Hind Petro dithers on MRPL
Asset-liability mismatch plagues banks
JK Tyres to tap FIs for more funds
India Cements caught in revamp dilemma
India to rally support for future trade talks
Gartner buys Aims, keeps mum on price
Grasim loses appetite for sponge iron
Wisner, Shourie lock horns over reforms
RBI sets 2-year deadline to wash hands of public debt
Foreign Exchange, Bullion, Stock Indices

New Delhi, Nov. 28: 
The board of Hindustan Petroleum Corporation Ltd is yet to make up its mind on bettering a price they wish to quote in a bid to buy out the Aditya Vikram Birla group�s 37.5 per cent stake in Mangalore Refineries and Petrochemicals Ltd.

The board, which met yesterday, felt the price they have been planning to offer�an average of six-month stock quotes plus a 25 per cent premium�was fair. This works out to about Rs 8-9 a share. Sources said certain board members, however, felt the company could best it by offering to buy the stake at par value of Rs 10.

But since the Aditya Birla group remains adamant that it will not sell at this price, the Hindustan Petroleum board is likely to meet again to consider a higher price. Kumar Mangalam Birla has already made it clear that he will stick to his demand of Rs 14-17 a share, the price fixed by independent valuers.

Hindustan Petroleum, on the other hand, strongly feels the valuation worked out by accounting and consultancy firm Arthur Anderson is flawed and does not take into account ground realities.

The deadlock on the pricing had found Birla paying a call on petroleum minister Ram Naik last week and a promise by the minister that the logjam would be settled one way or the other within a month�s time.

In case, Hindustan Petroleum�s final price offer remains unpalatable to the Birlas, the government could permit the group to try and find a different buyer.

Hindustan Petroleum has the first right of refusal on any Birla offer to sell its stake in the refinery. But once they have said no, the Birlas can sell the stock on the market.

It is highly unlikely that any buyer would be willing to pay the high price being quoted by the Birlas for the stock, if it comes without controlling rights. Hindustan Petroleum holds roughly the same amount of stock as the Birlas, while the remaining 25 per cent is held by state-run financial institutions and the public. This means that Hindustan Petroleum in consortium with the FIs can control the refinery, regardless of Birla�s stockholding in the company. Any new buyer of the Birla holding can only appoint one to two directors on the refinery�s board at best.

The Birlas are not known to have any interest in turning entrepreneurs in the fast growing petrochem sector and hence have little interest in holding on to the stake whose shares have been doing so badly. The share prices have fluctuated between Rs 13 and Rs 4 during the last 52 weeks and is currently trading at below Rs 8 a share.


New Delhi, Nov. 28: 
Most of the public sector banks are heading for big trouble in the next five years with a major asset-liability mismatch because of their growing practice of borrowing short and lending long�a problem that has afflicted the beleaguered financial institutions like the Industrial Development Bank of India (IDBI) and the Industrial Finance Corporation of India (IFCI).

The banks include State Bank of India, Bank of Baroda, Union Bank of India, Bank of India, Corporation Bank, Allahabad Bank, Central Bank of India, Punjab National Bank and Oriental Bank of Commerce.

The asset-liability mismatch creates a situation where the available funds are not enough to meet the outflows likely to arise due to the maturity of deposits and borrowing taken by the bank. In other words, the banks have advanced more than they have borrowed leading to a situation where a cash crunch is inevitable.

Banks are not permitted to mobilise deposits above 10 years, but most of them are advancing loans that will mature after 10-20 years, banking sources said.

Banking sources say most of the banks, barring a few like Punjab and Sind Bank, Indian Overseas and Canara Bank, have seen their long-term borrowings (those with maturities of over five year) far exceed the level of their deposits and borrowings with a similar maturity profile. In some cases, these advances are more than 100 per cent in excess of borrowings and deposits of similar duration.

An analysis of the balance sheet of various PSU banks for the period ending March 31, 2001 shows a reckless tendency to borrow short and lend long, a recipe for disaster.

