Valuation method in PSU selloff declared flawed
State Bank deposits to fetch 0.25% less
Cadbury offers Rs 500 a share to buy out 49%
Friday meet to decide on VSNL dividend
Penal rates for slip-up on deposit payback
Suits pile up at debt tribunals
ONGC venture with Essar Oil awaits govt nod
Tayals to raise stake in BoR to 40%
IDBI weighs exit packageto trim costs
Foreign Exchange, Bullion, Stock Indices

 
 
VALUATION METHOD IN PSU SELLOFF DECLARED FLAWED 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Dec. 11: 
In a series of letters from the office of the Controller General of Accounts to disinvestment secretary Pradeep Baijal, the CGA has raised questions of probity in the way valuation of public sector units is being done by just one set of valuers. It has also stressed the need to ensure greater transparency in the entire process.

The CGA has indicated to Baijal that the practice of accepting the valuation of just one or two merchant bankers could be dangerous for the government, which is the seller. In a polite but scathing letter, it has been pointed out that the valuer receives a commission from the selloff, which means he is party to the sale, just as a broker is. Consequently, there is a fundamental flaw in the principle that makes the merchant banker the sole arbiter of a concern’s going price since this could well lead to a “conflict of interest.”

What has been left unsaid is the CGA’s fears that the valuer could make common cause with the buyer to depress prices. After Balco was sold for a mere Rs 550 crore, there were reports of how the aluminium major was undersold. In fact court cases were also filed against the sale though the Supreme Court yesterday ruled that courts should not involve themselves with economic policy issues.

The “CGA’s concern is that a conflict of interest exists in having advisors involved in and being responsible for the valuation of the undertaking. The advisor receives his commission on the basis of the transaction value. Involving the same entity in the valuation exercise raises issues of conflict of interest,” joint CGA P.P.S. Brar says in in a letter to the disinvestment secretary.

Brar then goes on to say that “international experience shows that placing excessive reliance on advisors could lead to situations of substantial abuse”. Instead, he suggested that the disinvestment ministry follow a system adopted by Sri Lanka, which has “the most effective privatisation programme (within this region)”.

To supplement the advisor’s valuation, the Sri Lankan government conducts its own independent valuation. In some countries, Brar says this too is supplemented by a valuation done by the company being put on the block.

To press home his point, the joint CGA says “moving to a multiple valuation should help address some of Comptroller and Auditor General’s concerns regarding valuation of PSUs prior to disinvestment.”

Earlier this year, the special audit team of the Comptroller and Auditor General (CAG), which looked into the controversial sale of Bharat Aluminium Co Ltd, had raised questions on why the valuations of Balco’s captive power plant and sheet rolling shop were not made. The auditors also sought to know how the residual life of Balco’s assets was fixed.

The CGA has also demanded greater transparency in the way disinvestment is handled. Specifically, Brar has asked Baijal to make all valuation reports as well as shareholders and share purchase agreements public documents.

“It is and has been the view of the CGA’s office that greater transparency would strengthen the divestment process. It is therefore our suggestion that since a public asset is being disinvested,” all these documents “need to be made public ... there is nothing confidential about these documents”. Apparently, this is done in Sri Lanka and Brar argues “there is no reason why a similar practice cannot be followed in India.”

He has pointed out that this was “exactly the position taken by us in our comments on the proposed Air-India transaction in June 2001.” The bid to sell off Air-India had also attracted considerable consternation as the valuation methodology followed was considered flawed by many.

“Our experience of dealing with valuation reports as part of capital restructuring over the last decade, including Lagan Jute and Balco clearly indicates the need to make these documents public.”

   

 
 
STATE BANK DEPOSITS TO FETCH 0.25% LESS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 11: 
Unable to cope with the narrowing gap between what it pays and earns, State Bank of India (SBI) today said it would offer depositors lower returns in the face of falling yields on government securities, which make up the bulk of its investments.

The country’s largest bank, responding to similar cuts by other public sector banks, slashed deposit rates by 25 basis points across all maturities, except on money kept for 15 to 45 days. Even senior citizens will feel the pinch, as their kitty would get them 0.25 per cent less.

Most state-owned banks, including Bank of Baroda, Bank of India and Punjab National Bank, brought down deposit rates by 25-50 basis points in reductions blamed on the declining yields on government securities.

The cuts, the banks argue, are necessary to protect their spreads — the difference between the cost of deposits and the returns from loans and investments — and keep operations, which require large overheads, viable. A shrinking spread squeezes net interest margins of banks, while a widening one boosts it.

Banks have been swamped with deposits in a recession-racked year as other investment options dried up, the credibility of state-sponsored institutions like UTI eroded and returns on small savings were pruned. However, they have had no takers for their money as entrepreneurs shied away from loans in a market where goods are chasing the ever-elusive buyers.

