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Friday, December 31, 2010

Ready reckoner property rates go up by 30%

Mumbai: Throwing a wet blanket on the soaring holiday spirits and the hopes of many Mumbaikars, the Maharashtra government has increased the ready reckoner rates (RR) for real estate by an average of 25-30%.
    The ready reckoner is mostly used to work out the market value of flats for the purpose of calculating stamp duty and registration charges. While the average hike is 25-30%, the RR rate for some prime areas in Worli, Dadar, Chembur, Parel, Ghatkopar, Kanjurmarg, Andheri, JVPD have been increased by 30% to 40%.
    Realty experts say the new rates, effective from January 1, may not affect the sales of new flats which, in any case, exceed the ready reckoner by 50% to 100%. But the rates will hurt the sale and purchase of old flats because of the 36% rise in the cost of construction under the new calculus.
    Rajesh Mehta, director of Raha Realtors, said the increase in the construction cost "from Rs 1,022 per sq ft to Rs 1,395 per sq ft" would deal a major blow to redevelopment schemes.
New rates based on built-up area
    In these projects, the developers will now base their profitability on the amount they have to spend on the construction," he said. Also, Mehta said, "In cases of resale of old apartments, the RR value will be marginally higher than the agreement value. Due to this, the burden of the additional stamp duty will have to be borne by the buyer of the old flat. Besides, there will be an impact on the capital gains tax calculations under section 50 (c) of the Income Tax Act for the developer." The RR rate was increased nominally every year until 2005. Things began to really change in 2007 when the state hiked the calculus by 36-45%. The rates remained there till 2009. This year, however, the government decided to make a major change after witnessing the real estate market's astronomical growth. This year, the government, incidentally, has based its new RR calculus on built-up area, a deviation from its earlier diktat to base transactions on carpet area.
Furthermore, it has raised the land cost of Finlay Mills, the defunct National Textile Corporation mill, from Rs 3,100 per sq ft to Rs 8,000 per sq ft—a 155% hike. Two years ago, Lodha Group had quoted Rs 750 crore for the 10.3-acre land. The mill is currently caught in a battle between Lodha Group and Indiabulls, which has offered to pay Rs 1,000 crore for the land.




Tatas,Aircel only takers for MTNL 3G airwaves

TATA Teleservices and Aircel are poised to bag third-generation spectrum in the lucrative Delhi and Mumbai metros as they are the only bidders for MTNL's offer to share its 3G network with two firms that pay the highest price.
    Aircel had won 3G air
waves in 13 circles and Tata Teleservices in nine when these frequencies were auctioned last year, but both these companies had failed to bag spectrum in Delhi and Mumbai. They had lost out to the country's three largest mobile phone companies by both revenues and customers—Bharti Airtel, Reliance Communications and Vodafone Essar—in these metro cities, which are estimated to account for a fifth of the mobile industry's revenues.
    MTNL had set 1,400 crore as the base price per operator when inviting bids from other telecom service providers to
use its 3G frequencies, which enable services such as video calling and high-speed internet on phones.
    The state-owned operator will make a minimum of 2,800 crore from this deal. "The financial bids of both Tata Teleservices and Aircel will be opened in January—it is possible that the bid amount may be comparatively higher than the
base price," a top MTNL executive with direct knowledge of the development told ET.
    "There is also a revenueshare component—this depends on the type of 3G service offered—for instance, there are different slabs for voice and video calls, highspeed internet and other data
services," this executive added.
    Both Tata Teleservices and Aircel declined to comment, but a top executive from one of these companies confirmed that they were the only mobile phone companies to have submitted bids to MTNL.
Cos plan strategic roaming alliances
ALL the six private players that won 3G airwaves are in talks with each other for strategic roaming alliances to offer these high-end services across the country. Such alliances have been made necessary since no player had won pan-India 3G airwaves during the auctions.
    So far, only two private operators—Reliance Communications and Tata Teleservices—have launched 3G services.
    The deal also involves the winners sharing 3G airwaves outside these metro cities with MTNL when the latter's customers are on roaming.
Between Aircel and Tata Teleservices, the duo jointly has 3G airwaves in all circles except Himachal Pradesh. Put simply, the deal will also enable MTNL to offer third-generation services on a pan-India level, except in Himachal Pradesh, for which it is in talks with BSNL.
    MTNL's shares closed 2.91% higher on Friday at 54.85 on BSE.

    For Tata Teleservices, which is yet to launch GSM-based mobile operations in Delhi, the deal with MTNL will enable the company, in which Japanese major NTT DoCoMo has a 26% stake, to kick off
both second- and third-generation cellular services in the city.
    While private operators were given 3G spectrum in September 2010, state-owned telcos MTNL and BSNL were given these airwaves in late 2009. Both BSNL and MTNL then matched the winning bids by private companies in the auction process.
    MTNL had taken a 7,000-crore loan to pay for 3G airwaves in Delhi and Mumbai, and company executives said the spectrum-sharing deal will enable them to meet interest costs and also partly service this loan.

