Govt reads Riot Act to IDBI
Panel to chart financial reforms
Shackles off buyback
Rural focus
Lever third-quarter net profit jumps 20%
Debenture listing after court approval
Govt firm on VSNL divestment
Shourie refuses to quote figures
Foreign Exchange, Bullion, Stock Indices

New Delhi, Oct 16: 
Industrial Development Bank of India, the troubled financial institution, has been asked to bite the bullet. At a review meeting 10 days ago to consider the state of affairs at financial institutions, IDBI officials were asked to consider the possibility of “postponing lending” to big industrial houses that have consistently and wilfully been defaulting on loans.

“We have asked them to get their act together—to consider all the hard and soft options before they come running to North Block for some special dispensation,” said finance secretary Ajit Kumar.

Scotching reports in a section of the media that the government was planning to cobble a Rs 3,000 crore rescue package for IDBI, Kumar said, “They will have to do everything to protect taxpayers’ money that would otherwise have been funnelled to provide more housing, more food and more social security benefits.”

The banks and financial institutions have found their finances and balance sheets mangled out of shape because of the large industrial houses who have been reneging on their loan repayments for years.

The finance ministry has already instructed the banks and financial institutions to turn the screws on the defaulters—and the first step was made recently when institutions changed the slate of directors at Malvika Steel.

In August, IDBI became the third financial institution after UTI and IFCI to join the queue for government relief. It sought the extension of tenure of the Rs 1,440-crore borrowing from the Reserve Bank of India into a 50-year debt. It has also asked the government to infuse preference capital to shore up the institutions Tier-I capital. In a recovery plan submitted to the government, IDBI also asked the Centre and the state governments to honour guarantees given by them in case of defaults by the borrowers.

IDBI’s new chairman P.P. Vora has said that the FI needs to reposition itself and would soon come out with a roadmap in this regard.

Vora has indicated that the containment of non-performing assets is on top of his agenda. Net NPAs of IDBI stood at 14 per cent as of March 31, 2001. Vora has set a target of 10 per cent for the short term, but has declined to set a deadline for this.

In the long run, he feels that converting the institution into a universal bank is one of the alternatives available for repositioning it. At the AGM in June, then IDBI chairman and managing director (acting) S.K. Chakrabarti had indicated a timeframe of one to one-and-a-half years for converting the institution into a universal bank.


New Delhi, Oct. 16: 
The economic slowdown will not stall the second generation reforms which will cover the financial sector, finance minister Yashwant Sinha has said.

Addressing the inaugural session of the Economic Editors’ conference here today, Sinha announced that he was setting up an eight-member committee of advisors who would draw up the contours for the financial sector reforms.

“Let me say categorically that reforms are not on hold,” Sinha asserted. “However, I have always maintained that the second generation reforms will be more difficult than the first wave. That’s because of three reasons—firstly, all the second generation reforms are controversial; secondly, they necessitate legislative changes and, finally, we need to bring the state governments on board to implement them.”

“The government has done its bit. We have introduced a host of legislations (fiscal responsibility Bill, amendment to bank and coal mines nationalistion Acts etc) in Parliament. Now it is up to Parliament to pass the bills on which the government does not have any control,” he clarified.

He, however, said labour reforms would take quite some time as mere passage of legislation alone was not adequate.

Sinha said the team of advisors will be headed by former telecom regulator and former SBI chief M.S. Varma and will comprise Deepak Parekh (HDFC), K.V. Kamath (ICICI), Ravi Narayan (NSE), Ravi Mohan (Crisil), C. Bhave (NSDL), Omkar Goswami (advisor to CII) and Rakesh Mohan (former advisor to the finance ministry).

The minister said the committee would meet once a month. The first meeting will be held at the end of this month after Dussehra.

The immediate task will be to recommend administrative action to provide more teeth to banks and financial institutions to improve efficiency and deal with vexed issues like non-performing assets.

Sinha refused to be drawn into any discussion over the revision of the government’s GDP projections after the September 11 terrorist attacks. “I have never ever made GDP projections and I do not intend to do it now. Secondly, it’s much to early to say anything because of the overall international stability. We do not know what will come tomorrow.”

The government was taking all possible measure to revive the economy by propping up demand, he said pointing out that economic growth at 4.4 per cent during the first quarter of the current fiscal was an improvement over 3.8 per cent recorded in the last quarter of 2000-01.

