Archive for May, 2011

Greek bailout review due in next two days

Tuesday, May 31st, 2011 | Finance News

BRUSSELS – A review of Greece's bailout program that is central to determining further aid for the debt-ridden country will likely conclude over the next 24 to 48 hours, a European official said Tuesday.

Experts from the European Union, the European Central Bank and the International Monetary Fund have been in Athens for much of the past month, checking on the implementation of austerity measures and the privatization of state assets promised in return for euro110 billion ($157 billion) in emergency loans a year ago.

Their report will detail new austerity measures to lower this year's budget deficit and how to privatize state-owned real estate and corporate assets over coming years to help close financing gaps, said the official, who was speaking on condition of anonymity because discussions are still ongoing.

It has become clear in recent months that the loans granted last year will not be enough to keep Greece afloat over the next two years, as the country remains stuck in recession and locked out of international debt markets. Greece was supposed to raise some euro27 billion next year and a similar amount in 2013 to start covering some of its bills again, but with interest rates for 10-year bonds above 16 percent that prospect now seems unrealistic.

So far there is no consensus among eurozone countries on whether to give Greece new aid and how, despite increased pressure in recent days from the European Commission, the ECB and other financial leaders, the official said.

Many of the richer countries in the 17-nation eurozone are frustrated with Greece's slow implementation of the economic reforms and some euro50 billion in privatizations that were supposed to help its economy to start growing again. They want assurances that they will get their money back as their own taxpayers are unhappy with what they see as undeserved help for less disciplined countries.

In parallel to the review in Athens, representatives from eurozone finance ministries have been discussing how to improve implementation of Greece's promised measures.

"There are many ideas floating out there," said the official, adding that a final deal would have to be reached at a meeting of European finance ministers scheduled for June 20.

The ministry representatives, who will meet again Wednesday in Vienna, are discussing potential "technical assistance" for Greece in tax collection and the privatization program, the official said. Such international involvement in the internal financial affairs of a eurozone country would constitute an unprecedented intervention likely to face strong opposition within Greece.

On top of that, some countries have pushed for Greece to provide collateral for any further loans.

Earlier this month, European policymakers also raised the possibility of asking private creditors like banks and investment funds to give Greece more time to repay its bonds, but such a move has been strictly opposed by the ECB. Such a "reprofiling" of private debt is "not off the table" yet, the official said.

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India’s economy grows slowest in five quarters

Tuesday, May 31st, 2011 | Finance News

NEW DELHI (Reuters) – India's economy grew at its slowest annual pace in five quarters in January to March, as rising interest rates crimped consumption and investment, which some analysts say could temper the pace of central bank tightening to tackle inflation.

Gross domestic product rose 7.8 percent from a year earlier, lower than 8.3 percent in the previous quarter and below the median forecast of 8.2 percent in a Reuters poll.

For the full fiscal year, Asia's third-largest economy grew 8.5 percent compared with the government's 8.6 percent forecast.

"Growth is slowing down as was anticipated so the Reserve Bank of India is unlikely to resort to any more single-stage 50 basis point rate hikes," said Jay Shankar, chief economist and director at Religare Capital Markets in Mumbai.

Shankar said he expects India's main policy rate of 7.25 percent to rise by 25 basis points (bps) in June and then another 50 bps by the end of the fiscal year in March 2012.

Investment growth slowed down to just 0.37 percent in January to March from 7.8 percent in the previous quarter as higher interest rates, numerous project delays as environmental clearances took longer than expected and government paralysis as it fought a series of corruption scandals took a toll.

Now that elections in five states have ended, the pace of project implementations is expected to pick up.

India's 10-year benchmark bond yield fell 2 basis points to 8.37 percent immediately after the data, which was seen to ease pressure on the central bank to tighten rates aggressively.

The benchmark 5-year swap rate dropped as much as 3 bps and the 1-year swap rate edged down 2 bps. The 30-share BSE index (.BSESN) briefly pared gains before climbing to be up 1.19 percent on the day.

RATE RISES

Most economists expect the Reserve Bank of India to increase its main policy interest rate by 25 basis points at its next review on June 16, after it raised rates by a bigger-than-expected 50 basis points early this month.

Before Tuesday, analysts had expected a further 75 basis points of increases by the end of December.

"The market had been expecting another 50-75 basis points increase in key rates but with today's GDP print the market seems to be assigning a higher probability for just another 50 bps in the rest of the year," said Sandeep Bagla, senior vice president with ICICI Securities Primary Dealership.

