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South Koreans 
begin easing curbs 
on ties with North 

South Korean president Kim Young- jam awimincy rf 
a gradual easing of restrictions on economic ties 
with North Korea after the recent settlement of the 
dispute over Pyongyang’s nuclear programme. 

Direct investments of less than SSm will be permit- 
ted, and ma c hine ry used in reprocessing commis- 
sions from South Korean companies, such as for 
textiles, can be shipped to North Korea. Page 18 

UK orders ferry checks: The UK government 
is to increase checks on roll-on roll-off ferries after 
one in three of the vessels operating from British 
ports was found to have faulty bow doors. Page 18; 
Ferry ban hits calf prices, Page 8 

Offshore oilfield given go-ahead: The UK 

government gave the go-ahead for Britain's first off- 
shore oilfield in the deep Atlantic waters west of 
the Shetland Islands; Page 18 

Dublin to free terrorists: Irish Republican 
Army prisoners held in Irish jails will be freed 
before Christmas as part of the Dublin govern- 
ment's response to the terrorist ceasefire, justice 
minister Maine Geoghegan-Quiiui said last night. 

Citibank of the US is entering retail tanking in 
Britain for the first time and expects to open six 
branches there by the end of next year. Page 19 

Garfmora, a leading UK fund manager, 
announced a joint venture with NationsBank, the 
third-largest US bank, which will Gartmore allow it 
to sell its expertise In the DS. Page 19; Lex, Page 18 

Russians remember Bolshevik revolution: 

- — * - A hard-liner carries a 

V poster of Lenin as thou- 
m- sands of Russians, disen- 
chanted with market 
reforms that have 
plunged them into pov- 
erty, marched through 
central Moscow to cele- 
brate the 77th anniver- - 
saiy of the 1917 Bolshe- 
vik revolution. The 
15,000-strong demonstra- 
tion (piidcly turned into 
the biggest protest 
against President Boris Yeltsin this year. Russia 
tries to end securities market chaos. Page 3; 

Twisting and turning. Page 18 

Italian rainstorms claim 69 Ryes: The worst 
rainstorms to hit north-western Italy for 80 years 
have killed 59 people, and authorities fimr the final 
death toll could bejwell-qver 10Q. Page 2 

Swedish leaders, pl«£»d Etfriwia Swedish, 
politicians moved to holster fettering support for 
joining the European Union ahead of the country’s 
referendum cm Sunday. Page 2; Lex, Page 18 

Warning mt China's trade talks: Sir Leon 
Brittan, the European Commission’s top trade offi- 
cial. warned that negotiations an China’s reentry 
to the General Agreement on Tariffs and Trade 
were in danger erf "grinding to a halt". Page 5 

Channel tunnel delay: A fall passenger service 
for drivers and their cars in the Anglo-French 
Channel tunnel wifi not start before the end of 
November or early December, at least two weeks 
later, than the most optimistic forecast Page 8 

US to pull out more troops: The US plans to 
withdraw nearly 14.000 of its troops from Kuwait 
and Haiti over the next six weeks. Page 4 

Joftnan Shlnldn Bank. Japan's largest credit 
association, launched a deposit account that 
includes eligibility for a raffle with cash prizes of 
up to Y50.000 ($520). Page 6 

‘ ml* Apple and Motorola confirmed details of 
an agreement to develop a common standard speci- 
fication for personal computers. Page 19 

Brussels balks at German venture: The 

European Commission is understood to have seri- 
ous reservations about a planned joint venture by 
two big German media groups and the state tele- 
phone monopoly. Page 2 

Polish coalition split: Differences over 
privatisation policies are threatening to un d ermine 
Poland’s governing coalition. Page 8 

Indonesian union chief Jailed: The leader of 
Indonesian's largest independent trade union was 
sentenced to three years’ in prison by a court in the 
northera Sumatrantown of Medan, where workers’ 

. demonstrations led to riots in April. Page 8 

Airports group boosts profit s : A 7 per cent 
increase in airline passengers helped fuel a £2Sn 
($46m) increase to £265m to pre-tax profits at UK 
airports group BAA, during the six months ended 
September. Page T9: Lex, Page 18 


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EU drops plan to ease multinationals’ tax burden 


By Emma Tucker 2n Brussels 

The European Commission yesterday 
dropped proposals to reduce the tax bur- 
den on European companies with sub- 
sidiaries in more than one EU country. 

The draft directive, aimed at ending 
double taxation on crossborder 
operations between parent companies 
and subsidiaries in other nations, was 
abandoned after a four-year deadlock. 

Mrs Christian Scrivener, commis- 
sioner responsible for taxation, told a 
meeting of EU finance minis ters in Brus- 
sels that she was withdrawing the pro- 


posals because of the staunch opposition 
of certain countries, notably Portugal 
but also Belgium and Greece. 

The failure of member states to reach 
agreement represents a blow to the sin- 
gle European market, and will irritate 
European multinationals. 

The lack of progress also represents a 
setback for German ambitions to make 
tax a priority of its six-month presidency 
of the European Union. 

Mr Zygmunt Tyszkiewicz, secretary 
general of Unice, the European business 
federation, said yesterday the proposal 
would have allowed companies to reor- 


ganise themselves and operate on a 
“truly pan-European basis" by avoiding 
double taxation on interest and royalties 
payments between companies that were 
part of the same group. 

A problem for trans-European enter- 
prises is that they currently pay with- 
holding tax at source for payments 
between parent companies and subsid- 
iaries. 

Member states which are net import- 
ers of technology and capital, such a 
Portugal and Greece feared the proposal 
would lead to a loss of revenue. 

In less than two months Germany will 


hand over the nhair to the French, and 
in that time it is unlikely that signifi- 
cant advances will be made on two other 
key taxation matters: an EU wide sys- 
tem for taxing savings and the introduc- 
tion of a definitive system of VAT. 

Yesterday, EU ministers discussed the 
continuing problems associated with 
EU-wide savings withholding tax, which 
has been consistently opposed by the UK 
and Luxembourg. 

Germany, which suffers considerably 
from capital flight, would like EU coun- 
tries to agree on a minimum withhold- 
ing tax to prevent people moving 


savings to other countries to avoid pay- 
ing tax. 

Levels of tax currently vary between 
the member states. Luxembourg, for 
example, does not levy taxes on savings 
held by non-residents in the country and 
fears that an EU-wide tax would benefit 
other OECD tax havens such as Switzer- 
land and Monaco. 

A solution involving deduction at 
source together with a minimum rate of 
declaration, favoured by a working 
party on savings tax, looks unworkable 
as no advanced system of information 
exchange on tax exists between states. 


Boeing may 
tie parts 
deals to 
aircraft sales 


By Bernard Simon in Toronto 
and Paul Betts in London 

Boeing, the world’s leading 
aircraft maker, has started a 
worldwide review of its purchas- 
ing policies to match aircraft 
parts contracts with aircraft 
orders from specific countries. 

The review could result in the 
Seattle-based company shifting 
purchases away from countries, 
such as Canada, whose govern- 
ments and airlines have increas- 
ingly opted for European Airbus 
aircraft over Boeing. 

Although no decisions have 
been taken, a Boeing official said 
yesterday that the review was 
aimed at directing future Boeing 
sub-contracting work to coun- 
tries which bought .its aircraft. 
Boeing's commercial aircraft 
division buys components from 
323 suppliers in 38 countries out- 
side the US. 

The company, which has tradi- 
tionally controlled about 60 per 
cent of the world’s commercial 
aircraft market but has been fac- 
ing intense competition from Air- 
bus, Is seeking to expand its pres- 
ence in the fast-growing 
Asia-Pacific market by offering 
sub-contracting wo rk to Japanese 
and Chinese manufacturers, and 
to aircraft makers in other Far 
Eastern countries. Japanese man- 
ufacturers are responsible for 
about 20 per cent of the work on 
the Boeing 777, the new twin-en- 
gine wide-bodied aircraft that 
will enter service next year. 

Airbus is also stepping up com- 
petition in these markets, 
recently announcing a $25m 
agreement with the China Avia- 
tion Supplies Corporation to set 
up a Eight crew training centre 
in Peking. The European consor- 


tium has also been in talks with 
Japanese manufacturers to inter- 
est them in possible collaboration 
over a new 800-seat aircraft. 

Boeing's move was disclosed by 
Mr Ron Woodard, president of 
the company's commercial air- 
craft group, in a speech to the 
Aerospace Industries Association 
of Canada. 

Mr Woodard complained that 
the Canadian defence department 
bad not given Boeing an opportu- 
nity to bid on replacements for a 


Boeing warns of. battle for 
clients. — Page 5 

fleet of Boeing 707 airliners. 
Instead, the Canadians bought 
five twin-engine wide-body Air- 
bus A-3l0s. 

He noted that Boeing has spent 
about C$800m (US$590m) annu- 
ally in Canada over the past 
three years. But sales had dwin- 
dled to about C$30m a year, all 
on components and none on new 
aircraft 

“Our Canadian business place- 
ment must understandably be 
market based, as it is elsewhere.” 
Mr Woodard said. "Boeing sup- 
ports the principal of the level 
playing field. We don't ask for 
special considerations and we 
don’t want to have to compete 
against special considerations 
granted [to] others." 

Mr Woodard’s comments have 
been interpreted as a shot across 
the bows of Calgary-based Cana- 
dian Airlines International, 
which is expected to place size- 
able orders over the next few 
years to replace its Boeing 737 
twin-engine, narrow-body fleet. 

Boeing warns of battle for 
clients. Page 5 



On guard: an Israeli border policeman stands yesterday at the door of the Isaac Hall in the Cave of the Patriarchs in Hebron, the scene in 
February of the killing by an Israeli settler of 30 Palestinians. Workmen were carrying out final repairs before the hail was reopened 
yesterday for worship by Jews and Moslems, amid tight security. Plan hm* 

Peace hopes renewed in Bosnia 


By Laura SHber in Belgrade and 
Bruce Clark m London 

Bosnian Serbs may soften their 
opposition to International peace 
proposals as a results of their 
military reverses over the past 
two weeks, the top UN official in 
former Yugoslavia said yester- 
day. 

Mr Yasushi Akashi, the Japa- 
nese diplomat who heads the 
UN’s -10, 000-strong mission there, 
said the Serbs would probably 
respond to the present offensive 
with a counter-attack, but then a 
military balance would be 
reached. 

British officials said they 
doubted whether the present 
upsurge in fighting would lead to 
a positive result. They urged all 
parties to abandon the idea of a 


military solution to the Bosnian 
conflict. 

In a further sign of interna- 
tional disunity, British officials 
disclosed that they and their 
French counterparts had 
launched a discreet diplomatic 
campaign to dissuade other mem- 
bers of the UN security council 
from voting with the US to 


authorise arms supplies to Bos- 
nia. 

Mr Akashi said Mr Radovan 
Karadzic, the Bosnian Serb 
leader, might step back from his 
outright rejection of the interna- 
tional peace plan drawn up by a 
contact group consisting of the 
US, Russia, Britain, France and 
Germany. 


“With the change of situation, 
they may become more amenable 
to talking with the contact 
group." Mr Akashi said of the 
Bosnian Serbs. 

In Bosnia, a Serb commander 
threatened to seize back all the 
heavy weapons that his army had 

Continued on Page 18 


Clinton warns on Congress 
as poll campaign nears close 


By JiB’ek Martin in Washington 

US President Bill Clinton spent 
the final 24 hours of a bruising 
mid-term election campaign issu- 
ing dire warnings yesterday 
about the consequences of the 
Republicans gaining control of 
Congress. 

“Why," he said in Minneapolis, 
“would we want to give Congress 
to people who want to take ns 
bade to what almost wrecked us 
in the 1980s?” Republican cam- 
paigns were based on “malice 
and cynicism", be said. 

However, mast of the opinion 
polls and much of the political 
comment ahead of today’s polls 
suggest that the Republicans are 
poised to regain control of the 
Senate, which they last com- 
manded in 1986. Even the House 
of Representatives may fall to 
Republican control for the first 
time for 40 years. Democrats also 
expect to lose several of the 22 
governorships they are defend- 


ing out of the 36 to be derided 
today. 

The two Republican leaders. 
Senator Bob Dole and Congress- 
man Newt Gingrich, forecast in 
the past 24 hoars that the party 
would win majorities in both 
chambers. Mr Gingrich put the 
likely Republican gain in the 
House, where a 40-seat net gain 
would make him Speaker, at 
between 30 and 75 seats. 

A New York Times analysis 
identified 124 seats as very com- 
petitive in the 435-member 
House. Of those, 89 were being 
defended by Democrats and only 
34 by Republicans, with the lone 
independent Congressman, Mr 
Bennie Sanders of Vermont, also 
under threat from Republican 
opposition. 

Mr Clinton spent his final 
hours of campaigning in three 
states where Democratic Senate 
candidates are given a chance of 
winning today. He started in 
Minnesota, where Ms Ann Wynia 


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is even with Republican Rod 
Grams for the seat being vacated 
by Republican Senator David 
Duren burger. 

He moved on to Michigan, 
where Congressman Bob Carr, 
the Democrat, appears behind 
Mr Spence Abraham in the race 
to succeed the retiring Senator 
Don Riegle, the Democrat Last 
stop was in Delaware, where Mr 
Charles Oberly, the Democratic 
state attorney-general, is trying 
to unseat Senator William Roth. 

In New York, Governor Mario 
Cuomo was leading Republican 
Mr George Pataki by 50 per 
cent-37 per cent in one survey, 
but by only 44 per cent-40 per 
cent in another. 

In Virginia, the weekend Rich- 
mond Times- Despatch poll gave 
Senator Charles Robb, the Demo- 
crat, 39 per cent to 31 per cent 
for Republican challenger Mr 
Oliver North. 

Republicans eye Senate. Page 4 


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.©.THE FINANCIAL TIMES LIMITED 1994 No 32^518 Week No 45 LONDON - PARIS - FRANKFURT • MEW YORK - TOKYO 


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NEWS: EUROPE 


Growing fear of No vote galvanises the pro-membership camp 


Swedish leaders plead EU cause 


By Hugh Camegy 
in Stockholm 


Sweden's senior political 
leaders yesterday moved to 
bolster faltering support for 
joining the European Union, 
sounding an anxious chorus of 
warnings about the serious 
economic consequences facing 
the country if it rejects mem- 
bership in a referendum next 
Sunday. 

A series or opinion polls sug- 
gesting a swing towards the 
anti-EU campaign alarmed 
Stockholm’s financial markets, 
weakening the krona, knock- 
ing more than 1 per cent off 
share values on the Stockholm 
Stock Krehan gp and pushing 
up yields on five-year govern- 
ment bonds to more than 11 
per cent This further widened 
the premium paid on Swedish 
debt compared with most of its 
European competitors. 

Mr Ingvar Carlsson, the 
prime minister, his top minis , 
ters and opposition leaders 
said worse would follow if the 
outcome on Sunday was a No 
vote, with damaging effects on 
the country's effort to control 
its big budget deficit and fast- 
growing state debt Mr Gtiran 
Fersson, the finance minister, 
said he would have to add to 
the SKrSlbn (£4_3bn) package 
of tax increases and spending 
cuts he announced last week. 

“With a No. 1 would be 
forced to go back to the Riks- 
dag [parliament] this month 


Opinion polls 
suggesting a 
swing towards 
the anti-EU 
campaign have 
alarmed the 
financial 
markets 


Sweden 


Benchmark bond yield (par cent) 

11.7 — 

ii.e 

iiji 


Aflflrsv addon Index 
- 1.500 


1.475 


r. — -V— 1,450 


— ?1,425 


11-0 


lag 1 


October 1994 


October 1994 Nov 


Scuros: OHtaGtneam 


with proposals for further 
f inan cial measures - this is 
undeniable," Mr Fersson said. 

Mr Carl Bfldt, the conserva- 
tive former prime minister 
ousted by the Social Democrats 
in September's general elec- 
tion, said the prospect of a No 
vote was “deadly serious". 
“The No side now owe citizens 
an answer on how they con- 
sider the dangerous and dam- 
aging interest rate conse- 
quences of their policy would 
be managed," he said. 

Most of the latest opinion 
polls have given the No side 
only a marginal lead at best 
But what has worried the Yes 
camp is an apparent break in a 
trend of growing support for 
membership which followed 
the general election. 

Pro-EU campaigners, trying 
to steady their nerves, point 


oat that opinion polls in Aus- 
tria also lurched towards the 
No campaign shortly before 
the referendum there on EU 
membership in June, but the 
result was a hefty majority In 
favour of more than 66 per 
cent. 

The latest polls have galvan- 
ised the Yes campaign. With 
the foil weight of the political 
and industrial establishment 
now uniting for a Yes vote - 
and many voters still unde- 
cided - a Yes is still quite pos- 
sible. 

However, anti-EU feeling has 
always been for more deeply 
entrenched in Sweden than it 
was in Austria, with all polls 
in the two years until late sum- 
mer showing a lead for the No 
camp. 

A No vote in Sweden, the 
biggest of the three Nordic 


applicants, would be a serious 
snub to the European Union. It 
would almost certainly presage 
a rejection of membership in 
Norway, which votes on 
November 28. That would leave 
only Austria and Finland of 
the four European Free Trade 
Area countries which have 
negotiated entry terms set to 
come in. 

Even in Finland a small 
doubt has crept in following 
the postponement on Sunday 
of parliamentary ratification of 
last month's referendum 
approval until after Sweden 
has voted. Finnish EU oppo- 
nents are hoping that a No 
vote in Sweden might win over 
enough MPs to form the neces- 
sary one third minority needed 
to block ratification - although 
most observers doubt their 
chances. 


Brussels balks at German TV venture 


By Emma Tucker and agencies 

in Brussels and 

Michael Undemann in Bonn 


Hie European Commission is 
understood to have serious 
reservations about a planned 
joint venture by two big Ger- 
man media groups and the 
state telephone monopoly. 

The proposed venture 
between Bertelsmann, the 
world’s second largest media 
group, Kirchgruppe, one of 
Germany’s biggest private 
television companies, and 
Deutsche Telekom has been 
under investigation by the 
Commission since July, follow- 
ing fears that It could create a 
dominant position in the Ger- 


man market for pay television 
services. 

The companies intend to set 
up a company, to be known as 
MSG Media Service, to provide 
i nfrastru c ture , marketing and 
booking services for commer- 
cial pay-TV, Including such 
services as video-on-demand, 
home banking and i n t e racti v e 
television. 

Suspicions that the deal con- 
tains anti-competitive ele- 
ments have emerged following 
a far-reaching probe by Brus- 
sels and an intense lobbying 
campaign by the main partici- 
pants. 

The Commissi mi has not yet 
taken a decision to block the 
deal, but pressure is mounting 


on Bertelsmann, Kirch and 
Deutsche Telekom to make 
adjustments to the joint ven- 
ture. “The companies' pro- 
posal is unacceptable,” a Brus- 
sels official said. "They know 
it and [competition commis- 
sioner Karel] Van BGeri told 
them again today." 

The deal is likely to be 
blocked at tbe Commission’s 
meeting tomorrow unless the 
companies came np with the 
necessary changes to meet 
competition rules. 

Mr Van Miert yesterday met 
representatives of tbe compa- 
nies concerned, the official 
said. The Commission is expec- 
ted to announce its decision 
over tiie next two weeks. 


Tbe joint venture plans to 
manage and distribute new 
television channels, as well as 
other specialist telecommuni- 
cations services on Telekom’s 
network. The company would 
distribute new pay-TV pro- 
grammes, shopping-TV and 
other services to 145m house- 
holds which already have 
access to the cable network. 
Telekom has laid the network 
for a further 6m. 

The three partners are esti- 
mated to have Invested around 
DM200m (£82m) and are plan- 
ning to develop their own 
decoding system which would 
offer viewers a single hilling 
system, charging them for 
what they watch. 


Bertelsmann and Kirch are 
normally fierce rivals but both 
are already shareholders in 
Premiere pay-TV. 

In July, when the Commis- 
sion annoonced it would 
undertake a full Investigation, 
it said it was concerned that 
the pay-TV market would 
expand rapidly with the intro- 
duction of digital broadcasting 
in Germany over the next few 
years. A very large number of 
households already receive 
cable or satellite television. 

Brussels is particularly 
uneasy that by dominating the 
pay-TV infrastructure at an 
early stage, the joint venture 
would control standards for 


any newcomers. 


THE FINANCIAL TIMES 
Published by The Financial Times 


(Europe) GmbH. Nibelungenpltiiz 3. 
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Referendum blocks president’s attempt to increase his powers 


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Rax (01) 4297-0629. Printer SA. Nord 
Eclair, 15/21 Roe de Cainr, F-59100 
Roobaix Cede* l. Editor Richard Lam- 
bert. ISSN: ISSN 1148-2753. Conunh- 
nan Paritaire No 67808D. 

DENMARK: Financial Times (Scandin- 
avia) Ltd, Vimmelskafled 42A, 
DR-1161 CopenhaeenK. Telephone 33 
13 44 41, Fax 33 93 53 35. 


Albanians reject new constitution 


By Anthony Robinson 


Albanian voters have 
overwhelmingly rejected a con- 
stitution drafted by President 
Sail Berisha which would have 
further shifted the balance of 
power from parliament to tbe 
already powerful presidency. 
Preliminary results indicate 
that more than 60 per cent of 
voters rejected it in a weekend 
referendum called by Mr 
Berisha in breach of the exist- 
ing constitution. 

The revised communist-ora 
document in force since 1991 
reserves the right oT drawing 
up and approving a new consti- 
tution to parliament. But Mr 
Berisha, whose Democratic 
party won a landslide victory 


in the 1992 elections, has faced 
mounting opposition in parlia- 
ment and within his own party 
for his increasingly autocratic 
style. As a result he has lost 
tbe ability to force legislation 
through parliament 
Last month more than a 
third of MPs from the govern- 
ment party abstained in a par- 
liamentary vote which 
deprived President Berisha of 
the majority needed to legalise 
a referendum by which he 
sought to by-pass parliament 
The outcome of the vote is 
thus a striking confirmation of 
Albania's conversion to democ- 
racy after decades of dictato- 
rial role by Mr Enver Hoxha 

and his C ommunis t party min - 

ions followed by only throe 


years of multi-party politics. 

But it also marks a severe 
personal blow to Mr Berisha. 
The former heart surgeon pre- 
sided over a spectacular eco- 
nomic recovery from the ruins 
of the bankrupt autarchic sys- 
tem inherited from 45 years of 
communist rule. However, he 
antagonised many former sup- 
porters by riding roughshod 
over parliament and by an 
increasingly personalised style 
of government. 

Rejection of the proposed 
constitution is expected to 
embolden the various opposi- 
tion groups, including the for- 
mer communist Socialist party 
whose leader Mr Fatos Nano 
was jailed for alleged corrup- 
tion last year. It is also expec- 


ted to encourage opposition 
parties, such as foe Democratic 
Alliance led by Mr Gramoz 
Pashko, to patch up their feuds 
and press for early elections. 

But the electorate’s refusal 
to endorse the new constitu- 
tion, which would have given 
the president the power to 
appoint and dismiss foe prime 
minister, appoint ministers 
and preside over the supreme 
court, will further delay 
Albania's entry into the Coun- 
cil of Europe. One of the 
requirements of entry is a 
legitimate, democratic consti- 
tution. But Albania also faces 
objections from Greece because 
of alleged discrimination 
against the ethnic Greek 
minority In the south. 


FINANCIAL TIMES TUESDAY NOVEMBER S 1994 


Russians 
set for 


Kazakh 


In Sweden, there is concern 
among Yes campaigners that 
they may have miscalculated 
their tactics by being too 
defensive and unfocused, run- 
ning, for example, posters pro- 
claiming “It is more fun to say 
Yes", or showing stereotyped 
citizens of EU countries saying 
"Welcome Sweden". 

This allowed the No side, 
dominated by the left and envi- 
ronmentalists, to seize the ini- 
tiative by playing on fears that 
EU membership would erode 
the country's democratic tradi- 
tions. neutrality and its “Swed- 
ish model" welfare system. 

Mr Bildt and his supporters 
are critical of Mr Ingvar Carls- 
son, the prime minister, for 
deliberately adopting a low-key 
pro-EU campaign In which foe 
new government has not 
adopted an official pro-Union 
position. Mr Carlsson was 
wary of mounting a strident 
campaign for fear of alienating 
many Social Democrats who 
are sceptical about or hostile to 
the EU. 

Instead, he appointed two 
prominent anti-Union cam- 
paigners to his cabinet and 
allowed anti-EU Social 
Democrats to run their own 
party-financed campaign. 

Critics say this has made the 
task of winning over opinion 
within the ranks of foe party, 
by far the country's largest 
political organisation, much 
more difficult. 

See Lex 


gas share 


By Steve LeVine hi Moscow 
and Robert Cortine in London 


markets in the west 

Gazprom discovered and par- 
tially developed Karachaganak- 
It also controls a large gas 
treatment centre outside the 
nearby Russian city of Oren- 
burg. which was built in large 
part to process Karachaganak 
gas. 

The field contains proven 
reserves of 1.3 thousand billion 
cubic metres of natural gas, 
650m tonnes of gas condensate 
and 200m tonnes of ofi. 

British Gas says no official 
deadline has been set, although 
dates have been suggested for 
foe completion of foe current 
round of negotiations with foe 
Kazakhs. 

The company has been nego- 
tiating separately with 
Gazprom over transport and 
tariff issues, as well as discuss- 
ing the terms of its possible 
participation in foe scheme. 
The talks have been compli- 
cated by uncertainty within 
Gazprom over which Russian 
fields it wants to develop for 
future export and domestic 
sales. 

The Kazakh threat against 
foe western partners may just 
be an attempt to get foe long- 
delayed project moving. But it 
also indicates the pressure 
under which foe Kazakh gov- 
ernment is operating to gener- 
ate hard currency export earn- 
ings. 

Russia has recently made 
clear that it wants to take part 
in large energy projects discov- 
ered during the Soviet era and 
now proposed for development 
in foe former Soviet republics 
surrounding foe Caspian Sea. 
Lukoil, a Russian oil company, 
this year succeeded in getting 
a 10 per cent share of an |8bn 
Azerbaijan oil deal led by Brit- 
ish Petroleum. 

But the Kazakhstan project 
appears to be the first in which 
Russia is poised to acquire a 
percentage of the western part- 
ner's share. 


Cae Aulenti 

Designer of rfac Muiru National 
d'Ari de Catalunya 


Santiago Calatrara 
Designer of the 
MonciuYc Telefonica Toner 


Arata Isozati 
Designer vf rite 
Sanr Jordi Olympic Pavilion 







IN THE FUTURE A LOT OF CITIES WILL BE BUILT LIKE BARCELONA. 





In the I are eighties che Barcelona of rhe furore 
wu planned and che largest real csrarc and 
urban istk development in Europe got under way 
- a pm jeer endorsed by leading architects from 
around che world. 

Today Barcelona can offer the highest quajiry 
real estate in Europe, with excellent 
communion ions and transport facilities and all at a 
kwer cost per square metre. 

What's more- Barcelona's prospects for economic 
growth are the highest in Europe. Thar's why 
Barcelona is fast becoming one of the most 
importune business centres in Southern Europe. 
And why real estate investors and major 
internal inn a] com pin ics are increasingly choosing 
towards Burrrkxu. 

If you would like to know more about current 
protects in Barr dona, please give us a call at the 
following telephone number: 

3-1 3 402 72 36 


Oriel Bob i gat (MBMi 
Designer of the 
Olympic Village 


Norman Foster 
Designer of the Collserol-i 
Telecommunications Tower 


Richard Meier 
Designer of the Museu d'Art 
Co n tempo ran i de Barcelona 


BARCELONA 

Mon- than Ever 




EUROPEAN NEWS DIGEST 


Floods death 
toll mounts 


9., trie 

C' iv 


Russia is set to be included in 
a $6bn proposal to develop Kaz- 
akhstan's largest gas field, as 
pressure mounts on foe west- 
ern partners in foe deal to 
reach agreement with Moscow 
by foe end of November. 

Kazakhstan television 
reported that Mr Yeset Azer- 
bayev, head of the state gas 
company, had urged British 
Gas and AgLp, its Italian part- 
ner, to approve by November 
30 a proposal for Gazprom to 
join foe development consor- 
tium with a 15 per cent share 
of foe two western companies' 
stake in the huge Karacha- 
ganak gas field. 

He threatened to scrap an 
agreement giving foe two com- 
panies exclusive right to nego- 
tiate foe development of the 
field unless they meet the 
deadline. 

“If it is not signed by Novem- 
ber 30. then we shall consider 
ourselves free from any obliga- 
tions under the agreement 
with foe British Gas and Agip 
joint venture which we signed 
in June 1992," Mr Azeibayev 
said. 

Inclusion of Gazprom is 
meant to persuade the com- 
pany to agree to ship Karacha- 
ganak' s production through 
Russia's pipeline system to 


The worst rainstorms to hit north-western Italy for 80 years 
l£e u£a HJPtofteand authorities fearfoe final death toll 
could be well over 100. Continuing bad weafoerte tampering 
rescue work and could cause further deaths mwhat Mr Altaro 
MatteolL environment minister, has called a “mega-disasteri’. 
Telephones, water, electricity and roads were also cut .in 
hundreds of villages across southern France, Spa m and across 
the Mediterranean in Morocco, to France, where sevp people 
have died since the weekend, floods forced the clo sur e of 
Nice-C&te d’Azur international airport (whose inundated car 
park is pictured below). _ 4 , 

In Italy, hundreds of people remained trapped and unac- 
counted for in isolated areas and figures ccmpOed locally in 
Piedmontese towns, many of which were without power and 
other supplies, put tbe number of missing far higher. 

Weekend storms in which 60cm of rain fell in as many hours 
have turned rivers into raging torrents and demolished houses 
beneath mountains of mud. Fifty-seven of the known deaths 
occurred in Piedmont, including more than 20 around the 
town of Cunso, where many of foe victims drowned trapped in 
their cars. In Asti, famous for its spumante sparkling wfeie, 
one rescue official said: “About 2JJ00 two-storey buildings are 1 
up to their roofs in water." Reuter, Alessandria, andAP, Alba 



War crimes tribunal to open 


An international war crimes tribunal covering the former 
Yugoslavia formally opens in The Hague today with a request 
for the extradiction from Germany of a Bosnian Serb alleged 
to have Mitad three Moslem prisoners. The prosecutor, Mr 
Richard Goldstone, a South African judge, will ask Germany 
to hand over Mr Dusan Tadic, who is alleged to have mur- 
dered the prisoners at the Omarska concentration camp in 
Serb-held northwestern Bosnia in 1992. Mr Tadic was arrested 
in Germany last year. 

The extradiction is important to the tribunal - foe first 
international war crimes court since the Nuremberg trials 
after foe second world war - because it has no power to try 
suspects in absentia. JaO cells have been set aside in a Dutch 
prison in The Hague, but so far they remain empty. Ronald 
van de Krol Amsterdam 


Proposal on Kurdish language 


Turkey’s foreign minister, Mr Afdmtaz Soysai, said in a news- 
paper interview yesterday that Kurdish could be taught in 
schools and used in broadcasting. At present, schools must 
teach in Turkish and no broadcasting organisation or newspa- 
pers use Kurdish, a language spoken by one fifth of the 
country’s population of 60m. However, Mr Soysai said he 
would insist that Turkish was still taught as a first language. 

The separatist Kurdistan Workers party (PKK) has waged a 
10-year war that has claimed more than 13,000 lives. Prime 
minister Tansu CiDer has adopted a hardline anti -PKK policy, 
rejecting calls to grant Kurds cultural rights and autonomy. 
Neither Mrs Ciller, on a state visit to Egypt, nor her office 
could confirm that Mr Soysal’s comments represent a new 
government initiative. The unpredictable Mr Soysai, foreign 
minister since August, belongs to the junior SHP party in Mrs 
Ciller's coalition government John Barham, Ankara 


i coulif i 


rover prit 


Romania relaunches state sales 


The Romanian government yesterday attempted to relaunch 
its privatisation programme by opening public offerings for 
three medium-sized state companies, the first such offerings 
for 18 months. Tbe offers are open first to employees, who will 
be able to purchase on preferential terms up to 20 per cent of 
the companies, which are together valued at Lei4A5bn (£i6m). 
Hie general public will able to buy up to 30 per cent of the 
remaining equity later this month. It will be one of the first 
times tbe public can use privatisation vouchers distributed in 
1992 to bid for co mp a ni es. Only two companies have been sold 
by public offer so far under the country’s privatisation 
scheme. Reformers hope the offers will rekindle tbe popula- 
tion's interest in privatisation and lead to pressure on the 
government to speed up tbe process, which has been blocked 
by conservatives within the governing Party of Social Demoo- i 
racy. Virginia Marsh, Budapest 


Offer ends Pechiney strike 


Striking workers at Pechiney’s huge new aluminium factory at 
Dunkirk yesterday ended their 13-day stoppage after manage- 
ment gave them an extra FFr600 (£71) a month. Workers at foe 
smelter, which has a capacity or 215,000 tonnes or almost half 
France's total output, had demanded FFr1,000 a month on top 
of their average monthly pay of FFr11,500. During the strike, 
managers kept the three-year-old plant’s continuous smelting 
process going, producing low-grade aluminium which will now 
be r ecycled. Partly as a result of voluntary production cuts 
agreed by western and Russian al uminium producers, the 
market for the metal has greatly improved this year. But 
demands for higher pay have also sparked strikes. The num- 
ber of industrial disputes in France, though still very low, 1 
appears to be rising with the current improvement in the 
economy. David Buchan, Paris 


ECONOMIC WATCH 


Trade gap grows in Spain 


Spain Spain's January-September 

accumulated trade deficit 
Visible bade balance (Pta bn) widened by 5.1 per cent to 

Pta 1,860 bn (£9.ibn) against 
the first nine months of 1993 
despite a continuing strong 
performance by the export 
sector, which grew by 33 per 
cent over the period. The vol- 
ume of imports and exports is 
expected to increase during 
the fourth quarter of the year, , 
although year-on-year growth 
rates will be more moderate 
because trade already began 

-350 1 J? increase strongly in the 

Nov 83 -ism final three months of 1993. 

somtw. QatBstraom The finance ministry said 

. , „ import growth showed that 

domestic (temand vras expanding at a higher rate than fore- 
cast. Tom Bums, Madrid 

■ Greece had a S23m (£l4m) current account surplus in July, 
against a July 1993 surplus of Si.i52bn. The January-July 
current account deficit was 51.071bn, sharply off a S205m 
surplus in the same seven-month 1993 period. 

■ Austrian unemployment in October was steady from Sep- 
tember at 4.4 per cent of the workforce, but was up from 4^2 
per cent in October last year. 


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312 


Russia tries to 
end securities 
market chaos 


By John Lloyd In Moscow 

President Boris Yeltsin of 
Russia issued a lony awaited 
decree yesterday, aimed at 
regulating the country's fledg- 
ling and chaotic securities 
market. 

The decree, in part a reac- 
tion to the coiiapse of the 
MMM finance company in 
early autumn which ruined 
thousands of small savers, 
should also provide a legisla- 
tive underpinning to a market 
in which both domestic and 
foreign investors have been 
wary of investing because of 
the lack of an adequate method 
of registering shares. 

The decree, as reported by 
the Interfax news agency, says 
that all banks and other finan- 
cial institutions must be 
licensed by the government - 
“in concert with the central 
bank" - by the eud of the year. 
It allows the distribution of 
government securities, regis- 
tered shares of corporations 
and bonks, options and war- 
rants of securities, bonds, 
housing certificates and other 
securities permitted by law. 

Several Russian funds have 
taken advantage of investors' 
gullibility by offering high 
rates of interest, sucking in 
money and then either 
vanishing or closing down. The 
most notorious collapse was 
that of the MMM fund, whose 
head Mr Sergei Mavrodi is now 
ignoring Investors' demands 
for their money back since he 
suspended trading in company 
shares. 

The Yeltsin decree also 
orders the formation of a fed- 
eral commission for securities 
and the stockmarkct. to be 
headed by Mr Anatoly Chubais 
- the new first deputy prime 
minister for the economy and 
finance. Previous rules and 
decrees for a commission affili- 
ated to the president's office 
have been scrapped. 

The present commission, 
largely inactive, has been com- 
posed. of representatives hom 
the central bank, the ministry 
of finance, the anti-monopoly 
committee and other official 
organisations. The president’s 


decree calls for a list of mem- 
bers of the new commission to 
be drawn up within a month - 
and for the commission to set 
out a licensing procedure and 
define the responsibilities of 
the financial institutions oper- 
ating in the market 

The decree has been issued 
as work advances on establish- 
ing a country-wide network of 
brokers to deal in the shares of 
the 20,000 companies the priva- 
tisation process has brought on 
to the market and to cater for 
an estimated 40m shareholders. 
Groups of brokers have been 
assembled in Moscow, St 
Petersburg and the other main 
regions of Russia - and a deal- 
ing system based on the Nas- 
daq screen-based model should 
be in place by early next year. 

A consultant to the govern- 
ment charged with developing 
the broker network said last 
night: “In a country the size of 
Russia, with so many regional 
centres across eight time 
zones, we will see emerging a 
system where most deals are 
handled by regional dealers, 
handling regional companies, 
for regional investors. How- 
ever, maybe 100. growing to 
500. companies will be of inter- 
est to foreign investors." 

The decree does not make 
clear, however, how far the 
central bank will have respon- 
sibility for regulating and 
intervening in the market, if at 
all. 

The issue could be important 
as there is a fierce debate in 
Russia on the relative benefits 
of the Anglo-American system 
of raising capital largely 
through a freely operating 
stock exchange, and the Ger- 
man system whereby commer- 
cial banks, under Bundesbank 
regulation, play a larger part 
in capital provision and often 
join in the managpmAnt of big 
industrial companies. 

However, the most influen- 
tial Russian officials concerned 
with the development of the 
markets - especially Mr Dmitri 
Vassiliev, the deputy chairman 
of the privatisation committee, 
appear to prefer the 
Anglo-American model 
Twisting mid turning, page 16 



Lionel Barber reports on UK 
resistance to Germany’s aid call 

EU split over 
Ukraine loan 





Dollar axis: doubles of Lenin and Hitler earning foreign currency in central Moscow yesterday by posing with foreign tourists m> 

Appointment of new negotiator causes concern on markets 

Moscow debt fears resurface 


By John Lloyd 

The Future of Russia’s negotiations on a 
debt which totals $90bn (£55bn) are now 
causing concern on the world's financial 
markets Following the appointment over 
the weekend of Mr Oleg Davydov, the 
trade minister, to the post of chief debt 
negotiator. 

Mr Davydov, who has had little experi- 
ence in the world of debt negotiations, 
inherits a complex portfolio which had 
been commanded by Mr Alexander 
Shokbin. the deputy premier for the econ- 
omy who resigned on Friday. Mr Shokbin 
had proposed that the negotiations be 
enntinned by Mr Andrei Vavilov, the first 
deputy finance minister, but the latter Is 
under a cloud because of his alleged negli- 
gence on “Black Tuesday" a month ago, 
Vhen the rouble lost more than 20 per 
cent of its value. 

Mr Davydov, uninvolved in "Black 
Tuesday", is on record as proposing that 
Rnssia should be forgiven its debt - a 
move which sparked alarm at the time in 
the Paris and London clubs of government 
and commercial bank creditors. Mr 


Shokhin later denied that this was a seri- 
ous option for Russia. 

“Davydov is very much not a banker 
and will take time to come up the learn- 
ing curve on debt.” said one merchant 
banker yesterday. “He may change his 
views, but it's alarming." 

Deutsche Bank, the leading German 
bank which heads the negotiations on the 
repayment oF bank debt, is due to hold a 
further round of negotiations next week. 

Whether or not the Russian side agrees 
to keep to this schedule is now regarded 
as an early test of the intentions of Mr 
Davydov. 

Outline agreements were thrashed out 
in Madrid for both sets or talks - agree- 
ments which Mr Shokhin expressed satis- 
faction with, although important issues 
still have to be settled. 

Both provisional deals involve restruct- 
uring the debts over 15-18 years, with a 
five-year grace period for at least the 
repayment of principal. 

In the case of the commercial bank 
debt, the agreement also includes a repay- 
ment of interest over 10 years, possibly 
with a five-year grace period - and with a 


payment of 8750,000 on the interest accru- 
ing this year and last, to be made before 
the end of 1994. Talks were stalled by the 
crash of the rouble a month ago - and are 
again in doubt because of the cabinet 
changes still going on. 

However, Air Madhav Dhar. a managing 
director of Morgan Stanley in New York, 
said last night: “Russia is getting very hot 
now a lot of people see it as the new 
frontier, bat are prevented from buying 
equities because of legal problems. The 
next best thing is debt - and that will 
sustain the market in spite of the 
changes, which at present seem clearly 
negative." 

Russian debt slipped from around 35 
cents to the dollar to 28 last week. Ironi- 
cally. it recovered yesterday to around 30 
cents to the dollar as big buyers, 
rumoured to be from within Russia itself, 
pushed np the price. One London analyst 
of the market said last night: “It is a very 
volatile market with enormous flows 
going both ways right now. People are 
simply divided on the issue of what the 
changes mean in the short and longer 
terms." 


A German-led drive to promote 
an activist European Union 
policy to assist Ukraine yester- 
day ran into resistance from 
Britain and other member 
states. 

The split occurred at a meet- 
ing of EU finance ministers in 
Brussels yesterday over a pro- 
posal to provide an Ecu85m 
(£67m) balance of payments 
loon to Ukraine. 

It suggests that the EU is 
divided over the key question 
of whether President Leonid 
Kuchma can deliver on his 
promises or economic reform. 
In the background are differing 
assessments of Ukraine’s 
chances of remaining a viable 
state in relation to neighbour- 
ing Russia. 

Germany - supported by the 
US and the European Commis- 
sion - is pressing for early, 
generous financial aid to Presi- 
dent Kuchma. Their collective 
view is that a narrow window 
of opportunity exists in order 
to stave off economic collapse 
and preserve Ukrainian inde- 
pendence. 

But the UK government is 
pursuing a more cautious 
poliqy. 

Senior British officials are 
understood to have doubts 
about President Kuchina's abil- 
ity to face down the diehard 
conservatives in the Ukrainian 
parliament, and want tighter 
controls on western aid via the 
International Monetary Fund. 

Other EU member states - 
notably the UK, France and 
Italy - are also reluctant to 
allow the Commission to play 
an active role in promoting 
and operating balance of pay- 
ments loans to the former com- 
munist countries of central 
and eastern Europe. 

Their reluctance is symptom- 
atic of the broader battle over 
how far the Commission 
should take the lead in the 
development of a common for- 
eign and security policy in 
Europe as laid out in the Maas- 
tricht treaty. 

More narrowly, the Rome 
government is reluctant to sup- 
port a balance of payments 
loan since Ukraine has yet to 


Polish coalition threatened by 
row over privatisation policy 


By Christopher Bobinski 
fri Warsaw 

Differences over privatisation 
policies are threatening to 
undermine Poland's governing 
coalition, which is made up of 
the former communist Left 
Democratic Alliance (SLD) and 
the Polish Peasant party (PSL), 
led by prime minister Walde- 
mar Pawlak. who begins a 
two-day visit to London today. 

The row centres on Mr Bog- 
dan Pek, a PSL deputy and the 
head of the Sejm's (parliament) 
key privatisation committee. 
His SLD colleagues are plan- 
ning to replace him at a meet- 
ing today in a move signalling 
the need to speed up the dis- 
posal of state enterprises. 

The SLD is supported in its 
drive against Mr Pek by the 
opposition Freedom Union 
(UW), which made up the bulk 
of the last non-communist. Sol- 
idarity-rooted,- government led 


by Ms Hanna Suchocka. This 
raises the prospect of a future 
switch away tom the present 
alliance with (he PSL, unthink- 
able a year ago when the pres- 
ent government came into 
power. 

In the short term the move 


don and a clear strategy. The 
two parliamentary caucuses 
are Ate to meet on November 
15 to thrash out differences. 

In a related development, 
local councillors in Warsaw 
from the SLD and the UW have 
combined to elect Mr Marc in 


The delays in implementing the Mass 
Privatisation Programme have jeopardised 
revenues written into next year's budget 


also gives the SLD, which is 
afraid that the PSL is begin- 
ning to dominate the coalition, 
the chance to wave the threat 
of a political realignment to 
gain more of a say over policy. 

A meeting of the SLD leader- 
ship at the weekend confirmed 
that the present coalition, 
which enjoys a comfortable 
parliamentary majority, should 
be maintained, but that govern- 
ment policies lacked coordina- 


Swiecicki tom the UW as the 
city’s president in the face of 
opposition from the PSL. This 
shows that the two movements 
can now work together. 

Mr Pek, an accountant from 
Krakow, has outspokenly crit- 
icised the privatisation policies 
of former governments and has 
come to symbolise opposition 
to the process as a whole, 
indeed he is against the sale of 
sectors such as the tobacco 


as my European flat 


m 


Mariliattan! 


Prom the moment you enter its marble-antl- gilt lobby, the Pierre 
calls to mind the quiet splendor the world s great hotels are acclaimed foe 
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industry. as planned by Mr 
Wieslaw Kaczmarek, the SLD 
privatisation minister. 

Mr Pek, like Mr Pawlak. is 
also deeply suspicious of the 
country's long-delayed Mass 
Privatisatiou Programme 
(MPP). TIUs involves the trans- 
fer of 444 state companies to 
private ownership through 15 
or so closed end investment 
funds whose shares are to be 
distributed to the population at 
large at a nominal fee. 

Yesterday Mr Kaczmarek. 
warned that continuing delays 
in implementing the pro- 
gramme meant that 4,000bn 
zlotys (£100mi of revenues 
from the sale of fund shares, 
writteu into next year's bud- 
get, could be jeopardised. 

The SLD is a strong sup- 
porter of the programme which 
now needs Mr Pawlak to 
approve a list of fund directors 
without whom the scheme can- 
not move ahead. 

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Fuchs Consult 

Kruu/tvrgvr Kins 64 ■ 65205 Wiesbaden 
Telephone «WM 1)70 00 40 ■ Fax (x 49 611) 71 04 04 


settle outstanding debts with 
Italian companies. Ukraine, 
with a population of 53m peo- 
ple. has a total foreign debt of 
around S7bn (£4.2bm. 

Since President Kuchma's 
election last July, the Kiev 
government has launched a 
campaign to persuade western 
donors that it is committed to 
economic reform and that they 
should provide financial aid 
and debt relief. 

Last month, the Ukrainian 
national bank passed a decree 

British officials are 
understood to doubt 
President Kuchma's 
ability to face down 
the conservative 
diehards and to want 
tighter controls on 
western aid 


to unify the exchange rate, one 
of the measures which interna- 
tional creditors said was essen- 
tial for the credibility of the 
reform programme. 

The government also 
announced bold measures to 
liberalise prices and exports 
which would cut subsidies on 
rood, rents and energy-. 

President Kuchma told west- 
ern donors at a Group of Sev- 
en-organised conference in 
Canada that the reforms hinge 
on immediate western aid and 
a successful debt rescheduling 
to cover its $600m four-quarter 
balance of payments deficit 

The US committed STOm. and 
pledged to raise the total to 
$100m if the EU provided simi- 
lar balance of payments aid. 
Canada pledged $25m. 

Last night, German officials 
held out hope of a political 
commitment to provide aid to 
Ukraine. 

Though this would frill short 
of a formal decision on balance 
of payments support, but it 
would keep alive hopes of win- 
ning the necessary support 
from the European parliament 
later this month. 




-*-• - -■—'1 





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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


NEWS: THE AMERICAS 


US increases troop pullout 

14,000 personnel will quit Haiti and Kuwait, writes George Graham 


The US plans to withdraw 
nearly 14,000 of its troops from 
Kuwait and Haiti over the next 
six weeks. 

The withdrawal win leave 
around 9,000 US troops in Haiti 
to supervise the parliamentary 
elections scheduled for Janu- 
ary, but in Kuwait the US win 
keep only prepositioned heavy 
equipment and aircraft 

Adminis tration officials saw! 
the decision, approved by Pres- 
ident Bill Clinton at the week- 
end, had nothing to do with 
today's congressional elections. 
Indeed, they said the White 
House had asked the Pentagon 
not to ntafcq a public annrmnrq - 
ment of the withdrawals 
because it would look like a 
political ploy. 

“Tim drawdown of forces in 
Haiti is link ed to mission 
accomplishment, not to artifi- 


cial timetables,” Mr Wil- 
liam Perry, the defence secre- 
tary. 

Nevertheless, the news that 
most of the US soldiers now 
deployed in Haiti and Kuwait 
win be home in time for Christ- 
mas is expected to be papular. 

Mr Cfinton had hinted at a 
December pullout when he vis- 
ited US troops in Kuwait 
recently, failing soldiers not to 
target their Christmas shop- 
ping. 

This had reportedly caused 
some morale problems among 
soldiers in Hait i, who felt they 
were being overlooked. 

The 7.800 US troops in 
Kuwait are expected to be back 
in the US by December 22. The 
troops were sent to Kuwait 
after Iraq had shown some 
signs of threatening a second 
Invasion of the emirate by 


building up its fences in the 
south. 

The navy and marine forces 
already in the Gulf region 
before the Iraqi build-up will 
stay in position, and the US 
wQl also keep an extra 50 war- 
planes. mostly ground attack 
aircraft, in the Gulf 

The US has already with- 
drawn 6,000 of the 21,000-strong 
fence it sent to Haiti in Septem- 
ber to oversee the safe return 
of President Jean-Bertrand 
Aristide and to ensure the 
departure of the military 
leaders who ousted him in a 
coup in 1991. 

This weekend’s order will 
mean that another 6,000 troops 
can return to the US by Decem- 
ber L 

US officials said that troops 
from other countries such as 
Bangladesh had now taken 


over some of the security 
duties originally fulfilled by 
the US occupation force. 

In addition, around 3,000 Hai- 
tians trained by United 
Nations instructors are expec- 
ted to be ready to take over 
policing responsibilities next 

month 

In Port-au-Prince yesterday, 
a new prime minister was 
expected to take over after a 
vote of confidence in the lower 
chamber of the Haitian 
parliament 

Mr Smarcfc Michel, chosen 
by Mr Aristide for the post, 
had already won approval from 
the Haitian senate. 

The 9,000 US troops remain- 
ing in Haiti are expected to be 
withdrawn gradually after the 
parliamentary elections are 
completed. 



Clinton with baby at Seattle campaign rally 


David Pilling previews what amounts to a poll on the reforms of the past five years 

Uruguay elections marked by factionalism 


I n Uruguay, elections come only 
once every five years, but when 
they do they all come together. 
On November 27, 2L8m Uruguayan 
voters will elect a new president, 90 
deputies and 30 senators (the entir e 
congress) and 19 governors. 

As if this were not enough, the elec- 
toral system, described as “crazy” 
even by gnwrnnwnt ministers, com- 
bines party primaries with national 
elections, leading to fierce factional- 
ism. 

Three competing candidates for 
president have emerged from the gov- 
erning National party, or Blancos, 
while the opposition Colorado party, 
not to be outdone, has three of its 
own. Altogether there are 21 hopefuls 
for president . 

Elections have transformed Uru- 
guay - normally a tranquil, relatively 
prosperous backwater wedged 
between Argentina and Brazil - into a 
frenzy of music-blaring campaign 
buses party pamphlets littering 
the cobbled streets. 

At issue, in essence, is whether Uru- 
guayans support or reject the neo-Hb- 
eral reforms that have been tenta- 
tively ushered in by the current 
Blanco president, Mr Luis Alberto 
Lacalle. Mr LacaUe has tried to re- Im- 
pose fiscal discipline, has halved 
annual inflation to about 40 per cent 
and opened the economy to foreign 


competition. He has been less success- 
ful in attempts to slim the hugs state 
bureaucracy, to privatise state enter- 
prises or to reform the bankrupt pay- 
as-you-go state pension scheme. 

Elected with only a 22 per cent 
mandate, Mr Lacalle saw much of his 
attempts at structural reform beaten 
back by parliament He has also faced 
hostility from a public accustomed to 
the benefits of Latin America’s most 
developed welfare state. Uruguayans 
- whose ageing papulation is being 
supported by a diminishing tax-pay- 
ing workforce - are suspicious of afl 
attempts to overhaul the social secu- 
rity system. 

A few months ago it seemed that 
public distaste far Mr Lacalle's poli- 
cies was certain to return power to 
the Colorados, led by farmer Presi- 
dent Julio SanguinettL Last May, the 
Colorados were 15 points ahead of the 
third-placed Blancos in poll ratings, 
but by November the Blancos had 
drawn level on 30 points. 

This trend now mafc«i the Blancos 
the most likely winners . . .although 
the opinion polls do not allow one to 
predict with certainty,” says Mr Mich- 
ele Santo, contributor to the Bus- 
queda weekly. 

According to Mr Augustin Canzani, 
director of Equip os polling and 
research consultancy, that turn- 
around reflects “lagging” recognition. 



of economic progress during the 
Lacalle team, tarimting accumulated 
economic growth over the five years 
of about 19 per cent 
Mr Canzani believes the govern- 
ment, though unpopular far much of 
its duration, has won an “ideological 
victory* by persuading the public of 
the need for responsible economic pol- 
icies. “Because we never had hyperin- 
flation we never worried much as 
long as [inflation] stayed below three 
digits - now we do," he says. 


Of the four serious presidential con- 
tenders, two Blanco candidates repre- 
sent a continuation of Mr Lacalle’s 
programme. Mr Juan Ramirez, 
Lacalle's handpicked successor, and 
Mr Alberto Volonte. a lawyer and 
“non-politician", are distinguishable 
more by their styles than by any ideo- 
logical difference. Both would seek to 
bring down inflation Anther, cut state 
jobs and push through a repackaged 
version of privatisation. 

Mr SanguinettL who offers a social 
democratic alternative, is campaign- 
ing on the issues of unemployment 
(now more than 8 per cent), a 
depressed manufa cturing sector and 
the large trade deficit, expected to 
reach about $900m this year. He 
recently backed away from sugges- 
tions of an export-boosting peso deval- 
uation, but has hfatod that he would 
like to renegotiate some aspects of the 
Mercosur customs union with Argen- 
tina, Brazil ami Paraguay. 

Mr Tabarfe V&zquez, the left-wing 
mayor of Montevideo, heads the 
Encuentro Progresista, a broad coali- 
tion that advocates an uncertain mix 
of redistributive and market-oriented 
policies. Mr V&zquez, who is hugely 
popular in Montevideo, has so far 
been imahla to build adequate support 
in the more conservative interior and 
by November was trailing the Blancos 
and Colorados by 6 percentage points. 


Latest polls show Mr Sangvnnetti 
with 19 per cent, against ll and 9 per 
cent for the two Blanco remrtwiates. 
Mr Volontfi and Mr Ramirez respec- 
tively. However, because of the pecu- 
liarities of the electoral system, such 
a lead by no means assures Mr San- 
guinetti of victory- The president 
must come from the winning party, so 
if the Colorados fail to win at party 
level Mr Sanguinetti would not 
become president even if he collected 
the most votes. 

Victory may be only the first hur- 
dle. “Whoever wins will probably 
have even less congressional support 
than Lacalle,” says Mr Canzani 

“The political system functions in a 
way that encourages frictions,” says a 
diplomat, “which makes it difficult to 
create and maintain a coherent policy 
course over five years.” 

Such an analysis augurs badly for 
those in the government who believe 
that Uruguay must adapt to the 
chang in g times, [n order to imtap the 
“colossal potential” of Mercosur’s 
huge market, the country must learn 
to compete, says Mr Ignacio de Posa- 
das, the foreign minister. Those who 
believe it can continue to muddle 
through, ignoring the sweeping 
changes throughout the continent, 
are deluding themselves, he says. 

That kind of thinking could haraang 
very dangerous." 


Brazil warns 

Rhone-Poulenc 
on toxic waste 


By Patrick McCunry 
in SBo Paulo 

Brazilian authorities are 
throntening to restart legal 
ar-fjrm against Rhbne-Poulenc, 
the French chemical company, 

nr flpwg an agreement is reached 
over the decontamination of 
toxic waste deposits. 

The public prosecutor in 
Cubatao, Sfio Paulo state, 
aWpg pg that Rhnrfifl the com- 
pany’s Brazilian subsidiary, 
dumped 10-12 tons of toxic resi- 
dues along a 100km stretch of 
road near the port of Santos 
between 1966 and 1984. 

He also rfafans that the com- 
pany put workers at risk by 
exposing them to residues at 
its Cubatao solvents plant, 
closed down by a court order 
in June 1993. The order was 
requested by the prosecutor 
because fears about workers' 
safety. The factory remains out 
of service and there has been 
no appeal by the company. 

Mr GeraMo Rangel, the pros- 
ecutor, said among the sub- 
stances dumped was hexachlo- 
rbbenzine (HCB), which be said 
was considered a “dangerous 
residue” by the US Environ- 
mental Protection Agency. 

Mr Use Manteiro, Rhodia’s 
environmental manager, 
accepted the company dumped 
waste from 1976 to 1978 but 
says the practice was then 
stopped. He denied that there 
had been any risk to workers’ 
health from exposure to resi- 
dues at the plant 

The case has been under way 
for some time, hi 1988, after 
pressure from the state envi- 


ronmental agency, the com- 
pany installed an incinerator 
to burn contaminated, earth 
that it had recovered from the 
deposits. Mr Manteiro said 90 
per cent of the soil contami- 
nated by HCB had been recov- 
ered and burned. 

Rhodia said It acquired the 
plant in 1976 following a 
merger in France. A aharehold- 

ers list supplied by the public 
prosecutor indicates the plant 
was controlled by Rhone-Foul- 
enc from at least 1972. . 

The prosecutor's office 
suspended its action against 
Rhodia in February in an 
attempt to reach an out-of- 
court settlement. Mr Rangel 
said this was because a case 
could last five years. 

The ^nwpany , which bad a 
turnover of $900m last year, 
has so far spent $60m on 
dB wwiiamiTwitinn measures. It 
has agreed to a request by the 
prosecutor to pay for the medi- 
cal examination and monitor- 
ing of 153 former plant workers 
who ware found to have HCB 
levels of up to 16 micro- 
grammes per decilitre of blood 
Doctors consulted by the prose- 
cutor's office said more than. 1 
microgramme was dangerous. 

Rbftrttfl maintains the levels 
of HCB found in the workers’ 
blood is not dangerous. Mr 
Monteiro said the company 
carried out regular medical 
checks of workers and no med- 
ical problems caused by the 
presence <ff HCB ware found 

Tte two sides have not yet 
been able to reach an. agree- 
ment on measures to be 
adopted for decontamination. 


Cubans swi 


II 


home 


Three months ago, they braved 
the Straits of Florida on make- 
shift rafts in a bid to escape 
from Cuba to the US, reports 
George Graham in Washing- 
ton. But in a striking revosal 
this w eekend Atop ns of Cuban 
refugees, brake down fences 
and leaped from a cliff into 
mine-strewn waters to swim 
back to Cuba from the US mili- 


tary base at Guantanamo Bay. 
Fed 19 after languishing in the 
camp since August, a group of 
85 tried to flee, but only 39 
made it to Cuba. The rest were 
caught by US troops and 
returned In all, about 32,000 
Cubans are Interned at Gnart- 
t&namo. which the US still 
leases from Cuba, and in Pan- 
ama. ■ • 



i 


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INTERNATIONAL ECONOMIC INDICATORS: PRICES AMD COMPETITIVENESS 

Yaarty figures are shown In Maoc farm with the cuni it un ban year of 1985. The red encl engs ate is an Max throus/tout; other quarterly and monthly Agues show the percentage jA-. 
chmge over the oorreepon dfa g period fa the prataus year and are positive ufiass o therwi s e elated. “ 


■ UNITED STATES 


■ JAPAN 



— r 

■Sr 

EM* 

Up* 

War 

0 MW 

ted 

mw 

ptea 

tatear 

pM 

tahp 

tM 

Mop 

<xnt* 

ted 

MM 

IWnnr 

pta 

IMar 

pten 

M* 

ths 

tew 

cap* 

ted 

nt* U 

1985 

100.0 

1005 

1000 

1005 

1000 

1005 

1005 

1000 

1005 

1000 

1005 

1000 

1005 

1000 

1005 

1988 

1015 

98.6 

1025 

99.4 

885 

1008 

955 

101.4 

1004 

1175 

999 

975 

1035 

1035 

109.7 

1987 

105.6 

ioa7 

1045 

96.7 

805 

1012 

925 

103.1 

1005 

1202 

100.1 

855 

108.0 

107.1 

1145 

1988 

1095 

1035 

1085 

89.1 

745 

1025 

923 

1075 

985 

1275 

101 A 

965 

1135 

1065 

1135 

1866 

1155 

1085 

1095 

101.1 

775 

1045 

945 

1145 

96.1 

IIOS 

1045 

995 

1175 

1085 

1105 

1990 

1215 

1135 

113.7 

1045 

700 

1002 

95.7 

1201 

885 

105.7 

1075 

1015 

1235 

1103 

1145 

1991 

1265 

1165 

1175 

1075 

775 

1115 

908 

124 2 

1015 

1125 

1107 

103j4 

1315 

1155 

1095 

1982 

130.4 

117.7 

120.1 

1004 

765 

1109 

95 5 

125.6 

111.0 

1145 

1101 

1045 

138.6 

1215 

1128 

1963 

1345 

1195 

123.3 

107.7 

706 

1155 

945 

125.8 

1109 

1305 

1195 

104.8 

148.6 

1255 

IIOI 

4th qtr.1693 

2.7 

05 

35 

-1.7 

700 

15 

-21 

-OI 

45 

1289 

07 

-05 


-15 

1135 

1st qtr.1964 

25 

02 

ao 

-1.0 

785 

1.4 

-22 

25 

07 

1324 

03 

05 


-29 

1119 

2nd qtr.1894 

2A 

-05 

24 

-23 

785 

05 

-20 

45 

OO 

1359 

92 

05 


-65 

1119 

3rd qtr.1894 

25 

15 


-3.4 

703 

-0.1 




136.6 

35 

05 

n.fl- 


1125 

November 1993 

2.7 

a.4 

25 

-08 

78.7 

09 

-2.1 

1.7 

04 

1345 

35 

-02 


-19 

1121 

December 

za 

02 

35 

-27 

785 

15 

-22 

-1.1 

04 

1315 

07 

-0.1 


-35 

1115 

January 1994 

Zb 

02 

25 

-1.1 

795 

1.4 

-21 

45 

04 

1305 

05 

OO 

49 

-05 

109.7 

February 

25 

02 

35 

-05 

707 

1.4 

-22 

1.7 

5.1 

135.1 

04 

02 


-5.4 

1095 

March 

25 

02 

35 

-15 

704 

15 

-25 

24 

26 

135.4 

35 

05 


-24 

1105 

April 

2.4 

-04 

2.4 

-15 

703 

05 

-22 

15 

09 

1385 

OI 

OI 

25 

-65 

1095 

May 

25 

-0.4 

2.4 

-2.7 

701 

0.8 

-20 

05 

05 

135.1 

35 

04 


-64 

1108 

June 

25 

ao 

24 

-26 

772 

05 

-15 

9.0 

-09 

1352 

3.0 

04 


-75 

1115 

July 

25 

08 

24 

-25 

75.9 

-03 

-15 

-35 

05 

1305 

29 

04 




August 

ZB 

1.9 

2 A 

-3.7 

701 

- 0.1 

-1.7 



1355 

OO 

07 




Septorriber 

ao 

1.4 


-3.7 

755 

OI 




1355 

35 

0.7 



1125 

October 






0.8 





25 






■ FRANCE 



■ ITALY 




■ UNITED KINGDOM 

_ 





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plop 

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1966 

1867 

1868 
1868 
1890 
1881 
1892 
1883 


100.0 

1005 

loao 

1005 

1005 

100.0 

100.0 

1005 

100.0 

1000 

1005 

1005 

1005 


1025 

97.2 

1045 

1015 

1045 

106.1 

1002 

1045 

1027 

1035 

1004 

1014 



1055 

97.8 

1075 

1000 

108.6 

1115 

103 5 

1119 

105.6 

105.1 

107.7 




1008 

1025 

111.1 

1045 

1007 

1165 

1065 

118.4 

109.7 

1025 

1135 

108.7 



1126 

1004 

1154 

1055 

1006 

1245 

IIOI 

1255 

1123 

1064 

1215 




1165 

107.1 

120.6 

1095 

1055 

1315 

1175 

134.7 

1185 

109.1 

1335 

121.0 



1205 

1055 

125.8 

1103 

1045 

1403 

121.7 

1479 

1315 

1085 

1415 

1275 



123.1 

1045 

130 5 

1155 

1079 

147.7 

124.0 

1559 

1385 

1055 

1464 




125.8 

101.1 

133.7 

11&0 

109.7 

1539 

128.7 

1615 

1394 

894 

148.7 

138.7 

1609 

1345 


4th qtr.1883 
1st qtr.1894 
2nd qtr.1894 
3rd qtr.1894 


2.1 

1.7 

1.7 

1.6 


- 2 . 2 
-1.5 
- 0.1 


ao 


n.a. 

na 


111.3 

100.6 

1085 

107.6 


iono 

95.70k 

989 

1044 

102.7 
106 

108.8 
105.8 

97.4 


4.1 
4 2 
45 
3.7 


a9 
3 5 
3.1 


32 

42 

4.1 


-7.4 


B0. B 
91.8 
91 5 

son 


1.5 
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2.6 
2.3 


November 1883 


1884 
February 


AprS 

May 

Jure 

July 


Se p te m ber 


22 

2.1 

1.9 

19 

1.5 

1.7 

19 

i.a 

1.7 

1.7 

1.8 


2 2 


2.0 


na. 
ru. 
na 
nn 
iul 

ItSL 

IUL - 

n-a. 22 


aa. 

aa. 


oa. 

rui. 

IUL 

oa. 

na. 

oa 

na. 

na. 

na 

na 

aa. 

na 


107.9 

1094 

108-2 

107.8 

109.0 

1079 

108.6 

108.4 

109.7 

1093 

109.7 


3J3 

35 

22 

22 


S3 

42 

4A 


\A 

1.9 

- 0.1 


8 72 
97k 
982 
88.8 


42 

4j0 

42 

42 

42 

4.1 

4:0 

3.7 

3.6 

3.7 
3 9 
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as 

3.7 

35 

3.6 

32 

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35 
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32 
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39 

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42 

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na 

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iul 

oa. 

ru*. 

na 

na 

na. 

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87.4 
88.6 
878 

87.3 

87.0 

89.5 
905 

89.1 

88.4 
87.3 

87.2 


14 

12 

25 

2A 

22 

ZB 

ZS 

2JB 

22 

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22 


39 

4.0 
3.7 
3.4 
22 
22 

2.1 
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1.9 
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4.0 

42 

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52 

4.7 

42 

42 

42 

45 


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15 
1.7 
15 
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98.4 

995 

101.1 

995 

99.1 

985 

985 

98.8 

97.7 

97.4 
97.7 


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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


NEWS: WORLD TRADE 


CONTRACTS AND VENTURES 

VW launches 
Taiwan plant 

Volkswagen, the German car maker, yesterday launched a 
new Production facility in Taiwan. By 1996 the assembly plant 
will reach capacity of 30.000 tight commercial vehicles per 
year, of which 20,000 will be sold in Taiwan and the rest 
exported to south-east Asia and, later. China. 

The new company. Chinchun Motor, is a joint venture with 
Chinfon Global, a Taiwanese industrial group with interests in 
manufacturing, construction and banking. Volkswagen will 
provide technology and expertise and Chinfon the facilities, 
management and administration. The products will be mar- 
keted jointly. Chinfon holds 66.6 per cent of the paid-in capital 
of DM29Qm fS127.5m) and Volkswagen holds the rest. 

The Taiwan site may be expanded to pruduce 150.000 cars 
per year depending on croso-strait political developments and 
China's smooth accession to the Ceneral Agreement on Tariffs 
and Trade. It is hoped that eventually more sophisticated 
parts made in Taiwan may be exported to supply Volkswa- 
gen's plants in China and completed engines made in China 
will be brought to Taiwan to install in the Taiwan -made 
vehicles. Taiwan requires that 50 per cent of pans be locally 
sourced. Chinfon has made Honda motorcycles and cars in 
Taiwan since the 1950s under subsidiary Sanvang Industry. 
Laura Tyson. Taipei 

VW and Czech government declare peace. Page 17 

■ Thomson-CSF said its Thomson-CSF Belgium Electronics 
subsidiary has won a 35 per cent share of a SlOTin contract to 
modernise radars for F-lG Tighter jets in service with four 
European air forces. Its share of the total contract, which was 
awarded to Westinghouse Electric, is valued at FFrltiOm 
(S31-25m>. The F-16 is flown by Belgium. Denmark. Norway 
and the Netherlands, and was built by Lockheed Df the US. 
Reuter. Paris 

■ GE Power Systems, part of General Electric of the US. has 
signed a contract worth nearly SSOOm for the 2.000MW* expan- 
sion of a Korea Electric Power Corporation combined-cycle 
power plant GE will be the prime contractor for blocks three 
and four of the Seoinchon plant south-west of SeouL Andrew 
Baxter, London 

■ Swiss-Swedish engineering group ABB Asea Brown Boveri 
has been asked to lead a SKrl^bn (S203.5m) gasoil plant 
project for privately-owned OK Petroleum. OKP said the proj- 
ect was for environmental improvements at OKFs refinery in 
Gothenburg on the west coast of Sweden. Reuter, Stockholm 

■ ABB Power Generation and Pyropower Corporation of Cal- 
ifornia have won a S363m contract to modernise two 200MW 
generators at the Turow power station in south-west Poland. 
The consortium also has the option to work on four more 
generators at Turow. Most of the equipment for the first stage 
of the project will be locally produced in plants like ABB 
Zamech bought by the Swiss-Swedish engineering company in 
1990 and Fakop in Sosnowiec, recently bought by Pyropower. 

Turow, which is fuelled with brown coal, is in the middle of 
the “black triangle", one of central Europe's most polluted 
areas, between Poland, the Czech Republic and the former east 
Germany. The new generators and boilers will reduce emis- 
sions to European Union standards and increase fuel effi- 
ciency. Christopher Bobmski, Warsaw 

■ Ansaldo. part of Italy's state-controlled Finmeccanica engi- 
neering group, has won a LiiSbn ($74.7m) order for rehabilita- 
tion. modernisation and maint enance of the A1 Ain power 
plant in the United Arab Emirates, following an international 
tender. Earlier this year, the same subsidiary, Ansaldo Ener- 
gia, was awarded another L40bn contract for maintenance 
work on a different UAE power station. Andrew Hill, Milan 

■ GE Power Systems, a unit of General Electric of the US. has 
won a $l64m contract to furnish and build a ^OOMW addition 
to Riyadh Power . Plant 8 fdlr Saudi Consolidated; Electric. The 
expansion is expected to begin operations next summer JReuter, 
New York 

■ TransAlta Energy, the Alberta electrical power utility, will 
build a S12Qm 25QMW coal-fired. power plant in Fujian Prov- 
ince. south-east China for Fujian Electric Power Bureau. Con- 
struction is due to start next year and the first two generating 
units will be operating by late 1997. TransAlta will share 
ownership with the bureau and Great China International. 
Robert Gibbens. Montreal . 

■ Cie G&xferale de Batiment et de Construction (CBC) has 
won a EFr374m ($73m) contract to build an office and shopping 
building, in Prague. The turnkey project was agreed with 
Myslbck. a joint venture company owned 80 per cent by the 
Caisse des Depots et Consignations and 20 per cent by Prague. 
Reuter, Paris 

m Conrail of the US will build 45 General Motors Electro-Mo- 
tive Division SD601 locomotives at its Juniata Locomotive 
Shop, the first diesel-electric locomotives to be built at the 
Altoona facility. The new units are part of a 90-unit order 
placed earlier this year, Conrail said. Reuter, Philadelphia 


Boeing warns of battle for clients 


By Gerard Baker In Tokyo 

Demand for air travel in Asia 
will be the motor or growth for 
the world's airlines and air- 
craft makers In the next two 
decades, the president of Boe- 
ing. Mr Philip Condit. said yes- 
terday. 

However, excess capacity 
among manufacturers will pro- 
duce an increasingly difficult 
competitive environment, 
despite the rapid growth in 


demand for new aircraft. 

Mr Condit told an audience 
of Japanese businessmen that 
Boeing expected world air 
travel to tripie in the next I*» 
years. More than a fifth or that 
growth was forecast within 
.Asia, with a further -H) per cent 
linking Asia with Europe and 
North America. In China alone, 
rapid economic expansion was 
expected to increase the num- 
ber of airline trips per person 
by a) times within 15 years. 


That rate of growth would 
mean that by 2015 the country 
would have become the third 
largest market for commercial 
aircraft after the US and 
Japan. 

The global travel surge 
would translate into far higher 
demand for aircraft, with an 
extra 700500 commercial jets 
needed m the next 2U years, he 
said. But since aircraft makers 
were left with the capacity 
geared for earlier commercial 


booms and military demand of 
cold war proportions, “this will 
be a market that has excess 
capacity until well into the 
next cenrury". 

Boeing could single-handedly 
meet the extra demand for air- 
craft out of its own espected 
capacity, he said. The result 
would be "intense competition 
and intense pressure on 
prices' 1 for manufacturers and 
a “difficult environment" for 
airlines. 


Mr Condit also said Boeing 
was studying plans to build a 
small 80-100-seat passenger air- 
liner to replace the company's 
737 and rival McDonnell Doug- 
las's DC-9 models. 

The company was also con- 
sidering "a very large commer- 
cial transport project" with 
“huge costs and huge risks", 
but said it would have to be at 
least 20 per cent cheaper than 
the 747s it would replace to be 
commercially feasible. 


Air traffic growth rates 

Passenger/km: annual average growth (%} 
ICAO world regions, all services 



1982-1991 

1902-2001 

2002-2O11 

Europe (excludes CIS) 

4.5 

5.3 

4.6 

North America 

5.7 

4.6 

4.0 

Latin America 

3.6 

6.0 

5.4 

Africa 

2.4 

45 

4.6 

Middle East 

44 

7.0 

52 

Asia and Pacific 

6.9 

ae 

7.0 

China 

17.8 

16.7 

10.1 

World total 

Scuta* Airbus Inairtia, 

5.4 

5.8 

S.1 


\ \ 

\ \ 


\ \ 

I 

\ \ 


Rising volume in 
North America 
freight sector 


China signs contract for 34 
McDonnell Douglas airliners 


By Our Foreign Staff 

China has signed a contract for 
34 V2500- powered McDonnell 
Douglas MD-90 airliners. The 
engines are produced by Inter- 
national Aero Engines, of 
which Rolls-Royce is a princi- 
pal shareholder. 

The deal, which was signed 
in Washington, represents an 
increase of 14 aircraft over the 
previously announced number 
and the value of new business 
for Rolls-Royce is about 
S50m.The first MD-90 is sched- 
uled for delivery in early 1996. 


Half the aircraft will be manu- 
factured in China with US-sup- 
plied parts. 

Mr Li Lan Oing. vice-premier 
of China and Mr Ron Brown. 
US commerce secretary, both 
attended the contract signing. 
The V250Q order book now 
stands at 1.525 engines worth 
more than S8.5bn. 

The V2500 has been ordered 
on the Airbus A320 and A321 
and the MD-90-30 as well as 
being available for the A319 
and MD-90-50. Airbus Industrie, 
the European aircraft manufac- 
turing consortium, has been 


taking steps to strengthen its 
presence in the fast growing 
Chinese market and List week 
announced the establishment 
of a flight crew training centre 
in Beijing. 

V2500 engines are manufac- 
tured by Rolls-Royce in the UK 
and by Pratt & Whitney in the 
US. the other principal share- 
holder. Other partners in Inter- 
national Aero Engines are 
MTU and Fiat.Avio in Europe 
and JAEC in Japan. 

The deal with China was 
signed last Friday and is worth 
a total of Sl.Gbn. 


The air freight sector m North 
America is experiencing one of 
the best pre-Christmas peaks 
in recent memory, with mosL 
airlines or cargo agents report- 
ing rising volumes to and from 
North America. Reuter reports 
from Toronto. 

“There's just on explosion of 
world trade occurring, and 
cargo is reaching a new pla- 
teau." according to Mr Mike 
Canney, a senior cargo man- 
ager at Singapore Airlines in 
Los Angeies. 

The recovery has been 
mounting on most major North 
Atlantic and Pacific routes, 
eastbound and westbound. 
Some analysts attribute the 
rise to the paradox that North 
American economies are 
strong while their currencies 
are weak, stimulating imports 
and exports. Others say world 
trade reforms and the North 
American Free Trade Agree- 
ment have lowered trade barri- 
ers. 

The strongest surge this 


autumn is m traffic from Euro- 
pe and. as yet. no capacity 
squeeze on the Pacific. Pacific 
traffic has been growing rap- 
idly in the last two years, but 
capacity growth has tended to 
keep pace. 

Autumn is the peak period 
for air cargo in North America 
as stores stock up for Christ- 
mas while airlines scale back 
flying schedules from the sum- 
mer passenger travel peak. 

The industry has been full of 
talk of a capacity crunch, but 
airlines were reluctant to raise 
capacity, especially using 
freighters, to avoid being stuck 
with the cost of flying empty. 

“The capacity that's there is 
basically the same as last 
year's peak," said Mr Jack Ver- 
acoechea. the New York based 
vice-president of national 
accounts for British Airways 
World Cargo- 

He said BA has not experi- 
enced significant backlogs in 
the US but demand is very 
strong for all US routes. 


Speed up 
China 
talks says 
Brittan 

By Tony Walker In Beijing 


Sir Leon Brittan, the European 
Commissioner for External 
Trade Relations, yesterday 
warned that negotiations on 
China's re-entry to the General 
Agreement on Tariffs and 
Trade were in danger of 
“grinding to a halt" and called 
for flexibility on terms for Chi- 
na's accession. 

“We have insisted that 
China should show its in ten* 
tion to pursue reform within 
the World Trade Organisation 
[the successor organisation to 
Gatt] by making a down -pay- 
ment in the form of progress 
now toward open markets," 
Sir Leon said. 

“But we have also accepted 
that not all changes can come 
immediately and we have 
argued with our Gatt col- 
leagues that timetabled com- 
mitments to change . . . are a 
mare realistic basis for prog- 
ress than expecting fall reform 
overnight." 

Sir Leon's comments, to a 
meeting of the International 
Business Leaders' Advisory 
Council, reflect growing con- 
cern that time is running out 
on negotiations For China's 
Gatt entry if it is to become a 
founder-member of the WTO 
at the beginning of next year. 

This has prompted thoughts 
of deferring China's entry to 
the WTO until later next year. 
Sir Leon appeared to allude to 
this in bis Shanghai speech: 
“With flexibility on all sides, 
we are still confident that the 
negotiations for an early Chi- 
nese entry into Gatt/WTO can 
succeed. But the momentum 
must not be lost." 


OECD Export Credit Rates 

The Organisation for Economic 
Co-operation and Development 
announced new minimum Inter- 
est rates (%) for officially- sup- 
ported export credits for 
November 15 to December 14 
1994 (October 15 1993 - 
November 14 1994 in brackets). 


D-Mark 

Ecu 

French franc 
Quidar 
up to 5 years 
5 to 85 years 
more than 8.5 years 
Italian lira 
Yen 
Peseta 
Sterling 
Swiss franc 
US dollar for cnxfita 
up to 5 yams 
5 to 85 years 
more than BA years 


a 06 (&Q9) 
8.93 [ 8.73) 

854 ( 8.70) 

8 j 2 d i aiq) 
aso (no) 

8J85 { 8430) 
11.32 (11.38) 
4.70 ( 4.70) 
11 JO (1157) 
9.73 ( 8.79} 

855 ( &51) 

84)4 (758) 
&40 E 8.08) 
&58 ( £L2S) 


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January It 1995. Me SDR-oasod an M M 
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chanpn on January JS 1995. 


THE 


DAVID 

T HOMA S 

PRIZE 


Dnvid Thomas was a Financial Times journalist killed on assignment in 
Kuwait in April 1991. Before joining the FT he had worked for, among 
others, the Trades Union Congress. 

His life was characterised by original and radical thinking coupled 
with a search for new subjects and orthodoxies to challenge. 

In his memory a prize has been established to provide an annual study/ 
travel grant to enable the recipient to take a career break to explore a 
theme iruhe fields of industrial policy, third world development or the 
environment. V ' ' 

The theme for the 1995 prize, worth not less than £3,000, is: 

DOES FREE TRADE THREATEN THE ENVIRONMENT? 

Applicants, aged under 35, of any nationality, should submit up to 1 000 
words in English on this subject, together with a brief c.v. and a proposal 
outlining how the award would be used to explore this theme further. 

The award winner will be required to write a 1500 to 2000 word 
essay at the end of the study, period. The essay will be considered for 
publication in the FT. 

CLOSING DATE JANUARY 6 1995 


/ j , . Applications to: 

Robin Pauley, Managing Editor 
... The Financial Times i L) 
Number One Southwark Bridge 
London SE1 9HL 



Mas* rni.HM-n.jiiitri C mo 


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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


NEWS: INTERNATIONAL 



Indonesian union chief 
jailed for three years 


By Manuela Saragosa 
hi Jakarta 

The leader of Indonesian's 
largest independent trade 
union was sentenced to three 
years’ imprisonment yesterday 
by a court in the northern 
Sumatran town of Medan, 
where workers' demonstra- 
tions led to riots in April. 

Mr Much tar Pakpahan was 
sentenced for allegedly inciting 
the Medan workers to riot by 
encouraging: them to call tor 
higher wages. Prosecutors had 
demanded that the leader of 
the Jakarta-based independent 
Indonesian Prosperous Labour 
Union (SBSU should serve a 
four-year jail sentence. 

The sentence comes a week 
before leaders from the Asia 
Pacific region, including US 
President Bill Clinton, are due 
to meet at the Indonesian pres- 
idential palace hi Bogor. south 
of Jakarta, tor the Asia Pacific 
Economic Co-operation sum- 
mit Mr Clinton is expected to 
raise the issue of workers' 
rights with President Suharto 
and the US embassy in Jakarta 
said yesterday that Washing- 
ton regretted the sentence. 

The trial of Mr Pakpahan, 
who said he would appeal, has 


drawn strong criticism from 
the International Confedera- 
tion of Free Trade Unions and 
non-governmental organisa- 
tions which repeatedly asked 
the Indonesian government to 
drop the charges. 

President Suharto and Mr 
Abdul Latief. manpower minis- 
ter, insist the trial is not an 
attack on workers' rights and 
that Mr Pakpahan was arrested 
because of the activities which 
occurred during the rioting. 

Mr Pakpahan denied he was 
involved in the Medan riots, 
which lasted several days, 
pointing out that he was in the 
central Javanese town of 
Semarang at the time. 

The military blames the 
SBSI for causing the riots, 
which left one ethnic Chinese 
businessman dead and prop- 
erty damaged. Although other 
leading members of the SBSI 
say they called tor workers to 
strike, they say they did not 
incite the rioting. 

Mr Pakpahan's trial, which 
lasted nearly two months, was 
fraught with difficulties and 
his 19 defence lawyers walked 
out repeatedly during court 
hearings in protest at the 
restrictions imposed by the 
court on allowing testimony 


for their case. 

The trial was delayed once 
after Mr Pakpahan collapsed 
during an early hearing in Sep- 
tember. “He was under so 
much pressure and there were 
so many restrictions, so he was 
not in good condition," said an 
SBSI official. 

Mr V. Napipulah, the chief 
judge, told Mr Pakpahan; “You 
have shown during the trial 
that you do not appreciate this 
court and have been inclined 
to denigrate the importance of 
the government apparatus." He 
added: "You have also tried to 
complicate the process of this 
court during the trial." 

The US has twice delayed a 
decision on whether to renew 
Indonesia's status under the 
Generalised System or Prefer- 
ences which is linked to 
progress made in workers' 
rights. 

Washington's main concerns 
in renewing Indonesia’s trade 
privileges involve the right of 
Indonesian workers to form an 
independent trade union and 
reducing military interference 
in labour issues. Indonesia bas 
two trade union groupings but 
only one, run by state bureau- 
crats, is recognised by the gov- 
ernment 


Rakhmonov to become 
first Tajikistan president 


Bank 


By Gerard Baker in Tokyo 

Cynics who have come to 
regard opening a Japanese 
b ank account as tantamount to 
buying a ticket in a lottery 
have had their suspicions con- 
firmed. 

John an Shinkin Bank, the 
country’s largest credit associ- 
ation, yesterday launched a 
deposit account tbat includes 
eligibility for a raffle with cash 
prizes or up to Y50.000 (£317). 

The one-year “Super Dream" 
account the first of its kind, 
can be opened witb a mini- 
mum deposit of Y100.000 and 
carries an interest rate of 2.1 
per cent per year, in line with 
one-year deposit account rates 
at other leading banks. 



lures Japan’s savers 


But every six months, 
account holders will be entered 
into a kind of financial tom- 
bola, with winners receiving 
between Y3.000 and Y50.000 
when their deposits mature. 
More than 4,000 prizes will be 
won every half-year and bank 
officials said the structure of 
the lottery would give custom- 
ers a 3.38 per cent chance of 
winning something. 

johnan Shinkin's scheme is 
the latest in a proliferating 
series of special attractions 
offered by banks to lure cus- 
tomers in a more challenging, 
less regulated competitive 
environment. A key element in 
the recent financial deregu- 
lation has been the liberalisa- 
tion of deposit interest rates. 


The process began a decade 
ago but was completed only 
last month, when all remain- 
ing controls on banks* deposit 
rates were lifted. 

The reforms leave banks in 
the unfamiliar position of hav- 
ing to compete energetically 
with each other for depositors. 
Some novel schemes have been 
dreamed up to entice the 
increasingly choosy Japanese 
saver. 

Among the more successful 
post-liberalisation campaigns 
has been one by a regional 
bank that fixed its interest rate 
to the batting average of the 
local baseball star. 

More predictably, there bas 
been a rapid growth in the 
number of accounts carrying 


with them the sort of cute free- 
bies for which the Japanese 
have a penchant 

The frontiers of consumer 
choice in this field have 
recently been extended to 
include giveaway toys depict- 
ing everything from Walt Dis- 
ney's creations to the increas- 
ingly popular “Dinky the 
Dinosaur” cartoon character. 

But the more serious compe- 
tition centres an the pecuniary 
advantage that banks are now 
able to offer their customers. 
Since last mouth’s changes, a 
small but significant differen- 
t ial has opened up between 
bank deposit rates. 

The gap seems set set to 
grow wider, a development 
that wifi threaten the already 


■■ . > vlv ■ . 


Mr Tmamali Rakhmonov, 
Tajikistan's parliamentary 
chairman and acting head of 
state, won the central Asian 
republic's first presidential 
election, taking 60 per cent of 
the vote, according to official 
preliminary results awnmnnwi 
yesterday, Reuter reports from 
Dushanbe. His opponent, Mr 
Abdumalik Abdulajanov, a for- 
mer prime minister and at 
present Tajikistan's ambassa- 
dor to Moscow, won 35 per cent 
in Sunday’s contest 
“Despite pessimistic fore- 
casts, the referendum for a 
new constitution and election 
took place,” Mr Kadriddin Gio- 
sov, commission chairman, 
said. “We did our best to 
ensure the election was free 
and democratic." Another offi- 
cial said more than 90 per cent 
of the 2.6m electorate had 
voted for a new constitution 
which among other things cre- 
ates a presidential system. 


Mr Abdulajanov's team 
alleged on Sunday there had 
been cases of ballot boxes 
being fraudulently stuffed with 
votes for Mr Rakhmonov, and 
that some other votes had been 
tampered with. The electoral 
commission and observers 
from the Commonwealth of 
Independent States said they 
had seen no human rights 
abuses daring the vote. 

“My opinion. . . is that from 
the legal point of view, the 
election went well," said Mr 
Artur Zurimbovsky of the CIS 
secretariat The Conference on 
Security and Co-operation In 
Europe (CSCE) and the UN 
declined to send monitors. Dip- 
lomats said the CSCE was con- 
cerned that the government's 
real opposition, an alliance of 
Islamic groups and liberals, did 
not take part in the election. 

Many opposition leaders are 
in exile in Afghanistan, from 
where their fighters have 


launched cross-border raids 
since losing a civil war in late 
1992. Some analysts said that, 
given the opposition boycott, 
the election would not help 
resolve deep problems in 
Tajikistan, where clan loyalty 
is seen as more important than 
ideology. “Hey have the same 
guy [again] and 1 have my 
doubts that the opposition will 
accept this,” one diplomat said 
yesterday. 

Mr Rakhmonov, a former 
state farm director, comes from 
the southern-based Kulyabi 
clan, which was at the leading 
edge of the battle to oust the 
rebels. Mr Abdulajanov, from 
the industrialised north, was 
seen by many diplomats and 
analysts as better placed to 
deal with the exiled opposition. 
He served as premier in an 
opposition-led government but 
kept his post under the new 
administration. 

Observer, Page 17 



Damon Hill's Williams Renault on its way to victory in the Japanese Grand Prix on Sunday wr 

Formula One racing loses allure 


By Emiko Terazono In Tokyo 

Mr Luciano Benetton, hosting 
a reception in Tokyo yester- 
day. shrugged off his team's 
defeat in the Japanese Grand 
Prix at the hands of Damon 
Hill in a Wlfiiams-Renault . But 
even though 155,000 motor rac- 
ing enthusiasts sat in the rain 
on Sunday watching the duel 
with Benetton-Ford's Michael 
Schumacher, the allure of For- 
mula One racing in Japan 
seems to be on the wane. 

Until last year, eager fans 
snapped up tickets at triple the 


normal price of Y31.000 (£196). 
This year, a 30 per cent dis- 
count has failed to attract buy- 
ers. Television audience rat- 
ings have also steadily fallen, 
hitting Fuji Television Net- 
work, which acquired F-l 
broadcasting rights in 1987, 
while two out of five car racing 
magazines have dosed. 

In addition to the declining 
benefits of advertising due to 
shrinking audiences, corporate 
sponsorship has been hit by 
the economic downturn, and 
deteriorating earnings have 
dulled the appeal of having the 


fastest-moving logo on earth. 

The number of sponsoring 
companies has fallen to a fifth 
of the 50 in 199L Footwork, a 
parcel delivering company 
which pulled out last year, said 
it thought the role of Grands 
Prix role as a marketing tool 
was over. 

Industry analysts started to 
detect a peaking in F-l popu- 
larity after the retirement in 
1991 of Satoru Nakajima. the 
leading Japanese driver. Honda 
Motor, whose engines won the 
constructor's championship for 
six consecutive years from 1986 


to 1991, announced its with- 
drawal in 1992. The final blow 
appears to have been the death 
earlier this year of Ayrton 
Senna, the Brazilian world 

rhamplnn 

So will Japanese fans return 
if the economy recovers and 
the glitz in F-l racing returns? 
The Japanese get hot easily 
but they also cool just as fast," 
says Mr Mutsumi Kumagai of 
Auto Sports, (me of the remain- 
ing car racing magazines. 
“Maybe Japan needs a second 
Senna to to attract a new gen- 
eration of supporters.” 


anaemic profitability of 
Japan's banks as deman d for 
lending remains sluggish, and. 
they continue to struggle with, 
a heavy burden of non-per- 
forming loans. - 

Johnan Shinkin estimates, 
that the Super Dream account 
will cost the bank about .the 
ffar nw as an extra 0.2 percent- 
age point added to interest on 
a one-year deposit. 

An official acknowledged 
that the implications fin the' 
company’s earnings were trou- 
bling. 

“The account will ensure 
that the. benefits of hboraUsa- 
tion are passed on to the cue-, 
tomer,” he said, “even though 
it means we will have to 
reduce profits to a minimum.” ! 

Japan, US 
start joint 
exercise 

By WVBam Dawkins in Tokyo ' 

Japan and the US will today 
begin their largest joint milt -' 
toy- exercise, a sign of their 
wish to keep trade tensions? 
separate from strategic links. 

More than 26,000 - men, 
roughly half from each side,' 
will take part in the exercise, 
called Keen Edge 1995, over 
the next five days in northern 
Japan. The aim of the exercise, 
part of a series started in 1986, 
is to defend Japan from an 
imaginary invasion by sea and! 
air. 

This latest exercise, planned' 
last year, coincides with a. 
visit yesterday by Mr Waite 
Slocombe, US under-secretary 
of defence^ designed to bolster 
US-Japan security co-opera- 
tion. 

After a meeting with Mr 
Yobei Rono, the foreign nattis-t 
ter, Mr Slocombe called for 
more co-operation between the 
two countries in international 
peacekeeping and the preven- 
tion of the spread of weapons 
of mass destruction. 

The military manoeuvres 
are the latest reminder of the 
sharp policy switch by Mr 
Tomiichi Murayama, Japan’s 
socialist prime minister. 

Mr Murayama used to 
oppose the US-Japan defence 
treaty and Japan's right to 
maintain military . .forces, 
but soon dropped thbse 
policies after coming to power 
in June, in order to foil into 
line with his conservative 
Libera] Democratic party 
coalition partners. 


t 


£ 


China explores the merits of regional economic links 




Tony Walker reports on the background to President Jiang’s four-nation South-east Asian tour 


Jiang: “new diplomatic drive" 


W hen China’s President 
Jiang Zemin leaves today 
for visits to Singapore, 
Malaysia. Indonesia - where he is 
to attend the Asia Pacific Economic 
Cooperation forum - and Vietnam, 
he will be engaging in what Chinese 
media aree describing as a “new 
diplomatic drive”. 

This probably overstates the case, 
but there is also no doubt that Mr 
Jiang’s mission is one of his more 
important forays abroad. His meet- 
ing with President Bill Clinton dur- 
ing the Apec summit will be the 
centrepiece of his four-nation tour. 

The two last met in Seattle at the 
first Apec summit a year ago under 
less auspicious circumstances. Then 
human rights Issues predominated. 
The US had not severed the link 


between renewal of China’s Most 
Favoured Nation trading status and 
human rights. With that irritant 
removed it should be possible for 
leaders of the two Pacific powers to 
talk more constructively about such 
issues as the future of Apec itself 
and its evolution into a trade liber- 
alisation vehicle which depends on 
active Chinese involvement 
But any concessions cm that score 
are likely to come at a price. In the 
lead-up to Apec, Chinese officials 
have made it clear that Beijing 
would look more favourably on an 
Apec free trade zone proposal, how- 
ever nebulous that proposal may he, 
if lingering argument over its appli- 
cation to re-join the General Agree- 
ment on Tariffs and Trade were 
resolved. 


As the Apec summit draws nearer 
Chinese officials are making the 
link between the two issues even 
more explicit In a weekend newspa- 
per interview Mr Long Yongtu, an 
assistant minister in the foreign 
trade ministry, asked: “Is China's 
Galt accession good for trade liber- 
alisation advocated by the Asia-Pa- 
cific Economic Co-operation 
forum?" 

This is an argument that Mr Clin- 
ton is likely to hear directly from 
Mr Jiang. China, in seeking Gatt 
entry, is playing the Apec card, 
knowing that influential Apec mem- 
bers, such as Australia, wish to 
secure broad endorsement for the 
implementation by 2020 of the pro- 
posed Asia-Pacific Free Trade Zone 
proposal 


Mr Jiang is likely to stop short, 
however, of backing a timetable 
except in the vaguest possible 
terms. This reflects Beijing’s cau- 
tion about committing itself to 
regional institutional arrangements 
unless it can be sure that these will 
work to its advantage. China's per- 
sistent fear is that such forums 
could be used to assert pressure on 
issues such as human rights and 
trade liberalisation. 

Chinese foreign policy research 
institutes. Including the Academy 
of Social Sciences, recently advised 
the government to join efforts to 
broaden Apec. but to avoid specific 
commitments to a free trade zone 
timetable. Professor Zhang Yunlfng, 
director the academy's Asia Pacific 
Studies Institute, and one of the 


authors of the study, said that while 
China saw growing regional 
co-operation as an “irreversible 
trend", it was not yet dear whether 
Apec was the most appropriate 
framework for such a process. 

“China is improving gradually its 
understanding of the region. It has 
no choice but actively to partid- 
pate, but at the same time it has to 
find ways not to harm itself,” he 
says. 

Mr Jiang's visits to Malaysia and 
Singapore will be largely ceremo- 
nial although in Kuala Lumpur 
China's president will feel obliged 
to repeat Beijing's endorsement of a 
Malaysian proposal for an East Asia 
Economic Caucus. Beijing has indi- 
cated at best a tepid enthusiasm for 
the EAEC. 


Mr Jiang’s visit to Vietnam an the 
last stop of his Asian tour may 
require some nimble diplomatic 
footwork, but Prof Zhang does not 
expect the continuing dispute over- 
territory in the South China Sea ip 
mar the visit 

He said that the two sides had ho 
interest at this stage in allowing 
relations to deteriorate. He noted 
that cross-border trade was' 
flourishing and that both countries 
were intent on developing their 
economies after barren years. This . 
dictated a stable regional environ- 
ment 

At a personal level Mr Jiang's 
extensive tour also assumes impor- 
tance. He will be hoping that his 
appearance on a world stage at the 
Apec forum will bolster his stocks 
at home in this transitional phase 
to a new generation of Chinese lead- 
ers. 




Touchdown; 


to improve the bit 
in the middle. 


Heathrow has Jong been the world’s busiest 
international airport for connecting flights. 

From December, it’ll also be one of 
the most comfortable. 

Our new Flight Connections Centre 
is the world’s first building dedicated 
solely to connecting passengers - who 
spend an average of three hours with us 
between landing and takeoff. 


It’ll simplify everything from the 
route they take through the airport to 
security and check-in procedures. 

As well as offering them a “Comfort 
and Care” area the size of Wembley football 
pitch, with reclining seats, a children’s 
play area, babycare facilities and business 
services - and easy access to an unrivalled 
range of shops. 


Heathrow * Gatwick * Stansted * Glasgow < Edinburgh * 


Heathrow’s new Flight Connections 
Centre is just part of our three year, 

£1.4 billion programme to improve passen- 
ger facilities, retail and catering areas and 
transport links at all our airports. 

We’re aiming, you see, to be the 
world's most successful airport company. 

And io achieve that, we need to have 
the most satisfied customers in the world. 
Aberdeen < Southampton 



IlKil [LIGHTS OF THE HALF YEAR ENDED 
M SEPTEMBER 1994 (UN AUDITED) 

Group revenue £660m up 5.3% 

Pre-tax profit £265m up 11. «% 

Earnings per share 19.2p up 12.3% 

Interim dividend of3.75p up 11.1% 

Passenger traffic up 7% 

B AA ri 

HELPING BRITAIN TAKE OF/-' 


* \ 


\ 






** lit 
64* Ht 





FINANCIAL TIMES TUESDAY NOVEMBER 8 1 994 ★ 


NEWS: INTERNATIONAL 


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international news digest 

India opens up 
directorships 

The Ind ian finance ministry will allow foreigners, including 
Indians residing outside the country, to become directors of 
Joint venture stockbroking companies, it said yesterday. The 
ministry said clauses of the Securities Contracts Rules. 1957. 
would be amended “to allow joint-venture stock broking com- 
panies to have non-Indian citizens on their boards of direc- 
tors" . "The change is a further step in the direction of grant- 
ing more flexibility for foreign companies in the stock-broking 
b usines s In I n d i a ," said Mr James Winterbotham, president of 
Credit Capital Finance Corporation, a stockbroking firm in 
Joint venture with Lazards. Shiraz Sitihva. New Delhi 

BHP currency sham alleged 

Mr Brian Loton, chairman of Broken Hill Proprietary, and 
other directors of the large Australian resources group, were 
yesterday alleged to have had some knowledge of sham for- 
eign exchange transactions in the late 1980s involving Elders 
KL, the brewing and agrlproducts company now known as 
Foster's Brewing Group. The allegation was contained in a 
statement tendered to the Melbourne Magistrates Court by Mr 
Km Jarrett, a former Elders executive, during a long-running 
committal hearing which has followed the filing of conspiracy 
and theft charges against Mr John Elliott, former Elders chief, 
and other one-time Elders executives. Mr Jarrett agreed to 
give evidence against his former boss earlier this year. He has 
already received a six-month jail sentence after agreeing to 
co-operate. Nikki Taix, Sydney 

Former ANC fighters sacked 

Mr Joe Modise (left), South 
Africa's defence minister, 
announced yesterday that 
over 2,000 former members of 
Umkhonto we Sizwe. the Afri- 
can National Congress's 
armed wing, had been dis- 
missed from the South Afri- 
can National Defence Force 
for failing to report to duty 
despite numerous warnings 
from the government. The 
decision mar ks a new hard 
fine being taken by the ANC- 
led government on dissent by 
former guerrillas who have 
been complaining about 
harsh Hisrlplme and poor liv- 
ing conditions as they are 
amdmilateri into the SANDF. About 25,000 former Umkhonto 
members, as well as several thousand others from the former 
homeland armies and the armed wing of the Pan Africanist 
Congress, are due to join the formerly white-dominated South 
African army this year. Afarfc Suzman, Johannesburg 

UK official to visit Burma 

Britain said yesterday a senior Foreign Office official would 
arrive in Buzina today for talks with the ruling military 
government. A Foreign Office spokesman said the visit, the 
first by a senior British official since the Burmese elections of 
1990, accorded with the European Union policy of “critical 
dialogue” with the Rangoon govenunantThe visit by Mr 
David Dain, an assistant undersecretary of state, followed 
<ynw» -potentially encouraging" signals from the government, 
iTirfnflmgmgattngB trithTha detained opposition'Ieader, Nobel 
Peace Prize laureate Aung San Sun Kyi. Reuter, London , 

Solomon Islands PM elected 

Mr Solomon -was yesterday elected prime minister 

of the Solomon Islands, folio wing the resignation of Mr Fran- 
cis Billy Bffiy. the previous incumbent, last week. In his 
swearing-in speech, Mr Mamaltmi hinted the new government 
would review log gin g policy, and warned that the Pacific 
nation’s economic condition was “precarious". Logging in the 
So l omon s has been the subject of inter nat ion al atten tio n, with , 
criticism levelled at some of the foreign companies operating 
there. Mr Mamalonl, 1982-84 and 1889-93 prime minister, is a 
popular figure in the Solomon Islands. But he can be unpre- 
dictabte and in the past has fatten out with other govern- 
ments, a oHQr rtin g to a diplomat in Honiara. Nikki Tait, Sydney 

~B Indonesia ’s state budget Is targeted to grow 10-15 pa - cent in 
the. 1995-96 fiscal year, Mr M. Muhammad, finance minister, 
said yesterday. Indonesia’s budget in the current fiscal year is 
yMhn (£20bnX up 1L1 per cent on last year. Reuter, Jakarta 
■ Taiwan’s trade surplus rose 6L2 per cent from a year earlier 
to SLOftn (£662m) in October, the Finance Ministry said. 
Reuter, Taipei 


AN EXCITING CHALLENGE 
IN THE 

GSM NETWORK IN TURKEY 

Telsim fhe GSM OPERATOR IN TURKEY 
is searching fw experienced people to be 
recruited in various departments for its growing 
GSM Cellular network. 



The successful aiwJitblai wife Ae 
required qualifications wfiB be recruited 

for the following positions: 

■ Head of planning department 

• Head of technical department 

• Head of purchasing and confrcefing 
department 

• Heed of production performance 
repealing department 

Qualifications: 

• A university degree in electronic 
engineering, science erf communication, 
technical sdiool or comparable bacigground 

• Experience fn network planning and project 
management. 

(for Project Implementation department) 

• Experience in operation and mcunferionce 


department 



AAV 


Israeli economy shows overheating signs 

Fast growth may be in jeopardy, the central bank governor tells Julian Ozanne 


Israel; in danger of doing too well 


I srael’s economy is growing 
faster than expected but is 
showing signs of overheat- 
ing with rising inflation, high 
wage agreements In the public 
sector and an increase in pri- 
vate consumption. 

Mr Jacob Frenkel, Bank of 
Israel governor, warned in an 
interview yesterday that the 
government faced a serious 
policy challenge in 1995 to 
ensure growth would be sus- 
tainable, Without a reduction 
in labour costs, government 
expenditure and the public sec- 
tor wage bill, high medium- 
term growth of 5 per cent a 
year could be in jeopardy. 

“I think we have just the 
right conditions to justify a 
vigorous effort to stabilise." he 
said. “Our economy is growing 
quickly, there are clear signs 
of over-heating reflected both 
in the rapid rise of consump- 
tion and in a growing current 
account deficit. Restrictive 
macro-economic policies are 
warranted on the fiscal and 
monetary front." 

Mr Frenkel said the economy 
would grow 6.7 per cent this 
year, well above the forecast of 
5.3 per cent and last year’s 3.4 
per cent The growth he said 
was of a “healthy variety", 
driven principally by private 
sector activity, expected to 
grow 7.7 per cent, and a 16.3 


Unomptoyment 
% change over previous year 
12 



Banco: Band of taraol 

per cent increase in non-hous- 
ing investment 

However a significant part or 
1994 economic growth reflects 
a 10 per cent increase in pri- 
vate consumption fuelled by 
civilian imports, which will 
increase by 13 per cent. The 
trade deficit for 1994 is expec- 
ted to widen from S6bn (£3.6bn) 
to $8.3bn. causing the current 
account deficit to grow from 
S1.4bn to S3bn. 

“If you ask me. based on 
these figures, whether eco- 
nomic growth is sustainable 
the answer is no because pri- 
vate sector consumption has 
grown at a rate which exceeds 


OOP 

% change ewer previous year 


7 - 



-EsBOMM “ProfccScm 

the rate of income growth," Mr 
Frenkel said. 

Private consumption in 1994 
has been stimulated by grow- 
ing perceptions of economic 
growth, the rapid fall in unem- 
ployment this year from 10 per 
cent to 7.2 per cent and public 
sector wage increases of 10 per 
cent in real terms. 

Mr Frenkel said the real 
danger was the spill-over 
of public sector wage rises 
into the private sector. Tf this 
happens it will affect profitabil- 
ity and might have adverse 
consequences for investment 
and growth and will also make 
the fight against inflation 


WtetJon 

% change over previous year 



so much more difficult" 

Economists at the central 
bank are urging the govern- 
ment to reduce private sector 
labour costs, slash its wage bill 
- which has risen 6 per cent 
this year - and curb expendi- 
ture to ensure a continuing 
decrease of the budget deficit 
which is expected to fell to 2 
per cent of gross domestic 
product this year. 

The hank is advocating a 3 
per cent cut in the public 
workforce, which has grown 
5.8 per cent this year from 
575,500 to 608.600 and says this 
could be achieved by a hiring 
freeze. 


Government action on public 
expenditure will be critical to 
fi ghting inflation, now at 14 
per cent While the central 
bank has increased interest 
rates 6.5 percentage points 
since last year, many econo- 
mists believe it should have 
acted faster. Mr Ptacbia Bar- 
Shavit, economist at Bank 
Hapoalim, said the central 
bank mistook the inflation 
trend in the summer of 1993, 
which showed a seasonal 
reduction, and reacted slowly. 

However, the central bank 
had to fight for tight monetary 
policy against criticism from 

the ftnanpp ministr y anti man- 
ufacturers. It also says the 
main contributor to inflation 
was housing costs, which are 
expected to rise 30 per cent this 
year. Government measures 
such as increased sale of public 
land and re-designating land 
uses from agriculture to hous- 
ing have yet to be effective. 

Mr Bar-Sbavit said the gov- 
ernment had not done enough 
to solve the housing crisis and 
said the government should 
introduce a buy-back policy to 
ensure builders operated at full 
capacity. He said housing costs 
would only come down signifi- 
cantly when builders produced 
50,000 new units a year instead 
of the less than 40,000 units 
started this year. 


The bank, however, says 
interest rate rises have con- 
tained the acceleration of infla- 
tion. Together with the govern- 
ment, it has decided on an 
inflation target of 8-11 per cent 
for 1995. 

