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Wednesday, October 31, 2012

Oct 31 digital TV deadline can’t be pushed back: Bombay HC

Several Have Already Made Switch: Court

    Mumbai is set to go digital from Thursday. The Bombay high court on Wednesday refused to extend the deadline for cable operators to implement the digital system and install set-top boxes for its viewers. 

    Though the multi-system operators tried to raise the prospect of a TV blackout in the city when analog signals are discontinued after the October 31, 2012, deadline, a division bench of Justice Dhananajay Chandrachud and Justice Rajesh Ketkar questioned the conduct of the petitioners who had shown no commitment to installing set-top boxes despite the extension of an earlier deadline. The court's order came even as the Madras high court gave a five-day breather to cable viewers in Chennai to install set-top boxes. 
    "A certain degree of inconvenience is inevitable in the enforcement of any deadline and whenever there is a change to a new regime. The government has taken this decision with a view to provide quality service to consumers. Individual business hardships must give way to public interest," said the judges. The court, however, was aware that ultimately it will be the viewers who would be affected. 
    "We do not want people's Diwali to be blacked out. Television these days is the only source of entertainment for the average middle-class. We are not concerned about the operators or broadcasters, but the viewers," observed Justice Chandrachud. The court got the Union of India and the additional solicitor general to agree that care would be taken to ensure that the common man's Diwali would not be disturbed due to the TV blackout. 
    The court was hearing a petition filed by Bhawani Rajesh Cable and Digitech, a multi-system operator, challenging a notification of June 2012 setting the deadline of October 31 for cable operators to install set-top boxes. 
    Accusing the DTH lobby of pushing for digitization, the petitioners sought a two- to four-month extension. 

    ASG K Setalvad along with advocate Dhiren Shah, who represented the Union government, informed the court that the earlier deadline of June 2012 had been extended to October 2012. The ASG pointed to an information and broadcasting ministry press release which said that 100% of the declared households in Mumbai had already installed set-top boxes. The petitioners, too, claimed that 85% of cable viewers had already shifted to set-top boxes. The court said that since a substantial 
number of cable viewers had already shifted to the new system, the remaining could also do so as the government had assured the court that sufficient number of set-top boxes were available. Times View: The viewer shouldn't be inconvenienced 
    The cable TV industry has been held hostage by local operators for far too long. Local politicians control a significant portion of this money-spinning industry, which explains the operator's clout. Reports coming in from the ground, about consumers being denied set-top boxes by these operators, and politicians asking the centre to extend the deadline again fall into a pattern. Cops and the government should ensure that the change of regime happens as seamlessly as possible with minimum inconvenience for the viewer. 
Kolkata cablemen threaten to block digital TV 
Kolkata: Cable operators in the city have threatened to pull the plug on all cable channels if broadcasters stop analogue transmission from Thursday. In a meeting convened by Cable Operators Digitization Committee, a forum set up by operators who fear public ire if analogue transmission stops, operators said they would stop digital transmission as well if the Centre stuck to the October 31 deadline. 
    With no indication of a relaxation from the Centre, the administration deployed additional forces in all 65 Kolkata police station areas, with special focus on the southern fringes. The other potential problem areas were identified as Howrah, Bidhananagar, Barrackpore and Hooghly. 
    The Madras HC on Wednesday extended the deadline in Chennai to November 5. 
    "If the Centre goes ahead with digitization despite CM Mamata Banerjee's warning of massive unrest and a law-and-order problem, we will have no option but to shut down digital transmission as well. We can't have a situation in which some people get to see TV and others do not. That will trigger anger and violence," said forum member Swapan Chowdhury. 
    Mamata held a meeting with urban development minister Firhad Hakim to check if TVs in the city would continue to beam channels and discuss a strategy to quell violence should it erupt. Hakim, who is overseeing cable TV digitization, had earlier met MSOs and operators, and stressed upon the need to keep channels switched on. 
    "If the Centre does not listen to reason and forces the issue, we will counter it in the interest of our people," Hakim said, reiterating supply of set-top boxes needed to improve. He also called for EMI schemes so that viewers from all economic sections could avail of it and not be deprived of entertainment simply because they did not have the means to pay.


Reliance favourite group of BJP & Cong: Kejriwal

Activists Accuse Corporate Giant Of Hoarding Gas

Congress Rejects Charges, Queries IAC Funding


New Delhi: Arvind Kejriwal and Prashant Bhushan of India Against Corruption on Wednesday launched a blistering attack on the Congress and BJP for promoting the business interests of Mukesh Ambani's Reliance Industries Ltd, saying the UPA and NDA regimes conspired to organize benefits worth thousands of crores for the company at the public exchequer's expense. 
    Speaking against the backdrop of the uproar over Jaipal Reddy's removal from the petroleum ministry, allegedly at Reliance's instance, the duo claimed that RIL had earlier got Mani Shankar Aiyar turfed out from the ministry. Ambani, not the PM, they said, was running the government. They said Reddy had opposed RIL's demand for a revision in the price of gas from the K-G basin field, and was trying to hold it to account for hoarding gas. 
PM favoured Reliance, says IAC 
    While the Congress and the BJP were savaged and their alleged favours to Reliance cited as examples of their collusion over corruption, the industry heavyweight was also scorched in what was clearly the first instance of its kind in recent times. 
    Apart from being mentioned as a glaring example of crony capitalism, the activists accused Reliance of hoarding gas from the KG basin field in order to profit at people's expense and of seeking to blackmail the government. 
    "Woh tuchhe zamakho
ron ki tarah kaam kar rahen hain (he is behaving like a petty hoarder)," declared Kejriwal. Bhushan and Kejriwal said Reliance had deliberately scaled down production of gas to pressurize the government into raising price prematurely, adding that while Reliance sought and got afour-fold raise in capital expenditure on the KG gas field, only 13 of the 31 gas wells were in production. 
    The activists also played an audio clip from the infamous Niira Radia tapes, with former PM A B Vajpayee's foster son-in-law Ranjan Bhattacharya telling the ex
corporate lobbyist, "Mukeshbhai told me, Congress to apni dukaan hai". Reliance denied the charges and accused IAC of being a proxy of vested interests. 
    The PM also came in for rough treatment with the activist duo saying he was liable to be prosecuted under the Prevention of Corruption Act for allegedly abusing his position to help corporate interests—from Reliance to companies in Coalgate and 2G scam—profit at the cost of the public exchequer. "He signs on to every file, be it of Coalgate or spectrum scam. He has been ensnared by the Congress," Kejriwal said. 

