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Outlook for Indian Steel Producers remains Stable for H212 : Fitch
Fitch Ratings says that the Outlook for Fitch-rated Indian steel producers will remain Stable in H212, despite the slowdown in the growth of domestic steel demand. The agency expects steel demand growth to range between 6%-7% for the whole of 2012, with the pace of activity picking up from October after the monsoon. The proportion of Stable rating Outlooks in Fitch's portfolio is 96%.
The slowdown in domestic demand growth stems from India's unfavourable macroeconomic environment. Fitch has revised down its forecasts for real GDP growth to 6.5% and 7.0% for the financial year ending March 2013 (FY13) and FY14, respectively, from previous forecasts of 7.5% and 8.0%. Less-than-normal monsoon could also depress economic growth.
Fitch expects profit margins to remain under pressure in H212, given persistent increases in the cost of steel production and steel producers' limited ability to pass on higher costs - due to subdued demand from end-user industries. The pressure will be greater on non-integrated steel producers. However, most of the rated entities should be able to keep up with the short-term demand slowdown without a major weakening of their credit profiles.
The cost of funding working-capital requirements remains high despite a 50bp reduction in the repo rate in April 2012 by the Reserve Bank of India. Inflation remains high, and Fitch expects a continued, gradual reduction in the interest rate. Indian steel producers will have to use a prudent mix of domestic and international funding to contain interest costs. Lower-rated issuers are affected the most by high interest costs, due to their limited financial flexibility.
The margin of companies producing steel through blast furnaces has been affected by a weaker Indian rupee, despite import price parity of Indian steel and softening of international prices of coking coal, the bulk of which is imported. Fitch expects the weaker rupee to raise the financial leverage of steel producers with significant un-hedged foreign-currency liabilities. However, the financial leverage of rated entities should remain within their rating categories.
In Focus Stories
Coal Minister addresses foreign investors meet at Singapore
A delegation to Singapore led by Coal Minister of India, SriprakashJaiswal along with senior official of his Ministry and Chairman of the largest coal producing company - CIL, witnessed the road-shows and participated in the foreign investors meetsorganised by Infrastructure Development Financial Corporation Ltd. on Augusr2,2012 at Singaporeto attract foreign investors in infrastructure development in India.
Investors meet was held in Hotel Ritz Carlton in Singapore on 2nd Aug. 2012. The whole Indian Delegation led by the Coal Minister, Jaiswal along with AlokPerti, Advisor, Ministry of Coal, Pradip Singh, MD, IDFC, S. NarsingRao, Chairman, Coal India Ltd., Indian High Commissioner in Singapore, TCA Raghavan along with other senior officials attended the meeting.
Jaiswal, while addressing to the investors meet in Singapore, briefed about the efforts being made by the Government of India to accelerate its economy by pushing the growth rate to over 8%, which remained on track not with standing the adverse financial crisis worldwide particularly in European countries.
Jaiswal emphasised the targets of Indian Government particularly on core infrastructure sectors like Power, Railways, Roads, Shipping, Civil Aviation and Coal. He further elaborated that in order to achieve the set targets of additional 18,000 megawatt capacity of power generation in 2012-13; coal supply of 470mn tonnes by Coal India Ltd.
Domestic News
TCI files petition against Coal India, ministry: reports
The Children Investment Fund Management (UK) Llp, or TCI, has reportedly filed a writ petition in the Delhi high court against coal ministry and Coal India Ltd, challenging their moves to keep prices artificially low.
The case was listed and the date for the hearing has been set in December, reports said.
Reports also said that TCI claimed that the ministry had no legal authority to interfere with the decisions of Coal India ltd and that the selling of coal at lower prices harmed shareholders by lowering profit.
No plans to invest in India: Lakshmi Mittal
Indian steel Barron Lakshmi Mittal has reportedly said “India remains a priority but not for investment."
Our priority is to reduce debt and we sell non-core assets,Lakshmi Mittal reportedly said.
Reports also said that Mittal’s wealth has reportedly halved since 2008 to 12.7 bn pounds.
There are reports that Mittal, who was one of the torch bearers for the Olympics Torch Relay, has contributed 20 mn pounds.
Coal India board revises penalty clause in FSAs: reports
Coal India Ltd has decided to revise the contentious penalty clause in the fuel supply agreements (FSAs) to be signed with power firms, according to reports.
Reports said that the company agreed to supply at least 80% of the required fuel to power firms.
The penalty clause, as well as the details of the price pooling would be finalised in the next board meeting, likely within the next 15 days., report says.
Global News
SMX proposes introduction of Negotiated Trade Facility
The Singapore Mercantile Exchange is consulting the public on its proposal to introduce the Negotiated Trade Facility (NTF). On the back of increasing trading interest on the Exchange, it plans to introduce this new facility in the latter part of this year, subject to regulatory approval.
The Negotiated Trade facility will allow Exchange participants to report the details of a large trade that has been privately negotiated outside of the Exchange’s trading system and which meets the Exchange’s prescribed minimum thresholds.
The Exchange intends to set the minimum order quantity for a Negotiate Trade at thirty (30) lots of any contract or a value of USD 1 million, whichever is lower. The Exchange intends to permit Negotiated Trades for all existing SMX contracts and the facility will be available throughout the trading hours of any business day.
Silvercorp Metals Q1 net income at $6.1 mn
Silvercorp Metals Inc reported its unaudited financial and operating results for the first quarter ended June 30, 2012 (“Q1 2013”).
In Q1 2013, the Company recorded net income attributable to equity holders of the Company of $6.1 million, or $0.04 per share. Adjusted net income was $8.1 million, or $0.05 per share, after excluding the withholding tax accrual of $2.0 million for anticipated dividends from the Company’s subsidiary in China.
Adjusted net income was $17.5 million lower, compared to $25.6 million, or $0.15 per share in the quarter ended June 30, 2011 (“Q1 2012”), primarily due to lower sales, higher production costs and higher general and administrative (“G&A”) expenses.