Author: CNBC-TV18

Tata Group unlikely to bid for Air India as terms too onerous

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s steel-to-autos conglomerate Tata Group, widely seen as a potential suitor for Air India, is unlikely to consider a bid for the state-run carrier as the government’s terms are just too onerous, two sources familiar with the matter said.

India, keen to sell the loss-making, debt-ridden airline, finalised plans in late March to divest a 76 percent stake and offload about $5.1 billion of its debt.

But the government has stipulated the winning bidder cannot merge the airline with existing businesses as long as the government holds a stake. The winner may also be required to list Air India and would need to abide by conditions designed to safeguard employee interests, restricting its ability to cut staff.

Since the terms were disclosed, no company has come forward to say it is interested or to reaffirm previous interest, while Jet Airways and rival IndiGo, have already publicly opted out of the race.

Tata Group, which already owns stakes in two airline joint-ventures in India, does not see “how a deal would be workable” under the current terms, said one of the sources, who asked not to be identified due to the sensitivity of the matter.

The same source also said the airline had too much debt and noted there was little clarity on what a buyer would be allowed to do with the airline’s large workforce.

“Anyone who puts money upfront … even for Tata to put in that kind of money, it would want complete control,” added the second source.

Tata Sons, the holding company for the conglomerate Tata Group, declined to comment.

Prior to the disclosure of the terms, there had been some expression of interest from the group.

In January, Leslie Thng, the chief executive of Vistara, a joint-venture between Tata and Singapore Airlines told reporters its owners were open to evaluating a bid for Air India. Vistara declined to comment and Singapore Airlines had no immediate comment on Wednesday.

Last October, Tata Group Chairman N. Chandrasekaran, said in a TV interview the group would “definitely look” at Air India once the privatisation process was finalised.

Emirates has ruled out Air India’s bid in a response to CNBC-TV18’s query, Ashpreet Sethi has more details.

Emirates have no plans to buy or acquire any airline. They continue to focus on organic growth as well and they will partner with any other airlines where it benefits their customers and makes commercial sense as well.

Within one week, one airline after the other has been going ahead and saying, “we will not bid for Air India.”

(With inputs from Reuters)

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Market shows recovery signals; Vedanta, Eicher motors among top gainers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Market shows signs of recovery as it approached towards the second half of the trading hours.

The BSE Sensex was trading at 33,800 range and the NSE Nifty at 10,300 levels.

The Nifty slipped from its 10,400 range, which it attained in the previous session. The Nifty Bank remains in the red with ICICI and HDFC banks being among the top index losers.

The IT stocks recovered in intraday trading as the rupee experienced a sharp low of 64.99 against the US dollar.

The Indian markets opened with positive signals with Vedanta and Reliance being the top gainers. The BSE Sensex opened at 33,970 points while the NSE Nifty was trading at 10,428 points.

On the global front, the Asian markets which were earlier making gains have seen a slip in intraday trade with Korea’s Kospi and Japan’s Nikkei seeing a dip of more than 0.20%.

The US stocks jumped Tuesday after Chinese President Xi Jinping said Beijing would reduce tariffs on imported cars and improve intellectual property protection, steps that could ease trade tensions. Facebook climbed as CEO Mark Zuckerberg testified before the Senate about the company’s privacy scandal.

Xi’s proposals could help the US  and China resolve their differences and avert a trade dispute that slows down global commerce. The dialing back of tensions helped send the price of crude oil up 3.3%.

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Saudi Aramco buys 50% stake in Ratnagiri refinery complex

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Saudi Aramco, an oil company,  has signed a memorandum of understanding with Maharashtra’s Ratnagiri refinery complex.

The MoU was signed on sidelines of the International Energy Forum (IEF) conference.

Dharmendra Pradhan, oil minister, said that the capacity of the refinery is 16 million metric tonnes per annum.

Pradhan, keeping the domestic demand need on priority, said the firm and its Indian partner have been requested to expedite the west coast project.

Khalid al-falih,  Saudi Arabia’s petroleum minister,  said, that the country is happy to invest in India. Saudi Arabia has always been a major oil supplier to India.  Being aware that India’s priority is to meet its demands on oil, he is confident that the crude supply will only increase with Aramco’s investment in India.

Saudi Arabia will supply half of the 60 million tonne capacity, Khaild said.

