FIRST ORDER 25%

We recommend

Thursday, April 28, 2011

Future Ventures Issue Fails to Lure Institutional Investors

The QIB portion of the company's . 750-crore issue received only 26% subscription

The . 750-crore IPO of Future Ventures, a subsidiary of the Future Group led by Kishore Biyani, has failed to attract institutional investors.
The National Stock Exchange website showed a subscription of 26% at 5 PM on Wednesday evening for the 50% of the public issue reserved for investors such as mutual funds and insurance companies, a category known as qualified institutional buyers. The overall subscription was 0.95 times at 5 PM, which means that 95% of the issue had been subscribed. The figure of 26% in the case of the QIB category refers to the fact that one-fourth of the 50% set aside for this class of investor had received subscriptions.
The non-institutional category, which consists of individual investors and corporates investing more than . 2 lakh, seems to have found the issue far more attractive — their bids are more than five times the 15% reserved for the category.
The final price of the issue cannot exceed . 11. The issue is being sold at a price band of . 10-11. A
public issue cannot be priced below . 10.
"The issue has already been subscribed over one time and will be open for retail category subscription on Thursday. As per the prospectus, not more than 50% of the issue shall be allocated on a proportionate basis to QIB. Hence, the applications in the other-than-QIB category will be used to fill the QIB category," said a merchant banker with the knowledge of the bids.
"There is a lack of clear visibility on earnings in the near to midterm," Deven Choksey, MD, KR Choksey Shares and Securities, says.
"While the business model is quite robust in the long term, there is no clear visibility on how most of the proceeds will be deployed. The proceeds are likely to be invested in lower interest-paying instruments."
A few days earlier, the Muthoot Finance IPO received 25 times subscription from institutional investors, showing that investors are ready to put in money where they find value.
The issue closed on April 27 for qualified institutional bidders and will close on April 28 for retail and non-institutional bidders. The retail segment has been subscribed 0.16 times or 16% of the 35% reserved for retail investors. The issue has no anchor investor, a term used to describe a financial investor who buys up a chunk of the QIB portion before the issue opens.
FVIL, which invests in business
es that seek to sell to India's growing middle-class, plans to use a large part of the funds to acquire new businesses; a small part of the proceeds will be used to grow the existing businesses. Its business model is similar to that of a venture capital fund.
FVIL has 14 investments, six of which are subsidiaries. Some of the business ventures include AND Designs, Biba Apparels, Lee Cooper, Ching's Secret, Smith & Jones, Amar Chitra Katha, Indigo Nation, John Miller, Scullers among others.
"Since there are no strict comparables in this segment, peer comparison cannot be done. Notwithstanding the robust and unique
business model and India's compelling consumption-driven growth story, we advised clients to avoid the issue due to the lack of clear visibility on earnings in the near to mid term," Choksey said. "FVIL has indicated that it may not immediately deploy the issue proceeds and temporarily invest the proceeds in liquid instruments" said a note from GEPL Capital, which has asked its client to avoid the issue. "Also, it has not yet identified any business opportunities for investing the issue proceeds. The company has no plans to pay dividends and shareholders may not receive distributions from any sale of its business ventures," it said.
95% Subscription Till Wednesday

• QIBS TEPID RESPONSE TO
the Future Ventures IPO is in contrast to the Muthoot Finance's issue, which was oversubscribed 25 times

• ANALYSTS SAY LACK OF
clear visibility on earnings in the near to mid-term has kept investors away from the issue

• THE IPO RECEIVED 95%
subscription till Wednesday. It will be open for retail investors on Thursday


Wipro Meets St Hopes, But Sees Flat Q1 Revenue

Fourth-quarter profit rises 4% sequentially to 1,375 cr as CEO Kurien urges patience

Wipro, India's third-biggest software services exporter, on Wednesday projected tepid growth in first-quarter revenue. The company, which is in the middle of an organisational revamp involving crunching and dismantling of management layers, said first-quarter revenues for the IT business will either fall 0.4% or grow 1.5% over the previous quarter.
"We've made several organisational changes this quarter with the clear objective of trying to simplify the organisation and making us much leaner and faster on our feet. We've moved to a single P&L axis which is that of the industry vertical," Wipro Chairman Azim Premji told a press conference. In January this year, Premji broke the joint-CEO structure and appointed TK Kurien as the new chief executive with the specific mandate to fire up sales and profitability. The Bangalore-based firm had lagged its peers in sales and profit growth for some quarters and was in danger of losing the No.3 spot to rival Cognizant. "While all of us love quarter-toquarter objectives because it keeps you on the treadmill, the reality is that when you are doing the kind of transformation that we are going through, a quarter would be just too short to look at," Kurien said.
Officials said the guidance for first quarter of FY12 was more a reflection of the order pipeline based on decisions taken several quarters earlier.

Unstable Footing for B'lore Biggies
Wipro joins bigger rival Infosys in forecasting tepid sales. Revenue at its software business will range between $1.39 billion and $1.42 billion in the current quarter
Uncertain Future

WAGE COST: Wipro plans to raise salaries by 12-15%. The wage increases, mirroring hikes planned by TCS and Infosys, will impact operating margins

BUMPY ROAD: Growth in global technology spending may slow to 5.1% from 5.4% in 2010 because of macroeconomic uncertainty, signalling customers may be hesitant to sign long-term contracts because of these concerns
Currency fluctuations too a big deterrent
Advertisement

Monday, April 25, 2011

Is Buffett’s Teflon Finally Wearing Off ?

With a key Buffett lieutenant resigning, some investors are no longer willing to overlook the obvious

Aside from maybe the odd cheeseburger stain on his tie, nothing much sticks to Warren Buffett.
Whether his underlings are convicted of helping insurance companies inflate results or a major company he helps oversee is sanctioned for accounting shenanigans, his admirers don't seem to care. Or at least, they haven't historically.
But with a key Buffett lieutenant resigning under a cloud recently, some sophisticated investors are no longer willing to overlook the obvious. For all the shareholders who still consider Buffett the epitome of American capitalism, there are others who wonder whether the time may be near for Buffett to take a graceful bow and exit the stage. Some will clamour for that this weekend, when 40,000 of his shareholders prepare to descend on Nebraska for the annual meeting of Berkshire Hathaway. "I want to hear more about Sokol, I want to hear more about how they're going to outperform the markets. I want to hear about what (Buffett's recent) trip to India leads us to believe about how the money is going to be invested in the future," said Michael Yoshikami, CEO of YCMNET Advisors and a widely quoted Berkshire
shareholder. Investor disappointment reflects not just the revelation that David Sokol, once Buffett's presumed successor as chief executive, bought stock in a company he then pushed Buffett to acquire. It is also because of Berkshire's lackluster performance recently, and questions about the firm's ability to thrive after its octogenarian chairman and chief executive moves on.
Berkshire Hathaway has grown exponentially over decades, but many investors question how it can possibly do as well in the future. With the dozens of companies that Berkshire Hathaway owns having had relatively little oversight for years, some wonder how much earnings power Berkshire actually has and whether future earnings can be as strong as past.
SOKOL AFFAIR
By now the details of Sokol affair have been told many times. Citigroup bankers pitched a long list of companies to Buffett's presumed
successor, and he told them he thought Lubrizol Corp, which makes lubricants and other chemicals, might make a good acquisition target.
He started buying up shares for his own account, and after building up a $10 mil-lion position he pushed Buffett to buy the company. As Buffett put it, Sokol made only a "passing" mention that he owned some Lubrizol shares.
Some of Buffett's biggest investors also say he should have chastised Sokol or told him to sell his stock. What is murkier, however, is the question of whether Buffett actually did anything wrong from a legal standpoint.
It wasn't the first time that Buffett has been close to people behaving questionably. But few of his investors have cared, and the damage to his reputation seemed slight if at all. In 2008, for example, the government won convictions of four executives from his reinsurance business for helping other insurers inflate their results. The nearly uniform reaction from legions of Buffett fans around the world: yawn.
'THAT'S MY GUY'
Buffett, of course, benefits mightily from his folksy image. After all, it's tough to imagine how someone who drives himself to work and stops at McDonald's for a bite on the way home can also be guilty of high crimes of finance.
The audience at the meeting is one of the tools he uses to burnish his reputation. There is no better financial television than footage of Buffett having an ice cream at Dairy Queen, with hordes of investors thronging him and hoping he might drop a stock tip on the floor with the crumbs of his vanilla cone. It is hard to interrupt that storyline. — Reuters

