FinXpress November 23 2014

The finance club at IMT Ghaziabad is engaged in a constant endeavor to provide you with a practical exposure to the world of finance and the latest emerging trends in the related fields of Risk Management, Banking, Investments and non-finance topics.

NOVEMBER 23, 2014 | A FINNICHE INITIATIVE

In Focus

Do write to us at: finniche.imt@gmail.com

Implications of Modi’s visit to Australia| 2

Opinion Kotak Mahindra Bank, ING Vysya Merger Deal| 4

Term of Week Management Buyout | 6

Personality AgustĂ­n Guillermo Carstens Carstens |11

Brand World Hyundai Elite I20 : The car to drive|12

November, 23 | 2014 | Volume 22

College is abuzz with final placements approaching, and we wish the final year students all the very best for their placements.

Implication of Modi’s visit to Australia

Kotak Mahindra, ING Vysya

In this edition of FinXpress we have our InFocus section putting light on the “Implications of Modi’s visit to Australia” and our Opinion section analyzes on the “Kotak Mahindra, ING Vysya Merger Deal”. The term of the week sheds light on the much hyped “Management Buyout” where the company’s management team purchases the assets and business of the company they manage. Along with it, do have a look at our sections on Personality which talks about the current Governor of Bank of Mexico, Agustín Guillermo Carstens Carstens.

Bank Merger Deal

Management Buyout

Hope everyone likes the revamped version of magazine. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas.

Happy Reading!

Agustín Guillermo Carstens

Regards The Editorial Team Club FinNiche

Carstens

Hyundai Elite I20: The car to drive

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

- By

Narendra

G-20 summit would help India deal with the issues of black money, terrorism

Modi

has

been

Rishabh Agrawal

continuously

which was a great platform to highlight our

present in the electronic and print media after

priorities and concerns. The issues raised

he became the prime ministerial candidate for

were of black money, unaccounted for money

Bhartiya Janta Party. He is considered to be a

and terrorism. These issues have serious

game changer for the party. After being the

security implications, and thus was essential

Prime Minister, he took several initiatives and

to discuss in a forum which comprises of 85%

went to different summits.

of the global GDP and 75% of the global trade.

This came as a welcome sign for India.

Bi-lateral tie to increase trade

Prime Minister has recently returned from a

relations in various sectors with

three nation, extensive diplomatic initiative.

The bi-lateral visit of India within Australia

Australia

The initiative included attending summits in

also had a festive touch, when Prime Minister

Myanmar, Australia and Fiji. This was to

Narendra Modi addressed more than 21000

boost diplomatic ties and to support future

non-resident Indians in the Allphones Arena

initiatives. The visit to Australia has been in

event. Apart from these, several other events

focus for a number of reasons. First the

also took place which made various media

priority was to attend the G-20 Summit,

channels to address Prime Minister Narendra

Civil

Nuclear

Agreement India’s

Cooperation

Modi as a “Rock star”. The prime minister

enable Uranium export from Australia, and

was welcomed with warmth and affection,

boost India’s power generation capacity.

and both the prime ministers referred to

Finalizing the Comprehensive Economic

each other as friends. The leaders of both

Partnership Agreement (CEPA) was also on

countries are keen on strengthening the

the

bond between two countries.

manufacturing,

generation

capacity.

CEPA to be finalized.

Various

other

tourism

sectors also

saw

like the

potential.

signed to boost

power

list.

A number of agreements were signed and a more

structured

approach

to

enhance

Apart from cricket, this bilateral tie includes

economic activity and security cooperation

trade between two countries in various

between both countries was affirmed. A

sectors. Perhaps the time to celebrate a new

Civil Nuclear Cooperation Agreement was

era in Indo-Australian relations has only just

an important agenda. This agreement will

begun.

