Zuari bags Paradeep Phosphates
Indian Oil keen to gain IPCL control
Parekh to chart SEB rejig plan
Corporate debt yields tumble
Move to bring services under Cenvat
LIC shortlists three for UK venture
Sundaram buys Newton stake
Foreign Exchange, Bullion, Stock Indices

 
 
ZUARI BAGS PARADEEP PHOSPHATES 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 14: 
The government today decided to sell its 74 per cent stake in Paradeep Phosphates (PPL) to the Zuari-Maroc combine at Rs 151.7 crore —Rs 24 crore less than the reserve price of Rs 176 crore. This is the first time a PSU will change hands below the reserve price.

Defending the controversial decision to sell off the company to the single eligible bidder, Union disinvestment minister Arun Shourie said the offer price was much higher than the valuation of Rs 83 crore, made on the basis of the discounted cash flow method.

The strategic partners have promised to complete a wage revision within a month and settle arrears within 90 days, to bring employees demanding a new pay deal back to work. This could cost about Rs 16-17 crore.

The decision to sell the Orissa-based fertiliser maker was taken at a meeting of the Cabinet Committee on Disinvestment, chaired by Prime Minister Atal Bihari Vajpayee. Shourie said re-bidding could have taken at least three to four months, a delay that could hardly be afforded for a firm that was suffering a loss of about Rs 12 crore every month.

The government will have the right to exercise a “put” option, enabling it to dilute its stake further after one year, whereas the strategic partner would have a “call” option for the remaining stake after four years.

The minister said the decision was taken after looking at various aspects. “PPL is almost a BIFR (sick company) case with a negative net-worth, despite three restructuring packages of Rs 750 crore,” he said. In addition, the company owes its creditors more than Rs 1,100 crore. The net worth is estimated at minus Rs 100 crore. “We would have lost at least about Rs 40 crore in case we had gone for other options,” Shourie said.

The outstanding liability on account of payments due to OCP of Morocco, GCT of Tunisia and MMTC is Rs 856.34 crore. The government, Shourie said, had earlier decided to take over the disputed liability of Rs 311 crore between PPL and MMTC, and get it resolved through the committee of disputes in the Cabinet Secretariat.

Tata offer

The open offer by the Tatas to acquire another 20 per cent in VSNL will be funded by Tata Sons and Tata Power. Open between April 10 and May 9, it could cost Rs 1,151.4 crore.

   

 
 
INDIAN OIL KEEN TO GAIN IPCL CONTROL 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Feb. 14: 
With IBP Ltd already under its belt, Indian Oil Corporation (IOC)—the country’s only Fortune 500 company—is now warming up to bid aggressively for IPCL.

IOC has earmarked a corpus of Rs 3,000 crore to fund its acquisition plans, including IBP and a possible bid on IPCL, during the last quarter of the current fiscal.

While the acquisition of IBP, including the open offer it has to make, will cost the company around Rs 1,800 crore, the majority of the remaining amount is likely to be invested to pick up 26 per cent of government’s stake in IPCL.

Although the company had earlier harboured plans to invest in Haldia Petrochemicals in West Bengal, it lost interest in the project following the latest change in the ownership pattern.

IOC director (finance) M.P. Sugabanam confirmed the amount that the company intends to invest in acquisitions till March. “We will borrow the entire amount for the purpose as we are investing internal accruals worth Rs 3,500 crore to finance our modernisation and expansion programmes,” Sugabanam said.

He also hinted that the entire fund required for the acquisitions has been tied up with State Bank of India at around 8.50 per cent interest rate.

“We don’t have any funds crunch as SBI, with whom we have a cash-credit account, is ready to finance our investment plans for all the acquisitions in this quarter,” he said.

Sugabanam, however, refused to provide any outline about the company’s tentative pricing for IPCL.

“We are very keen on IPCL, but at this juncture we cannot comment on the possible price of our bid. In fact, the final decision in this regard will be taken after the government decides on the disinvestment date,” he said.

Regarding the company’s earlier offer to pick up 26 per cent stake in Haldia Petrochemicals, Sugabanam said the chapter is not yet closed.

“But IPCL is the first priority, at least for the moment,” he added.

IOC sources said the company is ready to pay a good price for IPCL, which is a well-balanced and profit-making company compared with HPL. Besides IOC, two other companies—Reliance Industries and Nirma—are in the fray for IPCL.

A little over six crore shares will be released by the government for sale in the first tranche of disinvestment in IPCL. Going by today’s closing price of Rs 83 per share, the 6 crore shares are likely to be valued at Rs 504 crore.

The price of the IPCL scrip has gone up over the last few trading sessions—from Rs 58 on January 14 to Rs 84 today—in anticipation of disinvestment.

“The company makes steady profits and pays dividends. Moreover, the three plants are operating at over 100 per cent capacity even in the face of steep recession. Hence the price should be very good,” they noted.

IOC has already got a due diligence done by the Bank of America. Reliance and Nirma have also carried out their valuations of IPCL by their internal groups.

