itsupport | World Finance

China visible in eurozone bond buys – EU trade chief

Posted on July 22, 2010February 14, 2012 by itsupport

“China’s presence in Europe is visible across the board whether in China’s recent purchase of several hundreds of millions of euros of government bonds in the eurozone, particularly Spain or Greece, or in other large-scale investments too, such as the acquisition of Volvo by the car maker Geely,” European Trade Commissioner Karel De Gucht said.

Speaking at the Shanghai World Expo, he said he was confident Europe’s salvage package for 860 billion euros ($1,097bn), has been very effective in easing the sovereign debt crisis.

“I am quite confident that the euro is in good shape again.”

The trade chief added that the eurozone bonds China had been buying from Spain and Greece were a good investment and would keep their value.

He estimated that China had spent around 420 million euros buying Spanish and Greek bonds, but could not confirm it.

“There is no risk at all to the Chinese treasury.”

Global concerns over China’s protection of intellectual property has flared up in recent months and De Gucht said European companies were becoming increasingly worried.

Indigenous innovation policies, where China encourages government departments to buy locally made products from Chinese companies, would force European firms to register as a Chinese company in order to get access to the public procurement market.

However, De Gucht said China had already started to respond.

“Some changes were made to the indigenous innovation legislation that is certainly accommodating to a certain extent some European worries,”

China has revised its offer to join the World Trade Organisation’s government procurement agreement. De Gucht said the opening up of the public procurement market would help resolve the ongoing Doha saga if a substantial package was reached.

“The proposal that China has been putting on the table is largely insufficient, so we think additional offers should come on the table,” he said, without specifying what they should be.

Rare earths
Access to China’s raw materials is a hot topic in Europe and De Gucht said the current case the EU had against China was a case they would win at the WTO.

“We have a lot of understanding that a fast-growing economy needs a lot of raw materials but it is not the right way because it creates monopolies which distort the market.”

China holds about 90 percent of the world’s reserves of rare earth materials, which are used in a number of electronic devices, digital displays and military applications.

Foreign traders, manufacturers and military strategists have grown increasingly vocal about Chinese moves to reduce the volume of exports of rare earths.

However, China says export controls prevent wasteful exploitation, support volatile international prices and encourage high-tech manufacturers to shift operations to China, where rare earth prices are cheaper.

China will not block exports of rare earth metals, premier Wen Jiabao told a German trade delegation earlier in July.

KKR flotation takes it back to the future

Posted on April 20, 2010February 14, 2012 by itsupport

An analysis of the firm’s listing documents underlines the way the industry has changed in the years since it was forced to withdraw its 2007 listing as the financial crisis set in.

A comparison of the two documents also shows the changes to the firm’s ambitions and the way it does its business as it adjusts to the post-crisis world.

At the time of its first attempt, in July 2007, it was flexing its muscles as the world’s largest buyout house. It had just signed the largest buyouts in Europe and the US: in the year to August 2007 it was to deploy more than $20bn (Ä14.7bn) of equity in private equity deals according to research by Private Equity News.

Its prospectus promised access to a firm with “a history of landmark achievements in private equity”.

KKR is returning to New York a second time, yet it is not raising extra capital, unlike the $1.25bn it intended to raise then.

With an eye on current market hostility, the company’s historic private equity achievements are relatively downplayed and the firm instead highlights its greater diversification and growing capital markets and public markets’ businesses.

This apparent strategic shift and its relocation to New York takes the firm directly head to head with its bigger rival, Blackstone Group.

Its rivals believe KKR may be laying the ground for an attempt to create an opportunity for the founders to exit from some or all of their stake should the company’s shares perform well and market appetite for a rights issue increase.

One rival said: “That’s something they missed at the top, which Blackstone pulled off.” However, a person close to the listing played down an exit by the founders as the motivation for the float, instead saying it was an attempt to provide capital to grow the firm and incentivise staff.

How the firm has changed since 2007:
Ambition
KKR has scaled back its capital-raising ambitions since its last tilt at a listing. Three years ago, the firm planned to raise $1.25bn (Ä922m) of new capital by listing its management company, according to an SEC filing dated July 3, 2007. This time, it will not raise any additional capital, but rather transfer its Euronext-listed vehicle, KKR & Co, to New York, valuing it at $2.2bn.

KKR expects its New York-listed shares to be traded more frequently than its Euronext-listed stock because there are many similar listed management companies in the US, according to a source close to the matter.

The flotation could also help address the low price of its Euronext-listed shares, which trade below book value, the source said. By improving its stock’s liquidity and price, KKR will provide founders Henry Kravis and George Roberts with a possible improved exit route.

Unlike last time, the latest plan will not allow the founders to sell stakes at the time of the float. By contrast, Blackstone co-founder Stephen Schwarzman reaped $309m in cash from his firm’s IPO and retained 22 percent of its stock. A source close to the matter said the founders’ ability to exit was not the primary motivation for the flotation. Rather, the source said, the wish to incentivise staff and provide capital to grow the business.

Strategy
KKR has emerged from the financial crisis bigger and more diversified. Compared with 2007, the firm’s assets under management have increased 10 percent to $52.2bn from $47.2bn following a decline in 2008, while its focus has shifted away from mega-buyouts.

The new prospectus suggests the firm is making greater play of its other business lines. Back in the glory days of 2007, as deal sizes hit new highs almost weekly, the firm’s prospectus used the words “private equity” 638 times and “buyout” 52 times.

The latest prospectus tones down the emphasis on its core private equity business, with just 436 mentions of “private equity” and 12 of “buyout”. In an economic environment where diversified strategies and other business lines are arguably more highly valued by investors, KKR mentions its now flourishing “capital markets” 118 times in its 2010 document, three times more than in 2007.

Meanwhile, the share of KKR’s portfolio accounted for by core private equity fell to 74.3 percent from 77.3 percent between 2007 and 2009, despite a $2.3bn increase in its private equity assets, to $38.8bn. Instead, the firm is focusing more on its nascent capital markets division, which analysts say should generate strong revenues, and its public markets unit, which invests in debt and has assets of about $13.4bn under management.

Structure
The latest prospectus envisages a more complex listed structure than that outlined three years ago. Then, the firm planned to list its management company in New York and a separate funds vehicle on Euronext in Amsterdam. This time, the New York flotation will include exposure to the group’s underlying funds as well as its management company.

That means three years ago investors would largely have acquired links to the firm’s fee revenues. This time they will get a mix of revenues, including fees from the management company and returns on investments from the portfolio if its companies increase in value.

The volatility of private equity company fees make the hybrid business model potentially more attractive to public market investors. The new strategy will create a listed firm with a bigger balance sheet than was previously envisaged, according to a source close to the listing. It will also leave the listed company and KKR’s executives as the biggest investors in the firm’s funds.

Fees
The latest prospectus would appear to raise questions around the viability of KKR’s large buyout model. As dealmaking has dried up, fees earned by the firm – including more stable management fees and more volatile transaction fees, have slumped 62 percent from the market peak, to $331m last year, compared with $862m in 2007. Transaction fees alone fell 87 percent to $91.8m last year from $683.1m in 2007, although management fees have increased.

The firm’s efforts to diversify may help stymie that decline. According to Sandler O’Neill analyst Michael Kim, the firm’s capital markets division might fill the gap. The division’s star has risen of late, particularly since it emerged as an underwriter of football club Manchester United’s bond issuer earlier this year.

Portfolio companies
The firm’s biggest challenge will be to prove it can generate returns from its high spending levels at the top of the market.

KKR was the only private equity firm to deploy more than $20bn in equity in the year to August 2007, according to research by Private Equity News. The firm’s 2007 prospectus claimed that it had closed “the largest leveraged buyouts completed or announced in each of the US, the Netherlands, Denmark, India, Australia, Singapore and France”.

New records followed after the firm published its prospectus: its £12.4bn acquisition of UK pharmacy group Alliance Boots was the largest European and UK buyout, while its $45bn purchase of US energy company TXU remains the largest buyout globally. This time the firm is still one of the biggest private equity participants, but its largest deal since the collapse of Lehman Brothers in 2008 is the under-$2bn buyout of Korean company Oriental Brewery, less than a twentieth of the size of TXU.

