ONGC buys out Birlas in MRPL
Spotlight on core competence
Missing link now in place
Life insurance agents to pay service tax
Strict vigil on diverted tea loans
Infy mantra for good governance
JPC stricture prompts DCA to act tough
Cellular operators dial Advani’s number
Govt keeps close watch on VSNL
Foreign Exchange, Bullion, Stock Indices

Mumbai, Aug. 1: 

Stake changes hands for Rs 60 cr

The A. V. Birla group today sold its 37.38 per cent equity stake in Mangalore Refinery and Petrochemicals Limited (MRPL) to Oil and Natural Gas Corporation (ONGC) in a Rs 60-crore deal that caps more than two years of tortuous negotiations.

The Birla group said it sold out because it did not enjoy a position of leadership in petroleum, had no presence in oil marketing, particularly transportation fuels, and there was hardly any synergy with other group companies. The decision is in line with the recommendations made by the Boston Consulting Group, which had dubbed investment in MRPL non-core.

Sources close to the group justified the price at which the stake in MRPL was sold, saying the company was suffering losses, pegged at Rs 492 crore on March 31, and was laden with debts worth Rs 5,500 crore. Hindustan Petroleum holds a stake equal to the Birla group.

At Rs 2 a share, ONGC has paid a piffling sum for the slice of a company that has a turnover of Rs 5,385 crore. The deal gives it a toehold in the country’s refining (downstream in the industry parlance) sector, a diversification it had been planning in the past few years.

For the A. V. Birla group, the departure from MRPL will spare it the time and resources to concentrate on its core businesses. These include metals, cement, textiles and financial services.

The four group companies that held the MRPL equity and have sold out are Hindalco (18.92 per cent), Indian Rayon and Industries (5.16 per cent), Indo Gulf Corporation (1.27 per cent) and Grasim Industries (18.92 per cent).

Analysts say the group got Rs 411 crore less than the stakes’ worth — the investments in MRPL were valued at Rs 471.68 crore in the balance-sheets of the four firms.

Sources did not agree that the divestment was a distress sale or a loss, saying the costs of holding on to the stake would have been much higher since MRPL would require fresh equity investments over the next few years.

“The group lost interest mid way when it felt that the refining business was not yielding significant returns after it had invested over Rs 471 crore since MRPL’s inception,” said an observer.

He recalled that there was a time when the Birlas wanted to buy out HPCL’s equity at a price arrived by independent valuers. Later, the roles were reversed: HPCL was ready to offer Rs 1.60 per share, while the Birlas were looking for a price of more than Rs 14 per share.

MRPL has a nine-million tonne refinery, which was struggling amid a surplus of petroleum products, low gross refining margins in the Asian region, apart from deteriorating liquidity and the limited scope for leverage.

Further, its joint management structure has adversely impacted the degree of competitiveness and held it back in coping with the liberalised business milieu.

Following this, the Birlas made another offer at Rs 3.20 per share. This was turned down as well. Then, the group tried to raise its stake through a funds infusion. At the same time, it held talks with international oil majors, including Kuwait Petroleum, to sell out of the venture.

There are reports which suggest that financial institutions led by ICICI have agreed to a restructuring proposal in MRPL whereby their Rs 5,550 crore debt would be converted into equity.

While this would bring down the holding of Hindustan Petroleum in MRPL to 16 per cent, ONGC is also understood to be considering additional equity infusion of around Rs 1,000 crore, following which its stake would stand at 51 per cent.


Mumbai, Aug. 1: 
With the MRPL divestiture, the A.V. Birla group has now narrowed its focus on four core businesses — metals, textiles, cement and financial services.

Although the low price of Rs 2 per share would initially hit the four companies’ bottomline, the group would benefit in the long term as MRPL’s debt was in the region of Rs 5,000 crore. Fresh equity investments were needed for modernisation as well as expansion of the refinery.

“The four companies would have to invest in a sector they were no longer interested in as huge investments were required for retailing and expanding it to a more economical scale of operation,” a merchant banker who was associated with the deal said.

Hindalco is further poised to make an all-out effort to acquire Nalco, which is up for divestment. This would require the group to get its priorities right as new investments in MRPL would only have diverted funds from its core business. Hindalco was one of the major investors in MRPL.

The divestment closely follows the announcement of the restructuring of Indo-Gulf Fertilisers & Chemicals that saw the company hiving off its copper business in favour of Hindalco.

The restructuring would not only benefit the synergy between the two metals business — aluminium and copper but also enhance the Hindalco balance sheet.

Expectations abound that the A.V. Birla group would restructure its textile businesses by merging Grasim with Indian Rayon and thus focus largely on its cement operations. The group also has an exposure to telecom through its alliance with the Tatas and AT&T in Idea Cellular.

