State-secured loans turn into dud assets at IFCI
Cement makers on a roll
Honda plan to import finished bikes stalled
Matiz plant on GM buy list

Calcutta, Sept. 2: 
Industrial Finance Corporation of India (IFCI), teetering on the brink until a Rs 1,000-crore rescue raft was thrown at it by the Centre and shareholders, is groaning under Rs 2,000 crore worth of sticky loans guaranteed by state governments.

The institution’s mass of sub-standard and doubtful assets was Rs 3,937.05 crore on March 31; its gross non-performing assets (NPAs) were pegged at Rs 6,000 crore. It has lent Rs 1,824.47 crore to the textiles industry and Rs 397.28 crore to sugar companies in the co-operative sector. Around 92 per cent of these advances, guaranteed by state governments, have now turned into dud assets or NPAs.

Of the Rs 2,737.01 crore shovelled into the two industries, Rs 116.22 crore has been invested in the equity of textile firms and Rs 19.18 crore in sugar companies. In addition, the institution has subscribed to their debentures.

IFCI’s exposure to textiles is the second highest, after iron and steel, at 11.38 per cent of its total loan portfolio. It has lent relatively less to the sugar sector, a little over 2 per cent.

It has decided to scale down the proportion of project finance to 50-60 per cent of its total assets compared with 94 per cent at present. IFCI plans to prune bad loans or NPAs by Rs 500 crore annually over the next three years, intends to branch out into short-term products and start offering fee-based services. These are based on the recommendations of the committee headed by Dipankar Basu — former chairman of the State Bank of India — which reviewed IFCI’s role and presented its report in December last year.

The fact that the FI is predominantly a single-product company with high stakes in long-term finance in high-risk grassroots projects — 90 per cent of all loans — is at the root of its problems, IFCI chairman and managing director P. V. Narasimham conceded.

Meanwhile, the Unit Trust of India (UTI) is unlikely to contribute to the IFCI bailout fund. While the government will inject Rs 400 crore, IFCI’s institutional shareholders — Industrial Development Bank of India (IDBI), Life Insurance Corporation (LIC), General Insurance Corporation (GIC), State Bank of India (SBI) and UTI among others — are expected to contribute Rs 600 crore to the crisis kitty.

“Given our own state of affairs, it will not be possible for us to help rescue IFCI, even though we hold close to 4.5 per cent in the institution,” UTI executive director Brij Gopal Daga said. IDBI is IFCI’s largest shareholder with 31.71 per cent, SBI and its subsidiaries hold a little over 2 per cent, other nationalised banks together hold 7.14 per cent, while the two insurance companies control about 17.5 per cent.


Mumbai, Sept. 2: 
Cement manufacturers, having reaped the gains of production cuts in the past, are now counting on good monsoons and the Gujarat construction blitz to fuel future growth.

They see prices rising 8 per cent and demand, at least, by 7 per cent year-on-year as sufficient rains lead to rich harvests and encourage house building.

Riding the crest of the demand surge, analysts see industry’s capacity rising to 83 per cent from 70 per cent at present. Much of the buying is expected in election-bound Uttar Pradesh, the quake-ravaged Gujarat, Punjab and Madhya Pradesh.

“Uttar Pradesh may witness an increase in demand in view of the elections to be held next year. The run up to the elections could see many projects being launched, which could benefit cement manufacturers. Gujarat too could witness good demand due to the reconstruction work following the earthquake,” Satyam Agarwal, an analyst at Khandwala Securities explained.

“In the second half of this year, the demand could also rise by over 7 per cent, thus leaving the industry with an overall growth of over 4 per cent for the entire year,” another analyst pointed out.

A senior official from Gujarat Ambuja Cements Ltd (GACL) added the company was of the view that demand could rise between 95-100 million tonnes in the current year.

A positive trend witnessed even during the monsoon, considered a lean season, is that manufacturers were able to sustain prices, even after offering discounts in the range of Rs 5-10 per bag at the retail level.

This has been attributed to the supply control measures initiated by the industry since November last year.

Analysts here added that the success of the measures to control supply volumes introduced in the previous year could be seen from the fact that prices in the current quarter are around 20 per cent higher than those during the same period of the previous financial year.

While average cement prices during the monsoon season were put at around Rs 158 per bag, they have crossed Rs 160 per bag in some cases following the withdrawal of discounts.

It is now felt they could rise by another 8 per cent from this level. However, industry circles are not enthused about the prospects of the southern region during the current year.