Warren Buffett

Fund Tracking Insider Trading Beats Market

Fund returns more than benchmark by buying into cos like Smartlink when promoters hiked stake

 Afund for wealthy individuals tracking insider transactions has outperformed the market and has shown that such deals are an indicator of a potential merger & acquisition event in some companies.
Insider Shadow Fund of the Chennai-based Unifi Capital, which buys into companies where insiders have traded, has returned double that of the benchmark since it was launched in June 2010. It invested in shares of companies such as SmartLink Systems, drug maker Alembic and Triveni Engineering that either sold off, or spun off divisions.
The fund that raised . 100 crore from 120 high wealthy clients last year is up 9%, compared with a 4% gain in its benchmark, BSE Midcap Index.
Promoters of SmartLink Systems, which sold its digilink business to Schenider Electric for . 503 crore in March, raised their stake to 67.3%, from 62.3% before the deal. Unifi bought shares in the company between July and Au
gust 2010 at an average cost of . 54 a share and sold at around . 70. Alembic promoters raised their stake to 63.5%, from 60 between March 2009 and March 2010. In June 2010, it spun off its pharma business and wound up loss-making vaccine business to develop real estate. Unifi had bought shares at an average cost of . 56.
"The underlying assumption behind the strategy is that the managers and controlling shareholders have a clear advantage over other market participants and are well positioned to take sensible investment decisions, especially in the case of small and undertracked companies," said G Maran, vice-president of Unifi Capi
tal and head of products. Companies report purchase and sale by insiders in their filing with stock exchanges. Although most of the deals need not necessarily be based on secret insider information, some investors use that as an indicator of the strength or weakness of a company. It could be straight transactions, or share buybacks and some value buying by promoters. Warren Buffett, the legendary investor at Berkshire Hathaway, follows this.
"We searched for companies that were large re-purchasers of their shares," Buffett had said. "This often was a tipoff that the compa
ny was both undervalued and run by a shareholder-oriented management."
In the March quarter, when midcap index fell the most, insider buys grew significantly. Some of the cases include Aarti Drugs, Everest Kanto, Gitanjali Gems, Cera Sanitaryware, Pennar Industries, Graphite Industries, KCP Sugar, PVR, Dhampur Sugar, GVK Power, JP Associates and Texmaco. Big ones include Asian Paints, Apollo Tyres and Chambal Fertiliser, filings show.
It is not necessary that some corporate actions follow immediately and in some cases there may never be one for a long time.
"Since such corporate actions take time to materialise, one has to maintain a medium-term per
spective," said Maran. "The outperformance was nil in six months, about 5%-6% in nine months and we target to achieve an outperformance of 15% over an 18-month period."
Triveni Engineering promoters raised their stake to 68% from 60%, and then announced an equal joint venture with General Electric for its power turbines business.
The fund has ignored insider stake increases in case of companies with a free float of less than . 100 crore, or if the intention is for strategic reasons and not due to fundamentals. For example, in case of GMR Infrastructure, promoters are increasing stake to maintain their holding after it dropped due to sale of shares to institutional investors.

Fund Raised . 100 cr from 120 Clients

Insider Shadow Fund looks to profit from companies where insiders have traded.

It made big gains by investing in Alembic and Triveni Engineering that either sold off, or spun off divisions.

The fund raised . 100 cr from 120 high wealthy clients last year. It is up 9%, compared with a 4% gain for its benchmark BSE Midcap Index


RIL Puts Rewas Port, LNG Terminal Plans on Hold

Reliance Industries' (RIL) plan to build a . 5,000-6,000-crore port project at Rewas, Maharashtra, and its ambition to build a liquefied natural gas (LNG) import facility have been put on hold, said Niraj Ambani, president, logistics, RIL, to ET.
"The Rewas port is part of the Maha Mumbai SEZ project that is awaiting regulatory clearances for land acquisition. So for now, the Rewas Port project is on hold," said Mr Ambani.
Reliance Logistics and Ports, a unit of RIL, holds a 55% stake in Rewas Ports — the company formed to develop and operate an all-weather deep draught port at Rewas — while Jai Corp (owned by Mukesh Ambani's close aide Anand Jain) has a 10% stake and Amma Lines holds 24%. The rest is held by the Maharashtra Maritime Board.

The first phase of the Rewas port was estimated to cost over . 5,000 crore and involved the building of nine berths with a capacity to handle 66 million tonnes of cargo a year. In February this year, the Maharashtra government ended its land acquisition process for the proposed Maha Mumbai Special Economic Zone, putting a spanner in the development of one of India's biggest SEZ plans.
The state issued a government resolution de-notifying the land acquisition process for the SEZ, clearly indicating that it would not acquire any more land
for the SEZ. All the land acquired by the government in the past for the SEZ was also to be returned. The SEZ was planned across 10,000 hectares and land in 83 villages of the Pen, Panvel and Uran talukas in Raigad district were to be acquired. Niraj Ambani was talking to ET as a part of a pre-event interaction for the upcoming India SCM Logistics Summit to commence on April 28, 2011.
Mr Ambani also said that RIL's plan to build a $1.2-billion LNG import terminal on either the east or west coast to meet the demands of its refineries and petrochemical plants have had been put on the back-burner. "We are still to take a final decision on that project and no concrete
plans are in place till now," he added.
Sources say RIL had initially planned to set up an LNG import terminal in 1997 but then dropped plans for a 5-milliontonne-per-annum port terminal at Jamnagar and a plant for its re-gasification. Experts say that the critical reason behind RIL wanting to build an LNG terminal was its inability to use the natural gas it produced from the eastern offshore KG-D6 field for its refineries in Jamnagar. Reports also suggest that RIL had signed a two-year contract with Hazira LNG to import spot LNG from April 2011 onwards, a claim denied by Ambani. "I am not aware of any such contract," he said.

Losing Steam?

• Rewas port is part of the Maha
Mumbai SEZ project that is awaiting regulatory nod for land acquisition

• Reliance Logistics and Ports holds
55% in Rewas Ports while Jai Corp holds 10% and Amma Lines 24%

• The first phase of the Rewas port
was estimated to cost over . 5,000 cr

• RIL had initially planned to set up
an LNG import terminal in 1997 but then dropped plans for a 5 mtpa port terminal at Jamnagar


Advertisement

Maruti Nets 650 cr, Beats Expectations

Net profit for the fiscal year ended March 2011 fell 8.4% to . 2,288 cr, but net income grew 24.8% to . 36,128 cr

