Government grooms tough Sica successor
Market senses bull run ahead
Supreme Court refers state cotton mill case to tri
Modi Telstra to bid for state cellular circle

 
 
GOVERNMENT GROOMS TOUGH SICA SUCCESSOR 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, March 12 
The Cabinet is in favour of framing clear-cut bankruptcy laws to replace the Sick Industrial Companies Act (Sica) — something that has served as a refuge for loan defaulters by making it easier for them to prolong litigation and stall recoveries. The overriding aim of the new law will be to force companies to hold direct negotiations with creditors and to give an external administrator the powers to sell off their assets to repay debts.

Sica in its current form allows defaulting companies to dodge creditors by declaring themselves sick and starting a protracted legal tussle at the Board for Industrial and Financial Restructuring — a quasi- judicial body which deals with such cases.

Quite predictably, reports about a successor being planned to Sica has left business barons shuddering, many of whom owe banks and financial institutions large sums in unpaid loans and interest. Scared that the new statute will make it tough for them to fend off creditors, they are now frantically lobbying the government to nip the legislation in the bud.

The finance ministry and planning commission — which want the Sica supplanted with bankruptcy laws —argue that laws must be recast to stop industrialists from getting away with huge loan defaults, and banks from falling sick for no fault of theirs.

However, there are a few within the council of ministers who want the government to take a soft line. As a result, the Cabinet was divided when it discussed the issue last Tuesday. The meeting ended in an agreement — in many ways a compromise — that the matter needs to be examined in all its aspects.

This gave a reprieve to business leaders who could be pushed to the firing line once the new law is in place, even though there was no official word on what happened at the meeting and the ways in which Sica was sought to be revamped.

Under the proposed statute, credit rating agencies will warn bankers when a company turns a chronic defaulter. The defaulting company has to then negotiate with its secured creditors to reschedule debt repayments and convince them that it has a satisfactory cash flow plan in hands. All this has to be done outside the ambit of the BIFR.

The case may be taken up before the BIFR, but only when negotiations break down. The board will have to appoint an external administrator who will try to work out a rehabilitation plan — which must include a debt repayment schedule — or put out advertisements to sell the company.

However, there is another body of opinion within the government which is in favour of winding up the BIFR itself. Before that option is pursued, the government will have to come up with another body which can break the much-too-regular logjams between creditors and defaulting companies.

The government, too, is unhappy with BIFR, given that its success rate of turning around firms is a poor 9.6 per cent. Worse, even when it passes a judgement favouring bankers, companies file a case against the ruling in the high court.

None of these moves will go down well with companies but the government seems determined to sort out the problem this time round.

“There have been attempts by companies to misuse Sica to withhold claims of secured creditors, mainly banks and FIs. In 1998, for instance, 370 cases of firms turning sick were registered. The situation was worse in 1999 with 518 cases recorded till November,” says a note on the issue prepared for the Planning Commission deputy chairman.

“Public sector banks are saddled with non performing assets (NPAs) worth Rs 51,710 crore, about 16 per cent of their total loans. This means many banks are weak because the companies to whom they lend refuse to pay up,” officials said.    


 
 
MARKET SENSES BULL RUN AHEAD 
 
 
FROM NITHYA SUBRAMANIAN
 
New Delhi, March 11 
A sense of optimism is ruling sway over stock market players who believe the abrupt mood swings on the bourses are just temporary and a major bull run is just round the corner.

Since the announcement of the budget, the sensitive index of the Bombay Stock Exchange (sensex) has been fluctuating heavily. For instance, on Monday, March 6, the index was up 140 points and on Tuesday another 69 points. The downslide began on Wednesday when the sensex fell by 78 points; on Thursday it was down 183 and on Friday another 27 points. Interday volatility has been around 300 to 500 points.

But market watchers say that in spite of the volatility, positive sentiments continue to remain. “The irregular movement of the sensex shows that though there is some disappointment with the budget, there are undercurrents of positiveness among the brokers,” said a fund manager with Sun F&C Mutual Fund.

Analysts have put forward many reasons for the volatility. Fund managers said that before the budget was announced the market expected some tough measures to propel the economy. But after finance minister Yashwant Sinha presented the budget, the markets have reacted adversely to the proposals.

Explaining the volatility, R.K Gupta, chief executive officer, CreditCapital Asset Management Company, said after the budget there was a feeling that fast moving consumer goods (FMCG) companies would be adversely affected by rationalisation of excise slabs.

The markets had also feared that pharmaceutical companies would have to pay income tax and minimum alternate tax (MAT) on their export income, Gupta said adding that there were apprehensions that profits of IT companies would go down due to taxation.

It has, however, dawned that substantial coverage and protection already exists due to STP. Also many frontline companies are already paying more than the proposed MAT, Gupta said.

