Friday, December 18, 2009

Hyderabad Sinks - Riding the elephant.

I've never read a more scathing article on the vile nature of Indian politics and its overt and covert nexus between Andhra politicians and their business cronies. Instead of granting contracts to reputed firms, these guys have floated their own business entities to swindle the wealth of the India and AP. No wonder Sonia and others were finding that they were getting too powerful to handle and could rock the politican landscape in the years to come.
The Hyderabad housing bubble is now officially popped. Buyers can now breathe in peace.
John Elliot reports
India’s southern city of Hyderabad is becoming one of India’s most potent symbols of the greed and corruption that link politicians and businessmen. For the third time in a year, the state has been rocked by a crisis that exposes those linkages – this time over whether Andhra Pradesh should be split in two with the creation of a new state of Telangana based around Hyderabad (white area in map below).
This is a far cry from the glory and international fame of the past 15 or so years when this prosperous capital of the state of Andhra Pradesh became an international symbol of India’s dramatic growth in software, second only to Bangalore as a thriving location for information technology investment. Companies located there include Google and Microsoft, and Bill Clinton visited as US president.

The first of the state’s crises came a year ago with the collapse of Satyam, a leading Hyderabad-based software company that was owned by the family of its then chairman, Ramalinga Raju. The Rajus were closely linked with various politicians, including the state’s Congress chief minister, Y S Rajasekhar Reddy (YSR), who died in a helicopter crash in September, as well as his predecessor, Chandrababu Naidu. ..
Here is Bharat Bhusan's article in the Mail Today.