Maruti Suzuki beat market expectations with a marginally higher net profit of . 650 crore for the three months ended March 31, 2011, but cautioned that huge investment on new cars could affect its profits in the next few quarters.
The country's largest carmaker saw a 19.8% increase in sales in the fourth quarter to . 9,863 crore, but profit grew just 0.5% from the yearago period due to higher raw materi
al costs and increased expenses on new models. Maruti, which sells more than half of cars sold in the country, sold a record 3,43,000 vehicles in the quarter, 20% higher that the same quarter in last year.
"We are concerned on our profits even as the sales have been best ever," said S Nakanishi, managing director, Maruti.
"We are investing huge amounts on research and development and would go ahead with an array of new car launches that will translate into huge benefit in terms of domestic market share and exports," he said, adding the nuclear meltdown in Japan would not impact supplies of components and raw materials. Japanese carmaker Suzuki owns 54.4% in Maruti.
The company has lined up a capital investment of . 4,000 crore for the current fiscal year with a focus on R&D and product launches. It will also add capacity of 5,00,000 cars by mid-2013. Maruti posted a record
sales growth of 25% to 12.71 million vehicles in the 12 months ended March 2011, but expects a lower 15% sales growth this year.
On Monday, Maruti scrip rose 1.53% to close at . 1,326.55 on the Bombay Stock Exchange. In intraday trade the stock
rose 2.17% to touch a 30-day high of . 1,335.
The fourth quarter performance marks an improvement from the December quarter when the net profit declined by over
26% due to higher commodity cost and currency fluctuations. The company managed to perform better in the fourth quarter, despite a 24% increase in raw material cost to . 7,598 crore. Maruti raised vehicle prices twice since January to offset higher input costs.
Other expenses increased 31% to
. 1,066 crore in the quarter. The company made a royalty payment of . 509 crore to parent Suzuki Motor Company, almost double from the . 285 crore paid the previous year.
Industry analysts said that the company has managed to control costs even as major inputs like steel, lead, nickel, rubber and aluminium rose sharply in the Indian and international markets."There has been some concern on the raw material
front and Maruti will have to devise new strategies to beat competition from global players in the domestic market," said Mahantesh Sabarad of Fortune Equity. The muted performance of the fourth quarter impacted the annual fiscal performance of the company as the net profit for the fiscal year ended March 2011 fell 8.4% to . 2,288 crore, although the net income grew 24.8% to . 36,128 crore over 2009-10.

Company has lined up capital investment of . 4k cr for the current fiscal

Advertisement

Cloud computing: A Threat to Indian Outsourcers?


Cloud computing, defined as a subscription-based or pay-per-use service that in real time, and over the Internet, extends existing capabilities of Information Technology, remains at an early stage of conceptual development. Services do range from full scale applications such as accounting and storage to niche services such as spam filtering.
Proponents of cloud computing contend that it erodes the requirements for major capital expenditures on IT infrastructure to customer applications. However, will cloud computing replace outsourcing and does Cloud computing "represents a fundamental shift in how financial companies pay for and access IT services?"
Cloud computing differs from traditional outsourcing in a number of respects. The contractual commitments, sometimes defined as subscriptions, tend to be for short periods of time, as little as a session to a month. The contracts rarely have up-front tariff charges.
The services are available are on demand but, while cloud computing services may be capable of some scaling they are most certainly not capable of unlimited instant scaling and addition of near unlimited resource. Semantically, cloud computing may be defined as "instant outsourcing."
Indian outsourcers may consider extend
ing their outsourcing services to the cloud computing domain, where their existing IT infra-structure services have spare resources capacity. They do have the resources to fill that gap in instant outsourcing through almost unlimited scaling and addition of near unlimited resources.
Where Indian outsourcers consider formally entering the area of cloud computing services, they should position cloud computing services as separate and distinct from their existing outsourcing services, containing no overlapping services with core outsourcing , even to existing clients. Pricing models differ
While delivery of cloud computing services may be personalized, its services and service strategy is not collaborative. Outsourcers may consider using cloud computing as a means of selling non-core applications and services, which can impede the financial incremental benefits of major outsourcing contracts.
Many institutions, particularly in the financial services sector, are unlikely to entrust major aspects of data use and application to cloud computing services, unless and until their trust in those services has grown .
So, issues such as data security, systems integration, unexpected and tactical demand for capacity will be critical service hurdles that all cloud computing providers will have to clear to engage major clients in cloud computing in core areas of their technology structure and services provision. Major external technology service provision is likely to remain a traditional strategically based outsourcing service.
The need to respond tactically and spontaneously to immediate and short term business demands will erode the non-core elements of technology outsourcing.
If cloud computing can position itself an element of strategic information technology planning, then it will start to make more substantial inroads into traditional outsourcing.

Bob McDowall is a Senior Consulting Analyst with the Aite Group. Contact him at www.aitegroup-.com and bmcdowall@aitegroup.com 


BOB MCDOWALL



Advertisement

Monday, April 18, 2011

Q4 Score Loans, Fee Income Lift HDFC Bank Net 33%

Net climbs to . 1,114 cr; bank to split stock at 5-for-1 ratio to lure retail investors

HDFC Bank's quarterly earnings beat market expectations with a 33% jump on strong loan growth and higher fee income. The bank said, after market hours, it will split stock for the first time to lure retail investors. Net profit for the March quarter rose to . 1,114.7 crore, up from . 836.62 crore, a year earlier. It decided to pay a dividend of . 16.50 a share and split shares into five-forone, with a face value of . 2 apiece. Shares ended 1.9% lower at . 2,315.70.
"The rise in profits was largely driven by growth in net interest income on account of loan growth and increase in fee income," said executive director Paresh Sukthankar. Speaking on the stock split, Mr Sukthankar said: "The stock split will ensure higher retail participation in the scrip, which has slipped to less than 10%."
The bank's other income — that includes fees, commissions and earnings from foreign exchange and derivatives transactions — grew 32.1% in the quarter to . 1,255.8 crore from . 950.76 crore.
The main contributor to other income was fees and commissions of . 1,000.6 crore. Its total income for the quarter ended March 31, 2011, increased by . 6,724.3 crore against . 5,003.87 crore at the end of March 31, 2010.
The bank's advances portfolio increased by 27.1% to . 1,59,983 crore. "The retail loan book accounts for 50% of the loan book. The three business segments, including retail, wholesale and treasury operations, will drive the bank's growth in the coming quarters," said Mr Sukthankar. "The bank will continue to grow faster than the industry, which is over 20%. The increased branch network and penetration will also drive the deposit growth," said Mr Sukthankar. The bank's deposits rose 24.6% to . 2,08,586 crore. Its net interest margin for the quarter fell to 4.2% from 4.4%. "The net interest margin is expected to fluctuate by about 10-15 basis points from the current level in the coming quarters. Interest rates will remain stable in the near term.
However, another 50-basis point increase in policy rates could put pressure on lending rates," he said. The bank has seen a marginal rise in its total restructured loans to 0.4% at the end of March 2011 from 0.3% a year earlier as some microfinance institutions have approached the bank for a loan recast.
IndusInd Q4
Net Rises 75%
MUMBAI Higher other income and advances, coupled with better margins, pushed the fourth quarter profit of private sector lender IndusInd Bank by a robust 75.3% to . 171.76 crore. The bank is bullish about growth in the coming quarters as well. Net profit for the full fiscal rose a healthy 64.80% to . 577.32 crore, up from . 350.31 crore, on the back of good performance by all its verticals .


Advertisement

Retail Investors Turn Value Buyers as FIIs Exit

Retail investors raise holdings in over 400 companies in Jan-Mar quarter

Retail investors adopted a contratrian investment approach even while overseas investors were on a selling-spree in the past quarter. Their equity stakes have now increased in most companies that have seen a change in public holding in the January-March quarter.
Attractive valuations prompted them to go for a 'value buying' in many companies, particularly those which have a quality management background, high growth visibility and the potential to offer better returns on a medium-to-long-term basis, according to brokers. However, there are concerns that some retail investors may have fallen pray to speculative activity and left with poor quality shares of fundamentally weak firms after operators exited at higher levels. "Higher retail holding in some of the companies could be attri
buted to value buying prompted by selling from foreign institutional investors in the past quarter," said Nandip Vaidya, president-retail broking, India Infoline. While many long-term retail investors would have used FII selling to buy shares cheaper, that has, however, hardly led to any significant change in their overall holding in the listed space. There has been lack of fresh investment from new stock market participants, according to Mr Vaidya.
Retail investors have increased their holdings in as many as 405 companies against 287 in which they cut their exposure during the period. There was no change in the remaining 54, which have released their shareholding data so far. HCC, JBF Inds, Titagarh Wagons, Geodesic, Educomp Solutions, Lakshmi Machine Works, Alok Inds and Mercator Lines are a few notable examples in the category. Retail holding has risen by 1.2 to 4.7 percentage points between January and March. In most of these companies, excluding Lakshmi Machine, HCC and JBF Inds, FII holding fell between 0.4% and 4.2% during the period.
Brokers feel that after years of experiencing ups and downs in the stock market, retail investors
have become matured and smarter to do value pick when right opportunities emerge. "Many smaller players could not participate in past year's bull run and so jumped on the opportunity to buy good quality shares after prices fall to tempting levels last quarter," said KR Choksey Securities MD Deven Choksey. Last week, the broking firm held two roadshows for retail investors in Gujarat. While more than 300 investors participated, most of them, said Mr Choksey, were positive on the market, showing interest in quality, long-term ideas.
ET spoke to a few seasoned retail investors to know what strategy
they adopt in a bearish market. One of them — Sunil Maheshwari — a 52-year-old investor from Amalner, a small town in Maharashtra's Jalgaon district, bought selectively on which he claims to have earned decent returns in the recent stock market recovery.
"We remained confident about the Indian economy and corporate earnings even when the market conditions were unfavourable, globally. We invested selectively in sectors like banking and entertainment on which we could earn decent short-term returns," he said.
vijay.gurav@timesgroup.com 


