We reiterate our overweight call on Indian equities. Our December Austrian Stress Indicator update suggested that the business cycle was still stuck but the economy is gathering momentum. Fiscal policy has turned expansionary and will support consumption, particularly rural spending. Monetary conditions are easing and we expect the next move in policy rates to be down. The private investment cycle should be turning up by the end of the year. Strengthening economic activity together with an improvement in the current account balance should also underpin a recovery in the rupee.
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
The Indian Union Budget FY20 announced last week in the run-up to General Elections in May 2019 was without a doubt, a populist budget. It has directly touched the two key vote banks in India i.e. Middle Class and the Farmers. While a welfare announcement for farmers was expected due to significant distress in the rural hinterland, the tax sops given to the middle class was an unexpected surprise to take care of a growing disenchantment of this particular section considered to be a strong supporter of the ruling party.
Within acceptable fiscal imprudence
Despite being a populist budget with a slew of welfare handouts, the Government continued its commitment on fiscal prudence as the slippages are marginal. Even the assumptions in the budget don’t seem very aggressive albeit some of them might be difficult to achieve.
Consumption boost amid flagging economic growth
We believe that the income support scheme to the farmers and the tax sops to the middle class may eventually drive consumption and that may also benefit the government through indirect taxes. However, on the flip side these welfare schemes have come at the cost of capital expenditure that may derail the high growth that was witnessed in the manufacturing sector in recent times.
Our verdict: A one-off
The Modi government over the last four odd years has implemented and introduced a number of programs, interventions which we believe will go a long way in boosting the productivity of the Indian economy structurally. Notable ones were in health, infrastructure, financial inclusion, pension and social security. Since all these measures are more long term in nature and might not have an immediate impact on the electorate, this interim budget is a departure in a sense, aimed to enhance the government’s chance of a 2nd term. Therefore, we think this budget is a one-off event and believe that this government’s focus on productivity enhancements and structural reforms may continue going forward if re-elected. As it is, all the fiscal assumptions will be revisited in July, but the current estimates we believe are not too far off the mark.
Will the voter be enthused, that’s anybody’s guess.
We chose to study Infrastructure Leasing & Financial Services Ltd (ILFS)’s default case. The company is engaged in infrastructure development and financing activities in India. Since the start of June 2018, the company has defaulted on a series of payments, resulting in rating downgrades. More recently, in January 2019, ILFS’ affiliated company Jharkhand Road Projects Implementation Company failed to pay INR760m due to its lenders. This resulted in CRISIL downgrading the bonds to D, which amounts to junk status. ILFS is one of the most important companies in the Indian infrastructure space and this default indicates signs of worry for investors.
US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach. That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
We chose to study Infrastructure Leasing & Financial Services Ltd (ILFS)’s default case. The company is engaged in infrastructure development and financing activities in India. Since the start of June 2018, the company has defaulted on a series of payments, resulting in rating downgrades. More recently, in January 2019, ILFS’ affiliated company Jharkhand Road Projects Implementation Company failed to pay INR760m due to its lenders. This resulted in CRISIL downgrading the bonds to D, which amounts to junk status. ILFS is one of the most important companies in the Indian infrastructure space and this default indicates signs of worry for investors.
US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach. That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
The budget 2019 was indeed a tax-payers budget in which the main focus, of course, was on the lower and middle-class consumers. Out of all the tax proposals, the limelight was on the keen real estate sector in which there were substantial amendments made which in turn will act as a Santa to troubled Real Estate sector especially for the companies who are into the business of construction of affordable housing and low to mid-income housing.
The press statement issued by ICICI Bank based on the enquiry report headed by Justice (Retd.) Srikrishna to investigate the allegations against Chanda Kochhar appears deliberately confusing and convoluted. While it states that Chanda Kochhar was in violation of the bank’s Code of Conduct, on the more serious charge of whether her conduct violated Indian laws, it is surprisingly vague. The media highlighted the anomaly that the ICICI Bank board first absolved Kochhar, and the same board now found her guilty of violating its internal code of conduct. Media outlets portrayed the punishment sought by ICICI Bank against its former CEO (demanding a ‘claw back’ of all the bonuses and stock options given to her during her tenure as CEO) as stringent.
