BQ: Rs 3 Lakh-Crore Private Power Investment At Risk As Discoms Delay Payments

24 March 2019: As much as Rs 3 lakh crore of investment in a dozen power plants of the private sector is at risk of turning into non-performing asset as states buying power have not been making payment for months, official data and sources said.

According to data available on the PRAAPTI portal of the Ministry of Power, 12 power generating companies belonging to GMR Group, Adani Group and public sector generators like NTPC Ltd. have about Rs 41,730 crore outstanding from state distribution companies as of December 2018.

Dues as on date run into an estimated Rs 60,000 crore, half of it being towards independent power producers in the power sector.

The Bharatiya Janata Party-ruled Uttar Pradesh has the most outstanding dues of Rs 6,497 crore, followed by Maharashtra at Rs 6,179 crore. Other states not paying power generating companies on time include Tamil Nadu, Karnataka, Telangana, Andhra Pradesh, Jammu and Kashmir, Rajasthan, Madhya Pradesh and Punjab.

According to PRAAPTI portal, Uttar Pradesh takes 544 days to clear its dues while Maharashtra takes 580 days.

More than 80 percent of the outstanding is accounted for by India’s most industrialised states such as Maharashtra and Tamil Nadu who are biggest consumers of electricity. The top-10 states take an average of 562 days for payments.

Sources said the delay in payment is posing severe working capital issues at the private power plants.

Delay in realisation of receivables from the state distribution companies weakens the ability of project developers to service debt in a timely manner and leads to exhaustion of working capital in some cases, they said adding delayed payments risk projects being termed non-performing assets under the Reserve Bank of India’s new classification rules.

In some cases, the discoms continue to press for renegotiating terms of power purchase agreement. This coupled with non-payment of penalties/late payment surcharges is causing financial stress for such projects, sources said.

Bajaj Group-owned Lalitput Power Generation Company Ltd. reportedly is unable to clear salaries of nearly 3,000 staff because of pending dues of over Rs 2,185 crore from discoms of Uttar Pradesh. So acute is the situation that the company is unable to maintain requisite coal stocks.

A recent World Bank study reviewing the power sector’s performance points to challenges such as outstanding payments of generating companies pending with discoms.

Sources said 37,823 megawatt capacity in the private sector, which was built at an investment of over Rs 3 lakh crore, is at risk due to delayed payments and run the possibility of being declared NPAs if timely repayment of bank debt is not made.

Out of the Rs 41,730 crore outstanding as on December 2018, Adani Group has to get Rs 7,433.47 crore and GMR another Rs 1,788.18 crore. Sembcorp has an outstanding payment of Rs 1,497.07 crore.

State-owned NTPC has unpaid bills of Rs 17,187 crore.

Bloomberg Quint

BQ: Litigation Finance To The Rescue Of Infrastructure Companies

12 March 2019: Last week lenders to engineering and construction company Hindustan Construction Company Ltd. approved a resolution plan that restructures over Rs 4,000 crore of its total debt. Some portion of that debt will be converted into long term equity-like instruments leaving the company with a serviceable amount of loans.

More interesting though is a new feature in the resolution plan. HCC has over Rs 10,000 crore in claims that are currently in arbitration. These are claims for project work undertaken but not paid for, mostly by central or state government agencies that commission infrastructure projects. Contractual disputes or project delays are often at the center of such claims.

HCC’s resolution plan involves the sale of claims worth nearly Rs 10,000 crore to an investor, said three people involved in the process. They spoke under the condition of anonymity. According to its annual report for the financial year ended March 2018, HCC had secured arbitration awards of Rs 4,823 crore, of which, the company had already collected Rs 1,416 crore. Further, about Rs 4,915 crore worth claims were in various stages of arbitration.

As per the plan HCC will hive off the claims into a separate entity. According to the three people cited above, bidders may choose to bid for the entire portfolio of claims or select the claims they want to buy. This will allow HCC to monetise pending claims, reduce debt and focus on its core business.

HCC didn’t respond to an email sent by BloombergQuint on Monday.

Litigation Funding: A Way Out For Infrastructure Developers?

Litigation financing – in which a third party/investor finances a litigation in exchange for a portion of the settlement or monetary award – is a common practice in developed markets. Investors hire lawyers who assess the legal viability of the case/claim and accordingly arrive at a funding agreement with the litigant.

