UTI succour comes in dribs & drabs
Nimesulide ban fears haunt Dr Reddy’s
Incoming cell calls to be free
VSNL, Bharti focus on linkages
Pintu Khaitan quits Eveready board
Bajoria set to sell Gondolpara Jute
US tonic for generic drug makers
Govt move to hasten internet backbone
Essar meets ECGC rider
Foreign Exchange, Bullion, Stock Indices

New Delhi, Aug. 19: 
The finance ministry has drawn up a strategy to put Unit Trust of India (UTI) back on its feet. This involves giving the mutual fund giant redemption bailouts in small doses as and when required through a new sponsoring company that will be set up.

In a note prepared for the Group of Ministers (GoM) on UTI, the ministry has decided the new sponsoring company will also be given the right to shut down any scheme, except US-64, at any point of time as it feels necessary, with permission from Sebi.

In its proposals that “have the approval of finance minister”, the note states: “Regarding assured return schemes, as and when individual schemes mature, should there be a shortfall, mandated by the regulator (Securities and Exchanges Board of India) to be compensated to investors, the government may provide financial assistance to the sponsors.”

The government will also fully stand by all commitments on US-64. The note states on this issue “the existing commitment of the government regarding US-64 will be honoured.”

However, the ministry adds a rider that ‘to ensure the new entity has an incentive for efficient management of funds, a benchmarking with existing schemes can be made and government’s assistance linked to performance’.

The note also calls for UTI’s strengths ‘such as trained manpower, large pool of investors and a net work of agents throughout the country to be valued by an independent valuer’. This amount is to be factored in determining ‘assistance to be paid by the government’.

The ministry also wants to give the sponsoring company the freedom to induct a strategic partner at a later date. Sources said finance minister Jaswant Singh did not want to get into any moves to privatise the mutual right now despite advice from disinvestment minister Arun Shourie, who is also a member of the GoM. Singh felt it was necessary to shore up investor confidence at this stage.

However, the move to hand over private control has not been ruled out, but rather retained. The note clearly states: “The new entity will be free to induct a strategic partner.”

The finance ministry has already held preliminary discussions with six financial institutions and banks led by LIC and State Bank of India to form the sponsoring company. It is now learnt that despite resistance from many of them, the government will go ahead with the formation of the company in the next three months.

However, the ministry has decided that the sponsors do not need to inject huge amounts into the fund but can ‘form a company with a small capital in keeping with Sebi’s requirements’. The ministry will leave it to the sponsors to decide on the shareholding pattern.

Talking about the advantages of this approach over alternative moves to trifurcate UTI and sell it off, or to divest it as a whole entity, the note states: “The government would not be seen as privatising UTI which has crores of small investors.”

This view, sources said, has been dictated by the Prime Minister’s Office, which does not want another public outcry over the sale of national assets that could touch a large numbers of potential voters in the country.

The note sticks to the oft-repeated formula of breaking up control of UTI into three bodies — a sponsor company, a trustee company and a professional asset management company. It also says all three should be in place by December this year, and that UTI Act should be amended to follow Sebi norms.

The problem that UTI faced, ministry officials said, was on account of the assured income schemes floated by it at fixed rates of return, varying between 10.5 to 14 per cent, whereas earnings on these schemes were no longer that high.

UTI has been paying the assured returns by dipping into the capital base of these schemes. About a quarter of the MIP money is invested in stocks, while the rest is invested in the debt market. Repeated market crashes have crimped the unit value, while repeated cuts in interest rates in the debt market has hit earnings.

In some cases, even debt investments have come unstuck as they were issued by companies doing badly, or unable to pay returns. These include steel makers and some North India-based engineering companies.

With nearly Rs 35,000 crore invested in UTI’s MIP schemes, the gap between promised returns and actual money in the kitty could widen in the future as markets show little signs of reviving. Hence, the urgent need for the restructuring package. However, it remains to be seen whether the plan is one that is too little, too late.


Mumbai, Aug. 19: 
Speculation that India might follow some European nations in banning Nimesulide mounted on stock exchanges today amid jitters over the damage it could inflict on firms that rely heavily on the drug.

Among those that could take a hit are Dr. Reddy’s Laboratories (DRL), whose Nise tablets are made from the formulation. The drug accounted for 15 per cent of its sales at Rs 59 crore, an increase of 32 per cent compared with Rs 44.5 crore in the previous financial year.