Although, in monetary terms, the penalty may be substantial, it is insignificant when compared with jail time for a possible criminal offence. From the press statement of ICICI Bank, it would appear that the Srikrishna report falls far short of the First Information Report (FIR) filed by the Central Bureau of Investigation (CBI); the latter charged her with the “suspected offence of criminal conspiracy, cheating, public servant taking illegal gratification/undue advantage, criminal misconduct of public servant and abuse of official position by public servant.”
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Earnings have been announced for Intel, Samsung, SK hynix, and Western Digital, and the memory business is clearly undermining all of these companies’ earnings. In this Insight I review each of the companies to show where they are, and will explain what the future holds for them as today’s oversupply unfolds.
India’s finance minister, Piyush Goyal (standing in for Arun Jaitley, who was hospitalised for cancer treatment just 8 days ago) delivered a spectacular interim Budget — sustaining fiscal prudence while selectively providing rational, market-oriented support to farmers, the middle-class and workers in the unorganised sector. Unlike the Congress party’s dole/hand-out schemes (such as the 2009 and Dec2018 farm-loan waivers) which act as a disincentive to work, the BJP’s are carefully-designed to provide supplemental income while still rewarding those actually working or making timely repayments of loans.
The government’s net market borrowing in the fiscal year-to-date (April-November 2018) was down 21% YoY — helped by 16.7% YoY growth in corporate tax and 16.1% YoY increase in income tax revenue. Given that CPI inflation has moderated sharply to 2.2% YoY in December 2018 (and 2.3% YoY the previous month), there is now scope for the RBI to undo last year’s policy error and cut the policy rate by 50bp. This could be spread out over two MPC meetings (although we think it would be better to do it in one move next week). The spur to growth will be substantial, enabling real GDP to accelerate to 8% YoY growth in FY2019/20.
The most transformative step, however, entails a pension scheme for the “unorganised sector” (where workers currently have virtually no rights whatsoever, in contrast with the gold-plated safeguards available to organised-sector workers, which act as a deterrent to enhanced organised-sector employment). In order to obtain a future pension of Rs3000 per month, unorganised-sector workers will be required to contribute Rs100 monthly during their working years. (That it is contribution-based and not a hand-out is another positive). By thus self-identifying themselves, at least 100 million unorganised-sector workers will be better counted. Eventually, the vast gulf in safeguards/protections between organised and unorganised-sector workers can begin to be bridged if the latter can be identified. In bridging that vast gulf lies the prospect of a much more flexible labour market in future. Through universal health insurance, universal access to bank accounts, universal sanitation, and free access to clean cooking gas for rural women, this government has provided a comprehensive basis for civilised living that half of India previously lacked. When combined with the GST, insolvency & bankruptcy code, and a flexible labour market, the groundwork has been laid for India to be propelled toward average annual real GDP growth of 10% over the next five years. With interest rates set to decline, and growth set to strengthen, we recommend staying Overweight Indian equities.
The NDA Government presented its 5th and final budget before they face elections in a few months’ time. This budget should have been a non-event due to the long followed tradition in which outgoing governments do not present a proper budget but only present a short vote-on-account (which essentially is just taking approval for routine government expenditure till the time the new government is in place). But it was known this would not be a non-event given the political scenario and the media was full of rumours of what the government may or may not announce in the budget. But we were looking for just 2 things in the budget: first, whether the government will take a decisive populist turn and second while the government will meet the fiscal math, are the assumptions underlying those credible. And sadly, the answer to the first question was a yes and to the second question a no. But perversely, this will not matter, at least in the short-run due to the fact that full fledged implementation in a short-period is not possible and secondly, by the time the full year fiscal deficit numbers are out, elections would be over and focus would shift to the new government and its budget.
