Ruias look for new ally to sell 40% in Essar Power
Govt scraps limit on sugar stock holding
Virgin demand for more flights upsets Air-India
Pentamedia net up 92%
NHB kicks off housing loan securitisation
AirTel pact to provide cellular Net services
Samsung plans to make PC monitors locally
Push to tea exports to Russia

Mumbai, July 7 
The Ruias, who called off a Rs 720-crore deal to sell Essar Power to the US-based Marathon, are likely to divest only 40 per cent of the company’s equity to a foreign partner.

Though this is less than the 100 per cent that was planned to be offloaded earlier, they feel this will be enough to end the Gujarat government’s objections to all deals closed in future.

The main problem with the memorandum of understanding (MoU) was the state government’s insistence that Essar Steel — of which Essar Power is a captive unit — cannot source power if it does not hold any equity in the venture.

The state government had said at that point of time that Essar Steel must hold at least 25 per cent in the 515 MW captive unit to get 215 MW at concessional rates — an idea which was dismissed by the Ruias.

An Essar group spokesman refused comment on the possible stake sale but there are growing indications that the promoters will sell only a part of Essar Steel’s stake in the power company. This, however, was not confirmed by company officials.

Essar Steel and Essar Oil hold 42 per cent and 9 per cent respectively in Essar Power. The balance is held by Prime Hazira, a Mauritius-based investment company of the group.

However, Essar officials did confirm that the group was looking for an equity partner in the company, which is considered to be a ‘jewel’ in the group. Corporate observers say expectations of a stake sale in the power company are significant because the money raised this way could be used to partly clear institutional loans and the redeem the $ 250 million worth of floating rate notes issued by Essar Steel.

Essar Power, with an equity capital of Rs 523.5 crore, has set up a 515 MW independent power project — adjacent to its huge steel complex at Hazira — which can use multiple fuels . The state-of-the-art power plant was commissioned in October 1997 and was the first independent power project to start generation after the liberalisation of the sector.

Essar Power has a 20-year power-purchase agreement with Gujarat State Electricity Board and Essar Steel under which the steel company is entitled to receive constant and uninterrupted power supplies at less than normal rates. It had drawn up plans to hike its capacity by 500 MW.    

New Delhi, July 7 
In a move to further liberalise the sugar industry, the government today decided to lift the stock holding limit on recognised sugar dealers. However the turnover period limit of 30 days would remain. According to an official statement, this decision has been taken due to the extremely comfortable position of sugar stocks in the country.

Production in the current sugar season is estimated to have reached a record high of 180 lakh tonnes as against a consumption requirement of 151 lakh tonnes.

The turnover limit, which was so far applicable to domestic sugar, will also be applicable to imported sugar.

With high sugar production levels, manufacturers are likely to issue tenders to procure sugar from mills for exports. They are however waiting for international prices to stabilise. International prices are presently fluctuating between $ 225-230 per tonne.

Manufacturers said that in order to make exports attractive, the government should take other initiatives like selling the commodity through a centralised agency. Sugar associations are also demanding re-introduction of the Sugar Export Promotion Act under which losses from exports are equally distributed among the industry.    

New Delhi, July 7 
Air India’s row with Virgin Atlantic Airways, its latest code share ally, appears to be deepening. Air-India is wary about Virgin’s six-flights-a-week offer to Delhi that is certain to hurt its bottomline.

Nor is India’s flagship carrier enamoured by Virgin’s plea that the number of flights allowed to the UK under a bilateral deal between the two countries should be increased and the extra flights handed over to it. Both sides of course are trying assiduously to project a front that everything is hunky dory.

“The three flights that Virgin plans to fly to Delhi will complement Air-India’s thrice-a-week service so we have absolutely no complaints about them,” civil aviation ministry officials said.

The ministry, which has been brought into the picture with Air India lobbying it for help, wishes to remain neutral but at the same time refrain from taking any steps that could hurt Air India.

It has already made it clear to Virgin boss Richard Branson that it does not favour a fare war as this could mean lower yields for Air India. Virgin of course has argued that “lower fares will mean more seat sales and the overall turnover would be higher.” Air India has found to its detriment in recent fare dogfights that this argument does not always hold true.

If Virgin starts flying three more flights that compete with Air India, then it means losses for that already loss-laden airline. Air India earns about Rs 40 crore from each flight to Britain. Competition from British Airways has already eaten into its profit margins. If Virgin now starts giving AI a run for its money, it would obviously be in deeper trouble.

In their discussions with Virgin Airways, Air India top brass have reminded the airline that it can only allow it to fly an extra three frequencies if A-I manages to reta-in its current load factors on the ten flights it now flies to London and manages to sell 65 per cent of the 30 seats it is allowed to sell on every Virgin flight over the next six months. This, they insist, is also part of the deal they signed last year along with another tricky clause which insists the overall arrangement should result in at least 70 per cent seat factor over a consecutive six months.