The firm has since taken markdowns on Alliance Boots and TXU. But a source close to the listing said the firm expected to do better from its boom-time acquisitions than market sentiment might suggest.

Management
Henry Kravis and George Roberts remain the driving force behind KKR. But as top private equity executives begin to make way for the next generation – including Tom Attwood, who stepped down as chief executive of debt specialist Intermediate Capital Group last week – many observers wonder how long the cousins’ dominance will last.

The firm has long sought to move towards a more normal corporate structure, giving different executives responsibility for operations in individual countries and sectors. The flotation could simplify that transition by providing the founders with a simple exit route.

But a person close to the company said Kravis and Roberts could be expected to remain at the top for some time. Investors will focus on how KKR manages its succession.

Ownership structure
KKR’s ownership has changed since 2007. Once having a reputation for secrecy, the firm is now majority-owned by its staff and public shareholders.

Public investors acquired a 30 percent stake in the firm last year, after KKR merged its management company with Euronext-listed KKR Private Equity Investors to create KKR & Co.

That publicly-held stake is likely to increase after the firm lists in New York.

It is unclear when the firm’s partners, who hold the remaining 70 percent of the management company, might sell their stakes, but a person close to the listing said they would look to raise more capital from the public markets over time.

International expansion
Overseas expansion has continued apace since 2007 despite the financial crisis. The firm has doubled its international offices from seven to 14 over the period, according to the latest prospectus. That expansion helped the group seal the $1.8bn acquisition of Oriental Brewery last year.

The overseas drive was made possible by aggressive hiring. The firm boosted its workforce by 50 percent since 2007, to 600 from 399, during a period in which many rivals pared their staff.

© 1996-2009 eFinancialNews Ltd

Banking on transparency

Posted on April 19, 2010June 12, 2013 by itsupport

The Middle East and North Africa (MENA) region has been one of those emerging markets in which corporate governance is seen as a relatively new concept; indeed it is only in the last ten years that an Arabic word, “hawkamah” for ‘corporate governance’ has emerged. But despite its infancy in the region, corporate governance has been making significant headways.

Hawkamah Institute for Corporate Governance is an international association dedicated to the advancement of good corporate governance across MENA. Hawkamah has been at the forefront of corporate governance debates through conducting studies on the state of governance in the Middle East, identifying gaps, outlining areas for reform, providing advice and assistance, and working with companies and regulators to bridge the corporate governance gap.

According to a 2008 joint study by Hawkamah and the International Finance Corporation (IFC) only three percent of listed companies and banks in the MENA followed good corporate governance practices, with none complying with international best practices. Much of this stems from a combination of facts such as the ownership structures of MENA companies (mainly family or state-owned), the ready availability of liquidity and financing from regional banks, and the relatively underdeveloped capital markets. Consequently, the benefits of good corporate governance have been typically seen by companies in terms of better strategic decision-making and regulatory compliance rather than being associated with better and cheaper access to credit and capital.

This mindset has traditionally had a direct bearing on the level of regional transparency and disclosure practices which seriously lag behind international best practices. Similarly, the compositions and practices of the region’s boards leave much to be desired. Most of the boards have been dominated by majority shareholders or their representatives, and according to the 2008 study, 57 percent of listed companies in the MENA had a single or no independent directors on their boards. The same study also indicated that boards needed to do better in terms of overseeing risk management and control. In fact, less than half of the surveyed companies had a risk management function in place.

Comprehensive corporate governance improvements do not happen overnight but there is evidence that there have been substantial improvements in the past two years. Although the region as a whole has yet to internalise that good corporate governance is a competitive advantage to be exploited, an increasing number of MENA companies have began investing in better governance and addressing their corporate governance shortcomings.
Hawkamah, in cooperation with The National Investor, assessed all Gulf-listed companies measuring their “investor friendliness” and transparency practices on an annual basis since 2008. Their 2009 study indicated that two-thirds of the companies showed year-on-year improvement and 26 companies increased their score by 100 percent. This trend is encouraging, although it should be noted that the improvements stem from a low base and that the gap between international best practice and regional practices remains substantial.

Reforming the framework
Traditionally, the MENA region has looked for change and reform to be signaled and enforced from the top, with government and regulators taking the lead. And governments and regulators across MENA recognise the role governance malpractices and failures played in the lead up to the financial crisis as well as in some regional corporate scandals.

A number of MENA countries have been active over recent years in developing corporate governance codes. Oman has been ahead of the curve with the Omani Capital Market Authority announcing corporate governance standards for listed companies as early as 2002. Both Qatar and Morocco issued governance codes in 2008, Bahrain has put draft corporate governance codes for public consultation, a code is also forthcoming in Lebanon while in the UAE, the corporate governance guidelines introduced by the Emirates Securities and Commodities Authority in 2007 will become mandatory for listed companies in 2010. The Central Bank of the UAE has also recently issued draft corporate governance guidelines for bank directors in the Emirates, while in Saudi Arabia, the Capital Markets Authority has started a gradual process of making some corporate governance regulations compulsory.

Better corporate governance
These mark important milestones in the development of corporate governance in the region. However, it is noteworthy that many of these initiatives pre-date the crisis, and the region would benefit from revisiting some of these guidelines in the light of recent international developments, especially in relation to risk management.
Important as it is to have such guidelines in place, challenges remain. It is one thing to have regulations issued, it is quite another to have them implemented. The financial crisis stemmed from markets where the corporate governance codes were the most advanced, but evidently not followed. The challenge across MENA is to create a culture of enforcement and compliance.

Hawkamah encourages regulators, whether bank regulators or capital market authorities, to set up specialist corporate governance departments to monitor the implementation of corporate governance in the entities they are supervising. The objective is not to shackle corporations but rather to balance the promotion of enterprise with greater accountability. Regulators must also be careful not to turn corporate governance into a box-ticking exercise. The objective is not governance for the sake of governance. Enforcement of compliance, in particular, is called for in three key areas: transparency and disclosure, risk management and board practices.
For this to be effective, regulators themselves need to ensure that they are both transparent and accountable, that their responsibilities are well-defined and not conflicted, that they are not subject to political intervention or ‘regulatory capture’ and that they are staffed with competent and experienced personnel.

Financial institutions
Regulators should particularly focus on the region’s banks and financial institutions. Hawkamah and the MENA-OECD CG Working Group with the Union of Arab Banks have recently issued a policy brief on corporate governance of banks in the MENA region, designed to address governance challenges of a variety of banks, whether listed or private, family-owned or state-owned, Shari’a compliant or conventional. The brief recommends, among others, that more detailed codes be introduced at the national level and that each bank regulator develops its own corporate governance expertise and issues specific guidance against which banks could be assessed. Hawkamah also advocates that bank regulators introduce guidelines requiring banks to introduce corporate governance criteria in their lending and investment decisions, aiming to extend good corporate governance from banks to their corporate clients.

State-owned enterprises
The region’s regulators also need to address corporate governance standards in State-Owned Enterprises (SOEs) which are a major and pervasive part of the economic system. Improving the corporate governance of SOEs will lead to mutually reinforcing multiple rewards of significant efficiency gains, improvement in the quality of public services, increased foreign investment and ultimately improved growth prospects. In many instances, better performing SOEs can have positive fiscal implications, insofar as government budgets are all too often called to the rescue of large SOEs. Many argue that a level playing field with the private sector, reinforced SOE ownership function, improved transparency, empowered SOE boards and improved accountability is needed.

State audit institutions who act as guardians and protectors of the state and public interests can and should adopt corporate governance principles in their review of and assessment of SOEs, their performance effectiveness. Adopting the OECD SOE Corporate Governance principles would be a natural extension of the role and mandate of State Audit Institutions, beyond the strict and traditional boundaries of financial audit and recognition of the fact that better corporate governance results in improved financial and risk management and results.

Insolvency & creditor rights
But it should also be remembered that although corporate governance codes form an important part of the overall governance framework, legislative reform in related areas is also needed to make the region more investor-friendly. There is a clear link between insolvency practices, the protection of creditor rights, corporate governance, foreign investment and access to credit and capital.

Currently, in the MENA region, insolvency systems function less effectively than they do in many other regions across the globe, yielding extremely low stakeholder returns. Throughout MENA, it takes 3.5 years for a company to go through insolvency, which is double the OECD average of 1.7 years. On average, one might expect to recover about 29.9 cents on the dollar (OECD about 68.6), at a cost of 14.1 percent of the estate, while in Bahrain (the highest) you would expect to recover 63 cents on the dollar.

