Bond binge after rate relief
Seven-horse race for top job at ONGC
Uco Bank waits for Rs 250-cr recap fund
Assocham seeks leaner government
Caltiger optic fibre project put on hold
Tata Industries in for long haul

 
 
BOND BINGE AFTER RATE RELIEF 
 
 
FROM VIVEK NAIR
 
Mumbai, March 4: 
The low-interest regime ushered in with the cut in the bank rate and small saving returns last week is likely to trigger a scramble by companies into the bond market.

Finance minister Yashwant Sinha’s budget set the ball rolling, and the Reserve Bank of India (RBI) followed up his initiatives with a cut in the rate at which it lends to commercial banks.

The twin signals have held out the prospect of money waiting to be scooped up by firms for whom the cost of funds could come down at least by 25 basis points.

There are estimates that Rs 800-1,000 crore could be soaked through a flurry of bond flotation in the space of a month. Market watchers say top-rated companies from the Tatas or the Reliance group will come out with their issues soon; smaller firms will troop in after the market has stabilised.

The effect of a 150 basis point reduction in small saving rates and the subsequent cut in the bank rate by 50 basis points has made the bond markets more attractive for companies which can now raise money at rates below 11 per cent.

“Now, an AAA-rated firm can float five-year bonds at 10.85 per cent against the 11.10 per cent just a month back,” says Sanjit Singh, senior debt analyst at ICICI Securities. “Companies are waiting for yields to stabilise. Once that happens, we could see many of them tapping the market,” he adds.

Sources say the cost of money could have been even lower for companies, had it not been for the turbulence witnessed in the debt markets after the Reserve Bank slashed the bank rate on Thursday. The wave of profit-booking which buffeted the government securities market in the past few days has distorted the rates at which firms can raise money.

This has happened because rates in the corporate bond market twitch in sync with the yields on government securities. That difference became wider last week, and has now gone up to around 125 basis points from around 110 basis points a few weeks back. “Before the profit booking, companies were in a position to raise five-year money at 10.55 per cent. But, it is now 10.85 per cent,” a bank analyst said.

The volatility is expected to peter out next month, when several companies hit the market with debt issues. “Starting April, we are likely to see a fair degree of movement in spreads, along with more corporate bonds on offer,” said N Balasubramanian, general manager of ICICI Ltd.

The effect of a low-rate regime is not limited to the corporate bond market. Yields on commercial paper (CP) — a short-term instrument floated by companies to raise working capital — tumbled 50 to 75 basis points. According to sources, a company with a P1+ rating (the top rating) can raise money at 9.5 per cent against 10 per cent a month back.

CP, an unsecured money market instrument, appears in the form of a promissory note. It is usually issued to, or held by, individuals and banks among others. Existing regulations limit CPs to firms which have a ‘tangible net worth’ of not less than Rs 4 crore and a working capital limit from banks of at least Rs 4 crore. More important, its loan account must be classified as a standard asset by the bank.

   

 
 
SEVEN-HORSE RACE FOR TOP JOB AT ONGC 
 
 
FROM R. SASANKAN
 
New Delhi, March 4: 
The Public Enterprises Selection Board (PESB) will hold interviews on March 7 to select the next chairman and managing director of Oil and Natural Gas Corporation (ONGC).

Candidates in the race are ONGC Videsh managing director Atul Chandra, IBP chairman and managing director Shiv Mathur, IOC director (personnel) Subir Raha, director general of hydrocarbons, Avinash Chandra. In addition, there are three ONGC directors — Inder Nath Chatterjee, R. C. Gourah and Jauri Lal.

The aggressive lobbying has been accompanied by speculation in the industry that one of the hopefuls is backed by a powerful industrial house.

Sources say petroleum minister Ram Naik has not shown a preference for any candidate, but has indicated that he would like to have a tough man at the helm of ONGC.

Front runners among the internal candidates are Atul Chandra and I.N. Chatterjee. R.C. Gourah (technical director), who had been trailing in the initial round, has made substantial headway in the last few days. However, all of them have to compete with Shiv Mathur, a formidable candidate outside ONGC.

Chandra’s strength is that that he is a reservoir engineer with experience in Bombay High. He has spearheaded the equity oil deals signed recently. Chatterjee is considered a strong finance man with a clean record. Gourah has a good track record in project implementation. Lal has been successfully handling the HRD aspects of the corporation.