   

 
 
PAREKH TO CHART SEB REJIG PLAN 
 
 
BY A STAFF REPORTER
 
Calcutta, Feb. 14: 
PRABHU PROMISES TO ENERGISE POWER SECTOR The Union power ministry has set up a three-member committee headed by Deepak Parekh to draw up a plan for the financial re-engineering of state electricity boards (SEBs) that will be essential once their dues to central public sector units are securitised.

The Cabinet is expected to approve the securitisation of SEBs’ dues amounting to Rs 41,473 crore before the budget, Union power minister Suresh Prabhu said at a press conference here today.

Prabhu, who was in the city to address an international conference and business meet on optimisation of existing capacity (renovation and modernisation), said the Parekh committee, appointed a week ago, will submit its report within June 30.

According to the Montek Singh Ahluwalia report, SEBs owed about Rs 41,473 crore to various central public sector units (CPSUs) and the Railways. “About 50 per cent of the surcharge/interest on delayed payments should be waived for participating states and the remaining 50 per cent of surcharge/interest and the full principal amount (Rs 25,727 crore) has to be securitised through bonds issued by state governments,” Prabhu said.

Replying to a query, the minister said the Centre would set up an electricity appellate tribunal as part of its efforts to bring in a uniform policy for the power sector in the country.

“There will be one tribunal for the entire country where power utilities both in the public as well as private sector can appeal for reviewing the tariff orders of their respective state electricity regulatory commissions. We plan to set up the tribunal in the Electricity Bill 2000, which is expected to get a nod in the monsoon session of Parliament,” he said.

Commenting on the beefing up of the transmission and distribution system in the country, Prabhu said all the distribution circles will have to submit a project report within six months. “We have to convert the distribution circles into profit earning centres and check power theft which is responsible for losses of around Rs 20,000 crore annually.”

Renovation plan

Earlier in the day, addressing the conference, Prabhu said the government has set a target of generating an additional 10,000 MW in the Tenth Plan through renovation of existing plants.

“Renovation is a more economic way of generating power than setting up greenfield projects, so we have decided to focus on it to deliver power at the cheapest possible rates,” he said.

The minister said the country will require 1 lakh MW of additional power by 2012 to reach the goal of ‘power-on-demand,’ which entails an investment of about $ 160 billion, and of this 20,000 MW will come through renovation and modernisation. “Funds will not be a problem. Under the Accelerated Power Development programme (APDP), we will supply the funds required for the task,” the minister assured.

Prabhu said National Thermal Power Corporation and Bharat Heavy Electricals Ltd will help the states chalk out plans for R&M.

The Central Electricity Authority has identified 170 thermal units with a capacity of 11,000 MW and 35 hydel units with a capacity of 3,000 MW for renovation.

Meeting with CM

Later in the day, Prabhu met chief minister Buddhadeb Bhattacharjee and assured him that the Centre would provide Bengal all financial assistance for setting up new power plants and to pursue reforms in the sector.

   

 
 
CORPORATE DEBT YIELDS TUMBLE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 14: 
The unprecedented fall in yields on government securities is spilling over into the corporate bond market. Firms are in a position to raise funds at rates that are lower by around 20 basis points over those prevailing until recently.

Debt market circles said AAA-rated firms can raise five-year money at 8.35 per cent against 8.55 per cent weeks back. The reduction has also been seen in the secondary markets, where bonds that offered around 10.50 per cent fetch around 8.40 per cent now, a 200-basis point fall. The four-year Hindalco bond is ruling at 8.39 per cent against 8.65 per cent recently.

The fall in corporate bond rates shadows the trend in the government securities market, where yields have slipped to historic lows due to ample liquidity, and expectation of further cuts in interest rates in the Union Budget. The 10-year benchmark paper is now trading at a yield of 7.17 per cent, down over 300 basis points from the previous year.

Debt market analysts say the yields on government securities are likely to remain at the current levels over the next few days amid bouts of profit booking. “The markets are unlikely to see major movements either way. This should go on till the budget, following which a trend will be set depending on the finance minister’s proposals,” an analyst with a nationalised bank said. Not many companies have been raising money through bonds, but the feeling is that there will be a flurry of activity after the February 28 budget presentation.

Recently, Neyveli Lignite Corporation raised five-year funds at 8.90 per cent. “Most firms are probably waiting for the budget, which is largely expected to bring about a further reduction in interest rates,” Ashish Vaidya, senior analyst at HDFC Bank, told The Telegraph. Market watchers and debt analysts reckon that finance minister Yashwant Sinha will set the pace for a fall in interest rates by announcing at least a 50-basis point cut in the administered rates on small savings.

   

 
 
MOVE TO BRING SERVICES UNDER CENVAT 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Feb. 14: 
The government is planning to bring all services under the central value added tax (Cenvat) scheme, rather than continue with a separate structure of non-vatable taxes on a few select services that causes economic distortions. It also plans to allow states to levy vatable taxes on services as an incentive to get them to eventually move to an all-India value added tax regime.

States have already been clamouring for this ever since they lost out financially when they agreed to abolish taxes on inter-state movement of goods. West Bengal finance minister Ashim Dasgupta has been a leading proponent of this.