The enormous mismatch in the lending and borrowing position can be seen from the fact that the market leader State Bank of India alone has made advances of Rs 12,629 crore as against deposits and borrowings of Rs 5,415 crore�a mismatch of over 133 per cent.

Bank of Baroda has made advances totalling Rs 1,381 crore as against borrowings of Rs 525 crore, with Union Bank of India making advances of Rs 1,404 crore with borrowings of only Rs 764 crore.

In case of Bank of India, the lending has been to the tune of Rs 4,148 crore while borrowings have been Rs 2,507 crore. The respective figures for Allahabad Bank are Rs 1,941 crore and Rs 1,148 crore.

One of the most glaring gaps is in the case of Corporation Bank which has advanced a whopping Rs 2,440 crore with borrowings being only Rs 174 crore.

Even the north-India based Punjab National Bank is not far behind with advances of Rs 4,064 crore and borrowings of Rs 1,037 crore, followed by Oriental Bank of Commerce and Central Bank of India which made advances of Rs 1,564 crore and Rs 2,694 crore respectively as against borrowings of Rs 657 crore and Rs 1,974 crore respectively.


New Delhi, Nov. 28: 
JK Tyres plans to invest Rs 40 crore in the next six months to increase its production of passenger radials. However, the company has ruled out the possibility of divesting its stake to a foreign partner, even though it plans to market tyres in China which it will source from the country itself.

�We plan to raise production of passenger radial tyres to 1.70 lakh per month from the present capacity of 1.2 lakh per month,� said T. K. Banerjee, marketing director, JK Industries Ltd. The passenger radials are manufactured at the company�s Banmore plant in Madhya Pradesh.

The Rs 40 crore needed for the expansion will be raised from internal accruals and loans from financial institutions. �We are in talks with the FIs to fund the expansion,� Banerjee said. The company is also planning to launch new varieties, including coloured tyres and those with raised white lettering.

Banerjee said the company plans an ambitious second phase of expansion as well but will go ahead with it only when sure that the market will be able to absorb the increased production. He ruled out the possibility of divesting stake to a foreign partner � neither to technology partner Continental AG, nor any other firm in the near future.

JK Tyres, which has an agreement with a Chinese tyre maker to source tyres for third country exports, is also eyeing the Chinese market itself. �We plan to hit the Chinese market in about a year�s time,� Banerjee said. He, however, emphasised that the company does not have any plans to bring Chinese tyres into the Indian market.


Mumbai, Nov. 28: 
The flurry of deals in the cement industry has put India Cements in an unenviable position.

With a debt burden of Rs 1,800 crore, its businesses and loans are in urgent need of restructuring. But if it does so and hives off part of its cement business, the recent consolidation among other big players in the industry will reduce India Cements to a marginal player.

Industry circels say that Aditya Birla group flagship Grasim Ltd�s recent acquisition of a 10 per cent stake in Larsen & Toubro for Rs 767 crore may force India Cements to do a rethink on selling a part of its cement business.

Earlier, Gujarat Ambuja acquired a little less than 15 per cent in ACC, ensuring a worthwhile partnership which has a combined cement capacity of 30 million tonnes.

The flurry of deals that placed the Gujarat Ambuja-ACC combine and Grasim and Larsen & Toubro in control of 60 per cent of cement production capacity has put paid to India Cements� hopes of selling part of its business to retire debt.

Chief financial officer V. M. Mohan, however, disagrees that the company�s clout in the south will be diminished by the new alliances. �We are by far the largest producer of cement in the south. We will continue to lead in market share with the number two far behind us,� he told The Telegraph.

�They have some units in Karnataka and Andhra Pradesh, but their capacity is far lower than our installed capacities. India Cements is insulated in the south,� he claimed.

In fact, it was India Cements which pioneered the wave of consolidation in the industry with its hostile takeover of Raasi Cement and Sri Vishnu Cement. However, it paid the price for its ambition to straddle the southern markets with a huge debt burden on its books.

