Reliance Petro given scam clean chit
Truce talks for control of Modi Rubber
Kopran to license two drugs abroad
L&T, Grasim join hands to spruce up operations
Money changing rules eased
Slump forces ad firms to share

Mumbai, Jan. 13: 
Who was responsible for the collapse of the stock markets in March last year? That’s the nut-cracker question that the Joint Parliamentary Committee (JPC) appointed to investigate last year’s stock scam is still wrestling with.

It is fairly clear that it was a combination of factors that knocked the bottom out of the market early last year, which has since been buffeted by the ill-winds of an economy slowdown, a slew of weak corporate results and finally the rumble effects after the twin terrorist strikes of 9/11 and 12/13.

Even as the committee tries to unravel the various strands that entwined to make this sordid saga, one interesting element has been added.

According to the second interim report prepared by Sebi and placed last week before the JPC, it does not transpire that Reliance Petroleum, through Reliance Shares and Stock Brokers Ltd (RSSBL), were the lead financiers in the Automated Lending and Borrowing Mechanism (ALBM) segment of National Stock Exchange (NSE) prior to March 31, 2001. Their peak investment in the segment touched almost Rs 1600 crore by December 2000, before it was yanked down to zero by March 2001, when the markets became very volatile.

ALBM and the Bombay Stock Exchange’s (BSE) Borrowing and Lending Securities Scheme (BLESS) are the refined versions of the good old badla. However, the transactions are transparent as they are screen based. For instance, a buyer who buys X shares at Rs 4,000 but does not have the financial backing, will place these shares in the ALBM/BLESS segment. The lender buys the share at a discount, the difference being his spread. A participant who desires to borrow securities has to execute a purchase transaction in the spot book on NSE (referred as an ALBM session). Likewise, any member willing to lend securities shall execute a sale transaction.

The Sebi report brought out the startling facts, but did not find any wrongdoing by the company. However, market experts aver that here is a typical chicken-and-egg situation: which came first, the sucking out of funds, or the plunge in stock values?

The report reveals that the main client of RSSBL was Reliance Petroleum (RPL), which accounted for over 96 per cent of the ALBM transactions through the in-house brokerage of the Reliance group during the period.

On being quizzed by the market regulator, RPL said it had invested funds in the ALBM to generate “superior fixed income returns” compared with other short term avenues like government securities, liquid schemes of mutual funds, and call money linked products, which gave returns in the region of 7-8 per cent per annum.

“As against this, the return on deployment in the ALBM segment on NSE was much higher, generally in the range of 15-21 per cent,” RPL told the market regulator.

After the ALBM session on February 21, 2001, when the funds deployed by RSSBL amounted to Rs 1,562 crore, the Reliance brokerage withdrew the funds in subsequent settlements.

RPL, asked to give reasons for pulling out the money, said: “Our peak investment in ALBM was approximately Rs 1,600 crore. We brought it down to nil in March 2001, in view of continuing reduction in interest yields, and as a matter of business prudence.”

“The facts and figures do not bear out that the ALBM or the BLESS facility was misused or manipulated by withdrawing the borrowed securities and using them again, by either selling or pledging them,” Sebi has said in its report.

Giving a blow-by-blow account of RSSBL’s activities in the ALBM segment, the market regulator said the funds deployed by the brokerage on various ALBM dates till May 2000 were less than Rs 100 crore. The funds deployed till August 2000 were in the range of Rs 200 crore to Rs 700 crore. Similarly, the amount on various ALBM dates till mid-November 2000 was in the range of Rs 700-900 crore. It peaked at Rs 1600 crore in the end of December 2000 and was reduced to nil by March 2001.

RSSBL made pay-ins worth Rs 4,156 crore between April 2000 and March 2001. In the same period, it received a total pay-out of Rs 3,267.36 crore; it made pay-ins worth Rs 2,280 crore in the period from October 2000 to March 2001, while it received pay-outs worth Rs 2339.8 crore. According to the report, the total ALBM turnover in October 2000 to February 2001 was around Rs 50,000 crore; RSSBL contributed Rs 25,000 crore to the volume.

On further examination, almost Rs 16,280 crore came from ALBM transactions in the so called K-10 scrips, the stocks that were favoured by Big Bull Ketan Parekh. However, Sebi said the amount did not represent actual share sales, but the sale entry generated corresponding to the pure borrowing.

Depository statements were obtained from RPL to ascertain if the shares received by it against pure borrowing in April-September 2000 were actually held by it. Even on BSE, RSSBL was the dominant broker in the BLESS segment. It deployed Rs 486 crore in BLESS in February 2001. By the middle of the month, it had gone down to Rs 333 crore and to nil by end of the month. RSSBL had a 7 per cent share in the segment with funds deployed to the tune of Rs 1605.85. The JPC’s views on the new twist to the scam saga are not known.


New Delhi, Jan. 13: 
The battle for control of Modi Rubber (MRL) between the Modi brothers and the financial institutions (FIs) has taken a new turn with the FIs now talking to them for a settlement.

