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Thursday, March 25, 2010

Corporates face new tax hurdle

New Provision May Bring Rights Issues, Preferential Allotments Into Tax Net

COMPANIES going in for rights offering, share sale to a strategic investor or stock rejig among group firms may face new hurdles if taxmen choose to strictly interpret the law. 

    According to the tax code, individuals and companies receiving securities at a price less than the 'fair value' of the stock will be asked to pay tax on the difference. Tax experts fear that the income tax department may extend this rule to bring transactions like rights issue, preferential allotment to financial investor or JV partner, and transfer of holding to another group subsidiary under the tax net. 
    "Such a possibility cannot be ruled out if one does a literal reading of the provision, even though the intent is different... I feel that intra-group transfers should be kept out of the tax net," said Sudhir Kapadia, tax market leader, Ernst & Young. 
    Parts of the new tax provision came into effect from October 1, 2009; subsequently, the scope was extended in this year's Budget. But if the government does not spell out the details, it can lead to endless litigation. "For instance, 'fair value' has to be de
fined... Furthermore, rights issue is always at a discount to the market price, and in this case is the market price the fair value? In the absence of clarity, corporates should be careful while passing a rights issue, so that they don't come under the tax ambit," said senior chartered accountant Dilip V Lakhani of Lakhani & Co. 
    The pricing for a preferential offer is either two-week average or 26 weeks, whichever is higher. It's unclear whether this rule laid down by the capital market regulator will also be treated as 'fair value'. 
Cos wary of I-T impact on rejig 
SHEFALI Goradia, partner, BMR Associates, said: "Rights issue, bonus issue, preferential allotment will all be, strictly speaking, covered. However, this might be stretching the law to an illogical extension... And, while the receiver of shares will be taxed based on the current fair market value (FMV), he or she will not get any adjustment for any future drop in the FMV." 
    What's worrying many business groups is the difficulty they will face in corporate restructuring. Companies sell holdings or assets to group firms to attract private equity investors. From now on, corporates will have to watch out whether such transactions are happening at the fair value. Also, transfer of shares between an Indian company and its wholly-owned subsidiary at less than FMV may be taxed in the hands of the subsidiary. 
    "This is extending transfer pricing to domestic companies... All this will make corporate restructuring more difficult. In most countries, there is an exemption for transfer of shares within the group. This also goes against the basic tenet of taxation where only real income and not notional income should be taxed," said Ms Goradia. 
    While valuation norms are still to be announced, she feels that there will be a lot of hardships if the taxpayers have to justify that every transaction is at FMV. It's a provision where the tax net can be spread depending on how strictly one interprets it: 
    * The contribution of assets by partners to a firm will be hit, and the firm will have to offer deemed income to tax; 
    * Foreign venture capital investors with ratchet rights will also be impacted; while pricing guidelines don't apply to them, but they may have to pay tax on notional income, said a note by BMR. 
    * Buyback of shares may also be covered. 
    Under the provision, acquiring immovable assets (like land and properties) and specified movable assets without "consideration or inadequate consideration" would come under the tax net. The last Budget included bullion in the list of such assets. Since this will come into effect only from June 1, many individuals may take advantage of the situation. "If an assessee acquires bullion before June 1 and gives it to any other person who is not a relative, then it will not attract tax," said Mr Lakhani.


Bharti takes SPV route for safe ride into Africa

NIGERIA DISPUTE: ZAIN TO GIVE INDEMNITY

BHARTI Airtel, which is in the final phase of taking over Zain Telecom's African assets, has formed two special purpose vehicles, or SPVs, in the Netherlands and Singapore to execute the $10.7-billion deal at a lesser financial risk to India's largest telecom company. Senior Bharti officials are expected to reach the Netherlands in the next 48 hours, where the deal is likely to be signed. 

