Posted by: John Elliott | June 20, 2008

Ambani brothers’ rivalry reaches Hollywood

Ever since Anil and Mukesh Ambani split the Reliance empire three years ago this week, the tension has heated between the brothers and their respective companies – ADAG and RIL – as the two try to show each other up in every area from construction to telecom to fine art and now… Hollywood movies.

As I’ve written before in this blog, Anil Ambani, who controls India’s Reliance Anil Dhirubhai Ambani Group (ADAG), is a consummate dealmaker. How many other tycoons are there around with the stamina and flair to stun the business world with a headline-grabbing international financing deal in a totally new area just as another deal runs in to problems? That is what Ambani has done this week.

His elder brother, Mukesh Ambani last week tried to scupper a plan by ADAG’s Reliance Communications to merge with MTN of South Africa in a $20 billion telecoms deal. Mukesh Ambani claimed he had the right of first refusal if the telecom company shares were to be sold.

Mukesh Ambani has successfully upset the progress of talks with MTN, and Anil Ambani is now hitting back by threatening to sue three senior executives of Mukesh Ambani’s Reliance Industries (RIL) for criminal breach of trust in an agreement struck in January 2006 over supply of gas from RIL to a planned ADAG power plant. This breach of trust allegation might be spread to a similar allegedly one-sided agreement over RIL having first rights to the telecom shares.

But the real headline grabber is that Anil Ambani is now in talks with Hollywood’s Steven Spielberg and the founders of the DreamWorks (DWA) film studio about his Reliance Big Entertainment providing $500-600 million that will help DreamWorks manage its current split from Viacom’s (VIA) Paramount Pictures.

Reliance and DreamWorks would form a joint venture with $1.5 billion in debt and equity for DreamWorks to make movies in the U.S.A. that would be distributed by another Hollywood studio.

This would be a major break for the film industries in both countries, coming at a time of increasing tensions between Hollywood’s filmmakers and powerful studios that want to reduce advanced mega payments to stars. Studios are trying to cut back on so-called first-dollar gross deals that guarantee stars a box office pay-out before the films themselves become profitable.

India’s Bollywood is the world’s most prolific movie centre with more than 1,000 releases a year but it has not till recently begun to formalize its operations under big corporate financiers like Ambani and look abroad.

On top of all that of course, as I reported last week, the Harmony Art Foundation, run by Tina Ambani, wife of Anil, stunned the art world by paying a record $2.5 million at a Christie’s auction in London for a work by the late F.N. Souza, one of India’s greatest modern artists.

Mukesh Ambani couldn’t do much about that headline-grabbing event but, as the Financial Times’ Lex column read Thursday morning “Expect big brother Mukesh Ambani…… to enter stage left with another attempted spoiler” over the Spielberg deal.

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Posted by: John Elliott | June 12, 2008

Tina Ambani pays $2.5m Indian art record price for Souza’s “Birth” at Christie’s

This article first appeared in a slightly different form on “FORTUNE” magazine’s website

LONDON: Anil Ambani hasn’t been seen in public much since his Mumbai-based Reliance Communications started negotiating to merge with MTN, the South African telecoms company last month. However, both he and Amitabh Jhunjhunwala, his group managing director and close adviser, have put in brief appearances at Christie’s art auction rooms in London during the past few days, where Tina Ambani, Anil’s wife, has been exhibiting.

Yesterday a selection of paintings collected by Tina Ambani’s Harmony Art Foundation formed part of a Christie’s auction of modern and contemporary South Asian art that netted £5.4m or $10.6m (including buyers’ premium).

souza_-_birth Christie's NY

Harmony stole the show by paying a record £1.27m ($2.5m) for “Birth” (above) by F.N.Souza – 56% higher than the previous record price for any modern Indian work. Souza, who died in 2002, was one of India’s greatest modern artists, along with others that include M.F.Husain and Tyeb Mehta.

“Birth” is a monumental (8ft by 4ft) painting that embraces many of Souza’s main themes of extravagant female nudes, gaunt male faces, still life, religion and townscapes. Christie’s put an estimate of $1.2-$1.6 million on the work, but Yamini Mehta, a specialist in Indian art at the auction house, refused to guess in advance what it might go for. “Putting a value on it is rather like trying to value the Mona Lisa” she said.

The buyer is listed by Christie’s as “anonymous”, but yesterday I saw Preeti Ambani, a cousin of Anil Ambani and president of the Harmony Art Foundation, make the successful bid at Christie’s King’s Road auction rooms in London .

A film star before her marriage, Tina Ambani is modest about her background in Indian art, even though her annual Harmony shows in Mumbai of younger as well as established artists have become well known over the past 12 years. “I am not academically well-versed in art but I go with instinct,” she told me.

