Statoil finds extra 4 mln barrels of oil at Volve field in N.Sea

Statoil has found extra oil at its Volve field in the North Sea, the Norwegian Petroleum Directorate said on Monday.

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The firm has found an additional 3.8 million and 4.4 million barrels of recoverable oil, said the agency.

Earlier this month Statoil said new drilling proved the Volve field to hold additional oil reserves in a range from 8.8 million to 9.4 million barrels, almost doubling the estimated remaining reserves at the North Sea field.

 

Statoil holds 59.6 percent in Volve, ExxonMobil 30.4 percent and Bayerngas Norge 10 percent of the license.

Pick-up in telecoms M&A stalls European share slide

A bumper takeover in the telecoms sector helped European shares bounce on Monday after three days of losses, although concern over the impact of stimulus withdrawal in the United States and the health of China's banks weighed.

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Vodafone struck its biggest deal since 2007 after it agreed to buy Germany's largest cable operator Kabel Deutschland for 7.7 billion euros, a deal which Kabel said it intended to recommend to share holders.

 

Kabel's shares rose 2 percent, while heavyweight Vodafone was up 0.6 percent higher.

By 0706 GMT, the FTSEurofirst 300 was flat at 1.39 points at 1,132.85, having spiraled down from the year's high of 1,132.73 on May 23 exacerbated by concerns over U.S. stimulus and China's banking system.

"The widespread complacency about the adjustment to the tapering environment, which suggested that equities would remain immune to the winding down of central bank support, must now have been dispelled," Ian Williams, equity strategist at Peel Hunt, said.

"The transition towards a more growth-driven phase of market performance is likely to remain bumpy through the summer as the long awaited improvement in corporate earnings has been slow to emerge."

European stock 'fear gauge' hits 4-month high

The Euro STOXX 50 Volatility index, known as the VSTOXX, hit a four-month high early on Monday, signalling a sharp rise in risk aversion as mounting worries over China's banking sector kept investors on edge.

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The VSTOXX, Europe's widely-used gauge of investor sentiment which is based on put and call options on Euro STOXX 50 stocks , rose 3.4 percent to 24.86, a level not seen since late February.

 

REFILE-Spain govt studying all options for sales of 2 nationalised banks

The Spanish government is studying all options for the sale of nationalised banks Catalunya Banc and NCG Banco, Economy Minister Luis de Guindos told COPE radio on Monday.

The government will seek to ensure the sales secure the greatest benefits to taxpayers. "There is no need to rush," said de Guindos.

GLOBAL MARKETS-Dollar gains, shares fall on Fed, China worries

The U.S. central bank's plans to scale back its stimulus and fears Chinese policy may be tightening sent the dollar sharply higher on Monday, while world shares extended last week's dismal performance.

 

The sell-off in stocks, bonds and commodities since the Federal Reserve signalled an end to the era of cheap money that has fuelled record rises in asset prices is seen having further to run.

"The prospect for a disorderly transition is there," said Josh Raymond, market strategist for City Index.

Fears of further market turmoil have been exacerbated by worries over China's growth outlook and the health of its banks after the country's central bank said liquidity in its financial system is "reasonable", despite high short term rates.

Amid the selling, yields on 10-year U.S. Treasury notes , a benchmark for global rates, hit a two-year high of 2.57 percent on Monday, supporting the dollar which added 0.4 percent against a basket major currencies to 82.66

In share markets, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.8 percent to its lowest since early September. However, a bumper takeover in the telecoms sector helped European shares, with the FTSE Eurofirst 300 index of top shares down just 0.2 percent.

Data from Germany's Ifo institute later which is expected to show a gradual improvement in the euro area's largest economy could also soothe some of the concerns.

Commodity markets were also weaker. Copper dropped to its weakest level in 21 months, while oil slipped below $100 a barrel.

UPDATE 2-Vodafone agrees $10 bln Kabel Deutschland deal

Vodafone has agreed to buy Germany's largest cable operator Kabel Deutschland for 7.7 billion euros ($10 billion), betting on TV and fixed-line services in its biggest deal since 2007.

 

Announcing its second major acquisition for a European fixed-line network in 12 months, Vodafone said it would pay 87 euros ($110) per share for the group to enable it to offer more competitive packages with TV, fixed-line and broadband services to its mobile customers.

The world's second-largest mobile operator, following up its acquisition of Cable & Wireless Worldwide, is however paying a rich price for the German firm and its 8.5 million homes, which it considered buying before it went public in March 2010 at 22 euros per share.

One trader who asked not to be named said the offer, Vodafone's biggest since a 2007 Indian acquisition, valued Kabel Deutschland at 12 times enterprise value against 2013 core earnings, a 35 percent premium to the sector.

However, this falls to 8.5 times when taking into consideration the synergies Vodafone expects to extract. "We believe this is a decent deal for Vodafone," the trader said.

Shares in the group had been trading at 63 euros before Vodafone's initial interest was reported in February.

The UK-based company was forced to raise its offer in the last week after John Malone's Liberty Global entered the fray, forcing it to up the stakes or face losing ground to Liberty's own cable operator Unity Media and to Deutsche Telekom .

"German consumer and business demand for fast broadband and data services continues to grow substantially, as customers increasingly access TV, fixed and mobile broadband services from multiple devices," Vodafone Chief Executive Vittorio Colao said.

"The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs."

The board of Kabel Deutschland said it expected to recommend the offer to its shareholders, although some analysts thought Liberty Global could still return with a counter offer even though it would likely face high regulatory barriers.

BIGGER CHANCE

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"The Vodafone offer has a bigger chance of succeeding over any potential offer from Liberty Global, as it will be in cash and will face no antitrust hurdles," said a shareholder, who holds both Vodafone and Kabel Deutschland.

The investor declined to be named as it is his fund's policy not to comment in public about separate stocks.

"There remains the possibility of a counter-offer from Liberty Global, however we believe Liberty's appetite may be tempered by the significant regulatory risks of such a transaction," analysts at JPMorgan said in a note.

The combination of Vodafone and Kabel Deutschland will result in a group with 11.5 billion euros of revenue in Germany, from 32.4 million mobile customers, 5 million broadband and 7.6 million TV customers.

Vodafone said it expected synergies from the deal to exceed an annual 300 million euros before integration costs, by the fourth full-year post completion.

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Vodafone also believes there is the potential for revenue synergies of 1.5 billion euros from cross-selling products and improved customer loyalty.

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Quad-play services have caught on rapidly in markets like France and Spain, where they have been pioneered by major local companies France Telecom and Telefonica.

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Germany is still some way behind and buying Kabel Deutschland could allow Vodafone to steal a march on Deutsche Telekom, the traditional fixed-line group.

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Cable operators across Europe including Liberty Global, Ziggo, Kabel Deutschland and Virgin Media have been winning customers and investors with their offer of a combined package of TV, broadband and telephony services.

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Their cable lines, designed to deliver TV to homes, have been upgraded to carry voice calls and Internet at speeds often five times faster than competing services from the telcos.

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Bundled offers have been snapped up by customers wanting to watch television on an array of devices from TVs, laptops and tablets.

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Vodafone shares were up 1.4 percent in early trading and Kabel Deutschland was up 1.8 percent at 86 euros.

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UPDATE 3-Erste to issue shares to repay state aid, cuts outlook

Erste Group Bank will raise about 660 million euros ($867 million) in equity and repay state aid in the third quarter, it said on Monday, forecasting operating profit would fall as much as 5 percent in 2013 rather than holding steady.

 

Central and eastern Europe's No. 3 lender said it would repay 1.76 billion euros in non-voting participation capital it got when the financial crisis began. Two-thirds came from Austria and the rest from private investors.

Erste had said in April that not diluting shareholders with a rights issue was a high priority for the bank.