The possibility of a ban being clamped by the Drug Controller’s Office has gained ground after European nations led by Finland began pulling the popular anti-inflammatory drug off the shelves. The Finish government’s temporary withdrawal was followed by Spain, which cautioned its citizens against popping the drug.

The measures, industry watchers say, have been prompted by reports of side effects on gastro-intestinal tract. Nimesulide, marketed in 40 countries, is made from non-steroidal anti-inflammatory drug (NSAIDs) class of compounds. Other leading molecules in this category are diclofenac sodium (ibuprofen, pyroxicam).

In India, other drug manufacturers marketing Nimesulide are Astra Zeneca, Cipla, Nicholas Piramal, Zydus Cadila, Ipca Labs, Wockhardt and a clutch of others.

An official from one of these companies said it was premature to comment. “It would tantamount to speculation since no adverse impact or side-effect of Nimesulide has been reported in India yet.” He argued that it has proved to be the most effective, and the one with least side effects vis a vis similar drugs.


New Delhi, Aug. 19: 
All mobile-to-mobile incoming calls will soon be free. The major cellular operators like AirTel, Hutch, Escotel, AT&T and Spice today hinted that they were working out an arrangement between themselves that would give cellular subscribers another freebie as they mount a collective onslaught against fixed-line telephony players.

AirTel and Hutch, the two leading service providers, have already allowed free incoming calls made within their networks.

“This is an option that we are discussing amongst ourselves. There are various cost components that need to be taken into account,” said Virat Bhatia, managing director of AT&T.

Bharti Group chairman and managing director Sunil Bharti Mittal said the fall in the cellular tariff in future will be in terms of paise and not rupees. “If the government relaxes a few norms and taxes and regulatory and interconnection issues are resolved, the cost for the subscriber can come down,” said Mittal

Today Indian cellular operators pass on 35-42 per cent of their revenues to the government by way of various levies — licence fees (8-12 per cent), spectrum usage charges (2.5–4.5 per cent), service tax (5 per cent) and interconnect access charges (approx 20 per cent of revenues). Cellular operators today reached a major milestone when they crossed the 80-lakh subscribers’ mark. This figure is expected to touch one crore by the year-end. It has set a target of over five crore subscribers by 2006 and 12 crore by 2008. It is also estimated that around 25 per cent of these subscribers will be from smaller towns and rural areas.

The cellular subscriber base in the capital is likely to soon overtake the total fixed line subscriber base. The fixed-mobile cross over for India has been projected to take place in year 2008 when the total number of cellular subscribers will exceed the total number of fixed line subscribers.

COAI director general T.V Ramachandran said, “Affordable tariffs and competition have driven the subscriber growth to 80 lakh and a review of tariff statistics available from International Telecom Union (ITU), EMC, renowned telecom consultants shows that today cellular mobile telephony tariffs in India are the lowest in the world.”

The airtime tariffs have plunged by over 75 per cent in the last three years alone. According to the Trai, the average monthly rental and airtime being realised for cellular services stands at Rs 202 and Rs 1.99 per minute respectively. In contrast it may be noted that the cellular operators in China pay nil licence fee, a negligible fixed usage charge for spectrum, no service tax and have very reasonable terms of interconnection with the fixed service operators.


New Delhi, Aug. 19: 
The three telecom titans — Anil Ambani, Ratan Tata and Sunil Bharti Mittal — today held separate pow-wow sessions with communications minister Pramod Mahajan to discuss a range of issues that have grid-locked progress in one of the fastest-growing segments of industry.

Mahajan devoted over three-and-a-half hours to the confabulations with the three industrialists. The shortest meeting was with Ambani (25 minutes) and was described by the ministry sources as just a courtesy call. Reliance officials in Delhi refused to confirm the talks.

The longest session (over two hours) was with Tata, with the meeting gaining significance as it was being held just a day before the VSNL board is scheduled to discuss a report of a three-member sub-committee that has been asked to review the Tatas’ controversial proposal to invest Rs 1,200 crore in Tata Teleservices (TTL). Sources said the VSNL board is likely to clear an extension for the panel.

The Tatas had originally proposed that VSNL could invest the sum in exchange for a 20-26 per cent stake in TTL. Mahajan had been critical of the proposal and accused the Tatas of abandoning ethics by siphoning off the amount barely two months after being inducted as a strategic investor in VSNL.

Sources say the sub-committee has not yet decided on the appointment of a consultant to make a valuation of Tata Teleservices, which is crucial to determine the stake that VSNL should get in the company. At the talks today, Tata appears to have broken a major stalemate with BSNL and MTNL over the contentious interconnect rate for foreign calls.

