‘Hope Modi’s US visit will be an action-forcing mechanism … bilateral investment treaty would be a significant milestone’

With the White House having announced that US President Donald Trump will be hosting Prime Minister Narendra Modi later this year in Washington, Ambassador William J Burns, President of Carnegie Endowment for International Peace and former US Deputy Secretary of State, spoke to Nalin Mehta on what New Delhi can expect from the first bilateral Modi-Trump meeting, Indo-US relations and the shifts in US diplomacy:

The White House said President Trump spoke with PM Modi to congratulate him on the outcome of Uttar Pradesh elections, to express support for Modi’s economic reform agenda, and to say that he was looking forward to hosting the PM in Washington. What are your expectations from the PM’s upcoming visit?

My strong hope is that when it comes to India, the Trump administration will look to sustain and deepen the efforts of its Democratic and Republican predecessors to further strengthen the bilateral partnership and put it to work to address shared global challenges.

I hope this visit will be used as an action-forcing mechanism to check off a number of important items from our shared to-do list.This includes the purchase of a US fighter for India’s armed forces and other defence cooperation items.

It includes continued progress in the economic sphere, where i believe we still have a long way to go to fully realise the promise of our strategic partnership.

Concluding the Bilateral Investment Treaty would be a significant milestone worthy of a significant effort by both governments.

President Trump is fundamentally changing long held pillars of US diplomacy. How will this impact India-US relations which have been recast in the last 15 years under both Democrat and Republican administrations?

You are right that beneath the surface, this Trump administration presents a fundamentally different approach to foreign affairs – a profound, and in my view troubling, deviation from the core elements on which American leadership and international order rest.

The United States, for all its imperfections, has stood for political and economic openness, respect for human dignity, and a sense of possibility. We have demonstrated a willingness to mobilise others to deal with shared problems. And we have invested in the institutions at home and abroad that can get ahead of crises and prevent conflict through wise, long-term investments.

To the extent that we walk away from these ideas, initiatives and institutions at the core of American leadership, i fear that we will see serious and long-term damage to America’s standing in the world, and in turn, to the potential for US-India relations.

What impact do you see of US policies on Asia and the balance of power in the region under President Trump?

Much of President Trump’s foreign policy seems to be reverting to the mainstream on first contact with reality, and that includes his approach to the Asia-Pacific.

But it’s clear that the Trump administration believes the United States is being held hostage in many respects by the very international order it created. It seems to see multilateral trade agreements like the Trans-Pacific Partnership as constraints rather than opportunities, and international and regional organisations as distracting, if not irrelevant.

That attitude could undermine our capacity and credibility to work together with India to shape a Pacific Century that reflects our shared interests and values.

Carnegie has been in India for a year. How different is working in India compared to other countries?

I have been deeply impressed by what my colleagues in Delhi have accomplished in such a short time. That is not a result of any imports from Washington or any of our global centres in Beijing, Beirut, Brussels or Moscow. It is a consequence of the fact that Carnegie India is led and staffed by extraordinary Indian experts who have a deep stake and commitment to India’s own domestic and international evolution.
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Government in advanced talks with entities for investment in NIIF

Economic Affairs Secretary Shaktikanta Das in New Delhi. (Source: PTI) Economic Affairs Secretary Shaktikanta Das in New Delhi. (Source: PTI)

The National Investment and Infrastructure Fund (NIIF), a quasi-sovereign wealth fund, is in an advanced stage of discussion with multilateral agencies and sovereign wealth funds for equity participation, economic affairs secretary Shaktikanta Das said on Sunday. “The NIIF is working to bring in other investors, who would become partners of government of India in setting up this fund,” Das said at an event organised by New Development Bank here.

Potential investors in the funds include Abu Dhabi Investment Authority, Qatar Investment Authority and RUSNANO of Russia. Speaking on the fiscal policy, Das said the government has accepted most of the recommendations made by the Fiscal Responsibility and Budget Management Committee, headed by former revenue secretary NK Singh. “Broadly, the committee’s report has been adopted by the finance minister in this year’s Budget and the fiscal target for 2017-18 has been fixed ..,” he said.

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Source: http://indianexpress.com/article/business/economy/governmetn-in-advanced-talks-with-entities-for-investment-in-niif-4596941/

Earnings growth biggest concern; a correction in market is due’: Manishi Raychaudhuri

“Our forecast shows that the EM currencies may remain flattish due to better fundamentals, as most of them have repaired current accounts remarkably over past 2-3 years,” Manishi Raychaudhuri said. “Our forecast shows that the EM currencies may remain flattish due to better fundamentals, as most of them have repaired current accounts remarkably over past 2-3 years,” Manishi Raychaudhuri said.

