Independent directors raise red flag on Holcim royalty
DEV CHATTERJEE & ABHINEET KUMAR
Mumbai, 22 October
Holcim's plan to charge two per cent of revenues as royalty from
subsidiaries ACC and Ambuja Cement has hit a roadblock, as independent
directors of Ambuja Cement have sought details of the technology
transfer involved. The proposal was taken up by the board at its
quarterly-results meeting last week but a decision was postponed till
an independent consultant gave its report, a source close to the
development said.
Holcim, which owns close to 50 per cent stake in both ACC and Ambuja
Cement, has proposed to raise the royalty for technology transfer from
0.5 per cent of revenues to two per cent. If implemented, the payout
from Ambuja Cement and ACC would be ~500 crore a year.
However, Holcim's higher royalty plan failed to pass muster at the
Ambuja Cement board meeting, as independent directors led by veteran
corporate lawyer M L Bhakta and economist Omkar Goswami asked for more
details on the exact nature of the technology being transferred by
Holcim to its subsidiary. Both Goswami and Bhakta declined to comment
on the issue.
Holcim and Ambuja Cement did not reply to email queries. An ACC
spokesperson declined to comment.
"This isn't in the right spirit of governance. When the promoter is
hoping to benefit from the company at the cost of other shareholders,
it should at least be put up for voting as a special resolution
requiring 75 per cent approval," said Shriram Subramanian, founder and
managing director of InGovern Research Services.
"As a majority of these (royalty payments) are related-party
transactions and need proper justification, we recommend such payouts
be subject to shareholder voting requiring special resolution," he
said about the rising cases of companies seeking higher royalty from
subsidiaries. There is no legal bar on paying royalty to foreign
parent companies.
On Wednesday, a day before the board met, foreign brokerage Macquarie
had questioned Holcim's plan, saying the cement industry did not
require high technology. Besides, ACC had already paid ~57.3 crore in
the name of training, technical know-how, market survey and management
fees to Holcim, almost 0.5 per cent of its revenues. "This (royalty)
will have an impact of 919 per cent on the earnings of both
companies," said Rakesh Arora, analyst with Macquarie, adding that ACC
would be impacted more than Ambuja Cement.
Mumbai-based ACC is the largest producer of cement in India, with a
capacity of 30 million tonnes a year. In 2004, Holcim took management
control of the company. The company reported ~2,473 crore in revenues
in the quarter ended September. The net profit for the quarter was
~248 crore. Ambuja Cement reported revenues of ~2,175 crore and ~304
crore in net profit in the quarter ended September.
TSI, 2
UltraTech scores overACC, Ambuja
Ask company to get technology transfer vetted by independent agency
THE ROYALTYDEBATE
Investors have often feltshort-changed when a companyhas had to payan
amountperceived too high as royaltyto its parent
In July 2010, Maruti Suzuki announced it paid 5.1% of its sales for
the quarter ended June 30, 2010 as royalty to its parent Suzuki. Thus,
while sales increased 27% year-on-year for the quarter, that was
accompanied by a 20% fall in net profit year-on-year. The royalty
amounted to almost 64% of the company's pre-tax profit or 88% of its
post-tax profit. Maruti Suzuki's stock fell as investors did not like
the royalty surprise Nowrosjee Wadia & Co, promoter company of the
Wadia group, has asked its listed group companies — Bombay Dyeing,
Bombay Burmah and Britannia — to pay 0.1% of revenues from this
financial year onwards as brand royalty fee and shared services fee.
Investors say this goes against sound corporate governance practices
Just before their split, Hero and Honda's joint venture was paying
three per cent of sales and almost 25 per cent of profit after tax as
royalty for technology transfer to the Japanese company. This was one
of the bones of contention between the two partners, as the Indian
partner was of the opinion the royalty payments were too high
FIIs must disclose more in new Mauritius TRC
NSUNDARESHASUBRAMANIAN
New Delhi, 22 October
The government of Mauritius is likely to issue a new format for the
tax residency certificate (TRC) for foreign institutional investors
(FIIs), incorporating additional particulars required by the Indian
government. According to people familiar with the development, the
Mauritian revenue authority is expected to include three crucial
details asked by the government for investors availing themselves of
treaty benefits. "A draft format is likely to be published soon," said
a person familiar with the development.