Advertisement

Sovereign Funds Set to Get More Room for India Play

Open offer trigger may be raised to 20%; govt-owned funds from same country to be treated independently

Sovereign wealth funds (SWFs), which have emerged as formidable global investors and often evoke concerns in countries where they put in money, will soon have a greater play in India.
The finance ministry and regulators will change the rules to give these investment funds floated by governments of rich countries more headroom when they buy shares in listed Indian companies. Also, local authorities will treat SWFs emanating from the same country independent of each other—a proposal that is expected to go down well with the two Singapore governmentowned funds, Temasek and GIC.
The 50-odd SWFs registered in India invested between $8 billion and $10 billion last year. The proposals were recently discussed by the board of capital market regulator Sebi.
It was proposed that SWFs belonging to countries that have signed treaties or agreements with India should be allowed to buy up to 20% shares of a listed company without making an open offer to existing shareholders. At present, all entities, except banks and financial institutions like LIC, have to make a minimum 20% open offer after their holding touches 15%.
The suggestions reflect the terms of economic co-operation treaties that India signed with countries like Singapore. It has, however, not been able to implement the terms following resistance from the Reserve Bank of India (RBI), which among other
things viewed that funds like Temasek and GIC, owned by the same government, should be treated as investors belonging to the same group.
Most sovereign funds investing in India are registered with Sebi as foreign institutional investors (FIIs).
Since no FII or FII group can hold more than 10% in a single company, RBI had said the combined investments of Temasek and GIC should not cross the stipulated limit in India's second-largest lender, ICICI Bank.
The Impact

• Sovereign funds—owned by foreign governments—can invest up to 20% in Indian firms without triggering open offer

• Singapore-based sovereign funds like
Temasek and GIC to benefit immediately. Also, funds belonging to countries signing economic agreements with India will get a leg up

• Boost to portfolio flows without promoters worrying about dilution of control
The Background

• An agreement in 2005 that allowed Temasek and GIC stakes of up to 20% in Indian firms

• RBI disallowed these funds to raise their stake in ICICI Bank claiming they were acting in concert
The waiver will be on a
• case-to-case basis
Time to Change Rules, Feel Brokers
Stock market circles think it's time to change the rules. "Sovereign funds are only pure investors in companies and their intention is not to destabilise the current management," said Motilal Oswal, chairman of brokerage Motilal Oswal Securities.
The ministry of external affairs feels the state has an obligation to ensure its laws are amended and applied in a manner which would ensure respect for treaty obligations while the attorney-general says "Sebi would be entitled to grant specific exemption having regard to treaty obligations, but reasons would have to be recorded in writing".
Changes in some rules are already underway. For instance, a committee looking into the Takeover Code has suggested the threshold limit that triggers an open offer should be raised to 25%. "However, it's not yet clear whether the relaxation would be extended to FII regulations allowing individual
sovereign funds to go beyond the prescribed 10% limit," said Siddharth Shah, who heads funds practice at law firm Nishith Desai.
Other SWFs that have invested in India include China's National social Security Fund, Abu Dhabi Investment Council, Australia's Future Fund Board of Guardians, Ireland's National Pensions Reserve Fund, Brunei Investment Agency, New Zealand Superannuation Fund, and Canada Pension Plan Investment Board among others.
Besides participating in the secondary market, SWFs invest through other routes like foreign direct investment (FDI) and foreign venture capital. At times, the funds use multiple investment vehicles with different investment objectives and structures. The comprehensive economic co-operation agreements signed between India and other countries recognise such vehicles of the Sovereign as independent of each other for the purpose of application of Sebi rules and regulations.


Advertisement

JEFFREY SEAN LEHMAN HEAD OF NOMINATIONS COMMITTEE, INFOSYS TECHNOLOGIES

'Narayana Murthy is Irreplaceable'

Infosys nominations committee head Jeffrey Sean Lehman says the challenge is to make sure that the change is orderly and reflects a constancy of high-level values even though the way the values are expressed has to change with time

In two weeks from now, Jeffrey Sean Lehman, head of the nominations committee at Infosys Technologies, will announce the company's new chairman — one of the mosttracked successions in corporate India. In an exclusive interview with Pankaj Mishra, Jayadevan PK & Shruti Sabharwal, and his first with any Indian paper, Mr Lehman avoids direct questions about the candidates shortlisted for the post, but hints at deeper leadership changes at Infosys as the remaining founders retire from the company over the next few years.


What's driving the changes at the Infosys board?
You are looking at a company that has had an extraordinary history, trajectory and has achieved great things for its share holders and all its stake holders. It's a point of pride for everyone who is associated with the company. From the beginning, one of the things that the company decided was that it would have mandatory retirement ages for the board and executives. One consequence of that decision is that you have lead time to know when the transition is going to come. That lead time has been a gift and an opportunity which gives us a chance to reflect on what this total transition is going to be. Most companies are not given the signal. We have been given the responsibility to think about how to have a transition over a period of time that will continue the values of the company, principles, provide the right kind of leadership and ensure that within the entire leadership structure, there is a proper mix of skills and backgrounds so that an extremely complex and diversified operation has the resources to operate at the highest level and deliver a performance that all its stakeholders expect.
What is the board agenda besides Mr Murthy's succession?
Over the next four years, all the founders will be taking retirement. And it's important to make sure that the proper bench is prepared with a proper depth and proper processes to deliberate about how and when things will change. It should be a smooth glide into the future. We want to ensure that there is the right mix. You have to have continuity with the past so that everyone knows the historic values and excellence of the company which will be continued. The challenge is to make sure that the dynamism and the change are orderly and reflect a constancy of high-level values even though the way the values are expressed has to change with time.
Will you also look at CEO transition?
We have been thinking about the whole leadership succession process over the next few years. We have been thinking for the last four years. Because of these retirements, we have known that we need to be thinking about the full succession of leadership in the company as a whole structure and not just one position.
April 30 is when you will finalise Mr Murthy's successor. Is it only about that or more?
We will announce that on April 30. I am at liberty to say that the meeting on the 30th has been called at the behest of the nominations committee. I cannot steal our own thunder.
Are you looking at replacing Mr Murthy or the chairman of the board? Are these two different?
We began the process almost two years ago at the board to focus on that question. We never said the object of this is to replace Mr Murthy.
He is irreplaceable. It will not be fair to the successor, Mr Murthy, or to the company to say that we have found a clone to Narayana Murthy. What we have always been looking for is to identify the right person to be the chair of the board of directors of Infosys. I think the specification we are talking about includes understanding the responsibilities of the person in leading the board, in his role and in working with the senior management of the company, which has also been the responsibility of the chair. The question is how to find a person with relevant background, experience, knowledge, etc., that will provide the right kind of leadership. That will be the abstract thing we will be looking for. Then we apply that to real human beings.
Who nominates the candidates?
It's a board process. This was a process that involved all members of the board and we were consulting each other and people would make suggestions. We did not post a job and solicit applications. This is a process driven by members of the board of directors of Infosys.

