Bhushan Steel insolvency case: NCLT reserves order on SBI plea on recovery of dues

Bhushan Steel insolvency case: NCLT reserves order on SBI plea on recovery of dues

New Delhi: The National Court of Corporate Law (NCLT) has reserved the order in the matter between State Bank of India (SBI) and Bhushan Steel Ltd on obtaining contributions worth Rs.44 billion.

The SBI transferred Thursday NCLT against Bhushan Steel, claiming that the company had stopped paying loans of more than Rs43 billion rupees.

The claim was made in light of the bank’s legal rights under insolvency and bankruptcy code (IPC) to recover its assessed contributions.

In arguing in favor of accepting the request, the lawyer OSE said: “A total of 3210 wines INR 4295 INR under a term loan in Rupees was disbursed as of June 30, 2017.

Alarm clock letters were provided by the OSE, where INR 6525 crore are due to 3 OSE affiliates after the merger. Debt recognition was also presented and default for the letters $ 4 billion rupees. ”

He said that in the sense of “Sections 4 and 3 (12) of the Bankruptcy and Insolvency Code (IBC), it is in the interest of the banks that the resolution process begins very early, in a given period.”

The SBI attorney also refers to the RBI Directive collecting the contributions of these mega failed.

He also stressed that “dependency on several RBI notification is not relevant.” It was reported to the court that “the legal remedy has already been exercised and now they are before the NCLT for reparation.”

He added that “it is not a mandatory proof of debt”, and that in its own answers, it is not disputed that there is a pending debt.

The NCLT President noted for banks that “the RBI directive is irrelevant. Getting their contributions is a legal right,” emphasizing the independent nature of these procedures.

Emphasizing the sad generosity of things in the banking sector, he said: “This does not happen in India a loan is advanced for someone to deal with interest payments.”

Steel lawyer Bhushan submitted: “In the declaration model, there are about Rs. 100 rupees in difference of default amount, while, in accordance with article 75 of the IB Code, important facts should have been Revealed and omitted in spite of knowing that they are material.There must be some sanctity for the exercise of NCLT’s powers as a contracting authority. ”

Bhushan Steel, referring to an agreement on how to work consortium capital between the two entities, argued that “working capital is repayable in the event of a request for recovery or payment” and that the principal of the debt is 65% of the Working capital.

“There is a difference between debt and default value – the entire amount is displayed by default, even if no default notice has been notified about working capital,” he said.

He also referred to two orders of the National Court of Appeals of the Law of Societies (NCLAT) if there is no ruling or if there is falsehood, the appeal must be dismissed.

Airtel, Vodafone user’s bill could go up if Trai accepts their demand

Airtel, Vodafone user’s bill could go up if Trai accepts their demand

Millennia lack the essential skills for success in a career: the GST effect of the survey: mobile chargers cost more now
Major telecom operators Bharti Airtel, Vodafone and Idea mobiles have requested Tuesday an increase in the use of interconnect load (IUC) the current level of 14 paise per minute on the basis that the end of the other incoming calls companies Telecommunication more than their networks cost 30-35 paise per minute.

Any increase in the UIC’s lead to higher call rates because the tax is included in the total price paid by consumers.

The new entrant Jio Reliance, however, is clearly favorable did not receive any taxes on incoming calls.
UIC is set by the Telecommunications Regulatory Authority of India.

Currently, IUC 14 paise per minute applies to each internal incoming call by the receiving telecommunications operator.

When asked if telecom operators suggested increasing mobile termination rates in the range of 30-35 paise from 14 paise levels today, the President of Trai Sharma responded If so, without naming a particular operator.

All major operators participated. Some operators have sought to reduce, some said to keep constant at the current level. Others said they should increase, “Sharma told a news conference after a one-day workshop with telecom operators.

He said that there were other charges that were part of the UIC but paid the 14 for the treatment of domestic calls dominated the discussion during the workshop due to the large number of calls subject to the present allegations.

It did not give a timetable to reaffirm the UIC’s recommendations, but said they would soon be finalized.
Airtel said the cost of transporting the incoming call is 30 paise and, therefore, the UIC must be increased so they can recover their costs, said a senior industry official who would not be identified.

Vodafone said that the cost of transferring incoming calls in its 30 country network, regardless of license fees and 34 paise later included, revealed.

The company’s Aditya Birla Group, Idea Cellular, said that the cost of transporting the incoming call in its network is about 30 paise according to the methodology used by Trai, while, according to its own calculations, the cost is 35 countries per minute.

The company said it could not recover its cost base at the current pace of the UIC.

Idea is that the IUC is high so that telecom operators can recover the cost of charging incoming calls from other networks.

Trai in a sworn statement in the Supreme Court in 2011 had said that telecom operators should allow time until 2014 to pass the law and maintain the regime. In this case, operators do not take incoming calls into their network, but does not imply any demand from other operators.

The encounter takes place during the War of the current prices between historical players and the new entrant Jio dependence that offers free calls and data at cheap prices.

