News Archive

Indian pharma’s struggle to tighten standards paves way for M&A deals

MUMBAI India’s smaller generic drugmakers, struggling to cope with a bruised reputation and tougher regulation in the United States, are under pressure to consider branching out to new, less-profitable markets or sell out to larger rivals.

Two years after its most high-profile regulatory setback to date in the United States – Ranbaxy’s (RANB.NS) $500 million U.S. fine for drug safety violations – India’s $15 billion a year generic drug industry is still rebuilding its image in its biggest market.

Many of its top firms are facing sanctions at some of their factories, as the U.S. Food and Drug Administration (FDA) tightens checks and its approvals process.

Combined with government-mandated price controls on drugs at home, that is piling pressure on smaller players.

“If they want to have a presence globally, they have to make investments. If they can’t, then they’ll have to focus on other markets or scale back their ambition outside of India, and that’s probably what will happen,” said Subhanu Saxena, CEO of Cipla (CIPL.NS), India’s fourth-largest drugmaker by revenue.

Ashok Anand, president of Hikal Ltd (HIKA.NS), a Mumbai-based drugmaker with a market value of $167 million, said some peers were putting themselves on the block.

“If they cannot deal with the stricter regulations, they might just prefer to sell out,” he said.

Pressure on U.S. sales has been felt across the Indian industry, with all drugmakers hit by delays in FDA approvals as the U.S. safety body overhauls its review process. Growth in U.S. revenue for drugmakers slowed to 14 percent in the year to March 2015, less than half what it was in the year to March 2012, according to brokerage Edelweiss.

But for larger players who want to plug gaps or, for the likes of Glenmark (GLEN.NS) and Aurobindo (ARBN.NS) who aim to grow in the United States, this pressure has lowered prices and could pave the way for attractive deals, bankers said.

“Now that some of the smaller companies are reeling under intensive regulatory scrutiny and want to cash out on their investments, valuations would be much more realistic,” said the head of India MA at a large European bank in Mumbai.


Indian manufacturers say they have spent millions in high-end testing equipment, improved training and have hired larger teams in quality control since Ranbaxy was fined for manipulating clinical data.

Some consultants estimate spending on compliance has more than doubled to reach about 6 to 7 percent of sales for the larger companies.

But while the number of U.S. export bans issued to Indian companies fell to eight in 2014 from 21 in 2013, according to FDA data, the agency continues to find manufacturing violations at the plants of some of the biggest drugmakers in the country, an indication of the pervasiveness of the problem.

Sun Pharmaceutical Industries (SUN.NS), Wockhardt (WCKH.NS), Dr Reddy’s Laboratories (REDY.NS) and Cadila Healthcare (CADI.NS) have all faced FDA rebukes over the past year.

Smaller firms Ipca (IPCA.NS) and Aarti Drugs (ADRG.NS) faced FDA bans on their plants this year.

These failures – which executives blame on India’s “quick fix” culture and consultants blame on a failure to prioritize compliance – have clouded short-term growth prospects and added to pressure on smaller players, pushing some to look elsewhere.

“They can choose to be in lesser-regulated markets, such as Latin America, where there is a lot of demand. But they will have to live with much thinner margins,” said the finance director of a small Indian drugmaker, who did not want to be named. “It’s survival of the fittest.”

(Additional reporting by Sumeet Chatterjee; Editing by Clara Ferreira Marques and Muralikumar Anantharaman)

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FCA US recalls SUVs over suspension component

NEW YORK FCA US LLC, formerly Chrysler Group LLC, said on Sunday it was recalling a small number of new Chrysler sport utility vehicles that may have been equipped with improperly heat-treated suspension components.

FCA said it had advised around 65 U.S. owners of new Grand Cherokee and Dodge Durango SUVs to stop driving their vehicles, and that around 7,690 additional vehicles were also subject to recall, but most of those were not yet in service.

The company said the problem could lead to component breakage, rear-end instability and/or reduced braking power.

