Sardas on the prowl for BSL
Bengal likely to roll back turnover tax
Money for mergers
If cash buys growth, Jalan’s game
15 services picked for WTO trade-off
ICAI norms for power boards
Electrical gear tops FDI list

 
 
SARDAS ON THE PROWL FOR BSL 
 
 
BY A STAFF REPORTER
 
Calcutta, April 28: 
The Sardas—who own seven jute mills and a chemical company—appear to be gearing up for their ninth straight take-over, with sights firmly set on BSL Ltd (formerly known as Bhilwara Synthetics).

At the prevailing market price of around Rs 70 per share, the Sardas will have to spend Rs 17.5 crore to top the promoter holding of 34 per cent.

The Sardas claim to have acquired a 12 per cent stake in BSL, a textile company promoted by the Churiwals and Jhunjhunwalas, and are negotiating with some Calcutta-based investors and brokers to acquire their 5 per cent stake in the textile manufacturer. The Sardas have already written to the financial institutions and the Unit Trust of India, seeking to acquire their combined holding of 10 per cent at Rs 71 per share.

“Some brokers in Calcutta control 5 per cent in BSL. We will acquire these shares in course of time,” Ghanshyam Sarda said.

This would take the Sardas’ holding past the 15 per cent threshold. The group is also gearing up to make a public offer mandatory when the acquirer crosses the 15 per cent limit.

Ghanshyam Sarda said a merchant banker was being appointed to advise them on the take-over. “From here onwards, they are going to steer the ship,” he added.

The Sardas have a long history of acquiring established companies. They have so far acquired seven jute mills and Kolmak Chemicals, a company that had been referred to the Board for Industrial and Financial Reconstruction. But none of these were hostile take-overs.

Ghanshyam Sarda says he has no immediate plans of bidding for management control of BSL. “I am in no hurry to acquire control of the company. We will continue to buy the stock and may even make an open offer, but won’t hurry through the motions,” he added.

The Sardas have so far acquired the 6.33 per cent stake held by Calcutta-based investment banker SMIFS Capital Services, from the market. Some Calcutta-based brokers and investors close to the SMIFS group of companies are also known to have substantial investments in the stock.

   

 
 
BENGAL LIKELY TO ROLL BACK TURNOVER TAX 
 
 
BY ALOKANANDA GHOSH
 
Calcutta, April 28: 
State finance minister Asim Dasgupta is likely to withdraw the 0.5 per cent turnover tax (ToT) introduced in the budget for 2002-03. The 10 per cent surcharge on the sales tax is, however, expected to go up by 5-10 per cent.

The increase in surcharge will be mainly to make up for the revenue deficit, which is estimated at around Rs 1,000 crore, that would be created with the withdrawal of ToT. The finance minister had announced a 0.5 per cent tax on resale of goods except for LPG, diesel, petrol, kerosene oil and furnace oil.

The increase in surcharge on IT-related goods would result in a 0.5 per cent increase in prices of PCs, compared to a 2-2.5 per cent increase in case of imposition of the ToT.

The Computer Association of Eastern Region (Compass) and the Confederation of West Bengal Trade Associations (CWBTA) had approached the finance minister and held discussions regarding the multi-point taxation imposed on the industry. Members of the trade bodies said that the discussions held on Friday were favourable but refused to give details of the outcome of the meeting.

The CWBTA, a confederation of 40 trade bodies, will also appeal for the reduction of high surcharge rates in commodities like lubricating oil and grease, cosmetics and electronic goods.

According to the trade bodies, the high tax rates result in reduced sale of these items in the state, as it is easier to buy them in neighbouring states and simply carry them into the state.

They were also opposed to the multi-point taxation system and had sought single-point taxation.

   

 
 
MONEY FOR MERGERS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, April 28: 
As the Reserve Bank governor takes the wraps off the monetary and credit policy tomorrow, what’s weighing on everyone’s minds is whether Jalan’s jugglery will boost mergers and acquisitions.

With the disinvestment programme gathering pace as more and more state-run companies are put on the selling block, consolidation and restructuring of businesses is turning out to be the latest buzzwords in the corridors of India Inc, driving companies into the arms of merchant bankers, for funds to meet their growing appetite for acquisitions.

So far, two business groups have been successful in the disinvestment exercise, snaring two trophies apiece. The Tatas acquired a portion of CMC and VSNL while the Sterlite group acquired Balco and Hindustan Zinc. To facilitate both acquisitions, the two groups have mopped up funds from the debt market by floating SPVs.

“Banks should be comfortable accepting shares as collateral to extend funds for the acquisition,” Mahesh Chhabria, chief operating officer at Enam Financial Consultants said.

Merchant banking circles are eagerly waiting for the policy to allow structured credit, with banks being given more leeway to extend loans against shares instead of leveraged buy-outs through special purpose vehicles that raise funds by issuing debentures.

For the banks, the opening of a new stream of business would be a welcome relief, coming at a time when new projects in the corporate sector are considerably slowing down.

   

 
 
IF CASH BUYS GROWTH, JALAN’S GAME 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, April 28: 
If cash could work wonders, Bimal Jalan will have to play magician. On Monday, when he unveils his credit and monetary policy, he is expected to pull not one, but several rabbits, out of his hat: Shovel more funds into the industry, nurture an agriculture recovery and keep the genie of inflation bottled up.

