Enron takes the first step out of India
RBI may prune growth forecast
Sinha refuses to take Fed hint
No consensus on risk cover for airlines
Nine-month ban on Rathi outfits
Coke IPO fate to be decided today
New buyback rules to be cleared at next Cabinet meet
Maruti selloff mired in ministry wrangles
Telecom firms to payobligatory fee of 5%
Foreign Exchange, Bullion, Stock Indices

New Delhi, Oct. 3: 
Enron of the US—the largest overseas investor in the country—signalled the start of its pullout from India today when it struck a deal with British Gas to sell its 30 per cent stake in the Panna Mukta and Tapti oilfields for $ 338 million.

The deal is conditional and will hinge on British Gas’ ability to persuade the two other partners in the oil and gas venture—Reliance and Oil and Natural Gas Corporation—to allow it to operate the gas fields as they had done in the case of Enron.

The oilfield venture was only the second investment by Enron in India routed through its subsidiary Enron Oil and Gas India Ltd (EOGIL). The first and biggest investment was in Dabhol Power Company, which is already mired in litigation and from which too Enron wants to pull out.

Announcing the acquisition here today, Nigel Shaw, chief executive of British Gas India, told reporters, “If other partners in the venture (ONGC and Reliance) do not agree to give the company operation rights, the deal will not be completed.”

ONGC chairman Subir Raha later said the state-owned company, which has a 40 per cent stake in the venture, would not relinquish its right to operate the oil and gas fields which it discovered and where it had established proven reserves. ”We have not dropped our claim for operatorship. British Gas officials had come and met us,” Raha added. The Reliance spokesperson from Mumbai declined to comment on the contentious issue of operatorship.

”Everybody has to think about the consequences in case the deal falls through in the absence of agreement between the partners over the operatorship, which is now with Enron,” Shaw said.

Under the sale agreement, EOGIL has sold its exploration and production assets to the British Gas group. The assets include the company’s 30 per cent interest in the Panna Mukta oil and gas fields and the Tapti field both off the west coast of India.

Analysts said the price was attractive given the current crude prices, but marked a 22.4 per cent fall from the price of $ 500 million that Enron had set about a year ago when it first began discussion with interested bidders.

The sale is consistent with Enron’s evolving business approach to reduce some of its non-strategic international assets while placing greater emphasis on other business-lines around the world, Shaw said.

Last year, after announcing its exit from oil and gas in India, Enron had appointed Credit Suisse First Boston (CSFB) as their investment bankers for sale of their stake in the fields.

Sources said EOGIL had received several bids including those from oil majors like Marathon, Unocal, British Gas, state-run Hindustan Petroleum Corporation Ltd, Indian Oil Corporation Ltd and Enron’s other partners ONGC and Reliance.

The three oil and gas fields produce around 300 million cubic metres of gas and 29,000 barrels of oil per day.

The deal represents a big break for British Gas which acquired Gujarat Gas last year and is trying to establish a strong presence in India before the government dismantles the administered pricing mechanism (APM) in the oil sector by next April.

However, the downside is that British Gas will be embroiled in litigation right from the start—a legacy from the numerous court battles that Enron has been fighting.


Mumbai, Oct. 3: 
The Reserve Bank of India (RBI) is expected to whittle down growth forecasts for the current financial year to 5-5.5 per cent in its mid-term review of monetary and credit policy on October 22.

Bankers and analysts feel the revisions will be forced by the September 11 terrorist attacks in the US and the persisting economic slowdown — two events that are likely to be recurring themes in the policy statement. The central bank had forecast a growth rate of 6-6.5 per cent in its monetary policy unveiled in April.

The feeling is that attacks will hurt exports. The country’s massive software services — US buys 60 per cent of it — is seen as the biggest casualty. This is likely to be echoed by the Reserve Bank in its credit policy.

“The terrorist attacks in the US will certainly be factored in. The policy will point out that the country’s economic assessment is not as rosy as was envisaged in April,” says Sanjeet Singh, senior analyst at ICICI Securities.

Among various segments of the economy, the central bank is likely to show manufacturing as the sector that will be the hardest hit by the lingering economic slump. The recent crop of GDP figures have proved this. Another area which will be hit is services.

“Segments such as banking & finance, communication, trade services, transportation and construction will be listed as the areas which could suffer,” Singh said.