    Zain has also agreed to compensate Bharti for legal costs in case an ownership dispute erupts over the crucial Nigerian operations which contribute 36% to its Africa revenues. The guarantee from Zain, known as an indemnity, will be valid for some years, though ET was unable to find out the exact time period. 
    SPVs are companies formed to carry out a specific transaction. These SPVs, whose dealings will be guaranteed by Bharti, will own the African assets of Kuwait's Zain. SPVs, which mostly feature in large acquisitions, are often used to convey the impression to investors that companies are not taking huge dollops of debt. In this instance, the SPVs have to repay the debt from the cash flows of the African business. But Bharti will have to step in the case of a default. 
    The Indian telecom player will have to pay $8.3 billion to Zain three months after the deal is signed and 
$700 million within a year. It has arranged loans of $7.5 billion from a host of international banks and the State Bank of India. "While $5.5 billion will be routed through the Netherlands entity, the remaining will be through the Singapore SPV," said a person familiar with the details. A $1-billion rupee loan from SBI and the company's own money will account for the rest. Bharti has $1.5 billion of cash on its balance sheet. 
    Zain, which holds around 65% in the Nigerian arm, is embroiled in a dispute with some shareholders, and the indemnity is intended to protect Bharti in the case of legal trouble. The other important shareholders are Econet Wireless Holdings with a 
5% stake, Broad Communications with 14% and First Bank of Nigeria which has an 8% stake. Broad is owned by Oba Otudeko, who is also the chairman of First Bank, Nigeria's largest bank. 
    While Econet continues to be against the deal, Broad is said to be more comfortable with Bharti taking over the operations. Econet is disputing Zain's control over the unit. "The indemnity agreement is part of the sale agreement. Bharti is arming itself against legal costs that may arise in future due to ownership dispute," a person involved in the transaction told ET. 
Nigeria a key mkt in Africa 
BHARTI said in a statement on Thursday that it had completed due diligence. "Further to our announcement regarding the acquisition of Zain Africa BV, we would like to report that the due diligence has been completed. Bharti is now working with Zain towards finalising the definitive agreements that will address all key terms and findings arising out of the due diligence. Definitive agreements are expected to be signed soon. Upon signing, the parties will move towards obtaining any required approvals," the company said. 
    The two sides are expected to seal the deal in a few days. "The due diligence process has been completed and the parties are finalising definitive agreements, which are expected to be signed in the coming days," Zain said in a statement on Thursday. The sale of Zain's Africa operations does not include Sudan and Morocco. 
    The Nigerian operations contributed 38% of EBITDA (earnings before interest, tax, depreciation and amortisation) of the African operations, but it was a 17% decline on a year-on-year basis in the first nine months of 2009. Analysts believe the number can be improved, if Airtel can replicate its famous minutefactory model and push for outsourcing in Zain's Africa business, including Nigeria. 
    According to a report by Macquarie, Nigeria is a key market both in terms of revenue and EBITDA. Zain is the second-largest player there, with a 25% share behind market leader MTN. Zain has struggled in Nigeria, with its market share sliding from 32% in the third quarter of 2008 to 25% in the corresponding quarter of 2009. Also, its EBITDA margin compares very poorly with MTN's 57.8%, said Macquarie.


Monday, March 22, 2010

Logistics cos ramp up supply chain to meet rising demand

HIGH ON HOPE

INDIA'S logistics services providers are steadily expanding their limited supply chain network countrywide to cater to a growing clientele, but limited capabilities and poor infrastructure are slowing them down. 

