Deepak Parekh not in favour of US-64 split
Moody’s downgrade looms over IFCI
Icra blow
Knotty issues in licence award to Reliance
Bank of Baroda net up 20% in first quarter
ONGC recast in the pipeline
Philips to buy Crompton, CDC stakes in CG Glass
Blue Velocity from IBM for Net firms
Fresh coat of paint for ICI marketing channels
Foreign Exchange, Bullion, Stock Indices

Calcutta, July 26: 
Unit Trust of India (UTI) chief M Damodaran and Deepak Parekh, the man who first suggested ways to repair US-64 three years ago, have different prescriptions for breathing life into a scheme that has shaken the country’s largest mutual fund and ambushed investors.

Damodaran, who now faces the daunting task of turning around US-64 after it tanked for the second time, wants the UTI flagship split into equity and debt components. He also favours a halt in sales so that the scheme can be pruned to size.

Parekh disagrees with most of these ideas, saying they will not address the real problem. “This will not help because there are sharp imbalances in the portfolio and breaking it up will leave the two parts heavily skewed,” he added.

Around 70 per cent of the US-64’s assets have been invested in equity, while the rest is parked in debt instruments and illiquid assets. Parekh had recommended earlier that investments in stocks should be brought down to 40 per cent.

He now suggests that the borrowings of US-64 from other UTI schemes should be returned immediately so that the problem remains confined to one investment pool. “US-64 has to be isolated by returning its borrowings from other schemes. Otherwise, the mess will spill over,” Parekh added.

UTI, he said, should build a Chinese Wall separating the management of US-64 and other schemes. “There should no information flows between fund managers, who should work independently.”

On the recovery of US-64, Parekh said UTI will have to wait for the stock markets to look up. “If the markets do not revive, the government may have to infuse funds, in addition to bank loans, to rejuvenate the scheme,” he added.

Parekh, in the city to attend ICI’s annual general meeting as a non-executive director, supported UTI’s decision to open an exit route for small investors. “Offering an assured return in the form of a repurchase price which appreciates 10 paise every month should check panic and stem the tide of redemptions,” Parekh said. He felt linking the scheme to its net asset value from January would also help it bounce back.

Asked about the cause of the crisis at the Trust, he said much of the woes were inflicted by the rout of new-economy shares.


Mumbai, July 26: 
Moody’s Investors Service has announced that it is putting the ‘BA2’ issuer rating of the beleaguered Industrial Finance Corporation of India (IFCI) on review for a possible downgrade.

The rating was put on review on concerns that a liquidity squeeze, which is holding up payment of local currency obligations, may spill over and lead to delays in the servicing of the institution’s foreign currency obligations.

Moody’s further said IFCI’s liquidity crunch and subsequent payment problems arose when some of the institution’s traditional lenders decided not to reinvest in its bonds, and also as a result of its poor cash flow, which is a consequence of its weak financial situation.

It added that in the absence of capital support from the government and the Reserve Bank of India (RBI), the Delhi-based financial institution’s liquidity is likely to remain under stress and it could also have trouble in servicing other payment obligations this fiscal.

However, it said though the country’s financial authorities are likely to respond positively if IFCI needs assistance to service its foreign currency liabilities, there are “question marks” if such support will come at the right time.

“Moody’s view on the availability of support has been a major factor in pulling up IFCI’s issuer rating to the BA2 country ceiling for foreign currency debt in India.”

The international rating agency noted that that during the review period it will examine IFCI’s capacity to generate sufficient funds to service its obligations and manage its liquidity and will also reassess the likelihood of support for FIs from the RBI and the government, as well as whether such support is expected to come at the right time.

Meanwhile, IFCI has decided to exercise a call option on a portion of bonds worth Rs 708 crore that were privately placed in 1996. While Rs 295 crore is due for redemption in the current fiscal, the institution has decided to buy back over Rs 410 crore. This is part of the institution’s plan to replace its high-cost borrowings with low-cost ones.

Reports indicate that IFCI is now looking towards other institutions and banks, including the Industrial Development Bank of India (IDBI), for raising nearly Rs 210 crore.


New Delhi, July 26: 
The Investment Information and Credit Rating Agency (Icra) today put IFCI Ltd on a rating watch with negative implications. The move comes close on the heels of reports that IFCI would be seeking loans to meet its redemptions. The rating watch will cover the long, medium and short-term ratings assigned to the borrowing programmes of the troubled financial institution.

The rating action by Icra, in which IFCI is also a stakeholder, takes into account liquidity pressure being faced by IFCI due to bunching of repayments, the rating agency said in a statement issued here.


New Delhi, July 26: 
The telecom ministry seems to be embroiled in another major controversy over its decision to award the licences to 16 basic telecom circles to Reliance despite a Chennai high court stay on the process. Apparently telecom secretary Shyamal Ghosh did not seek the opinion of the Attorney General on whether the government could go ahead with the award of the licences. Instead it chose to rely on a letter from V.T. Gopalan, the government’s Chennai-based Additional Solicitor General.