Calendar 2017 has started on a strong note with the Sensex and the Nifty hitting all-time highs on the back of strong investment from both domestic and foreign institutional investors. MANISHI RAYCHAUDHURI, managing director, Asia Equity Strategist, BNP Paribas, that while foreign portfolio investors (FPIs) continue to remain upbeat on India following the election results in Uttar Pradesh, the earnings growth and, therefore, the valuations remain a concern. He said that a correction in the markets would make investment proposition attractive for investors. Edited excerpts:

How do you read the political developments in India?

If I look at the equity markets in India, there were earlier some concerns like how the global variables would pan out, how the protection measures in the US will impact, political uncertainties in the European region and, of course, domestic political outcomes. Now, the way the election results have come, it has lifted one big piece of the puzzle — the one about domestic politics — and put it in a silo of irrelevance. From the kind of interactions that we now have with FPI and domestic investors, the opinion seems to be that the ruling party is on a very strong wicket and the resulting political capital could be a significant tailwind for decision making. The General Elections are more than two years away, and FPIs and DIIs (domestic institutional investors) don’t seem to be concerned about its outcome at present.

Also, it’s encouraging that the government has been bold enough to implement reformist steps (such as demonetisation), which could be unpopular with a section of the electorate in the near term. The clear opinion of FPIs now is that such reformist steps would continue as the government has demonstrated its willingness to execute reforms for the longer-term benefit of the economy.

How are investors seeing the choice of the Chief Minister in Uttar Pradesh?

There have been some concerns whether the new administration will stick to the core agenda of economic growth and development. However, most investors feel the best course of action now is to wait and watch. Clearly, at this point of time, the ruling regime has a benefit of doubt both from DII and FPIs.

Did the 7 per cent gross domestic product (GDP) growth number come as a reassurance?

I don’t look at aggregate GDP or IIP (Index of Industrial Production) numbers for forecasting purposes. Much better variables are high frequency on the ground numbers that we regularly get. We look at how many million tonnes of cement were consumed, number of cars sold, two wheelers sold, freight growth in railways and roadways — to name a few. We are tracking these more actively these days and if one really wants to judge what is happening, it’s better to look at these high-frequency data that comes out from various sectors to make reliable forecasts.

The confusion about the new series GDP has come partly because there is no back-data available. As and when that gets released, economists and forecasters would have a lot more comfort with using this data. However, I would like to add that measurement of economic aggregates is not an India-specific problem. In large and complicated countries, there are usual hurdles to measuring aggregate numbers and that exists in economies like China and India.

The FPIs have strongly invested into India in March. What is their view on Prime Minister Narendra Modi as he is nearing three years of his government?

The mood among FPIs is clearly upbeat and a significant part of that upbeat mood among FPIs is contributed to by the present government. After the recent state election outcomes, it has only got reinforced as they believe that it could provide the necessary political capital for the administration to engage in more reforms. Even though demonetisation had a short-term dampening impact on economic growth, most of the long-term investors are convinced that this is the right step in the long run to formalise a much larger segment of the economy.

What could derail this inflow of funds?

There are some global events that could trigger that, the first is an appreciation of US dollar. While that has never been good news for flows into emerging markets, we think that it may not turn out to be as bad as it was during taper tantrum episode. On that occasion, it was the emerging market currencies that depreciated. This time around, the appreciation of the dollar is being predicated more against the developed market currencies. Our forecast shows that the emerging market currencies are likely to remain flattish on account of better fundamentals, as most of them have repaired their current accounts remarkably over past 2-3 years.

Other than that, protectionism and restrictive trade practices in the US could potentially hurt the emerging markets. I, however, feel that even in those circumstances, India would be relatively less affected as Indian exports to the US are not significant in proportion to its GDP compared to many other emerging markets.

Are there any concerns on domestic front?

There are a few, such as job creation, which is a corollary of private investment, and also the health of the banks especially the public sector banks (PSBs). I think this trio of concerns is possibly the biggest impediment to stronger growth trajectory for India right now. The hopeful sign is that the NPA (non-performing asset) accretion for PSBs which till September 2016 was accruing at a rapid pace, seems to have decelerated in the December quarter. Having said that, the PSBs’ credit cost could continue to increase over next 2-3 quarters.

The issue of private sector investment is low capacity utilisation which stands at 70-72 per cent. No one will look to invest until it rises to 80-85 per cent. I don’t know when that could happen but it needs significant consumption demand pick-up and utilisation of the existing idle capacities could take anywhere in 12-15 months.

However, in the long run, India looks fine especially in comparison to its Asian market peers as the growth is fine, political stability is there which in turn is likely to aid reforms. Implementation of some of the reforms such as the GST, the Bankruptcy Bill could significantly accelerate the economy over the longer term and increase efficiency in various sectors.

What are the concerns on valuations of market and earnings growth in India?