He pointed that the firm is going to continue looking for more opportunities and is eager to to provide all products such as chemicals and fertilisers to India.

Pradhan said that 50% of the domestic block will be led by the state-owned firms, i.e. IOC, BPCL, HPCL and Aramco will lead the other half in the $44 billion dollar oil refinery.

Indian being a large economy has always had an increasing demand for energy. Khalid said that Saudi Arabian companies have been directed to invest in India’s energy and infrastructure sectors.

For agriculture, the fertiliser manufacturing will help India’s agriculture sector. Saudi Arabia is keen on investing into India’s retail business of all petroleum products. The Ratnagiri plant will have an 80 metric tonne of petrochemical production, Khaild said.

(With inputs from PTI)

Amin H Nasser, President and CEO of Saudi Aramco discusses the company’s future in India.

Edited Excerpts:

Give us more details on the memorandum of understanding (MoU) that you have signed and what kind of stake does Saudi Aramco really hold on to this one?

We are really excited about signing MoU in presence of the two ministers — the Indian minister and our energy minister. This is definitely a major agreement between Saudi Aramco and three Indian companies — Bharat Petroleum, Hindustan Petroleum and Indian Oil. The three companies get 50% of this agreement and 50% for Saudi Aramco. This is a major integrated refinery and petrochemical complex with capacity of 1.2 million barrels per day, 18 million tonne of chemicals, so it is a major investment by Saudi Aramco in the Indian market.

India is one of the big markets for Saudi Aramco. So, what is your sense on partnering on to other areas, products as well? How are you looking at that? Are you in conversation with the other companies too?

We have deals with a lot of Indian companies. They are strategic partners in many ways. We supply close to 800,000 barrels per day in the Indian market. So it is an important market for Saudi Aramco. The growth is very significant in the Indian market. Not only in oil and petrochemical sector, so it is of strategic importance and we are trying to create alliance and joint ventures (JVs) with our partners. We have interest for a long time. This is the first time we culminate all of these efforts with major agreement through this MoU. We are looking as for further growth opportunities within the Indian market. As you highlighted there is growth opportunities, especially in the petrochemical sector as well.

His Excellency, the minister highlighted that there is also interest from other companies such as SABIC in the Indian markets. For Saudi Aramco it has to be integrated between refining and petrochemicals.  Hopefully, there will be more agreements in the future.

The Indian Prime Minister also mentioned on how the maths adds up to an estimate that we are looking at 4.3% energy consumption growth for the next 25 years from now. Is that what we are working with? How do you see then Saudi Aramco being the part of this growth as one of the major players in this space?

As highlighted by the Prime Minister it is 4%. Indian market today imports over 4 million barrels oil. By 2040, the consumption will be close to 10 million barrels and that is very high growth rate. We are the biggest supplier of crude oil in the world. We have the highest reserves available. We are the most reliable player in the market and we have a huge interest in the Indian market and we are through this JV, which is 1.2 million barrels per day and hopefully through other JVs we continue to meet and participate in that growth potential in the Indian market.

Last time I remember when we spoke India was just grappling and understanding the impact of goods and service tax (GST) and then, of course, we have had other policy reforms and another reforms as well? What has your observation been on how India has changed or opened up to the international markets?  

We went through a lot of things and discussions with our partners and all what we have looked at it meets our requirements in terms of participation and as highlighted by His Excellency that the reforms introduced by the Prime Ministers and all are on the right directions helping bringing additional investment to the Indian market.

Saudi Aramco also is spreading itself out in other countries. You recently closed a big deal with France as well. Which are the other countries that the company right now looking to partner with?

Just in the last week, we announced major expansion in our Port Arthur Refinery in US with an investment close to $9-10 billion. Two days ago we announced MoU with TOTAL our partners for also petrochemical expansion to refinery in Saudi Arabia. We have a JV with TOTAL and also it is close to $9 billion of investments.

We just also closed the deal with our partners PETRONAS for 300,000 refining and petrochemical complex in South Johor and hopefully that facility will be on stream next year. We are working with the Chinese, our partners China Petrochemical Corporation (CPC) and Sinopec about potential also JVs in China.

We are also working with our partners in Indonesia regarding refining in Cilacap and hopefully that will also be finalised soon with our partners there.