Established players have been forced to lower prices to protect market share and, therefore, some companies have suffered a loss in recent quarters, others saw their profits fall.

Ahead of privatisation, Air India to offer VRS to 15,000 employees

Ahead of privatisation, Air India to offer VRS to 15,000 employees

New Delhi: Air India is developing a proposal to offer voluntary withdrawals to just over a third of its 40,000 employees, two government officials said in one of the largest operations of its kind in the Indian state sector, as cuts Of airlines cost a sale in 2018.

The state-owned airline has also expanded the waiting fleet, dismantling a proposed lease of eight wide-body Boeing 787s, one official told an Air India executive who called for anonymity because the plans are not public. The Board of Directors of Air India approved the proposal in April, but nothing has been done.
“Nothing has been finalized, but our goal is to make the simplest possible strategic sale,” said the company official, adding that any new investment is also put on hold.

Air India spokesman Dhananjay Kumar said the company had not offered employees voluntary withdrawals.

The Indian flag bearer is on the block after Prime Minister Narendra Modi had last month approved plans to privatize the airline deficit with the sale of part or all of the company and ending with decades of support State.

Founded in 1930 and known for generations of Indians for its mascot Maharaja, Air India has a complex fleet of too many employees compared to competitors and 8.5 billion dollars in debt. Since 2012, New Delhi has injected 3.6 billion to keep it afloat.

An official of the Office of Modi said the prime minister, under pressure to reduce spending and increase basic infrastructure, such as ports and highways, “was not in the mood” to provide more monetary aid to any public deficit enterprise.

The two government sources, familiar with Air India’s plans, said the main civil aviation ministry and Air India officials were invited to submit a report on how a voluntary pension scheme (VRS) could be offered to 15 per 000 Air India 40,000 employees, including contractors.

Many businessmen, including office and field office managers, worked for the airline for years and should receive acquisition offers to avoid protests, said the company’s senior officer, who is involved in daily air operations.

Earlier attempts to unload the aircraft failed mainly because of the magnitude and complexity of Air India’s problems and its influential unions.

If Modi can call privatization, he will strengthen his powers as a brave enough reformer to work on some of the most difficult problems in the country.

Also on Tuesday, Air India President Ashwani Lohani sent a letter to employees who asserted that government and airline management “would save their genuine and valid interest,” according to a copy of the letter seen by Reuters. Kumar, the company spokesman, confirmed the letter.

The government will have to convince seven unions to accept the plan to make aerial attractive to potential buyers, including acquisitions and other efforts to cut costs. His initial response was not positive.

“The government will propose a VRS scheme and propose its proposal to us in the trash,” said JB Kadian, a union leader representing 8,000 non-technical Air India employees.

Market Live: Sensex, Nifty hold on to gains; Pharma index top gainer

Market Live: Sensex, Nifty hold on to gains; Pharma index top gainer

14:46 buzz: shares of Lupine and Sun Pharma gained 1.8% each intraday after receiving approval from the United States health regulator for drugs.

Important Pharma Lupine has received approval from the US Food and Drug Administration for Armodafinil which is used to treat excessive sleep disorder.

The FDA also approved ANDA for paroxetine hydrochloride presented by Sun Pharma.

Paroxetine hydrochloride is used for the treatment of OCD, panic attacks.

The rise in health care stocks after FDA approval of the drug lifted the Nifty Pharma 1.8 percent.

2:37 p.m. Revenue: Electrical equipment maker, Havells India, fell 16.6 percent compared to the previous year in net profit for the June quarter at Rs 121.3 crore against Rs 145.6 crore during The same period last year.

Profits for the June quarter are lower than the CNBC-TV18 analysts poll that caught up to Rs 158 crore.

Quarter sales, however, increased 26% to $ 1 982 gross over Rs 1,573 crore in the corresponding quarter last year. The figure exceeded expectations of Rs 1.889 billion of analysts.

At the operating level, earnings before interest, taxes, depreciation and amortization (EBITDA) fell by 14 percent to Rs 172.4 crore against Rs. 200.4 crore a year earlier, while the operating margin Increased to 9.3 percent from 13.6 percent in June 2016.

14:30 Fusion: Parliament, Oil Minister Dharmendra Pradhan, said the NGO group PSU, ONGC, has sent a proposal to acquire retail HPLC oil and the Ministry is working to approve in main terms the acquisition of HPC By ONGC.

Sources told CNBC-TV18 that HPCL could remain classified as a subsidiary of ONGC.

14:15 Checking the benchmark index market continued to trade in a strong, skilled trade is less than 9900.

The Sensex rose 167.90 points 31,878.89, while the Nifty has surpassed 48.80 points 9875.95. The width of the market has been close since 1677 stocks advanced against a decline of 934 shares, while stocks of 146 remained unchanged.

ITC, Bharti Airtel, Zee Entertainment and Aurobindo Pharma earned more, while Infosys, HUL, ACC and Ultratech cement lost more.

European stock markets were higher on Wednesday morning by taking a stock of a series of corporate announcements across the continent.