Proceeds from six works that Harmony sold yesterday will go to help young artists. The objective of the Harmony foundation and its exhibitions, says Ambani, is to “provide centre stage for emerging artists.” Two projects include reviving old Warli tribal art in the Indian state of Maharashtra and fine Pichwai paintings in Rajasthan.

Tyeb Mehta Rickshaw figure Christies '08Two other records were also set at the auction. A Tyeb Mehta painting, part of a dramatic series he has done to mark the miseries of rickshaw pullers (left), went for £982,000 ($1.9m). That beat his previous record price of nearly $1.6m paid in a New York auction in 2005 for a work in his “Mahisasura” series.

India’s leading contemporary artist, Subodh Gupta, hit a personal record of £601,000 ($1.2m) for a large  installation of stainless steel kitchen pots and pans (below). Last month, his painting of a man pulling an airport luggage trolley was auctioned by Christie’s for almost $1.2m in Hong Kong, which set a new record for India’s younger contemporary artists.

M.F.Husain, now aged 92 and the doyen of the Indian “progressive” painting group that started in the 1950s, also hit a record price recently for a monumental work, “Battle of Ganga and Jamuna.” This was sold for $1.6m in New York in March, beating Mehta’s 2005 figure and holding the India world record till yesterday.

These sales underline claims by Christie’s and other auction houses that Asian art is bucking the current economic gloom and recovering after some leveling off in prices last year. ArtTactic, which surveys the art market, said last month that, after a 38% drop in auction volume last year, the modern Indian art market was regaining some of the confidence it had lost.

Several other Husain and Souza paintings however did not do well in yesterday’s auction, along with those of another prominent “progressive”, Syed Haidar Raza. More than 15 of their works failed to meet reserve prices and were not sold, though Hugo Weihe, Christie’s international director for Asian art, says there is already interest in a key Raza work, “La Terre”, to be auctioned in London on June 30 for about $2m.

This shows that it is younger contemporary artists like Subodh Gupta, Atul Dodiya, T.V.Santosh, and Rameshwar Broota who are grabbing the attention of buyers at international auctions. Only the best works of the older modern artists are doing well, as buyers become more discerning.

Subodh Gupta record pic Christie's June '08 - 24715560E_001Modern Indian art started to hit high prices about four or five years ago, driven by sales to overseas Indians (NRIs) who wanted to display their wealth and origins on the walls of their smart pads, usually in the U.S.A. There was little concern for quality. ”Every new collector wanted an Husain,” says Weihe.

It is no longer the NRIs who are driving the prices – even though yesterday’s Tyeb Mehta went to someone of Indian origin living in the U.S. Collectors of other nationalities are now moving in, along with art funds and museums, attracted partly by prices that are far below the $9m achieved by leading Chinese works. India’s growing visibility internationally in business and other areas is also helping to focus attention on what, in an article at the end of 2006 in London’s Royal Academy Magazine, I described as the latest manifestation of India’s ancient cultural heritage.

Buyers are coming from China and elsewhere in East Asia, as well as from Dubai, where Arab collectors are looking for new cultures, and Europe. In Britain, interest is growing. Charles Saatchi, famous for his advertising agency and as an art collector, is launching a new London (Chelsea) gallery this summer with an Indian contemporary exhibition titled “The Empire Strikes Back.” A large Manchester gallery is showing “A Passage to India”, and extravagant prices are being demanded by smaller galleries.

See 2009 articles on Indian art auctions and the market – more have followed since then.

https://ridingtheelephant.wordpress.com/2009/06/18/has-the-modern-indian-art-market-found-its-bottom/

https://ridingtheelephant.wordpress.com/2009/06/10/art-auctions-adjust-to-a-tougher-climate/

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Posted in Ambanis, Anil Ambani, Indian contemporary art, Indian modern art, Reliance Communications | Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | June 11, 2008

Ranbaxy makes Indian corporate history with Daiichi deal

The $3.4 to $4.6 billion planned sale of Ranbaxy Laboratories, India’s largest pharmaceuticals company,  to Daiichi Sankyo of Japan that was announced this morning marks a huge milestone in the internationalization of Indian companies.

The recent trend has been for Indian companies to take over foreign businesses – ranging from Jaguar cars to Corus steel – but this is the first time that a major successful Indian company has suddenly agreed to sell control to an unassociated foreign company.

This parallels Anil Ambani’s current negotiations to merge his Reliance Communications telecom company with MTN of South Africa.  Sunil Mittal, the entrepreneur who built Bharti Airtel into one of India’s two largest telecom companies (Reliance is the other), could not stomach losing direct India-based control, which was partly why he walked away last month from the deal.

