NEWS HOUR 23rd Oct– 29th Oct 2017
Weekly News Magazine
PSB STOCKS LIGHT UP D-STREET ON RE-
CAPITALISATION PLAN Report by - Rajesh Khanna
Indian government’s 2.11 trillion rupees recapitalization plan for public sector banks is considered as a bailout and a financially engineered way to partially solve the NPA problem. Soon after the recapitalization announcement on Wednesday, Bank stocks were on fire and owing to the gains in these stocks; BSE bank index rose by 4.71% to finish at 28,329.12 The top gainers among PSBs Punjab National Bank (46.20%), Bank of India (33.96%), Bank of Baroda (31.47%) and State Bank of India (27.58%). Among the private lenders, ICICI Bank rose by 14.69% and AXIS Bank up by 4.61%. The surge in bank stocks increased BSE 30-share index by 435.16 points to close at 33,042.50. In recapitalization plan, the government will buy Rs18,000 crore shares of public sector banks and then PSBs will be allowed to raise Rs58,000 crore from the market. The government also planned to issue “Bank Recapitalization Bonds” for Rs1,35,000 crore which will be invested to buy more shares in PSBs within a time frame of 2 years. This adds up to a total of Rs2,11,000 crore which is even more than Reliance Jio’s debt. The primary reason for recapitalization plan is to improve PSBs capital ratios such that they can have a steady credit growth and induce confidence in the domestic banking system. The move is also aimed to decrease stressed advances – particularly consortium loans but interest costs are expected to increase along with the increase in aggregate debt levels.
Source : WEB
The top gainers include PNB, SBI, Bank of Baroda and Bank of India
In This Issue •
PSB stocks light up D -street on recapitalization plan
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Air India privatization
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IDFC to exit infrastructure and PE funds businesses
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SBI initiates bankruptcy proceedings against subsidiary of Amtek Auto Ltd
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The Economic stimulation
AIR INDIA PRIVATIZATION
Some key points
Report by - Gaurav Pandey
Around fourteen companies had shown interest in acting as transaction and legal advisers to the Government for the privatization of Air India Ltd. The companies made their presentations on Friday, the last week, of which EY and Rothschild have been chosen as transaction advisors, and Cyril Amarchand Mangaldas has been selected as the Legal Advisor. The prices quoted were so low that the Transaction Advisors are believed to have cited only 0.2% of the transaction value as the fees. The Legal Advisors, on the other hand, had quoted a price of 1.2% of the transaction value. Financial pundits say that the companies are charging abysmally low fees by international standards, for a complicated deal as this. The disinvestment is not only for the assets of Air India but its five subsidiaries and a joint venture as well. The agreement includes a huge number of 142 aircraft. The next stage of the disinvestment process will begin after the Transaction Advisor has read the market and will assist the Government to form a bid for the disinvestment. The bid of Air India will lay down the eligibility for the bidders and the norms applicable for the process. InterGlobe Aviation Ltd, which runs IndiGo, Turkey’s Celebi and Bird Group are some of the companies that have shown interest in buying parts of Air India. Air India has considerable assets which include airport slots, international flying rights, etc. The Airline has about 17% share of traffic routes linking India to international destinations and about 13% domestically. Tata Group, who initially started the airlines in 1932, before it was nationalized are said to be eagerly awaiting the announcement of the details of the bidding process. Tata Sons Ltd Executive Chairperson, Natarajan Chandrasekaran has even gone on air to say that the company would ‘‘definitely look out’’ for the announcement and “will give it a serious thought.”
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The offers by agents are very low, owing to the deal being a ‘marque deal’
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Tata who introduced the Airlines in 1932 have a keen eye on the disinvestment
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The disinvestment is said to lead to a number of job cuts and ruthless bidding on part of the buyers
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Financial pundits claim that this is the only way of saving the Airlines from running into the ground.
The disinvestment is said to lead to lead to a lot of job cuts, and labor unions are sure to create an uproar, but according to financial commentators, this is the only way of ensuring that Air India has a bright future. The actual number of job cuts, however, and the improvement in the state of affairs of Air India would only be visible once the deal has been finalized.
Source: Web
Some Key Points
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IDFC Alternatives includes assets worth $2.6 billion
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IDFC is carrying out discussions with the Sriram Group for initiating the process
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The portfolio of IDFC Alternatives includes road developers and energy companies apart from consumer companies
Source : Web
IDFC TO EXIT INFRASTRUCTURE AND PRIVATE EQUITY FUNDS BUSINESSES Report by - Divyansh Singh
Infrastructure Development Finance Company has begun the process of exiting the infrastructure and private equity funds management business, IDFC alternatives which have assets worth Rs. 17000 crore($2.6 billion). People directly aware of the matter suspect that this could lead to the senior management of IDFC alternatives spinning it out as a private entity financed by one of its global sponsors. IDFC alternatives which have been one of the longest-running risk investment managers of the country consists of three classes of assets namely infrastructure, real estate, and generic private equity investments. Although IDFC is carrying out discussions with Shriram Group but this separation from the franchise is said to be an independent decision. The Alternatives business unit is not a part of IDFC Asset Management Company, one of the largest mutual fund houses with 65,000 crores in Assets Under Management(AUM). Notwithstanding the exit deal signals the marginalization of Indian financial institutions in the alternate asset management industry in which IL&FS, IDFC, and ICICI once subjugated the market. Sources said that though the MK Sinha led management spinning out as an independent entity was a strong possibility, IDFC may run a solar process. Sinha led team has been continuously investing in infrastructure verticals like roads, renewable infrastructure and power transmission and distribution. Last year he had propounded plans to merge with a global investor to tap the untapped real estate opportunities, but it couldn’t progress. The portfolio of IDFC Alternatives includes road developers like Ashoka Highways and Gayatri Projects, energy companies, besides consumer companies like Parag Milk Foods. In the recent years, the number of Indian asset management companies have shrunk dramatically as below par returns from private equity, infrastructure, and real estate investments have forced them to stabilize capital with fewer funds.