Cong questions IAC's funding 
    
Congress on Wednesday questioned India Against Corruption's source of funding, rebuffing as "baseless" the allegations that UPA was favouring Reliance Industries Ltd. AICC general secretary B K Hariprasad said, "It is baseless. Nowadays, it is fashionable of IAC to make accusations. But where are you getting your funds from? Who is funding the IAC... It is Ford Foundation — from Ramlila Maidan to this press conference." TNN

CHAOTIC CONFERENCE: Arvind Kejriwal's press conference was dramatically interrupted by a man (in grey shirt) who questioned why the activist and his wife, an IRS officer, had never been transferred out of Delhi. Kejriwal's attempts to answer were drowned out in the commotion. Then former Congress worker Jagdish Sharma shouted slogans and tried to hurl a shoe at the stage. He was overpowered by IAC supporters and led out

Tuesday, October 30, 2012

Millions powerless as Sandy brings New York to its knees


33 Killed As Storm Lashes East Coast

Chidanand Rajghatta TNN 


Washington: A broken crane dangled atop a 75-storey high-rise, snapped like a twig by high winds. Storm waters swept through streets and rushed into some of the city's subways and tunnels. Power stations exploded and an elite hospital even lost its backup generators, forcing the evacuation of newborn babies and terminally ill seniors. 
    The epic storm that lashed eastern United States killed some 33 people (at last count) and left millions of others powerless (literally and metaphorically) and bereft. 
    But it was the plight of one of the world's greatest cities, iconic New York, which drew maximum attention. Home to much brio and bravura, the al
ways-swaggering city took it in the gut, Hurricane Sandy bringing it to its knees with a sock that turned out to be milder than forecast. 
    Scenes of damage and destruction, amplified by social media and television repeats, coursed across the country and the world, bearing the unmistakable message—nothing, absolutely nothing, can stand up to Mother Nature's mysterious, and sometimes malevolent, moods. 

    Many areas, notably around Washington DC, dodged nature's bullet, but the New Jersey and New York area up north took the brunt of Sandy storm, which made landfall near the gambling mecca of Atlantic City, as if to express disapproval of human avarice and excess. 
    The famed boardwalk where tourists and tramps, gamblers and gambollers, walk side-by-side was ripped apart. 

Cyclone Nilam to hit AP, TN today 
    
Cyclone Nilam is expected to make a landfall between Nagapattinam in Tamil Nadu and Nellore in Andhra Pradesh on Wednesday. Squally winds with speeds reaching 45-55kmph are expected to hit southern AP and the gusts could hit a speed of 80-90kmph off northern TN in the next 12 hours. P 11 

A NATION INTERRUPTED 
    
Trading at NYSE cancelled again on Tuesday, the first back-toback shutdown for weather since 1888 
    President Obama calls off 3rd straight day of campaigning, cancelling appearances in key battleground state Ohio. Romney going ahead with Ohio events

Residents, including a child, are rescued from flood waters in Little Ferry, New Jersey


Sunday, October 28, 2012

A good time to invest in platinum


Platinum has traditionally outperformed gold, but its prohibitive pricing made it difficult to invest in. Now, with gold prices at par with platinum, it may be the right time to bet on it.



    Outshined by the glitter of gold is a more rare, but equally precious, metal—platinum. Investing in this noble metal has not caught up in the country mostly because, till date, it has commanded a higher price than gold. However, the zooming price of the yellow metal over the past few years has made platinum more competitively priced (see graph). Currently, one gram of platinum costs 3,062 compared with 3,178 for gold (as on 24 October). "Since the price of platinum is lower than that of gold, it's a favourable time to buy it," says Prithviraj Kothari, president, Bombay Bullion Association. 
Where is platinum headed? 
Platinum was quoting at a premium of nearly 150% to gold till a few years ago, but its price is almost level to that of the yellow metal now. In fact, over the past year, its trading price has been lower than that of gold. Will platinum continue to stagnate or will it beat gold again after a few years? Experts believe that the current situation may continue for some more time. This is because the global economy is going through a painful restructuring, and the recent jump in gold is due to the easy monetary policies followed by the global central banks to support their economies, as well as the investors' decision to move their money to a safe haven like gold. Till the global economies stabilise and central bankers start withdrawing excess liquidity, gold may move up faster than quasi-precious metals like platinum and silver. 
    Though platinum may remain under pressure in the immediate future, its outlook is bright in the long term. "Platinum may remain in the range of $1,500-1,700 an ounce ( 2,857-3,238 per gram) in the next few months. However, it should recover within a year," says Naveen Mathur, associate director, commodities & currencies, Angel Broking. 
    What are the factors that point towards 
this bullishness? Firstly, there is no fall in demand from investors or jewellers. In fact, the global platinum jewellery demand increased by 3% in 2011, and with the prices already at lower levels, the demand is expected to hike further this year. China is the biggest consumer of platinum and the appreciation of the yuan against the dollar will also help the Chinese consumers. 
    Secondly, the key platinum producing countries (South Africa, Russia and Zimbabwe contribute around 93% to the global mine production) are struggling with several constraints, such as electricity shortages and increased labour costs, and are unable to increase the production substantially. Platinum prices jumped by 8-9% in September due to labour unrest in the South African mines (it contributes 74% to the global output). While mine production contributes around 80% to the total supply, recycling of platinum from auto catalysts scrap (13%) and jewellery scrap (7%) makes up for the remaining. Since users are delaying vehicle replacement, even the recycling segment has not expanded. 
    The lower production or increased investment/jewellery demand has failed to 
lift platinum prices because the global auto industry, which constitutes around 40% to the global platinum consumption, is still suffering from the economic crisis. This means that the price of platinum is expected to remain rangebound with a downward bias in the near term. However, the global economy is going to recover at some point, and when this happens, platinum will start outperforming gold. Buying options 
Jewellery 
While most consumers in the country prefer to buy platinum in the form of ornaments, they should be careful while buying jewellery. This is because while the making charges may vary depending on the 
    size and design of the jewellery, these are 
    double that for gold ornaments. 
"Platinum is much harder than gold and needs a very high temperature to melt it. Therefore, platinum jewellery is made only in a few places, which pushes up the labour cost," explains 
    Hasmukh Bafna, president, Gold 
    Chains & Jewellery Wholesalers Welfare Association. Platinum is also more dense than gold (an identical ring in platinum would be around 40% heavier than the one in gold) and, hence, costlier. 
    Another thing buyers need to be sure of is the purity of the metal. Platinum is mixed with other metals to make jewellery and the most commonly used are those from the platinum group, such as iridium, palladium, ruthenium and rhodium. Since most of these metals are cheaper compared with platinum, buyers should make sure that the jeweller quotes a lower price than that of pure platinum in the market. The jewellery should be hallmarked, specifically mentioning its purity. For instance, jewellery containing 85% platinum will be marked as 850, while that consisting of 95% of the metal will be marked as 950. 

    Traditionally, Indians buy jewellery as a back-up plan to bail them out during difficult periods. Ideally, when you sell jewellery, you lose out on the making charges, but in reality, the loss percentage is much more than that for gold. This is because the demand is low, making it difficult for jewellers to resell ornaments. The other issue is checking the purity of the metal. "Almost all jewellers can check the purity of gold themselves and pay the price accordingly, but very few have testing facilities for platinum," says Kothari. So, even if you have no plan to resell the jewellery, ask the retailer about the buyback facility at the time of buying the ornaments. Also, check whether you will get back cash or you will only be able to exchange it for another ornament. 
Bars and coins 
Since platinum has begun emerging as an investment option, some high-end jewellers have started selling pure platinum (purity of 999) coins and bars. These are available in weights of 1 g, 5 g, 10 g, 50 g, 100 g, etc. In this case also, you need to ask about the buyback facility, expected price deduction and authenticity certificates. 
E-platinum 
Unlike for gold, there is no exchange traded fund or savings fund for platinum. The only way to buy platinum in paper form is through the e-platinum route available on the National Spot Exchange. This is the best mode for investors as these units are held in the demat form and there are no 'deductions' at the time of selling them. Since the trading of e-platinum has started recently, is there enough volume for investors to participate? "There is enough liquidity in the e-platinum space though the bid-ask price may widen once in a while," says Praveen Singh, senior commodities analyst, Sharekhan.