This points to the true internationalization of Indian companies, because two leading business families have now shown they are willing to sell as well as buy abroad. It must be making Mittal wonder if he did the right thing in letting his archrival step into a deal that could create a real global telecoms company

Indian families tend to treat their main businesses as treasures that are to be held until, as often happens, they decline after the second or third generation. They frequently take in foreign equity partners to help them grow, but a sense of pride combined with insecurity prevents them from selling out.

Malvinder Mohan Singh, Ranbaxy’s chief executive and managing director – and the head of the Singh family that founded the company – has therefore made Indian corporate history. His decision to sell will be closely questioned and debated as people ask whether he has done the right thing – and whether he has some as yet unexplained motive.

His family will sell its controlling 34.8% stake in Ranbaxy to Daiichi, which will make an open offer for a further 20%, in accordance with Indian take-over rules. Singh will remain the chief executive and become chairman, with a five-year term, as well as joining Daiichi’s senior global management. This will make Singh an employee – albeit a rather exalted one – of the Japanese company.

Today he said that Ranbaxy had to sell in order to “clinch the deal” – which sounds as though Daiichi pushed a hard bargain, and raises questions about why Singh was so desperate to do the deal. “This is not a sell-out but a strategic deal to position the company and transform us to the next level,” he said, slightly implausibly. He added that the future of the company was more important than family ownership.

Singh chose to describe the link-up as an “association” that, he said, would put Ranbaxy “on a new and much stronger platform to harness our capabilities in drug development, manufacturing and global reach.” It was “a significant milestone in our mission of becoming a research-based international pharmaceutical company.” The main immediate pharma advantage is that Ranbaxy will have access to Daiichi’s branded drugs expertise while contributing its low-cost production facilities and global distribution. Analysts say that consolidation of the international generics business has been inevitable and it would have been difficult for Ranbaxy to grow significantly on its own.

Ranbaxy was started by Singh’s grandfather and then built into one of the world’s top ten producers of generic drugs by his late father Parvinder Singh. With manufacturing operations in 11 countries and sales operations in nearly 50, it is now run by Malvinder Mohan Singh with his brother, Shivinder Mohan Singh, who concentrates on other family businesses in healthcare. Growth has come partly from an aggressive international take-over and today’s proposed deal values the company at $8.5 billion.

The Singh family will receive 34.8% of that – almost $3 billion – and it is assumed that at least part of that will be used to develop Fortis’s hospitals and other healthcare businesses and a fast-growing financial services company, Religare, that is controlled by the family and advised on the Daiichi deal.

The deal is the second-biggest foreign sale of an Indian company. Last year Vodafone of the UK bought control of a telecoms company then called Hutch Essar by buying a controlling stake from Li ka Shing, the Hong Kong entrepreneur.

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Posted by: John Elliott | June 5, 2008

Indian government tries to cope with oil prices

At last, after weeks of dithering, the Indian government has begun to deal with the crippling financial consequences of rocketing oil prices. On Wednesday, it announced that it is raising the price of petrol and diesel by about 10% and cooking gas by 17% to save three state-owned oil companies from looming bankruptcy. Only kerosene, used by hundreds of millions of the poor for cooking and lighting, was spared.

The government had to do something because the oil companies – Indian Oil, Bharat Petroleum and Hindustan Petroleum – are facing a multi-billion dollar hit (some estimates put it as high $60 billion) in the current financial year due to the soaring cost of crude oil. India imports 75% of its oil.

Wednesday’s move will worsen India’s already high rate of inflation, which is edging towards 9%. As Prime Minister Manmohan Singh has already acknowledged, the current 8.1% rate is socially and politically unacceptable.

In recent weeks, the government has tried to stem the inflationary tide by cajoling and bullying steel and cement companies to hold prices for at least three months, and introduce some cuts. More controversially, it has banned rice exports and has also stopped (since last year) futures trading in food commodities, most recently potatoes and chick peas.

This has led to allegations of pointless political gimmickry. The next step might be a hike in interest rates, which would curb growth and might have little effect on what is largely internationally generated inflation. But it will be difficult to do much, given the current world-wide food price crisis and the fact that India imports most of its oil.

The direct inflationary impact of yesterday’s petrol and fuel price hikes is the being softened by the government scrapping customs duties on crude oil and associated imports. That however will cost $5.5 billion in lost revenue, which will worsen the fiscal deficit. Nothing is easy in this economic balancing act.

Inevitably, the government has few supporters for its announcements, apart from the oil companies which welcomed a partial reduction (around 25%) of their financial problems.

Many economists and newspaper editorials took the easy line that what the government had done was “too little too late”. Singh seemed almost to agree, saying it was the “modest bare minimum” needed. What he meant was that anything more would have endangered the stability of the government because of opposition from leftist parties that support the Congress Party – led United Progressive Alliance coalition in Parliament (now safely in the summer recess).

