Reliance clears air on trust
State Bank cuts lending, deposit rates
Nominee directors let off the hook
Indian Airlines board prefers to fly Airbus
Fresh move to hold petro-goods priceline
Telco financial rejig okayed
Norms to recover urea subsidy dues
4-pronged Tata Tea growth strategy
Insurers working on novel terrorism cover
Foreign Exchange, Bullion, Stock Indices

 
 
RELIANCE CLEARS AIR ON TRUST 
 
 
FROM SATISH JOHN
 
Mumbai, March 27: 
Reliance Industries Limited (RIL) hopes to sell the 7.5 per cent stake, that will accrue from the merger of Reliance Petroleum (RPL) with the parent company, within five years.

This 7.5 per cent stake will be held by the proposed trust which shall have a term of five years for realising the value of the shares.

The Reliance clarification comes in response to concerns voiced by financial institutions about the trust.

While announcing the merger of Reliance Petroleum with RIL, the Ambanis had said that they intend to create a trust as a repository to hold 7.5 per cent of the merged entity for subsequent divestment.

Financial institutions, including Unit Trust of India (UTI), have been seeking that the term for completion of monetising the shares held in the trust be clearly defined.

Analysts say that the five-year term for the trust indicates the time it might take the trustees to complete the task of divesting the stake to a strategic investor or an investment outfit. The job could even be completed earlier, but in view of the size of the company it was likely to take longer.

“We have sounded them and they are amenable to the idea of clearly defining the term of the trust for completing the task,” a senior UTI official said.

The UTI official said the mutual fund is concerned that unless a proper timeframe is stipulated for monetising the shares in the proposed Trust, it might affect investors’ interests.

The trust structure was created with the intention to significantly enhance both the companies’ financial flexibilities, apart from providing additional means of non-recourse financing, the company had then said.

In a communication to Reliance and Reliance Petro shareholders, convening the extra-ordinary general meeting, the companies have explained that the shares will be issued in accordance with the exchange ratio, in relation to the shares held by Reliance Industrial Investments and Holdings Ltd (RIIHL), a 100 per cent subsidiary of Reliance Industries. It shall be issued and allotted directly to an individual trustee or a board of trustees.

“The corporate trustee shall hold such shares with all additions or accretions thereto in trust for the benefit of RIIHL and its successor or successors, subject to the powers, provisions, discretions, rights and agreements contained in the instrument (the trust deed), establishing the aforesaid trust for a period of five years.

“The trustees shall have the sole discretion, if it is deemed so necessary, to vary the Term in accordance with the provisions of the trust deed,” the notice said.

The financial institutions are likely to seek clarifications on the issue of leaving the time-frame to the sole discretion of the trustees.

“During the term or such varied term as may be determined by the trustee, the trustee may realise value in relation to such shares and in such manner as is appropriate in accordance with the provisions of the trust deed and act in the best interest of the beneficiaries. The constitution of the trust and the functions and powers of the trustee shall be set forth in the trust deed. The obligations of the trustee shall stand discharged and the trust shall stand terminated in accordance with the provisions of the trust deed,” the notice to the shareholders said.

Several analysts say that in choosing such an innovative route, the two companies will gain immensely by divesting their equity at a subsequent date which will accrue to the merged entities for ploughing back into their operations, which otherwise, would have simply got extinguished.

It plans to divest over 12 per cent of the post merger-equity capital of RIL to strategic and/or financial investors or use the same to pursue significant acquisition opportunities, particularly in the energy sector.

Announcing the merger, Reliance had said the group holds around 64 per cent in RPL, of which RIL itself holds 28 per cent, 36 per cent is with RIIHL, while other RIL associates hold the rest. Only the RIL holding of 28 per cent will be cancelled.

   

 
 
STATE BANK CUTS LENDING, DEPOSIT RATES 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 27: 
The State Bank of India (SBI) today announced a 50-basis point reduction in its lending rates and 25-75 basis points on its term deposits, effective from April 1.

