Global Finance (February 2006)

52 Pages·2006·5.844 MB·English

SOFTWARE GIANTS GLOBAL CUSTODIANS WORLD’S DEBT MARKETS
OFFER NEW FINANCE VENTURE INTO PREPARE FOR CHANGES
SOLUTIONS NEW TERRITORY AT THE FED
PAGE 24 PAGE 27 PAGE 40
S U R V E Y W O R L D ’ S B E S T T R A D E F I N A N C E B A N K S
FEBRUARY 2006
RUSSIAN
Foreign-owned
banks play
politics as the
PIPE DREAMS
Kremlin raises
the stakes
PAGE 18
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DEAR READER
FEBRUARY 2006 | VOL.20 NO.2
Balance of Power
R
ussia’s recent spat with Ukraine over the price of gas sent
much of Europe into a spin as politicians and
EDITOR IN CHIEF AND CHAIRMAN: PAOLO PANERAI
businesspeople alike began to see how vulnerable their
PUBLISHER AND PRESIDENT:JOSEPH D. GIARRAPUTO
own energy supplies could be.But as we find out in our cover
ASSOCIATE PUBLISHER:MATTEO GABBA
story this month (see page 18),the fracas also exposed some other
uncomfortable truths about the Kremlin’s plans to use Russia’s vast
EDITOR:DAN KEELER
oil and gas reserves as a political tool.
EUROPE EDITOR/LONDON:ANITA HAWSER
The scale of the reaction to Russia and Ukraine’s dispute
CONTRIBUTING WRITERS:
highlights just how much—and how quickly—the global balance GORDON W. PLATT, JR., MARK LEHANE, LAURENCE NEVILLE,
THOMAS CLOUSE, AARON CHAZE, ANTONIO GUERRERO,
of power is changing.For example,in only a short space of time KIM ISKYAN, PAULA L. GREEN, DENISE BEDELL
China has amassed eye-popping foreign exchange reserves,and it
PRODUCTION MANAGEMENT (MILAN):
looks as though those reserves will continue to grow by around GIULIANO CASTAGNETO
20% per year.By the end of last year the country had salted away ART DIRECTION:ER CREATIVITY/ENRICO REDAELLI,
CLARA CIOCCHINI
more than $800 billion.Within just one more year its foreign
COPY EDITOR: TINA ARIDAS
exchange reserves are expected to top $1 trillion.With such a vast
stash at its disposal,China certainly will have the power to move
MANAGING DIRECTOR, EUROPE AND ASIA:GRAEME McQUEEN
markets—whether or not it wants to.
VICE PRESIDENTS, SALES:SEBASTIAN CAZEIRO,
Change in the old world order is snowballing as countries such LEWIS GALATI, PETER RIORDAN, THOMAS GEORGIADES,
RICHARD SCHOLTZ, SALES MANAGER, EUROPE
as China,India and Russia are beginning to flex their growing
economic and political muscles.In a move that sent shivers through
MKT’G COORD, SPECIAL PROJECTS/EVENTS:
the oil-producing world,China and India announced last month NATASHA TRAJKOVA
that they would work together to secure energy supplies for the PUBLISHING ASSOCIATE:
future.Last year,as the two countries faced off against each other in LAURA GALLETTI
MANAGING DIRECTOR, OPERATIONS:
a scramble to secure access to dwindling oil supplies,they realized
CHRISTOPHER GIARRAPUTO
that fighting for access to oil served only to push up the prices they
ACCOUNTING MANAGER:YAWO GBEGNEDJI
were paying.By teaming up in their efforts to satisfy their thirst for
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Turkey:Lemi Tanca
prepare themselves for what will undoubtedly be a very different
GLOBAL FINANCE MEDIA INC
world in the very near future. CHAIRMAN: P. PANERAI
VICE CHAIRMAN:A. BASODAN
Until next month. DIRECTORS:G. CAPOLINO, J. GIARRAPUTO,
A.MATTEI, I. MAJEED, V. TERRENGHI
SECRETARY:L. PANERAI
FOUNDING EDITOR:CARLG.BURGEN
February 2006, Volume 20, Number 2. Global Finance (ISSN 0896-4181/USPS
006-578) is published monthly except a combined July/August issue in July
Dan Keeler by Global Finance Media Inc, 411 Fifth Avenue, New York, NY 10016. Telephone:
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INTERNATIONAL R
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CONTENTS
FEBRUARY 2006 | VOL.20 NO.2
COVER STORY COVER STORY
REGULARS
BY MARK LEHANE
18 Russia
Russia’s president Putin knows he’ll 1 Dear Reader
need help to turn his country’s A letter from the editor.
energy wealth into an effective
political tool.Western banking 4 Newsmakers
giants are scrambling to assist Citigroup’s Charles Prince sets his sights
him—and to grab a slice of what on China; SECgets a new chief legal
promises to be a very large pie. FINANCIAL SOFTWARE officer; Bolivia’s new president squares up
BY ANITA HAWSER to Washington; and India’s airline chiefs
FEATURES make waves.