It has been said that the region requires effective debtor-creditor regimes and modern insolvency regimes to address the weaknesses that have been uncovered by the crisis. To this end, Hawkamah has launched – with the World Bank, IFC, OECD and INSOL International – a Regional Forum on Insolvency Reform in MENA (FIRM). FIRM aims to engage, educate, and inform stakeholders about the reform process, serve as a platform for sharing international and regional best practices and provide technical assistance for countries wanting to reform.

The MENA region has been striving to improve governance standards and much has been achieved in a relatively short period. However, there clearly is no room for complacency. The region’s regulators need to build on this momentum for corporate governance to take root, especially in the areas of transparency and disclosure, board practices and risk management, whether in the realm of listed companies, banks or state-owned enterprises. This will require that the region’s regulators themselves embrace highest governance standards – accountability and transparency. This, of course, is something that not just the MENA regulators should aspire to.

Gulf values to catch up with emerging markets

Posted on April 12, 2010June 12, 2013 by itsupport

Though foreign investors have slowly started coming back to the region, there still exists a 40-50 percent discount between the Middle East markets and that of the emerging economies, mainly the BRIC nations, said Zin Bekkali.

“BRIC is still beautiful, the fundamentals are similar to the region but it has got expensive now. So that valuation gap has to bridge and the discounts will disappear,” said Bekkali, who heads the asset manager focused on the Middle East, Central Asia and Africa.

The MSCI Emerging stocks Index, gained more than 78 percent in 2009, significantly outperforming the MSCI Arabian Markets Index, which rose only around 22 percent.

Bekkali said traditionally Arab markets have shown a strong correlation with those of BRIC economies with both regions following a similar performance pattern till 2008.

But in 2009, when emerging economies witnessed huge inflows, Gulf markets got little attention from foreign investors who stayed away mainly due to concerns about Dubai’s debt issues.

The executive believes that with limited opportunities existing in emerging markets currently and improved risk appetite among foreign investors, valuation discounts will disappear.

“It can disappear in the next three months or it can take two years but it will disappear as fundamentals remain the same,” he said.

Silk Invest runs a Middle East-focused equities fund along with two other funds. It also recently launched a new private equity fund focusing on the food sector in Africa.

Perception problem
Bekkali said the Middle East markets also face a perception problem as most investors overlook the fundamentals of the economy and strength of its corporations while perceiving them to be too risky.

“The Middle East has a big perception problem. From a risk point of view, it is not higher than any other emerging market like India, China,” he said.

Bekkali believes that the region is not doing enough to explain to foreign investors about the diverse set of companies or growth opportunities.

“A lot of people when they think about Dubai, only think real estate and tourism. They don’t understand the number of strong companies in the region,” Bekkali said.

The CEO also said that long-term investors like pension firms and sovereign wealth funds need to increase their regional allocation as they understand the region better and have burned their hands previously investing abroad.

“They (sovereign funds) have lost lots of money by investing in the western world and they have a long-term horizon and from that sense it pays off to be investing in higher perceived risk markets,” he said.

Southeast Asia could grow 5.6% this year – ASEAN

Posted on April 6, 2010February 14, 2012 by itsupport

Southeast Asian economies will grow up to 5.6 percent this year but the expansion could be jeopardised if economic stimulus is withdrawn too early, according to a report by a regional body.

Nevertheless, the governments of the 10-member Association of Southeast Asian Nations (ASEAN) need to design an orderly exit strategy to show that they have inflation expectations under control, said the latest draft of the ASEAN Surveillance Report. “Following the pace of growth in Asia, the ASEAN economy will grow by about 4.9 percent to 5.6 percent in 2010 with ASEAN economies recording moderate to strong growth,” it said. The report was presented at a meeting of deputy finance ministers and central bank governors.

ASEAN comprises an array of economies at different stages of development including Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Asia is leading the global recovery, in part thanks to robust stimulus policies launched during the financial crisis.

All eyes are now on how and when these countries take back the stimulus and address what some economists see as a rising risk of inflation.

The ASEAN report said “the urgency for exiting from stimulus measures was not high as the inflation risk remains benign, debt levels are sustainable and there is little evidence that private demand is self-sustaining”.

The region needed to design an exit strategy “to anchor expectations and to assure the community that expansionary policy settings will not lead to inflation and further financial instability”, it said.

“Timing is crucial as moving too early could undermine economic recovery while prolonged action could create costly distortions and volatility.”

The report advised countries to remove special financial and credit support before raising interest rates. So far, Malaysia and Vietnam are the only two ASEAN members who have raised rates.

“As economic growth is far from self-sustaining, the fiscal stimulus should continue, though fiscal consolidation measures should also be put in place,” it said.

Authorities needed to use monetary and exchange rate policy to “minimise the incentives for volatile capital flows and cross-border transactions”.

It said it might help to “tighten prudential limits on capital inflows and to monitor highly leveraged institutions and to ensure that excessive risk taking is not happening”.

Blazing a trail

Posted on February 22, 2010February 9, 2012 by itsupport

Winner of this year’s World Finance award for corporate governance in Turkey, it is no surprise to Turkcell’s stakeholders that the telecoms giant would receive such acclaim. After all, Turkcell is the only Turkish company to attain listing on the NYSE (TKC), which occurred in 2000, the same year as it joined the Istanbul Stock Exchange. Since its formation in 1994, Turkcell has been the leading communications and technology company in Turkey and a major international operator.

Turkcell is the market leader in five of the eight countries in which it operates (Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine.) In Turkey alone, Turkcell has 36 million subscribers (as of September 2009), making it the second largest European mobile operator.

In 2008, Turkcell’s revenues reached $7bn (with a 37 percent EBITDA margin) yielding a net income of $1.8bn. In the first nine months of 2009, Turkcell recorded a gross revenue of $4.3bn (with a 34 percent EBITDA margin) and a net income of $922.9m.

Corporate governance
Being the only Turkish company to be listed on the New York Stock Exchange, it stands that the company’s corporate governance standards are exceptional and adhere to the requirements that come with NYSE membership. The company discloses information on a regular basis to conform with the regulatory requirements of Turkey’s Capital Markets Board (‘CMB’), the Istanbul Stock Exchange, the Securities and Exchange Commission and NYSE Euronext.

The company’s disclosure policy ensures active and transparent communication which is complete, fair, correct, timely, clear and cost-effective and equally accessible for all stakeholders. Turkcell’s interim and annual financial statements are prepared in accordance with the regulations of the CMB and IFRS published by the International Accounting Standards Board. Turkcell management host global teleconferences with analysts and investors following the release of its financial results and engage with the media both in Turkey and internationally.

Growing operations
Overall, Turkcell serves a population of 160 million customers in eight countries. Turkcell’s international presence dates from 1999 when it formed KKTCell in Northern Cyprus. Since 2000, Turkcell has been operating in Azerbaijan, Kazakhstan, Georgia, and Moldova through its 41.45 percent stake in Fintur. Turkcell has also had operations in Ukraine since 2004 and in Belarus since 2008.

Turkcell and has made $8.2bn US worth of investments since its foundation − excluding license fees – and remains opportunistic about M&A. In 2010 and beyond, Turkcell’s growth strategy will continue to be focused on organic growth, whilst selectively seeking and evaluating new investment opportunities in international markets and adjacent and new business opportunities.

Innovations in technology
Turkcell’s strong infrastructure, innovative products and commitment to provide high quality services are the reasons behind the company’s success and market leadership.

The huge customer interest in Turkcell’s 3G offering exceeded expectations and the company has been able to offer increasingly innovative mobile services to its consumer and corporate customers. Turkcell’s high quality network enables it to further build its wide portfolio of products and services. Innovative services Turkcell has launched include videocall, mobile TV, video surveillance, video chat and video messaging. Turkcell distinguishes itself from its competitors through its massive distribution network: a full 87,000 sales points. The company’s distribution channel acts as a sales force, equipped with all the latest technology.

