TUESDAY, DECEMBER 13, 2016
B3
MARKET NAT I O NA L S T O C K E X C H A N G E
India’s largest bourse plans to offer shares to public
SHARE SALE: National Stock Exchange’s $1.5 billion IPO will be the country’s largest in more than six years. — Bloomberg file picture
SINGAPORE: India’s largest stock exchange is getting ready for a listing it has fought long and hard to avoid: its own. While some long-time investors may be relieved to have an opportunity to exit, newer shareholders should be glad if the bourse uses the scrutiny of being a publicly held company to shed its outsize sense of exceptionalism. A descent into ordinariness would be quite welcome. National Stock Exchange (NSE) of India’s $1.5 billion IPO will be the country’s largest in more than six years. The share sale won’t raise any new money, but it will give investors — including Goldman Sachs Group and Singapore’s Temasek Holdings — a chance to
realise profits they’ve been forced to sit on for as long as a decade. Investors pressured When investors pressured NSE for an out, it demurred by saying that listing on the rival Bombay Stock Exchange could compromise its competitive edge. But when the BSE filed its own draft prospectus — suggesting the older bourse found it perfectly okay to list on NSE — the business-confidentiality excuse lost all credibility. That was the second blow to NSE’s notion of superiority. The first came from the Bombay High Court last year. NSE had filed a defamation suit against Moneylife India, a personal-finance website, for publishing allegations
Fed fund futures show probability of rate hike Fed fund futures show a 97 per cent probability that the Fed will lift rates by a quarter of a per centage point and all 120 economists in a Reuters poll expect a Janet Yellen, chair of the US Federal Reserve. — Bloomberg file picture
rate hike in the wake of a string of solid US economic reports.
WASHINGTON: The US Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase and new economic forecasts providing a first glimpse into whether the US election has reshaped the central bank’s growth and inflation outlook. Fed fund futures show a 97 per cent probability that the Fed will lift rates by a quarter of a per centage point at the end of its twoday policy meeting on Wednesday, according to the CME Group. All 120 economists in a Reuters poll expect a rate hike in the wake of a string of solid US economic reports. More telling will be whether the stock market rally and jump in bond yields triggered by Trump’s November 8 victory will push the Fed to an inflection point of its own and a higher projected pace of rate rises for 2017 and beyond. The Republican businessman is inheriting a good economy, one that grew by 3.2 per cent in the third quarter, the fastest pace in
two years. There are, however, concerns that his plan to reduce taxes, cut regulation and increase infrastructure spending could not just boost the economy but also fuel higher inflation. Since first published in 2012, the Fed’s quarterly “dot plot” of projected interest rates has generally moved in one direction — down — and any post-election change will show whether policymakers expect Trump’s policies to shake things up. As of September, Fed officials’ median projection was for two rate increases next year and a long run “neutral” level of 2.6 per cent. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis. “Their path is going to move up faster and a little sooner,” said Steve Rick, chief economist for CUNA Mutual Group. He said the economy was running at its potential, and that was the Fed’s cue to “exit stage right” and steadily move rates to normal. Fed officials have long hoped that other government policies would take the place of monetary engineering, which some believe may have lost its effectiveness in
lifting economic growth. Boost productivity They have warned in recent weeks that any new government spending should specifically be designed to boost productivity in an economy that is already near full employment and facing a high public debt burden. The Fed’s new forecasts will indicate if policymakers feel that the monetary-to-fiscal handover is on the horizon, or need more time for the Trump administration’s plans to become more detailed and move through Congress. Fed Chair Janet Yellen is scheduled to hold a press conference at 2:30pm on Wednesday to elaborate on the economic outlook and policy statement. She will have a broad set of issues to cover since her last press conference in September — from the Federal Open Market Committee (FOMC) meeting itself, to the likelihood she will be replaced in early 2018 and the risks she foresees from the Trump agenda. Trump repeatedly attacked Yellen during the election campaign, accusing her of holding down rates to help his Democratic rival. Since the election, he has
