Half of UTI schemes dodge dividends
Bad debts swell
Sebi lets off Jardine after warning
Jaswant backs softer rates
Gilt yields at 3-month low
Holcim breaks up with Indian partner
Competition law to keep watch on predatory pricing
Telco in search of allies for its subsidiaries
RBI wants banks to be flexible on farm loans
Foreign Exchange, Bullion, Stock Indices

 
 
HALF OF UTI SCHEMES DODGE DIVIDENDS 
 
 
SATISH JOHN
 
Mumbai, Aug. 2: 
More than half of Unit Trust of India’s (UTI) 60 schemes have dodged dividends this year, making it one of the most barren years for investors.

Of the 29 schemes that did announce a dividend during the year that ended on June 30, 14 were reluctant benefactors. They were monthly income plans (MIPs) bound by a commitment to give investors returns, though they have been struggling with frail finances.

Investors eagerly wait for the end of June every year to hear just how much UTI schemes reward them. Most of them are retired or small savers who count on dividends to make ends meet. This year though, the mutual fund major has given them a rude shock.

The 31 schemes have close to Rs 23,256.05 crore in their kitty — almost half the corpus managed by the mutual fund major. The troubled Trust has been under tremendous pressure as the mistakes of the past haunt it.

Key schemes that halted dividends are US-64, with a corpus of Rs 12662.15 crore and US-71 with a size of Rs 3776.38 crore. Others on that list are Master Share with Rs 1088.08 crore, RUP 94 with Rs 634.45 crore MEP 95 with Rs 327.58 crore, RBUP 94 with Rs 274.59 crore Software fund with Rs 186.09 crore, Master Index fund with Rs 264.45 crore and services sector fund with Rs 58.25 crore.

Small investors of US-64 who hold 5000 units or less and have missed the dividend bus this year can draw comfort from the fact that holding on to a chip of the flagship scheme is like investing in a compounded fixed deposit receipt. This is because they get an accretion of 10 paise every month till May 2003, when the unit reaches the maximum value of Rs 12.

Hopes of an improved performance next year look tenuous at this stage given that stock markets are comatose, and show little signs of reviving.

The harsh reality of a drought after more than 14 years has added to investors’ misery; low interest rates in the debt market have deepened the anguish. In the unlikely event of the government allowing strategic holdings in companies like ITC to be auctioned to the best bidder, there is little for the UTI investor.

Most of the schemes have faced a double blow as the equity markets and the interest rates have plummeted. For instance, US-64’s equity exposure has risen to 63.58 per cent in June 2002 from 61.94 per cent in May (63.50% in April). The way the markets are heading most of the schemes would require a boost from the government by way of a fresh round of funding.

Under Sebi rules governing mutual funds, only schemes whose net assets values are above the face value of units can issue dividends, except in cases a commitment to offer pay-outs irrespective of performance.

While most UTI schemes have done poorly, there are a few that have outperformed the market. They include Petro Fund which issued a dividend of 15 per cent, G-sec with 5 per cent and the Bond Fund with 8 per cent.

   

 
 
BAD DEBTS SWELL 
 
 
OUR CORRESPONDENT
 
Mumbai, Aug. 2: 
The non-performing assets of 27 schemes of the Unit Trust of India (UTI) have been pegged at Rs 3,970.22 crore, against their total portfolio size of Rs 33,869.12 crore.

The NPAs of US-64, the flagship scheme of the mutual fund major are valued at Rs 1,206.23 crore, almost 9.53 per cent of the total investment corpus of Rs 12,662.15 crore.

UTI officials argue that a change in calculation of NPAs according to guidelines laid down by the Securities and Exchange Board of India (Sebi) for mutual funds has led to the higher provisioning by the mutual fund.

Major culprits apart from US-64 include GCGIP with 31.38 per cent of its assets classified as NPAs and GUP (94) with 54.80 per cent of its investible corpus labelled bad debts.

Many of the MIP schemes have contributed to NPAs with MIP-1997 contributing 7.79 per cent amounting to Rs 55.38 crore against its total corpus of Rs 761.82 crore.

Similar is the case with MIP 1997 (IV) and MIP 1997 (V) which had 12.89 per cent and 18.68 per cent involving Rs 114.04 crore and Rs 67.87 crore respectively labelled as NPAs.

