Hind Lever bonus to be peppered with debenture dollops
Decks cleared for marginal rate cut
Call for insurance war chest
Selloff buzz in tech parks
Rider to public sector VRS
Buddha buys FI logic on Haldia Petro debt recast
Tatas offload 6.7% in Forbes Gokak at Rs 80 a share
More Samsung units at Noida
Mid-term plan to boost exports
Foreign Exchange, Bullion, Stock Indices

 
 
HIND LEVER BONUS TO BE PEPPERED WITH DEBENTURE DOLLOPS 
 
 
FROM OUR CORRESONDENT
 
Mumbai, Oct. 9: 
In what could blaze a new trail in Corporate India’s stock manoeuvres, Hindustan Lever (HLL) today said it was working on a novel way to reward investors — issue debentures as bonus, instead of shares.

If approved by shareholders, regulators and courts, every one-rupee share will fetch a debenture worth Rs 6. It will cost Rs 1,320 crore to dole out the largesse, an amount the company says will be rustled up from its general reserves.

In a release sent to stock exchanges after the close of trading today, the company said the debentures would carry an interest rate of 9 per cent, to be paid annually. A board meeting, slated for October 16, will consider the plan, besides seeking shareholders’ consent to raise the cap on FII investments from 24 to 49 per cent.

This is the first time ever that an Indian company has devised a scheme that envisages turning a part of its cash reserves into a liability. What it essentially means is that shareholders will earn a 9 per cent interest on the principal invested by the company on their behalf.

That’s not the end of the bonanza though — the debentures, secured in all respects, would be redeemed at par in two equal instalments in the second and third years. The amount drawn from the reserves would, therefore, be Rs 1455 crore. After the dole-out to its four lakh shareholders — including parent Unilever, which holds 51 per cent — the kitty will shrink to around Rs 670 crore.

“The scheme aims to enhance the efficiency of the balance-sheet in the context of excess cash carried for several years, and is fair to all shareholders,” the release said.

While most investors would be pleased as punch at the debenture-linked bonus, some analysts are of the opinion that it could make acquisitions difficult. A flat topline growth in the past several quarters, many believe, can be boosted immensely with growth-inducing buyouts. The company quelled such fears, saying “this will not impair the ability to execute a large acquisition if and when such an opportunity arises”.

The country’s leading fast-moving consumer goods company has taken the line that it is best to return surplus funds back to shareholders. However, analysts said an equity buyback would have achieved the purpose. Only, Unilever would have had to stay out of the largesse.

The bonus debentures would be allotted in the ratio of one fully paid debenture of Rs 6 each for every equity share with a face-value of Re 1. The record date for the issue of these debentures will be decided by the board after the scheme is cleared by the Mumbai high court.

Lever says the scheme was being formulated under Sections 391 to 394 of the Companies Act. These provisions allow it to issue bonus debentures by drawing from the general reserves, which have been created through retained earnings and undistributed profits.

It has made it clear that the debentures would be considered “deemed dividend” under the provisions of the Income Tax Act, and therefore, dividend tax at the rate of 10.2 per cent would be paid from the general reserves. Also, the face-value of these debentures would represent the cost of investment to shareholders.

The company would ask the high court how to convene a meeting of shareholders to get their approval for going ahead with the scheme, and to restructure its general reserves. According to the release, chairman M. S. Banga will provide more details of on the plan immediately after the board meeting next week.

   

 
 
DECKS CLEARED FOR MARGINAL RATE CUT 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Oct. 9: 
Finance ministry officials want the Reserve Bank of India to slash interest rates by a quarter percentage point to stoke demand and investment in a flagging economy.

The minimal rate cut has also been suggested so that non-resident Indians (NRIs), who could scramble out of the country with their large stock of short-term deposits, do not feel alarmed. Of the country’s $ 45 billion foreign exchange reserves, nearly $ 15 billion are in the form of short term deposits by NRIs of up to a year’s time. These are as it is vulnerable to flight because of the US-Afghan war.