The stock fell as much as 7.1 percent to 20.40 euros by 0730 GMT. The Stoxx European banking sector index was flat.

Analyst Dirk Becker at Kepler Cheuvreux said it was disappointing that Erste gone back on its promise not to issue shares, but that Austrian regulators wanted the bank to replace at least a third of the capital being repaid.

"The short-term performance of the stock could now be negative because of the upcoming rights issue but we believe the long-term story remains attractive," he said in a research note, keeping his "hold" rating for the time being.

Erste said it expected a slight improvement in economic performance for the region in the second half, even though growth rates would remain moderate.

"Erste Group expects the operating result to decline by up to 5 percent in 2013, due to expected lower operating income only being partially off-set by lower operating cost," it said.

Its risk costs were set to fall about 10-15 percent in 2013, mainly due to improvement in Romania, where it reiterated it expected to make a profit this year.

Erste said repaying the increasingly expensive capital would save 149 million euros after tax in 2014 and 158 million in 2015, rising in subsequent years, and was expected to help improve earnings per share from 2014.

It said it planned the capital increase via a rights issue "subject to market conditions and the approval by its management and supervisory boards".

"The planned capital increase ... will further strengthen Erste Group's capital base so that Erste Group expects to meet its targeted 10 percent fully loaded Basel 3 common equity Tier-1 ratio by December 31, 2014," it said.

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ING analysts questioned whether Erste's move could prompt Austrian peer Raiffeisen Bank International under its new management to "make a copycat move to tap equity markets and repay its chunk of participation capital".

Erste has been trading at nearly 10 times 12-month forward earnings, a premium to Raiffeisen on nearly 8 times, said StarMine, which ranks analyst estimates by forecasting accuracy. Raiffeisen declined to comment except to reiterate that a capital increase was an option depending on market conditions.

J.P. Morgan Securities, Morgan Stanley Bank and Erste itself will run the Erste capital increase.

Adjusted for proceeds from the capital hike, Erste's core Tier 1 ratio under capital adequacy rule Basel 2.5, excluding participation capital and retained earnings in the first quarter, would have been 10.2 percent instead of 9.6 percent.

It estimated the switch to Basel III standards would have a negative impact of 30 basis points.

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It is also switching its method of calculating risk-weighted assets in Romania in 2015, which it said would have a negative impact of about 40 basis points on capital ratios.

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Founders set for reduced $4.7 billion buyout bid for ENRC

The billionaire founders of ENRC ( id="symbol_ENRC.L_0">ENRC.L) are close to finalizing a buyout bid for the London-listed Kazakh miner, valuing the troubled group at just over 3 billion pounds ($4.7 billion), below the value of a tentative proposal made in May.

ENRC's co-founders - Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev - and Kazakhstan's government are seeking to acquire the roughly 46 percent of ENRC which they do not already control, offering cash plus the government's shareholding in Kazakh mining rival Kazakhmys ( id="symbol_KAZ.L_1">KAZ.L), also listed in London.

 

The founders want to take the group private after more than five years of bitter boardroom battles, corruption probes and an acquisition spree that left $5 billion of debt.

In a statement on Sunday, a day ahead of the deadline for making a firm offer, the bidding consortium said it was "in the advanced stages" of preparing an offer worth $2.65 in cash and 0.23 shares in rival Kazakhmys ( id="symbol_KAZ.L_2">KAZ.L) for every ENRC share.

The offer is virtually unchanged in structure from an indicative proposal first made in May, but due to a drop in the Kazakhmys share price it is ultimately worth less for each ENRC share. At Friday's closing price and exchange rate, the offer values each ENRC share at 234.3 pence, down from the 253 pence value of May's offer, using Kazakhmys share values at the time.

ENRC's share price closed trading on Friday at 216.9 pence.

A bid at current levels will prove difficult for both ENRC's independent board members, who face the prospect of bidders who already hold more than 50 percent of the shares, and for Kazakhmys, whose shares are being used as currency by the government, but which is also ENRC's top shareholder.

Kazakhmys has a 26 percent stake in ENRC - a hangover from a failed takeover attempt before the miner listed.

As reported by Reuters on Friday, Kazakhmys's approval of the proposal has been set as a pre-condition. That means that though Kazakhmys's final backing will need to be sanctioned by its shareholders, an indication of conditional support no later than Monday will be key to whether or not an offer is made.

Kazakhmys, which has long sought to resolve the problem of having a large stake in ENRC, said last month it could back an offer. Sources familiar with the matter said then that it supported the structure of a cash-and-share proposal, which would give it around $890 million of cash for Kazakhmys as well as 77 million of its own shares.

It would also lift Kazakhmys's free float of readily tradeable shares, while removing the government as a key shareholder.

Kazakhmys declined to comment on Sunday.

No one representing the committee of independent board members of ENRC was immediately available for comment.

(Editing by Greg Mahlich)

UK's Nationwide draws up plan to plug 1 billion capital hole-report

Nationwide ( id="symbol_POB_p.L_0">POB_p.L), Britain's biggest customer-owned financial services group, is drawing up plans to raise at least 1 billion pounds ($1.5 billion) to fill a hole in its balance sheet, the Sunday Times said.

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Nationwide must raise additional capital of 400 million pounds in order to meet a new target for banks to hold core Tier One capital equivalent to 7 percent of their risk-weighted assets, Britain's financial regulator said last week.

 

In addition, Nationwide must raise extra capital to meet another new requirement by the Bank of England for banks to have a leverage ratio of at least 3 percent. Its leverage ratio currently stands at 2 percent.

The leverage ratio measures capital against total loans, not adjusted for their supposed riskiness, and some bankers argue it penalizes low-risk, high volume businesses like mortgage lending. Nationwide is Britain's third-biggest home loans provider.

Chief Executive Graham Beale has said the leverage ratio is "crude" and "an unsophisticated measure which ignores the quality of an organization's assets".

A Nationwide spokesman said the Sunday Times report was "speculative".

"We are completely confident of meeting the 3 percent ratio target in good time for its introduction as a regulatory measure. We have a wide range of options which we will build into any plans which we devise," he said.

Nationwide said in May that it planned to raise up to 500 million pounds through an issue of so-called core capital deferred shares (CCDS). The Sunday Times said it could issue a 500 million-pound bond within weeks followed by a second bond to raise between 500 million and 1 billion pounds, which could follow later in the summer.

The robustness of customer-owned financial services businesses has been under scrutiny since the Co-operative Bank was forced to agree a 1.5 billion pound rescue plan requiring its bondholders to take losses.

(Reporting by Matt Scuffham; Editing by Greg Mahlich)

UK's Lloyds to ask for two-year extension on branches sale-report

Lloyds Banking Group ( id="symbol_LLOY.L_0">LLOY.L) has asked the European competition authorities to give it an extra two years to sell the hundreds of branches it is required to dispose of as a condition for its state bail-out, the Sunday Telegraph newspaper said.

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The bank, which is 39 percent-owned by the government, began talks with the European Commission earlier this month. It currently has a deadline of November 30 to sell 631 branches. A sale to the Co-operative Bank ( id="symbol_CPBB_p.LCPBB_p.L) fell through in April amid concerns over the mutual's financial position.

 
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The Sunday Telegraph said Lloyds had asked the commission to give it until the end of 2015 to complete the sale. Lloyds is now planning to sell the branches as a separate business via a share listing on the London Stock Exchange.

Lloyds plans to sell a first tranche of the shares in the business next year, industry sources have told Reuters.

Lloyds declined to comment.

(Reporting by Matt Scuffham; Editing by Greg Mahlich)

ECB's Asmussen calls for stronger European institutions

European Central Bank policymaker Joerg Asmussen said on Sunday that closer integration within Europe called for European Union institutions - in particular its parliament - to be strengthened to ensure democratic control and accountability.