    The $2 billion third-party logistics (3PL) segment is among the top five most targetted sectors for investment, as demand for transportation and ancillary services grows rapidly, and many firms are looking to cash in on this opportunity. "This is the right time to get into this business if you have the money," said Kunal Lakhan, a sector analyst with KR Choksey, which has buy ratings on Gateway Distriparks, state-run Container Corp of India and Mundra Port & Special Economic Zone. "The sector is linked to trade and our economy looks buoyant. So, the whole space looks very attractive, at least in terms of volumes," he added. 
    While the country is expected to clock a growth of over 7.2% in the year to March 2010, it is striving to once again get back to the 9% GDP rate of the recent past. This would hugely benefit the 3PL segment which, going by trade estimates, is growing at 20-25% annually. 3PL players such as Aqua Logistics, Arshiya International and Gateway Distriparks, among others, have 
ambitious plans to expand their range of offerings. Aqua Logistics raised about Rs 1.5 billion via an initial public offering in February while Arshiya International plans to invest Rs 25 billion to set up five warehousing special economic zones across India by 2012. 
    Industry players now expect foreign logistics giants to step up their presence in this expanding market, which has so far attracted considerable attention from private equity investors. "M&A (mergers and acquisitions) is likely to happen in this sector," said Manish Saigal, executive director at KMPG Advisory. Foreign firms with well established 3PL models would lead the way, he said. 
    "There would be consolidation in the next couple of years," said Yogesh Dhingra, chief operating officer at logistics services provider Blue Dart Express, which is looking to buy local players to integrate its operations. "You will see alliances, you will see mergers and acquisitions." DHL Express, an arm of Germany's Deutsche Post, owns about 81% stake in Blue Dart. 
    Although, the current market scenario of 3PL services can't be compared with that of developed markets like Japan and the US there is tremendous scope for growth, brokerage Firstcall India Equity Advisors said. It expects business in this segment to touch $3.56 billion in 2012 as logistic functions such as transportation and 
warehousing are likely to be increasingly outsourced to 3PL firms. 
    However, there is "no true 3PL" company in India till now with existing players providing only limited services, forcing their clients to contact multiple parties across various locations to meet their logistics needs, analysts said. "In some cases, a handful of...'limited service 3PL' companies are able to take over a small part of this value chain (eg: trucking,warehousing), but there are still multiple vendors that a customer needs to connect with," Mr Saigal said. 
    India's 1-billion-plus population generates huge demand for both goods and services, and to make operations cost-effective and efficient it is important to bolster the country's logistics and related-ancillary infrastructure. But growth in India's $1.2 trillion economy is hampered by poor roads, ports, railways and airports. The country is simplifying land acquisition to help its goal of building 20 km of roads per day and has allocated Rs 1.73 trillion to infrastructure projects in the budget 2010. 
    Global slowdown and local regulatory issues had hit infrastructure investments, which would see the country miss its 2007/12 investment target of $500 billion. "If you talk about catering to this demand, we are still lagging far behind. We need more players in this field," KR Mr Lakhan said. — Reuters


Cement majors to tap rural markets as overcapacity threatens to dent profits

CEMENT makers see overcapacity looming large from the next fiscal and are trying to compensate by targeting the rural heartland, small towns and villages to increase their sales and protect their bottomlines. 

    Cement majors — UltraTech, HeidelbergCement, ACC, Ambuja — and midlevel players, such as Shree Cement, Binani, have aggressive plans as they focus on the relatively untapped rural market to be the next growth driver. Shree Cement, the largest cement maker of North India, has chalked out an expansive plan for marketing in the villages of Rajasthan, Haryana, Punjab, Chattisgarh, Madhya Pradesh and Gujarat. 
    HM Bangur, MD of Shree Cement, told ET: "The rural market has been the key driver for the cement sector from the next quarter. We are opening 2,000 new dealers in rural India over the next one year and set a target of 40% revenue from rural market in two years." At present, Shree's gets 20% of its revenue from 
rural markets. 
    Binani Cement, which mainly supplies to Rajasthan, Gujarat and Delhi, is also creating awareness for its cement brand in rural India. It's increasing its penetration in the rural market and vil
lages through retail outlets. "We are targeting villages with a population of 5,000-12,000 in the districts of Panchmahal, Dahod, Jamnagar, Porbandar, Junaghad in Gujarat and identifying 118 new retailers. The company will reach another 300 villages with a population of 10,000," said Vinod Juneja, MD of Binani Group of Industries. 
    The government has allotted Rs 48,000 crore for rural infrastructure programmes under the Bharat Nirman. The hike in excise duty on cement products is 
negative, but can be overwhelmed by improved demand from greater thrust on infrastructure and the rural sector, said industry experts. Angel Broking cement analyst Rupesh Sankhe said cement makers can see rise in sales up to 30% from rural markets on account of demand for low-cost housing in rural and semi urban areas. 
    Moreover, good retail demand for cement from semi urban and rural areas, particularly in the North and East, in the coming quarters, Mr Sankhe added. 

    UltraTech, ACC, Ambuja, HeidelbergCement also ramping up their rural retail outlets network, said cement dealers. UltraTech said that rural market will be the key driver for cement sector. The company is planning various initiatives, which will help grow in rural markets. It is providing technical assistance to masons and contractors, teaching them more cost-efficient construction methods and usage of eco-friendly cement and cement products. The Aditya Birla Group controls UltraTech and Grasim that together account for almost a fifth of the Indian cement market. 
    HeidelbergCement said that the government focuses on the rural and infrastructure growth is big boost for the industry. The country's cement consumption grew by over 10% in 2009, driven by robust demand from infrastructural sector and rural markets, it added. 
    ACC also expects demand for cement to increase in rural markets. ACC managing director Sumit Banerjee recently said that demand is mostly driven by the rural and infrastructure sectors, while demand from the housing and commercial sectors has not picked up yet. Holcim-controlled ACC will invest Rs 1,400 crore next year to expand its production capacity to 30 MT by 2010-end and will raise Rs 300 crore to retire some of its long-term debt. 

