UTI assembles rescue raft
Malegam panel report soon
Rs 9,468 cr power dues of states waived
IDBI to hasten loan recoveries
State Bank offers 60% credit
Healthy trading on NSE
Bharat Sanchar set to hive off mobile division
Andhra court dismisses writ in VST open offer case
Panel stirs bitter brew for Tea Board
Foreign Exchange, Bullion, Stock Indices

Mumbai, July 6: 
The Unit Trust of India (UTI) today reviewed the crisis in US-64 at its first meeting since the sale and repurchases of units in the flagship scheme were frozen, but left the task of giving investors an exit route for Monday.

�The board of trustees took stock of the developments and authorised acting chairman K G Vassal to take decisions on investments and administrative matters,� UTI executive director B G Daga told reporters here today. The meeting was chaired by S K Chakrabarti, the chairman of IDBI, which has given UTI its previous two chiefs � G P Gupta and P S Subramanyam.

The board discussed the report submitted by the five-member team which had met the finance ministry officials on July 4 during a session where the UTI management was asked to come up with an alternative to the freeze on US-64 units.

The Centre, Daga said, has asked the Trust to open an exit route for small investors in its flagship scheme, but ways to do that are being worked out. �The timing, manner and size of redemptions have not been decided so far,� he added.

Vassal said the exit option will first be put before the finance ministry for its approval before the UTI board takes it up.

Conceding that the providing liquidity to US-64 investors was a daunting task, he said it entails a lot of data collection and defining just what is meant by a �small investor�. He asserted that Trust has the resources to meet its commitments, but that it could not do so by selling shares and triggering market mayhem. �If we start selling in the market what will happen to the market,� Vassal added.

The fact that it was asked to offer investors a way out of their units by the government is being seen as a sign of the finance ministry�s growing influence in the way UTI runs its affairs.

Daga said dividend warrants for US-64 would be sent by the month-end to investors, who would receive 10 per cent declared on Monday.

Vassal today reeled off figures to show that the recent controversy has shaken retail investors� faith in UTI. Between July 2 and July 5, sales and repurchases accounted for Rs 153 crore and Rs 12 crore respectively (excluding US 64). It was Rs 12 crore and Rs 16 crore in the same period last year. The two figures include sale and repurchase in US-64.


Mumbai, July 6: 
The Corporate Positioning Committee, set up by the Unit Trust of India and headed by Y. H. Malegam, will soon come out with its suggestions for restructuring the mutual fund major.

The committee, which held its final meeting recently, is expected to chart out a road map to transform UTI to enable the mutual fund meet present challenges. The mutual fund major, set up in 1964 by an act of Parliament, has assets worth over Rs 57,000 crore under its charge. The basic issue addressed by the committee was whether the UTI Act needs to be amended or even repealed.

The question now before UTI is whether to go in for a complete makeover or continue with its present system of having separate asset management companies for the various schemes within its fold. The committee has debated whether the present form should continue, or a corporatised entity be formed to take over UTI�s functions.

Sources say the committee is likely to recommend setting up a separate AMC for its flagship US-64, as suggested earlier by the Deepak Parekh committee.

The Malegam committee was set up after the panel headed by Deepak Parekh recommended that the trust should create a separate asset management company for its flagship scheme, with an independent board of directors. The Deepak Parekh committee had strongly called for an amendment to the UTI Act to facilitate this move.

Pending such an amendment, the Parekh committee had proposed that the present asset management committee be reconstituted and its role and responsibilities clearly defined.


New Delhi, July 6: 
The empowered committee of chief ministers today decided to waive another Rs 9,468 crore outstanding dues of state electricity boards (SEBs) towards central PSUs like National Thermal Power Corporation (NTPC) and Powergrid Corporation.

As a bonus, the Centre has also increased the incentive on payment of all dues by 1 per cent. Under the new formula, there will be a 6 per cent incentive if the dues are cleared in the first year, 5 per cent for the second year and 4 per cent for the third year.

