Hung Parliament spurs power struggle in UK

S Kalyana Ramanathan / London May 08, 2010 The 44 million-odd electorate of the United Kingdom returned an indecisive verdict today in the polls to the 55th Parliament. As predicated by the opinion polls and the exit poll in the first hour after voting came to an end last night, none of the parties got a clear majority. The Conservative Party, that sits in the opposition bench in Westminster, however came on top with the maximum number of seats and votes in this election — positioning itself as the party that should get the first chance to form the new government. As this paper goes to print, the Conservative Party had won 304 of the 650 seats in the House of Common, followed by the ruling Labor party with 257 seats and the Liberal Democrats 57 seats. Other smaller parties won 28 seats in all, with results from four more constituencies yet to be declared. The results of these four seats would make little difference to the fact that Britain faces a hung Parliament. The last time voters in the UK gave such an indecisive verdict was in 1974. Subsequently, when Tory Prime Minister Edward Heath tried to form a minority government it collapsed within days for want of support from other smaller parties at that point in time. Britain has had five hung parliaments since the beginning of the 20th century. As the results started pouring in since the early hours of Friday, Liberal Democrats leader was the first to address the media, where he said his party was willing to talk to Conservatives to find common ground and allow the Tories to form the next government. Prime Minister Gordon Brown accepted this decision by the Lib Dems and said as the Conservatives have garnered maximum number of seats, it was fair on the part of Lib Dems to go to the Tories first. He however asserted that his party door would be kept open, should the liberal democrats fail to come to an agreement with the Conservatives. Political experts and senior party members from across all parties are not expecting any major decision within the next 24-48 hours, with some even claiming it may take days before a clear picture emerges. Conservative Party leader David Cameron, who was the last major party leader to address the media today said he will be making a “big, open and comprehensive” offer to the Liberal Democrats and sounded confident of heading for No.10 Downing Street soon.

After IPO blues, Essar Energy stock battered ahead of official listing on LSE

S Kalyana Ramanathan / London May 06, 2010 General European economic pessimism blamed, reassurance on India investment plans Though the Ruias, promoter family behind oil and power major Essar Energy, might have picked an auspicious Friday (May 7) to list the stock on the London Stock Exchange, the first day of conditional trading on Tuesday proved a dampener. Poor market conditions battered the stock by a 7.3 per cent discount over the original issue price of 420 pence a share. The discounted pricing continued well into the second day of trading today, with the price hovering around 395p a share. On the first day of conditional trading on Tuesday, when the stock quote is displayed with the WI (meaning “when issued”) suffix, the price dropped by 7.3 per cent to 389.5p a share, even though the primary market index, FTSE 100, fell by only 2.6 per cent. Less than a week before, Essar Energy successfully completed its Initial Public Offering (IPO) by selling 303 million shares at 420p each to institutional investors, raising close to $1.95 billion in the process Conditional trading started three days ahead of the official listing in the market on Friday. Conditional trading is a unique rule for stocks that are to be listed on the LSE and is similar to what is called grey market trading in India. EURO GLOOM BLAMED The poor performance of the stock, however, has been attributed to the market condition, triggered by the debt crisis in Greece. The fear that the problem from Athens might spread to other European countries like Spain, Portugal and Ireland dampened overall sentiments, leading to the poor performance of Essar Energy's debut trading. According to Deepak N Lalwani, Director-India, with London-based stockbroking company Astaire Securities: “Essar Energy was just a victim of market conditions over the sovereign debt crisis in Greece and the fear that it might spread to other European countries.” The $2-billion issue from Essar Energy did not get off to a great start even before trading started. The stock was originally priced in the range of 450-550 pence a share. But, lukewarm market sentiments pushed the price down to 420p each, to ensure that large institutional buyers would fully subscribe to this mega issue. The IPO from Essar Energy also took off at a time when smaller issues were getting postponed due to market conditions. UralChem shelved its $642-million London IPO on April 29. Russia’s second-largest maker of nitrogen-based fertiliser said in a statement that its stock “cannot be priced at a level which reflects a fair value of the company” due to “current market conditions”. INDIA INVESTMENT UNAFFECTED The pressure to lower the issue price by nearly seven per cent (on a base price of 450p), however, is not expected to affect the company's investment plans in India. Upon completing the issue, vice chairman Prashant Ruia said the company had hoped to raise at least $2 billion from the issue and it nearly did so. The company further has a 10 per cent greenshoe option, which it may exercise 30 days after official listing, if there is a need to bridge the gap in funding. Essar Energy plans to increase its power generation from 1,220 Mw to 11,470 Mw in two phases, while the oil refinery capacity is to be increased to 7,50,000 barrels a day by 2013, making it India’s largest single location refinery. Essar is also raising money to carry out exploration and production across its global portfolio of oil & gas blocks in Asia, Africa and Australia. The stock will be listed on the London Stock Exchange, following which it hopes to get on the coveted FTSE 100 list (of the most highly capitalised companies), that will make it the second company backed by an Indian promoter to be on the list. Currently, Anil Agarwal's Vedanta Resources holds this solitary distinction.