(Reporting by John McCrank; Editing by Phil Berlowitz)

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Volkswagen to launch budget car family in 2018: CEO in paper

FRANKFURT Germany’s Volkswagen (VOWG_p.DE) plans to launch a family of low cost budget cars in China and possibly elsewhere starting in 2018, its chief executive said in a newspaper interview on Sunday.

“We will bring a budget-car family to market in 2018, with an SUV, saloon and hatchback,” Martin Winterkorn told Bild am Sonntag newspaper.

Europe’s largest automaker had for years been pondering a budget car but difficulties in hitting internal cost targets had thwarted approval of the project.

The vehicles – to be built in China – will cost between 8,000 euros ($8,932.00) and 11,000 euros, Winterkorn said.

Previously, the company targeted a price of between about 6,000 and 8,000 euros for its budget car.

“We will see if this is something of interest for other markets as well,” Winterkorn said.

The budget car is seen as important for VW’s future plans, particularly in Southeast Asia.

(Reporting by Jonathan Gould, writing by William Hardy)

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Rising interest rates pose new risk for banks: BIS

LONDON Rising interest rates after years of loose monetary policy will pose a fresh risk to banks’ ability to absorb losses using capital buffers, the Bank for International Settlements said in its annual report on Sunday.

A prolonged period of ultra-low rates would further weaken the financial sector and squeeze banks’ profitability, but a “normalization” of borrowing costs would reverse the debt-fueled inflation of asset prices and hit banks’ own loss-absorbing equity capital, the BIS said.

“Just as falling yields have supported asset valuation gains in recent years, an eventual normalization would generate losses … Banks’ equity capital would shrink.”

The banking sector has made progress in building up capital buffers since the 2008 crisis, which sounded alarm bells over leverage in the financial industry. Big international banks’ core capital levels have risen over the past three years while assets adjusted for riskiness have fallen, the BIS said.

But the report said an impending turn in monetary policy underscored the need for extra regulatory safeguards. Global banking regulators earlier this month set out two such possible measures to force banks to set aside more money to cover interest-rate risk.

The BIS also warned that banks might have an “incentive” to opt for more lax risk adjustments to flatter capital ratios. “Supervisors need to be in a position to regularly, transparently and convincingly validate risk estimates,” it said.

Some investors and analysts see strong retail banks as better able to pass on the cost of rising rates to clients than investment banks or trading houses more exposed to a potential squeeze on credit trading.

Insurers and pension funds are however seen as clearer beneficiaries of rising rates as investment yields rise too. Ultra-low rates have spurred a search for yield that the BIS described as “aggressive”.

Pension funds, for example, had a 25 percent exposure to alternative investments such as real estate, hedge funds, private equity and commodities in 2014 versus only 5 percent in 2001.

The BIS report said asset managers faced their own set of risks in the face of market shocks. Restrictions on investment portfolio shifts or leverage could be one way to contain market volatility or big price swings, the report said.

(Reporting by Lionel Laurent; Editing by Ruth Pitchford)

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‘Nein Danke’

BERLIN Martina Roemmelt-Fella, who owns a small, family-run turbine manufacturer in Bavaria, should be a cheerleader for a trade deal between Europe and the United States that promises to ease the flow of goods and services across the Atlantic.

But instead she fears the Trans Atlantic Trade and Investment Partnership (TTIP) being hammered out between Brussels and Washington will give too much power to big multinationals at the expense of small companies like hers.

“The proposals are being negotiated behind closed doors with the help of 50 or 60 big corporates,” said Roemmelt-Fella, whose firm is one of the thousands of small and medium-sized companies known as the ‘Mittelstand’ that account for 89 percent of Germany’s exporters and form the backbone of the economy.

“TTIP may bring significant benefits for big multinationals, but I don’t think there are big advantages for the Mittelstand,” she added.

Her opposition underscores the depth of scepticism towards TTIP in Germany, Europe’s largest economy, where media coverage has focused largely on protests from anti-globalisation groups and labour unions. It also highlights the challenge facing German Chancellor Angela Merkel as she tries to overturn entrenched suspicion of the pact.

While Merkel and big businesses, such as industrial group Siemens and car parts supplier Robert Bosch [ROBG.UL], remain strongly in favour of a deal, public support has fallen sharply over the past year, according to a recent opinion poll. Such widespread German mistrust could mean a deal has to be diluted or is even blocked.

