ROGUE NUKES

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Even if this is true, there are a few apprehensions. Anthony Zinni, a retired US marine general, who was in-charge of the US Central Command, which oversees Pakistan among 27 nations, puts this in context. “The first time I met Musharraf, he said his No. 1 concern was that over half of his (military) officers had not been outside of Pakistan.” This was due to sanctions imposed by the US in 1990. The lack of global interaction, coupled with beards appearing among officers, signified more religious conservatism.

Even Nayyar says that “knowledgeable Pakistanis point out that most of the people working in Pakistan’s nuclear weapons labs appear to be near-religious zealots, and deeply under the influence of the Tableeghi Jamaat, an Islamic organisation with presence in several nations.” Pervez Hoodbhoy, Chairman, Department of Physics, Quaid-e-Azam University (Islamabad), adds, “Pakistan’s nuclear weapons are under threat from those inside the military and intelligence.”

Hoodbhoy fears that “small amounts of enriched uranium or plutonium could be smuggled out of Pakistan’s nuclear facilities. You need about 25 kg to make a device the size of (that was used at) Hiroshima. Making the bomb is relatively easy. It is getting the weapons-grade material which requires industrial facilities.” But Brig. Vinod Anand of the United Service Institution of India disagrees: “The Pakistan army is a very coherent and professional organisation. Even if there are reports of Islamisation of the army, it is at the lower level. We should be clear that the nuclear bomb requires complicated assembling, and it is not like an IED or any other bomb.”

Still, the other apprehension about Pakistan’s nukes is that external diplomatic pressures – like those from India and certain quarters in the US – is pushing the country’s administration to distribute its nuclear weapons. This is either to prevent a concerted effort by any nation to strike at its facilities, and to escape detection by other enemy countries. It may be a good time to remind readers that the US did threaten to strike Pakistan’s facilities and, in the 1980s, India had planned a similar attack with inputs from Israel until the US leaked the information and prevented any such moves.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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...And when will they get to laugh all the way to the bank?

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“The credit bubble is just beginning to unwind, and while US borrowers are being blamed, they were really just a pawn in a global game”

I am not so sure about this view. Consider that in the case of MBIA, the buyout firm Warburg Pincus was aware of the exposures to lower quality CDOs, prior to making its investment in the company, when it announced on December 10, 2007 that it would initially invest $500 million by purchasing MBIA shares at $31 each! This announcement initially helped restore some investor confidence and pushed MBIA shares as high as $37.50, the day the deal was announced. But, now with the shares changing hands at $18, the deal does not look that great (and may not even be completed). Similarly, Citigroup shares jumped from $30 to $35 after November 27 on the announcement that the Abu Dhabi Investment Authority (ADIA) would make a $7.5 billion investment in the company. But as can be seen in figure 8, it has since then given back the entire rebound and some more! Moreover, if we look at long term charts of Bank of America, JP Morgan Chase and Citigroup, considerable downside risk still exists. In the case of Bank of America, the stock could still drop from $41 to below $30 while JP Morgan Chase could decline to between $20 and $30 from $43. In fact, each time a Sovereign Wealth Fund makes an investment and stocks rebound, they seem to provide excellent exit opportunities. Blackstone Group has declined 24% since its initial public offering in June after China Investment agreed to buy a $3 billion stake in the firm. Bear Stearns has declined 26% following its sale of a stake last October to Chinese government controlled CITIC Securities. Therefore, I would consider selling UBS stock here or on any rebound, following the announcement that the Government of Singapore Investment Company and a Middle Eastern investor made a SFR 13 billion investment in some convertible bonds.

Three observations:

a) I have never experienced a bull market in equities without the participation of financial stocks. In addition, when financial stocks across the board collapse, it is a very negative sign for the overall health of the stock market.

b) The fact that a stock has declined from the peak by 50% or even 90%, does not make it necessarily inexpensive. In 1985, I recommended the purchase of a basket of Texas banks, which at the time had declined by 95% from the peak, as a contrarian play. Subsequently, they all went bankrupt!

c) As I have explained before, the financial sector has become disproportionably large over the last 15 years or so. Therefore, I would also expect the reversion to the mean of the financial sector to take several years and not to be completed in just six months! In short, I would avoid purchasing financial stocks for now and would also defer new commitments to equities. Of some concern to me is that on rallies, the list of 12-months new highs does hardly expand and that the NYSE Advance – Decline Line is trending down.