CONCRETE MOVE 
UltraTech is planning various initiatives that will help grow in rural markets 
ACC expects demand for cement to rise in rural markets 
Shree Cement chalks out marketing plans for villages of Rajasthan, Haryana, Punjab, Chattisgarh, MMP and Gujarat 
Binani Cement is creating awareness for its cement brand in rural India by increasing setting up more outlets


Tata-Quippo looks to rope in partner

Tower Co To Offload 10% Stake For Rs 1,500 Crore; Plans To Complete Deal In Two Months

TATA-QUIPPO, the world's largest independent tower firm, is looking at bringing a financial partner into the firm. The financial partner will get around 10% in the Tata-Quippo combine for around Rs 1,500 crore, Sunil Kanoria, MD of Quippo, said while adding that the deal will be completed within the next two months. In an interaction with ET, Mr Kanoria also said that the tower company Quippo-WTTIL (Wireless TT Info Services) was looking at listing on the bourses within a year. 
    Currently, Quippo Telecom Infrastructure and a group of investors together hold 46% in the tower company, with the Tatas having the remaining 54%. 
    "Quippo, GIC Singapore (owned by Singapore government), IDFC Private Equity and Oman Investment Fund (OIF) as a block jointly hold 46% in the tower arm. Quippo had raised a debt of about Rs 1,500 crore, which we want to retire by converting it into equity. The financial investor will therefore get about 10% equity and we will 
use this to pay off the debt we raised from IDFC," Mr Kanoria added. 
    He also said that Quippo and the block of investors would continue to have a 46% stake in the tower firm. "The only difference is that one or two large funds who buy out this debt will become part of this block that has a 46% stake in the Quippo-WTTIL tower firm," Mr Kanoria said, adding: "We will continue to have management control of Quippo-WTTIL." 
    According to him, Quippo-WTTIL was on track to post profits in the next financial year. 
    Last week, Quippo-WTTIL had announced 
that they had entered into an agreement with Tata Teleservices Maharashtra to buy out the latter's entire portfolio of 2,535 towers in Mumbai, Maharashtra and Goa at an enterprise value of Rs 1,318 crore, valuing each unit at Rs 52 lakh. The Quippo MD said the deal also envisages a future guarantee from Tata Teleservices Maharashtra for rolling out an additional 4,000 towers. 
    Quippo Telecom is also in the process of being merged with parent firm, the Srei group of companies. Post merger, Srei will have about 12% economic interest in Quippo-WTTIL," Mr Kanoria said. 
    Quippo-WTTL now boasts of a portfolio of 
about 38,000 towers and Mr Kanoria said the company was looking at increasing this to about 60,000 over the next three years. He also dismissed the possibility for large tower companies such as Indus (which has over 125,000 towers), Bharti Infratel or even Reliance Infratel posing serious threats to independent infrastructure firms. 
    "Our tenancy ratio is over 2, which is not matched by any other tower firm. This is an indicator of the quality of our infrastructure. The number of towers don't matter," he said. He also pointed out that while Indus (a JV between Bharti, Vodafone and Idea Cellular) had superior numbers, this was on account of the overlap between the towers of its three stakeholders. "Both 
Indus and Reliance Infratel have towers, but they don't have the tenants. On the other hand, we do not build a new tower unless we have three assured customers," he added.


Montek wants agri reforms, pushes for market prices

SWEEPING MEASURES TO BOOST FARMVILLE

THE country's apex planning body has called for wide-ranging reforms in agriculture, while criticising the strategy employed by the government to increase farm output and tame soaring food prices. 

