Wednesday, August 29, 2012

IPL and Sirens

Sirens are seductive female creatures in Greek mythology who lured nearby sailors with their enchanting music and voices to shipwreck on the rocky coast of their island.  The sirens are probably best known for their part in the Odyssey where their song lured sailors to their death.  Odysseus ordered his crew to plug their ears with wax (on the advice of Circe) so as not to be lured by the Sirens' song. In another story from Greek myth, the story of the Argonauts, Orpheus sang sweetly enough to keep the men from succumbing to the Sirens.
There were either two or three Sirens, who were the daughters of the sea god Phorcys or the river god Achelous.  The Seirenes were depicted as birds with either the heads, or the entire upper bodies of women.  In mosaic art they were depicted with just bird legs.
The IPL in many ways is proving to be the new Sirens for the people associated with it.  The IPL was conceived by Lalit Modi, the then IPL commissioner and vice president of BCCI.  The commercial success of the IPL and Modi’s total control over the league had made him a superhero in India and the world of cricket.  In 2010, it was Modi who oversaw the bidding process and creation for the creation of 2 new teams in the IPL.  Sahara won the Pune franchise whereas Kochi was won by a consortium of investors.  A Twitter entry by Modi declaring the stakeholders of the Kochi IPL Team allegedly breaching confidentiality agreements led to the resignation of the then Indian Minister of State for External Affairs Dr. Shashi Tharoor.  Modi was then suspended as Chairman and Commissioner of the IPL in April 2010.  The sirens had their first victims.
On September 19, 2011, the BCCI announced that the Kochi Tuskers Kerala IPL franchise was terminated for breaching its terms of agreement.  This meant that the 2011 IPL season was the only season in which the Kochi team participated.
Vijay Mallya, in early 2008, paid in excess of $100 million to buy the Bangalore franchise.  At that point, his businesses were roaring and his net worth was in excess of $1.2 billion.  His liquor businesses were riding high and his Kingfisher Airlines was the only 5 star airlines in the Indian skies and was showing promises.   Today, 4 years later, the king of good times, is facing the worst times ever and is down to his knickers (just like the models in his Kingfisher calendar).

Mukesh Ambani, Asia’s second richest person in 2008 with a $43 billion fortune, paid $112 million for the Mumbai franchise of IPL.  Today Ambani’s net worth has more than halved though he still remains the second richest Asian.  Reliance Industries is no longer the darling of the Indian stock markets and is having continuous spats with the government over some blocks or other.  His new ventures Reliance Retail is yet to show the money.

G. M. Rao of GMR owns the Delhi Daredevils team has seen his net worth erode with the falling stock price of his GMR infrastructure.  His fortune, which was over $5 billion when bought IPL franchise in 2008, is now down to less than one-fifth of that value.

T. Venkattram Reddy, a newspaper baron and chairman of the Deccan Chronicle, bought the Hyderabad franchise, Deccan Chargers, $107 million in the IPL team auction in 2008.  The Reddy’s are now in the middle of a financial mess and their net worth (considering the loans and over pledging of their shares) are in the negative.
The owners of the franchises of Punjab and Rajasthan have had their share of ill luck with their franchises being cancelled and then subsequently keeping their franchises through court orders and are going through arbitration.  Film actors, who partly own these franchises, have all but finished their career in the acting arena.

The owners of the Kolkata franchise are perhaps are the only ones who have been largely unaffected by the enchanting music of the sirens as they are largely going around with their other business as smoothly as ever (apart from the minor hiccup of Ra-One).

Subrata Roy of the Sahara Group bought the Pune franchise for $370 million.  Sahara being closely held, not much is known about its financials, although some of his flagship deposit-taking schemes have been banned by SEBI.  Subrata Roy at one time did threaten to pull out of the IPL though he did not do so.  Roy is still in asset buying mode having bought a couple of iconic hotels in the west.

Although primarily none of the owners have lost heavily on their cricket teams (Kolkata in fact is in the green), IPL seems to have uncanny similarities with the Greek Sirens.  Only time will tell how long the owners of the Kolkata and Pune franchises can keep their ears plugged with wax and escape the siren song.

Saturday, June 23, 2012

Rupee---The Youngest Senior Citizen

Senior citizen is a polite designation for an elderly person.  The age which qualifies for senior citizen status varies widely.  In governmental parlance, it is usually associated with an age at which people retire from jobs and pensions starts to become available and concessions starts regarding payment of income tax and also railway and air tickets.

In commercial contexts, where it may serve as a marketing device to attract customers, the age is often significantly lower (remember the 40 plus ads).

In India senior citizen generally means people who have attained the age of 60, although for politics 60 in India is still considered to be very young.

The NRI (non resident Indians) population though is waiting for the Indian Rupee to attain the senior citizen tag, as they are savoring the 25% increase in their income just by virtue of fall in the Indian Rupee.

Age of the county though has no bearing on the exchange rate (just in case you are wondering why 1 USD is not Rs 65 as my 4 year-old niece is).  The next logical question though would be why the fall and the sheer velocity.

The reasons may be manifold but the important ones are:

Balance of payments, which comprises trade balance (net inflow/outflow of money) and flow of capital, also affects the value of a country's currency.  The rupee depreciation might also be driven by the trade and fiscal deficit on one hand and weak capital flows on the other.  The populist measures by the central and state government will only make the deficit larger.  The high risk of stress on the balance of payment (BoP) front that India faces is because of the higher crude prices, and the only way to stave off the crisis is to cut subsidies by reducing the subsidy in fuel (diesel, kerosene and LPG) prices.  A slowdown in capital inflows will increase the pressure on the exchange rate further whereas any hasty exit by FIIs from the Indian markets will help in INRs ageing.

Another reason might be because a great amount of external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) are maturing and hence the higher demand for INR.

Finally, exports are slowing due to European crisis.

If the European crisis deepens, Greece exits Euro, Spain falters or Italy sneezes and the FII starts pulling out of Indian markets the INR might attain the senior citizen tag pretty soon.

On the other hand if the government changes some policies and brings in the insurance and pension sector bills, FDI in retail and aviation, and other initiatives for FDI in India, INR might then well get back to the late 40s pretty soon.