A few, small agreements reached last fortnight may prove to be a giant step against money laundering. Last fortnight, at the annual conference of the International Organization of Securities Commission (IOSCO) in Mumbai, the Securities and Exchange Board of India (SEBI) and other market regulators across the globe were able to convince their counterparts in tax havens like Luxembourg, the British Virgin Islands and Bermuda to enter into multilateral memoranda of understanding (MMOU). Following this agreement, regulators who've signed the MMOU will be able to access information from these safe-haven markets. This makes life somewhat easier for SEBI as the regulator will now be in a position to track the source of money which comes into India from these tax havens. Till date the Indian market watchdog was helpless as it wasn't able to get information on the money that came in through offshore derivative instruments or participatory notes. Says Andrew Larcos of IOSCO: "This has been one of the biggest milestones for us, as this will help us in tracking the flow of money from one country into other." In fact, IOSCO is in the process of convincing regulators in other markets like Costa Rica, Indonesia, Uganda, Mauritius, Thailand, Kenya, Tanzania, Vietnam, the Philippines and Brunei to sign the MMOU with IOSCO. However, it isn't as if all safe-haven countries are a part of the MMOU. Says a Mumbai-based market watcher: "Unlike Mauritius, the money flow from these countries does not contribute much to the total flows of foreign institutional investors into India. The ratio of money coming through Mauritius compared to other tax heaven nation is in 10:1 in favour of Mauritius. Therefore, until Mauritius doesn't sign the treaty, the war is still on for countries like India."

-Mahesh Nayak

Hey, We're Not That Bad
Will SEBI acknowledge the existence of hedge funds?

SEBI’s Damodaran: Wary about funds

If market regulators globally are terrified of hedge funds, that may have to do with their inability to exorcise the ghost of the Black Wednesday of September 16, 1992. The man who's credited with "breaking the Bank of England" on that day is perhaps the most successful speculator of all time, George Soros. His private hedge fund, had bet the pound, which was being artificially propped up, would fall, and in response had short-sold pounds worth more than $10 billion. When the pound eventually did plummet, Soros made over a billion dollars in one day. That's testimony to the awesome power of hedge funds. It's also the reason why they're feared so much. Says John Gaine, President, Managed Funds Association: "There is a fear of the unknown. The regulators still have George Soros and the British Pound on their mind. They fear that retail investors will lose money and therefore they want to dispel hedge funds from their markets." "This is where they (market regulators) make a mistake," adds Alain Reinhold, Executive Vice President, ADI Alternative Investments, a Paris-headquartered hedge fund. "A hedge fund is not a risky investment, it's a diversification. It's a tool that has the same rate of success and failure as any activity." Gaine and Reinhold were speaking to BT on the sidelines of the annual conference of the International Organization of Securities Commission (IOSCO) held last fortnight in Mumbai.

Clearly hedge funds see themselves as the providers of depth and liquidity to the system rather than as wealth eroders. An IOSCO study of the French market reveals that "market abuse (price rigging or manipulation) is not much from hedge funds," says Philippe Richard, Secretary General, IOSCO. What's more, although hedge fund blowouts are spectacular and high-profile, the study claims that the number of hedge fund failures is just 0.03 per cent of the $1 trillion investments managed by them globally. Regulators in countries like Japan, France, Italy, Australia and Brazil appear to have taken note of these statistics, as they've gone ahead and registered hedge funds. Back home, the Securities & Exchange Board of India (SEBI) isn't ruling it out; not just yet. For the past two months SEBI has been in dialogue with various hedge funds for considering their registration in India. Says Sandeep Parikh, Legal Advisor, SEBI: "We will be fools if we think hedge funds aren't investing in Indian markets. Rather than being oblivious about their participation, it's better to register them. At least we will know which are the hedge funds investing in our market." Says Reinhold: "We have no problem getting registered and regulated. In fact this helps in bringing more flows from investors whose confidence will increase once we are regulated." The ball is now in SEBI's court.

-Mahesh Nayak

Idea in Play?
It's only an idea, whose time may have not yet come.

Idea’s Birla: Focus on expansion

Is another telecom acquisition on the horizon? A recent research report by UBS Securities on Idea Cellular points to the company as a "possible acquisition candidate." The rationale, according to the report, is Idea's geographical footprint and access to 900 mhz spectrum in seven out of its 11 circles. The interesting part is that Idea was listed as recently as March this year. The market capitalisation for the company stands in excess of Rs 26,000 crore.

Idea, an Aditya Birla Group company, operates in key circles like Delhi, Maharashtra, Gujarat and Andhra Pradesh. Across its 11 circle operation, it has a subscriber base of over 14 million, which translates into a market share of around 8.5 per cent-India has a subscriber base of around 170 million. The company was earlier a joint venture between AT&T Wireless, the Tatas and the Aditya Birla Group. The foreign partner and the Tatas have since exited and the Birlas are majority shareholders.

Following the frenetic activity in the recent past on the Indian telecom M&A front-the Hutch-Vodafone deal being the most obvious case-the interest from global telecom majors in India's telecom story has remained unabated. "We expect the Indian mobile market to consolidate over the next 3-5 years as we believe it can only support four national players in the long-term. In our view, Idea Cellular is a strong acquisition candidate because of its brand, access to 900 MHZ spectrum and a sizable footprint in some of the key circles," states UBS' report. Bharti, Reliance, Hutch and the state-owned BSNL are the players that are larger than Idea. Sanjeev Aga, Managing Director, Idea, dismisses the speculation, saying: "This will (always) be an Aditya Birla Group company."

UBS clarifies that Idea is not likely to be acquired in the short term since the Birlas could want to run the business and create shareholder value rather than sell out immediately. "The Indian mobile market is currently witnessing strong growth and we believe the growth is likely to slow down beyond fy09 when penetration reaches north of 30 per cent. When growth slows, the market is likely to consolidate, in our view," adds the report. Analysts tracking the sector point out that following the Hutch-Vodafone deal, there are not too many large operations that are up for sale. With Idea looking to expand to new circles like Mumbai and Bihar, the valuations for the company could well move upwards. Macquarie Securities, in a recent report, points out that there will be strong acceleration in wireless monthly net additions in 2007-08. Growth is clearly the idea, not a sell-out, for now.

-Krishna Gopalan