    The Planning Commission said the agriculture pricing system should be made more market-oriented by delinking support prices from procurement prices. It suggested measures such as abolition of levies and stocking limits, encouraging free movement of goods across the country and doing away with bans on exports and futures trading. 
    In its mid-term appraisal of the Eleventh Plan (2007-12) to be ratified by the full Planning Commission under Prime Minister Manmohan Singh 
on Tuesday, the panel pointed out that while the farm sector did well between 2005-06 and 2007-08 to grow at 4%, the performance in the past two years showed that the government's strategy was not effective and more needed to be done on the supply side to maintain growth. 
    "There is no adequate analysis of how much of this — growth in the three years starting 2005-06 — was due to increased allocation of public resources for agriculture under this strategy rather than to a favourable weather pattern or private 
investment response to better demand and prices in a booming economy," the document said. 
    The government's management of agriculture has drawn criticism from several quarters after its policies failed to rein in food price inflation, which is hovering around 18%, a level unseen in several years. Growth in agriculture production dropped to 1.6% in 2008-09 and is estimated to post a decline of 0.2% in 2009-10 due to poor rains affecting kharif crops. The government has targetted 4% 
agriculture growth for the plan period. Agriculture and allied activities account for less than a fifth of India's gross domestic product (GDP), but it provides livelihood to more than 60% of the country's 1.2 billion people. 
    The Eleventh Plan strategy for enhancing farm production stressed on improving farmers' access to technology, enhancing the quantum and efficiency of public investments, increas
ing systems support while rationalising subsidies and encouraging diversification towards higher value crops and livestock, while addressing food security concerns. Despite policymakers talking about the need to open up the domestic agriculture sector to encourage private investments, the Planning Commission believes that the system is still full of "strangulating controls" dissuading major private sector investments in logistics and storage. 
CROP OF CHANGE 
TROUBLE WITHIN 
Agriculture productivity has stagnated The system is still full of controls, dissuading private sector investments in logistics and storage MSP has become procurement price, discouraging farmers to diversify into high-value crops Fertiliser subsidy is not giving desired results. 
KEY SUGGESTIONS 
Delink support prices from procurement prices Remove stock limits on agricultural commodities Encourage free movement of goods across the country Do away with bans on exports and futures trading Abolish levies on rice and sugarcane 
Plan panel for a unified market 
RESTRICTIONSmade sense in the '60s and the '70s when the country was not self-sufficient and farmers needed protection. Now, in a globalised world market, such restrictions act as a disincentive to producers," said Surabhi Mittal, senior fellow at ICRIER. Price incentives would either motivate farmers to diversify to higher value crops or allow them to continue to produce what they have been producing more efficiently so that it fetches them a better price in the market, she said. 
    The suggestions did not go down well with non-government organisations, which have warned against any move to remove stock restrictions. "Removal of restrictions is a sure recipe for disaster," said Devinder Sharma, food analyst and chairman of the Forum for Bio-technology and Food Management, a New Delhi-based NGO. Mr Sharma said the main reason behind the success of the Green Revolution was the fact that farmers were given an assured price and market through a procurement system. 

    Pointing out that with the minimum support price (MSP) is becoming de facto procurement price, the document said farmers are discouraged to diversify into high-value crops that are not covered by MSP. It suggested that to make the pricing system more market oriented, support prices should be delinked from procurement price where the latter can be changed depending upon market conditions and in full competition with private trade. 
    The draft report called for abolition of levies on rice and sugarcane, free movement of goods across the country creating one unified national market, abolition of stocking limits, export bans and bans on future markets on private trade. On fertiliser subsidies, the draft suggested that fertiliser prices should be linked with MSP of wheat, rice and sugarcane.

EXECUTIVE DIGEST

ONGC, OIL gas may cost more 

The government may soon raise prices of natural gas produced by state-owned ONGC and Oil India by as much as 30%, petroleum secretary S Sundareshan said on Monday. Current rate of $1.79 per million British thermal unit is less than half of the $4.2 per mmBtu price of gas from KG-D6 field of RIL. 
Maruti's millionth car rolls out today: Maruti Suzuki will join the league of carmakers producing one million or more units a year on Tuesday, a feat that comes soon after its overtook its parent company Suzuki Motors in terms of sales. 
Lupin's insomnia drug gets nod in US: Drug maker Lupin on Monday said its US-based arm Lupin Pharmaceuticals has received a tentative approval from the US health regulator FDA for Eszopiclone tablets used in the treatment of sleep disorder. 