While the bank’s prime lending rate would now stand revised to 11 per cent from 11.50 per cent, interest rates on domestic term deposits on various slabs have been reduced largely by 25 basis points. However, interest rates for deposits of less than Rs 1 crore and above Rs 1 crore, with a duration of one year to less than two years has been reduced to 7 per cent from 7.75 per cent.

The bank also brought down interest rates payable on senior citizens’ deposits by 25-75 basis points. For deposits of one year to less than two years, the revised rate is now at 7.75 per cent, for two years to less than three years the interest rate is 8.25 per cent and for three years and above it is at 8.75 per cent.

The rate revision, which comes at a time when the economy is showing little signs of picking up, signals a lower interest rate regime in the country, with the move likely to propel several banks to lower their deposit and lending rates.

On the other hand, though the average depositor could be disappointed, analysts are of the view that deposit growth in banks is unlikely to show any negative movement as there are very few alternate modes of investment for a risk-averse investor.

The dip in lending and deposit rates has largely been attributed to the finance minister’s decision to reduce interest rates on small savings by 50 basis points in the Union budget.

The static interest rates on these saving schemes were seen as a major obstacle in banks’ lowering their deposit rates, as the returns on such schemes were more than that offered by banks.

The SBI move comes even as the banking and money market circles are looking forward to the monetary and credit policy which is due on April 29. Reserve Bank of India governor Bimal Jalan is expected to move further towards a softer interest rate regime by bringing down either the bank rate or the cash reserve ratio.

   

 
 
NOMINEE DIRECTORS LET OFF THE HOOK 
 
 
FROM RAJA GHOSHAL
 
New Delhi, March 27: 
Succumbing to pressure from the financial institutions, the government has agreed that nominee directors should not be black-balled for the sins of the company. The government had intended to bar persons serving as nominee directors on boards of companies—mostly personnel from FIs and banks—from joining the boards of other public companies for a period of five years if they failed to meet their fiduciary responsibilities.

This meant that their record as a nominee director should not be sullied because they failed to stop a company from flouting its statutory obligations, including failure to file annual accounts and returns or to repay its deposit or interest, or redeem its debentures.

The department of company affairs (DCA) has now issued fiat to all its regional directors and registrar of companies not to take disqualification action against nominee directors of public financial institutions, banks, central and state governments and government companies, a senior DCA official said.

The rules for disqualification of directors are spelt out in section 274 (1) (G) of the Companies Act. It now appears that the nominee directors will be let off the hook following intense lobbying by the banks and financial institutions against such a move.

However, the DCA has said that the exemption is subject to the compliance by these directors of the code of good corporate governance as enshrined in the Companies Act and clause 49 of the listing agreement. They have to regularly attend board meetings and to provide adequate feedback to the nominating institution.

If the nominee directors fail to display adequate responsibility, the institutions are expected to take steps to replace them. Further, they are expected to send a six-monthly report on the steps taken by them. The exemption applies to companies established under the Acts of Parliament having non-obstante provisions over the Companies Act 1956, like IDBI, LIC, UTI, and IDBI.

The senior DCA official also confirmed that DCA is considering a move to bring in the preferential allotment of shares within the Companies Act, so that its violation can become an offence with scope for penalty.

   

 
 
INDIAN AIRLINES BOARD PREFERS TO FLY AIRBUS 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, March 27: 
The Indian Airlines board has accepted a techno-economic evaluation panel report which calls upon the airline to buy 43 Airbus family aircraft at a cost of Rs 10,089 crore over a six-year period.

The planes selected are the 124-seater A319s, the 150-seater A320, which the airline already flies, and the 185-seater A321 for the high volume trunk routes. The sole rival to these planes are Boeing’s 737-600, 737-800 and 737-900.

The airline has also decided in favour of General Electric’s CFM56 engines over offerings made by Pratt & Whitney and British giant Rolls Royce.

A final decision on the plane purchase is expected to be taken by the Cabinet in the course of the next few months on the basis of recommendations by the civil aviation ministry, to whom the report has now been sent. Normally, a purchase decision of this magnitude is taken not merely on the basis of techno-economic reports but also on political considerations.