The incentives will add up to another Rs 500 crore if the state electricity boards pay up in time. But a few states were unsatisfied and demanded a 100 per cent waiver on surcharge. States like Madhya Pradesh, West Bengal and Orissa demanded full waiver of the surcharge as states were in a difficult situation.

Madhya Pradesh chief minister Digvijay Singh said, �The liability on us for repayment of bonds will have to be borne by the state government or SEB which will only add to financial difficulties of the states. SEBs outstanding have to be tackled, but the liability has to be equally shared by the states and Centre.�

State governments today managed to increase the waiver of outstanding dues by another 10 per cent as the Centre agreed to the new proposal, while issuing bonds for the rest as part of revised formula for one-time settlement of the outstanding.

Under the revised formula, the PSUs will have to forgo about Rs 1500 crore more as the Centre decided to waive 60 per cent of the interest surcharge of Rs 15,746 crore as against 50 per cent waiver offered earlier.

The SEBs owe Rs 18,251.11 crore to NTPC alone as of June 30 this year. NTPC will have to forgo Rs 9850 crore under the new settlement formula.

Union power minister Suresh Prabhu said, �All states have agreed to the revised formula which will be implemented immediately.�

Those who attended today�s meeting included finance minister Yashwant Sinha, Planning Commission deputy chairman K.C. Pant, Orissa chief minister Biju Patnaik, Haryana chief minister Om Prakash Chautala, and the energy ministers of Rajasthan, West Bengal and Gujarat.

Many states were concerned over the settlement formula proposed by the committee headed by Montek Singh Ahluwalia on the grounds that it would add to their fiscal deficit and reduce their borrowing capacity.

Prabhu, said, �We are extending a helping hand to the states by way of settlement of dues. Without this offer, the Rs 41,000 crore dues would still have been liabilities with the SEBs,� he added.


Mumbai, July 6: 
Hobbled by massive non-performing assets (NPAs), the Industrial Development Bank of India (IDBI) has decided to extend its loan-recovery system for steel companies to all large projects in the infrastructure sector.

Senior officials say they are looking at the possibility of asking promoters to pledge their equity, calling for additional capital and conversion of loan into equity to prevent loans from from turning sour. �We may start taking such an approach to large projects, such as those in power,� an official said.

The institution, he said, has already started insisting on an escrow facility, state government guarantees and letters of credit from companies. The financial institution has lent more than 10 per cent of its total funds to power and steel firms. The drive to ferret out unpaid loans has been prompted by a spurt in IDBI�s net NPA ratio to 14 per cent during 2000-01, which weighed down net profit by 27 per cent at Rs 691 crore. Sources say other options, such as a one-time settlement, are also being considered as part of the efforts to prune NPAs.

Earlier, some steel companies were offered a bailout package by FIs against stiff conditions, which included getting promoters to bring in their equity contribution, creating a trust and retention account to monitor a project�s cash flows. The institutions also extracted the right to appoint their own engineers who would keep tabs on projects and to convert loans into equity, if the situation warrants it.

Companies which diverted funds to other ventures were asked to bring them back. FI officials said most steel firms had complied with their orders, except in two cases where they almost forced a change in management and made it clear that they would like professional managers to take over.

Acting IDBI chairman and managing director, S K Chakrabarti, recently said his institution was planning to set up of an asset reconstruction firm, which will enjoy fiscal incentives. It will also coordinate with other institutions to sew up a corporate debt restructuring mechanism.


Mumbai, July 6: 
In what is seen as a big confidence booster for the embattled Unit Trust of India (UTI), State Bank of India today said it will provide loans against US-64 units.

Individuals can get credit up to 60 per cent of the face value of the units. The move is being seen in banking circles as a rescue raft for UTI, which has seen many foreign banks either stop accepting US-64 as a security against loans, or if they did, scale down the quantum of funds lent out.

Panic gripped the 2 crore holders of US-64 units, particularly small investors, following the July 2 announcement by UTI to freeze the sale and repurchase of US-64 units for six months. The maximum loan amount could even go up to Rs 2 crore for units in the demat form, SBI said.