“Up to now we have con- 
tained the acceleration and 
now we are in the phase of a 
gradual reduction towards the 
inflation target” said Mr 
Frenkel 

Economists say the achieve- 


Economists say 
the achievements 
of 1994 should 
not be negated 

meats of 1994 should not be 
negated. Mr Bar-Shavit said 
per capita income would grow 
4.4 per cent, greater than the 
OECD industrialised countries. 
Reduction in unemployment, 
given continuing absorption of 
about 70.000 new immigrants 
annu ally, was also an impres- 
sive achievement he said. 

Export growth of 8 per cent 
this year partly reflects bene- 
fits from the Middle East peace 
process. Exports of goods to 
Asia, excluding Japan, are set 
to rise 25-30 per cent this year 
from $1.7bn in 1993. 


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BiHnsexHKCiEilT 1 


TUESDAY NOVEMBER 



8.1994 


NEWS: UK 


Sony chooses UK design base for Europe 



By Ian Hamilton Fazey, 
Northern Correspondent 


Sony Electronic Publishing is to open 
a new base in Liverpool as its Euro- 
pean centre for the design and devel- 
opment of computer and video games 
creating 259 jobs. 

It is forecasting worldwide sales for 
its products of more than $300m 
(£I82^Qm) in 1995-96. 

Sony acquired its Merseyside base 
last year when it bought Psygnosis, a 
Liverpool games software house, for 
an undisclosed sum. The new jobs 


more than double the 235 that came 
with Psygnosis. Other Sony jobs may 
be moved north from the south-east . 

The company's product - the 
Lemmings computer game - has sold 
several milli on units worldwide. 
Other fprnaB include Shadow of the 
Beast. Ecstatica, Novastorm and 
Mickey Mouse. 

The rvwwpflny will occupy a building 
in Wavertree Technology Park which 
has been empty for more than a year. 
Sony the b uilding 's availability 
for long logging was crucial to its 
choice of the UK. 


Sony is also negotiating to expand 
on adjacent land. Mr Ian Hethering- 
ton. joint managing director, said: 
“This is an emerging technology and 
must be the largest growth sector in 
the world at the moment. If we can 
pull some of that into Sony - and we 
can - 259 new jobs will only be the tip 
of the iceberg”. 

The new development was fought 
over by inward investment agencies 
in France, Ireland, Germany and the 
Netherlands. 

But in industrial development 
terms, government help has been 


small compared with the £58m which 
helped entice Samsung to the 
north-east last month. The site 
already had £4 am of derelict grant to 
help the development 
Of new money, £1.75m is regional 
selective assistance from the Depart- 
ment of Trade and Industry, almost 
matched with £i.7m from the Euro- 
pean Union. A further £625,000 will 
come from Merseyside Training and 
Enterprise CoundL 
Merseyside scored over other Euro- 
pean locations partly because of 
north-west England's rich educational 


infrastructure, and its prospect of 
Objective One funds from the EU to 
help expansion. This helped overcame 
disadvantages noted by Sony, particu- 
larly poor motorway Hrrics into the 
Liverpool city centre. 

Mr Michael Hesettine, then environ- 
ment secretary, was the driving farce 
behind Wavertree Technology Park - 
a joint venture to re claim 60 acres of 
disused railway siding* by govern- 
ment, English Estates, Plessey and 
Liverpool City Council in the after- 
math of the 1981 Toxteth riots, which 
took place about a mfe* away. 


Air goes out of maker 
of record-setting balloons 


By Jim Kefly, 

Accountancy Correspondent 


The UK company that made 
the hot air balloons which hold 
the records for the highest and 
furthest journeys ever made 
has come down to earth with a 
bump. 

Airboume Group, which also 
made Richard Branson’s bal- 
loon for his much-publicised 
transatlantic venture, ha* gone 
into receivership after spend- 
ing £2Jm on airship develop- 
ment. But the receivers. 
Touche Ross, are confident it 
can fly again. At least six hope- 


ful buyers have so far con- 
tacted them and there are 
“stocks of orders” for its core 
products - hot air baboons, 
barrage balloons and thermal 
defence targets. 

Airboume, and its trading 
companies which include Air- 
borne Industries and Thunder 
and Colt, is responsible for 30 
per cent of the world’s hot air 
balloon market 

Mr Andrew Peters, joint 
administrator, said the group 
had an annual turnover of 
£10m. and there was a good 
nhance of a sale as a going 
concern. 


Development into airships 
had caused the problems, be 
said. The craft, used most often 
for advertising; had not found 
a market although the only 
one still in stock is in the pro- 
cess of being sold to a South 
African buyer for £300,000. 

Otter problems had included 
a loss making American ven- 
ture and £250,000 of legal and 
other expenses incurred in 
defending court claims. 

The company's balloons bold 
the world altitude record at 
64597 feet and the world dis- 
tance record at 7,672 kilome- 
ters. Both were set in 1968. 


Channel tunnel shuttle delay 


By Charles Batchelor, 
Transport Correspondent 


A full Channel tunnel 
passenger service for drivers 
and their cars will not start 
before the end of November or 
early December, at least two 
weeks later than Eurotunnel's 
most optimistic forecast 

The company which operates 
the Channel tunnel shuttle 
services had hoped to start 
turn-up-and-go passenger 
shuttles from November 15 but 
this early deadline will not be 
met, it said yesterday. 

Eurotunnel will this week 
apply to the Franco-British 
intergovernmental commission 
in charge of safety for an 


operating certificate to fun full 
commercial passenger services. 
It will take two to three weeks 
for the commission to respond. 

Eurotunnel said there was 
no single reason for the delay 
but it had taken longer to 
establish the sufficiently 
frequent and reliable service 
necessary to apply for the 
certificate. 

Tbe delayed launch of 
passenger shuttles between 
Folkestone and Calais will lead 
to a further reduction in 
Eurotunnel’s revenues this 
year. It announced last month 
that the slow start up of 
services would redace 
revenues to just one quarter of 
the £i37m forecast in May. 


Eurotunnel is currently 
running an “overture” service 
for shareholders, people in the 
travel trade, journalists and its 
bankers to introduce a wider 
public to the shuttles. This 
requires an advanced booking 
and in many cases payment of 
£30 to cover administration 
costs. 

It plans to carry 60.000 
passengers in 20,000 cars 
during the six-week overture 
period. 

The latest delay will mean 
that through Eurostar services 
between London. Paris and 
Brussels will begin before tbe 
passenger shuttles. Eurostar is 
due to start commercial 
services on November 14. 


WE TOOK ALL THE TECHNICAL INFORMATION 
WE DEVELOPED ON HIGH PERFORMANCE ENGINES. 


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044 


UK NEWS DIGEST 



Norwich 
set to shed 
one-fifth of jobs 


.. . . ITriI -_ nne of the UK’S largest insurers, has 

%£££*&£ to shed up to £M0 jobs - tmefiflh of its 

OI Tbe?ob^i < SS^Sde some co^ifisoryretodand^ 
mVS Union hop* 

f«trn mnct nf the strain. About 450 staff are on short-term 
contracts, and the group loses around 600 staff a year through 

^iSiSSi is not alone among insurerain planning job 
cuts; in both general and life insurance business c omp anies 
are feeing increasingly tough competition. - 

Thebigher cost of meeting regulatory sbmdardsat a time of 
generally flat life and pensions sales is also putting pressure 

“ite^Sactian in the financial services industry w^ also 
underlined last week in toe annual report ftem. t he life inflow 
try’s regulator This showed the n umb er of sales agents acting 
for fife Companies stood below 94,000 at the end of June, while 
in July I99iit had totalled more than twice that number. 


B Ae warned over Airbus role 


British Aerospace could lose its rote as Airbus s wmg designer 
and supplier if the government fails to buy the new European- 
m ade military transport aircraft, Mr Julian Tapp, BAe’s chfef 
economis t, said yesterday. ’ •’ • 

Mr Tapp said purchase of the US-made rival offered by 
Lockheed could force BAe to drop out the tbe European 
consortium which is offering the Future Large Aircraft 

Production and design of the FLA’s wing would then go to 
De utsche Aerospace, the Daimler-Benz subsidiary. 

When Airbus tackled the next generation of widebodied 
aircraft, Dasa would be able “to migrate its newly developed 
large-wing capability straight to the new project,” displacing 
BAe. Mr Tapp said. 

BAe, Britain's biggest exporter, would lose not only foreign 
sales of the military aircraft, bat also those of Airbus’s new 
large airliner. Britain's aerospace skills base would be seri- 
ously diminished, he added. 

u We need a government with an aerospace strategy that 
supports industry and avoids this outcome," he said. ' 


Turnaround for machine tools 


Tbe UK machine tool industry recorded a trade surplus of 
£5.7m in the first half of (his year, compared with a deficit of 
£7.7m a year earlier, according to the Machine Tool Technolo- 
gies Association. 

The tumround continues the improved performance in the 
second half of last year, which enabled the industry to achieve 
a trade surplus of £9m for 1993 - its first for 10 years. 

In the first half of this year, machine tool exports rose by 
18.6 per cent to £l74Jm, due mainly to strong growth in sales 
to the US and the Far East Continental Europe still remained 
relatively weak, although there were signs of a recovery, the 
association said. Imports of machine tools into the UK rose 9 
per cent to £168.7m, reflecting an improved level of manufac- 
turing investment. 


Airport bus link sold off 


London Transport has privatised the ninth of its 10 bus compa- 
nies with the sale of London United Busways, operator of the 
Heathrow Airbus service, to its management and employees 
for more than £25m. 

This sale takes the total proceeds from the sale of London's 
red bus com panies to more than £21Qm. 

Four of the companies have been bought by buy-out teams 
while five have been acquired by other bus companies. London 
United has more than 450 buses and l ,400 employees. It oper- 
ates mainly in west London. 


Women ‘in line for new jobs’ 


Unemployment will stay above 2m in Britain until at least 
2001 in spite of a projected Lm extra jobs, says the review of 
the economy and employment published today by the Institute 
for Employment Research at Warwick University. 

The report suggests that the bulk of new employment will 
come from “cyclical recovery rather than long-term growth”. 
Male fon-time jobs are expected to decline, with most addi- 
tional employment going to women, the majority of whom will 
be working part-time. 

The study forecasts an animal improvement of 3.3 per cart 
in industrial output from 1993 to 1997. the best performance in 
the British economy for 40 years, with a 2.7 per cent growth in 
output per person over the same period. 


Monetary target attacked 


The UK government’s target for M0 - the narrow gauge of 
money supply - serves “no useful purpose” and should be 
scrapped, Mr Tim Congdon, one of the Treasury's independent 
advisers, says in the November edition of Gerrard & National’s 
Economic Review. 

Annual growth of M0 has been consistently above the gov- 
ernment’s target of zero to 4 per cent since January last 
year having reached 78 per cent in October. 

Mr Congdon says that if the Bank of England’s that 
M0 has been a “good leading indicator of retail inflation in the 
past” was correct. Its above-target growth ought to have had a 
significant impact on inflation. 


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Carey in plea for 
‘ethical business 9 


By Alan Pike, 

Social Affairs Correspondent 


Commercial self-interest Is 
likely to degenerate into “gang- 
sterism and corruption” lining 
businesses are run according 
to sound ethical principles. Dr 
George Carey, archbishop of 
Canterbury, said yesterday. 

Dr Carey, in an address to 
Manchester Business School 
defended wealth creation and 
called for a stronger partner- 
ship between the churches and 
the business community. 

He emphasised, however, 
that he did not regard vigorous’ 
wealth creation - without 
which there was little chance 
of overcoming the problems of 
world poverty and environ- 
mental degradation - as the 
same thing as the complete 
free play of market forces. 

He said: "We need to ensure 
that we define our own ends as 
a society and do not pretend 
that we can abdicate our 
responsibility to market forces 
alone.” The market was a good 
servant, but a bad master, and 


market forces needed to be 
“constrained and directed to 
service the common good”. 

Any attempt to remove eth- 
ics from business, was to 
“remove humanity” from the 
market. It was important for 
companies to develop a culture 
in which ethical dilemmas 
were worked through conscien- 
tiously, he s ai d 

Dr Carey acknowledged that 
clergy had pronounced too 
glibly about the moral ambigu- 
ity of aspects of business. 

He wanted the church to 
become more approachable and 
available for people who were 
frying to wrestle with ethical 
challenges in a competitive 
world, and hoped its liturgies 
and worship could reflect more 
adequately the "aspirations 
and contribution of all those 
who strive to create the wealth 
Of our country** 

Business expertise had a 
vital part in play in the man- 
agement of the church, but the 
erode importation of business 
foaguage and models would be 

“^appropriate, he said. 




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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


9 



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★ 


Figures show strong 
industrial growth 


By Peter Norman, 

Economics Editor 

The UK government is 
expected to revise upwards its 
estimate of third-quarter eco- 
nomic growth after official fig. 
ures yesterday showed that 
industrial production grew at 
an unexpectedly strong rate in 
the three months to Septem- 
ber. 

The output figures were well 
above City expectations. 
Together with other official 
data showing steady third- 
quarter growth in consumer 
credit demand to record levels, 
they quietened fears that the 
economy might be slowing in a 
delayed reaction to this year's 
tax increases. 

Indeed, the good economic 
news contributed to a gener- 
ally weaker tone on financial 
markets. Brokerage houses 
argued that the figures pro- 
vided further evidence of a 
diminishing amount of spare 
capacity in the economy 
although the consequent fears 
of inflation and further base 
rate rises were only two of sev- 


eral factors depressing equity 

and bond prices. In London, 
the FT-SE 100 index closed 
down 31.8 points at 3,065.8 after 
a day of very thin trading, 
while prices for gilt-edged gov- 
ernment bonds lost about % 
point 

The Central Statistical Office 
reported that output of the pro- 
duction industries, which 
Include manufacturing, oil and 
mineral extraction and the 
electricity, gas and water sup- 
ply industries, jumped a sea- 
sonally adjusted 1.1 per cent 
between August and Septem- 
ber. It also revised upwards 
earlier statistics for July and 
August, estimating the present 
annual ‘'trend** rate of growth 
for production industry output 
at 6 per cent 

Manufacturing output, 
which accounts for just over 84 
per cent of overall industrial 
production, rose by a season- 
ally adjusted 0£ per cent in 
September compared with 
August. The CSO, which 
revised an earlier fell in manu- 
facturing output in August and 
boosted its estimate of manu- 


facturing production growth in 
July, said manufacturing out- 
put was growing at a trend 
rate of 5.5%. 

Hie Treasury welcomed yes- 
terday’s production figures 
although it declined to com- 
ment on the policy implica- 
tions of the news. Officials 
pointed out that growth was 
broad based and noted with 
approval that the growth of 
output of investment goods, at 
1.8 per cent between the sec- 
ond and third quarters, was 
stronger than that of the con- 
sumer or intermediate goods 
sectors. September’s surge in 
Industrial activity brought the 
output of the production indus- 
tries to a new all-time high. 
But it restored manufacturing 
output only to the level of July 
1990, on the eve of the last 
recession. 

Oil and gas output now 
stands at an all- time high after 
increasing by 3.5 per cent 
between August and Septem- 
ber as several fields returned 
to normal production fallowing 
maintenance closures in 
August 


Heseltine warns 
industry over 
investment level 


EU ‘must 
look to 
the east’ 
says Cook 


By PhSp Coggan 
and Paul Cheesertgtit 

British Businesses are not 
investing enough, because of 
their excessive expectations of 
-'investment returns, Mr Mich- 
ael Heseltine, trade anri indus- 
try secretary, told the Confed- 
eration of British Industry 
conference yesterday. 

The criticism cast doubts cm 
the hkettbood of the Chancel- 
lor granting business farther 
tax concessions an investment 
in thiB month’s Budget. 

“The CBI tells me that busi- 
nesses look for steady demand, 
for a decent return on new 
investment. You now have 
these conditions. But you are 
still not investing enough," Mr 
Beseltine said. 

“The CBI tells me that the 
majority of firms continue to 
require rates of return, above 
20 per cent A senior banker 
last week told me his bank 
habitually asked for 30 per cent 
returns an capital. These fig- 
ures speak for themselves. 
They have a chilling message 
built into them," he added. 

A 30 per cent return implies 
that projects have a payback 
period of only about three 
years. 

This ch idi n g wrung from Sir 

Blair to 
business 

By Kevin Brown, 

Political Correspondent 

Mr Tony Blair will today set 
out a framework for a working 
relationship between business 
and a Labour government, 
based on partnership and a 
positive approach to the Euro- 
pean Union. 

In an effort to reassure busi- 
ness that the party has 
dumped its 1970s ideological 
ba g ga g e, Mr Blair will offer 
strong support for a dynamic 
market economy in which fee 
role of government is limited 
to support for industry. 

“It will require a new style of 

government and a new rela- 
■ tionship with industry," Mr 
Blair wfll toll about 200 senior 
executive members of the Per 
.Cent dub, which organises 
charitable activity- • 

“New Labour will not return 
to the old style, corporatist, 

Whitehall-knows-best atti- 
tudes. Our job is not to do fee 
work of individual companies 
but to create a government m 


Bryan Nicholson, the president 
of the CBI, who acknowledged 
that “clearly there is the case 
for companies re-examining 
their rates of return". 

Mr Hesel tine’s criticism was 
an indirect rebuttal of the 
argument by Mr Howard 
Davies, director general of the 
CBI. that the government’s 
competitiveness White Paper 
contained a gap on the tax 
question. "There Is too little 
recognition of the importance 
of a tax environment sympa- 
thetic to investment" Mr 
Davies said. 

Small business lobby groups 
have been califng for the Chan- 
cellor to give 100 per cent capi- 
tal allowances on the first 
£100^000 of inves tment 

The CRTs National Manufac- 
turing council has identified 
consistently sluggish invest- 
ment as a major factor behind 
the UK’s productivity shortfall 
relative to its competitors. 

Mr Heseltine also la unch ed 
what he described as “a new 
strategy for flushing out the 
world’s free trade defaulters”. 
He called an badnesses for the 
facts on trade barriers, so he 
could attack them, but did not 
announce any new weapons for 
battling defaulters from the 
free trade system. 


set out 
agenda 

which all sides of business 
work together." 

Mr Blair will declare that the 
debate between privatisation 
and nationalisation is over, 
and rule out a return a return 
to the punitive rates of mar- 
ginal taxation imposed by the 
last Labour gove rnm ent 

He win also acknowledge the 
abandonment of Labour’s one- 
time plans to dismantle the 
framework of employment law 
established by the Conserva- 
tives since 1979. But Mr Blair 
will stress that Labour plans a 
radical programme of indus- 
trial and economic change. 

“Tory radicalism may be 
extinct now that Thatcherism 
is dead, but Labour’s radical- 
ism is not. The idea that an 
radicalism is dead because 
Thatcherism is dead is 
absurd,” he will say, promising 
a transformation of education 
and t raining ; fresh thinking 
about Europe, competitiveness 
and success; and more help for 
'industry to develop infrastruc- 
ture skills. 


By Paul Cheeserjght 

The European Union should be 
more concerned about expand- 
ing to the east. Its historic 
mission for the 1990s, than 
tightening the links between 
the present member states, Mr 
Robin Cook, the shadow for- 
eign secretary, said yesterday. 

In his first speech since Mr 
Tony Blair, the Labour leader, 
appointed him, Mr Cook laid 
out the priorities of the oppo- 
sition’s European policy. 

Mr Cook told the CBI confer- 
ence: “we should take no steps 
to deepen the bonds of the 
European Union which will 
make it more difficult to 
widen access." 

Talks to define future rela- 
tions between the EU and 
Eastern European countries 
once part of the Soviet bloc 
have started bat there is little 
expectation of the EU having 
eastern members during this 
century. 

Mr Cook put EU accommoda- 
tion with the east, the but- 
tressing of market economies 
there, as one of his four priori- 
ties. The other three reflected 
a close identity of view 
between the Labour le adership 
and the CBL 

First he called for the proper 
working of fee Single Market, 
citing anomalies like the Brit- 
ish import of electricity from 
France and the French refusal 
to import or transmit else- 
where British electricity. 

Second, he demanded sym- 
metry of regulation - the 
imposition of EU rales even- 
handedly across fee EU coun- 
tries. 

Third, he urged the reform 
of the common agricultural 
policy. 

Business leaders later 
argued feat separating activi- 
ties of government and busi- 
ness would strengthen fee sin- 
gle market “Over regulation 
destroys jobs. Tre ei n g business 
from unnecessary regulations 
is one positive step in address- 
ing the critically high unem- 
ployment," said Sir Michael 
Angus, deputy president of fee 
CBL 

UNICE, the federation of 
European enxployers’s organi- 
sations, called for dose analy- 
sis of the costs and benefits of 
European legislation. “Every 
project should be judged in 
terms of its positive impact on 
competitiveness and nothing 
else," said Mr Francois Peri- 
got, fee president 

Sir Michael, true to CBI 
form, wanted to ensure that 
“social objectives are not pur- 
sued at fete expense of compet- 
itiveness but rather result 
from it" 


Ferry ban bits calf prices 


By Alteon MaBtand 


ss have fcflfl n by 30 to 
ut in same markets m 
sfc Engard as a resfitt 

m Perries’ decision 

&y to join a ban by 

ferry companies 
animals for 


Id Nash, president of 
mal Partners’ Union, 
inlay be was increafr 

ceraed about m^ket 

vhlch bad already 
15 per cent year-oa- 
, p&o and Stena Sea- 

rftiv* exports to fee 

7 Ferries, which 
to carry a nima ls for 


further fattening . before Mr William Waldegrave, 
slaughter, said last week it was agriculture minister, told Sir 
halting this trade because of David yesterday fee issue was 
“flagrant breaches" by hauliers not on this month's form coun- 
of its code of conduct This cfl agenda, bat would be dis- 
cussed in December. 

“This is rather exasperating, 
to say the least," commented 


confined deliveries to Nor- 
mandy, Brittany and the Loire, 
but some hauliers were trans- 
porting animals as far as 
Spain. • 

Sir David has written to Mr 
Bert Stricken, EU form com- 
missioner, saying 7 European- 
wide rales must be introduced 
urgently to control cowboy 
hauliers. 

The ferry companies have 
said they will maintain their 
bans on the £200m live export 
trade until member states 
agree improved standards. 


an NFU spokesman. 

I jig* mouth, form ministers 
failed to agree on maximum 
journey tim« before animals 
are rested and fed, with north- 
ern member states favouring 
eight to 15 hours and southern 
states preferring 22 hours. 

The UK government is work- 
ing on a new code of practice 
on welfare standards, but con- 
sultations taave taken longer 
than expected. Sir David said. 


NEWS: UK 


T aking a tortoise-like path to the truth 


Jimmy Burns on the latest delay in the report of 
Sir Richard Scott’s inquiry into arms sales to Iraq 



Lord Justice Scott: aides say that his recent low profile belies 
the progress he has made towards completing his inquiry 


Two years after his 
arms-to-Iraq inquiry was set up 
and seven mouths on from the 
end of fee main public bear- 
ings, Sir Richard Scott is not 
even a quarter through writing 
his report. The estimated publi- 
cation date has again slipped, 
this time to “sometime round 
Easter". 

The latest delay has been 
greeted with concern by some 
Labour MPs, fearful that fee 
momentum is being lost Some 
of their colleagues, however, 
continue to flood fee Scott 
team with documentation, 
claiming fee inquiry hag not 
gone far enough. 

Tories, predictably, appear 
only too pleased to have one 
less hot potato to contend wife 
in fee current political climate. 

One Tory MP wife a special 
interest in defence matters. 
Peter Viggers, gleefully 
remarked this weekend: “It 
seems to have faded from the 
media, from the House of Com- 
mons, from everywhere.” 

Another Tory and one of 
Lady Thatcher’s former senior 
advisers, Sir Charles Powell 
said: “I think by April fee 
Scott inquiry is going to have a 
certain stale air." 

Sir Richard appears unruf- 
fled by sucb sceptism while 
sensitive to the suggestion that 
his work is no longer an issue 
of public concern. And he is 
somewhat irritated by what he 
sees as the Labour party’s 
inconsistent approach to his 
inquiry. 

In November 1992 he agreed 
to head the inquiry in the 
midst of a huge public row - 
led by Labour - following fee 
collapse of the trial of three 
executives of fee machine tool 
company Matrix Churchill on 
charges of breaching export 
regulations. 


Those charged alleged that 
they had exported to Iraq with 
fee full connivance of govern- 
ment even though the UK was 
supposed to be pursuing a pol- 
icy banning the sale oF defence- 
related equipment to Baghdad. 

While mitiaii}' focused on 
fee Matrix Churchill case. Sir 
Richard has been determined 
to ensure that his terms of ref- 
erence were sufficiently wide 
to allow him to examine other 
arms-related prosecutions 
where fee conduct of govern- 
ment lawyers has been open to 
question. 

A ccording to his offi- 
cials, Sir Richard's low 
profile in recent 
months belies the progress he 
has been making towards com- 
pleting an Inquiry which has 
already forced ministers and 
officials to account for their 
actions in a way they have 
never been required to do 
before. 

Mr Christopher Muttuku- 
maru, the secretary to the 
Scott inquiry, says: “We don’t 
want to be open to the sugges- 
tion that we haven’t followed 
up every reasonable line of 
inquiry. If in fee end we bring 
out a report which is not based 
on a firm looting, we will be 
rightly criticised. We are not 
having that” 

In recent months. Sir Rich- 
ard has fo und himself having 
to test fee massive documen- 
tary and oral evidence made 
available to him by cross 
examining M16 officers in pri- 
vate, seeking further state- 
ments from Whitehall officials 
and ministers, and widening 
his list of witnesses to include 
Treasury minister Jonathan 
Aitken. and Sir Charles Powell, 
neither of whom gave evidence 
in public hearing. 


Mr Aitken told fee inquiry 
that while a non-executive 
director of the British Manu- 
facturer and Research Com- 
pany (BMARC), and subse- 
quently as defence minister, he 
had no recollection of clandes- 
tine exports to Iraq or of gov- 
ernment connivance. 

Sir Charles for his part has 
told fee inquiry that although 
be was aware of the attempt by 
Whitehall officials and junior 
ministers to secretly change 
guidelines on defence exports 
without infonzung parliament, 
this was not passed on to then 
prime minister Mrs Margaret 
Thatcher. 

Among additional evidence 
that has landed on Sir Rich- 
ard’s desk in recent weeks are 
documents provided by 
Labour's transport spokesman 
Michael Meacher relating to 
the activities of the defence 
company International Signal 
and Control <ISC) prior to its 
purchase by Ferranti in 1987. 

The inquiry team is probing 
the extent or British govern- 
ment knowledge of an ISC con- 
tract for fee supply or a preci- 
sion guided missile system 
(PGM) which may have been 
diverted to Iraq. 

Mr Jim Cousins, Labour’s 
foreign affairs spokesman, said 
at the weekend: “it’s important 
that Scott should become more 
than an echo or distant thun- 
der. He shouldn’t be side- 
tracked by minutiae but con- 
centrate instead on what the 
government knew and what 
that tells us about the nature 
of fee arms trade." 

For his part, fee judge is ada- 
mant that he not rianring - to 
anyone’s political tune. “You 
shouldn't underestimate fee 
extent to which he is deter- 
mined to follow an indepen- 
dent line," says Muttukumaru. 


At present the balance 
clearly ties weighted on the 
side of insuring that there is 
no whitewash. 

like Aesop’s tale, Sir Rich- 
art is hoping that his “slow 
and steady" approach will help 
Wm , as it did the tortoise, get 


there in fee end. And it will 
certainly be of small comfort to 
fee government that the latest 
delay means fee Scott report 
could now coincide with the 
first findings of Lord Nolan's 
inquiry into s tandar ds of pub- 
lic life. 



Mask of Tutankhamen. Cairo 


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TUESDAY NOVEMBER 8 1994 


TECHNOLOGY 


I 


B 


Wi 


hen an earthquake 
hits Sharp's liquid 
crystal display plant at 
Tenri in Japan, its 
m anu fac turing operations automati- 
cally shut down. Otherwise, this 
stark, pristine factory - where the 
automatic guided vehicles are more 
evident than people and the air is a 
mfllirm Hmpfl cleaner the out- 
side world - works round the clock, 
turning out L20.000 displays a 
month. 

The plant is one of the most 
sophistkated in the liquid crystal 
display industry, which is becoming 
„ larger and more Innovative each 
h year. The thin profile, light weight 
and moderate power consumption 
of LCDs make them a vital compo- 
nent in everything from laptop com- 
puters to control-panel displays in 
jet aircraft. 

Growing demand for LCD screens 
is creating intense international 
competition for a share of the 
$5.3bn (£3.3bn) world market. At 
present, Japanese manufacturers, 
led by Sharp - which claims a 45 per 
cent market share - have a virtual 
monopoly of the market 
Japan's dominance of this tech- 
nology has spurred the US govern- 
ment into taking one of its boldest 
industrial policy initiatives for 
many years. In April, the Clinton 
administration announced a plan to 
provide about $700m for the devel- 
opment and manufacture of flat 
panel displays In an attempt to 
wrest market share away from the 
Japanese producers. 

The Japanese manufacturers, 
however, are spending heavily in an 
attempt to preserve their lead. 
Sharp, for instance, is spending 
Y120bn (£759m) on LCD plant and 
equipment In the three years to 
1996; it is building the world's larg- 
est LCD plant in Taki-cho, between 
Osaka and Nagoya at a cost of 
Y53hn. 

The company's involvement in 
the LCD market goes back to the 
early 1970s. That was a few years 
after the discovery by RCA, the US 
broadcasting company, that liquid 
crystals - substances that behave 
optically as a crystal and mechani- 
cally as a liquid - could be made to 
realign so they transmitted light 
when subjected to an electric 
charge. 

The finding was quickly exploited 
in cheap watches and calculators. 
But the poor quality of the early 
LCDs, which had weak contrast and 
a narrow viewing angle, made them 
unsuitable for displays larger than 
a' watch face. 

Over time, LCDs went through a 
number of enhancements. A 
sharper contrast was produced, for 
example, by the introduction of 
supertwisted nematic LCDs. 
Another important breakthrough 
came when passive-matrix LCDs 
were superseded by active-matrix 


Vanessa Houlder on growing international competition 
to capture a share of the LCD market 

The future is 
crystal clear 



LCDs, in which individual transis- 
tors turn each element in the dis- 
play on and off. The full colour and 
high contrast of these displays 
allowed them to be incorporated in 
miniature colour televisions. 

Sharp's position in the flat panel 
display market was reinforced in 
1986, when it derided to redouble its 
research efforts in LCDs. The sharp 
increase in the value of the yen in 
1986 convinced the company it had 
to shift more of its products from 
labour-intensive to knowledge-in- 
tensive products. Haruo Tsujt the 
newly-appointed president, was 
looking for another mainstay 
besides semiconductors. "We 
derided to devote particular efforts 
to LCDs." he says. "1 felt keenly 
there was a need for a successor to 
cathode ray tubes." 

Sharp and its rivals have put 
immense effort into trying to 
increase the size of the displays. In 
1988, it presented the first display 
that measured 14 in across the diag- 
onaL It has recently created a new 
record by producing a prototype of 
a 21 in screen. 

Building large displays poses for- 
midable problems. A display is 
made up of hundreds of thousands 
of individual pixels, or dots, each of 
which must be controlled by a tiny 
transistor. The Importance of avoid- 
ing even a single flawed pixel 
requires extraordinary precision on 
the part of manufacturers, even by 
the exacting standards of the elec- 


World market size 



ner profiles and lower power con- 
sumption of the displays. At the 
same time, the manufacturers are 
trying to improve manufacturing 
yields and reduce costs. 

A potential threat for manufac- 
turers is that competition will drive 
down prices. Competition is intensi- 
fying, particularly as Korean manu- 


The technical difficulty of building large 
LCD displays at an acceptable price has 
prompted some companies to work 
on other technologies 


tronics industry. 

As screens become larger, manu- 
facturers also face greater problems 
in fabricating the thin film transis- 
tors uniformly, distributing the liq- 
uid ciystal material evenly and 
resolving timing problems in the 
signals. 

Research is continuing Into prod- 
ucing higher quality images, thin- 


facturers, such as Samsung, Hyun- 
dai and Lucky Goldstar, move into 
the market 

But Tsuji believes that demand 
for LCDs is growing at a pace suffi- 
cient to outstrip supply. His judg- 
ment is backed by Koichiro Chi- 
wata, electronics analyst at 
Salomon Brothers in Tokyo, who 
believes that supply and demand for 


LCDs will remain tight enough for 
Sharp's LCD business to "do well 
for at least the next five years". 

At present, two-thirds of the LCD 
market is used for notebook com- 
puters; the second most important 
application is for display screens in 
Pachinka parlours, amusement 
arcades where a Japanese version of 
pinball is played. But other uses 
such as wall-mounted television, 
video projectors, navigation 
systems, portable game machines 
and personal information tools, are 
expected to expand the market 

Sharp is devoting particular 
research effort to developing new 
products that include LCD screens. 
One example is the Viewcam, a 
camcorder with an LCD monitor 
instead of a traditional viewfinder, 
which it introduced in 1992. 

Although most LCD-based prod- 
ucts currently make use of the 
“shutter function" of liquid crys- 
tals. new applications could stem 
from their other properties, such as 
their ability to react to light and to 
store Information. These qualities 


have already been put to use in the 
development of a pen-based word 
processor, which senses the move- 
ment of a pen on the s creen 

Sharp believes the market will 
grow to S20bn by the end of the 
century. "I consider the field of LCD 
is really immense and extensive." 
says Tsuji. 

Another possible threat to 
Sharp's dominant position in the 
market is that LCDs will be super- 
seded by another technology. The 
technical difficulty of building large 
LCD displays at an acceptable price 
has prompted some companies to 
work on other technologies. For 
example, plasma displays, in which 
images are created from gas-filled 
tubes, are considered to be a lead- 
ing contender in the race to create a 
market for flat, wall-mounted televi- 
sion screens. 

A number of technologists are 
backing ferroelectric displays, a 
form of LCD technology that does 
not require transistors to switch the 
liquid crystal cells, as a cost-effec- 
tive approach to building large dis- 
play screens. Electroluminescent 
displays, which depend on an elec- 
tron exciting a phosphor in a thin 
film, are also receiving close atten- 
tion. 

A number of international compa- 
nies are devoting particular atten- 
tion to field emission displays, 
which resemble an array of tiny 
cathode ray tubes. Although it is 
still relatively immature technol- 
ogy. its backers believe it could 
score over LCDs because it would 
be relatively cheap to produce. 

Sharp, too. is working on the next 
generation of display technologies. 
But for the present, it believes the 
supremacy of LCDs is assured. “In 
five, seven, 10 years from now, LCD 
will be the main type of product [in 
flat pane! displays]." says Atsushi 
Asada. senior executive vice-presi- 
dent. 

Sharp’s continued lead in LCDs 
cannot be guaranteed, but its strong 
performance in the sector has stood 
it in good stead at a time when 
Japanese manufacturers are suffer- 
ing the effects of the high yen and 
consumers' jaded appetite for elec- 
tronic gadgets. 

Sharp acknowledges It cannot be 
complacent. Hie rise in the value of 
the yen costs Y3bn in profit for 
every point gained against the dol- 
lar. According to Taizo Katsura, 
senior executive vice-president. It is 
crucial the company continues to 
develop high-value components. “As 
a manufacturer we cannot be com- 
petitive by depending on the assem- 
bly side." he says. 

It will also need to maintain its 
edge in research. Technological 
innovation is crucial if the company 
is to devise the next generation of 
products that will open up new 
markets, says Tsuji. “We have to 
develop key technologies." 


Technically Speaking 

Overloaded on 

the Internet 

By Tom Foremski 



The popular 
science fiction 
author Stanislaw 
Lem wrote a short 
comic story about 
■■ an intergalactic 
” pirate who is 
obsessed with adding to his store 
of information. Pirate Pugg kid- 
naps space travellers and forces 
them to tell him everything they 
know. He is finally defeated by a 
contraption that spews out all 
lrinris of detailed but unimportant 
information such as how many 
sizes of bedroom slippers are 
available on the continent of Cob. 

Pirate Pugg is unable to tear 
himself away from the growing 
mountain of information in case 
he comes across the answer to the 
“1111110310 Mystery of Being” - 

Sometimes when I’m roaming 
the Internet, I feel like Pirate 
Pugg. There is an incredible 
amount of information available 
through the Internet but finding 
something useful is a frustrating 
experience. 

The Internet allows you to 
access information on tens of mil- 
lions of computers worldwide, and 
brings the prospect of a global 
repository of knowledge, mostly 
free. Users, or surfers as they like 
to be called, can access huge 
amounts of information. There are 
hundreds of milli ons of plain-text 
articles accessible on a huge vari- 
ety of topics. 

Newsletters and magazines of 
various kinds are proliferating an. 
the Internet since it is the cheap- 
est way to publish. There are no 
printing costs, and almost no mail- 
ing costs. The beauty of digital 
technology is that the digital text 
can be duplicated virtually for 
nothing. 

While putting information out 
on to the Internet is easy, the 
problem is finding the right piece 
of information when you need it 
And here is where we need new 
technologies to help us sift huge 
amounts of information. 

Strictly speaking, we should not 
call it information until we have 
processed it ourselves. Until It 
informs us about something we 
were looking for. Everything on 
the Internet should be considered 
as data of one kind or another - it 


becomes information when we 
have turned that data into a use- 
ful form. 

But fluting a specific piece of 
data can be a mammoth chore. 
Formulating a vaguely phrased 
search can return an enormous 
amount of leads. Such searches 
are normally based on the pres- 
ence of specific key words in mil- 
lions of documents. * ’ ' : . 

Sending out a more detailed 
search request narrows the 
choices but here. is where the 
problem lies.. Often, a narrow 
search will non find a relevant 
and possibly more useful docu- 
ment because it does not contain' 
the keywords or ccmtains them in 
a low number. 

What is needed are specific tools 
that can carry out searches with a 
cer tain amount of artificial intelli- 
gence - an approach that takes 
into account the less focused 
aspects of conducting searches. 
Such tods are the key to unlock- 
ing the potential of the Internet 

While many Internet enthusi- 
asts champion the egalitarian, cul- 
ture of the Internet, where many 
people throw information into a 
collective repository without , con- 
cern for payment, there Is as yet 
little evidence to show how useful 
It is to have access to this huge 
pool of information. 

For example, when Gutenberg 
invented the printing press, It 
helped generate an information 
explosion since books could be 
produced more quickly and more 
cheaply Qian ever before 

This resulted in the flowering of 
the Renaissance and the rediscov- 
ery of ancient Greek, Roman and 
Arabic texts that led to establish- 
ing modem science and acceler- 
ated the move away from feudal 
societies. 

Will the Internet and future 
information superhighways result 
in a similar impact an socae/tf7 Or 
are we already in information 
overload and unable to effectively 
process the information we have 
access to? 

My suspicion is that the latter is 
true. Many of us seek and hoard 
information like Lem's Pirate 
Pugg but we are often unahfe to 
fully make use of It in a meaning- 
fill way. 


ZZ Swire Group 





Cathay Pacific 


fortune magazine calls it 

THE WORLD'S BEST CITY FOR BUSINESS. 







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MANAGEMENT: THE GROWING BUSINESS 


Ms are going to win and the 
industrial west is going to lose. For 
you, the essence of management is 
yeltmg the ideas out of the heads of 
the bosses and into the hands of 
labour. For us the core of manage- 
ment is precisely the an of mobili- 
sing and pulling together the intellec- 
tual resources of all employees in the 
sendee of the firm. 

- Konosuke Matsushita, 
late founder of the Japanese 
electronics company, in 1982 , 

A high-tech building that 
houses 70 product design- 
ers stands in a comer of 
Ley land Trucks' Lanca- 
shire assembly complex in the 
north-west of England. 

To Masanki Imai, who has been 
introducing Japanese manufactur- 
ing techniques outside Japan for 
more than two decades, the location 
of ft esc designers is a sign of real 
progress. 

“Normally designers in the west 
think they are geniuses" says ImaL 
president of the Kaizen Institute, a 
Euftpean consultancy- “They want 
to have nothing to do with shop 
floor even though they are serving 
the shop floor.” 

To test how far Leyland Trucks 
bias changed, the Financial Times 
asked Traai. author of a book on 
Kaizen, or continuous improvement, 
to cast an eye over Leyland Trucks. 

A; short step away from the 
designers' building, Imai examines 
the clearly delineated passage 
alongside the production line. There 
are almost no obstacles preventing 
free flow of workers and fork lift 
trucks. “I'm impressed by the 
housekeeping." he says. “Anything 
not in the right place suggests 
systems are not there. 1 ' * 

■ Turning to a stack of components 
beside the line, Imai is more criti- 
cal “You could cut work in prog- 
ress to one half and see what oppor- 
tunities it throws up." 

Leyland Trucks has had a che- 
quered history, emerging in 1993 as 
a management buy-out from the 
receivers of Leyland DaL Once a 
Sizeable force in truck manufacture. 
Igck of investment In new products 
and increased competition from 
Continental manufacturers cut Ley- 
Ipnd Trucks’ share of Europe's 5-15 
tpnne market to only 7.5 per cent, 
i But over the past five years Ley- 
lhrid' Trucks has been introducing 
what it calls "lean enterprise”, 
based on lean production methods 
that 'have spread from companies 
suth as Toyota and encompass total 
quality management, total produc- 
tive maintenance and Just in time. 

Thfe management believes it has 
overturned the rigid hierarchies of 
traditional mass production tech- 
niques that have dominated more 
than 90 years of truck manufacture 
at Leyland. - In its place, lean enter- 
prise has involved the workforce in 
a. quest for quality to a degree that 


Leytand Trucks 

Performance evolution In the 1980s 
Technology Organisation change 


MRP II 


TOM 


Plateau Lean Enterprise 



1979 80 81 82 83 84 8S 86 87 B8 89 90 91 

From fat to lean 
enterprises 

Richard Gourlay on how a leading Japanese consultant 
was impressed by production techniques at Leyland Trucks 


would have been unimagineable a 
decade ago. 

Suppliers and even organisations 
such as the Lancashire Police Force 
tour the plant each week to view 
what Leyland Trucks says is a stri- 
king transformation. 

The arrival at Leyland is both 
impressive and inauspicious. Fol- 
lowing heavy investment at the 
start of the 1980s, Leyland Trucks 
has one of the most modem facili- 
ties in Europe. But it is big. A fac- 
tory that can manufacture 18,000 
trucks a year an single-shift work- 
ing is producing only 8,500 vehicles. 
Lean production theory says dead 
space will be filled with unneces- 
sary inventory or will lead to move- 
ment of parts and people that adds 
no value. 

Imai believes the same production 
could be achieved In half the space, 
a change that would force a reduc- 
tion in inventory beside the produc- 
tion line and a reassessment of rela- 
tions with suppliers. 

John: Oliver, Leyland Tracks man- 
aging director, accepts the point He 
is trying to Bnd contract assembly 


work for one of the two production 
lines. If unsuccessful, however, he 
may close part of the plant. 

Even with this expansive factory 
set-up, Oliver says the impact of 
lean engineering has been dramatic. 
Leyland Tracks first stepped on to 
the treadmill of a continuous 
improvement in 1989 with a pro- 
gramme of training and production 
process changes that cost £100.000. 
Within two years Oliver says the 
company measured savings of ElOm 
- repeatable each year. Some came 
from reducing head count. But 
much of It was the result of lower 
inventory and improved quality. 

“That was a 24 per cent reduction 
in annual operating costs and it 
took our break even from LI. 500 
trucks a year to 5.000," says Oliver. 
But this approach came only after a 
decade in which Leyland Tracks 
tried more traditional ways to 
crank up quality. First there was 
investment in new plant in the 
early 1980s, followed by introduc- 
tion of Material Resources Planning 
(MRP II). But after three years of a 
total quality programme starting in 


1935. quality and productivity 
improvements platenued. 

"We were stagnating." says Oli- 
ver. "There was resistance in the 
organisation to more change - the 
people were ex lu us ted. On top of 
that the market was turning down. 

"We had thought the Japanese 
success was because of high tech- 
nology and the people working very 
hard." he says. “But Matsushita 
was saying what mattered was not 
a physical manifestation of commit- 
ment but the intellectual resources 
of all the employees. We were ask- 
ing these people to lumg up their 
brains when they came in to work." 

The company set about educating 
its workforce about lean produc- 
tion: why Leyland Trucks needed to 
build to order, rather than for stock 
as its European competitors do. and 
the crucial role of employees in the 
search for unproved quality. 

Imai is full of praise for the man- 
agement's commitment to involving 
the workforce. But he feels manage- 
ment could set more targets. “Too 
many western managers think TQM 
means just letting the lower level 


people form a quality group to come 
up with ideas." says Imai. "But 
management should always be chal- 
lenging the workforce by setting 
targets." 

Oliver believes this is what man- 
agement is doing but admits that 
“in the early days we were confused 
between delegation and abdication 
of responsibility" to the workforce. 

The changes the workforce has 
accepted are considerable. As 
recently as 1989. there were 50 job 
demarcations at Leyland Trucks. 
N'uw there are only sue descriptions, 
allowing more flexible deployment 
of the workforce. 

Perhaps the most fundamental 

change has been ihe introduction of 
Additional Vacation Days, where 
overtime is now "paid" in extra hol- 
idays which are taken when there is 
slack demand. Before this system 
the workforce might have been paid 
overtime one month only to be laid 
off (with pay) the next because 
demand had slackened. 

The union has now accepted a 
system that more closely matches 
the supply of labour with the unpre- 
dictable demand of its customers. 

"Nobody liked AVDs and they 
still don't.” says Steve Southworth. 
union convener at Leyland Trucks. 
"But they understand why it has to 
be done after going through lean 
enterprise training. It saves the 
company money and when you are 
building to order you have to do it." 

Having introduced the idea of 
tain production at Leyland Trucks, 
the company is now focusing on a 
programme uf “supply chain optimi- 
sation" - spreading the word about 
lean enterprise to its 3dG suppliers. 

There are obvious areas of 
co-operation - new models are now 
discussed at the design stage with 
suppliers rather than after design is 
completed. But Leyland Trucks' 
small size remains a constraint. 
Much as John Dwyer, operations 
manager, would like suppliers to 
deliver fewer parts more frequently, 
he admits Leyland Trucks would be 
asking for uneconomic order sizes. 

To Imai. the assembly plant was a 
pleasant surprise. “It is quite an 
achievement to have reached a 
stage where they can start building 
their trucks after they receive their 
orders." But he says the Leyland 
assembly plant still contains a 
mountain of opportunities for (br- 
iber improvement. 

Oliver agrees the company is still 
some way behind the best Japanese 
standards. The achievements to 
date have, however, allowed the 
company to invest £25m on Its new 
55 series U-15 tonne truck for conti- 
nental Europe, Us first new product 
launch outside the UK. 

Given Leyland Trucks' history, 
this could only be contemplated 
because the company is making the 
transition from outmoded mass pro- 
duction techniques to the lean pro- 
duction methods of the future. 


Call for higher 
VAT thresholds 
in Europe 


T he British government 
should lead a campaign 
within Europe to raise 
substantially the threshold at 
which companies must register 
for and administer VAT, says 
David Kern, chief economist of 
the National Westminster Bank. 

Raising the threshold would 
release many small businesses 
from the excessive burden of 
administering the tax, he says. 

“What we need is a legalised 
black market” Kern says. “At the 
moment we are asking potential 
entrepreneurs to start worrying 
about form tilling at a point 
where they are too small to do it." 

Raising the VAT threshold 
would liberate businessmen and 
women to focus on building and 
nourishing businesses. 

The case for raising the 
threshold is valid throughout 
Europe, Kern says. “Europe is a 
low growth and high 
unemployment area." Kern says. 
“The employment rules are 
already very rigid in Enrope. By 
reducing the obstacles to people 
starting their own businesses, 
Europe would generate a marc 
enterprising economy." 

In the UK, Kern says NatWest 
Bank is asking the chancellor to 
use the Budget later this mouth 
to raise the threshold from its 
current level of £45,000 to 
£60,000. But, he says, a £100,000 
threshold should be the target. 

The cost to the Treasury, even at 
the higher level, “is not 
negligible, but small given the 
state of public spending", he says. 

Based on VAT statistics, Kern 
estimates the following benefits. 

• Raising the threshold to 
£60,000 would cost the Treasury 
£l20m. It would remove 125.000 
companies from the VAT net 
• Raising it to £75,000 wonld 
cost £345m and liberate 230,000 
companies. 

• More than doubling the 
threshold to £100,000 would cost 
£425m but would remove 400,000 
companies from the harden of 
administering VAT. A 20 per cent 
rise from £37,600 last November 
took 75.000 businesses out of the 
net 

Any move to raise the threshold 
could run into severe difficulties 
In the European Commission. 
When the government last raised 
the threshold, UK Customs & 


Excise had “informal chats” to 
make sure there were no 
objections. 

Previous increases show the UK 
government is pushing the 
thresholds above the rate of 
inflation because it is good for 
business. The last four increases 
in the thresholds, starting in 
March 1991, were respectively 38 
per cent, 4.5 per cent. 2.7 per cent 
and last November's 20 per cent 
rise to £45,000. 

But the UK knows it cannot 
push Brussels too far. Any radical 
departure from this ad hoc system 
of back door derogations would 
be resisted in Brussels unless 
there was a political will to 
change the system throughout 
Europe. 

This is unlikely, given the 
battle over new VAT rules 
already taking place in Europe. 
The EU is moving towards 
collection of VAT at rates 

‘For many people 
the cost of 
administering VAT is 
greater than the tax 
they actually pay 1 

applicable in the country of origin 
rather than at rates prevailing at 
the destination - a system that is 
likely to need harmonisation of 
thresholds rather than more 
divergence. 

Some say that Kern's call for 
higher thresholds Is not 
sufficiently radical. Graham 
Bannock, a small companies 
consultant, says administering 
VAT is a very real problem for 
small companies. 

“For many people the cost of 
administering VAT is greater 
than the tax they actually pay." 
he says. But rather than tinker 
with the existing system, 

Bannock believes the government 
should simplify an unnecessarily 
complex law - removing 
zero-rated categories and 
lowering the overall rate, for 
example. 

This is the only way to ensure 
businesses and the Customs & 
Excise have a workable tax to 
administer, he believes. 

RG 


BUSINESS OPPORTUNITIES 

READSHtARE RECOMMENDED TO SEEK APPROPRIATE PROFESSIONAL ADVICE BEFORE ENTERING INTO COMMITMENTS 


BUSINESSES WANTED 


OFFICE EQUIPMENT 


Fully Furnished Offices 
United Kingdom 


t/5 

*§> 

3 


RG 

AV.“l"{IVkM 



• Secretarial services 

• Photocopier, fax, W.P_ 

• Personal telephone answering 
LhmSRd 


roUtyLtyUK 

LoidMi 


MjpkRmnc 

taushr 


• Conference facilities 

• Flexible lease terms 

■ Immediately available 

tatingtan ruftfMHMW 

l&MiM&ii tffth 

BiiHRfcaMC 


Tel: 071 872 5500 


-- • — ^ _y". C2j**- 

a :-:y- C” 




INVESTMENT OPPORTUNITIES 

Our ACQUISITION SERVICE acquires under valued residential 
properly which offer immediate high rental return and capital 
appreciation in the medium term. 

Typical transaction involve an outlay of £60,000 with rental return of 
£6,600 - £7.600 pa. 

We also provide a comprehensive maiuigemcoLseivioe with occupancy 
levels from corporate and executive tenants in excess of 95%. 

For further details please call: 

MARK WARREN on 0272 238807 


Management Buyln Opportunity 

Our client is a ira« established (over 70 years) buBcBng company, turnover 
drea £3.0 nflfflon and profitable. They require Managing Director Designate 
to assume control of trading activities to enable partial retirement. An 
immedialB equity stake is avaiabia leading to a possible controlling interest 
in the short term. The Company Is based on the South coast and has an 

Financial Times, One SouttwwvKBridge, . 

. London SE1 9HL ’ ' ■ • 


FOR SALE 

IBIZA 

The Magic Island (Spain) 

Residential Golf 
Course Property 

8000 m" residential land 
within the 27 hole golf cour- 
se of Roca IMsa. Beautiful 
I’iews. subdwisible into 4-6 
stands, to build for yourself \ 
and your friends, or to re- 
tain as capital investment. 
Fully serviced and ready to 
be developed. Price Sfr. 
125.- pro nr. Can be dealt 
with and financed through 
Switzerland. Ibiza is highly 
recommended. 29% more 
visitors than in 1993. 

An excellent investment 
opportunity! 

RESIDENZA AG 
Talackcr 50, Cl 1-8001 Zurich 
Tol.: 0041 l 221 33 95 
Fax: 004 1 I 221 03 X4 


CHANNEL 

ISLANDS 

Offshore Company Formal i- ■» 
and Administration. 

AJm.i Liberia. 

Panam.i & HVI etc 
Total offshore tacililics 
and services. 

F,h ifariuh and apfuniirntm v. ■ <i-: 
Ci*>> Trail l.ki. BcIriK'in Hmi-*-. 

J-t, Bflnhioi fcJLSi lie he i. Joxy l l 
Tel l«U '-774. I n irM l K4HI 

n- »i-c:r7«-«in.i4\i <• 


WANTED 


Gift Company Turnover up to £1 million 
Profitability not important 

Write to: Managing Director 

SheJIben Limited. 35/37 Brent Street, London NW4 2EF 
Fax No: 0181 202 8582 


COMMERCIAL 

FINANCE 

Venture Capital available from 
£25,000 upwards. Sensible 
Rates, Sensible Fees. Broker 
enquiries welcome. 

Anglo American Ventures Lid. 

Tel (0924) 2013*35, 

Fax [0924) 2Q1377 


INTERNATIONAL UK 
BASED ENGINEERING PLC 

M-eL* in JL-qu I re pnxtv.irijVjvickJSiiv: 
equipment companies ur producl lines 
unh tiinuit or <•/ K-nixorr 12 m - Cllhn. 
Pmiiipil' pIl-.lm: reply in: 

Bo\ Fnuno.ll Times. 

One Snuihwnifc Bndgt. L-vukin SHI *>IIL 


Steel Stockholders 

Independent Croup with funds 
av.iiliibk wishes to acquire Steel 
Siucfcholders with turnover in 
excess of £2J million. 
I'riimptils tilth", urlitr to Bt n WJ.V, 
Fin-metiil Trmw. One Southn ark firriigt-. 
LonA ii SF.l WL 


OFFICE FURNITURE 


We have - direct from the manufacturer - 
new high quality executive and system ranges - 
conference and receptions. Large choice of veneers, 
melamine and/or laminate finishes 


with discount of up to 40% from R.R.P.! 


London Showroom for viewing: 

Ariel House, 76 Charlotte Street, London W1 
Tel: 0374 741439 

Full camcad and planning services. 


LINEABURO LTD Tel: 0992 503313 


BUSINESS SERVICES 


CONTRACTS & TENDERS 


LEGAL 

NOTICES 



OFFSHORE 
.... COMPANIES 
&- TRUSTS 


From US $250 

Various Jurisdictions 
Information/iinmcciiats service; 


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Ahnaat Umaai Transport anJ Bunding 
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CONFERENCES 


ARE YOU INVOLVED IN BANKING, 
FINANCE OR COMMERCE IN 
RUSSIA AND THE C.I.S.? 

If jmi Are currently i-iigagcd in thwc buain*?d activities with Ru.-* in and 
the uthc-r newly inde pendent aintm of the lormer Soviet Union, or are 
oinaiili-riiitt the- pusaibilkty, yuu wilt ututl to talk r,- 

Wl- are the- invnniiwita of the Cungreoa of Directors taking place towards 
lilt- unit uf November in Menu- Carin. Over two hundred ddtpiw rrom 
the Ion nr- r Soviet Ihiiun will he attending the CvngriW 

The** di-lc-Kiiie-j an- dniwn from leading Bnnkv. Financial Institutions 
:imi Ue\Hli>piiu-ii< t iripmi-uitiuns fmiii Ruumki and the C.LS. 

If yuu «lu mil iv l>Ii In nitos the <.<ppijrt unity to e.M.iblish or further your 
links in rhc.-i- m.irki-ti. dii nut ini.y» thin ucciuiun. 

Wi- .m« sinnuiontt niii.-linj{s between Russian and the C.I.S. enterprises 
ii nd relevant Wo-'lei-n '.njiiu.-rp-irw in Munie Carlu on November 21st 
and -j'linl liut-rpivii-r-* will b*» provided and there- .in? m> «mls involved 
fur .itti-iidins:. ni her than transportation and acwnnniudniion. 

For more details, plenve mntoeu David Ross 
ol Pft-iini i ir-.-n North fiood. East Finchley. 

1 mi'll ii i i iSL Ti-li-phuiu- iv>I 3i>5 C55H Fax nSl 1-5-1 Silva 


REPUBLIC OF TUNISIA 
MINISTRY OF ENVIRONMENT 
Direction G6nerale de l’Am6nagement 
du Territoire 

INTERNATIONAL TENDER 

Elaboration of the general guide-lines for the 
National Regional Development Programme 

The Direction Generate de J'Am^nagemeni du Territoire calls for 
International tenders to undertake the elaboration ol the general 
guidelines for the National Regional Development Programme. 
Interested parties may obtain the relevant flies, upon submission of a 
written application signed by the tenderer, or its/his/her authorised 
representative, from: 

La Direction Generals de l'Amdnagement du Territoire, 
Ministere de I'Environnement et de I'Amenagement du Territoire. 
Avenue Habib Cherita, 

(siege du Minister© de I'Equipement el de J'Habflat), 

Bailment 'O'. Cite Jardins, (e Beiveddrc - 1002 - Tunis 

Tenders should be placed in a sealed envelope, and sent to the above 
address by registered mail to arrive no later than December 8, 1994, 
(The postmark is proohof data). 

Tenderers should present two tenders, the first with a financing 
proposal, the other without. Tenders should be placed In two 
envelopes. 

ij The outer envelope, which should be addressed to Monsieur le 
Directeur General de I'Amenagement du Territoire, should be marked: 
■Do Not Open - International Tender Elaboration of the general 
guidelines for the National Regional Development Programme." This 
envelope should also contain the fallowing documents: 

- A provisional banker's draft for 1% of the total cost of the tender 
(no cheques are accepted): 

* Tunisian Tenderers should also provide: 

- A valid attestation proving the compliance with the 
Directorate of Taxes: 

- A CNSS affiliation certificate: 

- A non-bankruptcy/legal prevention certificate. 

2) The inner envelope, which should bear the tenderer's name, should 
contain the following documents: 

1 . A technical tender with: 

- The tenderer's references: 

- The methodology to be used; 

- The personnel and equipment to be used. 

2. For all tenders (with or without a financing proposal): 

- The tender, dated, signed and stamped; 

• The documents making up the tender file, dated and signed: 

-The detailed cost; 

- The conditions and terms of financing. 

Tenders are legally binding for a period of 120 days as and from the 
final date for the receipt of tenders. 











financial times 


TUESDAY NOVEMBER 


S 1994 



The Joint Administrative Receivers, Andrew Peters and Joe Atkinson, oiler for sale the business and assets of the follow ing eompanies. 

Airborne Group pic 

4* 


THUNDER fr COLT 

■ The world's premier hot air balloon manufacturing company. 

■ Manufacturer of hot air ships, helium air ships, hot air balloons and the 
Harley range of paragliders. 

■ Turnover approx £3.5 million. 

■ Modem freehold manufacturing and office premises in Oswestry, 
Shropshire. 

M Experienced, R&D, sewing and engineering workforce supported by 
the latest CAD technology-. 

■ Established worldwide dealer and distribution network. 


eSfCed 








ft 

□ 


fi 

n 

r] 

INDUSTRIES LIMITED 


Touche 

Ross 


& 


International 


ruiuiMHiu iimuriiiubd uruiui 

■ Specialised manufacturer of engineered textile products for the defence 
industrv, including camnufiagc, decoys, targets, barrage balloons, 
tentage. 

■ A wide range oi commercial pn ducts including high visibility safety 
garments. 

■ Turnover approx 1.7 million. 

■ BS5750 and ISO **UOI . 

■ - Experienced woi-kJorce with design skills producing unique textile 
products using welding, stitching, adhesives and electrical wiring. 

■ Large and diverse customer base including governments, utilities and 
engineering businesses with a .substantial export profile. 

■ Leasehold manufacturing and office premises near Southend-on-Sea, 
Essex. 

For further information, please contact .Andrew Peters or Roger Brown and Greig Mitchell at "louche Rnss fit Oe, L olmore Gate. 2 Colmorc Row, 
Birmingham B3 2BN. Tel: 02 1 200 22 11 . Fax: 02 1 236 1 5 1 3. 


r.r iwssssa’ssSfSs; ■ 

a " offer li * sale j SuuVB m K<T m [ ^ r1 ' 

iTT i n'i t the buimni awl «*« 

WOODFIELD MACHINERY 
COMPANY LIMITED 

Principal features Include: 

□ CMC Machining sub-contractor w the commercial vehicle 

□ Designers and Builders ot specialist spring machinery for the 
bedding industry. 

□ £1 .2m turnover tjanuarv - September 19941- 

□ Experienced and skilled employees. 

□ 17.000 sq it Leasehold factory premises in itoscndale, Lancashire. 

Ref RICH 


EDWARD SYMMONS 

& PARTNERS 

Rational House. 64 Bridge Street, Manchester M3 3BN 
Fax: 061*832 2571 

LONDON ■ MANCHESTER ■ LIVERPOOL - BRISTOL ■ SOUTHAMPTON 


Tel: 061-832 8454 



W IU .IAM 

HILLARY 


LEICESTER 7 MILES 

1 8 HOLE GOLF COURSE 
AND DRIVING RANGE 

Ml - 4 MILES 

FREEHOLD FOR SALE 
GUIDE PRICE £500,000 

Mdbfane 

WU1AM HBLACT IHSUHE 4HOTHS 
47 KGH SIRSr, SALISBURY, WHS. SPI 2Qf 

TEL 0722 327701 MX: 0722 411803 


LEISURE AND HOTELS 



Access Hotels (London) Ltd 

The Joint Administrative Receivers Peter Copp and Tony Supperstone offer for sale the 
following freehold hotel/hostel properties together with a residential portfolio in 

Clapham Common, Tooting and Thornton Heath. 

Parkside Hotel 

Croydon Court Hotel 

• Clapham Common. London SW4 

• Croydon. Surrey 

• 128 bedrooms 

• 44 bedrooms 

• Grade 11 listed with many 

• Adjoining 26 bedroom annexe 

original features 

• Separate 7 room cottage 

• Currently providing bed & breakfast 

• Large car park 

to local authority referrals 

The New 

The Dudley Hotel 

Belvedere Hotel 

• Clapham Common. London SW4 

• Clapham Common. London SW4 

• 26 bedrooms 

• 1 1 bedrooms 

• Close to underground 

• Adjoining 14 bedroom house 

• Car parking 

• Potential for residential scheme 

| Further information is available from Richard Candey 

| of the Receivers’ agents Edward Symmons Hotel & Leisure 

■ Tel 071 407 8454. Fax 071 407 6423. 


| 1 BDO Stoy Hayward 

1 1 | JL M Corporate Recovery 

@ 

[g rs 22«17 

0 BDO Stoy Hayward. 8 Baker Street. London Wl M IDA 



Royskill Woodwork Ltd 

(In Administrative Receivership) 

The Jo'hf A.^rpih'Sirafive Receivers offer for sale as a going concern the business 
ar-3 assets o : in* above company, providing on a sub-contract basis, wooden 
products and components tor the office furniture, domestic furniture and 
a memo live industries 
PnnripAi 'eaiures inciuoe 

■ Turnover of approumaiely C2 3 million 

■ ‘Blue-chip customer base 

■ Strong order bool 

■ Hrgniy shilled and experienced workforce 

■ Operating iiom leasehold sue in Trowell. Nottinghamshire with option 
10 purchase 

For further information contact the Join! Administrative 
Receivers Mick McLoughlm or Richard Hassall. 

KPMG Peat Marwick Sr Nicholas House Pari- Row, 

Non mg ham NG1 6FG 
Tel cu 15 915 3535 Fa« ot 15 9-35 35*30 



BUSINESS 

OPPORTUNITY LOG 

UK's most conytele and up to dale 
details on: 

* Recrivervhtpa/Liqa h lationg 

* Companies In Trouble 

* Anrtioos 

* Businesses For Sale 
Produced by experienced 
professionals with serious 

business people in mind 
Hundreds of Cos. and contacts 
in each issue. 

Tel: 071-353 5003 
Fax: 071-353 5004 


r FOR SALE A 

Precisian Engineering Company with 
niche market products with proven 
demand. Current T/O £1.7 mflUon p-a. 
Strang order book supports immediate 
potential growth to £ 2.6 mbion p.a 
Currentty pmfltstjlfl 
South Coast Location 

AH enquiries to Ian Thurgood 
an QBfiO 303S82 from 

Wednesday onwards 
X Principals Only S 



The business and assets of the trading companies of 
the Peter Storm Group, manufacturers and distributors 
of outdoor clothing since 1954, are for sale as a 
consequence of receivership. 

Peter Storm Limited 
Noel Bibby Limited 
(Both hi Receivership) 

• A large range of established fines from skin contact 
clothing to 100% waterproof outer garments sold 
under the Peter Storm brand. 

• New ranges developed for 1995 for production in 
the Far East 

• National and international sales network. 

• Distributes to major multiples and approximately 
1,000 independent reted outlets in the UK. 

• Annual UK sales of approximately 160,000 units 
with a value of £1.8m. 

• Offices and warehouse in Nottin^tam. 

Storm proofings 

(In Receivership) 

• Proofing plant in Manchester where breathable water 
proofing is applied to fabric 

■ Approximately £lm external turnover in addition to 
proofing Peter Storm fabrics. 

• Profitable stand alone business. 

• Skffled workforce. 

Skegness Textiles 

(In Receivership) 

• Outdoor do thing manufacturing centred on freehold 
site in Skegness. 

■ Skilled local workforce. 

• Capacity to manufacture 10,000 units per week. 
Enquiries to: PE Baldwin FCA, Price Waterhouse, 
Cornwall Court 19 Carnival Street ra mrin gluin , 

B3 2DT. 

Telephone: 021 200 3000. 

FacsfenSe: 021 200 2464. 

Price ff&terkouse 41 

Price Waterhouse is auBwtsed by the Institute <H Chartered 
Accountants in England aid Wales to carry on Investment busrass. 


CENTRAL LONDON 
WC1 HOTEL 

i Prominent TouristTCommercial Hotel 
i Purpose built 

■ Accessible to City & West End 

■ Convenient lor main line and Underground stations 
i Conference facilities for up to 400 people 

1 100 en suite rooms 
i Restaurant, Bar 

i Scope for further development (Subject to planning 
permission) 

Freehold - £8,500,000 

Ref. 20/227 

For further details please contact Paul Newman, 
London Office on 

0171 486 4231 


CHRISTIE &. C2 


SURVEYORS, VALUERS & AGENTS 


Hufton Limited 

Metal Finishing Products 

The jomt Administrative Receivers offer for sale the trade and assets of Ihis long 
established business serving the West Midlands finishing and Sheffield cutlery 
trade 

Principal leatures include 

■ Leasehold taciorvottices. Camp Hill. Birmingham 

■ Sales unit Sheffield 
w UK Agencies 

w Experienced *ales force 

■ Convening machinery and slocks 

■ Current turnover Cl 7m per annum 
For further information contact the 

Joint Administtaiw* Receivers. John Whealley or 
David Milbu«n KPMG Peat Marwick. 

Peal House 2 Cornwall St reel. Birmmgnam B3 2DL. 

Tel- CC1 233 1666 Fa\ CO 233 4390 


KPMh 


CHEMICAL ENGINEERING 
COMPANY 

Retirement Sale, • 
Turnover £%M+ 

Serves Defence and 
Electrical Sectors 

Fax Enquires to: 

Brown & MsstarsAccountants. 

01 442 891918 
REF: RMS/13 


Opportunity To Acquire 

Oil SpiO Recovery 
Equipment Manufacturer 

Exclusive world licence 
New system 
Very good porcntul 

Write to Box No. B15Z3. Financial Times. 
One Souibwark Bridge. London SB 1 WL 


RESTAURANT 
FOR SALE 

3m FFr. 

Excellent location in Paris. 

Tel/Fax 480 80271 
or Tel: 403 09327 


100+ LIVE 

Businesses for 
sale and 

sales of assets fortnightly 

071 2621164 
Fax: 071 706 3464 


y 


♦ 


► 


LEVY GEE 


BUSINESS FOR SALE 

Precision Manufacturing 
Business 

The Joint Administrative Receivers offer for safe 
the business and assets of a high precision 
engineering company with an established high 
profile customer base. 

Principal features include: 

♦ Long estabfished business of high repute. 

♦ ISO 9002. 

♦ Annual turnover of £2 mflflon. 

♦ Substantial number of precision machines 
used to produce Aerospace and other 
components. 

For further information interested parties should 

contact the Joint Administrative Receivers 

quot in g refere n ce, C2407 at 

Levy Gee 

Wettem House 

SGDhgwaffFtaad 

Croydon CROOkH 

Tefc 01 81-681 8389 Fax:0181-681 8402 


All Advertisement bookings are accepted subject to our current Terms and Conditions, coplee of which are available by writing to: 
The Advertisement Production Director, The Financial Times, One Southwark Bridge, London SEl SHL 

Tel:+44 71 873 3223 Fax:+44 71 873 3064 


SPECIALIST MOULD AND 
DIE MANUFACTURER 

■ 25 year history 
■Skilled workforce 
•Quality and reliability 
■Internationally recognised 
• GTMA Member in Hertfordshire 
• Turnover c. El million p»a. 

All enqumes co the agents 

WYLES HARDY 'CO 

Lit Hill Kiuil ILn mv^l, -n. IIlIIH. 1 lien- lIPJl'ML 


Tel: 0442 832234 Fax: 0442 834 342 


HALL PARK 
PUBLICATIONS LTD 

I m AdrmnutraiMf Rctti.cnh^ ) 

• Six prominent titles 
■ Experienced workforce 

• Modern premises in Buckinghamshire 

• Turnover in excess of ffi million p-a- 

AH enquiries to the agents 

VYYLlfS H ARDY 'CO 

Lit Hill RuaJ IL in^ilnii I lvvvii-1 I IctnpMLUd HcUh HPJ 0N"VV 


Tel: 0442 832234 Fax: 0442 8 34342 


Businesses & Property in Receivership 

The profess: era! gu.des to the UK Insolvency Marmot 


PINK 

PAGES 


PROPERTY 

PAGES 


Fully indexed weekly guide to go's in liquidation & 
receivership, co's in trouble, insolvency auctions, 
businesses for sale New Sections: Pre-Insolvency & 
LPA Receiverships. 

the UK guide to commercial property In receivership 
and for safe - 100‘s of property bargains - Hotels. 
Nursing Homes, Land. Offices. Retail & Industrial 
premises. Development opportunities etc. 


SELLS FOWLER GREGORY 


Sample copies 

Tel: (0273) 626681 Fax: 698661 



SPECIALIST TOOLMAKER FOR SALE 

Well established profitable company based In the Midland*.. 
Specialist designer and manufacturer of steel moulds for the plastic 
and die -casting Industries. Turnover c £2.Sm principally to the 
automotive and consumer electrical goods sectors. Net assets value 
c £1.3m including freehold land and buildings. Good order book „ 
with blue chip customers. Subsidiary of pic which no longer fits the i 
longer term group strategy. 

Write Box B3S22 Financial Times. 

One Southwark Budge. London SEl 9HL 


Kitchen Furniture Importer 

Old established importer/manufacturer of kitchen doors based in 
northern England sold under a well known brand name through over 
700 retail outlets. Profitable, T /0 £2.5 minion. 

Business cart be moved to alternative location. 

Write to Bo« B3531. Financial Times, One Southwark Bridge. London SEl «H| 








3 


FOR SALE 




r • -. < t • :• .i 


Green -Armytage's transition to textiles 


N454 


Miles 

f €OUrs E 

® Range 


R SALE 
* 00,000 


I* 

0722411803 1 


bisiness 

^PPORTlNmiOt 


■ LiKUrfaftn, 

‘ ' "•^•aTr uMe 

■ .I, 1 "* 

* It-, r.r- ■ i*. i 'jl; 


N*M. Rothschild's Jock Green- 
Armytage (right). 49. who is to 
take over as chief executive of 
textile makers William Baird 
at the start of next year, is one 
of those merchant bankers 
who has always landed ran* 
ning a proper business but has 
had some difficulty making a 
permanent transition from 
City life. 

C anadian- born Green- Anny- 
tage describes bis new job as 
“an irresistible challenge". He 
takes over from Donald Parr. 
64, who has been Baird's 
executive since 1976 and will 
remain on the board as non* 
executive Chairman 

Green-Armytage has been a 
director for a couple of years 
and first got to know the tex- 


Myring quits 

■ David Myring is to leave his 
job as finance director of 
SWALEC, the regional electric- 
ity company for South Wales 
next summer. When appointed 
in 1988 he was the first rec 
finance director to be 
appointed from outside the 
industry in the run-up to priva- 
tisation. An Oxford graduate, 
he had worked in the oil Ind us* 

_ try heading up the commercial 
" division of Britoil, now part of 
BP. 

Myring, 52, has told the com- 
pany he is not intending to 
take up full-time employment 
elsewhere; 1995 “seems an 
appropriate time for me to bow 
out,” he said. 

As Myring has elected to 
step down he will not be enti- 
tled to compensation. However, 
before he goes, he will be able 
to take options on 35,000 shares 
at 45lp. At yesterday's price of 
820p this would give hixn a 
gross profit of about £130,000 if 
he chose to sell them. 

Options on another 15.000 
shares wQl elapse because he 
will leave before he becomes 
entitled to buy them. 

■ David Lenham, 47. deputy 
finance director of the McKech- 
nie engineering group, has 
taken over as finance dirprtnr 
of READICUT INTERNA- 
TIONAL, the West Yorkshire 
textile manufacturer. He 
replaces John Gibson who has 
left. Lenham’s arrival has been 
characterised as a “team-build- 
ing exercise*' and is understood 
to be unconnected with the 
finan cial performance of the 
group which reports its interim 
results in a fortnight's time. I 


tile industry when he was help- 
ing bring wane of Rothschild's 
textile clients to the stock mar- 
ket in the 1970s. 

Although Baird has never 
cut its dividend, has survived 
the recession better than many 
textile companies, and has no 
gearing, there has been a feel- 
ing in the City that there was a 
need for same “fresh blood” at 
the top. 

The company suffers from 
low margins an its £50Qm turn- 
over and a lot of top manage- 
ment time has been involved 
in trying to dispose of the 
group’s non-core Darchem 
engineering and contracting 
activities. 

Donald Parr says his com- 
pany has gone outside for his 


■ PORTE has appointed Peter 
CantoeD. 39. managing 
director of County Hotels, a 
new company which it created 
last month for lower-grade 
hotels which will no longer 
carry the group name. 

Cardnell has been with Forte 
for 21 years, most recently as 
executive director of Forte 
Heritage. County consists of 80 
hotels which no longer fit into 
any of Forte’s other brands and 
the company hopes to find a 
buyer or joint venture partner 
for it 

■ Paul Mason, me rchandise 
director of B&Q, part of 
Kingfisher, has been appointed 
to the ASDA management 
board as store development 
director. 

■ Edward LIbbey, formerly 
director of manufacturing and 
supply. BP Oil Europe, has 
been appointed president of 
WHATMAN’S North America 
region. 

■ Victor Giannandrea, a 
former sales director at 
Silentnight, has been 
appointed sales and marketing 
director of AIRSPRUNG BEDS. 

■ Judith Hanratty, head of BP 
group insurance and md of the 
Tanker Insurance Company, 
has also been appointed 
company secretary of BRITISH 
PETROLEUM on the 
retirement of Richard 
Grayson. 

■ Jon Seddon, formerly 
finance director of British 
Aerospace Enterprises, has 
been appointed ftww* 
director, and Andrew 
Lockwood director of the 
transmission products and 
systems business unit, of ABB 
Nera. 


replacement because the tex- 
tile industry was “not a tre- 
mendous pool to fish in”. 

Green-Armytage joined 
Rothschild’s corporate finance 
department in 1970 and left in 


Bodies politic 





Sir William Ryrie (above), the 
former chief executive of the 
World Bank’s International 
Finance Corporation, has been 
appointed deputy chairman of 
the British government-backed 
Commonwealth Development 
Corporation which lends 
money in over 50 countries. 

Sir William, who will be 66 
next week, stepped down from 
the Washington-based IFC ear- 
lier this year. He is an execu- 
tive director of Barings and 
was appointed to the CDC 
board in February. As a former 
permanent secretary at the 
Overseas Development Admin- 
istration, he knows well both 
the CDC and the developing 
world. He takes over as deputy 
chairman from Sir Michael 
Caine, 67. the former chairman 
of Booker, who has served on 
the CDC board for nine years. 

The Institute of Taxation, 
which has grown rapidly in 
recent years and now has 
10,000 members, has appointed 
Robert Dommett 48. as its first 
ever secretary-general. 

Dommett, who was chief 


1981 to be managing director of 
Guthrie Corporation, an inter- 
national industrial holding 
company which had been 
bought by the Malaysian gov- 
ernment He Increased its prof- 
its from £1.7m to £22m and led 
Guthrie back to the UK stock 
market in 1986. 

However. Guthrie was soon 
swallowed by BBA Group and 
Green-Armytage did not have 
quite the same impact in his 
next job - helping sort out Kelt 
Energy, the highly indebted 
energy producer. 

In little more than a year he 
had quit and returned to 
Rothschild where be has been 
helping reorganise the manage- 
ment of the asset management 


executive of the Surrey Build- 
lug Society which merged with 
Northern Rock in 1993, takes 
on the new upgraded post 
after the retirement of Ronald 
Ison, secretary, next February. 

The IoT appointment comes 
at a time when the institute is 
seeking a higher profile and 
has become increasingly criti- 
cal of the quality and quantity 
of new tax law and the effi- 
ciency of its implementation. 

Dommett (below), who rase 
through the ranks of the Char- 
tered Building Society to 
become deputy chief executive, 
is a fellow of the institute of 
bankers and the chartered 
institute of secretaries and 
administrators. He will be tak- 
ing up his new role at a time 
when leading members of the 
IoT, which deals with all 
aspects of direct and indirect 
taxation, are repeating calls 
for the government to simplify 
the entire UK tax system. 

Dommett would appear to 
have the stamina necessary for 
such a task- His hobby is mar- 
athon running; he has so far 
completed 11 - six in London 
alone and three in New York. 



IS INTERNATIONAL 
INV€STM 










\ 


ALL GREE 


It needn't be. 


Financial Times Magazines publish a monthly magazine 
specially written lor the investor with a global perspectiv 
We recognise the need for impartial investment advice - 
written by people who understand every aspect of oversi 
investment. 

ft’s called The International . 

And you don't have to be an economist to understand it. 

i FINANCIAL VlMES I 


Please return to Kevin Phifflp*, The International, Greystoke Place, Fetter Lane, 



| Ytt, Pteau Mod me, FREE and without obligation, for 
1 dm yaar, my monthly copy ot Tha InhmalloMl. Bit 
j panonal flnanca magazbw from lha Financial Tlmaa. 

MAMMK 

I Job! Co 

NaUonattry 

I CompanyiMMaa Addrw* 


Counry Poateodi 

I Sign tar* only H yon «Wi to ncdw « 

rvgufcr copy olTfea MamationaL 

I Glgnrim 


n t ProprOsjUStf-Bnpfcjywi'Pretner 
□ 2 Employed 
Os ConaiAani 

a 4 Ratbad 

5 Studant/Unamployad 
Natura of BuaJnaaa 
□ 1 Financial Owvfcaa 
□ 2 Conduction 
□ 3 Other Sarvtfas 
1~1 4 TrancpoiVrravoWCoinmunlcailonc 
HI 5 DtatribuHonfHotaiB/CtfBrtng 
|~] 6 Enaction (Ol^mnarala, etc) 

Q7 MmAacturingfEnglnaerlrg 

□ 99 Other (Ptaa» Bate 

*8* 

Ol Under 25 
□ 2 25*34 


London EC4A 1ND, UK 

□ a 35-44 
04 45*4 
Os 5M4 

□ ess. 

Typee ol hi i — lm » nl oarenBy laid 

□ 1 Domestic EquUea 

I I 2 I f a nH o n U EquBaa 

□ 3 Onshore Deposits 

B 4 Property 
G Bonds 

□ # Pwctou* MHateGetm 
□ 7 Uni TiunsMubui Puree 
f~l 8 Other l ut a matonn Inw a one nn 
□ 99 None 

Which otthe foaming do yon bare? 

□ 1 Credt Caid(a^.Vlaa) 

□ 2 Gold Card 
□ 3 Charge Can! (ig Ameoc) 

□ 90 None 


BUSINESSES FOR SALE 


#-*c.— ** » "3" Tr-cgcs! 



IHEtf ICAl ENGINEERING' 
COMPANY 


: ■ - , ;* !'-*■* Tf l'~ 




Receive^' 


GREEK EXPORTS 

.. . . (Founded & owned by ETBA S-A.) 

DENATIONALISATION 

INVITATION FOR EXPRESSIONS OF INTEREST IN PURCHASING THE ASSETS 
OF HELLENIC MARBLES &A. NOW UNDER SPECIAL LIQUIDATION 

GREEK EXPORTS S A, established in Athens at 17 Panepistimous Street, in its capacity as spe- 
cial liquidator of HELLENIC MARBLES SA. (in accordance with Decision No. 7518/1992 of 
the Athens Court of Appeal, by which HELLENIC MARBLES S-A. has been placed under spe- 
cial liquidation) and within the framework of article 46a of Law 1892/90, as supplemented by arti- 
cle 14 of Law 2000/91 and complemented by article 53 of Law 2224/94 following the written 
statement (Ret No. 1725/94) of the creditor under para. 1 of the above article, 

INVITES 

interested investors to express their interest is purchasing the assets of HELLENIC MARBLES 
Sj\. now under special liquidation, by submitting a non-binding, written expression of interest 
within twenty (20) days fort)* today. 

HELLEN IC MARBLES S-A. was founded in 1961 and was engaged in quarrying, processing and 
selling marble and its by-products. 

The company's installations are situated on self-owned land 48^387 m™ in area at Aghios 
Stefanos, Attica. The company’s assets can be sold as a whole or as separate entities as follows: 

a) Real estate consisting of the land and bu i ld ings 

b) Me chanical equipment for marble quarrying 

c) Mechanical equipment for crashing and grinding 

d) Mechanical equipment for cutting and processing marble 

e) A plot of land 3,000 m 2 in area in the Algal astis area in Volos 

f) Parcels of agricultural land on the island of Tin os, 14,000 m 2 in area 

OTHER DETAILS CONCERNING THE PUBLIC AUCTION 

- 

; I. Interested buyers should submit, within twenty (20) days of publication of the present invita- 
tion, a non-binding, written expression of interest. 

II. Prospective buyers, on providing a written undertaking of confidentiality, may receive the 
offering memorandum from the offices of the liquidating company. 

They sh all also have access to any other information they may seek and may visit the premis- 
es of the company under liquidation. 

HI. The offering memorandum will describe in detail the total assets of the company for sale and 
will contain every useful information for the prospective buyer. 

The procedure for the public auction for the highest bidder will be published within the prescribed 
time limits and in the same newspapers. ■ 

Fbr any further details or information please apply to: 

a) GREEK EXPORTS SA., 17 Panepistimioii Street, (1st floor), Athens, Greece. Tel. +30-1- 
3243111 Fax: +30-1-323.9185. 

b) The head office of ETBA SA. Holdings Department, 87 Syngrou Avenue (4th floor), Athens, 
Greece. TeL +30-1-^29.4611 and 929.4613. 


LEGAL 

NOTICES 


NURSING HOME GROUP Pic. 

The&ateMdeis wish to sell 100 percent of the Issued 
: share capital. The company Is a-gmifr of homes situated 
In the greater London area and wjlMn 3 mBes of the cen- 
! trot adWHrtaHoa The homes hove a total of 127 beefe 
with ah average occupancy of Wperc^.cridaremo^ 
ty ptapose buflf arid Gn excetent condition. Brief ifottocfal 
information. Net worth Is B3A mWon. toe Income of £2.1 
mfflon operating profit £700.000 as of toe current year 
end. The business is professiwTailyn 
ttriue If rectuked. - 

. . Cantacfc- Stra^awn Investments lid. 

Fax Noc- 081 770 9697 . 


LEGAL 

NOTICE 


Di THE MITER Of 

. WJSMTTH (GROUP) LIMITED 

ASD a THE MTTtt 0T TIB 
KSOIVOCCTACTW* 

\Ona 6 CM* mn fc> t* * «» «* ■» 
toefcm- Ml i?» tul *e entan d t* »«*and 

Cnpiiv:«hkti0MvnAn«* nKWi* 

or Mo* *r M Mn IW re ^ Owsre *>H 
(man *f* *He«rt *4 *N ■«*■*** Ml wwm 
the* Mb * clink jrd ir um m «<r-n a nrr 
ROM V m •» rir cnfcnfvif f *■ 

rfSnWCBiwn.fr!' lwWm.K^ is».«e 

UMUUflffi-uaJCmanb. jm.1 weir n 

•» uti liMrtnp. ,r imwn# 
tflfT i-.p 11 - f.— 

«rMc art mcc. «■ (nmi 
An ml Cc KhM si jm iwtnn "m* 

IWJ 

SKWCUujwte» 


• tic . : • ^ - . l.- - J j : y'.' ^ l.. ■. ,.v.Vr f.y 

Buviri sVor •’sell frfe : a : Tffi vateTco rnpan v? ‘ 


Since l*»79, DCK 2’jnnrf* Ju»c jJ'iwJ uii wet JHfi 
irjnMCiiom involving boih bnver. jnU n-lkr-. cl privjic companies. 
CKir irxpcncncvJ and touUi-Ji*iplin«l nram can ichicvu the Krst 
results in rhe mott covc-cftVcMVf way. Our ley* arc ba>cd sole I v nn 
the tuCCiK wr achieve lor our '.liem>. 

Should you with ro JiMii» nor in confidence. 

coniacr Stephen Dawd or Richird CJevelev in l.xndnn 
ul hred Small in Scotland. 

8 Rohuti Shim HL PjiIki Hall 


niv.sdilly 

LonJon. U IS HAV 
Tel. O'l ti3" IMK.t 
Rjt: Ifl l*N IKSS 


Halid P'ud KjiHm 
M hlb.ihuii, tHJS Srt^V 
Trl Ujl .US.UU 

Fjv: fill HIM 


Fine Art Photography Business 

High profile well branded dealers in photographic prims offered by 
retailers concentrating on core business. Currently operating ou( of 
prestigious Cemral London address and seeking new owners keen 
to develop fashionable presence in London pholography-as-art 
market place 

Possibility of joint operation if new owners wish to keep in place 
the extensive experience of current management - 

Principals only please apply io Bor BJ?A\ Financial Hmyv 
One StwAnttnC Bridge. London SEl 9HL 


CONTRACTS & TENDERS 


NATIONAL BANK OF GREECE 

SCOPE OF THE INVITATION TO TENDER j 
A SUMMARY OF WHICH WAS PUBLISHED 

The National Bank of Greece, the largest financial institution in the coun - 1 
try, with more than 500 branches all over Greece, plans to redesign and | 
redevelop its information systems in order to provide a higher level of ser- 
vice to its customers. 

In order to achieve this, the Bank's primary aim is n> build upon and 
| improve the capabilities of staff responsible for the in-house develop- 
ment of the new systems. The National Bank therefore *vi>hes to coop- 
erate with a consulting company in formulating: 

- a detailed description of the total functional architecture necessary for 
the new system. This must be open, with provision for the integration 

i of a group of companies owned hy the bank. The system should offer 
a variety and combination of banking services, providing llevihilily in 
Customer relations and being customer and produci oriented. 

- a detailed definition of all the necessary procedural and organisation- 
al changes at every bank level for the adoption and implementation of , 
the new system. 

- the presentation of u detailed plan, analysing the hank's migration to 
the new system and taking into account all possible risks and potential 
problems the bank might have to cope with. 

- an accurate definition, in every possible detail, of the technical plat- j 
form to be used for the development of the new applications, includ- 
ing software tools and methodology fu he followed. 

- a definition in eveiy possible detail uf the data and process models as 
well as entity relationships to be used for developing the information 
systems. 

« a description of the requirements, in terms of personnel involved in the 
entire project and the working methods and use of this personnel. 

Proposals should be delivered in a scaled envelope r«» the hank's Daia 
Processing Department at 377 Syngrou Ave . 1 75 14 Athens, Greece, on 
30th November 19**-* between nHfitl and I53t» hours or mailed to the 
same address and postmarked not later than 30th November I«V4. 

For farther information please tjll Mr lu.oiinini*pouli& at +3H-I- 
334.4761 or Mr Marinaki# at +30-1-334 4r>3) 


bTlr High Com cOaOBx No. OOUMO of 
IW 

CHANCERY DIVISiON 

IN THE MATTER OP 
LEX COMMERCIALS LIMITED 

and 

IN THE MATTER OF 
THE COMPANIES ACT IMS 
NOTICE IS HEREBY GIVEN ibot a pelirioo 
w on 3b Oetobtr IW pmcnccd 10 Ha 
M^MyS High Gmu of law Ice Cot Ac coofir- 
nuilwi ul I he icAkiui of Ihc shue pmnram 
•aoiul -it Uu abuve mnl loapn) by 
fl.44n.tMb. 

AND NOTICE IS HEREBY GIVEN lha I hr 
-aid Per moo d. dirrcied 10 be facjid before Mi. 
Rcstunr Bcfc-Oc.r at the Royal Coma of Itrsuce. 
Smnd. Lotkloe WCls 3LL to We d n esday lb 
NcKcrober IW*. 

ANY Credtlor « SiurchoUei oi the mkI 
Company Jedriap io oppose die makans ot an 
Onto to* (be conr jmimoo ot the add reduction 
ot ahaic premium umtt abooM Ippem u the 
lime of bcarmi is penao or by the Counsel fbr 
rtui [wp-nc 

A COPY ->f the tail Penncm be htraished to 

any such penon leq miinp Ihc tame by the 

UKto-meoumcd aotieicoB on payment of the 

rcgnbted chage Un the tame 

DATED l hit 4th day of November I ow 

Sere in Leigklon 

Adclatir Home 

London Bridge 

London EC4R <<KA 

Reft iiArO'I'BI 

Sulkoon tot ibt above lutatO Company. 


In the Cm ef JeSfcr No. #06409 af 

IW4 

Chanters D**ktoo 

IN THE MATTER OP 
HANDLING ANALYSIS LIMITED 

aad 

IN THE MATTER OF 
THE COMPANIES ACT 1985 
NOTICE IS HEREBY GIVEN dul a Peubon we 
no 2b Oanber 1994 pnarstrii «■ Her Majesty’*: 
Hagb Cutm I*f Justice for the amfitmatwa of the 
caocellatiba of the share premium acomar of the 
above-named Compos y of Ci975 IW. 

AND NOTICE IS FURTHER GIVEN ibat the said 
Kldioo b tferrrteJ to be head befbJc Mi Rcglvtnr 
BudUrv at the Royal Cootv of fence. Strand. 
Undue WC2A ILL no Wedncsdav 16 November 
1994. 

ANY Cicduor or Shaiehnldcr of ihc void Company 
denTing u oppose tbc mabrng of an Order (dr the 
coafirnacsci of tbc sad caanfflano*! of share pre- 
miere account vbcedd aspear si the time of bearing 
Id prrxa or by Cootot) for lha [repeat. 

A COPY of the said P rt ilkc will be fumi ded to 
any sub peruo ic^airmg the same by ihe mtdef 


charge for the same. 

DATED this 4ih day nf November 1994 

Berain Utghtnn 

•\dcloide Hiwc 

Lorshsi Bndee 

I oadno EC4R 9HA 

Pxfr H.OA3 IVN 

Stdiiaurs for the about named Company 


tn the H«b Cocart of Jmbe* No. 905J05 nT 
19*1 

Ch — c r ry DMrion 

IN THE MATTER Of 
LEX RETAIL CROUP LIMITED 

and 

ES THE MATTER OF 
THE COMPANIES ACT IMS 
NOTICE IS HEREBY OlVEN lha a fubioo was 

•n IS AiifarJ I'bM pnacmrd io Her Majesty's 

Htfth Coarr of fierce far the curtm odon of tbc 
reduetioo of the dure ptemaan axooni ol Ac 


BSMM i gg 


London WC1I 2LL on Wei heub} 16 November 
1944 

ANY' Credinv re SharctuUn uf the said Ccmpany 
drwmg io uppuse the makins at an Order Cos Ac 
conlinBanuo of The said ledoaioe of share premi- 
um viisiM Would appear at ihc tone uf bearing to 
person re by Counsel for As paiptnc. 

A COPY uf Ac VIIJ Pfclium aifl he htmidrd to 
my such nenud Rtpurmg the same by ibe uader- 
Dcnm>DeJ uHrciiur. un pa' molt of the legnlated 
cbjjy: [is the same. 

DATED ihr J’b day re Nuv ember [VW 
Berk in Lciphtoo 
Aiktaide Ihnuo 

LreMrei BnJgr 
London EC4R NILA 
Kvl. U.Li.l not. 

Si'licikto. fdl ihe abn-e named Corepan* 


To AcVYlKe Your 
LeQcl.NotirtP ; 

PlMNf contact Tina M«stirm.m 
on -44 71 077 40.12 
Tax -44 ‘71 372 JOfcel 


SIMMONS & SIMMONS 


is pleased ro announce the opening of 
its office in Abu Dhabi 


The Blue Tower 
Khalifa Street 
Abu Dhabi 

United Arab Emirates 

Telephone: 971-2-347882 
Facsimile: 971-2-347832 


For further information contact 
Alan Buxton or Simon Pithers in Abu Dhabi 


Alasdair Neil or Jerry Walter 
in London on 01 71 628 2020 


London Paris Brussels Lisbon Milan Rome 
Abu Dhabi Hong Kong New York 


BUSINESS 

LAW 

EUROPE 


FT 


nvw i r: m: 


T he twfce-momhly newsletter 
covering current legal issues 
for lawyers advising industry in 
Europe. Business Law Europe 
combines up-to-date timely 
reporting with down-to-earth 
and practical comment, setting 
news in context and identifying 
the real meaning of events and 
their implications for European 

business. 


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14 


FINANCIAL times 


TUESDAY NOVEMBER-8 1994 



Turk granted more 
time in Germany 



COURT 


A Turkish 
national living in 
Germany was enti- 
tled to an exten- 
sion of a tempo- 
rary residence 
permit, because it 
would enable her 
to take up a job 
offer, the European Court of Jus- 
tice has ruled. 

Mrs Erogiu, a Turkish student, 
arrived in Germany in 1980 to fol- 
low a business administration 
course. Her father had been living 
and working quite lawfully in Ger- 
many since 1976. In 1997, she com- 
pleted the course successfully and 
began to study for a doctorate. 
During these years, she had been 
granted temporary residence per- 
mits all limited to one year and 
marked valid only for the pur- 
poses of study. 

In 1989, she was granted a condi- 
tional residence authorisation 
allowing her to carry out specific 
work for a specified company. 
This authorisation was given until 
1992 and was varied in 1991 to 
allow her to work for another 
company. She also had the neces- 
sary work permits. 

In 1992, she applied for an exten- 
sion of her residence permit to 
allow ho* to continue working for 
her last employer. Her application 
and subsequent appeal were 
turned down. She then brought 
proceedings before the Karlsruhe 
Adminis trative Court. In the 
m eantim e, she bad been offered a 
job by her first employer. In court, 
Mrs Erogiu claimed she had the 
right of residence in Germany by 
virtue of two provisions contained 
in a decision made pursuant to the 
Association Agreement between 
the then EEC and Turkey. 

The first provision of the deci- 
sion gave a Turkish worker, duly 
registered as belonging to the 
labour force of a member state, 
the right to the renewal of a work 
permit after one year's employ- 
ment with that employer. 

The second provision allowed 
children of Turkish workers who 
had completed a course of voca- 
tional training in the relevant 
member state to respond to any 
offer of employment there, irre- 
spective of how long they had 
been resident there, provided that 
one of their parents had been 
legally employed in that member 
state for at least three years. 

The German court held that 


although the refusal to renew the 
residence permit was lawful under 
German law. the position was not 
clear with regard to EC law. It 
referred the issue to the ECJ. 

The ECJ held as a general point 
that the relevant decision within 
which this provision was con- 
tained did not encroach on the 
power of member states to regu- 
late both the entry into their terri- 
tory of Turkish nationals and the 
conditions of their first employ- 
ment. Rather, insofar as the first 
provision was concerned, it made 
provision exclusively for Turkish 
workers already registered as 
belonging to the EU labour forts. 
The Court said the aim of the first 
provision was solely to ensure 
continuity of employment with 
the same employer after an initial 
period of one year. 

hi the present case, Mrs Erogiu 
had ch an g ed employers but was 
seeking a work permit extension 
to allow her to work for her first 
employer. The Court said the rele- 
vant provision did not entitle a 
person in such a position to the 
renewal of a work permit 
As to the second provision, the 
Court stated that the right to resi- 
dence was essential to access to, 
and pursuit of, any paid employ- 
ment, whether for the same 
employer in connection with 
renewal of a work permit or for 
another employer. It was clear 
therefore that the right conferred 
on a person by the second provi- 
sion implied the recognition of a 
right of residence for that person. 

The German government's argu- 
ment that the right under the sec- 
ond provision was subject to con- 
ditions concerning the grounds on 
which a right to enter and to stay 
in a member state was granted, 
was not upheld by the Court The 
fact that the right was not given 
with a view to reuniting a family, 
but rather, was for the purposes of 
study, did not therefore deprive 
the child of a Turkish worker from 
enjoying the rights conferred by 
the provision in question. 

The Court said therefore that a 
Turkish national who satisfied the 
conditions in the second provision 
could rely on that provision to 
obtain a residence permit exten- 
sion. 

C-3S5I93: Erogiu v Land Baden- 
WQrttemberg, ECJ 6CH, 5 October 
1994. 

BRICK COURT CHAMBERS, 
BRUSSELS. 


I n the 18 months since Mr Alas- 
tair Ross Goobey. PosTel’s 
chief executive, wrote to the 
chairmen of FTSE-100 compa- 
nies informing them that in future 
he was ‘minded’* to vote against 
three-year rolling contracts for 
directors, life for Britain's bosses 
seems to have changed little. 

His concern was not that execu- 
tives were receiving excessive 
rewards for doing a good job. but 
that long rolling contracts were 
allowing executives to walk away 
with huge pay-offs often when they 
had failed to come up to scratch. 

As head of the UK's largest pen- 
sion fund, which owns 1.5 per cent 
of the stock market by value, his 
views ought to carry some weight 
in British boardrooms, and indeed, 
some progress has been made. 

Mr Ross Goobey says three-year 
rolling contracts are now in a 
minority in FTSE-100 companies. 
But wider recent research by Bacon 
Woodrow suggests they are not yet 
a thing of the past Bacon Woodrow 
found that of 954 directors ques- 
tioned, 39 per cent were on rolling 
contracts of three years or more. 

The large pay-offs which result 
from these three- year rolling con- 
tracts - which at any time are 
assumed to have three years to run 
before expiry - also show no signs 
of abating. In the year to June, 
so-called “golden goodbyes" topped 
£20m. The £4m paid to four former 
Uphook directors and the £2.02m 
package for Mr Peter Davis, former 
co-chairman of Reed Elsevier, the 
Anglo-Dutch publisher, are recent 
examples. 

These pay-offs add to public con- 
cern about executive pay in general, 
which although rising at the lowest 
rate of increase for five years, is 
still outstripping the level of wage 
rises for the workforce as a whole. 

According to a study published 
last week by the Monks partner- 
ship. an independent remuneration 
adviser, the highest paid directors 
in British companies with annual 
turnovers of more than £400m, 
received median increases of 9 per 
cent last year, three times that of 
the workforce. The study also 
showed that the number of UK com- 
panies that pay their highest earn- 
ing executive more than Elm has 
doubled over the past 12 months to 
16. Only executives in Germany, 
Italy and the US are ahead of the 
UK’s top earners in rash terms. 

Head of the list of top earners was 
Mr Peter Wood, chief executive of 
Direct Line, Royal Bank of Scot- 
land’s insurance subsidiary, with a 
total remuneration package worth 
£l&4m, way ahead of Mr Bob Bau- 
man, former SmithKline Beecham 
chief executive on £l-89m. 

An increasing percentage of these 
huge remuneration packages is 
made up of performance-related 
bonus payments. According to the 


Goodbyes are 
still golden 

Investor value is not always reflected 
in directors' pay, writes Robert Rice 



A successor to the comittee chaired by Sir Adrian Cadbury (left) focusing on 
executive remuneration is overdue says lawyer Denise Kingsmill (right) 


Monks’ study, bonus payments 
account for an average 18 per cent 
of total remuneration and contrib- 
ute 15 per cent to the remuneration 
of the best paid directors. 

But research by Datastream sug- 
gests there are some large dispari- 
ties between pay rises for execu- 
tives and returns for shareholders. 

This is backed up by a recently 
published study by American pay 
expert Professor Graef Crystal Prof 
Crystal compared total remunera- 
tion packa ges of the top directors of 
the FTSE-100 companies with the 
total return to shareholders of their 
companies and concluded many 
British bosses are “overpaid”. 

Great emphasis was placed by the 
Cadbury committee on corporate 
governance on the role of the com- 
pany “remuneration committee" in 
curbing excesses in boardroom pay. 
Composed of non-executive direc- 
tors, remuneration committees, 
whose role is to set remuneration 
for companies' executives, were 
seen as the vehicle to ensure a bet- 
ter match between executive pay 
and shareholder value. 


Most UK public companies now 
have them, but there is growing 
acceptance that they are still not 
functioning as they should. A fol- 
low-up to Cadbury is promised for 
1995. but many lawyers believe 
action is needed now. 

M s Denise Kings mill, a 
specialist employment 

lawyer who counts Ah' 
Peter Wood of Direct 
Line. Cyril Stein, former Ladbroke 
chief, and George Walker, former 
bead of Brent Walker, among her 
clients, says a “Cadbury 2" concen- 
trating on the role and powers of 
remuneration committees is over- 
due. The big question, mark over 
remuneration committees is their 
independence, she says. They are 
made up of non-executives, but non- 
executives who tend to be execu- 
tives elsewhere, and as such they 
have an interest in keeping the gen- 
eral level of executive salaries up. 

Ms Km gsmiil also believes it is 
time for a wider look at the role of 
non-executives, and in particular at 
the way they are appointed. In spite 


of placement companies, such as 

Pruned, being a “chum of 
man” remains the main route to a 

nonexecutive appointment 

Part of the reason many non ™Y 
utives do not perform as sharetioin- 
ers would hope, is because they are 
not properly remunerated, sue 
believes. “Yon don’t want a situa- 
tion where they are paid so much 
that their independence is compro- 
mised by their financial dependence 
on the company. But they must be 
properly remunerated," she say&. 

But how much is enough? The 
average is £15,000^20,000 for about 
10 days work a year. But that is 
npfthpr enough money nor enough 
time, «ay s Ms Kingsmill. There are 
papers to read before meetings and 
good non-executives need to get to 
know the business and stay abreast 
of developments. 

These responsibilities require 
proper remuneration, but non-exec- 
utives should not get pension 
arrangements or share opticms- 
They should, however, be encour- 
aged to buy shares to cement their 
relationship with the business. 

There is also a need to widen the 
range of nonexecutives, she says. 
Most companies only have one non- 
executive from an alternative back- 
ground and if they can double up by 
making the alternative a woman, so 
much the better. 

Cadbury 2 could clarify the role of 
remuneration committees and non- 
executives, but what criteria should 
remuneration committees follow in 
setting executive pay to ensure a 
better matrh between remuneration 
and shareholder value? 

At the moment there is too much 
emphasis on what executives are 
paid rather than how and why, Ms 
Ktngsmm says. They need to distin- 
guish between come-to-work pay, 
set by the market place, perfor- 
mance-related pay. received if goals 
are met, and profit-related pay. “If 
you get the haianre right, you’re on 
your way to ensuring directors 
don’t get remunerated in circum- 
stances where the company is not 
giving shareholder value,” she says. 

Ms Kingsmill says companies 
want to attract the best so they 
have to give directors a certain 
level of pay and security. But this 
can be achieved without long, 
rolling contracts. She wants an ini- 
tial three-year fixed-term contract, 
providing security and time for an 
executive to set objectives and act 
on them, and then a one-year 
rolling contract A one-year rolling 
contract allows an executive time to 
find another job, she says, and com- 
panies will not enrage shareholders 
by paying out huge sums. 

But even if a Cadbury 2 clarifies 
the role of non-executives in curb- 
ing excessive pay, getting compar 
nies to act on it is another matter. 
Golden goodbyes look set to be with 
us for some time yet . . 


LEGAL BRIEFS 



US association for 
corporate lawyers 
comes to Brussels 

T he American Corporate . 
Counsel Association, which 
represents lawyers working 
in commerce and induslxy, is to 
open a European office i n Bguss els. 

The move reflects the growth in 
numbers of in-house lawyers in 
Europe, particularly in US 
companies. From its Wa shin g t on. 
DC headquarters, the association. . - 
has built a membership of 9,600 in 
10 years and developed a mainly 
-educational role. 

The association will use the 
Brussels office to pass information 
to members and will also develop 
specific European projects such as 
the preparation of a database on 
specialists working in European 
law firms. 

Its first European conference wfQ 
be in Paris on November 21 and 22. 
Subjects for discussion include 
corporate attorney-client - 
relationships; organisation and 
development of in-house legal 
departments; and a session on the 
chang ing legal environment for 
mergers and acquisitions in central 
and eastern Europe. Further 
information from Michel does in 
Brussels on 32 (53) 762 800 or by. 
fox on Brussels 643 1458. 

Gulf action 

B ritish s u fferers from “Desert 
Storm Syndrome” have been 
allowed to join the class 
action brought by US service 
personnel against 30 manufact- 
urers of chemical or biological 
weapons materials supplied to Iraq 
before tiie Gulf War. 

A court in Houston, Texas, last 
week gave UK victims until 
November 22 to join the action 
which involves more than 1,000 US 
servicemen and women. Bonn & 

Co, the UK solicitors co-ordinating 
the British claims, have written to 
more ti»»n 400 people advising 
them of their rights. The action 
alleges negligence and a breach of 
US product liability rules. 



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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


ARTS 


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Furtive families and 
flurries of activity 


T he extraordinary 
mass or contempo- 
rary art that 
diaries Saatchi has 
acquired over the 
past 20 years seems less a col- 
lection than an accumulation: 
for if Mr Saatchi sees a show 
by an artist who interests him, 
from Andy Warhol to Damien 
Hirst he is inclined to buy the 
lot 

As we enter that astonishing 
warehouse space in Boundary 
Road, we know that whoever 
the artists are, we are going to 
see them represented in consid- 
erable strength. And if at times 
our expectations are all too 
depress ingly confirmed, the 
surprise at others may be both 
real and rewarding. The pres- 
ent exhibition, of three British 
painters in mature career, 
makes the case in point 
Paula Rego is the star of the 
show and commands the first, 
largest and most daunting of 
the galleries. She carries this 
great space, so it seems, effort- 
lessly. This is no retrospective, 
for the collection has no thing 
even of the early 1980s, when, 
from a more generalised imag- 
ery of fantastical and mon- 
strous figures, the work was 
shifting towards particular 
n a r ra t i ve s with characters no 
less monstrous, yet disconcert- 
ingly human. What we have 
are those narratives as they 
have been fully and splendidly 
established since the later 
19805, with their darkly ambig- 
uous tales of remembered 
childhood and adolescence, 
fraught with burgeoning sexu- 
ality, fearful, secret and 
excited. 