With the US now considered a close ally, the Boeing Corporation, for whom the US embassy has in the past lobbied (as have the embassies of European countries for Airbus), cannot still be written off.

In fact, many in the airline feel the order on GE for engines has been made not merely due to technical reasons but also keeping political considerations in mind.

Top IA officials said they selected Airbus planes over the Boeing series, partly because of the report and partly “because we already fly an Airbus fleet and the these planes have the same configurations and cockpits, which means we do not need new licences or retraining of our pilots. Also existing engineering spares can also be used with these planes.”

Copies of the report have been also sent to Comptroler and Auditor General of India and the Central Vigilance Commission. The state-run domestic airline has a fleet of 56 aircraft, including six leased planes.

While its fleet of A320s are relatively new with an average age of 12 years, some 20 planes—eleven B737-200s and nine A300s—which are between 18-21 year old. In contrast, Sahara and Jet, IA’s two rivals have recently inducted new planes bringing down their average fleet age to about six to eight years.

Top board level officials said, “This replacement is top priority for us as otherwise we will be left with a fleet of just 30 odd flying planes and 20 junks.”

Financial results

Indian Airlines expects to make an estimated loss of Rs 250 crore this fiscal on a turnover of over Rs 4,000 crore, mainly due to higher aviation fuel and insurance costs both of which shot up after the September 11 terror attack on US skies last year.

Insurance costs alone went up by some Rs 125 crore for the airline, while feul price bill shot up by Rs 238 crore.IA had turned in a loss of Rs 159 crore last fiscal after three years of being in the black.

The board, however, cleared a budget for the coming fiscal which predicts a lower loss of 98.90 crore, due to various cost-cutting measures.

Officials said this is expected to turn into a profit figure with new inductions.

In fact, the main reason for IA trying to renew its fleet is that new planes will mean a far lower operational cost.

A large chunk of the airline’s expenditure now goes into maintaining old aircraft. The older an aircraft gets, the more money an airline has to spend on it on engineering overhauls and modifications.

New deputy MD

Sources said the airline board has also decided in favour of promoting T.S. Chandrashekhar, its southern region director, to the rank of deputy managing director. In the fray were V.K. Sharma, director jet shop complex, A.K. Rastogi, director-IT, and Sushma Chawla, director-systems.

   

 
 
FRESH MOVE TO HOLD PETRO-GOODS PRICELINE 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, March 27: 
Petroleum minister Ram Naik will make a last-ditch attempt to get the finance ministry to agree to a reduction in excise duties from April 1 so as to soften the impact of rising global crude price on petro-good prices in the deregulated market scenario from April 1.

Crude prices have increased by $ 4 a barrel from the $ 20 which had been the benchmark price for fixing retail prices under an administrative price mechanism which is currently in place. But with the system being dismantled by the end of this month and free market norms ushered in, increases in petro-good prices are expected unless the finance ministry chips in, officials said.

Naik, who has promised to hold the price line for the next three months, held an emergency meeting with oil PSUs to work out a way to soften the impact of the crude price hike.

It is learnt that oil PSUs promised to absorb part of the price hike but protested that it would be impossible for them to absorb the entire quantum. The finance ministry is consequently being approached for duty reliefs as well as for hike in subsidy budgets for cooking gas and kerosene.

Sources said the government had worked out that the crude price hike, if allowed to be passed on in full to consumers, would mean an increase in petrol prices by Rs 2.56 a litre, diesel by Rs 2.32 a litre and kerosene by Rs 1.75 a litre. Cooking gas prices can be expected to go up by by another Rs 30-35 a cylinder. Naik said that he expected to be able to make an announcement on this tomorrow.

IOC-Reliance deal

Today’s meeting also worked out a tentative deal to sort out IOC’s conflict with Reliance over sales from the latter’s Jamnagar refinery. The new deal being now proposed calls upon IOC to sell between 7-8.5 mt of Jamnagar products, while Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd will take on marketing of the remaining 4.5-6 mt from the west coast refinery.