The pan-European Stoxx 600 started the day up to 0.49 percent, showing that losses were recorded Tuesday after the White House has seen the latest setback to its efforts to continue health reforms. All the building materials sectors were barred and seen in the dark.

13:58 GST rate review: The government can not review the tax rates of products under the new indirect tax regime, unless there is an anomaly, a need correction or something was left out.

“The industry is going to be problems in the law, the rules, the rates, but there is no time,” said the central charge of Special Taxes and Customs (CBEC), Vanaja N Sarna.

Sarna also said that the textile and entertainment industry face problems with tariffs and will be eliminated over time.

13:40 NCLT reserve order: The National Court of Company Law (NCLT) has reserved the order in the bankruptcy petition filed by the country’s largest lender against India Bhushan Steel Ltd.

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Safe heaven


ELSS funds are excellent prospects for investors. They are the only way to get good equity exposure while sav­ing tax. All tax-saving investments
Since its inception, equity linked saving scheme (ELSS) funds have performed well in compari­son to most other types of diversi­fied equity funds. Over the last three years, the average returns of these funds have been 23.35 per cent per annum, corresponding to a total gain of 87.7 per cent over this period. During this time, mid and small cap funds have done better, with 30.7 per cent gains, but other types of diversified equity funds have lower returns than ELSS funds. These funds also beat the Sensex and the Nifty by a large margin. “The primary reason for this outperformance is the gen­erally higher allocation to mid and small cap stocks that the fund man­agers of ELSS funds have maintained, by and large. The equity markets have done well over this period, and investors in these funds have reaped the rewards,” explains Dhirendra Kumar, chief executive of the Delhi- based Value Research.

have some lock-in period but ELSS funds have the shortest one at three years. Three years is ideal because it is just long enough to enable inves­tors to ride out short-term volatility and get good returns. “This positive experience means that ELSS funds are an excellent gateway investment for investors to get a nice taste of the returns that equity funds are capable of,” adds Kumar, pointing to the fact that once an investor understands this, it just doesn’t make any sense to lock up one’s funds for 15 years in PPF. “After any mandatory deductions are accounted for, investors should gen­erally allocate the entire discretion­ary amount left in the ?1.5 lakh limit under Section 80C into ELSS funds,” he suggests.

Impressive returns

“Judging ELSS schemes is slightly dif­ferent from other ones as they typi­cally have a lock-in period and we need to look at returns over this duration at the minimum. These funds invest in equity and are attrac­tive given that they carry Section 80C benefits. Therefore, the implicit
returns would be higher than what appears in nominal terms when we see their performance,” says D.R. Dogra, MD, CARE Ratings, who has over three decades of varied expe­rience in commercial banking and extensive knowledge about the func­tioning of the corporate sector. “Most of these schemes have done well in the last year as this was a time when the equity market has done very well given the increased sentiment under the new government and the affir­mative steps taken. While some have given returns over 50 per cent, the general returns have been around 20 per cent. Most of the leading funds have such schemes which have deliv­ered impressive returns,” he feels. “I would tend to think, that given the tax benefits that are available such schemes will remain popular with the investors. Being purely equity driven they give first time investors a taste of the market but as they carry high risk, will not quite be as popular with say deposit holders who want an assured and safe return. While returns will be good in the medium term on equity funds if we believe that the India story is intact, the appeal will still be higher for those with higher risk appe­tite.” Sums up Deven Choksey, pro­moter, KR Choksey group: “Expected increase under Sec 80C (from ?1.5 lakh to? 2 lakh), would be beneficial for instrument and investor.”

♦ LANCELOT JOSEPH [email protected]




Performance of ELSS schemes

Tax Saver Funds(ELSS) AAUM ? Crore NAV


1 Ranking


2 3

5 1 Performance % Years

2 3

5 Launch


Reliance Tax Saver Fund 3458 50.06 1 1 1 1 104.91 47.68 33.71 23.50 21 Sep, 05
Birla Sun Life Tax Relief 96 1809 138.79 2 2 2 11 73.25 37.99 28.54 16.42 29 Mar, 96
ICICI Prudential Tax Plan – Regular Plan 2341 277.16 7 4 6 6 63.74 34.22 26.48 18.31 19 Aug, 99
DSP BlackRock Tax Saver Fund 1019 32.20 9 9 7 7 62.62 32.77 26.41 17.56 18 Jan, 07
Franklin India Taxshield Fund 1500 422.98 6 7 8 2 67.33 33.43 25.77 19.70 10 Apr, 99
SBI Magnum Taxgain Scheme 5003 114.78 10 8 10 14 60.83 33.02 25.11 16.10 31 Mar, 93
HDFC Taxsaver Fund 4910 408.34 8 10 12 10 63.60 31.92 22.13 16.42 31 Mar, 96
Kotak Tax Saver 460 31.56 3 15 13 15 71.59 27.75 21.81 14.99 23 Nov, 05

S&P BSE Sensex Index                                                                                            39.97 22.44           17.01 12.21

CNX Nifty Index                                                                                                       42.23 22.30           16.86 12.44

Funds included with AUM in range of ?500 cr and above & theirCurrent Rankings.