Calcutta, July 6: 
Call it a leap of faith, but there are many who still remain loyal to US-64. Belying fears that investors would shun Unit Trust of India�s (UTI) flagship product, unit holders are not rushing into panic sales even as the dormant secondary market for the scheme is coming alive.

The panic in UTI�s echelons notwithstanding, there were unexecuted buy orders of over 2 lakh US-64 units compared with sale offers of a little over thousand units on the National Stock Exchange (NSE) at the close of business today.

This clearly indicates the small investors still have faith in the country�s largest mutual fund scheme, and would prefer to hold on.

The scheme is being actively traded on the NSE over the last couple of days. On Thursday, about 85,000 units were traded, while 63,050 units changed hands in 110 trades on Friday.

Marketmen said there was a clear preponderance of buyers for US-64, whose price shot up to Rs 10.55 on Friday before closing at Rs 10.15.

On Thursday too, it traded above par. �It appears that a number of institutions are buying the units from the market, perhaps under instructions from the finance ministry,� a senior NSE broker said.

The Trust is expected to come up with a repurchase offer for retail investors at a price close to par. Its board has already started examining various possibilities of infusing liquidity into the scheme so that small investors � who contribute around 70 per cent to the scheme�s assets � have an exit route.

Marketmen say the price of the units should rule above par if the buying interest is sustained in the secondary market. �There will not be much redemption pressure on UTI if it offers to repurchase the units at around its par value while the market price remains comparable,� an analyst said.

The last redemption in the scheme took place at Rs 14.25 in May.

The sale price during the month was Rs 14.50. Since then, the scheme has announced a dividend of Rs 1 per unit � a yield which is a shade below the 7 per cent on its last sale price.

However, limited redemptions are expected to resume in August, despite the Trust�s decision to suspend sale and repurchase for six months.

The UTI board is currently reviewing the decision under instructions from the ministry of finance, and will come up with an exit route within 10 days.


Calcutta, July 6: 
The newly-corporatised Bharat Sanchar Nigam Ltd (BSNL) will hive off its mobile division into a separate company.

Confirming the move, BSNL chairman D.P.S. Seth said the restructuring process is already under way.

�We have, in principle, decided that the cellular operation should be carried on by a separate outfit as it is a purely separate business. The only question now is �when,� � Seth said.

�It will, however, take some time to form a separate cellular company, as we are confronted with too many tasks now.�

The public sector telecom monolith, however, has set up an internal committee to look into the restructuring process, which is soon expected to submit its report. BSNL will finalise its future course of action based on the report.

Although the new company is yet to be formed, BSNL is already maintaining separate accounts for the cellular division. The division has, in fact, already assumed the character of a separate organisation, waiting to be hived off to the new company as soon as it is formed, BSNL sources said.

BSNL now operates its cellular business on a trial basis in Patna and Hazipur, which will be soon extended to four other cities, including Calcutta. The technology has been sourced from C-Dot.

The telecom major has charted out a very ambitious plan to connect four million people through its mobile services within the next four-five years. The BSNL CMD is very optimistic about the success of the mobile venture, which, he said, will �rake in good profits� in five years� time.

The company has already floated tenders for selecting equipment suppliers. Seth said the selection process is expected to be over by October this year.

�Our target is to connect 15 lakh subscribers in the first phase, for which we need to invest around Rs 800 crore. In the second phase, we will connect the remaining 25 lakh subscribers,� Seth said.

�The initial expenditure is very high, but once you set up the required infrastructure, the margins are simply fantastic,� a senior executive in BSNL�s cellular division said.

Regarding mobilisation of the required funds, Seth said the company will meet its investment commitments partly through internal accruals and the rest through borrowings. Seth said the company will come up with a name for its cellular services by August this year.

