To Bear or not to...

IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA

According to Nouriel Roubini, Professor of Economics, Stern School of Business & Chairman RGE Monitor, “The credit losses could reach to $1.7 trillion as corporate losses piles up.” With more than 45 of the world’s biggest banks, including Citigroup Inc., UBS AG, Wachovia & Northern Rock reporting a combined $232 billion in asset write-downs and credit losses since the beginning of 2007; the estimates arrived at by the likes of Roubini seem to be more than obvious. For the yet uninitiated (surely there aren’t many of those!), the world’s largest bank Citigroup is in talks to sell $12 billion worth of loans at a loss as part of an effort to shrink its balance sheet, while UBS AG’s share price has plummeted in the recent months after it reported a loss of $18 billion in US subprime crisis.

Is the ghost of 1929 returning to haunt the US? Going by the recent developments in the US it is quite certain that be it Clinton, McCain or Obama, the new American president will be elected against the backdrop of a shrinking economy and on assuming the reins of power corridors, will face months of economic malaise. In all probability, the credit crisis scenario in the US will initially only worsen before improving.

When the leaders of the Federal Reserve Board and the government met on the weekend of March 14-16, they were panicked and fearful of a financial meltdown. A day back, on March 13, 2008; the fifth largest investment bank of US, Bear Stearns, citing reasons of intensified financial constraints, had advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and it would have to file for bankruptcy the next day unless alternative sources of funds were made available. As a part of the conclave, JP Morgan Chase turned out to be the dominating player negotiating and demanding big time collateral and guarantees to buy out Bear Stearns and alleviate the fears of Wall Street. According to risk guru Nassim Nicholas Taleb, “Banking is a very treacherous business, because you don’t realise it is risky until it is too late. It is like calm water that delivers huge storms.” It is ironical that Bear Stearns, regarded as one of the most prestigious on the Wall Street, would become the biggest victim of the credit crunch that has roiled the market since last August, and be acquired for a pittance. Barely a year ago, their shares traded at $159 and JP Morgan Chase left no stone unturned to bring the financial giant to its fold at just $2 a share (share prices were later raised to $10 a share).

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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SALIM-SULAIMAN - brothers in harmony

IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA

Hum Tum, Fanaa, Dhoom, Dhoom II, Krrissh, Namaste London, Chak De! India… Besides being among the biggest hits of the past two years, these movies have also had some lovely music and each of these films owe their chart-topping numbers to the duo Salim-Sulaiman. Salim Merchant and Sulaiman Merchant started out with commercials, moved on to composing for Indi-pop albums like that of Shweta Shetty, and began composing background scores for movies around the mid 90s. They first came into notice when they composed music for the movie Hamesha, but it was with Ram Gopal Varma’s Bhoot that they truly made it big. Since the past three-four years, almost every big banner production has picked Salim and Sulaiman to compose the background scores of their movies.

Salim and Sulaiman have been raking in awards at the annual award functions too. From Filmfare Awards to IIFA Awards to Star Screen Awards, their talent has been recognised and rewarded by all. The duo is tremendously optimistic about their future and that of Bollywood. “Right now, Bollywood is at its peak. We (the industry) really are doing world class music,” said Salim. Revealing their plans for the future, Salim said, “We are also talking to a lot of people in US for independent American films.”

“We want to start a music school in India, which would concentrate on western classical music. There are a lot of classes and gurus from gharanas, who train you in Indian classical stuff, but a western classical school where a teacher teaches you the violin, is what’s missing and is what we want to get into. We have some string players and orchestra players but we think that 10 years later we won’t have any string players. Western classical music is a big part of our Indian music industry. We need orchestra players in our country. It’s our dream and vision to leave behind something for the industry that has given us so much,” said Salim.

For such dreams and for melodies that can inspire more to dream, Salim-Sulaiman are brothers we’re placing our bets on for the coming years.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Can Pakistan’s weapons fall into the wrong hands? By saurabh shahi, shahid hussain and mayank singh

IIPM - Admission Procedure

It’s an issue that grabs the mainstream headlines at regular intervals. It’s also a debate where, depending on the existing situation, the importance of supportive or critical voices of nations, diplomats and experts keeps fluctuating wildly. Recently, when two Pakistani nuclear scientists were ‘kidnapped’ near the country’s north-western border with Afghanistan, several Indian experts thought that the duo had actually ‘defected’ to terrorist group, Al Qaeda, to offer their services to build a nuclear weapon.

