IIFCL may get US$ 250 million from forex reserves for core sector funding

IIFCL may get US$ 250 million from forex reserves for core sector funding

The Economic Times: February 13, 2008


New Delhi: India Infrastructure Finance Company is expected to get $250 million from the Reserve Bank of India (RBI) by month end, as part of government's plans to invest $5 billion of forex reserves for infrastructure development.

"As a first tranche of $5 billion forex funds, we will be borrowing $250 million from RBI that would be used to lend to Indian companies to import infrastructure equipment. We are awaiting government clearance on guarantee on bonds, which is expected to come by month end," IIFCL CMD SS Kohli said here.

Talking to reporters on the sidelines of finance minister P Chidambaram's meeting with bankers, Mr Kohli said the government would initially give a guarantee for $ 250 million bonds, with a tenure of 10 years, at London inter-bank offered rate (LIBOR).

IIFCL plans to borrow up to $5-billion forex reserves from RBI to invest or lend to Indian companies engaged in the infrastructure sector, he said. IIFCL recently set up an investment vehicle in London to fund infrastructure projects at home, which has received the UK regulatory approval. The company is likely to start its business activities once the government gives its guarantee on funds.

The London-based subsidiary will get funds from RBI. The offshore subsidiary is different from the $5-billion fund IIFCL announced last year in partnership with Blackstone Group and Citigroup. Mr Kohli, has said that IIFCL has already raised $2 billion from Australia's Macquarie Bank. With forex reserves surging to over $290 billion, the government is looking ways to deploy these funds for infrastructure. There is an estimated requirement of over $490 billion over the next five years.

Earlier, the finance ministry had also said that IIFCL would be allowed to borrow funds from the National Small Savings Fund. The rules governing investments of the fund have been amended to enable this and the government is now considering a loan request from IIFCL for Rs 2,500 crore. IIFCL has approved 64 credit proposals worth Rs 14,966 crore. Meanwhile, official sources said there is little progress on another proposed subsidiary to provide credit guarantee to companies in India that want to raise funds abroad.

IIFCL may get US$ 250 million from forex reserves for core sector funding

IIFCL may get US$ 250 million from forex reserves for core sector funding

The Economic Times: February 13, 2008


New Delhi: India Infrastructure Finance Company is expected to get $250 million from the Reserve Bank of India (RBI) by month end, as part of government's plans to invest $5 billion of forex reserves for infrastructure development.

"As a first tranche of $5 billion forex funds, we will be borrowing $250 million from RBI that would be used to lend to Indian companies to import infrastructure equipment. We are awaiting government clearance on guarantee on bonds, which is expected to come by month end," IIFCL CMD SS Kohli said here.

Talking to reporters on the sidelines of finance minister P Chidambaram's meeting with bankers, Mr Kohli said the government would initially give a guarantee for $ 250 million bonds, with a tenure of 10 years, at London inter-bank offered rate (LIBOR).

IIFCL plans to borrow up to $5-billion forex reserves from RBI to invest or lend to Indian companies engaged in the infrastructure sector, he said. IIFCL recently set up an investment vehicle in London to fund infrastructure projects at home, which has received the UK regulatory approval. The company is likely to start its business activities once the government gives its guarantee on funds.

The London-based subsidiary will get funds from RBI. The offshore subsidiary is different from the $5-billion fund IIFCL announced last year in partnership with Blackstone Group and Citigroup. Mr Kohli, has said that IIFCL has already raised $2 billion from Australia's Macquarie Bank. With forex reserves surging to over $290 billion, the government is looking ways to deploy these funds for infrastructure. There is an estimated requirement of over $490 billion over the next five years.

Earlier, the finance ministry had also said that IIFCL would be allowed to borrow funds from the National Small Savings Fund. The rules governing investments of the fund have been amended to enable this and the government is now considering a loan request from IIFCL for Rs 2,500 crore. IIFCL has approved 64 credit proposals worth Rs 14,966 crore. Meanwhile, official sources said there is little progress on another proposed subsidiary to provide credit guarantee to companies in India that want to raise funds abroad.

Theory Gains That Trader Had a Helpe

Theory Gains That Trader Had a Helpe

PARIS — The police investigating the trading scandal at Société Générale were moving on Sunday toward a theory that its rogue trader, whom the bank blames for losing it nearly $7.2 billion, might not have acted alone, as he and the bank have claimed.

The police have been sifting through nearly 2,000 pages of instant message traffic that the trader, Jérôme Kerviel, had sent. The police believe that he may have been trying to protect a friend who appears to have helped him cover his tracks — until one final, forged e-mail message made to look as if it had come from Deutsche Bank brought the case to light last month.