The Central Board of Excise and Customs (CBEC) wants value added tax on services to be fully integrated into the VAT. Such tax on services will also be allowed to be set-off against VAT on a commodity where the service has gone into its manufacturing.

The CBEC has also agreed with a Shome Committee recommendation that capital goods should be fully vatable within a year against production of goods. This would imply that VAT paid, on say, capital goods needed in a biscuit plant would be set off in the very year of purchase of these machinery against VAT to be paid for final manufactured biscuits.

However, VAT credit will not be given for a select negative list of products such as building material, paint, petrol, diesel, items used in the office such as cars and computers. Food products, drugs, pharma products and medical equipment would continue to be exempted from Cenvat.

The government also wants to levy a single vatable levy, instead of charging excise, special excise and additional excise on certain products such as sugar and textiles.

It also wants to cut down the number of Cenvat slabs from three to two. Cenvat slabs of 16 per cent and 24-28 per cent will be introduced eliminating an eight per cent slab currently available. The last budget theoretically reduced the number of slabs to one but added two others—creating a three-slab regime of 8, 16 and 24 per cent.

In the case of exports, the government wants Cenvat and special excise duties to be levied on them too. Exports would be taken as zero-rated, that is it would be taken that they carry a zero degree of previous taxation, for levy of Cenvat. This could then be set off once these exports are used in the process of manufacture here or refunded once it is sold as a final product.

Similarly, large purchase of domestic products would be eligible for refund of excise charged when they are actually taken out of the country as these would be treated as exports.

But possibly one of the biggest reforms will be in the manner in which the government is planning to slash excise exemptions. Other exemptions will, however, be either rationalised or merged and allowed to remain.

SSI duty exemption till a benchmark of Rs 1 crore, will remain, so that once they cross this barrier they will enter the full duty regime arena.

   

 
 
LIC SHORTLISTS THREE FOR UK VENTURE 
 
 
OUR BUREAU
 
New Delhi, Feb. 14: 
The Life Insurance Corporation (LIC), which is planning to get itself rated by international agencies, has shortlisted three foreign players for its proposed joint venture in the UK, its chairman G.N. Bajpai said here today.

“We have shortlisted three players for our proposed joint venture in the UK,” Bajpai said today on the sidelines of a global conference of actuaries organised by the Federation of Indian Chambers of Commerce and Industry (Ficci).

He refused to divulge the names of the potential partners shortlisted for the joint venture in which Life Insurance Corporation will hold the majority stake. Indications are that the shortlisted players are mid-sized companies not having any operations in India.

Meanwhile, the Insurance Regulatory and Development Authority today sought early passage of Bills to convert General Insurance Corporation into a national reinsurer and allow brokers in this sector.

   

 
 
SUNDARAM BUYS NEWTON STAKE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 14: 
Sundaram Finance, a leading non-banking finance company, today said it will acquire the 39 per cent stake of its joint venture partner Newton Investment Management in Sundaram Newton Asset Management Co Ltd.

The announcement comes in the wake of similar moves towards consolidation made by other participants in the industry. Several mutual funds affiliated to PSU banks are either taking a fresh look at the business by roping in foreign partners or considering an exit route.

Sundaram Newton Asset Management, investment manager for the schemes of Sundaram Mutual Fund, was set up in 1996 as a joint venture between Sundaram Finance and UK-based investment management firm Newton Investment Management.

Newton Investment Management itself has been acquired by Mellon Financial Corp. Viji Santhanam, vice-chairman of Sundaram Finance said following the Mellon take-over of Newton, there has been a shift in strategic perspectives and the company therefore decided to buy out the Newton stake.

He added the partnership with Newton had been a very rewarding one and that the disengagement would be very amicable, and thus brushing away suggestions of a discord between the two partners.

Sundaram Mutual Fund has Rs 800 crore of assets under management (AUM). Its flagship scheme is Sundaram Bond Saver.

Sundaram Finance entered the mutual fund business in 1996, home finance in 1999, and general insurance in 2001 in partnership with Royal Sun Alliance of the UK as part of its diversification plans.

A company statement said Sundaram Finance will continue to be the sole sponsor for Sundaram Mutual Fund, adding that it sees clearly the potential for growth of mutual funds in the country and, is therefore, deeply committed to the business in the coming years.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.69	HK $1	Rs.  6.15*
UK £1	Rs. 69.52	SW Fr 1	Rs. 28.25*
Euro	Rs. 42.44	Sing $1	Rs. 26.30*
Yen 100	Rs. 36.77	Aus $1	Rs. 24.75*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5030	Gold Std(10 gm)	Rs. 4950
Gold 22 carat	Rs. 4750	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7675	Silver (Kg)	Rs. 7685
Silver portion	Rs. 7775	Silver portion	NA

Stock Indices

Sensex		3557.06		+ 37.19
BSE-100		1738.71		+ 24.16
S&P CNX Nifty	1150.00		+ 14.90
Calcutta	 120.83		+  0.80
Skindia GDR	 538.75		-  7.60
   
 

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