Investors renew trust in US-64
Bad loans, dud shares impair asset profile
Govt throws Rs 1,000 cr lifeline to IFCI
Hindalco net dips 8%
Pvt banks foxed by Global Soft
Moody’s to raise stake in Icra to 20%
Foreign Exchange, Bullion, Stock Indices

Aug 1: 
Only 3,810 of US-64’s two crore investors filed applications to redeem 56.39 lakh units in a clear indication that Unit Trust of India’s (UTI) flagship scheme still has a large following of loyalists ready to wait for a recovery.

In most of its 54 branch offices across the country, applications were fewer than 100, though it was greater in Calcutta, Mumbai and Delhi. Unit Trust officials said all centres drew fewer applications than they had expected. UTI officials said it will cost Rs 5.64 crore to redeem the units tendered for redemption, and it will take a week for the money to reach investors.

“The fact that so few sought to move out of the scheme brought great relief to us. We can now focus on its revival and add new ones to our portfolio,” UTI executive director Brij Gopal Daga said, adding applications for redemption of about 45 lakh US-64 units were received on this day last year.

Redemption pressure, even under normal circumstances, peaks at the beginning of a month, while sales are brisk at the end. Given the current controversy, the increase was negligible, Daga said.

UTI said it will soon launch a number of fresh schemes and add new features to some of its existing ones. Daga said an application will be made to the Securities and Exchange Board of India (Sebi) to introduce an open-ended monthly income plan (MIP), which will invest its corpus mainly in debt instruments.

By the end of the month, UTI will have new features to a number of its existing schemes such as the money market fund, bond fund and the G-Sec fund, to increase their appeal to investors.

“There appears to be a great opportunity in the debt market now, and we want investors to make the best of them. Hence, the thrust on debt-oriented schemes,” Daga said.

On the restructuring of US-64, Daga said, US-64’s borrowings from other UTI schemes will soon be returned, in line with the recommendations of HDFC chairman Deepak Parekh, who was the architect of its first reconstruction two years back.

Freeze defended

UTI defended its stand on suspending sales and repurchase of US-64 units and told the Mumbai high court that it had taken such a decision in view of the continuous fall in the sensex which eroded the scheme’s net asset value (NAV). In reply to a public interest litigation (PIL) challenging the decision, UTI’s general manager (legal) S C Dikshit filed an affidavit justifying the move. The PIL, filed by the president of the National Association of Small Investors (NASI) president Pradeep Bhavnani, was adjourned to August 10 to enable the petitioners file a rejoinder. The mutual fund major claimed the July 2 decision was perfectly legal and taken as a precautionary measure to enable the scheme improve and consolidate its position to prevent shareholders from suffering further losses.

The fund refuted allegations that when the decision to freeze sales and repurchases was taken on July 2, only trustees from the financial institutions were absent. On the contrary, the resolution was passed unanimously with valid quorum in accordance with rules and regulations, it contended. UTI said the decision was taken by a unanimous resolution at a board meeting, attended by six of the nine board members, who voted in favour of the resolution. Under UTI regulations, the requisite quorum for the board meeting was four, the affidavit pointed out.

The country’s largest mutual fund said there was absolutely no merit in the allegation levelled by the petitioner that the resignation of its former chairman P S Subramanyam was indicative of the correctness or otherwise of the decision to freeze sales and repurchases in its US-64 scheme, now partially reversed.

LIC warned

Life Insurance Corporation of India (LIC) is leaving itself vulnerable to risk if it lends funds to bail out UTI, HDFC Standard Life manag ing director Deepak Satwalekar said. Addressing an Assocham-organised seminar on insurance, he said such interventions do not augur well for the financial system. He did not rule out a UTI-type fiasco in the insurance sector if adequate and timely measures were not taken.


Mumbai, Aug 1: 
Unit Trust of India’s (UTI) is bedevilled by non-performing assets (NPAs) worth a whopping Rs 2671 crore in a portfolio of Rs 35,000 crore.

The figure excludes US-64, offshore funds, venture capital funds and the development reserve fund.

Steel companies, which have been scalded by a prolonged demand slump, accounted for the bulk of bad loans. Leading the pack was Essar Steel, whose debentures soured.

Figures released by the mutual fund major show that NPAs accounted for roughly 7.5 per cent of the total investments, excluding US-64 and a few select offshore funds.