The instant message exchange adds to doubts about Société Générale’s explanation that Mr. Kerviel had engaged in the furtive trades alone, although lawyers say it does not necessarily weaken the bank’s assertion that there was no systemic fraud.
“There is a difference between a situation where two or more separate, isolated individuals cooperate with Kerviel and a situation where you have participation of his superiors, as he alleges,” said Christopher Mesnooh, an international business lawyer based in Paris.
Investigators suspect that Moussa Bakir, a 32-year-old broker at the futures brokerage Newedge, a subsidiary of Société Générale, sent Mr. Kerviel a forged e-mail message from Deutsche Bank, purporting to confirm a sizable trade in German DAX index futures that did not exist.
Late on the afternoon of Jan. 18, the day Société Générale says it uncovered roughly $74 billion worth of fictitious trades by Mr. Kerviel, Mr. Bakir indicated in a message exchange over the Reuters terminal system that he would send Mr. Kerviel documentation for an unspecified transaction.
“I’m sending you the conf,” Mr. Bakir wrote, using the shorthand for the confirmation of a trade.
Their messages — along with evidence that suggests they continued many of their conversations on cellphones — suggest that Mr. Bakir had an intimate knowledge of Mr. Kerviel’s surreptitious trading.
“They appear to have had a very close friendship,” the person said, adding that in many of their electronic messages there were also signals that they should continue their conversation on their cellphones.
Mobile phones are generally banned from bank trading rooms for security reasons.
One person with knowledge of the investigation said the police were trying to verify if the trade confirmation Mr. Bakir sent on Jan. 18 was the forged one Mr. Kerviel gave his supervisors to cover up an earlier mistake that had raised the suspicions of the bank’s compliance department.
Mr. Kerviel, this person said, had reported a large DAX futures trade that morning with a small German lender, Baader Bank, which would have required Baader to make a margin payment to Société Générale that would have exceeded Baader’s credit limit.
When questioned about the trade, Mr. Kerviel said he had made a mistake, and that the counterparty was actually Deutsche Bank. Mr. Kerviel was asked to provide proof that the trade with Deutsche Bank was genuine, this person said.
Later that afternoon, Mr. Kerviel presented compliance officers with the Deutsche Bank e-mail message. But when Société Générale double-checked, Deutsche Bank would not acknowledge the trade.
“We think this is the forged document from Deutsche Bank,” the person said of the confirmation referred to in Mr. Bakir’s message to Mr. Kerviel.
Mr. Bakir, who was arrested last week, was released on Saturday after 48 hours of questioning by French financial police, but he faces further questioning in the case.
A person with knowledge of the investigation said that, unlike Mr. Kerviel, Mr. Bakir had been less cooperative with police investigators.
Lawyers said his release suggested that he was considered a second-tier player compared with Mr. Kerviel.
One top Société Générale executive has told investigators that Mr. Kerviel rarely used his office e-mail account, sending no more than 60 messages over the last 12 months. But the transcripts showed that he actively used instant messaging.
The transcript suggests that Mr. Kerviel was aware of the gravity of his actions.
As early as October, when Mr. Kerviel’s trades were still profitable, their exchanges reflected signs of nervousness, according to excerpts, first published on the Web site of the magazine Le Nouvel Observateur on Saturday and confirmed by two people with knowledge of the investigation.
Christophe Reille, a spokesman for Mr. Kerviel’s lawyers, declined to comment on the transcript and described Mr. Kerviel’s relationship with Mr. Bakir as only “a professional one.”
Isabelle Montagne, a spokeswoman for the Paris prosecutor, said Mr. Bakir would be summoned again by two judges, but that no dates had been set.
A spokesman for Mr. Kerviel’s lawyer, Elisabeth Meyer, said they would file an appeal this week to have Mr. Kerviel released. He was placed in detention Friday for up to 12 months as the investigation continues.
James Kanter contributed reporting.

Rising Costs in China Seep Into U.S. Market

Rising Costs in China Seep Into U.S. Market
Importers Pay More or Cancel Orders

By Ariana Eunjung Cha
Washington Post Foreign Service
Saturday, February 9, 2008; Page D01

SHENZHEN, China -- A year ago, Mei Meng's factory sold foot-tall plush teddy bears, rabbits and ducks for export to the United States for $1.30 each. Now they're $2, and he doesn't rule out the possibility that prices will go up again.

Likewise, manufacturers say wholesale prices of cowboy hats made in China have gone from $1.65 to $2, cotton duvet covers from $3.30 to $4, portable electric ranges from $9 to $10 and office water dispensers from $50 to $56.

A confluence of events -- the weakening dollar, soaring domestic inflation, new labor laws, the end of some government export subsidies, the increasing cost of raw materials, more stringent product safety regulations, and bad weather -- means the cost of goods produced in Chinese factories is rising fast.