Without committing himself on what the government should do, Gopalan in a letter dated July 6, told Ghosh that “In as much as the order of the status quo (on basic services licences) can be construed to be restricted only to the territorial jurisdiction of Madras high court, the question of granting licences pursuant to the letters of indent in other states is entirely for the department to consider.”

The Chennai high court had ordered a stay on the process after a public interest litigation which barred the government from issuing any basic service licences. This was seen by many as a last ditch attempt by cellular operators to stop cheaper WiLL (wireless in local loop ) mobile phones from being introduced.

The detractors of the decision say whatever the merits of the PIL, the government’s move to ignore a high court order and award the licences in a hurry undermines the canons of probity.

Congress party leader Priya Ranjan Das Munshi and a few other legislators have decided to raise the issue in a big way. Das Munshi says he suspects foul play and has written a letter to communications minister Ram Vilas Paswan asking why the government took the decision just two days before the start of the monsoon session of Parliament. “They took the decision on the night of 20th July without the Attorney General’s approval...this does look foul,” the Congress leader from West Bengal said. “I will certainly raise this issue in the house in a big way if we can’t get satisfactory answers,” he added.

According to other legal experts, it is wrong to imagine that the territorial jurisdiction of the Chennai high court is limited to just Tamil Nadu.

Besides getting the right to launch basic and WiLL phones in Delhi, Maharashtra, Uttar Pradesh, Andhra Pradesh, Karnataka, Kerala, Rajasthan, Haryana, Himachal and Punjab, Reliance has also bagged earlier this year the sole rights, apart from BSNL, to operate an STD network of its own.


July 26: 
Bank of Baroda (BoB) has reported a 20.31 per cent growth in net profit at Rs 182.61 crore in the first quarter of this fiscal as against Rs 151.78 crore during the same period last fiscal.

“The bank posted a higher net profit even after providing Rs 43.75 crore towards VRS expenses and an additional Rs 50 crore for NPAs,” a BoB official said.

The bank’s operating profit was up by 28.69 per cent to Rs 362.61 crore in the reporting quarter from Rs 281.78 crore last year.

BoB’s income grew by about 8 per cent to Rs 1,677 crore during this period from Rs 1,554 crore in the last fiscal. The bank posted a deposit growth of 7 per cent to Rs 55,145 crore during the quarter from Rs 51,450 crore last year.

VST net rises 35%

VST Industries Ltd has posted a 35.12 per cent increase in net profit at Rs 7.04 crore for the first quarter ended June 30 compared with Rs 5.21 crore in the same period last year. Net sales for the reporting quarter stood at Rs 72.45 crore as against Rs 61.31 crore for the corresponding previous quarter, VST informed the Bombay Stock Exchange here today.

Century net zooms

Century Textiles and Industries Ltd, the B.K. Birla flagship, has posted a hefty 84 per cent rise in net profit at Rs 12.27 crore for the first quarter as against Rs 6.68 crore in the same period last year.

Net sales of the company shot up to Rs 621.97 crore from Rs 557.11 crore last year, while other income declined to Rs 12.65 crore (Rs 14.12 crore).

Tata Chem recovers

Tata Chemicals Ltd has posted a net profit of Rs 16.9 crore in the first quarter ended June 30 compared with a net loss of Rs 3.76 crore in the same period last year.

Net sales, however, declined by 10.75 per cent to Rs 291.42 crore as against Rs 326.55 crore in the same period last year.

SKF net rises 54%

SKF Bearings Ltd has recorded a 54.28 per cent rise in net profit at Rs 5.4 crore for the second quarter ended June 30 compared with Rs 3.5 crore in same period last year. Net income, however, declined by 2.81 per cent to Rs 86.4 crore in April-June compared with Rs 88.9 crore in the same period last year.


New Delhi, July 26: 
If chairman Subir Raha has his way, Oil and Natural Gas Corporation (ONGC) will be restructured shortly on the lines recommended by McKinsey.

Senior executives of the corporation have begun a three-day brainstorming session here to finalise the blueprint for the restructuring.

Bikas Chandra Bora, the previous chairman, had attempted a restructuring and the issue was discussed at various levels. His attempts met with resistance not only from the trade union leaders but also from some of the directors. Since he did not have sufficient time to push ahead with the plan, he left it to his successor to act on the McKinsey report.

What the international consultant has recommended is nothing but a restoration of the structure that prevailed earlier. Under the previous organisational structure, the heavyweights were member (offshore) and member (onshore). These two members practically controlled the entire operations. The member (offshore) was responsible for survey, drilling and production in offshore areas. His counterpart for onshore had similar functions.

In the early eighties, Col S.P. Wahi, the then chairman, changed the structure which bestowed more powers on the chief executive. With exploration, drilling and production coming under different functional heads, each member began blaming the other for target shortfalls.