Money backs ‘ Son- rise’ in Andhra
by Bharat Bhushan
IT HAS been a month since the former Andhra Chief Minister Y S Rajasekhar Reddy ( YSR) died in a helicopter crash.
The Congress high command has allowed his son, Y S Jaganmohan Reddy and his supporters to run riot in this period.
They paid people whose next of kin died of old age, chronic illness or other causes to say that they had died of shock after learning of YSR’s untimely and tragic death. This number was totted up to nearly 600 with talk of nearly half a dozen “ suicides”. Surprisingly, if the Jaganmohan Reddy run Sakshi TV and newspaper of the same name are to be believed, many of those who died of shock gave a dying declaration that after YSR only his son could continue his propoor policies as chief minister. India has not witnessed such a farce since Independence.
Today, in Andhra Pradesh, it would seem that there is no other Congress leader than Jaganmohan Reddy, no administration, no governance and a chief minister whose writ does not run over his own council of ministers.
Ironically, by allowing Jaganmohan Reddy to continue his unseemly blackmail, the Congress high command is transforming the political novice into the political leader that he never was.
But more of that later. One must first ask how such a political greenhorn enjoys, according to his claims, the support of three- fourths of Andhra MLAs. The answer lies in the changing pattern of political patronage in Andhra Pradesh.
Time was when Congressmen like others in public life accumulated political capital not only by their propeople initiatives but also through fostering intricate patron- client relationships.
This entailed appointing supporters to non- elected positions in the party and the government, helping them build their own patronage networks by giving them clear advantages such as access to the state machinery, and funding their election to local bodies, workplace unions, etc. In short, the attempt was to demonstrate to them that there were political advantages to be had by aligning with the party in power.
Andhra Pradesh seems to be changing that structure of patronage.
Instead of giving partymen a share in one’s political capital — the more one shared it, the more it grew — the Congress supporters are given a stake in the state’s economic enterprises.
YSR ushered in this revolution.
He converted his key supporters into businessmen, industrialists, contractors and realtors. Their loyalty to the party or the leader was based on pure economic interest.
YSR rewarded them with contracts in state sponsored irrigation projects ( the much- publicised Rs. 130,000 crore “ Jalyagnam” projects), highway projects, real estate activities, development of Special Economic Zones ( SEZs), land grants and housing schemes in urban as well as rural areas. The loyalty of a majority of the 156 Congress MLAs who got tickets in the last assembly elections was secured through such largesse. Some others have benefitted with smooth and quick approvals of their business ventures.
Those Congressmen who got irrigation project contracts during the YSR regime include MPs T Subbirami Reddy, Kavuri Sambasiva Rao and Rayapati Sambasiva Rao; state ministers Komatireddy Venkat Reddy and P Ramachandra Reddy; and MLA Adala Prabhakar Reddy.
And these are only the big fish — many other party MLAs like Adinarayana Reddy, Srikanth Reddy, Gurunath Reddy, and A Indrakaran Reddy ( former MLA) are believed to have got smaller irrigation and associated road works contracts.
Andhra Congress MLAs whose real estate business thrived during YSR’s chief ministerial tenure include ministers Shilpa Mohan Reddy and Jupalli Krishna Rao, who defaulted on payment of crores of rupees to an urban co- operative bank and Lagadapati Rajagopal ( Congress MP from Vijayawada who is building Lanco Hills — the country’s biggest real estate project). Many other Congress leaders like D Sudheer Reddy ( MLA) and Malreddy Ranga Reddy
( former MLA) have benefitted from the Rs. 3,000 crore Outer Ring Road project of Hyderabad.
Nellore MP Mekapati Rajamohan Reddy and his brother Chandramohan Reddy, MLA, have won contracts for roads and building works. K Pratap Reddy, the Treasurer of the Congress, has stakes in the cement industry and is believed to have business links with the YSR family.
Vijayawada Congress MP Lagapati Rajagopal is believed by many to be the biggest beneficiary of the YSR regime and is involved in businesses ranging from power, iron castings, real estate and infrastructure.
In short, it is difficult to find a Congressman of any consequence in Andhra who has not benefitted from the largesse of the state government.
Several businessmen, industrialists, realtors and contractors who are not directly in politics — some cutting across political lines like the Karnataka BJP minister and mine lord G Janardhan Reddy of Bellary who was given 10,700 acres of land in Anantapur — are all worried about their projects in various stages of development. They have a right to be worried.
Businesses which are underwritten and steered by someone at the helm of the state are less likely to fail. They were failsafe investments. Now their future is suddenly uncertain.
It has taken decades for Indian entrepreneurs like the Tatas, Birlas, Ambanis and Bajajs to convert family businesses into billion dollar corporations.
The Congress party under YSR in Andhra showed us that this could be done in barely five years.
The YSR family’s market capitalisation is estimated to be nearly three- fourths of the annual budget of Andhra Pradesh which is around Rs 1,00,000 crore. The family enterprises and business interests spread across real estate ( Silicon Builders, Classic Realty, Bhagvath Sannidhi Estates), infrastructure ( Silicon Infrastructure, Shalom Infrastructure, Marvel Infrastructure, Janani Infrastructure, Athena Infra, Viz Projects), cement ( Bharathi Cement), chemicals ( Pulivendula Polymers), plantations ( Forest Plantations India Ltd), power generation ( Athena Energy, Athena Kakinada Power, Sainz Hydro), newspapers ( Jagati Publications) and television ( Indira Television) besides owning Carmel Asia Holdings Pvt. Ltd.
The formidable business empire that YSR and his son set up has stakeholders among those who are in politics and business in Andhra today. The future of their investments depends on having a constant gardener from the YSR family to tend their interests. They cannot afford to let Jaganmohan Reddy lose out in the chief ministerial sweepstakes.
It is difficult to understand on the other hand why the Congress high command is so indulgent towards Jaganmohan’s shenanigans. Does the party have good reason to allow the mess that Jaganmohan Reddy’s supporters are creating in Andhra Pradesh? YSR was very close to Rajiv Gandhi who appointed him the state Congress chief at the relatively young age of 35 years. Sonia Gandhi has always valued loyalty to her late husband.
More importantly, YSR also delivered politically — not once but in two consecutive assembly and Lok Sabha elections. There would have been no UPA I or II without the electoral outcome of Andhra adding muscle to the Congress.
Another speculation doing the rounds is that the Congress high command is reluctant to act quickly against Jaganmohan Reddy because YSR was also believed to be one of the largest funders of the party.
Those sources of funds are now controlled by his son. So instead of cutting him to size, the party is being indulgent. Why else would the party allow speculation about Jaganmohan Reddy being offered Deputy Chief Ministership or a place in the central council of ministers? Could it be on the other hand that Jaganmohan Reddy is being allowed to demonstrate the support he enjoys in order to nurse his image as a mass leader? There could well be a strategy to allow the demonstration of support and soon people will forget that YSR’s son is a political novice. The blatant hooliganism of his supporters seems to have scuttled his chances to fill YSR’s shoes immediately. However, this will not prevent his well- wishers from claiming that YSR Junior has come into his own as a political leader with a mass base. This would pave the way for his accommodation in the party or the government.


Anonymous said...

Anonymous said...

For the last six years of Congress rule, they could not manage to attract single industrial investment. Neither growth in jobs nor revenue to govt.. Every month has become nightmare for the AP Govt., to pay salaries & Contractor bills. In the midst of all, super hype was created in real estate trapping many innocent investors. No wonder each family has to have NRI to support the family back in AP. I forgot to mention who is thriving in AP. It is a state govt. officials who can go to any extent in want of bribes. Any ACB raid since last one year not resulted into less than 10 crores per employee.

