Cash comfort for US-64 loyalists
Unit Trust swallows Tarapore pills
Sterlite unveils 50% share buyback
Brokers shut out of top exchange posts
Nine directors picked for CSE
TVS files for early divorce
Rupee hits new low of 48.38 on war spectre
Modicorp in fray for VSNL
Foreign Exchange, Bullion, Stock Indices

 
 
CASH COMFORT FOR US-64 LOYALISTS 
 
 
OUR BUREAUX
 
Mumbai/Delhi, Dec. 28: 
The Unit Trust of India (UTI) today presented a New Year’s gift to its long-suffering US-64 investors when it raised the cap on repurchases from 3,000 to 5,000 units.

US-64 unit holders will be allowed to sell up to 5,000 units at administered prices from January 1.

In another generous gesture, the mutual fund major said the repurchase price for those holding in excess of 5,000 units per unit holder on May 31, 2003 will be Rs 10 per unit or the net asset value (NAV) whichever is higher. The NAV is indicator of the value of the investments that have been made by the mutual fund.

However, this facility will be available only to unit holders of US-64 whose names are on the register of UTI as on June 30, 2001. However, UTI said the repurchases of units sold from January 1, 2002 to May 31, 2003 will be done at NAV-related prices.

The administered price was first announced in August and fixed at the par value of Rs 10. Since then, it is being raised by 10 paise every month and currently stands at Rs 10.40. The administered price will stay till the end of May 2003. In contrast, the NAV currently stands way below Rs 10.

“The enhancement in the repurchase limit will cover almost 99 per cent of the unit holders in our flagship scheme,” UTI chairman M. Damodaran told reporters in Mumbai.

Investors selling more than 5,000 units will have to sell at the NAV price from January 1, economic affairs secretary C. M. Vasudev told reporters earlier in the day in Delhi. New investors will have to buy and sell the units at prices linked to NAV.

US-64, which has over 20 million investors, will become a “balanced fund” in the new year, correcting an equity-biased skew that investors had profited handsomely from until the bottom fell out of the stock markets in early March.

Explaining the logic behind UTI’s move to reward US-64 investors, Damodaran said: “We are sending out a clear message; if you stay longer you are rewarded.”

In Delhi, the government announced its decision to provide financial assistance to UTI to meet the difference between NAV and the administered price right up to May 2003 — when the country’s largest mutual fund is expected to complete its reforms in line with the Malegam and Tarapore committee reports.

The government will soon dole out a sum of Rs 180 crore to UTI to cover the gap between the repurchase price and the NAV between July and December this year.

Sources in the finance ministry estimate the government could have to fork out as much as Rs 600-700 crore if the NAV continues to hover below Rs 10 in May 2003.

The UTI package also provides for splitting UTI’s asset management and trusteeship and related administration into two separate entities.

Vasudev indicated that a separate asset management company will manage UTI’s funds. The mutual’s board will also be reconstituted and enlarged by bringing in more professionals.

The government is estimated to have already spent about Rs 140 crore in propping up the scheme.

Officials in the finance ministry calculate that it will cost them another Rs 400-450 crore to see the support move through till May-end 2003, when administered prices for units sold till July this year will be ended and market-related prices will be allowed full play.

UTI will also formulate a new transparent investment policy setting out objectives, investment and exit norms, risk management strategies, asset allocation norms.

A panel of advisors is also being formed which will include S. S. Tarapore, Y. H. Malegam, Deepak Parekh and R. H. Patil who will work out what further reforms need to be taken to revive the ailing giant mutual.

The government had found itself in a confused state after two separate panels — headed by Malegam and Tarapore respectively — had advised separate courses of action in tackling UTI’s financial problems which started after a run on its popular US-64 scheme earlier this year.

The government will have to approve any reforms decided on, as these may necessitate changes in the Sebi Act.

The package also provides for UTI turning compliant with Sebi regulations and coming under its scrutiny from next year. It is expected that the fund will be totally Sebi compliant by December 31, 2002.

According to UTI estimates, almost 71 per cent of the unit holders of US-64 are from the individual category with only 29 per cent being from the corporate category. The US-64 corpus is now pegged at Rs 12,800 crore.

UTI, has made these assurances after securing the government’s consent to step in to fund the gap between the NAV and the repurchase price.

