Business diary 2009

By Anil Satapathy & Abhishek Bharadwaj If it was a sad end to the 2008, it was an even tragic a beginning of the year 2009. With 2008 sub prime crisis expanding its size and swallowing many businesses and jobs throughout the world, there was hardly anyone who had celebrated the dawn of 2009. The year started with a serious jolt to the Indian industry with Satyam’s founder Ramalingam Raju admitting a massive accounting fraud amounting to more than Rs 7500 crore rupees. However, the UPA government, which rose to power, gave enough reasons for the market to cheer about. With a pro-reform Prime Minister at the helm and anti-market Left parties out of the government, the markets saluted the UPA-II government with single biggest rise in the Sensex on a Budget day. India’s economy also steadily rose over the year, though with a few concerns over inflation. China continued its phenomenon rise registering close to 9 percent growth in the third quarter. The world also bowed to the rise of two of these Asian giants and readily disbanded the G8 replacing it with G20. However, the year was a forgettable one for the Americans. The largest market in the world got an early jolt by a mammoth ponzi scheme run by former NASDAQ chairman Bernard Madoff. Job losses and unemployment continued to haunt the US throughout the year. However, towards the end it veered to a happy ending. Almost all countries have declared to be out of recession and are keeping their finger crossed for a much better 2010. World & recession US economy exited severe recession in the third quarter, posting the strongest growth in two years. The economy grew at 2.2% annual rate in the July-September period. In the first three months of this year, the GDP had contracted 6.4 percent, following a fall of 5.4 percent in the 2008 December quarter. It had shrunk 0.7 percent in the second quarter. Eurozone crisis: It was a year of contradictions for the 16-nation Eurozone. After a brief period of euphoria following official data confirmed that the Eurozone as a whole left recession behind with 0.4 percent growth in the third quarter, news started trickling about trouble in the Greece, Ireland and Austria. While Greece`s public deficit is likely to rise to 12.7 % of the economic output in 2009 -- far exceeding the Eurozone limit of 3 percent, Spain and Portugal are also facing scrutiny. Worries have been compounded by the growing difficulties in Austrian banks, which do extensive business in formerly communist Eastern Europe where the recession had been particularly severe. Iceland`s banking catastrophe dragged the country into recession in late 2008. Thousands of Icelanders lost their savings and jobs and the government later resigned amid popular anger. Angry protests also led to former central bank chief David Oddsson being replaced. The collapse of the banking sector drove Iceland to seek help from the International Monetary Fund (IMF), the lender of last resort for countries unable to pull themselves out of financial difficulty. It was the first western European country to do so since Britain in 1976.Britain, too, has its own worries. It entered its first recession since 1991 with an economic contraction of 1.5% in the final three months of 2008, following a 0.6% decline in the third quarter. According to the third quarter results it is the only major economy to be in recession. The French economy, the euro zone`s second-largest one, emerged from recession confounding expectations for a 0.3% decline. It showed an unexpected economic growth in the second quarter after four consecutive quarters of contraction. Germany exited recession in the second quarter despite a massive drop in inventories and restocking by firms. This could spur the economy to faster growth. Outside Eurozone Australia posted its first quarterly economic contraction in eight years in March, putting the country at risk of tumbling into recession. However, it avoided falling into recession after its economy grew by 0.4% in the first three months of 2009. South Korea`s economy grew at its fastest rate in 7-½ years in the third quarter, joining China and Singapore, which have also reported faster growth in Asia in the September quarter. Japan`s economy grew 0.6% in the three months to June, less than what the preliminary figures had shown, but confirming that the economy had crawled out of recession after a full year of sharp contraction. Brazil, Latin America`s largest economy, exited its short-lived recession as the second-quarter numbers showed a stronger-than-expected 1.9% return to growth after only two quarters of contraction. Russia`s economy put recession behind it with third quarter growth, as per data. Investors got another reason to chase the rouble to its strongest since December against the dollar. Singapore`s economy leapt out of recession, expanding in the second quarter at its fastest rate in nearly 6 years. The progress was due to a surge in biomedical production and construction. It was the first country in Asia to declare recession in Oct 2008. Hong Kong pulled out of its deepest recession since the Asian financial crisis in the second quarter, growing by a much faster-than-expected 3.3% rate from the previous quarter. Dubai crisis Dubai World, a state-run conglomerate of the Gulf Emirate, rocked global markets on November 25 when it asked creditors for an extension of six months for repayment of its debt. The $59-billion debt woes of the holding firm and its property unit, Nakheel, set alarm bells ringing across the global markets as many feared that it would lead to another credit crisis However, Dubai’s oil-rich neighbour Abu Dhabi came to its rescue on December 14 with a $10-billion aid package. The high flying Dragon: China will contribute more than half of the world GDP growth in 2009 and will continue to lead global growth in coming years, People`s Bank of China has recently said. The world`s third-largest but fastest growing economy is expected to expand by at least 8 percent this year. China’s GDP expanded 7.7 percent on year in the first nine months of 2009; and according to the Asian Development Bank, will grow 8.