Sebi’s rules: Gain some, lose some Find out how the market regulator’s recently issued guidelines for the mutual fund industry will impact your investments.

The mutual fund landscape in India is undergoing rapid changes. The industry watchdog, Securities and Exchange Board of India, has ushered in a whole new framework for this investment avenue primarily to help revive a flagging industry. While industry players scurry to deal with the revised guidelines, fund investors need to be aware of the manner in which these steps will impact their investments. Will you need to alter your strategy due to these? Here's what the new regulations mean for you. 

Hike in expense ratio 
Sebi has allowed the asset management companies (AMCs) to charge an additional expense ratio of up to 0.3% on the daily net asset value (NAV) of the scheme, if the net inflows are received from locations beyond the top 15 cities. Expense ratio is the amount funds cut from a scheme's NAV every year as fund management fee, distributor commission and other operating expenses. AMCs will be able to charge this extra total expense ratio (TER) if the AUM collected from these places is more than 30% of the 
gross inflow. In case of lesser inflows from smaller cities, the proportionate amount will be allowed as additional TER. There is, however, a provision of reclaiming the additional TER charged if the money is redeemed within one year from the date of investment. Also, until now, the service tax charge on your scheme was borne by the mutual fund company. However, Sebi has now ruled that this will be passed on to the investors. 
How it impacts you 
The additional TER will be charged on the entire scheme corpus, not merely on the fresh inflows. So, Sebi is essentially asking the investors from the top tier cities to directly bear the cost of getting tier II cities' investors into the mutual fund fold. A 30 basis point (bps) increase in expenses can hurt your returns over the long term, especially if your scheme is not among the top performing ones. The top performing large-cap equity funds have delivered a return of around 10% over the past three years. A 0.3% cut in returns may not worry you much in this case. However, for the schemes that consistently underperform their benchmarks, this extra levy will be an added burden. Along with the service 
tax, these moves are expected to add around 0.4% to the cost. "Since the returns on debt funds are typically low, this additional charge will hurt these investors more. Equity investors may not feel the pinch in the long run," says Hemant Rustagi, CEO, Wiseinvest Advisors. 
    Single plan structure 
The regulator has mandated that all schemes, existing and new, be offered under a single plan. All existing schemes, with multiple plans based on the amount of investment (retail, institutional, super institutional, etc), will now have to accept subscriptions only under one plan. 
How it impacts you 
This means that all investors in a particular scheme will be subject to the same expense structure. This will do away with differential treatment for various categories of investors, and will also lead to a sharper focus on the fund manager. It also means that certain plans may be discontinued in favour of others. Some funds have chosen to stick with the retail option, while others have opted for the institutional plan. However, in the cases where the institutional plan has been chosen, the fund houses have brought down the minimum investment amount. The discontinuation of 

    schemes, such transactions will continue to be honoured till the investor has sufficient balance under the plan. "This single plan structure has affected debt fund investors more as hardly any equity schemes are offered under multiple plans," points out Srikant Meenakshi, director, FundsIndia. 
    Direct plan route 
While Sebi has done away with multiple plans under the same scheme, it has announced that each scheme will offer an equivalent direct plan. This alternate plan is for those who want to invest in the fund directly and not go through a broker or adviser. This plan will have a separate NAV, different from the normal scheme. 
How it impacts you 
A separate direct plan will take out a chunk of the cost a normal fund scheme has to bear towards the payment of distributor commissions. It is likely to take up to 0.75% of the expense ratio, which means a higher 
plans will not affect the existing investments made by people in these plans and they can redeem their holdings any time. Besides, where investors have set up either a systematic transfer plan (STP) or a systematic withdrawal plan (SWP) out of these NAV and better returns for investors over time. If you are comfortable enough to make investments without the need of an adviser or broker, you can shave off a significant portion of the cost by buying from the AMC directly. Says Pankaj Maalde, financial planner, Apnapaisa: "This alternate plan can lead to substantial savings for the investor. The 0.5-0.75% charge towards commission adds up to quite a hefty sum over time." 
    However, it will be your responsibility to choose the right type of fund, physically approach the nearest branch of the fund company to buy the same, monitor the performance and complete the redemption formalities. When you choose to go with an adviser, all these activities are taken care of for you, even though you have to cough up the extra 0.5-0.75%. Alternatively, you could approach a financial planner, who will provide the option of investing in direct plans by charging a fixed fee. 
Exit loads 
Most mutual funds charge an exit load if you redeem fund units within a year of investment. Earlier, the amount earned through exit loads was used by the AMC for marketing and distribution. However, Sebi has now ruled that the entire exit load will be credited back to the scheme corpus. It has also stated that an equal amount (capped at 20 bps) can be included in the expense ratio to compensate the fund company for loss due to outgoing investors. 
How it impacts you 
The rationale behind this move is to ensure 
that the existing investors will no longer be hit when others redeem their investments early. As the amount will be credited back to the scheme, the NAV will rise to that extent. However, as the regulator has simultaneously allowed fund companies to levy an equivalent charge as compensation for the outflow, the net effect remains the same. "For distributors, it means that the upfront fee that was coming from exit loads will go down. So there will no longer be an incentive to get investors to churn," says Meenakshi. 
    Defining advisers 
The regulator has defined the role and responsibilities of an investment adviser by enforcing a minimum qualification. From now on, all advisers, as defined by Sebi, will have to register with it and conform to the new regulations. They will only be allowed to charge clients a fee for their service and will not be eligible for commissions from companies on sale of products. 
How it impacts you 
These measures should usher in more transparency in the advisory services and help clients distinguish genuine advisers from product pushers. Since the adviser can now earn a fee from you but no commission from the AMCs, mis-selling may come down to an extent. The minimum certification, if properly designed, should also ensure quality of advice. 
Other measures 

• Small investors, who may not be taxpayers or have PAN and bank accounts, will be allowed cash transactions in mutual 
fund schemes up to 20,000. 

• The regulator will evolve a system of product labelling, that is, a categorisation mechanism that should help investors understand the different types of funds sold and enable them to make the right choice. 

• Internal limits in expense ratio have been removed and these will let fund companies allocate expenses in the manner they deem fit, within the overall cap. It is likely to lead to more aggressive promotional activities and higher distributor commissions. 

• Mutual funds have to annually set apart at least 2 bps on daily net assets within the maximum limit of TER for investor education and awareness initiatives. 
The verdict 
The most noticeable impact of the recent changes is that the investors will have to bear a slightly higher cost for investing in mutual funds. Dhirendra Kumar, CEO, Value Research, says, "All in all, investors could see a 0.1-0.4% increase in the fee that 
they effectively pay to have their funds managed. Any rise ends up reducing the returns that the funds generate." Rustagi adds another perspective: "Clearly, costs will go up, but investors should not deduce that this extra cost will take away the market risk. They need to look at performance in relative terms." 
    While there is an added burden on investors, there are some things to cheer about. The introduction of the costeffective direct plan, credit of exit load back into the scheme, product labelling for simplifying fund selection, and implementation of more strict investment advisory regulations are welcome from the investors' point of view. Meenakshi says, "These regulatory changes have not changed the investment proposition in any way. Mutual funds remain the most prudent vehicle for building wealth."





What experts say...