Virgin also wants A-ir India to pitch for more flights out of India to Britain and pass on the extra entitlements to its British code share partner. A-I is not pleased with such requests as it wants to keep them until it manages to either buy or lease extra a-ircraft which would allow it to exploit its rich store of rights to fly to various destinations.    

Mumbai, July 7 
Entertainment graphic major Pentamedia Graphics Ltd has posted a 92 per cent rise in net profit for the first quarter of the current fiscal year.

Net profit shot up to Rs 40.82 crore as against Rs 21.21 crore in the previous corresponding quarter.

The company posted a turnover of Rs 119.49 crore in the current quarter, against Rs 78.42 crore in the previous comparable quarter, a rise of 46 per cent. Of this, while the domestic income stood at Rs 8.89 crore (Rs 0.87 crore), overseas income was placed at Rs 105.60 crore (Rs 77.55 crore). With other income was at Rs 4.10 crore, the total income was placed at Rs 115.59 crore.

Pentamedia said the animation, special effects and multimedia products and services contributed 60 per cent, 18 per cent and 22 per cent of the turnover respectively. The quarter also witnessed an order from Landmark Entertainment, USA, for a project called ‘Dragon Force’ that will be jointly produced by the client and the company. Subsequent plans are on to arrange for television networks to license the TV series of this project.

The company added that negotiations were also on with Landmark, one of the world’s most renowned theme park companies, for a proposal to create a theme park in India.

Other projects presently being implemented by the company for a US client include ‘Hunters’ and one with Thornbush Entertainment.

Further, the company also holds around 5 per cent of the equity of Padmalaya Telefilms, which is now in the process of erecting a 2D and 3D animation studio in Hyderabad.    

Mumbai, July 7 
Housing loan securitisation finally took off today with National Housing Bank signing a memorandum of agreement with Housing Development Finance Ltd (HDFC) and LIC Housing Finance to securitise part of their loan portfolios.

NHB will initially securitise Rs 89.50 crore of HDFC loans and Rs 47.54 crore of LICHF loans. The transaction involves the assignment of retail housing loans from the housing finance companies.

NHB earlier had plans to rope in more players for the maiden launch but later decided to stick to two major players in the industry.

The securitisation of housing loans is expected to give a fillip to housing finance companies for mobilising resources. It is expected to provide depth to the housing finance industry and also substantially widen the markets in the future.

NHB will create a special purpose vehicle (SPV) by clubbing the housing loans which will constitute the receivables to be securitised and held by the SPV in the nature of a trust. This issue of mortgage backed securities (MBS) being the first of its kind to be introduced in the country, is expected to breathe life into the secondary mortgage market which is non-existent at present.

The housing finance industry in India has been witnessing a steady growth since almost a decade both in terms of growth in housing loans as also in the geographical outreach.

While the banking system has also been increasingly becoming more active in housing finance business, the resources requirement for the housing sector as a whole continues to be huge, which implies the necessity for a continued growth in volume lending.

The critical issue for the housing finance industry has been the difficulty in mobilising funds. This has brought into sharp focus the need to integrate sector-specific financial markets into a national capital market and to broaden and deepen the capital market by increasing the variety of alternative instruments and contracts available.

According to NHB, mortgage backed securities has come to represent a major policy initiative of the government as manifested in the National Housing and Habitat policy announced in 1998.

HDFC officials aver that securitisation facilitates tapping of household savings and channelising them to the housing finance sector, on the other hand it helps in generating funds for mortgage lending at lower interest and in improving affordability.

The securitisation also helps in better management of assets and liabilities, particularly in a long-term financing activity like housing finance.

It is important to emphasise that the general preference for securitisation as an alternative financing mechanism is dependent on the realisation that securitisation can simultaneously redress many of the problems endemic to the housing finance industry, notable ones being the incidence of asset-liability mismatch , interest rate risk and default risk, beside integrating mortgage markets into a national capital market.    

New Delhi, July 7 
AirTel today joined hands with to provide internet services on cellphones using wireless application protocol (WAP) platform. This would enable AirTel to offer innovative wireless internet-based services to its customers. is a global leader in providing WAP-based infrastructure to mobile operators.

AirTel has invested $ 1 million in the project and will invest another $ 1million later to upgrade it. With this investment, the company expects to jack up its revenues by around 15 per cent.

The company plans to offer a range of personalised mobile internet services., the software provider of WAP-based infrastructure, has licensed the product to AirTel.

The WAP service will help customers to get real time access to internet-based services and applications, including e-mail, news, stocks, weather, travel and sports information.

In addition to providing access to the internet, AirTel will develop a hub for accessing a wide range of mobile internet services.

