Continental, Modis close to deal
Reliance upsets oil majors in Iran gas deal
Reliance counter sees brisk buying
Govt weighs 100% duty on betelnut
CP market ripe for more players
Icra deals fresh blow to IFCI
US seeks clear-cut policy on FDI

 
 
CONTINENTAL, MODIS CLOSE TO DEAL 
 
 
FROM NITHYA SUBRAMANIAN
 
New Delhi, July 6 
Continental AG appears close to picking up a majority stake in Modi Rubber with indications that the promoters, B. K Modi and V. K Modi, will buy the stakes held by financial institutions and small shareholders in the company and then sell it back to the German tyre major.

According to sources, Continental has reached an informal agreement with the promoters to pick up at least 51 per cent. The process, however, will be circuitous: The Modis will first make an open offer to buy the equity held by FIs and small investors, which will be picked up by Continental later.

A merchant banker will soon be appointed to make a valuation of the company and fix the price of shares to be paid to FIs and the public. The merchant banker will also negotiate between the promoters, institutions and Continental. Bids from a host of merchant bankers have already been invited, and the selection process is expected to be completed soon.

“We are examining the bids of four to five merchant bankers, and will finalise one in the next few weeks,” B.K. Modi told The Telegraph. However, he was not willing to divulge the names of the consultants who have been shortlisted. Modi confirmed that his company was planning to make an open offer for the shares held by the institutions and the public, but denied reports that Continental was planning to pick up a stake. “Continental is not interested in buying a stake in the company. There is no such proposition,” he said.

However, sources said Continental, which already has technical tie-ups with Apollo, Modi Rubber and J K Tyres, wants a majority control in an Indian venture. “They are interested in a majority stake. Buying the 44 per cent stake held by FIs, Continental will put them in a position to acquire a large chunk of the equity. Once this is done, buying the remaining 7 per cent will not be difficult; it can be done through the creeping acquisition route, or buying the shares with the Modi brothers,” the sources said. A key issue will be the untangling of cross-holdings in — something that will be addressed by the merchant banker. “Modi Rubber is an extremely complicated company with a web of cross-holdings. There is a need to evaluate the company carefully before setting the share price,” the sources said.

Continental has made it clear that promoters would have to untangle their cross-holdings and separate their tyre business from the rest of their operations. “They are interested in picking up equity only in the tyre business, not in other areas,” the sources said. Modi Rubber has invested in the equity of Modi Xerox, Modi Mirrless Blackstone, Modi Olivetti, none of which are in the business of making tyres.

Sources said the decision to appoint an advisor was taken after FIs, which hold 44 per cent in Modi Rubber, failed to find a buyer for their shares. The Modis and institutions have been in negotiations since the last three years but the a deal has not been possible because of a deadlock over the price.

The FIs want Rs 120 per share, but the Modis are ready to give them only Rs 55. In the absence of an agreement, the FIs decided to sell their shares in the open market. SBI Caps and Arthur Andersen were appointed the merchant bankers who would coordinate the stake-divestment process.

Initially, the institutions received bids from various Indian and international tyre makers but the selloff did not go through because most companies dropped out of the race mid way.

One of the reasons why few firms are keen on Modi Rubber is its wobbly state of finances. For the quarter ended March 2000, the company recorded sales of only Rs 197.04 crore and suffered net loss of Rs 12.3 crore. Bottomline blues have kept the company’s share price depressed. The scrip has been languishing on bourses at Rs 47 for some time.    


 
 
RELIANCE UPSETS OIL MAJORS IN IRAN GAS DEAL 
 
 
FROM R. SASANKAN
 
New Delhi, July 6 
Reliance Industries has upstaged Indian Oil (IOC) and ONGC in the race to bag a key Iranian LNG project just when the two state-owned companies thought they had almost wrapped it up and given the country one of its most lucrative overseas deals in the petroleum sector.

IOC chief Mohamad Asad Pathan and ONGC chairman Bikas Chandra Bora, the men who steer two of the country’s most successful state-owned companies, were trumped by the cannier Ambanis in the project which has been spearheaded by the National Iranian Oil Company (NIOC).