Voice of Indians ring loud in run-up to UK elections

S Kalyana Ramanathan / London May 06, 2010 In less than 24 hours, the UK goes to the polls to elect the next government and members of the 55th Parliament. Like general elections in every vibrant democracy around the world, this one, too, will be fought and won on local issues — employment, economy and domestic security. However, the British Parliament, unlike most other advanced western democracies, has one distinct identity. The voice for better representation of ethnic minorities comprising Indians, among other South Asians, in Westminster is growing louder by the day. In the 54th Parliament that was dissolved in the second week of April, there were at least six members who could be definitely identified as persons of Indian origin — four from the ruling Labour Party and two from the Conservatives. In the upcoming elections, the Labour Party will field 53 candidates categorised as ethnic minorities and the opposition Conservatives, 44. The third largest party, Liberal Democrats, will field four candidates (of the 100 seats it hopes to win) of South Asian origin. The major political parties fielding an increasingly larger number of ethnic minorities is not just a feel-good statement they try to make, but a necessity for any party that is serious about its position in the new Parliament. The average size of constituencies in the UK is far smaller than what it is in India. For a population of around 62 million, there are 650 members in the House of Commons, against 545 in the Lok Sabha in India representing a population of 1.2 billion. This distinction, therefore, makes a better representation of local population a basic necessity for any party that aspires to form the next government. As per 2001 statistics, South Asians with a 4 per cent representation are the second largest ethnic group in the UK after the whites (92 per cent) who are mainly of British Isles descent. Among the South Asians, India has the largest representation at 1.8 per cent, followed by Pakistanis (1.3 per cent) and Bangladeshis (0.5 per cent). With such a diverse population, immigration is one of the key platforms on which the election will be fought. In the run-up to the election, all three major parties made their stand on immigration loud and clear. The ruling Labour and Liberal Democrats took a less controversial stand, despite promising to tighten the UK's borders. The Conservatives, on the other hand, have promised to bring in a cap on immigration, much like the H1B visa system in the US. The Labour Party has promised to keep a check on immigration, but is not willing to put a cap. It has promised to continue with its point-based system in filtering the visa application it receives for prospective residents. Virendara Sharma, sitting MP and Labour candidate contesting from Ealing Southall, believes immigration will be one of the issues on which this election will be fought. But he says skills shortage would force the government not to put in any definite ceiling on immigration as suggested by the Tories. Deepak N Lalwani, director - India, with London-based stockbroking company Astaire Securities, believes immigration is an issue directly linked to the state of the domestic economy. This, therefore, makes it a key issue in the upcoming election with the UK recording an historical high of unemployment numbers at 2.5 million and an uncomfortable overall rise in government debt. In calendar year 2009, the UK recorded a general government deficit of £159.2 billion, which was equivalent to 11.4 per cent of its gross domestic product (GDP). At the end of December 2009 general government debt was £950.4 billion, equivalent to 68.1 per cent of GDP, according to latest data released by the UK's Office for National Statistics. In the middle of the elections contested on economic and political issues, there is a bit of contest being fought here very much in the style and form of what is normally seen in India. The contest in Sharma's constituency stands out as a good example of this, where he will be opposing Tory member Gurcharan Singh, a former Labour member who defected to the Conservative party in 2007. In this particular constituency, communal representation is a key issue, where Singh's supporters want to see a "turbaned Sikh" to represent them in Westminster. The 75,000-odd electorate in Ealing Southall is roughly made up of 18 per cent Sikhs, 13 per cent Hindus and 11 per cent Muslims. Sharma's supporters say the rivalry in this particular constituency is clearly unique with personal attacks as a preferred tool to gain an upper hand. Despite the election being fought on local issues, all three party leaders — Gordon Brown of Labour, David Cameron of Tories and Nick Clegg, Lib Dem, have vowed to strengthen the UK's relationship with India. As Lalwani says, all parties clearly see India as a major and rising economic force in the global arena. Irrespective of the outcome of the 2010 General Elections, UK-India relationship will not suffer and can only improve from where it is now.