A good example of Turkcell’s technological leadership is a recent initiative in collaboration with Turkey’s Directorate General of Coastal Safety. Together, they pioneered the “Remote Management of Lighthouses’’ project to bring the latest technology to lighthouses and reinforce existing infrastructures.

Turkcell’s technological leadership has also been recognised internationally. At the GSMA World Congress in Barcelona in 2009, Turkcell won the award for Best Mobile Advertising Service, honoring outstanding achievement in an industry renowned for its innovation. Turkcell also received an award for the “Best Mobile Content Development” for its ‘Turkcell NTV VIDEO News’ service at the prestigious Mobile Excellence Awards programme.

Turkcell has always led the way in bringing new technology to Turkey. The company is passionate about encouraging innovation and values external sources to generate ideas for new products and services. Turkcell promotes platforms to encourage innovation, making Turkcell a product and services “idea-sharing” hub. The company has established internal teams of employees from different areas to evaluate ideas. Periodically, it runs evaluation meetings to select the best ideas and to decide how to develop them into competitive offerings.

Turkcell’s recently launched partner portal (turkcellpartner.com) serves its existing partners, as well as potential new partners, with content reflecting its technical and business know-how, partnership mechanisms and procedures, and technical capabilities. Turkcell Technology, founded in 2007, aims to provide world class technology through a local work force. Turkcell Technology’s success is reflected in the fact that, on average, it has filed for a different patent every month of its existence. The trail blazing continues and Turkcell doesn’t disappoint.

3G Revolution in Turkey
While 3G mobile may be “old hat” in Europe since its launch early in the new millennium, and had a lacklustre launch in those times, the launch in Turkey in July, 2009 further cemented Turkcell’s hold against its competitors, Vodafone and Avea. With more than 19,200 base stations, Turkcell has the best mobile coverage (99 percent of the population) and highest quality network in Turkey. Today, with 36 million subscribers, Turkcell provides 3G services to a whopping 65 percent of the Turkish population.

Turkcell’s VAS revenues comprised 15 percent of its consolidated revenue in the third quarter of 2009, compared to 14 percent one year earlier. Going forward in this new 3G era, Turkcell’s 3G business model is forecasted to drive growth in its VAS revenues through increased use of mobile broadband and services.

Leading emerging markets

Posted on February 22, 2010February 9, 2012 by itsupport

Founded by entrepreneur Laércio Cosentino in 1983, TOTVS is the largest emerging markets software firm and the world’s seventh largest firm specialising in the development and sale of Enterprise Resource Planning (ERP) software. The company has five thousand direct employees and another four thousand indirect employees, operating 208 franchises in Brazil and around the world.

Focused on the IT segment, TOTVS’s growth has been fast, well structured and transparent. As early as 2005, the company adopted an external auditing procedure and it was the first private company to win the national prize awarded by the Brazilian Institute of Corporate Governance (IBGC) recognising the company with the best corporate governance practices in Brazil. Transparency has always been a core value at TOTVS, which sells more than software; it also sells longevity – its own, by investing in research and development, as well as that of its clients, who can count on the company to provide durable and constantly updated solutions.

In 2006, TOTVS became the first Latin American IT company to hold an IPO and to list its shares on the Novo Mercado segment of the São Paulo Stock Exchange. To this day, the company maintains its listing on the Novo Mercado segment, the Bovespa corporate governance category with the most stringent requirements.

The company’s concern for its management is reflected in the composition of its board of directors, which has been comprised of at least 70 percent external members over the past seven years, as well as in its decision to create Auditing and Compensation committees.

Intent on leading the consolidation of its sector, TOTVS has acquired several important competitors in Brazil (such as Logocenter, RM Sistemas and Datasul) significantly increasing its portfolio and its vertical operations, which are divided into specialised market segments and have the ability to serve any client, regardless of size. TOTVS also entered into a joint venture agreement with Quality, creating TQTVD, giving it a presence in the digital television segment. All told, the company is comprised of a total of 23 individual firms and has more than 9,000 employees.

The experience TOTVS has gained through its acquisitions and mergers have positioned the company as an Administrative Operator, an intelligent and challenging concept. More than just supplying software, the company focuses itself on best business practices and positions itself as the provider of a variety of solutions that, in addition to software services, include consulting, technology services and value-added services such as BPO, infrastructure, educational and service desk solutions.

TOTVS is the only Latin American company with a proprietary technology platform for use in the development of its software solutions and it possesses operational expertise in the following 11 segments: health care, agro-industry, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, small businesses (series 1 and 3) and services.

The company currently has operations in 23 countries and owns six units in Brazil and 15 others distributed throughout Argentina, Mexico, Portugal and Angola. TOTVS’s portfolio totals 24,200 clients.

Strength in operations
TOTVS’s goal is to expand its operations in specialised markets, and the company has defined business segments to which it can offer software solutions with specific characteristics. The company’s segment-specific solutions go beyond the automation of back-office operations to include applications with specific functionalities for each of the segments. In order to advance in each of the segments, the company is among the biggest spenders on research and development investment in Brazil. Last year alone, the company allocated $65m to R&D.

An intelligence unit has been created for each segment that, among other activities, is charged with elaborating its operational strategy and is responsible for maintaining relationships with the market, identifying strategic partnerships and communicating material facts and information to the sector. The company’s goal is to offer personalised software solutions for the market in which its clients operates, while taking into consideration the specific challenges and compliance with the legal requirements pertinent to each segment.

Accomplishments
The past year was a period of growth and accomplishment for TOTVS. The company celebrated record sales, an increase in market share (it leads the market with a 38.7 percent share), new acquisitions, brand consolidations, the announcement of new products and the strengthening of its business segments.

In the first nine months of 2009, TOTVS posted $366.6m in net revenue, a 7.6 percent year on year increase. EBITDA totaled $94.1m in the 9M09, a 32.5 percent jump over the 9M08. In the same period, net income came to $58.2m, a 7.9 percent increase over 2008. EBITDA margin rose by 490 basis points relative to the 9M08.
The group’s 26 years of market operations led to a number of prizes in 2009, including Best Corporate Governance in the Technology Segment category and, for the second straight year, recognition in the top five Corporate Governance – Best of Brazil and of Latin America ranking by MZ Consult, a leading investor relations and financial communications firm.

In 2008, the company won IBM’s international award for “Best Partner – Innovation That Matters,” having been identified as one of 50 “local dynamos” in a listing of case studies of successful businesses published by Boston Consulting Group (BCG), one of the largest consulting firms in the world. The company was also mentioned in an article published in the Harvard Business Review that highlighted its business model and the aggressive strategies it has employed in its consolidation of the Brazilian market.

TOTVS is also active in the communities in which it operates. The company understands that corporate social responsibility is an integral part of its business, which is why it has operated the Social Opportunity Institute (IOS), a professional training programme for low-income youths, for 10 years. More than 18 thousand students have already completed the programme. IOS gets help and support from TOTVS’s clients and partners.

Entrepreneurship, leadership, a consolidating spirit and transparency are among the core values of TOTVS, a company that operates in a broad and still little-explored market. These credentials, along with the fact that TOTVS is the only emerging markets company to develop state-of-the-art technology from which to develop its software solutions, are fundamental aspects of the company’s long term prosperity and that of its clients and investors.

For more information, visit: www.totvs.com

Business as usual or a new way forward?

Posted on February 18, 2010February 14, 2012 by itsupport

As the dust settles over the economic turmoil of 2009, across the globe, many businesses are expecting – or at least hoping − that 2010 will prove to be a turning point in their fortunes. GDP in most major markets is expected to improve following a year of weak sales, corporate layoffs, idle plant and scant investment. Productivity should follow suit as the wheels of production again begin to turn to restock depleted inventories.

Despite these expectations of a turnaround, everything is certainly not ‘gung ho’. Unlike the heady days of earlier years, when it seemed as if businesses could do little wrong − and when they did, the economy was so strong that it was remarkably forgiving − we aren’t on cruise control. Far from it. Despite the ‘green shoots’ of recovery, history shows us that, in 2010, as in previous recovery years, we will continue to see high unemployment and corporate failure rates. So, as the economic recovery gradually gains momentum, the watchword for companies – if they are to survive and plan for renewed growth – is ‘caution’.