These believers in ‘rogue nukes’ pointed out that similar incidents had happened in the past. “Pakistan’s top nuclear scientists, Sultan Bashiruddin Mahmood and Chaudhry Abdul Majeed, met Al Qaeda members on two occasions in 2000 and 2001, and shared sensitive nuclear secrets. As far as the kidnapping of two scientists is concerned, I don’t say that they are going to join hands with the terrorists. But it has happened once, and I am not sure that it’s not going to happen again,” says Reshmi Kazi, Associate Fellow, Institute for Defence Studies and Analysis in India.

Adds Brig. Gurmeet Kanwal (retd.), Director, Centre for Land Warfare Studies, “Three Pakistani nuclear scientists were arrested and handed over to the US intelligence agencies in 2001. Two of them were senior scientists, who had set up an NGO, Ummah Tameer-e-Nau, after their retirement, and its membership comprised nuclear scientists and military officers known to have close links with Taliban, former Afghanistan’s conservative-religious regime, which gave a safe haven to Al Qaeda’s Osama bin Laden.

In India, such conclusions gain credence, especially when advisors like M.K. Narayanan, National Security Advisor, espouse similar sentiments. A month ago, without naming Pakistan, he said that “credible reports suggest that the region has been both a source and destination for proliferation of weapons of mass destruction material and equipment, a situation that is a cause for concern. A great threat to stability from nuclear weapons in the hands of volatile states cannot be discounted.”

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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Maddening déjà vu

IIPM : EXECUTIVE EDUCATION

Mr. Chidambaram faces stark choices all over again

As Dalal Street – along with many other streets from Tokyo to New York – started behaving like a new jet aircraft whose pilot has lost control, one couldn’t but help wondering about the days in mid 1990s when the C. R. Bhansali scam had put paid to the hopes raised by Mr. P. Chidambaram as Finance Minister. The stock market scam then was also associated with two things. First, it was tantalisingly close to and linked with the East Asian melt down of 1997. Second, elections were in the horizon and Mr. Chidambaram threw fiscal caution to the winds by announcing huge Fifth Pay Commission hikes for government servants. Back then, the US economy was still not as profligate a borrower as it is today. Nor were China, Russia, Iran and Venezuela swimming in dollars.

It is 2008 now and there is a strong sense of déjà vu. Stock markets around the world – particularly in Asia – have been tumbling like nine pins on fears of a recession in the US economy. India is no exception except the fact that the economy and Dalal Street are far more integrated with global financial markets than they were in 1997. It will probably be a matter of time before the latest Indian stock market scam is unveiled. Mr. Chidambaram is the Finance Minister who has been often dreaming about dream budgets. General Elections are not too far away. The Sixth Pay Commission has already submitted most of its recommendations for pay hikes for bureaucrats. So don’t be surprised if Mr. Chidambaram surrenders to UPA realpolitik and one of his colleagues announces a huge pay hike for government servants – without a single word on administrative reforms recommended by successive pay commissions.

As it happened after 1997, there are huge chances that Mr. Chidambaram may not remain the Finance Minister because his government will probably be voted out. But once again, his successor will have to struggle with the havoc that has been created by tumbling markets, panicking economies and ‘no comment’ finance ministers who pay more attention to electoral compulsions than their own convictions. Who said history doesn’t repeat itself again and again?

Sutanu Guru

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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King fissure or Dare Deccan?

IIPM : EXECUTIVE EDUCATION

Kingfisher’s takeover and proposed merger with Deccan raises questions...

Just a few handful of days after Vijay Mallya announced that Kingfisher would merge with Air Deccan, came the announcement of Mallya’s 46% stake ownership in Air Deccan going up to 50% through a block 4% purchase on Indian stock exchanges. But really, despite all the pricing advantages that the acquisition of Air Deccan provides to Kingfisher, B&E tells you why this merger makes little logic!