However, observers tracking the group say it may not take a long-term view of the sector.


Mumbai, Aug. 1: 
The acquisition of the A.V. Birla group’s 37.40 per cent stake in Mangalore Refinery and Petrochemicals (MRPL) means that Oil and Natural Gas Corporation (ONGC) will now have a finger in every part of the hydrocarbon pie, from exploration to marketing of retail petro products.

A refinery was seen as a crucial missing link when ONGC had moved the Union government for setting up retail outlets consequent to the dismantling of the Administered Pricing Mechanism (APM). The corporation is planning to set up over 550 outlets, which sources believe could cost it anywhere between Rs 600-700 crore.

In fact, ONGC had, for long, been weighing a foray into the downstream segment in its bid to be a Shell or Exxon Mobil, but with little luck.

It has, over the past couple of years, been emphasising not only on more funds for its core exploration and production (E&P) business by venturing into overseas markets, but also looking at new areas that include power and petrochemicals apart from marketing and refining to rake in more revenues.

“ONGC’s move to acquire the AV Birla group’s stake in MRPL is certainly a win-win situation. For the corporation, it marks an important step towards having an integrated set-up, while for MRPL, it is a fresh lease of life,” said an oil analyst with a leading European brokerage.

Though there are reservations in some quarters that the acquisition is not momentous, given that the southern markets have a surfeit of refining capacity vis-ŕ-vis demand and MRPL’s distance from the lucrative northern markets, analysts aver that a “beginning has still been made”.

While MRPL now has a capacity of 9 million tonnes, it is believed that ONGC would at a later stage hike this to over 12 million tonnes. Further, ONGC may now consider setting up more retail outlets in southern India given its proximity to MRPL’s refinery. “It is now likely that ONGC will have a good presence in the south, particularly Karnataka. The corporation may also approach the state government seeking some incentives,” sources added.

With MRPL a fait accompli—the corporation is slated to hike its stake in the company to over 60 per cent and later merge it with itself—sources say ONGC may now set its sights on the divestment of BPCL and HPCL, likely to take place later this year.

ONGC, which recently announced its first quarter results, posted a 31 per cent rise in revenues to Rs 7,616.78 crore. During the quarter, the company also pre-paid World Bank and ADB loans amounting to Rs 2,507.42 crore, thus virtually becoming a debt-free company.


New Delhi, Aug. 1: 
The government today clarified that it had not exempted life insurance agents, actuaries and assessors from paying service tax but merely let insurance companies off the hook.

Today’s clarification which also notified imposition of service tax on some 10 sectors from August 16 this year, said, “Life insurance service has been exempted from the levy of service tax ... services provided by life insurance companies to policy holders in relation to life insurance business will not be liable to tax.

“However auxiliary insurance services relating to life insurance business will be liable to service tax including services provided by insurance agents to insurer or policy holder, by actuary to the insurer or by an intermediary like surveyors and loss assessors.”

This obviously means that earnings by these individuals will be liable to pay service tax at the rate of 5 per cent. The note also clarified that in the case of life insurance agents, companies who appoint these agents will be liable to pay service tax and comply with all procedural formalities.

Other sectors liable to pay service tax are cargo handling service, storage and warehousing services, event management, rail travel agents, health and fitness centres, beauty treatment services, fashion designers, bale operators and dry cleaners.

However in case of cargo handlers, services provided for handling farm produce meant for cold storage has been exempted. Farm produce and cold storage already stand excluded from the scope of the levy under the category of storage and warehousing service.

The scope of banking and other financial services has been extended to include all corporate bodies providing banking and financial services in the tax net. So far, only a few specified service providers were liable to pay service tax under this category.


Calcutta, Aug. 1: 
A committee set up by the Reserve Bank of India (RBI) to draw up a financial restructuring package for tea firms says loans siphoned off should be ferreted out and invested afresh.

At the same time, it has suggested treating loans to the industry as a non-performing asset (NPAs) only if they are not serviced for two consecutive years. If the idea is accepted, it would be different from farm loans, which become NPAs if interest is not paid for two cycles — completed within a year. In case of tea, however, the two cycles take place over a span of two years.

“Since the cycle is longer, banks feel tea loans should be treated as an NPA after two years. It has also been suggested that a restructuring package should be offered once it becomes an NPA,” banking sources said.

“The panel sought clarifications from us on the matter. We had given our views. The picture will become clear once RBI issues the notification. The industry has been eagerly waiting for it. We expect to hear something next week,” Bharat Bajoria, chairman of Indian Tea Association, said.

