Finance firms likely to be given automatic FDI nod
Odds against ONGC finding
DCA bait for deaulting cos to come clean
Cyber schools on launch pad
Indbazaar.com to dilute equity via public issue
Century Enka seeks textile upgrade fund assistance
Burn Standard to sell real estate
Hot words over Sahara sacking

 
 
FINANCE FIRMS LIKELY TO BE GIVEN AUTOMATIC FDI NOD 
 
 
FROM NITHYA SUBRAMANIAN
 
New Delhi, Aug 6: 
Foreign direct investment (FDI) under the automatic route is likely to be allowed in non-banking financial companies (NBFCs) with sufficient safeguards and high entry barriers.

The group of ministers (GoM) recently decided to review the existing guidelines on NBFCs because it felt that the participation of reputed foreign firms will give the sector access to the best practices in modern management and finance.

“Foreign participation will generate healthy competition in the NBFC sector, which has so far been dominated by fly-by-night operators. More important, than all other factors is that it will ultimately benefit consumers,” sources said.

Also, given that activities like venture capital and leasing are important to small businesses and start-ups in the knowledge industry, opening the doors to global firms will ensure that they are better served.

The government has suggested two alternatives to boost foreign direct investments into the NBFC sector: one is to create a net-worth entry barrier, which will guarantee that companies which do come in have the financial soundness it takes to do business in the sector. The other is to remove capitalisation norms for foreign-owned NBFCs which want to set up shop here, but do not raise deposits from the public.

“The net worth should be bench-marked on the basis of global norms so that only large and reputed companies are allowed to enter. Once the company qualifies to start operations in the country, it will have to comply with the norms applicable to firms incorporated in India,” the sources said.

There are growing indications that the ministerial panel will recommend stiff operational norms. For instance, companies may be required to have minimum net owned funds of Rs 2 crore before starting business; they must maintain liquid securities, not less than 4 per cent, and not more than 25 per cent of the public deposits outstanding; a reserve fund with at least 25 per cent of the net profits must be created. However, the conditions on minimum capitalisation could be waived in the case of those foreign companies which do not access public deposits, sources said. “This would, however, not apply to accessing bank loans and inter-corporate deposits as there already enough safeguards and norms while borrowing from these sources,” they added.

Currently, 17 NBFC activities have been opened to FDI, which include merchant banking, stock broking venture capital, credit rating, hire purchase, leasing and housing finance.

Under the existing norms, a fully owned foreign owned company is required to have a minimum capitalisation of $ 50 million for setting up a holding company.

However, the government recently permitted 100 per cent foreign equity in step-down subsidiaries of foreign holding companies with a minimum capitalisation of $ 5 million. This comes with a clause that the company should divest at least 25 per cent stake through a public offering within three years.    


 
 
ODDS AGAINST ONGC FINDING 
 
 
FROM R. SASANKAN
 
New Delhi, Aug 6: 
Oil and Natural Gas Corporation (ONGC) may draw a blank in its search for partners for the oil hunt in the six deep-water blocks it was awarded on a nomination basis.

The Cabinet recently granted New Exploration Licensing Policy (NELP) benefits to these blocks to make them attractive for foreign oil companies. However, the bureaucracy insisted that the partners be selected through tendering and that the bid-evaluation criteria be vetted by the Committee of Secretaries. The ONGC management is upset over the fact that the bureaucracy has ruined its chances of getting any respectable oil company as a partner. Small oil companies who may be tempted to bid for the fields will not have any experience in deep-water drilling. Ultimately, ONGC will be left with none with whom it can share exploration risks in these blocks.

It took nearly two years for the government to grant benefits under the New Exploration Licensing Policy to these blocks. The benefits are mostly in the form of tax concessions, both direct and indirect. The ONGC management believed that the sops would lure foreign oil companies. Its assumption was not wide of the mark. Initially, six companies evinced interest, but gradually they all withdrew gradually for the lack of a decision on the NELP status.

At one stage, Shell was interested in negotiating across the table. It has no time to go through the bidding process. Unocal wound up its upstream office in India. Total is not taken seriously as it evinces interest in everything, only to shy away later.

ONGC is supposed to be a Navratna company, whose board is empowered to take certain key decisions. The six exploration blocks it got on a nomination basis cannot be rated as the most prospective. Therefore, there is no reason why foreign oil companies would rush to invest in these blocks.

But, the bureaucrats seem to believe that locating partners for these blocks is a sensitive issue, and should be done through tendering.

This is not the first time that the bureaucracy is scuttling business opportunities in the oil sector. It sat over Indian Oil’s proposal for months to invest in proven oilfields in Iran. By the time the proposal was cleared, the field was sold by Premier Oil to Elf of France. Elf declined to accommodate IOC.

