Tough capital criteria set for finance companies
Sonata Software to buy stake in US firm
Knots appear in Bharat Sanchar link-up plan
Globsyn plans to raise Rs 19 cr from market
Wockhardt in co-marketing pact with Bayer
Mahindra-BT unveils plan to go public
Protest against Chinese dumping: Myth & reality
Banks to set caps on loans versus shares
Centre sets stiff terms for states buying power
Foreign Exchange, Bullion, Stock Indices

 
 
TOUGH CAPITAL CRITERIA SET FOR FINANCE COMPANIES 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Dec 13: 
The government today introduced the Financial Companies Regulation Bill, 2000, in a bid to strengthen norms for non-banking financial companies and protect depositors.

The Bill, certain clauses of which are already being implemented through RBI fiats, calls upon all NBFCs receiving deposits to raise their threshold net owned fund level from Rs 2 crore to Rs 10 crore. No NBFC can accept deposits any longer without RBI permission.

NBFCs which do not accept deposits can, however, do with a lower minimum level of NOF at Rs 2 crore. But all NBFCs have to compulsorily invest 25 per cent of their net profits in specified securities.

The Bill also sets up a four-member advisory council headed by a deputy governor of the RBI, which will advise the RBI on all matters related to NBFCs.

The Bill also gives the RBI wide-ranging powers to interfere with the functioning of NBFCs if it is not satisfied with the way its working.

The RBI can even direct an NBFC not to alienate any of its assets as a measure designed to safeguard investor or depositor interests. It can also attach and sell of its assets to pay off depositors.

These companies will require prior approval for any substantial change in the management, change of location of their registered offices, and change of name.

The RBI has also been given powers to prohibit or regulate any advertisements made by financial institutions. Those who violate these rules are liable to be punished with jail terms of up to three years besides stiff fines.

It empowers the RBI to direct a financial company or a class of financial companies to seek prior approval for appointment statutory auditors in certain cases.

The Reserve Bank has been progressively tightening its control on the NBFCs which had a field run in the early nineties when many fly-by-night operators raised money from gullible investors touting pyramid schemes and offering astronomical returns. After many of the promoters of these NBFCs disappeared from the scene, the RBI intervened with tough screening methods to ensure that there would be no more ripoffs. The central bank has weeded out a large number of weak NBFCs and now the Bill will make it harder for the existing NBFCs to default on their dues.

   

 
 
SONATA SOFTWARE TO BUY STAKE IN US FIRM 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec 13: 
In yet another instance of a domestic software company picking up stake in an overseas one, Sonata Software Ltd is acquiring over 16 million preferred fully convertible shares in SpinAway ebusiness Solutions Inc, a US-based company. The deal would be for a total consideration of $ 5 million.

In a notice sent to the stock exchanges today, Sonata informed that the first lot of 8.34 million shares will be acquired for $ 0.14 per share, amounting to $ 2 million. The acquisition will be funded from its own resources. The remaining lot of 8.33 million shares would be acquired at $ 0.36 million per share, amounting to $ 3 million, funded out of the offshore services revenue generated by SpinAway.

The stock markets reflected positively to the announcement, resulting in the Sonata scrip flaring up on the bourses today.

Opening at Rs 59.20, the scrip rose to an intra-day high of Rs 67 before closing slightly lower at Rs 64.85.

Sonata was created out of the software division of Indian Organic Chemicals Ltd (IOCL). While the company’s original promoters were Shyam Ghia and M D Dalal of IOCL, later Rajan Raheja also picked up stake in the company.

It commenced operations in the package software business and also is into the enterprise resource planning (ERP) sector. Later, the company had expanded its business portfolio to include the consulting business as well new technologies.

Rs 2,639 crore

grants demand

New Delhi, Dec 13 (PTI): The government today introduced in the Lok Sabha supplementary demands for grants for additional expenditure of Rs 2639 crore this financial year involving a cash outgo of only about Rs 1572 crore.