    Idea Cellular, which had won 3G airwaves in 11 circles, but not Delhi and Mumbai, did not put in a bid. An industry executive said Idea's failure to participate was yet another indicator that the Aditya Birla group company along with Bharti Airtel and Vodafone Essar was working out a strategic to offer third-generation services on a pan-India level.
    These three GSM telcos jointly have 3G spectrum in all circles except Orissa. Bharti had
bagged 3G airwaves in 13 circles and Vodafone Essar in nine. They also jointly own the world's largest telecom infrastructure company, Indus Tower, enabling them to share mobile networks for 3G rollout.

Thursday, December 30, 2010

Change Is Our Only Hope In Next Decade


IN THE SEASON OF SCAMS AND PARLIAMENTARY paralysis, it is easy to take a glum view of the future. Ratan Tata proclaims India a banana republic; institutions of the state lack integrity; a community is on warpath demanding lower social status; a region wants to separate from a state; workers of the world unite only in killing one another in eastern India; insurgency and counter-insurgency shed innocent blood; and even vegetables make you cry.
    Yet, there is much to be hopeful about, if only you lift your head out of the continuous present in which contemporary culture dunks you and keeps you submerged. This is what ET has done, surveying some important ideas that have changed our lives for the better over the last decade, from ubiquitous phones, budget airlines, organised retail, the Metro, and BPO jobs to the Unique Identity Number. Limping out of the Asian crisis at the turn of the century, few would have thought that India would accomplish what it has over the last 10 years. If we could achieve so much these last 10 years, why should the next 10 be bereft of hope?
    Change must come to a number of different areas. The potential exists, resources are aplenty, only the will to act is missing.
    Political funding must become transparent and accountable. Every rupee that a party or its functionary spends must be traceable to its source. The current non-institutional form of mobilising resources for politics is the root of corruption. Politicians make money for themselves and for their parties through loot of the exchequer, sale of patronage and extortion, all with the collusion of civil servants. Other democracies fund their politics, but without such comprehensive depravity. This can and must change.
    The legal system cannot continue to be dysfunctional. What prevents us from appointing 100,000 new judges over the next 10 years, to clear up the backlog of cases that creates a perversion of justice called undertrial prisoners, and shrink the life expectancy at birth of any piece of legislation to 18 months till disposal of the final appeal? Our police forces are sadly undermanned, poorly trained and politicised. Overhaul them, we must.
    India faces a desperate shortage of talent. We need a revamped, expanded education system, a parallel stream of clearly defined, certifiable skill modules that offer young people the possibility of continuous skill upgradation all the way to a professional degree.
    We need a political culture that stops patronising power theft, and instead, encourages payment of realistic user charges to transform all infrastructure deficit into a huge growth opportunity.
    And we need to shed our current fear of technology, to realise its full potential whether in inclusive banking or education or tele-medicine. Regulatory wisdom in India comes twinned with geriatric suspicion of technology, scuppering a universe of possibilities.
    If there is one thing that we need to carry over from the decade that is coming to a close, besides the philosophy of inclusive growth, it is the slogan, Yes, we can!

Monday, December 27, 2010

Property market may slow down in 2011: Gruh Fin MD

DESPITE prices having peaked, the realty market has been sustaining itself, thanks to the fear psychosis among home buyers that prices will shoot up further, making it more difficult to own a property. In an interview with ET's Avinash Nair& Vishal Dutta, Gruh Finance MD Sudhin Choksey says the first quarter of calendar 2011 will decide whether the much-awaited fall in property prices will take place or not in 2011-12. Excerpts:

Realty prices have peaked, the Reserve Bank of India (RBI) has been increasing key rates and banks' lending rates are also on the rise. How will this impact home buyers and the housing finance industry?
Home loans are, of course, becoming expensive. However, the high interest rate is not too much of a negative factor. During the high inflation period between 1993 and 1995, we gave loans at a rate as high as 15%. Even then, people bought properties. However, the most important factor impacting the housing finance industry is the rising property prices, because even at interest rate of 7-8%, homebuyers are not in a position to make a buy.
    My concern is more about the speed with
which the prices have gone up. It has adversely impacted the buying power of the middle-class. Today you go around Ahmedabad and you will find it difficult to buy any new property at less than 30 lakh. Realty prices have been rising without any correction. I think, for any market to sustain itself, the movement of prices has to be both ways. If it goes up, then it also needs to get corrected. Unfortunately, I think we are not witnessing a correction in prices in the real estate market at present. Moreover, in the past few years, while family incomes have doubled, the property prices have quadrupled.
With property prices already beyond the reach of a commoner, what are the reasons for the sustained demand for houses?
Most of the demand that we currently see is due to a fear psychosis that property prices will rise further, taking homes further out of reach. However, there is a certain limit to people's buying capacity. This scenario cannot continue for long as property prices have already peaked. Rising interest rates, inflation and property prices will slow down the demand for houses.
Have you started getting any feelers that the property market is slowing down? When will a correction happen?
For the country's property markets, Mumbai is the trigger. If investors do not see investment
opportunity, they will start moving out and Mumbai will begin to slow down. This effect then starts percolating to nearby areas like Surat, Pune, Ahmedabad and Vadodara. I was in Mumbai recently and I learnt that Mumbai markets were actually slowing down. The developers are currently holding on to the prices, because they have made good money in the past 2-3 years. But we all know that they cannot hold on to the price for long as it may affect their turnover. If the recent real-estate transactions are taken into consideration, we might see a slowdown in 2011.
Do you think houses are getting smaller in the wake of rising land prices?
If you see a shampoo sachet or any other FMCG product, the marketers have cut down volume to make them affordable. The way the cost of land has gone up, the only way to make a house affordable is by keeping it small. The main reason behind rising prices is land hoarding. The construction cost is not much. A person with 10,000 salary will get at the most a loan of 4.5 lakh to buy a property. Is there any property in that budget? If his budget is 6
    lakh, he has to compromise on the
    size. But there is also a limit to which
you can squeeze.
If the property market slows, what effect will it have on real estate in smaller cities where Gruh Finance largely operates? Do you see loan
disbursements slowing in 2011?
The graph of real estate growth is almost the same, but there is a time lag factor in smaller centres. If market slows down in Mumbai, I promise you that in six months you will see slow down in smaller cities like Palanpur (in North Gujarat). This happens because investors — small or big — are everywhere. In 2011, we will have to wait and watch. The trend can only be gauged after first quarter data of calendar 2011. As the interest rates have started rising, there is a scenario where there is liquidity pressure in the market and RBI is likely to further tighten it, going forward.
What has been the penetration of Gruh Finance in Gujarat and other states?
Gruh Finance has achieved 93% penetration in Gujarat by servicing nearly 211 talukas. The company is trying to replicate the same story in neighbouring states. In Maharashtra, it has covered 260 talukas achieving a penetration of 65%. The company recently entered Rajasthan, Madhya Pradesh, Chhatishgarh, Tamil Nadu and Karnataka.

Subsidy cut may blur govt’s selloff target

Indecision May Prove Costly For ONGC,IOC Issues

FINANCE Minister Pranab Mukherjee stares at the possibility of missing the disinvestment target this fiscal as the government wavers on petroleum product subsidy to achieve political goals while compromising on oil companies' financials.
    IndianOil, Bharat Petroleum and Hin
dustan Petroleum are expected to lose 23,333 crore in fiscal 2011 as the government rules out meeting the shortfall beyond a third of the total while forcing these companies to sell below market prices. Oil & Natural Gas Corp (ONGC) and Oil India would pay marketers a third of the losses in the three-way split.
    The Manmohan Singh government's delay in freeing up of diesel, cooking gas and kerosene prices, as recommended by the Kirit Parikh panel when crude oil prices were around $75 a barrel, is expected to cripple government and oil companies' finances as Brent crude races to $100 a barrel. ONGC and IOC are disinvestment candidates.
    Oil companies together were estimated to net the government more than 21,000 crore this fiscal by selling part stake, according to data from SMC Cap
ital Global Securities.
    The government, which appeared to be on course for record disinvestment this fiscal after Coal India's 15,000-crore share sale, may be losing ground with the indecision on tackling rising crude prices. Of the planned 40,000-crore fund-raising from share sale in public sector companies, it has just crossed the half-way mark at 22,763 crore from SJVNL, EIL, Coal India, and MOIL, among others. Last fiscal, it had
raised 21,308 crore, against an estimated 25,000 crore.
    "The government needs to take the ONGC and SAIL offers to the market if it is to meet its divestment target," said a banker involved in some of the government's share sales.
    But with various departments in the government haggling over fuel subsidies, oil
companies seem to be out of favour with investors. Bharat Petroleum, IndianOil and Hindustan Petroleum have all underperformed the benchmark Sensex last month.
    "Our government is committed to the twin objectives of protecting the interest of the common man... as also to protect the financial health of the public sector oil marketing companies," Petroleum Minister Murli Deora said on Sunday.