Hurdles are also growing in Brussels, where as negotiators prepare for their 10th meeting next month, the European Parliament is so split on the subject that it cannot even agree to debate it.

Earlier this month, Economy Minister Sigmar Gabriel declared that the talks might fail.

“I am far from certain that there will be an agreement in the end,” Gabriel told a meeting of German booksellers. They fret that TTIP will sound the death knell for a German law that fixes the price of books, despite repeated government reassurances.

Gabriel came out in favour of TTIP last year, but faces opposition from others in his party, the centre Social Democrats (SPD). Several local SPD associations have called for an immediate suspension of the trade negotiations.

Proponents say an accord will create a market of 800 million people, boost economic output and serve as a counterweight to China’s increasing economic clout.

The German unease is remarkable because it is one of the few developed nations to have increased its share of trade in the past 15 years.

“I’ve been in this business for 30 years and the Germans have never been a problem,” Pascal Lamy, former director of the World Trade Organisation, told Reuters.

“The Germans were pushing the French in the right direction. Now, I have to go and tell the French to go and help the Germans,” he said.


Roemmelt-Fella, whose company specializes in making turbines for hydropower plants, is not the only exporter with misgivings.

A Commerzbank study last year found only 15 percent of Mittlestand companies believe TTIP would be a good thing for their business.

A separate survey by the BVMW Mittelstand association, showed more than 80 percent of its members believe the government is not doing enough to represent their interests in the negotiations.

Much of their concern focuses on how companies settle disputes under the pact. They worry U.S. multinationals will use an Investor-State Dispute Settlement (ISDS) clause to bypass national courts and bully governments into doing their bidding.

The Organisation for Economic Cooperation and Development (OECD) estimates the average legal and arbitration costs of ISDS cases to be around $8 million (7.1 million euros), an amount that is far beyond the means of the average Mittelstand firm.

A further gripe is the proposed creation of a regulation council, designed to smooth the consultation process on new laws, but which opponents say will make the legislative process more susceptible to manipulation.

Mittelstand companies are not against free trade and many welcome TTIP’s aim to eliminate tariffs and create common technical standards, which would lower the cost of entering the U.S. market.

In particular, suppliers to Germany’s big car companies BMW, Daimler and Volkswagen (VOWG_p.DE), stand to benefit from harmonized regulatory standards that would remove the need to duplicate development, certification and crash testing.

But this cuts both ways with U.S. firms who want to sell to Europe also benefiting from lower barriers to entry. This unsettles some Mittelstand companies who fear it won’t be a truly level playing field.

Heinrich Luedeke, CEO of PacTech, a maker of advanced packaging equipment based in Nauen, east Germany, believes European firms will be disadvantaged compared to their U.S. peers who have more natural resources and lower energy costs.

“Just because there are no more tariffs doesn’t mean we will eat more chickens, or build more machines; the total amount will stay the same,” he said.

(1 euro = $1.1200)

(Reporting by Caroline Copley; Editing by Noah Barkin and Keith Weir)

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China-backed multilateral bank to take concrete shape this week

SHANGHAI/BEIJING One of China’s biggest ever foreign policy successes will take concrete shape on Monday when delegates from 57 countries sign an agreement on the Asian Infrastructure Investment Bank (AIIB) in Beijing.

The founding members of the China-backed AIIB will sign articles of agreement that decide each member’s share and the bank’s initial capital.

The multilateral institution, seen as a rival to the Western-dominated World Bank and Asian Development Bank, was initially opposed by the United States but has attracted many prominent U.S. allies including Britain, Germany, Australia and South Korea. Other founding members include most Asian nations and countries from the Middle East and South America.

Japan and the United States are the most prominent nations not represented in the bank. China has said it has left the door open for them to join.

“It’s a huge diplomatic and strategic win for China,” said Malcolm Cook, a senior fellow at the Institute of Southeast Asian Studies in Singapore, said of the AIIB.