VSNL has agreed to carry the international traffic of BSNL and MTNL at a much lower rate than the one offered by private operators provided the whole overseas call traffic is routed exclusively through it.

Currently, VSNL gets Rs 10 per minute to carry an international call either from BSNL or MTNL. The private operators like IndiaOne have offered a rate of Rs 8 per minute. VSNL has now offered to carry the traffic at Rs 6 per minute — and in exchange it wants a blanket extension of the clause in the divestment agreement under which VSNL gets to carry all overseas call traffic from BSNL and MTNL for two years. Now, with VSNL offering to carry the traffic at Rs 6 per minute, a rate war in the ILD sector is imminent.

“If the carrier rates are brought down, the per minute call to US could come down to Rs 15 per minute from Rs 24 per minute and even lower if there is an agreement between the terminator and originator,” said a senior executive in IndiaOne.

“The issue of VSNL’s investment in TTL was also discussed. The sub-committee appointed by the VSNL board is likely to be given an extension to discuss the points agreed between the government representatives and the Tatas for investing in TTL,” sources in communications ministry said.

As per the understanding between the two sides, the scope and extent of the committee had been enlarged to address the suggestions of Mahajan and includes identification and quantification of any additional investment opportunities which were more attractive and submit it to the board.

The panel will also set the conditions of investments, which will be linked to defined milestones to be achieved by TTL. Sources said the minister today has also promised to sort out the interconnect issues with BSNL for the Tatas and Bharti Telesonic.

IndiaOne deal

Mittal held talks with Mahajan for about an hour to discuss the long-pending issue of interconnection with BSNL for his IndiaOne network, which carries STD and ISD traffic.

The issue has been pending since January, when IndiaOne was launched. Once the interconnection is granted, subscribers will be able to route their STD and ISD calls over IndiaOne network in preference to the BSNL network.

BSNL has been stalling on the issue because it could lead to a potential loss of business. At present, IndiaOne is reduced to a platform that carries only mobile-to-mobile call traffic.

Sources said the minister has promised to hasten the process of interconnection with 18 PoPs and will soon hold a meeting with BSNL officials.


Calcutta, Aug. 19: 
P.K. Khaitan, eminent solicitor popularly known as Pintu Khaitan in corporate corridors, has quit the board of Eveready Industries India (EIIL).

Khaitan had been a director since November 1994, when McLeod Russell, the B.M. Khaitan flagship, snapped up Union Carbide. According to sources in the company, Khaitan is reported to have told the management he would not like to continue as director on the board since he is also the solicitor of the company.

“At a time when disclosure norms are becoming stringent, he would not like to continue as a director of the company,” sources said. Khaitan, who was himself not available for comment, has a berth on the board of 13 other companies, which includes Bata India Limited.

Eveready, which makes batteries and produces tea, has tied up with Japan’s Toshiba for exports under its brand-name. However, the company has decided to withdraw from the cell-phone battery segment on account of stiff competition from cheap imports, apart from the threat posed by grey market. The company has regained some share of the battery market it lost to rivals after its subsidiary, Nepal Battery Company, was closed.

The company has now started exporting batteries to Nepal. Its Lava brand of batteries are now being shipped to 14 countries in Latin America and West Asia. In all, 25 million batteries were exported last year.

However, its packet tea business — under Tez, Jaago and Premium Gold brand-names — is wilting under competition and adverse industry conditions. Volumes are down for the second straight year. In all, 7.41 million kgs of tea was exported through UK’s Greenfield Trading Company, its overseas selling agent.

The tea business has taken a beating from an unprecedented fall in prices, especially since July 2001, in the domestic as well as in the international markets.

The average selling price for North Indian tea, which was Rs 85.19 per kg in June 2001, fell to Rs 43.72 per kg in March 2002.


Calcutta, Aug. 19: 
Arun Kumar Bajoria, who, over the last 15 years, has acquired more than half a dozen jute mills and emerged as the world’s largest manufacturer of jute, is trying to sell Gondolpara Jute Mill in Chandannagore.

It was the first mill he acquired and it has always been close to his heart. Bajoria, owner of eight jute mills now, bought Gondolpara from G.D. Kothari, a relative of the Birlas, in the mid-eighties.

Cheviot Company of the Kanorias, has offered Rs 10-12 crore for the mill, but both Bajoria and the Kanorias are tight-lipped about it. Harsh Kanoria, managing director of Cheviot, refused to discuss Gondolpara, whereas Bajoria was not available for comment on the issue. Seniors in the jute industry said Bajoria was not pleased with Cheviot’s offer.