SLIPPERY SLOPE
Oil cos together were estimated to net the govt over 21,000 crore this fiscal by selling part stake, which now looks doubtful with soaring crude prices
Also, with various departments haggling over subsidies, oil companies seem to be out of favour with investors
Bharat Petroleum, IndianOil and Hindustan Petroleum have all underperformed the Sensex last month
ONGC, OIL may not be burdened
AN EMPOWERED group of ministers is meeting on December 30 to consider raising diesel and cooking gas prices.
    But explorers such as ONGC and Oil India may not be burdened beyond their 33% share of subsidies further, given that
their investments could be affected.
    "I doubt they (upstream companies) can bear beyond 33%," Oil Secretary S Sundareshan had told this newspaper's TV channel, ET NOW, last week. But some believe that non-oil companies could still raise funds from the market as investors have benefited from previous
listings. Steel maker SAIL is also a candidate to sell shares. "There is no dearth of demand for PSU issuances as long as it is appropriately priced," says A Murugappan, Executive Director at ICICI Securities. Some 62 initial share sales and eight follow-on offers about 71,114 crore this year.



Thursday, December 23, 2010

Finmin again prods EPFO to walk D St

But Says It Won't Guarantee Returns

THE finance ministry has shot off a fresh missive to the labour ministry asking it to invest a part of the 5 lakh crore corpus of the employees' provident fund savings in stock markets.
    In a recent letter, North Block has categorically ruled out providing any guarantee on returns on such investments, but said safeguards could be built to minimise risks and maximise gains for subscribers.
    "The finance ministry's refusal to guarantee returns continues to worry us, but we are willing to look at the suggestions made," a labour ministry official told ET. The official did not reveal the details of the investment pattern suggested by North Block.
    The finance ministry had earlier proposed that the EPF organisation could set aside 15% of funds for investments in the stock market and need not seek a nod from
the Central Board of Trustees, or CBT, the policymaking body of the employees' provident fund organisation, or EPFO.
    The labour ministry is, however, clear that it cannot decide on the issue unilaterally, sidestepping the Central Board of Trustees.
    The EPFO, which manages the provident fund savings of approximately 4.7 crore organised sector workers, has steadfastly declined to invest provident fund accumulations in equities.
    Following a decision by the trustees, Labour Secretary PC Chaturvedi had written to the finance ministry that it would be willing to do so, if the finance ministry guaranteed safety of investments and assured some minimum return on such investments.
    "We will place the suggestions made by the finance ministry before the CBT, which will take a final call on the matter," the official said.

PROVIDENT MOVES
What happened: Finance ministry has written to labour ministry asking it to invest a part of Rs 5 lakh crore corpus of EPF savings in stocks
What does finmin say: It has ruled out providing any guarantee on returns on equity investments, but says safeguards may be built to minimise risks and maximise gains
What does labour min say: Ministry worried by finance ministry's refusal to guarantee returns, but is willing to look at the suggestions made. EPFO's Central Board of Trustees to take final call
The background: Finance ministry had earlier proposed that EPFO could set invest 15% of funds in the stock market
Following a decision by trustees, the labour secretary wrote to finance ministry asking it to guarantee safety of investments and assure some minimum return
Equities fetch higher returns
THE EPFO has been giving 8.5% return on funds annually since 2005-06, which rose to 9.5% this year after it disbursed some unaccounted money in the fund. The fund has a corpus of Rs 3 lakh crore, and private trustees, which follow the fund's investment pattern, have another Rs 2 lakh crore.
    The finance ministry has argued investing a portion of the Rs 5 lakh crore EPF corpus in stocks would help the fund generate higher returns than the government-backed securities that the fund currently invests in. North Block had pointed out that the new pension scheme, or NPS, which invested part of the money in stock markets, earned a much higher 14.5% return last year.

    The EPFO has reasoned that it cannot invest in equities because it is required to generate and credit income to account balances every year. The labour ministry also argued that both schemes cannot be compared as NPS keeps money till retirement while employees are allowed to withdraw money from provident fund for various purposes like education, marriage, etc.
    "These are real payouts we have to make. Roughly about Rs 20,000 crore is paid out every year to almost 60-80 lakh people," the official said. Dhirendra Kumar of Value Research does not buy the logic. "It is more risky not to invest in equities because returns on government-backed securities could go down to very low levels and it would be more difficult for the EPFO to explain a lower, say a 5.5%, return," he said.

Wednesday, December 22, 2010

Navi Mum airport gets another green go-ahead

Mumbai: Exactly a month after the union environment ministry gave a green signal to the proposed Navi Mumbai international airport, another milestone was crossed by the ambitious project on Wednesday.
    Maharashtra Coastal Zone Management Authority (MCZMA) cleared a proposal for environment and CRZ clearance for offsite physical infrastructure required to be developed around the airport site.
    Cidco, the project's implementing agency, has approached the authority for ecoclearance to set up roads and other infrastructure to improve connectivity to airport.
    Apart from road connectivity, the authority plans to set up physical infrastructure that would facilitate connectivity to a proposed metro rail network and other transport modes.

