Govt allows 2-way GDR-share swap
Liquidity to go up
Tatas handed VSNL baton
Bharat Sanchar, MTNL may remain out of reach
Alstom clears merger plan
IPCL to be poorer by Rs 850cr before selloff
Wonder-woman shows her Pepsi fizz
Foreign Exchange, Bullion, Stock Indices

New Delhi, Feb. 13: 
Taking one more step towards capital account convertibility, the government today allowed two-way fungibility in American depository receipts (ADRs) and global depository receipts (GDRs).

This means dollar, pound or euro denominated depository receipts of an Indian company converted into rupee shares could again be switched into dollar account receipts by foreign investors by simply giving the go-ahead to their brokers. The move fulfils a budgetary announcement made last year by finance minister Yashwant Sinha.

Such conversion will, however, be subject to sectoral foreign direct investment ceilings. If foreign holdings in a company has already hit the ceiling, then further switchovers will not be allowed. Investments in these ADRs/GDRs would not be seen as portfolio investment but rather as FDI.

“This is really a window for foreign institutional investors giving them the psychological comfort that they can pull out easily,” said K.K. Sengupta, a leading merchant banker handling GDR issues.

He, however, pointed out the Indian government “still remained in control of how much can actually be taken back out by retaining the power to set sectoral caps which could bob up or down as needed. No Swadeshi soldiers need worry that this could lead to a Korea- or Thailand-like financial crisis.”

Conversions are expected to be made by FIIs to take advantage of arbitrage opportunities or the means to make money on the differences in prices ADR/GDR prices and stock prices on the domestic bourses.

“It will push prices of our blue-chip shares to the same level globally,” Sengupta said.

Stocks of blue-chip companies like ICICI, Wipro, Infosys, Reliance Satyam, HDFC Bank, telecom giant MTNL and VSNL are expected to see action in the coming days on account of this move. Domestic custodians will have to maintain details of ADR/GDR issued, cancelled, sold, reconverted and coordinate with the company or with the National Securities Depository Ltd.

The government also amended the Income Tax Act to extend tax incentives to non-resident investors investing in Indian ADRs and GDRs in foreign exchange, effective from April this year. Non-resident investors were so far offered tax sops for investing in ADRs/GDRs offered against issue of fresh underlying shares under section 115 AC of the Income Tax Act.

A Reserve Bank note on this said the arrangement would be demand driven. The transaction itself will be effected through Securities and Exchange Board of India (Sebi) registered stockbrokers buying shares at domestic bourses on behalf of foreign investors. The custodian would monitor the re-issuance and furnish a certificate to both RBI and SEBI to ensure that the sectoral caps are not breached.

The domestic custodian who is the intermediary between overseas depository on the one hand and Indian company on the other will have the record of the ADRs/GDRs issued and redeemed and sold in the domestic market.


Mumbai, Feb. 13: 
The government notification allowing two-way fungibility is likely to enhance liquidity in the capital market.

At least, that is the initial perception of stock market watchers who believe that this is also going to bring about a correction in the premium enjoyed by ADR/GDRs vis-a-vis local share prices.

“Liquidity is certainly going to increase. This is a right step taken by the Union government and we can now see investors buying shares here and converting them into ADRs or GDRs,” Rakesh Jhunjhunwala, a prominent BSE broker and investor, said.

According to analysts, today’s move is also going to reduce the difference between the overseas and local prices of listed Indian companies. It is also likely to erase any arbitrarge opportunity that investors might be looking for by buying cheap locally and converting them into ADRs/GDRs.


Mumbai, Feb. 13: 
Ratan Tata will be the new non-executive chairman of Videsh Sanchar Nigam Ltd (VSNL), while S.K. Gupta, the present chairman and managing director, will be retained as managing director.

The Tatas, entitled to four berths on the board of the overseas telecom major and largest Net access provider, have nominated N. Srinath as executive director. He is a key official who steered the group’s telecom foray.

The fourth slot would have been filled with R.S.P. Sinha, VSNL’s finance director, but he declined the offer. There was no word on why he did so, although Ratan Tata regretted the fact that Sinha did not stay on.

Asked who he thought could take Sinha’s place, Tata said: “Sinha declined the offer only two hours ago... I have not yet thought about the other name.” There was no official explanation for Sinha’s departure, but it is learnt that he was peeved at the manner in which the new owners of VSNL sounded him.

Sinha, present during the function where the Tatas formally took over the reigns of the telecom major, chose to remain silent on the issue.

The Tata group took control of VSNL today by signing the shareholders’ agreement in Mumbai, in the presence of Union communications minister Pramod Mahajan. Tata handed Mahajan a cheque of Rs 1,439 crore for the government’s 25 per cent stake, bought at Rs 202 per share.

Meanwhile, financial institutions led by the Life Insurance Corporation of India (LIC) have expressed their reluctance in diluting their holding in VSNL when the Tatas come out with an open offer, also at Rs 202 a share.

The offer to acquire 20 per cent will remain open between April 10 and May 9, and could cost the Tatas up to Rs 1,154 crore.

“In all, the Tatas will have to shell out around Rs 2,600 crore for the complete acquisition,” Tata Industries managing director Kishore Chaukar said.


Mumbai, Feb. 13: 
Will the acquisition of Videsh Sanchar Nigam (VSNL) prevent the Tatas from bidding for PSUs like Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL)?

It is a question even the redoubtable secretary in the disinvestment ministry, Pradip Baijal, is finding hard to answer. “One will know only after an evaluation of the documents pertaining to the expression of interest of those companies,” he explained.

Telecom Regulatory Authority of India (Trai) rules prevent a telecom major from holding more than 10 per cent in another company in the same line of business, he said.