After the unveiling of Sebi's measures, the one question that investors are asking is, 'Am I better off or worse after these changes?' Let us assess this. 1. Introduction of direct plan: Since 2008, investors have been able to bypass the distributor and avoid the entry load. However, they still had to bear the burden of the trail commission as it was included in the scheme's NAV. The direct plan, with its lower expense ratio, is bound to aid self-directed investors. 2. Increase in expense ratio: While this is bound to raise the hackles of investors, it is not as bad as it appears. First of all, the additional TER of 30 bps is only applicable to the corpus raised from centres other than the top 15. It is not applicable to the entire corpus. So, the weighted average will be much lower. However, the hike in other expenses could hurt the returns to an extent. 3. Service tax: Luckily, this tax is levied only on the fund management charges, not on the entire expense ratio. So, the final impact on the investor should not be significant. 
    JAYANT PAI 
    Head, Marketing, 
    PPFAS Mutual Fund


At the heart of Sebi's reforms is the interest of small investors, particularly those residing in smaller towns. The mutual fund industry has been incentivised by allowing it to charge a higher fee, which is a part of the total expense ratio, in case the mobilisation from smaller cities is at least 30% of gross new inflows. All the AMCs will now make a concerted effort to promote their schemes in smaller cities to charge a higher TER and, thereby, improve their overall income. Sebi has also mandated that every AMC will set apart 0.02% of its net assets to be used for investor education and awareness initiatives. This comes to a healthy 150 crore booty. 
    Another important amendment is the treatment of exit load. The crediting of exit load in the scheme will increase the NAV and the returns of investors who are continuing in the scheme. This is specially beneficial for small investors who are vulnerable to the movement of funds by bigger investors. 
    RAJIV DEEP BAJAJ 
    Vice-Chairman & MD 
    Bajaj Capital

Cos Seek RBI Help to Cut Dollar Loan Costs

Banks and cos want RBI to allow all companies to access simple derivatives to reduce their financing costs


Banks and corporates are hopeful that the Reserve Bank of India will change rules to allow many infrastructure and unlisted companies to lower the cost of their dollar loans. 
Large private sector and MNC lenders recently met senior central bank officials to discuss the possibility of allowing all companies access to certain simple derivatives to reduce financing cost. At present not all companies are allowed to carry out these transactions, better known as cost reduction derivative strategies. While many companies are going for foreign exchange loans, thanks to the abundance of dollar liquidity in international money markets, the cost of such borrowings becomes prohibitive if they have to fully hedge the currency risk. But the cost can be lowered if they enter into a 'call spread' derivative contract that partly hedges the underlying loan. 
"Various banks have met RBI to put across their point. We feel the regulator will soon take a call because checks and balances are now in place," said the treasury head of a foreign bank. Banks are not asking for reintroduction of complex and exotic products which are barred by RBI regulations. However, allowing simpler and safer structures to a wider universe of companies over and above the plain vanilla options will enable many corporate borrowers to prune cost and take advantage of 
the global dollar liquidity. 
At present, most companies are going for straight-forward option deals that give them an opportunity to buy dollars at the end of three to four years when the foreign currency loan has to be repaid. But the premium they pay on such options largely offsets the cost advantage of a cheaper external commercial borrowing. But, if a borrower strikes a deal where he simultaneously buys and sells call options, then the premium received from selling the option lowers the loan financing cost. In other words, the net premium a company pays in such 'call spreads' is lower than that paid for a plain vanilla option. Here's how such twolegged transactions work: A company buying a call option has the right (but not the obligation) to buy dollars at a specific dollar-rupee exchange; and, when it sells a call option, it has the obligation to sell dollars at another prefixed rate. The company doing the deal takes a view that dollar will not appreciate beyond the point at which it sells the call option. 
These deals are restricted to listed companies 
and their associate entities or firms with a minimum net worth of . 200 crore. "But there are many companies in infrastructure and other segments where the parent is unlisted and the special purpose vehicles formed for the projects are not adequately capitalised. 
In these deals, the company surrenders some of the upside. But it's far better than keeping a dollar loan unhedged which is a risky proposition or going for a full hedge which can be very expensive," said another banker. 
According to a senior official of a local private sector bank, lenders have also sought some relaxations in the documentation procedure that have been made compulsory for derivative transactions. "Getting a board resolution that authorises a person dealing in derivatives can be time-consuming when one is dealing with public sector companies, many of which have a big appetite for forex loan," said the person. In a call spread deal, companies have to provide for possible mark to market losses on derivatives because the loans are not fully hedged. "But most borrowers are fine with this as long as the financing cost comes down," said a senior dealer. 

sugata.ghosh@timesgroup.com 


Should you opt for a gold savings scheme?


Gold schemes offered by jewellers help build a steady corpus for special occasions, but read the fine print to know whether you gain from them


    Kick-starting with Dussehra, the festival season has begun in earnest, and so has the gold-buying season. The celebration will peak next month during Diwali and Dhanteras, which are considered the most auspicious for buying gold. Most Indians still prefer to hoard gold the old-fashioned way—jewellery and coins—rather than invest in paper gold. Should you shell out a chunk of your savings to buy gold now, considering its high price? Over the past few months, the price of gold has zoomed from 28,000 per 10 g in mid-May to 30,765 on 26 October. 
    Of course, if you buy a sizeable piece of jewellery, such as a bracelet or necklace, during this season, you may end up burning a hole in your pocket. This is why many popular jewellers offer gold schemes. You can enroll in such a scheme for as low as 500 a month for a tenure of 11-36 months. At the end of the chosen period, you will get extra cash from the jeweller, which you can use to buy the ornaments you want. However, before you jump on to such a scheme, here are a few things you should consider. 
How does it work? 
Gold or jewellery savings schemes come in two forms. A typical one allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweller) at a value that is equivalent to the total money deposited, including some bonus amount. This conversion is done at the gold price prevailing on maturity. In most cases, the jeweller adds a month's instalment at the end of the tenure as a cash incentive or may even offer a gift item. For instance, popular branded jeweller Tanishq runs the 'Golden Harvest' scheme, wherein you need to invest a fixed amount every month (minimum 500) for 11 months. The twelfth instalment, is paid by the retailer. 
    There is another form of savings scheme, which lets you book small quantities of gold every month at the prevailing rates, instead of converting the savings into gold at the final price. For instance, multibrand jewellery store Gitanjali Jewels offers a scheme 'Swarna Mangal Kalash', wherein you can book gold every month in multiples of 1 g at the existing gold rate for 18 months. At the end of this period, you can 
redeem the total amount of gold booked, regardless of the price on the redemption day. However, both types of schemes allow you to buy only jewellery, not gold coins or bars. 
What to watch out for 
Pay for making charges: At the end of the term, when you actually buy the ornament, the seller will levy making charges. Usually, these are very high and can go up to 30% of the value of the item, depending on the extent of workmanship involved. A high making charge could effectively wipe out any saving you make through the additional instalment or bonus. Some jewellers throw in a 30-50% discount on the making charges, while a few waive it completely in case of plain gold jewellery. 
No control over gold price: In many schemes, the jewellery you purchase at the end of the tenure is available at the prevailing market rate. Since there is no way to lock in to the purchase price, you cannot know the actual cost of conversion. If this final price is much higher, your money will fetch a smaller quantity of gold than the one you would have got by booking at the current price. You will only benefit if the price of gold at the end of the term is lower. To avoid making a loss, you could opt for a price protection scheme that lets you buy gold every month at existing rates rather than doing so at the end of maturity. Says Santosh Srivastava, MD, Gitanjali Jewels: "Such a scheme will help customers average out their cost of purchase over a period of time, in the same manner that a systematic investment plan (SIP) in a mutual fund does." 
    It is also a better alternative as the impact of the final gold price on your actual purchase is nullified. Says Neeraj Chauhan, financial planner, Financial Mall: "Under the fixed price option, you know for sure the quantity of gold you will ultimately get, instead of worrying about the fluctuating gold prices." 
Agree to seller's terms: When you opt for any of these schemes, keep in mind that you will have to ultimately buy gold from the same jeweller. This means that you cannot negotiate with him on making charges, which differ from seller to seller. In the normal course, you could have hunted for a good deal by haggling with multiple sellers. 
Should you go for it? 
These savings schemes make sense if you cannot pay a lump sum to buy expensive jewellery. Buying gold or putting away money for it in small instalments is less of a burden on the wallet than paying a hefty price for it at one go. Srivastava says, "With our gold savings scheme, we help customers plan in advance for any particular occasion, such as a wedding or festival." The schemes that offer a higher cash incentive for a longer maturity savings plan will give you higher benefit. 
    However, if you are considering gold as an investment avenue, you are better off putting your money in other instruments. The high making charges, higher price of jewellery, and fluctuating gold prices will eat into any returns that these schemes claim to offer. If you want to accumulate cash to buy gold, you can get better returns if you invest in a recurring deposit. This will also give you more control over the place from which you buy and the price at which do it. Another good option is to invest in gold exchange traded funds (ETFs), wherein you can buy units and convert them to physical gold later. There are no making charges or premium involved and the income from gold ETFs is treated as long-term capital gains and taxed at a lower rate if you hold them for one year, compared with three years in case of physical gold. Physical gold also attracts wealth tax.



