Packer picks up 10% in HFCL
HDFC slashes lending rates
EU raises textile quota by 3500 t
Panel to vet sick companies’ Act
Jindal Vijay to tap local, overseas markets
No budget blues for Reliance

 
 
PACKER PICKS UP 10% IN HFCL 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, March 7: 
Kerry Packer, the man who commercialised one-day cricket, has picked up a 10 per cent stake in Himachal Futuristic Communication Ltd (HFCL) for Rs 1,039 crore as part of a bigger association that will lead to the creation of two joint ventures focusing on software development and e-commerce.

Consolidated Press Holdings Limited (CPH), an Australia-based company owned by Packer, will acquire the equity in HFCL which had a turnover of Rs 412.8 crore for the year ended March 31, 1999. The deal for 71,65,650 shares has been struck at a price of Rs 1,450 each, a discount of 40 per cent to Tuesday’s closing price of Rs 2415 on the Bombay Stock Exchange.

The move comes after HFCL recently raised Rs 735 crore through a private placement of equity at a price of Rs 1,050 per share.

“This is the largest foreign investment in the country’s telecom sector so far. We have already drawn up a tentative business plan — to be finalised by this month-end — for investing the money. Of the total amount, a sum of Rs 250 crore will be invested in the acquisition of the Punjab circle, an area in which we intend to provide fixed-line telephony and internet access services,” HFCL group chairman Mahendra Nahata said.

HFCL and Consolidated Press Holdings have also signed an agreement to float two joint ventures for developing software and offering e-commerce facilities. “Both companies will be set up with an investment of Rs 100 crore each. The funds will come in the form of debt and equity. We have not finalised the exact proportion, but it will be decided by the end of this month,” Nahata said.

HFCL will hold 51 per cent, CPH 30 per cent and strategic investors 19 per cent in the software development venture. The company will focus on software, including animation, product development, infotech-enabled services and embedded systems.

“It is a great opportunity for both companies. Our strengths will create greater opportunities on a global scale. India is an important investment centre in Asia for our company, and HFCL has the right strengths. This is our first major investment in Asia’s telecom industry,” Packer’s son and joint chief executive officer of CPH, James D Packer, said.

In the second venture, devoted to e-commerce, the holding pattern will be split in the same ratio between the Australian firm, HFCL and other investors. This company will focus on the business-to-business (B2B) segment and invest in network infrastructure, including payment gateways. “The network will be content-rich, providing specialised solutions and services in a wide range of business areas,” Nahata said. Packer said Consolidated Press Holding’s alliance with HFCL was part of its strategy to invest in high technology and growth areas. India, he said, offered exciting prospects in telecom and infotech. HFCL has these capabilities and is well positioned to grab a significant share of this market, he said.

CPH has interests in media, telecom, e-commerce and entertainment business with a total asset base close to $ 10 billion. “We have an open mind on entering other areas in India, such as entertainment. However, since our plans at present are limited to telecom and infotech, we have not held talks with anyone in the Indian entertainment industry,” said Packer, whose father revolutionised limited-overs cricket by introducing coloured outfits and white balls in a sassier version of the game played under floodlights.    


 
 
HDFC SLASHES LENDING RATES 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 7: 
Housing Development Finance Corporation (HDFC) today slashed its lending rates by 25 to 75 basis points and introduced a uniform rate for loans under the fixed and adjustable schemes.

As a result of the realignments, its retail prime lending rate (RPLR) now stands at 12.75 per cent, down from 13.5 per cent, and its four-tier rate structure has been compressed into one. The revised rates are effective from March 8.

Earlier, the four rate slabs were structured in the following manner: loans up to Rs 10,000, Rs 10,001-Rs 10 lakh, Rs 10,00,001-Rs 15,00,000, and loans above Rs 15 lakh. The interest rates on these varied from 12.5 per cent to 15 per cent.

Adjustable-rate home loans will now be available at 12.75 per cent, down from 13.5 per cent, while fixed-rate loans can be taken at 13.25 per cent, down from 13.5 per cent. “The reductions are part of HDFC’s efforts to rationalise interest rates and make the terms of lending simpler,” the release stated.

HDFC said the maximum tenor under the adjustable-rate home loans has been increased to 20 years, and it was now open even to the NRIs. The company said it will soon introduce educational and other kinds of personal loans against property mortgages.

“The cut in interest rates, coupled with income tax benefits available on the repayment of principal up to Rs 20,000 annually, and on interest payments up to Rs 75,000, offer substantial benefits to borrowers. This will encourage individuals to buy homes,” the HDFC release stated.