The cash-strapped Modis, who were able to raise their stake in MRL through a buyback of shares last August, have now found two NRI white knights who are ready to come to their aid — R. A. Khamar and Deepak Seth. They are likely to pick up the FIs’ stake and hold it in favour of the Modis.

Speaking to The Telegraph, MRL managing director Bhupendra Kumar Modi said that some headway had been made in the talks with the FIs. “The talks are being held on a regular basis now and it is likely that the third party (the NRI duo) may step in to purchase the stake once a final agreement is reached,” he said.

Confirming the move IFCI chairman V. P. Singh said discussions were now being held at regular intervals. The atmosphere for the talks had improved considerably since last June when the FIs initiated a board resolution to remove B.K. Modi as the company’s MD.

“The discussions are on. The chances of clinching a deal are bright,” said Singh. However, the IFCI chief refused to disclose the reserve price that the FIs had set for their stake. “It is a market-sensitive information and if we disclose what price we are looking at, we would be violating the Sebi guidelines,” he said.

Nevertheless, B.K. Modi reiterated his earlier stand that the purchase price should be linked to the current market price, which is hovering around Rs 35-36. Sources, however, say that the FIs may not agree until it is offered to them at 10-20 per cent premium to the last open offer price of Rs 90 per share.

The emergence of NRIs in the picture is not new as they had participated via their companies in the open offer along with the Modis. Khamar had participated through his Mauritius-based OCB Sidh International as a party with B.K. Modi. The other NRI Deepak Seth had participated in favour of V. K. Modi through British Virgin Island-based Witta International.

The Modis are in fact ready to open their plant at Modipuram which has been shut down for a long time. “I am ready to reopen the plant. However, it will require an investment of Rs 50 crore. Until the money comes in, we cannot take any firm decision on this point,” Modi said.

Industry sources say that one of the reasons why the FIs have climbed down from the earlier rigid stand may be the fact that the case over the ‘fraudulent’ submission of LIC’s 12 per cent stake in response to the open offer, which is now before the Mumbai High Court, may turn out to be a long-drawn battle.

The Modis, however, have a different view. “There is a vast difference between the current market situation and that prevailing a few months back when the open offer took place. Now we have to deal with the post-WTO scenario, the slowdown in the global and the Indian economy and a plunging share market after the terrorist attacks in New York,” Modi said adding that the current market price should be an ideal benchmark for both parties.

Confirming the move, one of the Mumbai-based FIs who refused to be quoted said the talks are indeed moving towards an amicable solution. “Yes, the talks are on and we hope to conclude it amicably,” they said.


Mumbai, Jan. 13: 
Following in the footsteps of the research-oriented domestic pharma majors, the city-based Kopran Ltd is weighing a move to licence out two of its molecules to foreign companies. The company, known more for its strength in the semi-synthetic penicillin (SSPs) segment, is now exploring its research mettle through group firm Kopran Research Laboratories Ltd (KRLL).

Sources said Kopran is looking at the option of licensing out its new chemical entities (NCEs) for which advanced pre-clinical studies have been completed. The NCEs include KNC6, an anti-ulcerant and KNC1206, a laxative. “This is an option that is currently being pursued,” sources close to the company pointed out.

The trend has caught on following the success attained by companies like Dr Reddy’s Laboratories Ltd which have reaped huge dividends by licensing a particular molecule to an international major.

For instance, DRL had earlier this year, entered into an agreement with Novartis and Novo Nordisk on the commercialisation of anti-diabetic DRF-2725, whereby Novartis would acquire exclusive rights to commercialise the compound in the US, Canada and Mexico, with Novo Nordisk retaining certain rights for the US.

However, analysts are more circumspect with regard to Kopran. Sources say that even as the company has successfully migrated from being largely known as a SSP major to having a presence in few therapeutic segments, its success in research could only be known after a few months.


Calcutta, Jan. 13: 
Cement majors Larsen & Toubro and Grasim Industries are making a combined effort to enhance their business strengths through synergies in operation. The move comes even as L&T continues to work out modalities of separating its Rs 2,700-crore cement division, following Grasim’s acquisition of Reliance Industries’ 10 per cent stake in the company.

Speaking to reporters after the commissioning of a one million tonne plant at Durgapur, L&T whole-time director J.P. Nayak said: “We are exploring various ways of improving our operations through synergies with Grasim. The prime objective is to create value by reducing costs.”

Though he did not mention any specific steps, the two leading cement companies are reportedly considering a cross-branding exercise which would allow Grasim to use L&T’s capacity to produce its brands and vice versa. This would enable the two cut down on freight costs.

Another senior L&T official said: “It is still not clear to the L&T management what Grasim intends to achieve from the investment. But considering the price paid for it—a 47 per cent premium on the market price of the L&T stock—it is clear that Grasim intends to add value to its own operations through its association with L&T.”