Dhanlaxmi Bank launches credit cards: Dhanlaxmi Bank on Monday announced its foray into retail assets business with the launch of its credit cards business targeted at its premium customers. 
NSDL cuts settlement fee for DPs by 10%: The National Securities Depository (NSDL) has reduced the settlement fee charged to Depository Participants (DPs) by 10%, from Rs 5 to Rs 4.50, per debit instruction. 
Shree Renuka concludes Brazilian firm acquisition: 
Shree Renuka Sugars has completed the acquisition of Vale Do Ivai (VDI), Brazilbased sugar and ethanol production company. 

Future Group launches 'Sach' toothpaste: Kishore Biyani-promoted Future Group has forayed into the toothpaste category under the 'Sach' brand —co-created with Sachin Tendulkar — and will launch more products under the same label by the end of 2010.

EXPECTING MORE: Indra Nooyi-led PepsiCo anticipates 2010 earnings growth of 11% to 13% and low-double-digit profit growth for 2011 and 2012

RBI takes a close look at banks’ derivatives losses

UNDER SCANNER

Mumbai: Banking regulator Reserve Bank of India (RBI) is trying to figure out how much banks have lost in derivatives transactions last year. Early last week, RBI sent a letter to all banks in India to furnish details about losses incurred by each of them in 2009. 

    "RBI has asked us for losses on account of derivatives transactions crystallised during the period January 1 to December 31, 2009,'' a top banker, who did not wish to be identified, told TOI. The central banker has asked banks to furnish details on the names of the bank's clients who have lost money in derivatives transactions, nature of such transactions, amount lost through those, and the reason for such losses. RBI did not respond to TOI's request for comment. 
    The RBI letter came within days of a TOI report about 
a few leading banks, including some from the public sector, converting losses arising out of exposure to foreign exchange derivatives contracts into term loans for companies which had earlier entered into such contracts. In some cases, company officials from the textiles hub of Tirupur in Tamil Nadu alleged, banks had instructed these companies to convert such losses into loans. And this happened despite a clear order from RBI directing banks not to take such steps. 
    The genesis of the case goes back to 2007 and 2008 when some of the leading banks in India sold foreign exchange derivatives contracts, initially to exporters and then even to a large number of corporates without much exposure to exports directly. A few months ago, in affidavits filed in relation to a public interest litigation (PIL) in the Orissa High Court, RBI as well as the Central Bureau of Investigation (CBI) had accepted that several of those forex derivatives contracts had violated foreign currency rules, including Foreign Exchange Management Act (FEMA). 
    Recently, in some cases, banks have also gone to debt recovery tribunals (DRTs) against companies which had losses from these controversial contracts but refused to pay to the banks.


US healthcare reform to boost BPOs

Windfall For Indian Cos Specialising In Med Insurance, Claims Processing

Bangalore: US president Barack Obama's $871-billion healthcare reform bill has brought cheer to Indian healthcare BPO and IT service providers. 

    Although the reform may not result in heavy healthcare technology outsourcing from the US — as it does not talk about any major re-architecturing, re-engineering or system overhauling of the existing platforms — it is expected to bring in windfall benefits to domestic BPO providers which are focused on insurance and claims processing domains. Indian healthcare IT providers mostly focus on systems integration, application management, maintenance and legacy modernisation. 
    Minneapolis-based healthcare expert Saji Salam said: 
"All existing IT systems, including the electronic medical records, patient information systems and other technology platforms are going to stay untouched, barring some minor to medium tweaking, which will mean some additional work for existing providers like IBM, Accenture and EDS (HP). It's possible that minor portions of these might get shifted to India as well, but the sizable opportunity is for BPOs.'' 
    The reform will bring 32 million poor and emigrant Americans under insurance cover. Insurance firms will look at outsourcing partners to help them enrol new members and process their call and 
claim needs. Rising cost pressures will force insurers and hospitals to concentrate only on a few core functions such as benefit and services design, sales and marketing, while outsourcing back-office functions like member database management, claims processing, support services and enrolment processing. 
    Sanjiv Kapur, head, Patni BPO, said he saw significant healthcare outsourcing opportunity in BPO and IT areas. "The reform extends coverage to millions of Americans, which means we will see a significant influx of the newly insured into the healthcare system. The additional enrollees will need to be administered as and when it happens. This means a lot more work in areas of claims processing, enrolments, underwriting support and customer support.'' 