Initially, most banks resisted cuts in deposit rates, especially after the October monetary and credit policy, fearing depositor backlash. However, they now say recent developments in the money market have left them with no option, but to hand out less to depositors.

SBI’s reductions, effective from today, bring the interest rate on domestic term deposits (below Rs 1 crore) of 46 days to 179 days to 6.25 per cent; the rate will be 6.5 per cent on those of 180 days to less than one year.

Deposits of 1 year to less than 2 years will now yield 8.50 per cent (down from 8.75 per cent), those from 2 years to less than 3 years will beget 8.50 per cent and those of 3 years and above will earn an interest of 9 per cent.

The rate on deposits of 1 year to less than 3 years stands at 7.75 per cent; for three years and above, it is 8.25 per cent.

In the case of amounts above Rs one crore, the rate will be 6.75 per cent on deposits of 46 days to less than a year, and 7.75 per cent on funds kept from 1 year to less than 3 years.

Short-term deposits, those maturing in seven days to 14 days, will fetch 4.75 per cent for amounts up to Rs 15 lakh; it will be 5.25 per cent for a kitty of more than Rs 1 crore.

In the case of NRE deposits and NRNR, the rates were brought down by 25 basis points. NRE deposits kept for 6 months to less than a year will now yield 6.75 per cent, while those from a year to less than 3 years will earn 8.25 per cent.

Uco revises rates

Calcutta-based Uco Bank today cut interest rates on deposits for 30-45 days to 5.5 per cent from 5.25 per cent. The rate will be 8.25 per cent (8.5 per cent) for deposits of 2 years to less than 3 years, and 8.5 per cent (9 per cent) on those kept for a period of more than five years.

   

 
 
CADBURY OFFERS RS 500 A SHARE TO BUY OUT 49% 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 11: 
Joining the queue of multi-nationals making their way out of the domestic stock bourses, leading confectionery maker Cadbury Schweppes today declared its plan to buy out the 49 per cent Indian shareholding in local subsidiary Cadbury India for Rs 500 per share.

The buyback offer, which will be made to over 48,000 shareholders for more than 1.75 crore shares, will involve a total outlay of Rs 875 crore.

“The offer price of Rs 500 per share is at a 24 per cent premium over the 26-week average of the closing price quoted on the NSE,” a Cadbury Schweppes statement said.

The move follows the decision taken by the Cadbury Schweppes management last month to buy back the Indian subsidiary’s equity at Rs 500 per share. Since then, the stock has moved up from the Rs 375 levels to around Rs 500, broking circles said.

“Whether the Indian shareholders will bite the bait is the million-dollar question,” analysts tracking the company said.

Their doubts stem from the fact that the share closed at Rs 483.25 today, gaining 2.3 per cent over its previous close on the BSE, which does not make the offer “very attractive for domestic shareholders”, they added.

Merchant banking circles however speculate that the offer is likely to find takers among financial institutions like UTI, as unloading the shares in the marketplace may see a depreciation in values. UTI holds 4.95 per cent while LIC holds 4.36 per cent in the company.

JM Morgan Stanley is the lead manager to the issue.

Commenting on the offer, John Sunderland, Cadbury Schweppes’ CEO said: “The offer provides an opportunity to shareholders to make an appropriate choice under the prevailing circumstances to exit at a good premium. The shares of Cadbury India are not very actively traded and have limited liquidity.”

In fact, this is in line with Cadbury Schweppes’ strategy to consolidate its operations and delist its subsidiaries’ shares from stock bourses across the world, except the US and UK.

Recently, the company delisted its South African subsidiary’s shares from the local exchange. Corporate observers say other than India, only its Nigerian subsidiary’s shares are traded on the bourses.

Cadbury India’s equity is pegged at Rs 35.71 crore, of which the parent holds 51 per cent, 8 per cent is with foreign institutional investors, 12 per cent is held by domestic FIs and 29 per cent is with the public.

   

 
 
FRIDAY MEET TO DECIDE ON VSNL DIVIDEND 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 11: 
The board of Videsh Sanchar Nigam (VSNL) will decide on an interim dividend at an emergency meeting on December 14. The move represents another attempt by the government to squeeze out the last rupee from the cash-rich company, one of the state-owned enterprises slotted for disinvestment.

Rumours of an impending dividend bonanza sloshed around amid criticism the management has done little to use cash resources for expansion and diversification. There is an apprehension that the valuation of the company will be hit if the largesse is paid.

The country’s foreign telephone carrier and the main internet access provider had declared a whopping 500 percent as dividend for the previous financial year. The amount equalled the profits it made in 2000-01.

It gave a portion of the bounty, estimated to be in the region of Rs 3,000 crore that it accumulated over the years by virtue of being an unchallenged monopoly in overseas telephony. The dividend had then cost VSNL a sum of Rs 1,425 crore, and a dividend tax of Rs 145 crore.