Introducing this second batch of Supplementary Demands for Grants this year, finance minister Yashwant Sinha said this included Rs 500 crore transfers for national calamity fund as recommended by the Eleventh Finance Commission and Rs 300 crore for modernising state police forces.

As many as 27 grants and one appropriation are included in the supplementary demands for grants. Of this, gross additional expenditure of Rs 1,067.11 crore is matched by savings by the concerned ministries resulting in cash outgo of only Rs 1,571.79 crore.

   

 
 
KNOTS APPEAR IN BHARAT SANCHAR LINK-UP PLAN 
 
 
FROM M RAJENDRAN
 
New Delhi, Dec 13: 
Bharat Sanchar Nigam Ltd (BSNL) is facing flak from the Telecom Commission for its delay in meeting direct exchange line (telephone connection) targets, mainly due to the delay in procurement of telecom equipment.

BSNL officials blame interference by the communications ministry even after its corporatisation for the delay in procurement of equipment. The ministry, however, has refuted the allegations.

“We had inherited a huge backlog from the department of telecommunications. The problem is that we still have to send files for clearance to the communications ministry. A number of files related to the purchase of equipment for various projects of BSNL are pending with the ministry,” said a BSNL director.

The Telecom Commission, in a review on the procurement of equipment by BSNL, had observed, “There has been an all-round delay in the procurement process this year due to reasons such as litigation and representations. As a result, there might be a shortfall in achievement of DEL target due to non-finalisation of the New Technology Exchange Equipment tender. Also there may be a shortfall in the commissioning of optical fibre routes due to the non-availability of 12/24F fibre optic cable.” However, according to a written answer submitted in Parliament in August this year by minister of state for communications Tapan Sikdar, since 1994 about 189 tenders for buying equipment were made by DoT. Out of this, there was a delay in only two cases in finalisation of tenders, resulting in a loss of Rs 151.14 crore to the government.

Further, the Telecom Commission held litigation and representations responsible for the delay in meeting the DEL targets. However, Sikdar claimed that except for two cases in 1997, all 187 tenders floated since 1994 were cleared in time.

Source in communications ministry said, “The real problem is in implementation. We have regularly placed orders for purchase of equipment since 1994. The delays were only of a few days not weeks. The equipment is in fact, lying at the block headquarters.”

Officials in BSNL said that after corporatisation they have taken all necessary measures to meet the targets.

“Steps have been taken for procurement of new technology equipment from ITI. A short notice limited tender has also been floated for procurement of 12F/24F optical fibre cables for 40,000 kilometres,” said a senior BSNL official.

   

 
 
GLOBSYN PLANS TO RAISE RS 19 CR FROM MARKET 
 
 
BY DEVADEEP PUROHIT
 
Calcutta, Dec 13: 
Globsyn Technologies Ltd, the Calcutta-based Rs 18.6 crore software training and development company plans to raise Rs 19 crore though a public issue.

Confirming the report, Bikram Dasgupta, CEO of Globsyn Technologies Ltd told The Telegraph, “Within three years, we have grown from just Rs 1.8 crore to a Rs 18.6 crore company. It’s high time to go public.” The funds raised through the public issue will be invested to set up an instructional research and development centre at Gurgaon, upgrading the development centre at Calcutta, enhancing its US operations and starting its UK operations and expansion of the company’s existing education business.

The company will be listed on the Bombay, Calcutta and Delhi stock exchanges, besides the National Stock Exchange. The company is also targeting a Nasdaq listing.

Globsyn is now working with its fund managers UTI Bank and Karvy on the timing and pricing of the issue. “It will surely come up in this quarter, but we are yet to finalise the date,” said Dasgupta.

The issue will carry a premium and is likely to be priced between Rs 38 to Rs 45. “We want to price it reasonably to ensure returns on investment,” he added. After the issue, Dasgupta will hold a 30 per cent stake in the company.

“Both our education and development businesses are recording a phenomenal growth in and outside the country,” said Dasgupta.

Globsyn has ambitious plans lined up to extend its TechnoCampus brand from the existing 10 centres to 14 centres within India and from one at Dubai to at least four in South Asia by 2001.

