Emerging-market telecoms

Eyes on Africa

India's Bharti Airtel may buy South Africa's MTN, in a big mobile- telecoms deal

IT WOULD be the biggest thing to pass between India and South Africa since Mahatma Gandhi moved from one country to the other. This week it emerged that Bharti Airtel, the largest mobile-phone operator in India, is holding “exploratory” talks to buy South Africa’s MTN, the biggest operator in Africa.

According to the Financial Times, Bharti has indicated it would be willing to pay about $19 billion for 51% of the company. That would make it the heftiest overseas acquisition ever made by an Indian firm, more than Tata Steel paid for Corus, a British steelmaker, and seven times the amount India invested in the whole of Africa over the ten years to 2004.

The deal would unite the leading companies in the world’s two most promising mobile markets. In neither market have penetration rates yet exceeded a third of the population. India is adding more subscribers per month than any other country. In Africa, subscriptions are projected to grow by 11% a year until 2011, according to Gartner, a research firm.

For now, though, the subjunctive mood is the right one. Both sides to the deal were keen to stress the early and exploratory nature of the talks, talks they had previously denied having. Bharti has arranged only $12 billion of the money it would need; raising the rest would strain its balance sheet or dilute its equity. And Bharti is not the only potential suitor eyeing MTN, which has not yet given the Indian company exclusive rights to look through its books. The South African company’s shareholders may therefore flutter their eyelids and sit on their hands, waiting for better offers from elsewhere.

If anything, Bharti would be marrying up. MTN boasts more subscribers (68m to Bharti’s 62m), a broader geographic reach (it has subscribers in 21 countries, including 9m in Iran and over 3m in Syria), stronger revenues (R73.1 billion compared with Bharti’s 270 billion rupees) and higher profits (R31.8 billion, before interest, tax and dividends, to 113.7 billion rupees). Bharti’s market-capitalisation is bigger than MTN’s. But that gap narrowed after Bharti’s share price fell and MTN’s rose in response to news of the bid.

These numbers do not daunt Bharti, which has the confidence and clout of a company that has taken full part in an economic miracle. India added over 10m mobile-phone subscribers in March alone, taking it past America, by some estimates, to become the second-biggest mobile market in the world. Bharti itself signed up 6.8m subscribers in the first three months of this year. It has maintained profit margins (before interest and taxes) of over 40% even as it has offered calls for as little as one rupee per minute.

It believes it has learned some tricks of the trade that would work similar wonders in Africa. Penetration rates are similar in many African countries, and revenue per user equally low. To succeed a company has to expand its subscriber base cheaply and quickly, making money on small upfront payments of a few minutes at a time. This is Bharti’s speciality. “They know which tricks work,” says Madhudusan Gupta of Gartner, a research firm, “and they are very strong with their marketing gimmicks.”

Flush with this domestic success, Bharti has for years been harbouring international ambitions—ambitions that extend far beyond its modest ventures in the Seychelles, Guernsey and Jersey. It is one of a new breed of Indian firms that are “graduating to globalisation” in the phrase of Dilek Demirbas, Ila Patnaik and Ajay Shah, three Indian economists. As the country has opened its domestic markets, a few of its companies, steeled by competition at home, have become productive enough to compete abroad. Outbound FDI from India has increased from negligible amounts a few years ago to almost $4 billion in the last quarter of 2007.

Buying MTN would allow Bharti to meet its international ambitions in full measure. But an outright takeover might prove too expensive. Perhaps its exploratory talks will therefore explore other, cheaper options: a merger, for example, or a joint-venture. That might still allow the two companies to aim for what financial analysts call “synergies”. Or as Gandhi put it, “interdependence is and ought to be as much the ideal of man as self-sufficiency.”

Oil Rises to a Record $122.73 on Nigeria Attack, Demand Growth

May 6 (Bloomberg) -- Crude oil rose to a record $122.73 a barrel in New York on threats to supply in Nigeria and Iraq and growing Asian fuel consumption.

Royal Dutch Shell Plc said a militant attack over the weekend damaged a pump station in Nigeria, where violence has cut exports from Africa's biggest oil producer. Economic growth in China, the world's second-biggest fuel consumer, will be 10.8 percent this quarter, State Information Center economists wrote in the official China Securities Journal today.

