US to be asked to consider Asian fallout of fiscal
Air-India to decide today on real estate hiveoff
Ispat power company to raise $ 250 m loan
McDonald’s menu goes easy on the wallet
Konka weighs stock option
Tabs on merchant bank loans
Foreign Exchange, Bullion, Stock Indices

New Delhi, Sept 7: 
When finance minister Yashwant Sinha meets up with his US counterpart Larry Summers next week, he is expected to politely caution the Treasury Secretary against letting sliding bourse indices panic US authorities into tightening monetary or fiscal measures.

Finance ministry officials say India is more than worried that a sudden or major stock market slide on NYSE or Nasdaq could force the US authorities to tighten its fiscal and monetary policies which could have a disastrous impact on Asian currencies, exporters and the economies in the region. The shoguns in the ministry reckon that the meltdown of the Asian economies in mid 1997 did not hurt the Indian economy much; but this time it could be among the worst hit as India integrates its economy with the rest of the world.

Hence, Sinha is carrying a brief to delicately spell out a message of caution without offending his hosts. Year-on-year, the Nasdaq has tumbled 10 per cent this August even though new economy stocks continued to boom.

At the same time, the final sales of goods and services in the second quarter rose by 4.2 per cent, only marginally down from the first quarter’s demand growth of 6.7 per cent. The US authorities fear that this demand growth is excessive and does not reflect production realities which Nasdaq is showing up and wants consumption to cool down.

Measures to achieve this could include a mix of interest rate hikes (the Federal Reserve has raised the rates six times in the past year — each time by a quarter of a percentage point) and tighter fiscal or taxation policies. Interest hikes in the US have already seen a flight of dollars from developing countries like India which sent their currencies tumbling. Tighter fiscal measures could see demand dropping and imports into the US dipping.

Sinha, who has been unwell over the past week, is expected to join up with Prime Minister Atal Behari Vajpayee’s entourage next week before parting company to participate in a series of IMF-World Bank meetings towards the end of this month.

The finance minister is also expected to take up India’s brief for being allowed to continue with clauses demanding local content in manufactures produced by multinational corporates.

US and European Union have been complaining loudly that Indian stipulation that large chunks of components used in manufacture of consumers goods such as cars, should be made locally go against the spirit of global trade pacts.

But the Indian government is caught in a Swadeshi pincer which has been demanding that it takes some policy initiatives to protect local manufacturers, especially small- and medium-scale industry which is mostly engaged in component manufacture.

Finance ministry officials claim that other governments have also managed to include local component clauses in their FDI norms without attracting too strident a protest from the West. They consequently hope the right blend of diplomacy could get them the dividends they seek.

Besides this, Indian officials are preparing for tete-a-tete on investment issues, especially in the insurance sector, an infotech protocol which lets software personnel save on taxes as well greater market access issues.    

Mumbai, Sept 7: 
The inter-ministerial group set-up to chalk out the government’s strategy for divesting 40 per cent of Air-India’s equity will consider whether the national carrier should set up a holding company or float a special purpose vehicle (SPV) to control the airline’s prime properties spread across the country.

Hiving off its prime properties into a separate holding company or a SPV would help the airline and the government to monetise the assets better and dispose the assets if needed. However, certain assets which cannot be demonetised like aircraft hangars will not be considered for transfer to the proposed company as it facilitates the running of the business, sources said.

The meeting slated tomorrow will provide IMG with fresh insight from Morgan Stanley, its global advisor for the equity selloff. The meeting will also finalise the draft for an advertisement seeking “expression of interest” from prospective bidders.

Morgan Stanley, the global advisor appointed to manage the divestment, felt that “hiving off” the prime properties would be an ideal proposition as the national airline’s prospective partners would be keen on the business opportunities presented by an alliance with Air India rather than be attracted by the valuation of its properties.

Citing a probable example, the source said if the government desires it can move its offices from Air India Towers to the suburbs in Mumbai and unlock value from the building. It is learnt that the global advisors to the issue are therefore not keen to go-ahead in valuing the Air India properties.