Ministry officials who held consultations with the RBI recently on the state of the economy said they would have liked to go in for a major cut of one percentage point or more in the bank rate, but “practical problems of retaining NRI deposits will force us to limit the hike to ideally a quarter percentage point. The final decision will of course lie with the RBI but they are likely to accept this position or at most go in for half a per cent cut.”

The RBI is expected to announce its new credit policy later this month and the RBI governor has already indicated that there will be a move to soften rates. The whole problem lies in the fact that NRIs keep money in Indian banks and even in rupee-denominated dollar accounts simply because these offer higher returns in dollar terms compared with European and US banks. “If rates are reduced there will be some outflow immediately,” officials said.

Foreign institutional investors are also expected to pull out large chunks of money they have invested in bourses here because of war risks.

Besides ministry officials point out too big a cut will also hit FDI flows which anyway has been reduced to a trickle. As those who invest in a country always factor in the opportunity cost, higher interest rates are considered attractive for foreign investors.

There is already a fear among the NRIs that India might freeze withdrawals from rupee-denominated accounts due to economic problems. The ministry wants to end these fears rather than heighten them, as such fears could lead to huge premature withdrawals.

”We are going in for a rate cut because investment is just not picking up. Non-food credit offtake during the quarter just ended has been negative,” they said.

Something which is alarming. We need to do something about this,” they said.

Chambers as well as the PM’s advisory council on trade and industry has also been clamouring for rate cuts as they feel it could help them out of the current low growth trap. GDP growth is expected to be below 5 per cent in the coming quarter.

Officials pointed out that the ministry’s think tank -- the Institute of Economic Growth -- too is against any big cut. The institute has already warned the ministry that because there is a good trade off between output and inflation in the short run, any big cut would be unlikely to trigger industrial growth.

The institute also feels that there is a low interest elasticity of private investment in India and cuts in interest rates consequently do not really help pep up growth.

   

 
 
CALL FOR INSURANCE WAR CHEST 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 9: 
The general insurance industry should cushion itself against disaster claims, Insurance Regulatory Development Authority (IRDA) chairman N Rangachary said today.

He said insurers should build up adequate reserves—with an initial fund base of Rs 350 crore—to meet claims arising from natural and manmade disasters.

“Following the September attacks in the US, the regulator allowed a 10 per cent surcharge on premium to provide for risks, open to reinsurance and reserves,” Rangachary said at the ‘Winsurance 2001’ seminar organised by the Narsee Monjee Institute of Management here.

As of now, the four state-owned general insurance companies do not have any cushion to absorb the demands arising out of such circumstances.

The IRDA has sent a proposal to the government for granting tax exemptions on income accrued by the surcharge, which will enable the insurance players to take their fund base beyond Rs 3,000 crore in four to five years, Rangachary added. Criticising a tendency to avoid reinsurance, he cautioned that there is no getting away from it.

General Insurance Corporation of India (GIC) managing director P C Ghosh said insurance players had proposed floating catastrophe bonds to raise funds for the corpus. “However, they can be floated only when the times are good,” Ghosh added.

Meanwhile insurance players plan to approach the Tariff Advisory Committee (TAC) seeking a review of the present standardised rate structure.

These companies, including public sector majors, believe that standardised rates are one of the factors which deter several companies from seeking adequate insurance cover.

An industry analyst and consultant to a private sector player told The Telegraph that as per a survey conducted by the company, it was found only 55 industries contributed to 80 per cent of the insurance industry’s losses as a whole.

“What we have now is the same level of tariffs irrespective of the level of risk. This acts as a disincentive to various companies. Therefore, there is a case for looking into the risk profiles of various industries and accordingly fixing tariffs,” the official pointed out.

Sources added risks even within a particular industry have not been rated on their own merits.

For instance, the same tariffs are charged for flood or earthquake insurance, irrespective of whether a particular company is in an earthquake-prone area or not. The survey carried out by the private insurer found that 50 per cent of its policies did not cover floods, while a whopping 80 per cent did not extend to earthquakes.