    The clearance was sought as setting up of the facilities would have affected more than 10 hectares of mangrove land. Besides, the site is also located on the CRZ zone.
    Following the MCZMA clearance, the proposal will now be forwarded to the union environment ministry in Delhi for final clearance.
    Officials said the issue was taken up on a priority basis as it was in "public interest". The authority also accorded clearance to two MMRDA projects planned for decongesting vehicular den
sity in the city. Permission was given to MMRDA to cross the Mahul creek and mangroves near Bhakti Park in Wadala and the adjoining BPT pipeline area while constructing the Anik-Panjrapole Link Road, which is an ongoing infrastructure project aimed at decongesting traffic along the Eastern corridor. Another project for setting up car depots in CRZ areas at Mankhurd and Charkop for the Charkop-Mankhurd metro route, along with its alignment through CRZ-affected areas on the route, was approved too.
    The MCZMA has asked all project-implementing authorities to ensure that adequate afforestation is carried out to make up for the lost green in all the three projects. It has also asked them to adhere to norms. An MCZMA member said clearance to the two MMRDA projects was a mere formality as these had received an in-principle nod.

TAKING OFF: Maharashtra Coastal Zone Management Authority cleared an eco proposal

Monday, December 6, 2010

No EPFO investment in LIC arm till loan scam probe ends

  THE government may defer further investment of employees provident fund money in LIC Housing Finance till investigations into the multi-crore bribes-for-loan scam involving the company are complete.
    The finance & investment committee, which advises the central board of trusties of the employees provident fund organisation, has recommended that further exposure of EPF money to the scam-hit housing finance company should be frozen. A final decision on the issue will be taken at the board of trustees meeting later this week.
    "The FIC has proposed deferring further investments in LIC Housing Finance Ltd till the whole issue is clarified," a labour ministry official said.
    The loan scam came to light on November 24 when investigating agency CBI arrested Ramachandran Nair, CEO of LIC Housing Finance along with seven other officials for allegedly colluding with middlemen to approve large corporate loans flouting prudent exposure norms and other mandatory conditions.
    EPFO's current exposure to LICHF is to the tune of . 454 crore, while the investment limit set by the government based on net worth is . 846 crore. "This means an additional . 392 crore could be invested in the company," the official said, requesting anonymity.
    EPFO handles retirement savings of roughly 4.7 crore subscribers and has a corpus of over . 3,00,000 crore. According to experts, the suggestion of not in
creasing exposure to the company at the moment makes sense as there may be other problems waiting to erupt.
    "So far only one cockroach has come out. There may be others lurking in the corners," pointed out Dhirendra Kumar, CEO of Valueresearch Online, a market research agency. The government should wait for the matter to settle, he said.
    The board of trustees, in its December 9 meeting, will also decide on raising the exposure limits in
highly rated public sector securities where the limits are exhausted or nearly-exhausted.
    The FIC has proposed higher investment limit in AA+ and AA rated public sector banks, public sector financial institutions and public sector units (PSUs).
    "If one's mandate is to only protect investment then it is a good idea. But if it is to move beyond depressing returns, then it is not in the best interest of investors," said Gautam Bhardwaj, director, Invest India Economic Foundation.

PATH OF DENIAL

The Trigger

• The finance & investment committee of EPFO has recommended that further exposure of EPF money to LIC HF should be frozen
Up Next

• A final decision on the issue will be taken at the EPFO board of trustees meeting on December 9 Also on Agenda

• Board will also decide on exposure limits in highly rated public sector securities where limits are exhausted or nearly-exhausted
Money Matters

• EPFO's exposure to LICHF is . 454 cr, while the investment limit set by the govt is . 846 cr. EPFO has a corpus of over . 3,00,000 c and handles retirement savings of roughly 4.7 crore subscribers


Tata Steel rises on news of Rio’s Riversdale bid

Reports of $3.5-b offer by mining giant kick off speculation that Tatas may launch counter bid for resource-rich co