Throughout the recession, limited, if any, access to bank financing and tighter restrictions on credit insurance confirmed that it was certainly not business as usual. A truth that soon became apparent to all those engaged in domestic and international trade was that past experience – of both markets and customers – could no longer be relied upon as an accurate indicator of the path that future trade would take. Seen in that context, the response of banks, in demanding to see more sturdy business plans from potential borrowers, and of credit insurers, in requiring the most recent financial information available before providing cover on their customers’ buyers, should be expected.

But, despite the often harsh new realities of the marketplace, the value of credit as a medium of successful trade is, if anything, greater than ever. Credit serves many purposes. It creates demand in a flagging market place; it gives suppliers the edge over competitors who offer less attractive terms; and, as buyers’ access to bank finance continues to be in short supply, it gives buyers breathing space to pay for the goods and services purchased from their suppliers.

So, while in tough economic conditions, suppliers’ initial reflex may be to withdraw credit facilities from their customers, this would be short sighted – and potentially damaging to hard earned business relationships.

Credit is vital if trade is to flourish. And provided that there is good reason to believe that payment will be received on time, offering credit should not adversely affect suppliers’ cash flow. But that means that credit must be accompanied by a heightened focus on best practice in credit management. Credit management – not credit control. They are very different. While credit control has negative connotations, credit management encourages continued sales on credit to trusted customers, and is instrumental in building and maintaining profitable business relationships. In the future it will require greater transparency – especially in terms of the latest financial information that can be provided by buyers − who are, thankfully, beginning to understand that such transparency is essential if they are to keep their supply channels open.

And credit insurance should be central to any credit management strategy. By its very nature, credit insurance imposes a discipline on credit sales, ensuring that new customers are properly vetted and existing ones continue to be monitored for changes in payment behaviour that may signal financial problems. It makes available the recovery expertise that can address those problems before they escalate. It provides the market intelligence that helps in the suppliers’ decision making process. And, in the last resort, it is the safety net that protects the supplier’s bottom line when the unexpected happens.

So how do we summarise the outlook for 2010? Business as usual? Hardly – and certainly not while the aftershocks of 2009 continue to reverberate. But that’s no reason to be pessimistic. While 2009 has been a salutary experience, it’s also brought to the surface exactly what is important to successful and profitable trade.

That’s transparency – transparency between all the parties involved: supplier, buyer, bank and credit insurer. That way, each can understand the risks and opportunities associated with each business relationship and act accordingly – and in a way that always seeks to maintain valuable relationships and avoid undesirable financial loss.

Simon Groves is a senior manager of corporate communications and marketing at Atradius Credit Insurance NV

The Greek incentive

Posted on February 17, 2010February 9, 2012 by itsupport

Recently named Best Foreign Investment Practice, Greece by World Finance, Papapolitis & Papapolitis is a firm that represents major financial institutions and multinational corporations, which invest in various sectors of the Greek market. The firm today is at the forefront of the legal market in major foreign direct investment transactions in Greece.

Papapolitis & Papapolitis has experienced the development of corporations and projects in Greece, from the early days of penetrating the market, up to today where these corporations owned by foreign investors play a major role in their respective industries within the Greek market. As such Papapolitis & Papapolitis can offer a key insight into the sometimes difficult, but highly rewarding venture of investing within the Greek market.

The Greek market has experienced an increase of FDI after 2004. For example, net inflows reached Ä4.275bn in 2006, up from Ä487m in 2005. The economy expanded at an average annual rate of four percent from 2004-2007 and 3.2 percent during 2008, one of the highest rates in the Euro zone, where growth was 1.2 percent. After the global economic crisis the European Commission, in its economic forecast report of spring 2009, estimates that Greece’s growth rate will be 0.1 percent for 2010, above the EU 27 rates.

Lately there has been very bad publicity concerning Greece’s financial situation, mainly due to its large deficit. Needless to say that other major countries in the EU, as well as major non-EU countries, suffer from almost the same problem.

The Greek government has already decided to take very strict economic and financial measures as well as to apply major structural reforms in its fiscal policies, which will help immensely in Greece’s economic recovery.
In 2010 great opportunities for foreign investment will be created since the Greek government has stated that major state owned entities will be privatised (i.e. Public Utilities, Banks, Airports, Energy Companies etc.).

One of the major difficulties that foreign investors face when investing in the Greek market is at the time of entering into the market. The main issue has to do with navigating through Greek bureaucracy and dealing with public authorities. It might prove to be a lengthy procedure and during this time a legal advisor that possesses the local know-how and expertise, but at the same time has a key understanding of a foreign investor’s corporate goals and needs is definitely needed. A winning blend would include attorneys who have actually worked in major financial centres of the world, but also have the necessary skills and knowledge of the way in which the Greek market operates. These types of attorneys are found within the Papapolitis & Papapolitis foreign investment practice and pride themselves that they can deliver the most excellent service to foreign investors.

Nevertheless, efforts and reforms are taking place to diminish these hurdles and for bureaucracy issues to be resolved.

One of the most noteworthy reforms in investing in Greece is the newly established Invest in Greece agency the official Investment Promotion Agency of Greece that promotes and facilitates private investment. The agency is set to identify market opportunities and provides investors with general assistance, analysis, advice, and aftercare support free of charge.

Greece’s investment incentives on offer are among the most competitive in the European Union.
The structural framework for investment support in Greece revolves around three institutional pillars:
1) the Investment Incentives Law
2) the National Strategic Reference Framework 2007-’13
3) Public Private Partnerships (PPP)

Namely:

1) cash grants that can reach up to 60 percent, covering part of the expenses of the investment project by the Greek State;

2) leasing subsidies that can reach up to 60 percent, that cover part of the payable installments by the Geek State relating to a lease that has been entered into for the use of new mechanical or other equipment; or

3) wage subsidies that can reach up to 60 percent, provided for employment created by the investment; or

4) tax benefit that can reach up to 60 percent, that allows income tax exemption on non-distributed gains. This benefit is effective upon completion of the investment for the first ten years of operation and is created through a tax-exempt reserve.

The above investment incentives are applicable to energy, tourism, industry, advanced technologies and innovation projects and cover a wide area of business activities.

Finally, the new “Fast Track” law developed by the Ministry of Economy and Finance that accelerates the licensing procedure for investments in Greece is applicable in energy, tourism, industry, advanced technologies and innovation projects and is available to large scale investments that their total value exceeds Ä200m or investments exceeding Ä75m, provided that the investment creates 200 new jobs.

Under the “Fast Track” law Invest in Greece can act as a one-stop-shop for investors that undertakes all procedures and licensing required for investments that meet the criteria of the law.

All of the above endeavours and reforms do offer a foreign investor great incentives in order to invest in the Greek market and those investors who have established businesses in Greece have experienced great profits posted.

For example, in the real-estate and gaming sector foreign clients of Papapolitis & Papapolitis have developed one of the largest hotel casinos in Europe that is also one of the most profitable hotel casinos worldwide.

Other areas where foreign investors have acted with tremendous success within the Greek market is the Renewable Energy Sources (‘RES’) industry, where Greece has the prospect of becoming one of the major European countries that produces energy from renewable sources. The incentives offered by the Greek State for these types of projects, as well as the new laws that are coming to place expediting the licensing procedures make the Greek RES market to be extremely lucrative to foreign investors. Papapolitis & Papapolitis represents foreign multinational companies that invest in the Greek RES market and have experienced immense success.

In addition, the Greek banking sector has remained stable through 2009 and tests conducted jointly by the Bank of Greece and the IMF suggest the “Greek banking sector has enough buffers to weather the expected slowdown of the economy”.

Papapolitis & Papapolitis suggests that investing in Greece is surely a venture that pays off and from experience those who have made such an investment have found themselves in a great position with their corporations posting profits throughout the years.

The financial crisis that Greece is experiencing at the moment has led the Greek government to make changes that in the long run will have a positive impact on the market. The market will open and new major opportunities that will speed up the privatisation process will be created. The bureaucratic legal framework that has deterred foreign investors from entering the market up until now will also be simplified.

Greece needs FDI and the Greek government has fully understood this parameter. We are now witnessing an attempt from the government to eliminate every obstacle that could delay or hinder any foreign investment.
The new efforts and reforms made by the Greek government offer hope that Greece will become even more competitive within the global market and that foreign investors will find themselves in an even more comfortable position when investing in the Greek market.