The parliamentary opposition was outspokenly critical – one of its more headline savvy spokesmen called it “economic terror” – and the leftist parties are taking to the streets with countrywide bandhs (political strikes that shut down parts of cities) that started Thursday in three states.

The growing economic crisis is especially embarrassing for the government because it has presided over strong growth of 9% or more, and limited inflation, since it took office in 2004. Now, with various state elections due in the coming months – and a general election by next May– it is facing internationally generated economic problems that may prove impossible to contain.

This is leading to criticisms of what was once called the “dream team” of economic reformers in charge of government policy – Singh, who is a former finance minister and a respected economist; Palaniappan Chidambaram, the finance minister (by profession a top international lawyer); and Montek Singh Alhuwalia, an economist-turned bureaucrat who runs the Planning Commission.

Dream they may be in terms of believing in economic reforms, but they are not a dream politically. Sadly, they have little idea how to pull the strings of government and handle difficult coalition allies such as the Communist-led left. And Sonia Gandhi, the Italian-born leader of both the Congress Party and the coalition who ultimately calls the policy shots, does not have enough experience to handle difficult political and economic issues.

As a result, economic reforms have been stifled by the left for the past four years, a key nuclear deal with the United States seems doomed, and now the government is looking less than confident and astute in its handling of inflation.

Unless its luck – and political savvy – changes, Congress’s chance of being returned to power next year at the head of a new coalition will decline sharply. The last Bharatiya Janata Party-led coalition lost the 2004 general election because voters did not believe that, along with regional political party allies, it had done enough to help the rural poor. This time, it is Congress and the left that face a risk of the same fate, with urban voters joining what last time was a rural-led protest.

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Posted by: John Elliott | May 29, 2008

Greenpeace targets Tata over rare sea turtles

India’s Tata is running into trouble with Greenpeace and other environmental groups. Environmentalists accuse Tata – which has recently made world headlines with reports about its takeover of Jaguar and Land-Rover cars, and the creation of its tiny Nano car – of causing harm to rare sea turtles off India’s east coast.

The groups claim that Tata began construction of a new port at Dhamra in the state of Orissa without obtaining proper environmental clearances and without honoring commitments made by Ratan Tata, the company’s chairman, to take care of the environmental problems before the project was started.

After weeks of silence, Dhamra Port Company Ltd (DPCL), a 50-50 joint venture between Tata Steel and Larsen & Toubro (L&T), an Indian construction company, rebutted the accusations at a press conference earlier this week. But this does not seem to have stemmed the tide of criticism and it looks as if Tata’s generally good international image as one of India’s most caring and responsible business houses will suffer.

Dhamra is a small ancient port, which the government wants to develop with a $600 million project so that it can handle large deep-draft ships that are needed to serve mineral-rich areas of Orissa and two other nearby states, Jharkhand and West Bengal.

The environmental dispute has been building up for several years because the site is less than five kilometers from India’s second largest mangrove forest. More importantly, it is less than 15 kms north of one of the world’s largest mass nesting grounds used by literally thousands of endangered Olive Ridley sea turtles every year. At night, the turtles crawl out of the sea up sandy beaches where they dig holes to hide their eggs before disappearing back into the sea.

The Orissa coastline

Environmentalists agree with the company that the port is not located in a nesting area, but claim that the turtles forage and mate in waters near the port site and the Dhamra river mouth, and thatthey will be killed by dredging and shipping. This has been supported by various international experts and by a specialist committee appointed by India’s supreme court which said four years ago that the project would “seriously impact” the nesting.

Santosh Mohapatra, DPCL’s CEO, told me earlier this week that some turtles might go close to the port site, but that all the turtles come from the south and that the vast majority will not go anywhere near the port and its ships. The environmentalists have also claimed that the turtles will be scared away by the port’s bright lights. On that, Mohapatra says his company is testing non-glare lighting and will, if necessary, turn the lights off in the nesting season for ten to 15 days a year.

But the environmentalists are not satisfied. Greenpeace says that more than 70,000 people have signed internet-generated letters of protest to Ratan Tata. Last week volunteers lit thousands of candles in a vigil outside his Mumbai home.

It looks like an impasse because DPCL says 20% of the construction work has been done. It is clear that there is no chance of it abandoning the site. The environmentalists seem however to have some of their facts wrong, now that Greenpeace has moved in on a subject that was being handled by Indian wildlife groups, led by the Wildlife Protection Society of India (WPSI) and the Wildlife Society of Orissa (WSO). They claimed that BNP Paribas bank cancelled a planned loan (which I gather was for about $125 million) because of the row, whereas Mohapatra says the loan has been suspended because it would exceed limits allowed by India’s foreign currency regulations.