The committee, headed by United Bank chairman Madhukar, finalised its report last week, which recommended that the funds that have been siphoned off by the tea industry should be brought back and invested.

The Indian tea industry is clamouring for rescheduling of loans (more time to repay), a waiver of interest and a moratorium on interest payment. In addition, there is a demand for cheaper credit for re-plantation.

“Most tea estates in India have ageing tea bushes. They must be replaced with new ones. But it takes at least five to seven years for the first crop to come through. The gestation period for getting a return is quite long. The industry has asked for subsidised loan from banks,” tea industry officials said.

“The producers would always like to see a lower interest rate, which is the discretion of banks. They will fix the rate at which they will give us loans,” Bajoria said. A portion of the loans taken by tea firms a few years back are carrying rates as high as 16-17 per cent. Bankers are not sure if rates can be brought down.

The tea industry wants RBI to devise a package that will come as a breather in these hard times. South Indian tea companies, especially, have been the worst hit in recent times. Forced to sell output at prices below the cost of production, they have been fighting for survival.

The outlook for gardens in north India, according to Bajoria, is not bright either. Prices are not looking up and the production has suffered due to heavy rains this month.


New Delhi, Aug 1: 
The babus of bumbledom could shudder at the very prospect. Infosys chairman N. R. Narayana Murthy has suggested that a public governance regulatory council (PGRC) should be set up to oversee the performance of ministers and bureaucrats.

Murthy said the council should comprise eminent people and be empowered to examine the conduct of ministers and bureaucrats. The Infosys chief, not known to mince his words, said the existing system of governance was shoddy and had no accountability.

If India was serious about achieving its aim of emerging as a global leader and improving on its standing in the Human Development Report—it was ranked 124 among 174 countries in the latest report—the government would have to be more transparent, accountable and effective.

Murthy urged the political leaders and bureaucrats to undertake a pilot project to revamp the system. There was no need to scramble to put together another legislation to do this; all it needed was commitment, he said. If successful, the pilot projects could be repeated all over the country and legalised.

Delivering the fifth JRD Tata Memorial Lecture on ‘A new model for effective public governance,’ Murthy said, “India needs a new vision and theme, fairness and transparency, a good value system and accountability.”

He has proposed that once a government is formed after the elections, a team consisting of minister(s) and bureaucrats should be formed for each of the respective ministries.

“The government should take an oath in Parliament that the team will not be disturbed during its full term, except in cases of misconduct. This will ensure that the projects are implemented on schedule without delay,” said Murthy.

To ensure that a project is implemented, Murthy suggested the government should pick 50 projects and set a time period of two years to complete them. The team (bureaucrat/ministers) or individuals should either be given financial incentives for the fulfilling targets, or it could be as something as simple as honouring them by putting up plaques with their names on them at strategic points, he added.

Settlement likely in Phaneesh case

Murthy today hinted at the possibility of reaching an out-of-court settlement on the sexual harassment suit that has been filed against Phaneesh Murthy, the former head of the software company’s US operations.

“It is an option if the case takes drags on for too long and takes up too much of our senior executives. But it is difficult say anything since the matter is overseas and subjudice; I do not have the relevant information to make a comment,” Murthy said.

He also refused to say whether the company would provide Phaneesh Murthy the financial support to meet his legal expenses.

“We are a company that has not been bowed by any crisis. When we lost the account of our largest customer, GE, we came out on our own with details within 10 hours. Similarly, when we lost money in the secondary market, I had apologised to the shareholders. In the current crisis too, we will not hold anything back. Once the case comes to an end, we will provide all details,” he said.


New Delhi, Aug. 1: 
A spate of blue chip companies are currently under the Department of company Affairs (DCA) scanner after severe strictures by the JPC at several hearings.

It is learnt that the JPC is likely to criticise the inactivity of the DCA in containing recent stock market scams in its final report and the DCA consequently has woken up from its usual lethargy to start several high profile probes.

Sources said the motive behind finance minister Jaswant Singh’s announcement of the setting up of a ‘serious frauds office’ in DCA is to to look into frauds that occur or are likely to occur.

JPC members pulled up the department for not being abreast of happenings in the bourses and warning the government even as it made a technical presentation of their role in monitoring the stock market.

A committee member added, “If they had done their job properly, then firms like Sterlite or Videocon and god knows how many others could not have funnelled such huge amounts into the hands of brokers to jack up their share prices or drive down prices of certain other stocks without the government getting to know of it.”

The point members made was that despite the role Sebi was supposed to play in controlling the stock market, the DCA still had the responsibility of monitoring the activities of companies. Among other things, the DCA is supposed to monitor their book keeping and even their stock market related activities.