There is another question which is about Saudi Aramco’s IPO. It has been a subject of a lot of conversation. Is it getting listed this year or the date has been pushed to 2019 and also what exchanges, what countries are you looking to list?

The process for listing Saudi Aramco is on track. It means the preparation for listing the company in the second half of 2018 is ready. The listing will definitely happen in the local stock exchange in the Kingdom. The government will decide on the rest.

Also there is so much happening in the global markets, let us talk a bit about that also because we are looking at the crude oil prices very volatile, there has been the whole import tariffs, geopolitical concerns, would you look at these things at short-term phenomena? If yes, than what are the factors that you see having long term implications when it comes to the energy sector?

There is a healthy growth in the market in terms of the demand. If you look at IEA or EIA- in terms of the demand growth for the last three years you are looking at between 1.5 and 1.6 million barrels. So for three years the demand growth is around 5 million barrels per day. Of course, there is a lot of talk about transformation, which is happening in terms of renewable, electric vehicles and that is taking place definitely. But, it is starting from a low base. We have always said if you look at electric vehicles, the total consumption by electric vehicles is around 100,000 barrels per day.

So, there is a growth, but it is starting from a small base. There is a healthy demand and there is also a natural decline that is happening in existing yields and the natural decline is between 3-5%. So, out of 100 million barrels of supply, there is a need of an additional capacity to offset the decline, which is between 3 million and 5 million barrels per day and meet the additional demand, which is around 1.5 to 1.6 million barrels per day. You need between 3 and 5 million barrels per day of additional capacity to offset the decline and meet the additional demand.

What we are seeing in the market that there is not enough capital being injected by the companies to meet the additional demand requirement in the future. There is USD 1 trillion of capital investment that is either deferred or cancelled and that will have an impact over the long term in terms of meeting the demand requirements. So, there is a transition that is happening, but there is also heathy demand that needs to be met.

What is the kind of demand that you would say or rather the investment that the energy sector has to see to ensure the demand is met over the coming next decade now?

We are in an industry where, of course, to bring any project that takes you between three to five years in terms of additional supplies. Shale oil is definitely bringing additional supply. There is healthy growth in shale oil. Last year almost 600,000 barrels, this year there is a talk about 800,000 barrels of additional supply. But that alone is not enough, even though there is a lot of capital being injected to bring additional shale oil. The decline rate in shale oil is very significant. There is a decline of 70% than the first year.

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Government asks oil companies to absorb Re 1 per litre cost

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government on Wednesday asked oil companies to absorb Re 1 per litre in order to pass on maximum benefits to consumers, as crude oil prices touched a four-year high.

Narendra Taneja, energy expert, said this move could help in rebuilding consumers’ trust. “Consumers have been asking for more transparency,” he said.

Oil marketing companies take into account the global performance of crude oil, excise duties and the state-wise value added tax (VAT).

State-owned oil marketing firms, however, are facing a tough time cutting prices, as they are unable to cope with the pressure of complying with government-introduced subsidies, among other developments.

On the recent sanctions on Iran, Taneja said that it would not affect oil price, and said that no major spiral or spike in crude prices is likely.

India is the third largest consumer of oil, behind the US and China, and has has to account for high importing costs and excise duties.

Oil marketing companies immediately slipped in the markets, post the news buzz.

The major state-owned firms – Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation (IOC) – fell more than 4% each in today’s market session.

The government can always converse with the oil marketing companies on the pricing, as the government is their major shareholder. Currently, Taneja said, discussions have been going on between companies and oil marketing firms.

The government has asked the oil firms to pass the maximum benefit to the consumers. He reiterated that the government is doing its best to pass on the benefits from the crude pricing movement.

In case of shortage of oil resources, Taneja suggests shale production to be ramped up.

Read Also: Will there be any relief from fuel price hike?

Edited Excerpts:

Anuj: A news agency reported that the government has asked oil companies to absorb Re 1 per litre of price hike if the crude price continues to rise. Can you confirm this?

There have been discussions happened between the government and these companies, without making any big changes in terms of policy, would do something to make sure that the people are better aligned in terms of accepting the prices are fixed as per the market ups and downs.  And here people have been talking that the companies have been making more profit in the last 12 months and so the government should do something about it.

Petrol, diesel are decontrolled commodities as you know, so, the government cannot really issue any instructions as such. However, government being the biggest stakeholder in these companies, they can always have conversation on these lines so that the trust of the consumer, who is the most important person, is maintained.

