[aaykarbhavan] Source Business Standard and Business line update 17-12-2013

Source  Business standard

 

McDonald's defends arbitration move

BS REPORTER New Delhi, 16 December Lawyers of American fastfood chain McDonald's on Monday told the Company Law Board ( CLB) the company could seek a reference for arbitration, as the law in question didn't prohibit this even if an appeal regarding the matter was pending in a different court. CLB will hear the matter again on Tuesday. The company had sent a notice to the London Court of International Arbitration, regarding a dispute with its Indian joint venture ( JV) partner, Vikram Bakshi, about three months before it published a public notice announcing the end of Bakshi's term as managing director of Connaught Plaza Restaurants Pvt Ltd, the joint venture. Tenability During the past few months, CLB has been hearing the argument on the tenability of McDonald's plea to refer the dispute to the London Court of International Arbitration. Bakshi's counsel has filed an application before CLB, stating the termination notice was ex facie untenable, as it had been issued in an attempt to overreach CLB's process. The application added the termination notice interfered with the course of CLB's judicial proceedings. The termination notice was illegal and liable to struck down and set aside by CLB, Bakshi's counsel said in the application. He added unless CLB struck down the termination order, the petitioner would suffer irreparable loss; he sought an injunction restraining the termination notice issued on November 28. In his application, Bakshi requested CLB to pass an order directing the initiation of proceedings against McDonald's for willful and intentional contempt. Earlier, Bakshi had said the attempt by McDonald's to terminate its agreement with him was illegal and not binding, adding it would have no bearing on the shareholding pattern ( the partners hold 50 per cent each), board composition ( both sides have two nominees) and the working of the company. On August 30, McDonald's had, in a public notice, stated, "Vikram Bakshi has ceased to be the managing director of Connaught Plaza Restaurants, pursuant to expiration of Bakshi's term on July 17." Following this, Bakshi moved CLB for his reinstatement as managing director, arguing his appointment was made at a board meeting and wasn't the subject matter of any arbitration agreement. Apart from its joint venture with Bakshi, McDonald's also has another partner, the Jatias of Hardcastle Restaurant, with whom it has a franchise agreement to run operations in west and south India. Company tells CLB arbitration law doesn't prohibit this, even if an appeal on the matter is pending in a different court A file photo of a McDonalds restaurant in New Delhi. Vikram Bakshi, the fast- food chain's joint venture partner for running its stores in north and east India, has said the termination notice served on him was an attempt to overreach the Company Law Board's process PHOTO: BLOOMBERG The Company Law Board will hear the matter again on Tuesday

 