``The price keeps changing but not the reasons for the rally,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``Until the fundamental supply and demand levers start to shift and the psychology changes we will continue to see new records.''

Crude oil for June delivery rose $1.87, or 1.6 percent, to settle at $121.84 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the highest close since trading began in 1983. Futures have gained 97 percent from a year ago.

Supply shortfalls will probably send oil to between $150 and $200 a barrel within two years, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

``We will have to see stories of the economy in China, Asia, slowing to send prices lower,'' Sieminski said. ``We haven't seen them yet, but at some point in the future we may. Then oil demand growth will slow down.''

Chinese Growth

Chinese oil consumption will climb 4.7 percent to 7.89 million barrels a day this year, the International Energy Agency said on April 11. Global demand will rise 1.5 percent to 87.23 million barrels a day, the IEA said. The Paris-based agency is an adviser to 27 industrialized nations.

Brent crude oil for June settlement rose $2.32, or 2 percent, to close at a record $120.31 a barrel on London's ICE Futures Europe exchange. The contract touched $120.99 today, an all-time high intraday price.

``The crude-oil market is showing little sign of finding a top,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``Supply is tight, with OPEC keeping output steady, falling production at some of the world's biggest fields and the disruptions in Nigeria.''

The Organization of Petroleum Exporting Countries has no plan to hold an emergency meeting before a scheduled Sept. 9 gathering, members said over the past week. OPEC has rebuffed requests from consuming nations for more oil, arguing that supply is adequate.

``The rally is a combination of two things, significant supply disruptions and inflation,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The recent attacks in Nigeria have amounted to a serious supply disruption event, which is the last thing consumers needed.''

Nigerian Disruptions

About 164,000 barrels a day of production attributable to Shell are off line in Nigeria, Shell spokesman Rainer Winzenried said. The company lost an average 156,000 barrels a day of Nigerian output in the first quarter, it reported last week.

The Movement for the Emancipation of the Niger Delta, or MEND, which claimed responsibility for the assault, has forced the company to cut exports of Bonny Light crude by at least 170,000 barrels a day.

Exxon Mobil Corp.'s Nigeria unit will probably return to its normal rate of oil production of about 860,000 barrels a day by the middle of the week, following settlement of a strike last week, a government spokesman said.

OPEC produced an average 32.105 million barrels of crude oil a day last month, down 320,000 barrels from March, according to a Bloomberg News survey of oil companies, producers and analysts.

Plunging Output

Nigerian production declined 160,000 barrels to an average 1.88 million barrels a day, the lowest since August 1999, the survey showed.

Turkey's army stepped up security measures at the country's border with Iraq and placed its forces there on ``red alert'' in anticipation of cross-border attacks by Kurdish militants, Sabah newspaper said. Turkey's army said on May 2 that more than 150 fighters from the Kurdistan Workers' Party were killed in air raids on the group's camps in northern Iraq.

``Inflation concerns are back in play due to some of the recent economic data points,'' Kilduff said ``Monetary policy may be a bit too loose given the most recent GDP and employment data in the U.S. Throw in a bit of bullish enthusiasm from Goldman Sachs and you have the makings for more record prices.''

Investors moved to commodities as a hedge against the dollar as the currency fell against the euro, and as an alternative to equity and bond markets. The U.S. currency fell 0.2 percent to $1.5527 against the euro at 3:07 p.m. from $1.5496 yesterday. The dollar reached a record low of $1.6019 per euro on April 22.

``The last few days we've all been looking for facts that fit the move in prices,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``For the most part the increase in prices is due to momentum, not any specific headline.''

Medvedev Replaces Putin Today With Focus on Prices, Corruption

May 7 (Bloomberg) -- Dmitry Medvedev will take the reins of Russia's presidency from Vladimir Putin today with promises to fight corruption and inflation in partnership with a predecessor who may try to overshadow him.

As Medvedev takes the oath of office before 2,500 Kremlin guests, Putin will become the first post-Soviet president to serve out his term.