SHARES of Tata Steel, the country's largest steel company, surged 3.4% on Monday after news that global mining major Rio Tinto had made a $3.5-billion bid for Africa-focused Riversdale Mining, in which the Tatas own a 24% equity stake.
    While the development sparked speculation that Tata Steel, one of the three major shareholders in Riversdale Mining, could launch a counter bid, people familiar with the group said the Mumbai-based conglomerate would not go alone in putting in such a bid.
    Tata Steel, which opened at 620.90 on BSE on Monday, jumped to the day's high of 639.70 after international media reports said Rio was looking at making a bid for Riversdale. The stock later corrected after the market factored in limited gains to Tata Steel, before ending at 634.95, a 3.4% rise over Friday's close.
    The stock rose in early trade after local investors expected the company would cash out. But Tata Steel's statement denied such a possibility. Riversdale Mining is a "valuable strategic investment and (Tata Steel) continues to be interested in developing the tenements of the company. Tata Steel will continue to monitor the situation and will take appropriate action as deemed necessary", it said.
    Analysts tracking the sector also said Tata Steel would continue to retain its interests in Riversdale while also exploring options to team up with a partner for a counter bid, as the company has hard coking-coal projects in Mozambique that could eventually supply 5-10% of the global market for the key steel-making material.
    According to a person connected with the raw material plans of Tata Steel, "Riversdale is vital for Tata Steel as the steel maker is not fully integrated as far as coking coal is concerned. With 30 million tonnes of steel-making capacity, of which 20 million tonnes is outside India where there is no captive coking coal supply, Tata Steel needs to look at all options closely."
    The Tatas have captive iron ore requirements in India while they buy about 40% of their coking coal
needs. For their European operations, which include Corus, where they are scheduled to make 16 million tonnes of steel, the Tatas require 9.6 million tonnes of coking coal.
    JPMorgan analysts Pinakin Parekh and Neha Manpurua say the likelihood of a counter offer emerging from somewhere is high. "In our view, the attraction is the resource (coking coal), rather than the project as it stands. As we have pointed out, the key hurdle in project development is infrastructure," they added.
    Indian steel makers have been betting on developing coking coal assets in Africa, as a hedge against Australia, which is the dominant coking coal supplier to Indian firms. The price of coking coal was on Monday settled at $221-225 a tonne for the January-March 2011 contract. Tata Steel Europe buys it from Australia and the US, where it spends $20 a tonne on freight. In comparison, the cost of coal from Mozambique would be about $80 a tonne and the freight cost will be lower than that from Australia.
    Coking coal, which is primarily used by steel makers, has been in demand as higher production fuels the need for more coal. About twothirds of global seaborne trade is from Australia, and Mozambique is steadily becoming the second-largest producer, say industry reports.
Riversdale in talks with Rio on A$3.5 b bid Rebecca Keenan MELBOURNE
    RIVERSDALE Mining, an Australian developer of coal mines in Africa, said it held talks with Rio Tinto Group on a potential A$3.5 billion ($3.46 billion) takeover proposal. "The company has had discussions with Rio Tinto concerning a possible transaction at the corporate level for indicative consideration of A$15 per Riversdale share," the Sydney-based developer said today in a statement. Its stock jumped to the highest price in a decade. "We note the statement," Rio Tinto spokeswoman Karen Halbert said by phone on Monday, declining to comment further.
    Coal deals this year have more than doubled after imports by China, the biggest consumer, surged fivefold in 2009.
Walter Energy bid C$3.3 billion ($3.28 billion) for Western Coal last month, while Nathaniel Rothschild's Vallar agreed to buy stakes in Indonesia's PT Bumi Resources and BT Berau Coal Energy to build one of the world's largest coal producers.
    Riversdale's coal resources in Mozambique total 13 billion metric tons, split between the $2 billion Zambeze project and the Benga license, ac-cording to the company's website. "Riversdale has very large resources in Mozambique," said Grant Craighead, managing director of Sydney-based research company Stock Resource. "The challenge for Rio is finding assets big enough to make a material difference to the company and this fits that criteria."
    Riversdale rose 16% to A$16.31 at 4:10 pm in Sydney, the highest close
since March 2000. Rio dropped 0.5% to 4,392 pence at 11:07 am in London, after retreating 0.5% in Sydney. The proposed bid is a 16% premium to Riversdale's average share price over the 20 days through December 3. The average premium for coal-industry deals announced this year is 26%, according to data compiled by Bloomberg.
    Rio is studying small-to-mediumsized acquisitions that are likely to be in the low "single-digit billion dollar range," chief financial officer Guy Elliott said November 26. A bid for Riversdale fits with the company's mergers and acquisitions strategy, Liberum Capital said on Monday in a note to clients.
    Rio would need to win the support of Riversdale's major holders, including Tata Steel, which holds a 24.16% stake and a 35% interest in the Benga project. Benga may produce about 1.7 million tons a year of coking coal and 300,000 tons of thermal coal, with first exports expected in the second half of next year, according to the company's website. Coking coal is used by steelmakers and
thermal coal fuels power plants.
    Rio produced 7.5 million tons of hard coking coal from its operations in Australia's Queensland state in 2009, according to a January 14 statement. The company's production growth in coking coal is estimated by Liberum at 12 percent over the next three years, meaning "this approach would hold strategic merit," the brokerage said.
    Rio, based in London, already has nine thermal coal mines in Australia and the US, one coking coal operation in Australia and two other mines that produce both types. Two thermal mines are under development, according to its website. "While discussions with Rio Tinto are ongoing, there is no certainty that Rio Tinto or any other party will proceed with any proposal," Riversdale said in the statement. — Bloomberg