New in India, it is now becoming a preferred route for tackling stress in engineering and construction companies burdened by such claims. With capital tied up in such claims infrastructure developers often have to resort to additional debt to work on new projects. Many in the road, power and port sectors are burdened by thousands of crore rupees in claims, some even driven to insolvency on account of unending arbitrations.

Investors interested in buying such claims range from distressed asset funds to private equity investors. Depending on the claim the rate of return could be as high as 20-25 percent, one of the people cited above said.

“There is considerable interest from international funds for such opportunities in India, especially in cases where the litigation is in advanced stages,” said Babu Sivaprakasam, partner at the law firm Economic Laws Practice. “However, getting the right kind of opportunities and coming to a consensus on pricing is always a challenge.”

HCC isn’t the first local company to experiment with litigation funding.

In November 2017, stressed construction company Patel Engineering Ltd. transferred or assigned such claims and real estate rights of about Rs 2,000 crore to a special purpose vehicle. It sold 51 percent of the SPV to private equity firm Eight Capital, according to the company’s annual report. In exchange, the private equity firm issued non-convertible debentures to Patel Engineering’s lenders, with a repayment period of six years and an annual return of 0.01 percent, according to one person close to the deal. The debentures would be redeemed once the claims were paid.

According to Ravi Chachra, chief investment officer and managing director, Eight Capital, funds typically prefer claims where the counterparty is the central government or companies promoted by it, since there is certainty that the claims would be honoured at the end of the legal process.

Chachra did not confirm the financing structure in the Patel Engineering deal, citing proprietary formulas. Each fund creates its own structure when purchasing the claims, he said.

In the case of Era Infra Engineering Ltd., currently under insolvency resolution process, the committee of creditors is considering resolution plans that involve monetisation of arbitration claims, as recommended by the resolution professional Rajeev Chakraborty. Era Infra is one of the 12 large corporate accounts which were referred to the insolvency and bankruptcy process in June 2017.

Litigation Funding: Potential?

As mentioned, several engineering and construction companies and infrastructure developers have thousands of crores stuck in arbitration claims, often against state and central government or their agencies. In 2016, the union government’s Cabinet Committee on Economic Affairs estimated Rs 70,000 crore tied up in arbitration.

“The average settlement time for claims is estimated at more than seven years,” the CCEA statement said.

Often arbitration awards in favour of the companies are contested in courts, leading the CCEA to mandate that once a claim under arbitration is awarded to a company, where the government is counterparty, it must pay at least 75 percent of the claim, even if it intends to challenge the award in higher courts.

But that hasn’t been fully implemented say several companies. And the claims have only mounted.

For instance, the National Highways Authority of India stated in its FY2017 annual report that 125 arbitration and 100 court cases, with claims over Rs 42,000 crore and 2.6 million euros were pending against the authority. Similarly, NTPC Ltd. reported Rs 12,533 crore worth claims pending to be paid to companies that have raised them, as on March 31, 2018.

“There is a need for such litigation financing structures for infrastructure companies which are dependent heavily on payments from counterparties such as the government and PSUs, to run their operations,” said Sivaprakasam of Economic Laws Practice. “Litigation takes up a lot of their resources and time, so if a strategic investor comes and takes it off their plate, they can focus on their core construction business.”

BloombergQuint reported

WEEKEND EQUITY UPDATE: 18 AUGUST 2012 – 19 AUGUST 2012

ASIA

Prices of new homes in China rose in 49 of the 70 cities in July over the previous month’s data. The cutting of interest rates, improved sentiment and incentives for new home buyers weighed in on the data. Prices declined in nine cities and were unchanged in twelve. (Bloomberg)

INDIA

FII’s have infused a total of USD 11 b in Indian equities in 2012 on a YTD basis. USD 1 b alone came in the month of August as the government could put in a fresh round of initiatives and reforms to stimulate the slowing economy. (Economic Times)

The combined market capitalization (m-cap) of top ten co.’s rose by INR 17,658 cr for the week ended 17 August. Reliance Industries contributed the most with gains of INR 10,696 cr followed by ONGC, Coal India, Infosys while TCS, HDFC Bank, ITC and NTPC saw their m-caps decline over the week. (Economic Times)

ONGC Videsh Ltd – OVL, the overseas arm of ONGC, is planning to invest in oil fields in Russia, mostly in the Arctic Ocean with joint-ventures. The co. is to form JVs with ExxonMobil and ENI. (Business Standard)