The new structure recommended by McKinsey may take care of the lack of coordination among the functional heads, designated as directors after ONGC became a corporation. Under the new scheme, there may not be a director exclusively for drilling. The post may be converted into director (technology). The present post of director (technical) may be abolished with the present director becoming either director (offshore) or onshore, most likely the latter. The post of director (exploration) will continue in the present form.

Oil industry circles agree that the proposed structure may bring about better operational efficiency. But the basic problem facing ONGC is the low morale of the workers. In an upstream company, workers need to be motivated and the quality of the leadership matters a lot. This lack of motivation is reflected in the declining success ratio. The union leaders of ONGC are not known to be militant and they have invariably cooperated with the management.

In the present case, the unions have certain genuine fears which will have to be addressed. The bifurcation of the operations into offshore and onshore can block the promotional avenues of the staff. Raha will have to find a solution to this if his plan is to be endorsed by the unions.


Mumbai, July 26: 
In a move aimed at consolidating its presence in the country, Royal Philips Electronics NV today announced plans to acquire a 46.8 per cent stake in CG Glass Ltd.

It will acquire the 46.8 per cent stake in the company promoted by Crompton Greaves Ltd and CDC Group Plc for Rs 13.75 per share. Crompton Greaves and CDC Group Plc hold 28.8 per cent and 18 per cent respectively in CG Glass.

Simultaneously, Royal Philips declared it will also make an open offer to acquire the balance of the outstanding shares of CG Glass at the same price. If the open offer is successful, Philips will seek a delisting of CG Glass.

The news brought the dormant CG Glass counter alive on the Bombay Stock Exchange (BSE) today, as the scrip polevaulted from Rs 9 to Rs 11.25, with very few trades reported today.

The open offer price is a 52.8 per cent premium over the scrip’s yesterday’s closing price on the BSE and a 77 per cent premium to the six-months average price, it added. The offer will open on August 28 and close September 26, with DSP Merrill Lynch Ltd as the financial advisor, which had earlier lead-managed open offers for group companies Punjab Anand Lamps and Philips India Ltd.

CG Glass produces glass shells, tubular sheets and glass tubings and sells a substantial portion of its output to Philips India’s lighting division. Philips India procures almost 25 per cent of the target company’s production for its in-house needs.

Commenting on the acquisition, K Ramachandran, managing director, Philips India said: “This acquisition demonstrates our commitment both to India and to our lighting business. We see this acquisition as a strategic fit with the plans of the lighting business,” he added.

Philips India senior vice-president, lighting division, S. Venkatramani said: “The acquisition of CG facilitates our backward integration and enables the lighting business to take advantage of efficiencies in the supply-chain. We will have sufficient capacity in place to enhance customer focus and improve our market position.”


New Delhi, July 26: 
IBM today launched “Blue Velocity” — a package of solutions and cash designed to help new-generation companies that have internet-related operations at the core of their business to hit the profit trail. It has roped in Chrysalis as its partner, which will provide venture capital funds to these companies.

Sunil Raghavan, country manager of IBM’s NetGen business, said IBM was trying to persuade other venture capital companies to join the Blue Velocity initiative. Under the Blue Velocity programme, IBM will be launching its flagship program, ASP Prime in India, which will provide education, application evaluation, technical support and consulting services to help developers and independent software vendors enable their applications for web hosting.

With the launch of the Blue velocity, IBM is also introducing new offerings, among which are the ISP Solution pack, IBM eServer solutions, Websphere everyplace Access and IBM small business suite. “IBM has a stake, along with the VC, to help these net gen companies speed up their profitability. For both the VC and IBM, revenue generation will be from the profitability of these companies,” said Sanjay Sharma, offering Manager Net generation business, IBM Asia Pacific.

He however refused say how much the VC and IBM would invest in the Blue Velocity initiative.


Calcutta, July 26: 
ICI India plans to boost sales by improving marketing channels and giving its flagship brand, Dulux, a new identity, following which the company may look for growth opportunities through acquisitions and mergers.

“At present, we are investing heavily in rebuilding our key brand Dulux, and revamping our marketing channels. Investments are also being made in setting up an information technology network to support marketing. After this, we may look for inorganic growth opportunities if we require more market space or capacity,” ICI managing director Aditya Narayan said after the company’s AGM today.

ICI is not likely to be short of funds if it adopts the acquisitions route for growth. “Divestment of non-core businesses will generate Rs 200-300 crore over the next three years, which we can leverage to borrow at least a matching amount. Though financing it will not be a problem for us, finding the right match may well be.”

ICI is positioning Dulux as an ‘aspiration brand’ for discerning consumers, not for the mass market, Narayan said. “We have decided to focus on a niche segment as our selling proposition is advanced technology and high quality,” he added. The company is also divesting its non-core businesses and idle assets.

Meanwhile, the company reported a total income of Rs 180 crore in the first quarter. Profit after tax stood at Rs 4.7 crore, 66 per cent lower than the previous corresponding period.



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