| RBI allows banks to be bourse members | ||
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Mumbai, 5 November The Reserve Bank of India (RBI) today permitted banks to become members of exchanges approved by the Securities and Exchange Board of India (Sebi), to undertake proprietary transactions in the corporate bond market. RBI said banks should satisfy the membership criteria and comply with regulatory norms of Sebi. This is yet another step from RBI to deepen the corporate bond market but the market seems to have a different view on this. Merchant bankers said this step would fail to widen the market as most trades in the corporate bond market are over-the-counter and nowhere in today's notification has RBI said such deals are not permitted. Also, bankers said the corporate bond market needs a screen-based trading terminal for the market to deepen and then develop further through measures introduced by the central bank earlier. | ||
| Elecon Engineering: 18.4 per cent of investors vote against restructuring | ||
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New Delhi, 5 November In what appears to be some good news for small investors and bad news for companies that disregard the small investors' concerns, a significant portion of public shareholders have voted against a restructuring proposal by Elecon Engineering Ltd. In a recent meeting to approve the restructuring in Elecon 18.4 per cent of the equity shareholders, by value, voted against the scheme of arrangement. This is more than the 14.84 per cent that domestic institutions and foreign institutional investors held in the company, as on June 30, 2012. Proxy advisory firm Institutional Investor Advisory Services (IiAS) had asked investors to vote against the proposed scheme. The move comes weeks after Naveen Jindal-led Jindal Steel & Power saw significant amount of institutional votes going against a resolution to authorise the chairman to revise pay packages of top executives. Recently, Elecon announced it would be restructuring the businesses of its promoter companies Prayas Engineering Ltd (Prayas) and EMTICI Engineering Ltd (EMTICI), with its wholly owned subsidiary Elecon EPC Projects Ltd (Elecon EPC) and itself. The stock corrected five per cent the day Elecon's board approved the scheme of arrangement. Before the restructuring, the promoters held 45.99 per cent in Elecon Engineering Co Ltd and Elecon EPC was a wholly owned subsidiary of Elecon Engineering Co Ltd. However, post-restructuring the power transmission business (PT) of Prayas and EMTICI would be transferred to Elecon while the material handling equipment business (MHE) of Elecon, Prayas and EMTICI would be transferred to Elecon EPC. This restructuring of businesses would help the promoters increase their shareholding in both the MHE and PT businesses (in Elecon EPC it increases from 45.99 per cent to 72.15 per cent, and in Elecon it increases from 45.99 per cent to 53.96 per cent). The move would also give majority control of over 50 per cent to the promoters in the decision making process of both companies. Further, post-merger, the MHE business's (now Elecon EPC) revenue and profit margins will be higher than the PT business. Post-restructuring, the MHE business is expected to have a profit before tax margin of 12.7 per cent v/s 7.4 per cent for the PT business. IiAS notes that the promoters' shareholding in MHE also increases disproportionately relative to the PT business. The debt to Ebitda ratio of the MHE business would stand at 2x vis-a-vis 2.4x for the PT business. Recently, Elecon announced it would be restructuring the businesses of its promotercompanies Prayas Engineering Ltd and EMTICI, with its wholly-owned arm Elecon EPC Projects and itself | ||
| Reform oversubstance | ||
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What does China want? Sustained growth, and happier citizens. How will it get there? Through economic reform. It sounds simple enough. But reform is a slippery word. While the problems facing China's incoming new president Xi Jinping are well known, each potential fix depends on others, and most will meet with resistance. To succeed, Xi may need to push hard in three main areas: efficiency, innovation and the environment. Better, not less The common complaint that China invests too much isn't necessarily true. While investment is a high 48 per cent of GDP, according to the World Bank, that isn't always bad in a half-urbanised country. The problem is rather that China invests ineffeciently. Banks don't price credit properly, which means they have more incentive to lend to state-connected borrowers than private companies. Corruption is part of the efficiency problem, though it contributes to inequality as well. The best solution would be to dethrone the large state banks, which hold more than half the stock of outstanding loans, and expose them to greater competition. That would involve letting interest rates float to more realistic levels, and improving governance so banks lend according to profit, not connections — even if eliminating corruption is a distant dream. Vested interests are strong. Banks are big employers: the four largest employed 1.5 million people at the end of June. Turn to TSI, Page 2 >Chinese reforms could trigger domino effect | ||
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| Click: Article continued from…Reform oversubstance |
| Reform over substance |
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The second big challenge is innovation. Being able to invent and adapt is the difference between a middleincome country reliant on technologies and services from abroad, and a wealthy one that makes its own fortune. A fully functioning legal system that protects ideas would help, though that is still a long way off. One way to aid innovation is to reduce the dominance of state-owned enterprises. State ownership isn't necessarily bad, but protected industries tend to try less hard. Opening sectors like telecoms or energy to competition would increase efficiency, and give them an incentive to be more creative. Again, vested interests are the problem. Companies are powerful and well connected, and local governments reluctant to repeat the massive lay-offs of the 1990s. Finally, there's the environment. Pollution makes citizens angry, as recent protests in Ningbo showed, while guzzling scarce resources compromises future growth. One solution would be to start pricing resources like water and petrol properly, so profligate industrial users have a stronger incentive to change their ways. Politicians, though, tend to prefer leaving environmental concerns to future generations. Besides, cleanliness and supply aren't always compatible: coal is abundant but dirty; drilling cleaner shale gas uses lots of water. China's best bet is to invest heavily in technologies that allow it to create clean, plentiful energy - but that in turn depends on reforms that nurture innovation and efficiency. A question of capital In China, one reform often requires another. Get banks to allocate credit properly and they might need a bailout when debts go bad. Strengthen the legal system and it might compromise the supremacy of the party. Urbanisation is a major driver of sustainable growth, but growth in city-dwellers puts pressure on local government budgets. No single problem has a single solution. That may be why President Hu Jintao's outgoing government, which presided over impressive growth and stability for ten years, has achieved little lasting reform. Anachronisms like the one-child policy, and the "hukou" identity card system, which traps economic migrants in low-paid labour rather than comfortable consumerism, have yet to be swept away. Xi might be different. What matters isn't just whether he wants reform, but whether he can amass the political credibility to overcome opposition. That will take time to build up. Xi will have two former presidents, Hu Jintao and Jiang Zemin, and other party seniors looking over his shoulder. Consolidating his power will take many months, at best. The best hope is that Xi is less like Hu, and more like Deng Xiaoping, the Chinese leader most associated with successful reforms. When early opening up led to widespread corruption, Deng forged ahead anyway, remarking that "when you open the door, flies will get in". Then, as now, the best tools for economic reform in China are a way with words, and a hard head. >FROM TSI, PAGE 1 |
Company Secretary, Chennai
email csarengarajan@gmail.com
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