24 Enterprising Solutions
8 Milestones
Software giants are developing Brazil sets pace as Latin America frees
new financing techniques in an itself from the IMF; a fracas over
attempt to provide smaller privatization of Romania Telecom exposes
companies with access to their rifts in the investment banking world; Ford
pumps more juice into troubled Jaguar;
high-end systems.
SECTOR REPORT: and country risks ebb as growth feeds
GLOBAL CUSTODY through to emerging markets.
27 The Need To Be Different BY ANITA HAWSER
As their customers’needs become
12 Emerging Markets Roundup
ever more complex,custodians are
The latest news from India, China, Brazil
finding themselves providing and Russia.
services that are far beyond their
traditional realm. 16 Emerging Markets Investor
Key information for investors in emerging
31 World’s Best Trade Finance AWARDS: TRADE markets.
Banks 2006 FINANCE BANKS
Global Finance selects the leaders in BY GORDON PLATT 40 Corporate Debt
a specialized area of finance that is Flatter yield curves and a possible move
to inflation targeting by the US Federal
undergoing some jarring changes.
Reserve could be in store for the global
debt markets in 2006, but no credit
crunch is anticipated as economic growth
remains strong.
44 Mergers & Acquisitions
Last year was the best year for mergers
and acquisitions worldwide since 2000,
with the energy and power sector leading
the way.
46 Foreign Exchange
Speculative investment flows into East
Asian stock markets are boosting local
currencies and raising concerns about
what will happen if flows should suddenly
reverse.
48 Global Equity/DRs
Both the value of investment in depositary
receipts and the trading value surpassed
$1 trillion for the first time in 2005, helped
by Russian companies listing DRs on the
London Stock Exchange.
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NEWSMAKERS GLOBAL F FINANCE
AROUND THE WORLD
UNITED STATES/CHINA
UNITED STATES
CITIGROUP BANKS SEC CHAIRMAN NAMES
NEW GENERAL COUNSEL
ON GROWTH IN CHINA
Citigroup chief executive amount of non-performing
Charles O.Prince told an loans on the books of
investor conference in medium-size Guangdong
New York in December that Development Bank.Citigroup
the bank has a plan to boost and its local partners bid
the share of its profits that about twice the bank’s book
comes from its overseas value,topping offers from
operations.Thus it came as no France’s Société Générale and
big surprise a few weeks later China’s Ping An Insurance.
when a consortium led by Singapore-based DBS
Citigroup raised its bid for an dropped out of the bidding a
85% stake in China’s few weeks earlier.
Guangdong Development Citigroup’s interest in
Bank to $3 billion.If China also was apparent in
completed,the deal would late December,when it The SEC’s new chief legal officer, Brian Cartwright
make Citigroup the first agreed to quadruple its stake
Securities and Exchange Commission chairman Christopher Cox,
overseas investor to buy in Shanghai Pudong
who hails from California’s wealthy Orange County, named Los
control of a state-run bank in Development Bank to 19.9%,
Angeles lawyer Brian Cartwright, a former astrophysicist, as the
China,where economic at a cost of about $875
agency’s chief legal officer. Cox and Cartwright both attended
growth has averaged 9.5% for million.Prince has said that
Harvard Law School and worked together at Latham & Watkins,
the past 25 years. he expects China’s future
the fifth-largest law firm in the United States.
The Chinese government, growth to be led by consumer While Cartwright’s long-standing ties to Cox suggest that the
which had imposed a 20% cap spending,and the bank is old-buddy network is alive and well, his record can stand easily
on foreign ownership of expected to focus on home on its own merits. After graduating from Yale University,
domestic banks,was expected loans,auto loans and credit Cartwright earned a Ph.D. in physics from the University of
to grant Citigroup an cards. Chicago and was a research physicist at the University of Cali-
exception because of the large Guangdong,which is near fornia at Berkeley’s space sciences laboratory. He was president
Hong Kong,has the of the Harvard Law Review and served as law clerk to US
highest per capita Supreme Court justice Sandra Day O’Connor. At Latham &
Watkins, he chaired the firm’s public-company practice, where his
income in China after
recent clients have included AmGen, a biotechnology company,
Beijing and Shanghai.
and Edison International, an electric utility.