The industry wants changes in the tariff structure to reflect actual needs of the insurer. In fact, the tariff structure may well be dismantled in the long run if custom-built policies are available in the market.

   

 
 
SELLOFF BUZZ IN TECH PARKS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 9: 
The government is likely to privatise five profit-making software technology parks of India (STPI) to generate about Rs 500-600 crore which will be used to establish new STPIs in the eastern and northern parts of the country. These, in turn, will be privatised to generate funds for the central exchequer.

The plans are to put the STPIs at Noida, Hyderabad, Chennai, Pune and Bangalore on the block before the close of this fiscal. AT present, there are about 20 STPIs with 6,000 units operating out of them.

Initially, the information and technology ministry will be merged with the communications ministry, which will transfer government’s assets to a society. The department of disinvestement will undertake the auctioning of this society through a global tendering process.

Sources in the ministry of information technology said, “A proposal was recently sent to the Cabinet. The note has also been circulated to all the ministries involved in the process. We expect the whole process to be completed with the current financial year.”

“This is not disinvestment but a total sale. Since DoD has undertaken such process, we have requested the DoD to prepare the guidelines and carry out the sale of the five STPIs which have been identified. About 70 per cent of the total $ 8 billion software exports from the country are generated from the 20 STPI in the country.”

Officials in the ministry of information technology said the setting up of three STPIs in the east had been planned as part of the original project of 1990s to set up STPIs in India. However, the projects in many eastern states were derailed because of financial constraints and the failure of the state governments to provide necessary space.

“Two STPIs in Assam and two more in West Bengal one in Jharkhand have been planned. They are only at a proposal stage. We will get a clear picture within a month,” official in IT ministry said.

   

 
 
RIDER TO PUBLIC SECTOR VRS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct 9: 
The Union Cabinet today gave its approval to the higher ex-gratia for public sector employees under the old scale besides barring an employee who opts for a VRS package from joining any other public sector later on.

The Cabinet, which met here today, also cleared the Rs 1,400 crore revival of Indian Drugs and Pharmaceuticals Ltd (IDPL), privatising its units through the BIFR, and approved a bilateral agreement for co-operation and mutual assistance between India and Iran in matters related to speedy customs-related procedures.

Earlier, a group of ministers comprising finance, heavy industries, textiles and law approved a Rs 2,300 revival package for National Textiles Corporation (NTC).

Higher ex gratia

According to the provisions of department of public enterprises’ guidelines on the modified voluntary retirement scheme (VRS) which were approved today, ex-gratia payment in respect of employees getting pay scales on January 1, 1987 or January 1, 1992 computed on their existing pay scales in accordance with the existing scheme shall be increased by 100 per cent or 50 per cent respectively.

Once an employee opts out from one PSU after availing voluntary retirement, he will not be allowed to take up the job in another PSU. In case he wishes to join, then he will have to return the compensation received by him to the concerned PSU. If it is closed, then it will have to be returned to the government.

Sops for IDPL

In the case of IDPL, the Union cabinet approved taking up the matter with BIFR indicating the broad concessions/facilities which the government intends to provide for cleaning up of balance sheet of the compamy.

These measures include conversion of loan into equity, waiver of interest/penal interest and guarantee fee by the government and payments of outstanding statutory dues and funding of VRS. While loans worth Rs 500 crore would be converted into equity, interest waiver would amount to nearly Rs 670 crore, besides payment of about Rs 100 crore for outstanding statutory dues.

The Rs 1,400 crore package includes about Rs 150 crore funding for VRS and Rs 20 crore for the government’s guarantee fee.

Rs 1200 cr for NTC

The Rs 2,300 NTC revival package provides for a spending of Rs 1,200 crore on a VRS package for the surplus staff. The remaining amount will be spent on modernising the NTC plants.

