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?
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SEBIs 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.
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Ideas 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
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