According to estimates prepared by I-Sec, the current year is likely to see the services’ share in GDP surpassing 55 per cent; it could even leap to 60 per cent.

Analysts are of the opinion that the central bank will cite the benign inflation rate and the modest current account deficit as the two areas of comfort. “The increase in prices has been contained at reasonable levels, and they are unlikely to escalate.

Exports are down, but that alone will not lead the central bank to revise the estimates for the current account deficit beyond 1 per cent of the GDP,” said another analyst.

Many expect the apex bank to bring down interest rates through a cut in bank rate. Pressure for a monetary easing has mounted after the Federal Reserve slashed rates on Tuesday by 50 basis points for the ninth time this year. The RBI has brought down the benchmark rate only twice in the current financial year.


New Delhi, Oct. 3: 
Finance minister Yashwant Sinha today said the government favoured a softer interest rate regime but added that the half percentage point cut announced by the US Federal Reserve could not be taken as a signal for India to follow suit right now.

“Just because the US Federal Reserve has cut rates, it does not automatically follow that India will do the same,” Sinha told reporters who wanted his reaction on the US Fed rate cut.

In a bid to lower borrowing costs and revive the recession-racked US economy, the Fed yesterday cut short-term interest rates by half a percentage point.

The minister reiterated that the Reserve Bank would take its own decision independently. However, the government, on its part, favoured a “softer interest rate regime.”

“Our policy is to move towards softer interest rate regime. By when and how much to cut is entirely up to RBI as it is in the domain of the central bank,” he said.

This has been the finance ministry’s oft-repeated stand. However, officials said that in informal consultations with the RBI, the government had indicated an easier money policy might be more helpful in reversing a fall in growth rates.

According to some, RBI is likely to bring down the bank rate or the cash reserve ratio (CRR) in the days before, or after, the credit policy.

The gross domestic product (GDP) growth in the first quarter of the current financial year has already fallen to 4.4 per cent from 6.1 per cent during the same period last year. Manufacturing growth showed remarkable decline at just 2.3 per cent compared with 7.7 per cent in the first quarter last year.

Industrial growth rates are projected to remain sluggish in the months ahead too. The growth rate is expected to remain between 2 to 3.5 per cent over the next three months.


New Delhi, Oct. 3: 
The high-level meeting of state-run insurance majors and central government officials to work out modalities for providing third party insurance cover for domestic airlines as well as war and terrorism-related risk cover for mega refineries and power projects could not arrive at a decision on how to arrange low cost covers. Nor could the meeting decide who would pick up what percentage of the costs—the central government, companies or the consumers. However, the central government separately decided to extend the third party cover for the two state-run airlines beyond October 15. The civil aviation ministry also asked the finance ministry to release a Rs 350-crore fund infusion package for Indian Airlines which had earlier been cleared by the Cabinet.

However, these airlines are likely to be asked to collect part of the cover charges from passengers through a special levy. No decision has yet been taken on whether the government will extend its insurance cover to privately run airlines—Jet and Sahara who have been demanding similar concessions.

Sources said Reliance Industries chief Anil Ambani met finance secretary Ajit Kumar on the issue of war and terrorist-related cover for mega projects like his Jamnagar refinery, the country’s largest, with a capacity of over 30 million tonnes a year.

Other top industry representatives too have raised apprehensions that their project costs may go up alarmingly unless the government helped sort out the issue.

Insurance majors led by National Insurance, New India Assurance, Oriental General Insurance and United India Insurance are likely to meet in Mumbai on October 5 to thrash out the modalities. The Centre wants them to work out cheaper alternatives than those they have been presenting, but the national insurers have been arguing that their hands are tied as international re-insurers are charging higher amounts.

According to sources, ‘de-layering of premium’ by way of either charging it to customers, pegging it to revenues earned by the company or creation of a fund are some of the approaches that could be taken to break the impasse which has left domestic carriers and petroleum majors like Reliance Petroleum without a war or terrorist insurance cover.

“The meeting remained inconclusive and there has been no further progress in this regard. We are still in the midst of discussion and are yet to reach a conclusion,” New India Assurance chairman and managing director K. N. Bhandari told reporters here after the meeting.


Mumbai, Oct. 3: 
In what appears like a personal vindication but a professional indictment, former BSE president Anand Rathi was exonerated of charges that he indulged in insider trading during the stock market crash in March. However, the companies he spawned have not come out unscathed: they have been handed a nine-month suspension in one of the harshest penalties ever.