The pace at Air India’s headquarters has already reached a fever pitch. Nassir Doha, who heads Morgan Stanley’s divestment team, has already made several trips to the country. He has come down from London, along with his full entourage to hold several meetings with Air India officials.

Doha an authority on aviation, is being assisted by Ms Naina Lal, head of investment banking at J M Morgan Stanley, their local partners.

Air India officials say the consultants will enable the government to get a realistic valuation. Since its incorporation in 1953, Air India has not revalued any of its properties. Conservative estimates peg the real estate assets of the national carrier at about Rs 15,000 crore. Their headquarters in the city alone is worth a few hundred crores, as per conservative estimates.

The six-member committee will comprise divestment secretary Pradip Baijal, civil aviation secretary Sanat Kaul, joint secretary in the department of public enterprises S Talwar, joint secretary in the department of economic affairs S Behura, Air India managing director Michael Mascarenhas, and AI finance director Ranganathan.

Sources said Morgan Stanley had recommended that the prime assets of the national carrier should either be transferred to a SPV or a holding company. The properties including the headquarters (which analysts have valued at above Rs 600 crore) and other prime properties could be monetised.    

Mumbai, Sept 7: 
The Central India Power Company (Cipco) is planning to raise $ 250 million in loans from domestic financial institutions to finance its upcoming 1100 MW power project at Bhadravati in Maharashtra.

This will be in addition to the $ 700-million forex debt that the Ispat group-promoted company intends to mobilise from international institutions for the $ 1.4-billion coal-based project.

Cipco is now in talks with the Maharashtra State Electricity Board (MSEB) to reach an escrow-account agreement, and complete other formalities. The project was initially promoted by the Ispat group, Alsthom and EDF of France. However, EDF pulled put of the project early this year.

Officials say the company is on the lookout for a third partner who could take EDF’s place, but there are indications that the search for a new equity partner will begin only after two key deals — the Escrow arrangement and a fuel-supply agreement with Western Coal Fields — are closed.

“Both the Ispat group and Alstom will be jointly involved in identifying the third partner and bringing it into the project,” senior officials of the company said. The Ispat group holds 51 percent, Alsthom 25 per cent in Cipco’s current equity structure; the third partner who comes in will get the remaining 24 per cent. The financial closure is expected early next year, while the project is likely to be commissioned by 2004.

Sources say the company will approach financial institutions for fresh loan after all formalities are completed, and a new partner is identified. This, they say, will give the company more negotiate room with FIs.

While the Ispat group has identified steel as its core area of operations, it has diversified into telecommunications (it has a stake in Hughes and infrastructure.

The group has set up Ispat Energy to implement its 367 MW combined cycle power plant, adjacent to its hot-strip mill complex at Dolvi. The plant configuration of this project comprised of a second hand power plant of 55 mw and a new plant of 312 mw, both which were supplied by ABB.

These plants can use gas generated from the blast furnace of a steel plant being set up by Ispat Metallics India. The cost of the project was pegged at Rs 1,470 crore, of which the debt component was Rs 1,013 crore.    

New Delhi, Sept 7: 
Think McDonald’s and one visualises those delectable burgers, though wallets often break into a sulk. McDonald’s India has a solution to that one — it is spicing up its pricing strategy, giving gourmets the best of both worlds. It has slashed its entry level pricing, introducing two new products.

In the vegetarian segment it has come up with Pizza McPuff, which at Rs 16, will be the lowest item on the menu. This puffed pie is a blend of mixed vegetables and Mozzarella cheese mixed with a savoury tomato sauce. The previous low in the veg segment was the salad sandwich at Rs 19.

It is also striking the right chord with an extremely sensitive vegetarian market in India, maintaining that the vegetarian and non-vegetarian items are prepared separately, using dedicated equipment and utensils.