Announcing the tieup here today, Sanjay Kapoor chief executive officer of AirTel said, “the mobile internet services would contain a wide range of services on the lines of news based services, e-commerce, security, billing, marketing and wireless data transmission.”

“The services would be launched in another eight weeks in Delhi and other cities in south where AirTel offers cellular mobile services. The revenue would be generated from services such as e-commerce hosting, advertising, service charges, access charges and airtime tariff,” he added.

At present, AirTel offers short messaging services (SMS) like cricket scores, jokes and horoscopes. The company offers SMS for Rs 1.50 per message and, at present, offers 58 SMS.

Kapoor said, “We have yet to finalise the charges for WAP-based services. However, it would not be charged directly and would be bundled in the airtime or subscription charges.”    

Calcutta, July 7 
Samsung Electronics India (SEI), a wholly-owned subsidiary of Korean electronic major Samsung Electronics, is planning to set up a computer monitor manufacturing facility in India.

Highly placed sources said the company was contemplating using the Indian outfit to export monitors, both colour and black and white, besides catering to the vast domestic market.

A top level Korean team, led by the president of parent Samsung Electronics, is said to have visited India a couple of weeks back to carry out a feasibility study for the project.

Sources however remained non-committal about the location and investment required for the project.

“The plan will take some more time to be concretised. We are studying all aspects before taking the plunge,” they added.

The company, which has been incorporated early this year, has set an ambitious sales target of Rs 800 crore by December this year. Samsung earned Rs 550 crore by selling information technology-related products last year through its liaison office in Delhi.

“The parent company thought it fit to set up a subsidiary exclusively to deal with information technology-related products and thus the Indian outfit was born,” a senior company official explained.

SEI is already the market leader in the colour monitor segment with a market share of 45 per cent. Monitors, the official said, contribute over 85 per cent to the total sales turnover of the company. It has set a sales target of 6.5 lakh computer monitors for the calendar year 2000, as against 4.8 lakh units sold by the erstwhile liaison office.

Currently, the entire product range is imported from Korea and Malaysia where the parent company has its manufacturing facilities.

Besides monitors, the company has also geared up its brands in the hard disk and laser printer segments.

“We are hopeful of being the market leaders in the hard disk segment in the next one year, while it will take two-three years to be at the top of the laser printer segment,” the official said.    

Calcutta, July 7 
The Reserve Bank of India (RBI) will meet Tea Board chairman S. S. Ahuja on Monday to finalise the modalities for tea exports to Russia, raising hopes that the talks may lead to the abolition of the system whereby the Russian importers have to open a letter of credit in favour of Indian firms.

“The ministry of commerce and the central bank are working out alternative procedures with the Bank for Foreign Economic Affairs (BFEA) in Russia. The procedures are being fine-tuned and we expect that RBI to announce these procedures soon. Doing away with the requirement for a letter of credit is one of the options,” Ahuja told The Telegraph.

Russia is a key buyer and accounted for over 46 per cent of total tea exports last year. Of the 225 million kg target fixed for this year, the industry aims to ship 100 million kgs to Russia this year.

The state credit route is still the dominant method of payments in tea exports to Russia. However, this meant that transaction costs remained high for importers because they had to provide a letter of credit cover for Indian companies. The other problem is that payments through letter of credit also take about two and a half months to be settled.

“An alternative procedure that does not involve opening of L/C by the importer and allows outright shipment on the condition that the proceeds are repatriated within 180 days, would help neutralise the high transaction costs and, therefore, make Indian tea more attractive to Russians. A major export initiative to the Russian federation will be launched in two weeks. The exercise will get a boost if the modified procedures are in place soon,” the sources said.

Much of the exports to Russia come from South India, but the volumes shrunk last year. This year too, the response is not encouraging. As a result, the prices of South Indian tea are not looking up. The Indian Tea Association has requested the commerce ministry to get the planned amendments, now being discussed by the RBI and BFEA, implemented soon.

The South Indian tea industry is also suffering the consequences of allowing tea imports from Sri Lanka at a concessional duty of 7.5 per cent ad valorem compared with the prevailing basic customs duty rate of 35 per cent.

“The ITA’s import projection of 10 million kgs for this year is merely a reflection of the prevailing policy of the government and the relative price scenario.

It is, however, an indisputable fact that even at this level of imports, the market appears to be working to the disadvantage of the tea industry in South India which has to compete with Sri Lankan teas. The position has worsened after the recent devaluation of the Sri Lankan currency,” a senior ITA official said.

ITA has suggested the government to withdraw the concessions extended to Sri Lanka in the form of preferential duty rate of 7.5 per cent and enhancing the basic custom duty on tea to near the WTO bound rate of tea around 140 per cent.    


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