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"The increasing level of integration within Europe calls for a new institutional design to ensure legitimization, accountability and democratic control," the German ECB Executive Board member said at an event organized by the Kiel institute for the World Economy.

 

Asmussen said governments should ensure national parliaments were appropriately informed and involved in European decision procedures. But often, decisions with the European Union's common interest could only be made at a supranational level.

"Therefore European institutions should be strengthened, in particular the European Parliament which could maybe also convene in a euro area format," he said.

Germany's weekly Der Spiegel wrote on Sunday that German Chancellor Angela Merkel was sounding increasingly skeptical about more power being accrued in Brussels.

In an article entitled "The Turnaround", Der Spiegel wrote that, at a summit of the European People's Party in Vienna this week, Merkel gave the impression that she felt there was already too much Europe. In the past, she has said that there is a need for "more Europe, not less".

Der Spiegel wrote that while Merkel's Finance Minister Wolfgang Schaeuble would like to see the head of the European Commission directly elected, Merkel was not so sure.

"I am hesitant about this," she was quoted as saying. The magazine said Merkel felt it would be good for balance within the institutions for state and government heads to also be involved in this decision.

Asmussen said in his speech on Sunday that Europe needed to "complete with great urgency the banking union".

According to a copy of his speech, Asmussen said Europe needed to make a strong commitment towards a single resolution mechanism, to enable a smooth winding down of banks, especially those with large cross-border activities.

Banking union would also need to entail a strong Single Resolution Authority as well as a Single Resolution Fund.

(Reporting by Sarah Marsh; Editing by Robin Pomeroy)

Yogurt: the new Pepsi challenge

PepsiCo Inc ( id="symbol_PEP.N_0">PEP.N) - best known for Pepsi-Cola and Frito-Lay chips - is taking its Muller yogurt brand nationwide expanding its portfolio of healthier foods at a time that U.S. consumers are increasingly shunning traditional soft drinks.

Yogurt is one of the fastest selling categories in grocery stores, and PepsiCo sees plenty of room for growth even though it has come late to the party.

 

"Dairy has become everybody's favorite avenue when it comes to escaping the miseries of obesity," said Bevmark Consulting CEO Tom Pirko. "Everybody's trying to figure out a health angle."

To boost its chances of success, PepsiCo has partnered with Germany's Theo Muller Group, a stalwart of the European dairy industry, repeating a strategy that has already made the snack-and-soda company a leading U.S. purveyor of hummus and other healthy dips.

Earlier this month, the Muller Quaker Dairy joint venture opened a yogurt plant in upstate New York. By combining Muller's expertise with its own marketing and distribution muscle, PepsiCo aims to build a loyal U.S. following.

But that won't be easy even with PepsiCo's size, Muller's reputation and growing demand for nutritious food, said industry experts. Consumers are demanding, and pricing is hyper-competitive.

Traditional yogurts from General Mills Inc's ( id="symbol_GIS.N_1">GIS.N) Yoplait and Danone's ( id="symbol_DANO.PA_2">DANO.PA) Dannon often use eye-popping discounts. Even Chobani, the darling of the Greek yogurt craze, has been running promotions more often. The competition was so fierce that Kraft Foods ( id="symbol_KRFT.O_3">KRFT.O) pulled its Athenos line of Greek yogurt in 2012, only two years after its launch.

PepsiCo is expected to fare better, said Wells Fargo analyst Bonnie Herzog, but a lot will ride on how much PepsiCo opens the company pocketbook.

"Quite frankly it's going to depend on how much marketing they put behind this big roll-out," Herzog said.

But PepsiCo Chief Executive Indra Nooyi says the company need not go overboard in its spending to make the brand a success. The company's investment in the 50/50 joint venture will not "break the bank" and the yogurt is innovative enough to sell at a premium price, she said. There are no plans to fund aggressive promotions to spur sales temporarily.

"Fortunately or unfortunately, money alone does not do it," Nooyi told Reuters after a tour of the new yogurt factory in Batavia, New York.

BIG AND GROWING

The U.S. market for yogurt is worth $7 billion, according to Euromonitor International, having grown at an average rate of 8.5 percent during the last five years.

Americans still eat far less yogurt than Europeans, so there is room for growth. Yet Euromonitor, a sales tracking firm, forecasts a slower 5.9 percent average rate of growth for the next five years - still double the expected growth of packaged food overall.

Even though Greek-style yogurt now makes up more than 40 percent of the market, the top-selling brand remains Yoplait, which has a nearly 24 percent share, according to Euromonitor. It says Chobani is second, though France's Danone has a greater overall share between its Dannon, Activia, Stonyfield Farm and Danimals brands, which together account for 30 percent of the market.

With the average supermarket stocking up to 200 different yogurt products, Dannon spokesman Michael Neuwirth said the dairy company wants to offer a range of types that can be eaten as meals, snacks and desserts. He declined to comment specifically on Muller. General Mills and Chobani also had no comment.

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Dannon and Yoplait have been working hard to satisfy America's newfound love of Greek yogurt. There is Yoplait Greek, Dannon Oikos Greek and Greek-style versions of Activia and Light & Fit. Dannon is also rolling out savory Oikos Greek yogurt dips in flavors like French onion and cucumber dill.

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Their non-Greek offerings often compete on price, with recent supermarket promotions touting 20 Yoplait cups or six Dannon Light & Fit 4-packs for $10 each. The more premium brands Chobani, Muller and Fage, are sometimes sold at $10 for 10 on promotion, while data released in May showed that the amount of Chobani yogurt sold on promotion was nearly twice as much as a year earlier, according to Bernstein Research.

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Such intense competition doesn't deter Nooyi, who sees moving into healthier products as a necessary way to stay up front as consumer preferences change and junk food falls out of favor.

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In 2012, PepsiCo derived 51 percent of its $65.49 billion in revenue from foods such as Tostitos and Doritos and 49 percent from drinks such as Gatorade and Mountain Dew.

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Roughly 20 percent, or $13 billion, came from products that are healthier than the traditional sodas and chips, such as Tropicana juice, Quaker Oatmeal and Aquafina water. It plans for that portion to climb to $30 billion, or 30 percent, by 2020.

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For yogurt, PepsiCo is using the same strategy it used for Sabra hummus, when it teamed up with Israel's Strauss Group ( id="symbol_STRS.TA_4">STRS.TA). Sabra has become a leading brand in just a few years.

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The key is "doing it in a differentiated way and doing it with a partner who has skin in the game," said Nooyi, who grew up in India eating home-made yogurt daily. "That's really what we're focused on."

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PepsiCo would not give sales forecasts or say how much it was spending, but the two companies spent $206 million on the factory in Batavia. Until its opening earlier this month, the yogurt had been produced in Europe and available only in limited U.S. markets. It is now going nationwide.

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So far, Muller yogurt is meeting or beating internal milestones, and gaining space on shelves across the country, PepsiCo said.

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But if the venture cannot stir up adequate profits in the future, Nooyi said PepsiCo always has an out.

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"If we believe this thing cannot make good profit for us downstream, we will tell the partner to take it over," she said.

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(Reporting by Martinne Geller in New York; Editing by Jilian Mincer and Leslie Gevirtz)

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Virgin Mobile wins one of three Saudi virtual telecom licenses

Virgin Mobile Middle East & Africa (VMMEA) is one of three companies to win a virtual telecom license in Saudi Arabia, the industry regulator said on Sunday, in the latest step to liberalize the kingdom's communications sector.

Five companies had bid for the Saudi mobile virtual network operator (MVNO) licenses. MVNOs not own the networks they use to provide communications services but instead lease capacity from conventional operators, usually paying them a percentage of their revenue as well as fees.

