Nomura says low likelihood of sovereign rating downgrade

“We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially,” Nomura said in a report

New Delhi: Financial services provider Nomura on Wednesday said there is a low probability of sovereign rating downgrade of India as economic activity is expected to show some rebound shortly, reports PTI.

“We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially,” Nomura said in a report.

The only risk to this view is forex reserves declining materially, it said.

Earlier in the day, S&P revised the outlook on India’s sovereign credit rating to negative from stable, while reaffirming its BBB- rating.

The rating agency cited slowing investment and economic growth, and the widening current account deficit as the main reasons.

S&P expects the government to face headwinds in implementing policy measures to improve its fiscal and macroeconomic parameters in the near future, given the unfavourable political environment.

It assigned a one-in-three chance to an actual downgrade within the next 24 months.

A downgrade is possible if growth prospects or the political climate worsens, the external position deteriorates, or if fiscal reforms slow, it said.

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Foreign brokerages seek exemption from GAAR

Noting that proposed indirect transfer rules cause particular confusion for international portfolio investors, ASIFMA’s letter to the FM said a straightforward reading of the “draft legislation leads us to believe that double or even triple taxation of the same profits is very possible”

New Delhi: Foreign brokerages have asked the government to exempt overseas investments in the Indian stock market from the proposed general anti-avoidance and indirect transfer rules or risk disorderly unwinding of FII (foreign institutional investor) holdings, reports PTI.

“Exemption of cross-border portfolio investments would permit FIIs to continue to play their supportive role in the Indian economy uninterrupted, while also continuing to pay taxes in line with internationally accepted practice,” industry group Asia Securities Industry & Financial Markets Association (ASIFMA) said in a letter to finance minister Pranab Mukherjee on Tuesday.

ASIFMA is a grouping of over 40 entities that are involved in Asian capital markets.

The proposals of the General Anti Avoidance Rule (GAAR) and indirect transfer norms in the Finance Bill 2012 has raised concerns among FIIs.

According to the letter, there is a risk of a disorderly unwinding of significant FII holdings in the Indian capital markets if the issues are not resolved.

Noting that proposed indirect transfer rules cause particular confusion for international portfolio investors, the letter said a straightforward reading of the “draft legislation leads us to believe that double or even triple taxation of the same profits is very possible”.

The latest letter is a follow-up to the one written by the body on 28th March.

ASIFMA pointed out that since the Budget on 16th March, net FII inflows have slowed down.

“FII net inflows from the start of 2012 till 16th March were Rs43,700 crore, while between 17th March and 16th April, they stood at a mere Rs800 crore, an effective daily average drop of 95%,” it noted.

As on 16th March, FIIs had assets under custody of more than Rs10 lakh crore or 17% of the capitalisation of India’s equity markets.

The industry body stressed that no major economy in the world has chosen to collect taxes from cross-border portfolio investments in the listed securities markets.

“The cross-border portfolio investments that will be caught up under India’s proposed legislation are typically subject to tax in the home jurisdiction of the investors in accordance with international standards.

“This is the same rule that applies to Indian investors involved in capital markets abroad,” ASIFMA CEO Nicholas de Boursac said in a statement.

ASIFMA said it welcomes recent government assurances that adverse consequences would be avoided. “Such verbal assurances are insufficient, however, in the face of warnings from leading Indian legal and tax advisors on the negative consequences of the proposed legislation,” it added.

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GAIL suspends cargo operations at Dabhol

A ship carrying maiden or the so-called commissioning cargo, which will be used to prepare the site for commercial operations, had to move to high seas after the fenders lining the jetty got damaged, sources privy to the development said

New Delhi: State-run gas utility GAIL India has suspended cargo operations at the nation’s third liquefied natural gas (LNG) terminal at Dabhol after rough sea damaged marine fenders at the port, reports PTI.

A ship carrying maiden or the so-called commissioning cargo, which will be used to prepare the site for commercial operations, had to move to high seas after the fenders lining the jetty got damaged, sources privy to the development said.

The LNG carrier, called Excelerate, at the end of March brought a cargo from Statoil ASA Snohvit LNG plant in the Barents Sea off Norway.

It had offloaded barely 5%-10% of the cargo when operations had to be suspended last week and the vessel shifted to anchor, they said.

Fenders, which are bumper used to absorb the kinetic energy of a berthing boat or vessel against the jetty, are being repaired.

Sources said the repair work may be completed in next couple of days after which the LNG vessel would again be brought to the jetty for offloading.

GAIL owns 31.52% stake in Ratnagiri Gas and Power Co—the firm that owns the 1967 MW power plant and adjacent 5 million tonnes a year LNG import terminal at Dabhol in Maharashtra. The power plant and LNG terminal were built by now bankrupt US energy major Enron Corp about a decade back.

There have been apprehensions about the safety of the plant since it had been shut for so long and GAIL is taking all precautions in commissioning the terminal. The pipelines, storage tanks and other system are one-by-one tested by lowering temperature to minus 160 degrees Celsius.

LNG is natural gas that has been liquefied at minus 160 degrees Celsius for ease of transportation in ships. Once received, LNG is re-converted into its gaseous state and transported through pipelines to users like power plants.

 Sources said the Belgian ship brought the commissioning cargo of 138,000 cubic metres around 25 March 2012 and was to start offloading from 28 March 2012.

However, the offloading was delayed as the shallow navigation channel to the port kept the ship away from the jetty for almost three weeks.

Ratnagiri Gas and Power Co (RGPPL) took over Dabhol in 2005 after the Enron’s bankruptcy. The LNG terminal was 70%-80% complete when RGPPL took over the plant.

 GAIL mechanically completed the plant in late 2010 and dredging work of the sea-channel leading to the Dabhol port was completed last year.

 But since construction of breakwater facility is not yet complete, the terminal will be commissioned through smaller ships thereby leading to only 30%-40% capacity utilisation.

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