Marc Faber

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Concrete Inheritor

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SIDDHARTH NAHATA feels that DLF’s Rajiv Singh has the skills to manage the current frenetic growth phase. But the challenges are many

He is the world’s richest realtor, ahead of Donald Trump. He’s the third richest Indian. He is K. P. Singh, chairman, DLF, whose net worth is $35 billion. But few know that his son, Rajiv Singh, has to be partly credited for this materialistic and strategic transition. When B&E finally caught up with him, Rajiv seemed humble about his personal achievements. “It has been satisfying, but a lot still needs to be done. DLF and everyone connected with DLF have come a long way. Now, we are standing at an exciting juncture of immense opportunities. We need to deliver more than we have delivered till date.”

Like many of the NewGen entrepreneurs featured in this section of the special issue, Rajiv Singh is shy and introvert, yet intelligent and has a strategic vision. Arvind Khanna, who has worked as the Chief Marketing Officer of DLF, and is currently COO, Beekam Helix, explains, “He is a shy and reticent person. Till recently, it was very difficult to make him talk to the media. He likes to be in the background. Although he’s a suave person, he’s brief and to the point. But he’s extremely informal, astute, and intuitive and very few people in the real estate industry have a vision like him.” Agrees Kapil Mehta, CEO, DLF Pramerica Life Insurance, “Rajiv has a remarkable insight into the industry and economy. His approach to business issues is direct and practical. Despite DLF’s heady success, he is extremely approachable and down to earth and it’s a pleasure to work with him.” And therein lies the key. Rajiv understands that if DLF has to become truly professional, he has to somehow manage the old guard, which helped and influenced DLF, when it was run like a family-owned business. “I believe in giving enough freedom to my team to perform various tasks. My management philosophy is that whatever we do and no matter how good or bad we do, we will do it as a team.”

“He listens to others. It doesn’t mean that he will always agree with you. But he will give a fair hearing to everyone. He has been trying to change the company for long. You need to understand that DLF is an old company. There’s a lot of skepticism about the manner in which he’s trying to change the DLF culture. But he’s carrying all the people with him, both old and new. He’s trying to change the company from a Gurgaon-centric organization to a pan-India one. Under him, people have stopped looking at individual fiefdoms,” adds Khanna. This happens to be just one of his many exceptional qualities.

What sets him apart from other realtors, or makes him a part of the elite league in the sector, is the way he envisages new projects. Explains Kaushik Sengupta, VP (Marketing), Eros group, “Rajiv has tactical business acumen. He announces unique projects with clear differentiation, believes in sustained efforts to enhance customer value and quality, and gives ethical and professional service to customers.”

Take a look at some of his initiatives. Today, DLF has a developable land bank of 738 million sq. ft. with projects in 32 cities. It is building a ‘New Bangalore City’ with a proposed investment of $12.5 billion in partnership with Dubai’s Limitless Group. The company has signed a MOU with Nakheel to develop two projects with a planned investment of $12-14 billion. Moreover, it is going beyond townships. DLF has a joint venture with the Hilton group to open 75 hotels in the next 5-7 years, and it has evinced interest in building special economic zones and sprawling malls.

In addition, the group is now diversifying into unrelated areas. “We recently applied for GSM spectrum and formed a JV for an asset management company with Prudential Financial. Both the arenas are of high significance to us and present rapid growth opportunities that are waiting to be tapped. We believe that we will be able to create value for everyone. Moreover, on the back of this value creation model, we will further continue to pursue opportunities across different verticals. This approach will help us in derisking operations across sectors,” elaborates Rajiv.

However, this is also going to be the biggest challenge for Rajiv Singh. As DLF spelt out in its prospectus for the public issue last year, “Our expansion and diversification is on a scale that is unprecedented in our history and will place significant demands on our management as well as our financial, accounting and operating systems. We may not be able to sustain such growth in revenues and profits or maintain a similar rate of growth in the future. If we are unable to manage our growth effectively, our business and financial results will be adversely affected.”

The same prospectus added that “given the fragmented nature of the real estate development industry, we often do not have adequate information about the projects our competitors are developing and accordingly, we run the risk of underestimating supply in the market. As we seek to diversify our regional focus, we face the risk that some of our competitors, who are also engaged in real estate development, may be better known in other markets, enjoy better relationships with landowners and international JV partners, gain early access to information regarding attractive parcels of land & be better placed to acquire such land. In addition, we are expanding into new businesses such as SEZs, infrastructure and hotels. We have little experience in these businesses…”

Therefore, there are still a number of unknown factors before we reach some concrete conclusion about Rajiv’s ability to manage the new century DLF. He has the skills to change the culture of the organization. He has the intellectual capacity to leverage DLF’s core competence by getting into new sunrise areas. He has the guts to take on giants like Reliance Communications and Reliance Industries. He has the confidence to build a 21st century realtor company. But the risk factors are as imposing. It is up to Rajiv Singh to ensure that neither internal nor external issues bring this house of concrete crashing to the ground in the near future.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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