 

VMMEA, part-owned by British entrepreneur Richard Branson's Virgin Group, will launch an MVNO on former monopoly Saudi Telecom Co's 7010.SE network, the Communication and Information Technology Commission (CITC) said in statement on its website.

Jawraa Lebara has joined with second-biggest operator Etihad Etisalat 7020.SE (Mobily), while Dubai-based retailer Axiom Telecom will team up with Zain Saudi 7030.SE.

Local companies FastNet and Safari were the losing bidders.

"The aim of these licenses is to improve the level of telecommunications services and information technology ... and to contribute to lower their prices, improve customer care, increase job opportunities for citizens and to stimulate competition," CITC said in the statement.

Saudi will become the second of the six Gulf Cooperation Council members after Oman to allow MVNOs.

Such virtual networks are widespread in Europe and other developed markets, but Gulf regulators have been reluctant to open their markets to more competition because most of the region's 15 mobile operators are ultimately government-controlled and are often a key source of state revenue.

The CITC did not state when the MVNOs would launch services, only that the winners now had 90 days to provide the necessary documents to move to the next phase of obtaining their licenses.

VMMEA has MVNOs in Jordan, South Africa and Oman. London-based Lebara Group has operations in the UK, Germany, France, Denmark, The Netherlands, Spain, Switzerland and Australia, according to its website.

(Reporting by Matt Smith; Editing by Greg Mahlich)

Frenkel to return as Israel's central bank chief

Jacob Frenkel, an inflation hawk who was Bank of Israel governor in the 1990s, will be returning to the helm of the central bank, Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid said on Sunday.

They appointed Frenkel to replace Stanley Fischer, who is stepping down at the end of June after eight years on the job, having guided Israel's economy through the global financial crisis.

Frenkel, 70, beat deputy governor Karnit Flug, who will likely be acting central bank chief until Frenkel starts. The date of his arrival was not announced.

"He is a world renowned figure, which is what Netanyahu was looking for," said HSBC economist Jonathan Katz.

As governor between 1991 and 2000, Frenkel was credited with reducing inflation, liberalising financial markets and removing foreign exchange controls.

 

He is currently chairman of JPMorgan Chase International ( id="symbol_JPM.N_0">JPM.N) and also served as vice chairman of insurer American International Group ( id="symbol_AIG.N_1">AIG.N) as well as chairman of Merrill Lynch International. Frenkel also is the head of the Group of Thirty, a private consulting group on international and financial issues.

"We are certainly talking about a governor who will act as the responsible adult, who will fill the position of Fischer with quality and authority," said Joseph Fraiman, chief executive at Prico Risk Management and Investments.

"No less important, Frenkel will benefit from the international credit that is greatly needed for the Israeli economy, especially in the current period," he added.

Frenkel, whose appointment needs cabinet approval, will face several challenges including continuing Fischer's insistence that the government stick to responsible policies and working to halt fast-rising home prices.

Israel's economy grew 3.2 percent in 2012, but is expected to slow to a 2.8 percent this year excluding the start of natural gas production.

Inflation, which ranged between 1.3 and 18 percent in the 1990s, was at an annual rate of 0.9 percent in May. At the same time, the shekel is strong.

To encourage economic growth and keep exports competitive, the Bank of Israel reduced its benchmark interest rate twice in May, to 1.25 percent. The central bank next decides on Monday and analysts largely believe the key rate will stay unchanged.

When Frenkel was last in the job, the governor alone made interest rate decisions. Now, there is a six-member monetary policy committee with the bank chief as chairman.

"Frenkel will need to work harmoniously with the monetary council he inherited from Fischer," said Yaniv Pagot, chief strategist at the Ayalon Group. "This is not a simple challenge that could, in a certain situation, bring the first cracks."

He said that, with Israel's foreign exchange reserves nearing $80 billion, it would be interesting to see whether Frenkel would continue intervening in the foreign exchange market and buy dollars to defend Israel's exports if the shekel continues to appreciate.

(Additional reporting by Tova Cohen and Allyn Fisher-Ilan; Editing by Robin Pomeroy)

Kuwait sheikh sues UBS for $21.4 million in Dubai court

A Kuwaiti sheikh is suing UBS AG ( id="symbol_UBSN.VX_0">UBSN.VX) for $21.4 million, alleging the Swiss bank failed to pay him for helping it become lead arranger on a $9 billion asset sale by the Kuwaiti telecommunications operator Zain, a Dubai court heard on Sunday.

The case highlights the complexity of doing business in the Gulf, where personal connections to high-ranking officials or executives are often valued in deal-making.

 

Sheikh Meshal Jarah al-Sabah, a member of Kuwait's ruling family, says UBS recruited him with a verbal contract in July 2009 to help scupper the French media conglomerate Vivendi's ( id="symbol_VIV.PA_1">VIV.PA) bid to acquire Zain's ( id="symbol_ZAIN.KW_2">ZAIN.KW) operations in about 15 African countries. UBS denies the allegation.

Vivendi called off the talks later that month. India's Bharti Airtel ( id="symbol_BRTI.NS_3">BRTI.NS) subsequently bought Zain's African assets for $9 billion in 2010; UBS advised Zain on the deal.

Sheikh Meshal says he met with two UBS executives at Dubai's opulent Atlantis hotel and agreed to urge Zain's shareholders and management to open a tender to other bidders for the operator's African units, according to documents submitted to the court.

He says he also committed to help UBS become the lead bank for the sale, in return for a fee of 0.1-0.2 percent of the total deal value, payable on completion of the transaction.

UBS accepts that the Atlantis meeting did happen, but says it was merely a "meet and greet" as a courtesy to the sheikh, documents submitted to the court show.

The bank, represented in court by Britain's former lord chancellor, Charles Falconer, says it did not require Sheikh Meshal's assistance because it had been advising Zain on the sale of its African assets before the meeting, and had worked with the Kuwaiti operator on previous deals.

UBS also says it did not ask Sheikh Meshal to provide any services, so he is not entitled to any fee from the bank.

The trial is due to last for five days, with a verdict expected late this summer.

(Editing by Andrew Torchia and Kevin Liffey)

Ambani bets on 4G broadband in India, but risks abound

Indian tycoon Mukesh Ambani hopes his multi-billion dollar bet on cheap high-speed wireless broadband could change the way nearly a billion of his countrymen use mobile devices from the way they do banking to watching cricket.

In a country where most people own a mobile phone yet lack basic Internet access, it is a risky gamble even for India's richest man. He is counting on an unproven strategy and still-developing technology in a market with very little pricing power.

Three years ago energy conglomerate Reliance Industries Ltd (RIL) ( id="symbol_RELI.NS_0">RELI.NS) won an exclusive nationwide licence to roll out 4G across India, giving it a foothold to tap a potentially lucrative market in phones, tablets, computers and television.

The data-focused service could start to roll-out in New Delhi and Mumbai by the end of the year, sources familiar with the matter, who asked not be named, told Reuters. Eventually, the plan is to run it across hundreds of cities. Ambani has refused to divulge any specifics on the launch.

In what is one of the world's poorest countries, Ambani's 4G mantra is affordability. This has fuelled industry worries of a price war in a still-crowded telecoms sector that has recently started seeing stability after years of cut-throat competition and regulatory uncertainty.

 

Ambani's strategy is cut-price handsets and data, even if it means he has to subsidise the devices from his own cash pile. Fortunately, he has very deep pockets. Reliance's cash hoard of $15 billion stands in contrast to rival telecoms carriers who are estimated to have a combined debt load of $32 billion.

"Broadband and digital services will no longer be a luxury item - a scarce commodity - to be rationed amongst the privileged few," Ambani, the world's 22nd richest person according to Forbes magazine, told shareholders this month.