Corus appoints CitiBank to find buyer for UK Plant

S Kalyana Ramanathan / London May 05, 2010 Refuses to comment on speculation about Thailand’s Sahaviriya being one of the parties it is in talks with. Tata Steel’s European arm, Corus, the second-largest steel maker on that continent, has appointed Citibank to help find a suitable buyer for its beleaguered Teesside Cast Products factory in northeast Britain. However, the company refused to comment on speculation about Bangkok-based Sahaviriya Steel Industries (SSI) being one of the parties Corus is in talks with. According to local sources, representatives of SSI visited the plant last Thursday. Vera Baird, incumbent MP for the area, said: “It is not a surprise that an interested negotiator with Corus for the purchase of TCP appears to be SSI, who need more than six million tonnes of steel per year and who know from earlier custom that we can provide three million tonnes of our excellent-quality slab to them. They are a strong company, financially sound and innovative, and would be a welcome partner if a deal is to (be) done.” Bangkok-based SSI is a manufacturer with a capacity of four million tonnes a year. It employs nearly 950 people. Since April 2009, when the TCP plant entered a troubled phase — it was finally decided to mothball it in February 2010 — this is the first time a possible buyer with a name has emerged in the public domain. Last year, a group of steel buyers had withdrawn halfway from a 10-year buying contract, jeopardising nearly 1,700 jobs. Though Tata Steel and Corus have consistently claimed they were exploring a buyer for the plant as a possible long-term solution, no development has taken place till now. Baird and her party’s candidate for the neighbouring area in the coming general elections, Tom Blenkinsop, also a union leader, have asked for openness on what is going on, now that the Thai steelmaker has visited TCP. With just two days before the general elections, the ruling Labour government is under severe pressure to convince its electorate in the region that it is doing its best to resolve this year-long crisis and thus save nearly 1,700 jobs in the company and another estimated 3,000 jobs that indirectly depend on the TCP plant. Meanwhile, Baird, earlier said her meeting with Tata Steel’s vice chairman, B Muthuraman, would take place on May 20. “Like everyone else in Teesside, I will be looking for reassurances that Corus is very serious about finding a buyer for the plant. People have a right to know exactly what is going on,” she said

Essar Energy lowers price of London IPO

S Kalyana Ramanathan / London May 1, 2010 Will raise $1.94 billion on LSE; listing on Friday Essar Energy will raise $1.94 billion through its initial public offer (IPO) on the London Stock Exchange (LSE). The figure is lower than what it had targeted earlier, as the company had to revise the price to 420 pence a share from its previous range of 450 to 550 pence. The IPO coincided with volatility in the stock market after a wave of credit downgrades rattled investor confidence this week. The revised issue price pegs Essar Energy’s valuation at $8.5 billion and, at $1.94 billion, it is the second-largest issue on the LSE after October 2007. Essar Vice-Chairman Prashant Ruia said there would be conditional trading before the actual listing on May 7 (Friday), for which the entire Ruia clan would be present. The company has a greenshoe option of 10 per cent, which has to be exercised within 10 days. Ruia said the gap between the company’s projected issue proceeds was just $0.09 billion. The offer comprises around 303 million new shares, representing 23.24 per cent of the company’s enlarged issued share capital (assuming no exercise of the over-allotment option). Immediately after the completion of the offer, Essar Global Ltd will continue to hold around 76.74 per cent of the issued share capital. Ruia said the company will use the issue proceeds for investment in its oil and gas assets in India and not in buying any oil assets abroad. Essar Energy plans to increase its power generation from 1,220 Mw to 11,470 Mw in two phases, while the oil refinery capacity will be increased to 7,50,000 barrels a day by 2013, making it India’s largest single location refinery. Essar is also raising money to carry out exploration and production across its global portfolio of oil & gas blocks in Asia, Africa and Australia. Investor response has been encouraging, given the backdrop of the financial and economic uncertainty that intensified in the week of book-building, with the Greek debt crisis looming large on the financial markets, he said. The issue went into book-building between April 23 and 29. Even before the issue went into book-building, reports in a section of the media had questioned the price of the issue and the risks attached to it. Questions had also been raised about the composition of Essar Energy’s board, which has seven members, with four independent directors. The CEO of the company is Naresh Nayyar and the four independent directors are Simon Murray, Philip Aiken, Subhash C Lallah and Sattar Hajee Abdoula. The company, on its part, had tried to correct this by bringing on board a fifth independent expat director who has a long record in good governance. The Ruias hope to get into the coveted FTSE 100 list (of the 100 most highly capitalised companies on the exchange), that will make it the second company backed by Indian promoters to be on it. Currently, only Anil Agarwal’s Vedanta Resources holds this distinction. J P Morgan Cazenove is acting as the sole financial adviser and sole sponsor for the offer and together with Deutsche Bank (London Branch) as the joint global coordinators and joint bookrunners. BNP Paribas, Nomura International Plc and Standard Chartered Securities (Hong Kong) Ltd are acting as co-managers.