Overhaul  of  corporate governance rules likely SAMIE MODAK Mumbai, 16 December To give a greater say to minority shareholders and put more onus on independent directors and institutional shareholders, the Securities and Exchange Board of India ( Sebi) is planning an overhaul of corporate governance rules. The capital markets regulator also proposes to come out with the final guidelines for real estate investment trusts ( Reits), which could open a new liquidity stream for the cashstarved realty sector. Both the proposals would be taken up at Sebi's board meeting here on December 24, said three people privy to the development. In October, Sebi had floated a discussion paper on Reits. In January, it had brought out a consultative paper on corporate governance norms. Sebi's new corporate governance norms will re- align the existing framework with that in the new Companies Bill, which has already been approved by Parliament. A source said though several clauses pertaining to corporate governance in the Companies Act had to be notified by the government, Sebi had decided to go ahead with finalising the new corporate governance norms. Sebi's governance norms, to be applicable only for listed companies, are stricter than the norms in the new Companies Act. The new norms could see the introduction of a whistle- blowing policy, class action suits, a lead independent director and compulsory rotation of auditors. " The new Companies Act has come out with a number of new stipulations and clarity on what the country wants to achieve in corporate governance in India. But Sebi's role and the role of stock exchanges also includes ensuring disclosures are made on time, the disclosures are complete and relevant and nothing significant is suppressed," Sebi Chairman U K Sinha had said in a speech on Saturday. It is unclear whether all the recommendations made in the consultative paper were accepted by the Sebi board. The paper had also recommended giving more powers to independent directors, putting curbs on related- party transactions by companies and enhancing the role of institutional investors by asking them to define a clear voting policy. Sources said the draft regulations on Reits, after incorporating some public suggestions, were likely be accepted by the Sebi board. " Reits may only succeed if these are given tax incentives; but we are readying the regulations that will enable setting up Reits in the country. We need not wait for the tax breaks to come first," said a senior Sebi official. Experts believe Reits will have to be treated as pass- through instruments; for these to succeed, these will be taxed only at a single point. In the discussion paper, Sebi had suggested a model on the lines of an initial public offering ( IPO), with a lot of emphasis on transparency and disclosures for Reits. It had proposed an initial offer size of at least ₹ 250 crore and a public float of at least 25 per cent. To attract only high net worth individuals, the draft regulations had also proposed a subscription ticket size of at least ₹ 2 lakh. "It is important for Reits to come in India. Real estate developers will benefit, as these will give them institutional funding. It will also help retail investors with relatively lower investment sizes to be part of real estate… and benefit from the upswing. Taxation, however, will be the key for investments in Reits," said Anuj Puri, chairman and country head, Jones Lang LaSalle India. Sebi also proposes to come out with final guidelines for Reits |The regulator could introduce whistle- blower policy, class action suits, lead independent director |Curbs on related- party transactions; mandatory rotation of auditors |New rules aimed at increasing transparency, giving greater say to public shareholders |Reits could open new revenue stream for the real estate sector |Experts say Sebi regulations will have to be backed by tax breaks IPO fund- raising at 10- year low SACHIN P MAMPATTA Mumbai, 16 December The amount of money raised from Initial Public Offers ( IPOs) of scrips in 2013 has been the lowest in the past decade, to levels previously seen in 2003. IPO fund- raising has dropped 75 per cent from 2012 to ₹ 1,602 crore in 2013, according to information from PRIME Database. The lowest since 2003, when companies mopped ₹ 1,670 crore. The total capital raised through IPOs in 2012 was ₹ 6,938 crore. Gautam Trivedi, managing director &head of equities, Religare Capital Markets, said he didn't expect significant improvement in the IPO scenario in the near term. " The retail investor is completely absent from the market. It's hard to see a change in sentiment anytime soon," he said. SP Tulsian, an independent advisor, said investors were no longer attracted to IPOs. " There is no appetite because these have not rewarded investors. A stable secondary market for six months is necessary before the IPO market picks up. The outlook is still bearish for the secondary market… there is no hope till at least March 2014," he said. Just Dail, a local search engine service provider, got most of the capital raised from IPOs during the year. It had come out with one for around ₹ 900 crore in May. The stock has more than doubled since its debut. However, few IPOs did as well. U K Sinha, chairman of the Securities and Exchange Board of India ( Sebi), had noted at an event in October that two- thirds of IPOs issued in the past three years were trading below their issue price. The stock market regulator has been debating a number of steps to try and protect investors from the market's downside risks. It had a proposal for a mandatory ' safety net,' where promoters would have to buy back a fixed number of shares if they underperformed the market. The proposal was widely opposed by various stakeholders, who said this contradicted the fundamentally risky nature of equity investments. Sebi is now said to be debating the possibility of a convertible structure, by which investors would be issued instruments which could later be exchanged for equity shares. This would potentially protect them from post- listing losses. Pavan Kumar Vijay, managing director at Corporate Professionals, suggested promoters see little appetite for their shares. " Promoters are unsure who will buy any share sale that they make. Any investor would look to existing companies with an established record if they want to buy into a sector, rather than invest in a new entity," he said. The absence of fresh paper would mean incremental inflows flowing towards already listed companies. While domestic institutions have been net sellers by ₹ 70,000 crore, foreign institutional investors have been net buyers by ₹ 1 lakh crore in 2013. "Public issues by government companies could absorb some of the capital," said Trivedi. Poor appetite and volatile secondary market hit sentiment; change in short term seen as unlikely Amount No. of raised Year issues (~ crore) 2003 12 1,699.80 2004 25 13,121.47 2005 53 9,989.52 2006 73 19,852.46 2007 100 34,179.11 2008 37 16,904.42 2009 20 19,544.00 2010 64 37,534.65 2011 37 5,966.28 2012 25 6,937.93 2013* 35 1,601.75 *till November Source: PRIME Database IPO MARKET DRIES UP What do foreign investors want? It is a common practice in media to gauge the behaviour of the foreign