Mutual fund circles say that as the provision for most NPAs have been provided for in June 30, the coming days will see only a marginal accretion in NPAs.

MIP 99 and MIP 2000 saw their NPAs touch 6.75 per cent and 8.59 per cent, amounting to Rs 74.40 crore and Rs 87.32 crore.

The recent monthly income plans also did not escape the NPA provisioning blow, as MIP 2000 (111) and MIP 2001 saw a little more than 10 per cent, accounting for NPAs.

MIP 2000 (111) and MIP 2001 had NPAs of 10.03 per cent and 10.81 per cent, of Rs 55.50 crore and Rs 61.55 crore respectively.

UTI has been grappling with the burgeoning NPAs by taking pro-active measures to recover them.

The mutual fund major has formed a special internal cell to tackle errant companies. The cell has been given powers to negotiate with its debtors or use legal means to secure its funds.

   

 
 
SEBI LETS OFF JARDINE AFTER WARNING 
 
 
OUR CORRESPONDENT
 
Mumbai, Aug. 2: 
The Securities and Exchange Board of India (Sebi) today let off Jardine Fleming India Broking Ltd (JFIBL) after serving a warning to be diligent in future following an investigation into stock market dealings concerning shares of State Bank of India (SBI).

Sebi, in a statement today, said it had ordered an investigation into the purchase, sale and dealing in SBI shares by various intermediaries including Jardine Fleming India Broking Ltd (JFIBL)—a National Stock Exchange member which is registered as a broker with the regulator.

It added that Copthall Mauritius Investment Limited (CMIL), a sub-account of Fledgling Nominees International (FNIL) and a part of the Jardine Fleming Group, was a JFIBL client.

During the course of the investigation and inspection of JFIBL, it was found that its position had been auctioned a number of times on the exchange on grounds such as “shares not available/ client failed to deliver stocks”. It was also found that FNIL had, for their sub-account CMIL, squared off transactions in some scrips including SBI, without giving or taking deliveries.

After considering the investigation report, an officer was appointed to study the affairs of JFIBL and FNIL with respect to their dealings in the SBI scrip and the alleged violations of the provisions of the Sebi Act 1992, and stock exchange bye laws noticed during the investigation.

After the inquiry, a show-cause notice was issued and the two were granted a hearing before the Sebi chairman. “After consideration of the submissions as well as the facts and circumstances of the case, JFIBL and FNIL have been warned to be diligent in securities dealings and to ensure strict compliance of the provisions of the Sebi Act 1992 and regulations of exchanges,” the regulator said.

   

 
 
JASWANT BACKS SOFTER RATES 
 
 
OUR SPECIAL CORRESPONDENT
 
New Delhi, Aug 2: 
The government told the Lok Sabha today that it was keen to see interest rates going south regardless of its impact on savings, but finance ministry officials later said that state-run banks had for some time been working on the possibility of launching deposit schemes that pegged bank interest rates to the rate of inflation, so as to keep real interest rates stable.

Finance minister Jaswant Singh today told the House, “I think low interest rates were a right step and it should happen,” in response to a question on how the government planned to boost savings while interest rates are going down.

However, officials said banks have been toying with moves to link interest rates with the inflation rate. This implies that on such inflation-linked deposits, the rate of interest would move up or down depending on the inflation rate.

Real interest rates, which are calculated by deducting the rate of inflation from interest rates, are supposed to be the benchmark encouraging depositors to save. By allowing banks to float their interest rates against the rate of inflation and permitting them to change the rate every month, savings could be safeguarded.

This option is being considered to make it more attractive for pensioners and small investors to save in time deposits with banks. Inflation rates have been ruling low over the last fiscal barring minor upswings once in a while.

However, with the spectre of drought looming large on the horizon, there is a strong possibility that prices may harden especially those of vegetables. Moreover, power sector reforms might mean higher fuel costs that could drive up the inflation rate.

The move to link interest rates with inflation came after strident criticism on economic policies from within the BJP’s ranks, with party leaders feeling that the government was alienating middle class vote bank.

RBI governor Bimal Jalan had agreed some time back on the need for such a move, stating that “interest rates have to be flexible so that it is aligned to inflation.”