The move will impact all foreign investors, including FIIs, investing
in India through the Mauritius route. It will also lead to greater
transparency and help in better identification of ultimate
beneficiaries of these investments. India and Mauritius are
signatories to a double taxation avoidance agreement (DTAA) which says
capital gains made on investments in India can only be taxed in the
island nation. But Mauritius does not levy any tax, making it an
attractive destination to route investments to India.
The new format proposed by the Mauritian government and circulated
among tax experts in India includes details such as address of the
assessee, his/her tax identification number (TIN) and the status of
the entity as to whether it is an individual, partnership or a
company. Entities issued TRCs already might have to get those reissued
under the new format, officials said. Earlier this year, through the
Finance Act, 2012, the government had amended sections 90 and 90(A) of
the Income Tax Act to make it mandatory for investors claiming treaty
benefits under different DTAAs to share "certain particulars".
In September, the government published rules that laid down these
specific particulars required to be furnished by investors claiming
treaty benefits. While each country which has aDTAA has to make these
changes to its TRC format, Mauritius is key as a significant amount of
foreign flows into India come through that country.
Concerns have been raised in the past about Indian black money,
especially from politically connected people, being round-tripped
through the FII route. The proposed changes in the TRC format are
likely to help identify the source of funds as closely as possible,
say tax experts. MORE TRANSPARENCY
|Finance Act, 2012 says only entities that share requisite details
eligible for treaty benefits |Mauritius is the largest treaty country,
with over 25% of FII assets |Existing Mauritius TRC form does not give
key details |Union government releases list of particulars required
|Mauritius revenue authority to release proposed TRC format, including
address, TIN and status
Changed format to help better identification of end-beneficiaries of
foreign investments
RBI trying to mesh current liquidity, Basel-III norms
BS REPORTER
Mumbai, 22 October
The Reserve Bank of India (RBI) is working on a way to include
liquidity held by banks under the current mandate to get eligibility
under the Basel-III regime as well. This might involve bringing down
the requirement of additional liquidity that banks need to provide as
the new norms set in.
The set of rules under Basel-III prescribes banks to build a liquidity
coverage ratio. However, banks in India are mandated to maintain the
minimum liquidity at 23 per cent of net demand and time liabilities as
the Statutory Liquidity Ratio (SLR) under RBI norms.
"We cannot add more liquidity over this (SLR) and we are working out a
scheme under which part of SLR is treated as the Basel-III liquidity
requirement," said Anand Sinha, deputy governor at RBI. He was
addressing the CARE Ratings Banking Summit today.
For Indian banks, RBI has laid down phases in order to comply with the
Basel-III norms within the transition period of January 2015-January
2018. Sinha said capital requirements will increase and might have an
impact on banks' profitability. He emphasised that there would have
been the need to raise capital even if the Basel-III norms were not in
place.
"The burden of BaselIII should be seen as net of what would have been
required otherwise. Our calculations show that the incremental amount
of capital required under Basel-III is less intimidating," said Sinha.
He also pointed to the concern that banks might raise lending rates to
compensate for the increase in cost of capital. "There have been
studies by the Basel-III committee that the macroeconomic impact of
new regulations are modest if the implementation is phased over a
transition period," said Sinha. Therefore, banks were given five years
to comply, he added.
On whether the central bank's monetary policy should turn to targeting
inflation specifically, Sinha said regulators in advanced economies
have also started taking cognisance of financial imbalances. "In my
view, monetary policy should have a broader perspective," he said.
RBI is scheduled to announce the second quarter review of monetary and
credit policy on October 30. The central bank has been hesitant to cut
policy rates due to concerns over high inflation.
Existing SLR requirement can't be jumped off, says Sinha
RBI Deputy Governor Anand Sinha
25 PSU heads to meet Prime Ministertoday
BS REPORTERS
New Delhi, 22 October
Heads of 25 major public sector undertakings (PSUs) will meet Prime
Minister Manmohan Singh tomorrow to discuss capital expenditure plans,
as well as issues hurting growth of their respective industries.
According to an official release, investment plans will be discussed
during the meeting.
Among those who will meet the prime minister are the chairmen of Air
India, Bharat Heavy Electricals, Coal India, GAIL, Indian Oil
Corporation, NTPC, Power Grid Corporation, Steel Authority of India,
Shipping Corporation of India and Indian Railways Finance Corporation.