Consumers have been asking for transparency, you said everything will be as per market forces, but where is the transparency and where are the market forces because we just see prices moving only in one direction and that is up and up. So I think, it will win the confidence of the consumer at this stage without really upsetting any kind of order.

Anuj: In your language it is quite clear that everyone will have to absorb a bit of a hit. Do you guess it was a bit of a mistake last year to take the entire benefit of crude fall as excise hike or large part of crude fall as excise hike because now we are at a situation where crude prices are nowhere near their highs, but the pump prices are already at their highs?

Since the architecture of petroleum sector and taxes is such that governments faith in centre are heavily dependent on petroleum products for their collection, for their revenues. So either you change the architecture completely, which is not easy, or you go along with it. So here when the prices were low, the government basically increased the excise and used that money, 40% was given to states and the rest was used for the same consumers who are the beneficiaries when you lower the prices.

However, in this case, it has gone more Ujjwala scheme where the poor have been given gas connection and built roads in the rural areas. So depends how you look at it. If you look at strictly from the business point of view, then you reach to a different conclusion, but government is not only there to make money. The government is there to make sure that at the end of the day people get the benefit of it. I think people got the benefit of lower prices but not in the form of what they pay at the pump, but in the form of what they get in terms of other things, which have been provided by the government.

Latha: So you confirm the Re 1 per litre news that government as shareholder has asked oil companies to bear the burden?

The government has asked the companies very clearly that they should do their best in order to pass on the maximum possible benefit to the consumers.

Latha: An oil expert said his charts tell him that crude prices could be between $74 and $84 per barrel in 2018. So do you think we should expect excise draw downs now, excise cuts?

First of all I do not expect the prices to go up to that level because demand and supply fundamentals are perfect and whatever we have seen, the $71 per barrel price, is basically related to President Trump’s tweets with regards to Syria. The second thing is that even if President Trump goes ahead on them on May 12 and actually imposes sanctions, sanctions are back against Iran, that will only take $1 million out of the market.

In America, shale production is going up. So, I think that will be immediately taken care of by increased production by the United States. So there are no worries on that. I do not think prices will go up. Even Saudi Arabia know it very well, if you push the prices to that level, the only result will be that people will start investing more in renewables and they don’t want that to happen. So I am not worried.

Here the point is that unless prices really go to the level that you are talking about, I think there is no need to really go for any kind of tweak in excise. However, the most important thing is to make sure that the consumer and the people are accepting the price, which is being given. At the end of it, let us not forget one thing, in India or overseas, oil is 90% a political commodity and anything which is political, you have to be very sensitive to what the people think about it.

Surabhi: I did not quite understand the point, you said that companies have been asked by the government as a largest shareholder to take consumers interest in mind to give maximum benefit to the consumer. Right now there is no benefit because pump prices are at all-time highs with crude prices being where they are. So are we looking at some kind of a no excise tweak but yes some kind of a cut in marketing margins, is that what we are looking at?

Probably you are thinking in the right direction. At the moment there is no proposal, it has been discussed with the ministry of finance, but the petroleum ministry has said the finance ministry is in no mood at the moment to have even any discussion on excise. Not today, I do not know what happens tomorrow.

Secondly, the companies have been asked to do their level best so that they can pass on the maximum benefit to the consumer. Let us not forget one thing, these companies also depend heavily on these consumers and consumers need to be basically kept in the confidence because when you have gone for dynamic prices, where you have decontrolled, it is important the consumer, the biggest stakeholder, is also kept on the right side.

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For buyers, 7.5% is a very attractive yield, says HSBC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The 7.17% ten-year-old bond yield, expiring on 2028, opened at 7.42% on Wednesday as against its previous close of 7.38%

HSBC India said 7.5% is a very attractive yield level for the buyers. The financial services firm said the volatility is the new normal in the Indian bond market.

The company is seeing that the state-owned banks are showing a low-risk appetite in the bond auctions. “The state bond issuance and crude prices a headwind for the bond market,” the firm said.

The government will be borrowing Rs 2.88 lakh crore between April-September period in the financial year 2018-19 in March. The decision came to ease the pressure on debt markets. The government has also taken the initiative to borrow money for short-term bonds.

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