Medvedev, a 42-year-old St. Petersburg lawyer, will assume control of the world's largest country in its 10th year of energy-fueled economic growth. With Putin heading the ruling United Russia party and planning to become prime minister, Medvedev faces a possible clash over who runs Russia.

``There's still some uncertainty about how Putin and Medvedev will work together,'' said Kim Iskyan, a fund manager at Diamond Age Capital Advisors in Moscow, by telephone yesterday. ``Russia is still perceived as one of the riskier places to invest in. It's still considered fairly corrupt, and less transparent than some other emerging markets.''

The constitution requires government ministers to resign immediately after the inauguration, clearing the way for Medvedev to confirm Putin's choices for a new cabinet. The State Duma, or lower house of parliament, meets tomorrow to endorse Putin's nomination to his new post.

Kremlin spokesman Dmitry Peskov declined to comment on a May 5 Gazeta newspaper report that Putin plans to push a constitutional amendment to increase his influence.

Increasing Ministers

Gazeta reported that Putin will more than double the number of deputy prime ministers and shift control of the Foreign Ministry, Defense Ministry and security services from the Kremlin to the prime minister's office.

``Before any such decisions are officially made, these reports are rumors, and we don't comment on rumors,'' Peskov said.

Medvedev served as first deputy prime minister under Putin since 2005 and has yet to give up the post of chairman of OAO Gazprom SA, Russia's natural-gas export monopoly. Putin has been president for two four-year terms, after succeeding Russia's first post-Soviet president, Boris Yeltsin, who resigned on Dec. 31, 1999.

The United Russia party, which Putin created, has little in the way of ideology beyond backing Putin and making sure the country remains a global power. It's designed to keep the same elite in control for decades, much like Soviet Union's Communist Party and Mexico's Institutional Revolutionary Party.

`Neo-Authoritarian'

``We are now moving into phase two of the neo- authoritarian project in Russia,'' said Robin Shepherd, senior fellow at Chatham House, a London research organization. ``It is quite possible that United Russia will emerge as the key medium through which Putin and his clique acquire an enduring stranglehold over the Russian political system.''

Russia, the world's biggest energy exporter, has benefited from record oil and gas prices, with the economy growing at an average 7 percent a year in the past decade. That growth has pushed up wages, the ruble and inflation, making Russia less competitive. Medvedev has vowed to curb inflation, without detailing how.

On corruption, Medvedev has said Russia's problem pervades government on ``an enormous scale.''

Most Corrupt Countries

Berlin-based watchdog Transparency International last year said businesspeople and analysts perceive Russia as being among the most corrupt countries of 180 it studied, with a ranking of 143. In November 2006, Deputy Prosecutor-General Alexander Buksman estimated that corrupt Russian officials take about $240 billion in bribes a year.

The 40-minute inauguration ceremony will start about 11:40 a.m. with Putin reviewing the Presidential Guard in the Kremlin's Cathedral Square. Before Medvedev takes the oath, a military escort will bring the Russian flag and the presidential flag, as well as a copy of the constitution and the presidential seal, to the podium in the Great Kremlin Palace, where the inauguration will take place.

Duma speaker Boris Gryzlov will be at the podium when Medvedev is sworn in, as will Sergei Mironov, speaker of the upper house, the Federation Council. Valery Zorkin, chairman of Russia's Constitutional Court, will administer the oath of office after Putin makes a short speech and hands the presidential seal to Medvedev.

The ceremony will close with Medvedev reviewing the guard in his first act as Russia's third president.

U.S. Stocks Rise as Energy Producers, Financial Companies Gain

May 6 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor's 500 Index to a four-month high, as loosened government restrictions on Fannie Mae sparked a rebound in financial shares and oil companies advanced on record crude prices.

Fannie Mae gained, helping financials erase a 1.9 percent decline, on a regulatory decision that will enable the biggest mortgage-finance company to buy more home loans. Anadarko Petroleum Corp. climbed to a record after profit exceeded estimates and crude topped $122 a barrel. Advanced Micro Devices Inc. rallied the most since January on speculation the second- biggest maker of computer processors may be split up.