- By

J.Sindhuja

Kotak Mahindra bank acquired Dutch lender

merger would yield more liquidity and

ING Vysya bank head quartered in Bengaluru

significant headroom for foreign money, as

in an all stock deal which is valued at around

after the merger the foreign shareholding

Rs 15,000 cr on Thursday .This deal will make

would be 47 per cent. The promoters in ING

Kotak Mahindra the fourth-largest private

Vysya bank hold a stake of 42 per cent. RBI’s

bank in the country in terms of total business

approval is required for an entity other than

with ICICI,HDFC and Axis bank being the

the promoter to have more than five per cent

biggest three. The merger would result in a

stake in a bank according to the regulations.

combined banking entity which will have a

After the merger, the ING group, will become

widespread network of 1,214 branches across

the second-largest shareholder in the bank

the country, nearly 40,000 employees and

with a stake of 6.4%.

assets of nearly Rs 2 lakh crore. As part of the

An ING representative will also be inducted

merger 15.2 percent of equity share capital of

into Kotak Bank’s board. There would be one

kotak is being issued and the percentage of

year lock-in period for ING for the shares it

promoter shareholding in Kotak Bank will

holds .ING’s digital banking strengths evident

come down from 40 per cent to 34 per cent,

from the fact that ING was among the top two

which

or three consumer banks in Germany with

could

be

decreased

to

30%

by

zero

branch

presence,

its

expertise

international corporate banking

in

would be

leveraged by the combined entity. Overlap in terms of branches would be very little and the top eight cities would account for a third of the total number of branches of the merged entity. This deal will result in a significant ramp-up in Kotak’s branch presence in South India and provides access to southern states like Andhra Pradesh, Karnataka and Tamil Nadu, where it has limited footprint and has 46% of its branches in western parts of the country. Additionally, it would gain access to urban areas, as more than 65 per cent of ING December 2016 as asked by RBI. Regulatory

Vysya’s branches are in urban and metro

approvals, including those from the Reserve

regions. Kotak’s expertise in retail business

Bank of India and Competition Commission

and ING’s expertise in its small and medium

of India are required for the deal. New entity

enterprises (SME) clientele would enable them

would be operational by April 1, 2015 as

to work with synergy and enable Kotak to

expected by management of the banks. This

further diversify its loan book.

In 2013-14, the profit of Kotak Bank and ING

ING Vysya shares indicated a record high of

Vysya totaled nearly Rs 3,100 crore. With

864.80.

this deal ING Vysya shareholders will get The share exchange ratio

for each ING

725 Kotak Bank shares for every 1000 shares Vysya share indicates a price of Rs 790. they hold in the lender.

Kotak Mahindra's bolstered balance sheet and expanded branch network will put it in a better position to tap a pickup in demand for credit

from

Indian

corporates

and

individuals in the near future. The KotakING deal has taken place at a price/book value ratio of 2.1 times whereas in 2010, ICICI Bank-Bank of Rajasthan merger took place at price/book value ratio of 5 times and HDFC Bank's takeover of Centurion Bank of Punjab was valued at 6.8 times. The deal appears attractive in terms of valuation.

This deal may be the start of long-awaited consolidation in India's crowded banking sector. There are 40 publicly traded banks in our country, of which 24 of them are owned by the government. Over 70 per cent of a total of $1 trillion advances is due to state banks leaving dozens of small lenders in their wake with tiny market shares. The sector should begin coalescing around a few major players after the country's central bank in April granted licenses to set up two new banks. Deals, though, have been rare in a banking industry hampered by restrictive Kotak Bank shares showed a rise as much regulation, reluctant investors and strong 9.3 per cent to a record high of Rs 1,264.70. unions.

- By

Menzies Hotel was bought in

Management buyout refers to the transaction wherein the management team of a company buys the operations and assets of the business that they are responsible for managing.

2011 by its management after the parent company, Piccadilly Hotels, went in administration.

The sale resulted in a financial restructuring of the Menzies Hotels, in agreement with its lender (Lloyds Banking Group), under a new company called Cordial Hotels. The company is now majority-owned by the management team

The purpose of conducting management buy outs by management teams is to get the financial rewards from the future development of the company more directly as the owners than they would get working as the employees. MBOs are used as exit strategies by large companies that wish to sell a part of their operations which does not constitute their core business or the owner of a private business wishes to retire. The investors and bankers agree for the management buy outs as management team is extremely familiar with the business operations and are capable of creating value by continuing the business.