UTI chairman M Damodaran, speaking to The Telegraph in an interview, refused to give the full figures, but emphasised the point that his institution was afflicted by the bad-loan malaise in much the same way as banks and the other financial institutions.

“We’ll give the numbers once we have looked at the complete set. At the moment though, it is clear that the problem not as acute as it is in the case of other FIs and banks”.

Figures obtained from independent sources show that the debentures of steel companies that UTI subscribed to have turned out to be the biggest drag on its assets. At the same time, there is one area where the Trust has been saved the blushes: it has illiquid and untraded shares worth only Rs 108 crore, of which Geekay Exim alone accounted for a staggering 10 per cent.

“We have non-performing assets. However, they are not frighteningly large, but can certainly be reduced. To achieve that goal, we have instituted a debt-recovery cell directly under the charge of a chief general manager and stepped up efforts to recover he sticky loans. In fact, we are more rigid than banks when it comes to treatment and classification of NPAs,” he added.

Trying to make a distinction with that of other financial institutions, he said most cases in UTI are about loans where the interest — and not the principal —has remained unpaid over a prolonged period of time.

Unlike banks that categorise an asset as a non-performing asset if it is not serviced for six months, UTI slots a loan as a non-performing asset within three months of non-payment of interest.


New Delhi, Aug 1: 
The Centre today approved a Rs 1,000 crore bailout package for the Industrial Finance Corporation of India (IFCI). At a meeting between finance minister Yashwant Sinha and top brass from the banks and financial institutions, it was decided the government will contribute Rs 400 crore by way of 20-year convertible bonds. IFCI will have a “call option” to repay the sum before the stipulated date.

The remaining Rs 600 crore will come from Industrial Development Bank of India, Life Insurance Corporation of India, General Insurance Corporation and State Bank of India — IFCI’s major shareholders.

“After detailed discussions, the government has approved an immediate infusion of Rs 400 crore in IFCI. This will be by way of convertible debentures with a 20-year maturity that will qualify for Tier-I capital,” U. K. Sinha, joint secretary in the finance ministry told reporters here.

“The other stakeholders will favourably consider the infusion of another Rs 600 crore on a pro-rata basis, depending on their shareholding pattern,” he said, adding, interest on the appropriate debt instrument through which the Rs 1,000 crore would be provided to IFCI will be decided at a later date. He said this would be at the “usual rate,” without specifying what that was.

“We hope with this fund infusion, IFCI will be able to turn around and contribute to the industrial development of the country,” Sinha said.

IFCI chairman P.V. Narasimham said of the total fund infusion, about Rs 720 crore would be set aside to raise the capital adequacy ratio of the FI to over 9 per cent from 6.2 per cent at present.

Meanwhile, worried by the UTI fiasco, the finance ministry today told financial institutions that it would be closely monitor its investments in corporate equities.

The ministry made it clear that they have to adhere to prudential guidelines as laid down by the Reserve Bank.

“Any decision which are not prudent will be looked into. The government will not go for ‘over-monitoring’ but certainly monitor them closely,” joint secretary (banking) U.K.Sinha, said. The move comes in the wake of severe cricitism in Parliament on the way the government has handled the UTI imbroglio.ministry’s divisions fulfil their monitoring roles.

UTI is accused of having bought dud shares and invested in high value shares whose prices were falling, resulting in huge losses to the Trust.


Mumbai, Aug 1: 
Hindalco Industries Ltd today declared disappointing results for the first quarter of the current fiscal, with profits dipping to Rs 161 crore, compared with Rs 176 crore in the previous comparable period, a drop of 8 per cent.

Hindalco pointed out the decline was largely on account of lower volumes and higher input costs. This was reflected in the company’s net sales, which declined to Rs 549 crore, as against Rs 565 crore in the previous corresponding period. Sales in volume terms stood at 60,335 tonnes as against 64,072 tonnes.

Reacting to the drop in profit, which stood much below expectations, the Hindalco scrip finished lower at Rs 739.30 after opening at Rs 751 and rising to an intra-day high of Rs 760.

However, addressing shareholders at the company’s annual general meeting, chairman Kumar Mangalam Birla said during the first quarter, the company’s realisations have increased by over 3 per cent and therefore lower net sales are not a cause of concern.


Calcutta, Aug 1: 
New-generation private sector banks which advanced stock loans to boost their credit offtake have found themselves saddled with dud shares pledged with them as collateral by brokers.