The Standard & Poor's 500 Index added 10.77, or 0.8 percent, to 1,418.26. The Dow Jones Industrial Average increased 51.29, or 0.4 percent, to 13,020.83. The Nasdaq Composite Index jumped 19.19, or 0.8 percent, to 2,483.31. Two stocks gained for each that fell on the New York Stock Exchange.

``It continues the trend where people are speculating the worst is over in terms of the financial sector,'' said Mark Bronzo, a portfolio manager at Security Global Investors in Irvington, New York, which manages $11 billion. In financials today, ``the reversal is impressive,'' he said.

The S&P 500 erased yesterday's retreat and pared its 2008 decline to less than 3.4 percent. The benchmark for U.S. equities has rebounded more than 11 percent since a 19-month low on March 10 after first-quarter earnings topped estimates at 69 percent of companies that have reported results so far, according to data compiled by Bloomberg.

Fannie Mae Gains

Fannie Mae climbed 8.9 percent to $30.81 after dropping as much as 7.3 percent. Regulators said they will loosen restrictions on Fannie Mae's capital once the company has raised $6 billion in new funding. Fannie Mae, which owns or guarantees one of every five U.S. home loans, needs fresh capital to weather credit and derivative losses that rose fivefold to $8.9 billion.

The money raised will enable Fannie Mae to ``emerge from this crisis'' in a stronger position, Chief Executive Officer Daniel Mudd said.

Fannie Mae fell earlier after posting a first-quarter loss of $2.19 billion and cutting its dividend. Freddie Mac, Fannie Mae's smaller competitor, added $1.81 to $27.33.

`Heavy Lifting'

``Fannie Mae is doing the heavy lifting it needs to do to get back into operating shape,'' said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $74 billion. ``To the extent you've got a strong player that has to do some fairly heavy lifting, it does make you wonder about how much work is going to have to be done by other firms.''

The S&P 500 Financials Index climbed 0.9 percent. Gains for the group were limited as Merrill Lynch & Co. said so-called Level 3 assets, the most difficult kind to value, climbed 70 percent in the first quarter and Legg Mason Inc. posted a bigger-than-expected loss after bailing out money-market funds hurt by subprime mortgages.

Merrill fell 0.1 percent to $51.35. Legg Mason lost 10 percent to $56.30 for the biggest drop in the S&P 500.

Anadarko rallied the most since February 2001, rising 9.4 percent to $74.53. The company reported 20 percent more first- quarter profit than analysts estimated, according to Bloomberg data, as record crude prices boosted results.

Energy companies gained the most among 10 groups in the S&P 500, adding 2.2 percent. Crude oil rose to a record $122.73 a barrel in New York on threats to supplies in Nigeria and Iraq and growing Asian fuel consumption. Supply shortfalls will probably send oil to between $150 and $200 a barrel within two years, Goldman Sachs Group Inc. analyst Arjun N. Murti said in a report.

Energy Rally

Exxon Mobil Corp., the largest U.S. energy company, rose 56 cents to $90.07. Chevron Corp., the second-biggest, added $1.25 to $96.87. Ten of the 36 energy companies in the S&P 500 rose to 52-week highs.

``Energy works even if commodity prices level off because the relative ability to generate profits here looks better than most other sectors,'' said Daniel Manion, manager of the $1.3 billion Sentinel Common Stock Fund in Montpelier, Vermont. The fund has outperformed 82 percent of similar funds over the past five years, according to Bloomberg data.

Advanced Micro rose 59 cents, or 9 percent, to $7.12 for the second-biggest gain in the S&P 500 after Anadarko. Investors are betting that the company will soon announce details of a plan to separate its manufacturing business from its chip design and development operations, according to CRT Capital Group analyst Ashok Kumar in San Francisco.

Beer Here

Molson Coors Brewing Co. climbed the most since Feb. 12, adding 7.4 percent to $57.10. The third-largest U.S. beer maker reported 13 percent more first-quarter profit than analysts estimated as sales in the U.S., Canada and U.K. grew.

About 1.23 billion shares changed hands on the NYSE, 18 percent less than the three-month daily average, according to Bloomberg data.

The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, gained 0.8 percent to 729.79. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.8 percent to 14,308.52. Based on its advance, the value of stocks increased by $137.25 billion.