Ukraine provides a Debt Restructuring Case Study

Ukraine provides a Debt Restructuring Case Study

Newspaper are hailing Ukraine Debt Restructuring as a win-win  deal and leaders across the developed nations and international organisations are praising Ukraine finance minister Natalia Yaresko about her tenacity and determination which made this deal possible.

Some of the key highlights of the deal:

20% Principal haircut: Lenders accept to waive of 20% of Ukraine’s sovereign debt held amounting to ~US$3.6bn which would reduce debt burden  from US$19.3bn to c.US$15.5bn. 

Raised rate of interest: Coupon will be 7.75% up from the current c.7.2% levels which will marginally reduced annual interest payment from US$1.4bn to US$1.2bn

Loan Tenure Extended: Loss of interest and haircut partially offset through extention of  debt maturities which have been extended to the period 2019-2027, compared with 2015-2023 earlier. 

Value recovery instrument: This is a great instrument which would enable Ukraine to bear the pain in bad times i.e. if economy had to not live upto expectation. This is a win-win in a sense that even lenders would have a ready mechanism to save their books from losses and a deadlock in case the country is not in a position to pay back annual commitments. Following are the conditions -

• No payments if real GDP growth is below 3%
• 15% of the value of the GDP growth between 3-4% 
• 40% of the value of the GDP growth above 4%
• Total payments capped at 1% of GDP from 2021 until 2025
• No payments unless nominal GDP is higher than US$125.4bn  

Time will tell how good these negotiations stand. But as of now the deal really appears to be win-win!

It is necessary to note that lenders are willing to accept the haircut as high as 20% and also allow flexibility in terms of repayment in case growth is lower than required to the full annual commitments. This would ease the pressure on countries and would allow a real chance of recovery along with deleveraging. Amen!

Worms Digest 17 September 2014

Good Morning !!!

Sensex: 26492 (-1.21%), Nifty: 7932 (-1.36%)

Dow: 17132 (+0.59%), S&P: 1999 (+0.75%)

Nikkei: 15930 (+0.12%)\

The Old Adage Comes True : "In national elections people vote for the Party while in local election people vote for the Candidate"

The earlier the warning the better it is. Alarms bells have rung loud and clear for the national ruling party of India that after winning with absolute majority at the Center they cant afford to rest their laurels. They had to face a humiliating defeat in Uttar Pradesh by-polls with Samajwadi Party & others wining 8 out of 11 seats. The Congress had a morale boosting wins with 3 in Gujarat which is local base of prime minister Narendra Modi. Rajasthan was the most shocking with congress wining 3 seats and BJP diminished to 1 seat.

The Indian stock market latched on to the excuse and slipped 1.4% in last 4 hours. The broader market saw even more blood with large caps declining anywhere between 4-7% and mid-caps hitting lower circuits. 

Hope, the by-elections results help shed any over-confidence and lethargy set in post emphatic victory and instill a sense of urgency to bring in much awaited reforms. 

Action Agenda : Use the correction to build positions in equity markets. 

SBI has cut deposit rates in 1-3 year bracket by 25bps

Justifying the move with downward trending inflation, India's largest commercial bank has cut deposit rates by 25bps to 8.75% for term deposits on 1-3 year term. Though the real reason could be an act of correcting ALM mismatches or desire to lower costs sighting ALM surpluses or as a lead bank providing direction to market, more importantly it adds to our confidence of yesterdays stance - "Bet Against the Central Bank" http://newsthatmovesindia.blogspot.in/2014/09/worms-digest-16-september-2014.html

M&M eyeing for Peugeot's Scooter Business 

New reports suggest that M&M is in advanced talks to acquire Peugeot's scooter business. The fact that M&M didn't out right deny the news means certainly talks are on but whether the same fructifies or not remains to be seen. 

The transaction could be a win-win for both the parties as Peugeot gets rid of loss making scooter business freeing up resources to focus on its strengthening car business. It will also help Peugeot pare down Euro1.1bn debt on the books. 

Mahindras, on the other hand, will gain access to a credible brand, differentiated product portfolio with distinct designs and latest world-class technology in scooter market. 

Though its strategic for Mahindra 2-wheeler business, as of now it does not materially impact or change company profitability. With strong balance sheet of Mahindra acquisition price wont be burdensome for the company. 