The major difference between an MBO and any other form of acquisition is that in an MBO the company is bought by its own management who have the inherent knowledge of the operation of the business as compared to the sellers whereas in an acquisition the company is bought by a group of outside investors.

Generally, managers do not have enough wealth to buy the company on their own and thus it required to raise additional funds.

Kartik Awasthi

Usually the funds are raised through debt financing. The management seeks the help from banks to the lend the money, if they are willing to accept the risk as MBOs are seen as risky for a bank to finance. MBOs therefore are also termed as leveraged buyouts (LBOs) in such cases where a large part of the price in financed by debt.

The MBO may alternatively be financed by some private equity investors who acquire some shares in the new company in place of the money they have invested. In such cases, the private equity can pay an attractive price for the asset as there is a dedicated management team involved in the company.

However, there can be several drawback involved in the MBO structure. As there is a transition of the management team from being employees to owners it requires a change in the mindset as well from being managers to entrepreneurs. All managers may not be successful in making this transition. Also, there can be a situation of conflict of interest between the seller and the management team. The seller of the company may not be able to estimate the best price of the asset. The management team can deliberately sabotage the future prospects of the company in order to purchase it at a relatively lower price as they have more information and expertise of the company as compared to the seller.

INDIAN MARKETS BSE index rises to record high of 28,360.66 and NSE index marks life high of 8489.80.

NSE bank index surges to all-time high on account of Kotak Mahindra Bank’s acquisition of ING-Vysya and expectations for more M&A deals in future. Expectations of more reforms ahead of winter session of Parliament was also a major factor behind the positive sentiment in the market.

Sentiment in the Indian market improved

after

Open

High

Low

Close

SENSEX

28100.10

28360.66

28038.40

28334.63

NIFTY

8408.20

8489.80

8398.60

8477.35

China

unexpectedly cut benchmark interest rate

BSE SENSEX

The

Railway

Board

issued

orders to release 50 per cent of

manufacturers’

withheld

allocation Temaxo Rail & Engineering gained 2,2 per cent, while Titagarh Wagons Ltd is up 4.3 per cent

CNX NIFTY

COMMODITIES Commodity

Unit

Rs / Unit

% Change

Gold

10 grams

26391

-0.27

Silver

1 kg

36080

0.73

Crude Oil

1 bbl

4707.80

1.15

SEBI ruled out any relook on its new delisting norms and said the new rules would make

EXCHANGE RATES

promoters reach out to the

INR/ 1 USD

61.69

INR /1 EURO

76.43

INR/ 100 JAPAN YEN

52.38

INR / 1 POUND STERLING

96.59

investors.

Kishore

Biyani’s

Future

Consumer Enterprise bought South

India based Nilgiris

convenience

stores

in

an

all-cash deal for about Rs. 300 crores.

INTERNATIONAL MARKETS Open

High

Low

Close

NYSE Comp

10937.97

11063.79

10937.97

11025.74

NASDAQ

4751.01

4751.60

4700.73

4712.97

S&P 500

2057.46

2071.46

2056.75

2063.50

FTSE 100

6678.90

6773.14

6678.90

6750.76

CAC

4245.65

4356.11

4240.19

4347.23

DAX

9521.24

9736.14

9508.17

9732.55

NIKKEI 225

17285.72

17381.59

17108.20

17357.51

SSE 50

2452.63

2488.20

2446.65

2486.79

Hang Seng

23353.72

23508.02

23301.48

23437.12

Reliance Jio Infocomm signed syndicated term loan facility for $1.5 Billion resulting in overall gain for RIL

SpiceJet shares declined by 11% due to the doubts over Company’s viability. As per the latest

Auditor’s

Company’s

total

report,

the

liabilities

exceed its total assets by Rs. 1459.73 crore.

