Wednesday, May 01, 2013

Zuck, buy-back your shares!

Facebook shares are trading at less than 50% of their IPO value, and the street seems to have just about given up on the IPO. While Zuckerberg made some money by selling his stock initially, he can make a bigger killing by buying back Facebook’s shares from the market at the current dismally low prices

Facebook is still a success story, but the gross underperformance of its shares post the much hyped IPO has certainly raised some eyebrows. Investor concerns seem to override their enthusiasm for the world’s most popular social network. Facebook, which was initially valued at $100 billion commands a far humbler m-cap of $41.03 billion as on August 27. The share stood at $19.15 on this day compared to the launch price of $41.

Investors are worried about the sustainability of social networking companies. The revenue tap is still not in the best of health with brands unsure about how to leverage these sites. A recent research by O&M and Ipsos covering 153 executives across A-PAC highlights that 66% of executives polled considered social networking sites to be great for buzz building (just 20% in India). However, only 2.6% considered them great for brand building. Facebook, which reported a loss of $743 million for Q2, 2012, has to really look for ways to change perceptions on that front. Co-founder Dustin Moskovitz sold 450,000 Class A shares in three days. Three top executives – Director of Platform Partnerships Ethan Beard, Director of Platform Marketing, Katie Mitic and Mobile Platform Marketing Manager Jonathan Matus have announced their resignations; indicating a major crisis of confidence across the board.

Although, Mark has made a lot of money with the IPO (he sold 30.2 million shares at $37.58 per share in May 2012), his wealth has shrunk drastically. Considering he owns around 503.6 million shares as per estimates (including stock options), his net worth as on September 4, 2012 stands at ‘just’ $9.64 billion. But he also has a great chance to make more money by buying back shares at the current prices, especially if he is certain of the company returning to its promised aura. This will also enable him to retain his vice-like grip over Facebook. To top it all, by betting on Facebook again, he could lead from the front and demonstrate his confidence in the company he founded.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Tuesday, April 30, 2013

Reflections on a changing China

Arthur C. Wheaton, Director, Western NY Labor & Environmental Programs and Faculty of Industrial Relations at Cornell University’s School of Industrial & Labour Relations, after spending more than two weeks in cities across China, writes on the country’s evolving economic and social environment

In June, I boarded an Air Canada flight from Toronto (Canada) to Beijing International Airport with my Chinese-born wife and our nine year-old daughter. Designed to help teach our daughter about Chinese culture and to improve her Mandarin language skills, the trip was our first to mainland China in eight years.

We were fortunate to be able to visit some of the same families and places that were part of our first trip. The contrast between then and now in lifestyle and other trends was astonishing. On both trips, I filtered much of what I saw through my lens as an automotive industry specialist for Cornell University’s ILR School. Cars are a reflection of what has shifted in many elements of Chinese life and I will report here on some of the changes.

First, it is impossible to summarise China’s economic and social conditions. With more than 1.3 billion people living in China, there are too many perspectives to consider for a short answer. Statistics and data on China’s economy are available from sources. What is unclear is how accurately those numbers reflect the reality of the people living there. The statistics and economic data tend to focus only on the highly developed regions of China and might not apply to all of China.

According to Helen Wang, author of The Chinese Dream: The Rise of the World’s Largest Middle Class..., there are more than 300 million Chinese who are considered middle class. That is nearly the population of the entire United States. The middle class has a growing discretionary income and a growing force in the Chinese economy. A lot of Chinese, especially young women consumers, are smitten with luxury brands. They associate Western luxury brands with quality of life and sophistication. They want restaurant meals, health club memberships and travel. They want to see the world. The restaurant business and malls are therefore doing very well in the country.

I can confirm from my own experiences that the love of quality and luxury goods described by Helen Wang is accurate. Thanks to insights from friends on this trip, I hope to provide to B&E’s readers a few glimpses of the economic and social conditions of China today. Our friends either live or work in Beijing, Xi’an, Shenyang, Shanghai, Shenzhen, Lanzhou or Zhengzhou. Their are into banking, retail, stock trading, financial management, teaching or are military officers and government officials in China.

The changes in the economic and social statuses of the families in the eight years since my first visit are marked. All the families could be described as middle class to upper middle class. When I met these families in 2004, only one owned a car. The rest relied on public transportation, bicycles, taxis and friends. Today, all of them do.