“(But) the fact that so many have signed on will mean that the management of the AIIB will be quite complicated…The more countries you have on board, the more interests will be at play and more each member will of course want the institution to serve their own interests.”

One senior Western diplomat in Beijing said China had felt it had no choice but to set up its own bank after repeated attempts to reform existing institutions like the International Monetary Fund to take into account China’s role as the world’s second-largest economy were blocked in Washington.

“The United States only has itself to blame,” said the diplomat, from a country which has signed up to the AIIB, speaking on condition of anonymity.

Asian countries are expected to own up to 75 percent of the bank while European and other nations will own the remainder. Each Asian member will then be allotted a share of that 75 percent quota based on their economic size, two Japanese sources have said.

The AIIB will begin with authorized capital of $50 billion, eventually to be raised to $100 billion.

China is likely to hold a 25-30 percent stake, while India will be the second-biggest shareholder with a possible 10-15 percent, delegates at a meeting to finalise the new bank’s articles of agreement told Reuters in May.

Germany plans to take a 4.1 percent stake to become the fourth-biggest member after China, India and Russia, according to a finance ministry draft document seen by Reuters earlier this month.

Australia said last Wednesday it would contribute A$930 million ($719.36 million) over five years to become the institution’s sixth largest shareholder.

Indonesia will be the eighth-largest shareholder in the AIIB with an investment of $672.1 million over five years, its finance ministry said on Sunday.

China says it will not hold veto power within the AIIB, unlike the World Bank where the United States holds a limited veto.

The AIIB is the brain child of influential Chinese think-tank China Center for International Economic Exchanges, or CCIEE, which is helmed by former vice premiers and ambassadors, among others. The think-tank had proposed the creation of the bank in 2013 as an institution that balances China’s political and economic priorities, CCIEE officials said.

“The AIIB has made a lot of progress so far in its preparatory work, but this is only the first step in a long road ahead,” Chinese Finance Minister Lou Jiwei said in a commentary published on the website of the official People’s Daily newspaper on Thursday.

“It will require a lot more effort to bring the AIIB up to the standards of global financial institutions.”

Apart from backing the AIIB, China has also pledged billions of dollars to the Silk Road fund and the “One Belt, One Road” initiative, which are also aimed at funding infrastructure to increase trade and connectivity between Europe and Asia.

($1 = 1.2928 Australian dollars)

(Additional reporting by Ben Blanchard in Beijing; Gayatri Suroyo and Fransiska Nangoy in Jakarta; Editing by Raju Gopalakrishnan)

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China regulators juggle IPOs with growth and a market plunge

SHANGHAI A 20 percent fall in Chinese stocks over the past two weeks, mainly blamed on a flood of initial public offerings, highlights the risks that regulators face as they try to use the stock market to support the slowing economy.

The central bank cut interest rates and bank reserve requirements on Saturday, which analysts say is mainly aimed at restoring investor confidence in the market after key indexes fall over 7 percent on Friday, the biggest one-day fall since the global financial crisis.

“The government appears eager to maintain a bull market to expand the capital market and reduce reliance on bank lending,” analysts at Standard Chartered said in a note to clients on Saturday.

The stock market, which has seen indexes gain as much as 150 percent since November, has been one of China’s few bright spots as economic growth has flagged and property prices have slid, and regulators have tried to take advantage of it to support the wider economy.

By allowing companies to raise fresh funds with high valuations, either via IPOs or secondary issuances, China can attack two goals at once, supporting growth and draining excess speculative liquidity flowing into the market through a surge in margin financing.

“Regulators have tried to guide the market, encouraging investment at the levels they believe are low and pouring cold water at the high levels,” said a domestic fund manager, who spoke on condition of anonymity because he is not allowed to speak to media.

However, the balancing act is tricky because the latest slew of IPOs temporarily locked up over $1 trillion in funds, one of the causes of the market freefall.

In China, investors apply to buy into IPOs via a lottery system, and while the lottery is run, the funds they apply with are put in escrow. That can suck huge amounts of money out of the monetary system for short periods of time.