Those increased costs are already showing up in import prices. After falling for years, the price index of goods from China rose 2.4 percent in 2007, according to the U.S. Bureau of Labor Statistics division of international prices. That's the largest annual increase since the index was first published four years ago.

The added costs could compel U.S. companies to shift their manufacturing elsewhere -- particularly to Southeast Asia, where countries such as Cambodia have already seen an increase in U.S. investment.

Or the increases could be passed along to U.S. consumers.

That would mean that the cheap goods that were synonymous with China and allowed megastores such as Wal-Mart to dominate the U.S. retail sector will likely no longer be as plentiful.

"We'll see maybe a 5 to 10 percent increase in consumer prices, depending on who has power" in a specific part of the supply chain, said Sun Mingchun, a senior economist at Lehman Brothers.

As contracts between Chinese suppliers and U.S. importers are renegotiated in nearly every industry, Sun said that if consumers are lucky, increased costs could be absorbed anywhere from the Chinese manufacturer to an import-export company to retailers before hitting their wallets. If not, he said, the price of things like clothing and home appliances could jump significantly.

Among some economists, there's a larger concern: that inflation in China -- which was 4.8 percent in 2007, an 11-year high, and which forced the government to freeze prices of staples such as grain, edible oils and eggs -- is adding to inflation in the United States.

"In the past, the pressure of inflation in the U.S. mainly came from crude oil, but now it comes from developing countries like China, from those who provide the U.S. with cheap industrial products," said Li Huiyong, a senior analyst at Shanghai-based SYWG Research and Consulting.

The extent to which rising production costs in China affect the U.S. economy hinges on negotiations between suppliers and buyers. Chinese factory managers describe combative negotiations with U.S. importers regarding prices -- with each side seizing on every possible argument, including how long they have worked with each other, the size of their market and the quality of the work.

French bank 'had trader warning'

French bank 'had trader warning'

Mr Kerviel has been released on bail
French stock market officials warned Societe Generale about alleged rogue trader Jerome Kerviel late last year, a Paris prosecutor has said.
With Mr Kerviel now released on bail, the prosecutor's comments increase the pressure on the bank to explain why his trades were not discovered earlier.

Mr Kerviel is being investigated for breach of trust, falsifying documents and breaching computer security.

Societe Generale says his actions cost it 4.9bn euros ($7bn; £3.7bn).

'Crisis situation'

The bank, which says it only discovered Mr Kerviel's unauthorised trades 10 days ago, had been pressing for Mr Kerviel to face the more serious charge of fraud.

Mr Bouton held this unfortunate man up for public vilification, threw him to the dogs... and there was no substance to it

Defence lawyer Christian Charriere-Bournazel

His lawyer, Elisabeth Meyer, on Monday called the judges' decision not to press for fraud charges a "great victory".

As police investigations into Mr Kerviel's actions continue, French politicians are increasing the pressure on Societe Generale's embattled chairman and chief executive Daniel Bouton.

"Societe Generale is in a crisis situation," said Economy Minister Christine Lagarde in an interview on French television.

"In a difficult moment, the board members are there to decide if the person in charge is the best placed to run the ship when it is pitching a bit, or whether they should change the captain."

French President Nicolas Sarkozy has already said that the bank's senior managers had to accept their share of responsibility for the scandal.

'Invented deals'

Societe Generale says Mr Kerviel had a position, or a bet, worth about 50bn euros on the future direction of European shares.

SOCIETE GENERALE IN FIGURES
Founded in 1864
467bn euros in assets under management (as of June 2007)
22.5 million customers worldwide
120,000 employees in 77 countries


Societe Generale share price

That was more than the bank's value - about 35bn euros - and about the size of France's entire annual budget deficit.

To avoid that potentially catastrophic loss the bank had to unwind Mr Kerviel's trades, but that still cost it 4.9bn euros.

Societe Generale said Mr Kerviel's background in handling the administration of trades enabled him to fool those monitoring traders' activities.

It says Mr Kerviel invented deals that, on paper, balanced out his bets.

'No evidence'

Mr Kerviel's other lawyer, Christian Charriere-Bournazel, said his client had committed no fraud, adding that Societe Generale's chief executive Daniel Bouton had no evidence to back up his allegations.

"The word fraud was used by Mr Bouton numerous times," he said.

"Mr Bouton held this unfortunate man up for public vilification, threw him to the dogs... and there was no substance to it."

Under French law breach of trust carries a maximum sentence of three years in prison and a fine of 370,000 euros.

While a formal investigation has started into Mr Kerviel's actions, this does not automatically guarantee that a trial will follow.