With inflation reined in and the country’s forex swelling to $ 55 billion for the week ended April 19, the Reserve Bank of India (RBI) governor will have to give industry the Druidic potion it needs and keep the fiscal mess at the Centre and states from careening out of control. “Though there has been some recovery, it has primarily been agricultural led and the overall economic growth has been below expectations,” says a senior banker.

First the industrial sector. The index of industrial production (IIP) grew only 2.5 per cent in the last quarter of 2001-02 against 5 per cent in the same period last year. Virtually all sub-sectors —manufacturing, mining and electricity — have recorded a deceleration. Faced with the slump, the corporate community is looking to the Reserve Bank to not only ensure easy liquidity, but also bring down interest rates.

“The biggest question which policy makers are figuring out is how to reverse the decline in the rate of economic growth,” says Mahesh Vyas, executive director at the Centre for Monitoring Indian Economy (CMIE).

This opinion is echoed across the industry. There are calls for a 50-100 basis points reduction in the cash reserve ratio (CRR) and the bank rate — the benchmark rate at which the central bank re-finances banks. That rate, now at 6.5 per cent, is unlikely to change. There is a small section that believes the bank rate might be reduced by 50 basis points, but it is not sure if that would lead to a decline in banks’ prime lending rates.

However, most agree that the CRR will be pared, at least by 50 basis points, to 5 per cent. The RBI governor is also expected to lay the roadmap to bring down the ratio to a level of 3 per cent over time — measures that could enhance liquidity within the banking system.

“Given the political uncertainty over a crucial vote in Parliament due this week, we may not see the bank rate reduced. It may be done next month, when the political climate improves,” says Sanjeet Singh, AVP, ICICI Securities. He sums up his expectation from Jalan: an “accomodative, pro-growth and easy money policy.”

   

 
 
15 SERVICES PICKED FOR WTO TRADE-OFF 
 
 
FROM SHASHWATI GHOSH
 
New Delhi, April 28: 
India has identified 15 service sectors where it is ready to pull down non-tariff barriers and use them as bargaining chips in exchange for greater market access during negotiations at the forthcoming World Trade Organisation’s ministerial meeting in Mexico.

The government is in the process of finalising the request list to be submitted for the Geneva meeting within the June 30 deadline. The 15 sectors—out of the 161 service sectors—where the government is prepared to pull down barriers, include audio visual services, tourism, educational services, accounting services, financial services, legal services, healthcare, information technology, construction and planning, engineering and technical services, project exports, techno-economic services, telecom services, medical services and energy-related services.

“The main issue of negotiations for all these services will be movement of persons. There are a number of non-tariff barriers in most countries pertaining to export of human capital. Of the four modes of service exchange—cross border supply, consumption abroad, commercial presence and movement of natural persons—the hindrance to people shifting their base due to trade is maximum,” said T. K. Bhowmik, economic advisor on WTO-related issues in the Confederation of Indian Industry.

The General Agreement on Trade and Services (GATS) differs from the General Agreement on Tariffs and Trade (GATT) due to the ‘progressivity’ clause attached to it. One can liberalise sectors like agriculture and services, but with negative impact, countries can even change the commitments.

“India’s service sector is so large that a lot is expected from the country. The negotiating options are also very well disposed towards the developing countries. But India’s research work in the run up to the negotiations is not up to mark,” Bhowmik said. “Most sectors have no idea of how to prepare such a list. The government’s consultation method is also faulty. No one is going down to the lower-most rung to check the needs of the service provider. Even though the services sector contributes more than half of the GDP, it is an unorganised sector and most people do not know how to take their services to the outside world,” he added.

   

 
 
ICAI NORMS FOR POWER BOARDS 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, April 28: 
Union power minister Suresh Prabhu has asked state electricity boards (SEBs) to follow new accounting norms penned by the Institute of Chartered Accountants of India (ICAI) from April 1, 2003.

The move to bring in proper accounting norms is aimed at attracting investments from multilateral agencies for the development of SEBs.

The institute made a presentation to the power ministry and heads of state power boards at a recent meeting where it emphasised the need to enforce capital adequacy, income recognition and provisioning.

At present, SEBs compile accounts in line with the framework of accounting and financial reporting outlined in the Electricity (Supply) Annual Accounts Rules (ESAAR), 1985.

Power utilities registered under the Companies Act, 1956 or under special legislation, are following the accounting and financial reporting framework mandated under the governing law. SEBs, on the other hand, stick to government financial and accounting rules.

This has led to a situation where the accounts of various power sector entities are not comparable. The frameworks are also out of sync with the Generally Accepted Accounting Principles (GAAP) system.

According to the accounting body, a clear statement of significant accounting policies followed in the preparation and presentation of financial statements is necessary, irrespective of the type of entity processing the numbers. Therefore, entities in the power sector should disclose their significant accounting policies. More important, it should be done in one place.

ICAI said power agencies and boards should prepare cash flow statements as part of the financial statement. It would also be useful to analyse the operating cash flows by activity, preferably using the direct method. This would give a clear picture of how much each major activity contributes to or utilises the entity’s cash resources.

   

 
 
ELECTRICAL GEAR TOPS FDI LIST 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, April 28: 
The electrical equipment sector attracted maximum foreign direct investment in the year 2000-01, with telecommunications bagging the second slot, followed by the transport sector, according to an Assocham study.

However the services sector does not figure among the top five FDI earners.

   
 

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