In the week starting June 14, the China Securities Regulatory Commission (CSRC) allowed 24 IPOs to raise around $6.5 billion from the markets, which temporarily locked up $1.13 trillion during the escrow period. Figures for last week were not immediately available, but brokerage Guotai Junan Securities Co (601211.SS) listed in Shanghai on Friday after raising $4.9 billion in the country’s biggest IPO since 2010.

At the close on Friday, the key CSI300 index .CSI300 was down 7.9 percent, its biggest one-day percentage fall since June 2008, while the Shanghai Composite Index .SSEC tumbled 7.4 percent. Overall, Chinese stocks are down 20 percent from their peak earlier in June, well into technical correction territory.

The CSRC said on Friday the fall was a normal correction to overvaluations in the market, a day after it approved another 28 IPOs to hit the market in the next two weeks.

Keen to clear a massive backlog of IPOs created during an over-year long freeze in 2013, the CSRC doubled the pace of IPO approvals to around 20 per month in January, then doubled it again to more than 40 per month since April.

It permitted an even greater pace of secondary issuances by already listed companies during the first half of 2015, resulting in proceeds over $70 billion, double the amount raised in all of 2014.

($1 = 6.2080 Chinese yuan renminbi)

(Editng by Kazunori Takada and Raju Gopalakrishnan)

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Greek parliament gives green light to Tspiras’ bailout referendum

ATHENS Greek lawmakers on Sunday authorized Prime Minister Alexis Tsipras’ proposed July 5th bailout referendum, setting Greece on course for a plebiscite that has enraged international creditors and increased Greece’s chances of exiting the euro zone.

The government easily passed the 151-vote threshold needed to authorize the referendum, with deputies from the far right Golden Dawn voting with the government and pro-European opposition parties New Democracy, Pasok and To Potami and the KKE Communist Party voting against.

Greeks are due to vote on whether to accept or reject the latest terms offered by creditors to Athens in order to unlock billions of euros in bailout funds.

European partners have reacted negatively to the announcement of the referendum. On Saturday, they rejected a request by Tsipras to extend the current bailout in order to cover the period leading up to the referendum. The rejection means Athens is likely to default on a key payment to the International Monetary Fund on Tuesday.

(Reporting By Alessandra Galloni; editing by James Mackenzie)

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Euro zone readies for Greek default after Tsipras referendum call

ATHENS/BRUSSELS Greece’s European partners shut the door on extending a credit lifeline to Athens, leaving it facing a default that could push it out of the euro after the leftist government rejected tough lender demands and put their bailout deal to a referendum.

Finance ministers of the other 18 countries sharing the euro met for the first time without Greece and flatly rejected its pleas to extend an expiring bailout until after the referendum on July 5 and setting the stage for Athens to default on a crucial IMF payment on Tuesday.

The 18 pledged to do whatever it takes to stabilize the common currency area and said they were in much better shape to do so than at the height of the euro zone crisis a few years ago. In a formal statement, they also implicitly urged Greece to impose capital controls to stabilize its banking system.

The rejection of an extension piled huge pressure on Greek banks, which depend on central bank support to remain afloat, with long lines forming in front of cash machines as people rushed to pull their money out while the banks were still operating normally.

After its surprise decision to call a referendum on the bailout, Athens asked for an extension of Greece’s bailout program beyond Tuesday, the day it must pay 1.6 billion euros to the International Monetary Fund or default.

But the other 18 members of the euro zone unanimously rejected the request, freezing Greece out of further discussions with the European Central Bank and the IMF on how to deal with the fallout from a historic breach in the EU’s 16-year-old currency.

The swift rejection was a startling demonstration of the degree to which Tsipras had alienated the rest of the currency bloc with a final-hour announcement that upended five months of intense talks.

The Eurogroup of finance ministers shut Greece’s Yanis Varoufakis from a meeting in Brussels and issued a statement without him, accusing Athens of breaking off negotiations unilaterally.

“The current financial assistance arrangement with Greece will expire on June 30, 2015, as well as all agreements related to the current Greek program,” it said, making clear its refusal of a grace period to hold the vote.

Varoufakis said the refusal to provide an extension “will certainly damage the credibility of the Eurogroup as a democratic union of partner member states”.

