VZCZCXRO8291
PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHBI #0170/01 1141239
ZNR UUUUU ZZH
P 241239Z APR 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7137
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8368
RUEHCG/AMCONSUL CHENNAI PRIORITY 2039
RUEHCI/AMCONSUL KOLKATA PRIORITY 1830
RUEHBI/AMCONSUL MUMBAI PRIORITY 2327
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 MUMBAI 000170 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR 
USDA FOR FAS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EIND EINV ENRG IN
SUBJECT: MUMBAI MASALA:  CORPORATE BONDS, SOLAR ENERGY, AND RETAIL 
 
REF: 08 MUMBAI 489 
 
MUMBAI 00000170  001.2 OF 003 
 
 
¶1. (U) Table of Contents: 
 
 
 
- Capital Market Regulator talks about the Corporate Bond Market 
and the Financial Crisis 
 
 
 
- Ispat Energy Plans 500 MW Concentrating Solar Thermal Energy 
Project in Gujarat 
 
- Wal-Mart Expands its Indian Footprint while Other Big 
Retailers Pause to Regroup 
 
 
 
Capital Market Regulator talks about the Corporate Bond Market 
and the Financial Crisis 
 
------------------------------- 
 
 
 
¶2.  (SBU) In a meeting with Acting Charge d'Affairs Peter 
Burleigh, the Chairman of the Securities and Exchange Board of 
India, C.B Bhave, explained that Reserve Bank of India's (RBI) 
announcement that it would serve as a clearing house for 
corporate bond trading was a significant step forward in 
developing India's corporate bond market.  (Note:  On April 21, 
in its Annual Policy Statement for 2009-10, the RBI announced 
that it will allow capital markets' clearing houses to use RBI 
accounts to facilitate the settlement of over the counter (OTC) 
corporate bond transactions.  End Note.)  Once the clearing 
corporations set up accounts with the RBI, Bhave said, India 
will have a secure clearing and settlement mechanism that will 
also provide a more transparent price recording system.  A 
steady stream of price data will help build the market and 
attract a wider range of market participants, he said.  While 
the cap on foreign investment in the corporate bond market has 
been raised to $15 billion, it has gone unsubscribed, he 
believed, due to low demand.  He admitted, however, that the 
development of exchange traded platform for corporate bonds in 
India is still a "far goal." 
 
 
 
¶3.  (SBU) In discussing the Indian economy, Bhave acknowledged 
that regulators are still trying to determine the impact of the 
global economic slowdown on India.  He explained that the Lehman 
bankruptcy on September 15 coincided with advance tax payments 
by corporations, which naturally produces a short-term liquidity 
shortage (see reftel A).  It wasn't until the end of September 
that India's regulators realized that there were more serious 
liquidity problems in the Indian banking system, after which the 
RBI took action.  He said the first shocks came through trade 
channels, as trade finance was hit severely.  Bhave said that 
India learned that domestic demand is still too small to replace 
global demand for India's exports.  Although leveraged hedge 
funds had begun to pull out of Indian markets before September, 
this trend accelerated in October and November, compounded by 
withdrawals from non-leveraged domestic and foreign investors. 
 
¶4.  (SBU) While India is fortunate that its banking system has 
not been seriously hit by the crisis, Bhave believed that the 
banks' "non-integration" into global markets and a policy of 
isolation, rather than specific prudent measures taken by banks, 
was the main reason for its relative safety.  Another benefit, 
in retrospect, is that Indian banks had few OTC derivatives on 
their books; here again, that development was a "factor of 
tradition, rather than any insight into the dangers of these 
products."  In addition, Indian households still have relatively 
small amounts of leverage, and while credit card usage has 
increased in the past few years, it is not yet as pervasive as 
other countries.  He said that credit cards are a "recently 
employed" phenomenon and that an older generation would still 
shy away from using them, preferring debit cards where the 
 
MUMBAI 00000170  002.2 OF 003 
 
 
balance is known. 
 
 
 
Ispat Energy Plans 500 MW Concentrating Solar Thermal Energy 
Project in Gujarat 
 
------------------------ 
 
 
 
¶5.  (SBU) Shishir Tamotia, the CEO of the Indian energy company 
Ispat Energy, said that the company plans to set up a 500 MW 
solar thermal project in Gujarat.  Ispat will use "concentrating 
solar technology," which uses mirrors or lenses to concentrate 
sunlight into a beam which is then used as a heat source to 
raise steam to drive turbines for electricity generation in a 
power plant.   The state's good radiation and the Gujarat 
government's pro-business policy made the company choose Gujarat 
as the project site, he said.  (Note:  To promote solar energy 
development, the Gujarat government announced 12-year tariff 
lock-ins at high, subsidizes rates to make it competitive with 
thermal energy rates and a commercially viable alternative for 
power producers.  End Note.) 
 