The NTC package, approved by the GoM, is final and would not require cabinet approval, textiles minister Kanshi Ram Rana has said. Rana also said the revival process would be started after the BIFR approves it. The BIFR is expected to take a final decision on the revival package for eight out of nine subsidiaries of NTC on November 20.

Of the nine NTC subsidiaries, eight were referred to BIFR in 1994-95 and the board had asked IDBI and IFCI, the two operating agencies, to finalise the draft revival scheme.

ICICI had earlier agreed in principle to offer a Rs 300-500 crore bridge loan to NTC for the revival. The textiles minister said that the Centre would also offer a counter guarantee to the loans offered by ICICI.

   

 
 
BUDDHA BUYS FI LOGIC ON HALDIA PETRO DEBT RECAST 
 
 
BY ANIEK PAUL
 
Calcutta, Oct. 9: 
The West Bengal government has finally yielded to the financial institutions’ demand that the equity of Haldia Petrochemicals be recast and the disagreements on the induction of Indian Oil Corporation be resolved before its Rs 4,200 crore debt is restructured.

The state chief minister Budhadeb Bhattacharya said: “The state government agrees to the financial institutions’ condition that the equity of Haldia Petrochemicals must be restructured and the issues pertaining to the participation of Indian Oil as an equity partner sorted out before the company’s debt is restructured.”

IDBI chairman P.P. Vora met Bhattacharya, state finance minister Asim Dasgupta and industry minister Nirupam Sen at the Writers’ Buildings yesterday. Later at a meeting with local industrialists, Vora said: “My visit was intended to be a courtesy call, but we ended up discussing Haldia Petrochemicals at length.”

Until recently, the management of the company believed that the financial institutions would reduce the interest and extend the term of the Haldia Petrochemicals’ borrowings even without the equity recast, but the financial institutions disagreed and now wants equity recast to precede debt revamp.

Indian Oil has demanded a 26 per cent stake and management control of Haldia Petrochemicals. Purnendu Chatterjee – one of the promoters of the company with 43 per cent shareholding – is however opposed to handing over reins to the public sector petroleum major.

Chatterjee puts more importance on restructuring Haldia Petrochemicals’ debt than equity. He had indicated in the past that the Rs 4,200 crore debt of the company needs to be restructured, and the interest burden on the company reduced as soon as possible to improve the company’s financial health. The average rate of interest on Haldia Petrochemicals’ loans is pegged at 14-15 per cent, which by current standards is high.

There were disagreements between Indian Oil and the promoters of Haldia Petrochemicals – Chatterjee, the state government and the Tatas – on few other issues as well. While the existing promoters of Haldia Petrochemicals believe that the enterprise valuation of the company is around Rs 5,600 crore, Indian Oil puts it at around Rs 4,700 crore.

   

 
 
TATAS OFFLOAD 6.7% IN FORBES GOKAK AT RS 80 A SHARE 
 
 
OUR BUREAU
 
Mumbai, Oct. 9: 
The Tatas today sold 6.77 per cent stake in Forbes Gokak Ltd (FGL) to Sterling Investment Corporation Pvt Ltd, a Pallonji Mistry group company, at Rs 80 per share.

Tata’s direct holding in FGL of 14.82 per cent was held by Tata Sons Ltd, Ewart Investments Ltd, Bambino Investments Ltd and Tata Investment Corporation Ltd, the Tata group said in a release here after selling shares on spot transaction basis.

Out of these holdings, the entire stakes of Tata Sons, Ewart Investments and Bambino Investments and part holding of Tata Investment Corporation were sold at Rs 80 per share, it said.

The holding of the present promoter group now stands reduced to 18.29 per cent (earlier 25.06 per cent of Rs 12.45 crore paid up capital of FGL) including the residual 8.05 per cent held by Tata Investment Corporation, which would be divested later, it added.

Pallonji Mistry group’s holding in FGL has increased to 14.88 per cent (8.11 per cent) and it would make an open offer to public shareholders (other than the promoter group) to acquire an additional 20 per cent at Rs 80 per share.