VSNL agitation

Employees of Videsh Sanchar Nigam Ltd today announced an agitation programme against the government�s disinvestment move to be spearheaded by a joint action committee of all their three unions. In a joint statement the Federation of VSNL Officers Associations, Federation of Telecom Officers Associations and the Federation of the VSNL Employees Union said the committee would represent the interests of the entire VSNL staff in the face of imminent disinvestments.


Hyderabad, July 6: 
The Andhra Pradesh high court today dismissed the writ petition filed by two investors questioning the propriety of the public offer made by Bright Star Investments Ltd for a stake in VST Industries.

The court of Justice A. Gopal Reddy, which heard the case for almost a week since June 13 when the offer closed, also rejected the plea for a 3-5 day extension of the public offer.

Dismissing the writ, the judge observed that the two petitioners had failed to prove that the blocking of the public offer was in public interest.

The plea for an extension of the period of the offer made by the Damani-owned Bright Star Investments, was also turned down.

The court had earlier stayed the operation of the public offer for VST shares on June 8, exactly five days, or three working days before the closure of the public offer on June 13. However, both the Securities and Exchange Board of India (Sebi) and the counsels for Russell Credit, an ITC subsidiary, which had issued a counter-offer for the VST stake, had voiced their opposition to the extension.

Sources said that Bright Star�s merchant banker ASK-Raymond James, plans to appeal in the AP high court against the rejection of its plea for extending the period of the offer. The Damanis, who had exceeded Russell Credit�s offer of a 20 per cent stake for Rs 125 per share, offering to buy 30 per cent of VST at Rs 151 per share, had sought an extension of the offer period, as they believed their chances to have been hit by the stay order imposed on June 8.

Further, opening another front, British American Tobacco plc (BAT), the parent promoter of VST, had sought the support of the VST board for another fresh application before the Foreign Investment Promotion Board (FIPB). BAT, which holds over a 32 per cent stake in VST, had earlier advanced � 3.8 million for a rights issue of the Hyderabad-based company, but following the rejection of its application by the FIPB, converted the fund into an external commercial borrowing.


Calcutta, July 6: 
The one-man committee, set up by the commerce ministry to study the functioning of the Tea Board, has suggested closing down the board�s offices at Cochin, Madras and Amritsar, besides a reduction in its staff strength.

The committee, comprising former commerce secretary P. P. Prabhu, which was asked to come up with proposals for streamlining the operations of the board, has also proposed closing down the board�s foreign offices at London, New York and Hamburg, while continuing with the Moscow and Dubai offices.

Moreover, Prabhu wanted the warehouse control to be done away with and favoured further amendments in the Tea Marketing Control Order (TMCO) of 1984.

The government has already repealed clause 17 of the TMCO which compels producers to put in 75 per cent of their tea in the auctions. The committee has also proposed pruning the existing workforce, from the present 700 to 500.

Besides, Prabhu has put forward a �bold� proposal for withdrawing the subsidy on teas supplied to Udyog Bhawan, Nirman Bhawan and other offices in North Block, and suggested retaining subsidies only for tea provided to Parliament offices.

While it was rumoured that Prabhu may seek a shift in the headquarters of the Tea Board from West Bengal to New Delhi, no such proposal figures in the list sent to the Tea Board.

A section of the Tea Board officials however, are not in favour of closing down the board�s office in Cochin. �Cochin is one of the important centres for South Indian tea. Moreover, a lot of teas move out from the Cochin port to the international markets. It is not justifiable to close down the office at Cochin,� they argued. The board has 17 offices across the country.

Regarding the reduction of manpower, the officials feel the Tea Board is gradually emerging as a development body, a far cry from its previous regulatory role. �With the licensing era gradually phasing out, there is no need to carry on with the present staff strength. The employees can consider a good exit package if offered one by the government.�

�The staff strength which stood at 1,000 about 10 years back, has come down to 700 in the normal process,� the officials added.

The employees had suggested that technical persons should be inducted in the board�s foreign offices, which should be strengthened further to increase the foreign exchange earnings of the tea industry.

The proposals are now being examined by the Tea Board, which will soon send its views to the commerce ministry.



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