Tata Steel – Co.’s Ferro Alloys and Mineral Division to add 1.1 lac tons of ferro chrome and silico manages production capacity by 2012 at its Odisha plants.  (Financial Express)

Reliance Power – Co. refuted allegations made by India’s Comptroller and Auditor General (CAG) that the firm benefitted from the auctions of the coal mines. The co. is alleged to have made benefits of INR 29,000 cr by diverting its surplus coal output for its operations in Sasan, MP, India. The co, has stated that the allegations are erroneous and the co. did not receive any undue benefits. (Economic Times)

Lanco Infratech Limited – Co.’s management plans to increase the coal out to 5.5m tons per annum but March 2014 at its Griffin coal mines located in Western Australia. The Griffin coal mines are expected to hold total reserves over 1.1b tons and co. is expected to secure various clearances by the end of the current financial year. (The Hindu Business Line)

United Bank of India – Co. expects to recover INR 400-500cr in cash in this financial year, as gears up to fasten its recovery process, according to co.’s Executive Director Deepak Narang. (Business Standard/ PTI)

EUROPE

According to a German weekly magazine report, ECB is considering setting interest rate thresholds for any purchases of struggling euro zone country’s bonds so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds. In other news the weekly magazine also reported that, Greece will likely need to cut additional EUR 2.5b in spending over the next two years to meet the requirement for financial aid. Der Spiegel cites an interim report by the troika. (Economic Times/Reuters)

Spain’s Economy Minister Luis de Guindos stated that the bank bailout fund would take care of restructuring and recapitalizing the banks. The funds received from the EU will be put up for approval by the Cabinet by 24 August. The non-performing assets of the bad banks will be transferred into the FROB fund to access loans. (Bloomberg)

Germany’s Finance Minister Wolfgang Schaeuble dismissed talks of providing a fresh round of funding to Greece even though the state of country remains in a difficult situation. The nation has received two rounds of funding worth EUR 240 b since the onset of the crisis. With GDP expected to contract at a slower pace in the next two years on the funding, Germany is aware of the additional constraints on the EU and other nations if the funding were to continue. (Bloomberg)

The U.S Justice Department have started investigating Deutsche Bank to understand its possible role in the transactions linked with Iran, Sudan and other nations currently facing international sanctions. (Reuters)

NORTH AMERICA

Rating agencies Moody’s and S&P are to face lawsuits filed by investors for falsely assigning inflated ratings to debt backed by subprime mortgages. Morgan Stanley sold the notes during the 2008 crisis incl. The Abu Dhabi Commercial Bank. (Bloomberg)

Caterpillar – Heavy equipment manufacturer stated that the uncertain outlook of the global economy was worse than the state during the 2008 crisis. Lower demand in the construction and infra sector on account of the slowdown has affected the co in terms of lower orders. (Financial Times)

 

 

 

 

 

 

WEEKEND EQUITY UPDATE: 4 AUGUST 2012 TO 5 AUGUST 2012

INDIA

FII’s investing through the Mauritius route has exited their holdings in about 24 Indian companies in FY12 on a YTD basis. Co.’s such as Yes Bank, Axis Bank, Bajaj Hindustan all saw selling pressure from the FII’s who have exited their positions from these companies. The total value of the sale of shares is about INR 3000 cr. (NDTV Profit)

According to the Centre for Monitoring Indian Economy (CMIE), an economic research organization, profits of Indian firms are expected to rise by around 25 percent in the FY13 period on lower commodity prices and stable interest rates. FY12 saw profits decline by 0.6 percent. The organization also stated that firms would have incorporated the impact of the fluctuation in the Rupee as well as compared to the previous fiscal. (NDTV Profit)

Indian foreign exchange reserves increased by USD 1.3b to USD 288b over the week ended 27 July. Foreign currency assets at USD 256b, gold reserves 25.7b, drawing at USD 4.3b and reserve position at the IMF at USD 2.1b. (Business Standard)

The top eight companies on the Sensex saw their market capitalization rise by INR 35,882 cr for week ended 3 August 2012. NTPC gained the most by adding INR 10,926 cr with Reliance Industries following the firm. SBI, Infosys, ONGC also rose but Coal India and Bharti Airtel saw a decline in their values. (Economic Times)