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Saturday, April 27, 2013

Death to the life giver?

The unregulated surrogacy industry is leading to the exploitation of several poor women

Sample this: An industry worth $500 million in 2002 stands as a $2.3 billion industry in 2012. An industry serving its clients with only 350 odd centres in 2002 has grown and crossed the mark of 1000 plus centres. And in spite of this impressive trend, this particular industry still remains highly unorganised and unregulated, and its growth has actually led us towards serious social issues. Welcome to the surrogacy industry of India!

Surrogacy generally refers to the carrying and delivering of another couple’s child by a woman. It’s a solution for couples where the female partner is not able to carry the child for whatever reason. India has become one of the most preferred fertility tourism destinations across the globe, and has become a ‘baby factory’ of sorts with respect to IVF and surrogate births due to long waiting times in other developed nations owing to various reasons, including shortage of eggs and sperm, lack of donor anonymity, overregulation, high costs and poor experiences of treatment.

Surrogacy hasn’t enjoyed legal sanction in a number of countries. Several developed countries such as Japan, France, Italy and UK have even banned or restricted, in one form or the other, commercial surrogacy, where the carrying woman gets paid for being the surrogate mother. Surrogacy is illegal in several states of America too. The legal issues coupled with the high prices of commercial surrogacy have made it quite expensive (with rates as high as $30,000) around the world, while Indian clinics, which are often running without government regulation (which helps them to also avoid heavy taxation) offer their services for one tenth of the costs internationally.

A decade back, the Indian government’s earnest efforts to promote medical tourism provided an unprecedented boost to surrogacy. Ironically, India made commercial surrogacy legal back then, but there are no laws yet that protect the rights of surrogate mothers. The recent death of surrogate Premila Vaghela, who was eight months pregnant, has brought to light the paucities in the guidelines governing the industry in India.

Not surprisingly, the growth has also led to exploitation of many poor women who were willing to lend their wombs to feed their families. The Indian Council for Medical research (ICMR) has tried to regulate commercial surrogacy since 2005, but guidelines issued by ICMR are not legally binding and are ambiguous on various issues like the surrogate’s rights, issues of informed consent and adoption requirements. The Assisted Reproductive Technologies Regulation Bill 2010, which is an updated and improved version of the ICMR guidelines, is still pending with the government and has not yet been even presented to the Parliament.

Although several doctors and clinics have claimed that they strictly follow the guidelines provided by ICMR and properly compensate surrogate mothers, the reality is starkly different. In some studies, it has been shown that there have been cases of even minor girls taking up this option due to the lure of quick money!


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Thursday, April 25, 2013

“A lot of our key people have come back from Bolivia”

Sushil Maroo, Group CFO, Jindal Steel and Power Ltd. discusses raw material prices as well as the situation with the Bolivia project

B&E: You have a planned capex of around Rs.80 billion for FY ‘13. How are you planning to spend this money?
SM: We are planning to divide this money almost equally for our steel and power businesses. We have major expansion plans going on in both businesses. We are setting up a DRI-based plant in Orissa, which will have an annual capacity of 2.5 million tonnes. Our pellet mill is about to be commissioned. We are also setting up six power plants of 135 megawatts each. Two of them are already commissioned and work is going on in the remaining four. Apart from this, we are also working on a 2400 MW power plant for Jindal Power Ltd. in Raigarh. We have already acquired land for these projects. Therefore, expenditure on land is all for future purposes. So, all the expenses that I have just talked about are basically towards acquiring the necessary equipment and infrastructure.

B&E: International prices of coking coal have gone down significantly in the last 2-3 quarters. Do you think that the industry is set to gain from this in the long term?
SM: The Chinese steel industry is growing at an aggressive pace. Since they are consuming a lot of coking coal, there is a sustainable demand for it. Coking coal prices were down for a while. But from $145, they are again touching a level of $200. There are only two major consumers of coking coal – India and China. Production is not rising rapidly in India. So, it depends on the pace of production in China. If they continue to go this way, coking coal prices will not remain down in the long run. To add to the worries of Indian producers, the rupee has depreciated significantly. So, we are also incurring a notional foreign exchange loss. For JSPL, 100% requirement of coking coal is fulfilled through imports. Our current requirement for coking coal is about 1.3 million tonnes, which is further increasing as we are undertaking expansion plans.