Bajoria has recently set up a mill in Durgapur at an investment of Rs 60 crore. The eight mills owned by him have a combined production capacity of over 800 tonnes per day. The mill in Durgapur, the largest in the world, has a production capacity of 220 tonnes per day.

“Until recently, Bajoria was on an expansion mode. The decision to sell Gondolpara is puzzling,” said a close friend. Gondolpara has a production capacity of around 100 tonnes per day, and employs some 4,500 people.

Bajoria’s move to sell Gondolpara comes at a time when the jute industry is not too optimistic about the future. The Jute Packaging Act, which makes use of jute mandatory for packaging of food grains, is set to be repealed and the market for the commodity, though on high now, is about to weaken.

Though he maintained silence on Gondolara, Kanoria spoke extensively on the industry. He said the road ahead was not as smooth as in the past. “There is already a palpable panic in the industry. By October, we envisage a glut in the market. Matters will be worse if the drought situation does not improve. “It’s just a question of time. The preference given to jute for packaging is not going to continue for long,” Kanoria said.

The Sardas, the second largest group in the jute industry with a production capacity of 560 tonnes per day, said they were not interested in buying Gondolpara.

Ghanshyam Sarda said: “We will continue to improve the operational efficiency of our plants, and even increase their production capacity, but we will not buy new mills.

“Jute is a difficult business. It is labour-intensive and involves a lot of hassles. Who knows if our kids have the appetite for the hassles involved in running so many jute mills? Our focus now is information technology.”

It’s history repeating itself. Like the Sardas, the Goenkas and Birlas exited the jute business some two decades ago, in search of greener pastures. But even today, they are not as cash rich as the jute barons. “There’s money in jute but not esteem. That’s what drives the leaders from the business after a point,” an industry senior pointed out.


Mumbai, Aug. 19: 
If Dr Reddy’s Laboratories Ltd’s (DRL) roaring success last year vis-à-vis fluoxetine was any indication, there’s a lot more good tidings in store for Indian generic products.

Domestic pharma companies, particularly those with a focus on the US generic market, are upbeat over a recent Bill presented in the Senate which seeks to remove several obstacles to the market. This can be considered significant given the huge potential of the US generic market and the aggressive interest shown in it by Indian companies like DRL, Ranbaxy, Wockhardt and Sun Pharma among others. In fact, for the 2002 financial year, DRL had recorded sales of over Rs 320 crore from fluoxetine, the generic version of Prozac in the US. It is now believed that with a large number of block-buster drugs going off-patent by 2005, the total size of this market in the developed world will be around $ 45 billion.

Sources say it is in this context that the Schumer McCain Bill (it awaits other approvals and a green signal from the US President) is vital. The Bill, sponsored by Arizona Republican Sen. John McCain and New York Democrat Sen. Charles Schumer, sought to bring in certain changes in the Hatch-Waxman Act, 1984, which governs generics.

The argument for a new law was that drug companies were resorting to certain loopholes in the prevailing Act to block faster access to cheap generics.

For instance, under the Hatch-Waxman Act, a company seeking to market a generic version of a drug must file an application with the US Food and Drug Administration (FDA).

However, if the drug company that holds the patent files an patent infringement suit (which happens in most cases) against the generic drug company, a provision in the Act requires the FDA to stall the approval of the generic drug for a period of 30 months from the notification date. This is done till there is a court ruling in favour of the generic company or the concerned patent expires.

However, it has been found that drug innovators can create multiple 30-month stays by listing additional or affiliated patents with the FDA following an application for a generic drug. This has the potential of delaying the approval of the generic drug indefinitely.

It is this provision in the Act that the Bill now seeks to correct. The Bill has proposed that only one 30-month stay period be allowed as against the current multiple 30-month stays granted to the innovator drug companies.

Industry circles here said a similar trend was in evidence recently when a multinational pharma company filed an additional patent for a drug after receiving notification for a generic version of the same drug from DRL.

Sources said that yet another positive feature of the Schumer McCain Bill is the facility of a declaratory judgement (DJ) that a generic applicant can file for de-listing frivolous patents.

“It has been seen that many of the innovator companies file for patent extensions on frivolous grounds, say changing the colour of a drug to delay the entry of a generic version. This could soon be a thing of the past,” said a senior official from a domestic pharma major.