% in 2009 and 8.9 % in 2010. In November, exports slid by 1.2 percent - the smallest decline since they collapsed in November 2008. However, Imports jumped, rising 26.7 percent over the same month last year and narrowing the trade surplus to $19.9 billion in November from $24 billion in October. China is contributing more to global growth than either the US, the Eurozone or Japan and its surging imports have limited the slide in global trade, according to the World Bank. The phenomenonal growth not came without any protest. The biggest trading partner of the country, the US, has expressed its concern about the undervalued yuan, which helped Beijing gain advantage in exports. China had announced a whopping $586 billion stimulus package in 2008 to boost the economy hit by the global slowdown. Meanwhile, China has overtaken the US as the world`s biggest market for automobiles. More than 12.7 million cars and trucks were sold in China this year - up 44% from the previous year and surpassing the 10.3 million forecast in the US, according to JD Power and Associates.India beats the recession heat Following the positive data and rise in the domestic demand, the government is ready to withdraw its stimulus packages to the economy. The July-September quarter GDP data showed the 7.9% growth that beat all the expectations. The Infrastructure sector also showed steady growth with 3.5% growth in quarter two and the half yearly growth was put at 4.7% as against 3.3% last year. Infrastructure, which accounts for one-fourth of the economy, is vital for the economic growth to sustain. Indian economy largely depends upon domestic demand and the vehicle sales, both passenger and commercial, recorded historical numbers. Stocks markets go bullish The stock markets witnessed a historic day when both the indices, Bombay Stock Exchange’s (BSE) Sensex and National Socks Exchange (NSE) Nifty, breached the upper circuit twice (by recording the jump to the tune of 10%) on 18th May. The buoyancy among the investors, as a positive reaction to UPA’s return to power at Centre, forced the closure of the market but not before Sensex gained a whopping over-2,000 points in the early hours of the trade, while Nifty recorded a rise of over 600 points. However, Sensex suffered the biggest fall ever on any Budget day and BSE plunged over 869 points on concerns over the high fiscal deficit set by the Union Budget on July 6th. The stock markets regained its position when it reclaimed the 17,000 level, its 17-month high on Dec 3.The market regulator of India, Securities and Exchange Board of India (SEBI), has also proposed extension of trading hours in both the stock exchanges and the trading of mutual funds. National Stock Exchange (NSE) in December achieved another feat by launching its online trading platform for mutual funds with a tie up with UTI Asset Management Company (AMC). The Foreign Direct Investment also reached Rs 74,000 crore for the half year of 2009. The war of the Brothers The Ambani brothers, not on friendly terms after they split, were locked in a bitter battle over gas from RIL’s KG gas basin. The dispute started with Bombay High court asking Mukesh Ambani-promoted Reliance Industries (RIL) to sell natural gas to Reliance Natural Resources (RNRL), an Anil Ambani group company, at $2.34 per million British thermal units (mBtu), which is 44% lower than the price fixed by the government in 2007. RNRL moved Supreme Court for speedy implementation of the High Court order by RIL. However, the case has dragged on since then. The case saw one of the most intense media campaign by both parties arguing their cases. RNRL has gone one step ahead by accusing the Petroleum Ministry led by Murli Deora of siding with RIL. With government’s position unclear, the case has also cast a shadow on NELP VIII. Crippled Wings 2009 was easily one of the worst years for Indian airlines. Major airlines lost money by the fistful, pilots went on strikes and the balance sheets – and the faces of some CEOs – went red. Jet Airways: Jet had a harrowing time starting September 8, 2009. Nearly 400 Jet Airways pilots went on collective ‘sick leave’ protesting against the dismissal of two senior pilots by the airline management. Though the strike ended 5 days later, it led to the cancellation of 800 flights, and acute misery for stranded passengers. According to reports, the strike cost the airline some USD 8 million. Jet Airways incurred a total loss of Rs 1,032 crore in 2008-09. Kingfisher: The Vijay Mallya-led Kingfisher Airlines led the chart of the loss-making carriers by reporting a massive Rs 1,602 crore in losses in 2008-09 Air India: The cash-strapped national carrier Air India incurred a loss of Rs 2,226.16 crore during 2007-08 and Rs 5,548 crore loss during the year 2008-09 In the last week of September, about 200 Air India pilots had reported ‘sick’ in protest against a 50% cut in their productivity linked incentives (PLI) and non-payment of their three months’ flying allowance, resulting in a loss of Rs 100 crore (Rs 1 billion). IndiGo & Paramount:Low-cost operators - IndiGo and Paramount Airways - managed to register profit during the last fiscal 2008-09 despite a negative growth of 4.66% in the aviation sector in 2008. The balance sheet of IndiGo was in the green with a profit of Rs 82.16 crore, while the Chennai based Paramount had a profit of Rs 7.26 crore. But other budget airlines - SpiceJet and