Analysts say that selling Sri Vishnu Cement would make the company less influential, especially in a market that has been known to command higher prices till recently than the rest of the country. But a partial sale of its business would have enabled the beleaguered cement major shave off a substantial chunk of its debt.

The southern market was considered more lucrative than the rest in view of fewer players and a parity in the supply-demand equation.

The new capacities put up by L&T and Grasim, with ACC also increasing its capacity in Wadi may have stirred up the markets. Further, the new deals may also entail a fresh wave of partnership in marketing and distribution.

However, Mohan said what kind of influence Grasim wields on Larsen and Toubro in the marketing front remains to be seen. He, however, agreed that the partnership may see Larsen and Toubro-Grasim taking the number two position in the southern markets.


New Delhi, Nov. 28: 
India will try to build a coalition of developing nations for future trade negotiations, Union commerce minister Murasoli Maran said here today while replying to a short duration discussion in Rajya Sabha on the Doha round of WTO trade talks.

The minister indicated that India would launch a diplomatic drive to turn the loose co-operation between developing nations at the Doha talks into a tougher and far more co-ordinated bargaining act.

Maran, who tried to sell Doha as a �turning point and major victory� to the House, said: �We were firm and kept our flag flying at Doha.�

�We have succeeded in scoring major gains in trade in intellectual property rights and public health (by wresting the concession that patent rights of essential drugs could be waived by developing countries) and in protecting our fundamental interests in agriculture,� he added.

However, Congress leader Pranab Mukherjee pointed out that four issues which could create problems for India � talks on investment, competition policy, transparency in government purchases and trade facilitation � have been brought into the WTO agenda.


Mumbai, Nov. 28: 
Gartner Inc, the $ 952-million global research and advisory firm, has acquired Aims Management Consultants Pvt Ltd (AMPCL) for an undisclosed amount. It has also set up a new entity, Gartner India Research and Advisory Services Pvt Ltd, to expand operations in India.

�Our investment in India is propelled by a growing client base, fast expanding information technology, communication and telecom markets (ICT), global interest in the country, sophistication in the domestic ICT market and launch of new products and support,� said Bob Hayward, senior vice president (Asia/Pacific), Gartner.

Gartner plans to develop the Indian operations as a secondary research hub for its Asia-Pacific operations.

The new company would launch management services, executive programmes for senior chief investment officers in large companies and G2 business strategy research over the next few months, he said.

Currently, research market in India is small. However, if this market grows in the same manner as in other countries, like Australia, the potential is big, he added.


Calcutta, Nov. 28: 
Grasim Industries Ltd, the Rs 5,582-crore flagship of the Aditya Vikram Birla group, is likely to pull out of sponge iron business in order to consolidate its product portfolio.

Though nothing has been finalised yet, but the company is weighing the option to hive the unit off into a separate company and sell it as and when it gets right price, sources said.

Sponge iron does not fit well into the company�s core businesses which comprise cement and viscose staple fibre. The division contributes merely eight per cent to the overall turnover of the company.

AV Birla group chairman Kumar Mangalam Birla, however, has indicated that there will be no further capital investment in the division which is currently going through hard times because of the recession in the steel sector. �We will remain focused on maximisation of cash flows. No fresh capital will be infused in this business,� Birla said.

Birla feels Grasim being the lone producer of gas-based sponge iron for merchant sale will be a key gainer. �One concern though is the availability and pricing of natural gas which may affect our profitability,� he said. The group spokesperson, however, denied any knowledge of selling the unit.

The turnover of the sponge iron division came down to Rs 401 crore in 2000-2001 from Rs 418 crore in the previous fiscal year. The performance has even declined further in the current fiscal year as Gas Authority of India Ltd (GAIL) was unable to supply natural gas despite its prior commitment to do so. As a result the company lost 48 productive days.

The division reported a 20 per cent drop in turnover during the first half of this fiscal to Rs 168 crore compared with Rs 206 crore in the corresponding period last year.

In view of the �poor demand� the company has already scaled down its production substantially. The first half production stood at 2.9 lakh tonnes compared with 3.4 lakh tonnes in the corresponding period last year.