Is there an insider-outsider debate?
Certainly when you have these idealised attributes of a leader for some attributes, it is not clear which is better. Some say it's much better to have an insider and some say it's much better to have an outsider. We know the benefits of the insider and the outsider. With this attribute, what happens is that you move from saying that you have a list of attributes and we are going to give them a score. That's not how things work when you see real people with different qualities and attributes. Then you think about which of these actually matter and which don't. How they match with each other. In the end you are dealing with full integrated human beings. Each could perfectly well be chairing the Infosys board. Then you say, now we are not choosing on who is qualified or not. We are making a choice. That is our judgment about what combination is right for the company.
What is that combination? What does the company need?
That's not a question which lends itself to an answer, because you are thinking about that question in the context of particular individuals. What you are trying to gauge is that you have a set of complex contribution of attribution. Then you figure out how it fits into the
company and what trajectory it gives to the company. This is a judgment where reasonable people can differ.
From the options you are looking at, is there a consensus?
They talk, they listen, they reflect and they change their mind. Over the course of time, through interaction with the others, where we are going to be on April 30, we anticipate a consensus. That's because we have been at this for a long time. If we were given a charter to think about this 30 years and told you are going to have to make a vote on April 30, it would be hard to take a consensus decision.
Is there a rule that the founders run the company one by one? Do you look beyond founders for CEO positions? Is there an unstated rule?
It is our responsibility as the board to ensure that we exercise our best judgment in having the company's management the best that it can be. And that means the management team led by the CEO has to be the best. In a company like Infosys, when you have a group of people who have been leading the company for 30 years, and have achieved the performance and the results, and developed the company's culture to the way that it is now, obviously, they are front runners. It will be bizarre to say okay, we are going to begin by looking elsewhere. So it is not surprising that CEOs to date have all been part of that founding core group from the beginning. However, the responsibility of the board is to take that fact into account and provide the best management.
Most CEOs have held COO positions before. Is the board looking to do away with the COO position now?
Goodness me, I think Shibu would be very upset if I said his position is not relevant. My view is he works very hard and I don't think he sits in his office all day with his feet on his desk. Different companies have different management structures. You can envision a lot of different structures for different companies. You can imagine a structure with no COO or maybe two COOs. Nowadays, companies have matrix, verticals, horizontals instead of the old silos. What we are trying to do is that they operate in a way that they make the maximum contribution. To see that what they have to contribute has been fully tapped and translated into values. At the same time, you want to make sure that the structure fully attends to all the companies' needs. It's hard for me to imagine a corporate structure in which the activities of the COO are not being performed. It's not like it's written in the stars that there needs to be one person with one title doing this. That's not the way it works.
Some experts say the Infosys board is too management, executive leaders heavy. With founders moving out, is there an opportunity to correct that?
The answer goes back to the earlier question on the insider-outsider perspective. This is another area in which reasonable people differ. Cultures of companies differ. If you look at a typical structure of a US board, the company that is incorporated in the US will have few executive directors unlike in the UK. There is not a single right answer here. Each has its own advantages and disadvantages. This is a contrast that has been in our minds. We have talked about the pros and cons of different structures. This is something that I think is appropriately in everyone's minds whenever we consider whether to add anymore into the
board. We have headroom. We are authorised to have a bigger board but we are not mandated to have a board that is of maximum size.
Will you replace all the founders?
Murthy's successor is not his replacement. The thought is not about finding someone identical to Mr Murthy. I was appointed to the board at the same time Senator Larry Pressler retired. I'm not his replacement. I'm not a Sen
ator. I'm not a Rhodes scholar. The next appointment to the board is not going to be Mohan's or Dinesh's replacement. They will be people who add value to the governance of the company. The process that we use to think about these issues is how do we construct leadership using our best efforts what we think is in the best interest of the company.



"Murthy's successor is not his replacement. It is not about finding someone identical to Mr Murthy"

Advertisement

Thursday, April 14, 2011

Bad debts of PSU banks hit 30k cr

Priority Sector Lending Pinches Hard, Agri Tops List With 70% NPA

New Delhi: The government's agenda for inclusive growth and emphasis on priority sector lending is proving costly for the exchequer, with bad debts of state-run banks increasing to over Rs 30,000 crore till December, 2010. These bad loans—given to agriculture, small-scale enterprises and other priority sectors—are around half of the Rs 68,000 crore non-performing assets (NPAs) of government banks during the same period.
    The agriculture sector leads the pack, accounting for 70% of bad loans. In contrast, only 22% loans went
bad in small-scale industries (SSI) sector during April-December 2010 as against 65% of NPAs in 2009-10. This issue will come up for discussion later this month during a meeting of CEOs of PSU banks with top finance ministry officials, a ministry official said. The assets quality of these banks has also raised concern on efficacy of due diligence on lending.
    The review on credit lending will ascertain if the banks are meeting the 40% mandatory lending to priority sectors on their own, or they have been borrowing such loans from regional rural banks (RRBs) and microfinance institutions (MFIs). If larger NPAs are attributed to such borrowings, the gov
ernment may restrict these options in future.
    In the Budget, government enhanced agriculture credit limit to Rs 475,000 crore from Rs 375,000 crore in the previous year. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers in a bid to increase farm productivity. But, considering that the banks have pressure from the government to meet the credit target within the financial year, the high-level of NPAs show the kind of compromise is being made on the eligibility criteria.
    A similar problem, which had occurred a few years ago and impacted banks' credit
lending and reserves, had to be compensated by government's recapitalization and reimbursement through a farm loan-waiver scheme. A farm loan-waiver scheme announced in 2008-09 to compensate banks made a dent on the exchequer to the tune of Rs 70,000 crore.
    Besides, the farm loans, PSU banks have been writing off bad debts of more than Rs 10,000 crore every year to reflect a healthy balance sheet. The gross NPAs of all government banks have grown by 30% in 2009-10 to Rs 57,000 crore, and in the first nine months of 2010-11, it went up by more than Rs 10,000 crore to Rs 68,600 crore.


Advertisement

Sunday, April 10, 2011

INVESTMENT 10 NEW RULES FOR REAL ESTATE

Realty is no longer the asset that always gives good returns. The ground reality has changed. So have the investing norms. Rakesh Rai explains the new tenets and ways to exploit these for maximum gains.


1
Don't go by the MRP
Most developers desperately need cash to complete delayed projects and start new ones. You can wrangle discounts if you know how to drive a hard bargain.

    There was a time when developers used to quote a fixed rate and offer up to 3% discount if you paid the entire sum within 60 days of booking an apartment (through a home loan, of course). Things are different now. The 3% discount is not the upper limit; it's just the starting point to begin your negotiations. Today, most developers desperately need cash
to complete delayed projects and start new ones, which means discounts and freebies if the customer knows how to bargain. Also, in some parts of the country, sales didn't pick up last year between October and January, the period that accounts for approximately 40% of the annual sales of residential projects. This is why it may be the best time to wrangle a good price.
    Seen from another angle, since there is no sanctity of an MRP, developers try to load charges surreptitiously. So, always keep some extra money at hand without which you may not be able to seal the deal. This has assumed greater importance now because in a bid to make the project appear affordable, builders do not load extra charges in the quoted price.
2
The discounts will continue,
so don't be in a hurry
Builders are more desperate to sell than customers are eager to buy. They will continue to offer discounts even if it means taking a hit on margins.