The past year has all been about dollar strength. That is an accepted wisdom. But the truth of the matter is that the dollar averaged 93.6 on the DXY in 2018 (3 January 2018 to 31 December 2018) and, as we write, stands at 95.5. From 1 January 2015 to 1 July 2017 the DXY averaged 97.2. The dollar is not strong, even by recent history standards. Moreover, it is no longer as important as it once was in policy making terms – and neither is the Federal Reserve.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
The budget 2019 was indeed a tax-payers budget in which the main focus, of course, was on the lower and middle-class consumers. Out of all the tax proposals, the limelight was on the keen real estate sector in which there were substantial amendments made which in turn will act as a Santa to troubled Real Estate sector especially for the companies who are into the business of construction of affordable housing and low to mid-income housing.
The press statement issued by ICICI Bank based on the enquiry report headed by Justice (Retd.) Srikrishna to investigate the allegations against Chanda Kochhar appears deliberately confusing and convoluted. While it states that Chanda Kochhar was in violation of the bank’s Code of Conduct, on the more serious charge of whether her conduct violated Indian laws, it is surprisingly vague. The media highlighted the anomaly that the ICICI Bank board first absolved Kochhar, and the same board now found her guilty of violating its internal code of conduct. Media outlets portrayed the punishment sought by ICICI Bank against its former CEO (demanding a ‘claw back’ of all the bonuses and stock options given to her during her tenure as CEO) as stringent.
Although, in monetary terms, the penalty may be substantial, it is insignificant when compared with jail time for a possible criminal offence. From the press statement of ICICI Bank, it would appear that the Srikrishna report falls far short of the First Information Report (FIR) filed by the Central Bureau of Investigation (CBI); the latter charged her with the “suspected offence of criminal conspiracy, cheating, public servant taking illegal gratification/undue advantage, criminal misconduct of public servant and abuse of official position by public servant.”
Asian LNG spot prices have dropped for a short time below the UK NBP gas price, reversing the established trend that sees Asian LNG offering a premium to the European LNG price benchmarks. This note takes a look at the latest trends in the LNG markets and the renewed plans unveiled by Qatar to challenge its competitors, in particular, those from the US.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Happy Lunar New Year to everyone from Aequitas Research!
It has been a fairly quiet week leading up to Chinese New Year but it is not stopping Maoyan Entertainment (1896 HK) from listing on Monday. The IPO was priced at the bottom end of its offering range. The last we checked, it traded up 3% in the grey market on Friday. Ke Yan, CFA, FRM will follow up with a short note of his thoughts on post-IPO trading dynamics and bookbuild subscription levels.
Other updates on IPO in Hong Kong include Sinochem Energy allowing its IPO application to lapse while Koolearn (1373356D HK) and Shangde Qizhi Education re-filed for IPO. Edvantage, another new education IPO (and likely to be borderline US$100m deal size) filed for Hong Kong listing this week as well.
China Tower (788 HK)‘s lock-up will be expiring on the 8th of February and Ke Yan, CFA, FRM mentioned in his insight that any potential placement will be a good opportunity to accumulate the stock. Placements from cornerstone investors will likely be a liquidity event.
In India, Chalet Hotels Limited (CHALET IN) closed its bookbuild with a tepid overall demand of 1.57x. The silver lining for the IPO is that the institutional tranche saw a healthy 4.6x demand, similar to that of Lemon Tree Hotels (LEMONTRE IN) in terms of weak overall but strong institutional demand, which ended up performing well in its IPO.
Other upcoming India IPOs include Mazagon Dock Shipbuilders Ltd (9155507Z IN) and Embassy REIT which were said to be seeking listing towards the end of February. Sterling and Wilson is also looking to file its INR50bn IPO with the Sebi soon.
In Japan, Wingarc1st announced its IPO bookbuild to start on the 25th of February and will be listing in March. It is estimated to be raising about US$380m.