Mixed bag of Q2 results, net up 27%


Margins Improve For FMCG, Cement Cos | IT, Auto Parts Firms Laggards


Mumbai: There is a clear divide among the various sectors in the economy in terms of their performance during the July-September quarter. A review of the quarterly results of 181 companies, which contribute about 38% of the total market capitalization of NSE, showed that while companies from sectors like cement and FMCG are among the better performers, showing healthy growth in realizations, two-wheelers and auto components are among the laggards, reporting degrowth in revenues. 
    "The weak operating environment has resulted in a modest revenue growth, which in turn has come from continued pressure on volume growth in sectors like auto, IT, cement and FMCG," said Mu
kesh Agarwal, president, Crisil Research. "However, EBIDTA margins have rebounded on Y-o-Y basis by 74 basis points if you exclude RIL (which saw significant contraction in margins), led by either sharp expansion in margins of sectors like cement and FMCG on account of healthy growth in realizations or support from weak rupee for sectors like IT and pharmaceuticals," Agarwal said. 
    The analysis by Crisil Research shows that revenues of the 181 companies from among 500 top Indian companies that form S&P CNX 500 index rose by 14.4% on an annual basis to nearly Rs 3.2 lakh crore, while net profit rose 26.6% to Rs 36,801 crore during the quarter ended September (Q2FY13). Although net profit margin of these cor
porates grew by 112 basis points (100 basis points = 1 percentage point), EBITDA margin fell by 63 basis points, the analysis showed. It also showed that the rupee revenues of IT services grew by 29.5% year-on-year (Y-o-Y) on the back of a significant depreciation in rupee, although the dollar revenue growth was only 8-9%. The rupee had depreciated by 20.7% y-o-y against the dollar during the period under review.
    Pharmaceutical companies too saw a growth of over 25% in revenues led by currency supporting export realizations, the analysis showed. Two-wheelers and auto components sectors have witnessed a de-growth in revenues, by nearly 8% each, due to pressure on volumes in both domestic and export markets. 

Stock mkt to take cue from Q2 nos, RBI 
New Delhi: The Reserve Bank of India's monetary policy review on Tuesday, next set of corporate earnings and the reshuffle of the Union Council of Ministers will dictate the trend on the bourses this week, say analysts. Besides, automobile and cement stocks will be in focus as companies from these two sectors will unveil their monthly sales data for October from Thursday. "Markets will react on Monday after seeing the portfolio reshuffle," CNI Research CMD Kishore Ostwal said. For this week, Bhel, Maruti Suzuki, Dr Reddy's Lab, Power Grid Corp and Wipro will announce their results. AGENCIES



In UPA’s Biggest Reshuffle, 22 Ministers Take Oath, 17 Of Them New Inductions


Rahul Takes Poll Position

Fuels Rise Of Youth Brigade With Eye To '14


New Delhi: Prime Minister Manmohan Singh's "last reshuffle" of his ministerial team before the 2014 general elections on Sunday carries the first unmistakable stamp of Rahul Gandhi's ascendancy in the Congress party. Coming amid strong indications that Gandhi may soon be designated as secretary general or working president of the Congress, Sunday's changes were seen to be significant—it appeared to mark the beginning of another generational shift in the 127-year-old party. The reshuffle is also an effort to put the party in battle mode for the 2014 polls. 
    The Congress's "younger set", championed by Rahul, has got a leg-up and key positions in the reshuffle, in which as many as 17 new faces were inducted. In terms of its sweep, nearly a third of Singh's cabinet colleagues—10 out of 32—have been impacted by Sunday's changes. 
    Jyotiraditya 
Scindia, Sachin Pi
lot, Manish Tewari, Jitendra Singh and Bharatsinh Solanki have all been assigned independent charge of ministries while Ajay Maken has been promoted to cabinet rank. Taken together, the upgrades suggest a vote for the young and a desire to experiment. 
    While the younger set didn't enter politics because of the Congress scion, the clear focus on them in this reshuffle is being widely ascribed to Rahul's growing involvement in government affairs. According to sources, this was the first time that Rahul cast aside his aloofness to discuss the ministerial team with the PM. 
Rahul's imprint, PM's blueprint hether he played a role in the elevation of Pallam Raju, till now junior minister in defence, as cabinet minister for HRD, is not known, but with his influence looming large, Rahul Gandhi was also credited for Raju's rise. 
    At 48, Ajay Maken is the youngest Cabinet minister, while 50-year-old Raju is seen as the youngest HRD minister in recent memory. Even Salman Khurshid at 59 looks a youthful foreign minister compared to his predecessors — S MKrishna, Pranab Mukherjee and Natwar Singh. 
    Besides Rahul's imprint, the exercise also reflects the PM's desire to repair his legacy by focusing on infrastructure ministries in the last stretch of his second innings, as well as his desire to pitch in for his favourites: Kamal Nath, Pawan Bansal, Ashwani Kumar and Khurshid have all fared well. 
    Sunday's big shocker was the shunting of S Jaipal Reddy from the high-profile petroleum ministry to a relatively obscure science and technology. The change came as a surprise, and was seen as an "insult" by the supporters of the affable minister. Coming against the backdrop of the ministry's recent pushback of the influence of business interests in the oil sector, it raised eyebrows too. 
    The PM's focus on infrastructure ministries was re
flected in Jyotiraditya Scindia being given independent charge of the power ministry, which has languished through UPA's two terms. Bansal's appointment as railway minister is seen as an effort to align the key transport sector with the PM's fresh focus on reforms. 
    Bansal is the first full-time Cabinet minister belonging to the Congress to hold charge of railways after C K Jaffer Sharief in 1995. His choice puts an end to the east's domination of railways beginning 1996, and more than compensates the Chandigarh MP for the loss of the ministries of water resources and parliamentary affairs. 
    In terms of representation from states, Andhra Pradesh, Kerala, Punjab, West Bengal and Gujarat have done well. However, in a glaring oversight, those in charge failed to ensure even a single representation for the entire eastern and northeastern region, which together make up for 142 Lok Sabha seats, in the cabinet. 
    Khurshid's appointment as external affairs minister marks a rebuff to allegations of impropriety against him and clears the way for the first Muslim to be part of the Cabinet Committee on Security in 22 years, after Mufti Mohammad Sayeed served as home minister under V P Singh. Urban development minister Kamal Nath's networking skills have been recognized by giving him the additional charge of parliamentary affairs.