The Planning Commission too had been pressing for similar moves, arguing that the only way the country can achieve a targeted 7-8 per cent GDP growth is to push savings up to near 30 per cent from a current 24 per cent. This, the Commission has been arguing, was possible only if the savings rate is pushed up.

   

 
 
GILT YIELDS AT 3-MONTH LOW 
 
 
OUR CORRESPONDENT
 
Mumbai, Aug. 2: 
Yields on government securities tumbled today on finance minister Jaswant Singh’s statement that he was in favour of a low interest rate regime.

The observation that the country was heading for a low-rate regime drove down yields on the benchmark 10-year government security to three-month lows. Analysts, said the impact would have been greater, but for a gilt auction.

Singh was a market mover even when his announcement of a tax-saving bond carrying a return of 7 per cent led to a sharp rally in government prices — markets saw it as a sign that rates would fall further.

The yield on the benchmark security fell three basis points to 7.28 per cent on Wednesday. Today, it was pushed further down to around 7.27 per cent in pre-noon deals — close to the three-month low of 7.25 per cent.

Observers said despite the cautious attitude ahead of the auction, the market continues to remain bullish. “Today’s reaction can be dubbed muted as the market awaited the cut-off yield at the auction. However, the strong sentiment would persist now and the impact will also be felt on corporate paper yields,” an analyst said.

The finance minister’s statement comes at a time when the markets have been anticipating a cut in the bank rate by the Reserve Bank of India (RBI) in the wake of the drought ravaging a large swathe of the country.

However, most of the analysts are of the opinion that such a cut will not be announced before monetary and credit policy in October. The bank rate is 6.5 per cent now.

Stocks rally

In the stock markets, the BSE sensex snapped a three-day losing streak to close with a gain of 9 points, or 0.31 per cent, at 2985.01 against Thursday’s finish of 2975.81.

The rally was driven by bargain-hunters who swooped on Dalal Street in search of good shares going cheap. Many operators fretting over drought were cheered by reports that some parts of the country had received rains.

The 30-share benchmark index opened weaker at 2960.48 and dropped to an intra-day low at 2933.39. Later, it clawed back on bottom-fishing by domestic institutions.

Cigarette-to-hotel giant ITC was a big gainer following a buzz that the Centre has allowed the Unit Trust of India (UTI) to sell its 12 per cent stake in the company. This led to the stock surging by more than 5 per cent.

HLL, facing investor wrath over the past few days, also ended in positive territory, rising by close to 2 per cent at Rs 171.50. Most other pivotals closed with losses.

   

 
 
HOLCIM BREAKS UP WITH INDIAN PARTNER 
 
 
ANIEK PAUL
 
Calcutta, Aug. 2: 
Holcim Ltd, the Swiss cement major formerly known as Holderbank, has sold off its stake in Kalyanpur Cements to the Indian promoters, Satyadeva Prakash Sinha and associates, for an undisclosed consideration.

Sinha, however, says he has not bought the shares yet, but intends to do so. Sinha informed the stock exchanges today, he and his associates “would be acquiring” the 1.485 crore shares of Holcim. This represents 43.93 per cent of Kalyanpur’s equity capital.

The shares, according to Sinha’s notice to the bourses, are held through Holderfin BV, a company in the Netherlands, which, Holcim says, is its investment and finance subsidiary.

A Holcim spokesperson said that the Swiss cement major had sold off the shares in Kalyanpur “quite a few months ago”. He said, “The shares were sold off before March.” Sinha’s notice to the exchanges says, however, the deal has not taken place yet.

According to the disclosures made by Sinha to the stock exchanges today, he and his associates hold a little over 25 per cent now. Kalyanpur’s latest filings with the stock exchanges also indicate a 44 per cent holding by Holderfin BV.

When contacted at home in Patna for clarification, Sinha refused to speak on the issue. Despite his minority stake in the joint venture, Sinha had management control of Kalyanpur. Sinha is the promoter of Calcutta-based paint company, Jenson & Nicholson.

With the acquisition of Holcim’s stake, his control will increase to 69.15 per cent. In addition to the equity shares, Sinha would also acquire the 9.25 lakh preference shares held by Holcim. Kalyanpur has a production capacity of one million tonne per annum, though not run to full capacity. It is in dire straits for quite some time.

It was referred to the Board for Industrial and Financial Reconstruction in 1998-99, and its accumulated loss exceeds Rs 100 crore.