“It is not a loan, but a commitment from the government. The government’s liability so far has been to the tune of Rs 180 crore till November 30, 2001,” Damodaran revealed.

UTI seems that repurchases will be very low. This assumption is based on the fact that UTI investors did not press for redemptions after the initial panic with the result that the total redemptions touched just Rs 450 crore.

Making a clean break from the past, UTI had yesterday announced the contours of the revamped scheme. It intends to cap its exposure to the equity markets at 55 per cent of the assets under its management over the next one year, down from its current level of 61 per cent.

The scheme has also been amended to provide an income option whereby dividends could either be received by the unit holder or reinvested and a growth option where the income would be ploughed back.

The minimum investment under the scheme will also be calculated and declared on a daily basis.

The scheme provides for sales price to be fixed at a level not exceeding 103 per cent of the NAV. However, in the month of January 2002, the sale price during the month shall be at NAV.

Eventually, US-64 will be delisted from all exchanges. Damodaran explained that this is being done because UTI’s network is sufficient to discharge sufficient liquidity to the scheme.

He also reasoned that nobody would offer to buy units at a price which is higher than its NAV.

   

 
 
UNIT TRUST SWALLOWS TARAPORE PILLS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 28: 
The Tarapore committee’s main recommendation—that of forming three asset management companies might have been shot down—but the Unit Trust of India (UTI) has decided adopt several other recommendations made by the panel to improve its functioning and avoid repeating past mistakes.

UTI has decided to refer 18 cases pertaining to the private placements for special audit to fix the blame on those decisions and also take follow up action wherever necessary. This was part of the Tarapore panel’s recommendations, UTI chairman M. Damodaran said.

Management audit will also be made compulsory in line with the committee’s recommendation. Further, UTI proposes to strengthen the internal audit, which is presently non-existent.

The mutual fund also proposes to do away with the earlier practice of affixing internal ratings for investments and has decided to henceforth subscribe to external ratings from leading credit agencies.

This is to avoid decisions from being influenced by virtue of the internal ratings.

It has also decided to accept the Tarapore committee’s recommendation to separate the functions of trusteeship and asset management.

Earlier, UTI had nominated several trustees on the US-64 panel and also to the panel representing other income schemes. In certain instances, individuals like Narottam Sekhsaria, promoter of Gujarat Ambuja Cements and a UTI trustee, was also nominated as a panel member in the US-64 committee.

The committee’s recommendation on separating the functions of the trustee and the asset management committee was accepted by the UTI board at its recent meeting. UTI has proposed to begin by taking the trustees out of the asset management panels.

While declaring that UTI will henceforth discourage all inter-scheme transfers, Damodaran said the Tarapore committee’s recommendation that such transfers of portfolio investments from one scheme to another would now only occur if the need for such assets were perceived as acute, by the respective fund manager.

Quoting from the Tarapore Committee, Damodaran said: “If there is a double coincidence of wants, then such inter-scheme transfers would be allowed at pre-determined prices and not taken through arbitrary decisions which were the bane of the fund earlier.”

Damodaran was also critical of the recent flurry of media reports. He quoted the reports opening remarks that “By and large UTI has functioned well”.

   

 
 
STERLITE UNVEILS 50% SHARE BUYBACK 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 28: 
Sterlite Industries (SIL) has announced an ambitious buyback programme that seeks to mop up 50 per cent of its equity capital at a price of Rs 150 per share — a move that will lead to a delisting of its shares from the bourses.

This would be the first instance of a leading Indian company buying back half its equity capital.

According to the present norms, if public holding reduces to less than 10 per cent after a buyback, the company can de-list its shares from the bourses.

Presently, while the promoters hold around 43 per cent in the company, institutional holding is put at 10 per cent and the rest being held by the public.

SIL plans to purchase over 2.79 crore shares with a face value of Rs 5 each for a consideration of Rs 280 crore.

The buyback price of Rs 150 to be paid to its shareholders has both cash and non-cash components.

While Rs 100 will be paid in cash, the balance Rs 50 will be paid through allotment of 10 per cent secured non-convertible debentures, redeemable 35 per cent in the fourth year, 35 per cent in the fifth year and 30 per cent in the sixth year.

Explaining the rationale behind mopping up around 50 per cent of its equity and eventually delisting from the bourses, Sterlite said it has significant growth plans involving both expansion and establishment of new facilities and also acquisitions.