Accuracy Rate:
Our overall accuracy rate is 72% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Edvantage Group (Hong Kong, ~US$100m)
Koolearn (Hong Kong, re-filed)
Shangde Qizhi Education Group (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
India’s finance minister, Piyush Goyal (standing in for Arun Jaitley, who was hospitalised for cancer treatment just 8 days ago) delivered a spectacular interim Budget — sustaining fiscal prudence while selectively providing rational, market-oriented support to farmers, the middle-class and workers in the unorganised sector. Unlike the Congress party’s dole/hand-out schemes (such as the 2009 and Dec2018 farm-loan waivers) which act as a disincentive to work, the BJP’s are carefully-designed to provide supplemental income while still rewarding those actually working or making timely repayments of loans.
The government’s net market borrowing in the fiscal year-to-date (April-November 2018) was down 21% YoY — helped by 16.7% YoY growth in corporate tax and 16.1% YoY increase in income tax revenue. Given that CPI inflation has moderated sharply to 2.2% YoY in December 2018 (and 2.3% YoY the previous month), there is now scope for the RBI to undo last year’s policy error and cut the policy rate by 50bp. This could be spread out over two MPC meetings (although we think it would be better to do it in one move next week). The spur to growth will be substantial, enabling real GDP to accelerate to 8% YoY growth in FY2019/20.
The most transformative step, however, entails a pension scheme for the “unorganised sector” (where workers currently have virtually no rights whatsoever, in contrast with the gold-plated safeguards available to organised-sector workers, which act as a deterrent to enhanced organised-sector employment). In order to obtain a future pension of Rs3000 per month, unorganised-sector workers will be required to contribute Rs100 monthly during their working years. (That it is contribution-based and not a hand-out is another positive). By thus self-identifying themselves, at least 100 million unorganised-sector workers will be better counted. Eventually, the vast gulf in safeguards/protections between organised and unorganised-sector workers can begin to be bridged if the latter can be identified. In bridging that vast gulf lies the prospect of a much more flexible labour market in future. Through universal health insurance, universal access to bank accounts, universal sanitation, and free access to clean cooking gas for rural women, this government has provided a comprehensive basis for civilised living that half of India previously lacked. When combined with the GST, insolvency & bankruptcy code, and a flexible labour market, the groundwork has been laid for India to be propelled toward average annual real GDP growth of 10% over the next five years. With interest rates set to decline, and growth set to strengthen, we recommend staying Overweight Indian equities.
The NDA Government presented its 5th and final budget before they face elections in a few months’ time. This budget should have been a non-event due to the long followed tradition in which outgoing governments do not present a proper budget but only present a short vote-on-account (which essentially is just taking approval for routine government expenditure till the time the new government is in place). But it was known this would not be a non-event given the political scenario and the media was full of rumours of what the government may or may not announce in the budget. But we were looking for just 2 things in the budget: first, whether the government will take a decisive populist turn and second while the government will meet the fiscal math, are the assumptions underlying those credible. And sadly, the answer to the first question was a yes and to the second question a no. But perversely, this will not matter, at least in the short-run due to the fact that full fledged implementation in a short-period is not possible and secondly, by the time the full year fiscal deficit numbers are out, elections would be over and focus would shift to the new government and its budget.
The past year has all been about dollar strength. That is an accepted wisdom. But the truth of the matter is that the dollar averaged 93.6 on the DXY in 2018 (3 January 2018 to 31 December 2018) and, as we write, stands at 95.5. From 1 January 2015 to 1 July 2017 the DXY averaged 97.2. The dollar is not strong, even by recent history standards. Moreover, it is no longer as important as it once was in policy making terms – and neither is the Federal Reserve.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
The press statement issued by ICICI Bank based on the enquiry report headed by Justice (Retd.) Srikrishna to investigate the allegations against Chanda Kochhar appears deliberately confusing and convoluted. While it states that Chanda Kochhar was in violation of the bank’s Code of Conduct, on the more serious charge of whether her conduct violated Indian laws, it is surprisingly vague. The media highlighted the anomaly that the ICICI Bank board first absolved Kochhar, and the same board now found her guilty of violating its internal code of conduct. Media outlets portrayed the punishment sought by ICICI Bank against its former CEO (demanding a ‘claw back’ of all the bonuses and stock options given to her during her tenure as CEO) as stringent.