Friday, October 26, 2012

HUL Q2 profit grows 17% to 807 crore FMCG Co’s Volume Growth Disappoints Pvt Lender Posts Robust Numbers

Mumbai: Driven by modern trade and a faster growing rural business, Hindustan Unilever (HUL) posted a 17% rise in net profit at Rs 807 crore for the second quarter ended September 30, 2012 as compared to Rs 689 crore in the corresponding quarter last year. However, overall growth was impacted by budget rationalization in the canteen stores department, which contributes about 7% to its turnover. 

    Volume growth of 7% disappointed the street and HUL's scrip fell about 2% to around Rs 552 on the BSE on Friday. The largest fast-moving consumer goods company said a slowdown in discretionary spending categories has had an impact on the volume growth. The volume growth in the preceding June quarter was 9%. 
    Net sales grew at 12% to Rs 6,155 crore as compared to Rs 
5,516 crore last year, with the domestic consumer business sustaining its growth momentum at 16%. 
    The company said the operating context remained challenging during the quarter with a volatile cost environment and heightened competitive intensity. Overall, the industry's media spend was up significantly to its highest lev
els in over 15 quarters. A&P was stepped up and maintained at competitive levels, higher by Rs 118 crore or 18% during the quarter. 
    "In a volatile and uncertain environment, we continue to sustain our growth momentum while steadily improving our margins. Our consistent performance is being driven by a relentless focus on brand building, bigger and better innovations and disciplined execution in the marketplace," said Harish Manwani, HUL chairman & Unilever COO. 
    HUL's MD & CEO Nitin Paranjpe said rural markets have grown faster than urban and this has been one of the contributing factors for the company's performance along with a strong growth in modern trade. Earnings before interest, taxation, depreciation and amortization increased by 18% to Rs 970 crore as margins expanded 74 basis points to 15.5%. 

PNB Q2 net falls 12% as NPAs rise 
New Delhi: State-owned Punjab National Bank on Friday reported a 12% drop in net profit to Rs 1,065 crore on account of higher provisioning for bad loans in the September quarter, disappointing investors as its shares tanked about 7%. The PSU lender had a net profit of Rs 1,205 crore in the year-ago period. AGENCIES

Don’t Kill The RTI Unjustified judicial intervention could compromise the good the right to information is doing

Perhaps the biggest contribution of our Parliament towards promoting greater accountability in independent India is the enactment of the Right to Information (RTI) Act, 2005. If, as they say, information is power, then the RTI Act has been a veritable 'Brahmastra' in the hands of the Indian public. It has been extremely successful in empowering people with information held by public authorities. 

    The Indian RTI experiment has proved that right to information is a powerful tool that serves to bridge the democratic deficit created by increasing inequality and differences in access to opportunities. Countless Indians are now able to check the status of their ration cards, below poverty line (BPL) cards, passports, application for public schemes etc. The RTI has made the state machinery more accessible and easier to manage, especially for the poor and vulnerable sections of society. An important reason why this has been so is because the Act has an effective and reasonably efficient implementation machinery consisting of the state and central chief information commissioners (CICs) who have the power to give effect to the provisions of this Act. 
    This success story of the RTI Act has, however, encountered a significant reversal in the recent judgment of the Supreme Court in Namit Sharma's case. In this case, a public interest litigation was 
filed challenging the constitutionality of Ss 12 and 15 of the RTI Act, 2005, dealing with appointment of the information commissioners. In a single stroke, the court completely upset the established RTI machinery with disastrous consequences for the public at large. 
    The court held that the commission is a "judicial tribunal" having the "trappings of a court". Given this, it reached some surprising conclusions. It held that the information commissioners "shall henceforth work in benches of two each...one of them being a 'judicial member', while the other being an 'expert member'." The appointment authorities were directed to "prefer a person who is or has been a judge of the high court" 

for appointment as information commissioners. It was also held that the CICs "shall only be a person who is or has been a chief justice of the high court or a judge of the Supreme Court of India". 
    There are a number of flaws in the reasoning. First, equating the information commissions with a "judicial tribunal" is clearly erroneous. The only issue to be decided before the commission is whether information, which is 
already available with the authorities, should be disclosed or not. The commission does not therefore dispense justice (like a court), it merely deals with disclosure of information. 
    Second, the Act already provides certain qualifications for appointments to the post of information commissioners ("persons of eminence" and "knowledge and experience" in particular fields). However, the court has completely rewritten the provisions of the Act by insisting on qualifications that go beyond what has been prescribed by the Act, and further, by specifically laying down the requirement of two-person benches, having at least one judicial member. This is a clear case of judicial overreach where the court has virtually legislated provisions of law. 
    More importantly, there are 
important practical concerns that flow from this judgment, and which the court has unfortunately glossed over. A huge fallout by way of immediate effect of this judgment would be the cessation of the activities of all the information commissions until members with judicial background are appointed. The position of the current incumbents to the post of CICs becomes precarious as they cannot continue to work as per the SC decision. It is completely unclear whether they would resign or be removed – and if so, under what provision? 
    Till the time the judicial experts are appointed, the number of second appeals pending with the information commission would rise by a huge number. The central information commission now has 11 posts, none of which is held by a member with a judicial background. Three posts are vacant. For
the commission to work in benches of two, it has to have at least 12 members. Of the 12, six have to be judicial members, which means a minimum of two of the existing members have to be replaced. 
    But there are two problems here. All the members do not retire at the same time. Besides, it is nearly impossible under the RTI Act to remove an incumbent commissioner. If the ruling can come into effect only after the members retire, it is unclear what will happen in the interim. Even when judicial members join, the bench of two members in a team is likely to slow down the disposal rate because there will only be half the outlets dealing with complaints, not to mention the increased time taken when two members deliberate. 
    There is no doubt that reforms are necessary in the process of appointments of information commissioners to make it more transparent; at present, mostly bureaucrats are appointed to these posts. The information commissions should not become a retiree's club. But the result of the SC's judgment is far worse. Information commissions are not manned by judges in any other country. 
    Namit Sharma is a regressive decision that only hampers the working of the information commissions by making it more legalistic and complex. It creates more problems while solving none. A review of the decision is pending before the SC, and it is hoped that the court takes into account these genuine concerns while relooking at this issue. 
    The writer is former chief justice of the Delhi high court.