This is the first such meeting between PSU heads and the PM, on the
lines of the annual parleys heads of major private sector companies
have with the PM on their concerns.
Heavy Industries and Public Enterprises Minister Praful Patel told
Business Standard :"Autonomy of PSUs and disinvestment will be
discussed." Patel said there were many PSUs with the capacity to go
global but were constrained by over-regulation.
Patel also said some PSUs had complained their view was not sought
when it came to divestment.
"They are in favour of disinvestment. But their point of view does not
get much attention," said Patel.
The government has set a target of raising ~30,000 crore through
disinvestment this financial year.
However, no disinvestment has been carried out so far this year.
"If markets are stable, the government will be able to meet the target
of ~30,000 crore," said Patel.
India has 248 central public sector enterprises.
These companies together registered an 18 per cent growth in turnover
at ~14,73,000 crore in FY11.
Of these, 45 listed companies together account for 22 per cent of the
total market capitalisation of all the companies listed on the BSE.
Patel added he was willing to discuss with the prime minister that the
limits on Maharatna and Navratna companies should be revised.
Capital expenditure plans on the agenda ON TALKS TABLE
|Autonomy of PSUs and disinvestment to be discussed with Prime
Minister |Meeting likely to be attended by chairmen of Air India,
Bharat Heavy Electricals Limited, Coal India, GAIL, Indian Oil, NTPC,
Powergrid Corp, Steel Authority of India, Shipping Corporation of
India and Indian Railways Finance Corporation |Government has set a
target of raising ~30,000 crore through disinvestment this financial
year. However, disinvestment in not a single company has been carried
out so far |India has a total of 248 Central public sector
enterprises, which together registered an 18-per cent growth in
turnover at ~14,73,000 crore during 2010-11
The meeting is on the lines of the annual parleys that heads of
majorprivate sectorcompanies have with the PM
MCX-SX signs up 700 members; undecided on equity launch
BS REPORTER
Mumbai, 22 October
Ahead of launching trading in multiple assets, MCX-SX has signed up
700 members across the country.
The Financial Technologiespromoted bourse had opted for significantly
lower net-worth and deposit criteria for members, compared to market
leader National Stock Exchange (NSE). The BSE and the NSE had launched
operations with 318 members in 1875 and nearly 200 members in 1994,
respectively.
Before the BSE and the NSE were de-mutualised in 2007, the high
membership clause was a major entry barrier to becoming a stock broker
in India. Currently, NSE has 1,500 broker members, while BSE accounts
for about 1,000.
Today, MCX-SX claimed to have set a world record; it said the number
of members signed was higher "than any other exchange before going
live".
However, despite the market expecting MCX-SX would be fully
operational from Diwali, senior officials of the bourse said they were
yet to set alaunch date. They, however, added operations would be
launched by the year-end.
MCX-SX didn't specify the number of applications backed by full
subscription amounts and trading deposits. Also, it didn't give the
details of the applications it had sent to the Securities and Exchange
Board of India for registration.
"We are overwhelmed with the response to our membership drive, as we
have all-around subscription from foreign and domestic brokers. We
expect at least 350 members would be registered before we launch
equity trading," said Joseph Massey, managing director and chief
executive of MCX-SX.
Brokers had to spend ~25 lakh to become MCX-SX trading members in the
equity cash and futures segments. They were also required to have a
net worth of ~30 lakh. This was, however, an introductory offer, valid
only till October 18, after which the deposit was doubled. After the
exchange announced its membership drive on September 5, NSE responded
by cutting its deposit and net worth criteria by up to 50 per cent for
a class of brokers under the new 'Alpha' category, compared to earlier
charges of ~75 lakh-~1.5 crore. BSE's charges are much lower compared
to the other exchanges.
Jignesh Shah, promoter and vice-chairman of MCX-SX, said the bourse
would start equities trading this year, adding the company's board
would soon meet to take a decision on the matter. "All the three
exchanges in India would flourish and there is space for more to
come," he said, stressing MCXSX would not only focus on developing the
equity segment, but also bond and interest rate futures. Currently,
MCX-SX competes with NSE in the currency derivatives segment.
The FT-promoted exchange claims number of members signed higher 'than
any other exchange before going live'
Jignesh Shah, promoter and vice-chairman ofMCX-SX. Shah said all the
three exchanges could flourish and there was space for more to come
--
.
-
CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
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