 
 
¶6.  (SBU) The project cost is estimated at USD 500-700 million. 
Tamotia hopes to obtain funding at lower interest rates and earn 
carbon credits as the project is based on a non-polluting carbon 
neutral energy source.  Assuming that these conditions are met, 
Tamotia expects to earn a 24 percent return on equity.  The 
project will be connected to the grid by Gujarat Electricity 
Transmission Company (GETCO) which may take a minority stake in 
the project.  Tamotia points out that inducting a government 
partner would enable the company to apply to the World Bank for 
funding and also lend added credibility to the project. 
 
 
 
¶7.  (SBU) The company is looking at importing solar technology 
from the Israel-based Solel group as well as some U.S. 
suppliers.  The project is expected to be completed by June 
2011; two 50 MW units will be commissioned by December 2010, 
followed by two 200 MW units.  The project will be a peak-load 
power station and feed power to the grid during peak hours when 
electricity demand is at its highest, due to industrial usage. 
It will also be able to store up to 5 hours of power and will 
shut down only by 11 pm at night, which is non-peak hours. 
Tamotia pointed out that in contrast, wind power generation 
peaks at night and during the rains when demand for power is 
lowest.  India has a peak power deficit of around 16 percent and 
peak power is more expensive than the average cost of power.  As 
a result, Tamotia explained, solar power can give higher returns 
than wind power.  In addition, peaking solar power stations do 
not face uncertainty about future commodity prices like coal and 
natural gas and is sustainable for 40 years, he argued.  Tamotia 
noted that the cost of solar technology is decreasing, making 
solar energy more economically viable; the cost of photovoltaic 
cells has decreased from $100 per Watt in 1969-70 to $3 per Watt 
today.  Ispat Energy plans to build similar facilities in the 
Vidarbha region of Maharashtra, Madhya Pradesh and Rajasthan if 
its Gujarat project is successful. 
 
 
 
Wal-Mart Expands its Indian Footprint while Other Big Retailers 
Pause to Regroup 
 
---------------- 
 
 
 
¶8.  (SBU) Arvind Chaudhary, the former CEO of the Godrej group's 
Aadhar Retailing, has joined Wal-Mart and will serve as the 
International Sourcing Head for the Asia-Pacific.  In a meeting 
with ConGenoff, Chaudhary said that Wal-Mart is serving as a 
"technical consultant" to the Indian-owned Bharati group, which 
 
MUMBAI 00000170  003.2 OF 003 
 
 
has opened retail outlets in Ludhiana and Jalandhar, Punjab, and 
in Haryana under the Bharati Group's brand name, Easy Day. 
Bharti Retail is planning to open stores in Pune next.  (Note: 
The Bharti group and Wal-Mart formed a Joint Venture company, 
Bharti Wal-Mart Pvt. Ltd. for wholesale cash and carry and 
back-end supply chain operations in India.  Foreign Direct 
Investment (FDI) in multi-brand retail is not permitted in 
India.  End Note).  According to Chaudhary, Bharti Wal-Mart does 
not plan to operate retail outlets in any metro cities until 
¶2012.  There is a glut of retail outlets in these cities and it 
does not make sense to open shops there at present, Chaudhary 
explained.  Bharti Wal-Mart is also planning to open cash and 
carry wholesale stores, which will be one-stop shops that meet 
the daily needs of retailers, traders, restaurant and hotel 
owners and other businessmen.  In late May 2009, the first store 
will be opened near Amritsar in Punjab, and the company also 
plans to open a similar store in Mumbai.  These cash and carry 
stores will be 200,000 square feet large-format shops. 
 
 
 
¶9.  (SBU) Chaudhary claimed that the big organized retailers are 
struggling to stay profitable.  The current economic crisis has 
caused Indian consumers to become cost-conscious and to defer 
buying decisions, he opined.  Faced with shrinking demand, high 
operating costs and low margins, these big retailers are 
"hurting."  It takes around six years, in good times, to make a 
profit, Chaudhary explained.  The location of the outlet and the 
product mix are two critical keys to success.  The margin on 
apparel is the highest and fresh produce has the lowest margin, 
so the right mix of these two items determines the profitability 
of the business.  Most big retailers have yet to find the ideal 
mix, he claimed. 
 
 
 
¶10.  (SBU) Comment:  As a knowledgeable retail industry insider, 
Chaudhary's comments reflect the larger sentiment that the 
ambitious plans of large-scale organize Indian retailers 
continue to be tempered by the realities of the Indian business 
environment.  It is not easy to woo the Indian consumer who 
demands low prices, personal attention, and a one-stop shopping 
experience.  Wal-Mart is still confident about its ability to 
succeed in India and is proceeding with its expansion plans even 
while other organized retailers are taking a step back to 
re-group.  Whether the global retail giant can win over the 
complex Indian consumer and compete against the small 
neighborhood retailer is yet to be determined. 
FOLMSBEE