Making the RTI system as inefficient as our courts

Thursday, October 25, 2012

Foreign Institutes Tag Along with Retail FDI


ON THE FLOOR Australian institute unveils its first post-graduate programme in retail management and more seen following suit; Indian B-schools too plan courses to meet demand


    Even before a Walmart or a Carrefour steps into the booming Indian retail arena, global retail institutes are on their way to teach a few tricks of managing the shop floor to local management students. Barely a week within the government opening the gates to foreign direct investment in multi-brand retail, Australian Retail College, which specialises in long-term training and development programmes for retailers in Australia, launched its first post-graduate programme in retail management in Hyderabad. The campus, started in collaboration with local retail institute Great India, will be followed by a second branch likely to be opened soon at Lavassa, near Mumbai. 
"FDI in retail underpins the need for Indian retailers to focus on their people," says Mike Wallace, CEO, Australian Retail College. The course covers a range of subject areas including packaging, strategic training and merchandising, he says, adding, "The faculty will be local but we will come from Australia to develop their capacity. Our Australian programmes will be customised for the local market." 
Pointing to the need for more foreign technology and more global managers, Carlo Altomonte, associate professor, University of Bocconi, Italy, says, "This is likely to lead to more foreign education coming into India or Indian schools have to upgrade and provide more global education... The kind of policy signals the government has sent out will lead to a rejig of the education sector in India." 
In fact, the retail boom and anticipation of the sector opening up to FDI had already prompted several Indian business schools to launch either full-time or part-time retail management programmes and many of them are now planning to start new executive management courses or management development programmes (MDPs) to meet the increasing demand for specific skill-oriented programmes. 
Top domestic B-schools such as SP Jain Institute of Management and Research, Indian Institute of Social Welfare and Business Management (IISWBM), Kolkata and Jamnalal Bajaj Institute of Management Studies (JBIMS) – which have full-time retail management courses or retail as an elective in their curriculum, are looking at new MDPs. "The demand for specialised courses/MDPs in the area of 'Retail Management Practices' will be generated both by the retailer and also manufacturers and supplier brands doing business with retailers as they will need to enhance their understanding of retailer," says Atish Chattopadhyay, professor of marketing and deputy director of the two-year PGDM Programme at SP Jain Institute of Management and Research. 
Adds Kavita Laghate, director, JBIMS: "With the opening up of FDI in retail, we will incorporate a more skill-focused programme, thereby readying a talent pool that fits the requirements of the retail industry." The institute plans to focus on short-term MDPs – skill enhancement of the existing management cadre. IISWBM, on its part, plans to launch a parttime programme for working students on retail management. The programme will be targeted at front-end employees. In addition, the institute – which offers full-time post graduate programme in retail management — is working 
for a tie-up with large corporates where postgraduate retail management students can have hands-on training. 
However, academicians say the retail industry needs to get further streamlined. "The retail industry in India needs to get a bit more glamourised to attract talent," says Gairik Das, head of the department of retail management and associate professor at IISWBM. "No good student will come in unless there is a good career prospect and a lot needs to be done by the government, industry and academia," he says. The industry needs to create better working conditions, he says. "Even if we don't consider FDI, within India too there is a good environment for retail. The sector holds tremendous potential as far as jobs are concerned, but the government needs to make proper labour rules, minimum wage structures and working conditions to attract good students." 
Post opening up of the sector, the commerce and industry ministry in a full-page advertise
ment said the 51% FDI in multi-brand retail will create more than 1 crore new jobs. India is fifth among the top 30 emerging markets for retail, according to Global Retail Development Index 2012. 
"Around 90% of workforce is required in the front-end and that's where retailers are facing a supply challenge. However, most courses offered in India have limited seats, which can't fulfil the de
mand," says Govind Shrikhande, managing director at department store chain Shoppers Stop. An international retail school, he adds, will be better in terms of global case studies they bring. "Hence, retail colleges, either Indian or international will be good for the industry," he says. 
Some point out the challenge of finding middle-management talent. "It's not the senior personnel who make a successful retailer, it's the store managers. If a foreign retailer opens 40 hypermarkets, there won't probably be 40 good store managers. So talent will come but it will take time. That's why the plan in the beginning can't be very ambitious," says Paul Martin, managing director at UK-based consulting and research firm Planet Retail, which has clients including Unilever, Carrefour and Walmart. 
rica.bhattacharyya@timesgroup.com 



Sanjiv Goenka buys Firstsource for 400cr Forays Into BPO Space By Acquiring 49.5% | Open Offer May Push Deal Size To 650Cr

Kolkata: The RP-Sanjiv Goenka Group has made a large play into the BPO space by striking a Rs 400-crore deal with ICICI Bank and two other shareholders to acquire a 49.5% stake in Firstsource Solutions — one of the top five BPOs in the country. The group also announced an open offer for an additional 26% stake in Firstsource at Rs 12.2 per share, which could take the deal size to Rs 650 crore. 

    ICICI Bank has been keen to exit Firstsource following regulatory pressures. Last year, RBI issued new norms requiring banks to bring down their stake in non-financial service companies to below 10%. For ICICI Bank, exiting Firstsource emerged a challenge after a foreign currency convertible bond issue (FCCB) came up for repayment, which was not provided for. Key to the present deal is an agreement by ICICI Bank to facilitate Rs 130-140 crore funding to meet part of the shortfall in redeeming the convertible bonds.
    CESC – the RP-Sanjiv Goenka Group's flagship company —
will acquire the BPOs shares through a wholly-owned subsidiary Spen Liq. "The transactions will be in two parts. Firstsource is issuing fresh shares, which is 34.5% of the expanded capital base, to Spen Liq for Rs 278 crore. Besides, our group is buying 5% stake from each of three existing shareholders — ICICI Bank, Fidelity and Temasek for — Rs 122 crore. The total deal value will be around Rs 400 crore," said Sanjiv Goenka, chairman of the group, adding that the deal will be funded by internal accruals and debt. 
    The undivided RPG group had presence in the IT sector through Zensar Technologies, which is now owned by Harsh Goenka-led RPG Enterprises. The RP-Sanjiv Goenka Group has interests in sectors like 
power, retail, engineering, entertainment and tea. It has Rs 14,000 crore of assets under management and a combined revenue of Rs 10,000 crore with EBIDTA of Rs 1,450 crore. 
    According to Goenka, the group had appointed McKinsey six months ago to identify new areas for growth. "We wanted to get into IT-related. Firstsource presents a very good opportunity in BPO verticals and has a very strong management team," he added. He said the arrangements are in place to repay the Rs 800 crore of FCCBs on their due date this quarter. There is a Rs 420 crore shortfall faced by the BPO in meeting the redemption, which will be financed jointly by the RP-Sanjiv Goenka Group and ICICI Bank. 

LOGS INTO TECH BASE 
äFirstsource will issue fresh shares, which is 34.5% of the expanded capital base, to Sanjiv Goenka's CESC for 278cr 
äThe company, via its arm Spen Liq, will also acquire 5% each from ICICI Bank, Fidelity and Temasek for around 122cr 
äThe company has launched an open offer for another 26% at Rs 12.20 per share


Wednesday, October 24, 2012

Kingfisher First: Biggest Loan Writeoff With no solution & buyer in sight, banks may’ve to write off . 6,000-cr debt

    Banks are staring at a possible . 6,000-crore writeoff on loans to Kingfisher Airlines, the biggest writeoff in Indian corporate history, as the continuing delay in resumption of services means even vulture funds are unlikely to invest in the airline. 