Although, in monetary terms, the penalty may be substantial, it is insignificant when compared with jail time for a possible criminal offence. From the press statement of ICICI Bank, it would appear that the Srikrishna report falls far short of the First Information Report (FIR) filed by the Central Bureau of Investigation (CBI); the latter charged her with the “suspected offence of criminal conspiracy, cheating, public servant taking illegal gratification/undue advantage, criminal misconduct of public servant and abuse of official position by public servant.”
Asian LNG spot prices have dropped for a short time below the UK NBP gas price, reversing the established trend that sees Asian LNG offering a premium to the European LNG price benchmarks. This note takes a look at the latest trends in the LNG markets and the renewed plans unveiled by Qatar to challenge its competitors, in particular, those from the US.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Happy Lunar New Year to everyone from Aequitas Research!
It has been a fairly quiet week leading up to Chinese New Year but it is not stopping Maoyan Entertainment (1896 HK) from listing on Monday. The IPO was priced at the bottom end of its offering range. The last we checked, it traded up 3% in the grey market on Friday. Ke Yan, CFA, FRM will follow up with a short note of his thoughts on post-IPO trading dynamics and bookbuild subscription levels.
Other updates on IPO in Hong Kong include Sinochem Energy allowing its IPO application to lapse while Koolearn (1373356D HK) and Shangde Qizhi Education re-filed for IPO. Edvantage, another new education IPO (and likely to be borderline US$100m deal size) filed for Hong Kong listing this week as well.
China Tower (788 HK)‘s lock-up will be expiring on the 8th of February and Ke Yan, CFA, FRM mentioned in his insight that any potential placement will be a good opportunity to accumulate the stock. Placements from cornerstone investors will likely be a liquidity event.
In India, Chalet Hotels Limited (CHALET IN) closed its bookbuild with a tepid overall demand of 1.57x. The silver lining for the IPO is that the institutional tranche saw a healthy 4.6x demand, similar to that of Lemon Tree Hotels (LEMONTRE IN) in terms of weak overall but strong institutional demand, which ended up performing well in its IPO.
Other upcoming India IPOs include Mazagon Dock Shipbuilders Ltd (9155507Z IN) and Embassy REIT which were said to be seeking listing towards the end of February. Sterling and Wilson is also looking to file its INR50bn IPO with the Sebi soon.
In Japan, Wingarc1st announced its IPO bookbuild to start on the 25th of February and will be listing in March. It is estimated to be raising about US$380m.
Accuracy Rate:
Our overall accuracy rate is 72% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Edvantage Group (Hong Kong, ~US$100m)
Koolearn (Hong Kong, re-filed)
Shangde Qizhi Education Group (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Earnings have been announced for Intel, Samsung, SK hynix, and Western Digital, and the memory business is clearly undermining all of these companies’ earnings. In this Insight I review each of the companies to show where they are, and will explain what the future holds for them as today’s oversupply unfolds.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Asian LNG spot prices have dropped for a short time below the UK NBP gas price, reversing the established trend that sees Asian LNG offering a premium to the European LNG price benchmarks. This note takes a look at the latest trends in the LNG markets and the renewed plans unveiled by Qatar to challenge its competitors, in particular, those from the US.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Happy Lunar New Year to everyone from Aequitas Research!