The dividend declared last year was inclusive of normal dividend of Rs 10 per share, and a special one-time one of Rs 40 per share.

VSNL had then said the special dividend coincided with the listing of its American depositary receipts (ADR) on the New York Stock Exchange.

VSNL posted a whopping 112 per cent leap in 2000-01 net profit at Rs 1778.83 crore compared with Rs 840.28 crore in the previous year. However, the figures are not strictly comparable.

   

 
 
PENAL RATES FOR SLIP-UP ON DEPOSIT PAYBACK 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 11: 
In an investor-friendly move, the department of company affairs (DCA) has made it mandatory for companies to pay a penalty in case they renege on promises made to depositors. Companies that fail to repay their depositors in time will have to pay a penal interest of 20 per cent per annum on overdue deposits to small depositors. The penal interest rate will be 18 per cent in the case of other depositors, compoundable on an annual basis.

This provision has been brought in by incorporating rule 8A in the Companies (acceptance of deposits) Rules. This is part of a notification that the department has issued amending the rules to prohibit companies with a net-owned fund of less than Rs 1 crore from inviting public deposits with immediate effect.

The amendment has been notified in the Gazette of India in consultation with the Reserve Bank of India under section 58 A (read with section 642) of the Companies Act, 1956.

According to a DCA source, there is no grace period for the penalty and it becomes due from the day the deposit matures.Depositors with an amount of Rs 50,000 or less, have been classified as small depositors. This present amendment is the third effected in the Companies (acceptance of deposits) rules this year.

The last amendment was made to bring down the interest rate on public deposits from 15 per cent to 14 per cent in tune with the general reduction of interest rates.

Sources say there have been numerous instances of companies playing havoc with public depositors. Small investors have often been duped of their principal amount let alone the interest due to them. The present rules fixes the penalty sum for the overdue period as a per cent on the final amount due on maturity.

The amendment is intended to tighten the noose around dubious companies and is meant to be investor-friendly, a statement issued by the DCA said. The department also hopes to instil confidence in investors and depositors through this amendment.

Public deposit rates of companies are jointly administered by the Reserve Bank of India and the DCA.

   

 
 
SUITS PILE UP AT DEBT TRIBUNALS 
 
 
FROM DEVLIN ROY
 
New Delhi, Dec. 11: 
The government’s plans to set up seven more debt recovery tribunals (DRTs) appears to fly in the face of a chequered performance record of the existing DRTs with case-disposals at just a tick over 31 per cent.

The 22 DRTs and five Debt Recovery Appellate Tribunals are sitting on a mountain of suits worth Rs 1,00,260 crore. They have managed to clear just 16,158 cases out of the 51,416 cases filed with them till June 30, 2001, involving a total sum of Rs 1,03,288 crore. This does not include the suits for the recovery of dollar-denominated debts worth $ 31.5 million.

The debt recovery record is worse—just 16.6 per cent. They have been able to recover only Rs 2,928.03 crore out of the sum of Rs 17,604.79 crore involved in the suits that they disposed of. This means that of the total amount of cases worth Rs 1,03,288 crore filed with the DRTs, only Rs 2,928 crore has been recovered so far, giving them a final success rate of just 2.8 per cent.

This record puts a huge question mark on the government’s plans to set up new DRTs in Ranchi, Coimbatore, Lucknow, Pune, Visakhapatnam and one each in Calcutta and Delhi in addition to the two existing DRTs in each of these two cities.

Of the 22 DRTs, three tribunals — Nagpur, Chennai and Calcutta DRT 2—have failed to dispose of even a single application since being set up.

While the Chennai DRT 2 set up in March this year has already been swamped with 2,523 cases worth Rs 3,142 crore, the Calcutta DRT 2 set up in June has attracted 235 cases worth Rs 234.84 crore. Similarly, the Nagpur DRT which was set up in December last year has already received 568 cases worth Rs 366.47 crore, but has yet to dispose of a single application.

A comparison of the data for the previous years shows that the effectiveness of the DRTs has been on the decline. While 3,888 cases involving Rs 2,806.48 crore were disposed of in 1999-200, the amount recovered was only Rs 752.14 crore, or 26.8 per cent.

During 2000-01, 4637 cases involving a sum of Rs 4,413.04 crore were taken up, but actual recoveries stood at Rs 1,184.92 crore, again a recovery rate of 26.8 per cent.

However, during the first three months of the current fiscal, 1,696 cases involving Rs 7,268.95 crore were taken up but actual recoveries amounted to only Rs 344.71 crore, or 4.7 per cent.