“I’m very much afraid that damage will be permanent.”

The Greek parliament met to approve the referendum, with pro-European opposition parties uniting in condemning the decision and fuelling speculation that Tsipras’ leftwing government may have to resign if voters back the bailout in the July 5 referendum.

Greek President Prokopis Pavlopoulos was expected to meet former conservative Prime Minister Antonis Samaras on Sunday.

The offer from creditors requires Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.

Caught between fears of economic collapse and defiance of the demands from international creditors, many Greeks expressed shock, although opinion polls published in Sunday newspapers pointed to a majority in favor of accepting the bailout terms.

“They are trying to kill us. I don’t think this is a dilemma on whether to stay or leave the euro zone. But those bailout terms cannot be accepted,” said 70-year-old George Kambitsis. “We don’t have any money, but they want to take more from us. How will we eat, how will we live?”

However voters in other euro zone states — including the bloc’s economic powerhouse Germany, other southern states which have suffered austerity in return for EU cash and poor eastern countries with living standards much lower than Greece — have lost patience.


Many questions remained over the referendum, which is being called over the terms of a bailout offer that may no longer be on the table.

But with fears growing that the foundations of the euro zone could be fatally weakened if Greece were forced out, French Finance Minister Michel Sapin insisted that Paris, at least, was still prepared to talk.

“The 18 countries, apart from Greece, all said clearly that Greece was in the euro and should remain in the euro whatever the difficulties of the moment,” he said.

Although European officials have repeatedly insisted that financial firewalls built during the euro zone debt crisis of the past six years would limit the impact of any “Grexit”, the longer-term effects are completely unknown.

Jeroen Dijsselbloem, the Dutch finance minister and chair of the Eurogroup, said Greek lawmakers should think about whether the referendum was wise before agreeing to hold it, essentially appealing directly to the Greek parliament to defy Tsipras when it votes on approving the measure later on Saturday.

Underlining the mutual incomprehension that has marked months of often angry exchanges between the Syriza government and its European partners, Finance Minister Yanis Varoufakis was still holding out hopes of a deal.

“In these crucial moments, the Greek government is fighting for there to be a last-minute deal by Tuesday,” he said after the euro zone had rejected further talks and said it would cut off financial support from June 30.

He added the government would be prepared to recommend that voters backed the deal if lenders agreed to improve the terms.

The euro zone finance ministers met in Brussels for what had been intended as a final negotiation for a deal.

But after they were blindsided by Tsipras’s surprise middle-of-the-night announcement that he rejected their offer and would put it to voters only after Tuesday’s deadline, one after another said all that remained to discuss was “Plan B” – how to limit the damage of default.

“We have no basis for further negotiations,” German Finance Minister Wolfgang Schaeuble said ahead of the meeting. “Clearly we can never rule out surprises with Greece, so there can always be hope. But none of my colleagues with whom I’ve already spoken see any possibilities for what we can now do.”

Finland’s Alexander Stubb called it “potentially a very sad day, specifically for the Greek people. I think with the announcement of this referendum we’re basically closing the door for any further negotiations.”

With most Greek banks closed for the weekend, there was no sign of panic on the streets of Athens. Government officials said there was no plan to impose capital controls that would limit withdrawals.

But police tightened security around bank teller machines as lines formed at some in the darkness almost as soon as Tsipras’s early hours televised speech was finished. More than a third of automated teller machines across Greece ran out of cash on Saturday before they were replenished, banking sources said.

The Bank of Greece said it was making “huge efforts” to ensure the machines remained stocked.

(Additional reporting by Karolina Tagaris, Vassilis Triandafyllou, Matthias Williams, Lefteris Papadimas and Gina Kalovyrna in Athens, Erik Kirschbaum in Berlin, Robin Emmott, Alastair Macdonald, Barbara Lewis, Robert-Jan Bartunek, Philip Blenkinsop, Alexander Saeedy, Renee Maltezou and Jan Strupczewski in Brussels; Writing by James Mackenzie and Peter Graff; Editing by Alastair Macdonald and Andrew Heavens)

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