It has been a fairly quiet week leading up to Chinese New Year but it is not stopping Maoyan Entertainment (1896 HK) from listing on Monday. The IPO was priced at the bottom end of its offering range. The last we checked, it traded up 3% in the grey market on Friday. Ke Yan, CFA, FRM will follow up with a short note of his thoughts on post-IPO trading dynamics and bookbuild subscription levels.
Other updates on IPO in Hong Kong include Sinochem Energy allowing its IPO application to lapse while Koolearn (1373356D HK) and Shangde Qizhi Education re-filed for IPO. Edvantage, another new education IPO (and likely to be borderline US$100m deal size) filed for Hong Kong listing this week as well.
China Tower (788 HK)‘s lock-up will be expiring on the 8th of February and Ke Yan, CFA, FRM mentioned in his insight that any potential placement will be a good opportunity to accumulate the stock. Placements from cornerstone investors will likely be a liquidity event.
In India, Chalet Hotels Limited (CHALET IN) closed its bookbuild with a tepid overall demand of 1.57x. The silver lining for the IPO is that the institutional tranche saw a healthy 4.6x demand, similar to that of Lemon Tree Hotels (LEMONTRE IN) in terms of weak overall but strong institutional demand, which ended up performing well in its IPO.
Other upcoming India IPOs include Mazagon Dock Shipbuilders Ltd (9155507Z IN) and Embassy REIT which were said to be seeking listing towards the end of February. Sterling and Wilson is also looking to file its INR50bn IPO with the Sebi soon.
In Japan, Wingarc1st announced its IPO bookbuild to start on the 25th of February and will be listing in March. It is estimated to be raising about US$380m.
Accuracy Rate:
Our overall accuracy rate is 72% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Edvantage Group (Hong Kong, ~US$100m)
Koolearn (Hong Kong, re-filed)
Shangde Qizhi Education Group (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Earnings have been announced for Intel, Samsung, SK hynix, and Western Digital, and the memory business is clearly undermining all of these companies’ earnings. In this Insight I review each of the companies to show where they are, and will explain what the future holds for them as today’s oversupply unfolds.
India’s finance minister, Piyush Goyal (standing in for Arun Jaitley, who was hospitalised for cancer treatment just 8 days ago) delivered a spectacular interim Budget — sustaining fiscal prudence while selectively providing rational, market-oriented support to farmers, the middle-class and workers in the unorganised sector. Unlike the Congress party’s dole/hand-out schemes (such as the 2009 and Dec2018 farm-loan waivers) which act as a disincentive to work, the BJP’s are carefully-designed to provide supplemental income while still rewarding those actually working or making timely repayments of loans.
The government’s net market borrowing in the fiscal year-to-date (April-November 2018) was down 21% YoY — helped by 16.7% YoY growth in corporate tax and 16.1% YoY increase in income tax revenue. Given that CPI inflation has moderated sharply to 2.2% YoY in December 2018 (and 2.3% YoY the previous month), there is now scope for the RBI to undo last year’s policy error and cut the policy rate by 50bp. This could be spread out over two MPC meetings (although we think it would be better to do it in one move next week). The spur to growth will be substantial, enabling real GDP to accelerate to 8% YoY growth in FY2019/20.
The most transformative step, however, entails a pension scheme for the “unorganised sector” (where workers currently have virtually no rights whatsoever, in contrast with the gold-plated safeguards available to organised-sector workers, which act as a deterrent to enhanced organised-sector employment). In order to obtain a future pension of Rs3000 per month, unorganised-sector workers will be required to contribute Rs100 monthly during their working years. (That it is contribution-based and not a hand-out is another positive). By thus self-identifying themselves, at least 100 million unorganised-sector workers will be better counted. Eventually, the vast gulf in safeguards/protections between organised and unorganised-sector workers can begin to be bridged if the latter can be identified. In bridging that vast gulf lies the prospect of a much more flexible labour market in future. Through universal health insurance, universal access to bank accounts, universal sanitation, and free access to clean cooking gas for rural women, this government has provided a comprehensive basis for civilised living that half of India previously lacked. When combined with the GST, insolvency & bankruptcy code, and a flexible labour market, the groundwork has been laid for India to be propelled toward average annual real GDP growth of 10% over the next five years. With interest rates set to decline, and growth set to strengthen, we recommend staying Overweight Indian equities.
