Buffett sees signs of stability in US hsg market

Berkshire Hathaway Chairman Warren Buffett said over the weekend that he sees some signs of stabilisation in housing markets. "In the last few months you have seen a real pickup in activity although at much lower prices," Buffett said, citing data from Berkshire's real estate brokerage business. In California, medium and lower priced homes - under US$750,000 - have been selling more, although there has not been a bounce back in sale prices, Buffett explained. "We see something close to stability at these much-reduced prices in the medium to lower part of the market," he said. Roughly 1.3 million households are created each year in the US, while about two million homes were being built a year during the recent boom, Buffett added. At that rate, you will run into trouble, he said. Now housing starts are running at roughly 500,000 units per year, which means the excess inventory is being absorbed at a rate of about 700,000 to 800,000 units a year, Buffett said. "We are going to eat up inventory. That may take a couple of years. When it gets done you will have stabilisation in housing prices," he said. "Then you will have demand for more housing starts."

Realty shows signs of revival in mill belt

Indicating a revival of construction activity, which had come to a standstill of late, a few of the commercial projects stalled in the Lower Parel-Worli belt in Mumbai are picking up pace, according to the international commercial real estate services firm CB Richard Ellis. Work is once again on in full swing at two major projects on mill land, including the Bombay Dyeing mills project at Worli and tower two of One India Bulls Centre in Lower Parel, said a report by the firm. “Despite the general lack of demand, the micro market of extended business district Lower Parel and Worli is witnessing a revival of construction activity in many stalled projects,” the report stated adding that a few such projects will be ready for delivery in a few months. Anshuman Magazine, Chairman and Managing Director of CB Richard Ellis-South Asia, attributes the revival to the rationalisation of commercial market rates. “For long, many companies didn’t want to buy office space in new projects as they anticipated a further fall in rates. The rates have now been corrected in many places and with that there is an increase in fragmented demand for smaller spaces,” said Magazine. The realty slump had delayed or stalled several projects in the mill land belt, including the India Bulls projects on the 11-acre Jupiter mills land and the eight-acre Elphinstone mills land, DLF project on the 17-acre Mumbai Textile Mill land and Kohinoor projects’ construction on the 4.5-acre land of Kohinoor mill at Shivaji Park. However, India Bulls director Gagan Banga said that work the One India Bulls Centre had not been affected by the slowdown. “We have always maintained that the delay in construction was due to the structural changes we were working on after our project got an increase in Floor Space Index. Also, we have been having steady deals with clients at a constant lease rental of Rs 180 to Rs 200 per sq ft per month for the past six months,” said Banga. The company had recently sold about 15,000 sq ft of space in the project to the British Council for Rs 30 crore.

Govt banks help DIAL bridge funding gap

Airport developer to raise over Rs 1,800 crore by pledging revenues from passenger charges. Delhi International Airport Ltd (DIAL), the five-company consortium led by Bangalore-based infrastructure conglomerate GMR Group that is upgrading Delhi airport, has managed to raise over Rs 1,000 crore to meet its financial obligations for the Rs 8,890-crore project. DIAL has raised Rs 1,100 crore from five public sector banks and is in advanced discussions with Punjab National Bank (PNB) to mop another Rs 727 crore. The project had run into trouble after DIAL failed to mobilise an expected Rs 3,110 crore against land leases for hotel and commercial projects near the airport complex, owing to poor market conditions. The loans have been sanctioned by pledging the money DIAL will receive from the Airport Development Fee (ADF) the government allowed it to charge passengers in February 2009. The government allowed DIAL to levy ADF at the rate of Rs 200 per departing domestic passenger and Rs 1,300 per departing international passenger. The net present value (NPV) of this levy was Rs 1,827 crore. The coupon rate for the three-year loan is 10.5 per cent. Sources said all five banks have agreed to extend loans and discussions with PNB are almost complete. At this rate, the lender will get Rs 2,274 crore over the next three years, including interest of Rs 447 crore ( Rs 2,274 crore minus Rs 1,827 crore). The money will be treated as DIAL’s equity as part of the financing plan that the government approved. The ADF is not shared with the government. Otherwise, under an operating agreement, the airport developer is required to share 46 per cent of its revenues with the government. In approving an ADF, the government has, in effect, forfeited its right to additional income. When it approved the ADF, the government had stated that DIAL had exhausted all other funding options Originally, promoters GMR and other partners had committed to putting in Rs 840 crore as equity and raising Rs 3,110 crore from the real estate project, which was to be treated as quasi-equity. The remaining project cost of Rs 4,940 crore was to be raised through loans from domestic banks and external commercial borrowings (ECBs). Once the expected amount from the real estate project failed to materialise, however, banks asked DIAL’s promoters to increase their equity as a pre-requisite for accessing these loans. DIAL now expects to raise around Rs 1,000 crore as deposit from the real estate project. Under the agreement, the company will open an escrow account through which banks will have first charge. The money will be repaid in three years. Sources said the GVK-led consortium that is upgrading the Mumbai International Airport Ltd (MIAL) is also in advance discussions with several banks to securitise Rs 1,543 crore worth of ADF. As with DIAL, the government had allowed MIAL to levy Rs 100 per domestic passenger and Rs 600 per departing international passenger for four years. The net present value of this income is Rs 1,543 crore for MIAL.