Little girls, Miss Rego 
reminds us, are not aH sugar 


and spice and all things nice. 
Not by chance has she 
emerged as one of the great 
modern illustrators of fairy 
tales, gleefully nnc/pwamioh in 
her reading of them. The Old 
Woman thrashes bottoms with 
a will; heads come off; tails 
come off. with a carving knife. 

Hitherto, her actual painting 
has been more effective than 
precious, with a dry, gouache- 
like use of acrylic paint on 
paper that sometimes appears 
cruder and more uninflected 
than in fact it is. In her latest 
work, however, represented 
here by a single large pastel, 

William Packer 
visits the 
Saatchi gallery 


she has returned directly to 
the model and to a method that 
is much richer and denser on 
the surface, these are her Dog 
Women, to be shown at Marl- 
borough Fine Art later in the 

month 

John Murphy, who fills the 
two farther galleries, is repre- 
sented only by work of the 
early 1980s and particularly by 
an extended suite of 12 panels 
that purport to engage with 
tbe infinities of space. The 
black pigment that supplies 
the field of heaven is laid on 
thick like butter, and then 
inlaid with white dots that 
might or might not be constel- 
lations. They serve, as do the 
specks of resin-dust in aqua- 
tint, paradoxically to intensify 
the optical sensation of the 
black. But do they also cany 
the symbolic charge of the 


image they adopt? The porten- 
tous clues engraved on their 
frames, “The Empty Night of 
Error", “The Long Night of 
Anxiety”, “The Paradox of tbe 
Void" and so on, suggest that 
Murphy, too, feels they do not 

Five large paintings by Avis 
Newman have the side gallery 
to themselves, and again they 
date from the early 1980s. They 
are curious and at first unpre- 
possessing, pinned unstretched 
to the waU, and discursive and 
wandering in tbe marks they 
carry - a flurry of activity 
here, some broader sweeps 
there, and blots, splodges and 
accretions anywhere. Is there a 
hint at an encompassing 
image, the profile of a rec lining 
figure perhaps, or a distant 
and vestigial landscape? Or are 
we looking down on a map, or 
the earth from an aeroplane, or 
a battlefield? These Hurries of 
activity could well be skir- 
mishes. 

But it is for us to make of 
them what we wilL These are 
paintings, like Chinese land- 
scapes or classical friezes, or 
the great mural schemes of the 
Renaissance, that draw us torn 
themselves by their detail, that 
the detail may comprehend the 
whole. As we look, the rough- 
ness and informality fall away 
for the illusions they are. The 
surfaces declare themselves in 
all their abstract refinement, 
paint and mark and iirn> so del- 
icately and exquisitely worked. 
Her work is the great surprise 
and pleasure erf the show. 


Paula Rego, John Murphy and 
Avis Newman: Saatchi Gal- 
lery, 98a Boundary Road NW8, 
until February: Thursday to 
Saturday 12-epm. 



Little girls are not so nice: ‘The Family*, 1988, by Paula Rego 


Music in London: our critics review a string quartet, two visiting orchestras and a home team conducted by a guest 


Encore for quartet 


Odessa and Jansons 


E ncores at string quartet con- 
certs are not routine - they 
really mean the audience 
wants them. On Saturday 
evening, the VeDinger String Quar- 
tet might have chnsm something a 
little less respectable and sober- 
minded to im the Adagio of Haydn’s 
Opus 71 number two. Stiff, some- 
thing restful was in order after the 
storms of Elgar’s Quartet 
The Vdlinger was: only formed in 
1991 and in three years it has made a 
very strong impression. It has 
recently released its first CXI, which 
is entirely of Elgar’s music, and ear- 
lier this year won first prize at the 
London International String Quartet 
Competition. It was well deserved, 
for among the abundance of excel- 
lent British quartets at the m oment, 
fiie VeDinger is hardly bettered. 

Its Wigmore programme on Satur- 
day was an interesting choice - Bar- 
ttik’S Fifth Quartet was fallowed by 
Schubert’s A minor Quartet, then 
Elgar after the interval None of 
these works is really a rarity, yet 
none is exactly popular either. The 
unusual feature was the order, with 
the biggest challeng e far toe audi- 
ence first and the easiest listen - 
though Schubert’s work is far from 
lightweight - in the middle. 

Hans Keller used to be patronising 
about quartets written by composers 
who were not stri ng pl ayers, yet 
many of tbe great string quartets 
since Schubert’s are by composers 
who were primarily pianists. Nobody 
has been more enterprising in the 
m p d frrm than Bartdk, and his Fifth 
Quartet avoids may of the obvious 
q ualities an “outrider” might settle 
aa string instruments in favour of 


sonorities which, however daring, 
even explosive, strings alone can 
make. It is hard to imagine this 
almost tuneless though hugely 
expressive work given with more 
sharply focused passion or attention 
to colour. The VeUinger’s ensemble 
and halanca were immaculate, the 
rhythms as tight as a steel spring. 

Schubert’s Quartet in A minor is 
pervaded by a mysteriously veiled 
sadness which was enhanced by the 
VeDinger’s precise restraint, though 
it was fiery enough when appropri- 
ate in the middle of the second 
movement. The players took the 
opening movement quite steadily, 
more mindful than is necessary, per- 
haps, of the “ma nan troppo” that 
Schubert added after “Allegro". 

The first violinist began toe plater 
tive first theme almost without 
vibrato, then warmed later on - a 
lovely touch, and typical of those 
players' discriminating sense of 
de tail- And unlike quite a few quar- 
tets, the VeDinger boasts a marvel- 
lously energetic viola-player, who 
brings as much attack and flexibility 
to his part as a violinist 

If Elgar's Quartet seemed rather 
disappointing, it was probably not 
the fault of the players. There Is a 
magical passage in the slow move- 
ment, when three instruments wind 
down gently over a cello pedal 
before tbe restatement of the t heme ; 
but the theme itself might have been 
penned by one of Elgar’s pale tors. 
Still, there was tremendous drive in 
tbe performance, as well as tender 
affection for the music's moments of 
faded m e lancholy. 

Adrian Jack 


D espite the world-class 
stature of the showcase 
orchestras of Moscow and 
Leningrad, musical life in 
the former USSR was more-or-less a 
closed book to western eyes and 
ears. Following the emancipation of 
the ex-Soviet republics, the first visit 
to tbe UK of the Ukraine's Odessa 
Philharmonic Orchestra, which 
reached the Barbican Centre in Lon- 
don on Friday, gave us a taste of just 
bow musical life was faring ar one of 
the more far-flung regions of the for- 
mer Soviet empire. 

If the recent history of the Odessa 
Philharmonic is typical, then provin- 
cial orchestras face a difficult but by 
no Tnft*mg insurmountable challenge. 
Four years ago its future appeared 
far from rosy, with regular defec- 
tions of members of the west, an 
acute shortage of musical instru- 
ments and dwindling audiences. But 
since the appointme nt of the extro- 
vert young American conductor, 
Hobart Earle, as its music director 


I n 1925, when he was 60, Sibelius 
composed, some substantial 
scene-mask: for The Tempest. It 
was one erf his last scores before 
his Legendary tight-lipped silence, 
coming just after the Seventh Sym- 
phony and before Topiola. You 
might expect the autumnal quality 
of late Sibelius to be apt for Shake- 
speare's last play, and so it is; but he 
interpreted his theatrical brief 
rather modestly, never pretending to 
fill out a conspectus of the whole 
piece. Tbe metaphysical depths of 
The Ttanpest lie wholly in its lan- 
guage, arid Sibelius was not writing 
an opera. 

At the Barbican on Saturday. 
Neeme J&rvi and the Gothenburg 
Symphony gave us a glowing 


four years ago. its fortunes have 
changed rapidly and, whilst still 
beset with financial worries, morale 
is increasing and its repertoire 
expanding (though not always in the 
right direction, it seems, if the hol- 
low rhetoric of Miroslav Skoryk’s 
Carpathian Concerto - a folksy-real- 
ist throwback to pre-gla&tost days - 
is typical), and the prospect of a new 
$30m conceit hall is a not ubrealisa- 
ble possibility. 

Inevitably the orchestra's sound is 
less polished than that of its more 
illustrious western counterparts. 
Ensemble is less than precisely coor- 
dinated. balance between the vari- 
ous sections is often sacrificed to 
sheer higb spirits, and Earle's con- 
ducting is efficient rather than illu- 
minating. Rachmaninov’s Third 
Piano Concerto (with Arnoldo Cohen 
a solid, unimaginative soloist) was a 


account of the complete music. Hard 
to resist the familiar sense that 
native players (Sibelius was after all 
a Swedish Finn) can play such stuff, 
folk-based as it mostly is, with a 
radiant simplicity that nobody else 
can match! Richard w illiams con- 
trived to put everything properly in 
context with a team of ten actors, 
headed by Alec McCo wen's Prospers, 
declaiming just enough of the play 
to let us know where we were from 
number to number. Some 34 of them, 
all told - though the whole perfor- 
mance lasted Utile more than 90 
minutes. 

It was good to hear, but one felt no 


mundane affair, lacking in poetry 
and glitter and starved of the opu- 
lent string sound it needs. Ironically, 
it was the standard AustroGerman 
repertoire that found the orchestra 
at Its best; a Brahms Second Sym- 
phony of white-hot intensity, tensfle 
strength and unflagging sense of 
purpose. 

* 

The history of the Odessa Philhar- 
monic shows just bow easily we take 
our own orchestras' expertise for 
granted, but there was nothing rou- 
tine about the London Philharmon- 
ic's concert at the Royal Festival 
Hall on Sunday evening; what 
seemed on paper standard early- 
20th-centuxy fare - Debussy’s Noc- 
turnes, Ravel’s G major Piano Con- 
certo and Stravinsky’s Rite of Spring 
- became an absorbing journey of 
renewal as its principal guest con- 


great need to hear it all ever again. 
Evidently the masque-side of The 
Tempest was to be emphasised; gen- 
erous time is allotted to the formal 
dances, entries and retreats, which 
are graciously folksy. The actual 
masque -within-the-play, however, 
must have been trimmed: we got 
only a splash of Iris's rainbow, a 
brightly urgent aria from Juno 
(Susan Gritton) and two perfunctory 
dances. 

Elsewhere. Sibelius exploited tbe 
simple theatrical possibilities of the 
whole-tone scale, the augmented 
triad and toe dmiinished-7th chord - 
none of them new in 1925, but redis- 


ductor Mariss Jansons galvanised 
his players into a sense of occasion 
and rediscovery. 

Jansons is an out-and-out roman- 
tic, but only occasionally, as In his 
rather Tchaflrovskian way with cli- 
maxes, did this jar with the cooler 
aesthetic of the three works on offer. 
The Debussy was no vacuous, 
impressionistic Ham and the Rite 
became once again a frighteningly 
purgative experience, celebratory 
and cathartic Hie Ravel Concerto, 
too, often such a slight work, took 
on real substance, not least because 
Pascal Rogd (replacing Krystian 
Zimerman) never allowed his wide 
experience of the work to lead him 
into complacency: though a touch 
restricted in colour in the first move- 
ment perhaps, he mesmerised in the 
slow movement, spinning out its 
extended cantilena with a sense of 
wonder, both surprising and inevita- 
ble. 

Antony Bye 


covered here with uncomplicated 
enthusiasm. In the solo songs for 
Ariel and Caliban (sometimes with 
chorus, and much more ingeniously 
wrought) Monica Groop spun an 
opulent, penetrating line, and Alan 
Opie displayed ripe comic character. 
Above all there were two extraordi- 
nary numbers: the Overture,, in 
which a monstrous, eerily oppres- 
sive storm preechoes Topiola with 
lashings of furious rain instead of a 
dry blizzard, and a jaggedly eloquent 
paragraph or two <rf baffled anguish 
for Prospero toward the end. 

David Murray 


Sponsored by Skandinaviska 
R nsWMa Banken 


Sibelius’ Shakespeare 


Theatre 

The 

Ugly 

Man 

B rad Fraser is cur- 
rently as hot as pep- 
peroni, with plays 
like Unidentified 
Human Remains and Poor 
Superman creating a buzz with 
both critics and audiences. 
This young Canadian writer 
deftly mixes at-the-edge sce- 
narios involving gay sex, 
nudity, violence and betrayal, 
with cool insouciant dialogue 
and a dry wit The Ugly Man. 
enjoying Us London premiere 
at the Battersea Arts Centre, 
is minor Fraser, but still well 
worth a detour down Lavender 
Hill. 

Fraser had the bright idea of 
taking his plot from one of the 
most gory of Jacobean melo- 
dramas, Middleton's The 
Changeling, and then encour- 
aging his contemporary char- 
acters, who talk with the 
direct simplicity of comic strip 
balloons, and inhab it scenes as 
short and pointed as those in 
an Australian soap opera, to 
ran riot 

The Co-Active Theatre Com- 
pany has decided to locate the 
play in the equally decadent 
society of the southern states, 
or rather the fantasy South of 
Tennessee Williams, where 
every closet is crammed with 
skeletons and inside every vir- 
gin Is a desperate whore. The 
result is a theatrical Turin 
Peaks, scary yet funny, gro- 
tesque yet childlike. 

By some miracle the cast of 
CAT Factory deliver ft 
straight, with not a trace of a 
nudge or a wink. Martin 
McDougall as Leslie, who 
plays a physically and men- 
tally abused gay with a hair- 
lip, manages to speak the line 
“He's twice the man you'll 
ever be” with a quivering con- 
viction that touches the soul. 

The “man” concerned is tbe 
servant Forest, the scarred 
stranger, the Ugly Man, whose 
murderous, rapacious, undevi- 
ating villainy is motivated not 
by aimless violence but by 
revenge. This is the key role 
and Martin Malone exactly 
captures the physical stillness 
hiding a barely controlled 
menace. 

Forest is impelled towards 
evil; for Veronica, (Stephanie 
Prince), the young virgin 
bride, evil is a drag. She 
quickly progresses from twist- 
ing her doomed mother Sabina 
(Louise Plowright) round her 
finger, to manipulating men: 
her naive fiance; her calculat- 
ing lover; the besotted Forest, 
who will kill for a kiss. 

Such Grand Guignol needs a 
realistic setting. Director 
Michael D 'Craze has located 
the action in Arizona for no 
obvious reason, but designer 
James Hendy has come up 
with an impressive barn like 
set, dominated by a giant 
wheel, bandy far grinding out 
justice slow. The power of the 
production tells in the little 
touches, like Veronica's white 
dress streaked scarlet, unmen- 
tioned by the others, but 
shrieking testimony that she 
has sold her soul to the Devil. 

The climax cots across the 
controlled playing - it is 
easier to accept a body strewn 
stage when the characters are 
decked ont as 16th century 
Spaniards - but The Ugly Man 
does nothing to dispel the 
belief that Fraser is one of the 
most exciting writers working 
in North America. 

Antony Thoracroft 



■ AMSTERDAM 

Concertgebouw Tonight Brahms' 
German Requiem and Berftort Te 
Deum. Tomorrow, Thors, Fir Kist 
Sanderfing conducts Royal 
Concertgebouw Orchestra in woks 
by Mozart and Bruckner, with violin 
soloist Viktor Liberman (Sanderfing 
conducts a free lunchtime concert 
tomorrow,- phis, another series of 
concerts next week). Tomorrow 
(KWne Zsefy Alexander Quartet 
plays siring quartets by Beethoven, . 
Peterson and Brahms. Sat evening. 
Sun afternoon: Hartmut Haenchen 
conducts' flfeiherfcHicte Philharmonic 
Orchestra and Chorus hi ' - 
symphonies by Szymanowski and 
Mahler. Sun' morning: Nicholas 
Ctaobufy- p onducts Racflo Symphony 
Orchestra in Bax and Bgar, with 
viola sotaist-RMffl Gdanl (24-hour 
frifomwiSon service 020-375 4411 
ticket reservations 020-671 8345) 
Muziektheater Tonight, Fri, next 

Mon: Netherlands Opera presents 

Louis Andriessen's new work Rosa, 
with sdenario and production by 
Peter Graanaway<oontinues tffi No v 
28). Tomorrow, Thins. Sat Krtezana 


de Chate! dance group. Sun, next 
Tues: Netherlands Dans Theater 
(020-625 5455) 


■ ANTWERP 

de Vteamse Opera Tomorrow, Fri, 
Sun afternoon, next Tues: Stefan 
Soitesz conducts Adolf Dresen’s 
production of Yevgeny Onegin, with 
cast headed by Ned Barth, Gatina 
Sknklna Christopher Ventite and 
Chris de Moor. (03-233 6885) 


■ BASLE 

Stadttheater Herbert Wernicke’s 
new production of Carmen opens on 
Sat, with Gradate Araya in the title 
role. Repealed Nov 18, 21 and 27 
(061-2951133) ' 


■ BRUSSELS 

Palate das Beaux Arts Tonight 
(Royal Conservatory); Gnxnlaux Trio 
plays chamber music by Dvorak, 
Martinu, Schubert and Brahms. 
Tomorrow: lvo Pogorefich te piano 
soloist with Belgian National 
Orchestra (02-507 8200) 

Momato PhBppe Soesmans’ 
acclaimed 1993 opera Reigen, 
based on Sctaftzter 1 * play La 
Bonds, te revived on Sat for six 
performances te Brussels, foHowed 
by three In Paris. The production te 
by Luc Bendy, and the cast kidudes 
Soivetg Kringefoom, Franz-Perdjnartd 
Nenlwfg and Lucinda Cbflds (02-218 
1211 ) 


■ CHICAGO 

MUSIC 

Chicago Symphony Lawrence 
Foster conducts works by Undruth, 


Beethoven and Enescu on Thurs, Fri 
afternoon and Sat, with piano soloist 
Jean-Bemard Pommter. Leonard 
Sfatkin conducts the Saint Louis 
Symphony Orchestra on Fri evening 
in symphonies by Barber and 
Tchaikovsky (312-435 6666) 

Lyric Opera This month's repertory 
consists of Rossini's II barbiere di 
SivigKa, Giordano's Fedora. 

Strauss's Capricdo and Bernstein's 
Candide. Barbiere can be seen 
tonight and next Wed. with a cast 
headed by Frederica von Stade, 
Thomas Afien and Rockwell Blake. 
The final performance of Fedora, 
starring Mirella Freni, is on Fri. 
Capricdo opens on Sat In a 
production staged by John Cox and 
conducted by Andrew Davis, with 
Feficrty Lott as the Countess. 
Candide opens on Nov 26 and is 
directed by Harold Prince (312-332 
2244) 

THEATRE 

• Angels in America: Tony 
Kushner’s two-part epic is directed 
by Michael Mayer, with Jonathan 
Hadary as Roy Kohn (Royal George 
312-988 9000) 

• Laughter on the 23rd Floor Nell 
Simon's newest comedy, about the 
golden days of Eve TV comedy, te 
currently enjoying an open-ended 
run (Briar Street 312-348 4000) 

• The Writer’s Tale: Shakespeare 
Repertory has the Chicago market 
cornered on productions of the 
Bad's works. Artistic director 
Barbara Gaines has a go at his late 
romance (Shakespeare Repertory 
312-642 2273) 


■ GENEVA 

Grand TMrfttre The Bartered Bride, 
staged by Elijah Moshinsky and 


conducted by Bohumil Gregor, can 
be seen on Nov 10, 12, 15, 18 and 
21. The cast is headed by Valentin 
Prolat, G wynne Geyer and Kristinn 
Sigmundsson (022-311 2311) 
Victoria Hall Jean-Fran;ols Helsser 
gives a piano recital on Thurs 
(022-311 2511) 

Comddie Moscow's Vakhtangov 
Theatre, directed by Piotr Fomenko, 
presents Ostrovsky's The Guilty 
Innocents for a two-week run, 
beginning next Tues (022-320 5001) 


■ THE HAGUE 

Dr Anton Phifipszaal Sat Oliver 
Knussen conducts Hague 
Philharmonic Orchestra in works by 
Busoni. Schoenberg and Skryabin. 
Sun afternoon; Yan Pascal Tortelier 
conducts Radio Philharmonic 
Orchestra in Ravel, Falla, Debussy 
and Rimsky-Korsakov (070-360 
9810) 


■ ROTTERDAM 

De Doelen Sat evening, Sun 
afternoon: Claus Peter Flor conducts 
Rotterdam Philharmonic Orchestra 
and Chorus in works by 
Mendelssohn. Mon: Frans BrOggen 
conducts Orchestra of the 18th 
Century in Schubert and 
Mendelssohn (010-217 1717) 


■ VIENNA 

• Riccardo Muti conducts Roberto 
de Simone's production of Cosi fan 
tutte tomorrow and Fri at Theater an 
der Wien. The cast includes Barbara 
Frittoli, Vesselina Kasarova. Cecilia 
Bartoli and Boje SKovhus. The State 
Opera is closed for technical 
alterations till Dec 14 (58885) 


• Claudio Abbado conducts the 
Vienna PhS harmonic's subscription 
concerts at the Musikversin on Fri 
and Sat afternoons and Sun 
morning, with a programme of Berg. 
Schubert and Hindemith. GMini 
conducts the orchestra on Nov 18, 
19 and 20. Jos4 Carreras gives a 
song recital on Dec 5 (505 8190) 

• Vienna's contemporary music 
festival, Wien Modem, runs till Nov 
28, with daily performances at 
various venues around the city. This 
year’s featured composers are 
Morton Feldman, George Crumb, 
Helmut Lachenmann, Kart Schiske 
and Gunter Kahowez (7124 6860) 

• Giorgio Strehler directs a new 
Burgtheater production of 
Pirandello's The Mountain Giants, 
opening next Tues (514440) 


■ WASHINGTON 

KENNEDY CENTER 

• This week's National Symphony 
concerts are conducted by Zdenek 
Macal. Tomorrow's programme 
consists of works by Rands, Mozart 
and Beethoven, with piano soloist 
Alexander Paley, On Thurs, Fri, Sat 
and next Tues, Alessandra Marc is 
soprano soloist in selections from 
Aida (202-467 4600) 

• Washington Opera has just 
opened its season with Gounod's 
Faust (further performances Nov 10, 
13, 15, 18, 21 aid 26). The Ponnelle 
production of Le nozze di Figaro is 
revived on Sat with a cast headed 
by Jeffrey Black and Yvonne Kenny 
(202-467 4600) 

THEATRE 

• Artificial Jungie: toe last play 
written by the (ate Charles Ludlam te 
a spoof on marriage in jeopardy. Till 


Dec 4 (Woolly Mammoth 202-393 
3939) 

• Stoppard trilogy: Washington 
Shakespeare Company presents The 
Real Inspector Hound, The 
15-mriute Hamlet and Dirty Linen 
from Nov 12 to Dec 17 (Gunston 
Theatre 703-418 4808) 

• Someone Who’ll Watch Over 
Me: Irish playwright Frank 
McGuhmess’s humorous and 
poignant drama about three Beirut 
hostages. Opens tomorrow (Studio 
Theater 202-332 3300) 

• Two Trains Running: August 
Wilson’s Pulitzer Prize-winning play 
takes place in 1969 In Pittsburgh 
during the civil rights era. Opens on 
Thurs (Center Stage 4i0-®5 3200) 

• All in the Timing: the recent 
off -Broadway hit is a series of 
one-act comedies dealing with 
various aspects of contemporary life. 
Opens tomorrow (Roundhouse 
Theater 301-933 1644) 


■ ZURICH 

Opemhaus Tonight, Thurs, Sun 
afternoon: choreographies by Ek, 
Bienert and Van Manien. Tomorrow, 
Fri: Serge Baudo conducts revival of 
Bernard Uzan's production of 
Gounod's Romdo et Juliette, wfth 
Francisco Araiza and Isabelte Rey. 
Sat La Cenerentoia with CeciHa 
Bartoli. Sun evening: Die ZauberflSte 
(01-262 0909) 

TonhaBe Thurs: Edmond de Stoutz 
conducts Zurich Chamber Orchestra 
in works by Mozart, Zbinden, Gluck 
and Gretry. Fri: Tonhaile Orchestra 
plays works by Bruch and Arutunjan. 
Sun: Mikios Perenyi csHo recital 
(01-261 1600) 


ARTS GUIDE 

Monday: Berlin, New York and 
Parts. 

Tuesday: Austria. Belgium, 
Netherlands, Switzerland. Chi- 
cago, Washington. 
Wednesday: France, Ger- 
many, Scandinavia. 

Thursday: Italy, Spain. Athens, 
London, Prague. 

Friday: Exhibitions Guide. 

European Cable aud 
Satellite Business TV 
(Central European Time) 

MONDAY TO FRIDAY 
WC/Super Channel: FT Busi- 
ness Today 1330; FT Business 
Tonight 1730, 2230 

MONDAY 

NBC/Super Channel: FT 
Reports 1230. 

TUESDAY 

Euronews: FT Reports 0745, 
1315, 1545, 1815, 2345 

WEDNESDAY 

NBC/Super Channel: FT 
Reports 1230 

FRIDAY 

NBC/Super Channel: FT 
Reports 1230 

Sky News: FT Reports 0230, 
2030 

SUNDAY 

NBC/Super Channel: FT 
Reports 2230 

Sky News: FT Reports 0430, 
1730; 





F ,NANCIAL TIMES TUESDAY NOVEMBER 8 1994 


T he Russian govern- 
ment and its economic 
reform programme are 
swinging on a rope: 
the fete of neither can be pro- 
nounced with certain ty. 

For the past year, Yeltsin 
administration policy has 
resembled a collection of "'this 
way” signs pointing in all 
directions. It is not simply the 
president who is to blame for 
this, as he thrashes this way 
and that seeking stability and 
support Also to blame are the 
senior state officials, who oscil- 
late between moves towards 
the market and concessions to 
those who fear reform. 

Coping with these two con- 
tradictory imperatives is the 
essence of Russian governance, 
but it makes for a disjointed 
progress, always threatened 

with reversal. 

Yet much of this past year 
had been trumpeted as a suc- 
cess. The exit from the Cherno- 
myrdin cabinet in January of 
Mr Yegor Gaidar and Mr Boris 
Fyodorov, the two men most 
associated with reform, 
suggested something was 
amiss. But Mr Chernomyrdin 
managed to hold to a policy 
that brought inflation down 
from over 20 per oent a month 
at the beginning of the year to 
4 per cent in August 
However, some Rbs 13.000b n 
were pumped into the system 
over the summer to allay the 
d emands of the former state 
industries and agricultural lob- 
bies. This brought the inevita- 
ble rise in inflation, up to 15 
per cent last month (though 
now said to be felling). It also 
weakened the rouble. On 
“Black Tuesday” - October 11 
- heavy selling drove the rou- 
ble down fay more than 20 per 
cent, to Rbs4,000 to the dollar, 
ft only recovered with central 
bank Intervention. 

This appears to have 
shocked not just the markets 
and the population, but also 
President Boris Yeltsin. A rift 
- denied, but evident - opened 
up between him and his prime 
minister. The president 
ordered a commission of Rus- 
sia’s security council, made up 
of intelligence chiefs and gen- 
erals, to look into the crash. Its 
conclusions have not been pub- 
lished but have been leaked. 

Not surprisingly, such a 
co mmi ttee named guilty men. 
They included the head of the 
central bank, Mr Victor 
Gerashchenko, and the acting 
minister of finance, Mr Sergei 
Dubinin, both pushed into res- 
ignation by Mr Yeltsin. They 
Included Mr Alexander 
Shokhin, deputy prime minis- 
ter and minister for the econ- 
omy. who failed to “co-ordi- 
nate” the work of the 


Twisting and 
turning 

John Lloyd on the fitful progress 
of Russian economic reform 



Anatoly Chubais (left), a clever reformer named as first deputy 
premier, and Alexander Shokhin, who resigned on Sunday 


departments under his nomi- 
nal charge. 

They included a group of 
large banks, including Most. 
Menatep, Inkombank, Imperial. 
Alfa, International Moscow 
Bank and others, mostly in the 
top 20 of the new finance 
houses and all desperate for 
respectability. They were 
charged, according to the daily 
Sevodnya, with “profiteering” 
on the money markets. 

Last week. Mr Shokhin, the 
longest-serving cabinet mem- 
ber and a solid if not radical 
reformer, felt a cold wind. The 
most senior minis ter blamed, 
he learned that the nomination 
of the new finance minister - 
Mr Vladimir Panskov - was 
being discussed without his 
participation. He went, on 
Thursday, to Mr Chernomyrdin 
to demand a say. Mr Cherno- 
myrdin said he did not know 
Mr Panskov either. 

On Friday, Mr Panskov was 
appointed. Mr Shokhin’s resig- 
nation was accepted by the 
president on Sunday. 

This humiliation for Mr 
Shokhin was also a blow for 
Mr Chernomyrdin. Last month. 


a conservative agriculture min- 
ister, Alexander Nazarch.uk, 
was foisted on the prime minis- 
ter. He also lost a close ally In 
Mr Gerashchenko, the central 
bank governor, and a respected 
colleague in Mr Dubinin, the 

acting flnanrp minis ter. 


O n Saturday. Mr Vic- 
tor Ilyushin, the 
president's closest 
aide, said his boss 
was “seriously concerned over 
the work of the government", 
but denied a rift between head 
of state and government 
The constitution underpins a 
strong presidency, and makes 
the government dependent on 
its pleasure. Mr Chernomyrdin, 
unlike Mr Shokhin, has 
decided to march on. But how 
much longer can his govern- 
ment survive this kind of treat- 
ment? 

That will depend on the 
progress of economic reform. 

The cabinet’s credibility and 
the future of reform are wholly 
intertwined. Mr Chernomyr- 
din's government has commit- 
ted itself to a rigorous budget, 
which eschews the taking of 


any credits from the central 
bank. Instead, the government 
will depend on the sale of Trea- 
sury Bills and on finance of up 
to $l6bn from the International 
Monetary Fund and the World 
Bank. 

This will give the IMF a 
much larger say than hitherto 
in the budget's design. The tar- 
get inflation rate- 1 per cent a 
month in a year s time - is 
already agreed. The size of the 
budget deficit is not. The IMF 
target is 6 per cent of GNP, the 
Russian government's 8 per 
cent The rate at which the 
rouble should be pegged to the 
dollar, if it can be stabilised, 
has still to be decided. But 
these are tactical matters. The 
principles are accepted. 

But such austerity is bitterly 
opposed by the president’s offi- 
cials, led by Mr Alexander Liv- 
shits. one of his economic 
advisers. Significantly the dep- 
uty head of Mr Yeltsin's bud- 
get department, also opposed 
to the government's budget 
proposals, was Mr Panskov. 
now at Finance. 

Mr Panskov was quoted by 
the government press service 
as saying on Friday that he 
supported the government’s 
course. But, according to min- 
istry officials, be also said that 
“much work remains to be 
done” on the budget. Mr Pan- 
skov may have been signalling 
an intention to rethink the 
basic strategy of the budget, as 
parliament continues to rage 
against it. 

But reform, staggering on 
Friday, was walking tall again 
on Saturday, when Mr Anatoly 
Chubais was named as a first 
deputy premier in charge of 
economy and finance. 

Mr Chubais is Mr Privatisa- 
tion: a stubborn, clever man of 
only 39. Brought into govern- 
ment by Mr Gaidar, he has in 
the past two years overseen 
the largest and most rapid pri- 
vatisation programme in the 
world. Of his reform creden- 
tials there is no doubt. He said 
on Saturday that he - he. not 
Mr Yeltsin - would soon be 
naming a new economics min- 
ister and a new privatisation 
chief. 

If there is an unambiguous 
sign from this mix of events, it 
is that Mr Yeltsin, still able to 
pull the levers of state, is lean- 
ing heavily over Mr Cherno- 
myrdin’s crucial budget, but is 
not yet prepared to squash it. 

A “softer" variant would 
starve the government of inter- 
national financial aid and 
leave it caught in the toils of 
high-to-hyper inflation. 

Mr Yeltsin may be fretful, 
and even threatening, over the 
budget, but he has yet to come 
up with a better idea. 


Joe Rogaly 




!>? 


If the 


rainforests are 


being destroyed at 


the rate of thousands of 


trees a minute, how can planting ^ 


just a handful of seedling make a difference? 

A WWF - World Wide Fund For Nature tree 
nursery addresses some of the problems facing people 
that can force them to chop down trees. 

Where hunger or poverty is the underlying cause 
of deforestation, we can provide fruit trees. 

The villagers of Mugunga, Zaire, for example, cat 
papaya and mangoes from WWF trees. And rather than 
having to sell timber to buy other food, they can now 
self the surplus fruit their nursery produces. 

Where trees are chopped down for firewood, 
WWF and the local people can protect them by planting 
last- growing varieties to form a renewable foci source. 

This is particularly valuable in rhe Impenetrable 
Forest, Uganda, where indigenous hardwoods take 
two hundred years to mature. The Afiirfcftinmu loiea 
trees planted by WWF and local villages can be 
harvested wirhin five or six years of planting. 

Where trees arc chopped down to be used for 
construction, as in Panama and Pakistan, wc supply 
other species that are last-growing and easily replaced. 

These tree nurseries are just part of the work we 
do with the people of the tropical forests. 

WWF sponsors students from developing countries 
on an agroforestry course at UPAZ Universiry in 
Costa Rica, where WWF provides technical advice on 
growing vegetable and grain crops. 



m&m: 


Unless 


help is given 


soil is exhausted 


very quickly by "slash 


and bum" farming methods 


New tracts of tropical forest would then have 
to be cleared every two or three years. 

This unnecessary destruction can be prevented by 
combining modern techniques with traditional 
practices so that the same plot of land can be used to 
produce crops over and over again. 

In La Planada, Colombia, our experimental farm 
demonstrates how those techniques can be used to 
grow a family's food on a small four hectare plot. 
(Instead of clearing the usual ten hectares of forest.) 

WWF fieldworkers are now involved in over I lib 
tropical forest projects in 45 countries around the world. 

The idea behind all of this work is that the use of 
natural resources should be sustainable. 

WWF is calling for the rate of deforestation in the 
tropics to be halved by 1995. and for there to be no 
net deforestation by the end of the century. 

Write to the Membership Officer ar the address 
below to find out how you can help us ensure that 
this generation docs not continue to steal nature’s 
capital from the next, ft could be with a donation, 
or, appropriately enough, a legacy. 


WWF World Wide Find For Nature 

(kjrmrrlj Vortt WiUUr Fond) 

International Secretariat, 1196 Gland, Switzerland. 


FOR THE SAKE OF THE CHILDREN 

WE GAVE THEM A NURSERY. 


The competency count 


Several 

competent min- 
isters serve in 
Mr John 
Major’s cabi- 
net. One or two 
would be 
classed in any 
1 administration 
as, shall we say. not bad. We 
should acknowledge these hid- 
den pearls. Better that than 
focus yet ag ain on dispiriting 
accounts of internal squabbles 
in the Conservative party, or 
zoom in once more on tales of 
malfeasance. 

From time to time those of 
us whose task it is to hurl 
brickbats and squashy toma- 
toes at the administration 
should take a breather, con- 
template the half of the glass 
that is full, consider the parts 
of the egg that are good, tem- 
per outrage with a sense of 
proportion, savour the unfamil- 
iar experience of recognising 
that a surprising number or 
departments of state are prop- 
erly managed. 

Two such are the foreign 
office and the Treasury. The 
weight added to Mr Major's 
team by the presence within it 
of Mr Douglas Hurd will be 
measured by the loss felt when 
he departs. I am not about to 
predict the foreign secretary’s 
resignation, either imminently 
or. as is widely supposed, next 
July. Others have made such a 
forecast in the midst of each of 
the last four s umm ers Let us 
take him to be there until we 
learn otherwise. We are well- 
served while he is in place. 

This is not to say that Mr 
Hurd is without flaw. I do not 
agree with every detail of his 
policies, least of all in Bosnia, 
but then I do not have respon- 
sibility for soldiers' lives. 
Again, he and the chancellor 
have initialled the prime min- 
ister's intra-party concordat on 
the European Union. This 
sticking-plaster agreement 
owes more to fear of Tory 
Eurosceptics than it does to 


adherence to heart-of-Europe 
principles. Thus It may be said 
that Mr Hurd has contributed 
more gravitas than strategic 
vision to the government's 
handling' of European affairs. 
Yet, warts and all, the foreign 
secretary is an undoubted 
asset 

So is the chancellor. Mr Ken- 
neth Clarice has had the humil- 
ity, and the sense, to place 
monetary policy under the 
watchful eye of the governor of 
the Bank of England. By pub- 
lishing the minutes of their 
meetings he has given Mr 
Eddie George the quasi-inde- 
pendent power to move inter- 
est rates. It is now virtually 
impossible for the prime minis- 
ter to override advice given by 

the chancellor 

and the gover- 

nor in combi- A S11T 

nation. n nm 

As to fiscal , . 

policy. Mr departi 

Clarke’s con- state aTC 
trol over public 

spending is manag 

tighter than SUCh i 

was Mr Major’s c . 

when the latter IO reign I 
was chancellor, the Ti 

while Mr 
Clarke's taxes 

are even higher than were Mr 
Norman Lamont’s. The Clarke 
strategy is more likely than 
any other to restore public con- 
fidence in the Conservatives as 
the party of “sound money". It 
just might put the chancellor 
in a position to cut taxes 
before the next election: failing 
that he can announce reduc- 
tions that he proposes to phase 
in after the voting is over. 

A perhaps more surprising 
candidate for our necessarily 
brief order-of-merit list is Mr 
Peter Lilley. He is femous for 
being a right-winger, a Euro- 
sceptic who spoke foolishly 
about foreigners at the 19S3 
party conference and a pur- 
veyor of embarrassingly bad 
verse. Yet Mr Lilley is a 
remarkably successful depart- 


A surprising 
number of 
departments of 
state are properly 
managed. Two 
such are the 
foreign office and 
the Treasury 


mental minister. He 
edges that social secunty, for 
which he is responsible, is here 
to stay and seeks merely to 
ensure that its cost - some 
£85bn a year - does not grow 
more rapidly than the national 
income. He has made a senes 
of changes the more radical or 
which will not take effect until 
well into the next century. 

Thus invalidity benefit the 
cost of which was growing rap- 
idly, has been replaced by the 
tightly-defined incapacity bene- 
fit and statutory sick pay by 
an obligation on employers. 
Pensions legislation due to be 
announced in the Queen's 
speech next week will equalise 
the pensionable age for men 
and women at 65, although the 

full effect will 

not be felt for a 
rising quarter of a 
nf century. The 
er U1 new Job Seek- 

ents OI ers’ allowance, 

nmnerJv 331 item m 11x6 
properiy game speech 

a. TWO moves Britain 
-p thp a step further 
. towards US- 
nce ana style workfare. 
aSUTV Whatever 
3 Labour may 
mmmmmmmmm say about 
harshness, these measures are 
in the spirit of the recent 
report of the left’s social jus- 
tice commission. No future 
government is likely to reverse 
them. Mr Lilley's calculation is 
that little will be saved imme- 
diately. but that the social 
security budget will be reduced 
by the equivalent of some £3bn 
in today's money by the year 
2000 and four times that by 
2050. The social security secre- 
tary does not radiate pure sun- 
shine. He has not discovered 
how to r e pr o g r am the troubled 
child support agency. His 
promised legislation on rights 
for the disabled, a substitute 
for a private bill the govern- 
ment infamo usly kille d off, has 
yet to appear. Yet his principal 
sins are of omission: what he 


has done has been done wefl. 

The same may be said of the 
new secretary for education. 
Mrs Gillian Shephard, 
although she has not been long 
enough in the post for a proper 
assessment to be made. Her 
task is to calm the teachers 
down, following six turbulent 
years during which the 
reforms envisaged in the 1988 
education act have met with 
increasingly stiff resistance 
from the teaching unions. - 
She has made a good start A 
former schools inspector and 
local education committee 
chairman. Mrs Shephard is an 
engaging, down-to-earth minis- 
ter who deploys charm and 
sympathy with practised ease. 

Everything she has said so 
far has been positive. She has 
accepted, in. fuIL Sir Ron Dear- 
big’s revision of the national 
curriculum, spoken of "special- 
ist" rather than “selective'’ 
schools, cancelled her prede- 
cessor's plans to bombard par- 
ents with government propa- 
ganda leaflets, set in train a 
review of higher education, 
and demanded that children be 
taught the correct use of writ- 
ten and spoken English. ... 

1 suspect that she is less 
t han wholly enthusiastic about 
state schools opting out from 
local authority controL Her 
barrage of common-sense is 
now being trained on the 
National Union of Teachers, 
which has yet to call off Its 
obstruction of testing in 
schools. 

Finally, note Sir Patrick 
Mayhew, a successful secretary 
for Northern Ireland. His strat- 
egy was determined for him by 
others, notably Mr Major and 
his Irish counterpart, but that 
does not detract from Sir Pat- 
rick's own record. He was 
there when the shooting 
stopped. He has not botched 
his job. He deserves the credit 

There Is no space for the rest 
of the government. That is not 
to be taken as an indictment of 
all of it Perish the thought 


LETTERS TO THE EDITOR 

Number One Southwark Bridge, London SE1 9HL 

Fax 071 873 5938. Letters transmitted should be clearly typed and not hand written. Please set fox for finest resolution 

UK bankers right to worry about directive 


From Mr Roger Fink. 

Sir. I was interested to read 
Norma Cohen's article. 
“Weighty tome sends invest- 
ment banks reeling” (Novem- 
ber 21. on the effects of the 
EU’s capital adequacy directive 
and, in particular, bankers' 
fears that French and German 
regulators will not enforce the 
rules as rigorously as do those 
in the UK An interesting com- 
parison is the rigorous way the 
UK authorities have brought 
the money-laundering directive 
into force and, in particular, its 
application to solicitors, in con- 
trast to other member states. 

The principal aim of the 

Less than 
ecstatic 

From Mrs Barbara CouUas. 

Sir, Your travel writer, Kate 
Bevan, tells us in her article 
“A sharp eye on the clouds" 
(November 5/6) that Santa Bar- 
bara is "blessed with a wonder- 
ful beach”. 

Our experience in July 1992 
left my family rather less 
ecstatic. The beach was dirty, 1 
the sea smelt of ammonia (per- I 
baps as a result of the oil der- 
ricks dotted across the hori- 
zon) and the only other 
sun-worshippers were a hand- 
ful of win os slumped under the 
trees. While my husband and 
son braved the hazards for a 
short dip, m; daughter and I 
were not prepared to take the 
risk. 

I can only presume that the 
town’s cleansing department 
has performed a miracle in the 
last two years. 

Barbara Coultas, 

20 Tewit Well Avenue, 

Harrogate. 

North Yorkshire, HG2 SAP 


money-laundering directive 
was to ensure that “credit and 
financial institutions” intro- 
duced administrative proce- 
dures for the purpose of identi- 
fying and preventing money 
laundering. Member states 
were also required to extend 
the provisions of the directive 
to professions and other busi- 
nesses which engage in activi- 
ties "particularly likely” to be 
used for money-laundering 
purposes. 

The relevant UK legislation, 
the 1993 Money Laundering 
Regulations, came into force in 
April this year. As well as 
applying to financial institu- 


tions, the regulations cover 
professions such as solicitors, 
to the extent that they can, on 
“investment business” (as 
defined). Solicitors now have to 
introduce and maintain 
time-consuming administrative 
procedures, including obtain- 
ing identity evidence of new 
clients, training employees in 
the law of and how to detect 
money-laundering and appoint- 
ing a “money-laundering offi- 
cer”. 

This is in contrast with the 
way the directive has been 
brought into force in other 
member states. In some of 
them, no legislation has yet 


Project highlights dearth 
of start-up finance 


Prom Mr Warren S Lister. 

Sir, Your article. “Finance 
sought for driverless bus net- 
work” (November 2), high- 
lights the problem of the 
“start-up gap” faced by many 
entrepreneurs involved in 
large projects. Companies and 
banks are reluctant to face the 
risks inherent in providing the 
often quite modest front-end 
finance needed to validate and 
establish projects to a level 
that encourages them to pro- 
vide backing and then con- 
struction finance. 

The response, “I’ll put in 
money if someone else will 
first”, is all too familiar to 
those seeking start-up finance. 

Central government has 
shown a commendable change 
of emphasis in looking for i 
ways other than building yet 
more roads to reduce traffic 
congestion and environmental 
pollution, and has shown a 
desire to encourage the private 
sector to finance large 


infrastructure projects. 

So far, central government 
funds have been fed in large 
chunks to just a handful of city 
transit schemes - and good 
luck to them. However, the 
money needed to bridge the 
start-up gaps facing many tran- 
sit scheme promoters is often 
very modest - less than 2 per 
cent of a project’s total cost - 
but the potential rewards are 
great 

Central government should 
should spread the limited 
resources more widely and pro- 
vide much lower levels of fund- 
ing to many more projects. It is 
time the government risked a 
little to gain a lot. 

Warren S Lister. 
project leader, 

Guildford Rapid Transit, 
Listavia International 
Consultants, 

13 Woodmancourt, 

Mark Way, 

Godaiming. 

Surrey GU72BT 


'4 

P e ..a- 

j i i' 1 * 

p ‘ 


Nice work share for those EU commissioners 


From Mr Roger SatmL 
Sir. The photograph of Jac- 
ques Santer. the EC president, 
and his commissioners on your 
front page (October 31) 
reminded me of the scene at 


the local Jobcentre which I 
have to visit every fortnight - 
too many people chasing too 
few jobs. 

It is comforting to know that 
the commissioners have the 


opportunity to work share, and 
that their rates of remunera- 
tion are not affected. 

Roger SaouL 
78 West Hill, 

London SW15 2UJ 


been enacted. In other member 
states, including France and 
Germany, legislation has been 
brought into force but it is 
nowhere near as rigorous as 
the UK regulations. In neither ^ 
of those countries is the legal ' 
profession subject to the fall 
rigours of the directive - in 
Germany only to the extent 
that lawyers receive cash pay- 
ments over a certain amount 
and in France not at all. 

I believe, therefore, that the 
bankers' fears could prove to 
be well founded. 

Roger Fink, 

Biddle & Co, 1 Gresham Street, 
London EC2V 7BD 

No effect on 
basic rates 

From Mr Simon Sapper. 

Sir, Your article on innova- 
tive and performance related 
pay experiments in BT (“Tele- 
coms union supports pay test", 
October 26) may cause some 
confusion among your readers 
in one key respect: I should 
make it clear that the remuner- 
ation policy relates only to ^ . 
sales commission on top of a ** ^ 
guaranteed 100 per cent of 
existing basic pay rates. There 
is therefore no substitution of i' 
basic pay for any element of 
performance related pay in the 
trial you refer to. 

The National Communica- 
tions Union and BT have 
worked extremely closely on 
the development of this project 
in the Nottingham/Derby area 
which is designed to improve 
operational efficiency with a 
comprehensive package of 
measures involving attendance 
patterns, multi-skilling and 
remuneration. 

We welcome an opportunity 
to clarify this as we work 
towards a successful outcome 
of this exercise. 

Simon Sapper. 
assistant secretary. 

National Communications 
Union. 

Greystoke House. 

150 Brunsu'ick Road. 

Ealing. London W5 1AW 


©pi' 


Opposition to PO privatisation is not wilful misrepresentation 


From Mr David Erdman. 

Sir. The editorial. “Avoiding 
postal fudge" (November 3). 
was sufficiently arrogant and 
ill-informed to merit comment. 

The claim that opposition to 
postal privatisation is moti- 
vated mostly by ignorance or 
wilful misrepresentation is the 
view from an ivory tower. 
Actually, the public is afraid of 
seeing another service dam- 
aged in the same way that 
health, education and trans- 
port have been, by a combina- 
tion of increased cast and 
decreased availability. 


As regards misrepresenta- 
tion. the government’s case 
has certainly been well aired, 
not least by your newspaper, 
but the views against privatisa- 
tion have hardly been reported 
at all. 

More than half of all main 
post offices have already been 
quietly privatised through 
franchising to retail outlets. In 
the process many people have 
lost the benefits deriving from 
continuous employment. Their 
pension and pay has been 
reduced. It is not at all clear 
that the European Union’s 


Acquired Rights Directive - 
known as TUPE. and which 
protects the terms and condi- 
tions of public-sector employ- 
ees whose contracts are trans- 
ferred to the private sector - 
have been observed in the pro- 
cess. 

The closure of post offices in 
town high streets has had a 
detrimental effect on the via- 
bility of remaining shops in 
much the same way that open- 
ing superstores has 

Many post offices have been 
sited in superstores and other 
outlets not easily accessible to 


pensioners. The advice offered 
to them has been to open hank 
accounts, which some can nei- 
ther afford nor understand. 

The process of franchising is . 
continuing today despite the 
resounding vote of ho confi- 
dence given to privatisation by 
the public through their 
elected representatives. 

David Erdman. 
secretary. 

Campaign to Save the main 
Saffron Walden Post Office. 

134 Goddard Way. 

Saffron Walden. 

Essex CBlO 2ED 
















FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


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FINANCIAL TIMES 

Number One Southwark Bridge* London SEI 9HL 
Tel: 071-373 3000 Telex: 922186 Fax: 071-407 5700 

Tuesday November 8 1994 


Three weddings 
and a puzzle 


..,p«r'. , 'i.- 


Joint ventures between electronics 
companies are proliferating 
almost as fast as the varieties of 
services and equipment they sell. 

What is going on? 

Yesterday Siemens of Germany 
announced that it was teaming up 
with the US-based Scientific 
Atlanta and Sun Microsystems to 
develop and market technology for 
distributing telephone and infor- 
mation services. The US telecom- 
m unications industry Is aisn hum- 
ming with talk that AT&T and the 
UK's Cable & Wireless will try 
together to create a national US 
network for mobile telephony. 

In a further round of the uneasy* 
three-year partnership between 
IBM and Apple Computer, the two 
companies yesterday at last 
announced plans for a common 
personal computer design. 

The impetus for such partner- 
ships comes from the multimedia 
revolution: the explosion in the 
range of services offered to house- 
holds and businesses, from infor- 
mation to entertainment This has 
been made possible by telecommu- 
nications deregulation in many 
industrialised countries. But it is 
also driven by technological 
change: the increase in the carry- 
ing capacity of channels, and the 
em e rgence of new computer chips 
able to process much greater vol- 
umes of data 

In this maelstrom, companies 
are battling to get their version of 
equipment established as the stan- 
dard with consumers and with 
designers of peripheral equipment 
The key to making money in the 
higinnargin segments of electron- 
ics (leaving aside the commodity 
b usinesses such as ^htp manufac- 
ture) has always been the owner- 
ship of intellectual property, 
whether the design of hardware or 
software, when that configuration 
is adopted as the standard. 

Equipment standards 

In Siemens’ case, it hopes that 
its US partnerships will set the 
standard for the equipment now 
being bought by cable operators 
and telephone companies to 
deliver the new multi-media ser- 
vices. 

The mooted link-up between 
AT&T and C&W has its eye an the 
new federal licences to be allo- 
cated by the Federal Communica- 
tions Commission for “personal 
communications services" such as 

A Budget for 
employment 


mobile telephony. Such a partner- 
ship would be able to build a net- 
work offering a common brand 
image and “seamless" communica- 
tions from region to region out of 
what would otherwise be bun 
dreds of small firms operating 
with different equipment. 

Such hopes are clearly better 
pursued through joint ventures 
than through takeovers, even 
where regulation permits. Speed is 
essential in securing competitive 
advantage in such conditions, and 
the products concerned are often 
only part of a company’s range, 
hardly warranting a full corporate 
merger. But such joint ventures 
need not be anti-competitive. They 
may instead prove the only way 
through which an existing Indus 
try standard can be challenged 
and bettered. 

Industry dominance 

Such is the case with the alli- 
ance between IBM and Apple, 
formed to reinvent the personal 
computer and to overthrow the 
industry dominance of Intel and 
Microsoft The two have had every 
incentive to make the relationship 
work: the window for attacking 
Intel-Microsoft is wider than it has 
been for years, as the Intel chip 
design faces more competition, 
and the next version of Windows 
will not be launched until well 
into 1995. 

But competitive breakthrough 
has proved elusive so far. Even if 
IBM and Apple announce develop- 
ment of compatible hardware, 
they have not yet produced com- 
mon software which would let pro- 
grammes run on computers 
designed by either company. 

The reasons for the tensions are 
illuminating. Bach side has 
believed that it has the better 
ideas, both on hardware and soft- 
ware. and has been unwilling to 
surrender independent research 
and development, let alone mar- 
keting. It is an uncomfortable por- 
trait of a marriage in which 
rivalry has triumphed over com- 
mon interest 

They may regret it The oppor- 
tunities available in electronics 
worldwide to secure a competitive 
lead are unlikely to reoccur far 
years. Those companies that form 
well-judged partnerships, and 
have the cultural flexibility to 
enable them to succeed, are likely 
to prove the winners. 


Westminster is awash with 
proposals to reform the tax and 
benefit system with a view to fos- 
tering employment. Owing, in 
part, to the separation of the two 
policy areas, tax reforms aimed at 
raising work incentives in the 
1960s tended to neglect the large 
disincentives to work faced by 
those at the threshold of the tax 
and benefit systems. The second 
unified Budget provides Mr Clarke 
with an opportunity to start 
redressing the balance. 

By common consent, the welfare 
state is in need of fundamental 
reform. Reforms of the tax and 
benefit system have not kept pace 
with changes in the labour mar- 
ket Approximately a tenth of the 
population is. now dependent on 
means-tested state benefits, twice 
as many as in 1979. In the past, 
economic recovery would have 
lowered this figure considerably. 
But fewer oT the unemployed are 
being offered the foil-time, rela- 
tively secure jobs for which the 
benefit system was created. As a 
consequence, the. relationship 
between levels of welfare depen- 
dency and the economic cycle 
shows signs of breaking down. 

Some of the changes in the 
structure of employment may 
have been encouraged by the tax 
and benefit system itself. The 
N ational Insurance system, for 
example, probably explains some 
of the rise in the numbers work- 
ing very few hours. By and largn, 
however, evidence of similar 
trends brother countries indicates 
that it is the welfere state that 
must bend to labour market 
chang e, not the other way round. 

Reforms proposed . 

There is no shortage of reform 
proposals for the Chancellor to 
choose from. The Labour Party's 
Social Justice Commission, the 
Trades Union Congress and the 
Ccmfederation of British Industry 
have all. recently outlined what 
they would Kke him to do in this 
area: Mr Clarke could usefully 
draw from all three, but the 
v isionar y sweep of sudl proposals 
should not distract Ins attention 
from- relatively modest reforms, 
winch would still lessen the sys- 
tem's worst fiaws. 

The Chancellor should focus his 
energy and- resources on two 
groups whose difficulties in the 
labour market are currently most 
acute: families with children and 


the long-term unemployed. Family 
Credit was introduced to eliminate 
the possibility that taking work 
would leave anyone with children 
worse off. In practice, however, 
rfifld care and other up-front costs 
associated with taking a job. cou- 
pled with the withdrawal of hous- 
ing and other benefits, ensure that 
this kin d of “unemployment trap" 
is still a problem for unemployed 
people with children. 

The new childcare costs “disre- 
gard” within family credit, 
announced in the last Budget, will 
go part of the way to improving 
the situation. But feather iwip is 
needed to ensure that people can 
bridge the gap between leaving 
income support and beginning to 
receive fondly credit At present 
around a third of family credit 
claimants receive “fast-track” 
approval for their application. 

Guaranteed income 

The Chancellor should make a 
commitment that noone will expe- 
rience any loss of income - how- 
ever short-term - by taking a Job. 
The best way to achieve this 
would be to institute a guaranteed 
1-2 week overlapping payment of 
income support after a person 
starts work. This would have the 
added advantage of helping to 
meet one-off expenses related to 
going back to work. 

The biggest obstacle to taking a 
job for the long-term unemployed 
is not the struc t u re of the benefit 
system, but rather employer pref- 
erences. Mr Clarke should lower 
national insurance contributions 
for companies employing the 
long-term unemployed. If neces- 
sary, a weH-taOored scheme could 
be funded by raising the upper 
p^mnig c limit on National insur- 
ance, which already causes an 
unjustifiable dip in marginal 
income tax rates before people 
reach the higher rate band of 
income tax. 

Mr Clarke is fortunate in having 
an opportunity to combine the 
politically fashionable with the 
worthwhile. Yet whatever aspect 
of the problem Mr Clarke decides 
to tackle, one rule must be obeyed. 
Nothing impairs the efficient func- 
tioning of the benefit and tax sys- 
tem more than its administrative 
complexity. Job centres and bene- 
fit offices are graveyards for 
wheezes bom of past ministerial 
publicity-seeking. Mr Choke must 
not add to the list 


P eace is about to be 
declared between Volks- 
wagen and the Czech 
government ending 14 
months of wrangling 
over the future of Skoda, the Czech 
carmaker. 

Volkswagen. Europe's largest car- 
maker. has scaled back the ambi- 
tious plans to modernise Skoda that 
initially helped it beat Renault of 
France to win the Czech govern- 
ment's approval for the takeover in 
1991. 

The revised plans should guaran- 
tee the future of the Czech car- 
maker, while allowing the German 
company to introduce production 
arrangements more radical than 
anything it has so tar attempted at 
its plants in Germany. 

The new harmony between 
Skoda's shareholders was on show 
two weeks ago when Czech minis- 
ters and government officials gath- 
ered with the company's top man- 
agement on Prague's Charles bridge 
to christen the Felicia, the first new 
Skoda to be launched since VW 
took over management control in 
early 1991. President Vaclav Havel 
took a private test drive. 

Last year, Mr Ferdinand Piech, 
VWs management board chair man , 
had stunned his partners in Prague, 
by pulling out of a prestige DM1.4bn 
(£57Qm) project finance facility for 
Skoda. Negotiated over many 
months with the International 
Finance Corporation and the Euro- 
pean Bank for Reconstruction and 
Development, the loan was aban- 
doned only hours before it was due 
to be signed in London. 

VWs withdrawal, made without 
prior warning to the Czech govern- 
ment, sent shockwaves through 
Prague and soured a relationship 
that had begun with high hopes. 

It has taken a long time to rebuild 
trust, but lawyers for the two sides 
are putting the final touches this 
month to crucial amendments to 
the original Skoda acquisition con- 
tract 

A new appendix to the agreement 
is aimed at stilling Czech govern- 
ment fears about the level of Volks- 
wagen’s commitment to Skoda, the 
showpiece of the Czech privatisa- 
tion programme, fears that had led 
to rumours that Prague might drop 
VW and seek a new partner. 

Due to be signed in the next cou- 
ple of weeks, the new agreement 
will finally clear the way for VW to 
boost its shareholding in Skoda by 
the end of December from the 31 per 
cent acquired in 1991 to a majority 
50.5 per emit 

VW will inject an additional 
DM350m of new equity into Skoda 
and make a further DM40m pay- 
ment to the Czech government Its 
stake will rise to 70 per cent by the 
end of 1995 in return for a total 
investment of DML4bn - DMl_2bn 
in new equity capital for Skoda and 
DM200m paid to the Czech govern- 
ment 

Prague has had much to come to 
terms with in the revised deal: 

• The capital investment planned 
for Skoda until the end of the 
decade has been cut to about 
DM3.7bn from the original estimate 
of DMS^bn. 

• The target of a doubling of pro- 
duction capacity to 390.000 cars a 
year bas been reduced to less than 
350,000. 

• A costly new engine plant has 
been dropped from the programme. 

VW argues, however, that the 
revision of its plans for Skoda will 
enable the Czech carmaker to avoid 
the costly disasters that have beset 
Seat, the group’s Spanish subsid- 
iary, pushed to the edge of financial 
collapse last year by the combina- 
tion of recession and the 
over-ambitious investments agreed 
in the late 1980s. 

In 1990, VW had just begun a 10- 
year, Pta&OTbn (£3.4bn) investment 
programme at Seat, and presented 
its spending on the Spanish opera- 
tion to the Czech government as a 
model for Skoda. 

Today it is clear that the Spanish 
model was Cawed. Huge losses at 
Seat last year helped to pull the 
whole of the VW group deep into 
the red. Instead of a model. Seat is 
now cited by VW as a warning of 
the perils of profligate over-invest- 
ment. 

“We always mentioned how sue- 


Volkswagen is about to reach agreement 
with the Czech government over the 
future of Skoda, says Kevin Done 

Harmony under 
the bonnet 


cessful Seat was. We organised 
many trips to Spain to show the 
Czechs the brand-new plant, how 
well-equipped it was with a lot of 
automation. Today we know that 
labour rates are very low in the 
Czech Republic. It is much more 
effective not to automate all the 
processes," says Mr Volkhard Koh- 
ler. the Skoda vice-chairman 
brought in by VW in 1991. 

Volkswagen is hardly the same 
company today as the one that 
planned the development of Seat 
and then announced a string of 
visionary projects for eastern 
Europe in 1990 and 1991 as the bor- 
ders of the eastern bloc suddenly 
opened to the west. 

It plunged into record losses of 
DMl.94bn in 1993. Virtually its 
entire top management has been 
replaced. It is undergoing a corpo- 
rate revolution, as it seeks to escape 
from the unenviable position as 
Europe's high-cost car producer. 

The robust regime initiated by Mr 
Pi^ch at the beginning of 1993 set 
out to cut costs to the bone. The 
gospel now is lean production, lean 
engineering and lean investment. 
The Skoda project has been sub- 
jected by Mr Pi£ch to the same 
ruthless review as the rest of the 
group's operations, with little 
regard to the sensitivities of his 
partners. 

‘Too high investment can kill our 
company," warns Mr Kohler. 

"In 1990 all views were too opti- 
mistic." he adds. "There were buoy- 
ant markets in the east, today we 
know there is no purchasing power. 
When the Iran Curtain name down 
there were ideas that you could 
speed up development, but today it 
is clear that that cannot happen.” 

Volkswagen is pushing ahead, 
however, with the development of a 
second Skoda car range to be 
launched in late 1996, which is 
aimed at increasing Skoda sales 
worldwide above 300,000 a year by 
the late 1990s from less than 200,000 
this year. 

It will maintain and further 
develop the existing 1-3 litre Skoda 
engine famil y - now regarded as 
one of the company's biggest cost 
advantages - and is looking to 
develop a version for use elsewhere 
in other group cars, possibly at 
Seat. 

It is building a new paint plant at 
the main Skoda facility at Mlada 
Boleslav with a capacity for pro- 
cessing 1,300 cars a day or 307.000 
cars a year based on three-shift, 
round the clock working. It is also 
building an assembly plant for the 
second range, a large family car to 
be based on the chassis platform of 
the next generation VW Golf. 

The initial capacity for the new 
car will be for 70.000 a year, but this 
could be increased later to 140.000 a 
year, if there is sufficient demand, 
says Mr Gerald Weber. Skoda’s 
engineering director. “We have to 
be carefuL We have the lesson of 
Seat, where the investment was too 
much. We have to avoid that." 

The guiding principle for VW as it 
has revised its plans for the Czech 
Republic bas been to ensure that 
Skoda does not forfeit its cost 
advantages. 

According to Mr Piecb “the Tow- 
cost' argument is of particular sig- 
nificance due to the fact that the 
vehicles of the Skoda marque com- 
pete in the extremely competitive 
segment of the low-cost family car. 
In this segment the battle for the 
customer is fought decisively on 
prices." 

Mr Pi£cb argues that the “image 


Skoda: coming up to speed 



Sales 
rooo u»ts) 

250 — 


200 — 


ISO — 


100 — 


50 — 


11» naw Skoda Feflcia. gemg on sale shorty 
189S sates forecast 


Central & east 
Europe and Asia 


Czech Republic 
67,000 







aajooo 


7*000 


1988 89 90 91 92 93 M* 95* 
1 Forecast 


Totak 205£Q0 units 


Labour costs and working time in world auto industry, 1992 
Hours per year 
2.400 — 

Hong Kong i‘** ran 

— • South Korea' « ■ ■■ , 

2.200 . - - • ••■ . . .- 

CaoebllepuWIcf-.awore ’ j- ■ • ' - V' 

_**!«**■ I -Tortccy • 


2jx» — r 


Poland 
1,800 

1,800 


O^Hungaiy 

• • 

Brad I *«*«** Spain 


US. 


its* 


• v ■’ ^r\ r GataOm\. : L-* 


10 


Sauces: Saxte. Vofcmgen 


20 30 

D-Meric per hour 


40 


50' 


disadvantage" of Skoda - in the UK 
it is the butt of endless jokes - 
coupled with a low level of familiar - 
Ity elsewhere in west Europe, as 
well as an aggressive price battle in 
world car markets, “will put the 
brakes on a swifter and profitable 
growth of the marque". 

The labour cost advantage for 
Skoda in the Czech Republic is 
enormous with total labour costs at 
around one tenth of the level in 
Germany, but Mr Kohler accepts 

A deal expected this 
month will clear the 
way for VW to boost 
its holding in Skoda 
to 50.5 per cent 

that this advantage will gradually 
be eroded. 

“We have to streamline our pro- 
duction processes to be able to offer 
cars at a very low price. Wages will 
go up in the Czech Republic. We 
must find production processes that 
work to our advantage in the 
future, and that means the integra- 
tion of our suppliers." 

The development of a more effi- 
cient Czech automotive component 
industry was a key element in the 


original VW acquisition of Skoda, 
and its renewed commitment to this 
programme will be included in the 
new agreement with the Czech gov- 
ernment 

Since VW moved into Skoda 
nearly four years ago. around 40 
joint venture components 
operations have been established, 
which already supply 44 per cent of 
Skoda's purchases of materials. A 
further 6.5 per cent of purchases 
come from greenfield site 
operations. 

Around 80 per cent of Skoda's 
total purchases are made in the 
Czech Republic and Slovakia and 
more than half of total purchases 
are already coming from suppliers 
with access to western technology. 

VW is now seeking to break new 
ground at Skoda by establishing 
supplier operations directly inside 
the car plant, moving a step head 
even of the Japanese model of hav- 
ing suppliers grouped in close prox- 
imity to the plant 

Three suppliers - Lucas. Johnson 
Controls and Pelzer - are already 
working inside the Skoda plant 
producing rear axles, seats and car- 
pets. Mr KOhJer says the number 
will soon rise to ten to include 
items such as bumpers, dashboards, 
instruments and exhaust systems. 

“Labour costs will rise over time. 


Observer 


Purse-break 

hotel 

■ Observer is starting a campaign 
to discover which UK hotel charges 
the most to make a five-minute 
telephone caff The award - a 
broken handset from a 1960s public 
telephone, or a bottle of malt, 
winning nominee to choose — will 
go to the biggest proved ripoff 
posted or foxed in by Christmas. 

Top of the list so far is the 
spanking new Hilton National hotel 
in Swindon. A colleague was 
recently charged £4Z50 for a 
3fcninute Sunday night call to 
Dublin. British Telecom's weekend 
rate at five pence per unit - 
roughly 15 seconds - would have 
cost about £8, and Mercury 
somewhat less. 

But Swindle's - sorry, Swindon's 
- ffilton charges 30p per unit for 
the first 10 units, and 25p 
thereafter. The hotel's general 
manager Ashley Myers thought this 
wasn’t too had, since he understood 
the Manchester Airport Hilton to 
charge 36p per unit Much the same 
as it's better to be eaten by Rons 
than tigers... 


Party for the people 

■ You have to travel for these days 
to see a proper celebration of the 
1917 Bolshevik revolution. To Hanoi 
in foci, where co mmunis t officials 
commemorating the 77th 


anniversary yesterday laid wreaths 
at a statue of Lenin. The newspaper 
Hanoi Moi declared the revolution 
“the most glorious event of the 20th 
century", while party ideologist Vu 
Huu Ngoan wrote in another paper. 
Nhan Dan, that “we have to build a 
clean, strong, well -organised 
party . . . the failure of perestroika 
in the Soviet Union reminds us that 
a socialist-oriented society must 
have renovation”. 

In Moscow, procommunists were 
banned from Red Square. Instead, a 
group of Western clowns did tricks 
for children: “Here's the proletarian 
revolution: now you see it, now you 
don't." 


Bread and circuses 

■ Proof positive that there is such 
a thing as a free lunch. That's wbat 
voters got on Sunday when they 
turned out for a presidential 
election and constitutional 
referendum in Tajikistan, the 
central Asian country at war since 
its inception in 1991. 

Tajikistan has 2.64m registered 
voters, who had to choose between 
Tajik president Emomall 
Rakhmonov and challenger 
Abdulmalik Abdulladjanov. About 
20,000 people have already died in 
the civil war. Now there's a food 
shortage as well as a guerrilla war. 

Free rice pilaff was served as an 
enticement for people to vote. 
Abdulladjanov - currently 
Tajikistan's ambassador to Russia - 
must have hoped that as a former 



minister of bread, he was in with a 
chance. Instead, the voters appear 
to have endorsed the pilaff prince; 
Rakhmonov was declared the 
winner with 80 per cent of the vote. 


Rising sap 


■ The UK’s department of the 
environment was struck with a 
severe dose of time-travel 
indigestion yesterday. At 11.45 the 
central office of information 
electronically informed the nation's 
newsrooms that John Cummer, 
environment secretary', bad given 
the go-ahead for two new 
commun/tv forests in Cleveland and 


Nottinghamshire. The 
announcement, the Col helpfully 
added, had been made at the 
Association of County Councils’ 
annual conference in Leicester. 

Three hours later - after 
Cummer’s speech - a worried 
delegate asked about forestry, a 
subject he had not mentioned. He 
coyly answered that he hoped to 
make some announcements “in the 
near future". 


Infestations 

■ The US State Department's new 
Bureau of International Narcotics 
and crime has, predictably, been 
christened the bureau of drugs and 
thugs. State Department officials 
say opposition from Congress 
means the bureau has not, as 
originally suggested, taken on 
another responsibility - dealing 
with international terrorism. The 
idea of a bureau of drugs, thugs and 
bugs was too much, obviously. 


Trotted out 

■ Britain's bookies must be 
quaking in their boots. Robin 
Chpter, a 45-year-old 
number-cruncher who runs 
Wantage-based Racing Sciences, 
believes he can spot likely winners 
in National Hunt races by 
subjecting the offspring of 30 sires 
to advanced statistical analysis. If 
punters bad followed his 
recommendations, he claims they 




so m must have a lean structure 
from the outset" The company 
claims that productivity has 
improved by 37 per cent in the last 
three years. 

Despite the labour cost advan- 
tage, tiie Skoda workforce is already 
foiling, from more than 17,000 last 
year to under 16,000 in 1995. The 
Cuban, Vietnamese and prisoner 
workers of the Communist era are 
long gone, and Skoda has also cut 
the number of Polish workers to 140 
from 700 earlier this year. 

It also plans to transfer some 
workers from its own payroll to its 
suppliers'. Unlike in Germany, 
where car workers' wages are sig- 
nificantly higher than rates paid at 
components suppliers, there is little 
difference in the Czech Republic. It 
is therefore easier to transfer work- 
ers and create a flexibility that Mr 
Kdhler hopes will be a crucial 
source of future competitiveness. 

While VW has been tightening its 
manufacturing and product devel- 
opment plans for Skoda, it has been 
buffeted by dramatic fluctuations in 
the fortunes of Skoda's main mar- 
kets. which have forced the Czech 
carmaker to scour the world for 
new outlets. 

In 1991 Skoda sold 29.600 cars in 
Yugoslavia; this year sales to that 
area have fallen to around 6,000. 
Sales in Poland have plunged from 
38,000 in 1991 to 3,800 in the face of 
heavy import duties. In Turkey, 
they have fallen from 22,000 last 
year to close to 4,000 in 1991. 

According to Mr Detlev Schmidt, 
Skoda sales director, the sales 
potential of 90,000 a year in these 
three markets from 1991 to 1993 has 
fallen to around 14,000 this year. 

“Skoda must succeed in opening 
new markets and finding new 
opportunities, because there is such 
vulnerability In central and eastern 
Europe. It is nothing to do with 
product weakness or price but with 
local market conditions." 

S ales are rising in west 
Europe, with registrations 
up by 10.6 per cent in the 
first 9 months of this year. 
Skoda is also breaking 
into new markets from Syria to 
Egypt, Jordan. Venezuela, China 
and North Korea. The number of 
markets in which Skoda cars are 
sold win have been raised from 20 
in 1991 to 57 by the end of the year, 
and around 36 wriditinnai marke ts 
are under study. 

However, it bas had to start virtu- 
ally from scratch in creating a west- 
ern-style sales and marketing net- 
work, having inherited state-selling 
organisations of limited commercial 
skills in 1991. 

“It was a delivery and allocation 
mentality. The factory Just pro- 
duced and was surprised when 
someone came and said it must 
meet customer expectations. It said 
the car is there, that's the colour, 
the customer can take it or leave 
it,” says Mr Schmidt. 

Skoda ambitious plans for the 
expansion of its worldwide sales 
and distribution network. The num- 
ber of dealerships worldwide had 
already been raised from 1,522 at 
the end of 1991 to 2,100 by the end of 
1993, and this is set to reach 2J>00 
by the end of this year and 4,000 by 
the end of the decade. 

Helped by the launch of the Feli- 
cia range, which has just been 
unveiled as the successor to the 
Favorit and which will go on sale in 
the Czech Republic next month, 
Skoda sales are forecast to rise to 
205,000 in 1995 including sales of 
76,000 in west Europe and 67,000 in 
the domestic Czech market. 

In line with the hairshirt mental- 
ity now ruling Volkswagen these 
forecasts along with the latest stra- 
tegic plan for Skoda are much more 
modest than the euphoric earlier 
versions. But VW is still working 
hard to explain to its Czech part- 
ners that even this agreement must 
be open to change as market condi- 
tions evolva 

“Our people saw the (original) 
contract as a state plan," says Mr 
Ludvik Kalina. Skoda chairman. 
“When we speak of five-year plans, 
people think that that is a dogma 
for five years, but now when one 
plan is made, we start working on 
the next” 


could easily have outperformed the 
stock market over the past year. 

Cbater, whose unlikely form 
includes editing the National Child 
Care directory, stumbled on his 
discovery when he was analysing 
his first love - trotting races. When 
bookmakers started not to show up 
at those races he sensed that be was 
on to a winner and decided to widen 
his field. 

He picked National Hunt rather 
than flat racing because his 
theories worked better. Among his 
many finds is one stallion whose 
progeny produces a return of over 
100 per cent on right-handed tracks 
but loses a bundle on left-hand 
tracks. Punters wanting to test 
Outer's form should call him on 
01235 771707 (no bookmakers, 
please) or keep an eye on today’s 
Langstone Conservative Club 
Novice's Hurdle at Fontwell where 
Cbater likes the look of Million in 
Mind. 


Psittacosis 

■ Poor Prince Charles. If he hadn't 
already enough to face from Diana 
and the UK tabloid press, now he's 
having to spend a week in Hong 
Kong in the company of the world’s 
environmentalists. He arrived in 
Hong Kong at the weekend from 
Los Angeles, and yesterday 
complained about jet lag and 
having “to stand on a rostrum with 
your mouth feeling like the inside 
of a parrot's cage". 

Airiine food is had; but that bad? 





18 


COP/E 


CONTRACT HIRE 


SELL AND LEASE BACK 


CONTRACT PURCHASE 


NORTH 0191 510 0494 
CENTRAL 0345 585840 
SCOTLAND 01738 625 031 


FINANCIAL TIMES 


Tuesday November 8 1994 



Europe's 
ftvfe&G&onal 
Photographic; 
Supplier. . 



Survey sees reserves of 4bn barrels in region j T ests find 

door faults 
in a third 
of UK car 
ferries 


First UK deep-water 
oilfield gets go-ahead 


By Robert Corzine in London 

Development of Britain’s first 
offshore oilfield in the deep 
Atlantic waters west of the Shet- 
land Islands was given the 
go-ahead by the government yes- 
terday. 

British Petroleum and Shell 
plan to spend £55Qm ($885m) on 
developing Foinaven, the first 
field in a region that preliminary 
drilling results suggest may con- 
tain 4bn barrels of oil. 

When fully developed, the 
region could produce an amount 
equivalent to a third of Britain's 
present North Sea output of 2Am 
barrels a day. 

However, the field is in 450 
metres of water and in a region 
where weather can be harsher 
than in the North Sea and sub- 
surface currents more complex. 

As a result production will not 
be burn fixed platforms of the 
type used in the North Sea. Foin- 
aven's oil will be fed into a large 
ship, a production and storage 
unit, moored over the sea-bed 
wells. The ship will feed a shuttle 
service of tankers. 

UK-based contractors have won 



72 per cent of the Foinaven con- 
tracts, accounting for £400m of 
the £550m that will be spent. 
Other western European-based 
companies have won 20 per cent, 
with those elsewhere In the 
world accounting for 8 per cent. 

Mr Tim Eggar, industry and 
energy minister, also signalled 
that the government would hke 
to see a co-operative approach to 
any pipeline project in the area 


in order to control costs. Compa- 
nies that have been most active 
in pursuing their exploration 
Ucenofis In the region are likely 
to benefit most from future licea 
sing rounds, he indicated. 

Although exploration is at an 
early stage, a report by oil com- 
panies Identified 11 possible sites 
for development between 1995 
and 2010 at a cost of £9-5bn. 

The report concludes that if the 
eventual reserves proved large 
enough, a joint pipeline might 
result in considerable savings on 
operating expenses. 

It might also lead to higher 
recovery rates, according to Mr 
Norman Smith , manag in g direc- 
tor of Smith Rea Energy Associ- 
ates, one of the report’s authors. 

BP said development of Foin- 
aven differed markedly from 
North Sea fields. The bulk of the 
spending in the North Sea went 
into traditional fixed platforms. 
But Foinaven's floating produc- 
tion facility amounts to only 35 
per cent of spending, with new 
TT H> t h<n«fc of d rilling and the com- 
plex subsea wells accounting for 
35 per cent and 30 per cent 
respectively. 


South Korea eases curbs on 
economic ties with north 


By John Burton In Seoul 

South Korean president Kim 

Yoirngjam annmmnad a gradual 

easing of restrictions on eco- 
nomic ties with North Korea yes- 
terday after the recent settlement 
of the dispute over Pyongyang’s 
nuclear programme. 

Seoul is expected to announce 
tomorrow that South Korean 
businessmen may visit North 
Korea to discuss proposed invest- 
ment and establish representa- 
tive offices in the north. 

Direct investments of less than 
$5m (£3.im) will be permitted, 
and machinery used in reprocess- 
ing commissions from South Kor- 
ean companies, such as for tex- 
tiles, can be shipped to North 
Korea. 

But the measures stop short of 
allowing the large investments 
that North Korea is seeking from 
South Korea's main Industrial 
groups. 


South Korean officials view 
full-scale economic co-operation 
as a carrot to persuade a reluc- 
tant North Korea to resume talks 
an such issues as intra-Korean 

nuclear ing pt*»Hrmg 

The partial lifting of the 
restrictions essentially returns 
the north -south economic rela- 
tionship to the situation two 
years ago before co-operation was 
suspended as a result of North 
Korea’s threat to withdraw from 
International nuclear agree- 
ments. 

South Korea's mam economic 
organisations, which have been 
lobbying for the easing of restric- 
tions, welcomed the announce- 
ment 

Mr Kim said a test of North 
Korea’s wflHngness to co-operate 
would be its acceptance of South 
Korean nuclear reactors, stipu- 
lated under the recent nuclear 
accord between Washington and 
Pyongyang. He also expressed 


support for North Korea’s partici- 
pation in the Asia-Pacific Eco- 
nomic Co-operation forum. 

North Korea meanwhile said it 
would hold meetings with the US 
in the next few weeks to cany 
out the agreement, signed last 
month, to dismantle its present 
nnriair programme. 

The agreement, signed with the 
US, has opened the way for the 
replacement of North Korea’s 
mvJtw programme. Talks on the 
disposal of the north’s spent fuel 
rods, which could be used to pro- 
duce an estimated five nuclear 
bombs, will be held in Pyongyang 
on November 12-19. 

Consultations on the supply of 
light- water reactors to North 
Korea to replace its graphite 
reactors will be conducted in Bei- 
jing from November 30. Discus- 
sions an the opening of a liaison 
office between the US and North 
Korea will be held in Washington 
on December 6-10. 


UN official speaks of hope for Bosnia peace 


Continued from Page 1 

placed under UN supervision and 
deploy them against the Moslem- 
led government army if attacks 
around Sarajevo continued. 

UN ground forces are too 
lightly armed to prevent the 
Serbs from retaking the equip- 
ment However, such violations 
of the total exclusion zone 
around Sarajevo might prompt 
air strikes by Nato forces. 


Bosnian Moslem and Croat 
forces continued their offensive, 
pouring artillery fire on to Serb 
positions near Donji Vakuf, a 
strategic town in central Bosnia. 

Bosnian government forces are 
also trying to take Tmovo, a 
ruined but strategically impor- 
tant town, which, if it foils, could 
provide a fink between Sarajevo 
and the Moslem enclaves in east- 
ern Bosnia. 

Mr Akashi was speaking in 


Geneva, where he conferred with 
Mr Boutros Boutros Ghali, the 
UN secretary-general, and UN 
commanders in former Yugo- 
slavia about the future of the 
organisation’s hard-pressed 
peacekeeping effort 
UN officials have complained 
that the contact group, which is 
supposed to be working for a set- 
tlement in Bosnia, is leaving the 
peacekeeping forces increasingly 


By diaries Batchelor 
m London 

The British government is to 
increase checks on roll-on roll- 
off ferries after one in three of 
the vessels operating from Brit- 
ish ports was found to have 
faulty bow doors. 

Thirty-five of the 107 ferries 
inspected had minor defects 
when the Department of Trans- 
port's Marine Safety Agency car- 
ried out the checks after the 
sinking of the ferry Estonia in 
the Baltic In September with the 
loss of 900 lives. 

The faults included leaky rob- 
ber seals and fractures to brack- 
ets and fittings on the bow 
doors. But Dr Brian Mawhinney, 
British transport secretary, said 
yesterday that all the vessels 
tested were watertight and fun- 
damentally sound. 

However, one vessel, the Win- 
ston Churchill, a Danish-flagged 
ferry plying between Newcastle 
and Esbjerg. had had to be 
detained for repairs to its stern 
door. 

The findings come just before 
the start of passenger shuttle 
services through the Channel 
tunnel riiat are expected to faifc* 
a large share of the ferries’ 
cross-Channel business. 

Ships flying the UK flag had a 
higher incidence of defects than 
the foreign-flagged vessels. Of 
the 58 UK-flagged vessels, 36 per 
cent needed repairs, compared 
with 28 per cent of the 49 for- 
eign-flagged ships. 

Dr Mawhinney said he was 
surprised that ftmlts had been 
found with as many as 35 ferries. 
He was in Dover watching tests 
on the inner bow doors of the 
Pride of Calais, a six-year-old 
vessel operated by P&O Euro- 
pean ferries. Water from a 
high-pressure hose foiled to pen- 
etrate the door seals. 

Dr Mawhinney said the Marine 
Safety Agency had been asked to 
increase the number of unsched- 
uled inspections and to write to 
all ferry operators to remind 
them of the need to pay attention 
“to even the smallest safety 
detail, SO as to maintain safety 
standards at the highest levels”. 

The agency is also to carry out 
computer studies of the affect of 
water penetrating bow doors and 
whether the installation of inter- 
nal bulkheads, urged by the 
Royal Institution of Naval Archi- 
tects and others, would make 
any difference. 

The British government would 
order a redesign of ferries only if 
there was strong evidence that 
bulkheads would provide a 
safety benefit The results of the 
agency’s study should be ready 
by the end of the year. 

UK femes are surveyed once 
every 12 months by agency 
inspectors when the passenger 
ship safety certificate is 
renewed. Unscheduled inspec- 
tions are carried out at least 
twice a year. 


FT WEATHER GUIDE 


Europe today 

Low pressure over the south-west of the UK 
will draw colder air Into western parts of the 
continent on a south-westerly flow, It wOt be 
rainy and windy near the boundary between 
coaler and warmer air. Rain will linger over 
northern Ireland, western England, western 
France and north-west Spain before 
spreading into the western Benelux. The 
heavy rain that produced flooding In north- 
west Italy dicing the last couple of days will 
move to south-east Italy and the western and 
southern Balkans. Scandinavia win be 
overcast, although northern areas win be 
sunny and wintry. 

Five-day forecast 

The low over the UK wffl slowly move east 
before heading north-east from Wednesday. 
The associated boundary between warmer 
and cooler air will continue to cross the 
continent, bringing rain to the Benelux, 

France aid Spain. Later this week, a 
depression approaching from the Atlantic will 
produce rain over most of the western part of 
the continent. High pressive building over 
Scandinavia wil give wintry conditions. The 
Mediterranean will continue rainy. 


TODAY’S TEMPERATURES 



SOuaBon at 12 GMT. Temperatures madman Ax day. Fore cas t s by Mateo Consult o I the Netherland s 



Maximum 

B«png 

fab 

17 

Caracas 

Ur 

32 

Rare 

cloudy 

21 

Madrid 

shower 

15 

Rangoon 

sun 

33 


Cehdua 

Ballast 

tain 

11 

CarcSfl 

rain 

15 

Frankfurt 

cloudy 

10 

Majorca 

fair 

20 

Reykjavik 

rain 

9 

Abu Dhabi 

sun 

32 

Belgrade 

cloudy 

14 

Casablanca 

fa*- 

21 

Geneva 

cfrzzf 

12 

Malta 

doudy 

23 

Rfo 

doudy 

26 

Accra 

Ian- 

30 

Bert* 

dizzl 

9 

Chicago 

shower 

12 

Gferaftar 

fair 

20 

Manchester 

drzzl 

12 

Rome 


19 

AJgJwn 

lair 

22 

Bermuda 

fab 

24 

Cologne 

fog 

13 

Glasgow 

rabi 

11 

Marta 

doudy 

30 

S. Freco 

cloudy 

IS 

AmsJerdam 

fog 

11 

Bogota 

shower 

19 

Dakar 

3un 

2£ 

Hambwg 

cloudy 

9 

Mdbowne 

shower 

IB 

Seoul 

Ml 

19 

Athens 

fart- 

18 

Bombay 

fair 

32 

OaSas 

fair 

2b 

Helsinki 

snow 

-2 

Mexico CKy 

cloudy 

21 

Singapore 

thund 

31 

Atianla 

SWl 

23 

Brussels 

cloudy 

13 

DeM 

hazy 

2SJ 

Hong Kong 

sun 

27 

Mian! 

fab 

30 

Stockholm 

doudy 

S 

EL Aires 

fair 

23 

Budapest 

cloudy 

10 

Dubai 

sun 

32 

Honolulu 

fair 

29 

Mftan 

shower 

13 

Strasbourg 

s 

11 

BJtam 

rain 

12 

CJtagen 

cloudy 

/ 

Dublin 

rain 

12 

Isfanix* 

fair 

14 

Montreal 

rain 

8 

Sydwy 

22 

Bangkok 

tak- 

33 

Cabo 

ft* 

P3 

Dubrovnik 

doudy 

Id 

Jakarta 

fair 

32 

Moscow 

tab- 

-2 

Tangier 

fair 

20 

Barcelona 

fair 

18 

Cape Town 

fab 

25 

Bfcbuflgh 

tkzz 1 

11 

Jersey 

Karachi 

ram 

11 

Mirtch 

tog 

9 

Tel Avw 

fair 

21 








sun 

36 

Nairobi 

thund 

2b 

Tokyo 

shower 

17 












28 

Naples 

Nassau 

New York 







More and more experienced travellers 


L Angeles 
las Rabies 

Ur 

fair 

19 

24 

fair 

fair 

29 

17 

Vancouver 

Venice 

rabi 

doudy 

10 

15 


make us their 

first choice. 




dandy 

22 

Wee 

fair 

17 

Vienna 

rabt 

10 










Lisbon 

rain 

19 

Nicosia 

fair 

24 

Warsaw 

doudy 

9 

© 

Lufthansa 




London 

lutbourg 

Lyon 

Madam 

rabi 

doudy 

fair 

13 
10 

14 

Oslo 

PMs 

Perth 

doudy 

doudy 

tab- 

4 

14 

38 

Washington 

‘^-■"nrtnn 

tTCWnUXi 

Wknfaeg 

U1 

windy 

fair 

19 

17 

2 



_____ 






ire 

fas- 

23 

Prague 

dr id 

8 

Zurich 

fair 

10 


THE LEX COLUMN 


Churning Tele West 


Just as TeleWest is trying to enthuse 
investors about its impending £l.6bn- 
£1.9 bn flotation, an astonishingly h i gh 
proportion of its customers are switch- 
ing off. The chum rate - the number 
of cable television customers wbo dis- 
connected as a proportion of Tele- 
West’s total customer base - was 4&5 
per cent during the year to end- 
September. Some of this is because of 
a give-away promotion during the 
spring: nearly 90 per cent of those who 
took the free offer cancelled their sub- 
scriptions when the bills started 
rolling in. 

The high chum rate raises questions 
about TeleWest's indicative valuation. 
Implicit in the valuation is the 
assumption that the level of take-up 
for cable television will jump from 21 
per cent to 47 per cent. But if custom- 
ers are so quick to switch off, one 
wonders whether TeleWest can 
achieve such penetration. 

Another question is whether the 
implicit “terminal value” - how much 
TeleWest will be worth in 10 years - is 
reasonable. Kleinwort Benson, joint 
global coordinator, calculates the ter- 
minal value at 10 times operating cash 
flow. When depreciation, interest and 
tax are taken into account, the more 
conventional earnings multiple is 
something over 20, which looks pricey 
for what should then be a fairly 
mature business. 

There is. of course, a positive side to 
the TeleWest story: its revenue from 
telephone services is booming; further 
potential is provided by multimedia 
services which are only a twinkle in 
its eye; and other UK cable operators 
recently floated in the US have per- 
formed well. But, with TeleWest not 
due to report a profit until 1998, the 
risks of investing look high. 

Sweden 

The prospect of a No vote in Sun- 
day’s EU-membership referendum has 
come as a nasty shock to Sweden's 
marke ts Increasing confidence in the 
government's determination to tackle 
its budget deficit made Sweden the 
best performing government bond 
market in October. But in the past few 
days the spread between German and 
Swedish 10-year bonds has widened by 
almost 100 basis points as a series of 
polls have pointed to a No vote. 

Sentiment was not helped by last 
week's deficit reduction package 
which leaves a good deal to do, even if 
one believes all the assumptions. 
Since one of these is a big reduction in 
interest rates by the end of next year. 


FT-SE Index: 3065.8 (-31.8} 


Swedish bonds - 

10-year bond yields. Sweden 
mrrras Germany (%) 

4.5 



the bond market was not impressed. 
Nor are floating voters persuaded by 
the government's warning that a No 
vote will require sterner measures. 

Though Swedish business has cam- 
paigned for a Yes vote, it is undear 
how great the cost of non-membership 
would be on its highly international 
leading companies. A No vote would 
hit the krona, if only on the expecta- 
tion that inward investment would 
dry up, which would further enhance 
the competitiveness of Swedish manu- 
facturing. But the currency risk will 
discourage international investors. 
Swedish shares are not particularly 
cheap anyway. Buyers of bands also 
risk further losses with a No vote not 
yet fully discounted. The yield spread 
against bunds is still narrower thaw 
for Italy, whose public finances are in 
scarcely worse shape than Sweden’s. 

BAA 

Refurbishing airport terminals may 
bring long-term benefits, but as BAA 
admitted yesterday such improve- 
ments have a short-term price. Growth 
in retail spending per passenger in the 
first six month*; of the current finan- 
cial year was limited to just IK per 
cent compared with the first half of 
last year because shopping fariKtipa 
were being rebuilt. Brokers who 
already knew that passenger numbers 
had chmbed 7 per cent had expected to 
upgrade their profits forecasts. The 
disappointing spending figures 
prompted a fall of nearly 5 pm - cent in 
the share price. 

Nevertheless, BAA is certain to ben- 
efit from the growth in civil aviation. 
The channel tunnel may have some 
impact on passenger volumes next 


year, but in the worst case damage 
should be limited to the equivalent of 
six tiymths growth. Meanwhile, spend- 
ing pgr passenger should rise once the 
terminal improvements are completed. 
At Heathrow terminals three and four,, 
where work is completed, retail 
in/vnn^ per passenger has improved 21 
per cant and 83 per cent respectively. 

With operating costs firmly under 
control, up just &5 per cent year on 
year, BAA is well managed- But with a 
{sice earnings ratio for the current 
year of 19. its shares trade at a 30 per 
cent premium. Given that earnings 
grew 12 per cent in the first half such, 
a premium may look expensive cma- 
pared with other premium rated, 
groups such as Reuter. But what BAA 
jn growth, it makes up in pre- 
dictability. With its monopoly position 
and increasingly lenient regulatory 
regime, there is little to knock the 
group off its steady upward path. 

Gartmore . . . 

UK pgn-qnn fund managers are more 
international in outlook than their 
perns in other countries, as drown by 
the relatively high. weighting they 
give to non-domestic assets in their 
investment portfolios. But UK fund 
managers suffer from parochialism 
insofar as money they manage 
originates overwhelmingly from the 
UK. The fiercely competitive OK mar- 
ket looks increasingly ex-growth. 

Gartmore’s joint venture with 
NationsBank of the US is a smart 
answer to the strategic challenge. It 
involves minimal initial outlay by 
either party and is unlikely to make a 
contribution to Gartmore’s earnings 
before 1996. Nevertheless the deal 
promises to insulate Gartmore from 
Anther stagnation in the UK. At the 
same time, it gives the UK group 
access to the US market, where the 
share of pension fund money invested 
outside the US is set to rise from 3D 
per cent to 11.5 per cant over the 
decade to 1998. Alone, Gartmore could 
have hoped to have gained a modest 
share of this business. The alliance 
with NationsBank brings together the 
US bank's distribution muscle with 
Gartmore’s investment expertise. As a 
result the joint venture’s target of 
managing $5bn (£3bn) of US money 
within five years looks attainable. - 
If so, the impact on Gartmore’s prof- 
its will he substantial - and the 10 per 
cent of Gartmore sold to NationsBank 
a price worth paying. The move will 
put pressure on other UK fund manag- 
ers to find par tnership s 



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M r PV Nar aamha Rao. V . ;;; <■ . i. 

the Indian prime min- ".' • s . 

ister, has much to cel- 
ebrate in the results of the eco- 
nomic liberalisation he 
launched three years ago. But 
he ne eds to cany out further 
radical reforms if the party is 
to live up to expectations. 

Seven good monsoons in 
success i o n have brought pros- 
perit y to m any farmers. Indus- 
trial output is growing faster 
than at any time since reforms i 
began. Promises of foreign 4. ; 
investment are pouring in and »:-.• - 

the stock market is trading S : - . •»» 

near its all-time high, if the Bh 
economy continues to perform :.-. 

strongly. Mr Rao will be well .... 

placed for the next general : ' ' " 

ejection, due by mid-1986. W* 

Yet, India Is still some way - 

from achieving economic take- 
ott As Mr Amit Mitra. secre- 
tary general of the Federation 
of Indian Chambers erf Com- 
merce and Industry, says: 

“There's an incredible amount 
of energy in Indian industry 
now. There's an expectation of 
gTOWt h-B ut it will take time Software work in Bangatonx the economy advances but there is stJM no fuHscate breakthrough 
to fructify." 

^TEHriTI Reasons for prii 

amt a year in the late 1990s. u 

But it has not got there yet - m jp mm 

and for cautioi 

to grow 5 per cent, less than m m 

the 5.6 per cent achieved in _ 

the pre*efon n i 980 s and wdi The pace of reform is winning international s 
india-s leading international But there are urgent social reasons why I 
as the international Monetary cannot rest on its laurels, writes Stefan W« 

Fund, in its annual report pub- 
lished on the eve of last 

month’s- IMF- World Bank cutting the bloated state- and pursue an approach he around the worli 
meeting in Madrid, said: owned enterprises, the over- calls "the middle way" in India's rapidly-t 
“Reforms win need to be accel- manned bureaucracy, and the which the development of a are in crying r 
e rated in order to sustain coBs of patronage and corrop- free market economy is bal- water supplies, 
robust growth and allow India tion which surround the gov- anced with a proper regard for disposal services 
to share in the prosperity and ernment. Without such the economic role of the state, care. With the p 
rapid-devdopinent enjoyed by reforms, India cannot enjoy The prime minister's critics growing at ovc 
a growing number of countries the gai™ in efficiency which it say India cannot afford delays annually, there ; 
in east and southeast Asia.” needs to compete in world if it is to catch up with fast- extra people tc 
The OAF- -and other advo- markets. It would also find it moving international rivals every year, 
cates^rfhefonn praise India for difficult to raise the. funds for such as China anH Indonesia. There is a pc 
the changes .made already - those services which the gov- The country also has little si on to the arg 
includtag cuts in import barrir eminent plans to enhance - time to waste in improving the Manmohan St 
ers, reductions in ^public - including education, health miserable living standards of points out He sc 
spending and' easing of con- . care, population control and most of its 90Gm people, espe- speech that w 
trols oh private business acti?: infrastr u cture. daily the' 250m -. living below growth India w 

ity. Bat the® reforms cannot - Mr Rao argues that a large - the government’s own poverty demned to divisi 
transfqfriq'Jndfa without .dig- democracy like India cannot j fine. . The recent outbreak of sharing out the 


i m -j yLS&J ; ^ I * \ '• r 


Reasons for pride 
and for caution 

The pace of reform is winning international acclaim. 
But there are urgent social reasons why India 
cannot rest on its laurels, writes Stefan Wagstyl 



Al dmsed for school: many more are a lot toe* fortunate 


cutting the bloated state- 
owned enterprises, the over- 
manned bureaucracy, and the 
coils of patronage and corrup- 
tion which surround the gov- 
ernment. Without such 
reforms, India cannot enjoy 
the gai™ in efficiency which it 
needs to compete in world 
markets. It would also find it 
difficult to raise the. funds for 
those services which the gov- 
ernment jdans to enhance - 
including education, health 
care, population control and 
infras tru cture. 

■ Mr Rao argues that a large - 
democracy like India cannot 


and pursue an approach he 
calls "the middle way" in 
which the development of a 
free market economy is bal- 
anced with a proper regard for 
the economic role of the state. 

The prime minister's critics 
say India cannot afford delays 
if it is to catch up with fast- 
moving international rivals 
such as China and Indonesia. 
The country also has little 
tirrtft to waste in improving the 
miserable living standards of 
most (rf its 900m people, espe- 
cially the' . 250m -.living below 
the ‘government's own poverty 
line.. The recent outbreak of 


around the world, showed that 
India's rapidly-growing cities 
are in crying need of better 
water supplies, sewers, waste 
disposal services and medical 
care. With the population still 
growing at over 2 per cent 
annually, there are nearly Mm 
extra people to provide for 
every year. 

There is a political dimen- 
sion to the argument as Mr 
Manmohan Singh himself 
points out He said in a recent 
speech that without faster 
growth India would be con- 
demned to divisive rows about 
sharing out the economic pie. 


gjoog d&eper info the^hfiart of rush mors - - In a crowded country, laced 

the pre-refbffflr^^ii'cfc^T>y Thrie 'to develop a consensus than 50 live^ and spread panic with divisions of caste, reli- 


gion and language, such rows 
can quickly become very 
bloody. The current tensions 
in the large northern state of 
Uttar Pradesh are a case in 
point A chief minister, who 
took power in the name of the 
lower castes last autumn, is 
busy enforcing government 
job quotas of up to 49 per cent 
for the lower castes. Upper 
caste Hindus are responding 
with angry demonstrations 
which have led to the loss of 
about 20 lives. 

Since taking office in 1991, 
Mr Rao has succeeded in con- 
taining such tensions, notably 
thfl Bmflu-Mhgtem arguments 
which culminated in the 


destruction of the Ayodhya 
mosque in December 1992 by 
Hindu »nH widespread 

violence. He resisted pressure 
to confront the right-wing 
Hindu Bharatiya Janata Party, 
the main opposition party. 
Instead, he patiently waited 
for the storms to subside. 

The strategy has worked - 
up to a point. When voters 
went to the polls in four north- 
ern states last autumn, the 
BJP suffered a xt gnHfnmt set- 
back. Its rhariKmfltic leader, 
Mr LK Advani, and his col- 
leagues are now struggling to 
regain the momentum and , 
unity they created around the 
Ayodhya issue. Their effor ts to 


launch a credible national 
challenge to the ruling Con- 
gress (I) party have floun- 
dered. 

In the meantime, the wily 
Mr Rao has reinforced his own 
position. Since stepping in as a 
stopgap for the assassinated 
Rajiv Gandhi in 1991. Mr Rao 
has beaten intra-party chal- 
lenges to his leadership. Early 
this year, he extended his grip 
on Parliament by winning 
over splinter groups to turn a 

government minority into a 
maj o ri ty. While he has done 
Utile to create lasting peace in 
the troubled northern state of 
Jammu and Kashmir, where 
Moslem insurgents are fight- 
ing the security forces, the 
prime minister has at least 
contained the domestic and 
international political fall-out 
of the conflict Barring elec- 
toral disaster in the 10 state 
elections to be held later this 
year and early next, Mr Rao 
now seems certain to lead Con- 
gress into the next general 
election. 

Yet for all his political skill, 
Mr Rao has yet to generate 
genuine popular enthusiasm, 
other for h«»«nif or for his 
party. Disenchantment with 
the BJP has not fuelled any 
surge of support for Congress. 
The big winner in last year's 
state election was the alliance 
of lower caste parties in Uttar 
Pradesh. Caste-based and 
regional parties are also likely 
to perform well in the forth- 
coming polls. 

Congress has in the past 
proved adept at winning sup 
port from local parties in 
national elections - and will 
probably carry on with this 
form of horse-trading. But that 
forces Mr Rao and his col- 
leagues to concentrate on 
ways <rf dividing the pie - an 
unsatisfactory strategy, as Mr 
Manmohan Singh warned. 

Fortunately, the economy is 
performing well enough to 
give Mr Rao room for manoeu- 
vre as he prepares for the state 
and general elections. Richer 
farmers are enjoying record 
incomes. Industry, which suf- 
fered in the first two years of 
reform from cuts in public 
spending, has redirected its 
sales .to experts- and the pri- 
vate sector. Companies are 
□ Continued on Page 3 


ECONOMY: Singh's gamble 
' seems to be worthing Page 2 

INVESTMENT RACE: Other 
Asians go faster - Page 3 

INTERVIEW: Manmohan 
Singh airs his views; Harvard 
report Page 4 

POLITICS: Premier Rao 

bounces bade TN Seshan. 
corruption lighter Page 5 

FINANCE: drastic deregu- 
lation; stock markets are 
stretched Page 6 

TELEPHONES: millions in 
the queue. Foreign banks: 
competition comes ... Page 7 

FOREIGN INSTITUTIONS: 
view from Wall St; share 
buying spree. Page 8 

FACT FILE Page 9 

STEEL MAKERS: panic 
eases. Karnataka —Page 10 

I Bern JFS: new export tac- 
tics. Light industries: bad 
conditions Page 12 

ENVIRONMENT: swamped 
by sheer numbers. State of 
Bihar Page 13 

AGRICULTURE: produce for 
export Tobacco: changing 
habits Page 14 

PURCHASING POWER: the 
giant awakes. Society: 
Gandhi revisited Page 15 

ELECTRIFICATION: the 
world plugs .in. High tech: 
brains for sale. State of 
Ma h a r a sh tra Page 16 

NEWSPAPERS: vibrant and 
varied. Human rights: 
vicious errefe Page 18 

RAILWAYS: groaning under 
the weight. Satellite TV: 
meefia scramble Page 17 

COCA-COLA: foreign brands 
flood in. State of Madhya 
Pradesh -.Page 19 

MARRIAGE: woman's view. 
Hotels: loo few Page 20 

Editorial production: 

Maurice Samueteon 
Design: Robin Coles 
. Graphics: Robert Hutchison 
Photographs: Tony Andrews 



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INDIA 2 




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The economy is responding to treatment, writes Stefan Wagstyt 

The gamble paid off 


For the moment, Mr 
Manmohan Singh, the finawee 
minister, seems to have gam- 
bled successfully. When he 
delivered this year's budget in 
February, he said he was tak- 
ing a calculated risk In slightly 
relaxing controls on public 
spending in order to promote 
growth. 

AD the indications are that 
his calculation were right - 
with India enjoying the biggest 
surge in industrial output 

wintY> Mr Sin g h and Mr P.V. 
Narasimha Rao, the prime min- 
ister, launched their economic 
reforms three years ago. 

But this success could prove 
short-lived unless the govern- 
ment presses ahead with more 
measures to free the Indian 
economy team the dead weight 
of 40 years of socialist-inspired 
central planning. Partial 
reforms have already created a 
widespread sense of excite- 
ment, in India and abroad, 
about the opportunities for 
business. The government’s 
reform-minded critics say fur- 
ther reforms are needed if this 
excitement is to generate suffi- 
cient growth for India to 
achieve industrial take-off - a 
sustained increase in its 
long-term economic growth 
rate. 

Mr Naras imha Rao argues 


that it is important not to rush 
reform. In a large democracy 
like India, broad-based consen- 
sus must precede significant 
change. He also says that India 
must balance the pursuit of lib- 
eralisation with a proper 
respect for its past achieve- 
ments, inrhiritng the tradition 
of state-owned industrial enter- 
prise. 

His critics say the prime 
minister lacks a sense of 
urgency. They claim that 
India, already behind impor- 
tant international rivals such 
as China and Indonesia in eco- 
nomic development, is wasting 
valuable time. The Interna- 
tional Monetary Fund, in its 
animal report published on the 
eve of this month's IMF-World 
Bank meeting in Madrid, urged 
India to accelerate reforms. 

In the li ght of India's recent 
economic performance it is 
easy to understand why the 
government is relaxed. Seven 
good monsoons in a row have 
provided a solid underpinning 
to living standards of most 
Indians, especially the 70 per 
cent who still live on the land. 

Thanks to liberalisation, 
which has In cluded the aboli- 
tion of most controls an domes- 
tic investment combined with 
the easing of curbs an trade 
and foreign investment, for- 


eign trade and investment are 
expanding. Exports, which the 
government sees as an engine 
of growth, rose 20 per cent in 
the year to March 1994 and 
have risen 10.6 per cent in the 
first five months of the 1994-95 
year. Imports, after three years 
of stagnation, are also growing 
due mainly to imports of 
machinery and equipment - a 
sign of increasing confidence 
in industry. 

Industrial output, which was 

Critics say further 
reforms are needed but 
the prime minister says 
that it is important 
not to rush reform 

also slack in the early years of 
reform due to cuts in govern- 
ment spending, is now picking 
up - buoyed by private 
demand, just as reformers 
hoped, in June, the latest 
month for which figures are 
available, it rose 8.6 per cent, 
the biggest Increase since 1991. 
Inflation, running at about 9 
per cent a year for wholesale 
prices, is higher than the gov- 
ernment would like but has 
fallen hem over ll pa- cent in 
recent months As Mr Shankar 
Acharya, the government’s 


chief economic adviser, says; 
"The economy is performing 
wen." 

Foreign companies have 
been sufficiently impressed 
with the way India has 
dragged itself out of the 1991 
balance-of-payments crisis to 
take advantage of the relax- 
ation of investment curbs and 
invest in India. The inflow of 
direct investment has soared 
from nsQm in 1991-92 to $620m 
last year and sho uld rfimh fur- 
ther this year because several 
large private projects to build 
power stations with the help of 
foreign partners are dose to 
starting construction work. 

Even more dramatic has 
been the increase In foreign 
portfolio investment from 
$15Sm in 1991-92 to $4.1 bn last 
year, including investment in 
Indian mar kets and in the 
overseas issues of Indian com- 
panies. The inflow has helped 
take foreign exchange reserves 
to over &9bn. compared to just 
$1.6bn in 199L 

Taking account of the opti- 
mism of domestic and foreign 
companies, the Reserve Bank 
of India, the central bank, in 
its annual report made its most 
positive forecast in recent 
years. It predicts national out- 
put will rise by about 5 par 
cent in 1994-95, up from 3-8 per 



Traffic in the centre of Defid — dom esti c demand is so strong that si miew to overseas markets have been cut 


cent last year. Agricultural 
production is set to expand 3 
per cent and industrial output 
by 7 per cent, fuelled by a 10 
per cent rise in private invest- 
ment Domestic demand, espe- 
cially in cars, motorcycles, 
scooters, refrigerators and con- 
sumer electronics, is so strong 
that exporters have been 
diverting supplies from the 
overseas markets to the domes- 
tic - to the annoyance of the 
commerce ministnr which is 
trying to promote exports. 

