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Saudi Aramco takes another step toward first public offering

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Saudi Arabia’s state-owned oil giant Aramco revealed it will sell up to 0.5% of its shares to individual investors, but in a lengthy document published late Saturday it did not disclose how much of the company will be floated when it goes public on the country’s domestic exchange.

Still, the highly-anticipated sale of even just a sliver of the company is expected to make this the world’s biggest initial public offering. Saudi Aramco is the most profitable company globally, producing more than 10 million barrels of crude oil a day, or some 10% of global demand.

Despite questions over Aramco’s valuation and how much of the company will ultimately be for sale on Saudi Arabia’s Tadawul stock exchange, the company’s size and profitability has made it undeniably attractive to potential investors. Trading could begin as soon as Dec. 11, according to state-linked media.

The oil and gas company had profits of $111 billion last year, more than Apple, Royal Dutch Shell and Exxon Mobil combined.

In a roughly 650-page preliminary prospectus, Aramco said the offering period for investors will begin Nov. 17. It will close for individual investors on Nov. 28 and for institutional investors on Dec. 4. Aramco will price its shares on Dec. 5, according to the document.

The company stated its plans to pay out an annual dividend of at least $75 billion starting in 2020, but questions linger over how much Aramco is worth.

Crown Prince Mohammed bin Salman has said the company is worth some $2 trillion, but analysts estimate the value is closer to $1.5 trillion.

The kingdom’s plan to sell a small percentage of the company is part of an ambitious economic overhaul spearheaded by the crown prince to raise new streams of revenue for the oil-dependent country, particularly as oil prices struggle to reach the $75 to $80 price range per barrel analysts say is needed to balance Saudi Arabia’s budget. Brent crude closed Friday at around $62 a barrel.

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Very critical situation for Vodafone in India, says CEO Nick Read

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Vodafone said its future in India could be in doubt unless the government stopped hitting operators with higher taxes and charges, after a court judgment over licence fees resulted in a €1.9 billion group loss in its first half. Chief executive officer (CEO) Nick Read said India, where Vodafone formed a joint venture with Idea Cellular in 2018, had been “a very challenging situation for a long time”, but Vodafone Idea still had 300 million customers, equating to a 30% share of the sizable market.

“Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that we got the negative Supreme Court decision,” he said on Tuesday.

Vodafone had asked the government for a relief package comprising a two-year moratorium on spectrum payments, lower licence fees and taxes and the waiving of interest and penalties on the Supreme Court case, which centred on regulatory fees.

Asked if it made sense for Vodafone to remain in India without such a relief package, he said: “It’s fair to say it’s a very critical situation.”

India’s top court upheld a demand from the country’s telecoms department for $13 billion in overdue levies and interest last month, hitting the shares of both Vodafone Idea and rival Bharti Airtel.

Vodafone has clashed with Indian authorities over tax and regulatory issues ever since it entered the country with a $11 billion deal to buy 67% of Hutchison Essar in 2007.

The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone’s problems by sparking a brutal price war.

It responded by combining its operations with Idea Cellular, a deal that closed in 2018.

Read said Vodafone was not committing any more equity to India and the country effectively contributed zero value to the company’s share price. As a result of the ruling, it has written down the value of its stake in the joint venture to zero.

It also owns a stake in Indian tower operator Indus Towers, along with Bharti Airtel.

Vodafone’s shares were up 1.7% at 163 pence at 1040 GMT as investors focused on an upgrade to its earnings forecast rather than India.

UPGRADED FORECAST

The world’s second largest mobile operator reported improving organic revenue growth with signs of improvement in Spain and Italy and as it integrates a German cable acquisition.

It said organic service revenue rose 0.3% in the first half, as it returned to growth in the second quarter, while organic core earnings rose 1.4%.

It increased its forecast for adjusted core earnings to €14.8-15 billion from its previous forecast of €13.8-14.2 billion, but said India and lower cash flows following the sale of assets in New Zealand meant free cash flow would be “around” €5.4 billion, rather than the “at least” €5.4 billion previously forecast.

Apart from India, Read said he was pleased with progress.

“This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa,” he said.

Read cut Vodafone’s dividend for the first time in May after tough market conditions and a need to invest in its networks and airwaves caused him to backtrack on his pledge not to reduce the payout.

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Rupee slips below 72-mark against USD

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The Indian rupee dropped below the 72-level against the US dollar in intra-day trade on Wednesday amid growing concerns over country’s poor economic indicators. The Indian currency was trading 57 paise lower at 72.04 against the US dollar at 1548 hours.