Petronet explores 'gas swap' deal with K-G basin supplies

Indian gas companies may soon boast their first gas swap arrangement that could slash transportation costs by more than 50 per cent. Petronet LNG, which operates a recently expanded ten-million-tonne gas regassification plant in Dahej on the west coast, is exploring a swap option with the gas from the Krishna-Godavari field (K-G D6) on the east coast owned by Reliance Industries Ltd (RIL). This would enable Petronet to supply gas to some of RIL’s consumers (mainly fertiliser companies) on the west coast. In lieu, K-G D6 block will supply gas to Petronet’s consumers on the east coast. Confirming the development, Prosad Dasgupta, managing director and CEO, Petronet LNG, said: “It is a win-win situation for us. There won’t be unnecessary transportation of gas. The transportation cost could come down by as much as 50 per cent,” he added. Dasgupta said that transporting one million British thermal units (mmBtu) of gas from the eastern to western coast and vice-versa costs $1 and transporting gas in and around the same region would cost only 30 to 40 cents. He said that to begin with there could be a swap to the tune of 5 million standard cubic metres (mscmd) per day. A swap deal for 5 million mscmd could lead to saving of around Rs 50 lakh a day, say experts, adding that the saving would be much higher as traded volumes increase. Gas demand in India is estimated at 170 mscmd. These arrangements do not require government permission. “A swap arrangement takes place between two companies. If it makes economic sense, companies can explore this option,” said R S Pandey, secretary, Ministry of Petroleum and Natural Gas. An RIL spokesperson, however, denied talks with Petronet LNG. But he said the company was exploring the possibility of gas purchase from Petronet LNG and Shell India for captive use in its power and petrochemicals business. RIL, which recently began pumping gas from its D6 block, is not allowed to use gas from its block initially because it has been allocated to the priority sectors of fertiliser, power and city gas projects by a group of ministers. RIL is in the process of ramping up gas production from the block to 40 mscmd by July. Peak production is envisaged at 80 mscmd.

Suzlon Pays 30 mn Euros to Martifer for REpower Stake

Suzlon Energy Ltd., India’s largest maker of wind turbines, paid 30 million euros ($40 million) to Martifer SGPS SA as part payment for a stake in a German unit, the Portuguese company said in a statement on its Web site. The money was received yesterday, according to the statement. Suzlon needs to pay the remaining 175 million euros this month to complete the purchase of the 22.4 percent stake in REpower Systems AG, Martifer said. Suzlon paid 65 million euros in December as the first installment for the stake, Martifer said. Suzlon will own about 91 percent in Hamburg-based REpower after completing the transaction, the company said in a statement to the Bombay Stock Exchange on Dec. 16.