RIL rose by 0.98% to Rs. 992.35 after the company's telecom operating unit Reliance Jio Infocomm signed syndicated term loan facilities aggregating to $1.5 billion. The facility is guaranteed by Reliance Industries (RIL) and will be used to refinance the syndicated term loan facilities.

The facility was fully underwritten by an initial group of 15 core relationship banks that comprise the Mandated Lead Arrangers and Bookrunners (MLABs). The deal also witnessed significant over-subscription before it was launched into syndication and two banks joined in as MLAs. The overall bank group saw participation from banks all over the world, including North America, Europe, Australia, Asia and the Middle East. The banks which joined in syndication are Abu Dhabi Commercial Bank, Societe Generale SA, Sumitomo Mitsui Trust Bank, Limited, Singapore Branch, Land Bank of Taiwan, Singapore Branch, Mega International Commercial Bank Co Ltd, Offshore Banking Branch, Bank of Taiwan, Singapore Branch, CTBC Bank Co Ltd. Singapore, The Iyo Bank, Ltd. and The Hyakujushi Bank, Ltd.

Axis Bank is raising money via selling bonds in open market India’s third largest private sector bank is raising money worth $500 million by selling bonds to investors in Asia and Europe. Standard & Poor’s Ratings Services assigned ‘BBB’ long term issue rating to this issue. The rating on the notes reflects the long term counter party credit rating on the bank.

The bonds will be listed on the Singapore Stock Exchange. The bonds are likely to mature in five-and-a-half years and will be issued under the Regulation ‘S’ transaction, which does not allow investors based in the US to buy these bonds. Barclays Plc, Hong Kong and Shanghai Banking Corp Ltd (HSBC), Stanadard Chartered Plc, JP Morgan Chase and Co. and Credit Agricole CIB are the bankers to the issue. The bonds will be sold through the bank’s Dubai International Finance Centre (DIFC) branch.

The proposed notes will constitute direct, unconditional, unsecured and unsubordinated obligations of Axis Bank. They shall at all times rank at par among themselves and with all other secured obligations of the Bank.

Arun Jaitley asked PSBs to support growth by lowering NPAs

The Exim Bank of India is planning to set up a shipping fund with Rs. 1500 crore of capital

support

government shipbuilding

to

from

the

help

the

industry

and

strengthen its export potential.

to

Finance Minister has asked state-run banks to take proactive measures to support credit growth of the country and take initiatives on lowering their bad loans or non-performing assets (NPAs). The minister met heads of state-run banks and said that banks should carry out lending on the basis of objective due diligence without being unduly conservative in a completely transparent manner.

The bad loans for state-run banks increased to 5.32% at the end of September 2014, as compared with gross non-performing assets at 4.82% in the same period last year. As said by the Finance Ministry, over the last 2-3 years on account of slowdown, one area of concern is that the NPA has risen. The finance minister also asked banks to take steps to ensure smooth credit flow to projects at a time when global growth is quite patchy and direction of global investment is still unclear.

The finance minister also reviewed the progress of the government's ambitious financial inclusion scheme, Pradhan Mantri Jan Dhan Yojana (PMJDY). It was noted that 20% households are still uncovered. Banks will now cover these remaining households in sweep mode and special efforts will be undertaken to cover uncovered households in 33 districts where the percentage of coverage is less than 50% as per the survey done by banks.

A new high for FII stake in Infosys Overseas investors are once again taking keen interest in the company’s stock after the company appointed Mr. Vishal Sikka as its new CEO and MD in June this year. They believe that Sikka will bring Infosys back on track and at the same time have placed aggressive price targets on the company. Foreign institutional investors have increased their holding in the company to its highest-ever level of 42.67% in this September.

FIIs have increased their stake in Infosys by 2.7% to 42.6% in the September quarter from 39.9% over the past one year. The key FII investors are Oppenheimer Fund holds 2.8%, Abu Dhabi Investment Authority holds 2.5%, Government of Singapore holds 2.05% and Vanguard holds 1.52%.

