Till only a year ago, prospects appeared bright for the liquefied natural gas (LNG) sector in India. Thanks to LNG being a lower-cost substitute to naphtha-LNG spot prices, at $8-10 (Rs 376-470) per Million British Thermal Unit (MBTU), are half those of naphtha-a number of user industries like fertiliser, glass, ceramic as well as captive power plants made the switch to LNG from naphtha. As imports of LNG shot up, to 7.5 million tonnes last year, LNG terminals and shipping companies with plans to create an LNG fleet looked set for boom times. What they clearly hadn't factored in was the spiralling cost of crude oil. Supplies from Ras Gas, Qatar to Petronet LNG, which is just one of the two companies in India with terminals, with a total capacity of 5 million tonnes (the other is Shell with half that capacity), were pegged at a price of $2.53 (Rs 118.9) per MBTU. The agreement was signed in 2004, with a clause for revision after five years. What is significant is that crude oil prices were at $20 (Rs 940) per barrel levels at that time.

Those prices have sky-rocketed since-last fortnight they hovered around $75 (Rs 3,525) per barrel. That's why, come 2009 (which is when the Ras Gas-Petronet agreement comes up for renewal), the fixed freight on board price of LNG being imported by LNG is expected to shoot up. And, as A. Sengupta, Director (Finance), at Petronet says: "There is no choice but to fall back on spot LNG imports to bridge the demand-supply gap." Reasons? One, a $20 billion or Rs 94,000, 7.5 million tonne LNG deal with Iran has all but fallen through, what with Iran pressing for a price of $5 (Rs 235) per MBTU as against the initially agreed upon $3.25 (Rs 152.75) MBTU. Two, new gas supplies from the Krishna Godavari basin, where Reliance Industries has made discoveries, are not expected before 2009.

But demand for LNG is expected to remain tight till 2010, as no new capacities are expected to come up before that year. That explains why the Ratnagiri Gas & Power Project (formerly Dabhol Power Co) is shut down. If it does buy spot LNG, the power costs for consumers will shoot up. Ashish Kashive, Head of Fuels Practice at Crisil Infrastructure Advisory, believes that given the current demand-supply equation, "it will be a challenge to tie up long-term LNG contracts." Experts, though, wonder why the government didn't think of locking into long-term contracts when crude prices were soft and stable.

Yet, LNG suppliers like ONGC, IOC, Petronet and Shell aren't going slow on picking up LNG at spot prices. That's because LNG is still half the price of naphtha. "The sale of spot cargoes in the Indian market has rekindled the interest of LNG suppliers in the Indian market," avers Kashive of crisil Advisory. Petronet recently picked up two spot cargoes at $7.77 (Rs 365.19) per MBTU. If LNG prices are shooting through the roof, few are complaining.

-Anand Adhikari

Second Time Lucky?
Three investment banks are back in India.

They came, they saw, they left. Now, after a gap of six-seven years, many of the marquee names in financial services are back in India. After seeing (and listening to) enough, sitting thousands of miles away, they are now homing in to conquer. Daiwa Securities of Japan, which first entered India 10 years ago, only to leave by 1999, is back. As are investment banks Lehman Brothers and Credit Suisse First Boston (CSFB), which shut Indian shops in 1998 and 2001, respectively. The East Asian currency crisis in 1997 and the tech meltdown at the turn of the century were just two events that provoked these firms into bailing out of India. CSFB was banned from trading in 2001 for its role in a price-fixing scandal. As Vaishali Nigam Sinha, Executive Vice President, India Head (Investment Banking), Daiwa Securities SMBC (Sumitomo Mitsui Banking Corporation merged with Daiwa Securities in 1999 and holds 40 per cent stake in the entity), explains: "When rationalising our operations in 1999 we closed down 14 representative offices, including India. The crisis in Japan, triggered by the Asian crisis, coupled with the merger of Daiwa with Sumitomo Bank, are why we closed our India operations."

They have good reason for coming back. Says Sinha: "Unlike last time, when our decision to set up shop in emerging markets was more sentiment-driven, this time round it's the strong fundamentals of the Indian economy and the huge interest from Japanese investors (retail as well as institutional) that has brought us back." The second largest Japanese brokerage will initially be focussing on investment banking. "Our primary focus would be to mobilise funds for Indian corporates from Japanese investors," adds Sinha. Is Daiwa here to stay this time? The Japanese investors might well decide that.

-Mahesh Nayak

Get The Kids First
Walt Disney buys UTV's kids' channel. Is UTV next?

Walt Disney's Bird & UTV's Screwvala: Made for each other

Ever since the Walt Disney Company flagged off its India operations by launching two kids' channels-Disney Channel and Toon Disney-in December 2004, there has been considerable speculation about the $32 billion (Rs 1,50,400 crore) us toon giant's next big move. It came last fortnight when Disney agreed to buy out competing kiddie channel Hungama TV, promoted by the Mumbai-based media and entertainment house, UTV Software, for $30.5 million (Rs 143.35 crore). But evidence of Disney's larger ambitions for India were in ample evidence in its decision to acquire a 14.9 per stake in UTV itself, for $14 million (Rs 65.8 crore); a percentage more, and Disney would have triggered a mandatory open offer to UTV shareholders for another 20 per cent of the company. "India is an important market for us," says Andy Bird, President, Walt Disney International, just in case you're still wondering about the reason for the two transactions.

Ronnie Screwvala, Promoter, UTV Software, for his part, won't be complaining about the value he's realised. He took UTV public last year, by offering shares at Rs 130, which eventually got listed at Rs 165. The Disney-UTV deal was struck at Rs 192.50 per share. That's not the only profit Screwvala has made. As he told BT: "We have made an investment of Rs 60 crore to date on Hungama TV." That's a cool 100 per cent-plus profit in a little under two years (the channel was launched in September 2004).

With Hungama in the bag, Disney gets hold of a larger chunk of the kids' channel pie, which had a total viewership share (amongst kids) of 16.1 per cent as of June, as against 11.7 per cent last June, with other players like Cartoon Network, pogo, Nickleodeon and Animax completing this segment.

With three channels in its fold, Disney would now boast a share of roughly 35 per cent of the kids channel market estimated at Rs 100 crore and 0.23 per cent of the total advertising pie and 7 per cent of viewership of these channels. Adds Ravi Kiran, CEO, South Asia, Starcom MediaVest Group, a media network that's a part of the Paris-based Publicis Groupe: "We see the share of kids' channels amongst kids growing over the next two years to 25-28 per cent."

Kiran also points out the Hungama acquisition helps Disney expand its nationwide footprint. "Hungama is strong in Mumbai, the rest of Maharashtra, Gujarat and West Bengal, particularly Kolkata. These are areas Disney is not particularly strong in." Disney's other big advantage is that its programming is available in Hindi, Tamil, Telugu and English.

The big question, though, is when will Disney make an open offer to UTV shareholders. To be sure, there's plenty of synergy between Disney Pictures and UTV in the movie market. UTV has produced blockbusters like Rang De Basanti, Swades and Lakshya, whilst Disney's most recent successful franchise is the Pirates of the Caribbean.

According to Bird, if the synergies are in place, Disney would be looking to squeeze into Bollywood. "We intend to capitalise on the expertise of our synergies. Over time, we will bring in our content and will have access to UTV's film business." With Hungama, Disney is well placed to dominate the Indian kids' channel space. Now, how long will it be before it flexes its muscles in a similar manner in the movies market?

-Krishna Gopalan