Saturday, November 15, 2008

Financial Crisis in India

The storm of financial crisis hits India, for nearly a decade, companies in India have had a strong run of growth, pulled along by fast economic expansion and blessed with low inflation. World now is very different from what it used to be for the  10 years. There are some collateral damages which can happen.


There may be sharp decline in consumer spending on houses, cars and other consumer durables, following the sharp decline in lending to households, will cause a recession in the construction industry and also in  production of consumer durables.

 

Most of the loans on houses will default on their  payments and consumer loans, especially as house values will fall below the loan values.

 

Non Performing Assets (NPA's )  in the banking sector will increase as there will more write-off of bad housing loans and personal loans. These  losses to the banks will push  financial institutions into bankruptcy or forced mergers with stronger banks.

 

Then there will be retrenchment of lending even the smallest term loans, which banks and other institutions lend to each other for their  working capital. 

Wednesday, November 12, 2008

Largest Micro Finance Deal

In the largest microfinance deal in the world, Hyderabad based SKS Microfinance has raised Rs 366 crore or $75 million from private equity investors. This is fourth round of fund raising by SKS. Sandstone Capital, an India focused hedge fund with $1 billion capital under management, has led the deal, while the other investors in this round include SVB India Capital and Kismet Capital.

 

SKS has raised funds from Sequoia Capital, Vinod Khosla, Odyssey Capital, Silicon Valley Bank and others. Talking about the exit route to the investors, Akula said its likely to be through an IPO. But they have other options like mergers and acquisitions on the table. Also the investors are likely to get a return of 20%, CEO SKS Microfinance Vikram Akula said.

 

SKS Microfinance was started in 1998 and now has more than 3.3 million clients across the country. It plans to reach 8 million clients till March 2011. SKS Microfinance claims it has the lowest interest rates offered by MFIs across the country, which range between 25-30%. SKS added 400,000 new clients last month and and is now looking to further expand. The total equity capital of the comapny is now $135 million, and with this investment capital adequacy ratio has gone up from 17% to 30%.

 

Photo from: eweek.com

News from: VC Circle 

Tuesday, November 11, 2008

G20 leaders to meet on Financial Crisis

G 20 leaders will be meeting next weekend's at a summit (emergency) on how to reshape the global financial system and give greater importance to developing nations. A showdown appears to be brewing about whether broader groupings like the G20 should supplant the elite, rich-country G7 as the main forum governing the world economy.

France, which holds the rotating European Union presidency, is leading a drive for tough new regulations and oversight in financial markets.Many countries want to beef up the IMF and some want to give it a regulatory surveillance role.The United States, Britain, Canada and Australia are worried that too much regulation could restrain a free-market system and dim the prospects for economic growth.

There have also been questions as to how far such a summit would go since the host President is already on his way out, as he will handover power to Obama and aides close to Obama have disclosed that Obama would not be attending the controversial meeting.

Monday, November 10, 2008

Deal Failures: The Second Wave

In the past few weeks, the next generation of M&A failures has begun to take shape.

 

The first wave of failures consisted of the stream of private equity and strategic deals negotiated before August 2007. This next wave of failure comprises the deals negotiated after that time, deals largely struck in the spring and summer of 2008. This second wave of deals was negotiated with relatively full knowledge of the difficulties in the market and the problems with the pre-August 2007 private equity deal structure, particularly its optionality in the reverse termination form.

 

Nonetheless, like this first stream, many of these transactions are foundering on their termination mechanisms and the continued buyer optionality that buyers have been able to negotiate. Importantly, the troubles with JDA Software’s proposed deal for i2 Technologies that emerged Wednesday represents the second attempted renegotiation of a strategic deal with private-equity-like reverse termination fee provisions.

Steven M. Davidoff complete write up at :

 http://dealbook.blogs.nytimes.com/2008/11/06/deal-failures-the-second-wave/


Friday, November 7, 2008

India's share in global M&A less than 1%

The merger and acquisition (M&A) spree of corporate India seems to have hit a low, as India's share in the global M&A tally, which touched a whopping $3 trillion, is less than even one per cent.

Till September this year, corporate India has announced merger and acquisition deals worth $26.43 billion, which is around 0.8 per cent of the total global M&A kitty.

Commenting on the current market situation, KPMG Executive Director (Corporate Finance Group) Gaurav Khungar said: "The environment is plagued with conservatism and a wait-and-watch approach with absence of decision making or aggression... And questions on prospective bankruptcy risks are abound."

Khungar further said beyond the economic factors that have contributed to lack of credit for M&A or business operations, all economic advise in the media is providing guidance to companies to hold on to their cash positions.

Another report from global consultancy major Grant Thornton showed the total number of M&A deals during the first nine months of 2008 stands at 381, with an announced value of $26.43 billion. In the corresponding period a year ago there were around 527 deals amounting to $49.33 billion.

Market experts said that the crisis in financial markets is acting as a dampener for M&A deals. Although, valuations of companies have gone down, banks are cutting down their exposure to funding deals.

 

Courtesy : www.business-standard.com

 

Thursday, November 6, 2008

Time to Buy ? May be Yes

Cisco Systems Inc.  Chief Executive John Chambers said it was a good time to acquire small companies, although an uncertain economy meant it was important to maintain a strong cash position.

"Cash is king and queen and the royal family," he told Reuters in an interview on Wednesday, but added that the network equipment maker will use cash to acquire more shares and invest in small companies once the outlook on the economy becomes more clear.

"It is perfect now to be acquiring small companies because small companies have no exit strategy, the IPO market is dead, and the price of these small companies is very attractive at the present time and probably will remain so," he said.

 

http://www.reuters.com/article/smallBusinessNews/idUSTRE4A53IZ20081106

 

Wednesday, November 5, 2008

Who runs finance at Asia’s companies?

Who runs finance at Asia’s companies?  CFO Asia after 10 years have passed since they launched CFO Asia, thought it was time to ask. They conducted a reader survey that drew 327 responses. The survey shows that the region’s finance chiefs are predominantly accountants, but that over a third have MBAs. About 40 percent hope someday to move out of finance, either running their own business or else serving as boss of another company.

They are a hard-working group. The average CFO clocks 54 hours a week, and nearly two-thirds don’t use up their vacation days each year. But job satisfaction is high and most would choose a career in finance if they could do it all again.

As for the finance function, it has made dramatic progress over the past five years. Finance employees spend more time on strategic activities today and are far more involved in what their business colleagues would consider “value-added” work, such as analyzing channel profitability or helping with pricing decisions.


survey at: http://www.cfoasia.com/images/pic_0811/10th_survey.pdf