SocGen trader Kerviel is jailed

SocGen trader Kerviel is jailed

Jerome Kerviel will have to stay in prison during the investigation
The Paris appeals court has ordered the Societe Generale trader Jerome Kerviel to be jailed while massive losses at the bank are being investigated.
The court ruled that he should be detained because of the "necessities of the investigation" and the risk that he could flee the country.

Earlier, an employee of the brokerage firm Fimat - owned by Societe Generale - was also detained by police.

The man was questioned about his links to Mr Kerviel.

Fimat was a division of Societe Generale, which was recently merged with another brokerage owned by French bank Credit Agricole and renamed Newedge.

Massive losses

A report in Le Monde said Mr Kerviel had conducted some of his trades through Fimat and that police suspect the brokerage employee may have been aware of his activities.

Mr Kerviel has been blamed for incurring massive losses, costing Societe Generale 4.9bn euros ($7bn; £3.7bn).

He was freed on 28 January following two days of questioning by magistrates.

Now he will be put in "provisional detention" while the case is being investigated.

Mr Kerviel is under investigation for breach of trust, computer abuse and falsification.

Home repossessions rise to 27,000

The number of people whose homes were repossessed last year has risen by 21%.
The Council of Mortgage Lenders said 27,100 homes, the highest figure since 1999, were taken over by lenders after people fell behind with repayments.

The figure for the UK is more than the 22,400 in 2006, but not as extreme as the CML had forecast. It is still a sharp rise on the 8,500 of 2003.

And the CML warned that the number of repossessions was likely to rise again in 2008 as the credit crunch tightened.

Meanwhile, the numbers of mortgages behind on payments rose by 8.6% compared to 2006, the organisation, which represents mortgage lenders, said.

'Wider issues'

Another bill would come up which you would be paying on a credit card and you would have to pay the interest on the cards... all that adds up

Kevin Allen, who faced repossession


Homeowners 'on the rack'

Added cost pressures on homeowners are expected this year, owing to higher energy and food bills, while more than a million people are coming off fixed-rate mortgages.

Michael Coogan, CML director general, said: "The number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets."

He said that "no one is necessarily to blame for this" but called for "a fair and reasonable balance of responsibility".

Mr Coogan said consumers, their advisers and lenders, and the system of state support, all had a role to play to ensure "repossessions are minimised".

Tighter credit market

The rise in repossessions was likely to be down primarily to the credit crunch, with lenders taking fewer risks with borrowers who were already over-extended.

Charities have previously warned about some homeowners using credit cards to pay their mortgages, but with credit increasingly difficult to come by, many have been struggling to meet repayments.

Most mortgage possession claims do not end with the owner losing their home, because the lender often comes to an arrangement with the borrower to pay off the arrears.


Repossession figures are still far below levels in the early 1990s

But Sue Edwards, head of consumer policy at Citizens Advice, said:

"Our evidence shows that lenders are not always doing everything they can to help borrowers in trouble, all too often piling on extra charges and being too quick to take court action rather than being prepared to negotiate affordable repayment arrangements.

"We want to see all lenders being reasonable when dealing with customers who do get into trouble, and taking court action for possession only as a last resort."

And Shadow Housing Minister Grant Shapps said: "These figures sadly make a mockery of Labour's hollow claims to have helped more people onto the property ladder."


Interest rates

Despite the latest rise in repossessions, figures are still much lower than the numbers in the early 1990s. when they reached 75,500 repossessions a year.

The CML figures have been released the day after many of the largest - but not all - mortgage lenders announced they would pass on the 0.25% cut in interest rates in full to customers.

These lenders said the cut on the standard variable rate would come in early March.

Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, predicted further interest rates in the coming months, offering more relief to homeowners.

Godfrey Blight, chairman of the Intermediary Mortgages Lenders Association, said arrears and repossessions would rise in 2008, but not "catastrophically so".

Political row

The figures have prompted political debate.

Liberal Democrat leader Nick Clegg said: "We must take steps to ensure that repossession is only ever a last resort - by making financial advice compulsory at the point repossession claims are issued."

For the Conservatives, shadow housing minister Grant Shapps said: "These figures sadly make a mockery of Labour's hollow claims to have helped more people on to the property ladder.

"The Government needs to urgently address the issue of affordable housing."

A Treasury spokesman said: "The Government's Housing Finance Review, to be published in the Budget, will explore options to increase the uptake of affordable long-term fixed-rate mortgages."

On Monday, the Insolvency Service said the number of people declared insolvent in 2007 was 106,645, just slightly below the record high in 2006, while bankruptcies were up 2.4%.

Experts said it would be increasingly difficult for people to borrow their way out of trouble.

Those who fear getting into trouble with mortgage repayments have been urged to speak to their lender.