(Source: Ranking & Data from Value Research as on 23rd, Feb)


The perfect choice Deloitte hires the best people and creates leaders



When Deloitte begins the new financial year from 1 June 2015, the 170-year- old professional services firm, which is also the world’s largest in terms of revenue and number of professionals, will have a person of Indian origin – Punit Renjen – as its global chief executive officer, for the first time in its history. Renjen, 52, will also be the first person of Indian origin to head global business of one of the Big 4 consulting firms – Deloitte, PwC, EY and KPMG. (Though earlier Mum­bai-born Jamshed ‘Jim’ Wadia was the CEO of Arthur Ander­son from 1997 to 2000)

Born in a business fam­ily from Lahore in undivided India, Renjen’s family moved to Rohtak after the partition in 1947. At age 7, Renjen was sent to a boarding school, the pres­tigious, The Lawrence School in Sanawar, Himachal Pradesh.

But, at age 14 he was called back from the boarding school when his father’s business was on a decline. In the following years, post school hours Renjen worked as a dye operator in his father’s factory before attend­ing a local college where he attained a degree in econom­ics. Armed with the economics degree, Renjen chanced upon a job advertisement in a newspa­per and got a job at Usha Inter­national, a home appliances manufacturer.

But, it was a Rotary Foundation scholarship that he won in 1984 that took Renjen to the US. He joined Willamette University’s Atkinson Graduate School of Management in Salem, Ore­gon, and graduated with honours in manage­ment. Renjen always describes the scholarship which covered air fare, studies and housing as very generous; one that gave him his big break. He is now on the board of trustees of Willamette University.

How he got his job at Deloitte is another inter­esting story which began at the Willamette Uni­versity in 1987. A local magazine had profiled 10 best students in the university, which included
* Renjen. The magazine was picked up by a Tou­che Ross, USA, (now Deloitte & Touche) partner in an aeroplane, who then asked his assistant to track down Renjen.

His assistant called Renjen to ask him to come for an interview. Renjen was happy to go but enquired if the company could reimburse his travel expense for the interview. After 15 rounds of interviews, Renjen says, he had a job offer from Touche Ross with $37,000 annual com­pensation. He accepted the offer, but, he had little idea what consulting was. Looking back at it now, Renjen says, “If someone had asked me when I was 21-22, do you want to be a consultant? I wouldn’t have been able to answer that ques­tion, because, I had no clue.” In 1989, Deloitte Haskins & Sells, USA, merged with Touche Ross, USA, to form Deloitte & Tou­che, and which now, after sev­eral mergers, is just Deloitte.

After working for 7-8 years in Deloitte, Renjen felt he was burnt out and wanted to take a sabbatical when a large re-engi­neering project was offered to him. He immediately regret­ted the decision to take the sabbatical. But, he didn’t have to regret it for long because it was during this sabbatical that he met his wife, Heather. And Renjen goes on to say that he would have never met his wife had he not taken that sabbatical. He calls it a profound turning point in his life.

Renjen’s rise from an analyst to partner, then to the chairman and CEO of Deloitte Consulting LLP in 2008, chairman of Deloitte LLP (US busi­ness of Deloitte Touche Tohmatsu) in June 2011 – and now, CEO of Deloitte Global has been built on one core skill: mergers and acquisitions. “I’m really good at M&A because I’ve spent more than 10,000 hours perfecting the craft,” says Renjen in a video interview recorded this- month before he was announced as global CEO. “I love what I do. But, I didn’t start out doing this.”

According to Renjen, there are a small groupof people who know exactly what they want to do and they’re blessed. But, most people fall under the category of those who do not know what they want to do. Renjen claims he belongs to this latter category who didn’t know what they wanted to do. “But I found myself a career and taught myself to love it,” says Renjen. “And so now it comes easy. It’s not a job. I view it as my life’s work.”

Renjen shares how he became really good at what he does, which also gives insights into the culture at Deloitte. According to Renjen, it was because of a partner at Deloitte’s Dallas office who took him under his wing that he was able to mas­ter the craft. “You never make it by yourself. You always need others to help you. Mentorship is incredibly important,” says Renjen. “It is impor­tant for us to teach the craft to the next gener­ation of individuals, so that we can pass on the skills that we have learnt on the job and off the job.”

During his tenure as CEO of Deloitte Consulting LLP, US, which began after the collapse of Lehman Brothers, the consulting practice experienced tremen­dous growth despite an ongoing reces­sion, helping Deloitte Consulting LLP become one of the largest consulting providers according to leading analysts’ rankings. Of course, it helped that Del­oitte managed to ward off pressure from SEC to spin off its consulting business, though KPMG and PwC spun theirs off. Of course, since then the tide has turned again and US policymakers have allowed the accounting firms to build back their consulting practice.For Deloitte, Renjen says, it made no difference that he was from India or that he looked different than every­body else. Deloitte hires the best people, and through mentorship and apprentice­ship creates leaders. “We’ve started mea­suring mentorship by taking feedback about mentors,” says Renjen. “If you’re a partner-director in this firm, you better be a really good mentor. If you’re not a really good mentor then you will not remain partner-director for long.”

