| Timing of Gujarat manoeuvre may help Suzuki steer clear of shareholder scrutiny |
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Mumbai, 1 February Maruti Suzuki's Gujarat plant deal with its parent, Suzuki Motor Corporation ( SMC), is likely to escape investor scrutiny, as the move has come just ahead of the implementation of fresh corporate governance norms, which will allow public shareholders to have a greater say on such transactions. Earlier this week, Maruti Suzuki said its new flagship plant, to come up in Gujarat, would be constructed and operated by a newly- formed 100 per cent subsidiary of SMC. The plan irked minority shareholders and drew flak from some analysts who feared the listed entity might end up being just a marketing entity. But shareholders might not be able to block the move, as Maruti's proposal has come ahead of the implementation of the new corporate governance rules. The new Companies Act and Sebi's proposed corporate governance code require approvals from a majority of minority shareholders for any kind of related- party transactions (RPTs), or deals involving promoter group entities. "The Maruti proposal is a related- party transaction. But, legally, it is not binding on the company to get shareholders' approval, as the new rules are not yet applicable," said J N of the Companies Act, 1956, in force at present, a listed entity doesn't have to seek approval from its shareholders for RPTs. It merely has to make adequate disclosures and get the transaction approved from an audit committee. Lawyers said whether or not Maruti's plan was an RPT under the Companies Act, 1956, would depend on whether the listed company and the newly- created company had common directors. "The transaction does not appear to be one among related parties under the Companies Act, 1956, unless there are common directors between Maruti Suzuki India and Maruti Suzuki Gujarat Pvt Ltd. Even if it were a related- party transaction, shareholders' approval would not be necessary as the relevant provisions under the Companies Act, 2013, and Sebi's new corporate governance code have not kicked in yet," said Jay Parikh, partner at law firm Verus. The new code on corporate governance prohibits interested shareholders from voting in RPT approvals. This means, for an RPT to go through, it has to be passed by a majority of the minority shareholders. SMC, the Japanese promoter, owns a 56.12 per cent stake in Maruti Suzuki India Ltd. Gupta believes, as a good governance measure, Maruti should voluntarily seek shareholders' approval for its proposal to transfer the plant. "Prima facie, the deal isn't bad for shareholders but the devil may be in the details. It's better if Maruti voluntarily asks for shareholders' opinion on the transaction," he said. Parikh said the minority shareholders of Maruti might consider taking recourse under the oppression and mismanagement and windingup provisions in the Companies Act. |
| Irda issues new micro insurance draft norms |
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Mumbai, 31 January The Insurance Regulatory and Development Authority ( Irda) has issued a revised set of proposals on micro insurance products. Comments on the regulations are to be given before February 14. After this, the final set of regulations will be drafted. Irda's draft has said partial withdrawals may be permitted from the second policy year onwards, subject to ensuring maintenance of a minimum balance equivalent to one annual premium in the policy account. And, an insurer may enter into a deed of agreement with aperson or entity whose micro insurance agency agreement was terminated ( other than on grounds of fraud or misconduct) only after the expiry of three months. No insurer will be allowed to re- appoint a micro insurance agent whose services were ended on grounds of fraud or misconduct. After any such termination of an agent's services, the policies of the agent may be allotted to another of the same insurer, after getting the latter's consent. For distribution of these products, Irda has said regional rural banks, micro finance institutions, district cooperative banks, non- governmental organisations, self- help groups, urban cooperative banks, banking correspondents and individual owners of kirana stores, public call offices, fuel stations and fair price shops in rural areas will be allowed to sell these. All micro variable life insurance products shall have a lock- in of five years from the date of inception of the policy. Partial withdrawals may be permitted. A micro insurance agent may work with one life insurance company and one general insurance company. An agent may also work with the Agriculture Insurance Company of India for distributing micro crop insurance products and with any standalone life insurance companies for distribution of their health insurance products. The draft has said partial withdrawals may be permitted from the second policy year onwards |
| How to improve rental yields |
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Real estate prices constantly move up and down due to changing economic conditions. But there is this certainty that people and businesses will always need a roof over their heads. And this means that individuals can always boost total earnings from a property by hiring it out. Rents may not be that high for household property as prices of assets have risen considerably. So rental yields are working out to around twothree per cent, but commercial yields are around six- seven per cent, which helps generate income from real estate. Nature of rental yield One of the main questions for an individual is the manner in which returns on house property are to be calculated. Returns are through rent and capital appreciation on sale of the property. The rental part is calculated using yield, which is the amount of rental income from the property divided by its cost. This indicates the rate of return actually earned through rent. This figure is utilised to compare against other investment options. As a deposit offers interest or a share, dividend and capital appreciation, rental yield would have to be compared with interest or dividend in order to arrive at a proper calculation of regular returns. For total returns, capital appreciation has to be added to arrive at the final figure. Factors affecting yield The term rental yield indicates the two chief factors that impact yield for an individual. One is the actual income earned on the investment. This means that higher rent would push yield up. A more important aspect is the price of the property when purchased. Take two cases in the same complex. In one, an individual bought a property for ₹ 1 crore and charges ₹ 20,000 a month in rent. This would imply ₹ 2.4 lakh a year which puts the property yield at 2.4 per cent. In the same complex a property bought several years earlier at ₹ 48 lakh, a similar rent would yield a 5 per cent return. This factor impacts yield to an individual. The Indian situation One has to look at the prevailing Indian situation and various reports released across the world. The position of the country is low in terms of rental yields on residential property. A recent report by a global real estate consultancy firm put the average rental yield in Indian Tier- 1 cities quite low, with Delhi around 2 per cent and Mumbai around 3.5 per cent. Another report put the average for the country at around 2.4 per cent, lower than in developed as well as developing countries of the world. This shows the kind of return expected from rent, though the real benefit of holding property in India is through a rise in its capital value, leading to appreciation in prices. Several factors impact yield. Hence, an individual would have to consider these in detail when deciding about a property. Some of these factors are: Property location and position One of the key factors that influence yield and return is location. This not only includes the area where the property is located but also the kind of infrastructure around the property. In several cases, property with a view would command better rent than one where buildings block the view. In other cases, the convenience of being on a certain floor would turn out to be an advantage. These have to be considered carefully at the time of purchase of a property as they would play a crucial role in the overall returns calculation. Internal upkeep It is important to ensure internal upkeep of the property. This would mean that if the floor has chipped tiles and the walls have peeling paint the position on the rental front would be slightly worse than where maintenance is good. This is important so that there is a clear effort to ensure that maintenance is carried out well and that this is appealing to those who want to rent the property. Smaller facilities It might not seem important for an individual when smaller facilities are considered but these can play an important role in terms of the convenience to the user of the property. This would include things like space for specific activities, child- friendly conditions and so on. These ensure that the yield can be slightly higher than what would normally be the case. It is vital that attention is paid to these facilities, which have actual utilitarian value for someone looking to rent the place Amenities in a complex There are some other factors like amenities in a complex where the property is located. If this includes a gym, a pool, a garden, adequate parking, etc., the rent could climb, since these facilities provide added convenience to the one renting the place. Also facilities like security, round- the- clock water supply are significant. The author is a Certified Financial Planner |
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