Courted by global petroleum companies and venerated by well-connected traders the world over, Pathan and Bora decided that the oil-rich Iran — a country with whom India has excellent political relations — was the springboard to launch their companies into the big league of global oil titans. They thought they had the Iranians, and luck, on their side.

Their assumptions were not misplaced. Indian Oil has been buying oil from Iran for years and Pathan is well-known in that country’s oil circles. The IOC chief and Bora wanted a share in Iran’s proven oil-fields. The Iranian leadership, however, had other priorities: it was more interested in setting up a LNG venture given that the country is sitting on the world’s largest gas reserves. Pathan and Bora lapped up the idea.

Later, NIOC decided to rope in Petronas as the fourth partner. Pathan had no objection as he was close to the Malaysian oil major, with whom IOC had lined up six joint venture projects. The four national oil companies could make the proposed LNG venture more formidable than it would have been if either Qatar Gas or Ras Gas was taken on board.

Pathan and Bora declared they had clinched the deal, and that together they would hold a 40 per cent stake in the Iranian LNG project. NIOC sent a draft MoU to IOC and ONGC. This was supposed to have been formally signed when India’s external affairs minister, Jaswant Singh, visited that country.

Then came the coup-de-tat by Ambanis. Without informing Pathan or Bora, NIOC dumped them in favour of Reliance which was given a 25 per cent equity stake. The move left Pathan surprised and fuelled speculation that the Ambanis had settled a score with Singh for what he did to them when he first became a minister in the thirteen-day Cabinet.

It is not clear if Bora saw the debacle coming. But he could sense that the Ambanis and the Iranians were snuggling up to each other.

The Iranian delegation repeatedly shied away from dinners and lunches organised by the oil companies. They were seen always in a hurry to fly over to Mumbai and, on almost all occasions, flew by Reliance’s plane.

At the end of the day, the Ambanis turned out to be better hosts than Pathan and Bora.    


 
 
RELIANCE COUNTER SEES BRISK BUYING 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 6 
A sharp rally in the old economy war horses, Reliance Industries Ltd (RIL) and ITC, today prevented any drastic fall in the 30-share BSE sensex that saw massive pounding in most of the technology stocks. Following the sharp advances among huge volumes in these counters, the sensex closed losing 26.51 points to finish at 4,885.60.

The highlight of the day, however, was RIL which witnessed aggressive buying by foreign funds and local punters on expectations of better first quarter results. Among the funds learnt to have bought huge chunks of RIL shares include CSFB and Dresdner.

In fact, the buying saw the counter topping the volume turnover chart for the second consecutive day on the BSE. In today’s trading, the stock registered a huge volume of nearly 11 million shares and a turnover of Rs 525.11 crore in the total business volume of Rs 3,346.35 crore. The share price closed at 364.10, a smart gain of 11.55.

Barring a few, most of the new economy stocks took a huge beating following a sharp fall in the Nasdaq Composite Index last night. Brokers said that the warning by software maker Computer Associates about earnings of the second quarter missing its fiscal first-quarter profit targets which resulted in the Nasdaq plummeting by 129 points last night had a negative effect on these counters.

Rupee slides to 44.75

Meanwhile, in the forex markets, after a relatively stable period, pressure against the rupee re-surfaced today as it plunged by over 7 paise to finish at 44.75/75.50 as against the dollar following a large-scale demand for the US greenback. Forex circles said the rupee turned weak because the US markets have been closed for the past two days.    


 
 
GOVT WEIGHS 100% DUTY ON BETELNUT 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 6 
The government is planning to increase customs duty on betelnut to 100 per cent from the existing peak duty of 35 per cent.

The proposal has been mooted by the agriculture ministry as huge imports of betelnut is affecting the domestic prices. Union minister for revenue, V. Dhananjay Kumar said, “the proposal is under consideration and we hope that it will be cleared soon by finance minister Yashwant Sinha.”

About 15,000 tonnes and 20,000 tonnes of betelnut were imported in January and February respectively. “This would impact the local prices and affect the growers,” said Kumar. The annual production of betelnut is about 3.34 lakh tonnes.