   

 
 
WOCKHARDT IN CO-MARKETING PACT WITH BAYER 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec 13: 
In line with the ongoing co-marketing practice in the domestic pharmaceutical industry, Wockhardt Ltd today signed an agreement with Bayer AG for the anti-diabetic drug, Acarbose. This is the first time that both companies are coming together in a co-marketing arrangement.

Acarbose is currently being marketed by Bayer in India under the brand name Glucobay. Derived from the fungus Actinoplanes Utahensis, it results in lowering of blood sugar levels post-meals.

Under the agreement, Wockhardt will market the product under the brand name Ascrose whereas Bayer will continue marketing its existing brand. Wockhardt will market the drug through a large marketing strength of over 400 sales force and extensive distribution network, which is expected to widen the reach of the product.

Glucobay currently has a market share of 6 per cent in the oral anti-diabetes market. With this tieup, it is expected that the market share of Bayer’s Glucobay and Wockhardt’s Ascorse would be over 10 per cent in the oral anti-diabetic market. Wockhardt now expects sales of the drug to cross Rs 50 crore consequent to the co-marketing effort. Glucobay, a major product from the Bayer stable, recorded sales of over Rs 13 crore so far in this year.

Wockhardt officials later told newspersons that the company expected sales in this year to be over Rs 560 crore with exports accounting for over Rs 120 crore, whereas the sales of its life-sciences company is likely to be in the region of over Rs 200 crore. The company is planning to launch three new products next year.

The pact between Wockhardt and Bayer follows similar arrangements between several domestic companies, prominent among them being Ranbaxy Laboratories, Cipla, Hoechst Marion Roussel, Glaxo India and Nicholas Piramal India.

On the BSE today, the Wockhardt scrip finished higher on the announcement of the co-marketing pact with Bayer AG. Opening at Rs 428, it rose to an high of Rs 449 before finishing slightly weaker at Rs 441.50.

   

 
 
MAHINDRA-BT UNVEILS PLAN TO GO PUBLIC 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec 13: 
Mahindra & Mahindra Ltd (M&M), the multi-utility vehicles and tractor maker which has considerable exposure in the new economy business, today unravelled plans to unlock a part of its equity in its lead infotech subsidiary, Mahindra British Telecom (MBT) through an initial public offering (IPO).

The IPO will comprise a primary issue of 53,18,633 equity shares of the face value of Rs 2 each through the book-building route. It will also involve a divestment of a total of 63,82,267 equity shares by the two existing shareholders of Mahindra-British Telecom Ltd, Mahindra Information Technology Services Ltd (MITS) and British Telecommunications Plc, of face value of Rs 2 each by way of an offer for sale.

As a part of the offer for sale, 10,63,700 equity shares are proposed to be reserved for allocation to eligible shareholders of M&M Ltd in terms of the scheme outlined in the draft offer document, M&M told the stock exchanges today. The draft offer document will be submitted to the Securities and Exchange Board of India (Sebi) shortly for its observations and approval, the company added.

The decision to list the subsidiary on the bourses puts an end to speculation surrounding the event for over a year now. Market circles aver that the M&M stock is in for an appreciation in the near-term following the announcement.

“The M&M stock has been beaten down considerably in the recent past due to a downturn in the automobile industry. However, unlocking of the value of MBT is bound to push up the stock,” said a BSE broker.

MBT is a joint venture between M&M and British Telecom. It has full-fledged software development centres at Mumbai and Pune and at London in the UK. MBT’s clientele includes companies like British Telecom and MCI Worldcom. However, it has been reducing dependence on British Telecom since the recent past.

The company is engaged in the business of telecommunication software, besides software engineering, e-business and the internet. MBT has a subsidiary in the USA — MBT International Inc (MBT) and marketing offices in the UK, USA, Australia, Oman and India.