Ambani hopes to offer 4G devices costing less than 5,000 rupees ($90) and in talks with Samsung Electronics Co ( id="symbol_005930.KS_1">005930.KS) and others for sourcing handsets and other devices, one of the sources said.

A spokeswoman at Samsung's local unit declined to comment.

While it appears to be a risky bet, the payoff for a successful venture is first-mover advantage in mobile data communications, which has transformed media, marketing and business strategies from Europe and the United States to China.

In a sign that its rollout is gaining pace, Ambani's Reliance Jio Infocomm unit this month signed a $2 billion telecom tower sharing deal with mobile carrier Reliance Communications, which is owned by his younger brother Anil. That followed an agreement with rival Bharti Airtel ( id="symbol_BRTI.NS_2">BRTI.NS) for leasing international bandwidth, and two other pacts.

India's cellular market is the world's second largest by users after China, with users surging from just over 5 million in 2002 to nearly 870 million now. However, less than 5 percent of mobile phone owners use their device for high speed 3G data.

The uptake for 3G has been slower than expected since its launch in 2011 after costly airwave auctions, mainly due to the premium pricing of data services in a country where voice rates are less than 1 U.S. cent a minute, among the lowest anywhere.

Cheap data rates could help grow usage of 4G, which offers several times faster download speeds, but would force Ambani to play an expensive mass volume game - a bruising strategy that has battered margins for India's incumbent mobile carriers.

Over the next five years as infrastructure is built, analysts predict India's rapidly growing middle class will buy between 30-80 million 4G connections.

Some investors, however, are worried Reliance may be taking too much of a gamble in its bid to diversify away from its oil and gas-related business which produces the bulk of its $70 billion in revenues.

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They are also growing impatient over an outlay that has cost nearly $5 billion and counting, with no returns expected anytime soon.

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CHALLENGES AHEAD

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Serious technology challenges await Reliance.

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The company is using a version of 4G that is still evolving, and there are few compatible network devices and handsets now available. Bharti, which has 4G permits for some service areas, launched its first network more than a year ago, but is yet to start selling a handset that works on the technology.

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The 2300 megahertz spectrum band India has allotted for 4G is less efficient than the 700 megahertz band widely used in the West. Apple Inc's ( id="symbol_AAPL.O_3">AAPL.O) iPhone and iPad and Samsung's popular Galaxy S4 are not tuned for RIL's spectrum.

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The 700 band is currently allocated for state TV broadcasting services and security agencies, but the sector watchdog has recommended that the band be auctioned in 2014. Both bands need the same core infrastructure, making the switch from one to the other possible.

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Ambani's telecoms ambitions have a familiar ring - a decade ago a phone company run by him sharply cut call prices and sold handsets for an initial payment of just $10. It transformed an industry that came to symbolize India's rampant economic growth.

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His re-entry raises the possibility of another price war in a sector where carriers including Bharti and Vodafone ( id="symbol_VOD.L_4">VOD.L) have only recently started seeing price stability.

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"It's a very competitive market, and Reliance looks to be very serious and aggressive," said Walter Rossini, a Milan-based fund manager at Aletti Gestielle SGR, which counts Reliance and Bharti among its Indian holdings.

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But many question Reliance's dependence on a data-focused network in a market where voice generates nearly 85 percent of carrier revenues.

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"Though we think RIL's entry into the telecom space cannot be ignored, we believe that for RIL to pose any credible threat to incumbents, a strong comprehensive voice business is an imperative," Macquarie analysts wrote in a note on June 7.

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Reliance received a boost when India recently allowed 4G carriers to offer voice services by paying an extra fee. It is yet to decide whether to offer voice on its 4G airwaves using new technology or by tying up with an established voice carrier, a company source said.

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Reliance did not reply to emailed questions seeking comments on its 4G plans.

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While acknowledging scepticism towards his 4G venture, Ambani said at the shareholders meeting this month he was in the "optimistic minority" who held a bullish view of the sector.

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Executives at rival carriers play down the Reliance threat.

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"For them it is everything starting from scratch and we have a very serious headstart in this business," said an official at a large rival telecoms carrier, declining to be named.

(Additional reporting by Lee Chyen Yee in Hong Kong; Editing by Tony Munroe and Jeremy Laurence)

Geeks oust miners among Australia's new rich as boom fades

In a country synonymous with larger-than-life mining tycoons and Outback heroes, the geeks are quietly inheriting the earth.

As coal magnate Nathan Tinkler, the poster boy for Australia's fading 10-year minerals boom, publicly battles against bankruptcy, software entrepreneurs Mike Cannon-Brookes and Scott Farquhar are riding high.

 

The former college buddies behind fast-growing software firm Atlassian unceremoniously bumped Tinkler off the top of Australia's "young rich list", leading a charge in the country's blooming technology industries.

The tech start-up and biotech sectors are at the forefront of a push to transform Australia from an exporter of iron ore to an exporter of ideas.

"It's a pretty primitive economy," said internet entrepreneur Matt Barrie. "We basically dig stuff up out of the ground, put it on a boat and ship it."

As part of ambitious plans to change that, the government has announced millions of dollars in new venture capital funding and large-scale reviews of the technology sector. A A$38 billion ($36.2 billion) National Broadband Network (NBN) will bring high-speed internet to almost all the 23 million population.

"As the rollout of the NBN continues, the capacity for start-up companies, particularly in the tech and digital sectors, to create game-changing businesses and applications is unprecedented," said Communications Minister Stephen Conroy.

START-UP SUCCESS

Online and high-tech start-ups account for just 0.1 percent of GDP and 9,500 jobs, but the sector is growing rapidly. A recent report by PricewaterhouseCoopers (PWC) suggests it could account for 4 percent of GDP and 540,000 jobs by 2033.

That puts Australia well behind Silicon Valley in California, the epicentre of start-ups, but growing activity in Sydney and Melbourne are putting those cities on the edge of the world top 10 that currently includes London, Tel Aviv and Singapore alongside U.S. cities San Francisco, Seattle, Boulder and Austin.

All eyes are currently on Cannon-Brookes and Farquhar, amid expectations they will list Atlassian on Nasdaq within the next year, a plan first flagged in 2010 when U.S. venture capital firm Accel Partners saw its potential and invested $60 million.

Founded by the pair straight out of university 10 years ago using a A$10,000 credit card debt, Atlassian is now a world leader in collaboration and bug tracking software, pulling in revenue of A$103 million in 2011 without a single salesperson.

Its products are used by 25,000 companies in 135 countries, including McDonalds Inc, Coca-Cola Enterprises Inc, eBay Inc, Boeing Co and the U.S. space agency NASA.

Cannon-Brookes said the company had an annual compound growth rate of 30-35 percent, but declined to give a timeframe for listing.

"It's a logical next step for us to take," Cannon-Brookes said.

He said the company planned to add another 100 employees in the next quarter to its current staff of 700, based mainly in Sydney, San Francisco and Amsterdam.

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YOUNG, RICH AND AUSSIE

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The success of Atlassian propelled Farquhar and Cannon-Brookes to the top of the Business Review Weekly Young Rich List, ousting Tinkler, the former youngest billionaire in the country, whose rags-to-riches-and-back tale took another twist this month with the sale of his stake in Whitehaven Coal Ltd.

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Farquhar, and Cannon-Brookes are worth A$480 million combined, on 2012 figures, ahead of Tinkler's A$400 million fortune.

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The gap has widened further since then, with Atlassian growing and Tinkler dropping off the magazine's more recently calculated main Rich List of the country's wealthiest 200 people.

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On current form, he will also disappear from the 2013 Young Rich List, which ranks the 100 wealthiest people under the age of 41, when it is published later this year.