DIGGING RICH: Drilling in progress at Riversdale Mining's Zambeze project, near Tete in Mozambique


ONGC set to get 10% return on Cairn fields

Govt To Ensure Minimum RoI To Boost Valuation Before FPO

THE government has agreed in principle to ensure a minimum 10% return on investment (RoI) to ONGC in Cairn India's Rajasthan blocks, boosting the firm's valuation ahead of its follow-on public offering and removing a big obstacle for the $9.6-billion Cairn-Vedanta deal, petroleum ministry sources said.
    The state-run explorer has been losing money
from these blocks, as it has to bear the entire royalty burden, and has been using the deal to negotiate better terms for itself. Oil ministry sources said the government may transfer a part of its own share of profit from the blocks to help ONGC, but this would require the approval of the finance ministry because it would be a direct subsidy from the government.
    Officials in the finance ministry said
they were looking at ways to help ONGC while petroleum secretary S Sundareshan said his ministry wanted India's second-largest company by market capitalisation to get a reasonable return.
    "This will come as an upside for investors ahead of the FPO as the Rajasthan blocks will generate more revenues in the years to come. A positive return for ONGC would help the Cairn-Vedanta deal as well as ONGC's concerns would be addressed without making any changes for Cairn India materially," says Sanjeev Prasad of Kotak Securities.

    The ministry is considering ways to give ONGC a return of 10-15% on its investment in the Rajasthan blocks and is consulting ONGC and the Directorate General of Hydrocarbons, the quasi-regulator for the sector, the official said, requesting anonymity. One of those options is to amend the tripartite contract between Cairn India, ONGC and the central government for the Rajasthan blocks. The amendment would allow the Union government to directly compensate ONGC.
    By altering a specific contract, as opposed to
making a policy change that affects 70-odd royalty deals that are in the same situation as ONGC, the government will not need cabinet clearance, speeding up the deal. The government would like to resolve the royalty issue quickly, as it is looking to sell 5% in ONGC through a public issue by March 2011; if the royalty issue is still pending, it might lower the valuations the government gets. However, the Cairn-Vedanta deal, pending for about four months, might run into another hurdle. If the delay continues, Vedanta Resources might ask Cairn Energy, Cairn India's Scottish parent, to lower the deal price, a person involved in the transaction said last Thursday.
    "The change in crude prices and scrip movements will be variables we will have to keep in mind as the deadline approaches," he said. The deadline for the deal is April 15, which can be extended by one month

Wednesday, December 1, 2010

Bharti, Punj Lloyd bid for TCIL’s 30% in Hexacom

Bid Winner May Have To Shell Out Over 1,800 Cr For Stake Buy, Deal To Peg Hexacom's Valuation At Around 6,000 Cr

BHARTI Airtel and Punj Lloyd are the only two companies who have submitted bids to buy out Telecom Consultants of India's (TCIL) 30% stake in Bharti Hexacom, officials aware of the development told ET. Bharti Airtel's operations in six north-eastern states (excluding Assam) and Rajasthan are through Bharti Hexacom. The Sunil Mittal-promoted company owns 70% in Hexacom, and the government had recently invited bids as TCIL wanted to exit by selling its stake JV.
    The deal will be worth upwards of 1,800 crore, which is the base price prescribed by the government-appointed consultant. This values Hexacom, which has a customer base of around 13 million, at about 6,000 crore. Bharti has the right of first refusal to TCIL's stake in Hexacom.
    But, an Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee, that is looking into all telecom
related issues, will fix the base price, and the financial bids of the companies will be opened only after this process is completed. Both Airtel and Punj Lloyd did not comment on placing a bid for TCIL's stake in Hexacom.
    Internal telecom department documents
reviewed by ET reveal that last month, the Prime Minister's Office had sought clarification on the stake sale after Parliament member Jaiprakash Narayan Singh had raised objections to the sale process. The MP had also demanded that the PMO ask the telecom department if an e-auction (where the bid process is online) can be carried out for the same process. The telecom department has decided to reject the demand for an e-auction on two grounds — Bharti has the first right of refusal since it is a majority stake holder and also since the reserve price is being fixed after the bids have been received.
    Last year, all key ministries had given their approval to a Cabinet note moved by the telecom department on exiting Bharti Hexacom. DoT also accepted the finance ministry's recommendations that a reserve price be fixed for TCIL's stake in Hexacom 'in a fair and transparent manner before going in for the sale which must be conducted through a global auction'.
    Government officials added that the Centre may force Hexacom to list if it fails to get the reserve price through a bidding process. As per DoT records, Hexacom had revenues of 1,346 crore and a profit of 331 crore in 2007-08 and a net worth of 918 crore. According to DoT estimates, these numbers have gone up substantially
in 2008-09 and 2009-10. TCIL had earlier tried to exit Hexacom in 2005-06, but decided against it, saying the price offered by Bharti Airtel was too low. Bharti Airtel had offered 262.5 crore for TCIL's stake in Hexacom.
    Last year, DoT decided that TCIL must exit from Bharti Hexacom on account of two factors. First, TCIL had been seeking dividend payouts every year, a request that Bharti group has constantly turned down on account of the 'fact that it (Bharti Airtel) was using all its internal generation for expansion of network to keep up with the intense competition in the market.
    TCIL maintains that it is due to get dividend payment from 2004 onwards when Hexacom began making profits. Second, TCIL had sought the listing of Bharti Hexacom, which too was turned down, on the grounds that the flagship company (Bharti Airtel) is already listed and as such their policy does not permit subsidiaries to be listed. Besides, as per the shareholders agreement, TCIL cannot insist on listing or getting dividend.