    Ask any builder and he is bound to tell you that his project is almost sold out and that prices will be revised upwards very soon, maybe even next week. The fact is that builders today are more desperate to sell than buyers are eager to buy. Overheated markets, sliding share prices and rising interest rates have made matters worse. While the IPO window is now closed, at least for the short to medium term, listed real estate stocks have taken a beating and tighter lending norms by banks have made capital scarce.
Money is not cheap for builders even if it is available.
    Debt is a big worry, too. The 25,000-crore debt—which the RBI allowed to be restructured following the slowdown—is due for repayment. While private equity investments have thrown open an opportunity, investors are driving hard bargains and looking for higher safety and returns.
    Another comparatively cheaper opportunity for listed developers is to borrow against shares held by the promoters. But with most companies
already highly leveraged and stock prices continuing to be low, there is not much scope on this front too.
    The only cheap source of money available to realtors is through the sale of their projects. This is where the discounts come in. Given that the situation is unlikely to get better any time soon, builders will continue to offer discounts to attract buyers even if it means taking a hit on their profit margins. The moment they realise that you are a serious buyer, most developers will be ready to negotiate the rates they have quoted.
3
The best deals may not be available with the builder
Brokers usually book multiple flats in a new project and can offer you the choicest properties.

    Real estate brokers have always made news for the wrong reasons—fleecing both buyers and sellers, selling one property to more than one buyer, and conniving with builders to create a hype. While much of this is true, in some cases brokers may also get you the most attractive individual discounts. Some large ones command the best deals from builders because they book multiple properties and then sell them to individuals; it is their way of benefiting from buying in bulk. So once you have zeroed in on a property, do not forget to check with the broker in the locality about the best rate he can offer.

    Another fast emerging layer between the builder and buyer is the underwriter. These underwriters buy a major chunk of the project from the builder and sell it in the market at a premium. In these cases, the developer cannot offer you a lower rate than the underwriter, but the underwriter may be willing to cut his margin if the sales are low. Another mistake most buyers make is ignoring the resale market completely. Sometimes financially distressed investors offload their property at a much cheaper rate than that being offered by the builder. Here again, a broker can be of help in identifying such properties.
4
Nothing comes for 'free'
Don't fall for freebies. The cost of these add-ons is usually factored into the price of the property. Try getting a cash discount instead.

    Freebies are the flavour of the season. From registration fee to modular kitchens, even cars, all are being offered when you book an apartment in a project. Don't fall for these lures. The catch is that all freebies are already factored into the price of the apartment. The same goes for the attractive schemes on offer. The latest to catch investors' fancy is the 'attractive' 10:90 scheme being offered by developers in many cities. The idea is that you pay just 10% of the property cost now and the
rest on possession. The truth is that developers urgently need the cash and many of the projects have not even got approvals from the authorities. As HDFC Chairman Deepak Parekh puts it, "Within days of buying a plot, builders are putting out advertisements accepting booking at 10% upfront payment". This puts a question mark on these projects.
    Another such lure is the 'attractive' financing schemes that builders offer by tying up with banks. In most cases, you will get a better deal by approaching
the bank directly.
    'Guaranteed returns' is another bait being used by builders to trap investors. It is only after you make the down payment that you are told about the fine print—you get the returns only if you share the property with two others or the advertised returns are only for an investment above a certain amount. The builder knows that after you put in the money, you will either stay put or invest more for better returns. The bottom line is, don't look for freebies; try getting a cash discount instead.










Advertisement

Big Tests Ahead For Investors

THE second quarter has started with a bang as equities, commodities and other riskier assets have soared. Now come some big tests. First, US companies begin a new earnings reporting season in the coming week and investors will be watching to see not just how the companies have done -- probably pretty well -- but how things might shape up in the quarters to come. That is not nearly as clear.
    Second, the International Monetary Fund-World Bank spring meeting should provide a steady stream of updates on the real strength of the world economy, its inflationary pressures and general financial stability. One key for investors, a week after the European Central Bank raised interest rates, will be to glean how much things have "normalised", prompting more policymakers to accelerate the removal of cheap money.
    For the time being, however, financial markets are embracing risky assets with something akin to passion. World stocks as measured by MSCI hit a fresh 33-month high on Friday, riding out worries ranging from Japan's costly earthquake and Portugal seeking a debt bailout to the threat of the budget-less US government shutting down.
    Emerging market stocks, laggards for much of the first quarter, have been particularly hot, rising as much as 11.6% from a March 17 low. Some of this has been due to increasing investor confidence that growth and inflationary pressure in key emerging economies such as
China are being controlled, as exemplified by China's rate hike during the past week.
    A test of this will come on Friday, when Chinese first quarter GDP and inflation numbers are due. "We expect Chinese GDP growth to weaken over the course of the year, staging a soft landing," private bank Sarasin said in a note. "But there is a long way to go."
PEAKING?: MSCI's all-country world stock index has actually risen 103% since its financial crisis low in March 2009 -- partly prompted by a string of sterling corporate earnings seasons.
    The question now is whether these are about to peak. The latest season kicks of in the United States in the coming week
with a test of three key sectors -- industrial production from aluminum giant ALCOA, financials from investment bank JPMorgan Chase and internet bellwether Google.
    Overall, the US reporting season is expected to be reasonable. Thomson Reuters Proprietary Research projects first quarter earnings to have risen 11.5 percent year-onyear. This compares, however, to a 37.2% increase in the fourth quarter of last year.
    Some investors, indeed, are beginning to suggest that the days of robust earnings growth will soon come to an end. "The year-on-year increase now is going to decline into single digits," said Giorgio Radaelli, chief
strategist at wealth manager BSI. In a similar vein, UK private bank Coutts told its clients in the past week that U.S. profit margins may have reached their peak. It is looking for a squeeze from rising input costs. The price of Brent crude oil, as one example, has risen more than 30 percent so far this year.
IMF/WORLD BANK: The price of oil and other commodities, meanwhile, have begin to worry central banks -- epitomised by the ECB's hike in the past week, its first since 2008. The IMF/World Bank spring meeting should provide updates, as will a G20 fringe meeting of finance ministers and a summit of leaders from Brazil, Russia, India and China, in China.
    Investors will be looking for any sign that world monetary policy -- both the quantitative easing moneyprinting from the developed world and the unorthodox quantitative tightening credit curbs designed as a response in many emerging economies -- needs to normalise and tighten up from here.

    The risk markets recovery of the last two years has been fuelled by abundant liquidity. If that is to dry up, investors will need to be confident that the world is "normal" enough for things to continue.
    Reuters

HOW TO BUILD AN INFLATION-PROOF PORTFOLIO

In times of high inflation, equity could be the only way of earning a positive return on one's investments. However, the clutches of inflation can squeeze margins of even robust companies. Ramkrishna Kashelkar presents a few themes that can potentially shield investors from the deadly fangs of inflation.

Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.
— Ronald Reagan, former president of USA

    IF THERE is one thing that consumers, investors, companies, and governments fear alike, it is inflation. As it goes out of control, it can become the greatest value destroyers of all. Inflation is the phenomenon where prices rise and money's worth declines. As inflation soars, long-term investing can end up being a fruitless exercise.
    While it is clear that in an inflationary environment, bonds do poorly, the link between inflation and equity returns is not so straightforward. A number of experts propound investing in equities as a certain way of beating inflation. When inflation rises, equities also rise because a company's revenue or asset value would go up, along with inflation.
    However, this theory is only partially true as a lot actually depends on companies' ability to pass on the cost of inflation to consumers and in ensuring that there is no demand destruction. Historical evidence is mixed with some periods of inflation showing corporate earnings growth while in others earnings suffered.
    While high inflation is not new to India, it is now becoming a more global phenomenon. In India, the Reserve Bank of India has already raised policy rates eight times in the past 12 months in its efforts to rein in inflation, which continues to stay above the central bank's comfort level. Experts expect the RBI to hike its repo and reverse repo rates by another 50-75 basis points before inflation can be tackled in the real sense.
    Looking at commodity prices, particularly crude oil, global outlook on inflation doesn't appear too benign for the near future.
    It is also argued that it is not inflation per se that impacts corporate earnings growth, but tightening of money supply that follows. India has already done it and all over the world, be it China, Europe, or the US, we see central banks talking of interest rate hikes.
    Against this background, it makes sense for retail investors to look for ways to make their portfolios inflation-proof. ET Intelligence Group presents eight key themes for equity investors that can potentially shield their assets from the deadly fangs of inflation.
PRESENT AND FUTURE OPTIONS
To face the inflation woes, the intuitive reaction is always to invest in gold, which has become very easy now, thanks to gold ETFs. Silver ETFs, which are yet to be launched in domestic markets, could also be an extra option for the future. However, investments in precious metals are criticised as being unproductive and sufficient barely to compensate inflation.
While a part of one's portfolio can surely be invested in gold — physical or ETF — relying solely on it to beat inflation is inadvisable.
    Mutual fund schemes designed to invest specifically in commodity companies could also be a good option to best the inflation. However, there aren't many such Indian companies and the
only alternatives available are a handful of MF schemes that invest in global markets — either directly or through foreign funds (fund-of-fund) route. The performance of these funds has been superior of late, in spite of their lack of popularity. Investors can take exposure, but only after considering the currency risks involved.
BEST TO AVOID
It is not what you bought, but what you didn't buy that decides returns on your investments in turbulent times. Hence, one needs to beware of industries more susceptible to high inflation. Interest rate-sensitive industries such as banks and NBFCs, real estate and auto top the list. EPC contractors with lumpsum contracts also see their margins squeezed as commodity prices go up. Companies that don't have pricing freedom such as IOC, BPCL, HPCL are best avoided. Industries depending on discretionary spending such as aviation and hospitality also won't be favourites if inflation is high. Companies with low value-added products such as most chemical players will also face some margin pressure