Anonymous said...

Hey BB where are you?????

Shriniwas K said...

BB is probably answering Dubai Bhai calls who is scrambling for DW's next year payments. Apparently Bollywood funding which used to come from these Dubai goon has dried up.

Oh I saw Dubai Worlds Vdara Aria Citycenter complex - what a joke - No smoking drinking or gambling in Vegas in the middle of the Vegas Strip Huh - some Islamic investment that is ...

Anonymous said...

I think BB is selling to suckers and counting his money!!

Jayant said...

Elizabeth Warren Interview on PBS

1. 1. Moral Hazard - Let me take you to Las Vegas e

2. Foreclosure, map of misery

3. Financial Alchemy by Rating Agencies

Anonymous said...

Very obviously a gimmick and there are a lot of people who get fooled by such propaganda...

It would be really interesting to see whether people bite the bait or hold on and eventually call the builders bluff...I wonder.

shailesh said...

55% Say Property Prices Will Crash

Anonymous said...

real estate bubble 2.0 ... it is a Prime Mortgage Crisis now....

Serious U.S. mortgage delinquencies up 20 percent

On Monday December 21, 2009, 11:24 am
By Kim Dixon

It found 3.6 percent of prime mortgages -- those made to the most credit-worthy borrowers -- were seriously delinquent in the third quarter. That was more than double the year-ago quarter and up nearly 20 percent from the 2009 second quarter.

The report defined "serious delinquencies" as those loans 60 days or more past due and loans to delinquent bankrupt borrowers.

Anonymous said...

Real estate bookings outnumber deliveries in India; 10 to one

.... DRASTIC NEWS... only bookings no possesions... this assures of upcoming bubble

Anonymous said...

More Builders in Cash Crunch

Anonymous said...

Mortgage : In the word mortgage, the mort- is from the Latin word mori (via old french mort) for death and -gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a death pledge.

Borrowers with modified loans falling into trouble

WASHINGTON (AP) — One of the biggest challenges to ending the foreclosure crisis is this: A surprising number of homeowners who get their monthly payments reduced fall behind again within a year.
When borrowers get into financial trouble, lenders have several ways to help. They can offer grace periods, longer repayment schedules, lower interest rates or reduced balances.

But nearly 40% of homeowners who had their monthly payments cut 20% or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Venkateswaran K Iyer said...

Anon @5.59

Your article points to a successful QIP, not a cash crunch.

Majority of builders have got funds from abroad (with the fed rate near zero, its cheap) and are fully fed and ready to hold prices.

Venkat ND

Anonymous said...

Venkat Undie anna,

Read the article properly, till the end.

Especially the 2nd last para or the 8th para from the top. Whichever way of counting is easiest for your tiny brain.

The first line says - ??

I will leave that as a challenge and come here tomorrow. By that time, hopefully the light would have dawned on you that the Builders are in serious manure.

The longer they hold prices the more onerous their cost of carry. Oh and by the way, do you seriously think that FED is going to hold the rate at 0% forever? What if they revise it to 4%?Do you seriously think the dollar carry traders who will be short squeezed will not have made provisions for this in their clauses during the QIP process?Who will carry the bag? The FII's? Or the builders?

All these questions may be too much for you..will wait till you learn to wear the lungi..maybe 10 yrs. from now!

Anonymous said...

U.S. Commercial Property Falls to Lowest in 7 Years

By Brian Louis

Dec. 21 (Bloomberg) -- Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space.

The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47 percent as of the end of November, Moody’s Investors Service said on Dec. 10. That’s almost six times the year-ago rate of 0.75 percent.

Anonymous said...

Video on potential impact of Commercial Real Estate

Anonymous said...

Video on potential impact of Commercial Real Estate

Anonymous said...

Don't buy any RE in India. Currency carry trade is going to get over soon. Dollar will rally, rupee may be going to Rs. 55 per dollar in the next few months. RE in India to go down by 60% unlike Australia, Singapore, HK, CHina and Korea.

Dexter said...

This is correct. I have studied the financial crises in details and it appears we are in carry trade bubble right now which will pop sometime soon. Cracks are already starting to appear. Japan's 10-yr bond yield is moving up, USA's 10-yr bond yield is moving up. If Japan blows up the carry trade will unwound very fast. India has a bubble of huge proporation. Home price is 10 time median income

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