The NDA Government presented its 5th and final budget before they face elections in a few months’ time. This budget should have been a non-event due to the long followed tradition in which outgoing governments do not present a proper budget but only present a short vote-on-account (which essentially is just taking approval for routine government expenditure till the time the new government is in place). But it was known this would not be a non-event given the political scenario and the media was full of rumours of what the government may or may not announce in the budget. But we were looking for just 2 things in the budget: first, whether the government will take a decisive populist turn and second while the government will meet the fiscal math, are the assumptions underlying those credible. And sadly, the answer to the first question was a yes and to the second question a no. But perversely, this will not matter, at least in the short-run due to the fact that full fledged implementation in a short-period is not possible and secondly, by the time the full year fiscal deficit numbers are out, elections would be over and focus would shift to the new government and its budget.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
The past year has all been about dollar strength. That is an accepted wisdom. But the truth of the matter is that the dollar averaged 93.6 on the DXY in 2018 (3 January 2018 to 31 December 2018) and, as we write, stands at 95.5. From 1 January 2015 to 1 July 2017 the DXY averaged 97.2. The dollar is not strong, even by recent history standards. Moreover, it is no longer as important as it once was in policy making terms – and neither is the Federal Reserve.
An earlier post outlined the general direction of the Objective Analysis 2019 forecast but didn’t provide any numbers. In this post I explain the 5%+ decrease in revenues that the market will experience and how and why various elements play into that number.
As new numbers are released, we have a better glimpse of where we are in the bad loan cycle, and the data is not reassuring. And we see that it is not only about risk with infrastructure or corporate loans in India, even if these are the most well-known credit risks. Housing loans are not immune from the economic malaise that remains in place. Non-bank financial company (NBFC) Can Fin Homes (CANF IN) shows exceptionally high quarterly bad loan growth in the latest period. Recalling our note on HDFC Bank, consumer loans more generally, may not be as robust as most believe. And there are others.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
An earlier post outlined the general direction of the Objective Analysis 2019 forecast but didn’t provide any numbers. In this post I explain the 5%+ decrease in revenues that the market will experience and how and why various elements play into that number.
As new numbers are released, we have a better glimpse of where we are in the bad loan cycle, and the data is not reassuring. And we see that it is not only about risk with infrastructure or corporate loans in India, even if these are the most well-known credit risks. Housing loans are not immune from the economic malaise that remains in place. Non-bank financial company (NBFC) Can Fin Homes (CANF IN) shows exceptionally high quarterly bad loan growth in the latest period. Recalling our note on HDFC Bank, consumer loans more generally, may not be as robust as most believe. And there are others.
US sanctions against Venezuela’s central bank and PDVSA, announced on Monday (January 28), have sent refiners on the US Gulf Coast scrambling for replacement supplies of heavy crude. Though they do not cover the business of non-US entities with PDVSA, the move has put Venezuelan crude importers in China and India on notice.
For US refiners, the three main alternative suppliers of heavy, sour crude — Canada, Mexico and Saudi Arabia — are either constrained in their ability to step up supply or are deliberately reducing shipments.
Venezuela’s upstream oil sector has been limping for a long time now. But the sanctions against PDVSA may deal it a death blow. The crude market is keeping a wary eye on the situation but appears unwilling to price in the worst-case scenario for the time being, as it remains fixated on the global economic prospects and concerns over oil demand growth.
We look at the fallout of the latest move by Washington on the primary entities doing oil business with Venezuela: refiners in the US, China and India (the main markets for Venezuelan crude) and Russian giants Rosneft and Lukoil.
We also discuss the likelihood and impact of Venezuelan crude production grinding down from the current 1 million b/d to zero.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