Meanwhile, Standard Life (SLAC) of the UK, which has a tieup with HDFC for its insurance foray, has raised its stake in the housing finance company.

The shares have been purchased largely from the secondary market by SLAC Mauritius Holdings, a Standard Life affiliate, after the Foreign Investment Promotion Board (FIPB) allowed the UK insurance major to hold up to 10 per cent in HDFC.

The company today informed stock exchanges that Standard Life’s stake has increased to 8.35 per cent from 7.87 per cent. “The rise in the stake has been achieved through market purchases and is in tune with the FIPB approval secured earlier,” HDFC officials said.

Standard Life has acquired 5,74,706 shares with a face value of Rs 10 each, representing 0.48 per cent of HDFC’s paid-up equity. Earlier, SLAC held 93,72,454 shares or 7.87 per cent.

The rate cuts and the increase in Standard Life’s holding appeared to have little impact on the HDFC scrip, which closed at Rs 407 on the Bombay Stock Exchange after opening at Rs 439.    


 
 
EU RAISES TEXTILE QUOTA BY 3500 T 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, March 7: 
The European Commission (EC) today increased India’s annual textile and garment export quota to the European Union (EU) by 3,500 tonnes as it was “partially satisfied” with India’s implementation of an agreement on tariff rates.

The quota can be raised by 8,500 tonnes if India complies further on tariff cuts, EC trade commissioner Pascal Lamy said, adding that the high tariff rates on up-market textiles are still a matter of concern.

The country was earlier allowed to export an additional 8,000 tonnes of textiles. This was stopped two years back as the EU objected to high tariff rates on some of its products.

By agreeing to increase the export quota by 3,500 tonnes, EC has climbed down to an extent from its earlier rigid position.

Lamy, however, attacked India’s automobile policy and threatened to go to the World Trade Organisation if the policy was not dismantled. The automobile policy specifies 70 per cent indigenisation in five years and neutralisation of imports by matching exports.

Pascal also complained of the curbs on exports of hides and skins to European leather good manufacturers.

Commerce minister Murasoli Maran, who headed the Indian negotiating team, countered Lamy with the discrimination faced by Indian steel exporters. EU imposes countervailing duty on stainless steel bright bars while Indian manufacturers of hot-rolled coils are confronted with many trade barriers.

However, the points of disputes have not degenerated into an outright trade war.

Lamy said the areas of discord would be handled “on a case by case basis”, adding no attempt would be made to link one issue with another. The EC trade commissioner, however, indicated that the anti-dumping duties, slapped by both India and EU on a number of products, are unlikely to be lifted. “We will both study the validity of each others decisions. We are convinced our decision-making is fair and unbiased.’’    


 
 
PANEL TO VET SICK COMPANIES’ ACT 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, March 7: 
The Union Cabinet today decided to refer changes in the Sick Industrial Companies (Special Provisions) Act 1985 (Sica) to a group comprising the finance, labour, industry and commerce ministers.

Sources said the legislation which will replace the existing act has to be thoroughly studied and reviewed before being finalised.

Bankruptcy reorganisation of large industrial companies is governed by the Sica, with the process being directed and supervised by the Board for Industrial and Financial Reconstruction (BIFR).

The apex trade and industry chambers have consistently pointed out the inconsistencies in the law.

The Confederation of Indian Industry (CII) in a study has pointed out that the law in its present form, defines financial distress as erosion of net worth, implying that when a company erodes its net worth, a successful turnaround becomes improbable.

However, in recent times this has been systematically misused to ensure a quick entry to the BIFR for securing an indefinite stay on the claims of creditors, as the process of arriving at a decision on a case is time-consuming and cumbersome.

Further, a limited time-bound stay is a general practice in most bankruptcy restructuring processes. However Section 22 of Sica permits the BIFR to stay all creditors’ claims for an unlimited period until the matter is disposed either as a restructuring scheme or as a case for liquidation. Such open stays are misused by many defaulting companies at the expense of the secured and senior creditors.

Further, the study pointed out that even in the best of times, banks and FIs actually know less about the internal operations of their borrower companies than the companies themselves. The effects of this asymmetrical flow of information get exacerbated during bankruptcy — as it becomes all the more important for the creditors to ensure that the debtor company is not quietly disposing off its assets.

However, neither Sica nor BIFR recognise this problem and the entire restructuring is carried out with the debtor continuing to retain possession and control of the assets.

This gives the existing management an enormous bargaining advantage, the study says.