The spate of investigations where the DCA has now started taking an active role includes that of the bribe for contract case against Xerox Modicorp Limited, the controversial decision of the Tata group to invest Rs 1,200 crore in its loss-making Tata Teleservices from VSNL reserves, a gamut of prosecutions against Satyam Computer Sevices for a series of violations of the Companies Act and investigation into purchase of Ranbaxy Laboratories Limited shares by its investment subsidiary, Vidyut Investment, in violation of section 77 of the Companies Act.

Reliance Petroleum Limited (RPL) has also come under the DCA scanner, following a detection that RPL violated provisions of the Companies Act under section 211 by failing to declare in its balance sheet for 1994-95, the purchase of shares of RIL and Reliance Capital.

When contacted on the sudden spate of investigations, a top DCA official said, “We have been inspecting some of these companies for some time now. Some of these go back to about seven to eight months.”

He, however, contended that “these are routine inspections” and added they “are covered by secrecy clauses. We cannot give names of other companies where inspections are going on”.

DCA is also probing the Tata-VSNL decision to invest Rs 1,200 in Tata Teleservices. The probe report is expected later this month.

In the Xerox Modicorp case, DCA is investigating under section 209A of the Companies Act to look in to the books of accounts, it has also secured an order from the company Law Board to ‘investigate’ the matter by external investigators and also covers associated companies of Modis.


New Delhi, Aug 1: 
It’s a sure sign of the shifting power equations in Delhi: the cellular operators have written to deputy Prime Minister Lal Krishna Advani in a last-ditch effort to seek his help in scuttling the move to allow basic operators provide limited mobility services.

The letters have been written by the chiefs of US telecom major AT&T and Hutchison in Hong Kong, BPL’s Rajeev Chandrashekar and Dilip Modi of Spice Telecom.

The move is a desperate bid to head off competition from the poor man’s mobile phone service that could seriously undermine the profitability of the cellular operators.

The telecom regulator has allowed the fixed line telephony operators to provide the service even as the issue remains subjudice, with the Supreme Court due to begin hearings in the first week of September on a batch of appeals filed by the cellular operators.

The cellular operators had earlier written to Prime Minister Atal Bihari Vajpayee but have not received a favourable response from the PMO. Even the Group on Telecom and IT appointed by Vajpayee had supported limited mobility and rejected all the arguments made by the cellular operators.

The Cellular Operators’ Association of India has not been involved in the process since it has not been able to take an unequivocal stand on the issue, as some of its members have interests in fixed line telephony as well.

“The letters from two multinational companies and a few Indian companies focusing on IT and telecom were received by the deputy Prime Minister’s office on Tuesday. The acknowledgements for the same will be sent soon. The contents of the letters cannot be divulged since they have to be placed before the deputy Prime Minister,” sources said.

The cellular operators had lost their case before the Telecom Dispute Settlement Appellate Tribunal (TDSAT) in March this year. TDSAT had, in its order, given the go-ahead to basic telecom operators to provide mobile telephone services at Rs 1.20 for three minutes for an outgoing call while incoming calls would be free. Recently, the Telecom regulatory Authority of India has fixed a rental of Rs 250 per month.

A senior executive of a leading cellular operator said, “It is a lost case for us with the government. However, the case is pending before the highest court of the land and we hope to get justice. Limited mobility will deliver a death blow to cellular services, the flag bearer of India’s reform process. While telecom has mobilised the highest FDI across all sectors, more than 50 per cent of the telecom FDI has been in the cellular business,” he added.


New Delhi, Aug 1: 
The government will be keeping tabs on the functioning of Videsh Sanchar Nigam Ltd (VSNL) and has retained a decisive 26 per cent stake and two directors on the board of the telecom carrier to that end, communications minister Pramod Mahajan told the Rajya Sabha today.

Mahajan, who was replying to a calling attention motion on the Tata group’s decision to take out Rs 1,200 crore from VSNL’s reserves and invest them in a phased manner in Tata Teleservices, described this as “a breach of trust.”

He charged the VSNL management with not properly informing the government nominees on the VSNL board of the impending agenda before calling the meeting and of not recording one government appointed director’s objections to the proposed investment.

“This is an objection we took up with VSNL. The Rs 1,200 crore investment cannot be made overnight. The agenda of the VSNL board meeting made no mention of TTSL. It only talked of a Rs 1,200-crore investment in basic services,” the minister said.

However, Mahajan admitted that there was nothing wrong in the basic principle of parking VSNL’s free reserves in a telecom company.

But the timing, coming so quickly after the sell off, could give disinvestment a bad name. Besides, he said there was a need to see the valuation or price of Tata Teleservices’ shares which VSNL was to buy.



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