Mr Manmohan Singh 
believes the economy is on 
track to grow at 6-7 per cent in 
the late 1990s. This may he so. 
but it will almost certainly 
require further significant 
reforms to achieve the target 
Mr Tarun Das. director general 
of the Confederation of Indian 
Industry, says; "We need to go 
further and faster with reform 
if we are to achieve industrial 
take-off." 

While the economy has 
picked up impressively in the 
past year, the growth rate is 
still less than the average of 5.5 
per cent a year achieved in the 
pre-reform 1960s ami well short 
of India's international rivals. 

It is not as if the government 
did nothing in the past year to 
advance reform. Important 


recent moves have been an 
overhaul of the tax system, 
including the rationalisation of 
indirect taxes; reductions in 
import duties from a maximum 
of 85 per cent to 65 per cent; 
the partial liberalisation of the 
heavily-controlled pharmaceu- 
ticals industry and the opening 
of the telecommunications 
industry to private enterprise, 
including foreign groups. 

There have also been signif- 

While the economy has 
picked up in the past 
year, the growth rate is 
stiO well short of India’s 
Internationa] rivals 

icant chang ing in financial mar- 
kets, notably the licensing of 
10 new privately-owned banks, 
the first time in more than 20 
years, and of new foreign 
banks. Some foreign exchange 
controls have been lifted, 
allowing India to accede to 
Article 8 of the IMF, an impor- 
tant bench-mark of the finan- 
cial globalisation. Only last 
month, the central bank 
deregulated bank lending 
rates. Mr Shankar Acharya 
says "It is a fact that some 
people feel reform has slowed... 


Bat these achievements are 
still important" 

Next cm the public agenda is 
reform of the insurance indus- 
try, in which the government 
is considering a report which 
recommends «mflTwg r the state 
monopoly. Mr Manmohan 
Singh fa also committed to fur- 
ther cats in import duties in 
next year’s budget aid is con- 
sidering lifting the virtual ban 
an imports of consumer goods. 

However, ad v oc a t e s of faster 
reform argue that this agenda 
Bails to address crucial issues, 
some of which are discussed in 
detail elsewhere in this survey. 
First, public spending remains 
high. After cots in the first 
years of reform, public borrow- 
ing soared last year, taking the 
fiscal deficit to 7.3 par cent of 
GDP. It is faffing in 1994-95, 
thankc to strong tax revenues. 
However, the burden of Inter- 
est payments is rising - from 
39 per cent of revenues in 
199091 to S3 per cent in 1993-94, 
according to the reserve bank. 
This squeezes the funds avail- 
able for development, health 
and education. Without better 
health and education, the great 
majority of Indians cannot 
hope to participate In a modem 
economy. 

Next, while many bureau- 


. S' 


for P 


cratic controls on the economy 
have been scrapped, the offi- 
cials’ desire to retain influence 
has not Also, India needs to 
improve the efficiency of state- 
controlled industries. The gov- 
ernment has sold minority 
stakes in public enterprises but 
shies away from foil-scale pri- 
vatisation. 

The government has also 
postponed possible reforms of 
labour laws that Umt* employ- 
ers’ rights to dismiss workers. 
While private employers often 
find ways around these, 
through Voluntary re H r BmwH* 
schemes, public enterprises 
have little Incentive to shed 
labour. 

More needs to be done to 
encourage private investment 
in infrastructure, Including 
power, telecommunications 
and transport, all virtually 
state monopolies which have 
suffered from years of under- 
investment. 

Finally, while ministers have 
liberalised the capital markets, 
they are reluctant to relax con- 
trol of the banking industry. 
The state-owned banks, which 
dominate the market, are being 
allowed to raise private equity, 
but the government will retain 
a majority stake and stifle gen- 
uine competition. 


The Wfest gave India 










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IN PURSUIT OF PERFECTION 

BPL Lvniiod. BPL Tuw n. I j. Kaeiirfa K,wJ. Itar^^. w Ml 
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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


III 





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INDIA 3 


Alexander Nicoll studies India’s form in Asia’s investment race 

Fast start, still trailing 



Bombay street scene: al the ingrttfienta of a popular sham-owning democracy 


World exports 

Percentage share Selected developing countries 



E ach day in India now 
brings news of foreign 
and Indian companies 
di scus sing Joint venture agree- 
ments. After three years of eco- 
nomic reform, foreign direct 
Investment shows signs of 
acquiring momentum. 

According to a report by the 
United Nations Conference on 
Trade and Development; actual 
direct Investment in indfa is 
expected to rise to $2bn in 1995 
from $577ni in 1993. This would 
be a. big increase, especially 
considering that in 1991 the fig- 
ure was virtually aero. 

The upsurge of foreign inter- 
est in India is encouraging for 
the government. But the 
amounts of money are still 
dwarfed by these pouring into 
its rapidly growing Asian 
neighbours. 

While New Delhi approved 
$3bn or so of potential invest- 
ments last year, the Chinese 
authorities approved $26bn. 
Even in the Philippines, which 
is seeking to increase its 
attractiveness to investors 
after several years as the lag- 
gard of south-east Asia, the 
Board of Investment approved 
projects worth $8.6bn in the 


□ Contd. from Page 1 
queueing up to invest in infra- 
structure following decisions 
to open power, telecommunica- 
tions and transport to private 
investment Businessmen are 
optimistic about their pros- 
pects, for the first time in three 
years. “We have faith in India's 
future," says Mr Anil Ambani, 
managing director of Reliance 
Industries, the country's larg- 
est group. 

Foreign companies are also 
showing growing interest in 
India. Foreign direct invest- 
ment nearly doubled last year 
to $620m and portfolio invest- 
ment jumped from ne g li g ible 
levels to $4.1bn. Exports soared 
20 per cent last year. Aa Mr 
John Bossidy. the chairman 
and chief executive officer of 
Allied Signal, the US engineer- 
ing combine, said during a 
visit to India last month: "It's 
important to step up our pres- 
ence in India now. The poten- 
tial for continued economic 
growth is staggering.” 

For many groups, invest- 
ment in India means little 
more than establishing a toe- 
hold in a country from which 
they have been virtually 
absent, kept out by decades, of 
protectionism. But a few are 


first half Of 1994 alone. 

There are several obvious 
reasons for India's lag. Its eco- 
nomic reform programme 
began only three years ago, 
when new foreign investment 
was virtually at a standstill. 
Investment in China also 
began slowly after Deng Xiao- 
ping began his reforms at the 
end of 1978, and has since seen 
several stuttering periods until 
it reached the extraordinary 
pace of the past few years. 

Many foreign companies 
were wary of India, which bad 
had a habit of nationalising or 
expelling them since indepen- 
dence in 1947, and had sub- 
jected the hardy few that per- 
sisted to mind-boggling 
bureaucracy. 

A more immediate concern 
was that economic reform was 
only undertaken as a result of 
a financial crisis which 
reduced foreign currency 


starting to commit substantial 
sums to India, notably compa- 
nies planning to invest In 
power and in telecommunica- 
tions. General Electric and 
Enron, the energy group, of the 
US, National Power, the UK 
generating company, and the 
Hindujas,' the London-based 
expatriate Indian business fam- 
ily, are among those planning 
power stations. Potential inves- 
tors in telecommunications 
include US West and Motorola 
of the US. 

The inflow of foreign invest- 
ment has buoyed India’s for- 
eign exchange reserves to a 
record level of S19bn. up from 
$lbn during the 1951 balance- 
of-payments crisis. The 
reserves have created some- 
thing of a headache for Mr 
Manmnhan Singh by contribut- 
ing to a rise in inflation, now 
running at about 9 per cent a 
year. This is squeezing the 
inmwieg of fhe poor and under- 
mining the. competitiveness of 
India's exports. 

However, large reserves have 
also brought considerable ben- 
efits by creating a cushion 
against future economic 
shocks, such as a drought It 
has also given T nf fia more con- 
fidence on the international 


reserves virtually to zero in 
1991. Inevitably, it took some 
time for the government of Mr 
PV Narasimha Rao to convince 
the outside world that it was 
serious about its change of 
direction and for the new poli- 
cies to show through in eco- 
nomic performance. 

E ven now, budget deficit 
targets are routinely 
exceeded and both 
exports and industrial output 
have failed to gather strong 
momentum. However, the gov- 
ernment will have taken (mart 
from the strong confidence in 
India's economic prospects 
expressed from all sides at this 
month's annual International 
Monetary Fund/World Bank 
meetings in Madrid. 

Once persuaded that India is 
a promising venue for invest- 
ment, companies take time to 
explore their market and to 


stage. Mr Manmohan Singh, 
who acted as the unofficial 
spokesman for the developing 
world at September’s IMF- 
World Bank annual meeting, 
would have cut a less impres- 
sive figure if India's gold was 
still lying in pawn in as it was 
in 1991. 

But these Impressive gains 
may still be wasted if the gov- 
ernment does not press ahead 
with further economic restruct- 
uring. Ministers have carried 
out some important changes 
this year - notably ending the 
state’s monopoly of telecom- 
munications services, relaxing 
some foreign exchange con- 
trols, and most recently liber- 
alising bank lending rates. 
They also have other plans on 
their immediate agenda such 
as liberalising insurance. 

But more fundamental 
reforms have been postponed, 
including genuine privatisa- 
tion and reviewing over-protec- 
tive labour laws which give the 
government a veto over all 
large-scale redundancies. After 
toying with these ideas for a 
while, Mr Narasimha Rao has 
this year set them firmly aside. 

The key problem lies in deal- 
ing with the stateuwned indus- 
tries which consume about half 


find the right partners in a 
country whose sire alone offers 
vast opportunities to those 
who make the right choices. 

Those who venture in find 
that, in most industries, the 
red tape surrounding approvals 
of foreign investment has sub- 
stantially diminished. Bureau- 
cracy, however, has hardly dis- 
appeared. especially at the 
state leveL 

Professor Michael Porter, a 
Harvard management expert 
who has conducted a detailed 
study of India's competitive- 
ness, noted in September that 
India now has llic “benefit of 
the doubt, as China or Brazil 
did 10 years ago. But this Is 
fragile and can shift” He urged 
a new burst of micro-economic 
liberalisation to sharpen 
India's edge. 

Barclays de Zoete Wedd, the 
UK stockbroker, also compared 
India with China and said in a 


the nation's industrial capital 
but produce only a quarter of 
its output. Unless these are 
made efficient, it is hard for 
private industry to compete in 
world markets. But in order to 
make them efficient, the gov- 
ernment must shed labour. It 
will not because it says it is 
concerned about creating 
unemployment. However, the 
unemployed could be given 
redundancy payments, as is 
happening to a limited extent 
in private industry. 

The experience of other 


The growth of India’s 
foreign reserves has 
created a cushion 
against future economic 
shocks, such as drought 


countries shows that properly- 
controlled privatisation mostly 
leads to productivity gains 
which benefit the whole econ- 
omy. 

Mr Narasimha Rao has per- 
mitted the sale of shares in 
state-owned businesses but 
insists on retaining 51 per cent 
for the government so that pol- 
iticians keep their influence 
and patronage. 

Also, while bureaucratic con- 
trols have often been removed, 
the' bureaucrats have not and 
fight to retain influence. Rules 


recent report: "Our economic 
analysis concludes that India 
represents the better-safe-than- 
sorry emerging market, or per- 
haps the investment tortoise 
against China's bare." 

India is perceived to have 
some advantages over China. 
These include: 

• A well-developed private 
sector providing plenty of 
potential partners as well as 
business culture and manage- 
ment experience. China's com- 
munist-turned -capitalist leader- 
ship has had to try to re-create 
all these after stifling the 
entrepreneurial spirit for a 
generation. 

• A legal system modelled on 
that of England, assuring 
investors of rights of owner- 
ship and legal redress. China’s 
lack of an effective legal sys- 
tem is seen as one of its big- 
gest disadvantages. 

• A financial system and 


for private investors' entry 
into power and telecommunica- 
tions, for example, have been 
left vague, giving civil servants 
plenty of discretion, so creat- 
ing scope for un transparent 
decision-making and corrup- 
tion. 

Although the government 
has trimmed public spending it 
is strutting to keep public 
borrowings under control 
because or the rising burden of 
interest payments on accumu- 
lated debt As Mr Manmohan 
Singh has said, this burden can 
only be substantially cut 
through raising money by pri- 
vatisation. fn the meantime 
there is a ferocious squeeze on 
the funds available for health, 
education and rural develop- 
ment. 

The last point is crucial to 
building a modern economy. 
Ill-fed, poorly-housed and semi- 
literate people will find it hard 
to participate in industrialisa- 
tion. If they do not participate, 
they will remain stuck in the 
medieval hinterland of 20th 
century India. 

India's elite is aware of these 
challenges and of the possible 
responses. But it lacks a real 
sense of urgency. It deserves 
credit for what has been 
achieved in the past few years 
but it should not forget how 
much more remains to be 
done. 


stock market which, although 
in need of more reform, are for 
more advanced than China's. 

• India's steady economic 
growth rate is seen by some as 
offering a safer ride than Chi- 
na's roller-coaster switches 
between inflation-producing 
booms and periods of austerity. 

Moreover, some of India's 
handicaps are precisely the 
same as those of China or of 
other Asian dynamos in the 
earlier stages of their develop- 
ment: lack of infrastructure; 
intractable Labour problems; 
poor quality of industrial prod- 
ucts engendered by excessive 
protection of the economy 
through high tariffs and other 
barriers. 

Competition is now being 
enhanced by progressive reduc- 
tions in tariffs, and the govern- 
ment is be ginning to tackle the 
need for more power and better 
roads and telecommunications. 

However, the recurrence of 
bubonic and pneumonic plague 
in September highlighted 
India's lack of attention to 
more basic infrastructure: sani- 
tation, clean water, refuse col- 
lection and public health. At 
the same time, the govern- 
ment's handling of some infra- 
structure contracts has 
aroused concern about increas- 
ing corruption. 

India Is not alone in liberali- 
sing its economy in slow 
stages. South Korea and 
Taiwan ensure that the process 
is tightly controlled. South-east 
Asian countries, although gen- 
erally more open to invest- 
ment, can be impenetrable and 
difficult to do business In. 

But. inevitably, there are hic- 
coughs. The government's 
inept handling of an interna- 
tional share issue planned by 


1970 72 74 70 78 80 

Saue&WF 

Vldesh Sanchar Nigam, the 
international telephone monop- 
oly which was intended to be 
the first public sector company 
to issue equity internationally, 
has raised doubts about its 
willingness to adapt to the 
markets' faster pace. 

More broadly, there are signs 
of growing satisfaction within 
the government that it has 
already done enough for the 
time being to reform the econ- 
omy. A rise in foreign 
exchange reserves has reduced 
the need for aid from interna- 
tional financing institutions 
and has thus also reduced the 
urgency to follow their advice 
on restructuring sectors of the 
economy. 

Asia's fastest growing coun- 
tries, meanwhile, have wasted 
little time on setf -congratula- 
tion. China and Indonesia are 
huge 'borrowers from the 
World Rank and Asian Devel- 


opment Bank. The World Bank 
is vary closely involved in the 
re-shaping of China’s economy. 

Indian reform is thus likely 
to continue to be slow and 
erratic. This means that for- 
eign investors need a long time 
horizon. Rare will be the com- 
pany turning a quick profit on 
its investment in India - but 
this is equally true of invest- 
ment almost all other Asian 
countries. 

Serious investors are pre- 
pared to accept this. Mr Arnold 
G. Langbo, chairman or Kell- 
ogg, the US cereal group, inter- 
viewed about its investment in 
India by the Business Standard 
newspaper, said: “Some mar- 
kets take five years, some take 
10, but it really doesn't matter 
to us. We think in terms of 10 
to 20 years to grow the mar- 
kets so that 20 years from now 
we’re going to have a huge 
business here." 


Cause for pride and caution 



zgcn ofl 


A £ 30 million export 
commitment 

When we think of quality, we think oi international standards. 
When we think of competition, we think of the best in the world. 

Which is why. the market for our products is not just India but 
also some oi the world's most fiercely competitive markets: USA, 
Europe, the Middle East and South-East Asia. 

This was a thoroughly planned effort An effort that resulted in 
global alliances in the form ol joint ventures, technical collaborations, 
R&D consortia and buy-back arrangements. This gave out products 
a belter quality and a competitive edge. 

Our infrastructure, with a worldwide network of representatives, 
oflices. warehouses and agencies, evolved into a system, it made our 
invasion of the world markets organised and easier. 

Look at these facts and figures: We have been the largest 
exporters of Refined Papain in India since 1 978. Theonly manufacturer- 
exporter of PVC Foam Sheets in South-East Asia. Our exports 
have grown from £ 0.5 mn in 1990 to over £ 13 mn this year. 

All (his gives us the confidence that our exports will exceed 
£ 30 mn in the very near future. 

Hot just a dream. 

We are confident of realising this dream. Just the way we have 
realised many others. 

We are already: 

The world's second largest producers of Refined Papain. India's 
largest producers of PVC pipes. India's pioneers of the latest revolution 
in pipes - Rib-Loc. India's largest one-slop shop for Drip Systems. 

The urge to break our own record has taken the Group into 
Micro-Irrigation. Liquid Fertilizers, Tissue Culture, Greenhouses, 
Speedling Nurseries, Solar Water .Heating Systems. And is now 
taking the Group into Food Processing and Processed Stone 

'Ushering newer ideas and newer revolutions that will make our 
world a better place to live in. And make a £ 50 mn Group into a 
£ 130 mn Group. 



JAIN GROUP 

J A L G A 0 N 

JAIN PLASTICS & CHEMICALS LTD. ■ JAIN IRRIGATION SYSTEMS LTD. 


SMALL IDEAS. BIG REVOLUTIONS. 


avwttV9ZUGV336R 





FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


INDIA 4 


STEFAN WAGSTYL: How do 
you assess tbe current state of 
the Indian economy? 
MANMOHAN SINGH: The 
short-term indicators all point 
to an economy in good shape. 
Tim economic growth rate for 
the year to nest March should 
be 5 to 5.5 per cent. Inflation 
should be no more than about 
7-8 per emit, probably less. The 
balance of payments is cm the 
whole well managed. We will 
end the year I think with the 
current account nearly in 
balance and with foreign 
exchange reserves as high as 
the equivalent of seven to 
eight months of imports. 

The fact that we have 
comfortable levels of reserves 
gives us added degrees of 
manoeuvrability in managing 
our economy. Industrial 
production, which was stag- 
nant, is rising by 7-8 per cent 
A fiscal situation which had 
gone ont of hand last year is 
at long last coming under 
control with revenues roughly 
on target So on the whole the 
overall economic situation 
looks reasonably good. 


Is the current high level of 
the rupee harming export 
growth? 

In the short-run at least we 
can live with a stable 
exchange rate without hurting 
the country’s export efforts, 
particularly as in the last four 
years the rupee has undergone 
a very sizeable (downward) 
adjustment This year, we 
expect a growth rate of about 
12-15 per cent in dollar terms. 
That's not an unreasonable or 
unsatisfactory target 


Do you agree with the view 
that the pace of reform has 
slowed? 

No, I do not We have a set 
agenda ... we have a medium- 
term plan for deregulation ... I 
think in most areas what we 
announced as our medium- 
term intentions we have 
fulfilled, perhaps not by 100 
per cent but certainly by 70-75 
per cent 


What is the position with the 
reform of insurance? 

We have a paper ready and it 
has gone to the cabinet... 
Ultimately it will require 
legislation which will have to 
be passed by parliament 1 
have always said I am in 
favour of opening up the 
Insurance industry of making 
our industry more compet- 
itive. We need, 1 think, an 
industry which is capable of 


■ Interview: Manmohan Singh, finance minister 

Changing ‘mind-sets’ 


tee that State Electricity 
Boards will pay their bills? Is 
this a satisfactory arrange- 
ment? 

I have not been very happy 
about the counter-guarantees 
but I do recognise that in a 
situation in which foreign 
investors are not familiar with 
the working of our power 
system the fear of the 
unknown is something to be 
reckoned with. Therefore 1 
have gone along with my 


mobilising long-term capital 
on a much larger scale and of 
financing the investment 
needs of our economy, partic- 
ularly infrastructure. 

India is selling stakes of up to 
49 per cent in state-owned 
enterprises. Would it not be 
better to engage In fall-scale 
privatisation? 

Theoretically, that’s certainly 
a possibility. But we are in 
politics. And, as I’ve often 
said, we don't 
have a con- 
sensus in our 
government to 
go beyond the 
49 per cent 
level. Cert- 
ainly, if we 
were willing to 
offer an 
enterprise 
wholesale to 
private inves- 
tors, probably 
we would get a 
better deal. 

But since we 
don't have a 
consensus in 
favour of that 
sort of thing, 
we have to live 
with what we 
have. 

Even so. the 
fact that up to 
49 per emit of 
their equity 
will be 
available to 

the public Manmohan Singh; a growth rate of 7-8 per cent 
means that 
enterprises will be under 
pressure to earn a reasonable 
rate of return. They wzfi be 
questioned by their 
shareholders. All this will 
introduce market pressure 
into the thinking and the 
functioning of public 
enterprises even though 51 per 
cent of equity will remain 
with the government Also, we 
have opened up all sectors of 
the economy to the private 
sector and therefore over a 
period of timg the mw of the 
private and the public sector 
would tilt in favour of the 
private sector. 



colleagues that at least in 
the first few projects these 
counter-guarantees may 
enable a lot more interest to 
be created in the power sector. 
But all of us in the govern- 
ment are agreed that counter- 
guarantees cannot become a 
permanent feature. We must 
explore other ways in which 
we can attract private invest 
meet. 


Investors in power generation 
are being offered government 
counter-guarantees to gnaran- 


Doesnl that come down to a 
genuine re f orm of the loss- 
making State Electricity 
Boards? 

Yes, I think we must do a gen- 
uine reform of the SEBs. We 
cannot run our state electric- 
ity boards as organisations 


which do not earn a reason- 
able rate of return. Most states 
do recognise this. I hope that 
after the forthcoming elec- 
tions in the states there will 
be positive movement towards 
structural reforms. 

What is the position with 
reform in the financial sector, 
including banking? 

We are trying to create a more 
competitive environment for 
banks. We have deregulated. 

We have abol- 
ished the mini- 
mum lending 
rate. We have 
only a maxi- 
mum deposit 
rate. We have 
laid down pru- 
dential norms. 
Institutional 
change is not a 
one-year or 
two-year pro- 
cess. In many 
ways, people 
tend to forget 
that changing 
the function of 
the economy is 
not merely 
introducing 
legislative 
changes. What 
we are talking 
about is a 
change of the 
m i n d - s e t . 
Today the 
mind-sets are 
changing in 
banlnng....The 
public sector 
banks will have to compete 
with new private banks and 
wifi have to survive by earn- 
ing their bread by the sweat of 
their brow. 

Will there be an acceleration 
of reforms after the next gen- 
eral election, especially in 
politically-controversial areas 
such as the public sector and 
labour? 

I am not laying down a time- 
table but that we urgently 
need reform in the public sec- 
tor is beyond doubt Similarly, 
we need to reform the labour 
market to reduce rigidities 
which in my view militate 
a gsmat the growth of employ- 
ment 

What is the likely state of the 


Is feasible 


Indian economy in five years* 
time? 

I think the Indian economy 
should be much more 
dynamic, much more open, 
much more efficient, much 
more productive, and much 
more socially just An econ- 
omy In which employment lev 
els will expand faster than 
ever before. An economy in 
whihh we will pay a lot more 
attention to meeting the basic 
needs of our people partial 
larly in areas such as health, 
education and environmental 
protection. An economy in 
which the manoeuvrability 
which we would get out of 
accelerated growth would be 
utilised to create credible 
social safety nets to protect 
the more vulnerable sections 
of our society. 


Can India by then reach the 
rates of growth achieved by 
successful east Asian econo- 
mies? 

I really don't know. But it’s 
my hope and it is my firm 
conviction that India needs a 
growth rate of 7-8 per cent to 
solve the problems of poverty. 
It is a challenge for our coun- 
try's economic and political 
management to get there. It is 
feasible. In the past two 
important constraints on 
India's development have been 
the limited food supply and 
limited foreign exchange. I 
t hink neither of these con- 
straints applies any more and 
therefore I feel that even with- 
out raising the investment 
rate we should be able to up 
the economic growth rate by 
at least 1 per cent over the 
level of the 1980s. 

In the past, because of all the 
controls, a large part of capital 
was locked up in inventories. 
Now people don't need to lock 
up capital. With some 
improvement in efficiency we 
should be able to raise the 
growth rate by a farther 2 per- 
centage paints. In the 1980s, 
the growth rate was 5.5 per 
cent. Raising it to 7-7.5 per 
cent Is certainly a feasible 
proposition in the more liberal 
environment in which India is 
now operating. 


Bnt won’t India need more 
reforms? 

Of course. I'm not saying that 
we have reached the end of 
reforms. What we need is a 
flexible mechanism for 
responding with speed and 
agility to chang ing economic 
conditions. 


Harvard economist leads call for change of tack 

From macro to micro * 


Almost everyone in India can tell a story about 
the country’s economic inefficiencies. Faulty 
telephone lines, Bight delays and power cuts are 
part of daily life for most middle-class Indians. 
They complain and propose solutions, but rarely 
does anyone attempt to analyse these problems 
in a systematic way. 

Economists, both Indian and foreign, have 
concentrated their attention an the country’s 
macro-economic per fo rmance, and have spent 
less time looking at the nuts and bolts of indus- 
try and commerce. 

The Confederation of Indian Industry, the 
employers' organisation, has tried to restore the 
balance by sponsoring a three-year study which 
focuses on the competitive position of E ndi a n 
companies. The study, which was completed last 
month, was carried out by Professor Michael 
Ports' of Harvard Business School, an inter- 
national authority on competitiveness, and his 
associates. Professor Pankai Ghemawat and Mr 
U. Srinvasa Rangan. 

The authors’ message is that, having achieved 
macro-economic stability following the 1991 hat 

ance-of-payments crisis, — — 

India should now con- 
centrate on micro-eco- 
nomic reforms to pro- 
mote internal and 
external competitive- 
ness. They can on the 


government to remove barriers to free markets, 
to private state-owned industries, to permit 
employers to cut redundant labour and concen- 
trate public spending an the greatest needs, 
namely education and poverty-alleviation. 

Mr Porter, who delivered his conclusions in a 
lecture to businessmen last month, urges India 
to focus on rnremp growth and not indulg e in 
arguments over income distribution which are 
no more than “struggles to split chapatis 
[Indian breads] which result in shrinking them”. 

The study cans an the government to act 
quickly saying that India now has a window of 
opportunity, with the favourable impressions 
generated overseas by the post-1991 reforms. 
“We need another burst of reforms, a collection 
of things that add up to something significant as 
was the case with the decisions taken in 199L” 

Mr Porter has run into criticism from govern- 
ment officials and snmp businessmen who have 
retorted that there is nothing new in his pre- 
scriptions. Mr Porter was the first to admit that 
many of his specific proposals have already 
been discussed in India. But his message carries 
weight because it is supported by an unusual 
amount of analysis and comparative data drawn 
from India and from its leading economic rivals, 
Including China, Indonesia and Snnth gjjn , 

Mr porter’s main r wgimmpndatio nfi are; 

• Improve the e nvir on me nt in which compan ie s 
compete like other economists he urges India to 
invest in infrastructure - unlike most of tham, 
he puts as much, if not more, emphasis on 
improving the efficiency of existing Infrastruc- 
ture as on building new capacity. For example, 
he says India's power shortages could be solved 
simply by raising generation and distribution 
efficiency, including catting theft and corrup- 
tion. 


• education standards. Mr Farter -says 

that despite pockets of excel l e nc e, India’s educa- 
tion levels are poor. "You canY have a produc- 
tive «wnttwqy if most of the people in a factory 
cant read and write.” The globalisation, of. asm 
kets and the spread df technology meeh that 
India cannot rely on cheap labour , for interna- 
tional competitive advantage because the value 
of unskilled labour Is felting. India dnflUd invest 
in skilled manpower and the application of hfgfr 
tenhnnin gy to all industries. ‘There are no low- 
tech. industries- There are only low-tech ways of 
competing,” Mr Porter says, contra sting IntSaft 
primitive shoemaking industry 1 , with Italy’s 
advanced one. . . " ' 

m Promote competitiveness. As well as exposing 
Indian companies to inte rn ati on a l competition, 
by .reducing trade barriers, the .government 
tmigt promote internal rivalry between- Indian 
companies. It must break monopolies/incbxding 
state-owned ones, and cartels, encourage inter- 
regional trade and spedalisation and use gov- 
ernment procurement policies to promote qual- 
ity rather tfran quantity of production. The gov- 
; eminent should also act 

STEFAN WAGSTYL wZHSSS 

explains the significance the free exchange. -of 
of the Porter Report 35Tff«B££ 

information.-” 


Mr Porter argues that foreign companies have 
a role in importing capital and technology. But 
they should not be done at the cost of reducing 
co mpeti tion. He questions whether the govern- 
ment has been wise in extending counter-guar- 
antees to private groups which are planning to 
invest in power generation. 

He says it is “automatically wrong? to guaran- 
tee returns in a free economy. He also doubts 
whether It was correct last year for Coca-Cola, 
the US drinks company, to have been permitted 
to buy Parle Exports, India's biggest producer. 
The study also has some tough advice for 

Indian rnnrpfinleq- 

• Stop being opportunistic. Too few Indian com- 

panies have strategic plans, say the authors, 
anri prefer to grasp at business as they 

appear. Wi fhn rrt long-term planning they eannut: 

hope to compete internationally. 

• Focus the business. Companies are over-diver- 
sified and over-extended through vertical and 

hnrignntel integration Instead of trying fo do 

everything they should concentrate on the busi- 
ness flagwumts where they have the greatest 
competitive advantage. 

• Formulate dear plans for exports. Export mar- 
kets need long-term commitment in production 
and marketing. Foreign alliances shmrld not be 
Anris in themselves but designed to achieve spe- 
cific targets. 

The authors believe, based on the experience 
of other countries, that it is crucial for India to 
develop dusters of competitive industries, on 
the limes of Italy's shoe industry, where there 
are strong lmks between shoe manufacturers, 
machinery makers and design studios. The suc- 
cessful diamond polishing industry, fin* exam- 
ple, should progress freon processing small 
stones to large ones and diversify info jewellery 


§ 



r 

6 


4 

4 


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i 



FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


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INDIA 5 


Stefan Wagstyl follows the Prime Minister’s changing fortunes 

Mr Rao bounces back 



Narasimha Rao: the nan pBe up AP Photo 


I t Is hard to believe that just over a year 
ago Mr PV Narasimha Rao, the prime 
minister, came close to losing his job 
when he narrowly survived a parliamen- 
tary vote of no confidence. Today he seems 
so secure that the political drama of last 
July has become a distant memory. 

As Mr Rao is fond of saying; “People 
don’t ask about the stability of my govern- 
ment any more." Once regarded by the 
ruling Congress (1) party as a stopgap 
leader, who took over from Rajiv Gandhi 
in 1991, Mr Rao has completed more than 
three years in office - more than any 
other prime minister outside the Nehru- 
fianrfhi dynasty. He looks set to lead his 
party in the general election, due to be 
held by mid-1996 - and beyond. 

Political calm has settled upon Delhi 
after nearly a decade of turmoil, which 
began with the assassination of Mrs 
Gandhi in 1984 and included the unrest in 
the Punjab, the start of the Kashmir insur- 
gency, Rajiv Gandhi's assassination and 
four changes of government. 

Mr Rao's first two years in office were 
plagued with difficulties - notably tbe 
challenge of the right-wing Hindu Bharat- 
iya Janata Party, whose supporters 
destroyed the Ayodhya mosque in (Jttar 
Pradesh in December 1992 and unleashed 
violence across northern India. 

The 1992 Rs40bn Bombay securities mar- 
ket scandal was a serious embarrassment, 
not least for the prime minister who was 
accused of receiving cash in a suitcase 
from Mr Hors had Mehta, one of the stock- 
brokers involved in the affair. Last year's 
terrorist bombs in Bombay called into 
question the government’s handling of 
crime and of relations with Pakistan, 


which many Indian blame for the attacks. 

But since last summer. Mr Rao's stock 
has been rising almost continuously. He 
has not so much destroyed the obstacles in 
his way as slipped around them, repeat- 
edly dodging challengers rather than tak- 
ing them on. This has worked particularly 
well with the BJP, which dared him to 
take on the wrath of militant Hindus. Crit- 
ics urged Mr Rao to confront them with a 
strong defence of modern secularism. 
Afraid to aggravate deep-rooted senti- 
ments, Mr Rao preferred to lie low. Time, 
at least for now, has proved him right. 

Mr Rao's appronch leaves nagging 
doubts that some issues will come back to 
haunt him or his successors. For example, 
while the wave of Hindu militancy has 
waned, the Ayodhya mosque still stands in 
ruins and next to it is perched the make- 
shift Hindu temple hastily erected by the 
mosque's destroyers. Mr Rao has promised 
a new mosque and a proper Hindu temple. 
However, he has not said when or how 
either will be built For the moment public 
interest in Ayodhya has faded, but it 
remains ripe for future political exploita- 
tion by radicals who feel they can gain 
from inflaming Hindu-Muslem passions. 

Mr Rao was earlier this month also 
keeping his distance from another bloody 
argument which erupted in Uttar Pradesh, 
India's most populous state. The trouble 


steins from last year's state election vic- 
tory of an alliance of low caste parties - 
the Baftitfan Samaj Party, representing 
untouchables and their supporters, and 
the Samajwadi Party, representing the 
slightly less disadvantaged or other back- 
ward castes (QBCs). 

Mr Mulayam Singh Yadav, the OBC 
chief minister, almost immediately began 
to implement longstanding rules under 
which up to 49 per cent of government 
jobs are reserved for lower castes. This 
infuriated the upper castes, who have tra- 
ditionally dominated Uttar Pradesh. 

Matters came to a head this summer in 
the hills in the north of the state, where 74 
per cent of the population is upper caste 
and where there have been long-standing 
demands Tor a separate state. Upper caste 
demonstrators became embroiled in fights 
with the mainly low caste police, resulting 
in at least 10 deaths and scores of injuries. 
Mr Mulayam Singh has been accused of 
turning a blind eye to police violence - 
but Mr Rao has refused to remove him. 

Mr Rao fears to act because dismiss ing a 
low caste leader would anger low' caste 
Indians everywhere - and alienate them 
from Congress. Particularly in the south, 
where the low castes form up to 74 per 
cent or the population, as in Tamil Nadu, 
low caste votes are crucial. With state 
elections due in four states next month 


and six early next year, Mr Rao needs to 
be careful especially because Congress is 
in a precarious position in two southern 
gfci»ps - Karnataka and Andhra Pradesh. 

Mr Rao may well be right to tread softly 
when foaling with the caste, religious, and 
regional divides which criss-cross India. 
There have long been conflicts between 
the different groups struggling for power 
and they will survive long into the future. 
India has learnt to live with the tensions, 
even when, as in the conflicts between 
Hindus and Moslems, they explode into 
bloody violence. 

However, Mr Rao’s brand of masterly 
inactivity has not proved a universal 
answer to India’s difficulties. For example, 
in l am m u and Kashmir, the northern 
state where Moslem insurgents are battl- 
ing with the security forces, a lack of 
political initiatives from Delhi has brought 
Moslem moderates close to despair - and 
exposed India to international criticism. 
Less well-publicised but also bloody is the 
fighting between the authorities and sepa- 
ratists in the north-east These conflicts 
are unlikely to be settled by military 
action alone. 

Tbe softly-softly approach has also con- 
tributed to a lack of clarity about eco- 
nomic policy. Congress is not a party 
wholly committed to economic liberalisa- 
tion. It has espoused the cause somewhat 


reluctantly and has persisted with a fond 
regard for state-owned industry. 

Mr Rao tries to balance the two trends 
by pursuing what he calls the middle way. 
It has worked so Car in achieving a modest 
restructuring of the economy. But a more 
direct approach may be needed if the gov- 
ernment is to tackle the remaining obsta- 
cles to economic modernisation, toduding 
the vested interests of the civil service, 
trade unions, and state-owned enterprises. 
Also, Mr Rao is coming under pressure to 
act more decisively about growing corrup- 
tion, not least bribery linked to Industries 
attracting foreign investment, notably 
power and telecommunications. 

Finally, there is the need for revitalising 
the Congress party itself. In its early 
Nehru days, Congress lived off the eupho- 
ria of independence and nation-building. 
Later it derived energy from socialism. 
But since the deaths of Nehru and Mrs 
Gandhi, it has foiled to develop a coherent 
rhetoric, capable of Inspiring Indians 
across the country. So it is left with doing 
deals with an Increasing number of 
regional parties and balancing Interest- 
groups - a game that Mr Rao plays so 
well. The trouble is that the more Con- 
gress relies on these manoeuvres, the less 
freedom of action it will have as a national 
party. The government could become a 
hostage to electoral pacts. That would be a 
loss for the prime minister and for Con- 
gress. It would also be a loss for India. 

Mr Rao, a thoughtful leader with a 
strong sense of history, is aware of the 
long as well as the short-term consider- 
ations of politics. It would be a pity if be 
allowed dealing with the latter to prevent 
him from ever acting on the former. 


M Profile: T.N. Seshan, chief electio n commissioner 

Scourge of the 



TJ4. Seshan: targeting corruption and ai roganco Picture: Rakesh Sahal 


O ne man in India has repeat- 
edly challenged Mr P.V. 

Naras imha Rao and got 

away with it - Mr TJM. Seshan, the 
pugnacious chief election commis- 
sioner. 

An upper-caste Brahmin with leg- 
endary faith to his own abilities, Mr 
Rp^han ha.q transformed a sinecure 
into the most controversial post in 
public life. AS he says himself: “1 
am the ninth CEC (since indepen- 
dence). My predecessors saw them- 
selves largely as a limb of the gov- 
ernment I do not” 

Mr Seshan has turned a 
little-known institution, concerned 
largely with the minutiae of elec- 
tion practice, into a scourge of the 
country's politicians by interpreting 
his mandate in the broadest possi- 
ble way. Mr Manmohaw Sin gh, the 
finance minister, Mr Prana b 
Mukheijee, the commerce minister, 
and Mr Dtoesh Singh, the foreign 
minis ter, have all been targets for 
Mr Seshan’s wr ath . 

Mr Seshan sees his mission as 
cleansing public life of corruption 
and political arrogance. To his sup- 
porters, he is a hero; to his many 
enemies, a self-centred bully. As an 
aide once said of him: “He's a bull 
who carries his own china, shop 
with him." - .- 


Whatever his reputation to New 
Delhi, Mr Seshan has struck a 
chord with many ordinary Indians 
angry at the spread of political cor- 
ruption. His public meetings attract 
large crowds and he has launched a 
national "voter awareness” cam- 
paign through non-government 
organisations. 

Mr Seshan, who is 61, is a career 
civil servant who rose to be chief 
cabinet secretary in the late Mr 
Rajiv Gandhi's government. Mr 
Chandra Shekhar, who was briefly 
prime minis ter in 1990-91, appointed 
Mr Seshan as chief election commis- 
sioner - a decision he later said was 
a mistake. 

As Mr Seshan explains, with some 
relish, the chief commissioner is 
appointed for six years and can only 
be removed prematurely by death, 
voluntary resignation or impeach- 
ment. So, when Mr Narasimha Rao 
became prime minister in 1991 he 
was stuck with Mr Seshan. “ 

Attempts to dip his wings have 


so far foiled. Last year, the govern- 
ment appointed two senior bureau- 
crats to "assist" Mr Seshan, turning 
the commission into a three- man 
board. But Mr Seshan challenged 
the move in the Supreme Court, 
winning an interim order upholding 
his sole authority. His two col- 
leagues sit to offices one floor above 
his to a government block to Delhi; 
he knows them well from his civil 
service days but now he does not 
speak to them nor they to him. 

This year, Mr Narasimha Rao 
sanctioned an abortive effort to 
pass two constitutional amend- 
ments through Parliament to turn 
the commission into a multi-mem- 
ber body. The government with- 
drew the billd at the last moment 
when it became dear it would not 
win the necessary two-thirds major- 
ity. Even though dislike of Mr Ses- 
han runs across party lines, the 
opposition parties decided their 
interests were better served if he 
stayed to office to plague Mr Rao. 


mighty 

Mr Seshan has not escaped 
scot-free from attack. This summer, 
the Supreme Court criticised him 
for over-reacting to alleged electoral 
malpractice in the northern state of 
Uttar Pradesh, where the chief min- 
ister had been caught using an offi- 
cial aircraft during a local election 
rampaig n. Mr Se shan 's decision was 
to postpone the polls by four 
months. The Supreme Court said 
this was for too long. 

Mr Seshan 's attack on Mr Manmo- 
han Singh centred on the alleged 
abuse of rules for residential qualifi- 
cations for electoral candidates. 
Under Indian law, members of both 
houses of Parliament are required 
to be resident in the state they rep- 
resent Mr Singh, a former civil ser- 
vant, was drafted into the ruling 
Congress(I) party when he became 
finance minister and W3S given a 
seat in the remote north-eastern 
state of Assam. He gave as his 
address the Assam chief minister's 
house. Mr Seshan threatened to 


cancel the election but bis effort got 
bogged down to the courts and he 
seems to have lost interest to pursu- 
ing the finance minister. 

Mr Dinesh Singh survived a simi- 
lar challenge by producing a ration 
card and evidence of property own- 
ership in the state which he repre- 


sents, even though he does not live 
to it Mr Pranab Mukheijee was not 
so lucky. He was out of Parliament 
when he was appointed commerce 
minister and intended to contest a 
vacant seat. But when Mr Seshan 
objected to the choice of chief elec- 
toral officer. Mr Mukheijee had to 


resign, though he later returned to 
the government after winning an 
election elsewhere. 

These individual attacks pale to 
comparison with the campaign Mr 
Seshan has waged since early last 
year to have alt India's voters 
issued with photo identity cards. 
The government initially scoffed at 
such a breath-takingly ambitious 
plan. But Mr Seshan has stuck to 
his guns. He insists that the cards 
must be issued before a deadline of 
December 1994, or elections will not 
be vaBd. Since six of the 10 state 
elections being held to the next few 
months come after December, the 
issue is very urgent. Mr Seshan 
says: "I gave them plenty of time. 
They didn't believe me." 

Mr Seshan says electoral abuses 
are increasing, including bribing 
voters, manipulating election 
expenses, stealing ballot boxes, 
intimidation and violence. But he 
argues these practices are still a 
long way from Tmitarmining In dian 
democracy. The Indian general elec- 
tion, with its 550m voters, 4m offi- 
cials, L5m police and 800,000 polling 
booths, r emains "one of the won- 
ders of the world". That, he 
believes, is why it worth defending. 

Stefan Wagstyl 


•.fc 

16 


* 

> 


a 



India.' A fast emerging: preferred frontier of 
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world spreading roots across the country. 

A nation in . transition and all set to reap the 
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A transnational conglomerate, the Hinduja 
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investment banking and asset 
management. 

In India, the Group's flagship company Is 


Ashok Leyland 



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Providing comprehend vr and integrated services 
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— • . if a » A m 


TUESpAV NOVEMBER 8 1994 



I ndia's Hnandal system is 
being transformed. The 
highly regulated system 
dominated by state-controlled 
institutions is being pushed 
aside to make way for what 
policy makers hope will be a 
modem, efficient system based 

On m a rket muffhanirniw 

Some significant reforms 
have taken place in monetary 
policy where there has been a 
marked shift from direct 
instruments of control, such as 
the prescription of reserve 
requirements for banks, admin- 
istered interest rates and credit 
controls, towards indirect 
instruments such as the free- 
ing of interest rates and the 
use of open market operations. 

The restrictions placed on 
commercial hanks over their 
applications of funds have 
been eased and both the cash 
reserve requirement and the 
statutory liquidity ratio, which 
lay down the proportion of 
incremental deposits which 
must be held as cash deposits 
or eligible government securi- 
ties with the reserve bank, are 
being reduced. 

At the same time, the prior- 
ity sector leading requirements 
and credit norms imposed on 
the banks have been relaxed, 
while controls cm interest rates 
have been curbed. On October 
17, most of the remaining con- 
trols on hank lending rates - 
except those over small loans - 
were scrapped to promote 
cheaper credit, greater libera]- 


The highly regulated financial system is being drastically overhauled, writes Paul Taylor 

Writing is on the wall for controllers 


isation in financial markets 
and more competition in the 
hankin g’ industry. 

Perhaps even more impor- 
tant, the government and the 

reserve bank have signed an 
agreement to phase out ad hoc 
treasury bills, on which the 
government paid a fixed inter- 
est rate of <L6 per cent 

Along with open market anc- 


unveiled a comprehensive pro- 
gramme to strengthen the 
state-owned banks and 
increase competition- New pru- 
dential norms have been pre- 
scribed and commercial banks 
have been told they must meet 
the Basle Acoord mmfwinm 8 
per cent capital adequacy 
requirement by 1996. 

To assist the process, the 


FOREIGN INVESTMENT IWLOWS ($m) 


1991-92 

1992-93 

1993-94 

Direct investment 
Portfolio Investment 

150 

341 

620 

tneflan Issues abroad 

- 

86 

1,460 

Foreign Institutions 

- 

1 

1,665 

Ottiers 

8 

5 

365 

TOTAL 

158 

433 

4,110 




Snuca: Dgarni Bonk et Indtt 


tians. new government money 
market and debt instruments 
now include 91-day and 384-day 
treasury bills, longer dated five 
and 18-year securities and of 
aero coupon bonds. In addition, 
a system of primary dealers is 
planned to encourage the 
growth of the secondary gov- 
ernment securities market 
The authorities have also 


Word Bank is working on a 
new 5600m loan for nine 
selected public banks which 
will provide an incentive for 
recapitalisation as well as gen- 
eral development Three of the 
banks have already reached 
the 8 per cent target but the 
other six would share a 5300m 
recapitalisation loan. Another 
$100m would be earmarked for 


technical assistance and the 
final $200m tranche would pro- 
vide a backstop facility for 
export finance. 

After the Rs40bn Bombay 
securities scandal in 1992 
which implicated a number of 
domestic and foreign banks, 
Mr DJt Mehta, Reserve Bank 
deputy governor, says the cen- 
tral bank has “totally 
revamped its regulation and 
supervision system”, splitting 
the two functions and creating 
an autonomous Board for 
Financial Supervision. 

The government has cut its 
stake in two large medium- 
term l ending institutions to 
below 50 per cent and has 
approved private ownership up 
to 49 per amt for other state- 
owned banks as part of their 
recapitalisation. Nevertheless, 
banking regulators accept that 
the weakest public banks may 
need more assistance. 

In order to increase competi- 
tion, 10 new private sector 
banks have been approved and 
eight foreign banks have been 
given permission to open 
maiden branches in In dia 

But the government's critics 
still say the reforms do not go 


for enough. They argue that, so 
long as commercial banking is 
dominated by state-controlled 
institutions, real competition 
will be missing. 

Similar concerns are 
expressed about the insurance 
sector, which is controlled by 
two stateowned organisations, 
(he Life Insurance Corporation 
of India and the General Insur- 
ance Corporation. A report on 
the sector was delivered by the 
Malhotra committee early this 
year but is still “under govern- 
ment consideration”. Given the 
size of the two insurers, Mr 
Tarun Das, director general of 
the Confederation of Indian 
Industry, claims that “the only 
way competition will come is 
with privatisation". 

In contrast, reform of the 
capital markets is well 
advanced. Companies have a 
wider range of financing 
options now and can tap the 
international debt and equity 
markets through Euro issues 
or global depositary receipts. 
The Controller of Capital 
Issues was abolished in 1992, 
allowing companies more flexi- 
bility in pricing new issues, 
subject to the guidelines of the 


Securities and Exchange Board 
of India (Sebi), whose powers 
have been enhanced. 

From the investor’s perspec- 
tive the launch of new private 
sector mutual funds last year 
provided another investment 
vehicle. So for 22 private sector 
hinds have been approved, of 
which seven are trading along- 
side funds offered by the Unit 


been allowed to buy shares 
directly since late 1982. Since 
then 224 FUs have registered 
with Sebi and have bought 
$2.7bn of Indian equities. 

But sudden of for- 
eign funds, together with the 
steady stream of new issues, 
has thrown a spotlight an the 
archaic paper-based tradi ng, 
settlements and stock transfer 


DIRECT FOREIGN INVESTMENT APPROVALS 

1991 

1992 

1993 

1994 (to June) 

Total value Rs bn S3 

389 

8&6 

24*6 

Number of cases 289 

692 

785 

439 

Semxc MMr tt ladu*T 


Trust of India and public sec- 
tor banks and institutions. 

In the wake of the Bombay 
securities scandal, Sebi has 
tried to move quickly to estab- 
lish Itself as a regulator over 
the equity markets, determined 
to improve disclosure require- 
ments and increase transpar- 
ency and investor protection. 

The need for a more trans- 
parent market has been high- 
lighted by the inflow of foods 
from registered Foreign Insti- 
tutional Investors, who have 


system which can cause delays 
of up to six: months between 
payment pnri the formal regis- 
tration of share ownership. 

To alleviate these problems, 
Sebi has made regulatory 
changes, permitting the use erf 
“jumbo” transfer deeds and 
share certificates and encour- 
aging' the expansion of custo- 
dial services for foreign inves- 
tors. It admits that the 
long-term sedation is to move 
to paperless electronic trading. 

In Bombay the stock 


exchange's 628 members are 
investing 525m to install an 
electronic trading system 
which Mr Bhagtrat Merchant,, 
president of the exchange, 
nfoftns wfll be running by the 
start of next year.. But fully 
automated paperless trading is 
probably same years away.- 

Other changes could take 
longer. The Bombay exchange 
recently agreed to admit corpo- 
rate members but so for Its 
individual and. Partnership 
members have shown little 
ftTfcprast in taking advantage of 
this. To date the exchange has 
just 10 corporate members. . 1 

The exchange says it will 
eventually admit foreign mem- 
bers, hut Mr Merchant admits 
there is no timetable. *T cannot 
throw my members to the 
wolves.” Like most policy mak- 
ers and regulators, he empha- 
sises (hat India does not; like 
rapid change. 

While most industrialists 
and financiers believe the 
reforms enacted so for are irre- 
versBde, they fear that the lib- 
eralisation; programme could 
stall, leaving the Indian mar- 
kets in an unstable Umbo. 

These concerns are brushed 
aside by Mr Shankar Acharya, 
an economic adviser in the 
Ministry of Finance. He denies 
that the programme is losing 
momentum. Financial reform, 
he says, is a process which 
takes several years, particu- 
larly wh en in sti tu tional mwim 
has to be overcome. 


O verseas investors are 
finding tngemoos ways 
to tap the buoyant 
Indian capital market The 
growth of dedicated mutual 
foods in New York and Lou- 
don this year caused India’s 
stock markets to groan under 
the weight of large capital 
flows. 

More than 200 foreign insti- 
tutions bought stocks worth 
$2J>6bn over the year to last 
September, boosting India’s 
foreign exchange reserves to 
more than 5181m. 

However, the overworked 
custodial services rang alarm 
bells, saying they were unable 
to handle the massive inflows. 

Cumbersome share transfer 
procedures brought the deliv- 
ery mechanism to a virtual 
halt The authorities had to 
devise a modus vivendi of 
“Jumbo” certi fi cates to cover 
the bulk share transfers and 
reduce the FUs’ paper work. 

To avoid the hassles, over- 
seas investors negotiated their 
stock purchases directly with 
companies through so-called 


The capital market is feeling the strain, writes R.C. Murthy 

Embarrassment of riches 


Bombay.- 39 index - 

Bombay BSE 30 share if *-'?' ')* W 
5.000. — — 


'■ B • y V :* *■ 


“preferential allotments”. The 
Securities Exchange Board of 
India, the market watchdog, 
intervened and set a five-year 
freeze on such transactions, 
stirring a hornet’s nest 
Mr S.S. Nadkarni, SEBI 
chairman, Justified the freeze. 


made the preferential allot- 
ments less attr a cti ve to over- 
seas investors. "Any invest- 
ment with a freeze is not a 
saleable product FUs want an 
unencumbered exit rente,” 
said Mr NJ Jhaverl, chairman 
of I-Sec, a J.P. Murgan-lCICI 


The new route for overseas investors and 
mutual funds is India paper floated by 
companies on the international market 


saying "it was an effort at 
establishing a level playing 
field”. 

The justification for the 
freeze was that companies 
offered discounts to the mar- 
ket mice that were hot avail- 
able to other investors. That 


merchant hank. 

The new route for the over- 
seas Investors and mutual 
foods is India paper floated by 
the corporate sector on the 
international market. That 
eliminated, albeit temporarily, 
the hassles in accessing the 


local stock markets. Some half 
a dozen India-dedicated 
mutual funds mobilised 
$L03bn in the first quarter this 
year, Morgan Stanley account- 
ing for Half of U. 

The Euro-issue route would 
be the mainstay for overseas 
investors as the Indian author- 
ities grappled with s tructural 
reform s at the stock markets 
and created new institutions 
to handle the capital flows. 

The exit of overseas inves- 
tors was seen as a blessing: 
pressures eased and there was 
less chance of the stock mar- 
ket overheating. 

The BSE SOshare index is 
hovering around 4400 after 
hitting a peak of 4500 on 
August 31. 

The launch of the National 
Stock Exchange in Bombay 


exacerbated tensions between 
the NSE and the Bombay Stock 
Exchange, India’s largest. 
Opposition to reforms at BSE 
is subdued and the authorities 
are to computerise trading and 
settlement procedures. 

Acknowledging the slip- 
pages, Mr N. Shankar, BSE 
general manager, said that the 
computerisation wo old be 
completed in four stages by 
the end of next year. But the 
automated NSE has fallen 
short of expectations. Against 
a target of Bsiobn of trades a 
day, the debt instruments 
traded in the first four months 
were less than RsSOOm a day. 

There is not enough busi- 
ness for the 95 brokers. But 
the NSE's strong point is 
transparency, which makes it 
attractive to institutional 


,v>r 

jN Sx 


2,000 


tjfca rr* 

•• 1991 

'Scttqt-De aH Wfir. 




investors. If the BSE modern- 
ises quickly, competition 
between the two exchanges 
should sharpen, benefiting the 
in ve stors. A decision on admit- 
ting lie corporate members at 
the BSE would be hastened. 

Local brokerages, which are 
partnerships with unlimited 
liability, resisted the entry of 
corporate members with lim- 
ited liability into their exclu- 
sive club. The entry of corpo- 


rates would pave the way for 
foreign brokerages. 

In the meantime, Jardine 
Fleming and Australian-owned 
Martin Partners, who have set 
up shop In Bombay, have 
started making purchases with 
the help af local brokers. India 
opened its doors to nine for- 
eign brokers 15 months ago. 

The State Bank of India and 
ICICI are establishing custo- 
dial facilities, which should he 


ready in about a year. The sce- 
nario for investment hanks 
1ms changed. Most merchant 
banks have set up shop in 
India. .■ 

There is friction between 
local and overseas merchant 
hanks as they consider the 
ideal ideal structure for over- 
seas merchant banks. 

The joint venture between 
Peregrine of Hong Kong and 
ZTC Classic, a subsidiary of 
TTC, the Indian affiliate of 
BAT Industries, floundered os 
the issue of management con- 
trol. It was an equal joint ven- 
ture and FTC Clastic was not 
ready to part with (he key (me 
percentage point equity. 

Salomon Brothers quietly 
told its Indian partner, Ind- 
Global Financial Services, that 
it would open a branch fin 
Bombay next ApriL The tenu- 
ous relationship between Mer- 
rill Lynch and BSP Financial 
Services is c ontiming . Capital 
market modernisation should 
gather speed next year as com- 
petition softens resistance. 
Global depositary rates: Page s 


More and more 


people subscribe to the 


belie/ that 
at the end of 


every rainbow is India. 



The dark clouds of protectionism have gone. India's economy is now open and gleaming with promise- Multinationals the world 
over have noticed. And have rated India as one of the best investment opportunities in the world. They're arriving here now, faster 
than the speed of light. With rhe State Bank of India (SB!) as their guide. 

With nearly 200 yeans of experience in banking, no one knows India berrer. More importantly. SBI has 8,763 branches locally 
and 50 offices overseas. Controls 25% of the country's banking business and 45% of its foreign trade. Is the principal hanker to over 
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So whichever rainbow, oops business in India, you choose to follow, 
contact the Stan: Bank of India. We'll help you find your pot of gold. 


O State Bank of India 


Your G t ■ o b a l 


a d i a 


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■ fcfcro TaJirei «lrv*x -Jnlm 

Chattra Lee Barnett B SBI 2327/94 


cA coveted legacy of the Indian artisan. 

Unfolded to ^our Byes 

Fascinating foe world, especially foe West, Indian arts and crafts have a uniqueness of 
thee own. There are certain crafts where high degrees of sophistication and excellence 
can only be achieved thru generation of learning. A labour of love, where entire famffies 
weave their efforts into a brilliant masterpiece. 


WS 


Indian carpets are as richly diverse as the regions they come from. But foe centuries old 
traditions where lifelong experience and skills are handed down from generation to 
generation, bind them in a common thread. 

In an era bygone, the Indian carpets received foe patronage offoe Mughal Kings and other 
Indian rulers. Gradually, over foe vicissitudes of time, foe discerning consumer emerged 
whose patronage now is so vital for this exquisite cottage skill to survive. For craftsmen 
who for generations have depended on their family looms. 

Carpet weaving is a legacy for their generations to inherit, and for you to sustain. 





***. -w- 1 


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& 


T 5 '- 




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f* *■ 




M 


CARPETS 

FROM INDIA 

labour of love at your feet. 


FEB 26— MARI, *95 
PRAGATI MA1DAN 
NEW DELHI -INDIA 


CEPC 

Carpet Export Promotion 
Council, India 

110-A/l, Krishna Nagar, SL No. 5, 
Saldarjung Enclave, 

New DeftM 10 029. 

Tel. : 601024, 602742 

Fax:91-11-601024 


; \ 
i V 


1 x 
■ 




FINANCIAL TIMES TUESDAY NOVEMBER $ 1994 ★ 



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INDIA 7 


■ TELEPHONES 

Millions of bells 
are waiting to ring 



Bombay cafler: tmfia has less than OM Bna par 100 people 


F or the sast year and a half Ms Boh 
Medappa been waiting for the phone 
to ring in the suite which she occu- 
pies at the Sheraton hotel in New Delhi, 
writes GORDON CRAMB. 

She is the India repr es entative of US 
West, the Colorado-based telecommunica- 
tions company which, like many other 
tadm.li/ multinationals, is maW^g a role 
in one of the world's hugest potential tele- 
phone markets. After several “wrong num- 
bers", US West and other the foreign ser - 
vice providers are starting to receive calls 
fr om the Indian licgnstryg authorities. 

In the last few weeks a batch of right 
cellular licences has been granted with 
minority foreign participation, two apiece 
to offer mobile phone services for the first 
time in the four biggest cities. By the end 
of the year, tenders should be out for the 
right to provide basic telephone faniiHw 
in any of IS regions of the country in 
competition with the current government 
monopoly. 

This follows the unveiling in May of a 
government telecoms policy which recog- 
nised that its public sector monopolies 
would not be able to meet growth in call 
tr aff ic and, more particularly, rigmanfl for 
lines. India has less one Unp per 100 
people, one of the lowest levels of phone 
availability in the world, and would-be 
subscribers can wait a decade for a resi- 
dential connection. 

initially, peripheral service s such as pag- 
ing and electronic mail were opened to 
private operators in 1992 - “deregulated" 
is the wrong word, as the bureaucrats at 
the Department of Telecommunications 
(DoT) attach e d a sheaf of requirements to 
such lice nc es. Pager companies are, to 
take an example cited by an industry exec- 
utive in Delhi, obliged to maintain a huge 


electronic archive of messages relayed 
months or years in the past 

The cellphone licences initially awarded 
were challenged in the courts by unsuc- 
cessful bidders and there followed a round 
of musical chairs as part of which Bharti 
Telecom, a local maker of handsets whose 
bid has been haritpd by small-scale Euro- 
pean interests, moved the proposed site of 
its service from Bombay to the area 
around Delhi. 

Bharti wan a Delhi franchise as a result 
but Tata Cellular, an offshoot of India’s 
biggest industrial group, failed to capital- 
ise on a legal intervention which for a 
time put it back In the running. It lost the 
potentially lucrative Bombay slot to rival 
ventures backed by France Tgtecom and 
the originally excluded Hutchison Wham- 
poa of Hong Kong. This time Tata did not 
immediately appeal. 

An eccentricity of that contest was that 
bidders were required to propose a pricing 
structure, and were awarded points under 
a secret system based in part on how 
cheaply they said they could offer a ser- 
vice - but the department then fixed a 
tariff regime and will allow price competi- 
tion. if at afl, only at the margins. 

The formula under which revenues will 
be shared with the government operator is 


one of the ny>l" issues yet to be resolved 
before tenders are invited for new entrants 
to provide basic telephone services cover- 
ing each of 18 regions of the country. 

The carve-up. which approximates to 
India’s state boundaries, has got another 
clutch of telecoms companies from abroad 
jostling for the prime positions. US West, 
which has more than $lbn ready to invest 
in India, has for example long had its eyes 
on the south of the country where eco- 
nomic growth is vigorous. 

L ong-distance traffic is to remain a 
national preserve for the next five 
years, disappointing industry ana- 
lysts who view that end of the business as 
more lucrative than providing local links 
to thousands of villages. Although Ms 
Medappa says that "we didn’t ask for that 
and didn’t expect it," many think inter- 
state services will be opened up earlier 
thaw the government has indicated. 

Mr D K Gupta of the Telecoms Commis- 
sion, the department's policy unit, rays 
India’s needs in long-distance communica- 
tions are less acute than for basic services. 
The primary role of the new entrants is to 
supply at least a quarter of the 10m lines 
which the country aims to add by March 
1997. He notes that local services "have 


not been opened up even in many devel- 
oped countries. We are starting with 
these.’* 

The aim will be to provide universal 
access to a telephone rather than a univer- 
sal service - in other words, public phones 
in more remote villages rather than one by 
every bedside. Wireless technology will 
help bring down the cost of putting in 
place a regional network, but there is a 
suspicion among Indian commentators 
that the private sector operators will seek 
to skun the cream off the urban business 
market in order to get the return on capi- 
tal they seek. 

If so. that would remove the Dot’s best 
customers - who by one estimate account 
for 15 per cent of the tines but 80 per cent 


of the revenue. But Mr Gupta, satisfied 
that tiie DoT wfll remain the predominant 
operator, also says that it mil have its 
work cut out meeting its own quota of new 
connections. 

TO the previously cossetted public sector 
u nions, which have been aghast at the 
changes, he offers the reassurance: "What- 
ever we have by way of overstaffing will 
be compensated for by expansion" m a 
market which is growing by some 20 per 
cent a year. 

The DoT anyway remains protected by 
its effectively zero cost of capital and its 
exemption Grom tax. Moreover, it controls 
the selection of its competitors and the 
terms under which they will operate. The 
telecoms regulatory authority to be estab- 


lished under the new regime will also 
report to the minister and will, says Mr 
Amit - Sbar ma of Motorola, the US equip- 
ment manufacturer, "take time to estab- 
lish a credible record" of neutrality. 

The authority, in tl le process of bring 
constituted, will rule on tariffs, monitor 
quality of service and ensure connectivity 
between service providers. Worries over 
its role, and the commitment of the gov- 
ernment to even-handedness, have been 
fuelled in recent weeks by a spate of 
upheavals within the ministry. 

Mr N Vittal, architect of many of the 
reforms, departed abruptly from bis post 
as its chief civil servant - he was telecoms 
secretary and chairman of the telecoms 

rrwnmlsKinn - ftflyr f.)psh^s with Mr Sukh 

Ram, telecoms minister, who is suspected 
of being less than wedded to liberalisation. 
Mr Vittel's replacement. Mr R K Takkar, 
has expressed his intention, however, to 
"get cracking" with the programme. 

At the same time, movement has been 
slow on a scheduled relaunch of the 
Euroequity issue to reduce the govern- 
ment’s holding in Videsh .Sanrhar Njgam 
(VSNL.), the international carrier, which 
was aborted earlier this year because the 
market saw it as overpriced. 

The issue is now to be underwritten, but 
just as the lead managers were dusting off 
the prospectus Mr B K Syngal resigned as 
VSNL chairman a further delay ensued. 

VSNL is one of two opportunities for 
indirect investment in the sector. A minor- 
ity stake in Mahangar Telephone Nigam, 
which controls telecoms services in Bom- 
bay an d Delhi, is also bring floated. 

A missed opportunity so far has been a 
failure to exploit the growth in cable tele- 
vision net w or k s serving tha biggest in/Han 
cities. 




ready in ahont a k ft) 

Si* 0 ' 

bos changed. Ma 
banss have set 
India. 

, friction w 

tocas and overseas 
banas as they cokS 
stricture I*. 
v?as merchant banks, 

The joint venture W 
Peregrine of Bone kT, 
rrc Classic, a snbdj. 
*iC. the Indian af®* 
BAT industries, fluofeg, 
she issue of manages®* 
“oi. It a as an «jnalj^J 
fare and ITC Classic 
r*ad> to pan with 
percentage point eqahjL' 
Salmon Brothers'* 
told ns Indian partaaj 
Glebe: Financial SavA: 
ii wocld open a bra; 
Bombay next April Hi; 
c-cs relationship beta-! 
rii! Lynch and DSP Ft 
Serv.cn is continuing.^, 
market modernisation f J 
iStlhstr speed next yean 
petition softens resist® 
t.sl. r.ru rates 


T he foreign bankers have arrived. 

Bombay's business district is buzz- 
ing with tales of the six-figure dollar 
salaries being paid by some Wall Street 
investment banks, luxury hotel suites 
booked for six months at a time mid soar- 
ing office rental costs in the Nariman 
Point business district 
In India's financial capital, merchant 
banks from around the globe are vying for 
a share of the fees and underwriting 
opportunities generated by the Indian gov- 
ernment's liberalisation programme and 
the opening up of the economy. 

Many Wall Street and London Invest- 
ment hawks have already agtahKchp^ a 
presence in India, often through formal, or 

informal , Kntc with thtir «nAt* gin g ftntian 

counterparts. 

Foreign fond managers and stockbro- 
kers are charing the business gen e r a ted by 
the growing number of registered foreign 
institutional investors and are busy estab- 
lishing operations in Bombay to service 
their new clients. Among those which 
have won regulatory approval to handle 
foreign portfolio investments in Indian 
stocks are Ktefowort Benson, Gr&Ht Lyon- 
nais Securities and Australian-owned Mar- 
lin Partners. 

Other stockbrokers who have estab- 
lished a presence in India include James 
Capri, the Honggong and. Shanghai Bank- 


ing Corporation subsidiary, Nomura Secu- 
rities from Japan and Smith New Court 
which is negotiating to acquire a majority 
stake in an unidentified Bombay-based 
finn. 

Jardine Fleming, which also has an 
Indian domestic merchant banking 
licence, has rapidly expanded its 
operations in Bombay since they were set 
up in April 1992 and now employs 100 
people iwrimttng 24 analysts. Mr Marie Bul- 
lough, managing director, is bullish on the 
prospects. "We believe that international 
investors in emerging markets are still 
dramatically underweighted and we 
believe the size of the market, both domes- 
tic and international, is going to grow very 
rapidly in part because the private sector 
is raising new money onshore and off- 
shore, in part due to privatisations" 

Meanwhile the foreign commercial 
banks are also targeting the snb-conti- 
nenfs increasingly sophisticated corporate 
customers and the rapidly growing mump 
with its appetite for credit cards, 
automated teller machines and western- 
style personal hanlring . 

By encouraging foreign hanks to estab- 
lish or eypand their Indian operations - 
and by ucangfrng new private banks with 
up to 20 per cent foreign equity - the 
frrmnefi ministry and the Reserve Bank of 
Ihctia are gambling that the increased com- 


FOREIGN BANKS 


Here comes the real 
competition 


petition will kick-start a long overdue 
modernisation of India’s antiquated and 
inefficient state-controlled banking and 
financial sectors. 

The authorities believe that foreign com- 
mercial and investment banks, with their 
international experience and wide usage of 
information technology, will help broaden 
the range of services for corporate and 
retail bank customers and accelerate the 
introduction of new technology into the 
Indian public hanking sector. 

The former British colonial banks. Stan- 
dard Chartered Rank HSBC, and Grind- 
lays Bank - now ANZ Grindlays - 
together with Citibank of the US have had 
a longstanding presence in India and were 
allowed to remain under foreign control 
when the domestic banks were national- 
ised, although their growth was severely 
restricted. Nevertheless they were able to 


provide a broader and better range of ser- 
vices than most domestic banks »nd 
carved out a niche at the top end of the 
market making healthy profits thanv« in 
part to India's highly regulated interest 
rate structure which guaranteed large 
spreads. 

M ore recently interest rate deregu- 
lation - introduced as part of the 
financial sector reforms - has 
reduced those margins and forced the for- 
eign banks to turn to new areas such as 
providing custodian services to foreign 
institutional investors, credit cards for 
domestic retail consumers and treasury 
management services and sophisticated 
derivative products for their corporate cus- 
tomers. 

"Since deregulation, margins have come 
down but compared with international lev- 


els they are still above the norm." says Mr 
Ravish Chopra, HSBC’s deputy chief exec- 
utive in India. 

Meanwhile, competition is increasing. 
Since November 1991, the government has 
approved requests from eight foreign 
banks, including Germany’s Dresdner 
Bank and flhase Manhattan of the US, to 
open maitten branches while permitting 
branch expansion by existing foreign 
hanks on a case-by-case basis - mo s t exist- 
ing foreign banks have been given permis- 
sion to open one or two new branches. 

Last mimth National Westminster bank 
became the first foreign firam-iai institu- 
tion to annr>nnw> that it was taking advan- 
tage of the new private sector bank owner- 
ship rules to acquire a 20 per cent stake in 
HDFC Bank, a commercial bank being set 
up by the Housing Development Finance 
Corporation. 

Most of the newcomers will t a rget the 
wholesale and corporate hanking areas 
since they lack the branch network needed 
to s up po rt an assault cm the Indian retail 
sector. But this const raint does not apply 
to same of the more well established banks 
which are now actively expanding their 
branch retail hanking operations. 

For example, Standard Chartered has 
recently announced plans to restructure 
its existing 24 branches and add new 
branches in six key cities. Citibank, which 


has had operations in India since 1902, is 
also targeting the retail sector, although 
its limited branch network of six branches 
in four cities moang it hag had to find 
other ways to tap the market It was the 
first bank in India to Introduce car-loans 
and the first to introduce credit cards in 
1990 when it acquired Diners dub. Since 
than it ha« grirtmi vi an and Mastercharga. 

HSBC added a new branch in Bangalore 
in 1992 and now has 23 branches in seven 
cities. "We would like to expand further,” 
says Mr Chopra who notes, however, that 
the Reserve Bank of India is proceeding 
cautiously. "Licenses are befog given out 
in ones and twos ” he says. 

Many believe the process has been 
slowed by the 1992 Bombay securities 
scandal which implicated a number of for- 
eign. hanks. In the wake of the scam the 
Reserve Bank has imposed fines of 
RsL47bn inchuKng RsL24hn against for- 
eign banks, prompting some foreign bank- 
ers to complain privately that they were 
marta scapegoats in the affair arid that 
their fines are disproportionately larg&Mr 
D R Mehta, deputy governor of the RBI, 
rejects this suggestion and insists that 
once in India the foreign banks receive 
equal treatment with their domestic coun- 
terparts. 


Paul Taylor 


iisan. 


ipiCiif?ness of 

vd excellence 
ifttire *2nt-'.es 


cerf-res z'i 
generates ■- 


gjgsando&er 
?ne r eme.’geo 

r 3f C raSB.Tiqn 




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4 


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AUTOMOBILES TO POWER GENERATION. AN ENDEAVOUR THAT HAS TODAY RESULTED 
IN A US$6 BILLION TURNOVER BUILT ON QUALITY. TRUST AND A TRADITION OF 
FIRSTS. STRENGTHS SYMBOLISED BY THE MARK BELOW. THE MARK OF TATA 


TATA 

INDIA'S MOST TRUSTED MARK. 


Tiiu Sons Limited. Tata inJusiries Limited, The Tasa ban and Steel Company Limited, The Tow Engineering and 
Locomotive Comfwnj Limited, Tata Elearic Companies, Tata Chemicals Limited, The Indian. Hotels Company Limited, 
Voltas Limited, Taw Tea Limited, Taw Erfms Limited, Titan Industries Limited, Tata Consultancy Services and 

Taw Unisys Limited. 

India; Bombay Howe, Z4 Homi Mody Street, Bombay 400 001- 
StHtterlaiid: Tata AG, Gouhardscrosse 3, CH-6300 Zug. 





A merican investors’ ardour for India 
lias bold 19 remarkably wall, even 
though their love affair with emerg- 
ing stock markets has cooled noticeably 
this year because of the volatile perfor- 
mance of equities in many developing 
countries. 

While the impressive gains of the Bom- 
bay market in 1994 has played a great part 
in sustaining US enthusiasm. Wall Street 
shows an underlying confidence in India’s 
long-term economic and political future. It 
reflects the expectation that India's econ- 
omy will enjoy steady growth over the 
next decade, and that the government’s 
policy of liberalising the economy and 
fj nancial market s will remain on course. 

US investors participate in the Indian 
equity market mostly via the specialist 
country or regional emerging market 
funds managed by the big banks, securi- 
ties houses and fund groups. There are 
also two closed-end funds listed an the 
New York Stock Exchange - the India 
Growth Fund and the India Fund. 

There are no accurate figures on the 
extent of US portfolio investment in India, 
but Mr Derek Hargreaves, an economist 
with Morgan Guaranty in New York, esti- 
mates that of the approximately $5bn that 
foreign portfolio investors are expected to 
put Into the Indian market this year, “a 
very substantial proportion" will have 
come from the US. Although the rate of 
inflows has dropped from its peak late last 


INDIA 8 

Wall Street shows an unbroken confidence in India, reports Patrick Harverson 

It’s almost a love affair 


year of between $600m and $70Qm a month 
to around $450m today, the total is impres- 
sive *w i« ririf>T- in g that foreign inflows were 
ne g li g ible until a few years ago. 

Foreign money has been moving into 
fnrtia in increasingly large amounts ever 
since the government began to open up 
the domestic markets to outside capital 
three years ago as part of its policy of 
liberalising the country's once almost 
entirely dosed economy. 

Ms Joyce Cornell, a fond manager at the 
Boston-based investment group Scudder 
(which has about $4bn invested in emerg- 
ing equity markets) says of the changes in 
I ndia; “Roughly three years ago they 
b^ gan to open up to the rest of the world, 
and started to reduce their regulatory 
regime, which had all but strangled the 
economy. That reversal, and the change in 
policy to redace regulation, reduce tarifls, 
and open up to world markets h as been a 
big phis." 

Mr Vinod Sethi of Morgan Stanley 
neatly encapsulates Wall Street’s view of 
India’s liberalisation policy. “Here is a 
country that after 45 years is doing the 


right things.” Mr Sethi manages about 
$2bn of the US bank's $7bn emerging mar- 
kets equity portfolio, with investments in 
170 Indian stocks, including leading com- 
panies such as the bousing developm en t 
corporation HESB, the truck manufacturer 
Telco, and BHEL, the power equipment 
manufacturer which went public in a qua- 
si-privatisation earlier this year. 

Privatisations such as BHEL have 
played an important role in luring US 
foods to India, and there are more in the 
plpnliiy Mr Kishnr Chaukar, who heads 
an asset management joint venture set up 
earlier this year by India’s ICI Securities 
and the US bank Morgan Guaranty, says 
the Indian g overnment is currently prepar- 
ing a sixth round of disinvestment in 
industries such as steel, oil, and telecom- 
munications. “Every three to six months 
the government is pushing a good bit of 
equity into the stock market,” he says. 

The main attraction for US investors, 
however, is still the expectation of healthy 
economic and corporate earnings growth. 
The US broking house Oppenheimer. 
which manages the NYSE-listed India 


Fund, Forecasts that corporate earnings 
will grow by 35 per cent in the current 
fiscal year. Most economists expect India's 
economy to grow at a rate of 6 to 8 per 
cent over the next five to 10 years. 

As Mr Sethi points out, there is consid- 
erable upside potential in Indian stocks 
because there is so much room for the 
private sector to grow. “The private sector 
represents about 14 per cent of GNP, and 
is growing at twice the overall GNP rate. 
So for every incremental GNP increase, 
the corporate sector is doing twice as bet- 
ter." 

I nvestors also have the chance to bene- 
fit in the expansion of an already vast 
consumer sector, says Mr Sethi. “India 
also has a middle class of 250m people 
today - as big as all of the US. This middle 
Haas is likely to double in size over tbe 
next 10 to 15 years... Stock market players 
make money on the rate of change, and 
the rate of change in India is so high." 

Investing in India, however, is not with- 
out its risks. The stock market scandal of 
1992, which pricked a speculative bubble 


and interrupted a bull market left some 
ugly scars, the quality of s ecuritie s 
regulation remains a worry for overseas 
investors. 

There are also concerns that the poor 
state of the country's telecomm unicat ions, 
energy d transport infrastructure win 
slow the economy’s growth. The sto ck 
market infrastructure is another source of 
worry, says Mr Sethi of Morgan Stanley. 
“Here is a capital market used to retai l 
investing; but its composition is moving 
toward institutional investing, and the 
custody infrastructure is grossly underde- 
veloped.” „ 

Political risk is another factor for US 
investors to consider. Yet, alth ough India 
has sppti several of its most prominent 
democratic leaders assassinated, has 
endured a series of violent clashes 
between different ethnic and religious 
gr n n p^ tniff lives with permanent military 
tensions on its border with Pakistan, US 
investors are surprisingly sanguine about 
the political risks inherent in investing in 
the country. “It is a much more homoge- 
neous society than we realise from out- 


side,” says Ms Cornell of Scudder. -There 
are *H»nic tensions, but there are in. &e 
US too. They ate aotUfedr to shake the 

system to Its roots.’* 

However, -Ms Cornell does worry about 
whether liberalisation is proceeding too 
slowly. “They've done the easy stuff, but 
they've got the hand stuff ahead of them. 
Ikere Is a lot of over mannin g, and the 
laws make It difficult to lay people off, so 
there are big inefficiencies... The pace of 
change is very ponderous." 

Yet, Mr Terry BifiSs, who runs JP. Mor- 
gan’s Indian corporate finance unit in Lon- 
don, says that the slow progress of liberal- 
isation is not necessarily a negative; 
“India has been criticised far not changing 
fast enough. My vfew is that there may be 
some benefits to not changing too fast - 
it’s giving the economy and the social 
environment time to adapts It also makes 
it easi er to control inflation.” ; _ 

Too slow or not, the majority of US 
institutions seem confident that the 
changes in India, are irreversible. “They’ve 
gone beyond the point of no return,” says 
Ms Cornell. Also, the economy appears set 
on a path of sustained growth. Over the 
long term, that spells plenty of oppor tun i- 
ties for overseas investors. As Mr Sethi of 
Morgan Stanley puts it Ton will have 
some broken dreams in the emerging mar- 
kets universe as some countries don't five 
up to expectations. But this thing [ta 
India] is for real." 


V 

* o 


ri-- 


■t! " 




Martin Brice describes a new way to buy shares 

Receipts valued at $10bn 


GLOBAL DEPOSITARY RECEIPTS 1994 f$m) 


issuer ■ 
AfttndMat 


India’s growing attractiveness 
to international investors is 
shown by the dramatic 
increase over the last two 
years in the purchase of shares 
in Indian companies through 
the medium of Global Deposi- 
tary Receipts. 

These documents, issued by 
depositary banks, are used to 
facilitate purchase of shares in 
the issuer's home market. 
Since the first Indian GDR was 
issued in 1992, the total value 
has risen to SlObn. About $4bn 
of this is based on the shares of 
50 Indian companies. Some 
$2.1 bn of Indian GDRs have 
been issued this year alone. 

Mr David Gibbons, head of 
India research at James Capel 
said: “India lias streaked ahead 
of China. Using GDRs it has 
moved with astonishing 
rapidity and if that continues 
India will have a huge 
advantage." 

Mr Ian Hannam. director of 
Jardine Fleming, the invest- 
ment bank, says: “The great 
thing about corporate India is 
that the shackles are now 
coming off. You have the 


potential of huge growth with 
a proper regulatory framework 
to work within.” 

GDRs were pioneered in 1990 
by the US Citibank, but today 
much of the GDRs business is 
sourced from London-based 
investment banks and 90 
depositary receipts are traded 
via SEAQ International and 
listed on the Luxembourg 
stock exchange. In August, the 
London Stock Exchange 
changed its rules to allow 
GDRs to be listed there. 

GDRs and the shares they 
represent are traded indep- 
endently, which often means 
they fetch a lower or higher 
price than the shares in the 
home market The GDRs are 
easier to trade and avttonwit 
is simpler than dealing in 
shares on the local market 

According to Mr Hannam, 
India has many attractions 
Over other emer gin g marfcwfg, 
particularly the mristenra of a 
middle class as big as the 
population of the US. It also 
had a recognised legal and 
accounting framework for the 
ownership of assets and the 


USe Of the Tte glish lan g ua g e ** 

Mr Tristan Clobe, director of 
Edinburgibbased Martin Currie 
Investment Management, 
which runs the" $270m India 
Opportunities investment fond, 
agrees: “We are seeing for the 
first time the spending power 
of the vast middle class.” 

This tnidrfte class Is growing 
at 12 per cent a year, says Mr 
Jeff Chowdhry, a director of 
BZW Investment Manapmpnt 
which runs the BZW India 
Fund. “This is creating 
Incredible demand for domest- 
ically-produced goods. This 
consumer demand is being 

unsharfclprt by HhwaHart inn " 

The liberalisation process 
was irreversible, he added, 
predicting that the earnings of 
Indian companies would grow 
by 35 per cent each year for the 
next two years. 

Expectation of high returns 
has prompted many inter- 
national investors to buy GDRs 
issued by Indian companies, 
but these are by their nature 
restricted to big companies 
with a market capitalisation of 
more than about 3300m. Mr 


CESC 

Com Parangs * 

DCW 

Dr Redcft's Laboratories 
QD Petty <fr»cSaJ 
HnotacCabtos 
QandenS&ftBk 
Grastei Industries 
Great Eastern Sftfeptnp Co 
HbdmaiOMCoip 
MaRMmMniCa 
tftdtan Raypo industries 


JCT • • • . . 

Rffteytabontoito 
RaCOMeiKbgtrfe* 
8angM Polye ste r s 
tevtnduetrta . 

Tate Sectrfc Companies 
Tata 'Eng's, tpeomo tt a 
Tubs towstaeritot* tafia 
tMted Pfaspbdraa 


LEAD MANAGER CAPITAL 

GotUnam Sacha loon 

• Pa rihaa/Sfi , W a r ta urg 9M 

Banqua Paribas 802 

Jar ttec ria i mup eon 

Jamas Capet . 24 JB 

Baring Bros 460 

Banqua P a t tern 400 

BZW/MacA Lynch 560 

RotfcachOd 440 

BZW 99LB . 

Janfias Heming/KSBC 990 . 

BZW 660 

tatwaCapet 600 

Ktafawort Benson 1240 

BZVWP Morgan Securitas 1000 
Marrtt Lynch 450 

GoUmmi Sachs 990 

Motvan Sttnfay SO 00 

James Capet 440 

jtttfiaaYMng 450 

.Qofctoan SMfcsAFG/CRIeorp 749 
CS rant BosknML tench 1150 
Waring 490 

Morgan Stank* 560 







* BP r - 

t 


: V* - ; - - U — tort •• w 

■ H I ; * ’• r-f :: 

e -• n 






[ ‘ 

i ft 


Chowdhry said: “The value In 

India and Hip thing that makes 

it most attractive is not large 
Capitalisation companies , jt is 
medium-sized companies." 

Shares in big companies 
were selling on a price/ 
earnings ratio of about 30 
times, whereas medium-sized 
companies sold on a profits/ 
earning s ratio of 15 times, 

making them much cheap er as 

investments. 


_■ , , Scct: Cat*ri< | 

International investors can 
also gain access to Indian 
equities by buying into 
investment funds. Mr Clube of 
Martin Currie points to the 
growth in interest in Indian 
equities by referring to the 
increase in the number of 
funds. Wizen his India Opp- 
ortunities fond was launched 
last year there were a handful 
of similar funds. Now there 
were about 22. 




*•> ' 


Evidence of j 


Spowth: the hdka port in Bombay 


/Sstnrl i 


Does your bank in India 
give you all this? 


Leadership 

Euromoney’s £1 ranked loan arranger for India for each of the last 
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Commitment 

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Bankers to over half of India’s top 200 companies. 



Chase is proud to have been selected 
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<>■ 





FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 



LX 


&& p- ,y Ui, 

1 k 'V.. 


INDIA 9 



FACT FILE ON INDIA 





■ Area and 
population 


6J ■:-.* .r n l *n 

151^ 

• scrw-:-- But «- 


Population fm) 

1989 90 91 92(a) 93(a) 
823 841 356 873 892 

fa) official anti ElU estimates 

Area (sq km) 3.207.263* 

*1,269,219 sq miles 


Main towns 



Population in million. 1991 
census (urban agglomerations) 

Bombay 12.6 

Calcutta ii.o 

Delhi .. 8.4 

Madras .. 5.7 

Hyderabad 4.3 

Bangalore 4.1 

Ahmedabad 3.3 



Taking it easy at the Hindu holy place of Varanasi on the river Ganga 


■ Language 


The Constitution provides that 
the official language of the 
Union shall be Hindi. The 
English language will continue 
to be an associate language 
tar many official purposes. 


AFGHAN 

-TSTAN 


JAMMU & 
KASHMIR 


Amritsar 


CHINA 


WMACHAL phadesh 


■ Religion 


Hindu (8396); Moslem (1196); 
Christian (2%); Sikh (2%); 
Buddhist (1%); Jain (1%) 


PAKISTAN 


HARYANA 


Jaipur 

RAJASTHAN * 


■ Currency 



Currency; Rupee (R = 100 
paisa). Annual average 
exchange rate 1994; 
Rs31.14:$1; Rs47.85:E1 


■ Exchange controls 

Indian currency may not be 
Imported or exported. There is 
no restriction on the amount of 
foreign currency imported, but 
amounts over 1,000 must be 
declared, and the amount 
taken out may not exceed the 
amount taken In. All money 
must be exchanged through 
authorised banks and 
money-changers. Foreign 
exchange receipts should be 
retained. 


■ Visa requirements 

All foreigners wishing to visit 
India need a valid passport 
and a visa before arrival. 
Normally, Indian missions 
abroad grant a multi-entry visa 
valid for 120 days to tourists. 
The visa is valid for entering 
India within six months of the 
date of Issue. 

Business travellers should 
apply through their companies 
for a multi-entry business visa, 
which is normally given readffy 
with a validity of one year but 
with a maximum stay of 120 
days. 


■ Working hours 

Business: (Mon-Fri) 

1000 - 1700 In DeBii and 
Madras; 


GUJARAT 



Nagpur 

r-**;=\* 

O MAHARASHTRA 

iV-P \ 

*5r*- i 'T~‘V ;'«V- ?£•? 






MADHYA PRAD6SH 

^Indore 


‘.‘Andam^i .A. 

IddnHc . . - 


■ \ ,&i 

*Avt£L<;.JjXiTii -.i: :'_:*• ••* f - ■■ •» •: 

vV f ■■ • • ,-■■«■■■ ■* . .%* > 


■ r $ ^16%- ■■ **~ s ' 

. • • :••• • . ■ v 

.'V-? ■ A 


0930 - 1700 in Calcutta; 

1000 - 1730 In Bombay. 
Banking: (Mon-Fri) 

1000 - 1400, (Sat) 1000 - 1200 
in Delhi, Calcutta and Madras; 
(Mon-Fri) 1100 -1500, (Sat) 
1100 1300 in Bombay 


■ Public holidays 

The pdbfic holidays observed 
in India vary locally. The dates 
given below apply to Delhi. As 
religious feasts depend on 
astronomical observations, 
holidays are usually declared 
at the beginning of the year in 
which they will be observed. It 


is not possible, therefore, to 
indicate more than the month 
in which some of the following 
holidays will occur. 

1995; 26 January (Republic 
Day), March (Holi), 3 March (Id 
al-FItr, end of Ramadan), 
MarcMAprfl (Ram Navaml and 
Mahabir Jayanti), 14 April 
(Good Friday), May (Buddha 
Purinima), 10 May (Id uz-Zuha, 
Feast of the Sacrifice), 31 May 
(Muharram, Islamic New Year) 
August (Janmashtami), 9 
August (Birth of the Prophet), 
15 August (indepence Day), 
October/November (Dussehra, 
Dlwali and Guru Nanak 
Jayanti), 2 October (Mahatma 





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Cj? 1 

3-i- 

i 


jC: 


More senior European executives who are personally involved in 
strategic decisions about their organisations 1 International 
operations read the FT than any other European business 
publication.* 

If you wish to communicate your message to this influential 
audience in these surveys, please contact 


i 




DAVID R0ULSTONE 
Tel: 071-873 3238 
Fax: 071-873 3595 


ALLISON MASON 
Tel: 071-873 4816 
Fax: 071-873 3595 


‘Source EBRS-1993 


FT Surveys 




Gandhi’s Birthday), 25-26 
December (Christmas). 


■ Climate 

Mainly tropical, but varies 
greatly from extreme heat in 
the tropics of the south and 
the desert of the north-west, to 
the extreme cold in the 
northern Himalayas. Nov -Mar 
is bright and dry in the south, 
but cold in the north. 

Bombay is hot and humid; 

Delhi is dry. Apr-Jun is hot and 
dry in the south, and more 
temperate and cool in the 
north. There are heavy 
monsoons in the south-west in 
Jun and in the south-east in 
Oct- Nov. 

Weather in New Delhi (attitude 
218 metres) 

Hottest month. May, 26-41 C 
(average daily minimum and 
maximum); coldest month, 
January, 7-21 C; driest month. 
November, 4 mm average 
rainfall; wettest month, July, 

180 mm average rainfall. 

■ Time 

5 hours 30 minutes ahead of 
GMT 


■ Ministries 

Prime Minister’s Office: 

South Block, New Delhi 110 
011; tel. (11) 3012312; telex 
3161876; fax (11) 3016857. 
Ministry of Agriculture: Krishi 
Bhavan, Dr Rajendra Prasad 
Rd, New Delhi 110 001; let. 
(11) 382651; telex 3165054; 
fax (11) 386004. 

Ministry of Atomic Energy: 
South Block, New Delhi 1 10 
011; tel. (1) 3011773: telex 
3166182; fax (11) 3013843. 
Ministry of Civil Aviation: 
Sardar Patel Bhavan, New 
Delhi 110 001; tel. (IT) 351700; 
telex 3165976; fax (11) 

344935. 

Ministry of Commerce: 

Udyog Bhavan, New Delhi 110 
011; tel. (11) 3016664; telex 
3163233; fax (11) 3013583. 
Ministry of Finance: North 
Block, New Delhi 110 001; tel 
(11) 3012611: telex 3166175; 
fax (11) 3014420. 

Ministry of Industry; Udyog 
Bhavan, New Delhi 110 Oil; 
tel. (11) 3011815; telex 
3166565; fax (11) 3011770. 
Ministry of Power Shram 
Shakti Bhavan, New Delhi 1 10 
001; tel. (11)3710271; telex 
3162720; fax (11)3717519. 
Ministry of Tourism: 

Transport Bhavan, Parliament 
St, New Delhi 110 001; tel (11) 
3711792; telex 3166527; fax 
(11)3710518. 


□ Research by Peter Cheek 




11th INDIAN 
ENGINEERING 
TRADE FAIR 

12-19 February 1995, 

Pragati Maidan, 

NEW DELHI 

The International Industrial fair of the east. 


Since the fust fair, held in 1975. the Indian 
Engineering Trade Fairs, organised by Cll hove 
today emerged as the No. 1 business fata cl the east. 

The eleventh in the series of business fairs,called 
me 1 1th IETF Delhi '95 is due to be held in February. 

50.000 sqm. of prime space in the city of 
New Delhi will turn into a bee-hive of worid business 
This would go on for seven days facilitated by an 
infrastructure replete with the most modem 
facilities 

Guess) who'dbe here? CEOs senior executives, 
scientists experts industrialists & entrepreneurs from 
world corporations Over 1000 corporations will 
be exhibiting their strengths and voicing their 
business intentions 


Concunert Fairs 

• Technology Platform 

• Instrumentation 

• Energy Conservation 

• Environment 

• Enterprise 

• A shew window on Indian handicrafts. 


Partner Country - Italy 
Partner State - Haryana 


IMTEX *95 — An International Machine Tools 
Fair - is being held a few days before the IETF 
business fair. We suggest combine your 
participation. 


^|| CONFEDERATION OF 
€ iMM INDIAN INDUSTRY 

Trade Far Department 23. 26 Institutional Area, ladi Road. New Delhi-110 003. 
Ph: 11-4629994. 4624640,4626164. Fax • 11-4626149/4633168 


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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


INDIA lO 


Steel makers are now less terrified of imports, writes Kunal Bose 


Room for everybody 



The fear mat lower duties on 
Imported steel would harm 
domestic steel producers has 
proved unfounded. 

The duties are being steadily 
reduced as part of the federal 
government's trade reforms 
programme. 

According to Mr J M Bhasin, 
director of the government- 
owned Rashtriya Ispat which 
owns a 3m tonne shore-based 
steel plant at Vizag, steel 
imports in the 
current year 
will exceed 
1.5m tonnes, 
compared with 
1.01m In the 
year to March 
1984. 

Mr Bhasin 
explained, how- 
ever, that 
imports are ris- 
ing because of 
the growth in 
ir u ii n n domes- 
tic demand for 
steeL Since this 
is plan benefit- 
ing the home 
producers, the 
latter are no 
longer worried 
by imports. 

With almost 
three years of 
recession at an 
end, Indian 
steel produc- 
tion, according 
to the steel ministry, is likely 
to go up to 1734m tonnes in 
tim current year from 15.13m 
tonnes in 1993-94 when there 
was a marginal foil In output. 

Besides some high grades of 
steel which are not produced 
locally, India imports billets to 
be converted into finished 
products. 

The Indian steel producers 
know that import duties on 
steel will be further reduced 
from the present average of 50 
per cent. According to Mr J 
Mehra, chairman of Rashtriya 
Ispat, “the Indian manufactur- 
ers nan meet the challenge of a 
lower import duty regime”. In 
a reference to CIS countries, he 
added: “we must guard our- 
selves a gainst the dumping of 
steel by countries which have 
excess capacity and which 
need foreign exchange badly.” 

Following forceful represen- 
tations by local producers, the 
government has simplified pro- 


cedures for flung petitions 
against dumping. However, Mr 
B Mnthir raman vice president 
of Tata Iron & Steel, is con- 
cerned about the import of a 
substantial quantity of seconds 
at heavily discounted prices. 
“This is particularly going to 
hurt the local producers of hot 
rolled coils and electrical 
sheet.” he says. 

The removal of all controls 
has seen Indian iron and steel 


cent of it, according to Mr 
Bhasin. 

While India is principally 
targeting China, a major 
importer of steel, and south 
and south-east Aslan countries, 
industry officials think that 
there is scope for export of 
steel to the US, Europe and 
Japan. Mr Santosh Mohan Dev, 
steel minister, is trying to con- 
vince the government that 
“suitable incentives should be 




*35 m 



Ruffing out of recession: Godrej and Boyce’s pipe worts near Bombay 


export rising sharply from 
910,000 tonnes in 1992-93 to 
232m tonnes in 199394 worth 
Rsl7.64bn (£353m). 

Imports Include not only low 
value items such as sponge 
iron and pig iron, but Its steel 
export basket now includes 
cold rolled and galvanised 
sheet and coils. The recession 
had forced Indian manufactur- 
ers to the export market 

“True, we went for export in 
a big way because of the reces- 
sion at borne. It will not do the 
industry any good if it is to 
export only when there is a 
demand shortfall within the 
country. Hie experience of the 
last two years should lead the 
industry to adopt the strategy 
to export about 20 per cent of 
its production,” said Mr 
Muthuraman. 

The world trade in steel is 
about 125m tonnes and it 
should not be difficult for India 
to have a share of about 3 per 


given to steel export". 

Nearly 4.7m tonnes of fin- 
ished steel capacity, involving 
an investment of Rs84l m, is in 
various stages of implementa- 
tion. Most of the new projects 
will be exporting a good por- 
tion of their output 

The export capability of the 
Steel Authority of India which 
owns four integrated steel 
plants will improve considera- 
bly as it completes the RsTObn 
modernisation programme. 
The same will happen with 
Tata Iron & Steel, which is 
investing heavily in moderni- 
sation and capacity rnqmmmn. 

Sadia’s biggest steel biggest 
exporter is tire three-year old 
Rashtriya Ispat plant, incorpo- 
rating the latest technology. 
Industry officials point out 
that as a result of the deregu- 
lation of steel in July 1991 and 
the removal of controls on 
price and distribution of the 
metal in January 1992, the 


The Shoe : Covering 
for the foot. 
Fashion accessory. 
Flying missile... 


The shoe has come a long way. 
Unfortunately, ha pmgres* seemed to have 


Mopped at the Indian shores. Until now. With 


the advent of M’cscos Heinz-Hummel. 


M’escos Heinz-Hummel believes that the 


consumer has the right to choose between shoes 


of different styles, designs, fittings, price offers; 


not between barefoot and bare essentials. (Some 


shoes are nothing but basic short-term coverings 


for the Foot.) 


Now such radical departures from existing 


norms of shoe-manufacture do not come easily. 


It does heip though, if your name is M’escos- 



Unknown to most of you, but a name Lhc 
international shoe industry and large store 
brands treat with respect. It aho helps if you 


are in technical collaboration with Heinz- 


Hummel GmbH. (A family that’s historically 


linked with shoes for 200 years and h one of 


the 14 companies worldwide authorized lo use 


WMS — certifying that they manufacture 
onhopaedicalJy correct shoes.) And if your 


automated plants arc upgraded by the Swiss 


Another departure is that M’escos insists 


on going out and sourcing the finest leathers or 
the land. Because a shoe shouldn't just look great, 
h must stay great (of a long time. Speaking of 


great looking shoes, yes they still are fashion 


accessories. Which Lhc Italian designers at 
kTeseos never let you forget. Across the wide 


range of shoes they create for women, men. 


You're left with the last meaning of the 
shoe : (lying missile. You might now wish to 
demonstrate with your existing pair. 

It's the best way (o bid them goodbye. 


ESC OS 




FINE SHOES FOR WOMEN, MEN. CH ILDREN 


The Next Step 


A MEMBER OF THE MESCO CROUP OF COMPANIES • IRON A STEEL- AVIATION - PHARMACEUTICALS • MINING • SHIPPING ■ LEATHER 
Metta Tamm. H-l Zemtvdpvr CnmxuiJ Cntrr. KaJaA Cahmj. Nrm /Mb' - HO 048. Pk. 6425914. 6425218 


Paul Taylor reports from the southern state of Karnataka 


steel sector is inviting new 
investment 

The induction of the state of 
the art steel "taking technol- 
ogy in the country has become 
easier with the government 
allowing up to 51 per cent for- 
eign equity in v es tm ent. In steel 
projects. 

According to the steel mini.*- 
try, the government has so for 
given approval for foreign 
equity investment of over 
Rs8.60bn in 
various pro- 
jects. Although 
India is rich in 
iron ore and 
coal, the two 
principal 
Inputs for mak- 
ing steel, the 
per capita con- 
sumption of 
steel here is 
less than 25 
kilos a year, 
compared with 
the world aver- 
age of 136 kilos. 

But industry 
officials expect 
that in the next 
five years, the 
demand for 
long products, 
used mainly in 
construction 
work, will grow 
at 6 per cent a 
year and that 
□at products, 
used by the automobile, white 
goods and engineering indus- 
tries will rise by 10 per cent. 

The government predicts 
that by 2002 the demand for 
steel will be about 31m tonnes 
a year. The country's no minal 
steel-making capacity is about 
27m tonnes. But of the 7.5m 
tonne capacity in the mini 
steel sector, half is sick. 

Mr Mehra said, “if we have 
to satisfy a demand for aim 
tonnes by 2002, then we must 
start planning for the creation 
of an additional capacity of at 
least 8m tonnes of steel now. 
Steel In India is considered a 
safe investment It should not 
be difficult to mobilise 
resources to fund the creation 
of new steel-making capacity.” 

The initiative for the new 
capacity creation has to came 
from the private sector since 
the government has decided 
not to build any new steel 
plant. 


Silk, coffee and silicon chips 




Karnataka's chief 
minister, Mr M. Veerappa 
Moily, boasts that the 
sooth Indian state has 
“substituted the red car- 
pet for red tape” in its 
dealings with potential 
new investors. New for- 
eign investments, he 
says, are handled by a 
single agency and cleared 

within 30 days. 

Judged by the number of Western 
high-tech companies which have 
operations in Bangalore, Karnataka's 
capital, Mr Molly’s aggressively pro-busi- 
ness administration is succeeding, in this 
area at least. 

Over the past decade Bangalore has 
reinforced its claim to be India's Silicon 
Valley. Among the multinationals which 
have established operations in the leafy 
Bangalore environs are 3M, AT & T, Dig- 
ital Equipment, L M Ericsson, Hewlett 
Packard, IBM, Motorola, Sanyo. Siemens, 
and Texas Instruments. Some are wholly 
owned subsidiaries, others joint ventures 
with Indian partners. 

India's eighth largest state in terms of 
both land area and population, Karna- 
taka generates about Rs23bn of annual 
revenues from electronics and is respon- 
sible for about a fifth of India’s total 
electronics output A tenth of its 47m 
population lives in Bangalore, a city 
known for its pleasant climate and 
friendly people. 

Karnataka was one of the first states 
in India to industrialise and pioneered 
hydro-electric power in South-east Asia 
with the building of the Sivasamndram 
project in 1902. Ironically, although elec- 
tric power was one of the catalysts for 
tiie early industrialisation of the state, 
today a shortage of power is one of the 
main constraints on economic growth. 

The big surge in industrialisation came 
in the 1940s and 1950s when the Indian 
government decided to base several big 
public sector companies in Bangalore 
indnding Bharat Electronics and Bharat 
Earth Movers, Hindustan Aeronautics, 
Hindustan Machine Tools and Indian 
Telephones Industries. 

These companies have played an 
important role in the state and have pro- 
vided a strong magnet for ancillary com- 
panies, drawing in small-scale industries 
which could work as sub-contractors to 
tiie big industries. 

Today, Karnataka's main industries 
include electronics, computer engineer- 
ing, computer software and services, 
telecommunications, aeronautics, 
machine tools, watch-making, electrical 
engineering; aluminium, steeL cement, 
sugar, food processing, textiles and min- 
ing. 


Otter factors which have contributed 
to Karnataka's industrial growth have 
Included an abundance of natural min- 
eral resources including high grade iron 
ore, manganese and gold, a well devel- 
oped network of research and research 
establishments, a large pool of engineers 
an d a high literacy rate of 56 per emit 
compared with a national average of 52 
per cent. 

Bangalore, which is 3,000 feet above 
sea level, also benefits from a particu- 
larly pleasant climate and relatively 
light rainfall . It is green with parks and 



Chief manedsr Veerappa Maty: fed tape 
slasher Picture: Rakash Sahai 


tree-lined roads - quite unlike other big 
industrial or business centres, such as 
Bombay. It has become a popular city 
with yenmg educated Indians who fre- 
quent Bangalore's many western-style 
bars, cafes and boutiques. 

There Is therefore a large pool of talent 
which foreign companies in the electron- 
ics and computer software sectors in par- 
ticular are keen to tap. The Indian insti- 
tute of Science, the Indian Space 
Research Institute. National Aeronautic 
Laboratory and the Central Machine 
Tool Institute are all to be found in Ban- 
galore together with a large number of 
engineering colleges, training centres 
and universities. 

Bangalore In particular has become 
known as an important source of soft- 
ware engineering talent since the mid 
1980s when many US technology compa- 
nies realised that demand was far out- 
stripping the supply in the US. 

Although wage rates are rising rap- 
idly, foreign business leaders say it is 
still possible to hire graduate engineers 
for between $1,000 to S2JHH) a month, a 


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fraction of the cost of simflariy qualified 
employees in the US- 

As a result many US, European and ! 
Asian information technology and trie- 1 
communications companies have pstafe 
lished computer services operations in 
the state, mostly to service- tteir intanal 
software or chip design requ ireme nts. 
Foreign Investors say they are attracted 
by the state's relatively good record in 
terms of labour relations, and. usually 
hannonious community relations as wen 
as the garwafata government's positive 
attitude towards Investors. 

“Karnataka has been a magnet for for- 
eign investment," says Mr J C Lynn , the 
state's chief secretary. Among companies - 
which have recently chosen to ate their 
Tn «n fl Ti headquarters in Bangalore are 
Brooke Band, Upton and Britannia. 

Undo- Mr Mdfly, whose tenure in office 
began to l ate 1992 after bis predecessor 
was ousted because of alleged corrup- 
tion, the state has drawn up a new devel- 
opment plan. 

As part of its industrial policy the 
state established the first “electronic 
city" near Bangalore in the early l980s 
and is developing two more electronic 
cities at Mysore and Dharwad. But 
despite this focus on electronics, Karna- 
taka has also made considerable efforts 
to dive rs ify its industrial and agricul- 
tural base. At Mang a l o re, Karnataka’s 
main port, a large ofl refinery has been 
built and is now bring expanded. Simi- 
larly there are plans to expand steel and 
cement production elsewhere In the 
state. 

Irrigation schemes in the northern 
part of the state have allowed sugarcane 
and rice to be grown in some areas, and 
the state is rich in teak, rosewood and 
sandalwood, particularly from Mysore, 
Karnataka’s beautiful and historic sec- 
ond city. Kama taka accounts for nearly 
half of India’s silk production and 80 per 
cent of the nation's coffee production. 
Sericulture employs about 200,000 people 
in the state and generates annual reve- 
nues of about including RSUflm 

of foreign exchange earnings. 

In industry, however, the rapid growth 
and development have brought new 
problems - in particular, shortages of 
power, water and transportation. 

Bangalore’s airport has been brought 
up to intwmttHmmi standards will there 
are tentative plans to alleviate the city’s 
traffic problems by setting up a 15 mile 
elevated mass transport system. 

However, the top priority is to meet 
industry’s appetite for electrical power 
which already outstrips supply. As a 
result many companies install their own 
generators. Mr Lynn, however, insists 
that the state can expand its power 
capacity. 


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Non Resident External (NRE) Rupee 
Account 

• Can be opened «ttt nemffiance In 
any corrvartfcte foreign currency 

• Tax-free Income 

• Balance and Interest ireefy 


• Investment is ahmed 

• Loan available agafrist security of deposa 

• RenewalOransfer of depoats aflovml 

• Kg ft (mums 

• Interest accrued from the quarts 
beginning October 1994 is repatriate 


• Investment afowed 

• Nomination tadfoes avataMe 


Foreign Cunwcy Non Resident 

Account (FCNHJ 

• Can be opened with remittance in 
US J. S Stg., J ¥ and DM, foreign 
curency notesftravefer cheques or 
try conversion of balance In NRE afc 
Mo FCNH afc. 