   

 
 
BROKERS SHUT OUT OF TOP EXCHANGE POSTS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 28: 
In an effort to clear the decks for the corporatisation of bourses, Securities and Exchange Board of India (Sebi) today decided that no broker member shall be an office bearer in an exchange. The decision will have major ramifications for Saturday’s elections to the Calcutta Stock Exchange (CSE) board.

The market regulator partially met the disinvestment ministry’s request to amend open offer rules for selloff-bound public sector companies to prevent price rigging.

The brokers were barred from holding positions on exchange boards in the aftermath of the March 2 stock crash. Today, it went further ahead by proposing that as part of the demutualisation of stock exchanges, no Sebi official would be nominated on the board of any stock exchange.

“The effect of the provisions will be seen on the board to be formed by CSE on Saturday,” Sebi chairman D. R. Mehta Mehta said.

The regulator has said a broker will not hold an executive position such as those of president, vice-president and treasurer. At the same time, no Sebi official will be nominated on the board of any stock exchange.

However, the crucial administrative and legal modalities for corporatisation and demutualisation of the stock exchanges were left out from today’s meeting. “As they are being worked out”, Sebi said.

On PSU open offer pricing, the Board decided that the reference date for calculation of offer price in case of frequently traded PSU shares shall be the date preceding the date when the Central government opens the financial bids instead of the date when the Centre, after receiving Cabinet approval, announces the name of the successful bidder.

This would enable the bidders to take into account the price of the shares and also minimise the occasional possibility of the unsuccessful bidders manipulating the market price, Sebi said.

The board decided that in case of infrequently traded PSU shares the highest price paid by the successful bidder arrived at after the process of competitive bidding shall be the minimum offer price for the purpose of the public offer in terms of the Regulations

In the light of the Supreme Court judgement on broker fees, several groups of brokers had made representations to Sebi. It has been decided that the stock broker and sub-broker regulations will be amended.

The board has also deemed that brokers in the cash market, who seek registration for membership of derivative exchanges would be given such registration subject to their payment of at least 50 per cent of the principal due in the cash market. A committee will be formed to consider a revision in the future fee structure.

Sebi has also set fresh trading limits for foreign institutional investors.

   

 
 
NINE DIRECTORS PICKED FOR CSE 
 
 
BY A STAFF REPORTER
 
Calcutta, Dec. 28: 
A crisis did to the brokers of the Calcutta Stock Exchange (CSE) what better days could not. The katni and badlawalahs — the rival factions — have come together to unanimously select a panel of nine broker-directors from among the 15 who had nominated themselves for Saturday’s election. The other six decided to pull out of the polls today after a meeting among themselves.

For the first time in the last 25 years, there will be no elections for the nine board berths, whereas traditionally, the CSE elections have always been closely contested between high-profile badla financiers and the lesser brokers.

The brokers handpicked to become directors are J.M. Choudhary, Srinath Kapur, Vivek Mahajan, V.K. Mehra, Vijay Agarwal, S.K. Kausik, Rajinder Bhaiya, H.K. Singhania and Madhu Jhunjhunwala. Six brokers — Vinay Agarwal, Sushil Agarwal, S.S. Dhanuka, Anil Garg, P.K. Maheshwari and Mahabir Soni — informed CSE secretary P.K. Ray of their decision to withdraw. All eyes were on the outcome of the Securities and Exchange Board of India’s (Sebi) meeting on demutualisation today. After the meeting, Sebi chairman D.R. Mehta said: “For the time being, brokers can become ordinary members of the stock exchange boards. We may, however, reconsider the matter later.” The decision brought relief to the brokers, though they had to abandon plans of appointing J.M. Choudhary as president, as Sebi barred brokers from becoming office bearers.

Reacting to Sebi’s decision on demutualisation, CSE vice-chairman Supriyo Gupta said: “We appreciate the market regulator’s decision, and hope that this leads to greater co-operation between the CSE brokers and the management panel. At the end of the day, the brokers are the ones who can pull CSE out of the crisis.”

The CSE board comprised nine broker-directors and nine public representatives. But the broker-directors resigned in March this year following the payment crisis. Since then, the exchange is being run by a Sebi-appointed management panel comprising independent directors and an executive director.