Citigroup was
“Brian Cartwright will be a relentless and powerful champion
anxious to catch up
for investors, and will continue the SEC’s tradition of exceptional
with rivals HSBC and
professionalism,” Cox said in a statement. The general counsel
Bank of America,
evaluates the legality of new rules as they are being developed,
which had bigger
advises the agency’s commissioners and represents the SEC in
investments in China,
court cases. The agency is currently being sued over rules re-
analysts say.Foreign quiring mutual funds to have an independent chairman and re-
banks are stepping up quiring hedge fund managers to register with the SEC.
their investments in Cox, a former Republican congressman known for his pro-busi-
China ahead of the ness stance, replaced William H. Donaldson, who resigned as SEC
full opening of its chairman in June 2005. Cox likely will have an ally in Cartwright
banking sector to in seeing that investor protection doesn’t come at too high a cost
overseas competitors for business, although most of the Sarbanes-Oxley Act’s reforms
later this year. dSoimn’ot ns eZeadme kto be in danger of being watered down. –GP
CChhaarrlleess OO.. PPrriinnccee
—Gordon Platt
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FX Update
Petrodollars and the US Dollar Outlook
TheUSdollar’sstructuraldeclinewasinter- latesUS demandfor
ruptedin2005,despitecontinueddeterio- f o reigngoods. Asian
rationintheUScurrentaccountdeficit,as e xchangerateinflexi-
rapidlygrowingvolumesofpetrodollars bilityfurtherexacer-
wereincreasinglyinvestedintoUSsecuri- batesmatters,yielding
ties.Energycommoditiessuchascrudeoil whatiscommonly
andnaturalgasaresoldinternationallyin re f e r redtoastheglob-
USdollarterms.Inordertoimportoiland alimbalancespro b-
lem.AslongasUS
As long as US interest rate differen-
i n t e restratediffere n-
By :Michael Wo o l fo l k ,
tialsremainpositive,it
tials remain positive, it appears that Senior Cu r r re n cy
appearsthatpetro d o l-
St ra te g i st
larswillcontinueto
petrodollars will continue to support
s u p p o rtthevalueoftheUSdollar.So,what
couldchangethissanguineview ?
the value of the US dollar.
Thelatestquarterlyre p o rtfromtheBankfor
gas,localcurrenciesmustbesold,anddol- InternationalSettlements(BIS) indicatesthat
larspurchased,withtheresultingprofits p e t rodollarshavebecomeincreasinglysensi-
referredtoaspetrodollars.Netoilexporters t i vetointerestratedifferentials. Whileoil
havesustainedextraordinarywindfallsover pricessoaredin2004,generatingsubstantial
thepasttwoyearsduetoaprolongedrisein p e t rodollarprofits,USinterestratesre m a i n e d
energypricesthatfewanticipated.Ayear quitelow.Consequently,negativeUSintere s t
ago,OPECwasforecastingthatoilprices ratedifferentialsdiscouragedpetro d o l l a r
wouldfallbackbelow$40/bbl.Twoyears i n vestmentintheUSbondmarket.Asthe
ago,$30/bblwasbelievedtobeastable USFed continuedraisinginterestratesin
equilibrium.Oneofthereasonsforthissus- 2005,USinterestratedifferentialsturned
tainedriseinenergypricesistherapideco- p o s i t i ve,encouragingpetrodollarinve s t m e n t
nomicgrowthofemergingAsia,particularly intoUS bonds.Thismayhelpto explain
ChinaandIndia,whichhasbolsteredglobal Gre e n s p a n’snowfamous“c o n u n d ru m” com-
demandforoilandgas. ment,referringtothefailureofthelong-end
oftheUSyieldcurvetorespondto Fedtight-
The“p e t rodollareffect” hasbeenbotha ening.Therisknow isthattheUSintere s t
blessinganda cursefortheUSeconomyand ratedifferentialscouldonce againturnnega-
theUSdollar.Therisingglobaldemandfor t i ve, promptingoil exporters toselltheirUS
energyhasstimulatedoilandgaspricesand bondholdingsastheylookelsew h e refor
p rovided new-foundballastfortheUSdol- higherreturns.This riskwouldbecom-
l a r.Re i n vestmentofpetrodollarsintotheUS poundedifthedollarbegan toweaken.
bondmarkethaskeptUSbondpriceshigh
andtheirre s p e c t i veyieldslow.Lowbond During2006itwillbeimportanttomoni-
yieldshaveinturncontributedtostrongUS torchanging monetarypolicy intheUS,
economicgrowthbykeepingborrowingcosts Eu ropeandJapan. Theresumptionofthe
andmortgagerateslow.Howe ve r,theUS USdollar’sstructuraldecline couldve rywe l l
c u r rentaccountdeficitcontinuestogrowas hingeuponthereturnofnegative USinter-
s t ronggrowthandastrongcurrencystimu- estratediffere n t i a l s .