• Free from exchange risks 


• Tax free income 

• Loan against security of deposits 


«w«Bnt Foreign Currency 

Account (RFC) 

• Open lo NRI returnees after 18th Aofl, 
1992 ami others tfh vatd speciSc RBI 
permission 

• Nomination is aSowed 

• Funds from abroad, balances in NRB 
FCtffl accounts, pension or otter 
monetary beneSis abroad and tarekm 
currency notesftravetef cheques can 
be created 

• Balances can be utfced ki faretoi 
currency for spedtied purposes 


Non Resident (Non Repatriable) 
Rupee Deposit Scheme (NRNR) 

• Can be opened by remittance in 
any convertible foreign currency or 
by tensfemhg balances from W© 
FCNR account 


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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


XI 



? 0r * • Sa >- ihL^n! 

u * r% 

'KsT ' 1 

s?»s; 

ItTrL^ *> 
f L, Psoa ailfo? 881 ' 
toiiy. ww! 
i«a ani ^i 

T iu " »f Sto 

■*— :r ta 

sbvti Th“^' Poll 
^Saiure i n 

‘^ re dc d Dhanta 

^° n ***5? 

it?*** ^ss; 

V? reSoe ?S 

■*° ' ^ :i *? expand 
; ^P-ir.s t0 ejqJJJJ 

•i-ciion vise* here* 

i?h Me4 IG lhe » 

«e h.v.e allowed srn 
- ^H-n in some an 

“*L :n ** rose*! 
9>inic;j;arl> fr om i 

«n hisn 
...tefca accounts foi 
> s.,k production an 
n^s coflee ^ 
nplojs £bosi 2tio.ooi 
■ind peceraies anot 
S*-^ inrinding 
:hitr.pe earnings. 

• the rajHd 

tsont nace broog 
is particular. *hon 
unc trvuiaponantni 
’ airport has bven 
iiicsi standards a 

plans io a];?*, iate ti 

k? -> Hir.n? up a 
-. trasrpon system, 
ht' i up prwnn is 
ipelirr 'r>r vitcirica 
lv viatstrfps suppl 



“Forward with 
liberalisation ” 

“ India , today f is a vibrant economy 
responding to the needs of the interna- 
tional business community and creat- 
ing an environment conducive to in- 
vestments. Thus paving the way for 
mutually beneficial \ long lasting asso- 
ciations 

The economic reforms program stead- 
fastly continued since 1991 , 

♦ “is tailormade for the Indian sce- 
nario 

♦ “provides an extremely lucrative 
business environment for the inves- 
tors worldwide.” 

♦ “has been phased yet continuous. ” 


HEAVYWEIGHTS ALL 


With liberalisation, India has 
witnessed the arrival of some of the 
world's best-known names. 

The power sector now has international 
players who have further energised the indus- 
try like 

• ENRON • COGENTRIX • ST POWER 

i 


E$ 


ill 


2 -* JSCS 

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SkT** v " * 

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... 



Fn the telecom sector, many giants have 
■d either entered this mega market or taken 
steps to expand their operations. To mention 
a few 

• ALCATEL • AT&T • SPRINT • ERICSSON 

• NKT. 

The oil, natural gas and lubricants sector 
features international names which are not 
alien to India anymore 
•MOBIL • CALTEX • SHELL • ELF 

• TOTAL • PENNZOIL • GULF • MOTOROL 

• MOTUL 

The automobile industry - after it was 
deli censed , attracted well known car manu- 
facturers from overseas. 

• GENERAL MOTORS • PEUGEOT 

• CHRYSLER • DAEWOO • DAIMLER 

BENZ • ROVER • FORD. 

* ^ In the civil aviation sector world renowned 

^ names have made successful landings in the 
^ country. 

• LUFTHANSA • MALAYSIAN AIRLINES 

With the mutual funds operations being 
opened for the private sector, intemationaJ 
investment companies perceive India as a 
great opportunity. Some of the top interna- 
tional financial giants are here already 

• MORGAN STANLEY • MERRYL LYNCH 

• PEREGRINE • JARDINE FLEMING 

•SOROS ■ 

. With the restrictions on opening of private 
sector banks removed, many new banks have 
opened. Some of these include ■ 

• (NDUSIND BANK • UTI BANK • ING BANK 

• ICICI BANK. ' • ' 

• ' The financial sector has been enhanced 
further with the entry of Broking and Invest- 
ment firms like 

^•BARCLAYS • JARDINE FLEMING. 

Jjjj-rr— : — : — """" 

v •: The Indian government’s decision to allow 
consumer product MNCs to own 51 % equity 
has lured popular international giants like 

• PEPSrW'CdKE • HEINZ • SONY 

• KELLOGGS • KENTUCKY FRIED .. 
CHICKEN • REVLON • WRIGLEYS. 


★ 



A PROFILE OF BUSINESS 


OPPORTUNITIES. 


■.i. 


PRES E NT IN G MAJOR 
OPPORTUNITIES 


«v 




v'M . 




Today, the extent and pace of re- 
forms being undertaken by India has 
convinced the world business commu- 
nity that India means business.A host of 
multinationals have set base in India to 
take advantage of the lucrative business 


environment. An environment created by 
an economy that is market-led, investor 
friendly and sensitive to the needs of the 
international investing community. As a 
spring-board to the gigantic market 
called Asia. 


T H EE INDIA OPPORTUNITY 






POWER. 

- Entry of private sector allowed 
for generation and distribution. 

- 100% foreign equity allowed. 

- 5 year tax holiday. 

- Permission to set up hydei, 
thermal or windfsoiar energy 
projects of any size. 

DRUGS AND 

PHARMACEUTICALS. 

- New Drug Policy formulated. 

- Most bulk drugs and their 
formulations delicensed. 

- List of price controlled drugs 
halved. 

- Higher rate of return for price 
controlled drugs. 

TELECOM. 

- Entry of private sector allowed 
for basic telecom services. 

- Foreign equity allowed subject 
to certain conditions. 

- Manufacture of telecom equip- 
ment delicensed. 

- E-mail, voicemail, cellular 
mobile phones, radio paging, 
data services, video 
conferencing etc opened up 
for private sector investment 
subject to certain guidelines. 

PETROLEUM. 

- Private sector bidding for oil 
exploration invited. 

- Private sector allowed in the 
lubricants industry. 




5 



AUTOMOBILES. 

- Motor car industry delicensed. 

- Time bound bidtgenisation 
rules abolished. 

- Up to 51% foreign equity 
participation allowed. 

CIVIL AVIATION. 

- Private sector allowed to 
operate domestic airlines. 

- Foreign equity in private sector 
domestic airlines up to 49% to 
be approved on a case 

by case basis. 

- Privatisation of airports being 
considered. 

WHITE GOODS. 

- Industry delicensed. 

- Up to 51% foreign equity 
participation allowed. 


ROADS AND HIGHWAYS. 

- The private sector permitted to 
finance, construct, maintain 
and operate identified roads, 
highways and bridges. 

- Also allowed to levy a toll fee 
for the roads constructed by 
them for a certain period after 
which the control would come 
to the government. 



THE INDIA ADVANTAGE 




“Integrating the 
economy with the inter- 
national mainstream” 

“ India has always been determined to 
provide a hospitable and profitable 
environment for foreign direct invest- 
ment inflows. The current economic 
scenario in the country and the mas- 
sive response generated in terms of 
FDI inflows amply prove the success 
of these reform measures . ” 

Through these liberalisation measures, 

♦ “a new era of efficiency is being 
ushered into the country.” 

♦ “a constant effort is being made to 
integrate the economy with the 
international mainstream.” 

♦ “a viable macroeconomic environ- 
ment is being established for sus- 
tained overall development.” 


ACHIEVEMENTS. A REVIEW 


INDIAN EXPORTS - ON THE UPSWING 

• Spectacular performance of Indian exports. 
Exports increased from Rs.53, 688 crores in 1992-93 
to 72,806 crores in 1993-94, an increase of 35%. 



FISCAL DEFICIT - UNDER CONTROL 

• Fiscal deficit has come down from 8.4% of GDP 
in 1991-92 to 5.6% in 1993-94. The government is 
confident that this wffl be brought down lo 
4% by 1996-97. 


COMFORTABLE FOREIGN EXCHANGE RESERVES 



• The country has redeved $4.16 billion worth of 
foreign investment since 1991 when the liberalisation 
measures were initiated. 57% of these approved 
projects are already on stream. 

• By April 1994, 130 companies plan to launch a 
total of $11.7 biHion worth of GDR’s and bonds. 

Indian Euroissues will continue to interest foreign 
investors in the Euromarket as industry specific funds are 
hungry for Indian GDR's to the sunrise industry. 

• Industrial growth is one of the highest among 
countries wider the transition phase of their economies. 

• Higher excise, customs revenue collections in 
spite of lowering of the tariff structure reconfirms the 
surge m the economy as a lower tariff structure has led 
to greater incentives for production which has resultedin 
greater co I lections. 

EXCISE AND CUSTOMS REVENUE COLLECT IONS 


1994-95 1993-94 


(for the first half of the respective financial year) 
Excise 17,065 14,208 


Customs 1 1 .666 1 0.085 

{Figures in Rs. Crores^ 


MoaanyanVQOtflKWW 



















FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


INDIA 12 


T o sharpen their competi- 
tive edggarment export- 
ers are increasingly 
seeking collaborations with 
their foreign customers. The 
advantages accrue to both 
sides. Customers who are con- 
fronted with a shrinking manu- 
facturing base in their country 
find India a low cost sourcing 
point The Indian exporter gets 
an assured buyer on a long 
term basis and much-needed 
technical assistance. 

Examples abound: Gruppo 
La Per la and Material indus- 
tries, a Bombay based textile 
company, have recently 
invested Rsl35m in a modem 
garment factory near Delhi. 
The fbctory is equipped with 
imported machines and its pro- 
duction is being supervised by 
Italian tenhmrianB . Most of the 
fabric Is supplied by Material. 

The garments are made 
exclusively for export and will 
be sold overseas under La Per- 
la’s label 

In another RsSOOm venture. 
Mafatlal is taking technical 
help from the German com- 
pany Schlesser to make pre- 
mium quality knitted clothes. 
Schiesser has agreed to buy 
back half of the total produc- 
tion. 

These collaborations high- 
light the currant concerns of 
the textile exports industry. It 
faces the prospect of a free 
market since the quota system 
of the existing Multi-Fibre 
Arrangement is to be phased 
out over a 10 year period once 
Gatt comes into being. (Under 
bilateral agreements, most 
Western countries impose 
annual quotas on certain tex- 
tile items from India). 

The government has warned 
exporters that the absence of 
quota restrictions win not nec- 
essarily lead to higher export 
sales. Exporters will have 
easier access to markets, but 
equally Importing countries 
will have the freedom to shop 
around. Unless Indian export- 
ers can match their competi- 
tors on price and quality, they 
could lose out 

Textiles and garments 
account for 36 per cent of the 
country's total exports. The 
Industry has been consistently 
surpassing targets in the last 
three years. Export sales in the 
year to March 1994 were $8bn, 
reflecting a 21 per cent growth 
over the previous year. 

The ministry of textiles is 
confident that the $9bu target 
for the current year will be 
achieved. Official figures show 
that exports in the first quarter 
up to June 1994 have increased 
by 19 per cent over the same 



The Orient Craft company In Okhte, n ear New DeH: mainly fee- export 


Naazneen KarmaKi studies garment export tactics 


Weaver to wearer 


period last year. Yet exporters 
are worried that this year's 
performance may not be as 
spectacular as in the previous 
years. Garment exports in the 
first quarter were $890m, about 


Textile exports Rs-bn 

Year 

Value 

1091-02 

&8 

1992-93 

6.6 

1993-94 

&0 

1994-95 (target) 

9.0 

Soook fimuf AanMdon Coundl 


and Commwfty Board, 


|70m more than in the same 
period last year. 

But according to Mr Arvind 
Pradhan, director of the 
Apparel Export Promotion 
Council (AEPC), exporters do 
not have as many orders in 
hand as they used to. At a 
recent buyer-seller conference 
in Europe organised by the 
AEPC. H the response was 
poor", says Mr Pradhan. The 


AEPC has also organised trade 
delegations to countries which 
are potential markets, such as 
Latin America; it is urging 
exporters to look for new 
niches and non-quota items 
like industrial garments and 
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But quotas, particularly for 
the US which is a big cus- 
tomer, have not yet been folly 
utilised. Exporters say that 
increased raw material costs, 
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tive in the American market 
In August a declaration by the 
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The government has taken 
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Jimmy Bums probes conditions in the booming s — 


Bare-footed boot-makers 


to step up value addition. 
Though budget garments and 
grey fabrics drive volumes, 
they are more price sensitive. 
In this segment, India's big 
competitors are China, Pakis- 
tan, Bangladesh and Sri Lanka. 

Exporters say that the mea- 
sures taken by the government 
are not enough. They would 
like local supplies of processed 
fabrics to be of consistent qual- 
ity and the freedom to import 
fabrics required against export 
commitments. 

Some manufacturers have 
begun to take advantage of the 
new rules and are investing in 
new technology. Large compos- 
ite nulla have brought in sec- 
ond hand machinery from 
Europe and Japan. Improving 
quality by upgrading technol- 
ogy is the only way to survive 
and grow,” says Mr Kamlesh 
Kapadia, Material's vice presi- 
dent, exports. Joint ventures 
with foreign textile companies, 
he adds, will contribute to 
improving the product mix. 


There is a flourishing equity 
market in Bombay, and a rash 
of high-tech companies in Ban- 
galore. Foreign trade missions 
and yqu lNim f to na |ff are knock- 
ing on government doors. So 
much for the new India. 

But visit the tanneries of 
Kanpur, or the brass makers of 
Moradabad, and you glimpse 
another In dia, where small is 
not so much beautiful as 
rather ugly. Notwithstanding a 
good export performance, peo- 
ple in these places - including 
young children - work in con- 
ditions which the developed 
world banished from the fac- 
tory floor decades ago. 

Investment in technology, 
training, and health and safety 
is kept to a minimum. Instead 
the focus is on low wages pay- 
able to a seemingly endless 
supply of unskilled destitute 
labour which still manages to 
churn out “quality" hand-made 
goods to order. 

The tanneries and the brass 
j workshops belong to India's 
small scale industrial sector 
which has for decades retained 
an important and privileged 
status in the local economy. 

Small scale industries 
employ 139m people, account 
for 35 per cent of total manu- 
facturing output, and some 34 
per cent of total exports. 

Since independence the sec- 
tor has been highly protected 
largely for socio-political rea- 
sons. It has become a kind of 
informal welfare agency capa- 
ble of providing jobs to the 
country's massive population, 
but providing little incentive 
for investment in new produc- 
tion techniques or a safer 
working environment 

Now, however, the sector is 
facing a fresh challenge. As the 
Indian government opens up 
the country to foreign invest- 
ment and gradually deregu- 
lates the economy, small stale 
Industries are being given the 
opportunity to prosper, but in 
a potentially much more com- 
petitive environment 

As Mr A Arunachalam. the 
minister for state for industry, 
put it recently: “There are 
immense opportunities for 
small scale industries in global 
markets— but they will have to 
upgrade technologies and the 
quality of their products, and 
formulate strategies to that 
end." 


The scale of the challenge 
facing India's small scale 
industries was underlined 
recently by research jointly 
undertaken by the National 
Council of Applied Economic 
Research and the German 
Friedrich-Naumann-Stiftung. 

The research, one of the 
most comprehensive studies 
ever undertaken of the sector, 
found that over the last four 
decades the small scale sector 
had both grown and diversified 
considerably, made a signifi- 
cant contribution to employ- 
ment generation and exports, 
and to a large extent managed 
to meet the consumer demand 
of the Indian masses even if 
the products sold on the home 
market were generally of poor 
quality. The sector produces a 
range of more than 7,000 prod- 
ucts, a large number of which 
are consumer items. 

The overall conclusion, how- 
ever, was that the sector 
remained structurally weak 
and highly dependent on Gov- 


perceive the nonavailability of 

trained staff to be a problem. 

• Limited institutional 
finance: Inadequacy of credit 
together with excessive and 
cumbersome bureaucratic pro- 
cedures in the way of obtain- 
ing it was identified as a major 
problem by many of companies 
surveyed. It was pointed that 
one of the major Im p ediments 
in getting adequate finance 
was the lack of trained bank- 
ing staff which In turn led to a 
mistaken assessment of the 
companies' requirements. 

• Poor infrastructure: Compa- 
nies faced problems of obtain- 
ing industrial space, as wel l as 
Inadequate supplies of power 
and water. Other weak areas 
identified were transport, 
warehousing and effluent dis- 
posal. 

Some of the problems identi- 
fied in this wide ranging 
research are only too evident 
in towns such as Kanpur and 
Moradabad, where whole com- 
munities have grown up 


Tanneries and brass factories reveal an 
India where small is not always beautiful 


eminent help and protection. 
The report noted: “The sector 
is beset with several problems, 
such as sub-optimal scale of 
operations, sickness and mor- 
bidity. technological obsoles- 
cence and poor market image. 
A bandwagon approach leads 
to overcrowding In the same 
Lines of production. Conse- 
quently, there is intense inter 
se competition, lower capacity 
utilisation and compromise on 
quality and standards to make 
way for price cutting. The 
small scale sector has not been 
encouraged to grow vertically 
and face competition.” 

The following were among 
the findings of the research 
carried out among a sample of 
657 small scale companies 
located in various parts of 
India: 

• Low level technology: 56.62 
per cent of companies had a 
manual manufacturing pro- 
cess; 36.66 per cent were semi- 
automated; while only 4.72 per 
cent were fully automated. 
Most companies said they 
could not afford testing facili- 
ties, while 83 per cent of 
respondents said they did not 


around local small scale indus- 
tries with mixed benefits in 
social and economic terms. 

In Kampur, one of the more 
“successful" small stale com- 
panies is Sultan Tanneries. 
Sales last year at RsSOOm were 
15 per coot up on the previous 
year, with 45 per cent of manu- 
factured “tanned" leather prod- 
ucts exported. 

Senior executive Mehmood 
Alam resists the suggestion 
that his company Is a sweat 
shop. IBs are the best tanners 
in the world, working for a 
tenth or more of what they 
would be paid in Europe or the 
US. (H is investment in machin- 
ery has been limited and will 
only be significantly Increased 
if and when this comparative 
wage advantage Is lost) 

The tanners do, however, 
walk around bare footed and 
without protective clothing in 
an unfiltered atmosphere 
heavy with toxic fumes and liq- 
uids. None of them wears the 
safety leather boots which they 
are tanning and which are 
exported to the UK for use on 
the factory floor of British 
chemical companies. . 


Mr Alam insists that as one 
of the bigger companies ; In* 
Kanpur he cannot afford , to 
play “bide and seek” witixjgpy- 
eminent health inspectors' ana.' 
pollution controllers. But when 
I visited the factory yburig 
boys were working on the pro- ' 
ductian line and the pollution 
control equipment' was 
switched off 

Success and squalor coexist 
too in Moradabad,: a town. 

. whose brassware exports were 
valued at Rs6£bn last year, a 
30 per cent increase over the 
previous three years. 

One of the oldest and most 
successful companies, C L 
Gupta & Sons (established 
18S9), boasts an ability, to 
respond quickly to customer 
specifications on anything 
from a candle stick to a bed. 
The company's quality hand 
crafted brass products made in 
India are increasingly seen, in 
US design shops a n d European 
antique sales. They are made 
by workers, Including children, 
earning Rs25 - Rs35 a day ami 
lacking the face and body pro- f 
teetton which is compulsory 
under western health and 
safety standards. 

In Moradabad, a UN spon- 
sored training centre run by 
government officials is trying 
to bring about an improvement 
in the quality of m ete I fininhod 
products: 

And yet, in a typical Indian 
paradox, Moradabad brass 
makers complain that their 
export efforts are hampered by 
constant power shortages and 
bad transport commmicatioris 
with New Delhi. 

What the government has 
promised so for is less bureau- 
cracy and better managed 
credit focilities. It is also open- 
ing up local Industry to foreign 
investment by liberalising, 
among other things, its policy 
of product reservation whereby 
selected products can only be 
manufactured by small scale 
Indian companies (although 
multinationals are not yet 
allowed frill access to the much 
coveted icecream market). The 
hope is that investment will 
improve productivity without 
harming jobs. 

It remains to be seen when 
and how a new breed of entre- 
preneur can emerge from the 
sweat shops of Kanpur and 
Moradabad. 


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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


XUI 


INDIA 13 


Bihar’s poverty is the worst in India, writes Gordon Cramb 

Where bureaucrats thrive 



Bihar’s riches 
are under- 
ground - coal, 
bauxite, cop- 
per. mica - and 
in its fertile 
soil. But its 
poverty is Just 
about every- 
where. Aside 
from the privi- 
leged mining and industrial 
workers who occupy neat rows 
of company housin g, the only 
significant number who can 
live in any comfort are the 
bureaucrats in Patna, the state 
capital. Their swollen ranks 
and often amply lined pockets 
attest to an administration 
which is certainly corrupt anH 
arguably bankrupt 

Doctors tell of going unpaid 
for months on end, until they 
can find a civil servant pre- 
pared to authorise the release 
of the funds - for a consider- 
ation. 

Billions of rupees in central 
government grants are 
unspent every year because 
Patna cannot find the match- 
ing funds these require. 

In the latest financial year 
the planned provision of some 
Rsl9bn, already trimmed from 
Rs22hn in 2993-94, was slashed 
to Rs7.5bn for this reason. 

Such disbursements from 
Delhi as do come through are 
frequently diverted to fund 
current spending - primarily 
on the salaries of Bihar 
bureaucrats . who in many 
cases earn more than their cen- 
tral government counterparts. 
If the money makes it to the 
upfiftment projects for which it 
is intended, it may first have 
spent a while in state coffers 
aiding cash flow. 

For many on the streets of 
Patna - and the streets are 
home to many - cash flow 
means a few rupees garnered 
from a passing motorist More 
than 40 per cent of the popu- 
lace live below the poverty 
line, compared with the less 
than 30 per cent average for all 

Tmlia. 

And there is no sign that 
anything will improve, except 



Chief m i nister Latoo Prasad 
Yadav Picture; Rokesh Saha 

perhaps in the southern half rtf 
the state where the mining and 
industrial activities are con- 
centrated. A deal in September 
between the central and state 
governments provided for the 
establishment of an autono- 
mous council which will 
administer much of the affairs 
of Jharkhand, the southern 
region. 

The agreement was the cul- 
mination of a struggle for 
self-determination waged by 
tribal peoples in the region and 
which predated independence 
from Britain. Many local busi- 
nessmen, tired of seeing their 
taxes disappear north to Patna 
for little evident return, had 
latterly lent their backing to 
the cause. 

Jharkhand generates some 
three quarters of Bihar state 
revenues yet receives only a 
quarter of spending on local 
services. And those are the 
official figures: many in the 
private sector say that Patna’s 
financial vortex has in recent 
years left the south only about 
a tenth of state outlays. 

Although the agreement to 
set up the council will not 
immediately free Jharkhand 
from Patna, it is widely seen as 
a precursor either to fUD state- 
hood or to incorporation as a 
union territory responsible 
directly to Delhi. 

In the meantime, Rihar will 
be able to nominate only 10 per 



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cent of the membership of an 
otherwise elected council 
which will enjoy administra- 
tive control over 40 govern- 
ment departments including 
agriculture, education and 
health, raise Its own local 
taxes, and receive other reve- 
nues from the centre without 
diversion through Patna. 

The state government main- 
tains that the accord merely 
formalises the existing treat- 
ment of Jharkhand's 40m peo- 
ple and will not impact on its 
budget. “Whatever we were 
getting, we will be getting,” 
says a Bihar official. 

Local economists doubt that. 
“The condition of Bihar will be 
very much worse,” says Mr 
Shaibal Gupta of the Asian 
Development Research Insti- 
tute, a Patna-based consul- 
tancy, who believes the state is 
“slowly being written off from 
the central scheme of things”. 

It Is less than clear why Mr 
Laloo Prasad Yadav, Bihar 
chief minister, should have 
signed up to a deal which goes 
substantially beyond an 
appointed development council 
for the region which he had 


previously accepted. The cen- 
tral authorities are thought to 
have warned him that funds 
could be cut off unless he 
acquiesced. 

But the breakthrough comes 
ahead of state elections due in 
Bihar early next year, one of a 
batch of such polls in coming 
months which India’s ruling 
Congress party is treating as a 
key test of public support. Mr 
Yadav's minority Janata Dal 
administration ousted Con- 
gress in Bihar last time round 
in March 1990, and will be 
looking to consolidate its hold 
by lessening its unpopularity 
in the south. 

It and Congress will both 
seek to present themselves in 
Jharkhand ns the author of the 
agreement. 

Mr Yadav came to power on 
a social justice platform prom- 
ising to promote the interests 
of the lower castes, of which he 
is a member, and minorities 
such as the Moslems. To the 
extent that this has been 
achieved, it has largely 
involved the creation or pubhc 
sector jobs reserved for the 
KHralled backward and sched- 



Homefess BBiarls; mors than 40 par cent of the people Bve beta* the poverty One 


Picture: Rakesh Sahal 


uled castes. The state payroll 
has risen by tens of thousands 
since he assumed office. 

While his concerns have 
been to the exclusion of any 
focus on investment-led devel- 
opment, Mr Yadav cannot be 
blamed for all Bihar's ills. At 
the beginning of the 19S0s state 
output was on a par with that 
of neighbouring West Bengal, 
but slipped back under a 
period of ineffectual Congress 


rule while the state based 
around Calcutta began to pros- 
per under an increasingly 
investor-friendly Marxist 
administration. 

Business can be done in 
Bihar, with a fight. After a 
court case, a batch of new 
taxes on industry were 
overturned, though investment 
in several sectors such as 
refining of edible oils has 
moved across state borders 


because of better fiscal regimes 
elsewhere. Mr Shflendxa Sinha, 
joint managing director of 
Kalyanpur Cements, an 
associate of the Swiss 
Rolderbank group, says: “It is 
difficult, but there is less 
competition." 

Kalyanpur this year built a 
cement plant in Bihar to 
replace an older facility. It 
could do so because it is better 
positioned than most on the 


state power grid, where 
interruptions in supply are 
legion. Businessmen regard the 
Bihar state Electricity Board 
as the least efficient in 

India 

The largest power users will 
benefit from a central 
government relaxation in 
private generation. Tata Iron 
and Steel Company (Tisco), 
part of the country's biggest 
industrial group, has just won 
permission to build a 25GMW 
plant for use at its mill in 
Jamshedpur, south Bihar. 

Mr Kishore Singh, Tlsco's 
Patna representative and 
president of the local 
Confederation of Indian 
Industry branch, says there is 
”110 doubt about the potential" 
of Bihar, with its mineral 
wealth in the south and fertile 
soil along the Ganges to the 
north. 

But agriculture remains 
hampered by feudal landlords. 
Reinforced by the caste system 
and the law of the gun which 
prevails in a number of areas, 
they dictate what their tenant 
will grow and how he votes. 

Land reform has not ranked 
among the achievements of 
chief minister Yadav, who 
comes from a caste of 
cowherds. While his record in 
the towns seems no better. 
Congress before him could also 
claim little in either urban or 

rural progress. 


>en years after the Union Car- 
bide disaster at Bhopal, Indian 
environmentalists hope that the 
present plague will provide fresh 
impetus for making India a cleaner as 
well as safer place to live in. But the 
sheer population pressure looks like 
making such a task a formidable one. 

It is summed up in the scene on the 
hanks of the Ganges near the north 
Indian town of Kampur, where reli- 
gious devotees sit praying to the holy 
waters, offering garlands of flowers 
and occasionally snaking themselves 
as they have done for centuries. 

Nearby, untreated chemical waste 
from local tanneries Is being poured 
into the river, together with raw sew- 
age. Vultures and stray dogs take 
turns to pick among the garbage that 
rises in a steep gradient from the 
shore. Occasionally, among the 
debris, a half burnt body is washed 
up. 

For centuries, the Ganges has been 
venerated as a symbol of Indian civil- 
isation and tradition as well as suste- 
nance. The river’s ha sin is home to 37 
per cent of the country's population 
and extensively cultivated. But it has 
also become an example of the diffi- 
culties fndia faces in developing an 
effective environmental policy that 
can be justified on cultural, social and 
economic grounds. 

In 1986. during the premiership of 
the late Rajiv Gandhi, the Ganges 
became the focus of a much-trum- 
peted national clean-up campaign. 

“ Gang a [Hindi for Ganges] is a sym- 
bol of our spirituality, our tradition, 
our tolerance and and our synthesis. 
But it is the most polluted river with 
sewage and pollution from cities and 
Industries thrown into it From now 
we shall put a stop to all this," 
declared Mr Gandhi 

Eight years on, the nine-year Ganga 
Action Plan has almost lost its way. 
Under the scheme some new sewage 
and chemical waste treatment plants 
have been constructed along the 
Ganges, improving some local pollu- 
tion levels. But the scheme in areas 
such as Kampur has fallen foul of a 
mix ture of under-funding bureau- 
cratic inertia, industrial malpractice 
and continuing largescale illiteracy 



Ctddten in a Bombay shim ihe sheer rata of popiiatfon increase canc eto out doan-up efforts 


Environmentalists face a Herculean task, writes Jimmy Bums 

The squalor of centuries 


of sectors of the population which, 
while immersed in their ritualistic 
religious practices, remain ignorant of 
the environmental hazards threaten- 
ing them. 

Mr Kamal Nath. India's environ- 
ment minister, says: “The Ganga Plan 
in Kampur has failed." 

In a candid interview with the FT. 
the minister admitted that in imple- 
menting the Ganga scheme, the gov- 
ernment had found itself having to 
tread carefully so as not to upset local 
industrial interests and religious sen- 
sitivities. But just how typical to the 
rest of India is Kampur? 

According to Mr Nath, India stands 
out among Third World countries in 
that it has consciously “integrated 
conservation into our development 
process”. Today, as he did in a pas- 
sionate speech to the UN conference 
on environment and development in 
June 1992 in Rio, Mr Nath lays great 
emphasis on India's panoply of legal 


and administrative instruments 
aimed at checking environmental deg- 
radation. 

Begi lining with the Wildlife Protec- 
tion Action 1972 and extending to the 
more recent setting of an emission 
standard for vehicles. India's environ- 
mental legislation aims to protect 
everything from the most remote 
wildlife reserve in the Himalayas to 
the most threatened urban landscape, 
be it old Delhi or Calcutta. 


N 


ath. a self-confessed “politi- 
cian. not an environmentalist”, 
has actively been courting non 
government organisations and other 
environmental groups and involving 
them in the programme of his minis- 
try. 

New legislation, together with a 
growing public awareness of environ- 
mental Issues among the middle clas- 
ses. is the most positive fall-out of the 
catastrophic gas leak at the Union 


Carbide pesticide plant in Bhopal, 
central India, in 1984 which left an 
estimated 3.000 killed and more than 
50.000 seriously injured. 

There are currently statutory 
requirements for all large and 
medium sized industries to install 
treatment plants for effluent and air 
pollution filters. 

Mr Shekhar Singh, an environmen- 
talist expert at the Indian Institute of 
Public Administration, a non govern- 
ment agency, says that the implemen- 
tation of environmental law remains 
“very weak", and that the present 
government is less ideologically com- 
mitted than its predecessors to envi- 
ronmental issues. 

The IPA has monitored 22 officially 
designated wildlife protected areas 
around India which are nonetheless 
being threatened because of govern- 
ment backed investment decisions, 
mainly energy related. 

Mr Singh also believes that sheer 


population pressure combined with 
the government commitment for 
greater economic liberalisation will 
further undermine events for control- 
ling industrial pollution. 

The view is shared by Mr Uday 
Shanker, a features editor of Doom To 
Earth, a science and environmental 
fortnightly whose circulation has 
been boosted as a result of growing 
public awareness. “Today in India 
there Is no single new investment 
that does not come under close envi- 
ronmental scrutiny. But a govern- 
ment that has embarked on a policy 
of rapid economic development is 
bound to compromise on the environ- 
ment,” Shankar says. 

The evidence - not just in Kampur 
but elsewhere in India - is that envi- 
ronmental policy continues to he 
breached rather more than practised. 

At the Shiram food and fertiliser 
industries chemical works cm the out- 
skirts of Delhi, the effluent is so dean 
that it is regularly passed through a 
fish tank. 

But the city’s river continues to suf- 
fer the smells and dirt of chemical 
bleach from smaller units and the 
widespread untreated sewage from 
large sectors of the population still 
lacking bade sanitation. 

The popular tourist location of the 
Taj Mahal has been declared a green 
zone with local metal workshops 
closed under court order. 

But as Mr Nath admits, the huge 
scale closure of workshops - account- 
ing far about one third of India's man- 
ufacturing output - is politically 
impossible because it would simply 
add to the thousands of Indians 
already destitute. 

That, however, does not excuse 
many companies in India who, having 
installed pollution control equipment, 
deliberately leave them switched off 
to save costs knowing that daring, the 
rare visits by government inspectors, 
the inspectors can be bought off 

Perhaps the most problematic area 
remains that of religion. When I asked 
an employee from a local tannery 
from Kampur why he was submerging 
himself in the black water spewed out 
by his factory, he replied: “Mother 
Ganga will protect me." 


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FINANCIAL TIMES TUESDAY NOVEMBER S 1994 



INDIA 14 


Farmers adapt their fields to the export market, says Jimmy Burns 


Sweet fruits of sufficiency 


In the shadow of the Himalayan foothills 
near the Punjab city of Chandigarh, Mr 
Malvinder Singh, a civil construction engi- 
neer turned agriculture entrepreneur, is 
putting his expertise in air-conditioned 
buildings to new uses. 

With the help of Dutch know-how and 
measuring equipment, as well as an abun- 
dance of cheap and enthusiastic female 
labour (Punjabi women consider them- 
selves less religiously constrained than 
women in other parts of India), Mr Maivin- 
der has converted 26 acres of low yielding 
agricultural land into a mushroom pro- 
cessing enterprise. 

The plant, built at the relatively low 
cost of Rs235m, started up in August and 
is expected to produce 30,000 kilos of but- 
ton mushrooms a day within a year. Mr 
Singh's Dutch agrofoods company hopes to 
tap a potentially lucrative market both in 
Delhi and abroad. 

Some 50km further south off the main 
road to Delhi, in the midst of tropical 
countryside near the town of Zlrakpur, Mr 
Gurdial Singh (no relation}, a retired gov- 
ernment officer, has invested his savings 
in a smallho l d in g . From his rows of Dutch 
bulbs, he is reaping a rich harvest in gla- 
diolis, a high-value crop being exported to 
the Middle East and Europe. 

M ushr oom fa rming and horticulture are 
just two examples of the increasing 
diverse use to which Indian agricultural 
land is being put - a diversity that 
accounts for the agricultural sector becom- 
ing a target for both foreign and domestic 
investment and an aggressive government 
backed export drive. 

The post-independence green revolution 


of the 1960s and 1970s emphasised land 
reform, mechanisation and the wide-scale 
use of fer tilise rs and pesticides to increase 
the yield of traditional crops. The aim was 
to achieve self-sufficiency, banishing the 
threat of famine forever. 

Today in India a new green revolution is 
pmter way aimed at maximising the use of 
agricultural surpluses. The aim is to 
ensure that India’s vast and growing popu- 
lation continues to feed itself white boost- 
ing foreign exchange earnings. 

The Ministry of Agriculture boasts a 
phenomenal growth of food grains output 
as perhaps the most outstanding achieve- 
ment of India’s economic performance 
since independence. 


A new green revolution is under 
way, aimed at maximising the use 
of agricuKwal surpluses 


The production of food grains has gone 
up from 51 tons in IS50-51 to a record high 
of 182 tons in 1993-94, resulting In a 
marked increase in per capita availability. 

Agrobusiness Is at the cutting edge of 
the latest green revolution. Given that 
India fa coming dose to the limit of exten- 
sive cultivation, agrobusiness is providing 
a new mea ns of increasing productivity 
and generating employment 
Compared with other sectors of Indian 
industry, employment generation in food 
processing industries is today the largest 
per unit of investment Agrobusiness cur- 
rently accounts for 52 per cent of total 
industrial investment employs 19 per cent 


of Industrial labour (1.5m) and contributes 
13.5 per cent of total industrial output. 

With 4Jhn hectares of irrigated and fer- 
tile land In which cropping intensity is 18 
per cent the Punjab region has become 
strident in promoting agrobusiness indus- 
tries. A government agency, the Punjab 
Agro Industrial Corporation, is actively 
pushing for enterprises which can produce 
processed foods from French Cries and 
chips to tomato puree, ketchup and wines. 

Mr Narinder Singh Barak, the corpora- 
tion’s director, believes traditional entre- 
preneurial skills combined with good cli- 
matic conditions have turned agrobusiness 
into the backbone of the local economy. 

“Now is the time to shift from wheat 
production to high value agricultural pro- 
duction which can ensure higher returns 
for our fanners and earn us much needed 
foreign exchange. Agrobusiness has 
become our top priority," he says. 

Nationwide, India's food processing 
industries have attracted more than 
RsSOQbn of domestic and foreign invest- 
ment in the last two years, more than any 
other sector except energy. 

Government figures show that the 
installed capacity of the bruit and vegeta- 
bles processing sector bas risen 25 per cent 
in the past three years, while production 
has grown 100 per cent in the period. 
Exports of processed fruit and vegetables 
have increased from Rsl7.2bn to Rs47.ibn 
in three years, a rise of about 70 per cent. 

Mr Dhara Bir SadharvaUL a director of 
India's Agricultural and Processed Food 
Products Authority, is optimistic about 
the government’s economic programme. 
“Liberalisation is proving very good in the 



Women and children working fci the doe fields near Bangalore 


agricultural sector. Everybody and any- 
body is now free to export anything he 
likes,” he says. 

He concedes, however, that exports 
potential is being held back by transport 
and storage problems. It is estimated that 
over 20 per cent of India’s agricultural 
produce goes to waste because of a lack of 
adequate storage facilities, inadequate 
refrigeration, and poor roads. 

Glossy handouts from the authority aim 
to convince the world that Indian products 
can compete in price and quality in Middle 
East export markets. However, the c laim 
was undermined this month when officials 
predicted that their efforts would suffer a 
setback as a result of the plague scare. 

India was forced to postpone its onion 
harvest in the western regions where the 
plague outbreak was first identified. Sub- 
sequently exporters were faced with a 
blanket suspension of all food trade with 


the Middle East, which accounts for 70 per 
cent of India agricultural exports. 

There is little evidence that plague-in- 
fected produce has been exported, but a 
damag in g climate of suspicion among 
potential customers has been created. 
Because food products destined for export 
were dumped on the domestic market, 
some farmers have suffered losses. 

Of more concern to economists such as 
Mr Ridley Nelson, head of the World 
Bank's agricultural unit in Delhi, is that 
the government's liberalisation pro- 
gramme has not removed the plethora of 
regulations tha t still riddle the agricul- 
tural sector domestically. 

The World Bank is listened to carefully 
by the Indian government which is anx- 
ious to obtain development aid funding. 
The hank is considering extending |l0Qm 
or credits to help agricultural improve- 
ments in the Uttar Pradesh region. 


The bpnk recently' submitted, to the gov- 
ernment the result of an extensive 
research into the troriong s rf varro us laws 
which hamper efforts at iinproviiig -com- 
merce and investment These' include the 
p yumHai Commodity Act which provides 
central and state government officials 
with wide-ranging powers to^ intervaie in 
the production, supply ana awntoatoaaf 

essential commodities. ■ . »■ 

Under the Act the powers xrf officials 
extend to the Issuing of Ucencosto produc- 
ers and distributors, the fixing of prices, 
the regulation of inter-state trade, and the 
prohibition of financial transactions 
deemed detrimental to the public interest 
The Act was promulgated in 1955, at a 
time of wide-scale shortages in food grains 
and marketing and rampant hoard- 
ing and profiteering; Mr Nelson believes 
that it has long outlived its relevance. 

Another legacy from the past which Mr 
Nelson would -like to see tackled is the 
T, pnri cuffing Act which is based cm the 
principle that “he who works the land 
owns it" and so restricts farms ownership 

to smallholdings. 

Given India’s population pressures, a 
blanket removal of the ceiling and the. 
restoration of larger estates . would be 
potentially explosive. But Mr Nelson 
shares the view of some Indian entrepre- 
neurs that the government should extend 
exemption categories to agroprocessing 
and horticulture. 

Ftee market economists remain critical 
of the government's regime of subsidies eh 
financial and envircmmental-groands. The 
World Bank holds that Indian fanners 
would be better served if resources were 
diverted from subsidies to much-needed 
infrastructure improvement as well as- the 
introduction of modem techniques for less 
wasteful use of water simply. 

As they have done for centuries, in J994 
India's fanners stiR hold their breath prior 
to the monsoon and thank the gods if 
rainfall is ab undant. 



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J irat is a sleepy village some 50km 
from Calcutta. Siddique AU, a 
farmer in his 20s, likes a cigarette at 
the end of his day’s work in the fields. 
During the day, however, he smokes 
bidis, which contain lower grade tobacco. 

He is one of many smokers all over 
India, the world's third largest tobacco 
producer, who have partly switched to 
cigarettes from bidis. According to ITC, 
which has 60 per cent of the Indian ciga- 
rette market, the number of “dual smok- 
ers” Is growing fast and there are also 
many giving up bidis totally in favour of 
cigarettes. 

Although nearly 125m Indian adult 
males smoke tobacco in one form or 
another, only about 30m are cigarette 
smokers. Besides bidi and cigarette smok- 
ing, tobacco smoking through a hookah 
is largely prevalent in India. 

Hie immediate reason for the jump in 
cigarette sales in the semi -urban and 
rural areas is that a packet of 10 micro 
cigarettes costs a mere Rsl.50 (3p). This 
follows the reduction in the excise duty 
on cigarettes of less than 60mm length 


from Rsl20 to Rs60 per 1,000 sticks in the 
current year’s federal budget 

A bidi stick at 10 palse is still five paise 
cheaper than a cigarette. But industry 
officials think that villagers are turning 
increasingly cigarettes because they 
regard them as “more modern". And at 
Rsl.50 for a pad of 10, cigarettes are no 
longer too expensive. 

By substantially lowering the duty cm 
micro cigarettes , the federal government 
has signalled that it would like cigarettes 
to replace bidis. That is because the 
cheap micro cigarettes yield 12 times 
more revenue than bidis which attract a 
duty of only &s5 per 1,000 sticks. Since 
bidis are mostly made In small, local 
workshops, the revenue collection is 
poor. 

The cigarette manufacturers are obvi- 
ously pleased to have found a market 
segment which is growing fast ”111 the 
past six months, monthly production of 
micro cigarettes has risen from 100m to 
nearly 500m sticks. The general expecta- 
tion Is that production wifi rise to lbn 
sticks a month within a year and a baffi” 


Jump in sales of cigarettes at 3p a packet 


Villagers switch to a 
better class of smoke 


say Industry officials. 

The Indian cigarette market has 
shrunk from 85bn sticks a year to 80bn in 
the last five years. However, in the cur- 
rent year there will be some growth as 
the micro cigarettes are moving fast and 
that is almost entirely at the expense of 
bidis. 

But the market fur bidis in India Is 
huge. Though there are few statistics, it 
is estimated that at least 12 times as 
many bidis are currently sold as ciga- 
rettes. 

“This offers a great op po r tun ity to pro- 
moting the sales of micro cigarettes. 
What we also find encouraging is that 


many first-time smokers in the rural and 
semi-urban centres are starting with 
micro cigarettes and not bidis," said ITC . 

The four major brands in the micro 
segment are Hero, Vfyai, Commando and 
Blue Bird, owned by ITC, VST, Godfrey 
Philips and Golden Tobacco, respectively. 
They have around 80 per cent share of 
the micro cigarette market 
Since the industry is mainly targeting 
the rural smokers who have a different 
profile from the urban smokers, the ciga- 
rette man uf act u rers are changing their 
marketing strategies. 

AH the manufacturers admit that the 
profit margin in micro cigarettes Is very 


thin. “First, we have kept the price of the 
product low. Second, the cost of 
distributing cigarettes in the rural areas 
is quite high. Fortunately, the volume of 
sales is growing at an encouraging rate.” 

Though cigarettes use only 20 per cent 
of the tobacco consumed in the country, 
they account for nearly 90 per cent of the 
excise revenue generated by all tobacco 
products. In fact, after petroleum, ciga- 
rettes are the second largest contributor 
to the exchequer. 

In the current year, cigarettes are 
expected to generate revenue of more 
than Rs30.5bn lor the government, com- 
pared with Rs27.43bn in 1S93-94. Except 
for tiie micro cigarettes, which are now 
attracting a ranch lower excise duty, the 
levy on all other cigarettes has been 
raised by 12 per cent In the 1994-95 bud- 
get 

However, in the earlier two budgets, 
the government spared cigarettes, which 
were already highly taxed, from any duty 
increase. 

The annual average increase of 24 per 
cent in cigarette prices has also forced 


the smokers to move away from the 
higher juiced to lower priced cigarettes 

The man uf act ur ers argue that since 
they use better tobacco than that used In 
bidis, a higher procurement of the com- 
modify by them would raise the income 
of the growers. The farmers would then 
have the incentive to produce better 
tobacco. If the government agrees, then 
perhaps the duty on regular cigarettes 
will be lowered in. the next budget 

Very few Indian women smoke, unlike 
in China where about 6 per cent of the 
adult women smoke cigarettes. The mar- 
ket for the premium king size cigarettes 
in India is less than 1.51m sticks a year. 
In this segment, moreover, the sate of 
Illegally imported cigarettes is double 
that of the local brands such as India 
Rings and Classic. 

Even though the top mid of the market 
is small, RJ. Reynolds and Philip Morris 
are exploring the possibility of producing 
cigarettes in India. Godfrey Philips 
already produces Rothmans locally. 


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FINANCIAL TIMES TUESDAY NOVEMBER. 8 1994 


XV 


&S: && 



INDIA 15 


The rural masses show their consumer power, writes Jimmy Bums 

Sleeping giant stirs 




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Kherala, in the state of Haryana, some 
50hm south of Delhi, fits the imqge of the 
ag*«M village whose traditional values 
Mah at m a Gandhi sought to preserve. But 
take a closer took and you'll discover the 
modern age tentatively knocking on many 
a front door. 

Set well back From the *»«*iw highway to 
the capital, the bulk of Kherala's popula- 
tion of 4,000 live in squat huts made of 
crude cane and cattle dung. But mos t of 
the huts have TVs, electrical Mtchen gad- 
gets and an assortment of mass-marketed 
tofletries. Oxen plough the nearby fields, 
but tractors spray the fertilisers and trans- 
port the labourers, and piped water is 
gradually replacing the village well. Scoot- 
ers and mopeds are also disturbing the 
rural idyll, rivalling the ox as a status 
symbol 

India’s villages, where 80 per cent of the 
population live, retain much of their 
i mmem orial quality. But the agrarian 
reforms of the last two decades together 
with the migration to the cities of many 
villagers has brought about a si gnificant 
rise in agrarian purchasing power a nd a 
change in consumer patterns. Cultural 
change is also being hastened by the 
spread of TV. 

According to research undertaken in 
recent years by India’s National Council 
for Applied Economic Research (NCAER), 
the importance of rural markets for manu- 
facturerd consumer goods is Increasing 
and wDl increase further as a result of the 
government’s liberalisation programme. 

Although most of India’s lowest income 
families live in the villages, they are an 
important market for some sp ecific con- 
sumer goods which are anything but tradi- 
tional. 

The most recent extensive survey car- 
ried out in 1992-93 show that 75 per cent of 
bicycles and portable radios, and 60 per 
emit of table fans, sewing machines , and 
wrist watches, sold in India were bought 
in rural areas. Rural markets also 
accounted for a 72 per cent share in 
national sales of washing cake. 

The NCAER survey found that the rural 
share of other consumer sales has been 
rising in relation to sales In the cities. In a 
sample study over a four year period 
between 1989-93, the percentage of black 
and white TVs bought in rural India rose 
from 44 to 47 per cent; of colour TVs from 
19 to 31 per rank cassette recorders from 
42 to 49 per cent; video recorders from 5 to 
8 per cent; toothpastes from 30 to 38 per 
cent; washing powders from 48 per cent to 
52 per rani; and electric bulbs from 30 to 
32 per cent 

But perhaps the most revealing statistic, 
since it suggests the amount of spare cash 
in fanners’ pockets, is that while in I960 
the average rural household spent 81 per 
cent of. its income an food, today it spends 

less than 70 per cent 

- During the 1980s, companies and adver- 


tisers devised their strategies for rural 
markets on the assumption that consumer 
preferences in the average Indian village 
would be rut much different from urban 
centres. In recent years a geater effort has 
been made to understand the particular 
cultural, soda], and economic conditions 
that exist within the villages. 

Pradeep Kashyap. a marketing consul- 
tant, who has organised workshops on 
rural markets for the Asian Centre for 
Organisation Research and Development 
(ACORD), says: “Having been trained In a 
westernised culture, we tend to approach 
even the rural market with certain urban 
mindsets. That doesn’t always work. To 
effectively market a product, we have to 
get off our high horses and understand 
rural ways." 

To illustrate the idiosyncracies of the 
rurai mind, Indian advertisers like to 
recall the following anecdote regarding 
sales of hair dye in the villages of Gujarat 

Three quarters of the bicycles and 
portable radios sold in India were 
purchased by village dwellers 

A few years ago it was discovered that 
sales of the dye had shot up to three 
bottles per consumer a month. It was sub- 
sequently discovered that far from being 
used for the villagers' hair, the dye had 
been used on the local cattle. It was felt 
that the shinier the cow’s coat, the better 
the chance of getting a good price at the 
local market. 

In Kherala. rural ways are exemplified 
by the family of Mr Lackhan Singh Sara- 
panach, a 45 year-old farmer who has 
served for several years as the elected 
head of the village body. His wife Subhe- 
bra recalls that when she first came to the 
village as a teenage bride, women rarely 
ventured from their huts, and spent their 
time either grinding com or washing 
clothes. 

Today the mill stone lies abandoned in 
the Sarpanach larder, and a machine is 
used for the task. Subhebra cooks over an 
electric stove instead of firewood. She still 
washes the clothes by hand. But her 
clothes are no longer home spun, and she 
uses c ommer cial washing powder. 

Her daughter Neelan, 16, likes to buy 
make up and ready-made rinthes in the 
town market Her ambition is to buy a car. 
Jaisingh, her 23 year-old brother, wears 
jeans and gym shoes and Ukes to ride 
motor scooters. He plans to leave for Saudi 
Arabia as a construction worker in the 
ho ping of narning qpong fa money there to 
increase his family's limited supply of 
electrical gadgetry. 

And yet the Sarapanach family are nei- 
ther spendthrift nor uncritical of modem 
life The family tailors its bigger purchases 
according to what it can afford and is 


without a refigerator or a gas stove. 

Subhebra is not convinced that the 
shampoo she now uses is superior to the 
mixture of mud and tree extract with 
which she washed her hair as a young girl. 
"I notice that people's hair in the village is 
not as thick ami strong as it used to be,” 
she says. The shampoo is, however, afford- 
able and saves her time. 

There are no Body Shops in Kherala. 
The local store reflects the modesty of 
disposable incomes and the complex 
nature of consumer aspirations. There are 
unmarked bags of rice and bottles of vege- 
table oil, indicating that on staple foods at 
least the villager remains product loyal 
rather than brand conscious. 

On the shelves there are several differ- 
ent brands of washing soap, toothpaste 
and combs prominently displayed while 
the only available brand of bras are kept 
modestly in boxes. There are also a variety 
of biscuits and two different brands of 
light bulbs. But the most popular confec- 
tionery remains a local sweet made of 
sugar cane, herbs, and butter milk. 

The Sarapanachs do much of their shop- 
ping in the town market, where there is a 
wider range of products. However the 
head of the family insists: “I don’t buy 
something simply because someone tells 
me I should buy it. It needs to be worth it 
price wise and accessible. And what mat- 
ters to me is not the packaging but 
whether it really makes my Life easier." 

Market research done on other villages 
in India suggests that consumption pat- 
terns of rural consumers generally remain 
distinct from those of urban consumers. 
While many villagers are earning their 
wages in the towns, caste and religion 
continue to play a dominant role in their 
villages, insuring a high degree of social 
conformity and respect for tradition. Sta- 
tus symbols remain Important, as do 
strong personal relationships. 

These factors are likely to put an 
increasing onus on companies developing 
marketing strategies which are sensitive 
to the peculiar needs of rural communi- 
ties. Already advertisers have had to 
accept that sexual innuendo and images of 
boys and girls frolicking over a can of fruit 
juice jars with village tradition. And com- 
panies fi nd that using long-standing dealer 
networks (often using extended families 
and internal village hierarchies) can prove 
more useful than sending in outsiders. 

This marketing will be watched closely 
by government officials. While anxious to 
promote economic development in rural 
communities, officials realise the need to 
protect more positive aspects of traditional 
life such as artisan crafts. 

Several non-government agencies are 
promoting traditional weaving and wood 
working in some villages with an eye on 
exp or ts . But the days when villagers them- 
selves buy what they make may have gone 
forever. 


Gandhi’s social vision remains a dream, says Gordon Cramb 

Some things don’t change 


In mid-October, as the initial 
panic over the plague outbreak 
receded, the Sunday Times of 
India ran a signed commen- 
tary, calling on local leaders to 
“convert themselves into 
unpaid sweepers”. 

The article was an extract 
from the collected works of the 
Mahatma Gandhi, India's 
founder. 

Top city officials in Delhi 
were spending part of their 
weekend being photographed 
following Gandhi's precept. It 
was a token gesture, and 
enduring answers to India’s 
public health problems remain 
elusive. 

After significant progress to 
improve the social framework 
since independence in 1947. 
concerns are growing that san- 
itation, nutrition and literacy 
for its 900m people are slipping 
down the government’s list of 
priorities even as liberalisation 
offers the prospect of rapid eco- 
nomic growth. 

Health care provision from 
all public sources Is estimated 
to account for only 1.5 per cent 
of gross domestic product, half 
its peak level. Some states 
spend less than a dollar per 
head a year, and three quarters 
of rural clini cs are privately 
run. 

Achievements on some 
fronts are diluted by a failure 
to provide matching facilities 
in others. Some 78 per cent of 
rural dwellers have access to 
safe water (although this may 
require a 2km return trip to- 
collect) but, according to U ni- 
ce f, only 11 per cent have 
access to a latrine. 

While the plague toll which 
alarmed the world reached 
only 55, someone in India dies 
every minute of tuberculosis - 
the country has 40 per cent of 
the world’s cases - and up to 
10.000 under-fives perish each 
day, largely of pneumonia or of 
dehydration brought on by 
simple dian-hoea. 

This is in spite of the halving 
of infant mortality rates since 
independence. A mass irnmnni- 
sation programme launched in 
the 1960s achieved 80 per cent 
coverage. A few states such as 
Kerala and Tamil Nadu in the 
south have demographic pro- 
files approaching those of 
developed countries, and aid 
agencies working in India 
argue that this shows large- 


scale programmes can have a 
durable effect. 

But as well as old problems 
such as the plague, new ones 
surface. Some 1.6m Indians are 
estimated to be HIV positive, 
and research presented at the 
international conference on 
Aids in Yokohama, Japan this 
August showed that from an 
initial detection in 1986 the 
prevalence or the virus had 
spread across the country and 
beyond high-risk groups such 
as prostitutes and their clients. 
With heterosexual sex the 


while getting this and other 
messages across to adults is 
made harder by the fact that 48 
per cent of the population 
remains illiterate. 

India 's target of universal lit- 
eracy by 2000 is looking 
increasingly unattainable. Uni- 
cers Ms Gillian Wilcox 
describes 1995 os the “make-or- 
break year” where those 
starting school need to be 
retained for the five years of 
primary education which will 
provide their reading and writ 
mg skills. Dropout rates can 



People of Varanasi: incSa has 40 per cent of the world's TB cases 


main means of transmission, 
about half those infected are 
women. 

Incidence of the virus is 
“strongly linked with other 
problems resulting from over- 
population, poverty, disease, 
illiteracy and gender bias," 
says Dr Sengupta Sushma of 
the All India Women's Confer- 
ence. 

Many Aids-associated ill- 
nesses go unidentified, let 
alone treated, and Indian phar- 
maceutical companies are just 
storting to develop diagnostic 
kits suitable for the country. 
The Bombay-based Lupin Lab- 
oratories expects to have one 
in production by the end of the 
year which will not be affected 
by heat, a common problem 
when such materials have to 
be distributed by road to rural 
centres. 

According to health workers. 
Aids education in schools is 
bedevilled by social taboos. 


commonly reach 40 or 50 per 
cent in the first year. 

Government curricula are 
being re-examined in an 
attempt to make what is being 
taught seem less alien 
particularly to rural ffMWwm 
and experimental projects in 
various parts of the country 
show what could be achieved 
more widely if the public 
education system is freed from 
some of its rigidities. 

At Turki, just north of the 
Ganges in poverty-stricken 
rural Bihar, 560 children 
attend what has become 
known as India's first “school 
for shepherds.” Its 25 acres 
provides' grazing for their 
families’ livestock while, in 
addition to Hindi and 
arithmetic, they learn animal 
husbandry, basket weaving 
and sandal making 

Mr Sita Ram Rai, the head 
teacher, says: “Our basic aim 
is to make them literate, then 


give them training." 
Unusually, they get a midday 
meal and they get paid to 
attend - one rupee a day for 
toe lowest -caste children, less 
for those who are more 
privileged. 

In the central state of 
Madhya Pradesh a local 
non-governmental organisation 
called Eklavya has been 
granted rare permission to use 
workbooks of its own devising 
in government schools to 
foster activity-based learning 
The European Union is 
backing a RsTbn programme to 
improve primary education in 
deprived districts there. 

First-year classes can have 
up to 80 students, and although 
facilities are poor, donors are 
reluctant to put much money 
into bricks and mortar. In 
Turki, some learn their lessons 
under a banyan tree. 

Apart from a lack of 
resources, two main problems 
hamper education in India as 
nowhere else: child labour 
(embracing perhaps 40m who 
should be in school) and the 
caste system. 

The two are related. When a 
lower-caste family withdraws a 
child from school in order to 
work alongside its parents in 
the fields, it may be for 
economic reasons. But the 
parents may also take the 
decision conscious that their 
offspring has been made to sit 
at the back, or outside, or 
given menial tasks like 
lavatory cleaning seen as 
befitting its status. 

The belief that such work 
should be done only by those 
castes, who are then reviled for 
doing it. goes to the root of 
India’s health and literacy 
difficulties, as Gandhi 
recognised. 

“Primary education of its 
childr en must be undoubtedly 
an important item in the work 
of a municipality. But I have 
not a shadow of doubt that 
sanitation occupies the 
foremost place in its 
programme.... I hold it to be 
impossible to give a healthy 
education to unhealthy 
children," he wrote, arguing 
that “Untouchability has a 
great deal to answer for the 
insanitotion of our streets and 
our latrines." 

' In half a century, not much 
has changed. 


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A PASSAGE TO INDIA 


* iveco’s 
Joint venture 

and license agreements 
with Ashok Leyland, 
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year, is the latest 
demonstration of total 
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for the benefit of national markets. 


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Iveco’s International network of manufacturing plants, backed by R&D centres, 
produces a comprehensive range of ’mission-matched’ vehicles from light vans and 
buses to off-road and maximum weight tractors. 

$ Iveco became the first truck manufacturer to win the 
covered 'International Truck of che Year* award In 
successive years, 1992 and 1993. For I99S, Iveco 
has won ’European Coach of the Year’. 

Iveco is the world’s largest manufacturer of 
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* Iveco’s Investment 
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___ 


,,il '' 


FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


INDIA 




Foreign groups join drive to electrification, says Gordon Cramb 


Battle against black-outs 


For Ur R Vasudevan, power 
secretary In the Indian govern- 
ment, there are “no 
push-button solutions" to the 
country’s electricity shortages. 
Achieving the needed output, 
he says, will require “a long 

gestation period". 

His vision is helping bring 
private operators, including 
foreign companies, into an 
industry which until now has 
often been politically manipu- 
lated by state and central gov- 
ernments. 

A parliamentary and legal 
challenge held up agreement 
on the first flagship project, a 
$2bn plant being built by 
Enron of the US to supply 
Bombay. At issue was central 
government’s right to grant 
guarantees tha t the State Elec- 
tricity Board (SEB) in Mahar- 
ashtra, of which Bombay is the 
capital, would pay for the 
power it received. Without 
these, Enron said it could not 
raise financing for the facility. 

The way the power ministry 
has conducted negotiations 
with prospective entrants has 
won praise even from beyond 
their ranks. 

The task ahead, though, is 
enormous. Growth in installed 
capacity for power generation 
has averaged 6 per cent annu- 
ally since Independence and 
currently stands at some 
77.000MW. Mr Vasudevan told 
an energy summit convened in 
Madras in August by the Con- 
federation of Indian Industry 
that "the capacity addition as 
planned is short of the need- 
based requirements and, what 
is more disturbing, even the 
achievement of this target is 
dogged by serious resource 
constraints". 

In short, public sector suppli- 
ers are at best treading water - 
capacity being added is enough 
only to keep pace with eco- 
nomic growth rather than 
redress structural shortages, 
and many SEBs do not have 
the capital to meet expansion 
commitments envisaged under 
the current five-year plan 
which runs to March 1997. 

Overall power shortages are 
around 10 per cent, with unmet 
demand at peak times nearly 
double that. Private sector 
involvement, largely foreign, is 
seen as the only escape from 
"load shedding”, the intermit- 
tent blackouts experienced 


daily by virtually all busi- 
nesses and households. Only 
key government installations 
and export Industries In some 
states are protected 

According to Mr Vasudevan, 
a programme to bring reliable 
electricity to all India would 
mean additional capacity of 
142.000MW by 2007, nearly 
trebling the available total- He 
agrees with private sector esti- 
mates that making a start on 
this will require at least $6bn a 
year worth of plants over the 
next five years. 

The largest project so far 
agreed is a $12.7bn plan by an 
offshoot of Mr Gordon Wu’s 
Hopewell Holdings of Hong 


customers, notably farmers, 
are supplied at a less. 

Second, some 23 per cent of 
generated electricity disap- 
pears before it reaches the cus- 
tomer. commonly through ille- 
gal link-ups, and few 
governments are prepared to 
arouse the ire of slum dwellers 
by severing their pirate lines. 

Third, headway has been 
made In improving use of 
installed capacity (official fig- 
ures show that average plant 
load factor, a measure of this, 
rose from 57 per cent to 61 per 
cent last year) but such an 
improvement may not be sus- 
tainable without spending on 
modernisation by the cash- 


ANNUAL ELECTRICITY OUTPUT 1950-93 (bn kwh) 


Y tor 

Hydro 

Thermal 

Nuclear 

Non -utility 

Total 

1950-51 

25 

2.6 

- 

15 

65 

1960-SI 

7.8 

9.1 

- 

A2 

20.1 

1970-71 

2SJ2 

2&2 

2.4 

6-4 

61.2 

1980-SI 

46J5 

61 a 

3JD 

£U 

1195 

1990-91 

71.7 

186-8 

6.1 

24.1 

288.7 

1891-92 

725 

208.6 

&6 

Z75 

314J2 

1992-93 

6943 

2244 

6.7 

305 

3309 


Source; Asea Brown Boveri 


Song to provide an eventual 
10.5G0MW of capacity through 
two coal-fired plants in a deal 
with Powergrid. a central gov- 
ernment agency. The first of 
these 16 units is to come on 
stream by early 1999, with full 
operation scheduled for 2003. 

Powergrid is a minority sup- 
plier to SEBs, and India does 
not yet have a national grid, 
though one is intended to 
evolve as part of the restruct- 
uring of the sector. 

In the short term, three main 
ways in which the centre is 
seeking to improve power 
availability by getting the most 
out of existing capacity are: 
encouraging demand-side man- 
agement, limiting t ransmis sion 
and distribution Losses, and 
increasing power station effi- 
ciency. 

But each of these runs up 
against entrenched attitudes at 
the SEBs, which currently pro- 
vide three quarters of the 
country's power, and at the 
offices of their political mas- 
ters in state capitals. 

First, the tariff structure 
does not sufficiently steer 
huger users into maki ng opti- 
mal use of off-peak periods, 
and many smaller commercial 


strapped SEBs. 

That would have to form 
part of a programme for the 
longer run. one which also 
offers opportunities to foreign 
suppliers. States are turning 
towards schemes whereby they 
lease an uneconomic facility to 
a private operator which 
upgrades it and, where 
required, eventually returns it 
to public hands. Mr S Sanga- 
meswaran of Asea Brown 
Boveri, the Swiss-Swedish 
engineering combine, esti- 
mates that the market for mod- 
ernisation could Itself deliver 
30.0QQMW in extra capacity. 

He enumerates several areas 
of concern for developers 
entering the Indian market. 
Prime among these are the tar- 
diness in establishing a trans- 
parent bidding and evaluation 
procedure for projects, 
together with a complex and 
slow decision-making process. 
Under the Indian constitution, 
electricity is the dual responsi- 
bility of the centre and the 
states. The two levels of gov- 
ernment are seldom of one 
mind on priorities or cost, and 
SEBs are not conducting open 
tenders. 

Furthermore, the sheer num- 


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JP Morgan and I -Sec are partners in financing Indian business . 

The above are selected 199% transactions completed byJ.P. Morgan Securities Ltd . . 
London and ICICI Securities and Finance Company Ltd., Bombay. 


JPMorgan 


Software skills attract world-wide interest, writes Paul Taylor 


Brains at bargain wages 


fflQ* 1 


her of projects now being con- 
templated - 86 at latest count 
- may lead to a dilution of 
efforts. Mr Vasudevan admits 
his department has had prob- 
lems even processing the pro- 
posals. 

Duties on imported equip- 
ment stand at 20 per cent, 
although these have been 
reduced sharply from a previ- 
ous 85 per cent. ABB is in talks 
with Delhi to take over a gov- 
ernment boilermaking factory 
and is planning to build tur- 
bine generators at a greenfield 
site, aiming to produce its first 
Indian-made machinery by 
1997-98. 

A main plank in the govern- 
ment's efforts to improve sup- 
ply is a greater reliance on 
hydroelectric generation. Offi- 
cials estimate that only a fifth 
of a potential 84.000MW capac- 
ity is being exploited, and wish 
to increase the contribution of 
hydropower to some 40 per 
cent of the total from a current 
23 per cent. 

This will depend to some 
extent on the fete of the coun- 
try's flagship Narmada Dam 
project in central India, which 
has been reviled by aid agen- 
cies because it would entail 
uprooting of thousands of rural 
communities. 

Although the World Bank 
has withdrawn support, Nar- 
mada remains on the drawing 
board. 

On a different level, the 
World Bank in July cancelled 
S?50m in power loans to a 
small number of SEBs because 
of their poor financial perfor- 
mance. There were little or no 
knock-on effects on other pro- 
jects, and in the past year half 
a dozen states have agreed to 
reform their power regimes 
with World Bank help. 

But Mr Heinz Vergin, head of 
the Bank’s India department, 
was quoted as describing some 
of the local remedies for the 
SEBs’ ills as "Band-Aids”. 

No wonder central guaran- 
tees were sought, and are 
being granted, for the first 
seven large, fast-track projects 1 
in which foreign companies are 
involved. 

While foreign operators fret 
about the remaining risks, 
such as construction delays 
and cost overruns, nationalist 
politicians maintain that too 
much has been given away. 


tU&HJ.P. IfeawiK’n. b t oM/XS tUnl 


These announcement* appear us a matter of \ reconltmly. 


, Over the past decade India has built up a 
| solid reputation for software program- 
ming and semiconductor design. 

According to the National Association 
of Computer Software and Services (Nas- 
scom), the Indian software sector grew at 
a compound rate of almost 30 per cent 
between 1987 and 1992. 

Last year, the industry generated $600m 
of revenues. 50 per cent more than the 
previous year, of which 8330m repre- 
sented exports, mostly to the US and 
Europe. Nasscom’s 273 members, who 
include the Indian subsidiaries of compa- 
nies such as Microsoft as well as indige- 
nous companies, account for about 97 per 
cent of industry revenues. “This year’s 
revenues will reach about $lbn and we 
estimate 50 per cent growth for the next 
50 years," says Mr Dewang Mehta, the 
executive director. 

Several factors explain the success of 
the Indian software industry. Among 
these India has a large pool of relatively 
low wage skilled people who speak 
English and have been taught mathemat- 
ics and science. The salary for a qualified 
Indian graduate, although rising rapidly, 
is still only about a tenth of that in the 
US. As a result, when labour shortages 
began to appear in the mid 1980s many 
western high tech companies set up soft- 
ware and semiconductor chip design 
operations in India, particularly around 
Bombay, Bangalore and Delhi. 

Others went "body shopping” - con- 
tracting with Indian start-ups that could 
supply cut-price programmers. 

Among the industry pioneers TCS (Tata 
Consultancy Services) was started 26 
years ago and won its first overseas con- 
tract in 1974. Today TCS employs 4,000 
professionals (average age 26 Vi) of whom 
1,700 to 1.800 are working for foreign 
clients including 800 abroad. 

"We think of ourselves as software 
engineers," says Mr Faquir Kohli, deputy 
chairman of TCS whose customers have 
included many foreign giants Including 


insurance companies Life and Prudential 
and US banking group JP. Morgan. 

Mr Saurabh Srivastava. managing 
director of International Informalities 
Solutions (IIS), another Indian software 
consultancy, cites several reasons for 
using a company like his. One is cost - 
using an Indian subcontractor can cut 
costs by about 25 per cent for the same 
quality or better work. 

According to Mr Srivastava, the Indian 
software industry is entering a new 
phase. Having developed programming 
expertise and confidence, OS and other 
companies are beginning to invest in the 
research and development of their own 
products. "There are a lot of companies 
doing R&D today,” he says. 

Mr R Ramacbandra, science editor of 
the Economic Times newspaper, estimates 


Many Indian companies are now 
confident enough to research and 
develop their own products 


that, despite tax an other incentives for 
industry, around 75 per cent of TmH»n 
R&D expenditure is undertaken by the 
government 

In part this has reflected India’s strate- 
gic requirements. With access to western 
technology restricted, India has developed 
indigenous expertise in key areas includ- 
ing defence, space and nuclear power. 
These programmes have bad mixed suc- 
cess. For example, the space programme, 
conducted under the auspices of the 
Indian Space Research Organisation, has 
suffered a number of technical setbacks. 

Meanwhile, the country’s nuclear Indus- 
try was branded a "dangerous failure" by 
western scientists earlier this year during 
an investigation by America’s CBS net- 
work and the country has been without 
an indigenous semiconductor fabrication 
capacity since the semiconductor plant at 
Chandigar burned down in 1989. 


In other areas, India's attempts to pro- 
tect and encourage domestic high techhol- ' *■ 
ogy companies have come unstuck, in 
aerospace and defence, the state-con- . . I jg : 
trolled companies which dominate Indus- I-S 

try have failed to make any inroads into J* 
the commercial sector, ha areas such as 
pharmaceuticals, however, there have \y 

been successes. ^ 

The I nd i«" pharmaceutical industry i& ; 

well established and the government’s 
derision earlier this year to sign the Gatt £: 
agreement an intellectual property rights a 

is expected to stimulate further research yi 

and development 

In addition, several national research 
laboratories such as the National Chemi- •„ ; 
cal laboratory in Pone have developed a 
high level of expertise is process techuol- >; 
ogy - for the petrochemical industry, for 
example - and are acknowledged to he 
world-class institutions. - a 

Historically, private sector R&D spend- ' - 

ing Is India has been fairly limited. Small 
private sector businesses have relied on '■¥ 
the state laboratories for technology such ^ 
as materials substitution and testing, 
while larger scale manufacturers have ^ 
been protected by trade barriers and often - - 
lacked the finance and the confidence in 
future government industrial policy to 
undertake R&D. i 

- Overall expenditure on research and .*■ 
development in India Is reckoned to he . 
running at around 0.8 or 0.9 per cent of 
GDP - down from about 1 per cent during , 
the 1900s. The decline reflects the impact 1 c 
of the current administration's economic .jq Ic 
liberalisation programme which indudes ,p 

restricting state spending. c - 

As a result many state-run research lab- - ir 
oratories which have so far failed to win 
foreign or private sector contracts are >. 
close to collapse. The government hopes 
that eventually its more open economic, 
financial and trade policy will encourage 
industry to invest more in R&D and estab- 
lish more technology transfer joint ven- <•' 

tores with foreign multinationals. 




4 i - r ' . 

i' 1 




- > 


C- ~ 


1 

: >• v 




Paul Taylor hears how Bombay and Maharashtra plan for the future 


Cutting edge of capitalism 


MAHARASHTRA | 

HUB ... 


The large 
billboards 
around Bom- 
bay invite 
India’s stock 
market punters 
to purchase 
shares in the 
same of the 100 
_ companies 
which come to 
market each month while 
street stalls act as broker’s 
agents, distributing share 
application forms to pass- 
ers-by. 

“We have 25m investors in 
India,” says Mr Bhagirat Mer- 
chant president of the Bombay 
Stock Exchange. "That makes 
India second only to the US in 
terms of number of private 
investors.” 

Bombay, India's premier 
financial centre, economic 
powerhouse and the capital of 
the state of Maharashtra, is at 
the cutting edge of capitalism 
in the sub-continent. Now, 
after decades of stifling state- 
planning, business is booming. 

The city's plush hotels are 
foil of foreign businessmen. 
But such conspicuous con- 
sumption serves to further 
highlight the gap between the 
growing number of affluent 
white-collar workers and the 
poverty of the less fortunate. 

On the seafront outside the 
deluxe Taj Mahal hotel, Bom- 
bay’s street beggars, many of 
them children dressed in rags 
or women holding babies, 
plead with the tourists; 


eign trade; it has the nation's 
largest stock exchange which 
handles around 70 per cent of 
all capital market transactions 
and Is headquarters for most 
large commercial banks and 
the Reserve Bank of India. 

It is also a large manufactur- 
ing centre for everything Cram 
textiles to pharmaceuticals and 
it is India's "Hollywood”, turn- 
ing out about half the 500 to 
600 full length feature films 
made in the country each year. 

Maharashtra is one of the 
largest states in India with a 
population of 79m and 
accounts for more than a quar- 
ter of the country’s industrial 
output. 

More than half India’s top 
100 companies are based in 
Maharashtra. Multinationals 
such as Lever, Roche. Sandoz, 
Bayer, Asea Brown Boveri, 
Burroughs, Wellcome. Colgate. 
Procter & Gamble, Coca Cola 
and Kellog have plants In 
Maharashtra, making it India's 
most industrialised state. 

Outside Bombay several 
other large industrial centres 
have emerged including Pune, 
a city of 2.5m people perched 
high up on the Deccan plateau. 




' . T-i'i. > • 







Maharashtra chiof minister Shared 
Pavrar Picture: RcAesh Sahaf 

To investigate how Mahar- 
ashtra could maintain its 
industrial and economic lead- 
ership in the face of increasing 
competition the state Invest- 
ment Corporation of Maharash- 
tra (Sicom) commissioned a 
study by McKinsey, the man- 
agement consultancy. 

McKinsey 's report, published 
in April last year, identified 
Maharashtra’s key strengths as 
revolving around “a skilled, 
low-cost labour pool, availabil- 
ity of select minerals (coal, oil 
and gas and bauxite) and agri- 


cultural products, adequate 
power supplies. Bombay's pre- 
. mier position (in the domestic 
and global context) and estab- 
lished resource clusters in the 
textiles, auto, engineering, food 
and petrochemicals Indus- K 
tries". 

However, the report also 
identified a number of “major 
barriers to continued growth 
and leadership" Including qual- 
ity of infrastructure. 

Since then the state has ^ 
adopted a new industrial policy *. 
which Mr Pawar says is aimed A) 
at freeing the industrialisation 
process from bottlenecks and 
encouraging non-polluting 
high tech industries. 

The chief minister, a power- 
ful advocate for Marharashtra, 
runs the state as if he were the 
chief executive of a large com- 
pany and has a single vision of 
how it should develop. 

“I want to make Bombay 
another Hong Kong," he says. 

He wants a review of urban 
land policy and "the moderni- 
sation" of India's rent control 
acts. In addition he is advoca- 
ting the development of a 
series of satellite towns 30 to 40 
miles outside Bombay. 


B P 11 . "y < - IW uw» .mw 

i . 


In Bombay they are more 
interested in making 
money than politics 




"Money for food, money for 
food, sir.” 

Since independence Bom- 
bay's population has risen 
from 2m to around 13m. Each 
day an estimated 500 families, 
most from outside the state, 
arrive in the city in search of a 
better life. 

Most end up sleeping on the 
pavement or in Bombay's 
sprawling sbanty-town slums 
which are among the worst in 
Asia. Even then many try to 
eke out a living, sorting 
through piles of rubbish or 
mounds of plastic bottles. 
Everywhere there is activity. 

Bombay has a reputation for 
being a cosmopolitan business 
centre, more interested in mak- 
ing money than in politics. But 
inter-religious riots have high- 
lighted the murkier links 
between politics and crime. 

Two months ago Mr Ramdas 
Nayak, local president of the 
right-wing Hindu Bharatiya 
Janata party and a strong 
critic of political corruption, 
was killed by gunmen using 
automatic rifles. 

Since then Mr Shared Pawar, 
the chief minister of Maharash- 
tra. has faced mounting criti- 
cism about the rise of violent 
crime in the city and growing 
evidence of ties between politi- 
cians and underworld gang- 
sters. 

Bombay plays a pivotal role 
in the the economies of both 
the state and the nation. Jt is 
India's busiest port handling 
nearly 25 per cent of total for- 


TRADITION 




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aoads ware named Calico. It became clear »iA mesB 


goods were named Calico” tt becamad^ mat 
fashionable. Even Oaresl Defoe conceded - the dkSKSTrlSSrt ^ *? XSfSHwT 
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So trust us, when it comes to cotton textiles. Our industry is backed by a wealth of 
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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


XVII 





INDIA 17 


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Jimmy Bums on the woes of the world’s second biggest rail network 


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I ndia’s railw ay system, the world's second 
largest, straddles the country liica a colos- 
sus. Without it, social and economic life 
would collapse. 

The railways represent India’s main 
form of transport, with annual passenger 
levels estimated at 3.7b a, and freight traf- 
fic, including essential commodities such 
as mineral ore, food grain, and fertilisers, 
totalling 362m tonnes in the year 1993-94. 
it is one of the world's largest single 
employers, with L6m on its staff. 

The mini ster for railways, C K Jaffa- 
Sh a rief . says that his main objective is “to 
provide an effective, dynamic, cost-effec- 
tive transport system which c a n serve as 
an engine for economic growth". 

But insuring that the railway system 
meets the demands of a growing popula- 
tion and an expanding economy is proving 
a formidable task for the state-owned Rail- 
ways Board, as it looks for fresh ways of 
finan cing its modernisation programme 
after having its budgetary support sav- 
agely cut by the central government 

A stark illustration of the kind of pres- 
sures feeing India's rail chferq jg provided 
by Delhi’s main railway station. Mr Para- 
jeet Kumar, the station master, contem- 
plates the whirlpool of humanity which 
daily builds up on his platforms, and the 
gradual encroachment by the slum dwell- 
ers who live along the railway lines. At 
the height of this autumn’s plague scare. 


passengers with their faces covered with 
handkerchiefs stood watching black rats 
scurrying over the lines. 

"We try and put on more trains every 
day but we stm don't seem to have enough 
to deal with the population. We need more 
stations, more lines, and greater capacity 
in our repair yards,” says Mr Kumar. 

The backbone of the nationwide modern- 
isation plan is an ambitious programme of 
conversion of 6,000 kilometres of track 
from metre gauge to broad gauge by 1097, 
to help meet an expected 25 per cent 
increase In freight traffic over the next 
three years. 

The programme represents the biggest 
single conversion programme carried out 
anywhere in the world during this cen- 
tury. and the biggest single project under- 
taken by Indian Railways since the first 
railway service got under way in 1857. 

India's vast network of metre and nar- 
row gauge lines has been carrying less 
freight traffic every year, causing heavy 
losses. As an alternative to providing 
funds for the continuing maintenance of 
the network, the current policy is to con- 
vert the more important metre gauge 
routes to broad gauge so as to introduce 
alternative routes for freight traffic, and 
obviating the need for the construction of 
new broad gauge lines. 

The conversion is aimed at accelerating 
the turn-around time of wagons, minim is. 


ing transhipment bottlenecks, and by so 
doing improving the overall operating 
ratio of the system, it is aimed at overcom- 
ing the sense of economic isolation felt by 
some parts of India which have been 
dependant on meter gauge. 

The gauge conversion will link mineral 
rich areas of India with production and 
consumption centres In other parts of the 
country. For example, the Jodhpur-Jaisal- 
mer area of Rajasthan with rich high qual- 
ity limestone reserves will be hnkwi by 
broad gauge route with other parts of 
India. 

As the minister Jaffer Sharief has put it: 
“The problem with the railways is that 
their line capacity is saturated...With 
gauge conversion, several alternative 
routes will become available fading to 
increase in line capacity. This will result 
in long-haul road traffic reverting to raiL" 

Another key plank of the modernisation 
programme is the Introduction of higher 
capacity trains and higher horsepower 
locomotives capable of handling more ton- 
nage and more passengers in less time. 

A controversial and long r unning debate 
over whether or not India should import 
high-tech locomotives has finally been 
resolved. Under a contract worth $L90m . 
Asea Brown Boven, the European engi- 
neering combine, will supply next year 33 
new generation micro-chip-controlled 
alternating-current engines. The contract 



iL- ssL 

Waiting patiently: woiicMjc passengers at a Mew DePti ragway station 


involves tr ansfe r of technology to facili- 
tate the development and construction of a 
further 30 similar locomotives In India, 
increasing to a production target of 150 by 
the year 2000. 

The controversy surrounding the award 
of the contract showed that despite the 
government's official commitment to eco- 
nomic liberalisation, doing business in 
India can still be fraught with problems. 

ABB, which has a large Indian affiliate 
employing 4,000, has been supplying 
Indian railways since the 1960s. But mem- 
bers of a government advisory committee 
lobbied actively against the award of the 
contract ostensibly on cost grounds but 
with the main intention of promoting 
India's own engineering industry. 

In its defence, ABB claims that the state- 


of-the art technology it is bringing, and 
which it wQI hand over to the I nd ie s has 
an energy conservation potential of 35 per 
cent, lower maintenance cost of up to 40 
per cent, and a higher turnaround that 
will increase the availability of locomo- 
tives by 50 per cent 

In addition it points out that the intro- 
duction of the locomotives will bring 
about a Tnnti-hmg modernisatio n of signal- 
ling and tolp rammmiiffatirt ns m and and 
around India’s railway stations. Only 10 
per cent of India's railway stations are 
currently semiautomated. 

Mr Viren Srivastava, a senior executive 
with ABB, says: *Ta India what is still 
important is to ensure that trains get to 
their destinations. We hope to ensure that 
It’s better to learn to walk before you can 


run.” Walking rather than running also 
means that the Indian government is 
unlikel y to embark on am ambitious pro- 
gramme of privatisation. Some free market 
economists believe Indian Railways is 
hugely overstaffed. One estimate is that 
the railways could be run more effectively 
with a third of the current staff. 

However, according to senior railway 
officials such an estimate ignores the huge 
political and social costs that the govern- 
ment would encounter were it to embark 
on a progr a mme of mass lay offs. 

In the current five year plan, which 
began in the year 1992-93, budgetary sup- 
port of Indian Railways has been cut from 
75 per cent of capital requirements to 19 
per cent. 

Over the last two years, both passenger 
and freight traffic revenue have been hit 
as a result of railway accidents and com- 
munal disturbances. 

To offset losses the Railway Board is 
planning to lease or sell some of its proper- 
ties, and tighten up on passenger and 
freight receipts. Meanwhile, it is extending 
an olive branch to the private sector while 
still holding on to its overall monopoly. 
Thus the operation of some tourist trains 
- the so-called palaces-on-wheels - are 
being put in private hands, while catering 
is being increasingly entrusted to private 
contractors. The private sector is also 
being given greater opportunity to adver- 
tise cm Indian trains. 

Such cosmetic changes may boost reve- 
nue, but may fell short of making the 
Indian Railways the self reliant and effi- 
cient transport agency its officials prom- 
ise. Within the context of India, it is never- 
theless near miraculous that railways 
function at all 


A s more than a dozen satellites 
swarm over Asian skies and India's 
television audience expands 
towards 150m households by Ok torn iff 
the century, international entertainment 
and media companies are mounting a 
space-age invasion of the country. 

These are all making plans to piggy- 
back Apstar n, a Chinese satellite that 
will centre its beam over Tndta, and some 
14 hew satellites to be operational over 
Asia by 1996. 

Together, the networks will challenge 
the near-monopoly that Star TV, the pan- 
Asian satellite network now owned by 
media magnate Rupert Murdoch, has 
enjoyed since it started beaming five 
riinwnelg to India in 199L 
Star’s supremacy in the region will also 
be challenged from an unlikely quarter. 
Doordarshan, India’s state-owned TV net- 
work, has an advantage over Star and 
other satellite networks because its mam 
channels are accessible through simple 
antennae and a base of 30m TV sets, giv- 
ing it a formidable reach of over 335m 
viewers. 

Doordarshan, managed by socialist- 
minded bureaucrats, accustomed to tak- 
ing gove rnm ent orders, was certain that 
Star would never be aide to match its 
reach, especially in India's vast rural hin- 
terland. .... - . 

Reacting belatedly, tire staid network 


’ .■a-!i:naii« a i L 


for the futut 


itaiism 


has launched an ambitious modernisation 
and expansion programme to increase its 
c ur re n t six channels to 21 in the next few 
years, and to bolster its flagging image. 

Competition has already done wonders 
for Doordarshan *s programming. When 
Star failed to renew its contract with 
MTV, Doordarshan moved in, to review 
two and a half hours of programming 
from the mnsic video channel on its metro 
channe l. The launch of a new “high-brow” 
channel with chat shows, and live news 
programmes from the biggest names in 
Indian journalism this October signals a 
welcome change. 

The decision to schedule MTV, which 
has become a metaphor for all that is 
“Western” (and thus "undesirable”), is an 
indication of how desperately it is trying 
to woo back the viewers It lost to Star. 

Star TV kicked off a cultural revolution 
of sorts when it started transmitting to 
India three years ago. Its five channels 
were a potpourri of entertai n ment, sports, 
news, and sometimes Chinese language 
programmes. Much of the p r ogramming 
made do sense to a majority of Indian 
viewers. But the network seriously under- 
min ed the Indian government's strangle- 
hold over telecasting, especially news. 

Embarking at around the same time ou 
its economic liberalisation programme, 
the Indian government was, on the one 
hand, encouraging the "foretan invasion" 


SATELLITE TELEVISION 


World media zoom in 
on 150 m households 


and the return of all things Western, and 
on the other battling clumsily to ward off 
what was derisively termed the "Coca 
Cola and MTV culture”. 

India’s new middle classes, an esti- 
mated 300m, were, for the first time, 
given a choice to view what they wanted 
- even if it was MTV - as opposed to what 
the government decided was best for 

thgiri 

The Indian government was particu- 
larly concerned about losing its grip on 
the news, whieh it had previously care- 
fully monitored and often short-sightedly 
censored. It began to see that Doordar- 
shan would no longer be the powerful 
political propaganda tool it was when its 
monopoly was unchallenged. 

The state network’s news bulletins were 
quickly upstaged by the BBC’s slick world 
service, with news on the bonr offered 
through the Star network. The govern- 


ment’s helplessness in the face of the 
alien invasion was highlighted when 
cable operators started offering PTV, the 
Pakistan television channel. 

Cable operators are hardly an anti-na- 
tional lot Many of them heed ed the gov- 
ernment’s pleas to stop PTV broadcasts, 
but others decided to defy the diktat and 
pander to the vast audiences for Pakistani 
soap operas. 


T he operators, mostly small business- 
men and shopkeepers who diversi- 
fied to take advantage of the new 
business brought in by Star, hook several 
households in a locality on to a satellite 
dish, for a small monthly fee (55810). The 
operators currently offer up to 20 chan- 
nels, but are gearing up to acquire more 
technical and sophisticated equipment to 
handle the 100-odd channels likely to be 
available by 1996. 


In September, the government promul- 
gated as ordinance in a belated attempt to 
regulate cable television. Under the Cable 
TV Networks (Regulation) Ordinance, 
cable operators must be Indian citizens, 
and foreign investors would have to limit 
their equity to 49 per cent The ordinance 
makwi it compulsory for operators to offer 
at least two Doordarshan channels, and 
empowers the competent authority to ban 
programmes “in the public interest". 

The new roles, however, do not apply to 
tiie programmes of foreign satellite chan- 
nels which are received without using 
specialised decoders. It is unlikely that 
networks like Star will do anything to 
antagonise the governments of the coun- 
tries they operate in, or the cultural or 
religious sensibilities of the people in the 
region, tor that matter. Which is why 
Turner Broadcasting Corporation will 
exclude Porky Pig from its daily cartoon 
channel to be aired in Indonesia, which is 
predominantly Moslem. 

Responding to tiie increasing need far 
locally customised p rogramming. Star TV 
split its beam on October 15 to provide 
two services, one to India and the Middle 
East and the other, to Greater China. It 
has also changed its programme schedule 
to suit the split market 

Star's chief executive Mr Gary Davey 
has indicated Hut there wfl] be a seven- 
channel package for India soon, with 


more live sports programmes and aggres- 
sive, more localised programming devel- 
opment 

Mr Davey, who is backed to the hilt by 
ins boss Mr Murdoch, plans to use the 
formula which turned around British Sky 
Broadcasting (BSkyB), to Increase Star's 
fla g gin g revenues. The difference in pro- 
gramming is already evident When Star 
foiled to renew its contract with MTV, it 
launched Channel V, a 24-hour mnsic 
video network laced with Hindi and other 
Asian languages. The new channel has a 
nine-bour-a-day window for !"*'»" audi- 
ences, and aims at 50 per cent local pro- 
gramming. 

And Star’s newest venture wfil be a 
tie-up with Zee TV, a Bombay-based Hindi 
language ritaimal — winch Star relays and 
part-owns - to create additional program- 
ming, and a second Hindi channel from 
India, star launched its 24-hour movie 
rihnwnal, India's first pay channel in Octo- 
ber. ft has yet to catch on, but the net- 
work hopes to offset some of its losses 
through the pay channel. 

With the cost of running the network 
ggflmated to be $l50m, and a very real 
threat to Star’s dominance in tiie region 
looming large, the network is working 
overtime to keep Its Indian viewers 
hooked. 


Shiraz Sidhva 




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XVUI 


FINANCIAL TIMES TUESDAY NOVEMBER 8 




The press flourishes in a babel of languagues, says Alexander Nicoll 


INDIA 18 


r. ^ 



Organs of democracy 


About 20m newspapers are sold in India 
every day. This may seem small In rela- 
tion to a population of some 900m, but it is 
still a lot of newspapers, and the total is 
growing. 

The market is diverse, intensely compet- 
itive and, for successful proprietors, highly 
profitable. 

In Maharashtra, the state of which Bom- 
bay is the capital, 62 daily newspapers are 
published, with a total circulation of more 
than 3m, according to Indian Newspaper 
Society figures. More than half of these 
publications are in Marathi, the most com- 
monly spoken local language, but there 
are also da il i es in Gujarati, Hindi, Sindhi 
and Urdu as well as English. A dozen 
Rn gj Ish-lang ua g v dailies are available In 
New DeQiL 

Overall, India boasts 369 daily newspa- 
pers in a total of 18 languages. Add to that 
a vibrant magazine market the fortnightly 
India Today, for example, publishes edi- 
tions in five languages with a total cir- 
culation of around 1m. 

Although the biggest selling newspapers 
are mostly in local languages, these In 
English tend to attract more advertising 
and thus to be more profitable. Increas- 
ingly, the trend has been for one English- 
language newspaper to win dominance in 
each indiv idual city, and thus to be a 
strong cash producer for its owner. 

The Times of India, for example, com- 
mands the market In Bombay but its des- 
perate efforts have faded to dislodge the 
Hindustan Times from the top position in 
New Delhi. The Daxan Chrornde controls 
Hyderabad, the Deccan Herald dominates 
in Bangalore, and the Hindu in Madras. 
Calcutta has seen a fierce battle between 
the Statesman and the Telegraph, with the 
latter recently seeming to emerge on top. 

Cutting across the trend in general 


interest dallies, newspaper groups have 
been seeking to establish broad nr national 
markets for business dailies. Most success- 
Ail has been the Economic Times, pub- 
lished like the Tones of India by by Ben- 
nett, Coleman & Co. ft prints in six centres 
and has an aggressive pricing policy. 

newspaper editors feel, however, 
that the American-style trend towards 
dominance of single newspapers in cities 
has been at the expense of quality and 
independence. Increasingly, the propri- 
etors style themselves as the editors of 
their newspapers. Nevertheless, many 
newspapers are fttll of irreverent comment 
a nd incisive reporting. 

Confidence in the industry’s prospects is 
underlined by the fact that new publica- 
tions are constantly being launched. Most 
recently, the Madras-based Hindu has 
begun a business newspaper. Business 
Line, and Mr MJ. Akbar, formerly editor 


Confidence in the industry's future 
is underlined by the fact that new 
tides constantly appear 


of the Telegraph, has founded the Aston 
Age, which has the innovative twist of 
being printed in both Delhi ami London. 

Given this editorial and commercial vig- 
our, it is surprising to find sections of the 
Indian press so fearful about the possible 
lifting of a ban on foreign companies own- 
ing equity in the Indian media. They are 
worried that the Indian press will be 
swamped by foreigners and that Indian 
culture and sovereignty will be under- 
mined. 

The issue has been stirred by the plans 
of several foreign groups to invest in 
India. The Financial Times proposes to 


establish a joint venture with Ananda 
Bazar, a Calcutta-based group which pub- 
lishes the Business Standard newspaper. 
Time Warner of the US wants to publish 
an Indian edition of Time magazine in 
collaboration with Living Media, publisher 
of India. Today. 

However, all such proposals are on hold 
because of the ban on foreign ownership 
im pnsftd by prime mfniatgr Mr Jawaharlal 
Nehru in 1955. Mr P.V. Narasimha Kao, 
the present prime minister, indicated 
that he favours lifting the ban in hoe wttb 
the government’s liberalisation of other 
industries. But he clearly wishes for a 
public debate to be played out first 

Supporters of the ban see Indian politics 
rapidly being affected by foreign interests 
if it is lifted. Frontline, a left-wing maga- 
zine, argued in September that if foreign 
media were allowed entry, “the propa- 
ganda role played by the press in India 
will become much more emphasised, given 
the ideological and political agenda of 
these powerful transnational interests". 

Although the government is seeking to 
keep the issue out of parliament on the 
grounds that the ban was an executive 
decision, there has been lively discussion 
in parliament. Mr Chandra Shekhar, a for- 
mer prime minister, said in August "The 
entry of foreign newspapers would strike 
at our civilisation, our culture, our tradi- 
tions, our politics, our freedom of expres- 
sion.” 

Mr Jaswant Singh, deputy parliamen- 
tary leader of the opposition Bharatiya 
Janata Party, wrote that foreign media 
"cannot improve the quality of our print 
media, our newspapers, oar magazines, 
journals or periodicals in any significant 
manner. They will, however, constrict the 
existing cultural space of India.” 

That the ruling Congress party was 





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Hungry far the latest news and commentary, fin an c i al newspapers on srfe outside (he New Deflri stock exchange 




divided on the issue became clear in 
August when Mr Ghandnlai Chandrakar, a 
former journalist who is now the party's 
spokesman, said in parliament that "if the 
foreign newspapers come here there will 
be pressures on us every day. It is there- 
fore my ardent plea that there is no need 
to invite foreign newspapers and their pro- 
prietors to India” 

However. Mr Chandrakar made an 
embarrassing about-face when he 
announced a few days later that party 
committees studying the issue had deter- 
mined that foreign entry would do no 
harm. "After careful and detailed study of 
the newspaper scenario in the country and 
the changes in the environment it is felt 
that the Indian press can successfully 
compete with the foreign press and no-one 
should object to its entry slowly and grad- 
ually." 


Commentators who favour lifting the 
ban point out that foreign newspapers are 
already freely available in India and that 
Indian newspapers make liberal use of 
copy syndicated by foreign publications. 
Millions of Fnrifawg tune in daily to Star 
Television, owned by Mr Rupert Murdoch, 
particularly its Hindi language channel. 
Zee TV, of which Mr Murdoch owns half. 

It is also argued that foreign companies 
could wait a long time to earn a return on 
their investments given the already 
intense competition - especially on price - 
in the Indian market. 

However, emotional arguments stressing 
the specialness of the "fourth estate" have 
been stirred by the Indian media groups 
which feel vulnerable to foreign entry. 

Mr M J Nanporia, a veteran former 
newspaper editor, wrote in the Indepen- 
dent that arguments were essentially 


baseless. There had been, he said, a "delib- 
erate creation of a fear which would not 
otherwise exist". The suggestion that 
Indian culture was so fragile was a deni- 
gration, not a defence, of India's tradition. 

Mr Nanporia argued that the idea that 
the nation ’ needed protection from a free 
flow of information and opinions was the 
basis of the 1955 ban but was incampatihte 
with economic liberalisation. 

Other commentators argue that Indian 
newspapers, which have argued for liberal- 
isation in other industries, should not seek 
protection for themselves. Mr Sunil Sethi, 
a columnist, noted that foreign Investment 
had pushed Indian industry to compete. 
"To now stand up and say that the advent 
of foreign newspapers will subvert India's 
future is a huge betrayal of national 
self-confidence or the spirit to excel. Who's 
afraid of competition?" 


' j - 




Shiraz Sidhva considers India’s sensitivity over charges of human rights abuse 


Vicious circles of violence 



Poflce in Bombay urtan terrori sm to an unpleasant new realty 


Mr Shankarrao Chavan. 
India's Home minister, is 
indignant when questioned on 
India's human rights record, 
particularly if the criticism 
cornea from international 
human rights gro u ps. 

"This is port of a disinfor- 
mation campaign by Pakis- 
tan," he says dismissively. 
"We have a very long tradition 
of tolerance. The attack on onr 
human rights record Is coming 
from across the bonier - they 
should examine their own 
record first, and stop aiding 


In India, Attention To Detail Leads 
To Lasting Achievement. 


l-*A 








terrorists here." India's 
human rights record bas taken 
a battering in the last decade, 
mainly because Pakistan has 
worked at internationalising 
the dispute over Kashmir. 
Reports of the excessive use of 
force, particularly against 
armed insurgencies, in Punjab, 
Kashmir , and the North-East, 
have tarnished India’s image 
considerably. 

Earlier this year, top diplo- 
mats and politicians worked 
overtime to salvage India's 
reputation as one of tbe 
world's greatest democracies. 
One issue on which the ruling 
1 Congressff) party and Indian 
| opposition parties are agreed 
is that Pakistan's attempts to 
I discredit India at international 
fora have to be countered 
effectively. 

“The best way to counter 
what the Indian government 
calls Pakistani propaganda 
would be to improve the situa- 
tion In Kashmir," says Mr 
Abdul Ghani, a leader of the 
All-party Hurrtyat Conference, 
an umbrella organisation of 
political parties in Srinagar, 
Kashmir’s capital. "But there 
are killings and torture in cus- 
tody every single day, there 
are rapes of our mothers and 
sisters, and there are disap- 
pearances, with young boys 
being locked np in jail for 
months without trial. And 
India calls itself a democracy!" 

Pakistan, which has fought 
two wars over Kashmir with 
India, and has itself been 
accused of arming and insti- 
gating separatists io Punjab 
and Kashmir, threatened to 
introduce a draft resolution at 
the UN Homan Rights Conven- 
tion in Geneva this March. But 
the hotly-contested draft was 
dropped at tbe last mlnnte, 
and India won a temporary 
reprieve. 


from the governments con- 
cerned. Organisations such as 
the New York-based Homan 
Rights Watch/Asia and the 
Boston-based Physicians for 
Unman Rights or journalists 
and other individuals not seek- 
ing formal permission have 
never been stopped. "India 
genuinely upholds democratic 
values," says Mr Rajesh Pilot, 
minister of state for Home 
affairs. “But sometimes things 
do happen here that are 
beyond onr control." 

"Over the decades, a pollti- 


The commission on human 
rights set up last year has 
been described as a 
Toothless watchdog’ 


The government says that 
India's tradition of 
tolerance is undermined 
from over the border’ 



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But human rights violations 
continue unabated. Tbe US 
Human Rights Watch, in a 
report released in September, 
urged potential arms suppliers 
to “pay close attention to the 
government’s record in Kash- 
mir and Punjab, since it is in 
these states that government 
forces have committed some of 
the worst and most regular 
violations of human rights and 

h m.imiii bi Wflw IflffS" - 

"It’s no use If India concen- 
trates on diplomatic games 
instead of actually improving 
its human rights record," 
admits a senior Home ministry 
official "Even when there is a 
political will to to enrb 
excesses, we find it impossible 
to combat an insurgency situa- 
tion without force, especially 
with Pakistan pumping in 
money and guns to fuel the 
mflttancy. w 

India has always maintained 
that its democratic systems 
adequately monitor its own 
human rights record. It has 
consistently refused permis- 
sion to Amnesty International 
to visit Punjab and Kashmir. 
But Amnesty's problem of 
access has more to do wttb its 
own rules, which do not allow 
fact-finding teams to visit 
countries or trouble-spots 
without formal permission 


cal culture inimical to human 
rights achievement has devel- 
oped." explains Mr Upendra 
Baxi, professor of law and for- 
mer rice-chancellor, Delhi Uni- 
versity. 

"The impunity of leading 
political players, who defy 
even the criminal law of the 
land; the nnredressed despotic 
use of public power; abuse of 
national security laws; regime- 
tolerated or sponsored vio- 
lence victimising hapless citi- 
zens; torture and inhuman 
treatment in penal institu- 
tions; the excessive use of fetal 
force or ’encounters’; custodial 
assault or violence against 
women and tbe abuse of dis- 
cretion to prosecute are all 
manifestations of this." 

Tired of the constant criti- 
cism, tbe Indian government 1 
appointed a National Human , 
Rights Commission last year, i 
The Commission, headed by a i 
former chief justice of the 
Supreme Court, has been 
accused of being a "toothless 
watchdog”. Excluded from its 
purview are tbe armed forces 
and the paramilitary, against 
whom grave allegations of 
excesses in Kashmir, Punjab 
and the North-eastern states 
have been made. This has 
eroded the Commission’s 
authority to conduct indepen- 
dent investigations of h uman 
rights abuses. 

The Home minister says that 
this is done to protect the 
morale of the armed forces, 
already operating under exten- 
uating circumstances. "We are 
forced to take extraordinary 
measures in ex t r ao rdinary cir- 
cumstances,” says Mr Chavan, 
defending the government’s 
refusal last month to with- 
draw the Terrorist and Disrup- 
tive Activities (Prevention) 
Act (TADA). in the face of 
strong criticism at home and 
abroad. 

Introduced in 1985 to com- 
bat terrorism in Punjab, 
TADA provides for special 
"designated” courts with 
severely curtailed rules of pro- 
cedure, reducing tbe rights or 
the accused, and reversing tbe 
burden of proof on to the 
accused. TADA prohibits bail 
and allows tbe death penalty 
to be imposed for certain 
offences committed by "terror- 
ists" - a term so broadly 
defined that it may include 
people who non-violently 
express their political opin- 
ions. 

The Act also permits “con- 
fessions" to the police as evi- 
dence, legalising torture in 
custody. In September 1991, 
paramilitary forces burned 


down rows of wooden houses 
destroying entire villages in 
rnnl Wnahwiir because TADA 
empowered them to destroy 
any structure used to shield 
terrorists. 

This year, the government 
was forced by human rights 
activists and politicians to 
review the Act, which has 
been termed "draconian". But 
tiie Supreme Court validated 
the Act in March because of its 
stated objective of dealing 
with terrorism, and the Home 
minister ruled out its repeal 
last mouth, 

"TADA has no place in a 
democratic society, it is tailor- 
made for abuse," says Mr Ravi 
Nair, executive director of tbe 
Sooth Ana Human Bights Doc- 
umentation Centre. "TADA is 
more deadly titan any law 
imposed during the South 
African or Pinochet regime (in 
Chile].” 

Recent studies have revealed 
that out of 47,434 cases regis- 
tered undo: TADA till March 
this year, not a single individ- 
ual involved In a terrorist act 
has been convicted so far. The 
only convictions have been for 
illegal possession of arms. 

One reason why TADA has 
failed to combat terrorism is 
that it cannot counter the fear 
of terrorists among witnesses, 
prosecutors and even judges, 


who have been known to lei 
off offenders in the face of 
glaring evidence. 

In Gujarat and Tamil Nadu, 
where there have been few ter- 
rorist iaridents, tile Act has 
been widely misused to sfle nre 
political opponents. It has also 
been used to harass members 
of the minority Moslem com- 
munity, or even to settle land- 
lord-tenant disputes. In some 
states children, and even 
mothers of suspected terrorists 
have been locked up without 
trial. " 

Mr Chavan says he has writ- 
ten to chief ministers in all 
Indian states a«Mng them to 


review TADA cases and ensure 
that there is no misuse. *UltP 
mately, tbe Centre can’t do 
anything, because jurisdiction 
bas been given to the states to 
tackle an extraordinary situa- 
tion.” 

The National Human Rights 
Commission has strongly 
opposed tbe Act Justice Ban- 
ganatfa Misra, its chairman, 
has asked for the Act to be 
repealed, and is filing a review 
petition at the Supreme Court 
challenging the Act’s constitu- 
tional validity. 

"India will never be able to 
better its human rights record 
if it continues to accord impu- 
nity to those in power.” says 
Mr Nair. 




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pjr 

if Foreign brands move in, writes Naazneen Karmali 

Coca-Cola is back 


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Foreign goods, once debarred 
by the government, are swamp- 
ing Indian stores. 

Liberal policies have 
attracted hordes of multina- 
tional companies to this vast 
market. Though imports of 
consumer goods remain 
restricted, these multinationals 
are banking on India’s middle 
class of 200m people and their 
fascination with Western prod- 
ucts and foreign labels. Some 
companies have discovered 
that the shortest route to reach 
potential consumers is to buy 
up local competition. 

Coca-Cola chose to enter 
India this way. in September 
1993 it paid $4&n for the trade- 
marks of Parle Exports, a pri- 
vate company in Bombay. 

Parle's 60 per 

cent market 

share in the *1® ©3Qt 
Indian soft the real t 
drinks industry - 

could have * r 

been a signifi- 
cant entry barrier. Instead, 
Coke became market leader 
overnight by acquiring Paris's 
business of 60m cases annu- 
ally. 

Ironically, Parle owed its pre- 
eminent market position to 
Coca-Cola. In 1977, following 
the government’s policy 
restricting foreign ownership 
of companies to 40 per 
Coca-Cola had shut down its 
Indian operations. Coke's 
departure created a vacuum in 
the market that Ur Samesh 
Chauhan of Parle moved in to 
fill with his cola concoction 
branded Tlxums Up. 

Sfripa thgn j Mr Chauhan h«d 

defended his brands staunchly 
against competition. PepsiCo, 
which entered India four year 
ago, had to fight Ur Chauhan 
every inch of the way to get to 
the number two position. 
Being a shrewd businessman, 
Mr Chauhan negotiated with 
both Pepsi and Coke before 
seQmg out to the highest bid- 
der. 

Mr Jaydev H. Raja, Coca- 
Cola India's president, says 
that “India was one of our last 
major frontiers. The question 
was always when, not it" 

Originally a resident of Bom- 
bay, Ur Rqja joined Coca-Cola 
15 years ago. Hie was sent from 
Coke's headquarters in Atlanta 
to lead the comeback into 
India. In 1992 the company 


announced a joint venture 
with a non-resident Indian 
businessman. That plan was 
later abandoned in favour of a 
100 per cent subsidiary. 