Consequent to the slowdown, revenue collection recorded a dip of 6 per cent during the first half of 2001-02 from that in the comparable period last year, he said, adding that tax collection had, however, shown signs of improvement during the second quarter (July-September) this year.


New Delhi, Oct 16: 
The government today reduced the “cooling-off” period for companies that buy back their shares to six months from 24 months earlier. The cooling-off period prevents companies from accessing the capital markets with a fresh issue of securities.

The decision was taken at a meeting of the Union Cabinet which approved the promulgation of the Companies (Amendment) Ordinance 2001.

In another significant relaxation, the new buyback norms stipulate that “the board of directors of the company will be authorised to approve to buy back shares up to 10 per cent of its paid-up equity capital and free reserves without any special resolution.”

“However, the company will need the approval of the shareholders or general body if the buyback amounts to over 10 per cent of the equity capital and free reserves,” parliamentary affairs minister Pramod Mahajan told reporters after the meeting.

The decision was taken in view of the depressed share market and the recent turmoil wrought by the terrorist attacks in the US which have rocked the global markets.

“The liberalisation of the conditions of buyback of shares are expected to help improve market sentiments,” a press note said.

Mahajan said, “There will be a lock-in period of one year for every board approval for the buyback offer. A company that has once taken a decision cannot come out with another announcement before a period of one year.”

The ordinance will change the present Section 77 A (2b) of the Companies Act which requires that a special resolution be passed by the shareholders of the company and that the buyback should not exceed 25 per cent of the total paid-up capital and its free reserves.


New Delhi, Oct. 16: 
Prime Minister Atal Bihari Vajpayee today asked the corporate fraternity to to set aside a greater portion of their profits for rural development.

He asked industry to look at rural areas not as a responsibility but as a business opportunity and deliver affordable goods and services there.

“The government will not allow economic reforms to become a tool for privatisation of profits and socialisation of pain,” Vajpayee said while addressing a conference on ‘Public-Private partnership for rural prosperity,’ organised by Assocham.


Mumbai, Oct. 16: 
A three-pronged strategy to ride out the slowdown, brand purge and greater emphasis on the rural market helped Hindustan Lever (HLL) post a 20.53 per cent rise in third-quarter net profit at Rs 399.16 crore on a 7 per cent growth in sales at Rs 2635.22 crore. The gains came on the back of a focus on power brands, improved margins, profitability of the foods division and exit from non-core businesses. Third quarter post-tax profit rose to Rs 377.65 crore from Rs 331.16 crore. The net profit includes a one-time exceptional income (net) of Rs 21.51 crore, which accrued from the merger of International Best Foods with itself. The numbers cheered investors as the scrip closed at Rs 227.35 on the Bombay Stock Exchange, up from Rs 223.75 on Monday.

Nine-month net sales were pegged at Rs 8208.98 crore, up 3.2 per cent, after-tax profit jumped 18.2 per cent at Rs 1030.97 crore and net profit vaulted 36.8 per cent at Rs 1204.93 crore. After taking into account the impact of business transfers, sales growth stands at 5.8 per cent in the third quarter and 2.5 per cent for nine months. “Market conditions continue to be challenging because of intense competition, a slowdown and decline in several segments. The company relentlessly pursued its strategy of growth by focusing on power brands,” company chairman M. S. Banga said after the results.

The company, he said, invested Rs 70 crore during the year in upgrading the quality of products, especially in personal wash, to enhance competitiveness. Advertising spend stepped up by about 30 per cent in the last quarter, mainly on the “power brands”, which grew at a high rate of 10 per cent.

Cost-management initiatives in the beverages & foods business, rationalisation of the product portfolio — even at the cost of some top-line growth — has yielded a 470 basis point improvement in gross margins. Some of these gains have been ploughed back.

Banga said growth in the next quarter would depend on the way rural markets behave, and the impact of recent global events on the economy. “We will continue to invest a part of the profits from exceptional income during the year to strengthen the core business portfolio while ensuring that our shareholders continue to receive healthy returns,” he added.

Among the various segments, soaps & detergents grew 8.3 per cent but the personal wash category saw a decline, at 1 per cent. The personal products business grew 12.8 per cent. The highpoints were the re-launch of Clinic and Lux, and a healthy 24 per cent rise in shampoo sales.

Power brands in the beverages business recorded a marginal growth, even though overall sales declined 3.6 per cent due to a portfolio revamp, depressed commodity prices and market conditions. Food sales were up 7 per cent: growth of oils and fats business was up 8 per cent. The results for the last quarter were weighed down by the merger of the Best Foods’ business. Ice cream sales declined by 7 per cent in the face of stiff competition from price warriors and flat demand.