    The reform also brings a huge opportunity for medical transcription providers as electronic health records (EHRs) implementation is likely to undergo some changes. "It will mean a change from paper records to electronic ones, mandatory for all healthcare institutions,'' said Raman Kumar, CEO, CBay Systems, a medical transcription firm. 
    Obama has already apportioned $37 billion of stimulus funding to drive the adoption of EHRs. McKinsey estimates the resulting growth in EHRs will require an overall spend of $175 billion over the next 10 years. While adopting the system, US hospitals will need help in system set-up, installation, beta-testing, conversion of archival data into compatible formats and training of clinical and administrative staff to use the new system.

The reform will bring 32 million poor and emigrant Americans under insurance cover 
Insurance firms will look at outsourcing partners to help them enrol new members and process their call and claim needs 
Rising costs will force insurers and hospitals to concentrate only on a few core functions such as benefit and services design, sales and marketing, while outsourcing back-office functions like member database management

Sunday, March 21, 2010

Bharti ties up $8.5 b to finance Zain buy

WAR CHEST IN PLACE

BHARTI Airtel, India's largest telecom firm by revenue and number of customers, has finalised $8.5 billion of funding for its acquisition of the African assets of Kuwait's Zain as well as a likely foray into third-generation, or 3G, telecom services in India. 

    The company said in a statement that a consortium of banks led by Standard Chartered and Barclays would lend it $7.5 billion and the State Bank of India (SBI) another $1 billion, a so-called rupee loan. The latter — the rupee equivalent of $1 billion — would be used to cover what the company described as "associated transaction costs". 
    The statement referred only to the acquisition of Zain, but multiple banking sources said the company had also arranged for money to fund a foray into 3G services, frequency spectrum for which is being auctioned by the Indian government. 
    On Saturday, the Bharti Airtel board had 
approved the company's financing plans, people familiar with the development told ET. Armed with the approval, the Bharti management is expected to make a final offer to Zain this week. 
    The Indian telco is close to the finish line and the transaction would be announced soon, the persons close to the development added. Bharti Airtel and Zain are in exclusive talks until March 25 — during which Zain can't approach other possible buyers — and people familiar with the development said the exclusivity period may be extended by a few days. 
    The Bharti Airtel board is believed to have approved the acquisition for a so-called enterprise value of $10.7 billion which consists of $1.7 billion of Zain's debt, which Bharti will now have to pay, and a $9-billion cash payment. Bharti has $1.5 billion of cash on its balance sheet which will be used by the company for the acquisition and in the 3G auction. 
Zain buy evokes global interest 
AFTER Zain's board approves the deal, Bharti will have three months to pay, within which it will have to get regulatory approval. The dollar funding is being raised through a special purpose vehicle based in the Netherlands. The cost of dollar-funding is at around 195 bps above Libor, confirmed three officials. The average loan tenure is around 4.75 years. 
    SBI, India's largest bank, has provided the largest chunk of funding of $1.5 billion of which $500 million is a dollar loan, the company said in the statement. Standard Chartered, the lead arranger for the dollar loan, will lend $1.3 billion while Barclays, the joint lead advisor, will provide $900 million. A group of eight international banks will bring in the remaining $4.8 billion. 
    The rupee funding by SBI — around $1 billion — is likely to be used for the 3G auction, apart from covering transaction costs. 
Sources said the six-year loan from SBI is likely to be priced at around 9% and would have a moratorium of two years. In the initial bid, some 15 banks are said to have committed $1 billion each, according to bankers, probably the first time that any Indian corporate has received such large offers for funding. StanChart is said to have committed $5.5 billion and Barclays will stump up around $5 billion. "Bharti has rarely hit the international market. There is a lot of interest from the global banks to hold quality paper," said a senior official from a foreign bank who spoke on condition of anonymity. 
    Bharti is likely to sign the loan agreement with the banks in the next few days. The other banks in the consortium include Australia & New Zealand Banking Group, Bank of America-Merrill Lynch, BNP Paribas, Credit Agricole CIB, DBS Group Holdings, HSBC Holdings, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp, Bharti's statement said.

Billion-dollar babies bloom in India

BOYS TURN MEN

About two dozen companies join super league in 2 years as firms defy slump fears to post robust revenues

CLOSE to two dozen Indian companies joined the billion-dollar revenue club over the past two years, reflecting the strength of Asia's third-largest economy that came out unscathed from the most severe global economic crisis since the Great Depression. According to an ETIG study, which analysed the projected net sales for the 12 months ending March 31 using data available for the first nine months of the fiscal year, the number of companies in the billion-dollar club went up to 124 compared with 104 for the year ended March 2008. 