The region has been a witness to capacity expansions by players like ACC (at their Wadi plant), Madras Cement and Larsen & Toubro.

“Secondly, elections in some states are over and we do not expect any major demand growth,” sources said.

Despite the optimism, a section of analysts note that supply of the commodity could still rise due to the huge existing capacities. This, they feel, could constrict the manufacturers’ ability in raising prices beyond a certain point.


New Delhi, Sept. 2: 
The government has put on hold Honda Motorcycle and Scooters India’s proposal to import completely built units (CBUs) of two wheelers, for sale in the country.

The proposal was taken up for consideration by the Foreign Investment Promotion Board (FIPB) at its meeting on August 2, after it received the approval from the department of heavy industries.

However, the commerce ministry deferred the proposal by a week and has subsequently put it on hold for an indefinite period.

Honda Motor of Japan, the world’s largest motorcycle maker, which has a 26 per cent stake in Hero Honda, a joint venture with the Munjals, got the nod to set up a wholly-owned scooter venture in the country two years back.

CBU imports of vehicles are allowed on a case-to-case basis and usually carry a stiff customs duty.

In its application, HMSI had sought permission on the grounds that it would not be economically viable for it to start indigenous production of certain new models that it planned to introduce in the local market. HMSI had said the proposed activity would primarily be in the nature of wholesale trading clubbed with product guarantees and after-sales service. It had also stated that all CBU imports would be sold only through the established dealer network of HMSI, which effectively means that it would not undertake any retail trading of the vehicles thus imported.

HMSI president and CEO Haruo Takiguchi told The Telegraph that the company would go ahead with its plans to launch one new model in India every year and wait for the proposal to wind its way through the labyrinth of the decision-making structure.

“We will not follow up the proposal but let the government take its own time to clear it. We do not have concrete plans for imports — in the sense that we have not yet decided on the models that we wanted to import — so we are not in a hurry to get the clearance. This will not hamper our production plans in India. The next new model will be launched in due time,” Takiguchi said.

HMSI, which has set up a specialised manufacturing base in Gurgaon for scooter and component parts with a 50-200 cc capacity, has already launched its first product in the market, the Honda Activa, which is a 4-stroke 100 cc scooter.

The HMSI move, market experts said, had been necessitated due to the several scooter and bike launches in the past few months, almost coinciding with the launch of the Activa. While Bajaj Auto has already made a soft launch of the 112cc Legend NXT, Kinetic Engineering has launched its Zoom Zx in the same category.

In fact, some companies have also announced their intentions of moving into the higher capacity segment in order to woo more customers.


New Delhi, Sept. 2: 
The US auto giant General Motors will buy the manufacturing units Daewoo owns in India among a host of other facilities spread across the globe.

The main unit at Pupyong is not the on the list of assets that GM wants to acquire, but it has agreed to snap up the five Daewoo factories in Changwan, Kanswan, Egypt, Vietnam and India — the places where the Korean chaebol rolls out Matiz, its popular small-car model.

“GM wants in its portfolio a car which has high sale volumes. Luxury sedans are not the order of the day. That is why it does not want Pupyong, which manufactures Lengaza, a luxury machine. Daewoo has long-term plans for markets like India and China. GM wants to be a part of it,” officials from Daewoo India said.

Y.T. Cho, managing director and the chief executive officer (CEO) who oversees the Indian operations, is now in Korea on a whistle-stop tour aimed at removing sticking points in talks between the Korean government and officials of the US auto major. He is also scheduled to travel to Detroit, the GM headquarters. “Daewoo would like GM to be an umbrella company. We do not want sell out to them for a pittance. The bankruptcy we are going through is a passing phase, and we have already started making profits at our Korean plants. The Korean government also wants us to tread cautiously,” Cho’s Indian office said.

GM has already sent its final offer to the Korean finance ministry. It had submitted an initial proposal in May along with its partner, Fiat of Italy, to acquire Daewoo, but details of progress in talks have been sparse.

Korean deputy premier and finance minister Jin Nyum want to blunt the backlash over the sale of Daewoo to GM by retaining the Pupyong plant and ensuring that the trade-off does not fall short of expectations. The plant had been the scene of raucous protests in February by unionised workers upset with layoffs. While Korea had been rocked by the political impact of Daewoo selloff, its Indian unit has been buffeted by unrest over the retrenchment of 237 workers. Sources said the matter is still festering, and an August 25 deadline has been extended to September 15. All payments have to be cleared by September 30.


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