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While the main Rich List is still dominated by entrenched mining tycoons such as Gina Rinehart and Fortescue Metal Group's Andrew Forrest, the young list is notable for containing 24 people who made their fortunes in technology.

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Close behind the Atlassian duo at No.4 was PC Tools founder Simon Clausen. No.8 was Ruslan Kogan, a serial entrepreneur specialising in online retail sites. At No.10 were Mitchell Harper and Eddie Machaalani, who built software-as-a-service platform Bigcommerce. Matt Barrie was at No.50 thanks to his rapidly growing recruitment site freelancer.com.

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BIOTECH GROWTH

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And it's not just the tech geeks rising through the rich ranks. Their contemporaries in the biotech sector are also poised for financial windfalls.

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As the Australian population ages and Asian countries grow increasingly affluent, there is potential for significant growth in the sector, which currently has 95 listed companies valued at A$49 billion, according to research group Bioshares.

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Silviu Itescu, a doctor, scientist and chief executive of stem cell research firm Mesoblast Ltd, features on the main Rich List with a A$400 million fortune, as his company reportedly considers a second listing on Nasdaq.

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Among the minnows tipped to be the next super-earners are neurodegenerative disorder specialist Cogstate Ltd, disinfection and sterilisation expert Nanosonics Ltd, IVF diagnostic test developer Universal Biosensors Inc, sleep disorder appliance maker SomnoMed Ltd.

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"These are all companies that we are expecting to reach profitability in the next 12 to 18 months," said Mark Pachacz, research principle at Bioshares.

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ROADBLOCKS

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But industry experts warn the grand plans to use tech start-ups and biotech to help transform the economy could be stymied by a lack of funding for new ventures in both sectors, a brain drain overseas and a dearth of local science graduates.

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Venture capital firms have been burned by some spectacular failures in recent years, such as regulatory hurdles that hit key products from drug maker Pharmaxis Ltd, while low government grants have been criticised by industry.

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The government moved to address that last week by announcing a review of employee share scheme regulations, which companies such as Atlassian have argued have forced talented staff in new businesses overseas.

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A group of industry leaders, including the Atlassian duo, recently formed Blackbird Ventures to invest A$20 million in Australian start-ups that have the potential to be global success stories.

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Blackbird Managing Director Niki Scevak said it would address a funding gap between a raft of accelerator funds ploughing seed money of up to A$1 million into the market and "series A" funding of more than A$10 million for more established companies from U.S. funds like Accel.

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Blackbird has so far invested in online design platform Canva and Ninja Blocks, a software developer bringing the remote controlled home to the masses by connecting home devices to web and mobile apps.

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"It's a national imperative that we've got to build up the technology industry in this country," said freelancer.com's Barrie. "I can't think of another industry could help us go into next 20, 30 years." ($1 = 1.0486 Australian dollars)

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(Editing by Alex Richardson)

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Britain's Osborne reaches deal on spending cuts

British finance minister George Osborne completed talks on Sunday with government departments aimed at securing spending cuts worth 11.5 billion pounds ($17.70 billion)in 2015-16 to help reduce the country's budget deficit, the Treasury said.

The finance ministry said it had reached agreement with all departments, three days before Osborne is due to publish details of their spending limits on June 26.

 

The talks to find spending cuts starting in 2015 - when voters go to the polls - posed a political headache for Osborne, particularly over the sensitive defense budget and a business department under pressure to do more to revive the economy.

Osborne, who announced the end of the talks on Twitter, will now seek to persuade voters that he has a credible plan to build on recent signs that the economy is gaining strength after two years of stagnation.

He is expected to give more details on Wednesday of billions of pounds of infrastructure spending designed to bolster the recovery.

"We have completed the spending round savings early and without all the arguments you normally get," a Treasury spokesman said. "This shows our determination to take the tough decisions needed to deliver our economic plan and to turn Britain around."

Osborne said earlier that the budget deficit was still too high and he was committed to trying to reduce borrowing and cutting the deficit.

"We are out of intensive care and our job now is to secure the recovery," Osborne told BBC television. "There certainly is a chance of a relapse if we abandon our economic plan."

Britain's Conservative-led coalition government is sticking with its central economic policy of reducing a deficit that peaked at more than 11 percent of gross domestic product before it came to power in May 2010.

Despite tax rises and spending cuts, public borrowing has remained stubbornly high over the past year, and data on Friday showed public net debt climbed to record levels in May.

DEFENCE DEAL

A deal was reached with the defense department on Saturday, Osborne said, ending what analysts saw as one of the most difficult sets of negotiations.

General Peter Wall, the head of the army, said last week that more cuts would seriously damage the country's chances of success in future wars.

Osborne said the defense deal would see cuts to civilian staff numbers, while protecting Britain's military capability.

Agreement was only reached on Sunday with the business department, run by Vince Cable, a senior member of the Liberal Democrats, the government's junior coalition partner.

Labour, which leads the Conservatives by around 10 points in the polls with the next election due to be held in 2015, accuses the coalition of choking the recovery with its austerity drive.

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Labour finance spokesman Ed Balls said he would adopt Osborne's day-to-day spending limits for 2015-16 if his party wins the election. However, he wanted the coalition to spend 10 billion pounds more on capital projects.

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Balls said he would be prepared to borrow more to finance extra capital expenditure, an admission junior Conservative finance minister Sajid Javid held up as evidence that Labour couldn't be trusted to balance the books.

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"If George Osborne had done that last year or the year before, we wouldn't have had such a flatlining economy," Balls said.

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($1=0.6498 British pounds)

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(Additional reporting by William Schomberg; Editing by Greg Mahlich and Eric Walsh)

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North Korea anxiety sparks South Korean global property binge

A jump in tensions with North Korea has fed a tenfold surge in overseas commercial property spending by investors south of one of the world's most heavily armed borders, making South Korea the largest property investor so far in 2013.

South Korean investors bought about $5 billion in the first five months, a huge increase on the first half of 2012, real estate consultant Jones Lang LaSalle ( id="symbol_JLL.N_0">JLL.N) said.

 

"This allocation to commercial property over such a short period of time is unprecedented for the South Koreans," JLL said. "Tensions with the North Koreans have certainly aided the capital flight."

Its global buying spree, which puts it ahead of Canada and Singapore, is due to reach $10 billion this year, JLL said.

Tensions on the peninsula reached their peak in February when North Korea threatened nuclear and missile strikes against South Korea and the United States after U.N.-imposed sanctions for a nuclear weapons test.

Though the fiery rhetoric has eased in recent months, tensions are still running high as North Korea resists international pressure to abandon its nuclear weapons and missile testing program.

Asian investors have parked billions of dollars in the relative safety of commercial property in cities such as London, New York and Paris since the financial crash, often unable to spend such large sums in their smaller home markets.

Investment opportunities closer to home have been sparse. The South Korean stock market .KS11 has fallen ten percent this year amid sluggish economic data in China and the United States and more recent fears the Federal Reserve will curtail its economic stimulus measures.

Aside from political tensions, a weakening South Korean won as the result of Japan devaluing the yen to kickstart economic growth has prompted South Korean investors to hold assets in foreign currencies abroad, JLL said.

The South Korean won fell as much as 1.2 percent on Friday to 1,159.4 per dollar, the weakest in almost a year.

One of South Korea's first major overseas property deals was HSBC's ( id="symbol_HSBA.L_2">HSBA.L) headquarters in London in 2009, a skyscraper the country's National Pension Service bought for $1.2 billion.

South Korean deals in 2013 include Mirae Asset Management's purchase of the 225 West Wacker Drive office tower in Chicago for $218 million and Samsung SRA Asset Management's $215 million deal to buy 30 Crown Place in London, home to law firm Pinsent Masons.