ICICI Bank and IndusInd Bank lent against the highly illiquid Global Software share, and in the process, piled up a huge stake in the company. The scrip was last traded on the Calcutta Stock Exchange (CSE) on March 8 at Rs 265, after peaking at Rs 271 on February 20.

ICICI Bank holds 23.57 per cent in the company, IndusInd bank 7.05 per cent, Global Trust Bank 3.78 per cent and the promoters a paltry 13.23 per cent. In absolute terms, ICICI bank holds 14.7 lakh shares, IndusInd Bank 4.4 lakh and Global Trust Bank 2.35 lakh.

ICICI Bank and IndusInd Bank officials say they accepted the shares as collaterals. While an ICICI Bank official refused to divulge the value of the stock when it was pledged, an IndusInd Bank executive said they had been accepted “at the ruling market price”.

According to the information obtained from CSE’s surveillance department, the price of the stock was manipulated by operators over a long period of time. “A number of circular trades have been identified, and few trades, including the last one on March 8, were expunged,” a top CSE official told The Telegraph. The IndusInd Bank official said Ashok Poddar, a CSE defaulter, had pledged the Global Software share with his bank when the value of his other collaterals plunged. He said he had to do so because he had no other scrips with him that could offset the erosion in value.

Normally, banks do not accept such illiquid stocks as collateral, and have a list of scrips which they do. Changes are often made to the list in line with market trends, but they usually shy away from infrequently traded shares like that of Global Software, senior bankers said.

Bankers and marketmen said the stock was rigged by operators to create an artificial value, which was encashed by them by pledging the shares with banks as collateral. These banks had issued bank guarantees to various brokers, including the 10 CSE defaulting members. When the exchange encashed the shares to cover its dues, ICICI Bank took the hardest knock. Even IndusInd Bank was scalded, though to a lesser degree.

Other key shareholders — Smiffs Securities, Utsav Parikh (one of Smiffs’ promoters), Anju Ajmal (sister of the other Smiff promoter, Ajay Kayan) — hold 10.74 lakh shares, or 17.22 per cent. Intertech International, a foreign company, controls a 14.40 per cent stake.


Calcutta, Aug 1: 
Moody’s Investors Services intends to increase its stake in Icra Ltd to 20 per cent.

The leading global rating agency, at present, holds 11.75 per cent in Icra.

At present, the two are discussing ways in which Moody’s can hike its stake in Icra. “Various options are being considered, but nothing has been finalised yet,” P. K. Choudhury, managing director of Icra said.

The other major shareholders in Icra are public and financial institutions which hold a 54.96 per cent stake, while banks hold another 33.24 per cent. IFCI is the majority shareholder in Icra with a 26 per cent stake.

Moody’s managing director David M Moniz said: “India is an emerging market and we are keen on increasing our holding in Icra.” However, he said no progress has so far been made on the proposed merger of Icra with CARE, another domestic rating agnecy floated by Industrial Development Bank of India.

Asked whether Moody’s was interested in acquiring a stake in other credit rating agencies in India, Moniz said, “We are open to the idea, but any such opportunity will be considered in the light of our present operations in association with Icra.”

Icra today launched a new product — corporate governance ratings (CGR) — for the Indian market. Moody’s, with its global experience of studying corporate governance practices in various markets, will provide Icra with insights into international trends and benchmarks of best governance practices.

The focus of Icra’s CGR will be on a company’s business practices and the quality of disclosure standards, with respect to its equitable treatment of, and fairness to, the interests of its financial stakeholders which include shareholders, lenders and creditors. Compliance with the regulatory requirements will only be one of the factors in Icra’s analysis, Choudhury said.

Moniz said the CGR will be worked out in association with the independent directors and auditors.

Better governance may also facilitate easier access to fresh capital and may have a favourable impact on cost capital, he added. Moody’s expects a transparent regulatory environment, better disclosure standards and quality governance practices will have a significant impact on foreign investment flows into the country.

CGR will be subject to continuous surveillance. If any company wants to discontinue with the rating, then it should issue a year’s notice, Choudhury said.

Icra’s CGR ratings would fall between CGR1, indicating highest level of corporate governance, to CGR6, indicating poor level of corporate governance.

Already, six big companies have evinced interest in Icra’s CGR. “We expect at least four will surely adopt the CGR,” Choudhury said.

Meanwhile, Moody’s said it will not change the outlook on India, despite the recessionary trends in the country.

Moniz said the long-term outlook for India continues to remain positive and there will be no change in the sovereign rating at the moment. The present Moody’s rating for India is BA2.



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