However, the smarter investors would be keenly watching M&M's execution and strategy is 2-wheeler space which if failed could raise serious questions about capital allocation policies at the Company. This is the biggest hidden danger in this acquisition as many people believe M&M has no right to be in or win in 2-wheeler space. 

Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market.

Have a Great Day and Happy Investing !!!

 

 

Worms Digest 16 September 2014

Good Morning !!!

Sensex: 26816 (-0.9%), Nifty: 8048 (-.78%)

Dow: 17031 (+0.26%), S&P: 1984 (-0.07%)

Nikkei: 15897 (-0.32%)

WPI Inflation falls to 5 year low of 3.74%

Inflation is trending well below RBI expectations with WPI hitting a low of 3.74% for the month of August. RBI still continues to be cautious with a view that falling prices could be a temporary phenomenon, but it could well be Wrong!!!. 

There are 3 primary elements of inflation index - 

i) "food articles" named  primary articles (weight 20%) which includes stuff like fruits & vegetables, food grains, milk, eggs and chicken

ii) "fuel & power" (weight 15%) which includes items of transportation like diesel & petrol, electricity used for residential and commercial purpose and LPG, kerosene which are used for cooking foods.   

iii) "manufactured goods" (weight 65%)

Food articles are experiencing relatively lower level of inflation mainly due to base effect. The late recovery of monsoon deficit has helped improve sentiments and lower food prices. The high levels of reservoir should yield strong Rabi crops.

Crude Oil and natural gas prices are trending lower compared to last year and the current wisdom suggests that chances of sharp uptick from the current levels are unlikely.  

Manufactured goods prices are today essentially driven by cost pressures than demand pull. Given the low consumer sentiments and excess capacities ability and willingness of management to raise the prices of manufactured goods is limited. In fact, the gradual decline in global liquidity and outflows from commodities market suggest the commodities prices could remain suppressed at least for next 6-12 months. So there will be no cost pressures for companies to hike prices of manufactured goods. In fact, prices could come down to provide a boost to demand.

The only devil in the pack is turmoil in currency markets. Hopefully after the crash of 2013 when for the first time US Fed indicated withdrawal of QE, the market has gradually well priced in that risk and any acceleration on that front would be non-destructive for currencies. The fact that Raghuram Rajan is preparing war chest for any eventuality on that front is a cushioning factor.

In summary, if all goes well, India is well poised to see low to reasonable levels of inflation which is a great news for businesses. 

However, whether the same translates into interest rates cuts by RBI will be a function of how RBI governor perceives i) threat on currency front ii) change in view of 'temporary fall' in prices iii) surprise element which the bank wants to maintain for the market.

Action Agenda - Bet against the Central Bank. Go long G-sec and PSU Banking stocks.

Other Key News Bytes

• RIL re-enters the fuel stations business as diesel deregulation becomes more of a reality 
• Hindalco's 5 bauxite mines have been ordered shut by Jharkhand Government following Shah Commission's report on illegal mining 
• Tata Motors shares could see weakness as August JLR sales decline by 9.7% (though some of the decline could well be attributed to the phasing out of Freelander) 
• MCX has received conditional renewal of license from SEBI till September 2015. However it needs to meet condition of minimum networth of Rs.100crs in 3 months time in order to introduce new contracts. This is a confusing state of affairs since networth of MCX as per its reported accounts already stands at Rs.1160crs. However SEBI claims it to be just Rs.56crs. In any case, the resolution of the matter should not be a big issue. 
• Cognizant, in its biggest ever acquisition and to strengthen its healthcare business has acquired TriZetto for US$2.7bn in all cash deal. Cognizant expects US$1.5bn of revenue synergies from the combined entity and acquisition to be EPS-accretive in the first year itself.
• 
  

"In reality no one knows what market will do; trying to predict it is a waste of time and investing based on that prediction is a speculative undertaking."....Seth Klarman

Have a great Day!!! 

Hyundai undercuts to overtake Maruti in a bid to take the Pole Position

Hyndai Xcent launched at aggressive prices

Hyundai has launched its sub 4 meter sedan today starting at Rs.4.66lacs for petrol and Rs.5.56lacs for diesel version….the base petrol model cuts Maruti desire by Rs.20000 and Honda Amaze by Rs.33000.