The government approved 
Coke's proposal in June 1993, 
allowing it to set up a blending 
plant at Pune in the state of 
Maharashtra. Pepsi’s project in 
comparison, approved before 
the regulations were eased, 
was weighed down by export 
commitments and other condi- 
tions. 

Apart from brands, the Parle 
deal provided Coke instant 
access to an existing infra- 
structure. Now 58 bottlers, all 
formerly with Parle, have 
exclusive licensing arrange- 
ments with Coke. The bottlers 


The eagerness of consumers to sample 
the real thing has ensured a high level of 
interest in the initial trials 


have had to invest in upgrad- 
ing their production facilities 
and in new "glass float" - 300 
ml refiUable Georgia green 
glass bottles especially 
designed by Coke. Carbonated 
drinks in India are sold not in 
cans but bottles, which, when 
empty, are returned to the 
local bottling company. 

Since Its first launch a year 
ago in the northern city of 
Agra, Coke has rapidly 
extended its presence to eight 
other cities. 

Shortly after the Agra 
launch, crates of Coke found 
their way into the “grey" 
market in Delhi where they 
were sold for a 100 per cent 
premium. 

The curiosity of consumers 
to taste the real thing has 
ensured high initial trial rates. 
By convincing bottlers to trade 
off an erosion in margins for 
higher volumes, Coke (fibred a 
300 ml bottle for Rs5 as against 
Pepsi’s 250 ml serving priced at 
R&50. Mir Rqja says that this 
more-for-less pricing strategy 
wfll drive sales forward in long 
term. 

The biggest problem in this 
business is breakage and 
pilferage of bottles which 
reduces the glass float with 
bottlers. Coke tackled this by 
substituting Parle’s shallow 
wooden crates with full depth, 
stackable plastic crates which 


cover the bottles to the crown. 
Old rack body trucks were 
replaced by a fleet of closed 
trucks that allow pallet 
loading. A fleet of 6,000 
pushcarts and tricycles 
mounted with bright red 
umbrellas are taking Coke into 
congested city areas. These 
measures will make 
distribution quicker and faster, 
says Mr Raja. 

A year end stocktaking 
shows that Thums Up 
continues to be market leader 
in the cola segment and Coke 
has sold an estimated 7.5m 
cases. Though competitors 
have often accused Coke of 
buying Thums Up only to kill 
it, Mr Rqja says that Thums 
Up's unique spicy taste has its 
own following. 

■» eamnlo Coke is als0 

5 Sample planning to 

[h level of launch Fanta 

i c and Sprite 

shortly. 

Pepsi has 
countered Coke energetically. 
It ha s installed 3,500 fountains 
in major towns to increase its 
retail presence. It has offered 
price cuts, special deals and 
free offers from time to time. 
Pepsi has also taken over 
Dukes. a regional 
manufacturer in Western 
India, thereby boosting its 
market share from 26 per cent 
to 34 per cent. 

AH this competitive activity 
will expand the market, says 
Mr PM S tate, chief executive 
officer, Pepsi Foods. The 
market growth rate is expected 
to step up from 5 per cent to 15 
per cent annually. Since Coke's 
la unch, thp industry’s animal 
sales have risen from 110m 
cases to 120m cases. 

Both companies see an 
enormous potential. Indians 
are poor consumers of fizzy 
drinks, with annual 
consumption being three 
servings per person. In 
neighbouring Pakistan, per 
capita consumption is four 
times as much. 

Mr E. Neville IsdeH, senior 
vice president Coca-Cola 
Company and president. 
Northeast Europe and Middle 
East group, says that the key 
to building market share is 
growing the market. “We're 
looking for incremental growth 
on top of the brands that we've 
acquired”, he says. 


Madhya Pradesh is flexing its industrial muscles, writes Gordon Cramb 

Some places feel like Japan 


!» 



In his office, 
Honda’s Mr H 
Masnda dis- 
penses green 
tea. He wears 
a white uni- 
form, as does 
everyone else 
at this scooter 
manufacturing 
plant. Compul- 
sory morning exercises are 
followed by group production 
wiPoHnga- The company union 
avoids strife and is nnaffi- 
liated to any umbrella labour 
organisation. 

Apart from the complexion 
of his fellow-workers, only 
two things belie the fact that 
this could be Japan: the rela- 
tive lack of automation in the 
assembly process, and the 
handle on the colonial-style 
teacup. 

Mr Masnda is on second- 
ment as technical director of 
Kinetic Honda, 51 per cent 
owned by the Japanese auto- 
motive group. Its factory is at 
Pithampur, an Industrial zone 
in the central state of Madhya 
Pradesh which lays claim to 
be the Detroit of India. 

The title is presumptuous, 
as no cars are produced there. 
Bnt Hindustan Motors has a 
plant for passenger vehicle 
engines, and Mitsubishi oper- 
ates a joint truck making ven- 
ture. Officials say it and 
Volkswagen of Germany are 
seeking land for possible car 
assembly. 

Pithampur, near the com- 
mercial centre Indore, is one 
of two dozen growth areas 
designated by the Madhya 
Pradesh government with the 
aim of promot in g industry in 
backward parts of the coun- 
try’s biggest state. Others 
include Mandideep, on the 
outskirts of the capital Bho- 
pal, from where Procter and 
Gamble of the US supplies the 
Indian market with Ariel 
washing powder. 

Progressive state govern- 
ments in India are competing 
fiercely for new investment, 
domestic and foreign, with 
packages of incentives and 
concessions. In the case of 
Madhya Pradesh these offer a 
holiday from state commer- 
cial taxes of up to seven 
years, and single-window . 


clearance of projects to expe- 
dite approvals. 

Another main thing Mad- 
hya Pradesh can provide is a 
central location, with road, 
rail and air arteries reaching 
each of the biggest dties in 
roughly equal time. But its 
position fas the region's publi- 
cists would hare it) “at the 
heart of India" is also a draw- 
back: the state is landlocked. 

Undaunted, the AVN, the 
industrial development corpo- 
ration, is seeking to bny 


fl 


.w 

Li* 


Congress Chief minister Digvfjsy 
Singh Picture: Rafcash Sahai 

waterfront land in Gujarat to 
the west in order to build a 
deep-water jetty. This it 
believes would stimulate an 
edible oils industry in Mad- 
hya Pradesh based around 
soyabeans, of which the state 
accounts for 80 per cent of 
Indian production. Most out- 
put is sold as cattle feed. 

Through similar interven- 
tions the state authorities 
have restored an air service to 
centres abandoned by Delhi’s 
government-owned Indian 
Airlines - taking a stake in a 
private carrier with the 
requirement that ft include 
specified destinations - and 
built India's first toll road as 
an alternative to the pitted 
national highway which 
serves Pithampur. 

Poor roads and power short- 
ages are, as elsewhere in 
India, the two handicaps most 
frequently cited by business- 
men. Export-oriented indus- 
tries enjoy a protected elec- 


tricity supply and Mr S K 
Jain, president of Indo Rama 
Synthetics, an Indonesian- 
controlled spinning mill 
which employs 1,850 in 
Pithampur, says that “in 
three years we have not shut 
down once because of a power 
cut". 

Bnt he adds that Us parent 
company has chosen a site 
near Bombay in Maharashtra 
state for its newest facility 
because of easier access to a 
port 

A state industrial policy set 
ont in May acknowledged that 
"accelerating the pace of 
development requires the 
expansion and strengthening 
of infrastructure" and that 
this necessitated private sec- 
tor involvement To this end, 
Bhopal’s budgetary allocation 
for industry is planned to rise 
to 7 per cent from 4 per cent 
over the next two years. 

In frying to close the gap 
with Maharashtra and Guja- 
rat its two main rivals, the 
state’s extra spending is 
intended to bring in private 
capital rather than create 
public sector employment If 
the government sets up indus- 
trial projects on its own “we 
are not going to be very effi- 
cient” says Mr M P Raj an, 
managing director of the 
AVN. 

Uniquely, be couples this 
bureaucratic role with that of 
Madhya Pradesh president of 
the private-sector Confedera- 
tion of Indian Industry. “No 
other state would allow tins.” 
he says. “The government 
doesn't even mind if I criticise 
their policies.” Ultimately he 
wants to shift majority con- 
trol or the AVN itself into pri- 
vate hands 

Madhya Pradesh has its 
share of state industries, some 
of relatively recent origin, for 
which new roles need to be 
found. 

There are, for example, no 
plans to privatise Optel, set 
up in 1989 as an integrated 
maker of telephone cable, 
optical fibre and telecoms 
eq uip me n t, but it is seeking 
joint ventures with Japanese 
industry majors. 

The present Congress party 
government headed by Mr 
Digvfiay Singh, chief minis- 


I 


ter, came to power in elec- 
tions last December after 
Delhi ended a troublesome 
period iff rale by the Hindu 
militant Bharatiya Janata 
party. Unlike leaders of sev- 
eral otter states, Mr Singh is 
stiff a full four years from the 
next polling day and can 
shape economic policy with- 
out looming electoral consid- 
erations. 

While accepting that new 
private investment is likely to 
become increasingly capital- 
intensive, he stressed in an 
Interview that “wherever gov- 
ernment comes in, we would 
rather have it labour-inten- 
sive’'. 

However, Mr Singh, a 47- 

Mr Singh claims to 
favour a ‘massive dose 
of in f rast r ucture 
privatisation 1 

year-old engineer, said he sup- 
ported “a massive dose of pri- 
vatisation in infrastructure” 
which would help the govern- 
ment maintain social spend- 
ing while increasing the pro- 
portion of the budget devoted 
to industry. 

Madhya Pradesh has lower 
literacy levels and higher pov- 
erty and infant mortality 
rates than the Indian average. 
It also remains less urban- 
ised. The European Union is 
the main hacker in a primary 
education programme for 
deprived areas of the state 
which will be worth some 
Rs7bn over seven years, the 
largest such scheme in India. 

But another large scheme, 
from which multilateral 
donors have withdrawn back- 
ing, threatens to cause 
unprecedented upheaval to 
rural communities. 

The chief minister reaf- 
firmed his government’s com- 
mitment to the Narmada Dam 
project which wOl flood vast 
tracts of the south of the 
state, saying only that ft was 
“only hesitating on the issue 
of lowering the height” of the 
dam wall. Such a reduction, 
he indicated, could reduce by 
at least a quarter the 200.000 
people who would be uprooted 
while losing a rather smaller 


fraction of the expected gener- 
ation capacity for hydroelec- 
tric power. His figures are not 
far out of line with those died 
by local aid agencies, but they 
argue that the greater clout of 
Gujarat and Maharashtra, 
which are to share in the proj- 
ect while avoiding most of the 
resettlement problems, would 
mean that their wishes were 
more likely to prevail. The 
World Bank pulled out after 
campaigners highlighted 
social aspects of the project 

Narmada, if it is a disaster, 
is at least one the locals can 
see coming, and one which 
was decided by their politi- 
cians.. That was not the case 
nearly a decade ago when a 
leak of poisonous gas from 

the US-controlled Union Car- I 

bide factory in Bhopal killed j 
thousands of mainly slum- . 
dwellers and hardened atti- 1 
tudes across India against 
multinationals. In September, 
amid a mass of litigation, a 
takeover by domestic Inter- 
ests was finally agreed. 

Social and environmental 
questions will also surround 
future foreign involvement 
particularly in the energy and 
mining sector, where de Beers 
of South Africa is poised to 
land diamond exploration 
rights over as much as 20,000 
sq km in an eastern area of 
the state with a large tribal 
population. 

The state has other miner- 
als such as coal and iron ore, 
but these areas are largely 
coterminous with forests. Per- 
haps conveniently, forestry 
and mining fall under the 
same ministry in Bhopal. 

The government is frying to 
dose toe state mining corpo- 
ration. though arranging toe 
transfer of workers has been 
slow. 

Long-term contracts to sup- 
ply iron ore to Japan are 
being wound down as the 
recession in that country has 
reduced demand for steeL 

Demand for Kinetic Honda’s 
scooters has brought large- 
scale export orders from as 
far afield as Mexico and Tur- 
key. As Mr Masudah and his 
local colleagues sip their tea, 
Madhya Pradesh is fry ing to 
offer other foreign investors a 
handle an India. 


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XX 




Married life is not what it used to be, writes Shiraz Sidhva 

Bedroom farce or tragedy 


Hie wealthy middl e class, at the heart of 
India's emergence as (me of Asia's most 
promising markets, are finding it hard to 
reconcile the flashy images on their televi- 
sion screens with the traditions and values 
they have inherited. 

As this group of an estimated 250m 
urban Indians is remorselessly targeted by 
business houses ter its purchasing power, 
it ia undergoing dramatic social cha ng es , 
and marriage and the family are coming 
under increasing scrutiny. 

“Urban Indians are going through a 
p hase like that the West experienced In 
the 1970s." says Ms Sheela Batra, a sociol- 
ogist at Delhi University. “Family values 
are last eroding and marriages are not 
longer sacrosanct as they used to be, even 
10 years ago." 

But look through the matrimonial classi- 
fied ads in Delhi's two leading newspapers 
on Sunday, a nd you would think that the 
more things change the more they stay the 

samp 

The Times of India and the Hindustan 
Times, those venerable papers locked in 
price wars and circulation-boosting 
gimmicks, have changed the format of 
their most-read pages, ostensibly because 
readers have limi ted time and would 
prefer the paper to offer them brides and 
grooms m ade to order under the desired 
heading. 

Caste considerations may have receded 


in “modem" urban India, but traditional 
systems of segregation have given way to 
others in the new market economy. 
Business women, bank officers, 
bureaucrats end nonresident Indians all 
come neatly packaged under different 

headings. 

Bead the fine print, and you see a 
iwfwhMit dwnawd for husbands who are 
engineers, chartered accountants, doctors, 
civil servants, employees of foreign banks 
anH multi nationals , masters of business 
administration, those with five-figure 
salaries. 

They must also, of course, be handsome 
and, better still, non-smoking tee- to tellers 
from cultured families. 

Those hunting the ideal woman 
frequently specify that beside being fair, 
slim, beautiful, tall, sweet-tempered, 
well-mannered, sober and homely, she 
should also he a convent-educated virgin! 

Money is always a great leveller. A 
tether who wants his less-tban-immaculate 
daughter to tie the knot merely has to say 
that he is willing increase the dowry and 
the imperfection wQl be overlooked. 

With increased consumerism come 
hig iipr itonyinds for dowry, and there are 
“fixed rates" for grooms of different 
professions. Working women are now 
more acceptable as potential brides than 
in the past 

“A working woman is tike a goose who 


continues to lay golden eggs, and is now a 
more attractive proposition than a woman 
who brings a one-time dowry,” says Ms 
Madhu Jain, a senior editor with India 
Today, who writes on changes in Indian 
society. 

“As more women enter the workplace, 
mar riages are undergoing strains not 
experienced even 10 years ago," says 
Sheela Dutta, a marriage counsellor. “It’s 
not as if the stress is confined to a new 
generation - some of my clients have been 
married for over 20 years." As age-old 
social structures such as the Joint family 
collapse, roles within the home are no 
longer well-demarcated. 

“Many couples have a problem resolving 
the power issues," explains Dr Blndu 
Prasad, clinical psychologist and family 
therapist “There are invariably problems 
when the famili es of the husband and the 
wife don't match, or have strong cultural 
differences. While building up a new unit 
comprising husband and wife they have to 
work out a system separate from their 

families- " 

Dr Prasad finds that a lot of problems 
stem from the fact that Indians are 
over-attached to their parents. “Women 
are asserting their individuality and 
demanding more rights, while men are 
finding it hard to accept that their wives 
are increasingly less like their mothers ” 
adds Dr Prasad. 



South Imfian wedding: parents have a Mg say Picture; Images of ta«a 


Mr Anand Grover, a Bombay lawyer 
whose firm represents only women in 
divorce cases, is more specific. “Indian 
men are male chauvinist pigs. They have 
not been able to accept that women are 
going to work or come to terms with the 
new woman." 

He adds that divorce is no longer the 
dirty word it used to be even a decade ago 
and that, although statistics are not easily 
available, divorce cases in Indian courts 


have increased d ramatically over the last 
decade. 

The “new Indian women" - and the new 
m an - belong to the English-speaking 
urban elite, and come to terms with 
di v or ce in much the same way as couples 
in the West do. 

Most mar ital breakdowns are terribly 
boring and have nothing specifically 
Indian about them. But there are also local 
features such as the tragic recent case of a 


wrong mother of three, who cfed oUflO per 
Sot burns. The police, writing off f ter. 
death a 5 an accident, said it was not their 
to investigate State ofj * fed 
woman's marriage where die had been 

married far more than seven years. 

Shewas an example of a wormm caugti 
in the web between tradition and 
modernity. She was educated enough to - 
leave her family in the countryside to 
come to Delhi and live with the m an she 
loved, but she missed tim security she ^ : 
an arranged marriage would ngve .. 

PZ She^efied her mother-in-law and' 
insisted that she and her husband have a : 
senarate home. Even though her husband- 
battered her, she felt obliged to defend ; 

^Her death recalled the in vestig ation 
carried out by women's rights grom& and . 
later the police, into a spate of cases in the 
early 1980s in which wives died by. fire m 
their homes. „ . , . 

friflian women who cannot afford to use 
gas, cook on kerosene stoves on the floor, 
awi sometimes their clothes ca t c h, fire or ■ 
the stove explodes and they die. 

What emerged was that in several cases 
the fatal fires had been caused by the 
woman's husbands, (often with the help of 
the husband's families), who thereby 
became free to marry again for another 
dowry. While there was no suggestion that 
she had died in tins way, there was ho 
evidence that her husband had tried to 
save her life. 

“Ours was a love marriage," she once 
told a friend. “I made a mistake not 
mar ryin g- the man my parents chose for 
me. This way I expected too much, and % 
that's why Igot so little." 











& 


F or the first time in decades, Indian 
hoteliers were pleasantly surprised 
to see roam occupancies soar in the 
s umm er in spite of inhospitable tempera- 
tures, writes SHIRAZ SIDHVA. 

Hotels in the main metropolitan centres 
have traditionally suffered room gluts 
between April and August This year they 
were so full that they withdrew the usual 
off-season discounts and had to turn away 
some of their regular clients. 

“It’s now virtually impossible to get a 
hotel room at short notice,” says Mr Pra- 
teek Chawla, director, Outbound Travels, 
Delhi-based travel agent and tour opera- 
tors. “For the business traveller, there is 
no off-season.” 

The Indian hospitality industry is reap- 
ing the benefits of the government's liber- 
alisation programme, which has made 
India one of Asia's most attractive emerg- 
ing markets. The top hotel chains — the 
Taj group, ITC Hotels and the Oberoi 
group - win invest nearly RsSObn In new 
projects over the next five years, concen- 
trating ter the first time, on building bud- 
get hotels rather than five-star ones. 

The current total of 52,000 rooms in 
fewer than 900 government-approved 
hotels across the country is woefully inad- 
equate to cater to an estimated 5m tourist 
arrivals by 1997 (double last year's figure 
of s.2m) - The government has therefore 
cleared 524 hotel projects (tin March this 


India has become one of Asia’s busiest tourist markets, but where are the hotels? 

It’s hard to get a decent room quickly 


year), or 28,000 additional rooms. 

Industry watchers doubt that all the pro- 
posed investment will materialise, but the 
tourism ministry has set an ambitious tar- 
get to build 125,000 roams by the year 2000. 
Several international hotel chains are 
tying up with Indian partners, taking 
advantage of the fact that the government 
now allows foreigners up to 51 per cent 
equity in the hotel industry. 

The US chain, Holiday Inns Worldwide, 
has tied up with Inn Really (owned by a 
group of non-resident Indians) to open Hol- 
iday Thus in the Himalayan mountain 
resorts of Nainital and Manali, and four- 
star hotels in nine Indian towns. The 
chain will spend more than RsSOOm on its 
plan to b uild 70 hotels across India in the 
next four years. 

Hie Australian Southern Pacific Hotels 
Corporation, which seeks to “create a 
base” for its two primary brands, Park- 
royal and Travelodge, has signed an agree- 
ment with Hospitality Resorts, an Indian 
company, to manage its Paata Goa Hotel, 
being rechristened the Regency Travel- 


odge Resort The group has invested about 
J2m in Indian projects so far, and is build- 
ing three new hotels, in New Delhi. 
Madras and Bangalore. 

Other hotel chains entering the Indian 
hotel industry include the Hong Kong 
based Four Seasons, which has signed an 
agreement with the Bombay-based Leela 
Group, the US-based Marriott, which may 
tie up with the Indian Shaw Wallace 
group, and Radisson of the US, which has 
tied up with Singapo rebased Scotts Hold- 
ing and two Indian partners to build and 
manage at least 12 projects, including 
thre&star inns. 

“India has never built for tomorrow, 
always yesterday.” says Mr Rabindra Seth 
Of ITC Hotels, who has been part of the 
industry for over 30 years. He points out 
that there are more hotel rooms in cities 
like Singapore, Hong Kong. Bangkok, Lon- 
don and Toronto than there are in the 
whole of India, for all its size and wealth 
of tourist attractions. 

In New Delhi, the capital, no new hotel 
has been built since 1982, when more than 


a dozen hotels were hurriedly constructed 
for the Asian Games, creating a glut for 
years. “If we are to cater to 5i>m tourists 
and business travellers by the turn of the 
century, then we need at least twice as 
many rooms as we are offering now." 

The unavailability and cost of land, par- 
ticularly in the big cities, has deterred 
new investors. Socialist governments in 
the past regarded luxury hotels as “neces- 
sary evils", and levied prohibitive taxes on 
them, making hotels less viable than they 
could have been. 

W hile expenditure tax has been 
halved to 10 per cent, land contin- 
ues to be a major deterrent The 
current boom has spawned a whole new 
breed of first-time hoteliers, many of 
whom are land developers, builders and 
contractors. 

Entrepreneurs such as Shaw Wallace, 
the large liquor group, and Mahindra and 
Mahmdr a, the Bombay-based heavy engi- 
neering, tractor and automobile manufac- 
turers, have diversified into hotels thanks 


to their ability to withstand the long gesta- 
tion periods associated with this business. 

“One of the main st umbling blocks in 
the hotel industry is the acquisition of 
land,” says Mr Seth. “Builders are best 
equipped to tackle that part of the prob- 
lem, and will often allow professional 
hotel companies to run the hotels for 
them.” 

Foreign investors are also joining non- 
resident Indians (NRIs) allowed to buy 

land. 

Mr Dadi Balsam, a Singapore-based NRI 
businessman has recently announced a 
joint venture with Howard Johnson Fran- 
chise systems of the US, to build 10 three- 
star hotels, with plans to build, acquire 
and franchise more than 70 hotels in the 
next five years. 

India’s leading luxury hotel chains are 
also developing medium-sized hotels, to fill 
the yawning gap between luxury fivestars 
and cheap hotels that lack the most basic 
amenities. 

East India Hotels, which owns the 
Oberoi chain will start 11 new hotels in 


the deluxe, first class and budget catego- 
ries, investing Rs4.75bn over the next four 
years. The group recently started its mid- 
market Novotel and Trident dra ins , ami is 
firing- an even more affordable class of 
budget hotels. 

rrc Hotels, a subsidiary of the tobacco 
and paper group plans to invest Rs7bn in 
the mr* six years, out of which RsSlm will 
be earmarked for the middle segment The 
company, which owns and manages the 
Manrya Sheraton hotel in New Delhi, has 
entered into a joint venture with MS 
Shoes, who recently acquired land through 
a Rs64Qm bid to build a RsLBbn, 400-roam 
super-deluxe hotel in the capital. ITC will 
expand its Bombay and Madras properties, 
and is keen to acquire land for a hotel in 
Calcutta, where its parent company is 
headquartered. 

The Thj group, which owns and man- 
ages more than 40 hotels, including the 
legendary Taj Mahal hotel in Bombay, has 
the most ambitious expansion progzamine 
in the country. 

Mr Pankaj Baliga, the group’s vice-presi- 
dent, sales and marketing, says it wfll 
invest over Rsl5bn an 50 new hotels, 
including 10 wildlife lodges near game 
sanctuaries, and golf and beach resorts. 
“We are very environment-conscious,” 
says Mr Baliga, insisting that the Tty 
hotels will take extra care not to disturb 
the environment. 












THE TOP 10 BUSINESSES IN INDIA, IN TERMS OF OPERATING PROFITS : 


1 

FINANCIAL SERVICES 


2 

TELECOMMUNICATIONS 


3 

CHLORO-CAUSTIC 


4 

HOTELS 


5 

SHIPPING 

SHAME, WE'RE ONLY IN FOUR OF THEM. 

6 

TEA 

The Apeejay Surrendra Group. 

7 

COTTON YARN / FABRIC MANUFACTURING 

With interests in financial services, hotels, shipping, tea 

8 

CABLE-TELECOMMUNICATIONS 

and the one area ignored in the survey : 

9 

SOFTWARE 

■ the future. 

10 

FLEXIBLE PACKAGING 

(~~ APEEJAY^ 


1 1 






Financial Services • Hotels • Shipping* Tea* Steel* Real Estate • Foods 
Apeejay Shipping Ltd., 7 Portland Place, London WIN 3AA 
Telephone 0044 71 580 4556 Telefax 0044 71 580 4557 Telex 51 - 88 1 1343 


Suukc : Capital Marker *C«poraEe SconWd Duat. December 1993 u» September 1994. 


KMOvnai tw 








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Danske to take 
control of Baltica 

Den Danske Bank, the Danish commercial bank, is 
to acquire a controlling interest in Baltica, Den- 
mark’s largest insurance company. The deal will 
mate Danske a significant force in the country’s 
life assurance and personal accident insurance busi- 
ness. Page 20 

Siemens In multimedia alliance 

Siemens, the German electrical and electronics 
manufacturer, has formed on alliance with Scien- 
tific Atlanta and Sun Microsystems, of the US. to 
develop and market systems for the multimedia 
market. Page 20 

Minolta returns to the black 

Minolta, the Japanese maker of cameras and office 
machinery, returned to the black in the first hair 
thanks to cost-cutting and Increased sales. Page 24 

SA glass group rises 16% 

Plate Glass and Shatterprufe Industries reported a 
rise in after-tax income to Rll45ra (S32.66rn) for the 
six months to September. Page 22 

Acquisitions boost Email 

Email, the Australian white goods and b uilding 
products company, announced a 35,8 per cent 
increase in interim profits, for the six months to 
end-September, to A$45.5m (lTS$34m>. Page 22 

Record oil results boost CartPac 

Canadian Pacific, the transport, resource, hotels 
and property group, registered a third-quarter profit 
of C$87.6m (US$64. 5m), due to record results from 
its oil and gas subsidiary. Page 23 

Brierisy lifts HZ media stake 

Brierley Investments, the New Zealand hotels and 
investments group, yesterday said it had acquired a 
29 per cent stake in Wilson & Horton and was with- 
drawing its offer to buy shares fn the publishing 
company. Page 22 

Allied Domecq sells ingretfients unit 

Allied Domecq, the UK food and drinks group that 
has decided to concentrate on spirits and retailing, 
yesterday sold its food ingredients businesses for a 
total of £265m ($434-60). Page 26 

Kenwood cash call for Kalian purchase 

Kenwood Appliances, the UK household appliances 
producer, yesterday accompanied its interim results 
with a rights issue to fund the £22m (836m) acquisi- 
tion of an Italian manufacturer. Page 29 

ABF held back by investment fall 

A sharp foil in investment income depressed profits 
at Associated British Foods, the milling, baiting, 
and sugar group which was restructured earlier 
this year. Page 28 

Companies In fhls issue 


Allied Domecq 

26 lna 

20 

Wfiedagmd 

23 Kenwood Appliances 

29 

Ambrovenelo • 

SO Kerry 

26 

Andayard Mefoah 

22 Legal & Genera! 

29 

Andrews Sykes 

29 Lex Service 

26 

■* ApPte 

19 Marubeni 

23 

Ariete 

23 May Stores 

23 

Assoc British Foods 

28 McOormefl Douglas 

5 

Automagic Holdings 

28 Merchant Ratal 

. 28 

BAA 

ia 18 Minolta 

24 

BC1 

20 Motorola 

19 

BHP 

7, 1 NationsBank 

19 

BP P 

29 New London 

26 

BaftJca 

20 Newmont Gold 

23 

Banner Life 

29 Nfecom Services 

29 

Beckenham 

26 Plate Glass, S*pnrie 

22 

Boeing 

5 1 Prowfing 

29 

Brierley Investments 

22 REA 

29 

CLAL 

23 Ragten Properties 

28 

CRH 

28 Rearficut 

13 

Cette & wireless 

23 Refiance Industries 

22 

Canadian Pacific 

23 Reliance Polyothylne 

22 

Gantaras Gerro Negro 

28 ReBanco Potypr’plna 

22 

Cerro Trrcfing 

23 Rantaki 

26 

China Light & Power 

22 Rhflne-Poutenc 

4 

Citibank 

19 Scientific Atlanta 

20 

Cobham 

28 Select Appointments 

29 

Comlnco 

23 Siemens 

20 

Control Techniques 

28 Sod6t6 G6n&Ble 

22 

Den Danske Bar* 

20 Southern Peru Capper 

23 

BBott (B) 

28 Stratagem 

29 

Email 

22 Sun Microsystems 

20 

Emereon Bectric 

28 Swalec 

13 

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23 TCI 

19 

Engelhard Cap 

23 TeleWest 

18,18 

FBtronic Comtek 

29 Teteglobe 

22 

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28 Tenaga Nastonal 

22 

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22 Tiygg-Harwa 

20 

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24 

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20 US West 

19 

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24 UnSewer 

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28 Upjohn 

23 

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29 Vlag 

20 

Henderson Admin 

29 Volkswagen 

5 

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22 Waffington UVrrtttig 

28 

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29 WSarnBalrd 

13 

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19 WEson & Horton 

22 

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29 Wbodchester invests 

28 

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25 Gats prices 

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25 London stare sorico 

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26 Managed finds wntoe 

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IBM agrees hardware standard 


By Louise Kehoe 
fn San Francisco 

International Business Machines, 
Apple Computer and Motorola 
yesterday confirmed details of an 
agreement to develop a common 
standard specification for per- 
sonal computers. 

Based on PowerPC micropro- 
cessor chips, their goal is to 
establish a new PC standard, 
challenging the domination of 
Microsoft’s Windows and Intel's 
microprocessors which are used 
in about 85 per cent of PCs sold. 

Industry analysts said, how- 
ever, that the move may be “too 


little, too late” because while the 
PowerPC partners have estab- 
lished a hardware standard, they 
have foiled to agree on an operat- 
ing system software standard. 
Instead, the companies said they 
would build computers that 
adhere to a new “hardware refer- 
ence platform” specification that 
will run a broad range of soft- 
ware. 

The standard PowerPC design 
will support several operating 
systems including Apple’s Macin- 
tosh software, IBM's OS/2 and 
AIX (a variety of UNIX) and 
Microsoft’s Windows NT. the 
companies said. Novell and Sun 


Microsystems will also develop 
versions of their operating 
systems for the new PowerPC 
standard. 

The PowerPC alliance, formed 
throe years ago, has so far been 
thwarted in its efforts to unseat 
Intel and Microsoft by a lack of 
support from software compa- 
nies. which have put most of 
their resources into developing 
application programs for Intel-Mi- 
crosoft standard PCs. 

The situation has been exacer- 
bated because Apple's Power 
Macintosh PCs. bunched earlier 
this 5 r ear. are not compatible 
with PowerPC products being 


developed by IBM and Motorola. 

By establishing a PowerPC 
hardware standard, the compa- 
nies hope to broaden the market, 
drawing software support and 
encouraging other computer com- 
panies to build compliant prod- 
ucts. However, the market for 
software for PowerPC computers 
will remain fragmented among 
the various operating systems, 
analysts pointed out. 

Computers based on the new 
PowerPC hardware standard will 
□ot reach the market until 1996. 
In the meantime. Apple. IBM. 
Motorola and other computer 
companies that have been devel- 


oping PowerPC-based PCs will 
have to redesign their products. 

Mr Michael Spmdler. Apple 
president and chief executive, 
said that the new hardware stan- 
dard will enable Apple to 
broaden its sales. 

“We believe that an openly 
licensed Mac OS running on top 
of an open, industry standard 
RISC hardware platform repre- 
sents a broadside against the 
reigning "Winter [Windows -In- 
tel! platform, and will play a key 
role in our ongoing efforts to 
greatly increase the presence of 
Macintosh in all markets,” be 
said. 


US bank 
links with 
UK fund 
manager 

By Norma Cohen in London and 
Richard Waters in New York 

Gartmore, the UK fund manager, 
has formed a joint venture with 
NationsBank, America’s third 
biggest bank, which will allow it 
to sell international fund man- 
agement expertise to US retail 
and pension fund investors. 

Mr Panl Myners, executive 
chairman of Gartmore, said the 
venture will give Gartmore dis- 
tribution outlets to build a US 
presence. 

NationsBank is the US’s sec- 
ond largest bank distributor of 
mutual funds and Gartmore 
hopes to capture some of the fast 
growing market for individuals 
who choose their own pension 
fund manager, he said, lie ven- 
ture will also target the US 
“defined benefit” market which 
pays pensions to individuals 
based on their final salary and 
the US mutual fund market. 

“To maltA any inmarts into this 
market yon need strong brand- 
ing and strong retail distribu- 
tion,” Mr Myners said. 

Under the agreement, no cash 
will change hands immediately. 
However, if the total assets of 
the venture total $5bn or more 
within five years, NationsBank 
has an option to acquire 10 per 
cent of Gartmore. in newly 
issued shares, at 200p per share. 

Mr Myners said that while the 
venture wfll make little contri- 
bution to earnings in the short 
term, it should provide a source 
of significant growth long-term. 

The venture will have the 
$540m managed by NationsBank 
Pasmore Investment Manage- 
ment, the fund management arm 
of stockbrokers Panmure Gor- 
don, also owned by NationsBank. 
Also, if clients agree, it will cap- 
ture the $230m in assets nnder 
management at Gartmore’s 
existing US operation, which will 
be absorbed into it 

Analysts said the move is 
important for NationsBank 
which has been less successful 
than other big US regional bank- 
ing groups at developing and 
selling its investment products. 

Another joint venture, with 
stockbroker Dean Witter, will be 
unwound next week after just 16 
months. NationsSecuritles bas 
been the subject of lawsuits from 
customers, who claim that it 
foiled to make dear that its 
investment products were not 
covered by the federal bank 
insurance fund. 

Lex, Page 18 


Raymond Snoddy reports on optimism ahead of planned flotation 

Tele West looks 
to US model for 
growth hopes 


TeleWest, the largest UK cable 
operator, yesterday pushed ahead 
with its flotation plans with a 
pathfinder prospectus suggesting 
a total value for the company of 
between £1.61bn and £l.66bn 
($3.05bn). 

An offer price per ordinary 
share, which will be between 
165p and 190p. will be announced 
on November 22 and TeleWest is 
scheduled on November 30 to 
become the first cable company 
to be listed on the London Stock 
Ex chang e. 

The aim is to raise between 
£330m and £380m in new money 
with the sale of 216m ordinary 
shares in London and the Nasdaq 
market in New York representing 
26 per cent of the enlarged issued 
ordinary share capital - 22 per 
cent on a fully diluted basis. 

Mr Alan Michels, chief execu- 
tive of TeleWest, a joint venture 
between TCI of Denver, the larg- 
est US cable operator and US 
West, the regional telephone 
company, said; “We believe that 
cable is a major growth area, that 
the UK offers a most attractive 
regulatory regime for cable, and 
that TeleWest is exceptionally 
well positioned in the UK cable 
market” 

There is already informal 
investor interest in as much as 
three quarters of the offering at 
the midway price. Such interest 
suggests a change in perceptions 
about UK cable and in particular 
about a company that still has to 
spend another £lbn to complete 
its networks and which is 
unlikely to be profitable before 
1998 at the earliest. 

The main reasons for the 
increasingly positive sentiment 
include: 

• The growing importance of 
cable's dual revenue streams 
from television channels and tele- 
phone services. Ordinary cable 
television subscriptions stand at 
around 800,000 with hopes for 
nearly lm by the end of the year. 
By October 1, 570,656 telephone 
lines were Installed, compared 
with 244,946 a year ago. 

• Growth in the stock price - 48 
per cent since August l - of the 
first three UK cable companies to 
be quoted on Nasdaq: Bell Cable- 
media, Comcast UK and Interna- 
tional CableTel. 

• Excitement over superhigh- 
ways of the future. US cable oper- 


ators say that in the US they talk 
about the superhighway but in 
the UK it is being built - by the 
cable companies. Cable offers a 
clear route into video on de man d 
and interactive services if the 
consumer interest is there. 

The hope is that the UK will 
eventually follow the US pattern 
on cable. In the US cable first 
reached 10 per cent of homes, 
slowly crept up to 25 per cent 
before taking off to attain 60 per 
cent penetration on the back of 
an expansion of programme 
choice. “We would expect and we 
believe the same thing will hap- 
pen here.” said Mr Michels. 

In the UK however cable pene- 
tration - the ratio between 
homes which can subscribe to 
those that actually do - has 
remained at around 21 per cent 
for some years although the 
actual number of subscribers 
continues to rise as more cable 
networks are built. Unlike the 
early days of cable in the US. 
cable in the UK must develop 
alongside a mature video market 
and more than 2.5m installed sat- 
ellite dishes. 

TeleWest owns and operates 16 
cable franchises while affiliated 
companies own a further seven. 
The franchises account for 3.6m 
homes and 235.000 businesses. 
TeleWest has a 100 per cent 
equity interest in a total of 2J3m 
homes - aggregating the minor- 
ity interests - and 180,000 equity 
businesses. 

By the end of September 
TeleWest had around 188,000 
equity cable subscribers, 125,000 
residential telephone lines and 
17,000 equity business lines. In 
the 12 months to the end of Sep- 
tember. revenues were £63m, a 
fivefold increase since the finan- 
cial year ending December 1991. 

Mr Michels wants to increase 
average penetratiou by 2 percent- 
age points to 23 per cent by the 
end of this year and by a further 
2 percentage points by the end of 
next year. To achieve this. 
TeleWest will support an indus- 
try-wide advertising campaign on 
the merits of cable, sell cable 
more extensively through high 
street outlets as well as 
door-to-door marketing, and try 
to negotiate more flexible terms 
from cable's largest programme 
supplier. British Sky Broadcast- 
ing (a venture in which Pearson, 



Timor HunpMn 

Alan Michels (left) with Stephen Davidson, finance director 


owner of the Financial Times, 
has a significant stake), which is 
in turn likely to come to the mar- 
ket by the end of the year. 

One analyst suggested .yester- 
day that talk of TeleWest being 
worth 10 times operating cash- 
flow sounded “a bit rich". 


“I would like just a little more 
comfort that the management is 
flexible enough to cope with 
whatever competition arises.” he 
said, adding that TeleWest would 
probably rank high in an emerg- 
ing cable sector in London. 

Lex, Page 18 


Citibank 
enters UK 
retail 
market 


By John Gap per, 

Banking Editor 

Citibank, the US money centre 
bank, is entering retail banking 
in Britain for the first time. The 
bank expects to open six 
branches by the end of 1995 in 
an effort to build a global branch 
banking network. 

The bank has opened its first 
retail branch in the Strand in 
London and expects to open a 
further three in London. This fol- 
lows the opening of three 
“model” branches in Paris last 
year. 

Citibank executives said yes- 
terday that it might eventually 
establish a large network by 
acquiring a building society. Bnt 
for at least three years, it would 
only offer a niche service for pro- 
fessionals who travel widely. 

It w ill offer 24-hour telephone 
banking, and sophisticated auto- 
mated terminals which can be 
used in the US for stockbraking. 
Customers are required to keep 
at least £2,000 (S3 ,280) in a cur- 
rent account to avoid fees. 

The bank has about 500 
branches in Europe, including 
301 branches in Germany, 96 
branches in Spain and 62 
branches in Belgium. It bought 
the former Kundenkreditbank 
(KKB) in Germany in 1974, 
changing the name three years 
ago. 

Mr Victor Menezes, executive 
vice-president in charge of con- 
sumer hanking in the US and 
Europe, said the bank was “not 
planning a mass market 
assault”, in Britain bnt would 
aim at the ‘'large international 
population” in the south east. 

It wanted to establish a niche 
presence first, and might then 
re-conskler an expansion into the 
broader UK retail market 

Citibank is aiming to attract 
“tens of thousands” of UK cus- 
tomers. Bnt, Mr Menezes said 
that the main aim was to estab- 
lish a fink in its global network 
of branches, which includes 117 
in the Asia Pacific. 

Citibank already bas a $2J>bn 
residential mortgage portfolio in 
the UK, making loans through 
intermediaries. In the early 
1970s, it closed a small network 
of “money shops” which had 
offered personal and consumer 
loans. 

The bank’s retail franchise in 
emerging markets is highly 
regarded by analysts. According 
to the bank, its S10.9bn of reve- 
nue from consumer businesses 
last year outstrips the $8jjbn of 
Disney, and the $7.4bn of McDon- 
ald's. 


Passenger 
increase 
fuels BAA 
advance 

By Simon Davies bi London 

A 7 per cent increase in airline 
passengers helped fuel a £2 8m 
rise in pre-tax profits to £265m 
(&434m), at privatised airports 
group BAA during the six 
months ended September. 

Its shares fell 24 l Ap to 492%p. 
although fine figures were in line 
with expectations, and BAA 
remained positive on the outlook 
for passenger growth and retail 
spending. 

Capital expenditure was £201m 
as file group continued its three- 
year investment programme esti- 
mated at filAbn. Net debt rose to 
£7B0m (£739m), while gearing 
remained less than 30 per cent 

The company said the recent 
collapse of a tunnel at Heathrow 
- part of a £300m project to 
develop a high-speed rail link to 
central London - was unlikely to 
have a meaningful financial 
impact as the tunnel was four 
months ahead of schedule. 

Group turnover rose 5.3 per 


TA 


t BAA: take-off continues 




■ .^5 



Pre-tax profits (Cm) 
• 350 

d 3 Halt year results 

300 


Sir John Egan, chtef executive 

Rotai sales growth (i3sa-3a=i00) 
150 

-140 — 

BAA airports 
130' — 



90 SI 92 S3 94 95 

Share price (pence) 
600 



leases 

Somes: Dasttwn. CSO 


93-94 1987 88 


cent to £660m (£627m). Revenue 
from traffic and airport charges 
increased by £l5.lm to £278.4m. It 
was held back by its regulatory 
price formula, which reduced 
prices by 4 per cent below the 
Retail Price Index. 

Retail revenue rose from 
£250. lm to £273 ,2m, with the aver- 
age passenger spending 7.8 per 


90 81 82 S3 94 

F^aval yeor ends Modi 

cent more than a year earlier. 
Sales were hit by the effects of 
construction at Heathrow, but 
should recover strongly once the 
disruption ceases. 

The company announced an 
interim dividend of 3.75p (3375pj, 
up II per cent while earnings per 
share rfw to IH.-'P »J7.lp>. 

Lex. Page 18 


11m JiiiB4iiiiciiH.nl apficar- l' * nuher nx.wd «mlv 

£ 45 , 000,000 

Management Buy-Out/Buy-In 


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Structured, Led and Arranged in Spain by 


EXCEL 


Excel Parmers, S.A. 

( it stihiiftiiry of Rothschild Europe) 


Equity provided by 



Five Arrows Iberian Fund 

and other imesto/s 

Subordinated debt provided by 

Firsr Britannia Mezzanine Capital, B.V 

Orft&T ttyf 


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A 


INTERNATIONAL COMPANIES AND FINANCE 


Danske to take control of Baltica 


By HBary Barnes 
In Copenhagen 


Den Danske Bank, the leading 
Danish commercial hank , is to 
acquire a controlling interest 
in Baltica, Denmark's largest 
insurance company. 

The deal will make Danske a 
significant force in the coun- 
try's life assurance and per- 
sonal accident insurance busi- 


Danske intends to sell off the 
parts of Baltica, including com- 
mercial and industrial insur- 
ance, which do not fit in with 
the bank's strategy, said Mr 
Knud Sorensen, Danske chief 
executive. 

The move will cost Danske 
about DKr2.55bn (3426m), but 
no share issue is planned. 


added Mr Sorensen. 

Danske, which already held 

32.3 per cent of Baltics' s 
shares, will obtain control 
through two agreements. 

It has exercised an option to 
buy a 23 per cent stake in Bal- 
tica held by Gefion, formerly 
known as Baltica Holding, for 
DKrI.7bn. This takes the 
bank’s holding to 55.5 per cent 
of the capital and 76.9 per cent 
of the voting rights. 

The bank also entered an 
option agreement with Den- 
mark's second-ranking insur- 
ance company, Codan, con- 
trolled by the UK's Sun 
Alliance, to acquire Codan’s 

10.4 per cent stake in Baltica 
for about DKr850m. 

This would take Danske 's 
holding in Baltica to 65.9 per 


cent of the capital and 9L2 per 
cent of the voting rights. 

The agreements give Danske 
control of Baltica ’s life assur- 
ance company. Danica, which 
before it was sold to Baltica for 
DKrtbn in a privatisation sale 
in 1990 was known as Statsan- 
stalten. 

Danica has a 23 per cent 
share of the domestic life 
assurance market. Together 
with the bank's Danske Life, 
Danske will control up to 30 
per cent of the Danish market. 

Danica, however, Is not per- 
mitted to pay a dividend for 25 
years from the date of the pri- 
vatisation sale. This follows a 
Supreme Court ruling in 
November last year which 
stated that Danica 's profits 
were the property of pre- 


privatisatiou policyholders. 

The ruling has made it 
impossible for Danske to carry 
out a sale of the entire Baltica 
group. This was Its plan when 
it gained effective control over 
Baltica in 1992-93 after it had 
put up the money to prevent 
Baltica Holding (as it was then 
called) from going bankrupt. 

Baltlca's share of the domes- 
tic personal accident insurance 
market is about 16 per cent, 
according to Mr Hans Ejvind 
Hansen, Baltica chief execu- 
tive. 

Danske owns a personal acci- 
dent insurance company, Phoe- 
nix, jointly with Codan. 

The bank wilt acquire the 
entire capital of Phoenix, 
which has only a small market 
share. 


Generate 
des Eaux 
struggle 
deepens 


Swedish insurer costs SKi813m deficit at pinemonths -. 


Heavy loss in US pushes 

Trygg-Hansa into the red 





By Hugh Camegy 
fen Stockholm 


By David Buchan in Paris 


USG wins 
court ruling on 
asbestos claim 


Siemens in multimedia alliance 


By Alan Cane 


USG, the US manufacturer of 
building materials which is 
fighting a large number of 
asbestos-related claims, has 
won a legal victory which 
could have implications for the 
liability of insurers in asbestos 
cases, writes Richard Waters 
in New York. 

The decision, in the Illin ois 
appeals court, upheld USG's 
contention that it should be 
able to claim against insurance 
policies on a property from the 
date that asbestos was first 
installed, not just from the 
date it was discovered. 

This so-called “continuous 
trigger" test means the com- 
pany can claim under insur- 
ance policies issued between 
the late 1940s and 1984 

If applied to all outstanding 
property damage claims 
against the company over 
asbestos, the decision could 
make available up to $600m 
of insurance cover, USG 
said. 

The 11 insurers affected 
directly by the verdict could 
not be contacted immediately 
for comment on whether they 
planned to- take the case to the 
Illinois supreme court. 

While numerous asbestos- 
related property damage cases 
in the US are working their 
way through the courts, per- 
sonal injury claims arising 
from asbestos were all covered 
by a global settlement reached 
earlier this year. 


Siemens, the German electrical 
and electronics manufacturer, 
has formed an alliance with 
Scientific Atlanta and Sun 
Microsystems, both of the US, 
to develop and market systems 
for the emerging multimedia 
market. 

The plan is to develop a 
design, or architecture, for 
multimedia networks which 
will be accepted as the indus- 
try standard. 

The alliance intends to mar- 
ket the system to cable opera- 
tors and telephone companies, 
initially in the US. 

Multimedia lias become an 
important focus for electronics 
groups over the past year. It 


implies the delivery of informa- 
tion to the home or office in 
digital form over fibre-optic 
cable or telephone lines and In 
interactive fashion. 

Customers will be able to 
send messages and commands 
to the system making possible, 
for example, home shopping, 
home banking and video-on- 
demand. 

The Siemens alliance is one 
of a number of groups develop- 
ing multimedia architectures 
in the hope of establishing' its 
version as the industry stan- 
dard. 

Among those involved in 
separate multimedia trials are 
American Telephone & Tele- 
graph, British Telecommunica- 
tions and Microsoft, the 


world's largest computer soft- 
ware house. 

Siemens is an expert in tele- 
communications switching and 
has developed the basic multi- 
media software, IMMXpress. 

Scientific Atlanta has experi- 
ence of cable television 
systems while Sun Microsys- 
tems, a workstation manufac- 
turer, is an expert in open, or 
industry standard, operating 
software and is heavily 
Involved in the worldwide 
Internet computer network. 

Scientific Atlanta has devel- 
oped the “set-top boxes" - con- 
trollers which receive and 
translate the digital signals - 
for a multimedia trial planned 
by Time Warner to take place 
in Orlando, Florida, this year. 


Bid battle hits Ambroveneto shares 


By Andrew HiH in Rome 


Shares in Banco Ambrosiano 
Veneto (Ambroveneto) fell 
sharply yesterday following 
the Italian bank’s announce- 
ment at the weekend that its 
largest shareholders would 
block a proposed bid from 
Banca Commerciale I tali ana. 

Ambroveneto shares slipped 
to L4558 - down L674 on the 
day - compared with the 
L7.000 price which BCI said it 
planned to offer when it 
announced its intentions less 
than a week ago. 

BCI has yet to comment on 
the latest developments and Is 


unlikely to do so before its 
self-imposed November 15 
deadline for launching a for- 
mal offer. 

However. Mr Giovanni 
BazoU, Am bro veneto 's chair- 
man, all but declared victory 
on Saturday, when he con- 
firmed that the bank's biggest 
shareholders had agreed to 
renew and reinforce their 
shareholder pact 

Credit Agricole of France 
and Crediop, the investment 
finance subsidiary of the Ital- 
ian banking group San Paolo di 
Torino - each of which owns 
15 per cent of Ambroveneto - 
are poised to buy the 13.52 per 


cent stake offered by a group 
of small banks from the Veneto 
region. 

Together with other pact 
members, the deal will secure 
at least 57 per cent of Ambrov- 
eneto. 

BCI hoped to buy the stake 
itself, as the basis for its own 
bid, and CA and Crediop are 
thought to have matched BCl’s 
offer. 

BCI announced its approach 
to Ambroveneto 'only a week 
after its rival, Credito Italiano, 
unveiled plans for a L2,0D0bn 
($i-3bn) bid to gain control of 
Bologna-based Credito Romag- 
nolo. 


The straggle over the 
succession to Mr Gny 
Dejouany. president of Com- 
pagnie Generate des Eaux. 
intensified yesterday. Mr Jac- 
ques Calvet, the head of Peug- 
eot wbo is a member of the 
Generate des Eanx board, reaf- 
firmed his opposition to Mr 
Dejouany's plan to put a 
37-year-old outsider at the top 
of the French communications 
and utility group. 

It became evident that Mr 
| Calvet has support from same 
of the group's 12 outside direc- 
tors in his objection to the 
I plan by Mr Dejouany, 73, to 
anoint Mr Jean-Marie Messier, 
tbe managing partner or Laz- 
ard Fr£res, tbe merchant 
bank, as his dauphin and even- 
tual successor. 

Mr Calvet held a long meet- 
ing with Mr Dejouany on the 
succession yesterday. Neither 
Generate des Eaux nor Peug- 
eot would comment on the out- 
come. Bat Generate des Eanx 
said negotiations with Mr Mes- 
sier were advanced and would 
be put to the full board this 
month. 

Mr Calvet's spokeswoman at 
Peugeot reiterated her presi- 
dent's feeling that “a young 
man of 37 with no Industrial 
experience could not. however 
brilliant, move directly to the 
top of a group such as Gener- 
ate des Eanx with 200,000 
employees, without first serv- 
ing some kind of apprentice- 
ship to learn the business". 

Mr Messier was the official 
in charge of privatisation 
when Mr Edouard Balladur 
was finance minister in 
1986-88, and he is considered 
by many as a Balladur man, as 
is Mr Ambroise Roux, 
vice-president on the Gdndrale 
des Eanx board. 

• The Cob. tbe French bourse 
watchdog, yesterday said it 1 
had fined Mr Jacques Four- 
nier. a former board member 
of Lyonnaise des Eanx, the 
construction and utilities 
group, FFr40,000 ($7,812) for 
abuse of privileged informa- 
tion in trading the company's 
shares. Mr Fournier said he 
would appeal. 


Trygg-Hansa. the Swedish 
insurer, plunged to an operat- 
ing loss of SKr813m ($110m) in 
the first nine months of the 
year from a SKrl.lim operating 
profit in toe same period last 
year. It was hit by heavy losses 
incurred by Home Holdings, 
the US insurer in which Trygg 
holds a 353 per cent stake. 

A fall in premiums to 
SKr5.37bn from SKr5.95bn, 
mainly due to Trygg’s with- 
drawal from reinsurance, and a 
rise in claims led to a loss of 
SKrl25m in the group’s core 
property and casualty insur- 
ance business, compared with 


a profit last time of SKrS65m. 

Trygg incurred a gross loss 
of SErSaOm due to toe sinking 
of the Baltic ferry Estonia, 
which sank with toe loss of 900 
lives in September, but after 
reinsurance the net loss was 
limited to SKrffifcn. 

The operating result was 
dragged into the red by Trygg’s 
SKr646m share in Home's oper- 
ating losses, and a SEr735m 
share in losses on Home's bond 
portfolio. 

Trygg said Home planned to 
strengthen its capital base by 
$250m by debt and/or equity 
issues. In addition, Trygg 
would convert loans to Home 
of 517002 entirely or in part to 
shareholder’s equity. 


Trygg’s so-called total result, 
which includes the full impact 
of the group’s investment per- 
formance, also tumbled to a 
loss of SKrl-76bn from a profit 
of SKr2.03bn due to unrealised 
losses in the group's bond port- 
folio. 

• Den norske Bank. Norway's 
largest commercial bank, ; 
announced that DnB Forsikr- 
ing, the group’s new insurance 
unit will be es t ablished with 
capital of NKr300m ($45m), 
writes Karen Fossil in Oslo. 

DnB yesterday submitted hi 
application to the finance min- 
istry for a concession for the 
unit, which is scheduled to 
begin operations during the 
second half of next year. 


- : f rj P" 




Viag to focus on core business 


By Christopher Parkas 
in Frankfurt 


Viag, the German con- 
glomerate with interests rang- 
ing from energy to drink cans, 
is to shift to a period of consol- 
idation under a new chairman, 
according to Mr Jochen Holzer, 
supervisory board chief. 

Mr Alfred Pfeiffer is to step 
down next August, two years 
before the end of his contract, 
and hand control to Mr Georg 
Obermaier. finance director, 
toe company said yesterday. 

Embellishing the announce- 
ment with bullish forecasts of 
a marked increase in profits 
tins year and a continuation of 


the trend in 1995, Mr Pfeiffer 
said his previous forecasts of a 
35 per cent rise in operating 
earnings this year would be 
exceeded by a wide margin. 

According to Mr Holzer, the 
boardroom change was based 
exclusively on Mr Pfeiffer's 
personal decision to step down. 
He would join the supervisory 
board and continue to be repre- 
sented on other important 
group bodies. 

A replacement finance direc- 
tor has yet to be found. 

Main elements in the group's 
new policy would be strong 
internal growth and a focus on 
core businesses, such as 
energy, chemicals, packaging 


and logistics. Supplementary .. 
businesses - including tele- 
communications, which might 
be built up to a mainstream 
operation - would be open for 
possible partnerships, Mr Kei- 
zer said. 

Disposals to tidy the group's- \ 
portfolio could not be ruled. g|i j 
out, although there were no I 
concrete plans, he added. 

The consolidation follows a 
long period of acquisitions 
which ended in March this 
year in a complex deal under 
which Viag took over Bayern- 
werk, 1 the Bavarian state 
energy utility, and moved its 
headquarters from Ddsseldmf 
to Munich. 


Ina chief denies Treasury influence 


By Andrew Hill 


The new chairman of Ina, the 
recently privatised Italian 
insurer, yesterday dismissed 
c laims by his predecessor that 
toe company was still under 
the influence of the Treasury, 
its majority shareholder. 

Mr Sergio Sigiienti, the new 
chair man, said there were no 
government representatives on 
the new 13-man board, elected 
yesterday, which showed the 
company was ready for the sec- 
ond phase of privatisation. 


due to take place next year. 

Mr Lorenzo Pallesi. toe out- 
going chairman, claimed the 
Treasury, which has a 52.75 per 
cent stake in Ina, "still deter- 
mined the attitudes and 
choices” of the company. Mr 
Pallesi 's name was omitted 
from the Treasury's list of 10 
nominees to the board. 

Yesterday's shareholder 
meeting was toe first in Italy 
to use a new voting system, 
which reserves three board- 
room seats for directors nomi- 
nated by minority sharehold- 


ers. But small investors 
claimed toe new system had 
not lived up to exportations of 
shareholder democracy. 

The seats were filled by nom- 
inees of longest, a fund man- 
ager with <a 0.5 per cent stake 
in Ina. They are Mr Gtampietro 
Nattino, deputy chairman of 
the Italian association of secu- 
rities houses, Mr Jean Claude 
Damerval, manag in g director 
of Axa of France, and Mr 
Anthony Louis Brend, former 
chief executive of Commercial 
Union. 


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V-: 


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• T--. 




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■' •*' V ■ * 



SKF Interim Statement 

SKF Group's consolidated income after financial income and expense for 
the first nine months of 1994 amounted to 1,141 million Swedish kronor, 
compared with a loss of SEK —709m for the corresponding period in 1993, 
Group sales increased 14 per cent to SEK 24,631m {21,521). 

The volume increase was approximately 12 per cent. Income for the third 
quarter totalled SEK 324m {-240). Sales during the third quarter amounted 
to SEK 8.003m (6,995). 


As during the first half of the year, the increase in demand was strongest 
within the cars and trucks segment. The picture was the same in both Europe 
and the United States. However, the rate of increase in Europe showed signs 
of a slight levelling off. Domestic demand in Germany weakened somewltat. 
while exports increased, hi North America, the heavy trucks segment 
continued to develop strongly, with no signs of any weakening in demand. 


ms 


Results 

Earnings per share after tax were SEK 6. 50 (-4.35). Capital expenditures in property, 
plant and equipment totalled SEK 813m (596). At the end of September, the Group s 
inventories totalled 2 6 per cent (32) of annual sales. The return on capital employed 
was 11.5 per cent (-3.5). The return on shareholder s equity was 8.3 per cent (-19.7) 
and Group solvency was 28.2 per cent (25.fi). 

Forecast 

The SKF Group ’s income after financial income and expense for 1994 is expected to 
amount to approximately SEK 1.5 billion. 


Avenge rate of exchange 

Jammy - Seplenber [<W4 1 GBP»1 1.83 SEK Jammy -Scpcrortw- fW3 i CBP= IJ.4B S EJC 
Joly - September 19* I GBP = I 1.83 SEK Jo* - Sepmmbcr I W3 I GBP = 1 1.4 3 SHt 


£ 


Fora copy of the 1994 Nine Months Statement, please contact: SKF Group Public Affairs. S-415 50 Gfiteborg, Sweden. Tel: +46-31-37 1000. 


>Jdi 


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CITIBANKS 


FINANCIAL TIMES TU ESQ AY NOV EM Bl? R S 1 994 




j ; ir rnakina 
i; 5KP bearing 
SlsUd-ihe? 38 
wiAs ai close w 


© WW Citibank. N.A. Ciribmk is a member ofSFA and I.MRO. 






U.S. $150,000,000 

9 per cent. Depositary Receipts due 1994 

Issued by Bankers Trustee Company Limited (the Trustee”) 
evidencing entitlement to payments In respect of deposits with 
Monte dei Paschi dl Siena, London Branch (the "Bank") 
payable solely from the proceeds of a loan made to 

Nuova SAFIM - Societa per Azioni Finanziaria 
Industria Manifatturiera 

(the ‘Borrower") 

NOTICE IS HEREBY GIVEN that Meetings of the holdere (the ■RecefpthoMers") of the above-mentioned Depositary 
Receipts (the ‘Receipts') constituted by a Depositary Agreement and Trust Deed dated 27th November, 1989 and 
made between the Bank and the Trustee as amended by a Supplemental Trust Deed dated 10th May. 1993 made 
between the Bank and the Trustee (together the Trust Deed*) vtiUbe held at 11.00 a.m. (London time) in the caae of the 
first Meeting referred to beta*, at 11.15 aan. (London time) (or. H later, imrnecKatefy after (he conclusion of the Bra 
Meeting) in the case of the second Meeting referred to below and atn.3Q a.m. (London time) (or. H later. Immedtatety 
after the conclusion of the second Meeting) in the case of the third Meeting referred to below an 15th November. 1994 at 
I Append Street. Broadgatt, London EC2A SHE tor the purpose of considering and, if thought lit, passing the following 
Extraordinary Resolutions. 

RRST MEETING 

EXTRAORDINARY RESOLUTIONS 

(l) THAT this Meeting of the holders of the U.S. $150,001X000 9 per cent. Depositary Receipts due 1994 (the 
"flees Iptsl constituted by a Depositary Agreement and Dust Deed dated 27th November. 1989 and made 
between Monte del Paacta di Siena, London Branch (the "Bank") and Bankers Trustee Company Limited (the 
Trustee") as amended by a Supplemental Trust Deed dated 10th May, 1993 made between the Bank and the 
Trustee (together the Trust Deed*) hereby:- 

(l) confirms the past appointment of a Committee to represent the Interests ol holdere of Reoefots 
(•ReceipthcNdera") consisting of Reraipthotdere’ representatives (whose identity Is set out In a 
Memorandum Initialled by the Chairman of thte Meeting copies of which were made available together with 
copies of a Memorandum setting out the constitution of the Committee, which has also been Initialled by the 
Chairman olthia Meeting, at the offices of iha Trustee and the PaytngAgenia (as defined (n the Trust Deed]): 


lii) 


Kl 


authorises the Dustee id do any ad or thing, end to concurwllh I he Bank In the execution of any documenu 
a Extraordinary Resolution. 


ffl) 


(D 


(11 


00 


(2) 


00 


necessary to give eltaci to this , 

THAT this Meeting of (he holders of the U.S. $150,000000 9 per cent Depositary Receipts due 1994 (the 
■Receipts') constituted by a Depositary Agreement and Trust Deed dated 27th November, 1989 and made 
between Monte dei Pascis dl Siena, London Branch (the "Bank - ) and Bankers Trustee Company Limited (the 
■Trustee") as amended by a Supplemental Trust Dead dated 10th May. 1993 made between the Bank and the 
Trustee (together the ‘Trust DeeiT) hereby:- _ _ 

(i) authorises the Dustea to concur w(th the Bank and to enter Into a Supplemental Trust Deed substituting the 
words "not being less than 6 days nor more lhan 42 days" tor the words ‘not befog less than fourteen days 
nor more lhan forty-two days" in paragraph 6 of the Fourth Schedule to the Trust Deed and siAstiiuting the 
words "8 days' notice" forTOdays' notice" In paragraph 8 and making any consec^JeniiaJ amendments to the 
Trust Deed which the Trustee shgfl consider necessary: 

authorises the Trustee to da auny ad or thing, end to concur with the Bank in the execution of any document, 
necessary to give ell act id this Extraordinary Resolution. 

SECOND MEETING 
EXTRAORDINARY RESOLUTION 

THAT this Meeting of the Udders of the U.S. $150,000,000 9 percent Depositary Receipts due 1994' (the ■Receipts") 
constituted by a Depositary Agreement and Trust Deed dated 27th November. 1989 andmade between Monte del 
Paachi dl Siena, London Branch (ihe "Bank-) and Bankers Trustee Company limilad (the Trustee*) as amended by a 
Supplemental Dust Deed dated 10th May. 1993 made between the Bank and the Trustee (together the "Trust DeeiT) 
hereby:— 

(t) authorises the Committee consisting of representatives of hofcfere of Receipts (*Recsfothofcfera"| whose 
appointment was confirmed at a Meeting of Receiptholders held immediately before this Meeting to negotiate 
with Nuova SAFIM - Societa per Azioni Finanziaria Industria Manifatturiera (the "Borrower) and/or (he 
Borrower’s Liquidator and/or the BotTower's legal advisers with the object of achievfng a propasal tor sattiement 
Involving payment of less than the fun amount of principal and interest due in respect ol the loan made by tha 
Bank to the Borrower under a loan agreement (the "Loan Agreement") dated 24th November. 1989 between the 
Borrower, the Bank and Bankers Tmst Company as Agent Bonk and payment ol less lhan the full amount of tees, 
costs and expenses due and payable under the Loan Agreement provided that the terms of any such proposal lor 
settlement must before any binding agreement is made with the Borrower or (ha Borrower's Liquidator be 
submitted lor approval al a duly convened Meeting ol the Recalptholdsra: 

authorises the Trustee to do any act or thing, and to concur with the Bank In the execution of any document 
necessary to give effect ro (Ns Extraordinary Resolution. 

THIRD MEETING 

EXTRAORDINARY RESOLUTIONS 

THAT this Meeting of the holders of ihe U.S. $150,000000 9 par cent. Depositary Receipts due 1994 (the 
'Receipts") constituted by a Depositary Agreement and Trust Deed dated 27th November. 1908 and made 
between Monte del Paschi dl Siena, London Branch (the ‘Bank") and Bankers Ihjstee Company Limited (the 
'Trustee*) as amended by a Supplemental Trust Deed dated 10th May, 1993 made between Hie Bank and the 
Trustee (together the "Trust DeeiT) hereby:- 

(i) instructs the Committee consisting of representatives of holders of Receipts ("ReoelptholdBra') whose 
appointment was confirmed at a Meeting ol RecefothoMore held prior to this Meeting (a) to continue to 
negotiate for the fun repayment ol principal due in respect of (he loan made by tha Bank to Nuova SAFIM - 
Soaata per Azioni Finanziaria Industria Manifatturiera (the ‘Borrower) under a loan agreement (the "Loan 
Agreement") dated 24th November, 1989 between the Borrower, the Bank and Bankers Trust Company as 
Agent Bank on the due dale for repayment, and tha payment on or before 27th November, 1994 of the 
amounts ol Internet due on 27th November, 1992 and 27th November, 1B93, and the payment of the amount 
ol interest due on 27th November, 1994 and (b) to negotiate for the payment of an of part of the fees of and 
costs and expenses (save for defauh Interest, sanctions or penalties) Incurred by the Bank, the Trustee and 
the Committee in connection with negotiations with the Borrower, Ihe Borrower's Liquidator, and the 
Borrower's legal advisers which are due and payable under the Loan Agreement: 
authorises the Trustee to do any act or thing, and to concur wtth the Bank In the execution of arty document, 
necessary to give effect to this Extraordinary Resolution. 

THAT this Meeting of the holders of (he U.S. $150,000,000 9 per cent. Depositary Receipts due 1994 constituted 
by a Depositary Agreement and Trust Deed dated 27th November. 1989 and made between Monte dei Paschi dl 
Siena. London Branch (the ‘Bar*'] and Bankers Trustee Company Limited (the Trustee") as amended by a 
Supplemental Dust Deed dated 10th May, 1993 made between the Bank and the Trustee hereby:- 
(!) authorises the Trustee, in consultation with (he Committee referred to in (1) above, to take steps to radiate 
the prompt initiation by (he Bank of appropriate legal action against Nuova SAFIM - SoctetA per Azioni 
Finanziaria Industria Manifatturiera ((he "Borrower") and/or (he Borrower's Liquidator in (he event (hat the 
Borrower does not meet in full its obligations under a loan agreement dated 24th November, 1989 between 
tire Borrower, the Bonk and Bankers Trust Company as Agent Bank on 27th November. (994; 
authorises the Trustee lo da any act or thing, and to concur with the Bar* to the execution of any document, 
necessary to give effect to thts Extraonfinary Resolution. 

BACKGROUND 

Under Decree Law No. 34Q ot 18th July 1992, miaubaequcntty renewed frith amendments, Ente Partecip azio nl a 
Fmanzlamento Industria Manifatturiera - ERII (“EHM"), (tha parent ol the Borrower) was placed into 
liquidation. Subsequently, the Borrower was also placed Into liquidation. 

On 17th February, 1993, the decree law governing tha HquMatton of EFIM was converted Into law (NoJ3) (the 
"law"). Article 5.1 of the law slates that the Liquidating Commlstooner shall provide for the payment of debts of 
subsktiaries which, under the HquMation plan, ara placed (n liquidation. If and to the extent that the debts were 
assumed at a time when the subskfiary In question was (directly or indzeetty) wholly-owned by BRM. It Is alao 
c on templated by Article 8.4 of the law that medium and long-term financing agreements outstanding as at the 
data of the liquidation of EHM and extended by banks or financial Institutions are to remain In force, in 
accordance with their terms, until maturity. 

The law, and subsequent amendments to it have Included arrangements for the funding of the liquidation 
(taking Into account Article 5.1 of the taw). 

Consequently on the basis of the law the Committee has been advised by Us RaBan legal advisers that (subject 
only to the codstence of sufficient assets and the provision of adequate funding) therels no legitimate basis for 
the Liquidating Commissioner lo contest, or withhold (In whole or In pact) payment of a claim In tfiB liquidation 
for principal end interest due and other costs save for default Interest, sanctions or penalties from the 
Borrower. 

The attention of Recelpthatdsrs Is particularly drawn to the quotum required for tiie Meetings which te set out In 
paragraph 2 of "Voting and Quorum" below. RECEIPTHOLDERS WISHING TO ATTEND AND/OR VOTE AT THE 
MEETINGS SHOULD ALSO NOTE THE EXPLANATION SET OUT IN PARAGRAPH 1 BELOW OF THE 
PROCEDURES FOR OBTAINING VOTING CERTIFICATES OH GIVING VOTING INSTRUCTIONS IN RESPECT OF 
THE MEETINGS. 

in .accordance with normal practice the Thrstee expresses no opfofon on the merits of the proposed 
arrangements but the Thwtee has authorised It to be stated that It has no objection to the Extraordinary 
Resolutions being submitted to the Recaiptholden) (or their consideration. This notioe has been given at the 
direction of tire Committee. 

VOTING AND QUORUM 

1. A RsceipUioktar wishing to attend and vote at the Meetings in peraon must produce at tha Meetings either his 
Receipts) or, in the case of Receipts Issued In bearer form ("Bearer Receipts') . a vatic! voting certfflc ate or vatid 
voting certificates Issued by a Paying Agent rotative to the Bearer Receipts) to respect of whidi he wishes to vote. 
A holder of Bearer Receipts not wishing to attend and vote at the Meetings In person may eilher detvar his Bearer 
Receipts) or voting certificates) to the peraon whom he wishes to attend on his behalf, or give a voting 
instruction (on a voting instruction form obtainable from the specified office of any of the Paying Agents specified 
below) instructing a Paying Agent to appoint a proxy to attend and vote al tha Meetings In accordance with his 
Instructions. Bearer Receipts maybe deposited until (he time being 48 hours before the times fixed lor hoidtng (he 
Meetings (or, it applicable, any adjourned Meetings of such Meetings) but not thereafter with any Paying Agent or 

S o (he satisfaction of Ihe Paying Agent) held to te order or under its control by the Operator of tne Eurodeer 
ystem or by CEDELS A. or any other person approved by tt. tor (he purpose of obtafrnng voting catWcaiBS or 
appointing proxies in respect of the Meetings. Receipts so deposited or held will not be released until (he eartier of 
tha conclusion of the Meetings (or, if applicable, any adjournment of such Meetings) and either, in the case of a 
Receipthokfor who has obtained a valid voting certificate or vafid voting certificates, the surrender of (he voting 
cartificaieis) to thB Paying Agent which issued the same; or In Ihe case of a Recetpthoider who has given voting 
Instructions Instructing a Paying Agent to appoint a proxy to attend and vote at the Meetings in accordance with 
ins instructions, the surrender, not less than 48 hours before the time for which any Meeting (or. If qppfcabte, any 
adjournment of such meeting) is convened, of the voting Instruction receipts Issued In respect thereof. 

A holder ol a Receipt in registered form (ftemsiered Receipt*) may by an tostrumemin writing (a form or proxy*), 
to the form available from the specified office of the Transfer Agent, in the English language, signed by the 
Receipihotder or. m the case at a corporation, executed under Its common seal or signed on tts behalf by an 
attorney or a duly authorised officer of the corporation and deEvared to the Transfer Agere not later than 24 hours 
before the time fixed lor any Meeting, appoint any person (a "proxy') to act on his or its behalt In connection with 
any Meeting or proposed Meeting ot Reajlptiwwere. 

hours before the^Sne fixed tonjty Meeting a^^teStionofrtecIi recto rew other gavemtogbody In the English 
language authorise any parson to act as its representative (a "representative") in connection with any M oo t in g or 
proposed Meeting ot RecetpthofcJara. 

2. The quorum required at the first and third Meetings for the passing of (he Extraonfinary Resolutions (the 
"Resoluticins'J set out above under (he headings 'FIRST MEETING* and "THIRD MEETING' is two or more 
persons presenlin person holding Receipts or voting certificates or being proxies or representatives and holding 
or representing in the aggregate a dear majority in principal amount ol the Receipts (or the time being 
outstanding. II within a quarter erf an hour from the times rospaSivefy appointed for (f» first and third Meetings a 
quorum for the passing of the Resolutions is not present the Meeting shafi stand adjourned tor such period, not 
being less lhan 14 (or, in the case olthe third Meeting, if Resolution (2) of the first Meeting has bean passed. 6) nor 
more than 42 days, as may be appointed by the chairman of the Meeting and (he ResofoBons wfl be considered af 
the adjourned Meeting (notice of which wifi be given to the Recatouxnoers). The quorum required to consider the 
Resolutions at any adjournment rathe first Meeting and the third Meeting will be two or more persons present in 
person holding Receipts or voting certificates or being proxies or representatives whatever the pnndpet amount 
ot the Receipts so held or represented. The quorum required at the second Meeting for the passing of tha 
Extraonfinary Resolution (the ‘Second Meeting Resolution") set out above under (he heading "SECOND 
MEETING" is two or more persons present in person hoidtng Receipts or voting ceraficaies or being proxies or 
representatives and holding or representing in the aggregate not less than three-quarters m principal amount of 
the Receipts (dr the time being outstanding, h within a quarter of an hour from the time appointed for the second 
Meeting a quorum for the passing ot the Second Meeting Resolution is not present at the Meeting, the Meeting 
shall stand adjourned for such period, not being less than 14 (or. if Resolution (2) of the first Meeting is passed, 6) 
nor more than 42 days, as may be appointed by the chairman of the Meeting and the Second Meediig Resolution 
will be considered at foe adjourned Meeting (notice of which wia be given to (he Receipthalders). The quorum 
required to consicfar the Second Meeting Resokmon a( an adjourned Meeting will be two or more persons present 
m person holding Receipts or voting certificates or befog proxies or representatives and holding or representing 
in ihe aggregate not less than one-hafi in principal amount ol the Receipts (or (he time being outstanding. 

3. Any question atCmltted to the Mest/ngs wffl be decided on a show ra hands iratess a poB« duty demanded by the 
chairman of the Meeting or the Bank or by one or more persons present hokSng one or more Recent or voting 


certificate or being proxies or representatives and holding or repre se nting m the aggregate not less than one- 
Mtietti part ol the principal amount ol the Receipts lor me time being outstanding, on a show of hands every 
person who is present In person and produces a Receipt or voting certificate or Is a proxy or representative shall 


4. 


have one vote. On a poll every person who Is so present shall have one vote in respect ot each U.S. Si, 000 In 
principal amount of the Receipts so produced or represented by the voting certificate so produced or in respect of 
which he is a proxy or representative. 

To be passed, each Extraonfinary Resolution requires a majority in favour consisting of not less than three- 
fourths ol the votes cast thereon, tt passed, the Resolutions wfit be binding upon a> tha Receiptftofoara, whether 
or not present at the meeting and whether or not voting, and upon aU the holders of coupons rotating to the 
Receipts. 

AVAILABILITY OF DOCUMENTS 

Copies of the Ihrst Deed, the Loan Agreement and the Memoranda referred to above naming the Receiptholders 
whose representatives are presently Members of the Committee and setting out the constitution of the Committee 
may be inspected and copies ol thB voting certificates and other documents referred to above may be obtained by 
Recefothofcters from the specified office ofi any ol the Paying Agents given befow. 

PRINCIPAL RAYING AGENT 

Bankers Trust Company, 1 Appotd Street Broadgaie. London EC2A2HE 
RAYING AGENTS 

Bankas Trust Luxembourg SA, 14 boulevard FJD. Roosevelt, L-2450 Luxembourg 
Swiss Bank Corporation. lAeschenvoistadLCH -4002 Baste 
REGISTRAR 

Bankers Trust Company, Four Albany Street New York. N.Y. 10015 
TRANSFER AGENT 

Bankers Trust Luxembourg SA, 14 boulevard FJD. Roosevelt L-2450 Luxembourg 

Dated 8th November. 1994 Sankara Thrstee Canx»ny UmrtoJ 

* ui —Su rer IMHO 

This Notice has been approved by an authorised person for the purposes of ihe Financial Services Act 1986. 

THIS NOTICE IS IMPORTANT. IF RECEIPTHOLDERS ARE IN ANY DOUBT AS TO THE ACnON THEY SHOULD 
TAKE THEY SHOULD CONSULT THEIR STOCKBROKER, LAWYER, ACCOUN1ANTOR OTHBT PROFESSIONAL 
ADVISER WITHOUT DELAY. 


FIN ANCIAL TIMES TUESDAY NOVEMBER 8 1994 

INTERNATIONAL COMPANIES AND F INANCE 


Brierley lifts NZ 
media stake to 
29%, ends offer 


By Terry Hal in Wetfington 

and AP-DJ 

Brierley Investments, the New 
Zealand hotels and invest- 
ments group, yesterday said it 
had acquired a 29 per cent 
stake in Wilson & Horton and 
was therefore withdrawing its 
offer to buy shares in the pub- 
lishing company. 

The Horton family, mean- 
while. which until last Friday 
was the controlling share- 
holder in New Zealand's big- 
gest newspaper, said it was 
"shell-shocked" by Brierley's 
raid, in which it bought shares 
at NZ$9.50 each. 

The Horton and Wilson fami- 
lies have controlled the pub- 
lisher since 1863. The company 
owns the country's biggest 
daily, the Auckland-based New 
Zealand Herald, provincial grid 
weekly papers, magazines and 
a printing business. 

In a ligh tning raid on Thurs- 
day Brierley gained 20 per cent 
from institutions, then bought 


a further 5 per cent, before 
offering the same terms to 
smaller investors. It completed 
its purchases yesterday. 

Mr Michael Horton, the pub- 
lisher's manag in g director, had 
advised shareholders not to 
sell, as he was “quite frankly 
appalled" by the Brierley 
move. He said that a previous 
move by Brierley into the 
media business had been a 
blow to the industry, reducing 
the number of large New Zea- 
land publishing groups from 
three to two. 

Brierley controlled New Zea- 
land Newspapers during the 
1980s, but had been forced to 
break it up following the 1987 
market crash. 

Mr Horton's son Matthew, a 
journalist in Australia who has 
been acting as family spokes- 
man, said Brierley was seeking 
two board seats. 

Wilson & Horton shares 
closed unchanged yesterday at 
NZ$950, while Brierley slipped 
l cent, to NZ$1.27. 


SA glass group rises 
16 % at six months 


By Mark Suzman 

in Johannesburg 

Plate Glass and Shatterprufe 
Industries has reported a rise 
In aftertax income to Rli4.9m 
($32.66m) for the six months to 
September, a 16 per cent rise 
on last year's earnings of 
R99.2in for the same period. 

Turnover at the South Afri- 
can company, owned by SA 
Breweries, rose 17 per cent to 
R1.82bn from Rl.SBhn. but 
operating profit rose only 8 per 
cent to R18SSm from R172.5m_ 

Net financing costs dropped 
to R10.7m from R14.9m 
reflecting lower borrowings, 
which stood at R295.im com- 
pared with R303m a year ago. 
However, this was up on the 
year-end figure of R218.5m, 
largely as a result of higher 
short-term borrowings to meet 
seasonal capital needs. 

The company’s best perform- 
ing division was international 


arm Belron, which continued 
to show good results in Europe 
and saw particularly rapid 
growth in Australia and the 
US. Central African operations 
also performed creditably, and 
the company is currently 
expanding its Zimbabwean 
operations through a Z$i30m 
rights issue. 

However, domestic sales 
were less robust as Glass 
South Africa was hurt by the 
motor industry strike, which 
stopped sales to original equip- 
ment manufacturers. 

PG Bison, which makes 
boards a nd laminates for the 
furniture industry, also had a 
weak first quarter, but since 
then the group reports that 
sales have been excellent 

PGSI has also said that PG 
Bison will embark on RfiOQm 
plant expansion to increase 
capacity ahead of anticipated 
demand from the furniture 
market and bunding industry. 


NEWS DIGEST 


Growth in demand 
fuels Malaysian 
utility advance 


Tenaga Maslona) 

Share price (MS} 


20 



Nov S3 1934 
Source: FT Graphite 


Nov 


Tenaga National, Mal- 
aysia's partially -priva- 
tised electricity utility. 

han iwwiniinrtari pretax 
profits for the year 
ending August 31 19 94 
Of M$LSSfan (US$772m). 
a 7 per cent rise o n the 

16 kh previous year’s figure, 

writes Kieran Cooke in 
itnata Lumpur. About 
25 per cent of Tenaga 
Nas tonal was floated in 
1990 and the group now 
ranks as the biggest 
company on the Kuala 
Lumpur stock market Group turnover for the 
year rose 12 per cent to MS5.63bn. 

Tenaga said the mate reason for the rise in 
earnings had been the continuing strong 
growth in electricity demand. Malaysia’s econ- 
omy is forecast to expand by &5 per cent this 
year, the seventh consecutive year in which 
growth has exceeded 8 per cent 

Electricity sales rose by 14 per cent in tha 
year to August and are forecast to grow by 12.7 
per cent In 1995. 

A fin*) dividend of Malaysian 7 cents was 
approved, making 12 cents for the year. 

As part of a long term plan to increase Malay- 
sia's power output, the government has so far 
granted licences to five Independent power 
producers (IPPs) on a build, operate, transfer 
basis. The IPPs are expected to account for 
about 40 per cent of total power generation by 
1998. 

Highlands Gold buys 
out venture member 

Highlands Gold, the Papua New Guinea-based 
mining company which is controlled by MIM 
Group of the UK, is buying out the 5.81 per 
cent interest in the Frieda River copper-gold 
joint venture held by Norddoxtsche Afflnerie 
for 400,000 kina ($351,648), wr i t e s Nikki Tait in 
Sydney. The sale, which takes effect in April 
and is subject to government approval will 
tain* Hi ghlands ' stake in the project to almost 
72 per cent The Japanese OMRD consortium 
owns the remainder. 

News of the deal comes just days after Mr 
Norm FosseQ, Hi ghlands chairman, said that 
the group was increasingly confident that a 
mine could be developed at Nena within four 
years, and announced that exploration expen- 
diture was being stepped np. 

Strong advance for 
Indonesian tyre makers 

Gactfah Tunggal and its subsidiary Andayani 
Megah, two large Indonesian tyre and tyre 
cord manufacturers, said their unaudited net 
income in the nln*» months ending September 
30 rose by 93 per cent and 45 per emit respec- 


tively, wnK» : — ■“ . 

Gadjah Tunggal’s earnings for the penod 
climbed to Rp66bn ($30.38m) from Rp34bn a 
year ago. Andayani Megah’s net income 
totalled RpZ4hn, up from RpZ&5bn a year ago. 

Both 'fwnpanies reported their revenues rose 
hy about 28 per cent. Indonesia’s tyre industry 
is protected by high tariffs. 

Mexican subsidiary for 
Soci£t& Generate 

Soddtfi G6n€rale said It had received approval 
to set up a Mexican subsidiary, which will be- 
reiioH Socifite Gdndrale SA and open in the 
first half of next year, Reuter re ports from 
Paris. The French bank has had a represented 
five office there since 1963. 

The Mexican unit wifi, have capital of $5Qm 
and will be 100 per cent owned by the French 
parent It wffl offer domestic tending, export 
fj r unning , market operations, and advisory 

and financial engineering services. 

The subsidiary will be headed by Mr Jean 
Ponsard, who was a senior executive in Spain. 

Seita posts profits of 
FFr254m midway 

Seita, the French stateowned tobacco group 
whidi is due to be privatised, recorded a 1994 
net first-half profit of FFr254m ($4&5Sm) on 
turnover which rose 6J5 per cent to FFr7^bn, 
the c o mpan y said. Renter reports from Paris. 

It added that it expected net profit for the 
foil year to exceed 1993’s FFr585m. 

The company described the first-half result 
as “promising*'. 

Seita added that first-half sales could not be 
compared with those of 1993 because it was the 
first time it had given six-month consolidated 
figures. But it estimates that sales growth for 
the year will be higher than &fi per cent 

Operating profit for the first half of 1994 
totalled FPr467.7m which amounted to 87 per 
cent of the operating profit for all of 1993. 

Reliance Industries to 
merge associates 

India’s biggest private sector company, Reli- 
ance Industries, said yesterday that it intended 
to merge two of its associates, Reliance Poly- 
propylene and Reliance .Polyethylene, with 
itself, writes Shiraz Sklhva in New Delhi. 

Board members of the three companies are 
dm to meet today to consider the proposal 
Reliance said the move was intended to pro- 
tect shareholders of tire associate companies - 
both single-product manufacturers - from the 
vagaries of their specialist markets. 

Australian engineer up 

Australian National Industries, the engineer- 
ing group winch owns the UK's Aurora group, 
said yesterday that it had made a first-quarter 
profit after tax of A$14.4m (US$l0.77m), up 
from A$I2.6m in the same period of the previ- 
ous year, writes Nikki Tait Sales in the three 
months to end-September were A$39&3m, com- 
pared with A$344.1m. 


Acquisitions boost 
Email’s first half 


By Nikki Tait 
In Sydney 

Email, the Australian white 
goods and building products 
company, yesterday announced 
a 35.8 per cent increase in 
interim profits, for the six 
months to end-September, to 
At4&Sm (US9Mm). 

The advance was scored on 
sales up by 2&2 per cent at 
A$1.05bn. 

Email said that the figures 
bad benefited from an addi- 
tional three months of trading 
for the Dorf, Lockwood, Whitco 
and formed metal businesses 
which it acquired in July 1993, 
and six months trading under 
full ownership of Email 
Westinghouse. 

However, at the earnings 
per share level, the Increase 


was only slightly smaller, 
with the fully-diluted figure 
rising to 17.4 cents from 13.1 
cents. 

All four main operating 
groups posted higher profits 
and sales, although the 
large appliance division bore 
non-recurring costs of around 
A$7m related to the launch 
of new products and the 
rationalisation of refrig- 
eration manufacturing 
operations. 

The company also issued a 
bullish forecast for the second 
half it said that demand in all 
areas was up an the previous 
year, and it was “confident of 
exceeding the 1993-94 very 
strong second half result, 
based on the expectation that 
the present market conditions 
continue''. 


China Light ahead 
18% at HK$4.2bn 


By Louise Lucas 
in Hong Kong 

China Light and Power, the 
monopoly supplier of 
electricity to Kowloon and the 
New Territories of Hong 
Kong. yesterday reported an 
18.4 per cent rise in net profits 
to HK$4.2bn ($543m) for 
theyear to September 30 from 
HK$3.5bn the previous year, 
broadly in line with market 
expectations. 

However, operating profit 
slumped 24 per cent 
to HK$3.1bn from HK$4.1bn. 
The group saw HKSSSGtn from 
non-mainstream operations, 
of which at least HK$186m 
accrued from property 
sales. 

Thken on a per share basis, 
earnings rose at the same rate 


to HK$211 from HK$L78- The 
directors are recommending a 
dividend payment of 37 cents, 
up from 35 cents In the 
previous year. 

Turnover rose 4^ per cent to 
HK*15.4bn. Sales to Hong Kong 
have been hit by the relocation 
of manufacturing companies 
across the border in China. 
The manufacturing sector 
accounted for 20 per cent of 
CLFs revenues in 1993, down 
from around 35 per cent -in the 
1980s, and analysts expect the 
contribution to diminish 
further. 

Next year, in the absence of 
unforeseen circumstances, CLP 
plans to pay out three interim 
dividends of 30 cents a share 
each, with the final pay-out 
depending on the year's 
results. 


Correction 

Telecom Italia 

In the FT survey on Italian 
Industry and Technology, 
published on October 2b, the 
article on the telecoms sector 
stated that 60 per cent of 
Telecom Italia’s investment 
was financed by debt, and 40 
per cent from internal 
resources. The company points 
out that those figures refer to 
the coverage of capital 
invested as at December 31 
1993, before the merger of 
state-owned telecoms 
companies, and not to annual 
investment, which is financed 
entirely from internal 
resources. In 1994, Telecom 
Italia expects capital 
expenditure to be more than 
covered by cash-flow. 

The annual turnover of the 
company in the 1993 pro forma 
profit and loss account was 
approximately L27,000bn 
($17.27bn) and not L2,T00bn, as 
incorrectly reported. 



'jC' j . ' 


M- 




* L 


V-.jjfj < H i fe ‘ • 


1 

-Ai ; • . 

* >■ • .'Lk j 


THERE'S A 
HANGING 
EVERY 
MONTH 

Great Art demands the 
greatest space; thafs why on 
the first Saturday of each 
month tee FT publishes a fufJ 
colour Art section devoted to 
art and antiques. 

The weekend FT is read by 
an estimated 1 mSUon people 
bi 160 countries, reaching 

affluent International 
investors and collectors; 
providing the Art world wtth 
exceptional and effective 
advertising opportunities. 
37% of Saturday FT readers 
have bought paintings or 
antiques In ihe last two years 
(FT Reader Survey 1982) 

Fbr more Information about 
advarfMpg phtM contact: 

Genevieve Rlarenghi 
+4471 8733185 
James Burton 
+4471 8734677 

The FetAMOAL Totas- 
PumNG THE COLOUR BACK 
into Art 


NOTICE OF CHANGE OF 
OFFICE FOR PAYMENT 
To the holders of 

Certificates of Accrual oa: 
Various Treasury Securities, 
13.82% Gaissa Centrafes 
de Cooperatioa 
Ecaaotaque, and 
12.25% fater-Americaa 
De v elop m e nt Bank 

NOTICE is hereby given that, 
effective as of September 2, 1994, 
MORGAN GUARANTY TRUST 
COMPANY OP NEW YORK has 
resigned and transferred its New 
Yoric corporate trust functions 
to, and has been succeeded by, 
FIRST TRUST OF NEW YORK, 
NATIONAL ASSOCIATION, 
100 Wall Street, Suite 1600, New 
York, New York 10005. 

Payment cm certificates in die 
United States when due, will be 
made upon presentation and sur- 
render thereof to 1 . 

(/ by Mail: 

First Trust 

National Association 

Corporate Trust Operations 
3rd Floor 
P.Q. Box 641 11 
St Paul, MN 55164-011 ] 

If . fa Ftond or Overnight hfafc 
First Trust 
National Association 
Corporate Trust Operations 
3rd Floor 

180 East Fifth Street 
SL Paul MN 55101 

II mail is used, registered or 
certified mall is suggested. If 
payment of the bond is to be 
made to the registered owner of 
the bond, you are not required to 
endorse me bond. For informa- 
tion call (612) 244-0444. 

Dated: November 7 , 1994 




This announcement appears as a matter ol record only. September 1994. 

BANCO REAL 

U.S. $150,000,000 
Commercial Paper Program 

Issuer 

Banco Real S. A — Grand Cayman Branch 


Co-Load managers 

Barclays aerfiPLC 

Banque Francatse du Commer c e Exterieur 
Midland Bank PLC - New Ybik Branch 
Banco Lramoemericana de Exportacenes, SA - BLADEX 
National Wbsiminsier Bar* PLC 


Bank of America NT&SA 
CffibartcNA 

ING Bank N.V. 
BHF-Bank 

WeoLB / Baal 

Mw ra sera * — 

Creditanstalt Bankvetem _ 

The Firw National Bank of Boston - Nassau Branch Ybrfc Branch 

Banco Espirilo Santo eComeraalde Lisboa -Nassau Branch “anco uanirai Httpenoamericeno. S A 
Intermev Comerica Bank 


Depository 

BsnkAmerica Nadanaf Trust Company 


Co-Dealers 
BA Securities, inc. 


Barclays de Zoraa Wadd Ltd 


Letter of Credit Bank and Admlnhrtrattn Agent 
BARCLAYS BANK PLC 


*■»[!. 


i, ’•( « 

■V 


Arranged by 




Bank of America 


or Uutne* MrtSA 






FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


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INTERNATIONAL COMPANIES AND FINANCE 


Record oil results boost 
CanPac in third quarter 


By Robert Gibbons in Montreal 

Canadian Pacific, the 
transport, resource, hotels and 
property group, registered a 
third-quarter profit due to 
record results from its oil and 
gas subsidiary. 

Croup net profit was 
C$87.6m (USSSLSm), or 25 cents 
a share, against a loss of 
CS15.Lm, or 5 cents, a year ear- 
lier. Revenues were flat at 
CSLTCbn against C$i.6bn. 

O per ating income was 
CS279m, up 14 per cent. Pan- 
Canadian Petroleum contrib- 
uted 09129m, a jump of st per 


By Richard Tomkins 
In New York 

May Department Stores, the 
biggest US department store 
group, yesterday opened the 
quarterly results season for US 
retailers by reporting a modest 
4.5 per cent increase in after- 
tax profits for the three 
months to October. 

Net income rose from S133m 
to 5139m, but May said the lat- 
est figure would have been 
9145m had it not been for its 
share of the cost of settling a 
lawsuit filed against the com- 


cent. Rail operations were hit 
by a long strike at the Soo Line 
unit in the US, which was 
suspended at the end of 
August, though Canadian traf- 
fic was higher. CP Rail contrib- 
uted C$5.5m, down from 
CS&5m. 

Shipping, coalmining and 
hotels all increased their con- 
tributions. 

Nine months' net profit 
jumped to C$306. 9m from 
CS10S.8m. on revenues of 
C$52bn against CS4.6bn. 

In the nine months, shipping 
expanded container operations 
and improved its Rites, while 


pony and its investment bank 
by certain bondholders in 1992. 

Fully-diluted earnings per 
share, including the litigation 
charge, rose from 49 cents to 51 
cents. 

May operates 309 department 
stores and 4.062 Payless Shoe- 
Source stores in the US. 

Revenues at stores open for 
more than a year rase by 4.4 
per cent in the department 
store group but fell by 2.6 per 
cent in the Payless ShoeSource 
group. 

This sluggishness in store- 
for- store sales growth was off- 


operating costs declined. Prop- 
erty was helped by higher 
office occupancies, with a 
stronger tourist season and the 
lower Canadian dollar contri- 
buting to the hotels division. 

Laldlaw, the waste manage- 
ment group In which Canadian 
Pacific has an j&8 per cent 
stake, contributed C$6.6m 

against a loss of C$87m. 

However, losses increased to 
C$88.7 m from C$53m at Unite!, 
the telecommunications unit. 

Mr William Stinson, chair- 
man. said CP's fourth-quarter 
results should continue the 
improvement. 


set by May’s aggressive store- 
opening programme. 

During the quarter the group 
opened 10 new department 
stores, making a total of 11 in 
the year-to-date, and also 
ended the quarter with 193 
more Payless ShoeSource 
stores, for a total of 283 year-to- 
date. 

As a result, total department 
store revenues rose by 7 per 
cent to $2.33bn and Payless 
ShoeSource revenues rose by 4 
per cent to 5540m, producing 
an overall 6 per cent increase 
in revenues to $2.87bn. 


C&W wins 
telecoms 
services 
deal in US 

By Andrew Adorris 

Cable & Wireless, the UK 
telecoms gronp, has been 
selected by an alliance of 
small US wireless operators to 
provide long-distance telecoms 

services to knit together their 
proposed networks. 

C&W's US subsidiary is 
already ao established 
long-distance US operator, and 
the contract does not require 
heavy investment 

However, C&W said that if 
the wireless operators - all 
small and medium-sized con- 
cerns - succeeded in gaining 
licences for new "personal 
communications services’' 
(PCS) networks, tbe resulting 
business could be worth "sev- 
eral hundred millions of dol- 
lars a year” to C&W within 
five years. 

The PCS licences are dne to 
be auctioned next year by the 
Federal Communications Com- 
mission, the US regulatory 
authority. The FCC has 
reserved a proportion or tbe 
licences for smaller operators. 

AT&T, the US operator and 
equipment supplier, will sup- 
ply network equipment for the 
alliance. 

C&W’s US subsidiary had a 
turnover of $560m last year. 


May Stores earnings up 4.5% 


AlliedSignal back on a growth tack 

Chairman Larry Bossidy has set precise targets, writes Tony Jackson 


O ne might have guessed 
that Mr Larry Bossidy, 
chairman and chief 
executive of the diversified US 
manufacturer AlliedSignal, is 
on ex-General Electric man. 
The gospel of GE is ever- 
increasing productivity: Mr 
Bossidy has a productivity tar- 
get of 6 per cent a year stretch- 
ing into infinity. So far at least, 
he looks on target. 

When Mr Bossidy arrived at 
AlliedSignal in 1991, bis first 
task was to confront a business 
which, in some parts, was 

shr inking alarming ly A large 
part of the company is in aero- 
space, and a large part of that 
business is in defence. In this 
year’s third quarter, however, 
the aerospace division 
increased its sales for the first 
time in more than three years. 
For Mr Bossidy , this is an 
important symbol of a return 
to growth for the company 
overall. 

Granted, the growth was 
tiny - under 1 per cent - and 
was wholly due to acquisitions. 
Granted, too. Mr Bossidy 
expects the military side - 
about 28 per cent of the divi- 
sion's sales - to continue 
shrinking. Civil aerospace, too, 
is a tough business these days: 
but here at least, he is confi- 
dent that things can only get 
better. 

“Worldwide deliveries of air- 
craft look like being down 26 


per cent this year. Next year 
we expect them to be down 
around 5 per cent They should 
start to recover in 1996. though 
not dramatically. Flying hours 
and take-offs and landings are 
still growing at around 3 per 
cent a year, so you know the 
business is going to come back. 
The question is when." 

The projections sound curi- 
ously precise, but Mr Bossidy 
is a precise man. When be took 
over in 1991, he set himself 
financial targets for 1994: an 
improvement in operating mar- 
gins from 5 per cent to 9 per 
cent, and a return of equity of 
18 per cent against 10.5 per 
cent. Nine months into the 
year, margins are nomine at 
9.2 per cent, while return on 
capital is about 20 per cent. 

I n response to this, be is 
raising the targets. Mar- 
gins next year will be 10 
per cent, he says, and 12 per 
cent by 1997. Similarly, produc- 
tivity - which he defines as 
sales without price increases 
divided by costs without infla- 
tion - will carry cm rising by 6 
per cent (this year so far it has 
gone up 59 per cent). “It’s an 
infini te target ” he says. “You 
just have to keep re-inventing 
way’s of getting it.” 

He expects sales this year to 
be up 8 per cent in real terms, 
having been flat from his 
arrival until last year. Here, 



Larry Bossidy: * We ought to see 
a period of nice income growth' 


too, he has raised the bar. “I 
said last year we would try to 
sustain revenue growth of 8 
per cent, frith 4 per cent gener- 
ated internally and the rest 
from acquisitions. We now 
think we can do 5-6 per cent 
internally, so we ’ll do 8 per 
cent plus for the next three 
years." 

This year’s third quarter, he 
says, was particularly reassur- 
ing, with sales up a nominal ll 
per cent - the first double-digit 
increase in 6'A years. “So with 
costs in good shape, and with 
volume continuing to grow, we 
ought to see a period of nice 
income growth.” 

The obvious question arises 
of how far this recovery is 


cyclical and thus unsustaina- 
ble. Everything is cyclical, he 
says; but in the company’s 
largest single division, which 
makes car and truck compo- 
nents. be argues for greater 
stability- The US auto industry 
is greatly helped by the weak- 
ness of the dollar, but US auto 
manufacturers are also run- 
ning their businesses better 
than they used to. As for tbe 
cycle, he says, “as US autos 
weaken. Europe should 
strengthen, and we’re roughly 
equal in both”. 

One reason for the compa- 
ny's strength in Europe is an 
active acquisition programme. 
This is an important part of Mr 
Bossidy’s strategy; since his 
arrival AlliedSignal has ma flp 
11 acquisitions, which next 
year will contribute sales of 
glbn - perhaps 7 per cent of 
the total 

In addition to acquisitions, 
he points to two more sources 
of future growth: new prod- 
ucts, such as innovative forms 
of radar, and globalisation, 
above all in nhin» , India and 
Mexico. Provided that strategy 
works, he is happy to stick to 
the existing businesses of aero- 
space, automotive and materi- 
als. “If we can get the growth I 
think we ran in those three 

sectors, we’ll stay there. Fail- 
ing that, we’d consider a fourth 
area. That’s a low priority 
right now." 


Mexican group to buy 
Upjohn’s seeds unit 


By Damian Fraser 
in Mexico CHy 

Empresas La Moderns (ELM), 
a Mexican tobacco and agricul- 
ture business, has agreed to 
buy the Asgrow-Seed Com- 
pany, a subsidiary of Upjohn, 
the US healthcare and chemi- 
cals business, for 5300m. 

The deal is expected to be 
concluded at end-December, 
subject to regulatory approvaL 

Asgrow is one of tbe world’s 
five Trading agricultural seed 
companies, with revenues last 
year of about $300m, of which 
about half came from the US 
and the remainder from 
Europe, Asia and Latin Amer- 
ica. It researches, develops and 
markets LD00 varieties'and 31 
species of seeds for the proces- 
sor and fresh market produce 
business. 

ELM’S acquisition is part cf a 
strategy to diversify from its 
core tobacco business into agri- 
culture. Last year it took 51 per 
cent of Agricola Batiz. an 


exporter of fruits and vegeta- 
bles to the US. 

Mr Alfonso Romo, chairman 
of ELM. said that the transac- 
tion “fits perfectly with our 
vision to establish a strong 
agriculture and biotechnology 
business”. 

He said tbe combination of 
ELM'S marketing skills and 

Asgrow’s research and develop- 
ment abilities would give Elift 
a unique position in a market 
in which Asian and Latin 
American countries would 
become increasingly impor- 
tant 

Mr Ley Smith, chirf execu- 
tive of Upjohn, said “because 
of changes in our Industry, 
Upjohn needs to focus on its 
core pTwnnai*mitiBii business”. 

Asgrow’s purchase price rep- 
resents about 10 per cent of 
ELM's stock market capitalisa- 
tion, and its awmai sales about 
20 per cent of ELM's totaL 
ELM is an affiliate of Grupo 
Pulsar, a conglomerate con- 
trolled by Mr Romo. 


Founders of Southern 
Peru Copper plan IPO 


By Kenneth Goocfinq, 

Mining Correspondent 

Two of the US founders of 
Southern Peru Copper Corpora- 
tion (SPCC), one of the world’s 
biggest integrated copper pro- 
ducers, are to sell their shares 
through an international pub- 
lic offering, taking advantage 
of high metal juices and inter- 
est in emerging markets. 

Some 28 per cent of SPCC 
will be on offer and the com- 
pany will apply for a listing on 
the New York Stock Exchange. 

Non-voting, employee shares 
in SPCC are quoted bn the 
Tima exchange and at present 
give the group a market value 
of about US$L3bn. 

Seffing thdr SPCC shares are 
Cerro Trading, a Marmon 
Group subsidiary, which owns 
20.7 per cent, and Newmont 
Gold, with 10.7 per cent. 

SPCC has -no- plans to offer 
any shares and will receive no 
proceeds from the offering, 
through US and international 
s yndicates led by CS First Boa- 
ton and S.G. Warburg. 

The other founding share- 
holders in SPCC are US copper 
producers Asarco, with 513 per 
cent, and Phelps Dodge, which 
has HL3 per cent 

SPCC operates two mines 
and a smelter in the south of 
Peru. Last year it produced 
307,000 short tons of copper, 


3.3m troy ounces of silver and 
&3m lbs of molybdenum. 

The company is three years 
into a five-year, $300m invest- 
ment programme aimed at 
increased output and correct- 
ing environmental problems. 
In June it acquired the nearby 
Bo copper refinery, sold as part 
of Peru’s privatisation pro- 
gramme, for &&9m. 

• A consortium comprising 
Cmninco, the Canadian metals 
producer, and Japan's Maru- 
beni has won a bidding contest 
for the Cajamarqullla rinc refi- 
nery an the outskirts of Lima, 
Peru, writes Bernard Simon in 
Toronto. 

Co min co, which will have 
an 83 per cent stake in the 
refinery, said that the purchase 
price is about USJlOSm, part of 
which will be paid in instal- 
ments over 14 years. 

About a dozen other groups 
expressed interest . 

Cajamarqullla has an »rmnaT 
capacity of about 100,000 
tenngft- Cominco has indicated 
that it plans to expand the 
capacity to 140,000 tonnes, 
which is about half the size of 
its flagship complex at Trail, 
British Colombia. 

In addition to an improving 
political and economic climate, 
Cominco said that it was 
attracted by Peru’s active min- 
ing industry and “strong” geo- 
logical potential 


Engelhard in joint venture 
with CLAL of France 


By Kenneth Goocflng 

Engelhard Corporation, the 
New York-listed company 
which is 30 per cent-owned by 
MfrMU CQ, the overseas arm of 
the Anglo Americaa-Pe Beers 
group of South Africa, has 
signed a letter of intent to put 
most of its precious metals 
fabricating operations into a 
joint venture with CLAL of 
Ranee. 

CLAL, quoted in Paris, Is 
part of Mr Marc Ladreit de 
Lacharriere’s Fimalac f in a n- 
dal-indnstrial group. 

The SWO joint venture, to be 
based in France, would have 
annual revenues of about 


USfLbn, derived equally from 
the partners, and employ 2,600, 
about 1,750 from CLAL. It 
would combine Engelhard’s 
strengths in platinum group 
metal fabricated products with 
those of CLAL in gold and sil- 
ver products. 

CLAL Hahns market leader- 
ship in France, Spain, Scandin- 
avia and the Netherlands while 
Engelhard has a strong posi- 
tion in the UK, Italy, the US 
and east Asia. 

Although there is almost no 
overlap between the two, there 
is scope for rationalisation, 
Engelhard said. 

The deal is not expected to 
be completed for some m o nths. 


TOTAL 

shareholders 

Now is your 
opportunity to 

become an 

eyewitness. 

The world of TOTAL is continually expanding. In the UK, our activities cover North 
Sea oil and gas exploration and production, gas marketing, refining, and the marketing of 
petroleum products as well as the manufacturing of rubber-based products, resins, inks, paints 
and adhesives. 

We have an active presence in 80 countries and as an international energy company, 
we are increasingly involved in the best management of the world energy resources and the 
industrialisation of developing countries. 

We believe we have a responsibility to demonstrate that our words are matched by our 
deeds. So we are offering individual shareholders the opportunity to become “eyewitnesses” 
to our activities. 

Eyewitness-shareholders will be selected to travel on fact-finding missions 
and be the eyes and the ears of all interested in TOTAL. They will KMtt 
visit production sites and get a close up view of TOTAL at work. Their TOTAL 
experiences and conclusions will be publicized to a wider audience. k WMIK 

If you are an individual shareholder of TOTAL and you would like to apply to become an eyewitness- 
shareholder, please send a letter to Peter Cavan. TOTAL , 33 Cavendish Square, London WIM OHX. 
The letter should include information about yourself and why you would like to take part. Should you 
require more information please use the following free phone number : 0800 96 27 63. 





