| IFCI stock tanks as it becomes govt company |
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Mumbai, 24 August The stock market today gave the thumbs down to the government decision to make IFCI, the Delhi-based finance company, a state-owned unit. The decision has raised questions over its business model and the fate of its chief executive. IFCI (Industrial Finance Corporation of India) shares slumped 16.31 per cent, or ~5.70, to ~29.25 on the Bombay Stock Exchange today on concerns the governments decision to convert optionally convertible debentures into shares would hugely lower the attractiveness of shares as the equity base would increase. The stock was the second biggest loser on the exchange today. Responding to the development and its implications, Atul Rai, the chief executive and managing director, said the company was yet to get a formal communication and was looking forward to what other shareholders had to say. Asked if he may have to quit his job following the development, Rai said at present he was very much with the company. He, however, did not rule out his exit from the post at the government's behest. Unfazed, officials said in Delhi the government would exercise its right, approved by the Cabinet yesterday. After the conversion, government stake in IFCI would be 55.57 per cent. As of June 30, financial institutions, foreign and domestic combined, owned 42.91 per cent stake. Non-institutional investors such as corporate bodies and individuals owned the rest. Asked if becoming a government company would change the business model, Rai said he expected some projects such as port development and road construction, being done through separate entities, would remain part of IFCI as they were important for infrastructure development. A senior executive with Indian Banks' Association said after IFCI's becoming a public sector undertaking, the government would play a crucial role in shaping the business mandate. Also, there would be closer scrutiny. The existing activities would come under review, he said. The timeline for the proposed initial public offering of IFCI Factors Ltd, its subsidiary, could change, he added. An analyst with rating agency ICRA, which tracks IFCI, said the conversion in debentures might not be a credit event, so it was not immediately put "under watch". In July, ICRA had revised the outlook on the long-term ratings for the bond programmes and bank borrowings from 'stable' to 'negative'. It had reaffirmed the rating at A. The rating of IFCI's commercial paper was revised from 'A1+' to 'A1'. The possibility of the government exercising the option to convert optionally convertible debentures into equity had derailed the process of selling 26 per cent stake in the company to a strategic investor in 2007. IFCI was converted into a company incorporated under the Companies Act, 1956 in 1993. It was then decided the holding of government-controlled institutions would be maintained above 51 per cent. 36 34 32 30 28 35.25 29.25 Aug 24 Open Close IFCI INTRA-DAY BSEprice in ~ Data compiled by BS Research Bureau Source: Bloomberg |
| Gujarat offers VAT refund to Maruti |
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Ahmedabad, 24 August On its way to becoming India's automobile hub, Gujarat is offering incentives galore to lure automobile companies to the state. It is learnt the latest entrant, Maruti Suzuki India, has been offered a refund of value-added tax (VAT). VAT would be refunded to the company for the next 15 years, provided the amount didn't exceed the company's investment in the state, said a senior state government official. Maruti is investing ~4,000 crore to set up a 2,50,000-unit-per-year plant at Hansalpur, about 110 kilometres from here. The incentive has been mentioned in the state support agreement the company signed with the state government on June 2, the official said. "This is similar to the incentive offered to Ford India earlier. This apart, the companies have also been offered land at prevailing market rates," he added. Gujarat has emerged as a preferred destination for investors, largely due to its industry-friendly image, good infrastructure and port connectivity. Various incentives offered by the state government is another attraction for companies making a beeline for the state. Sources said the Gujarat government would offer incentives to any major project coming to the state, provided it entailed investment of more than ~1,000 crore. In July, 2011, Ford India had signed a memorandum of understanding with the state government to set up a ~4,000-crore plant over 460 acres at Sanand. The plant, expected to start production by 2014, was also offered a tax refund incentive. Another auto major, PSA Peugeot Citroen, is learnt to have been offered a soft loan of about ~4,000 crore with a late repayment option. Peugeot had also lined up an additional investment of about ~4,000 crore to set up a plant with an initial capacity of 1,65,000 units a year. Owing to the recent slowdown in Europe, the company has, as of now, held back its decision to start work on the plant. |
| Cheaperfunds lure firms to debtmarket |
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Mumbai, 24 August Companies other than nonbanking finance firms are raising funds through the debt market, via non-convertible debentures (NCDs) and commercial papers (CPs), to take advantage of favourable costs and increased investor appetite. Rates at the shorter end of the tenor have eased 50-100 basis points (bps) since the beginning of the second quarter of this financial year. Improvement in liquidity conditions and increasing investor interest in debt market instruments have contributed to a fall in rates. Companies have been issuing commercial papers (CPs) for funding needs of less than a year while NCDs are being offered for requirements of more than a year to two-three years. NS Venkatesh, head of treasury at IDBI Bank, said: "Higher rated companies are taking advantage of lesser costs at the shorter end (of tenor) and raising funds from the debt market, instead of drawing cash credit from banks." Debt is available at 8.5-9.5 per cent for three-six months from the money market. This is lower than the base rates of banks, which are above 10 per cent. According to norms, banks are not permitted to lend at interest rates below their base rate. "Seeing this opportunity, companies are borrowing from the debt market instead of utilising their bank credit lines," said Venkatesh, adding that these are mainly meant for funding working capital requirements. Tata Power, Mittal-HPCL Pipelines, UltraTech Cement, Torrent Power and Tata Sky are expected to raise funds via NCDs. Tata Motors, Marico and IOC have been raising funds via CPs. Ashok Sharma, general manager (treasury) with home textile major Himatsingka Seide, said investing in NCDs is a simple transaction. With challenges and risks of equity markets, people have been looking at investment avenues (such as NCDs) that are secure with better returns. Banks are also investing directly in these instruments rather than going through the mutual fund route. According to guidelines, banks are not permitted to invest more than 10 per cent of their net worth in liquid schemes of mutual funds. "There is enough liquidity in the system and banks are creating liquid mutual fund-type portfolio within treasuries by buying other banks' certificates of deposit and CPs issued by their clients directly," said the head of treasury at a large public sector bank. However, this is subject to company-specific exposure limits set by banks internally, the official added. As on July 27, banks' investments in CPs rose to ~21,550 crore from ~13,550 crore a year ago. Banks' investments in bonds or debentures issued by public and private sector companies rose to ~1.23 lakh crore from ~92,200 crore in the same period, according to data from the Reserve Bank of India. GROWING APPETITE The NCD pipeline from manufacturing and services companies Company Rating Amount* Tata Power AA 1,500 Mittal-HPCLPipelines AA 1,000 Ultratech Cement AAA 250 TorrentPower AA 200 Tata Sky AAA 160 Tube Investment Corp AA 100 Himatsingka Seide BBB 20 *Indicates the borrowing limit under given rating (~cr) Source: Rating agencies |
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