Mathur is venerated by the oil industry circles for his competence. He was recommended for the post of CMD of HPCL four years ago, but the marketing wing of the company sabotaged it with the help of a Youth Congress leader, who was a company dealer. He was then sent to Madras Refineries to bail it out even as he headed IBP. He has a reputation of being tough not only with unions but also with his own directors.

However, if the industrial house has its way, a fear which grips most candidates, the outcome of the race will be different. The candidate reportedly being backed by it does not have enough field experience to head a corporation like ONGC.

If there are no problems in getting a vigilance clearance, the selection should take at least three months. The present chairman, Bikas Chandra Bora, is supposed to retire on April 16.

   

 
 
UCO BANK WAITS FOR RS 250-CR RECAP FUND 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, March 4: 
The Calcutta-based Uco Bank is still waiting for the much-needed recapitalisation fund though the bank has achieved the targets as outlined in the restructuring plan, according to V.P. Shetty, chairman and managing director of the bank.

The bank needs around Rs 250 crore for recapitalisation to maintain a capital adequacy ratio of 10 per cent.

“No meeting has taken place with the bankers and the finance ministry about the recapitalisation fund. We are eagerly waiting for the fund,” Shetty said.

Shetty said the bank has already started rationalising its administrative structure. “We have abolished 14 zonal offices and four regional offices have been merged,” he said.

The bank has already merged 38 of its unviable branches. “By the end of the current financial year we will be able to achieve a target of 45 branches. Our target is to merge 75 branches,” Shetty said.

On the recovery of non-performing assets (NPAs), the chairman said the bank had made a cash recovery of NPAs worth Rs 125 crore by December 31. “The gross NPA has come down by two per cent and the net NPA by one per cent,” he said.

The gross NPA of the bank as on March 31 last year stood at Rs 1,650 crore and net NPA little below Rs 700 crore.

According to the restructuring plan submitted to the government, the gross NPA of the bank is supposed to come down to Rs 1,352 crore by 2003 and net NPA to Rs 629 crore.

On the business growth of the bank, the chairman said the increase in deposits on a year-on-year basis has risen by Rs 3,000 crore by December 31. Similarly advances in the corresponding period has increased to Rs 3,000 crore. “We have been able to achieve Rs 30,000 crore business till December 31, 2000,” he said.

Shetty, however, refused to comment on the profitability of the bank at the end of the current financial year.

He had earlier said that the bank was hopeful to attain a net profit of Rs 79 crore by the end of 2000-2001. Out of Rs 79 crore, overseas operations is supposed to contribute Rs 40 crore.

Outlining the future growth plan of the bank, Shetty said the bank is working out an extensive growth plan. “We are targeting the mid-market segment. We will be more into retail products. We are also working on the new educational loan scheme announced in the Union Budget this year.”

The Uco Bank chairman feels that the budget is extremely positive. “It will give a tremendous boost to the economy,” he added.

   

 
 
ASSOCHAM SEEKS LEANER GOVERNMENT 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, March 4: 
An Associated Chambers of Commerce and Industry (Assocham) study has sought abolition of eight ministries to improve governance and reduce expenditure.

The chamber has urged building of an all- party and inter governmental consensus on reducing expenditure on administrative services, which has grown by 6.6 per cent annually since the early seventies, outstripping the annual average growth of GDP.

The ministries suggested for abolition by Assocham include civil aviation, coal, steel and mines, non-conventional energy, petroleum and natural gas, planning and programme implementation and rural development.

It suggested that ministries like coal can become a part of a larger ministry of energy, similarly civil aviation can be a part of transport and steel can come under the industry ministry.

   

 
 
CALTIGER OPTIC FIBRE PROJECT PUT ON HOLD 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, March 4: 
Caltiger.com, the largest private sector internet service provider in terms of subscriber base, has put on hold its plan for a Rs 500-crore optic fibre project.

The decision has been taken in view of the depressed capital market in the country, as well as a downturn on the Nasdaq.

The company had plans to raise $ 100 million through initial public offering (IPO) during the current financial year to part finance the project. As it was planned, 50 per cent of the fund was to be mobilised in the domestic market, while the rest would come from an overseas IPO.

Caltiger chairman, Joe Silva said: “However, there has been a sustained pressure in the capital market, particularly, on the dot com issues. Without a public issue, it is not possible to take on such an investment intensive project.”