Renjen sets pretty high goals for himself, which are usually higher than what most other people set for him. And he says he’s very driven to achieve them. “When I left India I knew I was going to make a life for myself and do whatever I could pos­sibly do to succeed by working hard,” says Ren­jen. “But this job has not just changed my life, but, even my family’s life.”

When asked what the tipping point in his life was, Renjen says, “Being proficient at what I do has
been the driving force for me all along. Because I came from an underprivileged background to the United States can be a tipping point.”

On 1 June 2015, Renjen will move from his current role as chairman of the Board, Deloitte US member firm, take charge as the global CEO of Deloitte, though he will continue to be based in New York and lead the Deloitte network’s operating in 150 countries, and employing more than 210,000 people worldwide.

“We are an organisation led by a purpose – to make a positive, meaningful impact that matters to everyone Deloitte touches,” says Renjen post the announcement of his promotion to head Deloitte global. “I will do my best to serve the network by helping enable our leaders and peo­ple to fulfil their passion to make a difference.”

Renjen succeeds Barry Salzberg after a rigor­ous and comprehensive nomination and mem­ber firm partner ratification process that occurs every four years and includes all member firms of the Deloitte worldwide network. “Punit’s experience as chair­man of our US firm – the largest and most complex in our network – combined with his 28-year career with Deloitte and strong core values – make Punit the perfect choice to lead Deloitte Global,” says Barry Salzberg, the current Deloitte Global CEO.

Renjen believes Deloitte’s member firm structure is a source of great strength. “But the biggest challenge for the mag­nitude that we have and the number of countries we operate in is to get the best ideas and get them propagated through­out the network as quickly as possible.”

In addition to being chairman of Deloitte LLP, Renjen currently serves as a member of the board of directors of Deloitte Global, and as chairman of the Deloitte Foundation board of directors.

Outside of Deloitte, Punit is a member of the boards of directors at United Way World­wide and the US-India Business Council.

He tries to maintain balance between per­sonal and professional life with the help of tech­nology, but, at times they conflict. “This is my life’s work. What I do here (at Deloitte) defines me,” says Renjen. “The second thing that will define me is what my 10-year-old son says about me when he becomes a man.”

“There’s no substitute for hard work,” says Renjen as advice to students and new hires. “There’s nobody on planet earth like you. You’re unique. You’ve unique gifts that nobody else has. Why try and be somebody else?”

ROHIT PANCHAL [email protected]

DEMERGER Unlocking value

n the recent past, India Inc has been moving into restructur­ing mode, where companies are either demerging their various divi­sions or doing away with the holding structure altogether. For instance, Adani Enterprises Ltd (AEL) recently announced that it’s doing away with the holding company structure of its stake in two listed companies – Adani Ports and Adani Power (as also unlisted companies). Every share­holder of Adani Enterprises expected to receive 14,123 shares in Adani Ports and 18,596 shares of Adani Power for every 10,000 shares held in Adani Enterprises. “The transac­tion is expected to unlock value for the shareholders of AEL by eliminat­ing the holding company discount,” announced the management while declaring the demerger.

Earlier, Max India had also announced that it was splitting into three entities. It would be renamed Max Financial Services and involve the life insurance business. Share­holders were to get one additional equity share for every share held in the new business verticals, which focussed on health and allied busi­ness that comprise Max Healthcare, Max Bupa and Antara Senior Living. This new entity was to be known as Max India. The third vertical was to be known as Max Ventures & Indus­tries, where shareholders would get one new share for every five shares held in Max Financial Serv­ices. This entity would be into man­ufacturing and specialty films. While announcing the rationale for this demerger, the management stated that this action would ‘unlock shareholder value’.

Crompton Greaves was another company that announced the demerger of its consumer durable business, where the shareholding of the new company would mirror the existing shareholding.

So, unlocking value for sharehold­ers is a new theme Indi^ Inc is play; ing out. “At present, capital infusion is the name of the game, where new investors would have the mandate to invest in one particular business and not all the businesses the company possesses,” says Deven Choksey, a leading broker, explaining the rea­son behind this rush. “That is why promoters are de-coupling their vari­ous businesses to drive growth.”

These three are not exceptions. In the last few years, similar activ­ity has been taking place sporadi­cally, but not at the same pace. For example, Marico demerged its skin care and spa business into a sepa­rate listed entity, Marico Kaya, with the shareholders of the parent com­pany getting shares of Marico Kaya, much to their advantage. Wipro also demerged its FMCG and consumer durables business from its iT/ITeS activities to stay more focussed in all business verticals. But as an excep­tion, took the FMCG business private, controlled by the Premji family.

Changing market dynamics

In an era when business is com­petitive and challenging, it makes sense for each company to be more focussed and sharp, so that one is able to respond to the changes in market dynamics in the quickest possible time. It was the same logic that Dilip Shanghvi of Sun Pharma applied when his company demerged its r&d business into a separate company, Sun Pharma Advanced. The Bajaj group also split Bajaj Auto into two new companies: Bajaj Finserv and Bajaj Holdings & Investments, with shareholders of the parent getting stakes in both new entities, which helped unlock value for them.