Baijal, present during the signing ceremony that saw the Tata group sign the shareholders’ agreement with the government for acquiring its 25 per cent stake in VSNL, was of the opinion that monopoly in the services sector cannot be allowed, while market dominance in manufacturing can be tackled with imports.

He cited the instance of how Binani Zinc was allowed to remain in the fray as the only bidder for Hindustan Zinc — despite the fact that the two companies produced all the zinc in the country between them.

Baijal argued that if the monopoly created by Binani’s possible acquisition of Hind Zinc abused its position, the government could reduce duties and facilitate imports through open general licence (OGL).

“However, this is not possible in the services sector. One cannot replicate a retail chain or the infrastructure of a service provider overnight,” he said. This is why IOC cannot bid for BPCL and HPCL, even though IOC and Reliance Industries are allowed to vie for Vadodara-based Indian Petrochemicals Corporation (IPCL).

Talking about the pace of sale, Baijal said his ministry, having gained experience in the divestment of CMC, Hindustan Teleprinters, VSNL and a few ITDC properties, feels the entire process can be completed within six-to-sight months from the day the Cabinet Committee on Disinvestment accords its approval.


New Delhi, Feb. 13: 
The board of Alstom Power India today decided to merge three group companies — Alstom Transport Ltd, Alstom Power Systems Ltd and Alstom Power Boilers Ltd — with itself.

The board has recommended in principle the amalgamation of the three with Alstom India.

Under the swap ratio decided for the merger, 50 equity shares of Alstom Power India would be allotted for 85 equity shares (of Rs 10 each) held in Alstom Transport.

The ratio will stand at 78 Alstom Power shares for every 85 Alstom Systems shares, while 85 shares of Alstom Power Boilers will be swapped with 2.2 shares of Alstom India.


Calcutta, Feb. 13: 
Indian Petrochemicals Ltd (IPCL) will have to cough up Rs 850 crore before it is put up for disinvestment, as foreign debenture holders have refused to convert their investment into equity.

While confirming the development, a company spokesman said funds required to meet the redemption have been organised. However, he declined comment on whether this huge payout would affect the ensuing price bids slated for mid-March.

IPCL mopped up $ 175 million in February 1997 through optionally convertible debentures of $ 13 each to fund its investment plans. Each debenture, which had a five-year maturity, could be converted into three equity shares of the company.

However, with the government announcing its decision to divest a part of its stake in IPCL, foreign investors backed out, refusing to exercise their rights to convert the debentures into equity, a move which sources attributed to the sense of uncertainty associated with the disinvestment process.

The government is set to divest a 26 per cent stake in the company in the first phase. The remaining 33 per cent will be sold later. The spokesman has, however, pointed out that payout will not be a problem as the company is a profit-making concern.

“We have benefited from the funds till date as it carried a very low coupon rate. If you consider the domestic interest rate at the time when we issued the debentures, the interest gap is quite substantial,” he said.

IPCL has been a strong performer in the petrochemicals sector despite the steep recession in the industry.

The company registered a 32 per cent growth in net profit at Rs 249 crore in March 2001 compared with Rs 189 crore in the previous year. Turnover stood at Rs 5,818 crore during the same period against Rs 4,920 crore in the previous year.

The company had attained 100 per cent capacity utilisation that enabled it to post such a strong growth last year.


New Delhi, Feb. 13: 
What does one of the world’s most powerful businesswomen do when she turns up in New Delhi, just before the budget? She talks budget business of course.

Indra Nooyi, the 46-year-old Chennai-born president of global food and beverages giant Pepsico, was in town today to check out on her firm’s Indian arm, breakfast with local business editors and writers, lecture Indian CEOs on corporate social responsibility and grab a mid-day snack with finance minister Yashwant Sinha. Pepsi India honchos scurried to keep pace with her. The normally cynical editors (“We have seen it all”) were disarmed by her forthrightness and India Inc’s CEOs listened to the wonder-woman lecture them on what they should do for society at large.

But then India is India and schedules can go haywire. The head of the $ 25-billion food empire, which virtually straddles the world, found herself stood up by Sinha, India’s budget man, as he hopped across the street to South Block for an unscheduled meeting with the Prime Minister. A short 15-20 minute meeting did eventually take place after a six-hour delay at Sinha’s office in the red sandstone Central Secretariat complex.

Nooyi, of course, had all her facts ready. The soft drink industry in India suffers from high and multiple taxes not only imposed by the Centre but by individual states that add up to an average of 39 per cent. Besides the red tape, tax hurdles have seen future investment plans take a tumble. Excise alone accounts for a huge 32 per cent burden on soft drinks, compared with 4 per cent on tea and 16 per cent on biscuits. Pepsi reckons that the way out is to cut excise and introduce a nation-wide VAT immediately

The company has invested more or less the same amount of funds in both India and China till date. However, it has forecast a four-fold growth in the northern neighbour and a mere 60 per cent in India. Sinha, on his part, maintained his usual budget-time stoic silence after exchanging pleasantries with the former Calcutta IIM alumnus.

Nooyi, who has worked here at textile firm Mettur Beardsell and personal hygiene major Johnson & Johnson before winging it to the US, of course knows that tax rebates may or not happen.

To hedge her bets, she now wants Pepsi to go in for the low-taxed tea and coffee market as well as oatmeal. The company has already successfully entered the snack foods market with potato chips and bhujias among other things. “Beverages is passé, the snacks business is in,” she told journalists at breakfast.

She is also willing to give local Pepsi executives another five to seven years to show profits. “In countries like India, we look at an 18-20 year timeframe for profits. We have been patient and I hope our patience pays off.”



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