MUMBAI: India’s cash crunch and confusion over the introduction of a national sales tax were initially blamed for pulling economic growth down to its weakest pace in more than three years. But that is masking a more debilitating factor affecting the economy — corporate debt.
Thomson Reuters data, based on the latest annual earnings reports, shows India’s corporate debt rose to a seven-year high at the end of March. More than a fifth of large companies did not earn enough to pay interest on their loans and the pace of new loans fell to the lowest in more than six decades.
The Indian government reported on Aug 31 that annual GDP growth in the quarter ended June dropped to 5.7 percent, an envious pace for many countries but India’s weakest since early 2014.
It was blamed on attempts by the government to flush out money hidden from the tax man, which caused a cash crunch, and the introduction of a general sales tax (GST), which prompted businesses and consumers to hit the pause button.
But Indian business executives say they are more concerned about the impact of soured loans on bank balance sheets, which prevent them from getting the full benefit of central bank rate cuts. That is sapping India’s economic vitality, they say.
Since January 2015, the central bank has cut policy rates by 200 basis points, or 2 percentage points, but commercial bank benchmark lending rates have come down less, by about 120 basis points.
“Interest rates are still very high,” said A. Issac George, chief financial officer of GVK Power & Infrastructure Ltd. . He said his firm’s borrowing costs have remained unchanged at about 11 percent.
That makes it tougher for the conglomerate to lower its net debt of around 179 billion rupees ($2.80 billion).
GVK’s earnings covered just half of its debt servicing costs, Credit Suisse data shows, below the 1 percent threshhold typically seen as a bare minimum.
“We are not in a position to take a decision on whether we should expand our business or set up new businesses,” said George. GVK is not alone in trying to manage high debts.
Thomson Reuters data shows net debt for 288 companies with a market capitalization of more than $500 million, covering most big firms in India, has hit at least a seven-year high of 18 trillion rupees ($281 billion). Soured debt was 12 percent of total loans held by lenders at the end of March.
Another Thomson Reuters analysis showed more than a fifth of 513 Indian companies had interest cover of less than 1 percent.
New loans are also hard to come by: RBI data shows bank credit growth fell by a quarterly record in April-June. On an annual basis, the pace of new loans in the year to the end of March, fell to the lowest since the fiscal year ended in March 1954.
The impact can be seen in the GDP data. Gross capital formation, a gauge of private investment, fell to less than 30 percent of GDP in the June quarter, from 31 percent a year earlier and 38 percent a decade ago.
Seeking answers
The Reserve Bank of India (RBI), the central bank, has been reluctant to cut rates too aggressively because of concerns about consumer inflation.
“It is only after lending rates come down that demand will revive to exhaust capacity and spark off investment,” Bank of America Merrill Lynch said in a note to clients.
RBI officials though see the issue as a banking one, and want the government to inject more funds into state-run lenders. Indian banks needed “substantial additional capital” from the government, RBI Deputy Governor Viral Acharya said.
Fitch Ratings said on Tuesday that Indian banks were likely to need about $65 billion in additional capital, 95 percent of it for state-run lenders, by March 2019, far above the $11 billion budgeted by the government.
The government says it stands behind the banks, but has yet to commit additional capital. It is pushing instead for measures to grant the RBI more power to steer companies through bankruptcy, a process analysts say could take years.
The government has other options: former RBI Governor Raghuram Rajan, for example, proposed in a Reuters interview that New Delhi sell stakes in state-owned companies to fund a bank recapitalization.
“We would always want to see lower rates, but I don’t see too much of a scope now to go below where we are today,” said Kumar Mangalam Birla, chairman of the metals-to-telecoms conglomerate, Aditya Birla.
“At the end of the day if you have resolution to the NPA (non-performing asset) problem, that will create more space for the banks to start lending again.”
As India Inc. struggles to cut down debt, the economy suffers
As India Inc. struggles to cut down debt, the economy suffers
Oil Updates — crude gains as cooling US inflation points to possible easing
SINGAPORE: Oil prices rose on Monday as lower-than-expected US inflation data revived hopes for further policy easing, although the outlook for a supply surplus next year weighed on the market, according to Reuters.
Brent crude futures rose 36 cents, or 0.5 percent, to $73.30 a barrel by 07:21 a.m. Saudi time. US West Texas Intermediate crude futures climbed 39 cents, or 0.6 percent, to $69.85 per barrel.