In the non-vegetarian category, the weakness of the Indian palate for chicken has led to the introduction of the chicken McGrill burger, which at Rs 25 is another entry level product among the chicken-based items. McGrill is a grilled chicken product with mint sauce.

The previous low in the chicken burger repertoire was the McChicken Kabab burger at Rs 34. The existing entry price in the mutton burger segment is Rs 19.

While Mc Donald’s India has made several attempts to Indianise what is essentially Western fare, the price-conscious Indian consumer hasn’t responded enthusiastically enough.

“It is an attempt to endear ourselves to the potential customer,” said Vikram Bakshi, managing director, McDonald’s India. “Though the US parent finds it difficult to comprehend the need for a different menu, we have succeeded time and again and now 75 per cent of our menu differs from the original,” he said.    

New Delhi, Sept 7: 
Taking a cue from infotech companies, Chinese electronics major Konka is planning to offer a stock-option scheme to employees of its marketing company in India. Sources said about 20 per cent of Konka’s equity would be offered as options in the form of productivity-linked incentives.

The scheme is likely to be offered after Konka’s planned restructuring is completed. As part of the recast, the management is considering splitting Konka Electronics (India) (KEIL) into two outfits, each dedicated to marketing and production. The ESOP will initially be given to employees of the marketing company.

Konka had indicated that it would set up a separate manufacturing company with an investment of Rs 250 crore. However, the plans has been postponed because the company has failed to generate the kind of sales volumes to justify setting up a manufacturing unit.

“The company will focus on producing better products,” said Liao Ruoji., who will replace the current incumbent, Ronald Zhang.

Konka group chief Chen Weirong, on his first visit to India, said: “One million Konka products were exported in 1999 alone. New products will be introduced to meet local requirements.”

On McKinsey’s advice, Konka has adopted advanced organisational behaviour practices and established its market-oriented managing system to meet the requirements of future.

The company plans to launch a range of products in India. These include a DVD player, which was unveiled today. Other items lined up for a year-end launch are smaller Pet televisons, an Art television with a new chasis, and washing machines. Mobile phones will be introduced in the first half of 2001.

The company plans to offer products in the popular, premium and the low-end segments. “ However, the focus will be on the popular segment,” said R.B. Tandan, KEIL marketing director.    

Calcutta, Sept 7: 
The Reserve Bank of India (RBI) has come up with a series of measures to make the banks more accountable for loans given by their merchant banking subsidiaries. According to RBI sources, the central bank has asked for details on the contingent liabilities of subsidiaries, and its probable impact on the financial health of the bank at large.

The Reserve Bank has also directed its principal inspecting officers to collect additional information that will help it in assessing the impact that the performance of the working subsidiaries have on the bottomline of the parent bank. According to a senior RBI official, the principal bank will be responsible for monitoring the group’s operations, and for providing information to the apex bank. This includes details on capital adequacy, larger credit, asset quality, profitability, the bank’s contingent liabilities and credit exposure to subsidiaries.

The decision was taken by the Reserve Bank’s board for financial supervision at a recent meeting, which was convened to consider the introduction of consolidated supervision. “It has now been decided that even the RBI will evaluate the impact of all the key financial parameters of the subsidiaries on the parent bank,” a senior banker said. This will be applicable for inspections carried out in the current financial year. As a result of the move, the department of banking supervision will not have to carry out on-site inspection of subsidiaries, including merchant banking arms.

“However, the inspection process, including discussions on the performance of merchant banking subsidiaries for the previous financial year, will have to be completed by the department of banking supervision,” the RBI official said. Banks have to furnish information on their subsidiaries in the following areas:

Capital adequacy, exposure rules and compliance, gross and net NPAs

Contingent liabilities of a bank towards subsidiaries and its probable impact on finances

Credit exposure to each subsidiary; the bank will also have to specify whether such exposures were within the limits and based on normal commercial transactions or on preferential terms

Salient features in the audited annual accounts of the subsidiaries and the probable impact of any adverse features on a bank

Maintenance of arms length relationship in investments and other transactions between banks and subsidiaries    


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