The panel is headed by former State Bank of India chairman Dipankar Basu, who has offered to step down, citing “logistic inconveniences”. Executive director Nityananda Dasgupta is also set to leave in a couple of months. “All these issues, along with introduction of a derivative segment will be discussed in the new-look board, set to meet for the first time in early January,” sources said.

   

 
 
TVS FILES FOR EARLY DIVORCE 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 28: 
Two-wheeler maker TVS Motor Co Ltd wants to break off ties with estranged foreign partner Suzuki Motor Corp by April next year, advancing the time-table for the disengagement by two years. Suzuki Motors originally had a technical and financial partnership with TVS to make motorcycles, that was supposed to run till 2007.

However, in September, TVS and Suzuki said that they would end their 17-year alliance in 30 months, ending April 2004.

Suzuki formally announced that it was pulling out of the venture after selling off its 25.97 per cent stake to TVS for Rs 90 crore. Suzuki Motor Corp gave 60 lakh equity shares of Rs 10 each at a price of Rs 15 to Sundaram Clayton Ltd (SCL) or its associates, through whom TVS holds a 32.47 per cent stake.

The dignified announcement, which masked the tension that had been boiling over between the two partners for a couple of years, had said that TVS would be allowed to use the ‘Suzuki’ tag in the TVS-Suzuki brand name for another 30 months.

Suzuki also agreed to refrain from introducing its motorcycles either on its own or through a local partner. However, rumours were simultaneously doing the rounds that Suzuki was planning to bring out scooters with Kawasaki-Bajaj, the Pune-based two-wheeler maker. Kawasaki and Suzuki have an alliance in overseas markets and the speculation was that they would forge ties in India as well.

As part of its understanding with TVS, Suzuki Motor was supposed to supply technology and model variants for TVS’ latest model — the Fiero — and spare parts for other products.

   

 
 
RUPEE HITS NEW LOW OF 48.38 ON WAR SPECTRE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 28: 
A volatile rupee today again made history, closing at a fresh low of Rs 48.26/27 against the dollar after crashing to an intra-day low of Rs 48.36/38 on worries over worsening Indo-Pak relations.

What saved the day for the rupee was dollar sales emanating from the exporting community. “While exporters sold at higher levels, the demand for dollars was also not coming through. This helped the rupee to stage a comeback from its lows,” summed up a dealer from a private sector bank.

Market circles maintain that the rupee’s course in the next few days will increasingly depend on news from the border or actions of both governments.

“The rupee’s movement will purely depend on the situation in the border. However, if tensions are defused or reduced, the Indian currency may rebound to 48.10 levels,” said N. Subramanian, forex consultant, e-Mecklai.

Today’s trading saw the rupee opening weaker at 48.22/25 per dollar against the previous close of 48.20 as banks and companies made hefty dollar purchases on the back of India’s diplomatic measures.

The buying that followed soon saw the rupee decline continuously in early morning deals. Dollar purchasers included state-owned firms who wanted to meet month-end payments and banks who expected the rupee to weaken further.

   

 
 
MODICORP IN FRAY FOR VSNL 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 28: 
Modicorp has approached the disinvestment ministry with an expression of “formal intent” to pick up stake in Videsh Sanchar Nigam Ltd (VSNL), in which the government plans to offload a 25 per cent stake to a strategic partner.

Six firms had initially shown interest in picking up a stake in VSNL.

However, only three players now remain in the fray — Reliance, Tata and the Dishnet-Tycom combine. Modicorp may now be the fourth player.

“Our request for allowing us to participate is being made only to introduce more competition in the bidding process that we feel would allow the government realise maximum value for VSNL,” Modicorp director Dilip Modi said in a statement here.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.27	HK $1	Rs.  6.10*
UK £1	Rs. 69.88	SW Fr 1	Rs. 28.40*
Euro	Rs. 42.59	Sing $1	Rs. 25.75*
Yen 100	Rs. 36.77	Aus $1	Rs. 24.20*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4695	Gold Std (10 gm)NA
Gold 22 carat	Rs. 4435	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7550	Silver (Kg)	NA
Silver portion	Rs. 7650	Silver portion	NA

Stock Indices

Sensex		3184.44		+52.66
BSE-100		1521.97		+31.39
S&P CNX Nifty	1033.80		+13.80
Calcutta	 106.16		+ 1.29
Skindia GDR	   NA		   —
   
 

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