“Risk assets, including US equity futures and crude oil, have started the week on a firmer footing,” IG markets analyst Tony Sycamore said, adding that cooler inflation data helped alleviate concerns following the Federal Reserve’s hawkish rate cut.
“I think the US Senate passing legislation to end the brief shutdown over the weekend has helped,” he said.
Both oil benchmarks fell more than 2 percent last week on concerns about global economic growth and oil demand after the US central bank signaled caution over further easing of monetary policy. Research from Asia’s top refiner Sinopec pointing to China’s oil consumption peaking in 2027 also weighed on prices.
Money managers raised their net-long US crude futures and options positions in the week to Dec. 17, the US Commodity Futures Trading Commission said on Friday.
Concerns about European supply eased on reports the Druzhba pipeline, which sends Russian and Kazakh oil to Hungary, Slovakia, the Czech Republic and Germany, has restarted after halting on Thursday due to technical problems at a Russian pumping station.
Shipments resumed on Saturday, according to Belarus’ BelTa state news agency. On Sunday, Hungarian Foreign Minister Peter Szijjarto said supplies on Druzbha to the country had restarted.
Before the halt, the pipeline was shipping 300,000 barrels per day of crude.
US President Donald Trump on Friday urged the EU to increase US oil and gas imports or face tariffs on the bloc's exports.
The European Commission said it was ready to discuss with Trump how to strengthen what it described as an already strong relationship, including in the energy sector.
Trump also threatened to reassert US control over the Panama Canal on Sunday, accusing Panama of charging excessive rates to use the Central American passage and drawing a sharp rebuke from Panamanian President Jose Raul Mulino.
In the US, the number of operating oil rigs was up one to 483 last week, the highest since September, Baker Hughes reported on Friday.
Macquarie analysts projected growing supply surplus for next year, which will weigh down Brent prices to an average at $70.50 a barrel, from this year’s average of $79.64 a barrel, they said in a December report.
Closing Bell: Saudi main index slips to close at 11,849
- Parallel market Nomu lost 205.92 points, or 0.65%, to close at 31,238.29
- MSCI Tadawul Index shed 4.86 points, or 0.33%, to close at 1,484.56
RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Sunday, losing 43.07 points, or 0.36 percent, to close at 11,849.37.
The total trading turnover of the benchmark index was SR4.14 billion ($1.1 million), as 84 of the stocks advanced and 137 retreated.
The Kingdom’s parallel market Nomu lost 205.92 points, or 0.65 percent, to close at 31,238.29. This comes as 37 of the listed stocks advanced while 49 retreated.
The MSCI Tadawul Index also lost 4.86 points, or 0.33 percent, to close at 1,484.56.
The best-performing stock of the day was Saudi Vitrified Clay Pipes Co., whose share price surged 9.89 percent to SR38.90.
Other top performers included SHL Finance Co., whose share price rose 6.43 percent to SR18.20, as well as Taiba Investments Co., whose share price surged 4.97 percent to SR39.05.
Riyadh Cables Group Co. recorded the biggest drop, falling 6.30 percent to SR136.80.
Al Hassan Ghazi Ibrahim Shaker Co. saw its stock prices fall 5.15 percent to SR26.70.
Dr. Sulaiman Al Habib Medical Services Group also saw its stock prices decline 4.02 percent to SR286.60.
Meanwhile, Al-Baha Investment and Development Co. has announced moving its headquarters to Riyadh.
The company’s shares will be suspended for two business days starting Dec. 22, following the board of directors’ recommendation to reduce capital by 26.5 percent from SR 297 million to SR 218.3 million during an extraordinary general meeting held on Dec. 19.
The National Agricultural Development Co. has announced the release of its Sustainability and Environmental, Social, and Governance report.
According to a Tadawul statement, it outlines the company’s approach to embedding sustainability criteria within its strategic direction and operations as well. It reflects the firm’s commitment to its ESG responsibilities along with its devotion to sustainable development objectives in line with the Global Reporting Initiative standards.
NADEC’s strategy complements the requirements for economic growth, keeps pace with developments in the Kingdom, and aligns with Vision 2030, which emphasizes environmental sustainability and renewable energy as fundamental components of development.
The analysis further provides a comprehensive insight into NADEC’s sustainability initiatives and commitments for the year 2023. The statement also disclosed that NADEC will periodically issue reports to keep stakeholders informed of ongoing developments going forward.
NADEC ended the session at SR25.50, up 0.98 percent.