The diesel is priced Rs.22000 cheaper than Dzire and Rs.41000 cheaper than Amaze.

It’s a very important segment clocking 18000-25000 per month.

Given the runaway success for Grand i10 on which Xcent is based this could be another successful model from Hyundai stable.

The petrol version also comes with AT option.

With Hyundai offering class leading features and premium appeal of Honda at Maruti prices they are now becoming very confident with publicly talking about the goal to overtake Maruti in India – certainly a threat in urban markets.

Worms Digest 28 January 2014

Good Morning !!!

Sensex: 20707 (-2.02%), Nifty: 6136 (-2.09%)

Dow: 15838 (-0.26%), S&P: 1782 (-0.49%)

Nikkei: 15006 (-2.51%)

Clarity emerges on Spectrum Usage Fees 

• Empowered Group of Minister came up with the new fee structure on spectrum charges clearing the clouds of uncertainty which prevailed over last few months. This is a clear positive in itself as clarity and stability of government policies is must for telecom operators to formulate their policies particularity pricing and bidding actions.  
• As per the new rules operators will have to pay a flat 5% fee for the new spectrum to  be auctioned in February 2014. 
• This is better than 6-8% fees which the incumbent telecom players - Bharti, Vodafone and Idea - would had to pay under the existing norms and that too on entire - old plus new - spectrum. 
• However, 5% rate is higher than the expectations of 3% rate for the entire spectrum which many of the market participants had expected and hence the telecom stocks seems to have taken beating in the market.
• Also, another negative for existing telecom players is spectrum fees for data by Mukesh Amabni's Reliance Jio has been kept unchanged at 1% which continues to provide unfair advantage to RIL group company.
• Though not entirely as per the expectations, we believe the clarity over the spectrum pricing is more important than the vague policies. The one obstacle is now out of the way and all eyjpouopijs are now set on Auction. We hope rationality prevails over bidding by incumbents as any aggression from their side is not only futile but will be damaging for their own. All the indications from Reliance Jio point that they are not interested in price war this time and hence any move to instigate them will only be counter productive for the incumbents. 

http://www.business-standard.com/article/economy-policy/govt-goes-against-trai-on-spectrum-charge-114012700268_1.html

http://www.thehindubusinessline.com/todays-paper/spectrum-charges-centre-takes-the-middle-path/article5624639.ece

http://www.business-standard.com/article/companies/we-hope-data-price-war-doesn-t-go-on-himanshu-kapania-114012701081_1.html

Worms Digest 13 September 2013

Good Morning !!!

Sensex: 19270 (1.53%), Nifty: 5680 (+1.56%)
Dow: 15301 (-0.17%), S&P: 1683 (-0.34%)
Nikkei: 14387 (-0.26%)

IIP for the month of July 2013 beats expectations : up 2.6% vs expectations of negative growth. 

Its a major uptick after the negative growth for the last 2 months. Also, IIP numbers for the month of June were revised positively from early reported decline of 2.2% to a decline of 1.8%.

The growth was driven by manufacturing and electricity output which were up 3% and 5.2% respectively. Mining continues to be negative - down 2.3% yoy.

Worms Digest 10 September 2013

Worms Digest 10 September 2013

Good Morning !!!

Sensex: 19270 (1.53%), Nifty: 5680 (+1.56%)

Dow: 15063 (+0.94%), S&P: 1672 (+1.00%)

Nikkei: 14356 (+1.06%)

TRAI recommends sharp cut in reserve prices for spectrum auction and also seeks to bring clarity on various contentious issues

• Seeks clear roadmap indicating quantum of sepctrum  which will be available in future along with timelines - a positive for incumbents as it will allow better decision making and cashflow planning
• No reservation of spectrum for Renewal Licensees (Refarming) in 900 or 1800 MHz bands - a  big negative for incumbents.
• Recommended reserve prices are almost 30-60% lower than the last auction carried on in March 2013.

• Read the entire policy at 
• Overall though refarming has not been done away it is not an incremental negative. In fact, the big positive is a genuine effort by the government to do away with the 'regulatory uncertainty' over the sector and the aggressive stance that TRAI (and effectively DoT) would take against CAG which was leading to policy paralysis.