But even before understanding the ramifications, one has to clearly differentiate between an acquisition and a merger! Acquisition simply means the purchase of shares of one company (Air Deccan in this case) by another (Kingfisher Radio, a Vijay Mallya company). Both companies remain separate legal entities despite the acquisition. A merger, on the other hand, means that the two companies cease to exist separately, and are seen in legal terms as one new company (with perhaps different brand names within the new entity). Given this, Mallya’s issues are as follows:

Legal issues:

It’s akin to the difference between a live-in relationship and a marriage. Till the time the two companies remained separate, any financial exigencies of Air Deccan remained legally isolated within that airline itself. But now, Kingfisher – and in turn the UB Group – would become lawfully liable to pay for all such financial demands that Air Deccan might have to pay. Given the bloodbath already present within the industry, such a merger move seems highly questionable, when an acquisition was already giving the best of both worlds to Kingfisher, which takes us to our second point... Financial issues:

Gopinath had commented previously to us, “We’re aiming for profitability by 2008 and will achieve it!” Well, with a combined accumulated loss touching an outrageously scandalous Rs.20 billion (Rs.9.923 billion for FY’ 07 alone), this merger seems to have put paid to those plans too!

Branding issues:

Once the merger comes through and Air Deccan becomes a Kingfisher division (rather than a different company), the highly benchmarked Kingfisher brand could be crucified on the altar of consumer perception. A fear much real now as there have been confirmed reports of Air Deccan passengers who, after their flights have got cancelled, were given tickets on Kingfisher. With horror tales all abound about LCC flights being cancelled at the drop of the hat, Kingfisher’s pristine brand value is bound to start falling alarmingly if consumers cannot differentiate between the two brands in the coming months.

Operational dis-synergy: One logic of the merger could have been that after the merger, Vijay Mallya, without being questioned by shareholders, could have easily utilised all the capacity of Air Deccan – from pilots (which Kingfisher requires by loads), to maintenance infrastructure, to parking bays, to airplanes themselves! Though Vijay Mallya has mentioned that there would be one management team for both airlines, with a Wall Street Journal publication now reporting that Captain Gopinath has confirmed both airlines would be kept operationally separate, even this concept of synergy falls down!

Shareholder value decimation:

This factor is the most important for any CEO. It was perceived that the merger announcement could reduce the Kingfisher share worth, but would necessarily improve Air Deccan’s share value as shareholders would feel their brand image is being catapulted into the big league. Let’s see what really happened! Well, on December 18, 2007, Air Deccan’s share was trading at around Rs.316. With the news of the merger, Deccan’s share price plunged by almost 15% in a single trading session; and continues to languish! By the last closing of trade on December 26, 2007, Deccan Aviation had already lost a huge Rs.5.7 billion in stock value on the bourses!

The positives:

Still, it’s not the end of the world yet. In fact, just based on the acquisition (and not because of the merger), there are huge pluses. Already, the combine has emerged as the largest domestic carrier in the country with 570 daily flights, connecting 69 destinations across the country, a feet they’re managing with a smashing fleet of 78 aircrafts! That’s larger than that of even Indian, the government airline, which has 74 aircrafts! With the largest combined market share in India (around 32%: DGCA data), the kind of quasi-monopoly pricing the combine could demand might be enough to change the profit equation within a period of three years. Of course, with Kingfisher’s 106 new Airbuses (including 5 superjumbo A380s) and Air Deccan’s 54 A320s scheduled for delivery over the next 5-7 years, infrastructure support (including parking bays) could prove to be quite a major stumbling block.

Clearly, the acquisition of Air Deccan notwithstanding, the subsequent proposition of merger seems to be made with less positioning and financial standing. Well, when we asked Gopinath about the similarities he sees with Mallya, he divulged, “Our interests and lifestyles are ‘totally different’! We sometimes get together and enjoy each other’s company, but that’s it...” Well Sir, we hope you both continue ‘living-in’ this relationship rather than jumping into marriage! They say marriage lasts seven lives...

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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