Tata has been caught up in other development and environmental controversies, and not all, it has to be said, of its own making. Tribal people have clashed with police at a site in Orissa where it is building a steel plant and there has been continuing and sometimes violent unrest since last year at Singur in West Bengal where it wants to build a factory to make its Nano car. It has also been accused of causing poisoning from chromate mines at Sukhinda, also in Orissa, and a pesticides plant in Andhra Pradesh was criticized four years ago for dumping toxic waste.

It is probably inevitable that a group as big and diversified as Tata will have some such difficulties, but the problem for it now is that they are likely to be highlighted if it does not break the Dhamra deadlock and work out a solution that will allow the port to be built while protecting the turtles.

India has an extremely rich wildlife heritage ranging from tigers to turtles, and both government and industry need to find ways of working with those who want to protect the best of that heritage, preferably before professional international protestors such as Greenpeace move in.

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Posted in India, India environment, Orissa, Ratan Tata, Tata, Tata Motors, West Bengal | Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | May 26, 2008

Indian rivalry ousts Bharti from South Africa telecoms deal

A six-year battle for supremacy in India’s telecommunications industry between the country’s two main private sector operators, Bharti AirTel and Reliance Communications, last week spilled over into South Africa and led to the collapse on Friday night of takeover talks between Bharti and MTN, a South African-based telecoms group. Strong Indian and South African nationalist sentiments also contributed to the sudden ending of the talks

During the week, Reliance – which today started formal talks – had secretly made a tentative offer to merge its operations with MTN. This appealed more to the South African company’s nationalist-oriented board than the Bharti takeover negotiated over the previous few weeks. MTN then proposed that Bharti should become its subsidiary – and that, maybe by design, led to Sunil Bharti Mittal, Bharti’s founder chairman, walking out.

MTN’s offer would have given Mittal’s family, together with SingTel, a minority shareholder in the Bharti group, a controlling stake in MTN, so they would have been the ultimate owners – but of a South Africa-based business. Mittal dismissed that as a “convoluted way of getting an indirect control of the combined entity” that “would not capture the synergies of a combined entity.” More important, Bharti’s “vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolizing the pride of India, would have been severely compromised”

The takeover failure is a personal blow for Mittal who has been looking for a way to expand his group and saw a Bharti-led tie-up with MTN as a way of building one of the world’s largest mobile phone operators with 130 million subscribers and considerable potential for expansion in Africa and Asia. Some analysts in India say the merger was more about Mittal’s wish to establish himself internationally than about synergies, but most in the Indian business world supported his effort to build India’s first multi-national telecom company.

The collapse of the talks has done no good to MTN’s image, with jokes doing the rounds in India about politicians on its board being reluctant brides unable to consummate relationships. MTN has been courted in the past by China Mobile, Emirates Telecommunications (Etisalat) of Dubai, and Vimcom of Russia, as well as having a brief flirtation with Vodafone of Britain. Each time, MTN’s board has shied away, often on the brink of consummation, as it did last week.

But in abandoning Bharti for Reliance, MTN, which has a market capitalization of $38 billion, has made a bigger switch than it might realize in terms of business personalities. Mittal believes in building strong long-term businesses, as he has shown with Bharti Airtel. Anil Ambani, who controls Reliance Communications is a consummate deal-maker and that might lead to him accepting the reverse take-over terms rejected by Mittal. He has yet to prove himself as a long-term builder and operator of a major company, though his Anil Dhirubhai Ambani Group (ADAG) has a market capitalization of $75 billion.

Reliance’s telecoms business was started by his elder brother, Mukesh Ambani, before the two men split the Reliance Industries (RIL) group three years ago. Since then Anil Ambani has expanded the business, which is doubling its 65,000 kilometers of undersea cable linking India through the Middle-east and Europe to the US, and last month bought eWave World, a UK-based wireless broadband company. But he has no long-term track record

He has also hit the headlines for other reasons. In January Reliance Power, which he controls, raised $3 billion in India’s biggest ever initial public offering, even though the company has no completed projects and no income stream. A month later, after the shares crashed, he gave shareholders three additional shares for every five they’d bought, in an attempt to prop up the group’s investor reputation. Last week he announced he was looking at entering the U.S. movie industry by financing and developing Hollywood film deals that some reports put at a total of $10 billion.

Analysts are now asking whether Anil Ambani is simply looking for publicity with this bid, as he was suspected of doing when he bid unsuccessfully against Vodafone last year for control of India’s Hutchison Essar telecoms group. He has booked 45 days of exclusive negotiations with MTN, so the market is watching to see whether the company again becomes a reluctant bride.