ramkrishna.kashelkar@timesgroup.com 
With inputs from Bakul Chugan, Crystal Barretto, Jwalit Vyas and Ranjit Shinde

All market prices and related data as on 31st March 2011 CMP: Current Market Price, M-Cap: Market Capitalisation, OPM: Operating Profit Margin for trailing 12 months, P/E: Price to earnings ratio

















CONCLUSION
    The above
    themes can serve
    as a set of guidelines for investors to select companies for their equities portfolio that have the potential to fare well even in times of high inflation. For some companies, more than one theme applies, making them more compelling for investment. Investors will, however, need to check valuations before taking an investment call.



Advertisement

ED Charges Siva with Indirectly Funding S Tel

Says he bought co after it bagged 2G licences, lent 50 cr to Kalaignar TV

The Enforcement Directorate (ED) on Sunday charged prominent investor C Sivasankaran with indirectly funding mobile-phone company S Tel and then buying the telco after it had bagged licences to offer cellphone services.
The agency also alleged in a press release that the companies used by Sivasankaran to fund S Tel had provided a 50-crore loan to Kalaignar TV, owned by family members of DMK leader M Karunanidhi. The ED had also issued summons to those charged by the CBI as part of proceedings under the Prevention of Money Laundering Act, it said.
The CBI has charged nine individuals, including former telecom minister A Raja and Swan Telecom directors Shahid Usman Balwa and Vinod Goenka, under various sections of the Prevention of Corruption Act and the Indian Penal Code. This is the second instance of monetary transactions between alleged 2G beneficiaries and the Kalaignar TV coming under the scanner of investigators. The DMK chief's second wife, MK Dayalu, holds 60% in Kalaignar TV, with his daughter and Rajya Sabha MP Kanimozhi and Managing Director Sharad Kumar having the remaining stake. The ED is also investigating a 214-crore transaction between a subsidiary of DB Realty (the company that has a controlling stake in Swan Telecom) and Kalaignar TV.
On Sunday, the agency said its investigations had revealed Sivasankaran used his group company Hitech Housing projects Pvt Ltd to "indirectly" fund S Tel.
Hitech Housing also provided a loan of 50 crore to Kalaignar TV in June 2007 in a two-stage transaction. In the first stage, the money was routed through what the agency claimed were "Sahara Group Companies" and an overseas entity known as Telecom Investments (Mauritius) Ltd. These funds were then routed through Vita Developers & Builders (P) Ltd and Sky City Foundation (P) Ltd, the agency said. Both are unlisted companies based in Chennai.
After allotment of mobile permits to S Tel, the Siva group had taken over the company. The two Chennai-based companies and Telecom Investments (Mauritius) Ltd were the investors, the agency added. "There are factual inaccuracies in the various matters mentioned. S Tel wouldn't like to comment in specific on any of
these motivated attempts; moreover there are investigating agencies already enquiring on the issues, if any, under supervision of the highest judiciary of India," a spokesperson for S Tel said.
On Saturday, the ED said it had charged S Tel of not refunding the balance of the foreign direct investment to the investor, Bahrain Telecom, within the stipulated time, resulting in Fema violations of 96.6 lakh.

Cross-Connections in 2G Scam Probe

Charges Against Siva

• Indirectly funding S Tel and buying out telco after it had bagged 2G licences

• Cos used by him to fund S Tel provided 50-cr loan to Kalaignar TV

• ED examining if Siva continued to hold stake in Aircel after selling out to Maxis & Apollo Hospitals Group

More on ED Probe
Probe widened to Swan Telecom and if company's Mauritius-based stakeholders, Delphi Investments and Mavi Investment Fund, were acting as fronts for corporate entities
Agency alleges Swan had more than 49% foreign equity, but hid this fact by using a convoluted web of companies and transactions so that the deal did not have to be cleared by the FIPB

Special Feature
2G Scam: Story So Far
It's about 39 months late, but it's finally happening. As legal proceedings begin in what has come to be known the 2G scam, Joji Thomas Philip, Gulveen Aulakh and Kalyan Parbat outline the story so far.

12 
Indirect Funding by Siva
In the statement issued on Sunday, the agency further said it was probing Aircel, majority-owned by Malaysia's Maxis, on two counts. It was trying to unearth if Sivasankaran, popularly known as Siva, continued to own equity in operator Aircel after selling out to Maxis Communications and Reddys of Apollo Hospitals Group in 2005. Aircel is also being probed for Fema violations, the agency said.
An ED official said the agency had approached both the Reserve Bank of India and markets regulator Sebi to probe the transactions among the serial entrepreneur, Maxis Communications and the Reddy Family, and had sought documents related to these deals from all stakeholders.
PROBE INTO SWAN WIDENED
The ED statement, which outlined the status of its investigations into the 2G scam, said it had widened its probe into Swan Telecom and was investigating if its Mauritius-based stakeholders-Delphi Investments and Mavi Investment Fund-were acting as 'fronts' for corporate entities.
The agency alleged Swan had more than a 49% foreign equity but had "concealed" this fact by using a convoluted web of companies and transactions so that the deal did not have to be cleared by the Foreign Investment Promotion Board, the government agency that approves all major overseas investments into the country. Indian rules on the telecom sector mandate foreign holdings beyond 49% be cleared by the FIPB. In the case of Swan, the ED said the company was set up in July 2007 by Reliance ADAG, and the latter still held 9.9% of the telco when the company applied for mobile permits in 2007. Reliance ADAG then transferred its stake to Mauritius-based Delphi Investments in December 2007. Delphi, which had been set up only days before this deal, was owned by Mauritius-based Mavi Investment Fund Ltd, the agency said.
"Overseas investigation is going on to ascertain connection of Reliance group and actual persons behind these companies as Delphi is still holding 4.27% equity of Swan Telecom," the agency added in a statement. It added Swan's takeover of Allianz Infra Tech, which held mobile permits for two circles-Madhya Pradesh and Bihar-was also under probe.
The ED had already charged Swan Telecom with Fema violations to the tune of 3,608 crore. On Saturday, the agency said Swan issued shares to a foreign investor-Etisalatand an Indian investor-Genex Exim-for an 'abnormal value'. It also said equity issued to Genex Exim was an indirect foreign investment as funds were brought in from Dubai through an intermediary.
These developments come within a day of the agency filing charges against four mobile-phone companies for alleged Fema violations totalling nearly 4,300 crore. In a press release on Saturday, the agency named Swan Telecom, Loop Mobile, Loop Telecom and S Tel in a chargesheet filed before its special director.
Sivasankaran, Swan and Loop did not respond to emailed questions.
The flurry of action by the ED comes within a week of the CBI filing its first chargesheet in the 2G spectrum scam that has shaken the UPA government and led to calls for the resignation of Prime Minister Manmohan Singh.