Now, it may be time for Bajaj Fin­serv in turn to undergo another ver­tical split a la Max India, with its life insurance business, non-life insurance business and NBFC busi­ness deserving separate attention. On the other hand, Bajaj Holdings, which holds a 31.49 per cent stake in Bajaj Auto and 39.16 per cent in Bajaj Finserv, is now commanding a mar­ket cap of just ?15,000 crore, while these investments’ market value itself is close to ?30,000 crore.

Similarly, Sundaram Clayton con­trols TVS Motors, another leading two-wheeler player. It holds a 57.40 per cent stake in TVS Motors, giv­ing its investment a market value of ?8,000 crore, while Sundaram Clay­ton’s own market cap is only ?3,700 crore. Sundaram Clayton is an active player in the auto components busi­ness and has a turnover in excess of ?1,000 crore, which clearly shows that Sundaram Clayton’s sharehold­ers are not reaping as much bene­fit as they should, because of the holding company discount.

Other companies that have demerged in the recent past include Orient Paper, which separated its cement business from the paper and consumer durables business, giving its shareholders new shares in Ori­ent Cement. Kesoram, another Birla group company, which is into vari­ous unrelated businesses like tyres, cement and rayon, was also in the news when it mooted the sale of its tyre business to reduce its debt. But for the time being, the company’s board has decided to transfer its tyre business in Haridwar to a separate subsidiary and may monetise the same at a future date.

Empirical studies suggest that a holding company structure invari­ably fails to unlock value for share­holders. Investors don’t attribute fair value to the holding company, despite it holding substantial stakes in good quality companies. Theoreti­cally, the holding companies’ invest­ments should be valued at a 30 per cent discount but, in real life, dis­counts go as high as 70 per cent, which defies logic. By not doing away with the holding structure, it is doing an injustice to the sharehold­ers (read minority shareholders) of the holding company, who are not able to revise the intrinsic value of their investments.

“Investor appetite for holding companies is less, because minor­ity shareholders have little say in the allocation of funds of the hold­ing company,” explains Choksey. “Due to this, the holding company’s investments in a subsidiary company are valued at 20-30 per cent discount to market value. But, in a bull mar­ket, this discount tends to come down. Also, many a time, the fact that a company is holding valuable assets is not understood by investors, which could also be a reason it is not getting the right valuation in the stock market.” Moreover, the invest­ments are reflected at book or acqui­sition value in the holding company and are not marked to market.

Structural maze

One case in point is Bombay Burmah, the holding company for the Bombay Dyeing group. It holds more than a 50 per cent stake in Britannia Industries through its various step-down sub­sidiaries. The present market value of Bombay Burmah’s stake in Britan­nia is more than ?12,000 crore but Bombay Burmah’s own market cap is a mere ?3,300 crore, which does not reflect its true investment value. In fact, Bombay Burmah also owns quite a few other assets, including a 14 per cent stake in Bombay Dyeing.

Of course, the holding compa­ny’s stake in Britannia Industries is through various step-down subsid­iaries, the major one among them being Associated Biscuits, which
holds a 44.95 per cent stake in Bri­tannia. Associated Biscuits, in turn, is a 100 per cent subsidiary of Leila Lands, which itself is a 100 per cent subsidiary of Leila Senderian Berhad, a 100 per cent subsidiary of Bombay Burmah. Due to this structural maze, there is little awareness among the investors that Bombay Burmah is the holding company of Britannia. There may have been historical reasons for Bombay Burmah to hold the stake in this fashion, because it is these com­panies that had the case to make the acquisition but that does not justify the fact that the investors of Bom­bay Burmah are not able to reap
the real benefits coming from its stake in Britannia.

Discounts of the holding company, often well above 20-30 per cent are common. For example, Grasim Indus­tries, the flagship company of the Aditya Birla group, owns a 60.25 per cent stake in UltraTech Cement, the investment market value of which is ?50,000 crore. But Grasim’s own mar­ket cap is only ?35,000 crore. Also, Grasim has other businesses which are valuable, in particular its viscose business in which it is the dominant player, and stakes in other compa­nies such as Idea Cellular, in which it holds a 4.76 per cent stake.

If Grasim does away with the hold­ing structure, the company’s share­holders would reap rich dividends, because they would get the shares of UltraTech too. Aditya Birla Nuvo, another Aditya Birla group company, also functions as a holding com­pany for many of its businesses, such as finance, insurance and broking, as well as retail (Madura Garments), including brands like Van Heusen and Louis Philippe. It also holds a 23 per cent stake in Idea. If Aditya Birla Nuvo decides to demerge the businesses into various verticals and give shares of each business vertical to its sharehold­ers, it can unlock huge value for them, as each of the businesses has become quite valuable on its own.