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Posted by: John Elliott | May 20, 2008

Bangladesh waits for political stability – and tourists

“Visit Bangladesh before the tourists come” says a poster at Dhaka airport. It is the slogan of the Bangladesh tourist association and it’s not much of a come-on, but it is apt. Who could contemplate going on holiday to one of the world’s poorest countries, known less for sunny beaches than for devastating coastal cyclones, growing Islamic fundamentalism, and instability?

The answer, now, is me. Tempted there last week to stay with a friend working in Dhaka, the capital, I found that, though unsure of where it is heading politically and economically, Bangladesh is even more welcoming than India where I live. It has magnificent scenery and a thriving modern art scene.

untitled by Mahmudul Haq

untitled by Mahmudul Haq

Alongside devastating poverty, Dhaka is full of prosperous garment exporters who double (everyone assumes through massive money laundering) as real estate developers. There was general agreement that investment had slumped since a military-controlled caretaker government ousted the country’s appalling politicians in January 2007 and declared a state of emergency – but not about why.

“The government has tightened up on investment regulations and it’s more difficult now for the businessmen to bring in funds,” said a veteran expatriate. “The government is so corrupt that it’s impossible to do business here so I’m going back to the U.S.,” said a rich garment and real estate businessman, less plausibly, but very revealingly.

The generals took control so quietly 16 months ago that western countries ignored what was basically a military coup, hoping it would led to better government than two warring political begums, Sheikh Hasina Wajed of the Awami League and Khaleda Zia of the Bangladesh Nationalist Party, had provided in the previous 20 years, when both had been prime ministers.

across to Meghalaya, north-east India

across to Meghalaya, north-east India

So low-key was the takeover that The Economist ran an article headed “The coup that dare not speak its name.” Gradually the generals got tougher, locking up the two begums on corruption charges, but failing either to send them into exile or mount viable legal cases against them. Earlier this month, formal legal charges were brought against Zia and other officials, for alleged corruption on gas exploration contracts awarded in 2001 to Niko Resources Ltd (NKO.TO), a Canadian oil exploration firm.

Now there is a growing food crisis, which was started by floods and a crippling cyclone last year and is now being fuelled by escalation in global prices for rice – the staple diet for at least a third of Bangladeshi’s 160 million population. Inevitably the generals are being blamed, and the politicians are saying they would have managed things better.

Calls are growing for the political leaders to be released from jail so they can participate in delayed elections that have been promised for December. It is beginning to look as if this will be yet another example – seen recently in Pakistan – of military leaders failing to change the democratic landscape and, consequently, having to hand control back to the same political leaders whose earlier shambles provoked the military intervention.

In 1971, when Bangladesh won independence from Pakistan, Henry Kissinger famously said “the place is and always will be a basket case.” He now avoids questions about that petulant remark, made at a time when the U.S. had been opposing the independence, but he must know that he was wrong – even though the country’s development has been stymied for decades by the warring political parties and an interfering military.

Now there is so much potential just waiting for positive and sustained political leadership. There is the highly successful garment industry and large coal and natural gas reserves. Then there is low-cost tourism, as well as a thriving modern art scene in Dhaka that has developed separately from the more prosperous art market in India’s neighboring state of West Bengal.

Modern Bangladeshi artists focus on strongly colored abstracts and landscapes because of a taboo on idolatry that leads them to avoid portraying people’s bodies and faces. Their prices are much lower than those in India because there are very few rich Bangladeshis living abroad to escalate prices in international markets, and works by well-known artists can be bought for $1,500 or less.

tea gardens near Sylhet

tea gardens near Sylhet

I went to the tea estates area in the north-east, on the border with the Indian state of Meghalaya. This is near the city of Sylhet, which has grown prosperous (and ugly) because it has for several decades provided Britain with most of its curry house owners and cooks.

I stayed in one of the Bangladesh’s first resorts, in the middle of rolling hills covered with tea plantations near the Surma River that flows from India through Bangladesh into the Bay of Bengal. Here there were plenty of opportunities for hiking and biking and boating on the Surma up to the Indian border – an area waiting for the tourists that are yet to come.

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Posted by: John Elliott | May 7, 2008

Indian telecom giant returns to his roots

Sunil Bharti Mittal, founding chairman of Bharti Airtel, India’s largest mobile phone operator, needs a new personal challenge. And he has found it with the $19 billion informal bid that he is reported to have made, or at least is considering, for MTN, the South African-based telecoms group.

 Last week Mittal finished a year as president of the Confederation of Indian Industry (CII), a leading business federation. That was a time-consuming post that tied him up in tedious committee work, which he disliked. His group is also partnering with Wal-Mart (WMT) in a slow-developing retail and cash-and-carry business, but that is primarily being looked after by one of his brothers.

 So Mittal, one of India’s richest men, needs a new challenge. He also needs to catch up with Tata, Birla and other Indian companies that have been tying up big foreign takeovers while he has been presiding over the CII.