   

 
 
ONGC VENTURE WITH ESSAR OIL AWAITS GOVT NOD 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Dec. 11: 
Oil & Natural Gas Corporation (ONGC) will set up a joint venture with the Essar Oil-Premier Oil Pacific (EOPOP) combine, to carry out production in the Ratna-R series oil fields in the Bombay High region. Sources said the ONGC board has taken an in-principle decision on the matter, which is now awaiting the government’s approval. The proposed venture has also been cleared by the Central Vigilance Commission, they added.

Under the joint venture agreement, ONGC and the EOPOP combine will have a production-sharing contract proportionate to the shareholding pattern. Sources said ONGC will have a 40 per cent stake in the venture, Essar 50 per cent and Premier Oil Pacific will hold 10 per cent. However, it could not be ascertained who will hold the operating rights in the field although the EOPOP combine is likely to exercise management rights. The new company, when formed, will have to drill over 35 wells in the area and install three–four platforms, which will require a sizeable investment, sources added.

The joint venture company will invest a little over Rs 1,400 crore in the field, which, a senior ONGC official said, has very good reserves, adding there will be “ significant returns on our investment.”

ONGC had carried out several exploration activities on the field even before it was awarded to the EOPOP combine in 1993. “We were always interested in being a part of the Ratna R-Series project because we had invested a lot in carrying out seismic studies, both 2-D and 3-D. I am optimistic that the venture will reveal good prospects once production starts,” he said.

The field is estimated to have over 500 million barrels of oil and the renowned reservoir consultant, Duke Engineering & Services, has submitted a very encouraging report to the EOPOP combine.

The field, sources said, will sustain a reasonably good production over a period of 20 years. According to estimates, the turnover of the venture will touch the Rs 1,000-crore mark in a couple of years from start of production.

   

 
 
TAYALS TO RAISE STAKE IN BOR TO 40% 
 
 
BY A STAFF REPORTER
 
Calcutta, Dec. 11: 
The Tayal group, the main promoters of Bank of Rajasthan Ltd will increase their stake in the bank from the present 38.5 per cent to 40 per cent in the current financial year.

Addressing a press conference here today, managing director K.M. Bhattacharya said the promoters are keen to hike their stake in the bank. The Tayals had taken over the bank in 1998 from Keshav Bangur.

The gross non-performing assets of the bank on March 31, 1999, stood at Rs 450 crore and net NPAs were at Rs 200 crore.

Bhattacharya said the gross NPAs of the bank as on September 30 stood at Rs 350 crore and the net NPAs were at Rs 130 crore.

The NPA recovery target of the bank for the current year is Rs 80 crore and it has been able to recover Rs 30 crore till September. The capital adequacy ratio of the bank, which was below 1 per cent in 1998, has now gone up to 14 per cent.

Bhattacharya said to strengthen its capital adequacy, the bank completed a convertible warrant issue in March this year which increased its funds by more than Rs 100 crore.

The deposits of the bank as on September 30 stood at Rs 3,850 crore and the target is to achieve Rs 4,000 crore by the end of the current year.

The bank has kept a target of achieving Rs 2,400 crore in advances mainly through bill discounting and short-term lending. The bank’s investments in government securities stands at Rs 2,000 crore.

   

 
 
IDBI WEIGHS EXIT PACKAGETO TRIM COSTS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 11: 
The Industrial Development Bank of India (IDBI) is weighing introduction of a voluntary retirement scheme (VRS) as part of its drive to trim overall costs by 30 per cent. The IDBI proposal, which comes close on the heels of a similar plan mooted by the Unit Trust of India (UTI), is expected to be finalised shortly at a meeting between officers and the top management of the financial institution.

Highly placed sources said the ailing institution, which is seeking a Rs 5,550 crore lifeline from the government, is however going ahead with its investments in its IT venture IDBI Intech. IDBI executive director S. S. Godbole is expected to be given a two-year tenure at the helm to turn it into a profit-making venture.

Sources said IDBI chairman P. P. Vora had suggested the 30 per cent cost-cutting exercise sometime back and asked the staff to focus on restructuring investments in the steel and power sector, reducing non-performing assets (NPAs) and conversion of the FI into a universal bank, during his two year tenure.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 47.82	HK $1	Rs.  6.05*
UK Ł1	Rs. 68.63	SW Fr 1	Rs. 28.35*
Euro	Rs. 42.67	Sing $1	Rs. 25.80*
Yen 100	Rs. 37.98	Aus $1	Rs. 24.25*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4595	Gold Std(10 gm)	Rs. 4525
Gold 22 carat	Rs. 4340	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7225	Silver (Kg)	Rs. 7275
Silver portion	Rs. 7325	Silver portion	NA

Stock Indices

Sensex		3419.13		- 23.76
BSE-100		1636.84		- 14.74
S&P CNX Nifty	1110.20		-  5.05
Calcutta	 111.78		-  0.46
Skindia GDR	 527.05		-  5.61
   
 

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