(Editing by Keiron Henderson)

Australia's Echo unveils $1 billion Sydney casino plan, includes Crown option

Australian gaming firm Echo Entertainment ( id="symbol_EGP.AX_0">EGP.AX) has submitted plans for a $1 billion expansion of its Star casino in Sydney, including an option that would allow rival Crown Ltd ( id="symbol_CWN.AXCWN.AX) to open a VIP-only casino.

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Echo, which holds the sole licence to operate a casino in Sydney until 2019, has been lobbying to extend this right in an attempt to block Crown's plans to add to its Melbourne casino.

 
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Crown, controlled by billionaire James Packer, has said it wants to open a VIP casino in Sydney as part of a A$1 billion six-star hotel and residential waterfront development, boosting its share of the lucrative Asian gambling market.

The New South Wales government has said it will approve only one project, meaning either Crown builds a second casino or Echo expands is business and remains the sole gambling operator.

Echo said in a statement it would invest more than A$1.1 billion ($1.0 billion) to build two new luxury international hotels with a global operator, expand its casino and pay the government $250 million in cash to remain the exclusive casino operator.

It included an alternative proposal under which it would still build the hotel and casino development, but which would allow Crown's Barangaroo project to go ahead on condition that it was strictly VIP-only.

Under this scenario Echo would not make the A$250 million cash payment for extending exclusivity arrangements.

"This alternative may be seen as a potential win-win scenario for the people of Sydney, with a combined infrastructure and tourism spend potentially in excess of A$2 billion," said Echo chairman John O'Neill in the statement.

A Crown spokesman said the company's most updated proposal was with the state government, but would not be made public until the government made the decision.

Crown sold a 10 percent stake in Echo in May, suggesting to market watchers that it was confident of winning approval.

Malaysian gambling giant Genting Bhd ( id="symbol_GENT.KL_2">GENT.KL) recently increased its stake in Echo to 6.6 percent.

Genting has applied to increase its stake above 10 percent. The New South Wales state's gaming authority has yet to rule on that application and has given no timeframe for a decision.

($1 = 1.0837 Australian dollars)

(Reporting By Maggie Lu Yueyang; Editing by Richard Pullin)

Banks present crisis plan to the Fed: WSJ

U.S. banks have given a proposal to federal regulators on how to pay for restructuring the country's too-big-to-fail institutions in the event of a future crisis, the Wall Street Journal reported, citing people familiar with the conversations.

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The Journal said the proposal, given to the U.S. Federal Reserve at a private meeting on May 22, is an effort by banks to pre-empt tougher rules from officials, who believe banks still could pose a threat to financial stability in a crisis.

 

According to the plan, the largest financial services holding companies would maintain a certain amount of debt and equity that would be used to prop up any failed bank subsidiary seized by regulators.

Some banks might even be forced to issue expensive long-term debt, according to the newspaper.

In the presentation, the banks said they each would agree to hold combined debt and equity equal to 14 percent of their risk-weighted assets, the Journal said.

For the six biggest U.S. banks that may have to hold an additional buffer of capital because of international guidelines, the total could be as high as 15 percent to 16.5 percent, the people told the Journal.

Currently, Wells Fargo ( id="symbol_WFC.N_0">WFC.N) has a ratio of existing debt and equity of 14 percent, JPMorgan Chase ( id="symbol_JPM.N_1">JPM.N) has 18.4 percent, while Bank of America ( id="symbol_BAC.N_2">BAC.N) and Citigroup ( id="symbol_C.N_3">C.N) have 20.2 percent and 22.1 percent each respectively, the Journal said, citing Goldman Sachs ( id="symbol_GS.N_4">GS.N) estimates.

The U.S. Federal Reserve could not immediately be reached for comment by Reuters outside of regular U.S. business hours.

Regulators have not yet responded to the bank's proposal and could reject it in favor of their own plan. However, they have favored banks issuing more debt because it can provide liquidity for a failing bank while government officials replace senior management and fix problems, the Journal said.

(Reporting by Sakthi Prasad in Bangalore; Editing by Richard Borsuk)

China central bank says overall liquidity 'reasonable'

The overall liquidity in China's financial system is at a reasonable level, the central bank said on Monday, adding that it has asked commercial banks to improve the ways they manage liquidity.

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The comments from the People's Bank of China came as interest rates for short-term funds in China spiked to extraordinary levels last week after big commercial banks held back on lending in the interbank market.

Rates remained elevated on Monday, but off recent highs.

The comments were issued in a notice dated June 17 but released on Monday.

(Reporting by Koh Gui Qing; editing by Jonathan Standing)

As Asia embraces casinos, India hedges it bets

Like many visitors to the Casino Royale Goa on a rainy Saturday night on India's western coast, Salim Budhwani said he does not gamble but also had no objection to the betting at the busy tables downstairs.

Despite socially conservative India's ambivalence about gambling, consultancy firm KPMG estimated that $60 billion was wagered in the country in 2010. Much of the gambling is illegal, but attitudes are slowly changing as more Asian countries embrace gaming as a revenue generator and tourist draw.

 

Legal gambling in the increasingly wealthy country of 1.2 billion is limited to state lotteries, horse races and a handful of casinos. Most gambling in India, from penny-stake games at street corners and card parties in affluent homes to wagers on cricket and underground numbers games, is illicit and goes untaxed.

"People are playing on the roadside everywhere. People are playing in their houses," said Budhwani, 33, a luggage retailer from the city of Hyderabad who had brought his family to Goa, a tourist destination and one of two Indian states with casinos.

"People are educated, they know what's at stake."

Gambling on cricket, India's most popular sport, draws hundreds of millions of dollars.

The country was transfixed last month by a scandal in which several players were accused of taking bribes from bookies, spurring calls for legalizing and regulating sports betting from the Federation of Indian Chambers of Commerce and Industry, a powerful business lobby, and others.

Legislation proposed after the cricket scandal is aimed at making cheating in sports a crime although it does not address regulating or legalizing betting.

"It looks like the government has at least become amenable to this discussion, which is important," said Vidushpat Singhania, a lawyer who helped draft the match-fixing legislation and favors legalizing gambling.

Despite the allure of India for global operators, Indian law forbids foreign direct investment in casinos, meaning companies like Las Vegas Sands and Wynn Resorts can only tap the market by targeting Indians going overseas.

Many wealthy Indian families hold wedding parties in Macau, the world's largest gaming destination, bringing affluent guests for the festivities and the gambling.

In recent years, major awards ceremonies for the massive Bollywood film industry have been staged in Singapore's Marina Bay Sands, Malaysia's Genting Highlands, Macau and South Africa's Sun City, all gambling venues.

Besides drawing thousands of visitors from India's well-heeled glitterati, some of the highest-stakes games around these events involve film stars and producers, insiders say.

For many Indians, gambling is considered propitious around the Diwali festival in October/November, with tens of millions of rupees won or lost during illicit night-long sessions of teen patti or flash, a three-card poker game.

"Indians are prone to gambling as much as the Chinese," said Rakesh Jhunjhunwala, a billionaire investor who with his wife holds a nearly 7 percent stake in Delta Corp, owner of the Casino Royale Goa.

FINAL FRONTIER?

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Inspired by Singapore's two thriving casino resorts, which opened only in 2010 but are among the most lucrative in the world, Asian countries from South Korea and the Philippines to Sri Lanka are developing similar gambling projects.

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Macau is adding at least six casino resorts in the next three years at a cost of $20 billion. The Philippines is building four, while Japan is mulling gaming legislation and Taiwan is in the process of allowing casinos on offshore islands.

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In Sri Lanka, Australian billionaire James Packer's Crown Ltd is close to agreement with authorities to build a $350 million casino resort, which could be a significant draw for visitors from nearby India.