Grasim’s investment came at a time when L&T was planning to spin off its cement division and induct a strategic partner. “We are still working on it. We need to increase our capacity by one million tonne a year on an average to remain leaders. We need funds for this and the point of inducting a strategic partner was to ensure inflow of funds into the business,” Nayak said. Asked whether there was any possibility now of L&T’s cement division being merged with Grasim, he said, “The issue has not been examined or proposed.”

However, merchant banking sources said L&T’s hopes of divesting stake in its cement division were nearly over with Grasim entering the scene. “Besides, the foreign majors that had expressed interest in L&T were concerned about management control,” they added.

The Durgapur plant, commissioned on Saturday, was set up at a cost of Rs 125 crore in a record nine months. The plant will produce blended cement using clinker from Hirma in Chhatisgarh, fly ash from the thermal power plant in nearby Bakreshwar, and slag from the Durgapur Steel Plant of the Steel Authority of India Ltd (SAIL).

With the commissioning of its plant in West Bengal, L&T has increased its capacity to 16 million tonnes per year. L&T officials claimed that it was the biggest cement maker in terms of production capacity in the country now, followed by Associated Cement Companies (ACC).

The combined production capacity of L&T and Grasim stands at around 30 million tonnes, which is about a quarter of the country’s total capacity. Grasim paid Rs 766.50 crore—or Rs 306.60 per share—for the stake in L&T.


Mumbai, Jan. 13: 
The Reserve Bank of India (RBI) has liberalised money changing facilities, which allows resident entities to undertake money changing without obtaining a licence from the central bank.

The bank has given authorised dealers (ADs) and full-fledged money changers (FFMCs) the freedom to enter into agency/franchising agreements for the purposes of carrying on the business of foreign currency notes, coins or travellers cheques into Indian rupees.

The Reserve Bank of India said in a statement that ADS and FFMCs desirous of entering into such business arrangements would only be required to obtain a one-time approval from it.

Under the present money changing norms, resident entities can only buy foreign currency but cannot sell.


New Delhi, Jan. 13: 
A consolidation wave is sweeping across the Rs 8,000 crore advertising industry, which expects negative to flat growth rates in revenues in 2001.

Blame it all on 9/11 — though strictly speaking, the jangle in the jingle-jungle had been heard at the start of the year, when dotcoms were ground to dust and industry started moaning over the downturn in the economy.

Ad industry growth rates cratered every quarter and, in the crucial fourth quarter of 2001 — when the industry usually looks forwards to its highest billings — revenue growth tanked to negative levels. Industry mavens say the fourth quarter could see a negative growth of between 5 and 10 per cent.

The industry has already started to cobble new slash-and-burn strategies to cope with the pain. For a start, the advertising agencies belonging to the large networks are combining media functions to enhance their bargaining power and share their scarce resources.

The $ 17-billion WPP Group has already started the processing of combining the media functions of the top agencies within its fold — HTA, O&M and Contract — in which the world’s largest advertising outfit plans to raise its stake. All of their media needs will be channelled through Mindshare, the media arm of WPP, which has already made inroads in India and has a local arm in Mumbai.

Says Nitin Jain, associate vice-president and media services director at HTA: “Mindshare has already started work two months back with ‘Mindshare Fulcrum’. The erstwhile Fulcrum was the media outfit of HTA which was totally dedicated to Hindustan Lever.” The Lever account is the biggest within HTA’s portfolio.

WPP is also in the process of bringing in its other media outfit, Maximize, to India soon. Industry sources say it will handle the media needs of those accounts that cannot be routed via Mindshare because of a conflict of interest. The media functions, including media planning and space buying for the group agencies, will be handled by these specialised media outfits.

The basic idea is to look at media buying as a separate business. Sources say the agencies can share the valuable research information of WPP. The best practices of each conglomerate can be shared and centralisation will lead to greater accountability. Equus — the agency in which WPP plans to raise its stake from 30 per cent to 45 per cent — will also use Mindshare’s services. Jain said Equus was not within the Mindshare network yet. However, Equus CEO Suhel Seth claimed, “From January onwards, we will also do our media buying through Mindshare.”

The worldwide merger of two leading media outfits — Zenith Media and Optemedia — will have its impact on the media-buying strategy of the Indian agencies that come under the Cordiant Communications Group (CCG) and Publicis SA.

CCG and Publicis together owned Zenith Media, while Optemedia was a subsidiary of Publicis SA. Zenith Media has a local arm — Zenith India — which handles the media buying requirements of Bates (a CCG affiliate) and Saatchi and Saatchi (a Publicis arm). After the merger of Zenith Media and Optemedia to form Zenith Optemedia, the Indian arm will also handle the media buying needs of another Publicis affiliate — Publicis India.

Indranil Dutta, senior general manager at Zenith India, says there is a growing trend towards merger of media functions across network agencies or agencies. “When the agencies put their media functions together, it gives them the strength of volumes and thus bargaining power with the media,” says Dutta.


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