Mumbai, Oct. 16: 
Hindustan Lever today laid out the nitty-gritty of its bonus debentures, the announcement of which had triggered a stock rally and surprised the market with its ingenuity and timing.

The debentures will be listed on the NSE and the BSE after the plan is cleared by the Mumbai high court. “Several merchant bankers have said their corporate clients are keen to embellish balance-sheets with the triple A-rated debentures,” a senior Lever official said.

Under the scheme, those holding less than 1,000 debentures — small investors to whom they are originally allotted — can tender them to the company on a first-come-first-serve basis for repurchase at par. However, there will be an annual limit of Rs 100 crore on the facility. The company does not expect many small investors to exercise the option in low-rate regime.

FIIs, who hold around 11 per cent, and UTI, which controls 5 per cent, are expected to sell, the official said. Merchant bankers say the mutual fund major could offload the debentures to ease its liquidity crunch, but they expect the insurance companies to lap it up. LIC, other insurance firms and UTI own 15 per cent of HLL.

The company is in talks to sew up an arrangement that would enable investors to sell the debentures to its merchant bankers within a time-frame. The secured debentures will be redeemed at par in two equal instalments in the second and third years of allotment. HSBC, which helped design the debentures, has been appointed the merchant banker for the scheme.

The FMCG major will use Rs 1455 crore of its Rs 1609-crore general reserve (as on December 31, 2000) to issue the debentures, which will have a face value of Rs 6 and carry an annual interest rate of 9 per cent. The dividend tax at 10.2 per cent will be paid by the company.


New Delhi, Oct. 16: 
The government is confident of privatising Videsh Sanchar Nigam (VSNL) in the current financial year. The remark from communications and information technology minister Pramod Mahajan came on a day the Centre divested its 74 per cent stake in Hindustan Teleprinters to Himachal Futuristic Communications (HFCL) for Rs 55 crore and 51 per cent in CMC to Tata Sons for Rs 152 crore.

“We would like to speed up the disinvestment process. We are confident of finalising the sale of government’s equity in VSNL this year,” he added.

The government, Mahajan said, expects to receive Telecom Regulatory Authority of India’s (Trai) suggestions on long-distance telephony by November 10, and to sort out the issues in the selloff by December. “VSNL’s divestment can then be taken up and completed within the current financial year,” Mahajan said. The employees of HTL, one of the 13 PSUs listed for selloff in 2001-02, have been given double increments in basic pay by HFCL as part of a promise made by the government to the employees’ union of the state-owned firm.

HFCL will now constitute a new seven-member board, headed by chairman Mahendra Nahata, for Hindustan Teleprinters. Others representatives include Y.S. Chaudhary, R M Kastiya, and two professionals —Ashok Jhunjhunwala of IIT Madras and Bata chairman A L Mudaliar. The government will have two representatives on the board of the company, which currently has 1200 workers on its payrolls.

Tata Consultancy Services chief executive officer S. Ramadorai will be the new chairman of the Calcutta-based CMC and S. S. Ghose the new managing director, sources said.


Calcutta, Oct. 16: 
The Rs 12,000 crore divestment target set in this year’s budget is arbitrary, according to Union minister for disinvestment Arun Shourie.

The minister, who was here today to attend a seminar, said: “We are confident that we will divest the 13 companies shortlisted for this year. But to quantify what the government earns from it is difficult as valuations of the companies have not been done as yet.”

“The then finance secretary Piyush Mankad called me immediately before the budget asking what the government could hope to earn from disinvestment this year. I said Re 1,” Shourie said, adding that the finance ministry eventually settled for Rs 12,000 crore, but that was not based on any valuation of the companies being divested.

Speaking on individual cases, Shourie said: “The bidders for IBP want clarity on the post-APM scenario, while those interested in VSNL want the government to finalise its policies on long distance telephony.” Valuation of the two companies are at present being done by independent agencies, but price bids are unlikely to be invited before the government explains its position on these key issues.

The petroleum ministry has prepared a paper on what the withdrawal of administered pricing will actually mean for the private companies, and this will soon be sent to the cabinet committee on economic affairs for its clearance, Shourie said. “The cabinet committee on economic affairs will also have to decide on the condition of investing Rs 2000 crore,” he added.



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