The orders, passed by the Securities and Exchange Board of India (Sebi) after it probed the dealings of the former Dalal Street topgun, will have to be ratified by its board before they take effect. Rathi and his firms are free to contest the ruling in the Securities Appellate Tribunal.

Rathi Global Finance, Anand Rathi Securities and Rathi Capital and Securities — merchant bankers and broking outfits — have been forced out of business for nine months, starting March 12, after they were found guilty of violating the code of conduct for brokers. The period of suspension includes the time they have already served.

Rathi, though free of insider trading charges, has been forbidden from associating with any capital market-related institution for two years, starting March. “It is not clear whether deals were based on information obtained by Rathi. It cannot be said with certainty that trading by him and entities related to him was done on the basis of inside information,” the Sebi report states.

Navaratan Capital and Securities, another company linked to the former BSE boss, has escaped a penalty. Sebi has come to the conclusion that it was not under the control of the Rathi family, but run by his son-in-law, who has denied business links with his father-in-law.

While there is no evidence that Rathi gained from the price-sensitive information he gleaned from BSE’s surveillance wing, the fact that he sought unwarranted details undermines the confidence of investors in BSE’s fairness, transparency and impartiality, Sebi said.

The order is the strongest after the regulator’s six-month sentence against SBI Capital Markets in the M S Shoes controversy.


New Delhi, Oct. 3: 
Coca-Cola India is building up a strong case for the waiver of a clause in the foreign collaboration agreement under which Hindustan Coca-Cola Beverages Private Ltd (HCCB), the wholly owned bottling subsidiary of the Atlanta-based cola major, will have to divest a 49 per cent stake in favour of resident shareholders, including the public.

HCCB had applied to the government seeking a waiver of the divestment clause in the approval granted to the company for setting up downstream ventures, under which it will have to ensure 49 per cent Indian participation by July next year.

The company’s plea will be taken up by the Foreign Investment Promotion Board (FIPB) at its meeting on Thursday. Pending the decision on the request for the waiver of the divestment clause itself, Coca-Cola has asked the FIPB to extend the deadline for Indian participation by five years, till July 2007.

The Rs 3,200-crore Coca-Cola India has urged the government to waive the clause, citing accumulated losses of over Rs 2,100 crore incurred by HCCB in the 2000-01 fiscal. Moreover, the huge loss posted by the company means it cannot meet the three-year profitability criteria laid down by the Securities and Exchange Board of India (Sebi).

According to the Sebi guidelines, a company should have distributable profits for at least three years, in the five years immediately preceding its public issue.

Coca Cola has also argued that the government has generally done away with the divestment requirement unless specifically asked for by the concerned ministry. “This is one of the reasons why the company has requested the government for a waiver of the divestment clause for HCCB,” a company spokesperson said.

Coca Cola operates in 204 countries and almost all are run as wholly-owned subsidiaries of the cola giant, since very few nations have equity holding restrictions. In India, it operates 27 wholly owned bottling plants, in addition to 17 franchisee-operated plants. The Coca Cola India spokesperson said the company hopes to break even this year and wipe out its cumulative losses by 2005-06. So far, Coca Cola has invested about $ 800 million in its Indian operations.


New Delhi, Oct 3: 
The ordinance on the easing of norms for buyback of shares is ready and is likely to be cleared by the Cabinet at its next meeting.

The finance ministry has cleared the Cabinet note on the buyback norms moved by the department of company affairs.

The new buyback norms will permit companies to come out with a fresh issue of shares six months after a buyback instead of the two year cooling-off period under the present rules.

However, the Cabinet will have to decide whether the issue of new shares within six months after a buyback will be required to be done through a special resolution to be passed during the annual general meeting or whether approval of the board of directors will suffice.

The norms are in line with the demands of the industry for a long time and following the recommendations of D.R. Mehta, chairman of the Securities and Exchanges Board of India and some foreign institutional investors.

On September 17, following the US crisis, Mehta had written to finance minister Yashwant Sinha and finance secretary Ajit Kumar recommending a reduction in the cooling period after buyback from two years to six months.

The new norms will enable the companies to prop up their shares in a falling market and later expand their capital bases to original levels.


New Delhi, Oct 3: 
The double talk on the selloff of government’s stake in Maruti Udyog (MUL) continues.