Papapolitis & Papapolitis considers that in this year many foreign investors will be encouraged to invest in the Greek market, due to the combination of new major opportunities and the new framework that is offered by the government’s reforms.

Nicholas Papapolitis is a Senior Associate at Papapolitis & Papapolitis. For more information www.papapolitislawfirm.com; www.investingreece.gov.gr

China starts slowly in 2010 race against inflation

Posted on January 4, 2010June 12, 2013 by itsupport

They have adopted less urgency in their approach to this year’s race: taming inflation before it takes off on the back of super-charged growth.

Beijing has started to trim back ultra-loose policies adopted at the height of the global financial crisis in late 2008. But these have been tentative steps, marginally in the direction of tightening, and pressure is building for more decisive action.

A clear sign of potential trouble came in the first data points of the new year. Surging factory orders and output pushed both of China’s purchasing manager indexes (PMIs) to fresh highs, but the surveys also revealed very strong rises in prices.

Policymakers and investors who ignore the warnings about inflation would be doing so at their own peril. After all, a jump in Chinese PMIs in early 2009 was one of the best leading indicators of the country’s ultimately stunning recovery.

“We are probably at a tipping point when news of very strong growth is not necessarily welcomed anymore as inflationary pressures are clearly rising quickly,” Yu Song, an economist with Goldman Sachs in Hong Kong, said.

Consumer prices in November rose 0.6 percent from a year earlier after falling for most of 2009.

Inflation it set to rise in the coming months, partly due to the base effect of low prices a year earlier, but also because money supply grew at a record pace of roughly 30 percent last year.

The question is whether inflation will start to moderate around the middle of 2010 — the baseline forecast of many analysts – or turn into more of a headache.

Economists at Morgan Stanley, for example, forecast that annual consumer price inflation will crest at 3.6 percent at
the end of the second quarter before falling to an average of 2.1 percent in the fourth quarter.

Tentative tightening
It is by no means too late for Beijing to tamp down on the price pressures. Much will rest on how it applies bank lending controls – a far more important tool than interest rates in Chinese monetary policy.

Record new bank credit in 2009 of nearly 10 trillion yuan ($1.5 trillion) was heavily concentrated in the first half.
This is the usual lending pattern in China and one that the government is determined to break, insisting in recent
pronouncements that banks lend more evenly throughout this year.

So all eyes will be on new loans data in the first quarter.

Loans of more than 1 trillion yuan a month could fuel steep price rises and signal “drastic tightening” down the road, Yu said. But if officials succeed in controlling lending, the economy will be on its way to achieving high growth and low
inflation, he said.

Chinese leaders from Premier Wen Jiabao to central bank governor Zhou Xiaochuan have pledged in recent weeks that they will maintain appropriately loose monetary policy while also “enhancing flexibility”. Observers have interpreted this as an indication of their intention to gradually step up tightening.

Indeed, over the past month, Beijing has scaled back a tax exemption on property sales, increased a tax on auto purchases, vowed to crack down on speculation in the sizzling housing market and given banks stricter lending guidelines.

“There is no doubt that the government is heading in the correct direction and it chose the right time to start, but the
most challenging point is how to control the pace of tightening,” Gao Shanwen, an economist at Essence Securities in
Beijing, said.

Managing liquidity
The central bank has also started using open-market operations to delicately tighten policy. It has conducted net
cash drains from the market for 12 straight weeks, including in a surprise reverse repurchase agreement on the last day of 2009.

Yet, basic liquidity management should not be confused with more serious tightening. About 2 trillion yuan, more than
one-quarter of China’s annual 2009 budget, had been due to be allocated in December; the central bank needed to mop up some of the cash sloshing about as a result.

“The government is unlikely to take extremely aggressive tightening measures in 2010, as it is still not fully confident
about the foundations of the economic recovery,” Gao said.

Few analysts think the People’s Bank of China will raise banks’ reserve requirements or interest rates until headline
inflation really catches the public’s attention, perhaps sometime late in the second quarter.

Currency appreciation would, in normal circumstances, help serve tightening goals. But Beijing seems almost paralysed by fears that a strengthening yuan would attract currency speculators, the hot money inflows revving up inflation.

Zhang Ming, an economist at the Chinese Academy of Social Sciences, the top government think-tank, forecast that the yuan would rise by less than 5 percent against the dollar this year. Offshore forwards pricing suggests investors currently expect the yuan to appreciate about 2.7 percent.

“We can rule out the possibility of a big one-off revaluation,” Zhang said. “And, of course, if the dollar’s real
effective exchange rate increases, then the yuan will have less need to appreciate against it.”

Making an African brand global

Posted on December 17, 2009June 12, 2013 by itsupport

The financial services industry in Ghana was for a long time dominated by western banking practices and procedures which could not meet the needs of SMEs as a result of the cumbersome processes. This was because training in banking was deeply rooted in the western syllabus and hence the western way of financial practices. Also in Ghana, the 1990s were characterised by bleakness in the banking and finance industry. Banks were failing in their core activity of making loans accessible to the informal business sector.

This story however changed when in 1997, through the rare partnership of two men, the financial services landscape in Ghana experienced a radical revolution with the establishment of UT Financial Services. For the first time in Ghana an indigenous son defied all banking norms and demystified access to loans to the ordinary man and woman. In addition to providing accessibility, UT broke the jinx that governed the disbursement of loans such as having to wait for several weeks, sometimes months in order to receive whatever loans one had applied for.

UT Financial Services Ltd (formerly Unique Trust Financial Services) is the leading non bank financial institution in Ghana specialising in loans and investment. The company has for the past decade committed itself to serving the needs of indigenous traders and business entities not being catered for by the traditional banks through simple, fast and a very efficient business model. This resonates with the desire of the shareholders to create an entity set apart by its nonpareil standards of integrity in dealing with clients and stakeholders.

In the words of Moky Makura, the prolific TV presenter, producer, writer, actress and businesswoman: “what seems to make UT so successful is the company’s strategy of applying African solutions to an African environment. Commercial Banks in Ghana have tended to apply western standards when they lend money looking for things like collateral, business plans and fixed business addresses. But like much of the rest of Africa, well over 70 percent of Ghana’s business takes place in the informal sector; so UT threw out the rule book.”

The initial focus of UT was centered on servicing the “unbanked” informal sector, but over the past few years, UT’s services have extended to cover the formal sector and providing stop gap loans and trade financing to SMEs.
What sets UT apart in the financial services market is the solid business structure and flexibility that allows for tailoring products to meet the specific needs of clients hence the tag line “they say no, we say why not”.

The core business is to provide credit for businesses and individuals to expand their business, import and export financing and social loans for salaried workers and take care of other social needs. In addition to this, the company has a high yielding investment instrument which provides clients with carefully selected investment products that balance risk with robust reward.

UT’s vision is “to be recognised as Africa’s leading provider of unique financial solutions”.

In all dealings, UT is dedicated to providing timely and effective financial assistance to the customer.

The company which started with a staff of four in a one room office in the Central Business District of Accra now boasts a diverse and highly skilled workforce of about 600 spread over 20 branches in Ghana.

Performance highlights

Under the dynamic leadership of the visionary CEO, Prince Kofi Amoabeng, (described by the media as the “Prince of Corporate Ghana), UT has won a number of awards. UT has been awarded the 5th Best Company, 2nd Best Financial and Indigenous Business for 2008 as well the Best Non-Bank Financial Institution for four consecutive years (2003, 2004, 2005 and 2008) by the Ghana Investment Promotion Centre (GIPC) in its Club 100 rankings which represent the top 100 companies in Ghana. In 2006 the company was recognised as the Best Financial Institution and 2nd Best Overall Company in Ghana. In the same year the CEO received the Marketing Man of the Year Award by the Chartered Institute of Marketing (CIMG). During the celebration of Ghana’s 50th anniversary in 2007, UT won a Gold Award for its contribution to the Social and Economic Development of Ghana.

In March 2008, UT won the second Most Respected Company, while the CEO won the most Respected CEO in the maiden edition of Ghana’s Most Respected CEO and Company Awards organised by PricewaterhouseCoopers.

CSR

Wealth creation at UT Financial Services is not just about how much profit we make, but also how much we are able to impact on the community in which we operate. Our social responsibility therefore is about being responsive to the needs of our people and contributing significantly to the social and economic development of the disadvantaged in society.

