune. The change of mood has already had knock-on effects in real estate (where prices have flattened, if not fallen), and in the public offer of shares, as some companies are postponing plans.

Sitting oddly on this pile of bad news and worse expectations is the evidence of new global confidence in "the India story". IBM's announcement of $6 billion worth of investment in India over the next three years is the headline of the week, on a scale matched only by the Posco steel project in Orissa.

Equally significant is Nissan's announcement that it will get Maruti to do contract manufacture of small cars, mostly for the export market but also for selling to Indian customers - significant, because it confirms that India is becoming a global hub for the production of small cars. And Motorola's announcement that it will start manufacturing mobile handsets in Tamil Nadu adds one more to the list of handset manufacturers who think the Indian telecom market is big enough to locate manufacturing plants here.

It seems that just as the FIIs begin to re-do their maths on India and other emerging markets, FDI inflow is being planned on a matching scale.

The question is whether this is the end of the good times, or whether the India story is still unfolding. Both, perhaps. All the main markets (stocks, real estate, commodities) had begun to see a lot of froth, so some cooling down and condensation is welcome; in fact, this helps a return to sanity and good judgment - and it must be hoped that real estate prices of Rs 50,000 and more per square foot will not be heard of again.

Incremental bank credit had been running ahead of deposit growth for some time, by definition that pace could not have lasted, and so a slowdown in lending was inevitable. In fact, a slowdown in US demand, prompted by higher interest rates, may not be unwelcome if it helps the US address its twin-deficit problem.

As for the economy, the combination of high oil prices, rising trade deficits, tighter money and pressure on the rupee, does mean an over-all loss of tempo. The issue is: how much will things slow down? If the economy can sustain 7 per cent growth for the next year or two (compared to the more than 8 per cent for the past three years) - and there is no reason why it should not - the new mood of near-panic on the market is unwarranted.
If the sober assessment is that this is more in the nature of a correction for the markets, and a step down in gear for the economy, within the same upbeat India story, there is no need for either companies or individuals to change their medium-term assumptions about the future.

India's Economic Contrasts

BANGALORE, India, March 1, 2006: From the CBS website

With little more than big ideas and a home computer, Suhas founded his IT services company, Globals Inc, when he was just 14 — and became the world's youngest CEO.

CBS News Chief Foreign correspondent Lara Logan reports on one of the world's youngest and most successful entrepreneurs in part two of a special series India: Land of Contrasts.

It's the kind-of treatment usually reserved for India's Bollywood movie stars, not a 20-year old kid. But when Suhas Gopinath goes back to his old grade school, they let him know he's an inspiration. This local boy has made it big, reports CBS News correspondent Lara Logan.

Gopinath is the boss of a global software company that operates in 11 countries, including the United States. It's a remarkable achievement by any standard — but in India, a developing country saddled with the largest number of the world's poor, it's nothing short of a miracle.

Gopinath's inspiration was none other than Microsoft's Bill Gates.

With little more than big ideas and a home computer, Gopinath founded his IT services company, Globals Inc, when he was just 14 — and became the world's youngest CEO. Six years later, he has even bigger plans.

The new offices for his ever-expanding business in Bangalore are less than a block from the college where he's still studying and the modest house where he still lives with his parents.

Globals employs 600 people — the youngest, a 10-year-old adviser on Web design. Age is no barrier to employment — unless, of course, you're not young enough. The maximum age of his employees is 32.

You wouldn't think that Gopinath's small Indian company could be worth a $100 million to an American firm, but that's exactly how much he says he was offered by a Houston venture capitalist — for just 35 per cent of his business. Gopinath didn't hesitate to turn down the offer.

His story is an astounding example of what's possible in modern-day India's booming economy. However, his story is also the exception. Just 300 miles away, in the slums of India's capital, Delhi, a young man not much older than Gopinath is living a profoundly different existence.

Imagine waking up every morning to comb through mountains of rotting garbage, searching for anything he can sell. It's the only life 24-year-old Bisu Das has ever known.

If he's lucky, he'll make 2,000 rupees a month — that's about $40. Incredibly, that makes him better off than 300 million other Indians — more than the population of the entire United States — who live on less than $1 a day.

No matter what you've heard or read about India's poor, nothing can prepare you for actually seeing it, Logan says. The sight and stench are overwhelming, and there are more flies than you have ever seen in your life. The sheer horror of what poverty really looks like up close is shocking.

Das is one of thousands living in the midst of a massive garbage dump. He told Logan that it's hard not to feel angry. He never thought sifting through garbage would be his life.

So while India rides the economy Gopinath is helping to create, its biggest challenge may be not leaving Das and millions like him behind.