B&E: You have been trying to tap one of the largest iron ore resources in the world in Bolivia. There have been a lot of issues there. What do you think are the most important lessons from this experience, which you or any other steel company can keep note of when negotiating with a foreign government?
SM: We were looking at Bolivia because there was iron ore as well as natural gas promised to us by the Bolivian government, when the MoU was signed back in 2007. But till date, the government has not been able to provide us with the gas as the contract is yet to be signed. We are not sure about what is going to happen there. The detailed contract should have been finalized by now. We cannot wait till eternity for the Bolivian government to come out with a solution. The situation led to a dispute and encashment of two bank guarantees by the government. The lesson is that when you are negotiating with foreign authorities, you must be commercially and contractually very clear. Whatever you want from the government, you should try to get it upfront on the table, otherwise the situation can get very tough. The gas supply contract, which was not signed in 2007, became a problem in 2012. The second lesson is that you must have enough space for the arbitration clauses if you are going for signing an international contract so that your rights are not affected if there is any sudden change in the circumstances.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Wednesday, April 24, 2013

20 years of change after Rajiv Gandhi

Known as one of the brightest stars in Indian politics, Rajiv Gandhi’s assassination shook up the foundation of the Congress party. A documentation of how his death reversed fortunes of the party, and dramatically altered the Indian political scenario...

Twenty one years ago on May 21, 1991, a bomb explosion killed Rajiv Gandhi, while he was campaigning for the Congress party in Sriperumbudur, about 40 km from Chennai, on the second day of the 10th Lok Sabha elections. [Rajiv who had served as the PM of India between 1984-89 (at the age of 40 – he was the youngest ever PM of India) is till this day regarded as perhaps the most charismatic figure that ever took the stage of Indian politics.] The sudden, premature demise of Rajiv not only shocked the world, it also marked an end of an era that saw India being led by the Nehru-Gandhi dynasty for all but five years since independence.

Though nobody took immediate responsibility, the attack was blamed on Rajiv’s arch enemies, the LTTE, that was fighting for a separate homeland for the Tamils in Lanka. Rajiv could not contain the political problems afflicting India, and found refuge in international entanglements and commitments. He committed the so-called Indian Peace Keeping Force (IPKF) to Lanka in July 1987 in an endeavour to help the government there to eradicate militants agitating for a separate Tamil homeland. [The IPKF had to be withdrawn in 32 months.] His period in office was marred by scandals and allegations of corruption on so huge a scale that he undoubtedly lost the election of 1989 partly on account of public perception. The Congress suffered an electoral defeat. His successor, V. P. Singh, could not hold office for long, and Rajiv started campaigning in earnest in 1991. But then, his assassination put an end to his half-finished political career.

Most people remember Rajiv as a visionary who encouraged foreign investment, a freer economy and rejuvenated his own party. “People had sympathy for Rajiv. He was not aware of the problems of the people at the grassroots level. However, he was a very dynamic person,” recalls Mohan Dharia, a former Union Minister who had served in the Indira Gandhi cabinet, but resigned on his differences with her ideologies. He remembers Rajiv as someone who wanted to modernise India.

When US denied to give India the technology of supercomputing, it was Rajiv who encouraged the creation of the indigenous Param Super Computers. Agrees Dr. M. P. Narayanan, former Chairman of Coal India (1988-91), who says that with the demise of Rajiv, India not only lost a visionary, but a receptive and encouraging human being. “His leadership style was such that would even allow mid-level officers to walk up to him and he would listen to their ideas. I wonder if subsequent PMs have ever found time for that,” he says.

Rajiv’s vision for India was that of a modern nation that takes full advantage of technology. We’re living his vision today. Says political observer Suvrokamal Dutta, “Many people believe that it was Narasimha Rao that initiated the globalisation process. However, it was Rajiv who created the ground for that process. He was also working on various missile treaties with Western countries.” Rajiv’s other revolutionary move was to lower the voting age to 18 from 21 years in India. Having said thus, it is important to note that Rajiv’s political career also became mired with allegations and scandals. The Bofors scandal is an unsettled blot on his otherwise glorious career. It cost him three-quarters of his MPs.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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