expressed his disapproval of corporate America, criticizing Boeing, and took credit for a deal to keep hundreds of jobs at an Indiana plant from being moved to Mexico. The president-elect also will be under scrutiny after this week’s Fed meeting for clues about how he plans to handle his relationship with the central bank. “There is a real risk that he could be openly critical of the decision to raise rates next week,” Paul Ashworth, an economist with Capital Economics, said in a note last week. That could upset markets and raise serious issues about whether Trump intends to leave the Fed alone or try to influence its decisions. Top US elected officials, in particular the president, typically avoid criticising the Fed’s shortterm rate decisions, emphasising instead the need for monetary policy to be set independently. “If he remains silent after the announcement to raise interest rates next Wednesday, then we can begin to assume that it will be business as usual for the Fed,” Ashworth wrote. Trump’s plan to cut taxes and regulation and funnel fresh billions into capital projects must pass Congress, and it may be well after that before any new programmes meaningfully effect economic forecasts. But policymakers also watch the markets closely. It may be hard for the Fed to stick with its ultra-slow pace of rate hikes if a major tax overhaul and fiscal spending plan are unleashed. TD Securities analysts said that fiscal policy at this point in the economic recovery could prompt “an inflationary demand shock” that adds nearly a percentage point to economic growth, but spurs the Fed to raise rates much quicker than expected — by nearly an extra percentage point per year. — Reuters
the exchange’s algorithmic trading system gave an unfair advantage to some brokers. The judge, however, chided the exchange for its “self-congratulatory assertions” of innocence, and fined it heavily. Later, a panel set up by the market regulator to look into whistleblower complaints found NSE’s price dissemination engine to be indeed “prone to manipulation or market abuse.” The chain reaction that ensued is good news for investors. NSE was a huge success as a government-sponsored alternative to the gambling den that BSE was back in the early 1990s. But while the older exchange is today nowhere as successful as NSE, it’s no longer a cooperative of the crooked.
There’s no reason the regulator should allow NSE to go on believing it’s some kind of an appendage of the Indian state that deserves to be treated differently, and indeed deferentially. That notion is changing, though. The board is looking to replace CEO Chitra Ramkrishna, who unexpectedly resigned earlier this month. While the executive search may delay the IPO, it’s important to find somebody competent yet relatively unconnected from the exchange’s history of success, which has become its own enemy. As a publicly traded company, NSE is going to need better governance. That will be impossible to achieve until it loses its swagger. — Bloomberg News
S A N C TA C A P I TA L R E P O R T
Distressed deals on the rise in the region DUBAI: Distressed debt opportunities are increasing across the Middle East and Africa region as companies struggle with slumping currencies and tighter government spending, according to Sancta Capital Group. “We’re still in the very early stages of this new distressed debt cycle,” Chief Investment Officer Gus Chehayeb said in an interview in Dubai, where the company has a research office. “There’s a lot more pain to come. We have not yet seen the bottom. If this was a basketball game, we’re just finishing the first quarter.” Oil’s more than 50 per cent plunge since June 2014 has forced Saudi Arabia and its neighbours, among the world’s biggest crude producers, to rein-in spending to keep budget deficits in check. In Turkey, political turmoil following a failed military coup in July is pressuring banks and tourism companies, while lenders in Kenya, Nigeria, Zambia and Angola are straining because of slower growth, weaker currencies and rising levels of unpaid loans. “The pace and severity of fiscal consolidation that has beset our region over the last two years has started what we believe is a secular change in corporate risk and expected returns,” said Chief Executive Officer Ahmad Alanani, who co-founded Houston-based Sancta Capital with Chehayeb in April 2014. “The Middle East and Africa offers one of the most mispriced investment environments in the world.” Saudi firms The value of Saudi Arabian companies is “starting to make sense” after two years of low oil prices and “vicious austerity,” Alanani said in the same interview. Sancta Capital is focusing on listed equities that can benefit from a potential recovery in credit conditions and is working with local companies looking for different ways of funding working capital needs. Distressed securities are the
– Bloomberg file picture
bank debt, trade claims or corporate bonds of companies or government entities that are experiencing financial or operational difficulty, default, or are bankrupt. In the United Arab Emirates, which was at the heart of the Gulf region’s 2008 downturn, Sancta Capital is seeing a “good flow of bank debt” as lenders look for ways to deal with stress on their loan books, especially with the planned introduction of new financial reporting standards, said Chehayeb. During the 2008 slump, several government entities such as Dubai World were forced to restructure debt after property prices and asset values tumbled in the Gulf business hub and credit markets froze. In the current cycle, local banks and companies are feeling the brunt of the shock, rather than government firms, said Alanani. Market-beating returns “On one hand, local banks are having to finance the ballooning budget deficits of local governments, while on the other, their asset quality is coming under pressure as the business models and cost structures of local companies are being shaken by the wave of austerity that has gripped the region,” he said. “For local corporates, it’s proving near impossible to compete for funding with the government, which is exacerbating their troubles.” — Bloomberg News