DIAL TONE
Bharti Airtel owns 70% in Hexacom & has right of first refusal to Telecom Consultants of India's stake in co
Bharti Airtel's operations in six northeastern states (excluding Assam) and Rajasthan are through Bharti Hexacom
The financial bids of the companies will be opened only after EGOM fixes the base price
The govt may force Hexacom to list if it fails to get the reserve price through a bidding process

Just 509 Nanos sold in breezy Nov

Incidents Of Fire, Lack Of Easy Finance Hit Numbers Even As Auto Sales Zoom In Festive Season

NANO, the world's cheapest car, is failing to find favour with Indian families who could not afford an automobile earlier.
    The low-cost, four-passenger car reported sales of just 509 units in November 2010, a dramatic decline from 9,000 units in July, even as automobile sales surged on easy finance and festival season. Mercedes, one of the costliest cars in the world, sells more than 500 units in India, touted as the world's
fastest-growing automobile market.
    Despite the fall in Nano sales, Tata Motors' second-quarter profit rose more than 100-fold as a global economic recovery spurred demand for luxury sedans and sports utility vehicles. The company's stock price has appreciated 78% over the past six months.
    But the Nano will continue to remain a headache for Tata Motors. The company had targeted a production of 20,000 units a month by December 2010 at the time of its launch last year.
    But a series of reports on the car catching fire, starting from March
this year, doused the initial enthusiasm of customers who had rushed to book the Nano when Tata Motors launched it with a target sale price of 1 lakh, less than half the cost of the cheapest car available in India.
    Ravindra Bhagat, an Ahmedabadbased businessman, was one such customer who bought a Nano last year. Bhagat's dream turned sour when the car caught fire within 20 days of its delivery.
Freak fires, loan issues begin to hurt
"THOUGH I received complete compensation for the car, I lost faith in the product," says Bhagat.
    While the fire incidents took their toll, many other customers dumped the Nano due to lack of easy finance. Sales dipped after the initial euphoria because the car was not reaching the target audience, said people familiar with the company's management. Tata Motors says it is taking a series of measures to lure customers in rural areas and small towns to the Nano. It has opened sales offices in states such as Kerala, Karnataka, Maharashtra, UP, West Bengal, Chhattisgarh, Madhya Pradesh, Andhra, Bihar, Jharkhand and Gujarat since August this year to boost sales.
    The auto major is also setting up special access points, in addition to showrooms, where customers can come and experience the car. It has recruited about 1,200 people to engage with customers. "The profile of such customers who are desirous of the Tata Nano is that of a two-wheeler purchaser or those who do not own any personal mobility at all. Many of them do not know driving. We are addressing their questions through initiatives like test rides and extensive interactions," the company said in a statement. "Initially when we went through the booking route, we had no control on who was buying what, or who was getting the allotment because it was all random. After we started doing the deliveries, we found that a lot of people who purchased the vehicle are actually having a car already, some even had two cars," said an official close to Tata Motors.
    Two successive price hikes also contributed to the fall. "It is an emission regulation that we have to meet, which comes at an extra cost. There is a legislation-led cost rise too that has to be passed. So today a base version comes for around 1.36 lakh, inclusive of all taxes," the person said. Analysts feel sales will slip if the product is sold in the current form. "Unless Tata Motors makes some radical modifications, Nano sales will continue to languish," said Mahantesh Sabarad, analyst at Fortune Financials.


 

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