24 


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In accordance with the 
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1994 to 4th May, 1995, die Notts 
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PROVINCE OF NOVA SCOTIA 
U S. S500.000.000 
Floating Rata Notes Due 1999 
In accordance wttti the terms ami 
commons at 0ie Notes. msraot 
me tor the period Mi Nove mb er. 1994 
to 9th February. 1999 has bean fixed ei 
Bk pec annum. The merest 
payable on 9th February: 1895 «■ be 
U.S. $15333 per U.S. $10,000 nominel 
and U S. *1 £3333 per U.S. Si 00,000. 

Fiscal Agent and Agent Bank 
ftCfl ROYM.BANK 
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nMA NCIAL TIMES TUESDAY NOVEMBER S 1994 

INTERNATIONAL COMPANIES AND FINANCE 


Minolta returns to black on sales increase 


By Mchiyo Nafcamoto In Tokyo 

Cost-cutting measures and increased 
sales helped Minolta, the Japanese 
maker of cameras and office machinery, 
return to the black in the first half of 
the year. 

Nan-consolidated recurring profits - 
before extraordinary items and tax - 
were Y542m ($5 .5ml, a turoround from 
the YLlbn loss a year ago. Net profit 
was Y386m. compared with a net loss of 
YLSbn previously. 


The improvement came on the back 
of a 4 per cent rise in sales to Y92.7bn, 
from Y89-2bn, which was achieved in 
spite of sluggish capital spending in 
Japan and the yen's sharp appreciation 
against the dollar. 

However, Minolta was unable to 
make a profit at the operating level, 
although it trimmed operating losses to 
Ylbn from a previous Y2Jbn. The com- 
pany passed its interim dividend and 
does not expect to pay a dividend 
at the year-end. 


Minolta said that cost-cutting mea- 
sures, such as the increased standardi- 
sation of parts and greater overseas 
procurement, had helped it improve 
results in the first half. 

The company, which exports 75 per 
cent of its products, expects to increase 
procurement of parts from lower cost 
overseas mar kets to 12 per cent in ralne 
terns in the current year, compared 
with 4 per cent last year. 

In its office machinery division, the 
inclusion of sales of assets related to Its 


planetarium business, whichhas been 
sold to a subsidiary, helped boost rave-. 

nues by 6 per cent 

Bfinoiia expects sales of its new mod- 
els to gather pace in the second half, 
particularly in the US where demand 
has been strong. As a result the com- 
pany has revised upwards its fun-year 
sales forecast to Y18ibn compared with 
an earlier prediction of' Yiflflbn, 
although its forecasts for recurring 
profits and net profits are unchan ged at 
Ylbn and YBOOm, respectively. 


Investors 
offered a 
slice of HK 
film empire 

By Simon Hotberton 
fin Hong Kong 

Mr Raymond Chow, one of the 
founders of the Hong Kong 
film Industry, will take part of 
his movie empire public this 
week when be offers L25m 
shares in Golden Harvest 
Entertainment (Holdings). 

The stock is priced at 
HKI1.93 a share, which gives a 
prospective price/eamings 
ratio of 10.39 times, on a fully 
diluted basis. The issue will 
raise HK$241.25m (US$31. 3m) 
gross and HK$225m after 
expenses. The issue is man- 
aged by Wardley Corporate 
Finance and PruAsla DBS. 

fn the year to the end of 
June the company had profits 
after tax of HK$69.2m, on 
turnover of HKS3G1.7m. Direc- 
tors forecast profits of at least 
HK$90m in the current year. 

Golden Harvest Entertain- 
ment wfll own Mr Chow's cine- 
mas, distribution businesses 
and film processing business, 
ffls film production business, 
his biggest asset, has been 
kept private. 

The company is one of the 
main distributors of Chfnese- 
«nd English-language films in 
Hong Kong, with a 27 per cent 
and 38 par cent market share, 
respectively. The company is 
also an important dis tri butor 
of fiVmg in Singapore »nd Mal- 
aysia, and in Thailand it oper- 
ates two multiplex cinemas. 

The company said HK$70m 
of the capital raised would be 
used to repay bank debt The 
remainder would be used to 
expand its cinemas In Hong 
Kong and south-east Asia. 


UAC Nigeria begins a new chapter 

Unilever is severing all ties with the company, writes Paul Adams 


N igeria's private sector 
and UAC, its flagship 
company. have 
reached a watershed with the 
decision by Unilever, the 
Anglo-Dutch consumer prod- 
ucts group, to end its 70-year 
involvement in the company, a 
relationship which came to 
symbolise stable, long-term 
investment in Nigeria 
The offer to buy Unilever’s 
remaining shares in UAC 
Nigeria is likely to be folly sub- 
scribed by local investors when 
it closes later this month, bro- 
kers in Lagos believe. 

Nigerians are apparently 
eager to invest in the company, 
the country's largest manufac- 
turing, packaging and distribu- 
tion conglomerate with the 
most prized property portfolio 
in Lagos, in spite of its che- 
quered history and the uncer- 
tainties of life without Uni- 
lever. 

UAC Nigeria’s origins pre- 
date the formation of the coun- 
try. Its forebear, the Royal 
Niger Company, was the 
region’s trading pioneer in the 
late 19th century. It carved out 
a near monopoly of trading 
palm oil and other local raw 
materials in exchange for 
European goods. As the opera- 
tion grew. Lord Leverhulme, 
the founder of the British side 
of Unilever, was so keen to 
acquire it that he paid cash for 
the company without seeing 
any accounts. 

The business became the 
largest part of Unilever's 
United Africa Company, and 
after independence in i960 
UAC Nigeria dominated the 
private sector and retained 
powerful influence in govern- 
ment circles. Through nrn> civfl 
war. more than half a dozen 
military coups, and the boom- 


and-bust cycles of the domi- 
nant oO industry, UAC Nigeria 
has epitomised stability and 
sound investment 
This year’s disinvestment 
also closes a long chapter In 
Unilever’s history. At its peak 
in 1975, UAC International, the 
parent of UAC Nigeria and a 
mixture of other businesses 
extending from Africa to the 
UK, contributed about one- 
third of Unilever’s group prof- 
its. That has shrunk to about 
0.5 per cent as Unilever has 
focused on its core consumer 
products. 


Of UAC Nigeria's 11 divi- 
sions, only toiletries fits the 
current Unilever profile. Uni- 
lever is transfering that and 
the proceeds from the share 
sale to Unilever Nigeria, its 
new 100 per emit owned hold- 
ing company. In addition, UAC 
Nigeria’s Caterpillar distribu- 
tor will become a joint venture 
with Unilever called Tractor 
and Equipment 
Unilever and Mr Bassey 
Ndiokho. UAC’s chairman, 
stress that the divestment deci- 
sion was mutually agreed and 
conceived before trading condi- 


UAC’s chairman is confident that the 
Nigerian directors can expand and run the 
business successfully after Unilever divests 


The roots of the disinvest- 
ment are two fold - political 
and corporate - and stretch 
back two decades. Under pres- 
sure from the Lagos govern- 
ment to keep UAC Nigeria in 
Nigerian hands, Unilever had 
cut its stake to 40 per cent in 
the 1970s with the rest held by 
Nigerian private and institu- 
tional investors. 

About three years ago, UAC 
Nigeria's management 
suggested to Unilever that they 
should go their separate ways. 
Finally, last December, Uni- 
lever agreed to sever all links 
by transferring some assets 
from UAC Nigeria to a new 
local Unilever holding com- 
pany. and to sell its remaining 
20 per cent in the company, 
valued at around $4&n at the 
officia l exchange rate. 

Unilever also decided in the 
1980s to concentrate worldwide 
on four businesses: personal 
products, food and drink, deter- 
gents and specialty chemicals. 


tions became more difficult 
last year. 

Mr Ndiokho admits, how- 
ever, that excessive bureau- 
cracy and the government’s 
foreign exchange controls have 
matte it difficult for legitimate 
businesses to import necessary 
materials and equipment and 
to export profitably. 

The effects of the military 
regime's fiwral foriigHplino anri 
the political instability of the 
past 12 months have been felt 
throughout the economy. In 
1993 at least six working weeks 
were lost to political distur- 
bances, while inflation 
approaching 100 per cent a 
year *mH a sharp devaluation 
of the naira eroded domestic 
demand «nd put pressure an 
profits. 

After-tax profits last year 
were N432Jhn ($19.65m), an 
increase in naira terms of 29 
per cent from 1992 but below 
the rates of inflation and deval- 
uation. 


The situation is worsening. 
This year’s first-half profits 
were 17 per cent below fore- 
cast, although higher than ' a 
year earlier, and the second 
half began badly with the polit- 
ical strikes which brought the ‘ 
economy near to a stands ti ll fax 
July and August. The naira 
has been devalued on the par- 
allel market by 40 per cent in 
the last six weeks. 

Neverth eless, demand among 
Nigerian investors for the UAC 
is high. The two issuing 
houses in Lagos, First City 
Merchant Bank Invest- 
ment Wanting Trust Company, 
have placed all the shares with 
sub-underwriters who expect 
to have sold nearly' all the 
stock when the offer doses. 

Mr Ndiokho, who took over 
as UAC chairman last year 
when Mr Ernest Shonehan 
became head of the interim 
national government, is confi- 
dent that the Nigerian direc- 
tors can recapitalise, expand 
and run the business success- 
fully after Unilever divests. 

Initially, most investments 
will be in property develop- 
ment but in the long term UAC 
wants to attract foreign techni- 
cal expertise in timber, textiles 
and packaging. The company 
is also lnniring at expansion in 
seed production, wood exports 
and the oil services industry. 

The International Finance 
Corporation, part of the Would 
Bank, is to produce a strategic 
study and recommend interna- 
tional partners in new ven- 
tures. 

Unilever says it will main- 
tain its commitment to Nigeria 
through its new holding com- 
pany and a 40 per cent stake in 
Lever Brothers Nigeria, which 
detergents, margarines 
and personal products. 


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FINANCIAL TIMES 

Conference* 


WORLD 

TELECOMMUNICATIONS 


London - 6 & 7 December 1994 

The Financial Times annual conference will review developments changing the shape 
of the telecommunications industry worldwide and provide a high level forum to 
exchange views on the way ahead. 

ISSUES TO BE ADDRESSED INCLUDE: 

• Whither International Telecommunications Alliances? 

• Creating an Informations Society in Europe 

• Information Superhighways - the developing US scene 

• Regulating competition in Europe 

• Selling telecommunications equipment in a liberalising market 

SPEAKERS INCLUDE: 

• Dr Martin Bangeraann 

Member 

European Commission 

• Sir Iain Vallance 
Chairman 
BT 

• Mr Robert B Morris in 
Managing Director, International Equity Research 
Goldman Sachs International 

• Mr Donald Critic kshank 
Director General 

Office of Telecommunications (OBTEL) 


Dr Michael Nelson 

Special Assistant for Information Technology 
The Office of Science & Technology Policy, US 

The Rt Hon Lord Young of Graffham 
Executive Chairman 
Cable & Wireless pic 
Dr Edward F Staiano 

Prcadent and General Manager, General Systems Sector 
Motorola Inc 

Dr Hans Baur 
Member of the Board 
Siemens AG 


Arranged in association with the Financial Times newsletter “FT Telecoms Markets” 
There are some excellent marketing opportunities attached to this conference, please contact 
Lynette Northey on 071 814 9770 for further details. 


WORLD TELECOMMUNICATIONS H*®* relum to: Financial Times Conference Organisation, 

PO BOX 3631, London SW12 8PH. Tel: 081 673 9000 
Please tick relevant boxes. Fax: 081 673 1335. 

World Telecommunications £680 + Vat 

□ Conference information only. 

□ Cheque enclosed for £799 .00, made payable to FT Conferences. Name Mr/Mrs/Miss/M s/Other 

□ Please chaigc my Mastereand/Visa with £799.00. Job Tide Dcpl 

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Address ...._ 

Name of card holder 

Signature — — 

- - PostCode 

nr Mi . u— ;o«|ro«<fc.mfc-hrfc|b TI B.al M ,bc.,^ d ,a tc - — B E Jnn pdrfFT pw <, rw > Q«i^J _ 

Tel pny 

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FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


25 


INTERNATIONAL CAPITAL MARKETS 


Treasuries lower ahead of quarterly refunding 


By Patrick Harverson in New 
Yodk and Conner Middebnann 
in London 

US Treasury prices slipped 
lower across the maturity 
range in light trading yester- 
day morning as Friday’s bear- 
ish jobs report continued to 
unsettle market sentiment. 

By midday, the benchmark 
30-year government bond was 
down £ at 323, yielding 8.162 
per cent. The short end was 
also slightly weaker, with the 
two-year note off A at 99=1. 
yielding 7.046 per cent. 

Trading opened in lacklustre 
fashion, with many partici- 
pants choosing to sit on the 
sidelines ahead of today's first 
leg of the Treasury's quarterly 
refunding round and Thurs- 
day’s inflation data. 

The mood of the market 


remained sombre, however, ns 
dealers and investors contin- 
ued to mull over Friday’s Octo- 
ber employment report. 

The report, although seem- 
ingly positive at fust when the 
growth in non-farm payrolls 
came in lower than expected, 
subsequently proved bearish 
for bonds because the data 
included same warning signs 
on inflation that analysts said 
only increased the likelihood 
that the Federal Reserve would 
raise interest rotes at the next 
meeting of its open market 
committee on November 15. 

The expectations of another 
policy tightening, which 
pushed long yields to new 3 1 .*- 
year highs last week, 
depressed prices further yester- 
day. and the market was not 
helped by the impending 
arrival of new supply. 


The TYcasury will sell Sl7bn 
in three-year notes today, fol- 
lowed by further sales later in 
the week, and the market yes- 
terday was concerned that the 
auctions might not nice! with 

much demand. 

■ European government bond 
markets were once again 

GOVERNMENT 

BONDS 

depressed by weaker US Trea- 
suries, leaving prices to drift 
lower In sluggish dealings. 

The spectre of fresh supply 
further weighed on several 
markets as traders wondered 
where new bonds would be 
placed in the absence of inves- 
tor demand. 

The biggest supply burden 


comes in the CJS, where the 
Treasury is due to auction 
$29bn of three and tO-year 
notes in the next two days. 

Germany is set to sell an 
estimated DMlflbn of 10-year 
bonds today and tomorrow; 
Japan is expected to auction 
around Y300bn of 20-year 
bonds today; France is due to 
issue five and 10 -year Ecu 
bonds tomorrow; the Dutch 
finance ministry plans to tap 
the 30-year sector on Thursday; 
and the Bank oF England last 
Friday announced the sale of 
two £250m tranches of conven- 
tional gilts and two £ 100 m 
tranrhes-of index-linked stock. 

“Placing supply in these 
markets is not easy, and it’s 
one factor keeping them sub- 
dued,” said Mr Graham McDcv- 
itt. bond strategist at Paribas 
Capital Markets. 


■ UK gilts slipped by about % 
point, depressed by weakness 
in other markets and contin- 
ued uncertainty on the UK 
interest rate horizon. 

Interest-rate jitters were 
revived by the latest UK indus- 
trial production numbers, 
showing a bigger than forecast 
t.l per cent rise in September. 

While the market did not 
react sharply to the data, they 
did fuel talk that the Bank of 
England may tighten monetary 
policy sooner than expected. 

The December long gilt 
future foil by 5 to 

■ Gorman bunds lost their 
intra-day gains to end the ses- 
sion about point lower, pres- 
sured by weaker US Treasuries 
and some futures sales ahead 
of today's 10 -year bund auc- 
tion. 


The December bund future 
on LUTc fell by 0.32 to 89.07. 

■ In Sweden, yields jumped 
again on renewed worries that 
Sunday's referendum on Euro- 
pean Union membership may 
result in a "no” vote after a 
poll showed -12 per cent of vot- 
ers opposing membership, 40 
per cent Favouring it and 17 per 
cent undecided. 

The ll-year benchmark bond 
yield rose 22 basis points to 
11.67 per cent - off its intra- 
day peak of 11.80 per cent - 
and the 10- year spread over 
bunds widened to around 401 
basis points from 363 basis 
points on Friday. 

fn this environment, the auc- 
tion of five and 11-year bonds 
was sluggish, enabling the gov- 
ernment to sell only SKrd.Sbn 
of the SKrT.abn offered. 


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World Bank launches long-awaited Y200bn global issue 


By Graham Bowioy 

The World Bank yesterday 
launched its long-awaited 
global yen deal, a Y200bn issue 
of 10 -year bonds with an offer 
spread of 9 to II basis points 
over Japanese government 
bonds. 

However, syndicate manag- 
ers said the offering, due to be 
priced today, was destined 
almost entirely for Japanese 
investors and would excite tit- 
tle US and European interest. 

Merrill Lynch, Nlkko Europe 
and Nomura International are 
lead managing the issue, the 
World Bank's first global yen 
offering since June 1993. 

“Nobody outside Japan is 
currently buying yen-denomi- 
nated issues,” said one syndi- 
cate manager. “The distribu- 
tion of this bond will be almost 
entirely Into Japan.” 

However, a source dose to 
the deal reported firm Euro- 
pean demand, in particular 
from UK investment funds, 


and central banks, with many 
investors switching out of 
existing global yen bonds, such 
as the World Bank 5% per cent 
2U02 and World Bank 4*/s per 
cent 2003. 

This bond offers a pick-up 
in yield of 2 to -t basis points, 
which is attractive to inves- 
tors,” he said. 

INTERNATIONAL 

BONDS 

He added: “This deal is 
attracting more European 
interest than standard euroyen 
Issues have done this year.” He 
expects only about 60 per cent 
of the bonds to be sold to Japa- 
nese investors. 

In the dollar sector, Bank 
South Australia launched a 
$250m issue of five-year float- 
ing-rate notes offering 35 basis 
points over three-month Libor. 

J.P. Morgan, the lead man- 
ager, said there is continuing 
demand for floating-rate dollar 


assets, especially in the higher 
yielding sectors such as the 
Australian dollar market 

The lend reported broad sup- 
port for the offering from insti- 
tutional and retail investors in 
Asia and Europe, especially the 
UK. 

At the shorter end or the dol- 
lar sector, the Council of 
Europe Resettlement Fund 
launched a $150m offering of 
two-year bonds priced to yield 
U basis points over US Trea- 
suries. 

The Fund has an annual 
short-term borrowing require- 
ment of approximately 
Ecul.lbn and an annual 
long-term funding programme 
- which is used for loans to 
member countries - for this 
year of about Ecu650m, most of 
which is already completed, a 
Fund official said. In 1993, the 
long-term borrowing require- 
ment was Ecul.lbn. 

The Fund tapped the two- 
year area of the sterling sector 
in October. It last came to the 


NEW INTERNATIONAL BOND ISSUES 


Amount 

Coupon 

Price 

Mdlurftv 

Foes 

Spread 

Book runner 

Borrower 

US DOLLARS 

m. 

'v 



% 

bp 


Bonk Sou lh Aubiram: 

250 

Id) 

9S 7B5R 

New .19M 

0.29R 

e 

JP Morgan 

Co ol Butopo Resell f-U 

ISO 

7 25 

•W.S92H 

Due. 1398 

0.125R 

- 

ar.v 

UnHXI Bank Crf SitiUiULvid 

'50 

7 U0 

WA1R 

Ora: r^cus 

ai25R 

- 

UBS 

Qrupo Indusiriol Durjngo(b)( 

125 

lb) 

KWR 

No-r PJ96 

1.00R 

- 

Chase investment Bank 

YEN 

World Bonk* 

Mttew 

fc) 

lei 

Dec.2004 

0.121 


M.Lyrcit ■’ Nikko / Nomura 

Hanhyv Depi. Si ores Europe 

I0bn 

415 

10035 

New 1939 

0.35 

- 

Sornna bn: 

AUSTRALIAN DOLLARS 

Cofn.wuoUh Bk. Of Aujtrjtki 

100 

10. 125 

10133 

Dec.1937 

ISO 

- 

C with Bk. Of Australia 

PESETAS 

Republic of Argenlina 

lObn 

12.80 

101.00 

Dec. 1997 

1 50 

- 

Beo Cent Itspano - Am. 

GUILDERS 








Robobonk Nothartands 

350 

7 SO 

9o.aso 

Dec. 1999 

0^50 

♦18 (7W%-W)R»obar* 

SWISS FRANCS 

IASD 

150 

5.625 

102.30 

Doc 2001 


- 

Credit Suisse Zunch 

Rrvri lorma and norvcaUbte unless atatod. The yield spread (over relevant government bond)at launch la supplied fay the lead manager. 
teUnOstod. tHoatmg rate note. Ft fixed reroffor price: fees an> shown at the re-offer level, a) Pays 3 month Libor +35Sp. Cal at par 
after 2 years b) Pays 6 month Ubor +360bp- Amount ncreased from SI 00m c) Globa Issue. To be priced today. 


dollar market in May with a 
similar two-year deal. 

Lead manager BZW reported 
Arm demand for the bonds 
from European retail and insti- 
tutional investors. 

Syndicate managers said 


that the offering was fairly 
priced and offered good value. 

One syndicate manager said: 
“The two-year dollar sector has 
been hit hard by the specula- 
tion about a rise in US interest 
rates and is therefore now 


unlikely to fall much further.” 

Also in the two-year dollar 
sector, Union Bank of Switzer- 
land launched a 3 150m offering 
of bonds priced to yield 5 basis 
points over US government 
bonds. 


UK utility loan 
terms under fire 


By Martin Brice 

The pricing on a forthcoming 
syndicated loan for East Mid- 
lands Electricity, the UK power 
distributor, is attracting fierce 
criticism bum syndicate man- 
agers. 

They say pricing of 15 basis 
points over Libor on the £350m 
loan, which is being arranged 
by Chemical Bank, is too low 
and for this reason it is not yet 
finalised after three weeks. 

“This may be a deal too far,” 
said one member of a syndi- 
cated loans team at an invest- 
ment bank in London. 

Supply of new loans has out- 
stripped demand this year, 
driving down pricing as banks, 
hungry for assets, have turned 
aggressively to the syndicated 
loans market while borrowers 
remain wary of large debts. 

Hie interest rate on a syndi- 
cated loan is usually set at a 


margin over Libor, the bench- 
mark interest rate for the mar- 
ket. Over the past year, the 
spread on a syndicated loan to 
a typical European corporate 
borrower, with a Single A 
credit rating, has dropped from 
about 45 basis points to around 
20 to 22 basis points and may 
fall still further. 

However, although Chemical 
Bank would not comment on a 
deal still in syndication, it is 
believed in the market that a 
£500m loan for National Power 
being arranged by Chemical at 
a price of 17 basis points has 
been oversubscribed. 

Another said; "Although 
East Midlands is a good UK 
name, 15 basis points over does 
not reward you sufficiently. 
Chemical is pushing the mar- 
ket further than it wants to go. 
But although we have reached 
the bottom, I don't t hink prices 
will start to go up." 


Komercni Banka sets 
east European benchmark 


By Vincent Boland in Prague 

KomerCni Banka, the second 
biggest bank in the Czech 
Republic in asset terms, is to 
raise $65m in the international 
syndicated loan market at a 
margin of 65 basis points over 
Libor, the narrowest spread yet 
for an eastern European bor- 
rower. 

Last month another Czech 
bank, Ceskoslovenska 
Obchodni Banka (CSOB), the 
Czech and Slovak trade bank, 
set a new benchmark for such 
borrowers by raising $75m in a 
five-year loan at 70bp over 
Libor. CSOB bad set the issue 
at $50m but strong demand 
pushed subscriptions to S120m 
before being scaled back. 

Sumitomo Bank, arranger 
and agent for KomerCni Banka, 


said fees for the five-year loan 
would range from 25bp to 30bp. 
Sumitomo also arranged the 
CSOB loan. Full details of the 
new issue will be announced in 
London this morning. 

The terms of the loan are 
likely to set another bench- 
mark for Czech borrowers. It 
will be closely watched by 
other banks and corporates 
seeking to raise funds abroad, 
according to bankers in 
Prague. 

Several Issues are being con- 
sidered and the reaction to 
such a narrow spread for the 
Komercni Banka loan among 
prospective lenders will deter- 
mine if margins fan further. 

KomerCni Banka said it 
would use the funds raised by 
the loan to provide export fin- 
ancing to customers. 


| WORLD BOND PFUCES 




' ‘i . .j?r' -i* .. • ’ ' ' ■' • 



BENCHMARK GOVERNMENT BONDS 

Red Day's 

Coupon Date Price change Yield 

week 

□90 

Month 

ago 

Italy 

■ NOTIONAL ITALIAN GOVT. BOND (OTP) FUTURES 
(UFFE)' Lira 200m tOOths of 10094 

FT-ACTU ARIES FIXED INTEREST INDICES 

Phce incfices Mon Day's Frl Accrued 

UK Gits Now 7 change % Nov 4 Interest 

xd ad|. 

YW 

Nov 7 Nov 4 Yr. ago Nov 7 Nov * Yr. ago Nov 7 Nov 4 Yr. ago 


■V 


Australia 

0000 

09/04 

89.7200 

-0.900 

10.71 

10.53 

10.10 


Open Sell price 

Chenge 

Ugh 

LbW 

EsL vol 

Open htt. 

Balgam 

7.750 

10*04 

95.1900 

-0.120 

8.48 

149 

149 

Dec 

10110 10118 

■0.15 

100.48 

10104 

14950 

53453 

Canada * 

&S00 

08434 

820000 

-0250 

9^5 

9.10 

9.04 

Mar 

99.05 9110 

-0.14 

99.35 

99.05 

425 

8286 

Danmark 

7JJ00 

12AM 

819500 

-0070 

902 

199 

100 

France STAN 

aooo 

05)08 

101J500 

- 

756 

7£S 

759 








OAT 

5.500 

04AM 

82.1400 

-4X270 

829 

828 

113 

■ ITALIAN GOVT. BOND (HTP) FUTURES OPTIONS (UFFE) UniZOOm lOfflhs of 10086 

Germany Tieu 

7JSOO 

09AJ4 

96.8900 

-0800 

7.88 

7.84 

7.63 

Strike 





m 1 1 it mb 


ttafy 

asm 

08AM 

802100 

-1.240 \2.m 

11.73 

1141 

Dec 

.& — — _ 
Mar 


Dec 

rulo 

Mar 

Japan None 

4.800 

08/09 

102.7380 

-0.140 

4.10 

4.10 

4.11 

Price 



Japan No 184 

4.100 

12AJ3 

96.9260 

-0.400 

4.74 

4.74 

4.78 

10000 

025 

2.12 


0.77 


3.02 

Nattiarionds '• '' 

7250 

1 OV4- 

97X800 

-fXSSO 

753 

7.61 

758 

10050 

170 

1.91 


1.02 


321 

Spain 

' 8000 

06AM 

800500 

-4X380 

1137 

1126 

1109 

10100 

150 

1.72 


122 


3.62 

UKGBts 

MOO 

08/98 

90-00 

-a/32 

159 

165 

153 

EsL VCL UML Cafe 1085 Puts 272S. Prautous <W« onwi InL Cob 25735 Pins 31K3B 


8.750 

11AM 

88-28 

-15/32 

8.73 

172 

189 









0.000 

10/08 

102-14 

-20/32 

&70 

188 

167 








USTnraBuy’ 

7550 

08AM 

94-24 

-a/32 

103 

7.84 

749 








7^00 

11/24 

92-19 

-14/32 

8.16 

100 

720 








ECU (French GmQ 

aooo 

04/04 

83.1700 

-0.190 

187 

168 

9.98 

Spain 








1 Up to 5 years (24) 

2 5-15 years 123) 

3 Over 15 years (0) 

4 Irredeemables (B) 

5 At stocks (61) 

Index-Meed 


11928 

-119 

119.60 

127 

183 5yrs 

162 

164 

113 

w flfl 

150 

628 

183 

175 

151 

13824 

-149 

13193 

1.45 

11.49 15 yn 

158 

ISO 

7.13 

172 

163 

725 

196 

828 

7.45 

154.73 

-189 

15142 

223 

10.87 20 yra 

823 

148 

722 

172 

163 

720 

188 

176 

7.47 

17425 

-025 

175.47 

020 

13-47 bred.t 

158 

155 

7.33 







135.83 

-046 

13620 

1.84 

1193 















— — hritaBon 5% — 

— 

— 

— Motion 108b- 

— 



6 Up to 5 ywra K) 

7 Over 6 years (tl) 

8 AS stocks (13) 

Debentures end Loons 








Nov 7 

Nov 4 

Yr. ago 

Nov 7 

Nov 4 

Yr. ago 

18582 

-0.07 

185.95 

149 

527 

Up to 5 yra 

4.07 

423 

223 

2.94 

220 

1.53 

17327 

-0.11 

173.46 

024 

428 

Over 5 yra 

3.88 

327 

3.15 

3.69 

3.88 

2.98 

17389 

-0 .11 

173.87 

ISO 

4A\ 













- 

5 year yield — 

16 year yield — 

— 

— 25 ywryWd 


9 Debs & Loans (77) 126.58 -0.86 127.94 2J3 9.57 9.76 168 7.B9 9.72 9.81 

Avcrago poos ledMnpoon yttMo m atxm. Cowwn Bands: Low: OH-T**; Madun: BK-IOMM; High: tl* and oner. T Hat yteu y ttt Year to du. 


967 9.66 


&SS 


London deow» -Mo* York mid-dey 
t (teas fnaa*v.wlMM*irg m. at 126 par 
Plicae US, UK h 32ndSi ettm kn dacfcnal 

(18 INTEREST RATES 


YWd): Local marhei MondanL 
am payaMo by nonreoktonw) 

Sawoo: MMS Mumxkmor 


■ NOTIOHAL SPANISH BONO FUTURES (MEFF1 


LlSIcMklH 


Pita* rata. 


faUnb at UgmqfiafL- 


Onomontt 
75, Iwo randl _ 
Thminodlu 
Stxmontb.- 
Oh tear — 


Treasury Bte and Bond Yields 
479 IPs fear . 


a 


565 Ttotatm- 
54< Fbajaar — 
568 10-iear 
aas 30-janr 


7.05 

732 

7.72 

am 

aie 


Dec 


UK 


Open 

86JM, 


SeUpnce Change 
86.10 -037 


rtflh 

8027 


Low 

86.06 


Ebl vd. Open mL 
23.341 76,986 


GILT EDGED ACTIVITY INDICES 

Now 4 Nov 3 Now 2 


Now 1 


Oct 31 


NOTIONAL UK GILT R/TURES (UFFE)" £50.000 32nd! of 100* 


BOND FUTURES AND OPTIONS 
Prance 

■ NOTIONAL FRENCH BOND FUTURES (MAT1R 


Dec 

Mar 


Open 

100-25 


Sett price Change 
100-22 -0-17 

99-30 -O-tD 


High 

101-00 


Low 

100-20 


Est. vol Open nr. 
23754 108675 

0 6? 


FT FIXED INTEREST INDICES 

Mow 7 Nov 4 Now 3 Nov 2 Nowt Vrago High' Low* 

Govt Secs. (UK) 91.04 91.69 91.45 90-89 91.06 10200 107.04 0SS4 GHt Edged bargains 862 762 87.3 7B2 802 

Brad Interest 106.01 107.84 107.82 10728 107.64 122.92 133.87 106.50 6-day nveraga 81.7 79.0 800 802 82.6 

• M 1994 liowsmmont Saavatas htfi nines ewnpOMon 127.40 (971733). low 49.18(371/75). Rn#d Warm Ngn since eomMMtorc 13327 £1/1/941 , low 50.53 p/1/75) . Baals 100; Qowanmant SccuMaa 157107 
2* and Fluid kueiea i*?& S£ acdvtty mdcaa rabeced 1974. 


BONQ'SEJTOC^>>Vr 


■ LONG CULT FUTURES OPTIONS (UFFE) E50.000 64lhs ol 1 00* 


Listed aw me latea rtenato na l bondh lor whfch there o an acfeqicie secondary martaL Latest | 
Bid Otter Chg. Yield 



' Open 

Sett price 

CtuTKJO 

High 

Low 

Eat voL 

Opan kit 

SWk» 

Dec 

DSC 

fllfB 

11020 

-0.13 

11022 

10966 

78.352 

136.156 


Mar 

10922 

10928 

-118 

10928 

10120 

2208 

13,894 



«Aai 

10140 

10824 

-118 

108.49 

10140 

1.128 

1285 

102 

0-21 


CALLS 


PUTS 


Mar 

2-09 

1-43 

1-18 


Dec 

045 

1-00 

1-41 


Mar 

2-13 

2- 47 

3- 22 


■ LONG TERM FRENCH BOND OPTIONS (MATTF) 


Pitee 

110 

ill 

118 

113 

1H 


Dec 

002 

030 

ai4 

0.05 

ao3 


CALLS 

Mar 

1.50 

1j06 

023 

047 

021 


Jin 


Nov 

065 

1.18 

124 

322 


PUTS 

Dec 

2.71 

327 

4.11 


Mar 


Em. woL tool Casa 4821 Puts 4010. PnMoua oto/o open mi. cab 80484 Puts UStf 


Ecu 

■ ECU BOND FUTURES (MAT1F) 


* 


Est <*>L total Cafe 20,744 Puq 40418 . Pmkiws day* open Ml. Cab 290JJ34 Pirn 287,404. 

Germany 

■ NOTIONAL GERMAN BUKO FUTURES (UFFT3* DM2S0.000 lOOttw Of 10096 
Open Sail price Chonoa Ugh tow 
Dec 8823 69.04 -025 8929 8826 

Mar 88.12 aa.10 -029 8821 88.08 


Dec 


US 


Open 

80.18 


Seltprice Change 
8020 -a IB 


High 

60.20 


Low 

80.00 


EsL vd. Open im. 
2.898 6.601 


■ US TREASURY BOW FUTURES (CBT) *100.000 32nds ol 100% 


Est vol Open tnL 
76889 189518 
2623 16735 



Open 

Latest 

Chango 

High 

Low 

EsL vol. 

Open Ini. 

Dec 

964)7 

9109 

*0-02 

96-12 

96-01 

442.581 

384.407 

Mar 

95-17 

85-21 

+0-02 

95-23 

05-14 

4.497 

30. SOT 

Jun 

94-28 

964)3 

- 

95-04 

94-28 

2S6 

11.323 


Issued 

U1 DOLLAR STHAIQHTS 
Abbey NaU Treosuy 6% CD 

— 1000 



Bar* Ned Garaenwi 7 39 
Baft ol Tokyo 8% 96 _ — 

_ 1000 
100 





Canada 9 96 

Cheung Kong Fin 5% 98 _ 

1000 

500 







E» Japan Fbdwiv 6% <M 

600 









Eurahro &u 9b 

100 


baued Bbf Oder Chg. Yield 


■ BLIMP FUTURES OPTIONS (LUTE) 084250,000 pofcrta Of 100% 


Deo 

Jan 

CALLS - 
Fab 

Mar 

Dec 

Jan 

PUTS 

Feb 

Mar 

165 

1ST 

183 

198 

aei 

1.47 

1.73 

128 

142 

141 

164 

179 

028 

121 

2.04 

2.19 

126 

n» 

049 

163 

122 

2.19 

£39 

223 


UirkcLs 

cr.scs 


frrmi-4 


-.BflC' 


SHe 
Price 
8000 
8050 
9000 

Pn mL total, cab 18S80 Ptda 9023. Prerieos day's opan W, Cab 201779 Puta 224608 


UK GILTS PRICES 


yui m m _ 

U Rad Price! +er- W< lai 


Japan 

■ NOTIONAL LONG TERM JAPANESE GOVT. BONO FUTURES 

(UFFE) VI 00m IQQtha at 100% 

Opan Close Change Hgh Low EsL vot 0|»i> i»l 
D ec 107^2 - - 107 JM 107.79 1121 0 

Mar 107.07 - - 107X37 107.05 235 0 

- LUTE contracts traded can APT. AM Opan mtwMrt nga. are 5* previous <u». 


RM Pitea! +er- 


_ 1994 — 


U— -1994 

(Z)PriM2 .a- H«1 Low 


SbiaW 1 *Lhaa « b Bra ttrt 

TmaBpc 199*8 Wg 

13c 1895 T1« 

Em 3pc Gal 198946 _ 394 

iwtfcisis am 

tiaaa 12I18C 199S&__ iZM 

1 be 1996 1 1* 

1#4PC1flB6**. 1372 

&* 1314*1896#.— 125 
0naokiBlQpe1B9G — ■ B60 

h*as0w7pc19^t__ 7.18 

T«S13VPBJ9WW— ”J» 

e»ai T0 ! rpc1SS7 U6 

TtaKrttoeiMm — .aff 

&dtlSpCl997 12.79 

MipelflOB-— Ml 

TnbPLpetssatt — 750 

Itoe 1988-1 IZO* 

TimiPtpcVm 

BttigaelBBB 1078 

TmtBh pemp. — -021 

EttlHtoClHL. 1M8 

TnanCJapcISBfl OM 

TftaSft*18e9ri-. 088 


RmaBOHaYaara 

Coawfltoi 10*41* 1999- 
TNbBeWBlvaB.— - 

CWW MIW 0“ 

TrmlSfCifflD— 

101*3081 

—i n — — 7m 

12002 Ml 

toi aom 

J8P6SDW— . W6 

Tiwdll’jpC 2001-4. — . 1029 


-100*6 
565 101ft 
6.73 

641 102 s * 

tTOIOSUte 
687 10*fl 
723 111ft 
7.33108)3x1 
TJSlW’snl 
795 97\ 

794 1«H| 
7 M TtBft 
831 101 7s 
632 U7A 
64B ima 

643 96*s 

644 85ft 
aeon ^ 
651 1KH 

683111ftN 
am.-MMi 
671 11!% 
BJ71D6V0 
am 90% 


673100ftN 


684 97 i 

am ion 

684 118ft 
684 105*8 
678 

am 104 % 

681 85%!ri 
ft* IRH 

aw mfi 


— 103)3 
-ft 107ft 
■ — 88d 
-ft 107« 
-ft ”3% 

-ft T(7A 
-ft 12111 
-ft 1170 
-ft 112ft 
-» 109% 
121U 
-ft 114ft 
-ft 110ft 

■4*. 131B 

-*4 11411 
-A 106ft 
-A HP 

■S i«a 

-% 140ft 
-% 12SU 
-Ac. 118* 
-* 126ft 
-ft 121ft 
-A UHfl 


-ft 12113 
— 100 * 
-% 97% 
-ft 118ft 
-H 1MB 
-% 122ft 
108ft 
-*1 123* 
-ft H3B 
-ft 127ft 
-ft 129W 


FtflWM* 7999-4- _ 
100* OnwntDa 0*11*2004^. 

101& D»8%pc2004tt 

07% S^PtZOOG 

“P CmOizpeajqs 

fleas 12 %je 3003-5. 

110 % 

108ft 


7%sc2008tt 

Bpc2K»<B- 


,« TSta 11 %se 2003-7^. 
gs% — 

110* 13%tpc 2004-e 

104*8 Tma One 2008 ft 

Inns fee 2009 

K&ft 

95% 

m 

OtarRStaalMn 
TaaiS iNpc 2010 

unU cowapemamft — 

run Ti«a«pe20izft 

tosft nw5*KKaus-i2#_ 

88B TUosSpc 2013ft 

7%pe 28l2-15ft 

TRM8%pc 2017ft 

Ead) 12 j* 2913-17 

IHti 

m 

86 

,flf ndabd 

S aaa«4BC 

nrtimSJajicft 

102$ C0»3*jpe*B1«. 

az% TWaspesew-— — 
104*2 CanaahPrtC.— ~ — 

roes TMfeSbw 


4.78 7M 731t 
RIO 664 104ft 
7J8 673 B7H 
am an asu 
607 681 104% 
1MB 9.12120%* 
133 aM B3ft 
648 178 94)1 
1022 612 114S3 
163 670 96)3 
1060 612 127ft 

178 188 102ft 
147 US MU 


Vt 86*5r 

-ft 125ft 
-A 105% 
-% 100ft 
-J! 125b 
-S 143ft 

iiai 
+4 111% 
-a i38* 
-a iu«i 
-a 151 ft 
-a i24u 
-a us* 


im a 
84S 
97 

102 % 

iib% 

90% 

am 

112 % 

95J3 

124)5 

m 

m 


2%pcDl (769 

2%pC03 (784 

4%pc D4ft _41 355) 

2peU9 — flJRS 

2%ptDB_ 4718) 

2>aiCTl (74.6) 

2%pcT3 poa 


w. 


-167 M 


288 

2.96 

3-45 

155 

058 

381 

185 

168 

170 

172 

175 
in 

176 


423 106% 
176 107 

185 165% 
IBS 161 ft* 
169 108ft 

185 158 
187 152, Ud 

187 157»j 
317 129% 

186 138 

188 132ft 
SIS 110ft 
190 lOOi 1 . 


-% 203% 19735 
-% HJ* 106,'. 
-% 176% 163*7 
-*■ 173% 159ft 
-% MB’s 107% 
-ft I84U 165ft 

-% 168ft >49% 
-% 175% 154% 
-A >46% 

-A 157ft 134% 

-A 1S2S1 128% 
-A «9ft '«% 

-,ft rail *05% 


2%peT6 (81 . 

Ihvcia (6301 

2%pe-M« (97.7) 

4%W30tt (13111 j-ru iwii — ia '»v,» « 

Prespectwe real radaniptlQn rale on protected inndlon of (l) iofe 

and p) 5K. (b) Hgulw W paremheoea show HP! base *» 
hdaring 8a 8 months prior to issue) and have been OdtusMd to 
reflect rebating of RPi to 100 W February 1987. ComvsM 
factor 6946. RPI tor Fabmay 1894: 142.1 and for Septan** 
1994: 1410. 


7J9 

833 

BOA* 

-« 

96* 

77B 

874 

888 

103 

-fi 

128H 

i««3 

873 

844 

ra* 

-1 

127% 

100% 

7 AS 

Ml 

73% 

-a 

S3% 

n% 

8.45 

859 

94% 

-a 

IITfl 

92 

840 

859 

92*4 

-% 

114% 

80ft 

858 

886 

1DD2 

-i* 

128% 

99ft 

128 

B4iraftal 

-»% 

158% 

128ft 


Other Fixed Interest 


NUbs 


Yield — 

H Rad Pnre£*«- 


1994 .. 
Ugh Law 


872 

- 43% 

■hi 

9% 

4411 

85* 

- 4m 

-% 

5*u 

®u 

548 

- 58H 

-% 

n 

«% 

870 

- «u 

■hft 

44% 

33U 

853 

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26 


. 1 


FINANCIAL* TIMES TUESDAY NOVEMBER 8 1 994 


COMPANY NEWS: UK 






Food ingredients disposal represents ‘another significant step’ in strategy 

Allied Domecq in £265m sale 


By David Blackwell 

Allied Domecq, the UK food 
and drinks group that has 
decided to concentrate on 
Spirits and retelling, yesterday 
sold its food ingredients busi- 
nesses for a total of £265m. 

Kerry, the Irish food group, 
has agreed to pay $402m 
(£248m) cash for DCA Food 
Industries, Allied's US food 
ingredients subsidiary, and 
Margetts Foods of the UK. 

Separately Allied has agreed 
the sale of a DCA joint venture 
interest, not in the US, to a 
third party for $25m. 

Mr Tony Hales, Aided chiaf 
executive, said the sales repre- 
sented “another significant 
step" in the group’s strategy. 

“We are pleased to have 
found a committed buyer for 


DCA in Kerry," he added. 

New York-based DCA makes 
ingredients such as food coat- 
ings for the industrial, food 
service and supermarket seg- 
ments of the market Margetts 
makes jams and processes fruit 
for yoghurt, icecream and bak- 
ery products. 

The businesses had annual 
revenues of $333m and operat- 
ing profits of $3 1.8m for the 
year to last February- Analysts 
suggested that Allied had got a 
good price, at wen over $1 per 
dollar of sales. 

Kerry, which yesterday 
described its purchase as “a 
major strategic acquisition", is 
to finance the deal through a 
combination of bank borrow- 
ings and a placement Yester- 
day It placed 7.8m ordinary 
shares at 335p apiece with 


institutional investors, raising 
I£26m (£25. 6m). 

Borrowings will more than 
double to l£360m. giving gear- 
ing of well over 100 per cent 
The group to cut this to 
less than go per cent by the 
end of next year. 

The deal has been backed by 
Kerry Co-operative, which 
owns 52 per cent of the group, 
and is expected to be com- 
pleted next month. It will lift 
the annual sales of the group's 
food ingredients businesses to 
about Jlbn. accounting for 
more than half total turnover. 

Allied Domecq changed its 
numfl from Alhed-Lyons after 
paying £739m last March for 
control of Pedro Domecq 
Group, the Spanish drinks pro- 
ducer. Domecq is best known 
in the UK for sheny brands 


such as La Ina. but SO per cent 
of its profits last year came 
from Mexico, where it owns 
Presidents, the largest-selling 
brandy in the world. 

The group's extensive food 
and beverage businesses, with 
a total turnover last year of 
about £lbn, were put up for 
sale in the summer. Among 
prospective buyers for DCA 
were Dalgety and Grand Metro- 
politan in the OK and Heinz in 
the US. The Tetley tea and 
European bakery businesses 
remain on the market 

Goldman Sachs, the US 
investment bank, beat SG War- 
burg of the UK to advise Allied 
on the disposal of the food 
ingredients businesses. War- 
burg continues to advise Allied 
on the sale of the beverages 

and bakeries units 


Shake-up continues at New London 


The reorganisation of New London, the oil 
industry services company, continues with 
the announcement of a disposal, -acquisi- 
tion and results showing reduced losses 
from continuing businesses. 

The company is selling Well Solutions, 
its Texas-based energy industry services 
supplier, for $16m (£9.7m) in cash and 
$lAm in convertible loan stock. Mr Paul 
Kesterton, chief executive, said the pro- 
ceeds would be used to buy International 
Tool & Supply for an initial sum of (5.75m 


in cash and the issue of 20m new shares. 

ITS operates a variety of international 
businesses serving the energy industry, 
from distribution and procurement to 
designing and manufa cturing steam gener- 
ators, and supplying products for the con- 
tainment of oil spills. 

The acquisition agreement included fur- 
ther payments in cash and shares, contin- 
gent on ITS meeting certain profit targets. 

New London also announced interim 
pre-tax profits of $685,000, against a loss of 


(l^&n last time. Profits were helped by aa 
(845,000 gain on the termination of discon- 
tinued operations. Sales feG from £&4m to 
$12£m due to the sale of International 
Drilling Fluids last year. Excluding IDF, 
sales rose from SILSm. 

Earnings per share were 0.6 cents (13 
cents losses). There is no dividend. 

The shares were suspended at 4p pend- 
ing shareholder approval of the disposal 
and acquisition on November 29. Dealings 
are expected to resume on December l. 


Wellington 
Underwrite 
listing hitch 

By Ralph Atkins 
Insurance Correspondent 

A delay by Lloyd’s of London 
in approving fresh rules on 
corporate investment in the 
insurance market has caused a 
last minute headache for a 
new underwriting company 
planning a listing. 

Wellington Underwriting, 
which intends to invest in 
seven Lloyd's syndicates run 
by the Wellington managing 
agency, is due to complete 
arrangements this week for 
placing 30m shares at lOOp. 

It faces a scramble to final- 
ise the details after Lloyd's 
regulatory board failed last 
Friday to approve proposals 
allowing existing corporate 
vehicles to invest in others. 
The Issue will be considered 
by Lloyd's council tomorrow. 

Mr Anthony Cooper, chief 
executive of the Wellington 
agency, said the amount that 
would be affected by the pro- 
posed changes was “not criti- 
cal", bat the hitch has made 
the timetable for Wellington's 
placing tight Commitment 
letters are due to be returned 
to Greig Middleton, Its broker, 
on the same day as Lloyd's 
council meets. 

Impact day is set for this 
Friday with dealings expected 
to start on November 17. 


Lex Service sets up new 
division to tackle EU 


By John Griffiths 

Lex Service, the UK’s biggest 
vehicle distribution and leas- 
ing group, is forming an inter- 
national division with the 
intention of breaking into the 
car dealer networks of conti- 
nental Europe. The move is a 
potentially significant one for 
the development of vehicle 
retailing in the EU. 

Continental car markets, 
including France and Ger- 
many, are much more frag- 
mented than in the UK Most 
dealerships are privately 
owned and large public groups, 
such as Lex, are virtually 
unknown. Most represent 
tempting targets for UK groups 
seeking to replicate their mul- 
ti-franchise dealer chains on 
the Continent. 

Lex has nearly 130 UK car 
and commercial vehicle dealer- 
ships. representing more than 
30 manufacturers. It sold 64,000 
new and 30.000 used vehicles 
last year and accounts for 
about 3 per cent of the UK new 
car market. Its annual pre-tax 
profits amounted to £101 .5m. 

It and other large distribu- 
tion companies, such as Inch- 
cape, maintain that they are 
able to make the economies of 
scale and heavy investments in 
dealer facilities needed to strip 
the inefficiencies out of car 
retailing. 


Mr David Beck, managing 
director of Lex’s retail group, 
is to become managing director 
of Lex Automotive Interna- 
tional. He oversaw Lex’s entry 
fata vehicle retailing in North 
America with the takeover of 
Campbell Automotive, a chain 
of Ca l Hinmfa dealers, in 1989. 

I fix already ban two small 
leasing ventures in France, 
covering cars and fork lift 
trucks. 

“However, we are now in a 
situation where we c an, look at 
opportunities, both 
dealerships and importexships, 
systematically." Lex said. 

The announcement of the 
European venture comes about 
a month after the European 
Commission’s decision to allow 


Europe’s car makers and deal- 
ers to keep their privileged sys- 
tem of exclusively. franchised 
dealer networks for another 10 
years. 

However, the amended terms 
of this “block exemption" from 
normal EU competition rules 
should make, it easier for 
dealer groups with enough 
financial resources to set up 
multi-franchise networks on 
the Continent 

As part of Lex’s management 
changes, Mr Jon Walden, a 
main board director, will 
replace Mr Beck as managing 
director of Lex Retail Group, 
which manages the car dealer- 
ships. Mr Walden is managing 
director of Lex Vehicle Leasing 
and chairman of Hytmdai{UK). 






mm 




BTBBott 


Bd- W .— 


Growth in exports 
behind rise at Elliott 

By James Whitt in gton 

Shares in B Elliott yesterday 
rose 10p to 99p as increasing 
exports to North America and 
east Asia helped the electrical 
and mechanical engineer lift 
interim pre-tax profits by 55 
per cent to £l-94m, against 
£L26m. 

Export-driven growth in the 
specialist engineering and elec- 
trical and electronic systems 
divisions contributed to an 
18 per cent increase in 
turnover to £48.lm (£40 .7m) 
in the six months to Septem- 
ber 30. 

Earnings per share rose 24 
per cent to 4.06p (3.28p). 

Interim dividends are restored 
at lp, equal to the previous 
year’s totaL 

Mr Michael Frye, chief exec- 
utive, said the results demon- 
strated the “complete restruct- 
uring of the company from a 
machine tool manufacturer to 
greater focus on specialist 
technology". 

Sales in the specialist engi- 
neering and electrical divisions 
both grew by about 30 per cent 
On the other hand, sales in the 
process technology division, 
which manufactures machine 
tools, declined by 11 per cent to 
£9.8m (£llm), owing to low 
ripmanrf in the UK «t>h contrac- 


'./AtiqOSr 


1894 


tual problems, Mr Frye said. 

During the period the cant 
party Tnarfa four email acquisi- 
tions, worth £2m in total, 
which it has bolted on to exist- 
ing operations. Mr Frye said 
the strong balance sheet 
allowed for further acquisi- 
tions. 

Nat borrowings stood at 
£9J9m at September 30, pushing 
gearing up slightly to 83 per 
cent The net cash balance was 
tLBU. 

Mr Frye said that with fur- 
ther opportunities for growth 
overseas and an i m provement 
in the UK market, the com- 
pany expected continued 
organic growth. 


Rentokil makes £8m 
buy in security services B 


By Simon Daviee 

R antnkfl yesterday annmmneH 
its first investment in security 
services since the £75. 7m 
acquisition of Securiguard in 
mid-2993. 

It is to pay a maximum of 
£8m for Granada Group’s secu- 
rity operations held by Sterling 
Granada Contract Services. 

Mr Clive Thompson, chief 
executive, said: “We are saying 
through this acquisition that 
we are happy with our position 
in the UK security services sec- 
tor, and that we want to 
expand it further.” 

Stalling Granada had turn- 
over of £20m last year, but was 
barely profitable. However, 


Rentokil is confident that its 
performance will be rapidly 
improved, through the reduc- 
tion of management overlap 
with Securiguard. 

Securiguard has proven a 
successful acquisition, and 
remains an target to achieve 
double digit profit margins 
within 2 years of its purchase. 
Mr Thompson said he Intends 
to develop the company into a 
“major player" within the UK, 
and analysts expect further 
acquisitions both in the UK 
and US. 

Sterling Granada will have 
net assets at completion of 
Elm. Its traffic and secure stor- 
age businesses are to be 
retained by Granada. 


Beckenham suspended 
for second time in a year 


By James Whittington 

Beckenham Group, the 
USM-qaoted heating and venti- 
lation engineer, suspended its 
shares yesterday owing to 
uncertainty over its flnnnrifl i 
position. 

It Is tihe second time in less 
than a year that dealings in 
Beckenham’s shares have been 
halted. 

The latest move comes after 
a comprehensive re s truct uri ng 
of the group. Last year, losses 
on contracts forced it Into 
a capital reconstruction 


programme, which included 
placing and rights issue amP-J 
the sale of subsidiaries. 

However, it continued to 
report losses, with an interim J 
pre-tax deficit of £2. 6m in fluu 
period to April 80, compared 
with a £186,000 loss 12 months 
previously. Turnover fell from 
£17.4m to £13m. 

Neither the company nor 
Townsley & Co, the house 
broker, wished to comment on 
the suspension. Mr Peter Long, 
chairman, said he hoped 
to make an announcement 
today. 


Five Oaks £2.28m in black 


Five Oaks Investments, the 
property group, swung from an 
£861,000 loss to a pre-tax profit 
of £2£8m during - the year to 
June 30. 

As a result, earnings per 
share were 2.54p (LB3p losses) 
and the recommended final 
dividend of OJp makes a total 
of 0.5p (nil) for the year. 

Rental income grew 20 per 
cent to 24.2m, with the current 


annu a lis ed figure running at 
£6 2m. 

Th e balance sheet was 
strengthened through a share 
placing and open offer, which 
Increased the capital base by 
£ 12.2m. Also, a large part of the 
short-term debt was c onver te d 
Into a £15m 25-year secured 
debenture. Gearing fell from 
106 per cent to 44 per cent at 
the year end. 


DIVIDENDS ANNOUNCED 


Current 

payment 


Date of 
payment 


Correa - 
ponding 
dhridand 


Total Total 

tar last 

year year 


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«tual savings vary according to ttio mix of dsatinatlona, lima of day and langth of oalla. 

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naaaafln 

7£ 

Mar 2 

8£ 

16 



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3.75 

Jan 26 

3.375' 



BBottTO 

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Jan 16 

nfl 



FJva Oak* 

—fin 

as 

Deo SO 

rfj 



Hendaraon Admin 

f nJnt 

106 

Jan 10 

12.6 



investment Co — — Jnt 

0.7E 


0.5 



Kenwood Appinoa 

—int 

335 

Feb 2d 

3 



Merchant Ratal _ 

—Int 

nfl 

_ 

0.2 




—tat 

1.9 

Jan 18 

1.7 



Stratagem — 

— fin 

an 

Jan 3 

3J5 

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4,76 

DMdenda shown panes par snare net except where 
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otherwise 

slated. 




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FINANCIAL TIMES TUESDAY NOVEMBER. 8 1994 


THE 


WALPOLE 


COMMITTEE 


British Excellence and Quality 

AN OCCASIONAL SERIES 



Harpers & Queen 

Harpers & Queen is unique: a stunning 
combination of brilliant and influential 
fashion magazine married to an up-to-the- 
minute general lifestyle magazine. The 
magazine is read by women who are 
sophisticated, fashionable, highly educated, 
stylish, well-heeled and socially confident - 
as well as those who want to be. Harpers & 
Queen's mix of witty and self-assured 
features, coupled with award-winning 
photography, appeals to women and men 
alike. 

Harpers & Queen is the most upmarket 
magazine in Britain. It is the unchallenged 
handbook of one of the foremost ideas 
capital of the world... LONDON. 


<* i * * q : -» vf n -« _ ■ • 



The Committee, which was established in 1992, aims to focus attention on British excellence, 
style, craftsmanship, innovation and service. These are qualities which all its members share 
and for which British products and services are renowned around the world. 

For further information, please contact: 

The Director, The Walpole Committee, 40 Charles Street, London W1X 7PB, England. Tfel: +44 71 495 3219 Fax: +44 71 495 3220 




I 9*,m» +> * ft.* * 









FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


COMPANY NEWS: 


ABF held back by fall 
in investment income 


By David Blacfcwefl 


A sharp fall in investment 
income depressed profits at 
Associated British Foods, the 
milling, baking, and sugar 
group which was restructured 
earlier this year in order to 
improve tax planning at the 
Weston family trusts that con- 
trol the company. 

Pre-tax profits Tor the 52 
weeks to September 17 fell to 
£324m, against £338m for the 53 
weeks to September 18 1993. 

Fluctuating bond and gilt 
prices knocked the returns on 
investments of about £70 Ozn 
down from 11-5 per cent to L5 
per cent, yielding income of 
just £21m compared with £83m 
last time. 

Mr Garry Weston, chairman, 
described the 1993 returns on 
the gilt portfolio as “excep- 
tional”. while the low point in 
the market had been reached 
at the end of the group’s latest 
financial year. 

Turnover of £4.48bn was 
slightly ahead of the previous 
£4.39bn, but was effectively flat 
given that the 2993 figures cov- 
ered 53 weeks. 

Mr Weston said the markets 
for bread and sugar were still 
“pretty tough - go In any 
supermarket and they will be 
on sale below cost”. Neverthe- 
less the group lifted operating 
profits horn £273m to £308m. 

It was defending its market 
position by continually improv- 
ing efficiency and introducing 
new products with better mar- 
gins, he said. 

UK manufacturing increased 
profits by 11 per cent to tsxtm. 
Rationalisation costs were £3m 
lower at £13m. At British 
Sugar profits advanced to 
£Z67m on a tower harvest 

After allowing for dividend 
payments last month, net cash 
was £6l0m at the year-end, up 



Tcny 

Garry Weston: markets for bread and sugar still pretty tough 


£109m. Capital expenditure 
remained steady at £200m. 

In addition to the investment 
income the pre-tax figure 
included £4m from property 
disposals (unchanged from the 
previous year) and £23m 
(£12m) from the group’s invest- 
ment in Berisford Interna- 
tional. Interest payable fell 
from £34m to £30m. The tax 
charge was reduced by £35m, 
reflecting reassessment of pre- 
vious Berisford losses. The 
group paid £63m (£3 Mm). 


Consequently earnings per 
share were sharply ahead at 
56.7p. compared with 50.7p last 
time. 

A final dividend of 7.5p (65p) 
is proposed, giving a total for 
the year of 16p (I5p). 


Associated British Foods 


Share price (pence) 

620 

600 



440 


Jul 99 
Source: FT Graphite 


1994 


• COMMENT 

After the feast in the bond 
market last year it was only to 
be expected that famine would 
follow. While 1.5 per cent can 
only be described as an appall- 
ing return, better times are 
likely to reappear this year. 
The operating profits were bet- 
ter than expected, reflecting 
the continued drive to control 
costs. This is necessary given 
the supermarkets' propensity 
to offer discounts on white 
loaves. There should be some 
benefits from the acquisition of 
Bibby’s agricultural feeds oper- 
ation last April, and the group 
continues to churn out the 
cash. Even with an upturn in 
investment income, earnings 
this year will be lower as the 
tax charge returns to normal. 
The City is expecting about 51p 
a share, giving a prospective 
multiple of 11 - nothing to get 
excited about 


CRH expands into Argentina 
with $33m stake in tile maker 


By John McManus In Dublin 


CRH, the Irish building 
materials group, has expanded 
into South America with a 
533m (£20m) investment in 
Canteras Cerro Negro, an 
Argentinian tile maker. 

The move is the first invest- 
ment by CRH outside North 
America and Europe and is 
part of its strategy of expand- 
ing in emerging markets. 

CCN is privately owned and 
the principal shareholders are 


an Argentinian family of Irish 
extraction, the Diaz O’Kellys. 
It makes clay roof, wall and 
floor tiles and has 30 per cent 
of the Argentinian marke t. 

CRH is paying $5.7m for a 20 
per cent stake in CCN and has 
invested another $27.3m in the 
form of a $9.3m convertible 
loan and $i8m in loan ca pital. 

CRH can increase its stake to 
5l per cent through conversion 
of the convertible loan. 

It also has an option to 
increase its shareholding to 95 


per cent, based on a multiple of 
CON’S pre tax profits over the 
next three years. The Argenti- 
nian company fast year maria 

an operating profit of $&8m on 
sales of $66m. 

The loans carry an interest 
rate of 16 per cent and the 
investment would be earning s 
enhancing for CRH in the first 
year, said Mr Jack Hayes, man- 
aging director for finance end 
development at CRH. "It 
should be worth $3m a year 
after tax," he said. 


Control 
Techniques 
in takeover 
talks 


By Paid Taylor 


Shares in Control Techniques 
jumped 83p to 468p yesterday 
after the Powys-based 
electronic drives group 
announced that it was in 
takeover talks with Emerson 
Electric of the US. 

Emerson already bolds 29.4 
per cent of Control, but 
undertook not to increase its 
stake under a 1991 standstill 
agreement. That agreement 
expired at the start of June. 

Control said that it was in 
discussions with Emerson 
“which may or may not lead to 
an offer for the ordinary 
shares in Control Techniques 
not already owned by 
Emerson”. 

The relationship between 
the two companies dates back 
to 1991 when Control acquired 
80 per cent of ICO Drives, a 
New York subsidiary of 
Emerson, In exchange for 7.6m 
Control shares. I CD Drives 
was later renamed CT Drives. 

Emerson's shareholding in 
Control was subsequently 
increased to about its current 
level through a tender offer at 
320p for 3.8m shares. 

Under the terms of the 
original agreement, Control 
has acquired Emerson’s 
remaining 20 per cent stake in 
CT Drives for $7.9m (£4Am). 


Enhancing stock performance 

Peter John considers the increasing popularity of lending shares 


T he UK may have one of 
the world's most sophis- 
ticated stock markets 
but when It comes to stock 
lending, it behaves like an 
emerging market with all the 
barriers and opportunities that 
implies. 

Now, however, stock lending 
is coming in from the cold and 
bankers consider U has great 
potential. 

Traditionally dogged by reg- 
ulations and middlemen, it 
recently received a fillip from 
the change to rolling settle- 
ment. And many fund manag- 
ers hope the chancellor of the 
exchequer will shortly liberate 
gilts lending to provide a real 
Impetus for change. 

Stock tending is the lending 
of shares or bonds to meet the 
temporary needs of other par- 
ties. typically dealers, who 
need securities to support their 
trading. 

Mr Roy Zimmerhansl, one of 
Nomura's global securities 
analysts, said: "It is a bit like a 
shopping trolley. If yon decide 
to do your grocery shopping 
for the next throe months you 
could buy all the food. But 
without a trolley you can’t get 
it home. It oils the wheels of 
every part of equity business.” 

Although there is a transfer 
of title, the lender retains 
the benefits of ownership such 
as dividends and Is secured 
with collateral and paid a fee. 
Institutions which invest for 
the long term can squeeze an 


extra drop out of their port- 
folios. 

Wells Fargo Nikko Invest- 
ment Advisers index funds, 
which are heavily involved in 
stock lending, have often out- 
performed world markets, 
excluding the US, with the 
help of this technique. 


Although there is a 
transfer of title, 
the lender retains 
the benefits 
of ownership, 
such as dividends, 
and is secured 
with collateral 
and paid a fee 


The UK, however, is ham- 
pered by a frisson of nervous- 
ness that goes back to the Rob- 
ert Maxwell debacle. Maxwell, 
the erstwhile media baron, had 
a habit of borrowing stock 
from one part of his empire to 
prop up loans in another. The 
exposure of his malpractices 
brought the concept into disre- 
■pute. 

A more important limiting 
factor is the heavy regulatory 
system which the Inland Reve- 
nue originally imposed to plug 
possible tax loopholes. 

Only approved marketmak- 


ers can borrow stock and then 
only if they are already dealing 
in that stock. If they want to 
borrow UK equities they have 
to go through an approved 
money broker, who takes a cut. 

In addition the collateral in 
the UK is only 102 per cent of 
the value of the stock while 
internationally it is 106 per 
cent, giving the lender more of 
a cushion. 

Finally, convention has It 
that collateral is only repre- 
sented by certificates of deposit 
or short-term Talisman certifi- 
cates. which are made up of a 
basket of stocks. 

Fund managers complain 
that because you do not know 
what makes up the basket of 
stocks you could lend out qual- 
ity stock and get questionable 
collateral In theory it would 
have been possible in 1990 to 
have lent ICI and received 
Polly Peck as collateral, just 
before it collapsed. 


I nternationally, collateral is 
agreed between the two 
parties. 

“In terms of UK. and interna- 
tional lending we focus our 
activities on international 
stocks because the security Is 
better and the rates higher,” 
said Mr Michael Robarts, direc- 
tor of Fleming Investment 
Management. 

However, the UK picture is 
changing rapidly. Some esti- 
mate that stock lending tom- 
over has risen by 30 per cent 


over the past year. Previously 
the returns were so small and 
the cost and workload involved 
so great that four or five lead- 
ing UK institutions withdrew 
from the activity. 

The change is partly the 
result of-the stock market’s 
move, earlier this year, to 16- 
day rolling settlement from 
two and three week dealing 
accounts. 

The need for marketmakers to 
balance their books every day, 
rather than at the end of the 
account, 1ms caused demand 
for borrowed stock to rise. .. 

The big change the market is 
awaiting Is the ability to carry 
out gilt repurchase agreements 
which many believe could be 
sanctioned in the forthroming 
Budget At present, gilt repos 
are held between the Bank of 
England and the clearing 
banks, who by law have to bal- 
ance their books every day. 

It is suggested that traders 
may he able to repurchase 
from each other with the prob- 
ability that the need to go 
through money brokers would 
disappear. 

Once money brokers became 
unnecessary for repos, the 
same would he true for stack 
lending. The fees they charge 
would disappear, the margins 
for the lenders would increase 
and investors in UK equities 
would be able to exploit a 
technique that helps them 
maximise the value of their 
portfolios. 



NEWS DIGEST 


Hartons 


may receive 
full offer 


Hartons Group said yesterday 
that discussions being held 
between two of its main share- 
holders and a third party may 
result in a full offer being 
launched for the distributor of 
semi-finished plastics. 

If a deal were struck, at an 
intimated price of 8p per ordi- 
nary share and 60p per 7 per 
cent convertible cumulative 
redeemable preference share, 
the purchaser would hold more 
than 30 per cent of the issued 
voting capital, triggering a bid 
under the Takeover Code. 

The shares rose lp to 7p yes- 
terday, valuing the group - 
which has incurred losses in 
the past four years - at £52m. 


Woodchester Invs 


Woodchester Investments and 
Credit Lyonnais, the French 
banking group which has a 53 


per cent stake in the Dublin- 

based ipasing and hanking con- 
cern. are reorganising their 
joint continental European 
leasing operations. 

Woodchester is exchanging 
its 30 per cent holding in 
Credit Lyonnais Leasing 
Europe for the Credit Lyonnais 
Group’s 80 per cent holding In 
SZibail Portuguesa - Corapan- 
hia de Locacao Flnanceira and 
100 per cent shareholding in 
Credit Lyonnais Finans Dan- 
mark, together with a cash 
payment to Woodchester by 
Credit Lyonnais of FFr96.2xn 
(£11.4m). Both companies are 
controlled by CLLE. 

Woodchester is also selling 
its remaining 30 per cent hold- 
ing in Woodchester Trade 
Finance to Credit Lyonnais for 
Elm, equivalent to Woodches- 
ter’s share of its net assets at 
September 30. The move is in 
line with Woodchester’s aim of 
withdrawing from non-core 
activities. 

Woodchester is proposing to 
adopt a twin share scheme, to 
enable the payment of a divi- 
dend with a lower tax credit to 
be made. This will help cut its 


advance corporation tax liabil- 
ity significantly. 


Automagic rises 

Despite “difficult trading con- 
ditions", pre-tax profits of 
Automagic Holdings, the 
USM-quoled shoe repairing and 
key cutting group, almost dou- 
bled from £122,000 to £243,000 
in the year to June 25. 

The outcome was struck on 
turnover down from £l.l6m to 

£1. 1 2m Earning s came out at 
Z.4p (2p). 

Trading during the hot sum- 
mer months had not been easy, 
directors said, and the difficul- 
ties had been exacerbated by 
the signal workers' strikes. 


Raglan picks up 

Raglan Properties, the develop- 
ment and investment com- 
pany, announced an increase 
in interim pre-tax profits, from 
£89,000 to £3-07m, reflecting an 
expansion in its portfolio and a 
pick-up in the property sector. 

Turnover for the six months 
to September 30 advanced to 
£I2-8m (£4.9m). Earnings per 


share jumped to 2.71p (OJp). 

Raglan has undergone a 
transformation over the past 20 
months, including a share con- 
solidation, financial restructur- 
ing and new mana g e m en t. 

In September, the company 
bad its second rights Issue in 
nine m/mths jq which it raised 

about £2l.em after costs, in a 
3-for-4 issue which was to 
acquire Letinvest, now Raglan 
Estates. 

Gross rental income was 
P222m (£304,000) and the profit 
on sale of investment proper- 
ties was £l-25m (£184,000). The 
figures included the purchase 
of Letinvest from September 
20 . 

A final dividend, the first 
since 1989, is planned for this 
year. 


toll year losses of £4.83 m. 

Operating profits at Joplings, 
the north-east of England 
department stores, edged 
ahead to £764,000 (£753,000) but 
Normans, the south-west 
supermarket chain, fell to 
£958,000 <£L17m). Losses at the 
Perfume Shop were steady at 
£203,000 (£202,000). 

Turnover was £72.3m 
(£80.3m). The Interest charge 
was £815,000 (£887,000). Earn- 
ings per share were 0.l8p 
(losses 0.15p). The interim divi- 
dend is passed; there was a 
0£p payment last time. Share- 
holders are being asked to 
approve a reduction in the 
share premium account to 
allow the resumption of divi- 
dends. 


Merchant Retail 


Cobham US deal 


The lack of an exceptional 
disposal loss of £223,000 and 
lower interest charges enabled 
Merchant Retail Group to 
return to profit for the 26 
weeks to October 1 with 
£243,000 pre-tax, against a 
£31,000 deficit last time and 


Chelton, a subsidiary of Cob- 
ham, formerly FR Group, has 
acquired Comant, a leading US 
aircraft antenna manufacturer, 
for $3 -25m (£i.98m) cash. t 
Comant, based in Los ■ 
Angeles, is operating profitably 
with annual turnover of more 
than $3m. 




It’s amazing 
what you 
can pick up 
at the airport 
nowadays. 


BRITISH COUNOL 
OF SHOWING CENTRES 
AflERfT AWARD 
FucJcn c e In Marke t ing 


FRONTIER AWARD 
Best Rfifcti Martefog Cor^dgn 


MTONAnONAL COUNCIL 
OF SHOPPING CENTRES 
MAXI AWARD 

Marketing Excqience in Consumer Relations 


At BAA airports, we are committed to providing the 
highest standards of customer service. 

This is rewarding in itself. So to receive these prestigious 
awards as well, is doubly (or in this case, triply) gratifying. 




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frum December 19th 1994 ti> January 
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of valuable travel anti biciim-Tt 
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Size: 267mm x 216mm x33nun. 

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COMPANY NEWS: UK 


Kenwood rights to fund 
£22m Italian purchase 


By Richard Wotffe 

Kenwood Appliances, the 
household appliances pro- 
ducer, yesterday accompanied 
its interim results with a 
rights issue to fund the 
acquisition of an Italian 
manufac turer. 

The l-for-4 rights issue, 
priced at 3I0p, is expected to 
raise a net £27 Jm. This will 
finance the acquisition of 
Anete, a Florence-based pro- 
ducer and distributor of house- 
hold appliances, as well as 
funding product development. 
Kenwood’s share price fell I4p 
to 360p yesterday. 

Mr Tim Parker, chief execu- 
tive, said; “Ariete has a com- 
plementary range of products 
and an established position in 
the Italian market- The oppor- 
tunities for growth in interna- 
tional markets with Ariete’s 
existing product range and 
new ranges under development 
wfll be substantial.” 

Ariete's main products 
include coffee-making 
machines and steam irons. 
Same Kenwood products will 
be branded under the Ariete 
name in Italy, as Kenwood 
hopes to exploit Ariete's distri- 
bution network in the Mediter- 
ranean area. 


Kenwood 

Share price {pence) 



Source; FT gnpMto 

In 1993 Ariete reported pre- 
tax profits of L&6bn (£2.6m) on 
turnover of L57.4bn. Sales 
increased 34 per cent in the 
nine months to September 30. 

Kenwood has agreed to pay 
L46bn in cash and an addi- 
tional LSbn based on Ariete's 
pre-tax profits for the year to 
December 31. The owners, who 
are mainly private sharehold- 
ers. have also retained the 
right to a dividend for the year. 

The deal, which is subject to 
a maximum of LTO.Sbn. is con- 
ditional on approval Grom the 
Italian anti-trust authority. 
Completion is expected by 
December 7. 


Ariete is the latest in a series 
of acquisitions which fit into 
Kenwood's strategy of interna- 
tional expansion. 

In October last year the 
group paid £4m for Precision 
Engineering, including its 
Waymaster subsidiary which 
manufactures water Filters and 
kitchen scales. Two years ago. 
it spent £3. 9m on Tricorn, the 
Hong Kong company which 
produces small kitchen appli- 
ances in southern China. 

Waymaster's contribution 
helped to lift Kenwood's pre- 
tax profits 12 per cent to 
£6.01m (£5 -35m) during the 
six months to September 
30. 

Turnover rose 10 per cent to 
£fi0.4m (£55m). despite lower 
like-for-like sales in the 
UK. 

Interest costs increased from 
£364,000 to £646,000. Gearing, 
which rose from 19 to 46 per 
cent at the half-year stage, is 
expected to fall to 25 per 
cent by the end of the year, 
ignoring the Ariete acquisition. 

Earnings per share rose to 
ll.3p (9.6p) and the board pro- 
posed an interim dividend of 
3.25p (3p). 

The company floated in June 
1992 with a placing price of 
285p. 


Henderson improves 22% 
but pensions side slides 


By Bethan Hutton 

Henderson Administration, the 
fund management group, 
increased pre-tax profits by 22 
per cent to £H2m for the six 
months to September 30, com- 
pared with £9 2m last time. 

Funds under management 
and administration Increased 
from £i2J2bn to £13.7bn. Inflow 
of net new funds was £401m in 
the six-month period and 
£881m over the year. 

The strongest growth areas 
were retail funds, particularly 
investment trusts and peps, 
and international funds, which 


rose from £984m at March 31 to 
£1.4bn. Funds under adminis- 
tration - mainly retail ftmds 
managed in Luxembourg for 
hanks to market under their 
own names - grew from £1.4bn 
to £L6bn over the six months. 

Pension funds under man- 
agement slipped from £5.1bn at 
end-Septeznber 1596 to £4.7bn 
12 months on. 

Mr Ben Wrey, chairman, 
said: “Reversing the flow of 
funds from our pension fund 
company is among our highest 
priorities." Part of the strategy 
for this is the appointment of 
Mr Dugald Eagle as managing 


director of Henderson Pension 
Fund Management. 

Further expansion of tbe 
international division is 
planned, with another office, 
probably in south-east Asia, 
likely to open within a few 
months. Mr Jeremy Edwards, 
managing director, added that 
tbe group was not ruling out 
further acquisitions after tbe 
Touche Remnant takeover. 

The interim dividend is 13.5p 
(I2.5p). payable from earnings 
of 36.37p (28.23p). “Barring 
unforeseen circumstances" last 
year’s final of 31.5p will at 
least be maintained. 


? 


Select Appointments pays 
£3.3m for Japanese stake 


In its seventh acquisition in a 
year, Select Appointments, the 
USM-quoted recruitment 
agency, has paid Y5l9.5m 
(£3.29m) cash for a 49 pm- cent 
stake in Niscom Services, a 
recruitment agency based in 
Tokyo and specialising in 
computer staff. 

It has also taken an option to 
buy an additional 2 per cent for 
034,000. - 

Of the cash consideration. 


22.48m will be paid to existing 
shareholders and £805,000 will 
be subscribed for new shares 
in Niscom. 

Niscom’s turnover for the 
year to March 31 was 223.5m, 
-generating pre-tax profits of 
RTJSm- 

Select launched a £44m 
rights issue in August at 12%p 
to fund acquisitions and a refi- 
nancing. The shares yesterday 
added %p to 14%p. 


Select also announced the 
acquisition of recruitment 
businesses based in Greece 
through a new 51 per cent- 
owned subsidiary, for £53,000 
plus the issue of new shares to 
the vendors, giving them a 49 
per cent interest 
It has also established a joint 
venture in South Africa trad- 
ing as “Only the Best”, for 
which it has subscribed £70.000 
as convertible loan notes. 


Executives not deterred by 
flotation failures this year 




By Peter Pearee 

In spite of the well-publicised 
failure of 1994 flotations such 
as Aerostractures Hamble and 
McDonnell Information 
Systems, some 96 per cent of 
r M. bey executives In other compa- 
1 T nies recently floated say that, 
given the opportunity, they 
■ would repeat the exercise 
» However, the same MORI 
' survey - commissioned by 
• Eversheds, the law firm - 
revealed that feelings on the 
value of the different advisers 
varied widely. 

Only 56 per cent rated their 


merchant banks as “good” or 
“very good” value for money. 
This compared with 72 per cent 
for their accountants and 81 
per cent for their lawyers. 

In terms of service, 75 per 
cent were “satisfied" or “very 
satisfied” with their merchant 
banks, 88 per cent with their 
accountants and 93 per cent 
with their lawyers. 

The survey found that in 51 
per cent of cases tbe total costs 
of flotation exceeded expecta- 
tions, thoug h companies which 
agreed fixed fees with their 
advisers in advance fared bet- 
ter. In 81 per cent of cases 


where costs did not exceed 
expectations, this was because 
they had been fixed in 
advance. 

Over the 18 months of the 
survey’s span, 94 per cent of 
flotations have proved a “com- 
mercial success”, in that they 
realised “at least as much capi- 
tal as anticipated by the com- 
pany in question”. 

Of the 140-odd companies 
floated between February 1992 
and March 1994, 82 managing 
directors, chief executives, 
finance directors and comp- 
any secretaries were inter- 
viewed. 




times . : 

plans to publish a Survey on ;■ 

^ ^ ", ' | ' ^ ■ >■'»,. ^ " . w . i . . i ’ 

"V 'tA*'/ V .’v .' ■ ' >■■■■•"• ' 

8® sftsfiaftviisS: ■ ^ 

18. ■.;! 




The survey wifl be seen by leading kitematkmal business people bi 3BO 
countries worldwide. If you would (Ike to promote your organisation to 
tiis Important audience please contact; 

Patricia Surridge 

hi London 

Tot (071) 8735426, Fax: (071) 8733428 




FT Surveys 


L&G US 

subsidiary 

faces 

$8.75m fine 


By Alison Smith 

Banner Life, a US subsidiary 
of Legal & Genera], is faring 
tbe prospect of an 38.75m 
(£5. 33m) flue and payment of 
compensation to Investors as a 
result of action taken by the 
Texas Department of Insur- 
ance. 

This could also lead to the 
revocation of the insurer's 
licence to do business in 
Texas. 

Banner Life denies that 
there has been any significant 
mts-selllng of Us policies and 
Is planning to contest the 
action. 

The US regulator's concern 
has focused on the sale of 
“universal life” policies to peo- 
ple over tbe age of 65. 

Tbese are term assurance - 
or protection only - policies 
where a lump sum premium Is 
paid and a sum at least 2.5 
times that amount Is paid 
when the investor dies. 

The regulator says that hun- 
dreds of customers wrongly 
thought they were baying a 
savings investment plan. 

Banner Life admits mis-sell- 
ing has taken place in a few 
instances, but says it bas 
already paid compensation in 
the cases identified so far. 

The next stage of the process 
is a formal hearing at the 
Texas Office of Administrative 
Hearings: a decision is not 
expected for six months or so. 

There have been several 
actions at state level against 
tbe sales practices of insurers. 
The recommended fine is a 
record for Texas. 

L&G said that universal life 
policies represented only 
about 5 per cent of Banner 
Life's business in terms of pre- 
mium income. 


Enlarged Prowting moves 
ahead sharply to £4.42m 


By Richard Wotffe 

Pre-tax profits at Prowting, the 
housebuilder, increased eight- 
fold in the six months to 
August 31, reflecting an acqui- 
sition and growth in part- 
exchange sales. 

In its first interim figures 
since the £22. 6m purchase of 
Galliford Homes in September 
last year, Prowting reported 
pre-tax profits of £4.42m 

(£519,000). 

Turnover increased to £A4£m 
f£15.Sm) as sales rose from 165 
to 511 units, of which Galliford 
contributed 267. 

Part-exchange now accounts 


Stratagem’s 
rise to £2m 
helps shares 

Shares of Stratagem Group 
yesterday jumped 7p to I74p 
after the revamped manufac- 
turing. distribution and 
services company turned in 
full-year pre-tax profits of 
£2. 12m. 

The outcome, (or the 12 
months to August 31. com- 
pared with profits of £1.2m last 
time and was achieved on turn- 
over ahead to £80 .4m (£i0-5m), 
reflecting the acquisition of 
Harrison Industries in August 
1993. 

“We said that we would turn 
round last year's acquisition 
and these figures show that we 
deliver on our promises.” said 
Mr Bernard Kerrison, chair- 
man. 

The recommended final divi- 
dend is raised to 3-5p, making 
5p (4.75p) for the year, covered 
2.5 times by earnings of 12.7p 
(9.5p) per share. 


for about 50 per cent of sales, 
compared with 40 per cent last 
year, with most second-hand 
homes selling within 12 weeks. 

The average selling price 
rose slightly from £85,000 to 
£86,000. but the company fore- 
casts little or no price inflation 
this year. 

“The housing market still 
remains fragile," Mr Terry 
Roydon, chief executive. “None 
of us wishes to return to a 
boom-and-bust economy, but 
nevertheless I trust that inter- 
est rates will not increase fur- 
ther in the short term." 

Operating margins rose from 
10 to 13 per cent, despite build- 


ing costs increasing by 
between 1 and 2 per cent 

Net borrowings at the 
interim stage stood at £24 5m 
(£20.1m), for gearing of 35 per 
cent Prowting expects this to 
rise to as much as 50 per cent 
as it continues to purchase 

land. 

The company currently has 
5.800 plots with planning per- 
mission, equivalent to five 
years’ building. 

Earnings per share rose from 
0.3p to 3.6p. The interim divi- 
dend is 1.9p (l.7p). Mr Roydon 
said the intention was to 
return progressively to the his- 
toric dividend of 5p. 



NEWS DIGEST 


Holmes Protection 

Holmes Protection, the US 
security group quoted in the 
UK. reported pre-tax profits of 
Sim (£600.0001 for the nine 
months to September 30, com- 
pared with S239.000. 

Turnover was down 4 per 
cent to $38.8m <S40.4m). The 
board attributed the increase 
in profits on lower revenue to 
the Sl.33m reduction in operat- 
ing costs. Earnings per share 
came out at 1.9 cents (04! 
cents). 

BPP acquisition 

BPP Holdings, the education 
and training group, has 
acquired 51 per cent of 
Hazell Carr Training for an 
initial £1.44m, split as to 
£4384)00 in cash and sim in 
Joan notes. 

An additional sum capped 
at £l.7m, to be met by the 
issue of loan notes, is also pay- 
able. 

HCT publishes study mate- 
rial and provides face to face 
tuition courses and marking 
services to students studying 


for examinations of the Insti- 
tute of Actuaries and the Fac- 
ulty of Actuaries. The business 
operated as a partnership until 
October 28. 

IMI £2 ,6m buy 

IMl Waterheating has acquired 
Andrews Water Heaters from 
Andrews Sykes for £2. 6m in 
cash. 

For the year to March 31. 
Andrews Water Heaters had 
profits of £484,000 before cen- 
tral charges, interest and tax. 
on turnover of £3^m. 

IMI Waterheating is part of 
the building products group of 
IML the engineering company. 
Tbe acquisition will extend 
its range of gas-fired prod- 
ucts. Meanwhile, the disposal 
represents the next step in 
Andrews Sykes’ plans to con- 
centrate on its core activities 
of pumping, heating and air 
conditioning. 

REA £1.3m sale 

REA Holdings is to end its 
involvement in west Africa 
with the £lSm sale of its 26 per 


Terry Roydon: the housing 
market remains fragile 


cent interest in Plantation J 
Eglin, which grows bananas 
and pineapples on the Ivory 
Coast. 

The assets being sold are val- 
ued at £l.lm, including loans. 
They contributed a loss of 
£71,000 in the last audited 
accounts, but have since been 
profitable. 

Two thirds of the price is 
receivable in three months 
and the halanre in December 
1995. 

Filtronic Comtek 

Filtronic Comtek, the mobile 
telecommunications equipment 
manufacturer, is to build two 
new factories. 

The first is on a 25 acre site 
acquired from Salts Estates in 
Yorkshire for £615,000; the sec- 
ond Is a 60.000 sq ft factory on 
a site in Maryland, US. which 
is being acquired for $525,000 
(£326,000). 

Filtronic came to the market 
at the beginning of October. 
The new site announcements 
mark the inception of the 
investment and expansion 
promised then. 


BAA pic HALF YEAR RESULTS 



6 months to 
30 September 1994 

6 months to 

30 September 1993 

change 

% 

Passengers 

49.1m 

45.9m 

+ 7.0 

Revenue 

£660m 

£627m 

+5.3 

Pre-tax profit 

£265m 

£237m 

+ 11.8 

Earnings per share 

19^p 

17.1p 

+ 123 

Interim dividend 

3.75p 

3375p 

+11.1 


Pre-tax profit for die half year to .!■ ■ September was Oi5ni. up 1 1 .8%. with 
revenue of £660m. up 5_3% The financial performance reflects strong passenger 
traffic growth as well as improved income from airport retailing and property The 
Company continued ro keep right control of its operating costs and productivity 
improved by 5.8% in terms - T passengers per employee. 

Earnings per share rose by 12-5% to W.2p. The BAA Board has declared 
an interim dividend ol‘3 75p (1*^3: 3 J75p), an increase of 1 1.1%. 

Passenger numbers increased by 7% benefiting each of the Company’s 
major airports. There was particularly strong growth in the charter and long haul 
markets. Revenue from traffic charges was G5Um (1993: £244m), an increase of 
6.3%, reflecting the growth ni passenger numbers. However, the RPI-4 price 
control formula continues to depress income from this source. 

Retail revenue rose bv 9.2% to £273 m { l‘X3: £2 50m) despite sales 
continuing to be held back by c he drsrupuun caused by the development of 
new facilities at the airports. Where new facilities have been completed the 
growth lias accelerated. For example, in the recently completed Heathrow 
Terminal 3 development, retail revenue grew bv H.8% and by 4.4% on a per 
passenger basis. 

Income from airport property rose by 9 3% to £80ni (1993: £73 m) as a 
result of new facilities coming on stream such as i.'ompass Raint, the new 


operations centre for British Airways at Heathrow. Following the review of die 
Company's property strategy die amount of accommodation available on-airport 
is being increased to give tenants greater choice, value for money and service. 

The Company has embarked on a major investment programme to 
improve passenger facilities at its airports. Capital expenditure rose to £20 1m. 
reflecting progress made on major projects such as the redevelopment of 
passenger terminals and the new Flight Connections Centre at Heathrow 
which opens in December. While net debt now stands ar £790m compared with 
£739m at the financial year end, gearing remains at under 30%. 

An investigation into the partial collapse of the Heathrow Express station 
monel is underway: BAA believes char there is unlikely to be any significant 
financial impact on the Company: 

Chief Executive Sir John Egan said: “These results demonstrate how well 
the Company has positioned itself to cake Hill advantage of the growth in air 
travel as economic recovery gathers pace. The quality of our business strategy is 
demonstrated by increased income and the continuing emphasis on productivity 
and cost control. Wherever we have added choice and value for money for our 
passengers and business partners, we have seen our income grow. BAA is part of 
a growth industry and the Company is well placed to fund the investment 
needed to develop its airports in preparation for the nexr century." 


PROFIT AND LOSS ACCOUNT 

FUR THE Six MONTHS ENDED Jn SEPTEMBER 1994 

Year to 31 Man'll 

10 September 30 September 

l'r*4 


1994 

1993 



(unalldlled) 

tin 


Oat 

im 

I.I19K 

Ptwm* 

660 

627 

(73*'| 

t IpiTJiing casts 

(379) 

(366) 

3o» 

Opetaung profit from coiiunuiiig opirjuorts 

281 

261 

- 

Profit mi the sale ■ if freed t>.cc. 

2 

- 


Profit K'fi.ire mtcresl arid uuDuii 

283 

261 

(46) 

lnu-Tist 

118) 

(24) 

322 

IV -fit before taxation 

265 

237 

(»2l 

Taa.nn 'n 

(69) 

(63) 

240 

IVifil lor the peri- ai 

196 

174 

23 5p 

Earning per shaft- (pence) (we note 5) 

19Jp 

17. Ip 

si:iru.\i£\TOh trii.ii. petji ^ wsu . .-v.n u.isuls- 



24 n 

Proiit for the penud 

196 

174 

340 

Unrealised revaluation surplus 

10 

- 

5HH 

Tital gains and l'-.scs relating to tile period 

206 

174 


CONSOLIDATED KHLANCE SHEET 
.45 .4T 30 SEPTEMBER 1994 

Year ro 31 March 

30 September 

30 September 

1994 


1994 

1993 ■ 



(unaudited) 

JjD 


£m 

in 

3.604 

Fixed assets 

3,786 

3.113 

(238) 

Net current labilities 

(280) 

(115) 

3366 

Total assets less current labilities 

3£06 

2,998 

(623) 

Creditors: Amounts due alter one year 

(794) 

(813) 

2343 

Share capital and reserves 

2,712 

2.185 

£2.49 

Net asset value per share (see note 4) 

£2*5 

£2.14 


NOTES ON THE B.UAHCE SHEET 

1. Driven- Jonas. Chaitrtvd Surveyors, have reviewed die valuations of certain ixm-Jirpon investment 
properties and movements in these since die year end are reflect e d above. Airport investment 
properties ate shewn at year end vahubons as adjusted far additional expenditure in die period. 

2. Airport fried assets indude representing expenditure to dare on Terminal 5 

(30 September 1«W3: £U17m; 3J March IW4: £76Jm) 

3. Liabilities indude borro w i ng s of flH5-3m (30 September 1993: £U(C_3nt;31 March 1994: 

£S14£m. Both c ompara tives have been restated in aixordincr with FRS 4. Capital Instruments). 

4. N« asset value per share comparatives have been adjusted for the one for one rapitahsanon 
issue approved by shareholders at the Company's Annual General Meeting on 14 July 1994. 


NOTES ON THU /*(fi ,'M r AND LOSS H> .TXrt 'Vf 

1. This ■jjrenvni hi' Nvn picpjrn) in xcnidiiiti- w»b (la- at'i>»jnl«;g pvh^tc * used jn file 
sianiturv nnantui suii'iih- iic. far the sear rrukJ 31 Min.li )'*** 

2. The figures far dvr year ended 31 Mat, It r>*4 an- lmqiI-. irom the published acooune. 

A ,opv <4 lire full afowni* far Dial »rar. on which lire AuJiturs have issued an unqualified report, 
hai been delivered m lire ifeiysirar »w" t'un, panics 

3 The imeresl ihargc issliowii n« ol iittrrea captolned m UI 3m lV* September 199.3 114 Im: 
31 March |W4- On 4m) 

4. The rival pm -.Turge i,n ilx. -rs iimrtth. ended 3n Scpreiiitrei l‘r*4 has hen bared on the 
csomaivd ,'ilri'Dvv rale die full sear 

5 timings per share < uni| unlives have been adinsted far the >>ire fat one capitalisation t-suc 
approved by dorelioklers it the t 'imipinv's Annual General Meeting on 14 July IW 


INTERIM D/I TDEND 

Tbe interim Jnideod will be paid no 35 January IW to shareholders on the register 
on l December 1994. A scrip alternative will be nfl’errd in respect of the whole of this 
dividend, full derails of which will be circulated to shareholders in mid November. 

The Company's registrars art: Bard ays Registrars, Bourne House, 34 Beckenham Road, 

Beckenham, Kent BR3 4TIL Telephone: I Ml 6S0 4466. 

Heathrow « Gatwick « Stansted •* Glasgow « Edinburgh * 


CONSOLIDATED CASH FLOW 

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1994 

"icar to 31 March 

1994 

£m 

30 September 
1994 

fin 

30 September 
1993 

(unaudited) 

fin 

474 Operating activities 

258 

258 

Returns on investments and 



(161) servicing of finance 

(97) 

(89) 

(70) Tax paid 

(U) 

00) 

(236) Investing activities 

(203) 

(105) 

7 N crash (otuflawYmflow before financing (53) 

54 

22 Financing 

3 

36 

(Decreaseyincrease in cash and 



(15) cash equivalents 

156) 

18 

7 

(S3) 

54 


B 

HELPING BRITAIN TAKE OFF 

Aberdeen m Southampton 


w 















financial times 



TUESDAY NOVEMBER 8 1994 



COMMODITIES AND AGRICULTURE 


Peruvian purchase to boost 
Cominco zinc output by 50% 


By Sally Bowen in Lima 


Cominco of Canada, one of the 
world's leading producers of 
refined zinc, trill increase its 
total output by around 50 per 
cent with its purchase of 
Peru’s Cajamarquilla zinc refi- 
nery. 

The Vancouver-based com- 
pany, in association with the 
Marubeni Corporation of 
Japan, bid $193m for the refi- 
nery at a public auction on Fri- 
day that produced no rival 
offers. Cominco has 83 per cent 
of the consortium, Marubeni - 
a holder of Peruvian secondary 
debt paper - the remainder. 

According to Cominco's Mr 
Richard Mundie, the Cajamar- 
quilla purchase "will permit 
highly attractive synergies" 
with the company’s Canadian- 


Alaskan operations. Customers 
in Asia will be served with zinc 
refined in Canada, while Caja- 
marquilla - just 30 miles east 
of Lima's port of Callao - will 
ship zinc to Europe. Cominco's 
Trail refinery in Vancouver at 
present produces almost a 
tenth of the world's refined 
zinc. 

Cominco's offer was $33m 
above the base price fixed for 
the sale of ?120m cash and 
$40m in secondary debt paper. 
Cinder highly favourable condi- 
tions. apparently designed to 
encourage local bids for the 
refinery, the bulk of the cash 
payment will be spread over 
the next fourteen years. 

There is also a *20m mini- 
mum investment commitment 
for upgrading and expanding 
the refinery over the next four 


years. Mr Mundie expects that, 
with “marginal improve- 
ments’’. Cajamarquilla 's pro- 
duction can be boosted from its 
present 90,000 tonnes to around 
140,000 tonnes of refined zinc a 
year. Production costs in Peru, 
despite expensive energy, will 
not be substantially different 
from those in Canada, com- 
pany officials said. 

Cominco recently set up a 
local office In Pern and has 
around a dozen people working 
in exploration. It participated 
in the auction for the La 
Granja copper deposits last 
February, which went to 
another Canadian company 
Cambior. Cominco says it is 
also considering a bid for the 
Peruvian copper deposits of 
Michlquillay, scheduled for 
sale shortly. 


European farm total down 13% 


By Alison Maitland 


Farming in the European 
Union has became concen- 
trated in far fewer hands over 
the past decade and the trend 
is set to continue, according to 
the European Commission. 

The number of farms in the 
EU declined by 13.2 per cent 
between 1980 and 1990, says a 
report on the future for young 
farmers, to be presented to 
agriculture ministers at the 
end of the year. 

The decline was even more 
dramatic in individual member 
states, with Denmark seeing a 
34 per cent fall in farm num- 
bers, Belgium 26 per cent and 
Ireland 24 per cent 
The amount of land in agri- 
cultural use in the EU 
remained stable at U5m 
hectares, while average farm 
size Increased by 112 per cent 
Mr Frank Leguen de Lacroix, 
a senior Commission official, 
said concentration of farming 
would continue, given that 55 
per cent of fanners were aged 
55 or over and many bad no 
direct heir. 

The trend would be particu- 


larly pronounced in Greece 
and southern Italy, where 
farms bad become fragmented 
and agriculture was not always 
the farmer’s main source of 
income. 

“We need to rationalise 1/ 
farms are to be economic prop- 
ositions and if farmers are to 
be able to apply the environ- 
mental constraints which are 
being phased in," he said. Mr 
Lacroix accepted that young 
farmers and potential fanners 
were worried about their 
future, given the difficulty of 
entering quota-capped sectors 
and the prospect of further 
changes to the common agri- 
cultural policy. 

But he said some fears were 
exaggerated. 

“In the UK, there’s a feeling 
that this [system of subsidies] 
can't last, that it must end in 
1996. But in other countries 
the pressure is such as to 
keep the current system going. 
It’s a fundamental issue of 
faith." 

The report, commissioned by 
ministers during the Greek 
presidency in May. will high- 
light the extremes of fanning 


across the EU. Average farm 
size in Greece, for example, is 
4ha, compared with 68ha in the 
UK. 

Some 7.6m people were 
employed in agriculture and 
forestry in 1992. But farming as 
a percentage of the workforce 
varied from 27 per cent in 
Greece to 2.2 per cent in 
Britain. 

Young fanners commonly 
started out in horticulture and 
the dairy sector. Their level of 
indebtedness also varied enor- 
mously, from Ecu 1,807 in 
Spain to Ecu 205,000 in Den- 
mark. 

“These figures. . . empha- 
sise the differences of approach 
we may need to take if we are 
to encourage young people to 
choose a career in fa rming ," 
said Mr Leguen de Lacroix. 

Citing examples of how 
member states aid new 
entrants, he said Denmark 
kept 29 per cent ol its milk 
quota reserves for young pro- 
ducers, while France trained 
young fanners and encouraged 
older producers to transfer ten- 
ancies to young people outside 
their families. 


Middle way urged for EU agricultural policy 


By AUson Maitland 


Farming without subsidies can 
lead to rural decline, a 
neglected countryside and vol- 
atile incomes for farmers. It 
can also mean more opportuni- 
ties for new entrants, innova- 
tive marketing of produce and 
less bureaucracy. 

Mr Graham McConnell, a 
New Zealander who recently 
took over as principal of 
Harper Adams, a leading Brit- 
ish agricultural college. 


believes European agriculture 
should find a middle way 
between the extremes of hefty 
suhsidi' s and free markets. 

Some 10 per cent of total 
farm income in Australia and 5 
per cent in New Zealand is 
derived from subsidies, com- 
pared with 38 per cent in the 
European Union. 

Mr McConnell, who taught 
farm management in Australia 
for 16 years before moving to 
the UK. told a recent confer- 
ence organised by the Country 


Landowners' Association: 

“An undeniable consequence 
of free market fanning is fre- 
quent periods of low profitabil- 
ity and consequential decline 
of rural communities and ser- 
vices." 

Farming at world prices 
means uncertainty is greater 
and farmers axe less willing 
and able to borrow to expand, 
said Mr McConnell. Some 
farms are run-down, and farm- 
ers employ as few staff as pos- 
sible. adopting a conservative 


approach of “low debt, low 
stocking rates and low risk. 

He added; “Rural depopula- 
tion is a serious consequence 
of low farmer incomes.. .There 
are many semi-ghost towns 
with no industry and sur- 
rounded by an impoverished 
Arming community" . 

On the other hand, volatile 
land and stock values in Aus- 
tralia and New Zealand pro- 
vided regular opportunities to 
buy at a discount “In both 
countries, there are still oppor- 


tunities for a keen young per- 
son. . . to go farming in his 
own right. This is usually 
achieved by leasing land ini- 
tially or share milking.’* 

Mr McConnell said it was 
impossible to back one or other 
system completely, especially 
in a European Union of 350m 
people, compared with Austra- 
lia's 18m and New Zealand’s 
3.5m. “It is illogical to believe 
that the EU and Britain must 
choose one or the other, with 
no middle ground." 



Exaggerated threat seen in 

The agricultural potential of the former communist 


eastern promise 

bloc may be overestimated 


M ost UK fanners have 
absorbed the Euro- 
pean Union's com- 
mon agricultural policy 
reforms far more easily than 
they dared hope when the mea- 
sures were agreed in 1992. 
More than two years through 
the three-year programme they 
find themselves making bigger 
margins, not the smaller prof- 
its they had been led to expect. 

There are a few exceptions, 
particularly among the produc- 
ers of pigs, fruit and vegetables 
- significantly, perhaps, all vir- 
tually unsupported by the EU. 
For most of the rest, the first 
two years of reform have been 
good ones. 

However, as those measures 
are concluded in the middle of 
next year, the General Agree- 
ment on Tariffs and Trade set- 
tlement, assuming it is univer- 
sally ratified, is scheduled to 
come into effect. Key aspects 
affecting EU agriculture are 
the reduction of internal sup- 
port for the industry by 20 per 
cent; a cut in export subsidies 
of 36 per cent and in export 
volumes of 21 per cent - all to 
be phased in over six years. 

EU officials have consis- 
tently claimed that these mea- 
sures could be achieved within 
those already taken in reform- 
ing the CAP; that the produc- 
tion control afforded by acre- 
age set-aside, combined with a 
forecast increase in internal 
consumption of lower priced 
EU-produced raw materials for 
feeding to livestock, would 
remove the need for further 


FARMER'S VIEWPOINT 



By David Richardson 


restrictive policies. 

Britain’s National Farmers' 
Union has never accepted this 
and has predicted that crop 
yields would continue to 
increase across the EU. 
thereby negating much of the 
effect of idling land. Moreover, 
the NFU. along with many 
farm industry pundits, believes 
that further reform of the CAP. 
within the next lew years, is 
inevitable. 

At grass roots level, how- 
ever, this prospect is causing 
hardly a ripple. Farmers have 
money in their pockets and a 
degree of complacency has set 
in. 

“If we can come through 
CAP reform as easily as we 
have." the thinking goes, “we 
can handle anything else that 
happens." 

This attitude fails to recog- 
nise that much of the present 
prosperity can be attributed to 
the devaluation of sterling two 
years ago which, because guar- 
anteed prices are set in Euro- 
pean currency units, had the 


effect of most sterling farm 
prices by about 20 per cent - 
an advantage not enjoyed 
across the rest of the EU. The 
other reasons for UK farmers 
being belter off than expected 
at present have been kind 
weather, good yields and short- 
falls in the harvests of other 
countries. 

One subject that does raise 
fears for the future, however, 
is the enlargement of the EU. 
Not that which has already 
occurred, for the farmers of 
Finland. Norway and Austria - 
as well as Sweden (if that 
country decides to join) - are 
known to have been supported 
at significantly higher levels 
than those in the existing EU 
and their produce will not, 
therefore, undercut that in 
member states. It is the old 
communist bloc that causes 
greatest concern and the fear 
that low-priced farm products 
from those countries could be 
allowed unrestricted access to 
□ewly-unsupported western 
European markets. 


T o most farmers the pos- 
sible threat from east- 
ern Europe remains 
something of a mystery. That 
it is vast is well appreciated; 
that it may have enormous 
agricultural potential is the 
fear. And recent reports of 
ways in which that potential is 
already being unlocked by 
international entrepreneurs 
increases the level of apprehen- 
sion. 

A German friend of mine. 


COMMODITIES PRICES V / ■ ' \ ‘ 

Igilf 





BASE METALS 


LONDON METAL EXCHANGE 

(Prices tram Amalgamated Metal Trading) 


Precious Metals continued 

■ GOLD COMEX (100 Troy oz.; tAroy OZj 


GRAINS AND OIL SEEDS 

■ WHEAT LCE IE par tame) 


SOFTS 

■ COCOA LCE (fyidrmaj 


MEAT AND LIVESTOCK 

■ LIVE CATTLE CUE (OC.OOObK cenfe/lbsj 


Sen Day* 


Open 


pricn dome ngn im ta U 


Sea Days 

price change Hgb Low 


Open 

Int 


mi 


Sett Bays 


Opn 


price change High La* fell M 



Cash 

3 mffts 

not 

332.1 

-1.4 

- 

34 

24 

Hoe 

1IELS0 

-am 

10425 

104.00 

639 

28 

Doc 

932 

-16 

943 

927 

19.973 2.467 

Dec 


DK 

383.3 

-1.4 

384.2 

383.1 85,129 

17.749 

Jan 

105.00 

-0.90 

10550 

105.00 

1,991 

82 

Mar 

957 

-16 

968 

952 

42.268 

4206 

Feta 

Close 

1840-1 

1061-2 

Jam 

385.0 

-1.4 

- 

- 

- 

MV 

I07JW 

-0.85 

107-30 

107.10 

1.614 

25 

Way 

W5 

-IB 

974 

*1 

14.858 

496 

Apr 

Previous 

1862-5-3-5 

1884-5 

Feb 

387J) 

-1-4 

387.8 

3808 21791 

2,151 

may 

109.00 

-085 

(QUO 

109.00 

tjSfe 

77 

JU 

978 

-15 

985 

976 

6.418 

451 

Jim 

hBgWIOW 

1844.5 

1877/1853 

Apr 

3907 

-1.4 

391.5 

390.7 9.811 

147 

M 

111.10 

-0.65 


- 

120 

- 

Sep 

992 

-14 

1005 

989 

12.788 

U » 

Aug 

AM Official 

1844.5-5 

1884-4.5 

Jon 

394.4 

-1.4 

395J 

394J 10.455 

895 

Sap 

94.30 

-1.30 

94 JO 

94.50 

40 

7 

Ok 

1006 

-14 

1800 

1008 

9.615 

aw 

Bel 

KertJ dose 


1853-4 

Total 




165,464 

2,788 

Trial 





6,451 

287 

Total 




111331 

8,727 

Total 


Open Int 201,281 

Total dally turnover 47,710 

M ALUMBOUM ALLOY ($ per tamefl 


PLATINUM NYMEX (50 Tmy (XL; Vtroy oz.) 


WHEAT CST (5.000bu ntn: canta/BOlb bushel) 


COCOA CSCE (10 tonnes; Vtonnes) 


Sett Day's Open 

price change Woh law tat W 

69875 -0.750 70 .550 69.650 30,433 4.190 

69,175 -0.150 68500 69025 21.388 1098 

69650 .<1025 69050 69.550 14014 1.723 

65400 - 65075 65J8I 5.122 

64050 -0200 64500 64050 1,534 

65 .000 -0.100 65.IS0 65000 290 

73088 8.136 
LIVE HOGS OWE (40.000B3S cerria/Ibs) 


545 

63 

17 


1855-fiO 

1845-55 


1843-52 


Close 
Previous 
HgfVlow 
AM OfficteJ 
Kart] dose 

Open few. 2,794 

Total daSy turnover 539 

■ LEAD ft per tome} 


1880-2 
1880-60 
1880/1 B75 
1873-82 
1870-3 


868.5- 9.5 

672.5- 3,5 

07 -1/673.5 
073-30 


Close 
Previous 
Hgh/tow 
AM Official 
Kerb dose 

Open tot 44,066 

Total cteUy turnover 6,140 

■ nickel ft per tome) 


684-4.5 

687-8 

687/681 

685-6 

6834 


Cksae 

Previous 

HfgMow 

AM Official 
Kerb ctaar 
Open tot. 