Advertisement

Thursday, April 7, 2011

Pai in Race for Infosys COO Post

Murthy may stay chief mentor after retirement while Kris could be vice-chairman

TV Mohandas Pai is among the candidates being considered for the post of COO at Infosys Technologies, as India's second-largest software exporter prepares for a top-level shuffle involving the CEO and chairman later this year, at least two people familiar with the discussions said.
Pai, 51, is currently a member of the Infosys board and also heads the company's human resources (HR) and adminis
tration departments.
As Infosys prepares to appoint SD Shibulal, the current COO and the last among the founders to take on the role of CEO later this year, there is an opportunity for non-founders like Pai and newer leaders to get a chance to run the firm. Chairman NR Narayana Murthy will also retire in August this year.
"Shibu could be CEO and Pai COO. There is also a possibility Murthy could resign as non-executive chairman but continue as chief mentor," said one of the people. "There is a high
likelihood of KV Kamath becoming non-executive chairman (if he accepts) and Kris (S Gopalakrishnan) becoming vice-chairman," he added. Pai's long innings at Infosys, his leadership qualities and record make him an ideal candidate, the second person said. Most Infosys COOs have gone on to become CEOs. The current CEO, S Gopalakrishnan, popularly known as Kris, was COO before he was elevated to the CEO's position. Pai Hand-Picked by Murthy
"He's (Pai) extremely entrepreneurial and has a tremendous sense of global business. He's a man for all seasons," pointed out a senior Infosys executive.
According to Infosys' policy, the maximum retirement age for executive directors is 60, which means if Shibulal, who is around 57, is made CEO, he could continue till about 2014 after which the CEO's position would fall vacant. Pai was appointed chief financial officer of Infosys in 1994, and later handed responsibility of the critical functions of HR and education.
He's also a well-known public face and has been part of various committees such as the Kelkar committee for reforming direct taxes and is currently on the Sebi board.
"It could be a great move for Infosys. He's got the ability to galvanise the team, and also address the customer. He can do both—drive the team and carry the objective to deliver. The only downside is that he's not a technical person, but that doesn't matter so much for a multibillion-dollar company like Info
sys," said R Suresh, MD, Stanton Chase India, who's placed a number of top IT executives.
When contacted by ET, Pai said, "I am not aware of it—the nominations committee is an independent committee, it will take a decision on these matters."
The nominations committee, comprising Jeffery S Lehman, Deepak M Satwalekar and Omkar Goswami, is responsible for succession planning for the roles of chairman, CEO, COO and CFO.
"It is an internal matter; I would not be able to comment. The committee is engaged in the process and an announcement will be made at the appropriate time. There is no fixed date—it can be made anytime in April, May, June, July or August-
—before Mr Murthy retires," Satwalekar said.
An email sent to Lehman did not receive a response.
"As this is speculative in nature, we will be unable to offer comments," Infosys said in an email.
Pai was with Bangalore-based transport firm Prakash Roadlines before being reportedly picked up by Murthy to join Infosys in 1994. When Murthy retired from an executive role in Infosys, insiders say Pai wanted to quit but was convinced by him to stay on.
More recently, Pai was criticised for iRace, an HR initiative that resulted in 4,000-4,500 demotions. It demoralised employees and the move backfired on Infosys when demand for IT services returned in October 2010. "Infosys' HR restructuring initiative could not have been more ill-timed.
A policy that could have been pushed through in a weak demand environment turned ugly as demand surged. iRACE drove some 4,500 demotions and general discontent among employees, some of
which continue to haunt the firm now that employee retention has slipped," said a report by brokerage CLSA on Infosys' employee attrition.
The global HR head of a rival firm termed it more a problem of expectation setting and communication gap between the management and employees rather than a mistake attributable to a single person.
A person who has worked with Pai says while a majority of Infosys leaders are more cautious and riskaverse, and till recently preferred organic growth to potential downside from acquisitions, Pai is more pragmatic.
"There are always some risks to acquisitions but that shouldn't stop you from doing them and Mr Pai understands that more than anyone else," he said.


Wednesday, April 6, 2011

Over 40,000 pledge support on Facebook

NEW DELHI: The public movement against corruption initiated by Gandhian leader Anna Hazare has become a rage among netizens. The Facebook page created by the group has registered over 40,000 followers in one day, while more than seven lakh people from across the country have pledged support to the cause through mobile phone registration. According to activist Arvind Kejriwal, a leading campaigner for the movement against corruption, the response from youngsters in particular is enormous.

"The social media is abuzz with our movement against corruption. Thousands of people from across the country are contacting us through Facebook and Twitter. In at least 400 cities, youngsters are continuously joining in to help us with the logistics ," said Kejriwal. He said on Wednesday, students from several Delhi colleges and universities among others joined the agitation. "In the US, Australia and several other countries, Indians are joining in, to support the public movement against corruption ," Kejriwal added.

On the Facebook page, minute by minute updates on Anna's messages, support to the cause from different sections of the society and government's response to the same are posted. "It is the beginning of a new chapter in the history of India - a freedom struggle for freedom from corruption," posted one Asha Singh on Facebook.

Anna Hazare told Times City that the positive response and active participation by so many youngsters is incredible. "It will help us make the country clean of corrupt politicians and bureaucrats. When I see the young faces and go through the messages of support posted by them through different social networking sites and other communication media, it really heartens me. It fills me with more energy and enthusiasm to carry on the crusade against corruption," he said.

Bollywood actor Aamir Khan and cricketer Kapil Dev have also pledged support to the cause. Khan wrote to the Prime Minister on Wednesday, requesting him to agree to the legitimate demand of Anna. "I am one of over a billion citizens of this country, who is affected by and most concerned about corruption...I request you to pay heed to the voice of Anna Hazare in appreciation for what he is fighting for," reads the letter. The actor said he went through the Internet to read about the Jan Lokpal Bill and agrees with its recommendations.

NTPC Q4 Net Jumps 24% on Accounting Change

ENOUGH STEAM LEFT

State-run NTPC on Wednesday reported a 24% rise in its March quarter net profit, and said it would double capital expenditure in the current fiscal to boost generation capacity.
The power utility plans to double capital expenditure in the current fiscal to . 26,400 crore to add 4,320 mw generation capacity, chairman and managing director Arup Roy Choudhury told reporters here.
"The capital expenditure for the current financial year would be financed in the ratio 70:30. The equity portion would be met through internal accruals. We have an unutilised debt of . 20,540 crore. We would raise $500 million through euro bonds in May-June this year," Choudhury said.
The utility also plans to borrow from domestic banks and the Life Insurance Corporation of India.
NTPC's March quarter net profit provisionally rose 24% to . 2,505 crore from . 2,018 crore in the previous year. Provisional net sales for the quarter stood at . 14,488 crore, up 17.74% from the yearago period.
"The abnormal rise in profit in Q4 is mainly due to the change in accounting procedure," Choudhury said.
However, provisional net profit for 2010-11 was up only 1.12% at . 8,866 crore. Provisional net sales for the period rose 16.36% to . 53,721 crore, from . 46,169 crore in 2009-10.
"State electricity boards did not draw power though it was made available by us. This lack of demand led to lower electricity generation," director, finance, AK Singhal said.

NTPC, which is scouting for coal assets in Australia, Indonesia, South Africa and Mozambique, has a generation capacity of 34,194 mw. It is executing 15 power projects with a total capacity of 14,748 mw.
The utility spent
. 12,818 crore for the 2,490 mw capacity added in the year ended March 2011.
The company estimates total coal requirement for 2011-12 will be about 162 million tonnes, of which 14 million tonnes may have to be imported. It has signed an agreement with State Trad
ing Corp for 12 million tonnes and will import the remaining on its own. NTPC is also looking at executing projects in neighbouring countries Bangladesh, Sri Lanka and Bhutan.


Advertisement

 

blogger templates | Make Money Online