 Having started in 1976 as a 19-year old engineering graduate making bicycle parts in his north-Indian home town of Ludhiana (with $1,500 borrowed from his father), Mittal is now India’s most successful first-generation businessman to emerge outside the field of information technology since the country’s economic opening up began in 1991. (His internationally-known Indian-born namesake, Lakshmi Mittal, who is not a relation, built his LNH Holdings steel empire outside of India.)

 India’s media is convinced that one day he will enter politics – reporters were pushing him on that last week when, a couple of days after finishing his CII post, he announced a Bharti telecom link-up with IFFCCO, an agricultural co-operative, to target India’s 750 -million rural population and bring Internet links to farmers.

 He says that “transformational activities” motivate him. “Public life still excites me,” he told me early last year. “But will I cross the line and become a full time politician? I think it is unlikely, having seen the transformation that I can achieve here,” he added, referring to the Bharti Foundation, a $50 million charity that sets up village schools and other initiatives.

 He tried transforming Indian fruit and vegetable production a couple of years ago by growing produce for export; but could not sustain sufficiently high standards for western markets, so he turned that business into a food processing joint venture with Del Monte (DLM).

 His link-up with Wal-Mart – aimed at playing a leading role in the current transformation of India’s retail industry – is moving far slower than he hoped when the joint venture was agreed at the end of 2006. And he bid unsuccessfully three years ago to privatize and rebuild Delhi’s international and domestic airport.

 So he has returned to the industry he knows best for his next challenge: telecom. Bharti and MTN are roughly the same size – they both have 60 to 70 million customers and market capitalizations of around $30-$40 billion – and they are both experienced at providing telecom services across vast countries. Bharti is growing the faster – adding 2 million new customers a month – and is cash-rich. But it has only two small telecom operations outside India – in the Seychelles and the Channel Islands (Jersey and Guernsey) – plus one about to start in Sri Lanka.  Now Mittal is attempting to become a significant international player, but looks like he’s facing strong opposition from nationalist fervour in South Africa and competition from other telecoms.

 He has succeeded in India by beating competition with strong marketing and consumer service and by outsourcing Airtel’s information technology activities and network management four years ago to IBM (IBM), Ericsson (ERIC) and Nokia (NOK). Critics said he was giving away his technology “lifeline” to suppliers, but, he says: “Our lifeline is how to get and retain the customers – technology for a telecom company is just an enabler which we buy to sell to our customers.”

 

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Posted by: John Elliott | April 30, 2008

How the FT has been blocked by India’s media industry

If anyone doubts the ability – and determination – of Indian companies to block foreign investors when they sense unwanted competition, the experience of the Financial Times newspaper demonstrates the reality in what is still a partly-controlled economy.

Just over 20 years after first eyeing the Indian market, the FT has failed to obtain permission to print the newspaper in India and has, in the past few weeks, walked away from a joint venture that had gone sour with the Business Standard, one of the countries leading business dailies.

The FT is now looking at a new venture with Network 18, a television-based group that has successful joint tv channels with CNN and CNBC and is partnering with Forbes to produce a business magazine in India.

Network 18 is expected to launch a new business newspaper which would have pages devoted to FT syndicated stories and would probably have an FT equity stake – though the FT is also focused on developing its online audience with Network 18, and is primarily interested in printing its international edition in the country.

It is just over 20 years since the FT started trying to get a toehold in India’s newspaper market after it was approached (while I was its Delhi-based South Asia correspondent) by two Indian business families – the Delhi-based Modis and the London-based Hindujas– to print the paper in India.

Those approaches did not lead to a deal, nor did talks with the Bennett Coleman group, which owns the Times of India (circulation 2.8 million) and Economic Times (over 750,000), India’s leading general and business titles. Bennett Coleman has, since then, been blocking the FT’s entry, fearing the competition mainly in terms of staff salaries and quality. It registered Financial Times as a Bennett Coleman title, started protective legal cases around the country, and publishes a weekly inconsequential-looking four sheet supplement called “Financial Times” to underpin its rights.

About 15 years ago the FT joined up with the Business Standard, then owned by ABP, a Calcutta-based publishing house run by Aveek Sarkar, who has a successful and happy 50-50 publishing joint venture with Penguin Books and is talking to Time Warner, which owns Fortune, about launching a monthly business title. In the early 1990s the FT posted an associate editor into the Business Standard for three years, who helped raise editorial standards. Five years ago it bought a 13.85% stake in the paper, which it expected to raise to 26%, the maximum foreign direct investment (FDI) allowed in newspapers.