    Cipla, Lupin, Tata Tea, Tech Mahindra, Lanco Infratech, IVRCL Infrastructures and Bharat Electronics are among the firms that joined the billion-dollar revenue league in the past two years. Some like Motherson Sumi Systems and Apollo Tyres, which gained size through global acquisitions, also figure among the entrants. The study used Rs 45.5 as the rupeedollar exchange rate for both the years to factor out currency movement's impact on dollar revenues. The comparison has been made with FY08, which was the last year to record 9%-plus economic growth. Infra, agri firms rule $-b chart 
INDIA'S economy expanded 9.1% in FY08, before the global economic downturn pulled down growth rate to 6.7% in the next year. The government expects a growth rate of 7.2% for the current fiscal year. 
    Billion dollar revenues are considered as an important benchmark by many investors who use it to shortlist the pool of companies to invest in. "Institutions prefer the big companies by revenue due to consistency in financial terms," said Ajay Parmar, head of institutional equities at Emkay Global Financial Services. The increase in the number of companies in the billion-dollar club will act as a catalyst for market growth, he said. 
    Infrastructure and agriculture firms dominated the list of new entrants to the billion-dollar revenue club, as these sectors remained more-or-less unaffected by the economic downturn. "There is lot of autonomous de
mand due to consumption from rural and semi-urban India which was less affected by the slowdown allowing companies to grow revenues. The financial slowdown impacted the urban economy much more," said Jay Shankar, chief economist at Religare Capital Markets. This trend is reflected in the entry of agri-related firms such as United Phosphorus and National Fertilizers into the club. 
    While the big revenue league grew by nearly a fifth in the past two years, the group of firms with billion-dollar market value shrank by the same ratio. A large number of companies from the real estate and financial services sectors fell in the valuation charts while others from FMCG, pharma, healthcare representing domestic consumption demand joined the list. Apollo Hospitals, Fortis Healthcare, Gillette, P&G Hygiene, Glaxo Consumer, Emami, Marico, Godrej Consumer, Aurobindo Pharma and Cadila Healthcare, among others, joined the club.


Tuesday, March 16, 2010

ADAG Firm 2nd Indian Telco To Reach Mark, Now Targets 200 M

RCOM rings in 100 m users


New Delhi: Reliance Communications (RCOM) has become India's second telecom operator to cross the 100 million mobile subscriber mark. This also makes the company the world's 4th largest single country mobile services operator. The company targets to reach the 200 million subscriber milestone within 1,000 days. 

    On May, 15 2009, GSM operator and market leader Bharti Airtel had reached the 100 million subscriber milestone to become the 3rd largest single country mobile services operator and sixth largest in-country integrated telecom operator in the world. RCOM launched pan-India operations in 2003, while Airtel told ToI it went pan-India in 2005. 
    According to the latest Trai data for January-end, Bharti Airtel had 121.71 million subscribers, followed by RCOM at 96.59 million, Vodafone at 94.14 million, BSNL at 65.10 
million, Tata at 60.31 million and Idea at 59.88 million subscribers. This indicates that RCOM added over 3.41 million in the 43-day period till March 15 to breach the 100 million subscriber mark. 
    In a statement, Anil Ambani, chairman, ADAG said: "The landmark 100 million mobile customer base makes us the youngest telecom operator to achieve this mile
stone in such a short span of time. Reliance Communications pioneered the mobile revolution in India and since then we have been the frontrunner of telecom innovations in the country. As we take the leap to achieve the 200 million mark, we will lead it from the front with more customer-centric innovations and service approach." 
    To reach its 200 million sub
scriber target, RCOM is adopting a multi-pronged customer-focussed strategy with the expansion of its GSM network and CDMA mobile broadband network, while focusing on customer-centric innovations and enhancing the overall customer experience. 
No applicant for 3G on Day 1 
New Delhi: Not a single company knocked on DoT's door on Monday, the first day that the department opened applications for 3G & BWA auctions. 
    DoT officials hope that telcos will play their hand over the next few days. "Since the applications will reveal whether a company is bidding for pan India or select circles, prospective applicants are expected to hold their cards close to their chest till the last moment," said a DoT official. The last date for submission is March 19. TNN


 

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