There has been a revival of interest as well as a turnaround in the Infosys stock ever since Sikka took charge of affairs at the Bangalore-based company. Shares of Infosys have rallied about 40% and have outperformed its peers such as TCS, Wipro, HCL Tech etc.

9th June, 1958

Mexico Autonomous Institute of Technology University of Chicago

Agustín Carstens is a Mexican economist who has served as Governor of the Bank of Mexico since 1 January 2010. In 2011, Carstens, along with Christine Lagarde, was one of the two final candidates to become the managing director of the International Monetary Fund. He previously served as Secretary of Finance in the cabinet of Felipe Calderón (2006–09), as deputy managing director of the International Monetary Fund (2003–06) and as Treasurer of the Bank of Mexico. In 2011 he was included in the 50 Most Influential ranking of Bloomberg Markets Magazine.

Professional Life Born in 1958, Agustín Carstens has a Ph.D. (1985) and M.A. (1983) in Economics from the University of Chicago. He has a B.A. in

Economics from Tecnológico Autónomo de México (ITAM)(1982).

Dr. Carstens began his professional career in 1980 at Banco de México, where, despite his youth, he held many top level positions at the central bank’s International Affairs Department, first as Foreign Exchange trader, and then as Deputy Manager and Manager of the Foreign Exchange and Market Analysis Department. After many years at the Bank of Mexico, Mr. Carstens assumed office as Deputy Managing Director of the IMF from August 1, 2003 to October 2006. Carstens left the IMF to coordinate the economic policy program of Felipe Calderón, then president elect of Mexico, who appointed him as secretary of finance shortly after the election was validated. Carstens was nominated to the Bank of Mexico on 9 December 2009 by President Felipe Calderón, replacing 12-year veteran Guillermo Ortiz.

Personal Life He is married to Catherine Mansell, an academic, writer and economist from the United States who has authored several books on finance and on literary fiction and nonfiction under the pen name C. M. Mayo.

Recently in News Agustín Carstens was in the news when the Bank of Mexico lowered its growth estimate to a range of 3% to 4%, from 3.2% to 4.2% for 2015. This measure came after Central Bank I June cut its benchmark interest-rate target to a record low 3% in response to a sluggish economy.

- By

Abhinay Gandotra

It is a South Korean company headquartered in Seoul

The much sought after car Hyundai Elite I20 finally hit the Indian markets.. With a starting price of 4.89 lakhs and its top end model costing upto 7.67 lakhs the car is available in two engine option a 1.2 litre petrol and a 1.4 litre diesel engine.

The model is based on Hyundai’s ‘Fluidic sculpture 2.0’ design philosophy which makes it look completely different from the old model. Though mechanically speaking much has not been changed. Speaking about the external specifications of the car Elite I20 sports a hexagonal web grille. This web grille has now been adapted as one of the major changes which we will see in the forthcoming cars also. The style quotient of the car has been upped by including Santa-Fe-Esque head and tail lamps and blacked out C-pillars.

The hood also sports sharp character lines enhancing the style further and making it a treat to watch.

The interior features new generation Hyundai multi-function steering wheel. The car also has an entirely new dashboard and

upgraded audio system with a larger screen.

The interior though still sports the beautiful black and beige theme with silver accents.

Hyundai I20 is turning out to be one of the most successful products for Hyundai India.

Within 2 months of its launch the company has received around 40,000 bookings. Though having a higher price Elite I20 with its improved ride and handling has doubled the numbers in terms of sale.

Talking about the competition I20 Elite’s major rivals are Maruti Swift, Fiat Punto and Volkswagen Polo in the premium hatchback segment. The two cars that have the highest fuel economy of the lot are Swift and Elite I20 with an average of 18.6 kmpl. The design and the interior lift given to old I20 has made the new Elite I20 look more sharp and more elegant. Swift considered to be its major rival is expected to come out with a facelift in a few months, which will make the competition in the premium hatchback segment more competitive and hotter than ever.