The Bill also proposes that if the innovator company decides not to sue the generic applicant within the current 45-day window, then it loses the ability to sue for good. Under the current provisions, the innovator company can sue at any time after the expiry of the 45-day window.

Sources said another welcome feature in the Bill is the facility of rolling exclusivity, whereby, if the first-to-file generic applicant for any reason withdraws his application, then the 180-day exclusivity passes on the next-in-line applicant. This facility is crucial in view of numerous instances where the innovator of a particular drug strikes a deal with the first in-line generic applicant, which leads to withdrawal of the application.


New Delhi, Aug. 19: 
The Union communications ministry has directed its officials to speed up the construction of a Rs 70-crore national internet backbone network to tap the revenues from internet telephony and meet the growing competition in the sector from private players.

The national internet backbone will provide access points to Bharat Sanchar Nigam Ltd and other private internet service providers (ISPs).

The NIB will be the transmission media to carry internet traffic to the international gateway and will also act as a facilitator for ISP-to-ISP interconnection within the country.

Initially, this backbone will have a capacity of 8 megabits per second, which will go up to 155 mbps. Six nodes have international gateway connectivity at 34 mbps. The NIB will also be connected to all secondary switching areas (SSAs).

“The emergence of internet telephony has improved the viability of the NIB project. We will be able to finish the project by 2005 and have already completed its first phase. In the second phase, we will undertake capacity augmentation and introduce additional security and network management features,” said a Telecom Commission member in the communications ministry.

At its weekly meeting, the Telecom Commission decided to focus on the development of the second and third phases. “About Rs 33.45 crore has already been spent in the first phase and a similar amount is expected to be invested in the second phase.

The NIB is planned as a three-tier structure. The first tier consists of 14 large stations connected by high capacity digital trunks. The second tier consists of 31 stations which are expected to be installed. The third tier will have more than 500 nodes that will be connected to the main network.

BSNL plans to launch its internet telephony services soon and the NIB will be important for inter-connectivity with the other ISPs and also to offer low-cost calls to the US and other countries.

Last month, Mahanagar Telephone Nigam Ltd had launched its internet telephony service offering calls to the US at Rs 4.95 per minute as against Rs 24 offered by international long distance operators.

In internet telephony, the internet network is used in place of a dedicated and managed telephone network based on transmission control protocol/internet protocol (TCP/IP) to offer voice, fax and related services.


Calcutta, Aug. 19: 
Essar Steel Ltd (ESL), the flagship of the Ruias, has fulfiled before time its commitment of over $ 450 million-worth exports under the Export Promotion Capital Goods (EPCG) scheme.

ESL, the second largest hot-roll coil manufacturer in the private sector, had the export commitment against five EPCG licenses that permitted import of capital goods for a value of $ 75 million.

A senior company executive said the company had to fulfil the commitment between July 2002 and June 2004.

“We have complied with the obligations by the end of 2001 itself by exporting goods worth $ 461 million,” he said adding ESL is probably the only company among the private sector steel plants to meet export commitments much before the schedule.

The company has already filed an application with the Directorate General of Foreign Trade (DGFT) giving details of its exports against the five EPCG licences obtained for the hot rolled coiled project at Hazira.

During the three years from 1998-99 to 2000-01, the company had exported over 1,8 million tonnes of HR products to meet its commitment.

The executive further noted that hot-rolled steel accounts for almost 65 per cent of the total flat product exported from the country. “India, which used to be a major importer of hot-rolled steel, is now a leading supplier of the same product and can increase its presence in the global markets. In ESL, we have the advantage of producing quality products in this category at our plant at Hazira,” he added.

The executive said that ESL’s share of high grade steel products such as API, corten, high tensile and high strength low alloy have gone up from 29 per cent in 1998-99 to 40 per cent in 2000-2001.

The remarkable improvement in quality has also helped us become a niche player in the global markets and the export realisation has gone up substantially, he said.

Last year the export of HR products took a beating with the overall volume declining to less than 0.80 million tonnes compared with over 1.30 million tonnes in the previous year. “The decline in export volume has led to a loss of foreign exchange earnings to the tune of over $ 125 million for the domestic steel industry as a whole,” he said.

The decline was caused by the blockades in various countries including the US and also due to inadequate export incentives, industry sources said.

However, the general improvement in the steel sector has helped ESL to book sizeable orders from China and West Asia.

“A lot of demand has being generated from these markets and despite the blockade in the US, we hope to increase our exports during the current fiscal quite substantially,” he said.



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