Financial institutions have substantial exposure in the company, both in the form of debt and equity. The combined shareholding of the financial institutions—ICICI, IDBI, IFCI and others—stands at 26.67 per cent.

Holcim was keen on exiting the joint venture for quite some time. There were some reports of Holcim expressing interest in picking up cement assets in other parts of India.

The industry continues to speculate on Holcim’s re-entry in India, but the spokesperson for the company said: “There are no immediate plans of returning to India.”

Holcim is among the world’s largest cement companies, present in about 70 countries. It has operations in a number of Asian countries, including Bangladesh and Sri Lanka. In 2001, Holcim recorded sales of 14 billion Swiss Francs worldwide.

   

 
 
COMPETITION LAW TO KEEP WATCH ON PREDATORY PRICING 
 
 
RAJA GHOSHAL
 
New Delhi, Aug. 2: 
Predatory pricing and barriers that forestall the entry of new players are among the market practices that will be construed as abuse of dominance under the provisions of the competition Bill that is now being vetted by the parliamentary standing committee.

In predatory pricing, a company with market power prices below cost in order to drive competitors out of the market to acquire or maintain dominance.

The abuse of dominance clause in the yet-to-be cleared competition law will automatically be invoked if its proven that the company in question creates a barrier to new entry or forces existing competition out of the market by imposing unfair purchase or selling price to the detriment of competition.

“A great threat to competition is from the actions of dominant firms that are inimical to future competition. These actions include predatory pricing or disciplining existing rivals or making it difficult for new entrants,” said S. Chakravarthy, the main author of the Competition Bill, who is also a consultant to the department of company affairs (DCA).

However, he admitted that “distinguishing predatory pricing from legitimate competition is often difficult”.

The Bill says that the abuse of dominance, which has an adverse effect on competition, also occurs when an enterprise limits production, markets or technical development to the prejudice of consumers or indulges in action resulting in denial of market access. It is also abuse of dominance when a company makes contracts with obligations that have no connection with the subject of such contracts.

Using dominance in one market to move into or protect other markets is also considered abuse of dominance.Basically, the Bill intends to usher in the era of competition, where dominance by a corporate will not be a dirty word. It is only the ‘abuse of dominance’ that is objectionable.

The competition Bill will be forwarded to Parliament for approval of both the Houses, after the committee submits its report. Based on the suggestions of the committee, official amendments, if any, will be carried out. However, no time frame has been set for the passage of the Bill.

The competition Bill seeks to replace the Monopolies and Restrictive Trade Practices (MRTP) Act 1969. “In the MRTP Act, dominance or competition itself is frowned upon,” said Chakravarthy. “The MRTP Act is based on pro-reform scenario, whereas the new competition law is based on post-reform sceneario,” he added.

In the competition Bill, combination regulations are mentioned, which was not the case with the MRTP Act. Competition law contains punitive action, whereas the MRTP Act only has ‘cease and desist’ orders.

The competition Bill covers the establishment of the quasi judicial body of the competition commission India, in place of the Monopolies and Restrictive Trade Practices Commission (MRTPC) which will have a chairman and not less than two and not more than 10 members.

   

 
 
TELCO IN SEARCH OF ALLIES FOR ITS SUBSIDIARIES 
 
 
PALLAB BHATTACHARYA
 
Calcutta, Aug. 2: 
Tata Engineering and Locomotive Company (Telco) is looking for strategic investors who can turn at least four of its eight subsidiaries into joint ventures.

Telco Construction Equipment Company (Telcon), HV Transmissions Ltd, HV Axles Ltd and Tal Mfg Solutions are the arms for which partners are being sought. The other companies are Tata Technologies, Sheba Properties, Telco Dadajee Dhackjee and Minicar.

Sources said most of these firms are suffering losses and the parent is desperate to forge alliances that can help them turn the corner.

A Telco spokesperson confirmed the hunt for allies is under way, but refused to give away more details. “It is too premature to say anything on the companies we have been negotiating with. All I can at this point is that we are making all efforts to make them profitable,” he said.

Earlier, Tata Sons executive director R. Gopalkrishnan said Telco would initially consolidate the operations off all subsidiaries, and then look for buyers or strategic partners with whom it can form joint ventures.

Most subsidiaries, he said, have strong business potential and if properly nursed, will turn around quickly.