Coal India Ltd – Co. has entered into a fuel supply agreement with 29 power plants in India to supply these firms with fuels for power generation, based on a directive from the Indian Government. The co. will also import around 20 m tonnes of coal to meet the supply shortage gap. (Economic Times)

Jindal Steel and Power – Co. is in advanced talks to plan an investment of INR 100,000 cr to expand output at its plants in Raigarh and construct new plants in Odisha and Jharkhand in India. The total expected output by 2020 is about 20 m tonnes per annum, as stated by Chairman Navin Jindal. (Economic Times)

Emami – FMCG firm has voiced concerns that rising costs of raw materials and a higher inflation could affect the firm in FY12-13 period. However, the co. plans to implement certain cost efficient measures and strengthen its distributor network to overcome these challenges. (Economic Times)

NTPC – India’s power producer would conduct capital expenditures of INR 138,000 cr on various power projects to increase its power output to 27,000 megawatts. A total of INR 95,965 cr would be funded from issuing debt securities. (Economic Times)

Maruti Suzuki – According to Haryana Chief Minister Bupinder Singh Hooda, expected co.’s Manesar plant to resume production shortly. However he did not provide a time-line for the plant to resume its activities. (Financial Express)

Jet Airways – FII holdings in co. increased from 6.70 per cent to 7.12 per cent during the 1Q12-13. (Economic Times/PTI)

Kingfisher Airlines – FII holdings in co. increased from 0.34 per cent to 0.98 per cent during the 1Q12-13. In others news, Airport Authority of India (AAI) has refused aircraft lessors to take back their aircrafts leased to co., as co. owes INR 300cr to AAI.  (Economic Times/PTI/The Hindu Business Line))

SpiceJet – FII holdings in co. increased from 2.61 per cent to 3.59 per cent during the 1Q12-13. (Economic Times/PTI)

EUROPE

According to Italian Prime Minister Mario Monti, the Italian Government did not require German cash to recover from its current situation. (Reuters)

The Spanish finance minister Luis de Guindos, the Spain had covered 70 per cent of its 2012 financing need and will wait for clearer guidelines from ECB, before requesting for aid. (FoxBusiness DowJones Newswire)

Yields on Spanish two-year notes declined 1.35 percent to 3.96 percent and 10 yr bonds fell below 7 percent on speculative news of the ECB buying short-term bonds to calm the bond markets. Spain’s bonds returned -6.3 percent while German debt provided returns of 4.5 percent and Italy with 6.5 percent. (Bloomberg)

According to the inspectors from IMF, the European Commission and the European Central Bank said that, Greece had made some progress in finding budget cuts needed to continue its bailout programme. However the international inspectors said that, not all work had been done and inspectors will return early September for a final verdict. Greece has a EUR 3.2b bond maturing in August. (The Telegraph UK)

Standard and Poor’s downgraded Slovenia’s long term credit rating to ‘A’ from ‘A+’; short term rating affirmed at ‘A-1’. Outlook: negative. (Economic Times/AFP)

Marks & Spencer – According to an Sunday Times reports, Bank of America Merrill Lynch have been assessing possibilities of providing debt financing for a speculative bid for co. Co. is been viewed as a GBP 6b bid target, as shares in co. have tumbled 50 per cent since 2007. (FoxBusiness/Sunday Times)

NORTH AMERICA

U.S Trade Deficit for June is expected to have lowered as the nation imported less oil  and slower growth reduced demand for U.S made goods abroad. Data due on 9 August forecasts deficit to come in at USD 47.5 b vs USD 48.7 b in May. Lower outlay on imports are due to lower prices of crude oil and lower exports due to slowing economies in Asia and Europe exhibiting lower demand for U.S made goods. (Bloomberg)

Boeing Co. – Airplane manufacturer secured orders to conduct the sale of 94 single-aisle 737 airplanes to Asian airline firms including 54 jet deal with Singapore Airlines Ltd. The deals are expected to touch USD 8.4 b. (Bloomberg)

 

 

DAILY MARKET REPORT – 2 AUGUST 2012

The markets ended lower in a range bound trading session on lack of any significant global economic data. As we covered earlier, investors would await the decision taken by ECB President Mario Draghi on benchmark interest rates. Yesterday, the U.S Fed left rates unchanged and with the Bank of England also sticking to not changing rates, it looks very much likely that the ECB could also follow suit. Will Draghi cut rates or not? Markets and investors are also waiting cautiously and hence the flat trading sessions today.