Lenders, which have been expecting promoter Vijay Mallya to bring in equity funds for more than a year now, are beginning to reconcile to the fact that chances of an equity investor coming forward is remote while the airline's troubles are compounding. Almost all banks have classified KFA as a bad loan and made provisions for some losses, but now they are preparing to write off these debt as unrecoverable losses, three bankers familiar with the thinking among KFA's creditors said on condition of anonymity. The absence of collateral to back even a third of the total . 7,500-crore loans makes it nearly impossible to recover the debt. It is not clear whether the potential writeoff will mean that the banks concerned will record losses in their September quarter earnings. State Bank of India (SBI) has set aside 65% of its . 1,400-crore loan. "It is at a stage where it is doubtful that any reconstruction companies, or even vulture funds, would consider acquiring this portfolio from lenders," said Siby Antony, managing director and chief executive at Edelweiss ARC, a company that buys distressed assets and makes a profit by reviving their operations. Banks, including SBI, Punjab National Bank and IDBI, have lent about . 7,500 crore to KFA over the past few years as working capital, even as the airline floundered. Its inability to raise equity prompted lenders to turn off the loan tap as well. Guarantees Difficult to Exercise 
Mounting losses led to it defaulting on payments to airports and even salaries to staff. The airport regulator on Saturday suspended Kingfisher Airlines' licence, citing safety issues. 
Mallya had put up shares of United Breweries valued at about Rs 180 crore and a Goa Villa valued at less than Rs 100 crore as collateral, said two of the bankers. That leaves his personal guarantee now. Bankers believe that some of the guarantees given are so complicated in structure that banks may find it difficult to extract substantial sums while exercising them. 
The recent relaxation of government guidelines to allow FDI up to 49% in the aviation sector was seen as a sign of support by the government, but it seems even that support is waning. Civil Aviation Minister Ajit Singh said Mallya would find it "very difficult" to revive the carrier, Bloomberg News reported. "Everybody hoped and presumed, because it's Vijay Mallya, he'd be able to marshal resources. Everyone is disappointed," the report said. 
Bankers have written off loans to airlines in the past, losing more than four-fifths of their loans to aviation companies like ModiLuft, Damania, East-West Airlines, Paramount and Archana Airways when they failed. But those losses, at about Rs 300 -400 crore pale before what Kingfisher owes. 
Experts fault banks for not having learnt lessons from the past. Indeed, many believe that banks, by converting a portion of their loans into equity in 2010 at a premium, may have committed a cardinal sin by not getting enough equity from the promoters. "There are lessons to be learnt on how to structure a loan to the airline industry," said Jitender Balakrishnan, former DMD of IDBI Bank. "While lenders could be excused for their failure in ModiLuft, Damania, and East-West Airlines since they started operations just when the industry was nascent, the experience they gained from these failures does not seem to have been put to use in dealing with KFA. Therefore, lenders have not been cautious enough in lending," he added.

Oilmin seeks share in RIL gas levy Won’t Approve KG Field Fin Accounts Till Co Pays Cut In Marketing Margin

New Delhi: The government appears to be further tightening the screws on Reliance Industries (RIL). In a latest salvo, the oil ministry's technical arm for exploration — Directorate General of Hydrocarbons (DGH) — has refused to approve the financial accounts of the company's showcase Andhra offshore field without a cut from the marketing margin it charges from customers on sale of gas. 

    Government documents on the issue of approving the 2010-11 accounts for the KG-D6 block show the ministry's resolve to get a share of the 13 cents RIL charges customers on each unit of gas it sells from the field. RIL levies this amount in addition to the $4.2 per unit price set by the government, and does not share it with the exchequer. 
    The company's argument is that marketing margin is needed to cover the risks and costs associated with marketing of gas from the field. It also argues that it is a matter between the buyer and seller 
that did not brook intervention by the ministry or the gas market regulator. But unless the DGH approves the accounts, RIL will not be able to recover its investments and operating costs for the year under review. 
    The ministry wants the 
government's share of revenue from the field's gas sales to be calculated after adding the marketing margin to the base price, or $4.34 per unit instead of $4.2. The accounts show RIL mopping up over $88 million (around 472.6 crore) as marketing margin in 2010-11, when the field's gas output 
stagnated at less than half the target of 60 mcmd (million cubic metres per day). 
    This is the second time the ministry has taken a stern stand against the firm. It recently threatened to hold approvals for future investments in the field unless RIL allowed federal auditor to conduct a second round of audit 
of the KG-D6 accounts. 
    The marketing margin became a bone of contention ever since the fertilizer ministry and Fertiliser Association of India lodged their protests with the oil ministry last year. During deliberations on the issue, both the ministry and DGH took the view that since the government identified the customers and allotted the quantity of KG-D6 gas to be sold to each consumer, there was no marketing risk involved. It also said that RIL would have to share with the exchequer any additional charge it levies from customers. 
    RIL had argued back saying state-run gas utilities such as GAIL too charge marketing margin of up to 18 cents per unit of sale but do not share it with the government. 

PUMPING FOR EXTRA FEES 


• Oil ministry determined to get a share of 13 cents RIL charges on each unit of gas sold from KG-D6 block 

• The amount is levied by RIL in addition to the $4.2 per unit price set by govt, and not shared with the exchequer 


• Co argues that additional amount is required to cover risks and pay for marketing of gas from the field 

• RIL had raked in over $88m (around Rs 472.6cr) as marketing margin in 2010-11 
UNDER SCANNER RIL to face second CAG audit OilMin Assures Auditor Will Scrutinize A/cs, Not Performance 
New Delhi: Decks have been cleared for the federal auditor's scrutiny of accounts for the Andhra offshore gas field being operated by Reliance Industries Ltd. Officials from the Comptroller and Auditor General are expected to meet Reliance executives on October 31 to discuss modalities of starting the audit of the KGD6 field's books for the 2009-2011 financial years. 
    The meeting has been called after the oil ministry agreed that the federal auditor would examine the accounts to verify whether Reliance's investments in the field and operational expenses were in line with the terms of its contract with the state. 
    The contract allows Reliance to recover its investments and running costs before sharing revenue with the government. 
    Any excess claim, thus, has a bearing on the government's take from the field. 

    Reliance had agreed to a CAG scrutiny in 2009 but has been opposing a second round because of the audit format. It argued that the contract allowed only scrutiny of the field's accounts and not performance. 
    It raised points of law to say the federal auditor did not have the powers to examine the accounts of a private company or evaluate the efficacy of technology or processes deployed in the field. 
    But the company also said it would have no objection to an audit of the field's accounts by a "duly appointed representative of the government", including CAG. 
    The adverse report of 
CAG's first round of audit and the recent drop in the field's output revived doubts over Reliance's investment plans for the field and put the ministry under pressure to order another round of audit. No wonder the ministry has put on hold approvals for future investments in the field to pressure Reliance. 
    The CAG report had said the government extended favours to private oil companies, including Reliance, and pointed out violations of terms of contracts. The report also pointed out "sweetheart deals" in the procurement process for the KG-D6 field but ruled out gold-plating of investments by Re
liance. The field's output has fallen to 26 mcmd (million cubic metres per day), or less than half the target for which the government had approved investments. The reduced output has left the government grappling with clamour for fuel from starving power, fertilizer and other plants. 
    The ministry had in 2009 ordered the special CAG audit of contracts the government had signed with private oil firms, including Reliance, for operating fields after allegations of gold-plating by Reliance. On its part, Reliance has been pushing for quick approvals for fresh investments to develop other gas finds in the area, saying these were needed to shore up output from the KG-D6 
block and stop the producing fields from dying. 
    But the ministry has been dragging its feet to make Reliance submit to a CAG audit of the field's performance in view of the fall in output.






 

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