02/05/2006 - 22:00

India buys in to global growth race

02/05/2006 - 22:00

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India buys in to global growth race

China so dominates talk about the resources boom that its great Asian rival, India, gets little more than lip service. Two events, a month apart, will help change that, with a third in the form of an eye-popping graph causing Briefcase to choke on its morning muesli.

First came the opening of the $800 Burrup Fertilisers project on April 20. Largely controlled by the Rambal and Oswal families, the plant makes ammonia for conversion into fertiliser. Apart from its Indian ownership the development is noteworthy for another reason; it is the first gas-to-liquids investment in the north to make it past the planning stage.

Second, and largely ignored until now, is the scheduled May 16 listing on the Australian Stock Exchange of Aditya Birla Minerals. Indian to its bootstraps, the new company owns the Nifty copper mine in WA’s north-west, and the Mt Gordon copper mine in Queensland.

Third is the graph (above right). A product of Access Economics, with data drawn from a number of sources including the ANZ Bank, it shows the share of the world economy held by India and China over the past 700 years, or thereabouts. How the data was gathered is a mystery, perhaps someone found a laptop from 1300 with lots of trade statistics embedded in its hard drive.

Joking aside, there is a common message running through the three events, even if the graph must be considered somewhat rubbery. But whatever your view of an attempt to illustrate 700-year-old statistics, there is a serious message in looking at how India and China lost their way as dominant world economic powers and are now steaming back.

Whether the twin Asian giants ever resume their roles as the source of 60 per cent of the global business is highly unlikely. The real point of looking back in time is to understand the purchasing power of two countries, which today have populations of more than 1.2 billion each – with most of them wanting a Western lifestyle which requires large amounts of minerals and energy.

It’s the growing demand for food and a modern lifestyle that explains why the Oswal and Rambal families have made such a big investment in Burrup Fertilisers, and why Aditya Birla has acquired (and refloated) Mt Gordon and Nifty.

The Burrup ammonia plant is the biggest single investment by Indian interests in Australia. More is likely to follow, even if the Indians are complaining about high gas prices and construction delays.

The float of Aditya Birla Minerals is a similar story. The Indians are not floating just because they want to recoup costs associated with the purchase of Mt Gordon and Nifty, though that will be achieved by the raising of $299 million.

In the overall structure of the Birla group the Australian float is small beer. Birla is India’s first global corporation, with a stock market value put at $US12 billion, not to mention the 72,000 employees, and 30 per cent of its business interests located outside India.

Rather than raise a small pot of fresh capital in Australia, Birla wants to grow. It has earmarked a number of promising exploration prospects and has acquisitions firmly in its sights.

For Australia, the arrival of the Indians, hot on the heels of the Chinese, is nothing but good news. It is creating a highly competitive market for Australian resources, and that can only help drive up asset values, create more jobs, and make it even harder to find a car park in central Perth.

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You know you’ve made it when the top national stockbroking firms start to devise specific investment strategies to cater for your growth, which is precisely what has just happened at Goldman Sachs JB Were with its latest look at WA.

In a special report with the secondary heading “the buoyant black swan”, Goldman singles out WA as a place worthy of investor attention because it is growing so quickly.

The broker nominates four stocks as core ingredients of a WA-focused portfolio. WA News, Wesfarmers and Coventry are the obvious inclusions. The surprise fourth is Bradken, a business which sells a variety of services to the mining sector, including mineral processing, open pit and underground mining, and rail freight.

Food for investment thought.

•••

Less thinking is required when considering the final jotting for the week – executive pay. In Perth, that subject seems to always appear with the name Neale Fong attached. Overseas, there are much more interesting people.

•••

The man Briefcase has most enjoyed reading about during the past year is Lee Raymond, recently retired chief executive of oil giant, ExxonMobil.

As Mr Raymond moved aside he took $US398 million in benefits, a very handsome $A530 million, which is enough to rank him as Australia’s 38th richest person.

But that pales alongside a new champion of the mega-rich executive class, William McGuire, boss of the US company, United Health. He’s sitting on $US1.6 billion worth of unrealised profits on stock options or, in local currency, $2.1 billion, enough to rank him as Australia’s third richest person – and all from being a servant of the shareholders.

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“The banalities of a great man pass for wit.” Alexander Chase

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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