In developed countries, there are instances where minority share­holders have forced companies to either split the business or sell it. “The shareholding pattern of compa­nies in India gives little headroom to investors to force moves like restruc­turing. The controlling shareholder will eventually take this call. This is in contrast to the west, where inves­tors have successfully fought for the break-up of companies like Motorola, eBay and Yahoo,” says Amit Tandon of proxy advisory firm, Institutional Investor Advisory Services. But many times there are genuine reasons for companies to keep various businesses in one company initially with later plans to demerge the same. As time passes even promoters forget about the splits or demerger of the business as they don’t wishes to disturb the

existing structure. “You can make an argument for a new business to be housed as a division within an exist- | ing company – it can be more cost effi- 5 cient through sharing resources and manpower. However at some time ‘value’ must be realised – unless there are strong forward and backward linkages. This can happen, through sale of (part or the entire) business, or through a restructuring by listing the two businesses – as we have seen in Max and the revised structures in Crompton Greaves,” adds Tandon.

Reverse route

There are instances where a com­pany has taken the reverse route too. One such case is the Vedanta group, which made Sesa Sterlite its holding company for the various group com­panies. But the shareholders were not happy with this kind of structure and, hence, the company has not been able to outperform the broader market. Similarly, ITC too has many businesses housed within one com­pany and there seems little possi­bility of these businesses getting demerged into various verticals.

However, ITC may like to hold on to this structure for the foreseeable future, as it helps it shed the image of a tobacco-stained company. Inves­tors don’t mind the holding company structure, as long as the company is able to generate wealth for its share­holders, which has been case with ITC. Problems arise when the com­pany underperforms the broader mar­ket, doing an injustice to minority shareholders.

Similarly, institutions like HDFC, where there are no identifiable pro­moters, may continue to hold on to this structure, as it allows various verticals to use HDFC brand equity in their businesses. What is in HDFC’s favour is the fact that despite its hold­ing company structure, the company has been able to generate wealth for its shareholders, which makes them happy with the way the company is performing. Hence, despite the holding company structure, HDFC does not suffer from any substantial holding company discounts.

In the case of corporate giant Reliance Industries, its various new businesses like retail and telecom have little synergy with its petro­chemical and refining business. But retail is in a growth phase and the telecom business is about to be rolled out. The holding company structure works only as long as new businesses need initial funding and support. Once they gather critical mass, they should be demerged and allowed to grow at a rapid pace, which would benefit shareholders and also improve the image of the promoters. There is a probability that Reliance may offer shares of retail and telecom to its shareholders to unlock value from them, ril had done this in the past too, when it gave shares of its tele­com, financial and power genera­tion & distribution businesses to its shareholders in 2005-06.

Going forward, many companies are likely to take the demerger route to unlock value for the shareholders. This may be more a compulsion than a choice for many promoters, as the pressure to perform and win inves­tor confidence would be the name of the game. Such activities gather pace in a rapidly rising market as mar­kets would push and incentivise pro­moters to be more investor-friendly. There is reason to believe that com­panies like Grasim, Aditya Birla Nuvo and Sundaram Clayton will move away from their holding struc­ture to create wealth for their share­holders. This would be good news for minority shareholders.

♦ SUNIL DAMANIA [email protected]

Thumbs down

One view by experts, on watch­ing the group matches in the World Cup was that rehears­als are better than the main bout. A day before the announcement of the Budget, the Sensex vaulted by almost 473 points to again close above 29000 levels. Sentiment was buoyed largely on hopes and expectations that this would be another make or break Bud­get. In fact, of the last eight sessions in the fortnight ahead of the Budget, the Sensex closed above the 29000 level six times – clearly an indication of the high levels of expectation. The Eco­nomic Survey released on 27 February only fuelled expectations more.

Even on the day of the Budget there was a lot of volatility. The mar­ket opened on an optimistic note, moving up sharply to 29470 ahead of the actual presentation. L&T, BHEL, and IDFC were all up. As were property shares like DLF and Sobha, and hous­ing finance companies like GIC, Gruh, HDFC and Lie which crossed the ?500 mark. Capital goods and property were the two major sectors expecting more sops to kick start housing.

Volatility, a regular suspect at the Budget session, did make its presence felt and during the ses­sion the major indices moved up and down with both the Sensex and Nifty moving into negative territo­ries having wiped out all its gains. Around mid-session, soon after the Budget was laid before Parliament, both indices slipped deep into the red, a trend which continued till well after the mid-session.

There was nothing negative as such in the Budget for the markets to have behaved the way it did, post Budget. If anything, there were a lot of positives which will eventually see the markets taking a relook. This Budget did what it was expected. It set a clear road map of the path the finance ministry would follow over the next four years, fm Arun Jaitley indicated that the new government was not seeking to centralise decisions and spending. If anything it was trying to make states as partners of growth. Nearly 42 per cent of the taxes would devolve to the states; they could prioritise spending the way they thought best. The over­all devolution to states would be close to 62 per cent.