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In India, gaming regulation is fragmented and sometimes contradictory, with some laws dating to the 1800s. Casinos fall under the purview of provincial governments, and just two out of 35 states and other territories have them.

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Online gaming is a grey area. While it is forbidden under information technology law, it is not clear whether that applies to betting on games of skill. Many Indians bet on cricket and other sports at offshore websites, although remittances from such activity violate Indian foreign exchange rules.

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Given the regulatory thicket and slow pace of policymaking in India, many industry-watchers say it will be years before gambling in India becomes a major, mainstream proposition, although a pragmatic acceptance is growing.

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Michael Lobo, a hotel owner and state legislator from the Hindu-nationalist Bharatiya Janata Party that rules Goa, said he personally opposes gaming but acknowledged it helps tourism and believes it should be limited to holiday destinations and needs stronger regulation.

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"In the larger interest of Goa, where tourism is concerned, we have to allow casinos," said Lobo, who favors banning Goans from casinos and earlier this year threatened a hunger strike to block the opening of India's first Playboy Club in Goa.

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Jhunjhunwala said it could take roughly 15 years for casino gaming to go from niche to mainstream in India and said opposition to gaming is part of the democratic process.

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"There was prohibition in Bombay once," he said, referring to a ban on alcohol in India's financial capital, now known as Mumbai. "The process of change is always, in India: opposed, consolidation, opposed, acceptance."

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CARDS AND KIDS

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At the Casino Royale Goa, there is as much action on the entertainment and dining floor as at the tables. When a Russian dancer takes the stage, dozens of customers crowd forward to record her performance on cellphone cameras.

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Where in most places entry to casinos is free, those in Goa have a cover charge. At the Casino Royale Goa, which floats on the Mandovi river, the Saturday night entry fee is 2,000 rupees ($34), a hefty sum for India that deters the merely curious. Of that, 500 rupees goes to the Goa government.

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Once inside the 24-hour casino, food and drinks are free, including for patrons who are not placing bets.

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The crowd on a recent night included well-dressed young couples as well as families, who can drop-off their small children in the crèche at the entrance level.

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At some of the tables, dealers teach first-timers. Minimum blackjack bets range from 200 to 5,000 rupees ($3.40-$85), with a maximum bet of 50,000 rupees. The top baccarat bet is 300,000 rupees.

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Three-card poker is also available but roulette is especially popular. "You don't have to spend much time," said 25-year-old Viral Khoda, from Belgaum, a town in the interior of India. "It's quick."

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($1 = 58.7400 Indian rupees)

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(Additional reporting by Farah Master in Hong Kong; Editing by Raju Gopalakrishnan)

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Analysis: Another China central bank worry; companies push into lending

Chinese companies are getting more creative in the business of money lending as they struggle to keep profits ticking over in a cooling economy, raising concerns they are adding to the mountain of debt risks building in the world's No.2 economy.

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Big state companies in industries struggling with over-capacity but with easy access to credit are borrowing funds, not to invest in their business but to lend to smaller firms sometimes at several times the official interest rate, part of an informal lending market in China that authorities are taking aim at.

China's central bank increased pressure on banks to rein in such informal lending and speculative trading last week in money markets, letting short-term interest rates spike to extraordinary levels.

In the $3.7 trillion so-called shadow banking market, the fastest growing area is in so-called entrusted loans, which are arranged by banks on the companies' behalf, and in bankers' acceptance notes, tradable securities that give a steady flow of cash.

Issuance of entrusted loans and bankers' acceptance notes has more than doubled to 1.6 trillion yuan ($261 billion) in the first four months of this year from 636 billion yuan a year ago.

 

"Can we use the money to expand production? Definitely not," said a deputy general manager at a state-owned steel firm in the eastern Shandong province, speaking on condition of anonymity.

"We will lose more if we produce more. We can only rely on other channels," he added, noting the firm loses an average 100-200 yuan per metric ton (1.1023 tons) of steel sold.

China's economic growth is widely expected to slow further in the current quarter as exporters struggle with weak global markets, making lending money an increasingly attractive business option.

But there are concerns that some of the money is going into areas the government would rather it did not, for example real estate speculation, raising the risk of it turning bad while not helping the economy out of its current slowdown.

Indeed, debt is shaping up to be China's biggest financial problem. The cabinet has said it would control the flow of new money into industries struggling with overcapacity.

Beijing worries the shadow banking market is creating asset-price bubbles, and the central bank has tried to put a barrier in the way of it in recent weeks by declining to inject major funds into money markets.

The shadow banking system has arisen because main stream banking is focused on the needs of big state-owned enterprises.

Ratings agency S&P has estimated that outstanding shadow banking credit totaled $3.7 trillion by the end of 2012, equal to 44 percent of GDP.

Fitch has put it at about 60 percent, saying "torrid growth" has made the total of all forms of credit, including regular lending, shadow and hidden underground lending, as much as 200 percent of GDP.

"This is a very, very big problem for the economy," said Wei Yao, China economist at Societe Generale in Hong Kong.

"The existence of all these arbitrage efforts shows that in the real economy, there are few opportunities. You've limited all the opportunities for real growth, then you open a window in the financial markets; of course everyone goes there!"

NEW TECHNIQUES

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With entrusted loans, a company provides the funds but, to circumvent a ban on direct lending to other firms, it designates a commercial bank to lend the money to a specific borrower.

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The lender stipulates the amount, tenor, and rate of the loan, while the banks earn fees from both sides without the loans showing up on their balance sheets.

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The average monthly amount of new entrusted loans was 179 billion yuan in the first four months of 2013, up from an average of 106 billion yuan a month last year.

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The steel company manager said he borrows from banks around the 6 percent official rate, then issues an entrusted loan to a borrower at up to twice that rate.

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The general manager of a local government-controlled glass company in the northern province of Hebei said his company has increased the use of such practices as business slowed, lending about 30 to 40 million yuan so far this year at around 6 to 7 percent mainly to related firms.

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Some private companies are also cashing in. Zhejiang Longsheng Group Co Ltd, a specialty chemicals maker based near Shanghai, detailed 50 entrusted loans worth 3 billion yuan outstanding in its 2012 annual report.

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The company lent to subsidiaries at rates of 6 to 7 percent, but unrelated companies were charged as much as 25 percent. It said one of the loans, with a rate of 20 percent, would be rolled over as the borrower had difficulty repaying it.

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Companies are also buying bank acceptance notes, transferable bills issued by other banks that can be sold for cash. These companies sell the bills and use part of the cash raised to make loans and the rest to buy more bills, thus ensuring a continuous churn of funds and income.

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The average monthly amount of bank acceptance bills issued so far this year has more than doubled to 222.8 billion yuan compared with an average of 87.5 billion yuan for all of 2012.

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REAL ESTATE A WORRY

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A chief worry is that the newly generated money is finding its way into speculative real estate, complicating China's three-year fight against a property bubble. New home prices in May rose from a year earlier at their fastest pace in more than two years.

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An official at the statistics department of the central bank's Dalian office, who asked not to be identified, said that among all the entrusted loans issued in 2012 in the northeastern city, about 30 percent went to the real estate sector at an average interest rate of 12 percent.

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Another official at the central bank's Chongqing office said finance companies and credit guarantee firms affiliated to state-owned enterprises are major issuers of such loans.

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"In our city, there is an estimated 50 percent or more of such loans flowing into the property sector and local government financing vehicles," said the official. "The injection of entrusted loans partially helps pull down the bad loan ratio in the property sector and local financing firms, but the risks keep brewing there and could become acute if the economy slows further."

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($1=6.1282 yuan)

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(Reporting by Aileen Wang, Lu Jianxin and Pete Sweeney: Editing by Jonathan Standing, Vidya Ranganathan and Neil Fullick)