Clearing the air: What went on behind the scene

S Kalyana Ramanathan / London May 05, 2010 The April 15 decision by air traffic regulators to declare the European air space a no-fly zone had all the elements of a Hollywood blockbuster — the action, the emotions, the expectations and a happy ending. However, the audience from across the world, who were glued to their television sets catching up with every bit of action that unravelled on screen over the six days, missed out on what went on behind the screen. When the south Icelandic volcano erupted, spewing ash into the air in a massive plume sending thick, dark brown ash cloud several kilometres across northern Europe, navigation regulators had few options beyond flight bans. Experts say ash from the volcano could have choked the engines and result in mid-air crisis — in numbers that could feed Nat Geo’s famous Air Crash Investigation series for one whole year. However, little did the authorities relaise how the decision would snowball into a global crisis that the industry is yet to recuperate from — a loss that would cost them $1.7bn. While the unified voice of IATA, the airline industry body, expressed their displeasure about the “$200 million loss of revenue a day”, voices from within the union made far bolder statements —in a tone and fashion few elsewhere would dare. Three voices stood out in the din and noise that followed the crisis that of British Airways’ CEO Willie Walsh, KLM chief Peter Frans Hartman and IATA Director General and CEO, Giovanni Bisignani. Six days into the crisis, when the British government apparently gave a nod to German carrier Lufthansa to fly over the isle provided it was above 20,000 feet, Walsh was infuriated with the decision. He swung into action and ordered 26 of his fleet — stranded with thousands of passenger inside UK and across the world — to come home. According to unconfirmed reports, BA and UK’s navigation service provider NATS had a mid-air debate on whether to allow the aircrafts to land. Subsequently, Walsh’s preemptive action forced NATS and other authorities to give in and allow BA to land its fleet. This, many consider was the breaking point for the week-long crisis, effectively pulling not just BA but other carriers back into business. While many started asking if corporate greed pervaded on Tuesday night, the question today might seem a little late in the day. It would be helpful to remember that Walsh is not all suit-and-tie, ordering potentially risky decisions from the comfort of his office. A week prior to the incident, he took a test flight of a BA aircraft through the plumes. Though he — a licensed pilot who took to flying when he was 17 — did not pilot the flight, he was on board the plane. The 48 year old Irish CEO of BA, has been at the helm of the company since 2005. His official resume reads, “Prior to joining British Airways, Willie was CEO at Aer Lingus, a position he was appointed to in the aftermath of 9/11. Faced with bankruptcy and heavy losses, Willie radically restructured the airline and this culminated in it posting a £73 million profit in 2004, making Aer Lingus the most profitable state-owned airline in the western world.” In his early years, while his office was a plane’s cockpit, he headed the pilot’s union — a role that would come handy when he was dealing with BA’s union that was threatening to go on industrial action. While Walsh was taking the test flights during the peak of the crisis, his counterpart in KLM, Peter Frans Hartman was doing the exact same over Dutch airspace. Hartman’s point, like Walsh was to send the message out loud and clear — what is safe for me is safe for my passengers as well. Hartman, 61, has been with KLM since 1973 where he started with the engineering and maintenance department. He became the president and CEO of KLM in April 2007. While the airline CEOs pressurised European governments through their calculated and daring actions, IATA’s Giovanni Bisignani was true to his role as an industry lobbyist. He called the excessive caution from aviation authorities and European governments as unscientific and ad hoc. “The European system results in blanket closures of airspace. I challenge governments to agree on ways to flexibly re-open airspace.” Twenty four hours later, airports across Europe did open up. The 64 year old IATA’s Italian chief has had a long and flourishing career across industries including banking (Citibank where he started his career). This Harvard Business School product had also been the CEO and managing director of Alitalia. His resounding voice, while has a calming effect on his members, it did act as a wake-up call for governments when he demanded compensation for the losses suffered by airline companies in Europe. He was quick to point out the reaction of the US government when its airspace was shut following the 9/11 attack. “The scale of the crisis (because of the volcanic ash) eclipsed 9/11 when US airspace was closed for three days,” Bisignani argued. While some may call this brinkmanship driven by greed, there are voices in the industry which disagree. John Strickland, director with the London based aviation consulting company JLS Consulting said both BA and KLM have had in the past flown through volcanic ashes and know what exactly was going on. He further said, Bisignani’s style of “shouting politely” is the best way to make government’s hear the woes of the aviation industry. Laurie Price, director of aviation strategy at consultants Mott MacDonald agreed. “Rising fuel price is pushing costs up. Yields are down. Labour unrest in some parts and surface competition that are heavily subsidised. The aviation industry on the other hand contributes £3 billion a year to the exchequer (in the UK) and pays for is own infrastructure.” Other experts said that privately-owned navigation agencies were being extra cautious because they were not sure if they could handle the insurance claims should there be any mid-air catastrophe. “For this, the aviation industry was bleeding.” While this may be a point for future debate, for now it explains in part, why the cowboy CEOs in Europe straddled their horses and cocked their guns last week and took on the establishments like men on a holy mission.