Recently, MBT announced that British Telecom had committed a minimum assured business of Rs 725 crore ($ 158 million), spread over the next three years. In consideration of this substantial increase in business, MBT allotted 5.05 million shares of par value of Rs 2 each to BT, thereby increasing its stake in the joint venture to 43 per cent from 40 per cent.

The two companies had also signed an agreement under which BT has guaranteed business worth at least £ 35 million each year beginning from the current fiscal and extending up to March, 2003. This represents an increase of 36 per cent over the business of £ 63.15 million British Telecom placed with MBT during the last three years.

   

 
 
PROTEST AGAINST CHINESE DUMPING: MYTH & REALITY 
 
 
FROM R. SASANKAN
 
New Delhi, Dec 13: 
Who is afraid of Chinese consumer goods? Certainly not the vast majority of Indian consumers for whom these goods are affordable.

The Indian small scale sector which manufactures similar goods in the country has not so far raised a hue and cry. The simmering revolt against Chinese goods is being inspired by large industries, including few multinationals, which have been operating in areas reserved for the small scale sector.

In 1972, when the government reserved certain manufacturing areas for the small scale sector, the large units already in those areas were given carryon licences though new entrants were banned. These “monopolists” see a threat in Chinese foray, say official sources.

The government is not at all surprised that Chinese goods are entering the Indian market. In fact, it was expecting this to happen. The very idea behind trade liberalisation was that the Indian consumer should benefit by it. The majority of Indian consumers is price sensitive and not very quality conscious. China is aiming at this section and not the creamy layer who would prefer to have goods from either Europe or the US.

China is in fact the first mover. Indian manufacturers will face threat from other developing countries like Thailand, Taiwan, Malaysia, Sri Lanka and Bangladesh as well. The authors of trade liberalisation anticipated this. Chinese goods have so far entered only large cities and not semi urban or rural areas. Chinese companies have the advantage of economy of scale.

For instance, television output of Videocon, the largest domestic TV maker, is less than the sixth largest TV maker in China whose entire production comes from one unit whereas Videocon’s production centres are located in as many as 14 places, mainly to take advantage of the tax holiday benefits.

The Confederation of Indian Industry (CII) has been talking about the threat from developing countries for quite some time now.

But it failed to come out with a strategy to counter the threat. Its prescription invariably is higher tariff protection which goes against the very idea of a liberalised economy. Indian manufacturing sector suffers from multiplicity of taxes, cascading in nature whereas imported goods is taxed only once at the entry point.

In other developing countries the tax system is not so complicated and exporters are reimbursed the entire tax. In India, the reimbursement mechanism is shoddy.

   

 
 
BANKS TO SET CAPS ON LOANS VERSUS SHARES 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Dec 13: 
The Reserve Bank of India has directed banks to set their individual overall ceiling on advances against shares.

The ceiling relates to financing to enable subscription to initial public offers (IPOs). It will cover advances to individuals, stockbrokers and market makers, issue of guarantees on behalf of brokers to the issue, and advances to corporates to put up the promoters’ contribution to the issue.

However, THE RBI has said advances against collateral security of shares and advances to individuals for personal purposes like education, housing, consumption against the security of shares will be excluded for reckoning the bank’s aggregate exposure by way of financing of equities.

RBI has said the maximum amount of finance that can be provided to an individual for investment in IPOs should be Rs 10 lakh.

Banks are free to determine the margin to be maintained for the issue of guarantees on behalf of stock brokers. It has now been decided that a minimum margin of 25 per cent, inclusive of cash margin, should be obtained by banks for issue of guarantees on behalf of brokers. Banks may, at their discretion, extract a margin higher than 25 per cent as per policy approved by their board of directors.

Loans sanctioned to corporates against the security of shares to meet promoters’ contribution to the equity of new companies would be within the limit of 5 per cent of the domestic credit of the previous year earmarked for investment in capital markets.

A senior RBI official said the central bank has already directed banks to limit their exposure to the capital market by way of investments in shares, convertible debentures and units of mutual funds through primary or secondary markets to 5 per cent of the bank’s total outstanding domestic credit in the previous year.