Coming back to the Indian markets, the Sensex closed at 17224.36 points, down 33.02 points or 0.19 percent on highs of 17246.01 and lows of 17157.28 points.

The Nifty closed at 5,227.75, down 12.75 points or 0.24 percent on highs of 5236.90 and lows of 5209.95 points in intraday trade today.

On the BSE, the Midcap Index gained 0.21 percent and the Smallcap Index rose 0.45 percent. The Oil & Gas Index was declined 1 percent, the Bankex fell 0.29 percent and Metal Index fell 0.28 percent. The Power Index rose 0.77 percent and the Capital Goods Index gained 0.64 percent.

On stock specifics, power giant NTPC rose 4 percent in trade after Coal India’s agreement this week to supply 80 percent of the coal needed to fuel new power projects eased concerns about supply of the key commodity. Tata Power gained 1.5 percent. Tata Motors declined 2 percent on lower sales numbers. NIIT Tech fell 6 percent to INR 280 as its promoters sold a 7.4 percent stake in the co. The rupee still hovers at 55.5 levels.

Summing up the session, the much touted Fed and BoE  decisions were non-events. All eyes on the ECB meet now.

Kindly check the Market Summary tab for further information on stock-related data.

(Economic Times, Bloomberg and Business Standard)

WEEKEND COVERAGE : 21 JULY TO 22 JULY

ASIA

China’s 3Q12 GDP growth could slow to 7.4 percent on a y/y basis, as stated by an advisor to China’s central bank.  A short term deflationary period could also be posed to provide problems to the economy. (Bloomberg)

INDIA

According to economic think tank CMIE, the agricultural sector would perform well in FY2012-13 but major crop production is expected to decline 0.5 percent. The drop is due to decline in production of soyabean, cotton and rapeseed. Livestock, fisheries and forestry products are also expected to rise marginally by 4 percent, with agriculture industry expected to rise 2.4 percent. Delayed and insufficient monsoon is also expected to affect crop output. (Business Standard)

The market capitalization of top seven co.’s on the Sensex reduced by INR 14,931 cr for the week ended 21 July 2012. Major co.’s such as TCS, which led the losses by INR 5207 cr, saw ONGC, Infosys, ITC, SBI, HDFC Bank and NTPC post in loss of m-cap. However, Reliance Industries, Coal India and Bharti Airtel saw their market cap gain marginally over the week. (Economic Times)

FII’s have lowered their exposure (stake) in stocks of the co.’s under the umbrella of Reliance, owned by Anil and Mukesh Ambani. FII’s sold a total of INR 1500 cr worth of shares in Reliance industries owned by Mukesh Ambani and in four listed co.’s owned by Anil Ambani. Other investors which reduced their stake include offloading shares worth INR 500 cr, taking the total to INR 2000 cr. FII’s offloaded stakes on a marginal basis. (Economic Times)

Funds based in Mauritius which invest in the Indian equity markets will be under the purview of SEBI and RBI for possible transfer of illegal wealth of Indian and non-resident Indian’s back into India. Many funds have been identified as part of market regulator’s investigations. (Business Standard)

Sail – A proposed merger of SAIL and Neelachal Ispat Nigam will not go ahead as the government does not want to retain complete stakeholding in the co., as opposed to its earlier stance of divestment. Meetings with the Ministry of Commerce revealed its message of not going ahead with the merger. NINL is the largest producer of pig iron and divestment talks were on about the merger for over seven years. (Business Standard)

Sail/Nalco/JSPL/Monnet Ispat/MECL/Others – Co.’s to bid for developing copper deposits in Afghanistan. (Economic Times/PTI)

Maruti Suzuki – According to co.’s management dispatch operations to continue from the stockyard of Manesar plant, which has a inventory of about 26,000 units

Tata Power – Co. expects its hydel power project in Bhutan to commence operations by FY2013-14 period. The 126 megawatt Dagchu project accounts for USD 200 m in which Tata Power has a 26 percent stake. (Economic Times)

Bajaj Auto – Co. expects that exports would account for almost 50 percent of its revenues in the next three years. Co. plans to explore markets such as Latin America, viz., Chile and Argentina. Its motorcycle sales are also expected to pick up in the said period, which accounts for 35 percent of their sales. (Economic Times)

