Archive for January, 2011

INTERVIEW – India mulls import duty cuts, frets over deficit

Sunday, January 30th, 2011 | Finance News

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DAVOS, Switzerland (Reuters) – India is concerned about high global commodity and oil prices and will consider cutting import duties on more food products to curb inflation gripping Asia's third-largest economy, Trade Minister Anand Sharma said.

India is already allowing duty-free imports of crude vegetable oils and is likely to continue to do so as food price rises remain in the double digits, a worry that has prompted foreign fund managers to pull out of the country's equities.

Graphic on India's inflation http://link.reuters.com/xag46r

Asked if India would consider cutting more import duties, Sharma told Reuters late on Saturday at the World Economic Forum in Davos, Switzerland: "Yes, when there is a shortage and the inflation is high."

"Like where there is a shortage and we don't produce enough, it is but natural (to cut import duties). Why should we import at such higher prices and then subsidise it for the public distribution system?"

Food inflation in India inched up in mid-January to hit 15.57 percent due to unseasonal rains hitting output of vegetables, such as onions, potatoes and tomatoes -- key ingredients in Indian cooking.

Analysts are forecasting more interest rate rises by the Reserve Bank of India, which on Tuesday raised policy rates for the seventh time since last March.

Global crude prices soaring towards $100 a barrel are also another concern, Sharma said, due to worries that India's nagging trade deficit could widen further.

"Well, everybody would be (worried), especially those dependent on imports," Sharma said. "It has been a matter of concern because in any case, we have a trade deficit."

India's goods trade deficit has been wide as it needs to import large quantities of iron and steel, chemicals and machinery to fuel a rebound in industrial growth.

The trade deficit can exacerbate India's current account deficit and adds to the need for India to attract fund inflows to finance the gap.

Policymakers have said the deficits were a concern but manageable. However, some have said the shortfalls make it easier for India to absorb a surge in inflows of capital -- the product of super-loose monetary policy in advanced economies.

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‘Milestone’ WTO ruling due in EU-US Boeing battle

Saturday, January 29th, 2011 | Finance News

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GENEVA (AFP) – The WTO is expected on Monday to hand over a final but confidential ruling to the United States and EU on their bruising dispute over decades of multi-billion dollar US public aid to aircraft giant Boeing.

"We are about to reach another important milestone in the WTO aircraft dispute," said Boeing Vice President for trade policy Ted Austell.

The ruling -- which marks the second major stage in a seven-year, tit-for-tat subsidies battle along with the separate US challenge to European support for rival Airbus -- should remain out of the public eye for a few months under World Trade Organization rules.

Sources in Washington said the lengthy ruling on large civil aircraft should be handed over to the two governments on Monday around 1530 GMT, giving lawyers on both sides the chance to come to grips with its complex findings.

Airbus said last Tuesday that it expects the WTO's arbitrators to award the European Union 45 billion dollars (32.8 billion euros) in "compensation", after interim findings were provided to the two sides last September.

"It will confirm that Boeing received illegal aid," said Maggie Bergsma, spokeswoman for European aircraft manufacturer Airbus.

"The aid given to Boeing was in fact much more significant in terms of distorting competitiveness than any sort of aid which Airbus has received."

"We consider that an amount of at least 45 billion dollars will be called for in compensation," she added.

The EU has estimated that Washington gave Boeing 24 billion dollars in disguised subsidies. Not all subsidies or public support are illegal under WTO rules, which seeks to stop those distorting international trade.

Although the dispute involves governments, both companies have been waging a public relations battle on the sidelines of the dispute. Boeing swiftly rejected Airbus's claim.

The "statement from Airbus is simply ridiculous," a spokeswoman for the US aircraft maker said.

Boeing has nonetheless acknowledged that the interim findings did show that some US support was "inconsistent with the rule set", although the amounts are disputed.

"In fact, those findings suggested that any assistance that was alleged to have been found against Boeing in United States was far far smaller, not even comparable to the findings in the USA against Europe case," Austell explained.

Washington has estimated that the economic damage suffered as a result of European support to Airbus amounts to up to 200 billion dollars, an amount that Brussels contests.

Beyond tax breaks and other advantages, a key issue in the EU complaint is the question of aid to Boeing from NASA and the US Defence Department for aerospace research and development, and its scope or impact on civil aircraft.

Trade insiders believe that the WTO's ultimate verdicts will fault both sides, in a similar manner to 2003 rulings on Brazil and Canada's battle over aid for aircraft makers Embraer and Bombardier.

The United States and EU have already appealed against the other ruling on European subsidies for Boeing, and a similar pattern is expected once the Monday's ruling on US support for Boeing becomes public.

Austell also highlighted the likely emergence of new large civil aircraft makers that would compete against the giants from either side of the Atlantic. Boeing and Airbus have largely shared the spoils in recent decades.

"Remember again there are countries all around the world who propose to be large civil aircraft makers and they too are watching how the United States and Europe address this issue," he said.

Executives have suggested those countries would include China and Brazil, and the WTO rulings would serve to lay down markers indicating the limits of state support for such emerging ventures.

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Alpha agrees to buy Massey Energy for about $7.1 billion

Saturday, January 29th, 2011 | Finance News

NEW YORK/CHICAGO (Reuters) – Alpha Natural Resources said on Saturday it agreed to a $7.1 billion deal to buy Massey Energy Co, which was rocked by a deadly coal mining accident last year.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

Massey has disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

The likelihood that Massey would be acquired increased with the departure of Chief Executive Don Blankenship at the end of last year. Blankenship had been seen as opposed to selling the company and analysts in December said his departure removed the largest impediment to a deal with Alpha.

Blankenship led Massey for 20 years and had been a lightning rod for criticism from environmentalists for championing surface mining, and from unions for the company's use of non-union labor.

The merger with Alpha will create annual cost savings of $150 million by the second year of operations, the companies said. It is expected to add to Alpha's cash flow in the first full year.

Alpha purchased smaller rival Foundation Coal for $1.5 billion in an all-stock deal in 2009. Crutchfield said the global position created by the latest deal should position Alpha for more growth.

Morgan Stanley was lead adviser for Alpha on the deal. Citigroup also advised the company. Perella Weinberg and UBS advised Massey on the sale.

Alpha obtained $3.3 billion in committed financing from Morgan Stanley and Citi, which it plans to use, along with its existing cash balance, to pay for the cash portion of the deal as well as refinance some debt of both companies. The cash portion of the purchase accounts for roughly $1 billion of the deal value.

Recent deal activity in the sector includes Walter Energy's more than $3 billion deal to buy Canadian rival Western Coal Crop, and Rio Tinto's$3.9 billion bid for Africa-focused coal miner Riversdale Mining Ltd.

(Editing by Peter Cooney)

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