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BOLIVIA
MORALES’S HOMEGROWN SOLUTIONS
The election in December of energy resources.Bolivia is Investors are eyeing Morales’s
Evo Morales,46,as South America’s second-largest proposals but not yet exiting.
Bolivia’s new president is natural gas exporter,with Spain’s Repsol YPF,whose $1.2
raising concerns among foreign estimated reserves of 53.3 billion in local assets make it
investors.The leftist leader is trillion cubic feet. Bolivia’s largest foreign investor,
calling for nationalizations and Morales aims to nationalize plans to sit tight.Morales hopes
bracing for a face-off with the energy sector and review to attract new investors from
Washington. contracts with multinational China.European leaders have
The former coca farmer and investors,whom he accuses of advised him not to take radical
high school dropout is an tax evasion and resource steps that might hinder
Aymara Indian.Despite the fact smuggling.He explains that investments,as political
that native groups,which nationalization will not instability curbed gas sector Evo Morales,
Bolivia’s new president
account for more than 60% of translate into confiscations. investments from $608 million
the population,were given the “Today in my country,no in 1998 to $200 million in
vote in 1952,Morales is the contract is constitutional,”he 2004.Morales expects to invite end to the US-led coca
first indigenous president in told the press during a trip to the Organization of American eradication plan and praising
Bolivia’s 180-year history.At Paris as part of a tour that took States (OAS) as arbiter. Cuba’s Fidel Castro and
the core of his platform is a him to Europe,Brazil,China Washington says it is Venezuela’s Hugo Chávez—the
plan to redraft the constitution and South Africa.“Any watching Morales’s moves US’s Latin American
to include greater rights for contract with companies must before deciding whether to nemeses—battle lines between
indigenous peoples and a be ratified in parliament,and withdraw its assistance,which Washington and La Paz appear
proposal to increase over 70% of contracts have not totaled $90 million in 2005. to have been drawn.
government control over been ratified by parliament.” With Morales calling for an —Antonio Guerrero
INDIA
INDIA’S AIRLINES FLYING HIGH
The Indian airline industry ers of airplanes. In the nine-month period ended July 2005, In-
has hit a new high in Janu- dian airlines ordered 250 aircraft from various global manu-
ary 2006 in terms of capacity facturers including Brazil’s Embraer—roughly half of the total
addition, following a remark- orders placed with aircraft manufacturers during that period.
able year of aircraft acquisi- India’s airlines ordered more than 200 planes in calendar
tions in 2005. In the first week 2005, worth over $24 billion.
of January 2006, Air India, the Besides the IndiGo acquisition, others such as Jet Airways
state owned airline, placed an (India’s largest privately owned carrier), Kingfisher Airways
order for 68 jets with Boeing. and Deccan Air placed orders worth $17 billion for a total of
The order was worth $11 bil- 150 planes. The explosion in demand for domestic air travel as
lion—the largest ever placed by people shift from costly train journeys as well as the expansion
IInnddiiGGoo’’ss RRaakkeesshh GGaannggwwaall any Indian airline. It also took and modernization of many airports in the country undertaken
close to a decade to negotiate. by the Indian government is prompting a major capacity ex-
In terms of number of planes the largest order from an Indian pansion, and several new airlines have sprouted in the past two
airline came from IndiGo, a new private airline co-founded by years, including Deccan, IndiGo, Paramount, Spice Jet and
Rakesh Gangwal former CEO of US Airways. That airline or- Kingfisher.
dered 100 jets from Airbus in an order worth $7.8 billion, at the Both Boeing and Airbus are hoping the buying will continue
Paris air show in July 2005. and are investing unprecedented amounts in India in pilot-
The Air India order is a milestone in Indian aviation since it training facilities, including simulators, and in aircraft mainte-
puts India firmly on the map as one of the world’s largest buy- nance. —Aaron Chaze
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