Long-term vision

The Budget also laid out a roadmap for corporate tax, with Jaitley men­tioning that corporate tax would be cut down from 30 per cent to 25 per cent over the next four years. Some of the immediate positives like
abolition of wealth tax, proposals to boost public spending and set up a fiscal consolidation road map aimed at bringing down the fiscal Budget to 3 per cent in FY18.

One of the big expectations was giving a fillip to investment in infra­structure. This was ably handled by the finance minister. He said the government would pump in around ?70,000 crore in a bid to catalyse investments by the private sector. In addition: setting up an infrastructure fund, tax-free infra bonds, and revis­iting the ppp model with a view to make the government an equal part­ner in sharing risks. Corporatisation of five major ports currently being operated as Trusts was also a major move. The biggest one of course was the government’s indication to set up five ultra mega power projects on plug and play model. This meant that the government would ensure all permissions in place and offer the projects to the private sector on a platter – through a transparent bid­ding process. However, the capital goods index dipped by 233 points on fears that these initiatives would take time to roll out.

Banks stocks were at the receiving end following the FM’s announce­ment to set up an autonomous bank bureau, an interim step to form an holding and investment company for psu banks. SBI slipped from 305- plus to around 295. Bank of Baroda, PNB and Union Bank also dipped in sympathy. Fears of a carbon tax on petroleum products saw the prices of refineries also moving southwards.

It is apparent that the market was a little disappointed that there were no big bang reforms which it could comprehend. And showed its disap­pointment in the only way it could: sell. Hopefully a better reading of the Budget over the weekend and the post-Budget fm interview will make it realise its folly. A growth-oriented Budget may not have immediate gains for the market, but the economy will definitely benefit from some of the radical steps announced. This Bud­get does try to address some of the operational concerns of industry.

♦ DAKSESH PARIKH [email protected]

Course correction



Sirisena, thenewly elected President of Sri Lanka, did some deft geopo­litical course correction by choosing India for his first state visit, thereby rectifying the pro-China tilt that had come to mark the last phase of the Mahinda Rajapaksa regime. Chi­na’s growing proximity to Sri Lanka, especially the visit of a Chinese sub­marine to one of its ports, was being perceived as a threat to New Delhi.

The new Sri Lankan government has gone back and forth on the deci­sion to allow an over $1 billion Chi­nese project to build a port city. Colombo is likely to go ahead with the project. Sri Lanka’s foreign minis­ter Mangala Samaraweera is likely to visit China later this month.

It is interesting how maturely India and China are playing off the Sri Lanka angle in their relation­ship. Steering clear of a perception of China-India rivalry, Beijing has now proposed a triangular partner­ship with India and Sri Lanka, ahead of a month-end visit to Beijing of the Sri Lankan foreign minister. Asked to comment on Sirisena’s visit to India, the Chinese Foreign Ministry spokes­person said, “We are happy to see the close and friendly development of India-Sri Lanka relations”. She added: “We believe the sound relations among the three countries are condu­cive to them, as well as to the whole region. Therefore, we are happy to see development of relations between Sri Lanka and India.”

China’s new strategic construct of inclusive ties with India and Sri Lanka follows its advocacy of the 21st century Maritime Silk Road (MSR), where India, Sri Lanka, Ban­gladesh and Pakistan are visualised as partner countries in South Asia. While India is connected to the MSR through the Bangladesh-China-In- dia-Myanmar economic corridor, China sees Sri Lanka as an important point of trans-shipment in the global capacity building and training of personnel in peaceful uses of nuclear energy”.

Two years ago too, Sri Lanka had expressed safety concerns arising from the geographical proximity of the Kudankulam nuclear reactors. | That the signatory to the agreement on the Sri Lankan side was power and energy minister Champika Ranawaka who had voiced the con­cerns, shows that Colombo is now sufficiently reassured.

These developments are expected to impart a new thrust to India-Sri Lanka ties and are in keeping with Modi’s emphasis on neighbourhood diplomacy. Other key elements of the Sirisena visit were:

  • India is Sri Lanka’s largest trading partner. New Delhi has now offered to promote greater flow of Indian invest­ments and tourists into Sri Lanka. The commerce secretaries from both countries will meet soon to review their bilateral commercial relations.
  • India will help Sri Lanka with development, including in the area of infrastructure.
  • The two countries will improve air and sea connectivity between them.
  • Sri Lanka and India will expand their defence and security cooperation.
  • India has signed a memorandum of understanding with Sri Lanka on cooperation in agriculture.
  • The fishermen’s associations of both countries will meet to solve long­standing of maritime violation and detentions that take place regularly.
  • The two countries signed a three year agreement on a ‘programme of cultural co-operation’ to nurture cultural ties and promote contacts.
  • Sri Lanka is now part of the Nal- anda University – an international project to revive the ancient centre of learning in Bihar.

Interestingly, there were no pub­lic statements on the Tamil question during the President’s visit. Neverthe­less, this remains top of the agenda in bilateral relations. New Delhi will have to encourage Sri Lanka’s new leader­ship to be determined in addressing the issues of ethnic reconciliation and power-sharing with Tamils.

♦ RAKESH JOSHI [email protected]