The FGL scrip closed at Rs 50.80 on the Bombay Stock Exchange yesterday.

   

 
 
MORE SAMSUNG UNITS AT NOIDA 
 
 
BY A STAFF REPORTER
 
Calcutta, Oct. 9: 
Korean multinational Samsung Electronics Co. Ltd will set up production lines for home appliances including washing machines, air-conditioners and refrigerators, at its Noida factory near Delhi. A Samsung India spokesperson said production of washing machines will commence in December this year while the air-conditioner plant will be commissioned early next year. The company will invest around Rs 40 crore to set up the two plants, which will have an initial capacity of one lakh units each, she said. The refrigerator unit will be operational in 2003, with investment details being worked out.

Samsung, which has two major subsidiaries — Samsung India Ltd and Samsung India Electronics Ltd — is also in talks with all basic telephone service providers including Reliance, the Tata group and the state-owned Bharat Sanchar Nigam Ltd (BSNL), for supplying wireless in local loop (WiLL) handsets based on the code division multiple access (CDMA) technology. Samsung is a world leader in CDMA technology, with a 31 per cent share of the global market.

SIEL managing director S. S. Lee said the since the CDMA technology is only being test-marketed at a few places, the company prefers to wait and watch before taking any investment decisions.

   

 
 
MID-TERM PLAN TO BOOST EXPORTS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 9: 
The government is planning to come out with a medium-term strategy to boost exports from India. The global economic slowdown has already witnessed a downturn in volumes in the last two months. Compounded with the terrorist attacks and ultimately the US air-strikes on Afghanistan it is further expected to go down.

“Very soon we will come out with a medium-term strategy which is being worked out as part of a package of incentives to boost exports”, minister of state for commerce Rajiv Pratap Rudy said in the sidelines of the FAO-IGG meet.

Though he did not specify any definite time span within which the policy will be in place, he said, “it will be announced very soon.” This is in line with the announcement by finance minister Yashwant Sinha that government will come out with more export incentive in consultation with Murasoli Maran, the commerce minister.

Tea marketing

India has asked all tea producing nations to evolve effective marketing strategies and draw up a joint action plan to enable the industry to overcome problems like oversupply and the resultant price volatility in the tea markets.

Rudy said, “In the global scenario, the emphasis of the tea producing countries should shift from competition to co-operation. There is a need to steer the industry and a common strategy should address the problems.”

Opening the 14th session of Inter-Governmental Group (IGG) conference on tea organised by Food and Agriculture Organisation (FAO), commerce ministry and Tea Board, Rudy said, “If proper steps are taken, with the new developments in the area of health, tea could become the wonder beverage of the new millennium.”

Referring to the oversupply situation in the recent past, he said, “These uncertainties in market conditions have given rise to increased price volatility in tea markets.”

Some measures can be taken both on the demand and supply side to combat this.”

“There is steep competition from carbonated soft drinks which are wooing consumers through ad-spend and effective marketing strategies”, he said, adding that “a fall in per capita tea consumption is one of the main reasons for a not-so-encouraging demand-supply projections over the next decade”.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.13	HK $1	Rs.  6.10*
UK £1	Rs. 70.72	SW Fr 1	Rs. 29.50*
Euro	Rs. 44.37	Sing $1	Rs. 26.45*
Yen 100	Rs. 40.09	Aus $1	Rs. 24.05*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta  			Bombay

Gold Std (10gm)	Rs. 4915	Gold Std (10 gm)Rs. 4820
Gold 22 carat	Rs. 4640	Gold 22 carat	    NA
Silver bar (Kg)	Rs. 7850	Silver (Kg)	Rs. 7915
Silver portion	Rs. 7950	Silver portion	    NA

Stock Indices

Sensex		2794.42		+29.05
BSE-100		1295.86		+15.83
S&P CNX Nifty	 912.70		+10.75
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Skindia GDR	 420.68		- 1.89
   
 

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