Sica, in its present form, stipulates that in any bankruptcy process, the claims of senior creditors have to be settled in full before the junior creditors are entertained at all. The study observes that BIFR’s procedures violate this principle in the extreme by often rewarding the incumbent management and old shareholders at the expense of fully secured creditors.

The Cabinet has also decided to extend the international coffee agreement 1994 by two years up to September 30, 2001.    


 
 
JINDAL VIJAY TO TAP LOCAL, OVERSEAS MARKETS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 7: 
Jindal Vijaynagar Steel Ltd (JVSL), the cash strapped steel major, has decided to tap the overseas markets to raise funds up to $ 125 million. It also plans to issue 15.5 crore equity shares in the domestic market at a face value of Rs 10 each.

The company, which has set up a mega steel unit at Bellary in Karnataka, has plans to delist its shares from seven stock exchanges, including the Calcutta Stock Exchange.

Jindal Vijayanagar has convened an extra-ordinary general meeting on March 28 to obtain shareholders’ approval for its fund-raising and delisting plans. Among other items on the agenda, the meeting will discuss a proposal to increase the authorised share capital of the company from Rs 2000 crore to Rs 3000 crore and enhance the borrowing powers of the board up to Rs6000 crore.

Apart from Calcutta, the company plans to delist its scrip from the stock exchanges in Hyderabad, New Delhi, Kochi, Chennai, Mangalore and Ahmedabad.

The company’s project cost now stands at Rs 6,144 crore. It has commissioned its Corex-1 project after much delay. Its Corex-II project may take more time, as a result of which it has delayed synchronising the second phase of the power project.    


 
 
NO BUDGET BLUES FOR RELIANCE 
 
 
FROM R. SASANKAN
 
New Delhi, March 7: 
Serious equity researchers have finally called the bluff of the cassandras who were spooking the markets with their strident early forecasts of a downbeat phase for Reliance after the recent Union budget.

Soon after Yashwant Sinha presented his budget for 2000-01, all those who wanted to clobber the Reliance stock were cock-a-hoop over the so-called negative implications the budget had for the Rs 14,400 crore petrochemicals to textiles conglomerate. But after some serious number crunching, a host of equity research outfits have arrived at the conclusion that except for the customs duty reduction for polyester staple fibre (PSF) and partially oriented yarn (POY) — which were in any case predicated by the commitments to the World Trade Organisation — the budget proposals by and large would favour Reliance Industries.

Take for instance the proposal to reduce the duty on crude import from 20 per cent to 15 per cent. At a price of even $ 25 per barrel, the saving on duty can work out to around Rs 1000 crore even if RPL operates at a capacity of only 25 million tonnes per annum against the installed capacity of 27 million tonnes. This will directly be reflected in the input prices of Reliance as Reliance Petroleum has to match the prices of their products to RIL on a cost plus basis.

Industry mavens say the exports of RIL and RPL, which is in excess of the targeted Rs 5000 crore ,will entitle them to duty-free import of crude. This may enable the group to import one fourth of their crude imports at zero duty taking advantage of its exports of polymers, fibres, yarns and other downstream products.

Far more significant has been the proposal to reduce basic customs duty on PSF and POY from 35 per cent to 20 per cent. Such a drastic reduction in duty can make imported items far more cheaper and producers from South Korea, Taiwan and Asean will definitely flood the Indian market with their products. However, RIL is in a position to take on the foreign business rivals as it is the only integrated producer of PSF and POY at a single location anywhere in the world.

The union commerce ministry has already recommended anti-dumping duty on PSF and an announcement is expected very shortly.

Producers from the EU and the US are out of the race and those from Asean and East Asia cannot wage a price war against Reliance. No doubt RIL’s margin on these items will be hurt, but with global prices of intermediate like purified terephthalic acid (PTA) and mono ethyl glycol (MEG) turning bullish, the competition from abroad is sure to fizzle out.

The most significant gain for Reliance as a result of the duty reduction on PSF and POY is truly in the domestic market. Its local competitors like Indo- Rama, JCT, DCL, Sanghi Indian Organic will find the going really tough.

The PSF duty cut is thus a great opportunity for Reliance to acquire another one lakh tonnes of PSF/PFY at throw-away prices and position itself as a geographically well spread producer with huge savings in logistics. The losses in margin for a year or less could be more than offset by this gain of cheap access to huge capacities for production of goods at variable costs.

The polymer scene continues to be rosy.With crude duty reduced by five per cent and prices of polymers firming up globally, RIL is poised to optimise revenues from this stream.The excise duty on articles of plastics have been reduced from 24 per cent to 16 per cent which would provoke a surge in demand for packaging and consumer applications.    

 

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