Regarding the revenue collection, Kumar said direct tax collection during April to June registered a whopping 66.73 per cent jump over last year’s figures with the total collections touching Rs 10,712 crore, raising hopes of achieving the annual target. Last year, the collection was Rs 6,424.81 crore.

Indirect tax collections from April to June 15 stood at Rs 20,593.50 crore with customs duties at Rs 9,267.49 crore and excise collections at Rs 11,326.01 crore.

Giving a break-up, he said corporation tax collections stood at Rs 4,686.39 crore in April-June as against Rs 2,670.64 crore last year registering an increase of 75.48 per cent. In June alone, the corporate tax collected was Rs 4,510.69 crore registering an increase of 48.19 per cent and the income tax was estimated at Rs 1,981.53 crore, a 48.03 per cent jump over figures in the same month last year.

Income tax collections stood at Rs 5,950.77 crore as against Rs 4,011.86 crore for April-June last year.    


 
 
CP MARKET RIPE FOR MORE PLAYERS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 6 
The Reserve Bank of India (RBI) has proposed that financial institutions (FIs) should be allowed to issue commercial paper (CP) and foreign institutional investors (FIIs) be free to park their funds in it under the 30 per cent upper limit set for investments in debt instruments.

The ideas are part of the draft proposals made by an internal committee which has been set up by the central bank in line with the announcement made in the lean-season monetary and credit policy. The final guidelines will be issued by August 7 after taking into account the views of all participants.

Commercial paper is an unsecured money market instrument, in the form of a promissory note. Issued by companies, primary dealers and satellite dealers, it is usually placed with individuals, banks and other kinds of investors. Companies issue CPs to raise working capital if they meet the following conditions: a ‘tangible net worth’ of least Rs 4 crore, a working capital limit from banks for an equal amount, and the loans taken by should be classified as standard assets.

According to the RBI’s proposals, an FI should be free to issue CPs within the overall umbrella limit fixed by the central bank. This means the issue of CPs, together with other instruments like term money borrowings, term deposits, certificates of deposit and inter-corporate deposits, should not be more than 100 per cent of its net owned funds.

“Financial institutions should make arrangements to place the CPs privately and ensure that the process is completed within a period of two weeks from the date of communication to the Reserve Bank,” the panel said.

Corporates, the committee said, should submit a proposal should to its bank along with the certificate issued by a credit rating agency. They will be free to issue CPs to the extent of 50 per cent of their working capital limits but will have to obtain prior clearance from banks if they want to raise higher amounts.

Another relaxation proposed was that credit rating agencies should be allowed to determine the validity period for the rating. The existing norms permit a corporate to issue CPs up to two months from the day it received the rating.

Despite such a relaxation, the apex bank said that the agencies would have to closely monitor the rating assigned to the issuers vis-a-vis their track record at regular intervals and intimate the financing bank (RBI in the case of primary dealers/satellite dealers and financial institution) of any revision in the rating, particularly when there is a downgrading of rating.    


 
 
ICRA DEALS FRESH BLOW TO IFCI 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 6 
Credit rating agency Icra today again downgraded the long-and medium-term ratings of its promoter company, Industrial Finance Corporation of India Ltd (IFCI). The rating agency attributed the downgrade to the high level of non-performing assets and a fall in the capital adequacy ratio of IFCI.

IFCI’s long-and medium-term rating has been downgraded from LAA+ and MAA+ to LAA- and MAA- respectively. However, its short-term rating of A1+ has been reaffirmed, indicating highest safety.

The second downgrade comes in a little over a year. Icra had earlier downgraded IFCI’s long-and medium-term ratings from LAAA and MAAA to LAA+ and MAA+ respectively, on June 2, 1999. The downgrade was then attributed to IFCI’s significant exposure to iron and steel companies, man-made fibres and cement, all of which were passing through lean times.

P. K. Choudhury, managing director, Icra said, “We have downgraded IFCI basically because of the high NPAs, fall in the capital adequacy ratio and tremendous competitive pressure.”

Choudhury however felt that the downgrading would not really impact the borrowings programme of the financial institution, though the borrowing could become expensive.

“In spite of the downgrade it is in the high safety category. IDBI and UTI have shares in the financial institution. Also it is the oldest and bigger institution and has governmental support. I don’t think lenders will hesitate,” he said.