Total daMy tmwver 10.706 
■ TIN R per tonne) 


7420-30 7540-5 

7480-90 7580-800 

7456/7455 7630/7620 

7456-60 7570-5 

7510-20 

71,239 


Jan 

412,7 

-&1 

417.0 

4129 

1X010 

• 1.428 

Apr 

4175 

-6.1 

4219 

4189 

4941 

135 

JU 

422.0 

-6.1 

• 

- 

1903 

3 

Oct 

427.1 

-6.1 

- 

- 

459 

2 

Jan 

430.1 

-8.1 

- 

- 

10 

- 

Total 





24983 

1968 

■ PALLADIUM NYMEX (100 Trey oz.; S/tray oz.) 

Dee 

15785 

-3.40 190.75 

15790 

4905 

272 

Mar 

156.45 

-190 

160.75 

158.75 

2.767 

54 

Ju> 

18045 

-190 


- 

465 

- 

Sri> 

161.20 

-390 

- 

- 

31 

• 

Total 





7,788 

328 

■ SILVER COMEX (100 Troy az^ Centa/troy oz.) 

Not 

518.7 

-48 

. 

. 

- 

- 

Dot 

520.5 

-5.7 

5259 

5189 

13931 

71.773 

JOT 

523, 1 

-&7 

5289 

525.0 

1 

86 

Mar 

529.0 

-59 

53X5 

52X0 

1.218 20.95 

Mqr 

634.9 

59 

53X5 

5349 

555 

4904 

JU 

541.1 

-89 

5489 

5399 

S3 

4938 


Me 39M +1/2 391/4 385H 34.942 7JQ05 

Bar 40241 +1/4 403/D 397/0 25403 3,696 

May J7H/B -0/6 380/U 375/4 4309 387 

JU 344/5 -2/2 346 D 3435 10,558 1.221 

Sep 348/6 -2/2 350/D 347/0 290 2 

Dec 36OT -2/4 360/4 358/4 153 2 

DM 78,162 12J13 

■ MAGE CUT 15,000 bu min; cartfa/Sfilb bushaQ 


Dec 1278 29 1300 1273 19.709 6,627 

Mar 1316 -21 1332 1312 31.210 5,318 

May 1341 -19 1355 1340 8.352 797 

M 13® IS 1372 13® 3.4® 802 

Sep 1388 -17 1390 1390 1.501 110 

DK 1418 -17 1430 1430 5476 70 

Total 75,41014428 

■ COCOA flCCQ) fSDR'srtonneJ 


Dec 32-700 4.700 33J775 32600 17,945 2,141 

Feo 36550 4.100 36600 3S.05O 9,378 1,450 

Apr 36.925 4.025 36475 30535 <948 422 

Jm 42450 4.150 42400 41400 2264 209 

/tag 42.050 - 41050 41.525 451 39 

Oct 38.800 4.150 38400 38.600 384 38 

TOM 30052 4^43 

■ PORK BELIIE3 CME (40.0008x1; centa/lbg 


Dec 218/4 UK 21710 215/4111218 17.020 
Star 223/2 + 1/2 228/6 2200 65,579 4,440 

May 335/8 +1/2 23BC 234/4 20301 2JJ39 

JU 241/0 +1/0 241/4 239/4 34,373 3.029 

Sep 245/4 +1/0 246/D 244/6 3.D95 312 

Dbg 250/2 +1/0 250/4 249/1) 14,806 613 

Trial 257,660 27/621 

■ barley LCE (E per tonne) 


Rmenfter 4 


Price Prrv. day 

. 980.73 981.16 


COFFEE LCE (Sftonne) 


Trial 


114,325 15JB6 


ENERGY 

■ CRUDE OB- NYMEX 142,000 US galls. S/barrel) 


CfaM 
Previous 
HflMow 
AM Official 
Kerb dose 
Open tot. 


8150-60 8240-50 

0225-35 8320-5 

634Q/8190 
8240-50 8330-40 

6200-10 

20.611 


Dec 


Total daily turnover 4,611 
■ ZMC, special high grade ft per tonne) 


Close 

1 151 -5 

1172-3 

Previous 

1157-8 

1178-9 

Hlgh/tow 


1182/1168 

AM Offidai 

1151-2 

1172-3 

Kert> dose 


1169-70 

Open lm. 

108900 


Total daily turnover 24,787 


■ COPPBL grade A (S per none) 


Cl rare 

2710-1 

2687-8 

Previous 

2734-5 

2683-4 

High/low 

2730 

2710/2882 

AM Official 

2731-3 

2S93-4 

Kart) dose 


2683-4 

Open Int. 

224,079 


Total dally turnover 82,068 


■ LME AM Official E/S rale: 1.6167 

LME Oodng SJS rates 1.6160 


Spoc:9ie4 3 BdtKi.6154 BH0&1.B13? 9 mite: 1-61 09 

W HK3H GRADE COPPER ICONO] 



Day'll 

Open 

Cto» 

cfcaoBs HW tow 

tat KM 

Not 125.05 

-105 125.80 12495 

1907 143 

Dot 124D5 

-295 176.10 12390 

40.7g3 10954 

JW 123.05 

-245 12445 124.45 

934 4 

fata 122,05 

-220 

589 7 

Mar 121.15 

-195 12290 izam 

1096D 1,731 

Apr 119,70 

-195 

708 6 

Total 


82996 13914 

PRECIOUS METALS 


■ LONDON BULLION MARKET 


(Prices suppled try N M RotaschOd) 


Gold (Troy oz.) 

S price 

C equhr. 

Close 

382.90-383-20 


Opening 

383.30-383.70 


Morning fl* 

383 ro 

237.099 

Afternoon fix 

332.70 

238.730 

Day's High 

38390-383.70 


Day's Law 

382.30-382.60 


Provtaua dose 

38390-384 J20 


Loco Ldn Mean Bold Lending Rates (Vs USB 






3 months 

— 4.85 


Steer Rx 

p/troy oz. US eta eo/Jv. 

Spot 

323,25 

522.75 

3 months 

328.10 

63CL2S 

6 morntn 

333.06 

537.80 

1 year 

345.65 

556.15 

Gold Coins 

S price 

C equhr. 

Krugerrand 

385-388 

238-241 

Maple Leaf 

33390- 385.65 

- 

New Sovereign 

80-83 

56-59 


Latest Bay’s 
price charge High 
1449 -027 f&W 
Jan 1828 -023 18J77 

Frit 1412 -0.19 1428 

Mar 1404 -0.14 1806 

Apr 1757 -412 1410 

Hay 1794 -0.09 17.94 

TOW 


Lew tot W 

W46 47,453 

1826 80,762 31.320 
1410 34588 14847 
1800 26.087 5,176 

1795 19261 1.578 
1790 12232 809 

389913110/838 


Not 

9M5 

■0.45 

. 

. 

49 

. 

Jot 

10245 

•0.40 



484 

- 

■ar 

104.95 

-0.80 



130 

- 

ww 

10825 

125 

- 

- 

48 


Sep 

9190 

-090 

92-00 

9190 

5 

10 

Rot 

94.T5 


- 


- 

- 

Total 





7lfl 

10 

■ SOYABEANS C8T OJBDbu into: cents/EOti bustad) 

Mot 

554/6 

+4/4 

55810 

54B/D 

11.071 

11937 

Jot 

56610 

+4/0 

569/4 

56W0 

59.539 

28920 

Mar 

575® 

+3ffi 

S70/4 

570/2 26/m 


mot 

584/2 

+4/0 

587/4 

578/B 

12.911 

1971 

JU 

59D/Z 

+4® 

594/4 

584® 21.320 

1.557 

fe>9 

592/8 

+343 

598/4 

589(0 

1.703 

66 


Rm 

3408 

+53 

3415 

3385 

801 

88 

Jan 

3439 

+3T 

3452 

3420 

12970 

1.725 

Mb- 

3400 

+22 

3415 

3384 

8.291 

380 

May 

3370 


3384 

3360 

3.330 

433 

JU 

3346 

+31 

3360 

3352 

1.359 

55 

Sep 

3325 

+5 

3350 

3350 

1.525 

53 

Total 





27978 2,774 

■ COFFEE CSCE P7,500*»; crentsrita^ 


Dec 

18180 

+080 

18425 

181.40 

10988 

5929 

Mar 

1B&30 

+095 

1897C 

18P60 

II.9W 

2J250 

MOT 

191 15 

♦0.15 

191.75 

139.30 

5978 

422 

JU 

19275 


19125 

191.58 

1.768 

190 

Sqi 

194.00 

+190 

194.75 

193.00 

1.000 

71 

dm 

19425 

+1.10 


- 

919 

66 


Ml 

41.200 

-0925 

41.750 40000 

8962 

922 

Star 

41.400 

-LL550 41M0 41.000 

1,239 

112 

May 

42-350 

-0400 

*2.800 42350 

312 

14 

JU 

43.400 

-1400 

43900 43.150 

328 

19 

Aug 

42400 

-0.450 

• 42.300 

77 

6 

Total 




10/018 

1967 


LONDON TRADED OPTIONS 

Strike prtoe $ tonne — Cate — — Puts — 
■ ALUMINIUM 


Total 

OOFH5E 9CO) (US cenla/pourrd) 


31262 4631 


Total 1 44394 47287 

■ SOYABEAN 04 CHT (eO.OOObs; own s/lb) 


■ CRUDE 04 IPE (S/barnd) 



Latest 

dot's 


Opm 



price 

ctange 

Hgb 

Lew tat 

Yol 

Dm 

17.25 

4L49 

17.70 

17.20 71.145 

29.643 

Jot 

16.81 

-092 

17.12 

1675 61945 26471 

Feb 

16.62 

■0.26 

1695 

1660 22.616 

6.449 

fbr 

1692 

-osn 

16.67 

1652 13994 

3975 

Apr 

1644 

•0.20 

1655 

16.44 6045 

775 

MW 

- 

- 


- 3.062 

60 

Total 




188/280 81981 

■ HEATING OIL MyUEX (4^000 US C6S gate) 



Latest 

DteTa 



(Men 



prlea 

dnoga 

Mph 

Low 

tat 

VU 

DCC 

5055 

-645 

51.05 

50.40 

44.797 

11407 

JBB 

SIM 

-OJ6 

51.60 

sags as.?*? 

5.640 

Fab 

61.60 

-0.41 

51.70 

5190 

22941 

1973 

Mar 

5125 

-638 

51.40 

51.25 

12976 

1,129 

AW 

50.30 

■091 

50.30 

5090 

7.767 

631 

■to, 

50.11 


- 

- 

4989 

271 

Total 




1SM73 22,490 

■ GAS OH- IPE (Snore*! 





Sen 

Days 



Open 



price 

ciiMge 

«PA 

LOW 

M 

YU 

Hot 

152.00 

-2.00 

15390 

15290 10912 

7903 

Dec 

J54J5 

-zoo 

15675 

15425 

30543 

6910 

Jan 

15675 

-zoo 

15675 

15675 

3)982 

1915 

ftta 

157.00 

-ZOO 

157.75 

156.75 

9955 

604 

Mar 

15675 

'ZOO 

157.00 

15675 

7.433 

570 

Apr 

15600 

■1.75 

15650 

15600 

3923 

271 

Tot* 




TOT 9W 17966 

■ NATURAL BAS NYMEX (10900 nonOtiL. StamBbU 


Dec 

27.17 

-007 

27.49 

2696 

38945 

12960 

Jot 

2691 

+095 

2695 

2600 

19900 

6187 

Mar 

2591 

+994 

25.62 

2615 

14.477 

1782 

Hay 

2491 

+002 

2605 

2495 

13.395 

1563 

JU 

24.45 

■091 

2*70 

24.32 

7.765 

1.292 

Aug 

24J35 

-0.03 

2495 

24.25 

1981 

329 

Total 




10191B 27437 

■ SOYABEAN MEAL C8T (IDO tons, SAon) 


Dec 

1509 

+19 

1609 

1599 37957 

5950 

Jan 

1629 

♦ 1.4 

162.8 

1609 

19/571 

4.021 

Mar 

10x6 

♦1.4 

1679 

1649 

16938 

4936 

MOT 

1707 

+1.6 

171.1 

1662 

9940 

777 

JU 

1766 

♦1.4 

176 2 

174.1 

9936 

19 48 

ABO 

1771 

+1.6 

1779 

1760 

1.458 

110 

Total 





99,741 

16,427 

■ POTATOES LCE (Morate) 




Mir 

1060 


. 




Apr 

2395 

+10 

2429 

238.0 

1991 

263 

MOT 

+W.0 

- 

- 

. 


- 

JH 

2500 



- 

- 

- 

Total 





1,391 

2E3 

■ FREIGHT (BIFFEX) LCE (SIOAnda* point) 


Rot 

1793 

+38 

1778 

1765 

2S4 

2S 

Dec 

1704 

+24 

1700 

1680 

338 

77 

Jot 

1650 

+35 

1650 

1630 

1.052 

23 

Apr 

1620 

+22 

1623 

1815 

895 

35 

JU 

1438 

♦21 


- 

132 

- 

Oct 

1450 

+8 

- 

- 

17 


Tetri 

Close 

Pm 



2,888 

ISO 

■n 

1841 

184# 






NMendnr 4 


Price 

P1W. day 

Comp-<Wy 

.... 

17492 

17309 

15 <fe* image . . 

— 

18198 

181.92 

■ No7 PREMIUM RAW SUGAR LCE (certls/lte.) 

Jan 13 00 

- 


90 

Mar 1147 

+0.42 

- 

- 56D 

l«OT 13.53 

+0.15 


- 450 

JU 13.38 

+096 



Total 



1.100 

■ WHITE SUGAR LCE (SAorme) 



Dm 

37190 

+690 

37180 

365.50 

2900 

501 

Mar 

36160 

+620 

363 50 357.30 

8.658 

1.608 

Mot 

35680 

+6.10 359 30 

353.50 

3.210 

U03I 

Aug 

35080 

+160 

35100 

247.70 

2754 

492 

Oct 

32630 

+170 

353 90 324JO 

8 37 

108 

Dm 

324 90 

+170 

325.00 

324.50 

17 

10 

Total 





18/127 3,780 

n SUGAR 'll* CSCE (112,000033; cenisrito) 


Mar 

1327 

+006 

13-36 

1313(02176 4530 

*OT 

1130 

+010 

1136 

1115 

28.238 

1,322 

JU 

1114 

+0.08 

1119 

1301 

17^52 

576 

Del 

1290 

-0-04 

12.58 

1147 

15/330 

489 

Mar 

17.06 

-004 

1216 

1211 

7.HW 

154 

MOT 

12.08 

-0.D4 

1212 

1212 

107 

79 


09 7te) LME 

Jan 

Apr 

Jan 

Apr 

1925 

84 

122 

60 

87 

1850 - 

72 

110 

72 

99 

1875 «... 

81 

96 

65 

112 

■ COPPER 
(Grade A] LME 

Jan 

Apr 

Jan 

Apr 

2600 

139 

127 

48 

114 

2650 

109 

105 

65 

140 

2700 

83 

85 

88 

169 

■ COFFEE LCE 

Jan 

Ms 

Jan 

Mar 

3400 

230 

323 

191 

323 

3450 

206 

305 

217 

355 

3500 

IBS 

288 

247 

388 

■ COCOA LCE 

Dec 

Mar 

Dec 

Mar 

925 

17 

70 

10 

38 

960 

6 

57 

24 

50 

975 

2 

46 

45 

64 

■ BRENT CRUDE IPE 

Nov 

Dec 

Nov 

Doc 

1650 

86 

83 

5 

49 

T7D0 

39 

58 

11 

73 

1750 

19 

38 

38 

105 


LONDON SPOT MARKETS 

■ CRUDE OIL FOB (per barrri/Dec) tor 


Dubai S15.67-5.9az -4415 

Brent Send (Oared) SI 7.53-7.55 -0.48 

Brent Blend IDee) S1723-725 -0,44 

W.T.1. (1pm ■ st) I1fl.30-a.32z -0.535 

■ 04 PRODUCTS NWE prompt delivery OF (tonne) 


Trial 168469 7JJ71 

■ COTTON NYCE (5Q.OOO*»: cente/lbs) 


Dee 7126 +1« 73.76 71.70 22,699 3.060 
74.73 +152 74 95 73.10 17.088 1.533 
May 7570 +1.40 75 B0 74.10 5981 388 

JU 7835 +T35 7835 74.90 <.319 61 

Oct 71.15 *080 71.10 71.00 596 4 

Dec 7410 *0 73 7439 6935 Z968 SO 

Total 6*440 5/082 

m ORANGE JUICE NYCE P5.000fb3. wrnfc/tonl 


Premium Gasoflno 

Goes Ot 

Heavy Fuel Oil 

Naphtha 

Jet tael 

D««ot 


Si 77-180 
*155-156 
S100-102 
S170-171 
S181-162 
S161-16B 


-3.0 

- 1.0 


Prircttan ABUS Td Uwtal 071/ 399 5792 
■ OTHER 


■2J 

- 1.0 

-2.S 


Lattu Day's 
price change Won 


(tan 

tot 


oac 

1.708 

-0071 

1.830 

1.785 

27.779 

9.188 

Jan 

1.965 

-0047 

2.000 

1465 

19,149 

3423 

Fan 

1*0 

•OIC7 

1460 

1440 11858 

1.455 

Mar 

1.885 

-0417 

1410 

1495 

12405 

965 

AW 

1.850 

■0412 

1480 

1.850 

7.280 

581 

May 

1JSS 

■0014 

1460 

1455 

6,481 

331 

TOW 




131275 18440 

■ UNLEADED GASOLINE 




NYMEX (4ZOOO US gate: c/US 




ulra 

Day*i 



Open 



(aka 

CflOTfll 

Mgh 

Low 

tat 

M 

Dee 

57U5 

■<187 

56.60 

5740 

3042S 

10.431 

Jot 

56.25 

■0.78 

5740 

«av?n 

18436 

5/094 

Feb 

5160 

-066 

55.75 

5160 

7431 

1690 

Mar 

5590 

■0-80 

6640 

5540 

4.178 

191 

Apr 

5040 

-0.60 

BBJ5 

5930 

4401 

20 

May 

5115 

■0.44 

5820 

68.15 

1.948 

31 

TOW 





70414 

g 

IO 


Tea 


There was a strong general demand, reports 
the Tea Brokers' Association. Landed good 
Squaring Assam met keen competition and 
were gsnsrafly TO to 2 Op dearer but pta/n er 
sorts were barely steady. Bright era! mortem 
east Africans ware writ supported at hJly firm 
10 dearer raws. Ceytons ware about steady. 
OHshwer good demand at rmy firm rates. 
Quotations: best ovaiiafeto TBSp/ug. good I44p/ 
kg. good median I24p/kg. mortem 114p/kg, 
few medtam 90p/kg. The highest pnee reafesed 
this week was 189p/kg (or an Asstvn pd. 


Nov 106 50 -180 108 00 105.40 518 87 

J» 109 75 -2.40 112.45 10900 14.898 1,120 

Star 113.80 -1.90 118.00 I122S 5J73 323 

Hay 11690 -ZDS 118.50 11600 1.622 313 

Jri 120.15 -220 119.75 11975 911 l 

Sap 12225 -220 1252S 123m 1.042 440 

Talal 25,799 2*13 


VOLUME DATA 

Open interest and volume data shown lor 
contracts traded on COMEX. NYMEX. C8T, 
NYCE CME, CSCE and IPE Crude Ofl aro one 
day to amors. 


Gold (per troy az)f 
Steer (per tray az)k 
PI at ran (per tray ox.) 
Pfflladtvvn (per tray oz.) 
Capper (US prod.) 

Lead (US prod.) 

Tin (Kuala Lumpur) 

Tin (New York) 
date Nve wrtgWt 
Stoop (five weighUr* 
Pigs (Bvo wetght) 

Lon. day sugar (raw) 
Lon. day sugar (wie) 
Tale & Lyle export 
Barley (Eng. toed) 

Maize (US No3 Veflbw) 
Wheal fUS Dark North) 
Rubber (Oecjf 
RUbber yan)f 


S383.Q5 
5245C 
$413.00 
$1 58.00 
133.0c 
40 75c 
15.86c 

? 00.0c 
H5.80p 
98.69 p 
?4^9p 
£328.60 
$370.50 
E316.00 
Unq. 
Unq 
Unq. 
86Jt5p 
85.75p 


-0.95 
-5.0 
-2.75 
- 2.00 
+3.0 
+0.50 
■O.20 
■E5 
■0 07“ 
+2.57- 
+3.06* 
+0.30 
+050 
- 1.00 


Rubber {KL RSS Nol JU) 340.5m 


INDICES 

■ REUTERS (Base: 18/9/31 =100) 


Hov 7 Nov 4 month ago year ago 
2103.6 2098.6 20G1.0 1617.3 


Coconut Oil (PhBtfi 
Palm Of (Malay.)? 
Copra (PHQ5 
Soyabeans (US) 

Coaon Ouflaofc'A' tod ox 
Woottops (64s Super) 


S605.Ov 

5690.01 

t445.0v 

ClS4.0v 

75.75c 

440p 


+05 

-5.0 

+15.0 

+15.0 


■ CRB Pbtunea (Base: 1967=100) 


Nov 4 Nov 3 month ago year ago 

23352 233.32 229.17 21668 


C par fanru uttaa oOririaa mutt p pen o Mm, c conigrib. 
f madUkO- m MotayoaneewsAg V OctrDoc. V HrxOac. u 
Ocr/No*. x Doc. t Nov. Y London PtiyecnL 5 C*= Ihrnr- 
Qan. 4e*jScm mortal doM. 4 SftMp prKun) - 

Chong* on weak O Priori ora tor pravtom day. 





Chris tof graf Grote, who has 
interests ia farms In Norfolk, 
western Germany and the old 
East Germany, told a fanning 
conference last week how he 
and a partner had also taken a 
12-year lease on a block of land 
in Ukraine. The rent was half 
that for comparable land in the 
UK, he said, “and the potential 
is absolutely staggering”. 

He told, too. how he was 
enjoying similar success in 
eastern Germany. Indeed, he 
had already decided that the 
way to maximise his income 
from the German land was to 
ship the grain he grew there 
direct from the farm to mills in 
the UK. 

All of which sounds 
intensely threatening to Brit- 
ish fanners who lack the busi- 
ness a nr) linguistic skills neces- 
sary to operate internationally. 
But do isolated instances like 
that, which rely almost 
entirely on western manage- 
ment and capital, indicate that 
eastern European agriculture 
is an imminent threat to that 
in western Europe? Having 
myself visited several of the 
countries concerned in recent 
years, my assessment is that 
they do not pose such a threat, 
at least for several years to 
come. 

Moreover, a recent report by 
the NFU appears to support 
my view and, incidentally, in 
spite of his personal successes, 
that of Christof graf Grote. For 
although some areas in some 
of the countries in eastern 
Europe do have unrealised 


potential, the majority have 
severe climatic disadvantages 
compared to the UK and most 
of western Europe, suffering 
from long cold winters and hot 
dry summers. 

Even more significant are 
the cultural, capital and politi- 
cal problems, which will take 
many years to resolve. Corrup- 
tion is widespread, inertia is 
endemic. It takes a brave man 
like Christof graf Grote to 
tackle them. Meanwhile, the 
new democratic governments 
of many of the former commu- 
nist states are busy recreating 
small farm structures more 
appropriate for the last century 
than for the next 

As always, there are excep- 
tions that prove the role. 
Labour-intensive crops like 
cherries and soft fruit for pro- 
cessing are already coming 
into the EU from some eastern 
European countries, undermin- 
ing the prices and profits of UK 
producers. Such trade will 
doubtless continue to be the 
subject of lobbying by special- 
ist producers. 

For mainstream commodities 
like cereals, however, Z cannot 
believe that eastern Europe 
will pose a serious threat for 10 
or perhaps 20 years. Mean- 
while, western European farm- 
ers will legitimately try to 
ensure that when tbs former 
communist countries join the 
EU they do so on terms that 
are fair to those of us already 
here and do not skew the agri- 
cultural production base from 
west to east 


flex# 

in v° la 


CROSSWORD 


No. 8,605 Set by CJNCJNNUS 



ACROSS 

1 A letdown as big hue is let 
out (9) 

6 Fruit, second-rate but sound 
<'5> 

9 Some car-manufacturing city 
(5) 

20 Animal that's roamed about 
in arid surroundings ?9) 

11 White-bot tin going down (10) 

12 Carry one expecting a fall (4) 

14 Islamic leaders responsible 
for state shipbuilding (7) 

15 Whip in swell company (7) 

17 Root for base rate cut (7) 

19 Government leader was grat- 
ing. Is that understood? (7) 

20 Sign of approval for credit {4> 

22 Plane sailing or floating by at 

sea (6.4) 

25 For the auditor frivolous 
ornament is a recurrent 
theme (9) 

28 Divert Clio, say (5) 

27 Cause of fermentation when 
put in still (5) 

28 Symptom of fear in veteran 
after start of conflict (4,5) 


DOWN 

1 Greek version of Room At 
The Top (5) 

2 Many captured by one 
unknown killer (9) 

3 Landlord's job: providing con- 
sistent environment for Nag’s 
Head (10| 

4 Exponents in cubes (7; A-m 

5 Land bases (7) 

6 Like a piper's pedicure? (4) 

7 University’s wise custom (5) 

8 Female's male making bid for A 

yen fg) * 

13 instrument in city, or English 

in France (3,7j ’ 

14 Cover with which I agree? 

Very well (9) 

16 Professional cut out to have 
children (9) 

18 Prudent law enforcers end- 
lessly import information 
technology (7) 

19 Lucrative in France, in old 
France (7) 

21 Porcelain for the Cockney's 
mate (5) 

23 Deal with free enter tainm ent 
t5j 

24 Leave out some with hearts 
(4) 


SDniir , 


> 1 


prize puzzle on Saturday November 19. 
jjgjSjjgS to y«terday s prize puzzle on Monday wnvwSto 21 . 


SerhnoffltasEhf he jaftrymr wntosh tend. 

« 


JOTTER PAD 


.*£bA 




FINANCIAL TIMES TUESDAY NOVEMBER 8 1994 


31 


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;•’• . V: r : ; - - ,u ''- h ‘ trade r 
,'. ■;*■*■* 11 k; 

'* "-''ftaoit 

••• • .“J .’■' .^ • '■•- !oe 
.’ , ‘ ■■ / ' : 1b> 

1 '••-• •• - ■^.•:: : ij xm 

'■ '■ ■■"’■' rSs fc 

•• jv|i tn 

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••■■■: •. -_rr,-« j«irt 
-• "'■ • . ■•• ■•* mis t 

-■... 

■ -•- » ~'‘‘ l j? 

. M'. tc?fe 


WORD 


, v. ! V'WIS 





FINANCIAL TIMES SURVEY 


INTERNATIONAL FUND MANAGEMENT 


Tuesday November 8 1994 


Barry Riley, Investment Editor, analyses the testing 
conditions faced by investors after the interest rate 
rise in February imposed by the US Federal Reserve 

Flexibility the rule 
in volatile markets 


Last winter it seemed that 
everybody was setting up 
hedge funds. In rising markets 
the willingness to leverage 
aggressive positions through 
the future markets can pay off 
spectacularly. But, since Feb- 
ruary. conditions have been 
much more testing, and quite a 
few hedge funds have come to 
grief- 

The deterioration of invest- 
ment conditions in 1994 might 
seem odd given that the global 
economy has improved consid- 
erably - at any rate, outside 
Japan. But strong economic 
growth - which globally has 
probably reached 3V* per cent, 
and may go higher next year - 
generates a rising Interest rate 
trend which is an old enemy of 
the securities markets. 

In fact, most of the weakness 
has been in the supposedly less 
volatile bond markets. At the 
extreme, the US Treasury 
benchmark 30-year long bond 
has lost about 20 per cent of its 
value this year as the yield h»«= 
jumped from &3 to a peak of 
more than 8 per cent. In con- 
trast, in equities the FT-Actu- 
aries World Index has actually 
climbed about 6 per cent when 
measured in dollars, although 
Japanese investors see it 
rather differently, because the 
World ex Japan index in yen 
has declined by 13 per cent 

Equity market movements 
have presented something of a 
mirror image of the 1983 pat- 
tern. Whereas last year the two 
biggest markets, the US and 
Japan, which account respec- 
tively for about 33 and 28 per 
cent of global capitalisation, 
were the most sluggish, and 
were shown a clean pair of 
heels by many European and 
third world markets, in 1994 
Tokyo and Wall Street have 
held up comparatively well 

Where are these global 
investment shifts decided? 
According to Technimetries, 
which complies institutional 
investor databases, Tokyo had 
the biggest concentration of 
equity holdings at the end of 
1993, at 51,160m, but London 
moved into second place with 
6G81bn, surpassing New York’s 
$657bn. Switzerland, adding 
together .the different centres 
such as Zurich and Geneva, 
was roughly of the same size. 

Of . course, these figures 
largely reflect domestic hold- 
ings. Rankings on the basis of 
foreign equities only are differ- 
ent, with Tokyo and New York 
dropping back, but London and 
Switzerland emerging as cru- 
cial players. 

The year’s turning point 
came quite early, with the 
quarter-point dollar interest 
rate rise imposed on February 
4 by the US Federal Reserve. 


Although the increase was 
expected it triggered a spectac- 
ular crash in bond markets 
worldwide. Stock markets have 
been struggling to avoid conta- 
gion. not always with success. 

The scale of the crash in 
bonds has raised serious ques- 
tions about the structure and 
stability of the global securi- 
ties markets. At the top of the 
boom last winter bonds were 
taking what has proved to be 
an excessively optimistic view 
of future interest rates and 
inflation,' in other words, they 
were affected by a speculative 
bubble. 

That the market fell is. with 
hindsight, not surprising; but 
why was there such a sharp 
tumble? The common theory is 
that the rise in short-term 
interest rates, with the threat 
of more to come, panicked 
hedge funds and bank propri- 
etary traders into unwinding 
leveraged positions, which 
were being financed through 
short-term borrowings at 3 per 
cent on the scale of possibly 
hundreds of billions of dollars. 

For instance, Albert 
Edwards, global strategist at 
Klein wort Benson, has esti- 
mated that US b anks may this 
summer and autumn have 
started offloading $200bn of 
bonds into a weak market, to 
make room for a revival in 
bank lending to the private 
sector. 

A slightly different theory 
has been put forward by Wil- 
liam Sterling, of Merrill Lynch, 
who argues that non-Japanese 
investors borrowed some 
$120bn in Japanese yen at only 
2 per cent in the second half of 
1993, mainly to finance securi- 
ties market positions. The sud- 
den shock faced by these spec- 
ulators was not the widely- 
anticipated rise in dollar inter- 
est rates but the unexpected 
fall in the exchange rate of the 
dollar, which had been forecast 
to be a strong currency in 1994. 

Other explanations have 
been put forward relating to 
distortions within the mort- 
gage-hacked securities markets 
which led to a sharp bond 
sell-off once short-term rates 
turned. Certainly the mort- 
gage-backed securities market 
has been a great disaster area 
of 1994, and Kidder Peabody, 
one of its lea d ing promoters, 
has suffered dismemberment 
and sale by its parent General 
Electric. 

The feet that such different 
arguments can be advanced 
(and there may be truth in all 
of them) shows how poorly 
documented the flows between 
global securities markets are at 
present. The lifting of capital 
controls by many countries 
over the past few years has 


encouraged cross-border flows 
but the monitoring is poor. 
Now the rapid development of 
derivative markets is speeding 
up the movements of capital 
and is encouraging speculation 
which appears to be sometimes 
destabilising. But there is only 
patchy information about what 
is going on. 

However, the global strategy 
team at Baring Securities led 
by Michael Howell has pains- 
takingly built up the picture of 
global equity flows. They have 
uncovered an extraordinary if 
erratic growth in cross-border 
investment, rising from an 
average of about $30bn a year 
in the late 1980s to a peak 
S188bn last year. The main 
influence behind this growth 
has been a jump in US out- 
flows from negligible levels 
until 1983 to $43bn in 1991 and 
$85bn last year. 

A significant international 
diversification campaign by US 
pension plans is the main 
explanation - although there 
has been rapid expansion in 
overseas specialist mutual 
fends too. Greenwich Associ- 
ates, the US pension consul- 
tants, found in a survey of pen- 
sion plan sponsors that the 
average fund had doubled its 
exposure to overseas assets to 
8 per cent in the three years up 
to the end of 1993, and, more- 
over, that the proportion was 
expected to hit 12 per cent by 
the end of 1996. 

Emerging markets have 
proved a strong attraction for 
investors in the US and else- 
where in the developed world. 
Third world economies are 
often growing very strongly - 
at 5 to 7 per cent a year, at 
least twice as Cast as the devel- 
oped countries. 

International investors 
owned emerging market equi- 
ties worth $200bn at the end of 
last year, according to Baring 
Securities, amounting to about 
15 per cent of their total cross- 
border holdings. In less favour- 
able conditions the flow of 
$61bn to emerging markets last 
year will not be repeated in 
1994, but the total could still 
approach 650b u 

Bond investors, however, are 
in a much less active mood. 
Japanese investors have suf- 
fered such serious currency 
losses over the past few years 
that they are refusing to recy- 
cle liquidity generated by the 
Japanese balance of payments 
surplus into overseas bond 
markets, as they were much 
happier to do In the late 1980s. 

Bond investors in general 
have retreated to their lairs. 
For instance, whereas foreign- 
ers bought a third of the net 
issuance of UK government 
bonds in 1993, this year the 


Globalisation: Norma Cohen reports 

Funds pour into equities 


• .IT 


.•S' 

V- wi‘ 




■ r-.* 


C 




,.r *•= 




® If there is any trend which has 
characterised the fund man- 
agement industry in the past 
year, it is the extent to which 
investors of many nations are 
prepared to Invest money 
abroad. 

“There are five major pen-, 
sion markets in the world.” 
said David Salisbury, chief 
executive of Schroder Capital 
Management- International. 
“They are Japan, the US, the 
UK, Canada and Australia. Per- 
haps with the exception of 
Japan, all are seeing an 
increase in international 
investment” 

Personal investors buying 
mutual fends have also shown 
great enthusiasm for faraway 
markets. European investors 
have long been international in 
their approach, but the past 
two or three years have seen 
an unprecedented wave of buy- 
ing by US investors of interna- 
tional specialist mutual fl u i ds , 
often with an emerging mar- 

All of these investment flows 
are heavily tilted in .favour of 
equities, a trend which is hav- 
ing a ‘profound effect on the 
^ business flowing trou gh st ock 
exchanges around the world. 

' "One of the single most 
important trends tor the UK 
securities industry is the will- 
ingness of US fund managers 
to invest abroad,” said Alan 
Yarrow, managing director at 
Beinwort Benson Securities. 

According to InterSec 
Research. . Corp, a US-based 
investment consulting firm, US 


I Gross cross-exchange 
| equity flows ($bn) 
Gross cross-border 
equity Sows (Sfcrv) 



: 1070 00 81 ^ 03 B4 &5 0& 87 38 89 00 ftt. 32 S3 


pension funds sharply 
increased their international 
holdings to 7.4 per cent of all 
assets by the end of 1993, up 
from 4.7 per cent the year 
before. Overall, the value of US 
pension assets invested outside 
the country rose 69 per cent to 
$260bn by the end of 1993 and a 
further $22bn was invested 
abroad in the first half of 1994. 

The biggest beneficiaries of 
this trend may well be UK- 
based fund managers who have 
been investing up to 26 per 
cent of the average UK bal- 
anced pension fund portfolio in 
foreign equities. US fund man- 
agers have been slow to 
develop the expertise to meet 
the newfound interest of 
schemes based there. 

According to InterSec, at the 
start of 1993, out of 15,000 US 
fond managers, only 200 had 
any significant expertise in 
international investment 

A 


Significantly. 80 per cent of 
the outflow in the first half of 
this year has been into equi- 
ties, a switch from the initial 
US diversification abroad 
which led fund managers 
largely into bonds. 

Meanwhile, the flow of for- 
eign money into the London 
markets, the worldwide centre 
for international shar e trading, 
is having a profound effect on 
the way intermediaries do 
business. Earlier this year, the 
Securities and Investments 
Board, the City’s chief regula- 
tory watchdog, issued a discus- 
sion paper asking whether 
there is a need for a greater 
level of pre- and post-trade 
transparency, tn particular, the 
SIB asked whether rules allow- 
ing delays in publication of 
large blocks of shares were fair 
to investors. In the US. rules 

Continued on page VI 


overseas buyers have melted 
away. 

The result has been a sharp 
rise in government bond yields 
around the world and increas- 
ing talk ol a global capital 
shortage, because developed 
country governments are still 
borrowing enormously, while 

the flows being diverted into 

the emerging markets are 
becoming highly significant. 

For hedge funds that got 
these movements wrong the 
consequences have been dire. 
For instance, the Dorje and 
Vaja fends run out of London 
by David Weill (but based off- 
shore) have halved in value 
from Si.ibn this year and ore 
being wound down. Last spring 
the group of US hedge funds 
run by David Askin collapsed, 
victims of the debacle in mort- 
gage-backed securities. 

On the other hand, the large 
movements in various markets 
have in theory offered consid- 
erable opportunities to those 
who have got it right with 
focused strategies, for instance 
by leveraging positions in cof- 
fee or metals, or chasing hot 
emerging markets such as Bra- 
zil. But it has been easy to get 
things wrong, too. especially 
the dollar exchange rate, 
which lias proved an expensive 
trap for many a dollar bull this 
year. Global investment man- 
agers have had to display enor- 
mous flexibility in adjusting to 
the different market climates 
in 1994. But they can derive 
some modest satisfaction from 
the fact that the politicians are 
starting to complain about the 
power of international money, 
notably in imposing ever- 
higher interest rates in govern- 
ment bond markets. 

Money talks, and the global 
money managers are making 
their views known. 



IN THIS SURVEY 

■ Emerging markets: after 
phenomenal growth during 
1993, performance this year 
has been volatile 

■ Performance measure- 
ment: this has become a 
statistical jungle which now 
needs to be standardised 

Page u 

■ Derivatives: a younger 
generation of investment 
managers is proving to be 
less conservative 

■ Global custody: the rush 
is on to find new opportuni- 
ties in emerging markets 

Pagelll 

■ Bonds: the market's for- 
tunes turned abruptly in Feb- 
ruary and choppy conditions 
are likeiy to continue 

■ Currencies: the dollar's 
p fight has been a source of 
grief to investors 

Page tV 

■ Stock markets: equity 
fund managers have found 
1994 tough going 

■ Real estate: the turmofl 
In bond markets has spilled 
over into most international 
property markets 

PageV 


■ Europe: pivotal issue is 
future of (tension schemes 

■ US: capital (tows continue 
into equity markets abroad 

■ Japan: foreign exposure 
has been pared down 

VI 


Editorial production: Roy Terry 
fftustrathn: Mark Thomas 


Komercm banka in London 

Komer cni banka, one of the largest banks in the Czech Republic, is to receive a syndicated 
medium term loan of 75 million USD this afternoon. The oper at ion win take place in London 
by arrangement of the Sumitomo Bank. Eminent persons within the infaw w atiowai banking 
community will be welcome to review the track record of Komercni banka at a formal 
meeting fallowing the event. For those unable to attend, a short summary of our commercial 
success is outlined below. 



Founding member of tha Stock Rsahanga Prague 
Foodiog member of the AraoclatLon of Banks, Prague 
Hoad Omoa Hapritapfi SS, 11407 Fragile 1 
TaL: ++42(2) 24 08 11 11, Flue ++48(2) 24 84 30 33 
Repreeantattro Office, 86 Moorgua, London BC2H 6BT, 
TaL: (071) 688 71 86, Fax (071) 688 7120 



Dr. Biohard Salsm.wn. 
Chairman and Chief 
Executive of Komerini banka 


Komercni banka. a~s. 
ia-3. is the Czech 
equivalent for plc'» is 
a universal commercial 
bank and the leading 
lending bank in. the 
Czech Republic. Our 
reputation of rekabUMy, 
credibility and mowatkxi 
has earned us 
a commercial success 
second to none In the 
Czech Republic. Our 
position in intemationa] 
markets has also been 
recently . qtgnififfmtUy 
etrenghtened. 

The bank lb a founding member of the Prague 
Stock Exchange and the Association of the Banks of 
the Czech Republic. 

History 

Komerdoi banka was established in 1990 
following the break-up of the former Soviet type 
■‘mnnnh an.lt '*. Statni banka desfcoslovensk&. KB 
squired most of the former state bank's customers, 
almost all of which were state-owned companies with 
significant debt. Komercni banka accepted the 
challenge and started Immediately to reduce the size 
of the high risk loans, changed the time structure of 
the portfolio and amended the client structure to 
adapt u the rapid development of the new private 
sector. 





S11W 


cm 



Stock Exchange, Prague and co-pre Bides the 
Association of Banks, Prague and the Union op Banks 
and Insurance Companies (an employers' association). 

Komercni banka has a twelve-member 
Supervisory Board representing the owners. The 
Board Is chaired by Mr. Toman ProchAzka, 
a prominent Czech businessman. 

Business of Komercni banka 

As a universal bank we offer a wide range of 
banking services, including: 

payment services - maintenance of CZK and Sbrelgn 
exchange accounts, foreign exchange services, 
documentary credits, cheques and credit cards 
da postt and loan services - current accounts, deposits 
in CZK and foreign currencies, deposit certificates, 
loans In CZK and In foreign currencies 
securities transactions - issue, m ediat ion of purchase 
and sale, safe custody and administration, 
maintenance of securities portfolio 
consultancy services - investment, financial, 
business and haniring information concerning clients 
and mediation of contacts between domestic and 
foreign business partners. 

We are constantly expanding our traditional line 
of services. Our bank is increasingly active In all 
segments of the Czech capital market. We are one of 
the top five securities dealers in the Czech Republic as 
measured by the turnover of transactions on the 
Prague Stock Exchange. The bank dominates the 
primary market and participates In the majority of 
significant domestic primary issues as the lead- 
manager or co-manager. 

Market Position 

With almost 400 branches and sub-branch as ,our 
network is one of the largest in the Czech Republic. 
Our share of the loan market is currently 29.3 % (of 
which 60 % is m the private sector). Our share of the 
Czech deposit market Is S3 %. 

The balance sheet total of our bank is now DSD 
11.6 billion ('CZK 321 billion). 


CAC Leasing, a.3., which offers financial leasing 
services (one of the leaders on leasing market in the 
Czech Repub lic). 

LS.O. JKUZO, ojul, provides services for the banving 
sector, especially for the credit cards business. 
flMtontwwU ssracni a raasvqjav£ i us. 

(Guarantee and Development Bank) fosters the 
establ i s hm ent and development of small businesses. 
Economic, u, a fin a n o ia l and economic publisher. 
Berra cexmych papiru Praha, aua, (Prague Stock 
Exchange). 

Komer&nl banka has expanded its international 
operations this year. New banking connections have 
been established, international trade enhanced and 
documentary payment operation increased 
substantially. Currently we maintain some one 
thousand correspondent relations with major 
international banks and payments are effected 
through approximately 100 loro and nostro accounts. 

Komercni banka baa representative offices in 
London, Moscow and Bratislava. The opening of a new 
representative office in Frankfurt fs planned late 
1994 and a New York office is envisaged for 1996. 
A new subsidiary bank is scheduled to open next 
year In Bratislava, Slovakia. 



“ Mainly stale-owned compNifes ■ Companies under IowhiumiuoI 

BPrtvawsactoi ramranies Ottiei mrriunknB InstiWtom 

Today, Komanini banka is a major universal bank 
with over 16.000 employees and a branch network 
throughout the country. The bank has been successful 
in restructuring Its loan portfolio arid creating 
sufficient reserves to cover risk, thus complying with 
International Audit Rules. With its share of nearly 30 
per cent of the Czech loan market. KB is the largest 
lending institution in the Czech Republic. The 
majority of our currant clients are medium to large 
sized private companies. 

Modernizing cur technology and organizational 
structure, with the greatest emphasis on updating our 
information processing systems and employee 
br aining , has enabled our bank to meet the exploding 
demand for banking services in the Czech Republic. 

Ownership 

Although originally completely state-owned, in 
the spring of 1992 our bank was transformed into a 
Joint-stock company under state control. Only one 
year later, in July 1993, the privatization process was 
completed. The state no longer has the absolute 
majority, 51.3 % of Koraercni banka is now in the 
hawria of private owners. The state share of ownership 
Is expected to decline gradually Last year the new 
owners decided to increase the authorized, capital of 
KomerfinI banka from USD 173 imJUoD (CZK 3 billion i 
to D3D 260 million (CZK 7.5 billion', and to launch an 
additional share Issue In the total nominal value of 
OSD 71 milli on (CZK 2 MUionj in 1994, totalling in 
OSD 334 million <9.5 billion CZK v As at 30 September 
1994 the bank had a capital adequacy ratio of 9.44 % 
(according to the Basle Agreement... 

Top management o t Komercni banka 

Dr. Richard Salzmsmn 1 65 1 is the Chairman and 
Chief Executive of KomerOni banka With his 40 years 
of experience In banking he enjoys a generally 
recognized position as the doyen of the Czech banking 
Industry. Dr. Sal zm arm is also the Chairman of the 



Subsidiaries 

The range of typical banking activities Is 
complemented by the services of our specialized 
subsidiaries which together with our bank form the 
KB GROUP. The companies with more than 50 per 
cent of our bank's participation are: 
all nr, as. offering complete business consulting 
services for the domestic and foreign clients of our 
hank. 

ZnwsttSni kspitHova 
spoteenost KB, u. 

(Investment Capital 
Corporation) engaged In 
the foundation and 


Bank Technology 

in April 1993 the payment and accounting 
system ABO, based on batch processing, was replaced 
by the new central on-line Bystem Dimension 
International The conversion was carried out in 
several stages and completed tn summer 1994. Now 
the payment operations In all our trading outlets are 
carried out in real time. 

Future plans 

We are committed to the continuous 
improvement of our services to our customers, both 
domestic and foreign. Our goal is to expand our 
operations with due consideration for risk 
management and adequate provisioning. We are 
preparing to Introduce a full range of mortgage 
services. The product structure of our bank becomes 
increasingly more customer orientated. Customer 
service will continue to be the force behind all future 
strategy. We are prepared for the time when the Czech 
crown becomes fuEy oonvartlbls, and are well on the 
way to meeting the high standards of the European 
hanirtng community. 

Highlights of Komercni banka 


and share fUrris. 
VSeatmxna stAvetmi 
sporitebu, u. a Czech 
institution closely 
modelled on the German 
Bauspakkaese works in 
conjunction with our 
bank as a savings bank, 
specialized in savings 
and loans, some of them 
state-subsidized, for the 
purchase of apartments. 

Komerdni banka 
participates also in the 
following companies: 


Bask Miction 

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1993 

1992 






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FINANCIAL TIMES 


TUESDAY NOVEMBER 


8 1994. 


INTERNATIONAL FUND MANAGEMENT II 


Emerging markets: John Pitt analyses the fall and the recovery this year 

Latin America leads the way 


Net 





SMOKeatVAiuflli 


‘3s.r\ 


A classic case of volatility 
has marked the perfor- 
mance of the world's 
emerging markets during 1894, 
after a period of phenomenal, if 
not reckless, growth during 
1993. 

The story of the markets so 
far tM« year has, more 
ever, been intertwined with the 
movement of US interest rates. 
Ill «i|T P 010 n With ftonxiHal mar , 
kets everywhere, they suffered 
a sell-off in February as the US 
Federal Reserve took the 
investment community by sur- 
prise by lifting interest rates. 

However, the recovery dur- 
ing 1 the third quarter been 
aVmrat fast as the £a33 in the 
first quarter with many of the 
markets now at or, in some 
cases, even above levels at the 
start of the year. 

According to the Interna- 
tional Finance Corporation's 
farior of emer ging market Indi- 
ces, the revival has been led by 
Latin America, while Europe's 
emerging markets - Poland 
and Turkey in particular - 
have dragged their feet follow- 
ing explosive growth in 1993. 

Turkey's case history stands 
as an example of the risks 
attached to Investment in 
these markets. After a rise of 
more than 200 per cent in dol- 
lar terms during 1993 the coun- 
try’s financial markets came 
under a wave of selling as its 
foreign debt rating was down- 
graded in mid-January and the 


Turkish lira collapsed against 
the dollar. This was soon 
accompanied by a rise in infla- 
tion - into triple digit figures 
for the first time in 14 years - 
hitting an annual rate of U7 
per cent in May. The market 
made a partial recovery during 
the summer, as the govern- 
ment introduced an austerity 
package, but at the mid of the 
third quarter the market was 


still down 45 per cent in dollar 
terms on the year to date, 
according to IFC data. 

The role of US Institutional 
investors has been crucial this 
year in determining the direc- 
tion of emerging markets. 
According to NatWest Markets 
in London US funds have the 
pivotal rote in terms of interna- 


tional financial flows, With US 
pension funds estimated to 
have assets in the region of 
$3,500bn while mutual fund 
assets stand at around 
¥2,000bn. During 1993 US funds 
invested overseas generally 
and in emerging markets in 
particular at an unprecedented 
rate: NatWest estimates that 
net new cash sent abroad from 
the US doubled in 1993 - to 


some $270bn - but was drasti- 
cally cut back in the first few 
months of this year. 

Mark Mobius, of Templeton 
Emerging Markets Fund, 
which has some $7bn invested 
in this area, suggests that the 
prospects for the markets over 
the next six months are gener- 
ally good but have become 


“more complex and difficult to 
ascertain. While a number of 
markets have moved up sub- 
stantially and have recovered 
from the decline in the early 
part of the year, many are 
overpriced. This, added to a 
great number of new Issues 
coming into the market at rela- 
tively high prices, could create 
problems of excess liquidity in 
some of the markets". 


John Chew, of GT Manage- 
ment Asia based in Hong 
Kong, makes a distinction 
between dollar block and non- 
dollar block emerging econo- 
mies. Given the unsettled state 
at the long end of US bonds, 
and the likelihood of further 
rate rises there, he is negative 
on those countries closely tied 


to the US dollar, which 
includes most of south-east 
Asia and much of Latin Amer- 
ica. By contrast, he is positive 
on, for instance, India, Pakis- 
tan, Korea and Brazil. 

He thinks Brazil - which is 
among the best performing of 
the world's emerging markets 
so far this year - has a lot 
further to run following the 
election of Fernando Henrlque 
Cardoso as president in Octo- 
ber, although. In common with 
other analysts, he expects a 
sell-off during this quarter as 
profits are taken and as negoti- 
ations on the budget get under 
way. 

Latin America has certainly 
emerged as the favoured region 
for fund managers in 1994. Bar- 
ings Securities, which also 
compiles an index of emerging 
markets, has the regional com- 
ponent up 20 per cent in dollar 
terms over the year to date. 

NatWest Markets estimates 
that “the proportion of US 
funds heading into the region 
rose to 77 per cent in the sec- 
ond quarter from 115 per cent 
in the first three months of the 
year. A number of large Brady 
bond deals will account for 


part of this abnormally large 
percentage, but the sheer scale 
of the flows gives an Indication 
of US investors’ continued 
commitment to the region". 

Latlnvest, the Latin Ameri- 
can securities house, notes 
that this year Latin America 
has been perceived as a region 
to be a better hedge against 
rising US interest rates than 
south-east Asia, partly based 
on the argument of its greater 
dependence upon rising com- 
modity prices. 

However, they add, this has 
not been the only reason for 
the strong performances seen 
in Peru and Chile, as well as 
Brazil, this year. “The markets 
are reflecting the benefits 
accruing to these countries of a 
fundamental restructuring of 
the economy," says Latlnvest. 

Of Peru, which has a market 
capitalisation of just SSbn com- 
pared to Mexico's SSOObn and 
Brazil's Sioobn. James Capel's 
emerging markets team, con- 
curs, believing that the econ- 
omy shows good growth pros- 
pects helped by a revival in the 
mining sector which accounts 
for same 5 per cent of GDP. 

Nevertheless, in common 
with Argentina, elections next 
year are likely to act as a sig- 
nificant drag on performance 
in the short term. 

Although the Asian region 
as a whole has been a laggard 
this year in terms of perfor- 
mance, the third quarter saw a 


recovery from the low levels 
experienced earlier in the year. 
iPftia, Pakistan and Sri Lanka 
are favoured among fund man- 


promise for strong growth 
expressed by some fund man- 
agers at the start of the year, 
This is illustrated by a 25 per 
cent gain In the local index.' 
Some analysts believe the 
index, currently at 4,300, could 
hit 5,000 by the year-end driven 


agers, based on economic 
strength and a more stable 
political framework. 

Of the three, India - with a 
market capitalisation of about by improved company results 
$173 bn - has confirmed the and a good monsoon. 


Equity flows to emerging stock markets tllS$bn) 



1988 

1987 

1988 

1989 

1990 

1991 

1992 

1993 


0.20 

0.43 

0.72 

6.98 

9.89 

11.15 

9.64 

20-00 


3.43 

6.03 

2-45 

3^36 

3-89 

4-73 

10.87 

40.13 

Other 

-0.29 

~asa 

oao 

-0£7 

-082 

-0.10 

068 

223 

ToW 

£34 

&68 

3AT 

1007 

1016 

1&7S 

21.19 

6Z3S 

Pacific Rim exriudtng 

Hong tong and Singapore 

0.70 

1.27 

0.58 

1.42 

1.51 

0.85 

5.00 

23.00 


Stum: Swing SoavflMx CKaiOvuhr Anafpsifl 


Benchmarks and performance measurement: Barry Riley reports 

Statistical jungle needs standards 


T he rapid expansion of global Invest- 
ment management, covering a wide 
variety of geographical markets, has 
highlighted the need to standardise perfor- 
mance measurement. 

In the past, performance measurement 
has too often been a statistical jungle in 
which every management Arm has 
claimed to have outperformed against 
some sort of index or other benchmark 
over same period or other. Allegedly “typi- 
cal" portfolios have been presented as 
indicative of actual client experience. 

Industry-wide historical performance fig- 
ures have been visibly flattered by 
so-called “survivor bias’* as the records of 
poorly-performing discontinued funds 
have been dropped from the databanks. 

In the extreme cases, longer-term perfor- 
mance histories have been cobbled 
together out of claimed records of different 
funds, o ften maTiflg nri by particular teams 
which may even have moved between dif- 
ferent firms. These stitched-together 
records are apparently known by measure- 
ment buffo as "Frankenstein" figures. 

Attempts are now being made at a 
clean-up. Last year, in the US, the Associa- 
tion for Investment Management and 
Research published its performance pre- 
sentation standards. This move followed 
closely on the introduction of a voluntary 
pension fund investment performance 


measurement code in the UK. 

Now the European Analysts’ Federation 
CEffas) has decided to set up a permanent 
commission on performance measurement, 
headed by Dugald Sadie, until recently the 
chairman of the World Markets Company 
(WML one of the two main performance 
measurement specialists based In the UK. 

Ettas felt that there was a need for a 
European initiative in this area. By build- 
ing on the work of the ATMR and the 
promoters of the UK code it might be 
practical to develop global standards, 
without too much wasteful duplication. 

Mr Eadie is hoping to propose a working 
programme by early next year and, per- 
haps ambitiously, to develop a set of 
global standards by the end of 1996. It 
could take much longer, because develop- 
ing a global code wffl require a struggle 
with basic cultural differences. 

In the US, the problem has been seen as 
largely an ethical one, in that portfolio 
management firms - typically quite small 
- operating in a co m pe ti t i ve environment 


wifi be tempted to manipulate perfor- 
mance data in their commercial favour. 

Hence the emphasis on presentation, 
because the provision of performance data 
to consultants and prospective clients is a 
crucial element in the marketing activities 
of US money management firms. 

In other countries, however, competitive 
bidding for mandates is often less of an 
issue, but reporting to existing clients and 
controlling risks may be more so. On the 
technical side, questions about the treat- 
ment of income, taxation and currencies 
are also bound to loom quite huge. 

According to Mr Eadie, who is moving 
his own job from measurement at WM to a 
marketing responsibility at the London 
fund managers Henderson Administration, 
measurement standards are driven by the 
marketing process in each country. “The 
issue hasn’t even arisen in Japan because 
there is no competitive market for fond 
management there," he says. 

hi the global arena the development of 
relevant securities market indices Is par- 


ticularly important for performance mea- 
surement. Indices are required as bench- 
marks against which managers can com- 
pare their achievements. However, the 
global markets represent a constantly 
moving target. 

F or example, the growth of the emerg- 
ing markets has prompted the com- 
mittee which controls the FT-Actu- 
aries World Index to expand the 
24-country index series to include Brazil 
and Thailand. But this introduction has 
been delayed for a month until the begin- 
ning of November because of the difficul- 
ties faced by managers running global 
Index funds in making their initial invest- 
ments in Brazil. 

S imilar difficulties can arise in bonds. 
Salomon Bros and JP Morgan, which both 
produce widely-followed World Govern- 
ment Bond Indices, upset certain fund 
managers two years ago when they Intro- 
duced Italian bonds to their indices. 

Not all investors considered that Italian 


government paper was of true investment 
quality, a doubt which was mollified by 
the 1963 bond bull market but which has 
recently once again resurfaced as Italian 
bond yields have headed back towards 12 
per cent. 

The problem of over-dominant indices is 
an increasing source of concern to fund 
managers. The indices were designed to 
measure portfolios, but too often it now 
works the other way around, with the 
managers slavishly chained to the indices. 

The global equity indices do, however, 
offer flexibility, being constructed on a 
building hlock baste, so that different sub- 
sidiary indices can be easily extracted. The 
Morgan Stanley Capital International 
series is the longest-established and is 
especially widely followed in the US. 

The capitalisation weights in these indi- 
ces cause constant problems, however, 
especially in the case of Japan, which at 
one stage in the late 1980s represented 
more than 40 per cent of the FT - A World 
Index and still accounts for some 30 per 


cent Thus the World ex US Index has an 
exposure of 45 per cent to Japan, repre- 
senting a dangerous concentration of risk. 

Same global funds have dabbled with 
GDP weights, to an attempt to reflect 
basic economic realities rather than finan- 
cial valuations, which can be distorted. 

Another option is to use equal weights, 
although this may be iHfftm iit in practice 
to the smallest markets where liquidity is 
restricted and dealing is rfifflraiW' 

Still another approach, seen particularly 
in the UK among pension funds, is to 
adopt a peer group benchmark. According 
to WM, the overseas equity portfolios of 
UK pension, ftmds currently have a 23 per 
cent weighting in Japan, much lighter 
than the World ex UK capitalisation 
weighting of 33 per cent 

In practice most UK fund managers 
assess their risks against the performance 
of other similar ftmds rather than against 
the World Index. According to WM, the 
overseas equity portfolios of UK pension 
funds outperformed the FT-A World Index 
by 14 per cent In 1993 (but with Japan 
relatively firm they will have substantially 
underperformed it so for in 1994). 

Was this 14 per emit excess retu rn a 
good performance, or did it reflect extrava- 
gant risk-taking? This is the kind of tricky 
conceptual challenge that global perfor- 
mance measurement has to help answer. 









rthout accurate international data, 
Cleopatra was up the Nile 
without a paddle. 





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A T A 



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FINANCIAL Times TUESDAY NOVEMBER 8 1994 


33 


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INTERNATIONAL FUND MANAGEMENT III 


I ncredulity can sometimes be the reac- 
tion when life insurance executives or 
pension fund managers are asked about 

““Sf “® of d ! rivat,ves “ instruments 
sudi as swaps, futures and options whose 

„ J 5 . derived from more conventional 

financial assets. 

"They are not real assets on? they?” is 
how the chie f executive of one of the UK’s 
leading life insurance companies puts it. 
Institutional fund managers have been 
slower to accept the potential uses of 
derivative instruments than the treasurers 
of large International companies, most of 
whom actively use swaps and options to 
Manage their exposure. 

fjrad managers have been inhibited in 
their use of derivatives for a number of 
reasons: 

■ Pension fund trustees can sometimes 
restr ict t he use of derivatives, limiting 
managers in their use of options. 

"They tend to take the view that they 
are happy to use futures for asset alloca- 
tion and options for hedging purposes - 
often they are keener to buy rather than 
sell options," says Trevor Robinson, for- 
mer director of derivatives at Fidelity 
International. 

■ Fund managers can be put off the illi- 
quidity in certain derivative instruments. 
The majority prefer to build up their port- 
folios through picking the shares of com- 


Derivatives: a younger generation is proving less conservative, says Richard Lapper 

Signs of a growing acceptance 


ponies which they know rather than buy- 
ing index-based instruments which reflect 
the market as a whole. 

■ In addition, most tend to measure their 
performance in relative rather than abso- 
lute terms, being more worried about their 
performance relative to that of rivals 
rather than the achievement of any abso- 
lute return. This adherence to benchmarks 
has sometimes discouraged innovation. 

■ Bad publicity linked to the corporate 
losses through the use of derivatives this 
year has been one of the factors lending to 
a low take-up by retail customers of deriv- 
ative-linked funds. Fidelity international 
decided in September to withdraw its 
futures and options funds from the mar- 
ket. Tor example. Although a number of 
building societies and life companies have 
successfully launched guaranteed funds, 
which use options as a principal plank of 
their portfolio, fewer fund managers have 
launched pure derivatives products. 

Despite these factors there are signs that 


UK fund managers are gradually overcom- 
ing instinctive caution and traditional con- 
servatism about the use of derivatives. 
Partially this reflects cultural factors, as a 
younger generation of fund managers 
comes to prominence. 

At the same time the industry's regula- 
tory framework has been modified in a 
number of ways, casing restrictions on the 
use of derivatives. The European Union's 

third life directive was implemented in the 
UK earlier this summer, radically redraw- 
ing the regulatory framework under which 
life insurance companies operate. 

Under the earlier regime rules governing 
valuation and measuring solvency were 
highly restrictive and fluid managers were 
virtually prohibited from holding deriva- 
tives in unit-linked funds. The change has 
followed an overhaul of rulers in the unit 
trust area in 1991 - which paved the way 
for both futures and options and geared 
futures and options funds, as well ns 
allowing some limited use of derivatives 


(mainly for hedging purposes) in standard 
securities funds. At the same time, the 
Inland Revenue clarified its treatment of 
derivatives transactions by pension fund 
managers in 1992. 

T wo surveys published earlier this 
year indicated the scope for 
increased activity. Buchanan Part- 
ners, the London-based quantitative 
investment management firm, conducted a 
survey of 166 pension funds in January. 
Buchanan found 57 per cent of the overall 
survey used some form of derivatives, 
with funds in the range between $25lm 
and $500m more likely to use derivatives 
than any other smaller or larger group. 
One third of derivatives users used perfor- 
mance os a reason or their use. A similar 
portion used derivatives to reduce risk or 
volatility. About half used derivatives to 
protect their investment portfolios, while 
four fifths of users deployed derivatives to 
tactically allocate assets. 


Many in the industry expect this use to 
grew, partially because derivatives allow 
managers to allocate assets very cheaply. 
A fund manager wanting to switch a part 
of his investment from UK to US equities 
would typically sell UK equities and then 
over a period of time buy US stocks. Using 
derivatives to conduct the same strategy 
fund managers would sell the futures con- 
tract in the UK and buy the futures con- 
tract in the US, saving on transaction 
costs. 

KPMG Peat Marwick, the accountancy 
firm, in a survey published in May this 
year, discovered that half of a sample of 50 
UK. life companies used derivatives tor 
either portfolio management or product 
design. The larger life offices, in particu- 
lar, have long used derivatives for hedging 
and asset allocation purposes and, more 
recently, to match FT-SE- linked products. 

Life companies also made some use of 
equity options and futures, with 40 per 
cent of the companies in the survey - 


mainly with-profits offices and mutuals - 
currently using equity options. "This prob- 
ably reflects the use of call options to 
pre-invest cash flows and the need for 
such offices to protect their equity portfo- 
lios against sharp falls in value,” said the 
report 

Rupert Yardley, the author of a report, 
expects life companies to increase their 
use of derivatives, following regulatory 
changes in the summer four out of every 
five companies said they intend to use the 
instruments in the fixture. 

A large majority of the companies 
believed there was a significant opportu- 
nity to design new products and deriva- 
tives could be the key to offering products 
with guarantees. 

Competitive pressures within the life 
industry, including the wider development 
or unit-linked products, could also act as a 
spur to push fund managers to use deriva- 
tives. 

Mr Robinson also expects the use of 
derivatives to Increase, in spite of Fideli- 
ty's recent decision. Fund managers are 
also likely to make more use of options, 
either to hedge their exposures or to 
develop specific products. He says fund 
managers should build up their positions 
slowly and advises them to "remember 
that they do not need to commit the entire 
fund to using derivatives.” 


Global custody: Norma Cohen looks at facilities in emerging markets 

Rush to find new opportunities 


While there has been 
considerable interest in invest- 
ment in Russian securities 
recently, there is a small prob- 
lem. 

In Russia, It seems, if a bro- 
ker wishes to buy shares on 
behalf of a client he has to 
visit the company whose 
shares he wants to buy. 

When he returns to his 
office, another problem 
emerges: where can the securi- 
ties be kept? International 
investors have little confidence 
in the ability of domestic insti- 
tutions to safeguard securities. 

"You fly in airplanes to get 
the securities and then you fly 
them out again.” explained 
Robert Binney, business execu- 
tive at Chase Manhattan 
Bank’s global securities divi- 
sion. 

Chase is considering apply- 
ing to become the first global 
custodian to operate in Russia, 
a move which is likely to facili- 
tate investment there signifi- 
cantly. 

■ The tale of Russia's non-exis- 
tent global custody business 
illustrates the extent to which 
investment is dependent upon 
the availability of information 


reporting, securities safekeep- 
ing and payment systems in 
different markets and instru- 
ments. 

Those who doubt the extent 
to which inter national invest- 
ment is dependent upon an 
efficient custodial network 
need only look at India where, 
earlier this year, frenetic for- 
eign investment ground to a 
halt as local custodians col- 
lapsed under the weight of 

Efficient custody 
services are essential to 

the ability to conduct 
foreign investment 

paper. 

hi January, the three custo- 
dians servicing the Indian mar- 
ket called a halt to their servic- 
ing of new clients and set 
limits on trading volumes of 
existing clients as they strug- 
gled to catch up with a backlog 
of paper generated by the 
surge of more than $lbn in 
1993. 

There, a largely paper-based 
system designed for the needs 
of retail investors who buy as 


few as 10 or 100 shares at a 
time sagged under the weight 
of institutional investors want- 
ing to buy in lots of 100,000 
shares per bargain. 

The Indian government has 
Introduced the "jumbo” share 
certificate to meet the needs of 
professionals, but the system is 
still creaking. John Lee. part- 
ner at Lee Schwartz Associates 
(ISA), consultants specialising 
in custody arrangements, says 
that his figures show that as of 
the third quarter of 1994, three 
out of four of all trades in India 
foiled to settle on time. 

“Any custodian or fund man- 
ager with any sense of fidu- 
ciary duty towards his clients 
should tell them not to invest 
In India right now," he said. 

Without a doubt, fund man- 
agers say. the availability of 
efficient, safe, cost-effective 
custody services are essential 
to the ability to conduct for- 
eign investment. Custodians 
have been well aware of this 
need and are rushing to find 
new markets where investors 
have yet to make their mark. 

"Overseas investment is a 
growth business." Mr Binney 
said. There will be more, not 


less business for global custo- 
dians. We are going to see fur- 
ther geographic expansion in 
the Commonwealth of Indepen- 
dent States (CIS) and Africa as 
well as in places like Vietnam 
where US firms have been for- 
bidden to invest," he predicted. 

Broadly speaking, the cus- 
tody business entails not only 
the traditional "master trust" 
function of securities safekeep- 
ing, but also fund valuation 
and performance measure- 
ment, foreign exchange deal- 
ing, cash management, deriva- 
tives safekeeping and 
valuation, and, perhaps most 
significantly, stock lending. It 
is this last core service which 
is proving the most lucrative 
to custodians, particularly 
when the securities are loaned 
across international borders. 
And in emerging markets 
where settlement delays are 
most likely to arise, the 
demand for loaned securities is 
greatest. 

This makes it likely that 
even though volumes in some 
emerging markets are low rela- 
tive to those in developed 
countries, the potential profits 
are great 



In January, three custodians found it a struggle to catch up with a backlog of paper 


Aus Terry / 


“This business is really all 
about global asset servicing,” 
said Michael Grass, head of 
Barclays' custody services in 
Europe and Africa. As inves- 
tors become more sophisti- 
cated, they are likely to make 
greater demands on their cus- 
todians to deliver information 
and other services more 
quickly and cheaply, he said. 

Barclays, which has a signifi- 
cant presence in the UK mar- 
ket, is capitalising on its pres- 


ence in Africa, an emerging 
market where few other global 
banks have any significant 
market share. 

Consultants note that in 
many emerging markets, there 
are only one or two principal 
providers of custody services 
and any investor who is not 
normally a client of that custo- 
dial bank must enter into some 
sort of sub-custodial arrange- 
ment For instance, the Latin 
American market is dominated 


by Citibank and by Rank of 
Boston while custodial services 
for Pacific Rim markets are 
dominated by Hong Kang and 

Shang hai Rank. 

Clients who are unhappy 
with the services of a monop- 
oly provider have few options 
to switch. 

Meanwhile. Barclays' Mr 
Grass predicts, the require- 
ment for investment in infor- 
mation technology by custodi- 
ans in each market is so great 


that instead of competing with 
each other head-on, custodians 
are likely to form alliances. 
“They will say ‘we'll provide 
one service in this country and 
you provide another service 
and we will face the market 
together',” Mr Grass said. 
Thus, institutional investors 
entering new markets are 
unlikely to find that fierce 
competition will allow them to 
achieve services at razor-thin 
margins as it has in the US 
and, increasingly, in the UK 

Another problem, custodians 
say, is that there is a very wide 
range of Legal arrangements 
between custodians and sub- 
custodians and between clients 
and sub-custodians and there 
is a good deal of legal ambigu- 
ity about the obligations of 
each. 

Even worse, there are signifi- 
cant variations in the service 
that sub-custodians provide for 
different clients, according to 
Richard Schwartz of Lee 
Schwartz Associates. LSA, 
together with a US-based con- 
sultancy, GSCS, produces per- 
formance indices for custodial 
and sub-custodial services in 
important markets. Mr 
Schwartz notes that there are 
several factors which could 
account for disparate perfor- 
mances among disparate client 
accounts, including the ability 
of each client's counterparties 
to complete their own paper- 
work on time. 




P 




9 


A 


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"If this is your view of global futures markets 
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trrsiA.NC.IAL TIMES 


TUESDAY NOVEMBER 8; 1994 



INTERNATIONAL FUND MANAGEMENT IV 


T he yea r 1994 will not be 
easily forgotten by fixed- 
income fond managers. 
It started out promisingly 
enough, at the height of a 
global bond rally which had 
driven yields close to their his- 
torical lows. Expecting bond- 
positive fundamentals to con- 
tinue into 1994. the majority of 
fund managers went into the 
new year holding long posi- 
tions in most markets - an 
error many spent the rest of 
the year scrambling to rectify. 

“We haven't come out of this 
year in flying colours as an 
industry," says Peter Flynn, a 
director of the fixed income 
group at Flaming Investment 
Management. "Many fond 
managers were like rabbits 
caught in the headlights," he 
says, he added: “The majority 
got it plain wrong: many 
thought Europe would 
decouple from the US market 
and continue to outperform, 
but that didn’t happen." 

After the spectacular bull 
run in 1993, the market's for- 
tunes turned abruptly in early 
February when the US Federal 
Reserve raised interest rates 
for the first time in the current 
cycle, raising fears of inflation 
fuelled by economic growth. 
Further pressure came from 
the failure of US-Japanese 
bade talks, which undermined 
the dollar - contrary to wide- 
spread expectations for a 
strengthening US currency. 
Both of these factors triggered 
heavy selling by highly lever- 
aged bond market operators, 
causing prices to spiral lower. 

“The mother of all bond ral- 
lies turned into the mother of 
all bear markets." sighs one 


Bonds: Conner Middelmann discusses the effects of the bear market 

Choppy conditions likely to continue 


fi ovia n u nent bowfe 

.190 



SOWMMP Mfirpn 


portfolio manager. 

In this environment, many 
investors fled to the sidelines, 
reducing their exposure to a 
minimum. But while investor 
demand for bonds was shrink- 
ing, supply was swelling 
through heavy debt issuance 
by governments around the 
world. Moreover, huge 
amounts of supply which had 
been issued in 1993 and placed 
in loose hands flooded back to 
haunt the market 
All this pushed bond yields - 
nominal and real - to dizzy 
heights, where, it was hoped, 
they would eventually lure 
investors back into the market 
Although this appears to have 
begun in recent weeks, many 
investors remain reluctant to 
launch a bold comeback. 


Inde ed, many fund managers 
got their fingers so badly burnt 
that they are likely to keep a 
very low profile between now 
and the end of the year. 

"As we get closer to year-end 
a lot of investors will just sit 
on their hands," says Paul- 
Campayne, bond strategist at 
Paribas Capital Markets. "It's 
been a bad year for investors, 
and I think a lot of them will 
prefer to stay out than take 
any more bets.” 

JP Morgan’s Global Govern- 
ment Bond Index, which many 
fund managers track as their 
performance benchmark, has 
shed 4.1 per cent in the year to 
mid-October, after rising by 
14JS per cent in 1993. The Euro- 
pean index has been even more 
volatile, dropping by 5 per cent 


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Investment management 
country profiles 


,, • VC 
‘ •• • 





Foced with increasing capital opportunities, unprecedented growth and the 
continuing globalisation of Investment activities, tie investment management 
Industry is experiencing a period of dramatic change. 

In response to this, our International Investment Management industry Group 
has produced a series of country profiles on Investment management to help 
clients focus on the Industry environment in d if sent fund manogement 
centres, including fie major players, me nature and scope or regulation and 
taxation and how they impod their business. 

Profiles are currently available for; 

• Canada • Guernsey • Netherlands 

• France • Ireland • Netherfand Antilles 

• Germany • Jersey • United Kingdom 

• Grand Cayman • Luxembourg • United States 

They are also In production for many other centres. 

To obtain copies at the profiles, please contod your local country contact 

Eleanor Andrews In Boston; tel; 1 61 7 478 51 54; tax: 1 617 478 5900 
Solutions Helen Balfour Fn London; lei; 44 71 212 4515; fox: 44 71 212 5100 

for Business 



so far this year after gaining 
20.6 per cent last year. 

However, many fund manag- 
ers appear even to have under- 
performed their benchmarks: 
according to data compiled by 
Micropal, an independent data 
provider, investors who put 
their money in UK unit trusts 
investing in gilts and interna- 
tional bands have lost an aver- 
age 10.77 per cent (including 
charges) in the year to October 
17. 

While there have been few 
success stories, there has been 
successful damage control, 
especially by the lucky few 
who reduced their bond mar- 
ket exposure early on. 

“We felt everything had got 
hugely carried away last year 
and were very nervous for a 
large part of 19S3, so we scaled 
back our exposure during the 
year - if anything, we came 
out too early," says Gerard 


Wherity, director of fixed inter- 
est at Abbey Life. 

This year, Mr Wherity says 
he concentrated on care mar- 
kets in Europe, US Treasuries 
and Japan and avoided some of 
the more peripheral markets. 

The higher-yielding periph- 
eral- markets, including Scan- 
dinavia and southern Europe, 
were particularly badly hit 
during the sell-off. During the 
1993 rally, they were boosted 
by yield-hungry investors seek- 
ing yield pick-ups over the core 
markets which had already 
become very expensive. But 
after sentiment turned they got 
hammered as investors refo- 
cused on these countries’ fiscal 
and political concerns. 

Casb also proved a safe 
haven during the worst of the 
sell-off, says Mr Wherity. “At 
some points in the first half of 
the year we had more than 50 
per cent in cash." He says he 


started running down cash 
positions from mid-year, bring- 
ing cash holdings down to 
around 14 per cent in mid-Octo- 
ber - the lowest it’s been, all 
year. 




owever, although he 
feels there is scope for a 
1 sizeable bounce, he says 
it is hard to predict where the 
markets win go next "I have 
no faith in all the economic 
arguments for a bond rally - 
that's all crystal ball-gazing. 
We will simply wait and see 
how things develop and take it 
from there," 

In the next IS months, as 
Europe's economies continue 
to grow, fears of inflationary 
pressures will remain on the 
boil and interest rates are 
expected to rise across Europe. 
This is likely to spell continued 
choppy conditions for the bond 
markets, although some expect 


volatility to ease. 

“This year saw the transition 
from foiling to rising interest 
rates, and the market was split 
among those who expected 
rates to ease farther and those 
expecting them to rise," says 
Ian Donald, a fund manager at 
Lazard Investors. "Next year 
will see a much clearer trend 
as fhr as interest rate expecta- 
tions go - the question now is 
not whether rates will rise, but 
only by how much," he says, 
arming that he expects markets 
to be less volatile as a result 

But how can bond fund man- 
agers, who are essentially bull- 
market professionals, prosper 
in an environment where Inter- 
est rates are rising? 

Basically, they will have to 
refine the way they take bets 
on interest rates. “Once you 
see you're in a bear market, 
you have to get more creative 
and sophisticated," says Flem- 


ing’s Mr Flynn. . .. 

This means that rather than . 
looking for markets where 
rates are f a lli ng (which raises 
bond yields to fan and prides fo . 
rise), fond managers need- to 
identify markets where inter- 
est rates are c h a ngin g With 
the help of sophisticated 
investment tools and 1 strate- 
gies, they can . take advantage 
of these changes, no matter the 
direction in .which rates , are 
going. This may include struc- 
tured products, for instance 
bonds with embedded options, 
sophisticated derivatives. strat- 
egies, and active yield curve 
manag ement - both oh spreads 
between different - countries 1 
yield curves and alang ona par- 
ticular curve. 

Some of these strategies can 
be quite conservative, but - 
while they may hunt the port- 
folio’s upside, they certainly 
protect its downside - which 
will endear fond managers to 
their cheats at times when the 
going gets tough. 

“If you get it right, it won't 
knock the lights out of your 
portfolio, but will aDow you to . 
outperform incrementally;" 
says Mr Flynn. 


I n fund-manager folklore, 
1994 is likely to be remem- 
bered as the year of the 
great bond market massacre. 
For many, though, attempts to 
get a handle on the currency 
markets, and the US dollar in 
particular, will have been 
equally chastening . 

On October 25, the dollar 
was touching a new post-sec- 
ond world war low against the 
yen, of Y96.40, and a two-year 
low against the D-Mark of 
DMl.4853. Back at the start of 
the year, though, it had stood 
at YUS and DM1.74, with 
most analysts and investors 
expecting farther apprecia- 
tion, on the back of rising 
growth and interest rates in 
the US. 

If the dollar's plight has 
been a source of painful grief 
to investors, it has also bran a 
persuasive reminder of the 
importance of currencies in 
assessing returns on an invest- 
ment decision. It is a trite 
observation that the perfor- 
mance of an investment in an 
underlying asset, such as a 
stock or a bond, can be either 
totally negated, or signifi- 
cantly augmented, by the 
behaviour of the currency in 
which the In v estment is made. 

This fact gives rise to the 
need to hedge exposure to cur- 
rency risk. Or, for braver 
spirits, to take the investment 
process a stage further by 
engaging in currency overlay 
strategies. This allows the 
investor to create a currency 
exposure which may be com- 
pletely at odds with the under- 
lying asset exposure. 

As an example, Philip Soun- 
ders, director of Guinness 
Flight, notes that in their 
global fixed income fond, they 
have a 65 per cent European 
bond weighting, but the cur- 
rency exposure is about SO per 
cent dollar, with a further 15 


Currencies; Philip G a with discusses the problems facing fund managers 

Dollar’s plight hits investors 


Dollar 

Bank of England trade-wetghled index (1385-100) 



Source Ottoman 1094 

per cent in the New Zealand 
dollar, the Australian dollar, 
the Singaporean dollar and the 
Malaysian ringgit In terms of 
European currencies, the 
weighting is primarily 
towards starling and the lira. 

Mr Sannders comments: "We 
have these weightings primar- 
ily because we think European 
bonds are cheap and we think 
the dollar is cheap." At Guin- 
ness Flight, the currency deci- 
sion is not separated from the 
underlying asset decision. An 
integrated approach is taken, 
in the belief that similar con- 
siderations come into play 
when composing an interna- 
tional bond portfolio and tak- 
ing a view on a currency. 

This is by no means the uni- 
versal approach. Graham Cox, 
group economist at Sun Life, 
notes: "As a role we separate 
the currency and the country. 

We hedge the currency risk 
partially, sometimes wholly, if 
we have an expectation of sig- 


nificant exchange rate risk. It 
has to be large, and for a fun- 
damental economic reason." 

Explaining the same 
approach at Legal and Gen- 
eral, David Shaw, head of 
strategy, comments: "The eco- 
nomic fundamentals that drive 
currencies are not the same 
set that drive the bond and 
equity markets.” The decisions 
are taken "separately but 
simultaneously”. 

Reflecting the visceral aver- 
sion which those people man- 
aging trust monies have to 
being branded speculators, Mr 
Shaw stresses that they have 
not reached the point of taking 
bets purely on a currency. 
"What we do is currency man- 
agement, and it is the cur- 
rency management of an 
underlying asset" 

Mr Cox says they avoid any- 
thing that could be construed 
as "speculation". But the line 
between hedging for fonde- 
mental reasons, and specula- 


Commodities: Richard Waters reports 

Speculators ride high 


Are commodities an 
appropriate antidote to the 
malaise in bond markets? 

While fixed income prices 
have sagged for much of this 
year, many commodities - in 
particular base metals such as 
aluminium and copper - have 
surged. There has not been 
such interest in investment cir- 
cles in everything from oil to 
gold since the late 19S0s. 

Commodity prices, a harbin- 
ger of inflation, often move in 
the opposite direction to bond 
and equity prices. According to 
a growing number of invest- 
ment advisers, that qualifies 
them as an asset class in their 
own right, deserving of a place 
in pension funds*" portfolios. 

There is an alternative view. 
This holds that speculative 
investors - in particular hedge 
funds - have done much to 
drive commodity prices higher. 
According to this argument, 
the resurgence in commodities 
has been a self-fulfilling proph- 
ecy, creating a bubble in prices 
which will burst once the spec- 
ulators withdraw. 

The extent of the negative 
correlation between commod- 
ity and long-term US bond 
prices is put by JP Morgan - 
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at 51 per cent (based on the 
performance of the compo- 
nents of the bank’s commodi- 
ties index over the past 10 
years). The negative correla- 
tion with US stock prices over 
the same period was 36 per 
cent, Morgan says. 

There are a number of cave- 
ats. First, it is easier to con- 
struct an index to prove a his- 
torical point: the direction of 
prices in the future may not 
follow the same pattern. 

Second, many commodities 
analysts maintain that prices 
this year have already outstrip- 
ped the levels justified by the 
growth of underlying demand 
from end users. 

Metals, both precious and 
base, may be the clearest case. 
They account for only around 
10 per cent of total world pro- 
duction of commodities by 
value (agricultural commodi- 
ties make up another 43 per 
cent, and energy the rest). Yet 
metals comprise a far larger 
proportion of many commodity 
indices, and remain the focus 
of much speculative interest. 
Unlike agricultural products, 
the balance of supply and 
demand is not affected by 
extraneous factors such as the 
weather, but is driven Largely 
by industrial demand. As a 
result, much of the buying by 
investors is thought to have 
been focused on copper and 
aluminium, forcing up prices. 

Robin Adams of Resource 
Strategies, a Pennsylvania- 
based company, argued that 
only $340 of the $600 a tonne 
rise in aluminium prices this 
year could be attributed to a 
growth in -fundamental 
demand (the metal has since 
risen further). It is interest 
from investors (otherwise 
known as speculation) that 
explains the other $260 a 
tonne. 

For those who do decide that 
commodities justify a small 
corner of their portfolios, the 
investment landscape of 1994 
looks very different from that 
which existed the last time real 


assets were in vogue. There is 
a range of new indices against 
which investment performance 
in commodities can be tracked 
and a bagload of new instru- 
ments to buy - from warrants 
for retail investors to struc- 
tured notes whose returns are 
based on commodity prices. 

Besides JP Morgan, Merrill 
Lynch and Bankers Trust have 
launched commodities indices. 
All three have followed Gold- 
man Sachs, which was among 
the first in the field. 

These indices are very differ- 
ent in their character and 
behaviour. Some (Goldman) 
include agricultural products, 
but most do not A second dif- 
ference lies in the method of 
calculation. An index which 
simply tracks the prices of 
commodity futures carries 
with it the leverage that is 
inherent in futures markets. 

TO overcome this, the Gold- 
man and Morgan indices use a 
total return methodology. 
These indices are made up of 
three components: the change 
in commodity futures prices; 
the extra return (or cost) 
involved in rollmg over futures 
contracts when they expire; 
and the return from investing 
additional collateral in Trea- 
sury bonds. 

Not surprisingly, these total 
return indices have dime better 
in recent years, thanks to the 
long bull market in bonds. 
Since 1979, the commodity 
component has generated an 
average annual rise in the Mor- 
gan index of 4^4 per rant The 
“roll return" has added an 
additional 1_22 per cent a year, 
and the collateral return 8.7 
per cent more. 

This highlights the underly- 
ing concern of many investors 
with commodities - and the 
reason why many will con- 
tinue to stay away. Real assets, 
be they bars of gold or down- 
town office buildings, have 
underperformed paper invest- 
ments over a prolonged period, 
short-time price Jumps not- 
withstanding. 


tion, is a fine one. 

Mr Cox's own example 
makes the point; "The Fed is 
perceived to be weak, the 
Bundesbank is seen to be 
strong. When yon get a trend 
tike that it is justified to have 
a hedge an.” 

Some fond managers are less 
shy about actively managing 
currency risk. Mike Hart man- 
ages Foreign and Colonial's 
investment trust, the oldest 
such trust in the world, with 
£1.6bn under management Be 
says they seek to take advan- 
tage of currency movements 
by manoeuvring short-term 
loans. “We try to finance bor- 
rowings in what we hope will 
be the cheapest currency- We 
do it on a fairly short-term 
basis, almost week by week. 
We are constantly rotting over 
loans.” 


A 


vinash Persaud, foreign 
exchange strategist at 
kJP Morgan in London, 
notes that currency overlay 
had its origins in the US. 
There it has been quite com- 
mon ~ though 1994 has been 
conspicuously different - to 
find the bond and currency 
markets moving in opposite 
directions. The former is domi- 
nated by domestic investors, 
while the dollar is more at the 
mercy of foreign investors. 

In Europe there has been 
less scope for currency over- 
lay, as moves towards eco- 
nomic convergence, albeit 
with various hiccups, have 
tended to see currencies and 
bonds performing hi tandem. 

Two areas which have tradi- 


tionally attracted less hedging, 
or overlay, strategies, have 
been equities and emerging 
markets. Zn the case of equi- 
ties, the rationale for hedging 
less is that they are real 
assets, supported by the same 
economic fundamentals which 
would support the currency. In 
the case of bonds, by contrast, 
lower interest rates are sup- 
portive, but theoretically bad 
for the currency. 

As for emerging markets, 
there is virtually no currency 
hedging, owing to the lack of 
availability in many markets. 
Bat there is a further reason, 
as one fond manager com- 
ments: “In nearly all the mar- 
kets, we invest at a time when 
the currency is sore to appre- 
ciate. If we are not confident 
of that then we are not going 
to invest The main economic 
factors that we are looking for 
before we invest hi a country 
are likely to lead to an appre- 
ciation in tire currency over a 
period of time.” 

Clearly between equities and 
bonds, mature and developing 
markets, and different institu- 
tions, currency exposure will 
be managed in a variety of dif- 
ferent ways. Just how differ- 
ently, however, is a tantalising 
question. For while there is 
copious evidence available 
about the underlying asset 
exposure of different funds, no 
equivalent information exists 
about their currency exposure. 

The working assumption 
often made is that they are 
simply unhedged but, increas- 
ingly, that is clearly not tin 
case. 


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FINANCIAL TIMES TUESDAY NOVEMBER S 1994 


35 



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quity Tund managers 
have found 1994 tough 
going as global markets 
have painfully adapted to a 
fundamental economic shift 
from a world of falling interest 
rates to one of monetary tight- 
ening - or the threat of it - in 
many western nations. 

The big turning point in 
Investor sentiment occurred 
last February when the US 
Federal Reserve tightened 
monetary policy for the first 
time in five years as a cyclical 
upswing in the American econ- 
omy gathered strength. 

The turn in the interest rate 
cycle sent US ami European 
bond prices tumbling, and the 
fixed income market's reversal 
was accentuated by a liquidity 
squeeze on speculative traders 
and a sudden concern that the 
Fed was doing too little, too 
late, to stop a resurgence of 
inflation. 

US equities were inevitably 
dragged down by the rising 
trend of interest rates, as were 
many principal European mar- 
kets and some emerging mar- 
kets - and for much of the 
year stock markets have found 
it hard to escape the volatile 
and bearish mood in the fixed 
income sector. 

That said, the correction in 
the equity markets has been 
less severe than that in bonds 
and a somewhat more stable 
atmosphere in the fixed income 
sector around the middle of the 
year underpinned a brief, mod- 
est rally in stocks. 

The FT-Actuaries World 
Index stood roughly 7 per cent 
higher on the^year in dollar 


Stock markets: Martin Dickson discusses prospects for global equities 

Tough going for managers 


terms at the end of October, 
though that advance shrinks to 
a mere 1.6 per cent once Japan 
is excluded. Japan's stock mar- 
ket rally since the start or the 
year is a mere 8J3 per cent in 
yen terms but totals 24 per 
cent in dollar terms, thanks to 
the appreciation of the Japa- 
nese currency. 

The main question now is 
the extent to which global 
equity markets can build on 
this modest advance at a time 
when two powerful forces are 
pushing the main western mar- 
kets in opposite directions. 

One is rising bond yields, 
which tend to have a depress- 
ing effect un share prices, both 
because they make fixed 
income investments relatively 
more attractive ;tud because 
they push up corporations' 
funding costs. 

The other is economic recov- 
ery - which is relatively 
mature in the US but is just 
getting into its stride in cunti- 
nental Europe and is likely to 
product? a strong burst or earn- 
ings growth over the next year 
or two. 

An important factor in this 
tussle will be the future direc- 
tion of bond prices. While 
short-term interest rates seem 
set for a substantial tightening, 
more bullish analysts argue 
that long-term bond yields are 


Real estate: Simon London reports 

Deregulation the 
driving force 


•Vi* 


•rr.c : 
y.T.r 




sf tro* 4 







The turmoil in bond markets 
this year has spilled over into 
most International property 
markets. While improved lev- 
els of economic activity prom- 
ise good investment returns 
from property, rising bond 
yields have taken the shine off 
the early stages of recovery. 

However, cross-border 
Investment in property is 
often driven more by financial 
deregulation than any cool 
assessment of market condi- 
tions. The flows of Japanese, 
Swedish and German money 
into London over the past 
decade were prompted by reg- 
ulatory changes which gave 
the institutions a free hand. 

The impact of deregulation 
is especially powerful when 
institutions are already riding 
a wave of liquidity. Thus the 
Suit deregulation of German 
rntfi* ® open-ended mutual funds coht- 
tided with a period of high net 
•; .z: jwonj® Investment by retail investors. 
±2: * Fund managers had the cash 

ri _-ui. no* and the regulatory authority 
7 '.[ears- *** to buy City of London office 

blocks. Even 

though London 
property prices 
are now Oat or 
falling 
thanto to the 
drag of bond 
yields - the 

flow of overseas money contin- 
ues. 

According to Jones Lang 
Wootton, institutional inves- 
tors bought £l-8bn of central 
London property during the 
first nine months of the year. 
UK investors accounted for 
only 55 per cent of this turn- 
over. Of the overseas buyers, 
German open-ended funds 
were the most active. 

A similar pattern is seen in 
^continental European markets. 
"There is strong investment 
demand for German property, 
for example, much of it tram 
overseas. Since development 
v activity was muted in most 
cities other than Berlin and 
borrowing costs were falling 
through the year - at least in 
terms of short-term interest 
rates - the German property' 
market has shown strong capi- 
tal growth. 

However, the pattern of sup- 
ply unit demand tn individual 
titles can change quickly. In 
Berlin, up to Urn sq m of 
office space will be built this 
year and next. Since take-up 
by tenants was only 200,000 sq 
m in 1993, there is a real 
threat of oversupply. 

In France, domestic Institu- 
tions have been concentrating 
their efforts on the retail sec- 
tor, partly driven by the need 
V to diversify away from offices. 

: Overseas investors, mostly 

from Holland and the UK, 
have also concentrated on 
shojnri&g centres. 

Schroders International 
Property fund, based In 
Amster dam, recently acquired 
its third French shopping cen- 
tre, at Amiens in Picardy. 
Hammerson, the UK company 


fiyn assets, is also on the look- 
out for shopping centres in 
? France. 

In the US, Atlanta, and 
Washington DC have emerged 
as the most desirable cities for 
overseas investors, according 
to the Association of Foreign 
Investors in VS Real Estate 
(Afire). Atlanta, which was the 
second-mist popular destina- 
tion for. overseas investment 
in 1998, was ranked as the 


The market went off the 
boil over the summer 
against the background of 
rising bond yields 




*0 


4 


most viable city for foreign 
real estate Investment, fol- 
lowed by Washington, New 
York, Phoenix, and Charlotte. 

Afire also refutes claims 
that Japanese investors have 
been trying to offload assets 
acquired in the 1980s. 

“There have been rumours 
that the Japanese are trying to 
sell but no evidence of it," said 
James Fetgatter, chief execu- 
tive of Afire, which represents 
about half the foreign invest- 
ment in US real estate. “Japa- 
nese investment has remained 
at the same level for the past 
four years.” 

Most of the new foreign 
investment in US property is 
coming from Europe. An Afire 
survey found 46 per cent of 
respondents planning to 
Increase US holdings, np 14 
per cent from 1993. 

Property advisers agree that 
even the most overbuilt titles 
.such as Denver and Boston axe 
showing signs of recovery. 

The lingering worry for the 
UK property market is that 
overseas inves- 
tors often seem 
more enthusi- 
astic about the 
opportunities 
than their 
domestic coun- 
terparts. UK 
pension funds' average weight- 
ing in property is now around 
7 per cent, having fallen 
steadily from a peak of more 
than 20 per cent in the mid- 
1970s. 

According to second quarter 
figures from the Central Sta- 
tistical Office (the latest avail- 
able) this trend continued. Life 
insurance companies were 
enthusiastic buyers, investing 
a record £2bn in commercial 
property during the three 
months Yet pension funds 
were net sellers, shedding a 
net £246m-wortfa of properly. 

Anecdotal evidence suggests 
that the weight of life insur- 
ance company money waiting 
to come Into commercial prop- 
erty started to diminish in late 
spring. The property invest- 
ment market was unusually 
quiet through September and 
October, traditionally one of 
the most active periods for 
institutional dealing. 

Fond managers' caution is 
understandable. The property 
market went off the boil over 
the summer against the back- 
ground of rising bond yields. 
Rental growth, which would 
help property detach from 
bonds, has been slower to 
show through than many 
investors hoped. 

The net effect has been fall- 
ing capital values. The Invest- 
ment Property Databank Index 
for September showed a drop 
in capital values after 14 
mentis of upswing. 

Just how long investors 
have to wait before rents start 
to r tee is a moot point Some 
agents suggest rents on prime 
City offices have already 
started to climb. Richard EDis 
pointed -to 8 per cent rental 
growth in the third quarter of 
the year, with prime City rents 
rising from £80 per square ft 
to around £32J>0. 

Unless there is a huge rever- 
sal of fortune iu the final 
weeks of the year, UK commer- 
cial property should still out- 
perform both equities and gilts 
is 1994. A total return of 
around 14 per cent' this year 
should be enough to beat other 
financial assets. 


already discounting far more 
inflation than is likely to mate- 
rialise in tbc main western 
economies in the near term. 

They point out that inflation 
is currently very subdued on 
both sides or the Atlantic and 
argue that it will remain mod- 
est. despite economic expan- 
sion. thanks to factors such as 
increased productivity and 
increased global competition. 
The implication is that long 
bond yields have reached a pla- 
teau. allowing equity prices to 
rise as earnings increase or as 


bond yields drop. 

More bearish analysts argue 
that inflation will accelerate 
significantly over the next year 
or two. due to central bank 
complacency hi failing to 
tighten monetary policy 
aggressively, and this will con- 
tinue to exert upward pressure 
on bond yields and hold back 
equities. 

In particular, they argue that 
the economic recovery in the 
US - wiiich tends to set senti- 
ment in other markets around 
the world - is now very 


mature, and it cannot be long 
before an eventual slowdown 
in the growth of earnings is 
reflected in stock prices. 

In the US, the Dow Jones 
industrial Average suffered a 
correction of around 10 per 
cent in tho two months follow- 
ing the Fed's February tighten- 
ing and since then has gradu- 
ally gained ground, so that at 
the start of November it stood 
just 70 points short of its 
all-time high of 3978.36. 
readied at the end of January. 

As for Europe, the FT-ActU- 


aries World Index for the 
region showed a mere 3-2 per 
cent advance in dollar terms in 
1994 up to the end of October, 
with the British and French 
components slight!)’ down and 
Germany slightly ahead. The 
Nordic countries showed a 223 
per cent advance. The Italian 
market was up 15 per cent, 
though that represented a 
sharp drop from the 40 per cent 
surge it enjoyed early in the 
year during the national elec- 
tion campaign. 

Many analysts think Euro- 
pean equity markets as a 
whole should do well over the 
□ext L2 months, with Germany 
particularly favoured, thanks 
to recovering earnings and 
political stability in the wake 
of the Kohl government’s re- 
election last month. 


Opinions ore more sharply 
divided over Japan, where the 
equity market gained strongly 
in the first half of the year as 
foreign investors anticipated 
economic recovery. But since 
then the market has fallen 
back sharply - despite ana- 
lysts' forecasts of better earn- 
ings in 1995 - as domestic 
investors have held back. One 
question is the extent to which 
the Japanese financial system 
and industry stilt need to be 
restructured. 

merging equity markets 
have also displayed a 
! very mixed picture over 
the past year. Many suffered 
sharp setbacks in the early 
months of the year in the back- 
wash from the Federal 
Reserve's February tightening 


and have spent the succeeding 
months clawing back a sub- 
stantial part or those losses. 

Substantial outperformed 
include South Korea, where 
share prices rose some 30 per 
cent in local currency terms 
between the year's April low 
point and mid-October, helped 
by a recovering economy and 
easing of tension with North 
Korea; and Brazil, where the 
indices have soared on the 
back of the government's suc- 
cessful attack on inflation and 
a national election outcome 
liked by the financial markets. 

Significant underperformers 
include Hong Kong, weighed 
down by concern over local 
property prices, rising US 
interest rates and rising eco- 
nomic difficult : es in mainland 
China. 



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36 


\rrrA r. TIMES 


TUESDAY NOVEMBER'S 1994 



INTERNATIONAL 


Europe: Gillian Tett looks at the crucial question affecting investments 

Pivotal issue is pension plans 


If you believe the optimists, 
Europe could, in the long term, 
be on the verge of an invest- 
ment revolution. If you listen 
to the pessimists, though, the 
short-term outlook suggests 
that Investment liberalisation 
across the European Union is 
still lagging behind many 
other parts of hie world. 

Either way, as European 
fund managers evaluate their 
long-term investment strate- 
gies, few doubt that the crucial 
question that could shape capi- 
tal and equity markets in com- 
ing years will be the direction 
taken by Europe's pension 


The issue has become 
Increasingly controversial in 
recent months following the 
collapse of the European pen- 
sion funds directive. A pivotal 
aim of the directive, first pro- 
posed by Sir Leon Brittan, the 
British commissioner, back in 
1989, was to create a more lib- 
eral investment structure in 
Europe's pension system, in 
keeping with the principles of 
the single market 

Pension systems across the 
EU are a patchwork of differ- 
ent practices. The UK and 
Ireland, for example, are domi- 
nated by funded pension 
systems. France's pension 
structure, however, is based 
around a “pay-as-you-go" sys- 
tem. Meanwhile, Germany's 
system Is dominat ed by a book 
reserve system, in which the 
pensions liabilities are held on 
the balance sheet of sponsoring 
companies. 

These different systems have 
resulted In radically different 
investment profiles. In the UK, 
which has relatively few con- 
trols over the degree of portfo- 
lio diversification, domestic 
equities accounted for more 
than half of the p ensio n fund 
assets in 1993, while interna- 
tional equities represented 
about a quarter of the assets, 
and domestic bonds forming 
less than a tenth. 

But in most of the other 
European countries, the bulk 
of assets is directed towards 
domestic bonds, with consider- 
ably lower net returns - albeit 
greater security. 

In Germany, for example, 
legislation stipulates that pri- 
vate pension funds cannot hold 
more than 5 per cent of their 
assets in overseas equities. In 


the optimum level for interna- 
tional investment for a British 
scheme, for example, will usu- 
ally be between 30-50 per cent). 

But, in practice, no agree- 
ment was reached, and this 
s umm er the directive was 
scrapped. The Commission 
insists the Initiative is not 
entirely dead, and says it will 
still seek to pursue its alms for 
greater liberalisation by other 
means. One of these may be 
taking countries to court to 
enforce the Capital Liberalisa- 
tion Directive and other provi- 
sions in the Maastricht treaty 
which prohibit barriers to the 
freedom of movement of capi- 
tal But the legal force of the 
Capital Liberalisation Directive 
remains uncertain, since it 
includes a “prudential require- 
ments" provision which states 
that liberalisation is only 
enforceable If 

The f^ttahwork ofjraorina 


practice, in 1991 international 
assets represented less than 1 
per cent of German funds, with 
domestic bonds accounting for 
some 70 per cent 

Meanwhile, in France, the 
proportion of assets held in 
domestic bonds has been 
steadily increasing, from 53 per 
cent in 1983 to 62 per cent in 
1993, while International 
investment in equities is non- 
existent 

The pension fund directive 
had the potential to radically 
change *hfa situation by forbid- 
ding member states from 
imposing low ceilings on both 
the extent of overseas invest- 
ment and investment in equi- 
ties. Because UK fund manag- 
ers have greater expertise in 
equities and in cross-border 
investment, they could have a 
competitive edge in winning 
mandates 


live. 

But though 
an outline 
agreement over 
this directive 
was in sight by 
the end of last year, the stumb- 
ling block was the question of 
how Ear countries could stipu- 
late that pension schemes' 
overseas assets should be 
matched with comparable lev- 
els of domestic liabilities. 

The liberal “three” of the 
UK, Ireland and Netherlands - 
who together account for 93 
per cent of overseas pension 
fund investment in the EU - 
favoured little, or no restric- 
tions. 

Belgium appears to be join- 
ing the liberal wing and is pre- 
paring to abandon the require- 
ment that at least 15 per cent 
of assets be invested in domes- 
tic government bonds. 

But at the opposite end, 
there was little Interest in 
encouraging pension schemes 
to invest outside their home 
borders. Countries such as 
France demanded a tougher 
“currency matching” require- 
ment of 80 per cent 

The European Commission 
sought to reach a compromise 
level of 80 per cent, pointing 
out that this should be suffi- 
cient even in “liberal” coun- 
tries such as Britain. (The 
Frank Russell group in Lon- 
don, for example, suggests that 


practices in the EU has 
resulted in radically 
different investment 
profiles 


tial safeguards 
for investment 
across the 
entire EU. 

The events 
are a blow to 
many British fund managers, 
who bad been hoping for a cap- 
tive market for their business 
across Europe. But how far the 
demise of directive alone has 
altered the longer-term devel- 
opment of European invest- 
ment remains unclear. 

On the one hand, cynics 
point out that even if the direc- 
tive had come into force it 
would have been unlikely by 
itself to have forced much 
overnight change in the con- 
servative behaviour of conti- 
nental European pension fund 
managers, which leaves many 
of them favouring the security 
of bonds. 

But, on the other band, irre- 
spective of the collapse of the 
directive, it appears that many 
European countries are any- 
way gradually moving towards 
pension reforms that may 
incorporate greater liberalisa- 
tion and privately funded bias. 

The main reason for this is 
demographic pressures, as the 
rising numbers of pensioners 
pose an ever greater burden on 
the working population. The 
Federal Trust, a British think 
tank, for example, calculates 
that if the current pension sys- 
tem is not altered, public 


expenditure on. pensions over 
the next 40 years will rise by 
more than 30 per cent in Bel- 
gium and the UK, 40 per cent 
in Germany and Italy and a 
staggering 70 per cent in 
France. 

These trends are* already for- 
cing some shifts. This summer 
the French parliament passed 
a bin allowing for the estab- 
lishment of private pension 
funds for the self-employed. 
Proposals are being considered 
for wider reforms, though 
these are unlikely to receive 
serious consideration until 
after the French presidential 
elections next year. And 
though few observers expect 
any rapid switch out of domes- 
tic bonds into overseas invest- 
ment, the prospect is creeping 
on to the agenda. 

“The question of investment 
into equities or bonds is a very 
big topic at the moment,” says 
one fund manager in Paris. 

In the longer term, if coun- 
tries such as France or Ger- 
many do shift towards an 
Anglo-Saxon model the poten- 
tial impact would be stagger- 
ing. Philip Davis, an economist 
who has previously worked at 
the Rank of England, for exam- 
ple, believes that if French pen- 
sion funds were to reach the 
size of UK funds, they would 

total $235bn. 

The equivalent development 
in Germany would create 
$4Q0bn worth of assets, com- 
pared to the $355bn total capi- 
talisation of the German stock 
market. 

A shift of this magnitude, Mr 
Davis concludes, could have a 
huge significance on global 
markets. “Heightened volatil- 
ity and lower returns on equity 
are among the potential conse- 
quences," he says. 

Meanwhile, in the short term 
many British investment insti- 
tutions are already edging into 
Europe. Andrew Dalton, vice- 
chairman of the UK Mercury 
Asset Management group, for 
example, says that his group 
has recently established a pres- 
ence in Germany to work 
within the areas of German 
law which allow them to offer 
their services, primarily to the 
corporate sector. “The demand 
is coming in the mar ket place 
for the product - it is clearly 
something that must grow,” he 
says. 


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US: international equities still attract investors, says gjchg^j^-g^gg 

Capital flows abroad continue 





US Investors seem to have 
passed the first test Despite 
steadily rising interest rates at 
home, the country’s mutual 
and pension funds have con- 
tinued to channel capital into 
overseas equity markets 
through the first three quar- 
ters of this year. International 
bond holdings have wobbled: 
but tbe pessimists who pre- 
dicted a quick reversal of capi- 
tal flows as the US interest 
rate cycle turned have been 
proved wrong. 

The second test, though, 
could prove more challenging: 
what happens if the dollar’s 
long slide is reversed? 

Figures for the first half of 
this year show that US inves- 
tors have not lost their appe- 
tite for international equities. 
US pension funds bought a net 
S17bn of non-US shares in the 
first six months, compared 
with $35bn in all of 1993. 

Mutual fund investors, 
meanwhile, had put a net 
$23bn into International 
equity funds by the end of 
Augftst, compared with 526 bn 
In 1993 as a whole (this does 
not Include global funds, 
which, as the name suggests, 
buy both US and non-US 
stocks). To be sure, the enthu- 
siasm of January has not been 
matched: in that month alone, 
international equity funds 
attracted $6J)bn. However, the 
cash has continued to flow at a 
steady rate. 

It is not difficult to see what 
has drawn US Investment 
abroad. In dollar terms, the 
returns from investing in over- 
seas markets have leapt ahead 
of those available on US 
stocks. And with their domes- 
tic stock market still bumping 
alo