Indian mfg eye US, Europe for electric vehicles

Bangalore-based Reva Electric Car Company (RECC), two-wheeler maker Bajaj Auto and Tata Motors are finalising plans to launch electric vehicles in Europe and the US to take advantage of subsidies these countries are offering as part of their environmental agendas. Tata Motors will launch the electric version of the Indica Vista in Norway this year and RECC, which has been exporting its electric cars to Europe since 2004, is in talks to set up a factory in the US. Meanwhile, Pune-based Bajaj Auto has tied up with European two-wheeler maker KTM (of which it owns 31 per cent) to launch a range of electric vehicles. RECC, which is a joint venture between the Maini Group and US-based AEV, has so far exported around 1,500 electric cars to Norway, Germany, Switzerland and the UK. “About five months ago, we would not have considered the US market. Now with President Obama’s pledge to have one million electric vehicles on American roads by 2015, there’s a huge opportunity out there,” said Chetan Maini, deputy chairman & CTO, RECC. “It's too early to say whether we will enter the US by ourselves or through a joint venture,” he added, admitting that his current portfolio of electric cars needed to be adapted to meet stiff US safety standards. US incentives involve tax breaks to manufacturers, subsidies of about $7,500 to consumers that buy these cars and financial support for research and development on such vehicles. Maini said tax breaks were given both by the federal and state governments. The federal government has also committed $22 billion federal aid for R&D initiatives in alternative fuels for next-generation zero-emission cars. The opportunities for players like Reva are huge, since the size of the US market is estimated at 200,000 units a year currently. In the UK, buyers of electric or hybrid vehicles could get a tax rebate of £5,000. In Europe, the rebate was ¤5,000, said Clive Hickman, managing director of the UK arm of Tata Motors’ European Technical Centre. To encourage electric car use, the UK government also levies a congestion tax of around £8 for large cars entering business districts but exempts electric cars. Electric cars are also exempt from parking charges and local authorities provide recharge plug points. Meanwhile, Tata Motors bought Norwegian electric vehicle manufacturer Miljo Gi last year. This company has tied up with Canada’s Electovaya, which will license its lithium ion battery technology. These batteries extend the driving range for one charge from about 80 km earlier to over 200 km, making it easier to take the car to longer distances. These batteries also take an hour to charge against eight hours earlier. Tata Motors sources said the company was also looking at manufacturing the Indica frames in India and shipping these to Europe to save costs and price the car cheaper. The price advantage, in fact, is a key attraction for Indian manufacturers. Currently the Reva G Wiz retails in the UK at 40 to 50 per cent of the price of a similar car made in that country. Indian manufacturers have a cost advantage even if the car is partly assembled in the US or Europe.

RIL pays Rs 1 cr to lobby with US lawmakers

Reliance Industries Ltd (RIL), which faces possible penalties by the US administration for its business ties with Iran, has paid about Rs 1 crore for lobbying among US lawmakers.The payment of $190,000 to a high-profile lobbyist firm, Barbour Griffith & Rogers (BGR) Holding, was made in the first quarter of 2009. Under US law, such lobbying is a legitimate activity, with lobby firms required to register themselves and also file disclosure reports. BGR, which registered itself as a lobbyist for RIL in January 2009, disclosed its lobbying-related income from the Indian company in a disclosure filed with the Senate and the House of Representatives for the first quarter of 2009. It has named “trade (domestic/ foreign)” as the general issue areas where it is lobbying on behalf of RIL and has said it provided “strategic counsel on issues related to trade.” It named the House of Representatives and the Senate among the houses and agencies where these lobbying activities were targeted. BGR has lobbyists who have previously served in the White House and Congress and also in other senior positions at various other agencies. The firm is known to have been effective at stopping or changing many policies considered adverse for its clients. Its client list comprises many Fortune 500 companies, foreign governments and trade associations. The disclosure on RIL’s lobbying expenses comes as the Senate and the House of Representatives are in the middle of debating Bills that authorise the US President to levy strong penalties, including a ban on doing business in the US, against companies supplying petroleum products to Iran. RIL and five other European companies have been named by US lawmakers as liable for action in this regard.