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Fundamentals May 6, 2013


Nik's Diary
The Indian markets opened positive today tracking strong cues from SGX Nifty. Meanwhile, major Asian indices except for Japan are trading in the green today after faster-than-forecast U.S. employment growth bolstered optimism in the world’s largest economy. The US stock markets moved sharply higher during trading on Friday with better than expected employment data generating considerable buying interest With stronger than expected job growth, the unemployment rate edged down to 7.5% in April from 7.6% in March. The gains on the day lifted the Dow and the S&P 500 to new record highs, while the Nasdaq reached a new twelve-year high. The strong performance of the U.S. markets led to surge in European markets with US jobs data overshadowing the news that the Eurozone reduced its economic outlook. Meanwhile, Indian shares fell on Friday, retracing from near 3-month highs touched a day before, after the central bank cautioned it had limited room for further monetary easing, overshadowing the 25-basis-point cut in key interest rates, dragging down rate-sensitive stocks.

RBI reduces repo rate by 25bp on expected lines 
The RBI’s decision to reduce repo rate by 25 basis points in its monetary policy for 2013-14 indicates the central bank’s signal for promoting growth, according to Corporation Bank Chairman and Managing Director, Ajai Kumar. Ajai Kumar told Business Line that the reduction in repo rate indicates RBI’s signal for promoting growth in an otherwise inflationary scenario, leaving little space for further rate cuts. He said that the call on reduction in base rate for lending may be taken over a period of time, and it would depend upon how the deposit rates move. “In the present scenario, where deposit mobilisation is still not picking up, it would be too early to comment on lending rate cut,” he said. Source: hindubusinessline

Bharti Airtel to sell 5% to Qatar Foundation for US$1.26bn 
In a move seen as a positive deleveraging exercise, Bharti Airtel on Friday decided to sell a 5% stake to Doha-based Qatar Foundation Endowment for $1.26 billion (R6,796 crore) to strengthen its capital structure and fund its growth plans. According to the structure of the deal, Bharti will issue fresh 199.9 million shares to Qatar Foundation at R340 a share, which is at 7.4% premium to its closing price on May 2. The announcement saw Bharti’s share rising as much as 4.7% to finally close up 0.32% at R317.70 on the Bombay Stock Exchange. Following the issuance of shares, the promoter group’s stake in the company will reduce to 65.12% from 68.55%. Qatar Foundation Endowment is the investment vehicle for Qatar Foundation, a non-profit organisation wholly-owned by the Gulf state's royal family. Goldman Sachs advised Bharti on the deal. The company, which on Thursday posted its 13th quarterly decline in net profits at R509 crore, needs funds to retire its debts as the African operations continue to post losses and report a decline in almost all operating metrics. In fact, the losses at the African operations widened to R485.7 crore against R340 crore during the same period last fiscal. However, the key metrics like average revenue per user, minutes of usage, churn rate and data usage have shown improvement in the Indian market where the worst seems to be over in terms of pricing with the end of tariff wars. Further, Bharti needs funds to pay for one-time spectrum charges and renewal of its Delhi and Kolkata licences when they come up for renewal in November. While currently it has obtained a stay order from the Delhi High Court on the over R5,000-crore one-time payment for spectrum held beyond 4.4 MHz, the government is working on the modalities of auction for the extension of licences after it rejected Bharti’s application for an automatic extension. Commenting on the latest fund-raising exercise, Bharti chairman Sunil Mittal said, “I am delighted to welcome another high-quality long-term institutional investor to our shareholder base.” “This strategic partnership with QFE demonstrates the confidence they have in the company and our strategy for growth. In addition, this agreement exemplifies further strengthening of the already deep economic and cultural relations between Qatar and India. We look forward to a long and fruitful partnership with QFE,” Mittal said. Rashid Al-Naimi, acting chief executive officer, QFE, said: “We are excited to be making a significant investment in one of the leading telecommunications companies in the world. As a long-term global investor, our shareholding gives us exposure to a high growth sector in key emerging markets. QFE looks forward to supporting Bharti in realising the full potential of this world class business.” “We believe the transaction is positive as it improves Bharti’s balance sheet strength. Its FY13 net debt to Ebitda reduces to 2.29 times versus 2.57 times currently. It makes headroom for Bharti to make regulatory payments,” UBS Investment Research said in a report. The deal :should help ease the debt burden and improve investor confidence”, said Karan Mittal, telecom analyst at ICICI Direct. At the end of the March quarter, Bharti’s net debt stood at Rs 63,839 crore, which was mainly raised to fund its $9-billion acquisition of the African operations of Zain in 2010. The company has been trying to reduce its debt and recently raised $1.5 billion through overseas bonds. Source: financialexpress






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