US stocks fall amid lingering trade war unease

Trader Tommy Kalikas works on the floor of the New York Stock Exchange, in this file photo from Wednesday. (AP Photo/Richard Drew)
Updated 23 July 2018
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US stocks fall amid lingering trade war unease

  • About 40 minutes into trading, the Dow Jones Industrial Average was down 0.1 percent at 25,031.47
  • European Commission President Jean-Claude Juncker heads to Washington on Wednesday to meet with President Donald Trump

NEW YORK: Wall Street stocks retreated early Monday ahead of major earnings reports later this week amid lingering unease over US trade conflicts.
About 40 minutes into trading, the Dow Jones Industrial Average was down 0.1 percent at 25,031.47.
The broad-based S&P 500 dipped 0.1 percent to 2,799.59, while the tech-rich Nasdaq Composite Index slid 0.2 percent to 7,801.58.
European Commission President Jean-Claude Juncker heads to Washington on Wednesday to meet with President Donald Trump and try to avert an escalation of tit-for-tat trade tariffs.
Trump already is embroiled in a messy trade spat with China, while negotiations with Canada and Mexico to revamp the North American Free Trade Agreement have stalled.
“It is hard to imagine a more difficult trading environment due to worsening trade-war rhetoric, a sharp devaluation of the Chinese currency, an unsynchronized global recovery, and the President commenting on Fed policy,” said Canaccord Genuity strategist Tony Dwyer.
Dwyer noted that any pullback would be a buying opportunity given strong corporate earnings.
Earnings season will heat up further in the coming days with reports from Google-parent Alphabet, Boeing and Amazon, among others.
Also on tap this week will be the first reading on second-quarter US growth, which is forecast to be a blockbuster, albeit a one-time burst.
Among individual stocks, US-listed shares of Fiat Chrysler fell 2.3 percent, while Ferrari slumped 4.8 percent after the sudden exit of chief executive Sergio Marchionne due to health reasons.
Amazon dipped 0.7 percent after Trump again attacked the company on Twitter, swiping at the “Amazon Washington Post” and suggesting the company should face antitrust charges.
The Washington Post is owned by Amazon chief executive Jeff Bezos, but is now owned by the online retail giant.


India’s small renewables firms fighting consolidation wave

Updated 28 min 8 sec ago
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India’s small renewables firms fighting consolidation wave

  • With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall
  • Besides loans, other funding options have been dead ends for the smaller companies, further limiting growth opportunities

MUMBAI: Small to mid-sized renewable energy companies in India are starting to look like attractive takeover targets as lenders and investors withhold funds, worried by the stiff competition, weak bond markets, low tariffs and high debt besetting the sector.
The small companies’ difficulty in raising cash is keeping them away from government power project auctions, restricting their growth and crippling their ability to refinance loans, said a consultant from a top global consultancy firm.
With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall, potentially keeping India from its renewable energy targets, said the consultant, who did not wish to be named as he is directly involved with a company that canceled a bond issue.
“India’s solar industry is becoming a big boys’ club,” said Rahul Goswami, managing director of Greenstone Energy Advisers.
In a few years, there may be only a few big companies and a few regional firms active in India’s renewable sector, he said.
The trend goes back at least to 2016, when Tata Power bought solar and wind company Welspun Renewable Energy, but the pace is expected to pick up.
“Smaller players are being squeezed out ... due to two main factors: cost of equipment and ... financing,” said Alok Verma, executive director at Kotak Investment Banking, an arm of Kotak Mahindra Bank.
One of India’s largest renewables companies, Greenko Group, said in June that it was buying 750 megawatts (MWs) of solar and wind assets from Orange Renewables, because the Singapore-based company saw few opportunities for growth. The deal has yet to be closed.
Essel Infra, with a renewable power capacity of 685 MWs, and Shapoorji Pallonji Group’s 400-MW solar arm are also in talks to sell off their assets, one firm and two banks doing the due diligence for these companies have said.
Besides loans, other funding options have also been dead ends for the smaller companies, further limiting growth opportunities.
ACME Solar postponed an initial public offering (IPO) announced in September last year as the proposed share issue did not generate enough interest from investors, confirmed a banker who was directly involved in the listing attempt.
Mytrah Energy, a major mid-sized renewables company, called off a $300 million to $500 million bond issue earlier this year as that option also went dry for the sector, and it canned IPO plans as well, said a separate banker directly involved there.
The companies have all declined to comment.
This dearth of financing and trend toward consolidation could be a significant threat to India’s target of 175 gigawatts (GWs) of renewables capacity by 2022, up from 71 GWs now, some analysts said.
Others said a concentration of bigger players, with more cash and better financing, could mean things move faster.
“Consolidation in the renewable energy industry augurs well for the overall success of the program ... Large players have access to required capital at reasonable rates and can procure the latest technology,” said Debasish Mishra, head of Energy, Resources and Industrials at Deloitte Touche Tohmatsu India.
Tata Power, one of India’s largest power generators, said in May it plans to invest $5 billion to increase its renewable capacity in India fourfold over the next decade to 12 GWs.
More than doubling India’s renewables capacity by 2022 will require $76 billion, including debt of $53 billion, the Ministry of New and Renewable Energy said in July.
Another problem in India’s renewable sector is debt.
“Many mid-sized firms have taken debt to fund their equity,” the partner of an investment firm said, adding that many such companies will need financial restructuring or have to put themselves up for auction.
This model of financing debt through equity is called mezzanine financing and tends to involve high interest rates and an option to convert debt to equity in future.
Both ACME and Mytrah are funded by Piramal Finance Ltd. via mezzanine financing, according to statements by the companies at the time of funding.
For lending banks, this quasi-equity is seen as debt, making the liabilities of these companies look higher than usual, said the partner, who asked not to be named. The investment firm handles all kinds of financing, including mezzanine.
When companies with mezzanine financing go to banks for funds for upcoming projects, banks ask them for higher collateral or offer less cash in loan, said Kotak’s Verma.
Fitch Solutions said in a note last week that India would likely miss its renewable capacity targets due to “risks stemming from bureaucratic, financing and logistical delays.”