Alhasoob Co. has announced the termination of the non-binding memorandum of understanding to acquire all shares of Alkhorayef Printing Solutions Co. by issuing shares to its owner Alkhorayef Group Co.
A bourse filing revealed that this comes without reaching an agreement between the two parties and without any obligation on either party.
Alhasoob Co. ended the session at SR64.20, down 3.07 percent.
Saudi Basic Industries Corporation has announced the board decision to distribute SR5.1 billion in interim cash dividends to shareholders for the second half of the year.
According to a Tadawul statement, the total number of shares eligible for dividends amounted to 3 billion shares, with the dividend per share standing at SR1.70. The statement also revealed that the percentage of dividend to the share par value stood at 17 percent.
SABIC ended the session at SR67.00, up 0.30 percent.
Saudi Arabia accelerates digital transformation with new transport initiatives
- Aim to increase the transport and logistics sector’s contribution to Kingdom’s GDP from 6% in 2021 to 10% by 2030
- Strategy envisions increasing air freight capacity to over 4.5 million tonnes annually
RIYADH: Saudi Arabia’s Ministry of Transport and Logistics has taken a significant step forward in its digital transformation with the launch of a new Digitalization and Technical Processing Center, alongside the unveiling of the Unified Documents and Records Platform.
These initiatives were announced by Minister of Transport and Logistics Services Saleh Al-Jasser during a ceremony attended by senior officials and industry leaders, as reported by the Saudi Press Agency.
The new center and platform are part of the ministry’s broader strategy to accelerate digitalization in line with the National Transport and Logistics Strategy and Vision 2030 goals.
A primary aim of these efforts is to increase the transport and logistics sector’s contribution to Saudi Arabia’s gross domestic product from 6 percent in 2021 to 10 percent by 2030. This would generate an additional SR45 billion ($11.9 billion) in non-oil revenues annually.
To achieve these goals, the NTLS prioritizes infrastructure development and operational improvements. Key plans include expanding the railway network by approximately 8,080 km, which features the 1,300 km “land bridge” project, and enhancing port infrastructure to accommodate over 40 million containers annually.
The strategy envisions increasing air freight capacity to over 4.5 million tonnes annually, as well as expanding international flight destinations to over 250.
Improving service quality and safety is another critical focus. The NTLS aims to position Saudi Arabia among the top 10 countries in the Logistics Performance Index and secure 6th place in the Road Infrastructure Quality Index. It also seeks to reduce road traffic accidents and fatalities by over 50 percent and cut fuel consumption in the transport sector by 25 percent.
In conjunction with the digitalization efforts, the ministry also inaugurated a historical exhibition that highlights key documents, photographs, and equipment used throughout the history of Saudi Arabia’s transport sector.
The exhibition also includes specialized laboratories for document restoration and sterilization, as well as a centralized destruction center to safeguard the security and confidentiality of information.
Bandar Al-Roqi, general supervisor of the ministry’s Document and Archive Center, emphasized the collaborative nature of the project, acknowledging the contributions of various ministry departments in its successful realization.
The project reflects the ministry’s commitment to integrating modern technologies to drive digital transformation while preserving the country’s transport history.
Saudi flyadeal records lowest complaint in November, 99% resolution rate: GACA
- flynas was second, with 12 complaints per 100,000 travelers and a resolution rate of 100%
- Saudia was third, with 13 complaints per 100,000 passengers and a resolution rate of 99%
RIYADH: Saudi low-cost airline flyadeal recorded the fewest complaints among its competitors in November, with just 11 per 100,000 travelers, and achieved a 99 percent resolution rate, a recent report revealed.
Issued by the Kingdom’s General Authority of Civil Aviation, the classification index for air transport service providers and airports is designed to inform passengers about performance, helping them make more informed decisions.
Low-cost carrier flynas was second, with 12 complaints per 100,000 travelers and a resolution rate of 100 percent, and Saudia was third, with 13 complaints per 100,000 passengers and a resolution rate of 99 percent.
Saudi Arabia’s aviation sector is rapidly growing as the nation aims to become a regional hub and major tourist destination. Through the Saudi Aviation Strategy, which opens the sector to global investors, streamlines licensing, and promotes competition, over $100 billion in aviation investment is being attracted to support the Kingdom’s Vision 2030’s goals.
The report is in line with GACA’s efforts to promote transparency, demonstrate its credibility and keenness to deal with travelers’ complaints, stimulate fair competition, and develop and improve services.