Just days after disinvestment minister Arun Shourie announced that the government had offered to renounce its rights shares in the country’s largest car-maker to Suzuki Motor Corp of Japan — its joint venture partner in the company — for which it would charge control and renunciation premia, heavy industry minister Manohar Joshi has again put the issue on a roundabout by saying that the government would first offer its shares to the financial institutions.

Joshi, who handles the administrative ministry that oversees the government’s interest in MUL, has been dead set against the divestment of the stake to the Japanese car-maker. On Wednesday, the minister said the government would offer rights shares worth Rs 400 crore to banks and financial institutions as part of the disinvestment this year.

Joshi claimed that this would amount to 10 per cent of the government’s 49.5 per cent stake. The Japanese company has a 50.5 per cent stake in Maruti Udyog. “If banks and financial institutions in the country don’t come forward, the same will be offered to Suzuki,” the minister said.

Joshi’s statement reflects how various ministers talk at cross purposes, a clear indication that the government’s resolve to sell 13 public sector undertakings this fiscal will be severely undermined until it is able to hammer out a consensus at a meeting of the Cabinet.

Shourie had said the government was bound by an agreement to give the right of first refusal to Suzuki Motor should it chose to offload its stake. With two different voices, both the ministries seem to be heading for a showdown on the issue.

Pradeep Baijal, the secretary in the ministry of divestment, had recently said: “Suzuki will have the first option to accept or reject the government’s proposal. We have not finalised whether we will sell it to Suzuki or the financial institutions. The option is open, but as part of joint venture agreement, Suzuki will have the first option to accept or reject it.”

On the valuation of Maruti, Shourie had announced that there will be three valuers — one each representing the government and Suzuki and the third to be chosen by the two through mutual agreement.

On the other hand, Joshi has said a rights issue of Rs 400 crore will be offered to financial institutions, which represents 10 per cent of equity. An extrapolation of that figure puts the value of the company at Rs 4,000 crore. MUL has an issued capital of just Rs 132 crore.

Amid the confusion, Baijal also hinted that the government would try to retain its management control. He had also said that while the proceeds of current disinvestment would be used for Maruti’s expansion, any future disinvestment of government’s equity would flow into the government exchequer. Being an unlisted company, Maurti had sought financial support from government since it could not raise money from the market.


New Delhi, Oct. 3: 
The Telecom Regulatory Authority of India (Trai) today fixed 5 per cent of the gross revenue of the telecom operators to be contributed towards the Universal Service Obligation (USO) fund to compensate the unremunerative functions of service providers like providing telephone connections in rural areas.

Trai has recommended the creation of the Universal Service Fund (USF) administrator and the board consisting seven members as an ‘independent unit’. The USF administrator should be established by January 1 next year to implement the USO policy.

“The figure of 5 per cent of revenues of all the telecom operators, appears to be adequate to support universal service programme in the first phase of village telephony and telephone services in rural and remote areas. The universal service administrator may revise the figure in subsequent years depending upon the requirement,” Trai said.

Trai further recommended that the USO scheme should be implemented from April 1, 2002.

It also suggested that the licence fee may be bifurcated into two parts in order to give effect to USF.

“One would be the designated portion of universal service levy which may go to the USF directly and balance may go to the consolidated fund of the government,” Trai said while pointing out that no additional levy has been proposed for funding USO.

Aiming to increase the rural teledensity to 4 per cent by 2010 from the current 0.5 per cent, Trai said the highest priority for support from USF should be given to village public telephones (VPTs) and to rural community phones. “The government in its role as a licensor of basic services should direct both Bharat Sanchar Nigam Ltd and private operators to give the highest priority to installation of 6.07 lakh VPTs by the target date of March 31, 2002,” it said.

All VPTs should have the long distance communication (STD) facility within three years of their installation, it said and added that most VPTs should be upgraded by 2010. Trai suggested that service providers should use the most cost effective, reliable and maintainable technology for installation of the telecom systems in the unremunerative areas of services. “The cost submitted by the service providers shall be verified by USF administrator with the help of proxy cost models to ascertain that the service providers use the most efficient and cost effective systems to provide these services,” it added.

For the purpose of compensation from USF, the most efficient cost for the local service area shall be taken into account. The authority has recommended that the levy should be paid by all telecom carriers while exempting value added service providers such as internet service providers (ISPs), e-mail or voice mail service providers.



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