   

 
 
TELCO FINANCIAL REJIG OKAYED 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 27: 
The shareholders of Tata Engineering and Locomotive Co (Telco) gave their consent to the company’s move to set off Rs 1,180 crore against the securities premium account. The extraordinary general meeting (EGM) held today had sought approval to write-off Rs 1180 crore at one go for the fiscal ending March this year.

The move will result in the share premium account shrinking to Rs 522.02 crore from the present Rs 1,702.02 crore.

Telco has argued that this move would help better its operational efficiency and it expects to be back on the dividend list soon. The board had approved the proposal on February 20 and today shareholders okayed the move.

“This move will enhance shareholders’ value, reduce the burden on the company and get some savings this year,” said Ratan Tata, chairman. It would enable the company to make a comeback faster on dividend list, he added.

The EGM also passed the resolution for the appointment of three new directors on the company’s board. They were Ravi Kant, P.P. Kadle and V Sumantran.

New commercial vehicle

Tata Engineering and Locomotive Co Ltd is planning to introduce a 49-tonne commercial vehicle shortly in the market.

“The company already has a 40-tonne vehicle fitted with an air-conditioned cabin and we are currently working on a 49-tonne vehicle which will be introduced shortly,” Tata Engineering executive director Ravi Kant said today after the extraordinary general meeting (EGM).

Earlier, Tata had told shareholders that the competitively priced vehicle would compete with Volvo. Regarding introducing new concepts in the vehicle, he said the company may look at power systems, alternative fuels and hybrids as means of transportation and also consider increasing exports to European countries.

   

 
 
NORMS TO RECOVER UREA SUBSIDY DUES 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, March 27: 
The Group of Ministers (GoM) today cleared the retention pricing norms for the seventh pricing period from 1997-2000, phasing out the vintage allowance enjoyed by a large number of urea units.

This, and other steps at streamlining the norms, means that the government will be recovering some Rs 2,000 crore from fertiliser companies for subsidies paid during the period 1997-2000.

The GoM, however, deferred a decision on norms for the eighth pricing period from 2000-2003 as well as more drastic measures of reworking the entire retention pricing scheme under which the government pays out subsidies. The GoM, headed by planning commission deputy chairman K.C. Pant, will meet next month again to consider these two issues.

Agriculture minister Ajit Singh who was present at the meeting is reported to have asked the GoM to earmark this recovery for expenditure exclusively in the farm sector as “this money has already been paid by farmers to the urea producers and it is only fair they get it back.” Pant told newspersons after the meeting that one of the options considered by the GoM was giving subsidies directly to farmers for buying fertilisers from the open market.

Other alternative was to continue with the streamlined mechanism for subsidies to producers based on the cost of production, he said, adding that the GoM would meet again on April 11 and consider a long term fertiliser policy.

Feedstock consumption norms for urea producers have been altered and calculation would now be made on the current year or the previous one, whichever is lower.

Earlier the calculation was done taking the previous year as the base. The new method of calculation will also help the government recover some subsidies.

   

 
 
4-PRONGED TATA TEA GROWTH STRATEGY 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, March 27: 
Tata Tea, the country’s largest producer of tea, has worked out a four-pronged strategy for growth in the next fiscal. The growth strategy includes tightening fiscal norms, enhancing brand equity, increasing profitability of the tea estates and restructuring plantations and operations.

It has appointed Accenture to help tighten its finances. “A small team from Accenture is also helping us to enhance our brand equity,” said P. T. Siganporia, deputy managing director of the company.

He said Accenture is currently working out strategies for overhauling the entire supply chain management, to reduce costs. The consultant will also suggest areas of fresh investment, for higher returns.

“Apart from enhancing our brand equity, the company is also trying to establish a quality profile norm for plantations and operations with relatively higher profit yields that benchmark operations,” Siganporia said.