It has been an unending wait for earnings revival. I have been saying for the last one month that the Indian markets should correct but the markets have a mind of their own and the recent election results were a shot in the arm for sentiments. But, a correction is due, it should happen now to make the investment proposition attractive for investors.

My biggest concern is earnings and if that revives, a lot of things will fall in place and valuation concerns will abate. In the near term, we are not seeing much improvement in the earnings growth. While India has historically traded at a 25-30 per cent premium in P/E (price-to-earning) terms to Asia Ex-Japan, it is currently trading at a 50 per cent premium. Normally, I would not have been concerned about valuations if the earnings estimates have been going up but in case of India, that is not so. MSCI India EPS (earning per share) estimates have been drifting down and in this respect, India is in a different league compared to Asia Ex-Japan because Asia Ex-Japan EPS has revived nicely over the last three months, led predominantly by North Asian markets. Even China has stabilised growth and currency and that is the biggest support factor for Asian equities this year.

For India’s earnings, while most of the factors such as export revival, government-led investment and consumption look fine, the only piece of the puzzle left out is private investment and I don’t have much hope there for the next 12-15 months. So, if I put all this together, the 7-7.5 per cent GDP growth seems to be in the bag.

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Source: http://indianexpress.com/article/business/business-others/earnings-growth-biggest-concern-a-correction-in-market-is-due-manishi-raychaudhuri-4595808/

Toshiba’s nuclear woes a hot ticket for bankruptcy financiers

Pedestrians walk past a logo of Toshiba Corp outside an electronics retailer in Tokyo, Japan. REUTERS/Toru Hanai/File Photo Pedestrians walk past a logo of Toshiba Corp outside an electronics retailer in Tokyo, Japan. REUTERS/Toru Hanai/File Photo

Westinghouse Electric Co’s financial distress sparked a feeding frenzy among Wall Street lenders keen to give the nuclear developer a lifeline while it reorganizes in bankruptcy, according to court papers and people familiar with the matter. Westinghouse, the nuclear arm of Japanese conglomerate Toshiba, filed for Chapter 11 bankruptcy protection on Wednesday after facing billions of dollars in cost overruns at power plants under construction in Georgia and South Carolina.

It has a proposal in hand for $800 million in bankruptcy financing from the credit arm of Apollo Global Management , which must be approved by a bankruptcy judge. The private equity firm won the high-profile deal after Westinghouse said it was “inundated” with offers from investment banks, private equity houses and hedge funds for the financing, a so-called “debtor-in-possession” (DIP) loan, Westinghouse’s turnaround adviser said in court papers. “It’s a coveted corner of the market,” said David Tawil, president of Maglan Capital, a distressed-focused hedge fund. “People like DIPs a lot; there’s not a lot of opportunity.”

With lenders starved for yield, there are few opportunities to park nearly $1 billion and earn about 10 percent, the “all-in” interest rate on the loan, according to a person familiar with the matter. Lenders were drawn to Westinghouse to provide the DIP because of the size of its funding needs, and because, unlike most companies facing bankruptcy with too much debt, it had no other loans or bonds already backed by its collateral.

“(That’s) extremely rare, when you have no secured debt on a company,” Tawil said. Westinghouse also has a profitable nuclear services and maintenance business separate from its troubled power plant construction division that was highly attractive to lenders.

The company received 14 proposals for the financing, according to court papers. Investment bank Goldman Sachs Group Inc and affiliates of hedge fund Highbridge Capital Management and private equity firm Silver Point Capital went as far as to file a letter with the bankruptcy court late Wednesday saying they could provide a “much more favorable financing” package than Apollo’s. But then they withdrew it, offering no explanation. Goldman and Apollo declined to comment. Westinghouse did not immediately return a request for comment.

The jockeying among the lenders to provide the financing underscores the scarcity of these deals across the restructuring sector. There were 12 DIP loans totaling $7.47 billion in 2016, the highest in quantity and count since the depths of the financial crisis in 2009, according to Thomson Reuters LPC data, an increase likely driven by the oil and gas crash. In 2009, there was 37 such loans totaling $14.6 billion. Pre-existing lenders to companies often also fund the DIP as a way to protect their initial investment, leaving little room for outsiders like Apollo, Silver Point or Highbridge.

Last year when U.S. solar company SunEdison Inc filed for bankruptcy, existing lenders provided $300 million in DIP financing. But Westinghouse’s biggest creditors are its parent company Toshiba and the U.S. utilities that own the half-finished nuclear reactors. It has no other debt from third parties, except an undrawn bank credit line, the company’s investment banker said in court papers.

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Source: http://indianexpress.com/article/world/toshibas-nuclear-woes-a-hot-ticket-for-bankruptcy-financiers-4591901/