Telcon, incorporated in 1998, aims to be a key player in the country’s infrastructure and core sector industries. Telco owns 80 per cent of it, while remaining stake is held by Hitachi Construction Equipment Company of Japan.

The company, which has a capital of Rs 80 crore, racked up a turnover of Rs 453 crore in 2001-02.

In HV Transmissions, which acquired Telco’s gear box division and had a turnover of Rs 92 crore last year, the auto major has a 100 per cent stake. HV Axles was incorporated in March 2000 and acquired Telco’s heavy axle division at Jamshedpur.

The company has a capital of Rs 45 crore and recorded a turnover of Rs 159 crore.

Tal Manufacturing Solutions, incorporated in March 2000, acquired Telco’s machine tools and equipment building divisions in Pune. Some of its products are manufactured with technical know-how from Nigatta and Nachi Fuji Koshi Corporation. The subsidiary posted a turnover of Rs 46.15 crore in 2001-02.

These arms were floated with an eye to cater to the auto industry in general, and Telco in particular. While their status as a subsidiary may help them cater to the needs of the parent company, the going would be tougher if they operate as stand-alone entities — something they need if they have to keep growing, sources added.

   

 
 
RBI WANTS BANKS TO BE FLEXIBLE ON FARM LOANS 
 
 
SUTANUKA GHOSAL
 
Calcutta, Aug. 2: 
Reserve Bank of India (RBI) deputy governor Vepa Kamesam has asked the three Calcutta-based banks —Allahabad Bank, Uco Bank and United Bank of India— to be more flexible while lending to the agricultural sector as well for self-employment schemes.

They have also been advised to improve Bengal’s credit-deposit ratio. The C-D ratio now hovers around 43 per cent.

Kamesam had recently held a meeting with the three banks and reviewed the performance of the three banks in these sectors.

“RBI governor Bimal Jalan had met Bengal chief minister Buddhadeb Bhattacharjee a couple of months back. In this meeting the chief minister requested the RBI governor to advise the city-headquartered banks to be more flexible while lending to the agricultural and self-employment schemes. Kamesam’s meeting is a follow-up of that,” banking sources said.

Bengal finance minister Asim Dasgupta has been highly critical of the performance of the nationalised banks in financing development plans in the state. These banks, according to him, adopted a negative approach towards financing the Integrated Rural Development Programme (IRDP) schemes. Dasgupta has repeatedly said that the banks dilly-dally in sanctioning the loans.

The C-D ratio in urban areas is 43 per cent and in the rural areas is 30 per cent.

In fact, the government also expressed its concern before Kamesam over a huge number of cases pending before different banks for disposal under various self-employment schemes, as well as a large number of sanctioned loans pending for disbursement.

“It was desired that banks should expedite the process of disposal of pending proposals and disbursement of sanctioned cases,” banking sources said.

Kamesam also asked the banks to enhance the agricultural and rural credit by activating the district co-ordination mechanism.

Banking sources observed that the co-operative credit societies have failed to play their role in lending to the agricultural sector.

“Limited ability to mobilise resources, low levels of recovery of the loans advanced, high transaction cost, frequent suspension of recovery and high levels of imbalances are some of the reasons behind this,” they said.

The banks in the state had extended Rs 2,554.43 crore towards the agricultural sector till December 31, 2001.

The total deposits were to the tune of Rs 64,275.66 crore and the total advances stood at Rs 28,383.12 crore. The C-D ratio as on December 31, 2001 stood at 44 per cent.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.65	HK $1	Rs.  6.15*
UK £1	Rs. 76.43	SW Fr 1	Rs. 32.75*
Euro	Rs. 48.22	Sing $1	Rs. 27.35*
Yen 100	Rs. 40.96	Aus $1	Rs. 25.95*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5150	Gold Std (10 gm)Rs. 5070
Gold 22 carat	Rs. 4860	Gold 22 carat	   NA
Silver bar (Kg)	Rs. 7900	Silver (Kg)	Rs. 7910
Silver portion	Rs. 8000	Silver portion	   NA

Stock Indices

Sensex		2985.01		+9.20
BSE-100		1501.58		-0.87
S&P CNX Nifty	 954.75		-2.95
Calcutta	 109.96		+0.81
Skindia GDR	 462.02		+0.54
   
 

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