The company is also closely observing the entire tea industry’s restructuring plans in the face of low price realisation and high production costs. “It has to be a holistic approach. We cannot do it on our own. We hope that in the next financial year something will happen and accordingly we can implement those measures,” he said.

The company is also looking at various options like establishment of single estate brands and opening of tea parlours for growing its business.

Commenting on the performance of the company in the current financial year, he said it has not been a favourable year for the Indian tea industry, including Tata Tea. Adverse weather conditions along with falling prices have affected the company.

“In spite of all this, we shall outperform the industry,” he said.

The company, which produced 55 million kgs of tea this year, is the second largest buyer of tea in the Guwahati auctions.

Tata Tea has also worked out a detailed structural framework for integration with Tetley. It has decided to constitute a supervisory board comprising vice-chairman Krishna Kumar, Homi R. Khusrokhan, managing director, P. T. Siganporia, deputy managing director, John Kelly and Peter Unsworth from Tetley.

The supervisory board will manage co-ordination issues across Tata Tea and Tetley like strategy and portfolio decisions, communication, new initiatives for joint working, refinancing options and final plan and legal and statutory issues.

The company has also set up eight working groups—geographic growth, MIS and planning, general (non-tea) procurement, US strategy, research and development, IT, tea sourcing and HR.

It has also decided to include Vish Govindaswamy of Watawala Plantations of Sri Lanka in the tea buying and sourcing group, since the company feels that Watawala Plantations will be an important part in the integration process with Tetley.

Tata Tea has appointed Boston Consulting Group for working out the roadmap for smooth integration of Tata Tea and Tetley.

   

 
 
INSURERS WORKING ON NOVEL TERRORISM COVER 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, March 27: 
Domestic non-life insurance companies are set to introduce a unique insurance cover against terrorism in April.

Sources said the finer details of the cover are currently being worked out and the scheme is likely to be offered next weak. “The objective of the cover is to protect value of the properties, both industrial and non-industrial, so that the owners can make the claims in case of any devastation caused by terrorist activities,” a senior official in General Insurance Corporation said.

This is for the first time that a comprehensive insurance package will be offered against terrorist activities. The Tariff Advisory Commission, in discussion with 11 non-life insurance companies, has already prepared a tariff structure for this special cover.

Sources said the premium for this addition risk cover will be 30 paise per Rs 1,000 of premium for non-industrial units and 50 paise for industrial units. “This means, if an industrial unit pays Rs 1,000 as insurance cover against fire and other accidents, it will have to pay 50 paise more to take a cover against terrorism risk,” they explained.

Under the new scheme, a market pool will be set up in which all five public sector non-life insurance companies as well as the six private sector companies will have to invest in proportion to their respective net worth.

Sources said the size of the pool will be around Rs 200 crore, which will be managed by GIC.

The maximum limit for the risk cover will be Rs 200 crore, they added.

Meanwhile, the four public sector insurance companies along with GIC have scrapped the earlier risk cover schemes that dealt with disaster caused by terrorism.

A senior GIC official said the decision to reject the earlier schemes has been adopted following the international re-insurance companies’ refusal to take any exposure in any risk caused by terrorism. Further, domestic insurance companies had put a 10 per cent surcharge following the spurt in terrorist activities last September.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.80	HK $1	Rs.  6.15*
UK £1	Rs. 69.55	SW Fr 1	Rs. 28.85*
Euro	Rs. 42.75	Sing $1	Rs. 26.10*
Yen 100	Rs. 36.87	Aus $1	Rs. 25.40*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4990	Gold Std (10 gm)Rs. 4950
Gold 22 carat	Rs. 4710	Gold 22 carat	 NA
Silver bar (Kg)	Rs. 7875	Silver (Kg)	Rs. 7820
Silver portion	Rs. 7975	Silver portion	 NA

Stock Indices

Sensex		3459.08		-7.21
BSE-100		1707.02		+1.61
S&P CNX Nifty	1123.35		+0.30
Calcutta	 118.05		+0.22
Skindia GDR	 555.37		-2.48
   
 

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