The figures from the analysis also align well with the National Aviation Strategy by the Kingdom, which aims to increase the air passenger throughput more than three-fold to 330 million by 2030.
The GACA data further revealed that despite serving over 6 million annual passengers, King Khalid International Airport in Riyadh had 13 complaints, a low rate of 0.4 percent per 100,000 passengers, and a 100 percent resolution record.
Prince Sultan Bin Abdulaziz International Airport, with nearly 6 million annual passengers, also had a complaint rate of 0.4 percent per 100,000 passengers and a 100 percent resolution rate.
King Saud Airport had the lowest complaints among domestic airports, with a rate of 3 percent per 100,000 passengers and a 100 percent resolution rate.
The most common complaints in November were related to luggage, flights, and tickets.
According to the 2024 State of Aviation Report by GACA, a key measure of the aviation sector’s success is the 7 percent growth in air cargo, reaching 900,000 tonnes, alongside a record-breaking 112 million passengers in 2023.
This passenger volume was surpassed by a 17 percent increase in the first half of 2024, with the number of flights growing by 12 percent compared to the same period last year, reaching 815,000.
Six initiatives unveiled to strengthen Saudi-Yemeni economic ties
- Initiatives were unveiled during a joint council meeting held in Makkah
- Council has proposed upgrading the infrastructure at border crossings between the two countries
RIYADH: The Saudi-Yemeni Business Council has announced six key initiatives aimed at enhancing trade and investment ties between Saudi Arabia and Yemen, while also supporting Yemen’s ongoing economic development.
The initiatives were unveiled during a joint council meeting held in Makkah on Sunday, attended by over 300 Saudi and Yemeni investors, according to Al-Ekhbariya.
Abdullah bin Mahfouz, chairman of the Saudi-Yemeni Business Council, which is part of the Federation of Saudi Chambers, disclosed that agreements had been made to establish three new Saudi-Yemeni companies.
The first company will focus on renewable energy, with an initial capital investment of $100 million, to generate solar-powered electricity for Yemen.
The second venture will operate in telecommunications, utilizing Starlink satellite networks. The third company will organize exhibitions and conferences in Yemen to promote Saudi products and support the country’s reconstruction efforts, as reported by the Saudi state-owned channel.
In addition to these initiatives, the council has proposed upgrading the infrastructure at border crossings between the two countries, improving logistics services to facilitate smoother trade.
The trade volume between Saudi Arabia and Yemen currently stands at SR6.3 billion ($1.6 billion), with Yemeni imports from Saudi Arabia accounting for just SR655 million. However, sectors such as mining, agriculture, livestock, and fisheries in Yemen remain largely underdeveloped and present significant growth opportunities.
Among the key recommendations is the establishment of quarantine centers to inspect Yemeni livestock, agricultural products, and seafood, aimed at increasing Yemen’s exports to Saudi Arabia. There are also plans to create “smart food cities” in border regions to bolster food security and promote sustainable agricultural practices through advanced resource management and technology.
Addressing banking and credit challenges is another priority. The council has called for improvements to Yemen’s banking infrastructure, including better collaboration with Saudi banks and the development of Yemen’s exchange sector, to facilitate smoother financial transactions for traders from both countries.
A significant proposal also includes the creation of a Yemeni Investors Club in Saudi Arabia, designed to encourage joint investments and foster business partnerships between the two nations.
Abdulmajid Al-Saadi, co-chairman of the Yemeni Business Council, commended Saudi Arabia’s recent reforms in investment regulations, highlighting that Yemeni capital, estimated at SR18 billion, has increasingly been channeled into Saudi markets. This places Yemen third among foreign investors in the Kingdom.
For over 23 years, the Saudi-Yemeni Business Council has played a pivotal role in fostering economic relations between the two countries, organizing forums, identifying trade and investment opportunities, and promoting bilateral business exchanges. The targeted sectors for cooperation include renewable energy, agriculture, livestock, telecommunications, and trade development, in line with regional and global food security challenges.
In 2023, trade between Saudi Arabia and Yemen amounted to SR6.2 billion, with Saudi exports totaling SR5.6 billion, which included dairy products, fuels, and vegetables. Yemeni imports from Saudi Arabia reached SR661.9 million, consisting of fruits, seafood, and printed materials.
Saudi Arabia has provided significant financial support to Yemen over the past few decades, including over $50 billion in funding for central bank deposits, government budgets, and development projects.