Reacting to the Icra move, IFCI chairman and managing director P V Narasimhan today said that the downgrading of its ratings by Icra will not put pressure on interest rates of its outstanding bonds.

“Icra’s downgrade is for our outstanding debt issues. It is not going to affect the interest rates on our existing long-term and medium-term bonds issue,” Narasimhan said.

He said it will not force IFCI to hike interest rates on the new bonds issues. “We are finding it difficult to maintain a good spread on interest rates. However, this is a general trend which all financial institutions face,” he pointed out.

IFCI is the single largest shareholder in Icra. However, the Icra board enjoys a fair amount of freedom as is evident from its parent company being downgraded for the second time.

According to Icra, the downgrade is due to the continued high level of NPAs which has resulted in income loss and increased provisionings.

IFCI’s net NPA levels continue to be high at 20.8 per cent as on March 31, 2000, although it has declined marginally from 21.4 per cent as on March 31, 1999.

IFCI’s marginal and average cost of borrowings declined in 1999-2000, due to a decline in interest rates. However, the decline in the gross yields has been more pronounced than the decline in the borrowing costs, leading to fall in interest spreads.

The institution’s accretion to reserves has been negative in the last three years as it has utilised its reserves to make provisions/write-offs against NPAs. Its capital adequacy ratio is presently lower than the minimum 9 per cent prescribed by the Reserve Bank of India (RBI).

The consistent decline in interest spreads following a fall in gross yields, fall in reserves and a lower capital adequacy ratio of 8.8 per cent also led to the downgrade.

Icra has cautioned that IFCI’s ability to control further slippage in asset quality and recapitalise to increase capital adequacy, besides recovering from existing NPAs, and control its borrowing costs would be critical for its future asset growth and profitability.    


 
 
US SEEKS CLEAR-CUT POLICY ON FDI 
 
 
BY A STAFF REPORTER
 
Calcutta, July 6 
India must have a clear cut policy for attracting foreign direct investment (FDI), US ambassador Richard Celeste said today.

Addressing the members of Indian Chamber of Commerce, Celeste said that the political stability was no more a hassle in attracting FDI.

But the Indian government has to make up its mind whether it really wants FDI and adhere to the policies. Sectoral caps on FDI ranging from 26 per cent in one and 49 per cent in others would not really encourage investors. The uncertainty on FDI slabs in various sectors should be removed.

He said with a more stable and experienced coalition government, the country would have to decide how much FDI it can absorb. The ambassador stressed the need for “redesigning of relationship’’ between Indo-US businesses following US president Bill Clinton’s visit to India.

He noted the “win-win agenda’’ fashioned during Clinton’s visit to India that had brought about an entirely new chapter of bilateral relationship between the two nations. Against the cold war era concept of ‘what is good for America can’t be good for India...Russia’, Celeste noted, things have now changed to “what is good for Americas has to be good for the partners”.

He said that the conspiracy theory that US businesses would take over Indian economy was a thing of the past. Now the scene has changed where many among the successful 1.2 million non-resident Indians working in the US as chief executives are trying to takeover American companies. For instance, the bid of the United Airlines headed by India-born Rono Dutta to take over US Airlines.

C K Dhanuka, the president-elect of the chamber pointed out the impact of the new Indo-US initiative on West Bengal. In reply to this, Celeste asked the local businessmen to stand up for the states. “If you don’t who will,” he asked.

Regarding the tough trade union movement that has defamed the state, he asked the management of companies to form a common agenda with the trade unions, built on the existing strength by inducting new technologies and then welcome fresh investment and perform.

He also stressed the need for conveying the strength of the state to the outside investors. Celeste squarely put the onus of conveying the strength of a state to its business leaders. “It is not the job of trade unions.”

He pointed out that the successes in the information technology sector in India will not be confined to south India. A number of city-based IT companies are also doing well.

Celeste inaugurated the eastern regional Environment Information Centre (EIC) in the city, a clean technology initiative for industry established jointly by USAID and the Indian Chamber of Commerce.

The centre, with a computer terminal installed at the FICCI office in New Delhi would provide online and off-line information about climate changes, data base and access to various environment related issues.    

 

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