The FT quickly found it had run into more opposition. The Business Standard had by then sold by Sarkar to a group of Mumbai financiers, led by Uday Kotak, a leading banker, and the FT’s bid to boost its equity stake was turned down by the government because FDI in Kotak’s businesses allegedly pushed the total in the paper above 26%. Later the FT found its views were not listened to by people running the paper, and that it was receiving no help arguing with the government over the equity stake.

Sensing that it had found another opponent rather than a partner, it eventually decided to pull out – which it has now done, selling its stake to Kotak interests. T.N. Ninan, editor and publisher of the Business Standard, would not comment on these developments when I telephoned him, though he did say his newspaper was doing well with daily circulation rising near 200,000, and he seemed unconcerned that he will not be able to use FT syndicated articles from the end of this year.

Over the years the FT has secured the support of some government ministers but not enough for a majority in the cabinet, and no prime minister or finance minister has felt it a big enough issue to make it worth challenging their colleagues.

Meanwhile the Wall Street Journal has a partial presence through a (non financial) partnership with the Hindustan Times group in Mint, a one-year old business newspaper. Mint is raising the standards of accuracy, in-depth reporting, and quality in a branch of the media where such standards are rare.

Rupert Murdoch has talked since he bought the Journal of starting a paper in India, and could invest in Mint.  There are also two other local companies entering a booming but crowded market that already has six English language business dailies, some of which, including the Economic Times and Business Standard, are launching Hindi and local language editions.

And the moral of the story? Someone once said (about joint ventures in China, I think) that “your worst enemies are your partners” – to which one could add “and allies in their industry.” Only two foreign newspapers are currently published in India. One is the International Herald Tribune, which has successfully defied a government ban on foreign papers printing a special Indian edition. The other is the Daily Mail, whose UK publishers, Associated Newspapers, have a 26% stake in a look-alike semi-tabloid Mail Today which is also raising standards and seems to have escaped opposition from vested Indian interests because none of them saw it as competition.

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Posted by: John Elliott | April 22, 2008

Reliance cuts role in retail partnerships

Reliance Retail, India’s fastest growing retail company, has set up joint ventures with two big names in international retailing. Today it announced a partnership with Office Depot [ODP], one of the largest U.S. office supplies companies, and last week there was a similar deal with Marks & Spencer, the leading British retailer.

In both cases Reliance has, for the first time in its 50-year history, agreed to be a minority partner. It will hold 49% equity stakes, while the foreign companies will be in control with 51%. It has also agreed that both Office Depot and M&S should appoint one of their own executives to head the businesses – another first.

This marks a huge change of attitude for the parent company, Reliance Industries (RIL), which yesterday announced net profits of $3.8 billion for the year ended March 31, 2008, up 28% on the year. Turnover was up 18% at $34.7 billion.

Reliance has always insisted that it does not need foreign business partners to show it how to run companies – it set up 100% Reliance-owned insurance and telecom businesses a few years ago, hiring foreign executives and consultants to provide the expertise.

Mukesh Ambani, RIL’s chairman, heralded the change in a speech at the company’s annual meeting last October, when he said that accepting partnerships with other companies would be one of five “fundamental strategic shifts” in approach. “Reliance envisages an ecosystem of partnerships with global companies that can be hugely value accretive,” he said. (The other shifts included inorganic growth and investing in innovation).

But this does not mean that Reliance will be agreeing to minority stakes in other areas where it is already strong – for example its core businesses of oil exploration and refining, petrochemicals, and textiles. It will also prefer partners to take minority stakes – such as Chevron Corporation’s (CVX) 5% stake in Reliance Petroleum – or a 50-50 split, which it has with Pearle Europe for opticians’ shops.

In retail, it recognizes it needs to acquire expertise quickly – and to secure brands that its competitors might otherwise take.

The 50 stores that M&S plans to open with a $29 million equity joint investment will be significant for the British retailer, which has failed to make a dent in India with 14 franchise arrangement already run by Planet Retail, a smaller Indian company. Similarly, the Reliance deal opens up a largely unexplored market for Office Depot. The joint venture has launched itself by buying eOfficePlanet, one of India’s largest office product suppliers to corporate customers.

The 51% foreign direct investment (FDI) in the M&S joint venture is allowed under India’s restrictive investment rules because it involves only a single brand. The Office Product business will not have retail shops but will operate on a business-to-business basis, supplying contract customers. This is classified as wholesaling, where 100% FDI is allowed.

These joint ventures will be relatively small speciality businesses for Reliance Retail, which already has nearly 600 stores covering a total of 3.5 million square feet and ranging from neighborhood shops to an Apple specialty store and hypermarkets.

So while accepting minority stakes is a major change of approach for Ambani, it will not change the broad shape of the group – though it might help to soften Reliance’s image as one of India’s toughest and most ruthless groups.

 

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