According to the company, the performance has been badly affected due to three factors, poor demand, increased competition and a continued shortfall in the supplies of natural gas.


New Delhi, Nov. 28: 
Disinvestment minister Arun Shourie and former US ambassador to India Frank Wisner exchanged bitter war of words over the tardy progress of reforms in India and the country�s high tariff walls that were keeping out a tide of US goods, skewing the trade balance in India�s favour.

Wisner, who is the chairman of the US India Business Council and also a vice-chairman of the American International Group, expressed his frustration over the way India was dragging its feet on the second generation reforms. An even greater gripe was over how India was shutting out US goods from entering the country.

�No nation can increase its share of trade unilaterally. Although a founding member of Gatt, India has pursued a policy of autonomous development and self reliance and kept its tariff rates at a phenomenally high prices. That is why the US has not been able to increase its trade beyond $2.8 billion,� Wisner said.

Shourie admitted the reforms had been slow because of the nature of the Indian democracy where the power of parliament was supreme and legislators could stop the government from forcing the pace on reforms.

�Nobody has enough power to push something new because the members of parliament can scuttle the move.�

The disinvestment minister admitted there were other pressures as well. �My industrial lobby also expects some protection from me. While lowering tariff will have a good impact on the trade scene, the domestic investors need to have belief in the government before that step is taken,� Shourie said.

Shourie also said the mentality in India was slowly changing, and more and more states were now assiduously wooing overseas investment. He said the country was also trying to grapple with hugely contentious issues relating to labour reforms. �Labour problems in the private sector have almost vanished. So, it isn�t as though India has nothing positive to offer.� Quoting from a study by the McKinsey Global Institute, Wisner said India needs reforms in just three areas � eliminate burdensome regulations, liberalise land markets, and reduce the size and role of the public sector. If it was brave enough to bite the bullet, it could increase the country�s GDP growth rate by 4 percentage points.

�The stock market has fallen by 33 per cent. Business confidence is low and privatisation is on hold. This only leads to pump-priming the inefficient public sector,� he said.

Shourie, however, came up with the old shibboleths that governments have used in the past. �The dire state of finances in central and state governments makes reforms harder to accept,� he said.


Calcutta, Nov. 28: 
The Reserve Bank of India (RBI) will separate public debt management and monetary management in about two years� time.

Top-level RBI officials from Mumbai told The Telegraph that the central bank has already initiated the process of separation of the public debt department. �The separation of the functions of debt management and monetary management is regarded as a desirable medium-term objective, conditional upon development of the government securities market, durable fiscal correction and an enabling legislative framework,� the official said.

Regarding the fate of employees in the public debt management department, the official said the RBI will ensure that there is no retrenchment.

The RBI manages the public debt of the central and state governments and also acts as banker to them under the provisions of the RBI Act, 1934. While these functions are obligatory in the case of the central government (under Sections 20 and 21), the RBI enters into agreements with the state governments.

The apex bank has proposed amendments to the Reserve Bank of India Act, 1934, which will make it the discretion of the central government to vest the management of public debt with some other independent body, if it so desires. The official said the separation of the two functions is expected to have significant effects on the functioning of the government securities market.

�Public debt management continues to be constrained by the large and growing borrowing programme of the government, which exerts pressure on the absorptive capacity of the market. The separation of the public debt management function will enable better fiscal management,� the official said.

During 2000-01, the RBI continued its policy of combining auctions, private placements and open market operations to minimise the cost of public debt and contain interest rate volatility, reducing the monetary impact of the government�s borrowing programme and supporting the monetary policy stance for a softer interest rate environment.

The central bank had to moderate the pressures of the government�s borrowing programme and the impact of the brief reversal of the monetary stance warranted by foreign exchange market volatility on interest rate.

�The existing Public Debt Act is sought to be repealed and replaced by a new Government Securities Act. The new Act will simplify the procedures for transactions in government securities, allow lien marking/pledging of securities as also electronic transfer in a dematerialised form. The new Act has been passed by the legislatures of most of the states,� the RBI official further added.



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