Apart from prompt and timely payment of corporate and income tax, we also make significant donations and sponsorships to the under-privileged sectors of society.

We have been committed to improving health, education and the social wellbeing of the ordinary and under privileged in society. UT has over the past four years spent five percent of our profit before tax on our social responsibility. UT has a unique Yuletide outreach programme where the chairman of the board leads a team of staff volunteers to distribute food parcels to the street children and homeless on Christmas day.

UT makes donations to the Ghana Society for the Blind, Ghana Heart Foundation, Hope for Kids and the Ghana National Trust Fund among other charities.

UT today

From humble beginnings as a privately owned company in Ghana, UT in 2008 evolved into a publicly owned company with shares listed and actively traded on the Ghana Stock Exchange, in one of the most successful IPOs to date in Ghana. The IPO was recently awarded the 2nd Best in Africa by the New York Stock Exchange.

– UT Financial Services has over the past two years opened branches in other countries in line with its vision of having a presence in five countries outside Ghana by 2010 – UT is taking an African brand global.

– UT Financial Services (Germany): In 2008, UT started operations in Hamburg, Germany as UT Logistics GmbH. The major products being offered were acquisition and registration of land, building supervision and as well providing travel assistance to Ghanaians in the diaspora.

– UT Financial Services (Nigeria): At the beginning of 2009, UT obtained a license to operate and replicate its services in Nigeria, thus serving the needs of indigenous traders or business entities not being catered for by the traditional banks, by providing stop gap loans and trade financing to SMEs.

UT Holdings
Apart from UT Financial Services the UT Group comprises of the following
operating companies:

UT Logistics : UT Logistics is the trading and logistics arm of UT Holdings. The company undertakes clearing and warehousing business activities. UT Logistics, in addition, trades in soft commodities and provides collateral management services.

They are also into freight forwarding and clearing of goods.

UT Bank : A recent acquisition majority shares in BPI Bank Ghana Ltd gave birth
to UT Bank which operates as a licensed universal banking institution offering a
suite of banking products and services to customers.

UT Properties: This company offers real estate services such as valuations and funding options. It offers advisory and consulting services aimed at acquisition, development and management of land and real estate in Ghana.

UT Collections: This is the debt collection subsidiary of UT Holdings and specialises in the collection, management and recovery of debt. The company provides innovative and professional debt collection services and receivable solutions across a broad spectrum of industries.

Best method analysis

Posted on December 17, 2009February 3, 2012 by itsupport

Although some may consider transfer pricing a “black box,” the shared adage among most finance professionals is that transfer pricing is comprised of both art and science. The science of transfer pricing is grounded in financial data and the relevant tax laws while the art of transfer pricing is based upon an intuitive sense of which adjustments and assumptions may best align the scientific aspects with the realities of the business. At present, many transfer pricing practitioners believe that the recent dynamics in the global economy, such as unprecedented increases in corporate borrowing costs coupled with limited access to capital markets as well as total system losses for multinational companies, may require a different perspective in defining arm’s length behaviour. It is precisely this shift of economic reality that has created both a necessity and an opportunity for organisations to rethink their global transfer pricing.

Cyclicality of the sector

An industry analysis is the foundation of a transfer pricing framework and should seek to explain any deviations from the industry’s historical trends experienced during the recession. Most industries have been impacted by the current economic environment while a chosen few have been recession resistant. The cyclical industries that have been severely impacted by the recession, such as the financial services and automotive sectors, will require reconsideration of their financial analytics given the newfound government intervention and ensuing regulatory changes. As such, benchmarking in these industries must ensure accurate comparisons of financial results either through a search for comparable companies that are subject to similar regulatory conditions or the application of appropriate financial statement adjustments to account for differences in capital costs or SG&A burdens.

Best method analysis

The fundamental assumptions around the “best method” selection, as defined in most tax jurisdictions, must be challenged to test the relevancy of the method during recessionary periods. Although each country will address the best method and data requirements differently, as an example, the US tax law presents the rule under the Internal Revenue Code Section 1.482-1(c). For a transaction-based method, whereby an intercompany policy is established using the same terms as in third-party transactions, current market conditions may have changed a company’s terms with those third parties, creating a need to evaluate the applicability of that change to the intercompany transaction. For a profit-based method, the basic method may be appropriate yet an alternative profit level indicator may yield a more reliable result under depressed market conditions.

In the current environment, a comparison of the company’s performance to the comparables may prove challenging for several reasons. On the practical side, comparables used for profit-based methodologies will normally incur a natural attrition, which has now been accelerated during the recession through an increase in bankruptcy volumes. Moreover, there is a natural time lag in the availability of financial data that will create a misalignment in some cases and the potential risk of inappropriate comparisons of recessionary years with pre-recession years. According to US tax law, a basic premise of the best method selection is to employ the method which produces the most reliable measure of an arm’s length result given the degree of comparability between the taxpayer and the third-party transactions as well as the quality of the data and the assumptions (Ibid). As such, sensitivity to these fundamental data issues is always considered a best practice yet should be viewed as essential in this environment.

Legal and tax

Opportunities as well as risks may be found in a review of the current transfer pricing policy and the supporting intercompany agreements. The legal and tax departments of a company should jointly scrutinize and validate the use of the current terms of the intercompany agreements to ensure that the “…terms are consistent with the economic substance of the underlying transactions,” as outlined in the Internal Revenue Code Section 1.482(d)(3)(ii)(B)(1). For most companies, certain intercompany terms are worth further consideration, including a minimum return “guaranteed” for distributors or a minimum royalty paid to an affiliate for marketing intangibles. In the event of systemic losses, a company should reconsider the arm’s-length validity of such arrangements; it is likely that the tax authorities will do the same.

Risks and opportunities

Global transfer pricing policies must be reviewed in light of the current economic conditions to ensure that the risks have been properly mitigated and the opportunities have not been overlooked. The risks may be found either in the scientific dimension or the artistic dimension, the changes in the financial foundation or in the assumptions made surrounding the business model and the value drivers; the worthwhile opportunities will be found in the balance of the two.

Kathrine Kimball is VP of Ballentine Barbera Group, a CRA company. For more information kkimball@crai.com

The green incentive

Posted on December 17, 2009February 9, 2012 by itsupport

The future health of the planet is at the top of the agenda for politicians, scientists, conservationists, and an increasing number of people in all walks of life, as the evidence of the effects of global warming and pollution becomes ever more apparent. And ominous.

Of course, all eyes were on the UN climate change conference in Copenhagen in December 2009, the aim of which was to deliver the successor to the Kyoto Protocol. But do these events achieve what they set out to? There are critics who believe that they won’t achieve concrete results.

Atradius sees it differently. The role of politicians is that of setting the framework for change and giving clear guidance of what has to be done. That isn’t enough. Arguably, businesses have been instrumental in creating much of the current environmental concerns through their use of traditionally wasteful and polluting processes. These very same businesses can now turn the politicians’ aspirations into reality by adapting more cost efficient, less wasteful and environmentally aware practices.

The white paper cites many examples of companies that have seized the opportunity to become ‘greener’ – and, in the process, increased their profits and enhanced their brand. Wal-Mart, for instance, has adopted an environmentally aware philosophy that runs right through its organisation, and it ensures that its suppliers do likewise. In the process it has been able to pass on savings to customers while at the same time increase profits.

The profitable application of sustainability is by no means exclusive to major corporations. If anything good has come from the economic downturn, it is that businesses have had to focus on eliminating wasteful processes to cut costs; essentially reviving the mantra that gained currency in the 70s and 80s: Total Quality Management, or TQM. But what is sustainability if not a natural development of TQM? Those businesses that have, of commercial necessity, adopted this cost saving stance to see them through the recession, have taken the first step towards making sustainability a central pillar of their business strategy.

Atradius’ white paper also highlights the commercial opportunities that were missed by businesses too focused on continuing to produce traditional products by traditional means. Take, for instance, the energy efficient light bulb: a simple yet potentially powerful weapon in the battle against waste. While the technology was developed decades ago, its blueprint languished on some researcher’s shelf while businesses – who could have marketed it profitably – failed to foresee the trend away from energy wastage.