European Commission clears relief package for airlines

S Kalyana Ramanathan / London May 2, 2010 The European Commission (EC) has approved a relief package that its member states can announce in support of the airline industry. The move comes as carriers suffered huge financial losses after European aircraft were grounded as a safety measure when a volcano in Iceland erupted last month. The volcano belched large amounts of ash into the sky, which was deemed a hazard to aviation. Apart from financial support, that will not be state aid, the commission has suggested medium-term structural measures like speedy implementation of a Single European Sky — an objective that is set to be in place by 2012. The EC asked its members not to provide any direct state aid to carriers but provide financial support by deferment of certain charges and flexibility in application of rules. “The commission will not object to member state measures to waive operational restrictions for short periods — like flight restrictions — until the return to normality of the overall network and the repatriation of all stranded passengers. With regard to route charges, the commission will recommend to member states and to Eurocontrol to assess immediately the possibility of deferring the actual payments for en-route charges for a defined period of time. This is an important measure to provide some relief from immediate cash flow problems. Member states should take all appropriate steps in relation to their air navigation service providers,” the EC said in a statement. The EC estimated the overall loss to the airline industry due to the volcanic ash crisis that lasted a week between April 15 and 21 at ¤2.5 billion. European Commission Vice-President (Transport) Siim Kallas said: “The European Union has been hit by an unprecedented crisis with the closure of airspace due to the volcanic eruption, leading to more than 100,000 cancelled flights and more than 10 million passengers unable to travel. Now, as we are getting back to normal, our focus can shift to relief measures for the industry. This is about practical measures to provide relief to the air transport sector so that it can weather this crisis. The commission is also proposing structural changes to ensure we do not face this situation again.” Airlines industry body IATA welcomed EC’s relief package. “These urgent measures will provide a much needed assistance to airlines at a time when their financial resources are stretched,” IATA Director General and CEO Giovanni Bisignani said. While the short-term financial measures will be implemented immediately, the medium-term solutions will be discussed at the transport ministers’ meeting in Brussels on May 4. Single sky Apart from short-term financial support, the EC has said that member states must accelerate their move towards a more integrated European sky. The Single European Sky package aims at redesigning the European sky according to traffic flows rather than national borders. In particular, the single sky package would put in place a single European system for air traffic, which would co-ordinate the work of 27 national air traffic controllers, EC said. The commission is proposing to fast-track many elements of the Single European Sky package already by the end of 2010. In particular, the appointment of a European network manager before the end of 2010 is crucial. If the network management function had been designated prior to the crisis, the situation would have been quite different. A more harmonised and co-ordinated approach to risk and flow/capacity assessment, and the ability to formulate quickly proposals for solutions are needed.