India's farm sector expanded at 7.5 percent during the quarter from the previous year, while manufacturing grew 5.5 percent, lower than 6.0 percent annual growth a quarter ago.

Agriculture is expected to perform well for the second straight year after the government forecast a normal monsoon.

SPEED BRAKES

Annual consumer spending growth in the quarter slowed to 8 percent from 8.6 percent in the previous quarter as interest rates reined in demand.

Car sales in April rose at their slowest pace in nearly two years with buyers also put off by the rising cost of fuel and vehicles.

New Delhi is likely to revise down its economic growth forecast for the current fiscal year from around 9 percent, a senior government adviser said last week.

"The outlook certainly is for a growth slowdown," said Ramya Suryanarayanan, an economist at DBS Bank in Singapore.

"It's not really a function of GDP as much as it's related to the worrying rise in inflation including revisions. That rise in inflation and failure of food prices to moderate suggests it will be tough ahead in terms of interest rate trajectory," she said.

The HSBC Markit Purchasing Managers' Index for April showed soaring fuel and raw material prices were driving up costs and feeding into output prices, an indication that high inflation would persist.

India's overnight indexed swap curve stayed inverted on Tuesday, reflecting expectations for tighter liquidity and more policy tightening, along with doubts over the pace of long-term economic growth.

The spread between the five-year and one-year OIS has turned negative for the first time since October 10, 2008, according to Thomson Reuters Data.

"We expect this inversion to remain at least till July due to tight liquidity concerns and beyond that it will depend on how much liquidity tightness eases," said a dealer at a foreign bank.

"If we use the narrowing spread as a leading indicator of GDP growth, this suggests that GDP growth is likely to slow going forward," Standard Chartered said in a note on Tuesday.

(Additional reporting by Suvashree Dey Choudhury, Swati Bhat and Neha D'Silva; Reporting by Rajesh Kumar Singh; Editing by Tony Munroe)

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VW motors ahead with MAN-Scania truck merger plan

Tuesday, May 31st, 2011 | Finance News

FRANKFURT (Reuters) – German carmaker Volkswagen (VOWG_p.DE) formally launched its bid for MAN (MANG.DE) on Tuesday in a move toward creating Europe's biggest truckmaker.

VW's chairman Ferdinand Piech has long been itching to combine MAN and Sweden's Scania (SCVb.ST) to take on the world's biggest truck maker, Daimler (DAIGn.DE), and number two Volvo (VOLVb.ST), but has been hampered by anti-trust issues and resistance from Scania.

The German carmaker already owns a controlling stake in Scania and has triggered a mandatory offer for MAN by increasing its shareholding to more than 30 percent from 29.9 percent.

Its low-ball offer of 95 euros per share for MAN is seen as being deliberately unattractive in the same way as Spanish construction group ACS (ACS.MC) sought to build its stake in German rival Hochtief (HOTG.DE) without having to pay for the whole company.

Shares in MAN were trading 0.1 percent higher at 96.62 euros by 3:46 a.m. EDT on Tuesday, 1.7 percent above VW's offer price.

If few investors accept the offer, which values MAN at about 13.8 billion euros ($19.7 billion), VW will benefit by being allowed under German rules to then gradually buy shares in the market and by getting regulatory approval allowing closer cooperation between MAN and Scania.

In a first step, VW , which has a war chest of almost 20 billion euros, will spend about 1.5 billion euros to raise its stake in MAN to 35-40 percent of voting rights.

Eventually, it envisions a trucks group combining MAN and Scania and saving about 400 million euros of costs per year.

MAN will comment on VW's offer within two weeks, a spokesman for the truck maker said. He said MAN was in favor of cooperation with VW in principle as it saw industrial logic and potential savings in such a deal.

The announcement by VW, which is being advised on the deal by Credit Suisse (CSGN.VX), comes five years after MAN tried and failed to take over Scania, leaving relations frosty.

Since then, the two companies have struggled to progress in talks under VW's guidance. Last month's 4.9 billion euro rights issue of Porsche SE (PSHG_p.DE), VW's biggest shareholder, removed a stumbling block in VW's ability to shoulder takeovers.

($1=.7000 euros)

(Reporting by Jan Schwartz and Andreas Kroener; Writing by Maria Sheahan; Editing by Greg Mahlich)

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