institutional investors ( FIIs) from the numbers put out by the exchanges and regulators. The data typically includes numbers of total purchases by FIIs on a given day, total sales and an aggregate number netting off the sales and purchases. Based on this number, it is concluded that the FII mood was positive or negative as the case may be. The mathematical possibility of a single large transaction skewing the numbers is almost always overlooked, since the number of buyers or sellers on a given day are not available. Despite media and regulatory mechanisms to bunch these players under the FII umbrella, they remain a heterogeneous group with diverse interests. It is not very often one see them talking in unison and through aforum. Last year, Indian government put forward its proposal on General Anti- Avoidance Rules ( GAAR). The move, seen as a common threat, united the foreign entities like never before and Asia Securities Industry and Financial Markets Association (Asifma) emerged as the voice of foreign investors and represented them in discussions with government. Though it is not recognised as an official FII mouthpiece, it is better than the other barometers of FII sentiment we have. Asifma recently published a white paper titled ' Asia's capital markets: strategies for sustained growth.' The Asifma paper points to various systemic inefficiencies in the Asian markets, which act as irritants to foreign investors. Many of these irritants are prevalent in Indian markets too. An extract of some suggestions: Remote membership Asifma wants Asian securities market regulators to collaborate to allow substitute regulatory approval; that is where the brokers' approval and regulation under another regional regulator will be taken into account as part of their assessment for remote trading membership. Most Asian markets require brokers to be physically domiciled on shore. This is achieved by either prohibiting brokers' systems from being located offshore, prohibiting certain support functions from being performed offshore, or by mandating minimum level of staffing and particular roles to be retained onshore. As a result, the body says many international brokers avoid becoming members of these Asian markets, instead routing their trades to one or more locally incorporated brokers. This practice exposes them to several risks, it says. But it is not clear if Indian authorities and local brokers would favour such a move. Ownership limits While the desire to retain national control over certain companies and industries is understood, current mechanisms and models employed to limit foreign ownership are due for review as they inhibit quality inflow of investment, both international and intraregional. Ownership identifiers Registration at the individual fund level creates delays and added costs. Removing these, or permitting regional and global investors to register at aparent/ manager level, would enhance market efficiency and promote greater regional and international investment. Gross settlement Settlement at the individual fund level creates additional credit exposure, cost and time lag, leading to inefficiencies in post trade processing. These obstacles can be removed by eliminating ownership registration, permitting parent level registration or a nominee structure at broker level for settlement, and mitigating investors' market and credit risk by supporting DVP ( Delivery Versus Payment) settlement. The paper also talks about market specific measures to address issues in fixed income, derivatives and bond markets. Our regulators and policymakers should go through these to get a better idea of what the FIIs want. STREET FOOD NSUNDARESHA SUBRAMANIAN The behaviour of the foreign institutional investors is gauged from the numbers put out by the exchanges and regulators Source  Business line Pharma major GSK to make Rs 6,400-cr open offer to hike stake in Indian arm P. T. JYOTHI DATTA MUMBAI, DEC 16:   Bullish on the long-term opportunity that India holds, British drug-maker GlaxoSmithKline Plc is set to fork out up to Rs 6,400 crore to increase its stake in its publicly-listed pharmaceutical subsidiary. In an announcement before market hours on Monday, GSK said it would increase its stake in GlaxoSmithKline Pharmaceuticals Ltd from 50.7 per cent to 75 per cent, at a price of Rs 3,100 a share. Buoyed by the news, GSK Pharma shares shot up 18.6 per cent to Rs 2,927.40 on the BSE on Monday. The move comes within a year of GSK upping its stake in its consumer healthcare arm from 43 per cent to 73 per cent, a Rs 4,800- crore transaction. About a month ago, GSK committed to investing Rs 864 crore in a new factory in India, creating 250 jobs. On the stake-increase, David Redfern, GSK's Chief Strategy Officer, said the transaction would increase its exposure to a strategically important market. For GSK Pharma shareholders, it would offer a good liquidity opportunity at an attractive premium, he added. Long-term opportunity Against the backdrop of price-control measures and patent litigation witnessed in the local market, Redfern told Business Line there were short-term challenges. But the parent company has been investing in India, as it was positive on the long-term opportunity because of an increase in wealth and demand for improved healthcare. Responding to analyst observations that greater control in the Indian arm would give it greater flexibility in introducing products locally, he said, operations will not be impacted by the decision. The parent has been continuously reviewing its pharma operations after increasing stake in its consumer healthcare business, he said, adding that there was no specific reason behind the timing of its decision. In 2009, multinational drug companies Novartis and Pfizer too, had increased stakes in their respective India arms. But, the effort had not been smooth and both companies had to increase their offer price to match their then prevailing share prices. FUNDING OFFER GSK does not intend to de-list either consumer healthcare or pharmaceuticals from the local stock-exchanges, Redfern said, adding that it was important to keep both companies listed. The open offer will be funded through GSK's existing cash resources. It will be earnings neutral for the first year and accretive thereafter and will not impact expectations for the group's long-term share buyback programme, the company said. Offer details GSK looks to acquire up to 2.06 crore shares, representing 24.3 per cent of the total outstanding shares in the Indian company. The offer represents a premium of approximately 26 per cent to the company's closing share price on the National Stock Exchange on December 13. This closing price represents an appreciation of 19 per cent over the last 12 months, GSK said. GSK's offer is expected to begin in February, pending regulatory clearance. (This article was published on December 16, 2013) Keywords: GSK Pharma, GSK Pharma open offer, GSK open offer price, GSK Pharma shares, GlaxoSmithKline, GlaxoSmithKline Pharmaceuticals, GSK hiking stake in Indian subsidiary, GlaxoSmithKline hiking stake in GlaxoSmithKline Pharmaceuticals, SEBI public shareholding norms,  Post Comment How the open offer will benefit GSK Plc NALINAKANTHI V BL RESEARCH BUREAU