SBI INITIATES BANKRUPTCY PROCEEDINGS AGAINST SUBSIDIARY OF AMTEK AUTO LTD
Some key points
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The move comes three months after SBI initiated bankruptcy proceedings against Amtek Auto Ltd
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Amtek Group is India’s largest integrated component manufacturer
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Amtek Auto Ltd defaulted on INR 800 crores of bond repayment and INR 14074 crore of debt
Report by - Ruchit Chaudhary
SBI has initiated bankruptcy proceedings against Castex Technologies Ltd., a subsidiary of integrated automotive component manufacturer Amtek Auto Ltd. This move comes three months after SBI initiated bankruptcy proceedings against Amtek Auto Ltd., which is one of the 12 companies that were recognized by the RBI for early bankruptcy proceedings. It has also been reported that SBI is looking into two more subsidiaries of Amtek Auto Ltd. - Metalyst Forgings Ltd. and Amtek Ring Gears Ltd. Background Amtek Auto Ltd. is a part of the Amtek Group who is India’s largest integrated component manufacturers. Amtek Auto Ltd. specializes in the automotive industry with its subsidiaries being in the business of providing raw materials to it. Castex Technologies Ltd. is a subsidiary which castes iron for its parent company. Amtek Auto Ltd. filed for bankruptcy in July 2017 along with its subsidiaries. Amtek Auto Ltd. defaulted on Rs. 800 crore bond repayment since September 2015 and a debt of Rs.14074 crore in March 2017 while its subsidiaries Castex Technologies Ltd., Metalyst Forgings Ltd., and Amtek Ring Gears Ltd. faced a much larger debt at Rs. 6285 crores, Rs. 3473 crore and Rs. 2000 crore respectively. This massive debt has become the reason because of which Amtek Auto Ltd. has been selling its subsidiaries to reduce its debt in its books, but this move has had little effect on the overall debt. The proceedings against Amtek Auto Ltd. and its subsidiaries started under the aegis of National Company Law Tribunal (NCLT). They have been placed among 29 firms sorted for early resolution of bankruptcy by the RBI barring which they would be placed under Insolvency and Bankruptcy Code (IBC) after December 31. The proceedings against Amtek Auto Ltd. and its subsidiaries started after Amtek Auto Ltd. received interest from investors which included Bharat Forge, Liberty House, TPG Asia, and a few others.
Some Key points
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The Finance Minister made announcement of INR 2.11 trillion bank recapitalization plan and INR 7 trillion stimuli in the infrastructure sector
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The budget has set a fiscal deficit target of 3.2% of gross domestic product for this financial year
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The sluggish credit growth in the banking system since the last few quarters was due to lack of demand for bigticket corporate loans
Concept image, Source: Web
THE ECONOMIC STIMULATION Report by - Shivam Agrawal.
Amidst the rigorous election campaigns and political movements in Gujarat by the two giants; the Finance Minister, on 25th October, made a major announcement of economic stimulus. The announcement was of Rs. 2.11 trillion bank recapitalization plan for PSBs and Rs. 7 trillion stimuli in the infrastructure sector. The Indian economy grew by 5.7%, at the slowest rate since last three years maybe because of major structural reforms by the government, in the last quarter. It has been the point of discussion amongst economists and politicians. According to this recent announcement, it seems that government seeks to push the private sector investment cycle in India to boost the economy. Of this commitment, Rs. 1.35 trillion will be infused from the sale of recapitalization bonds. And remaining portion will be allocated in the budget and raised from the market. The government has already allocated Rs. 20,000 crore for bank recapitalization under its Indradhanush Plan. This announcement will incur a sharp increase in this budgetary allocation. Indian banks are having approximately Rs. 10 trillion of stressed assets, which includes Rs. 7.7 trillion of NPAs and other restructured loans. The Finance minister said to the reporters, “the government will stick to the ‘glide path’ for the fiscal deficit and the impact of the recapitalization bonds on the fiscal position will depend on its legal nature and the issuing agency.” The budget has set a fiscal deficit target of 3.2% of gross domestic product for this financial year. The chief economic advisor, Arvind Subramaniam, told that this kind of recapitalization is considered below the line according to IMF’s accounting method of fiscal deficit, the reason being this move will not directly add to the goods and services. But otherwise is the case in India’s accounting method. The sluggish credit growth in the banking system since last few quarters was due to lack of demand for big-ticket corporate loans. Latest data on the RBI showed that banking sector’s credit growth stood at 7% year-on-year. Along with the bank recapitalization plan, the commitment of Rs. 700,000 crore stimulus to infrastructure sector is also hailed by the industry players as it will not only boost the economy but will also create jobs. The government has seen much criticism its inability to create jobs. But this move of the government will do the damage control according to the experts.Now that the banks will be able to give more credit to the private sector businesses, many stalled infrastructure projects will be back on track, and new projects will also get a start. Of the whole stimulus, Rs 5,35,000 crore will be invested in road infrastructure of 3,48,000 km under Bharat Mala program.
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