Within that overall ceiling, the Reserve Bank has now decided to set a sectoral cap on advances against shares.

“This is basically being done to make the accounts of the banks more transparent. It is also being done to monitor that banks do not unnecessarily invest in IPOs which may at a later date give low returns,” said a senior RBI official.

The central bank has also come out with a set of guidelines for banks that want to invest in shares.

The banks should build up expertise in equity research by establishing a dedicated department as warranted by their scale of operation. They should also formulate a transparent policy and procedures for investment in shares.

The investment committee within the bank will be accountable for all commercial decisions relating to equity investments by the bank.

A senior official said the RBI-Sebi committee in its report has observed that internationally, advances against shares are also treated as lending to ‘sensitive sector’ on account of the volatility in prices.

The committee has further observed that most of the banks have not laid down, as part of their lending policy, any prudential norm on maximum exposure to the capital market, market, including investments as well as advances against shares.

“Based on the committee’s observations, RBI has come out with the direction that banks should fix ceiling on advances against shares,” the official added.

   

 
 
CENTRE SETS STIFF TERMS FOR STATES BUYING POWER 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Dec 13: 
States, which will purchase power from mega projects having counter-guarantees, will have to do away with cross-subsidies meant for several consumer segments in order to ensure proper returns.

The central government has already taken an in-principle decision on the matter and has communicated it to all the state governments.

Sources said the Prime Minister’s office had dealt with the subject in a meeting with the Union finance and power ministries on October 23.

The meeting was convened to arrive at a consensus on the tricky issue of providing counter-guarantee to three mega power projects—Hirma (3960 MW), Pipavav (2000 MW) and Ennore (1800 MW).

“The guarantee will mean accepting an additional contingent liability of Rs 30,000 crore which will be spread over a period of around 12 years. Automatically, the sovereign rating of the country will be under pressure,” sources said.

Hence, it was felt necessary to ensure the payment from the user states, most of which do not have financially strong electricity boards, they added.

The states, which will not stop cross-subsidies, will have to work out the payment criteria with the Union finance ministry, sources added.

In order to tighten the payment terms between the project management and the user states, the government has also decided to incorporate a stringent clause in the power purchase agreement. The clause will make it mandatory for the states to have a lower supply cost vis-a-vis the procurement cost of power.

This means, they said, the operational efficiency of the state electricity boards has to be revamped drastically along with a logical tariff propositions.

Both the clauses will be parts of the Mega Power Policy of 1999 under which large inter-state power projects would be set up at pit head locations. Power generated from these projects would be sold to states through the Power Trading Corporation, which was set up recently as a joint venture between the Power Grid Corporation and several other allied agencies.

According to the policy, PTC will buy power from the mega projects and sell it to the user states.

The Hirma project is being promoted by the Southern Energy Asia Pacific and Reliance group. The meeting of tariff negotiations were initiated on March 25 and about 40 major issues in the power purchase agreement have been resolved.

The Pipavav project, which is coming up through bid process, is in the process of preparing the tariff propositions.

The Ennore project, promoted by the Tamil Nadu government is, however, offering an attractive tariff and the PTC is currently mediating between the project management and the potential buyers.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 46.76	HK $1	Rs. 5.90*
UK £1	Rs. 67.61	SW Fr 1	Rs. 26.85*
Euro	Rs. 40.99	Sing $1	Rs. 26.55*
Yen 100	Rs. 41.60	Aus $1	Rs. 25.00*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta		 	Bombay

Gold Std (10gm)	Rs. 4580	Gold Std(10 gm)	Rs.4535
Gold 22 carat	Rs. 4325	Gold 22 carat	Rs.4195
Silver bar (Kg)	Rs. 7750	Silver (Kg)	Rs.7835
Silver portion	Rs. 7850	Silver portion	Rs.7840

Stock Indices

Sensex		4284.98		+65.50
BSE-100		2259.46		+34.57
S&P CNX Nifty	1354.30		+20.95
Calcutta	121.44		+1.51
Skindia GDR	701.86		-0.74
   
 

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