Industry circles say it should take another three months for the Committee of Secretaries to clear the bid-evaluation criteria. The tendering process should take at least a year. However, the situation in the international oil market may change by then. Most of the directors and the present chairman will not be there to decide on the partners, if any.    


 
 
DCA BAIT FOR DEAULTING COS TO COME CLEAN 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Aug 6: 
The department of company affairs (DCA) is planning a fast-track route for companies to delist themselves from the records of the registrar of companies (RoC).

The fast-track route will be available to those firms which make a voluntary disclosure of the annual returns and balance sheet under the corporate amnesty scheme — Company Law Settlement Scheme (CLSS) 2000.

The scheme, which opened on June 1, has received lukewarm response from the corporates because bankrupt companies are refusing to file records, including, the balance sheet and annual return details for the entire period of their operation.

They are instead demanding delisting from the registrar of companies’ records under Section 560 of the Companies Act citing bankruptcy as the reason.

The Act says that the registrar has the power to strike a defunct company off the register provided he has reasonable cause to believe that a company is not carrying on with the business or is in operation. However, DCA officials say that if such companies are allowed to be delisted, they will acquire the status of non-existing companies.

“It will become difficult for us to take any legal action against these companies,” they further added.

“We have no problem to delist them provided they submit the required documents immediately under the CLSS.” the DCA officials said. The last date of submission of returns under the scheme is August 31.

CLSS allows defaulting companies to make a one-time declaration of their balance sheets, profit and loss accounts and annual returns with the registrar of companies.

The scheme assures immunity from prosecution.The government has also decided that if the companies do not respond to the scheme, then it will direct RoC to prosecute these companies.

Though the government had a target of collecting Rs 100 crore through this scheme, it has been able to collect Rs 8-9 crore. The number of defaulting companies is about 5 lakh.    


 
 
CYBER SCHOOLS ON LAUNCH PAD 
 
 
FROM M RAJENDRAN
 
New Delhi, Aug 6: 
The government will soon unveil an ambitious plan to set up ‘virtual universities’ and centres of excellence with private sector participation. The project is supposed to connect about seven lakh schools in the country.

A pilot project will be set up in Chennai or Bangalore to integrate the schools in the rural areas of the two states. Based on the results of the experiment, the grandiose project will be taken to other campuses spread across the country.

Virtual universities, the government feels, will help generate more information technology and telecom professionals. A few private sector companies such as Bharti, which has already joined hands with Indian Institute of Technology (IIT), are expected to provide the necessary inputs.

According to sources, an implementation review committee under the chairmanship of finance minister Yashwant Sinha is examining the proposal. “Last month, the proposal was made by the subject group on knowledge-based industries, which is part of the Prime Minister’s council on trade and industry. The finance ministry is examining it, and the report will be discussed with the ministry of human resources and development,” sources said.

Though it is a separate issue, setting up the centres could be made a part of the long-term strategy to be prepared by IT taskforce on human resource department. “This will help meet the growing demand for computer experts in the country,” they added.

“Efforts should be made to establish virtual universities and centres of excellence, wherein specific elements of education are imparted by private sector that are leaders in the field,” the subject group on knowledge-based industry had stated in its report.

“It is essential to use infotech to expand the reach, increase efficiency and improve the attractiveness of primary and secondary education in the country,” the group added.

Finance ministry officials pointed out during the course of the discussions that the proposal was part of the overall information technology plan for education, but its implementation will depend on the amount of financial and physical resources at the government’s disposal.

Another important proposal made by the group was that it should be mandatory for the government-owned and private internet service providers to offer free Net connectivity to schools, particularly those located in the rural areas.

If implemented, the government would be able to achieve its target of connecting seven lakh schools. But, the first step to that will be providing computers in these schools.

The meeting of state ministers had agreed that states would set up facilities for IT education and training.

For this , the resources and expertise of the private sector educational organisations, will have to be synergised with those of government and other established institutions of learning.    


 
 
INDBAZAAR.COM TO DILUTE EQUITY VIA PUBLIC ISSUE 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Aug 6: 
Indbazaar.com, a Mumbai-based horizontal portal, is planning to dilute 50 per cent of its present equity in a phased manner over a period of a year through private placements and a public issue.

Confirming this, Indbazaar executive director, Sankarson Banerjee said the Ifcon Net Services (INS), which has set up the portal, is in the process of expansion.

“This is not that we want to raise funds only because everyone is doing that. For us, strong strategic partners are more important than the money,” said Banerjee. He said that the company is looking for strategic partners to carry out the proposed expansion plans.