The proposed issue would have diluted the promoters’ stake by around 23 per cent. Internet services will continue to be the mainstay for Caltiger which was recently valued at Rs 100 crore. The company plans to set up seven gateways in the next three to four months at an investment of Rs 12 crore.

Silva said the company is in talks with financial institutions to raise funds through a mix of debt and equity based instruments.

Caltiger, which claims to have a subscriber base of 4 lakh, has plans to venture out to 10 countries as internet solution provider. It, also, has plans to promote a subsidiary to foray into basic telephony. A senior official said the company has already assigned a team to work out the detailed model for this new venture. The company is also looking for a joint venture partner to fund the project and provide technology knowhow, he added.

The company, which set an ambitious profit target for the current fiscal at Rs 20 crore on a turnover of Rs 300 crore, suffered a loss of Rs 2 crore in the first half. It has scaled down the turnover to Rs 24 crore at the end of this fiscal.

   

 
 
TATA INDUSTRIES IN FOR LONG HAUL 
 
 
FROM SATISH JOHN
 
Mumbai, March 4: 
Followed by a dismal performance in 1999-2000, Tata Industries Ltd (TIL), holding company for the Tata group’s initiatives in the new economy sectors, has dug in its heels for a long haul as most of its businesses have a substantial gestation period.

Tata Teleservices, Tata Cellular, Tata Telecom, Concorde Motors and Information Technology Park and Tata Petrodyne have reported huge losses during 1999-2000. TIL, having a finger in pies as diverse as telecom services, auto dealerships, auto components, floriculture and sericulture, has seen most of its ventures report a dismal performance for the fiscal 2000.

Kishore Chaukar, managing director of TIL, exuded optimism that the companies will become profitable in the coming years. Citing an instance of how quickly perceptions can change in the industry, Chaukar said the value of their investment in Tata Teleservices, their basic telephony venture in the state of Andhra Pradesh, appreciated smartly after the Telecom Regulatory Authority of India allowed basic telephony services to operate limited mobility services.

Tata Teleservices is the first basic telephony venture to launch limited mobility service — Tata Mobitel — after the government allowed basic telephone services to offer wireless in local loop services. Tata Teleservices has kickstarted the service in Hyderabad and Vijayawada.

Tata Cellular, operating out of Andhra Pradesh circle has, recently, merged its operations with Birla AT&T which Birla AT&T operates in Maharashtra and Gujarat.

Barring a few, like Tata Finance, Hitech Drilling and Tata Honeywell, most of the ventures promoted by TIL have reported poor results for the year under review. However, it is argued by analysts that the companies promoted by TIL have a long gestation period.

Making a turnaround for the year under review are, Tata Autocomp, an unlisted company which in turn promotes other auto component companies. However, the sales of the auto components venture saw a steep decline of Rs 1.49 crore as against the previous year’s Rs 10.02 crore. Other income bailed the company out of the red by registering an income of Rs 4.59 crore as against Rs 1.27 crore during the fiscal under review.

Information Technology Park, promoted by TIL for the establishment, development and management of information technology in Bangalore, has reported a net loss of Rs 80.60 crore for the fiscal 2000 as against Rs 16.39 crore in the previous year.

Tata Cellular has reported a loss of 58.73 crore for the fiscal year 2000. It has substantially reduced its profits from 121.94 crore to Rs 58.73 crore for the year 1999-2000.

Tata Teleservices reported a Rs 198.68 crore loss for the fiscal year 2000, a steep rise from Rs 70 lakh reported for the fiscal year 1999. Its equity capital has also increased three-fold to Rs 423.70 crore as against Rs 101.50 crore in 1999. The two telecom services utilities are unlisted.

Meanwhile, during the previous fiscal the old guard among the Tata group had subscribed in a big way to the equity of TIL.

TIL, an unlisted company, is said to have an equity of around Rs 450 crore. Tata Sons holds around 30 per cent and Jardine Matheson holds 20 per cent of the equity. The rights issue was fully subscribed by the two. Telco, during the fiscal 1999-2000, acquired nearly 20.98 lakh equity shares of TIL with a face value of Rs 100 at par amounting to Rs 20.98 crore. It was followed by Tata Steel, which acquired 16.04 lakh shares amounting to Rs 16.04 crore. The Tata group firms participated in the subscription of fresh equity in TIL because many of the start-ups, that TIL has spawned, may over a period of time become relevant to their needs.

   
 

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