The message that the Atradius white paper has for businesses is that sustainability isn’t a side issue – the success stories cited in the paper demonstrate that sustainability can be a profit centre, enhancing that most ethereal of assets – brand value, creating real savings that outweigh initial costs, and providing a more attractive commercial proposition: all of which add up to a healthier business. Governments should be praised for the support they are providing for the development of sustainable technologies and the encouragement they offer businesses through positive incentives such as tax breaks.

But the long term value of penalties for exceeding carbon emission targets may not be enough to ensure that the needed changes are made to create permanent reductions in emissions. If confronted by the possibility of a fine for polluting, a business can – and often will – factor that fine into its costs, thus viewing the fine to be an acceptable fee for continuing to pollute. Similarly, the carbon trading scheme that formed a key element of Kyoto, however well intentioned, can be misused as a get-out clause to continue to pollute – at a heavy price.

The carbon emissions penalty and trading scheme do not achieve what is needed to create a sustainable future. They don’t change attitudes, they don’t make countries or businesses consider the rights and wrongs of their processes, and they won’t foster global cooperation, as they simply allow some countries to buy their way out of actually reducing energy usage and carbon emissions.

For sustainability to be achieved, it has to become a boardroom issue, not just government legislation. At the very least, businesses should be able to lower costs by embracing a sustainability policy, but with more businesses choosing green companies as their preferred partners it is becoming evident that this can help brand image as well.

Download a copy of the Atradius white paper at www.atradius.com

Entering the Mercosur

Posted on December 17, 2009February 9, 2012 by itsupport

Uruguay has a set of social, economic and political conditions that strategically place it as the main entrance to the Mercosur, the biggest market in the region.

During the last five years, this country has been through an accelerated process of economic expansion. With an average growth rate of over seven percent pa, it has become one of the most dynamic economies in Latin America, consolidating a sustainable model of economic growth and social development.

This excellent performance was achieved by highly qualified economic management, which has led the country towards growth and development, based on responsibility and balance.

The main factors that have allowed Uruguay to face unfavourable international conditions are: cautious macroeconomic policy, a search for balance in public accounts, responsible management of public debt, opening up its fiscal borders, stable and reliable political and legal environments and the existence of a healthy banking system.

Macroeconomic policy

The cautious management of the fiscal and monetary policies set a favourable scenario for the development of private investment, an essential driving force for sustainable growth.

Inflation has remained under control in spite of the great increase in the international price of commodities during the first half of 2008. On the other hand, the existence of a flexible exchange rate system provided the economy with a greater adaptation capacity when faced with external ups and downs.

Since the respect for fiscal balance was considered a key factor to assure the sustainability of the economic model, the average fiscal deficit of the last five years was below one percent.

The excess amount of public accounts offered a margin to adopt a set of anti-cyclical measures since the end of 2008 to palliate the negative impacts of external shocks and to face higher energy consumption due to an acute drought, maintaining the fiscal deficit at reasonable levels.

Public debt management

The competence of public debt management and planning reduced the vulnerability of the national economy, decreasing its external exposure through a strong reduction of the debt burden on GDP and the construction of a clear maturity horizon for the next years.

Thus, the scenario of the international credit contraction provoked by the crisis finds Uruguay with a record reserve level by the end of 2009 (USD 7.700m, 24 percent of GDP) and with a sustained growth.

An economic opening

The strong economic growth has been accompanied by a greater degree of economic opening, averaging 60 percent of GDP in the last five years.

The exports of goods and services reached their historical peak in 2008, exceeding USD 9.000m (28 percent of GDP). This performance, that in the last four years has implied the duplication of exports value in US dollars, was accompanied by an important process of diversification of destinations and also a sharp increase in the exports of services, which grew by 85 percent since 2005, and among which, software exports stood out.

This way and in spite of the strong contraction of international trade that provoked deep falls in world trade volumes, the value of the Uruguayan exports between January and September, 2009 decreased by only 14 percent compared to the same period of 2008.

Stable political environment

The political and juridical stability has been a characteristic of Uruguay that has distinguished it throughout its history as a trustworthy destination for investments and, therefore, a transparent and reliable juridical framework has been developed, with clear and equitable game rules for national and foreign productive capitals.

The investment regime includes free access to the exchange market and free repatriation of capital, allowing remittances to be made at any time, in any currency and without previous controls. There is also a series of tax exemptions and benefits for companies investing in the country.

As a result, the volume of foreign direct investment (DFI) has multiplied in previous years, exceeding USD 1.800m (six percent of GDP) in 2008. In the year ending June 2009, FDI exceeded the average of the last five years. At the same time, the total investment has registered a sustained increase of its share in GDP.

Banking system

The Uruguayan banking system has remained sound and liquid even in the middle of the collapse of international financial markets that led to the bankruptcy of some of the main world banking institutions.

Composed of a public bank (Banco República) and 13 first rate international banks, the Uruguayan banking system has remained healthy and with excellent solvency and liquidity indicators, due to a low grade of exposure to external turbulences and to the high quality of its assets.

Concerning solvency, the prudential regulations applied in the last years provided for requirements even more demanding than those recommended by Basle. As a consequence of this, the capital adequacy (Tier 1) was about 17.5 percent during 2009.

The liquidity of the institutions has reached levels higher than 60 percent. Thus the assistance of the regulatory authority has not been necessary.

Finally, as opposed to what occurred in other banking systems, the delinquency has remained extremely low (one percent) due to the high quality of the banks’ credit portfolio.

In short, the economic growth model adopted by Uruguay in 2005, based on solid pillars, has offered the country the possibility to successfully overcome the deep international crisis. While the economy has felt the impact of the worsening of external conditions, mainly due to the contraction of foreign trade and foreign investment, the annual GDP as of June, 2009 grew by 5.1 percent as for the same period of the previous year.

The recovery of the world economy and external demand, the return of investment flows, and the solid economic basis of the country allow to ensure that Uruguay will continue to show an ongoing and sustainable growth in the years to come.

For further information email: fernando.calloia@brou.com.uy

UK’s Darling says PBR will reassure markets

Posted on December 10, 2009February 9, 2012 by itsupport

The Labour government’s plan to halve the budget deficit over four years will soothe market concerns about Britain’s debt burden, finance minister Alistair Darling told reporters in an interview on Thursday.

Government bond futures fell sharply, however, a day after Darling delivered a pre-budget report that shied away from detailing exactly how he plans to cut borrowing.

Markets are worried Britain could lose its top-grade credit rating unless policymakers take tough action to cut a deficit set to top 12 percent of gross domestic product this year.

“The steps that we have taken will reassure people that we have a credible, deliverable, realistic and fair plan to cut government borrowing over a four-year period,” Darling said on Thursday.

Darling has set out some of the ways it intends to do that but neither Labour nor the opposition Conservatives have set out enough detail to convince markets yet.

The Conservatives, tipped to win an election due by mid-2010, have said they want to move quicker than Labour in cutting borrowing, worried that a lower credit rating would mean higher borrowing costs.

But Darling has said cutting spending at such an uncertainty economic juncture could prove ruinous for the recovery.

“If you brought the process forward a year you would have to find another £26bn,” he said. “I just don’t think that would be sensible.”

Confident on growth

Darling announced a rise in national insurance contributions on all but the poorest and slapped a one-off tax on bank-bonuses in Wednesday’s PBR to help tackle the growing deficit.

He also revised up his 2009/10 borrowing forecast marginally to £178bn on Wednesday, saying it was better to support the economy rather than hinder it with cuts just yet.

The UK government bond market initially took some comfort from that, but prices plunged on Thursday as investors worried the government was not going far enough to reduce its debt.

“We are at a situation just now where things are still pretty uncertain,” he said.

“I want to make sure we support our economy into recovery but after that, make no mistake about it, the fact that government borrowing will have to come down by half over a four-year period will mean you have got some pretty difficult decisions to be taken right across the board.”

Darling said the government could create the conditions to bring about growth of around 3.5 percent in 2011 and 2012.

“I am confident we can get that growth,” he said. He added that the 50 percent levy on bank bonuses over 25,000 pounds announced on Wednesday was meant to alter behaviour in the financial sector.

“This measure was quite deliberately designed to be one-off, it’s there to basically try and change people’s culture, people’s thinking,” Darling said.