GoAir- suffered losses of Rs 352.50 crore and Rs 22.55 crore respectively.The Satyam saga unfolds On January 7, 2009, Satyam’s ex-chairman Ramalingam Raju wrote a letter to Satyam Board divulging a massive accounting fraud amounting to more than Rs 7500 crore. The CBI, which is investigating the case, recently said that the scam may well be over Rs 14,000 crore and suspected that Raju might have diverted money to other businesses. SFIO was also investigating the case. CBI has meanwhile filed its 65,000-page chargesheet. The bureau registered a case against the Rajus and booked them for criminal conspiracy, criminal breach of trust, cheating, forgery and falsification of accounts. The chargesheet was filed against nine of the main accused in the case including B Ramalinga Raju, his brother B Rama Raju, former chief financial officer V Srinivas and sacked auditors of PricewaterHouse, S Gopalkrishnan and Talluri Srinivas. G-20 creates giant waves In a historic development, the Summit at Pittsburgh established G-20 – which has the old G-8 and the BRIC block – as the premier global economic forum reflecting a new world economic order. The draft communiqué released after the summit also pledged to develop exit plans, but not to withdraw the stimulus package until economic recovery was assured. Countries like India had been demanding that the stimulus plan, which was announced in the London Summit, should not be wound up. Madoff scam hits Wall Street Former NASDAQ chairman, Bernard Madoff, who was arrested in USD 50 billion-investment scam called ‘Ponzi scheme’ in December 2008, pleaded guilty in US court and was sent to jail in April. He was later sentenced to “150 years” in prison for his crimes which the judge termed as “extraordinary evil”. US Securities Exchange Commission (SEC) banned him from investment business. The scam is said to be the biggest in the history by an individual and is supposed to be to the tune of USD 64 billion. He later admitted that he has left a “legacy of shame” for his family. Madoff’s items were later auctioned. Gold shatters price record The price of gold rose a tremendous 55% over the past year to reach a record high of USD 1,226 an ounce on December 03. Gold has seen a bull run over the year on the back of inflationary fears and increasing moves by central banks to diversify assets away from the dollar, which has weakened against the Euro. A falling greenback makes dollar-denominated gold cheaper for buyers holding stronger currencies, pushing up demand for the metal. Dubai crisis, falling oil prices coupled with the increasing desire of China to buy gold has contributed to the cause.Big fat mergers and acquisitions Despite the recession, the big companies continued to merge and file bids to acquire other business units. Some did it to survive, whereas some did it to expand. Here is the list some of the big mergers and acquisitions of this year: Microsoft-Yahoo deal: Microsoft and Yahoo signed a 10-year search deal making it number 2 in the online market next only to Google. The deal allows Microsoft to get data of Yahoo users and also its search business, though Yahoo would get 88% of the revenue. Tech Mahindra-Satyam deal: Tech Mahindra acquired stake in Satyam for Rs 58/share paying Rs 1,757 crore in cash for the 31% stake. The new formed entity was rechristened Mahindra Satyam. RIL-RPL merger: The country’s most valued company, Mukesh Ambani-led Reliance Industries Limited (RIL), decided to merge with Reliance Petroleum Limited (RPL) with a share swap in the ratio 1: 16. RIL also bought Chevron’s stake in RPL as well as taking its stake in RPL to 75.4%. Oracle-Sun Microsystems: Oracle purchased struggling Sun Microsystems. The deal was valued at USD 7.4 billion. However, the deal was still pending with the European regulators. Dell-Perot Systems: Dell announced its bid to buy Perot Systems. The deal worth USD 3.9 billion is expected to increase Dell’s share in the hardware market. Cadbury-Hershey-Kraft deal: British confectionery group Cadbury got bids from Kraft foods and Hershey Co. Hershey had made a USD 17 billion bid for Cadbury, while Kraft bid 10.1 billion pounds or USD 16.5 billion in cash and shares. Cadbury is yet to decide upon the bids though. Cadbury eventually rejected Kraft’s bid. Other acquisitions: Pfizer and Wyeth entered a definitive merger agreement under which Pfizer would acquire Wyeth in a cash-and-stock transaction currently valued at $50.19 per share - a total of approximately $68 billion. Suzuki sold stake to Volkswagen for $2.5 bn Panasonic nabbed 50.2% of Sanyo for $4.6 bn Deal that didn’t happen Bharti Airtel, India’s largest mobile operator and MTN, Africa’s biggest telecom firm, called off four months of talks on October 31 over South Africa’s insistence that the shares list on the Johannesburg stock exchange — a precondition that could not be met because Indian regulations did not allow it. Interesting business bits A Total 133 US banks failed till Dec 13 2009, at an average of 11 per month compared with 25 in 2008-09. It is the maximum in 18 years. In the wake of the savings and loan crisis, a whopping 181 banks were shuttered in 1992. US unemployment rate climbed to 10.2% in October – a 26-year high. Australia was the only country that avoided falling into recession technically after its economy grew by 0.4% in the first three months of 2009. Twitter is the most used word in 2009. Apart from that Stimulus (4th), Deficit (7th), Bonus (12th), Unemployed (13th), Foreclosure (14th), a survey of Global Language Monitor reported. In terms of price tags, 2009 would perhaps offer the widest range in the car segment starting from Nano`s Rs 1.25 lakh (ex-showroom) to Porsche`s super-premium Panamera (up to Rs 2.05 crore) and Rolls Royce`s Ghost tagged at Rs 2.5 crore.