December 16, 2013:  

GSK Plc's open offer proposes to pay a 26 per cent premium over the going market price to acquire an additional 24.3 per cent stake in its Indian subsidiary GSK Pharma (India). This values GSK Pharma (India) at 38 times its expected 2014 earnings, twice that of the BSE Healthcare Index.

What explains this hefty premium, especially since the Indian operations are facing growth challenges? The fact that India among the major growth drivers for the parent is likely to be a key contributor in the years ahead.

Challenges

The open offer announcement comes at a time when GSK Pharma (India) is grappling with slow growth and margin pressure. Competitive pressure in the domestic market, sluggish product launches from its parent pipeline, and launch of low-margin generic drugs caused the company's margins to slip from almost 36 per cent in 2010 to 31.5 per cent in 2012.

The new drug pricing policy announced in May further dampened the company's prospects, with the flagship antibiotic brand Augmentin coming under the price control. The company may see revenues dip more than 10 per cent due to this.

India, a key market

GSK Pharma (India)'s latest September quarter results substantiates this with operating margin falling to around 18 per cent.

But despite these challenges, GSK Pharma (India) will continue to remain key to the parent's prospects. Data from Bloomberg shows that, in 2012, the company saw revenues in markets such as Europe and the US declined on account of patent expiries and pricing pressure. But the Chinese and Indian subsidiaries grew 10 per cent and 17 per cent, respectively. Though growth at GSK Pharma (India) may moderate, it is still expected to be ahead of the US and Europe. A bigger share in the growing pie when others are shrinking seems to be the motivation for the parent offering a tidy premium.

nalinakanthi.v@thehindu.co.in

(This article was published on December 16, 2013)

Keywords: GSK Plc's open offer, GSK Pharma

 

 

 

UBHL winding up: Speed up hearing, says Karnataka court

OUR BUREAU

 

BANGALORE, DEC. 16:  

United Breweries (Holding) Ltd (UBHL) suffered yet another set back on Monday.

A Division Bench of the Karnataka High Court said the process of hearing the pleas for winding up UBHL should be speeded up, as the issue also involves recovering public money of around Rs 6,500 crore due to various banks.

The Division Bench comprising Justice N. Kumar and Justice Rathnakala made the observation in its order while rejecting the appeal filed by UBHL questioning a single judge bench's November 19 order of admitting the plea of BNP Paribas for winding up UBHL.

The French bank had sought the liquidation of UBHL to recover Rs 203 crore.

UBHL had given corporate guarantee to KF Aero, which acquired three aircrafts by getting finance from BNP Paribas and then leased the aircrafts to Kingfisher Airlines Ltd, promoted by UBHL. "Staying the process will give an impression that the courts are coming in the way of recovering around Rs 6,000 crore of public money due to 15 banks, including State Bank of India, from the company," the Bench said, while refusing to keep in abeyance its order of upholding the single judge bench's decision.

A counsel for the UBHL sought staying Monday's order while pointing out that if the order is not stayed then BNP Paribas can issue a public notice in newspaper on December 17, when the four-week-time given by the single bench will expire.

Noticing that many pleas, including by an SBI-led consortium of banks, have been filed for winding up UBHL, the Bench said that prima facie it is of the view that the company will not be able to discharge its liabilities.

This is because it has been contended that the company's liability is Rs 9,000-10,000 crore and the value of its assessed assets is only around Rs 6,000 crore.

The Bench observed that courts will have to be circumspect in their decision when protecting the interest of creditors, and more particularly in this case, because it involves public money.

The single judge bench will have to take a final decision on winding up pleas after assessing the commercial solvency on considering the claims of all the creditors before the court and the company's assets and liabilities, it added.

(This article was published on December 16, 2013)

Keywords: United Breweries (Holding), Karnataka High Court, KF Aero, Kingfisher Airlines

 

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CS A Rengarajan

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