On Monday, the local unit had closed at 71.47 against the US dollar.

Forex market was closed on Tuesday for “Guru Nanak Jayanti”.

Forex traders attribute the weakness in the forex market to weak factory output numbers and weak global cues.

Showing signs of sluggishness in the economy, industrial production shrank by 4.3 per cent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per official data released on Monday.

According to the Central Statistics Office data, 4.3 per cent contraction is the lowest in 2011-12 series of Index of Industrial Production (IIP), which was unveiled in May 2017. The IIP had declined by 0.7 per cent in April, 2012.

Factory output, measured in terms of IIP, had expanded by 4.6 per cent in September 2018.

On the global front, investors remained concerned over uncertainty in US-China trade deal.

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Maruti shows the way, sales rise after 7 months

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Domestic wholesales at India’s largest carmaker, Maruti Suzuki India Ltd, rose 4.5% in October from the year earlier, the firm said on Friday, to become the first automobile manufacturer in the country to report growth amid an economic downturn.

Maruti Suzuki’s despatches to dealers stood at 144,277 units in October compared to 138,100 units in the same month last year. Its despatches of passenger vehicles rose 2.3% to 139,121, growing for the first time since March. In September, the carmaker had reported a 27% fall in despatches.

This is the first instance in FY20 where the carmaker has reported positive year-on-year (y-o-y) growth, partly triggered by a surge in festive demand and partly on account of a low base from last year.

It was the only carmaker to report wholesale growth on Friday, driven by increased despatches of its compact cars, utility vehicles (UVs) and its light commercial vehicles, even as its entry-level, or the most affordable category, continued to report a y-o-y decline. It sells WagonR, Celerio, Swift, Swift Dzire, Baleno and Ignis models in its compact portfolio. Its UVs comprise Vitara Brezza, S-Cross, Ertiga and XL6.

Maruti Suzuki has also supplied 2,727 units of its compact hatchback Baleno to Toyota Kirloskar Motor Pvt. Ltd, which sells a rebadged version as Glanza.

“The retail sales were far better than the wholesales and the company delivered close to 48,000 cars on Dhanteras alone. This was the highest single-day deliveries in the past 3-4 years,” Shashank Srivastava, head, sales and marketing, Maruti Suzuki, said in an interview.

Srivastava added that festive retail sales this year saw double-digit growth over last year. “The newly launched S-Presso model has now accumulated more than 20,000 bookings, averaging about 750-800 units per day,” he added.

While Maruti Suzuki plans to roll back its discounting initiatives November onwards, Srivastava said certain promotional schemes will continue in order to attract customers to showrooms.

Monthly wholesale figures reported by other carmakers on Friday were more muted than Maruti Suzuki’s.

The country’s second-largest carmaker, Hyundai Motor India Ltd, reported total domestic passenger vehicle wholesales of 50,010 units, down 4% y-o-y.

Gaurav Vangaal, country lead, light vehicle production forecasting, IHS Markit, said: “Retail sales are directly linked with the festive demand even as wholesales continue to post y-o-y decline on inventory correction measures by the carmakers. The retail uptick is a clear result of pent up demand for cars as buyers were delaying their purchases on several factors.” Vangaal suggested that Maruti Suzuki’s early move to cut production and correct its inventory across dealerships resulted in it registering positive wholesales for October.

Mahindra and Mahindra Ltd (M&M) reported passenger vehicle wholesales of 18,460 units, down 23% y-o-y. However, Veejay Ram Nakra, chief of sales and marketing, automotive division, M&M, said retail volumes exceeded wholesales by almost 40% last month. “Our billing numbers are in line with what we had planned for the month, since the objective was to significantly correct our channel inventory,” he added.

Retail sales in October were highest ever for any month for M&M, said managing director Pawan Goenka. “I hope the retail momentum in October is an indicator of sentiment turning positive,” he tweeted.

Stressing on the importance of reporting retail figures, Anand Mahindra, chairman, Mahindra Group, said: “The industry really needs to switch to reporting retail and not wholesale volumes. There are some strong signs of life in the market. And pipeline stocks have been slashed by controlling billings to dealers. Very appropriate stock levels now.”

At 13,169 units, Tata Motors’ passenger vehicle wholesales were down 28% y-o-y. In a statement, Mayank Pareek, president, passenger vehicles business unit, said that retail sales were 36% more than wholesales, and the company has reduced its network stock by 38%.

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