He further pointed out that the company is discussing with three major domestic companies and one overseas company to privately place part of their equity. Banerjee said the first phase of the placement will be completed this month.

As the company is planning to expand the capital base, the existing promoters will not be required to sell their stakes to accommodate new partners. He, however, refused to name the companies it is talking to. He also declined to specify the amount the company is planning to raise through the private placement. Last year, Indbazaar was close to be acquired by the utility major BSES at a price of Rs 40 crore. However, finally the deal fell flat due to “certain mis-match” in the negotiation.

Banerjee pointed out that the valuation of the company is currently being revised as the portal has recorded a phenomenal growth during the last few months.

Although Banerjee did not spell out the company’s fund mobilisation target, there is indication that it commands at least Rs 100 crore.

“Our average hits is much more than most of the prominent portals according to an independent survey. The content’s size and variations are also monumental. Once a surfer visits our sites, he can easily make out the difference,” Banerjee said.

The portal, developed by a team of 70 people, has set an ambitious five-times growth target.

“We are investing a lot of money to retain the best talents available in the market through very lucrative employees’ stock option plan,” says Banerjee. The company’s annual wage cost is around Rs 4.5 crore and it is offering ESOP up to 15 per cent depending upon the merit of an employee.    


 
 
CENTURY ENKA SEEKS TEXTILE UPGRADE FUND ASSISTANCE 
 
 
FROM VIVEK NAIR
 
Mumbai, Aug 6: 
The B K Birla-owned Century Enka Ltd has sought Rs 200 crore from the government’s Technical Upgradation Fund (TUF) .

While the synthetic fibre/yarn is in the process of being inducted in this scheme, unveiled by the Union finance minister in his previous budget, Century Enka is one of the companies which has sought the assistance through the industry association.

In a presentation made to the institutions recently, the company has said that the existing equipment is old and requires heavy maintenance expenditure.

“Due to frequent breakdowns the efficiency of the plant is reduced. Power consumption is also high. High running costs make the plant less competitive to face imports as custom duties are reducing. Hence modernisation of the plant is required’’, it added.

Century Enka has a capacity of 3,000 tonne in nylon filament yarn apart from 12,000 and 25,000 tonne in nylon tyre/industrial yarn and polyester filament yarn respectively. As per the March 1999 figures, the machinery value of Century Enka is over Rs 581 crore.

As per the domestic industry’s estimates placed before the government, the nylon sector requires around Rs 1,000 crore for modernisation purposes, nylon tyre yarn needs Rs 1,880 and polyester filament yarn needs Rs 5,200 crore. Thus the total assistance sought for the nylon and polyester yarn sectors is Rs 6,200 crore and for the nylon tyre, it is Rs 1,880 crore.

Under the TUF scheme, low cost funds will be provided by the industry for upgrading its technology at an interest rate of 5 per cent. The scheme aims at providing Rs 25,000 crore to the textile and jute industry over a period of five years. Efforts have commenced to include the synthetic fibre and yarn sectors in this scheme.    


 
 
BURN STANDARD TO SELL REAL ESTATE 
 
 
BY ANIRBAN SENGUPTA
 
Calcutta, Aug 6: 
Burn Standard Co Ltd is planning to raise around Rs 300 crore through sale of real estate. The company has issued tenders for valuation of surplus land and other real estate assets. A disposal committee has been set up for the purpose.

The joint committee of the Burn Standard Officers’ Association, however, has demanded a re-valuation of assets.

Sources in the company revealed that the disposal committee would also assess selling of sophisticated machinery and equipment at the units which have been asked to close down by BIFR.

Burn Standard was referred to the BIFR in November 1994 and the rehabilitation package was sanctioned on April 16, 1999. BIFR had recommended closing seven units which included two units in Raniganj, one each in Durgapur and Andal and two units at Jabbalpur and Newar in MP.    


 
 
HOT WORDS OVER SAHARA SACKING 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Aug. 6: 
A war of words has broken out in the Sahara group following the sacking of U.K. Bose, controller of Sahara Airlines.

Bose’s services were terminated on charges of “anti-organisational activities and financial irregularities.” Bose, a long-time associate of group chief Subroto Roy, has retaliated by accusing Sahara of unprofessional conduct.

Differences between the two sides came to a head at a recent board meeting, where Bose was accused of dry-leasing aircraft at too high a rate. Bose said he decided then to quit and resigned on August 4, signing papers to hand back shares he had been given in group companies. “They have now circulated a notice sacking me on charges that have not been made clear to me,” Bose said.

Sahara group officials said: “The company has evidence about his anti-organisational activities and financial irregularities, including unauthorised advances to people and personal expenses.”

They said investigations against Bose were continuing.    

 

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