Another reason why the markets have been volatile is because of funds switching portfolios. “Many funds are selling their FMCG stocks and are re-investing in the new economy stocks of software, media and IT. Hence on an average in the last 7 to 10 trading days, the interday volatility has been to the tune of 300 to 500 points,” said Gupta.

Fund managers also feel that with FMCG companies, like Hindustan Lever and ITC, gearing towards towards e-commerce, the valuations of these stocks are bound to go up.

“The companies may be investing heavily on infotech now, but the returns will definitely come later. Also the so called software companies are surviving because of business they receive from these sectors. Therefore FMCG stocks are a good buy at these levels,” said a fund manager.

Several punters believe the volatile trend would stay in short term as funds will book profits in software and move back into pharmaceuticals, FMCG and cyclicals.

Also, with Sebi hinting of a review on margins and advance tax payments made by corporates, more cash is expected to flow into the market, says a Delhi-based broker.

Alok Vajpeyi, chief operating officer of Merill Lynch Asset Management Company, said: “Our long term view remains positive. The market is likely to focus on Bill Clinton and the business implications of his trip.”

Tekchandani said, “Clinton is coming with a huge delegation of businessmen and we expect some positive impact from the visit. We expect the US to announce certain measures regarding business and are sure that the Indian government will also announce measures to bring in a feel-good factor.”    


 
 
SUPREME COURT REFERS STATE COTTON MILL CASE TO TRI 
 
 
FROM R.VENKATARAMAN
 
New Delhi, Mar. 11 
The Supreme Court has referred the dispute in the West Bengal government-owned Mayurakshi Cotton Mills to an industrial tribunal in Calcutta.

A division bench of Justices S.Rajendra Babu and S.N.Phukan said the reference should be made within six weeks of the date of the judgement (March 8.)

The tribunal was ordered to decide the case within six months of the date of reference.

The apex court set aside an order of a division bench of the Calcutta high court and restored the order of the single judge bench which had referred the dispute to the industrial disputes tribunal.

The mill in question was purchased by the state government in 1990 in the course of liquidation proceedings.    


 
 
MODI TELSTRA TO BID FOR STATE CELLULAR CIRCLE 
 
 
BY RENU M R KAKKAR
 
Calcutta, March 10 
Modi Telstra, the city’s cellular service provider, plans to bid for the West Bengal circle to replace Koshika Telecom which gave up its licence earlier. Reliance Telecom is the only other cellular licence holder for the state excluding Calcutta.

Top sources also indicated that a strategic alliance with Spice Telecom, cellular service provider for Bangalore and Karnataka, is in the offing. Previously Modicom Networks Pvt Ltd, the company was renamed as Spice Telecom with AIG taking up a 10 per cent stake. Modi Corp and AIG together hold 51 per cent stake with 34 per cent held by Distacom Communication (I) Ltd.

With an eye on tapping the tremendous opportunities for cellular companies with domestic long distance telephony (DLDT) being thrown open, Modi Telstra is geared up to synergise its operations.

Big bucks for cellular companies really is in domestic long distance telephony (DLDT) and Modi Telstra as also Command can hardly hope to break even on their investments by merely offering services to a limited 2000 sq km area in the Calcutta telecom district — from Kalyani to Budge Budge and from Joka to Narendrapur. That is more so with the expected arrival of Department of Telecom Services (DTS) at a much lower tariff.

With an estimated Rs 600 crore of outgoing STD traffic annually from Calcutta alone, the Bengal DLDT market surely looks exciting. The cellular service provider for the state will be vital to any national alliance on DLDT and thus the interest in the licence despite the substantial investment which will go in putting up infrastructure. “The downstream projects in Haldia itself are an indication of how much traffic is going to be routed to Calcutta. The city is the hub of the eastern region and not much connectivity is available in districts as of now”, a Modi Telstra official said.

Following the management’s focus, the approach to the existing market too has changed. A rejig of tariff plans is in the offing. This move is the result of a market segmentation study recently completed. Each segment — housewives, stockbrokers and traders —may be offered a special tariff plan embellished with segment specific value added services.

A few marketing strategies aimed at expanding its already huge market share in the city is also coming up shortly. A new connections package offering hand sets from Ericsson, Nokia and Philips Savvy at Rs 6999, Rs 5999, Rs 4999 each will be on offer by Monday. An activation fee of Rs 1260 and a security deposit of Rs 1500 will be added on, general manager (marketing) M. Mahesh told The Telegraph.

To cater to the 50,000 customer base which gives Modi Telstra a hefty 60 per cent of the revenue generated in the city, Modi Telstra is currently negotiating with Satyam Infoway and VSNL for a variety of other services such as paying cellular phone bills through the net.

A massaging platform as well as phone banking solutions are also in the offing but the company is firm on doing this on one particular platform. The company also has tied up with Caltiger for ‘Easysurf’, which allows Modi Telstra users to surf the internet at 60 paise a minute, which is one of the cheapest rates going.    

 

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