JSPL – Co. is to acquire Canada-based coal firm CIC Energy in a deal worth USD 115 m (INR 600 cr). The co.’s will sign a binding agreement in the next few weeks. JSPL will get access to CIC’s 2.6 b tonne thermal coal plant for its power projects. (Business Standard)

EUROPE

According to Greece PM, Greece was in a ‘Great Depression’, similar to the one faced by the United States in 1930. The PM wants the budget below 3 per cent of GDP by the end of 2014 from the previous 9.3 per cent in of GDP in 2011. In related news, IMF is expected to cut off further rescue aid to Greece. (FirstPost/Reuters/FoxBusiness)

U.K’s 2Q12 GDP data, expected on 25 July, is expected to decline 0.2 percent, based on median estimates, deepening the double-dip recession. Previous quarter decline was 0.3 percent and 0.4 percent in 4Q11. (Bloomberg)

BP – Co. has proposed that its joint venture TNK-BP pay shareholders a USD 1b interim dividend. (Fox Business)

NORTH AMERICA

Argentina’s Factory output (Industrial Production) declined 4 percent in June, a second successive m/m decline. Slowdown in trade with Brazil affected Argentina in terms of exports of automobile and steel. Previous month decline stood at 4.7 percent and 0.1 percent drop in May. Estimates came in at a drop of 4.5 percent. (Bloomberg)

GEOPOLITICAL

According to Iran’s head of Atomic Energy Organization, Iran has sent a new batch of enriched uranium to fuel a medical research reactor in its capital. (Yahoo/ Reuters)

 

 

WEEKEND EQUITY UPDATE – 14 JULY 2012 TO 15 JULY 2012

ASIA

According to Chinese Premier Wen Jiabao the current economic growth remained in the expected target range set earlier this year and saw the effectiveness of the stabilization policies. However he added that the economy had not formed a stable recovery and economic difficulties may continue for some time. He stated that the government will do its utmost to generate employment and support industries through tax breaks and capital provision which face a slowdown in exports. China currently faced slower GDP expansion and its woes were compounded with a slowdown in China’s traditional markets such as US and Europe.  (Economic Times/AP)

China plans to reduce taxes on the profits of overseas co.’s operating in China by upto 50 percent to encourage more investment into the country. The government would also include dividends paid by Chinese Co.’s to overseas shareholders. (Financial Times)

INDIA

The cumulative market capitalization of top five co.’s in the Sensex declined by INR 26,287 cr for week ended 13 July on earnings and other economic data. Infosys, which came out with dismal numbers, led the decline by INR 12,406 cr. Bharti Airtel, SBI, Reliance Industries and NTPC also saw their market values decline. TCS, ONGC, Coal Indian, HDFC Bank and ITC saw gains in their market share for the similar period. (Economic Times)

According to ICICI Securities June inflation is likely to be at 7.82 per cent versus 7.55 per cent in May, a unlikely scenario for a rate cut. (Economic Times/PTI)

Mining/Metals co.’s – Indian governments signs a bilateral security co-operation agreement with Mozambique as part of the effort to strengthen ties. (Economic Times/PTI)

According to the Indian Meteorological Department, the impact of a lower than expected monsoon could have a maximum impact of 0.25 percent on the country’s GDP.  (Business Standard)

ONGC – Co. is looking to invite bidders for sale of gas from its Gamij field in Gujarat, India through an e-bidding process. The oil field has an average output of 15,000 standard cubic meters per day (SCMD) on the basis of availability for a five year period. ONGC expects the field to generate revenues of INR 5.5 cr on an annual basis. (Economic Times)

Nalco – Co. is in talks to acquire an Indonesia-based firm Ashan Aluminum for around INR 8000 cr. Nalco primarily would gain from Ashan’s plant which has a capacity of 2.1 lakh tonnes. Ashan, which is owned by a Japanese consortium, would see its operating license expire at the end of 2013, which is portion Nalco would acquire. The rest of the stake in the co. is held by the Indonesian government. (Economic Times)

DLF – Co. plans to reduce its INR 23,000cr debt to INR 17,000cr at the end of the fiscal by the sale of non-core assets. (The Hindu Business Line)

SAIL/Coal India/RINL/NMDC/NTPC – ICVL is on a lookout to acquire coal mines in Australia and New Zealand as coking coal prices drop and valuation become favourable, according to management. (Business Standard/PTI)

Reliance Communications – Co. was downgraded by ICRA from ‘stable’ to ‘negative’, citing elevated levels of debt at INR 37,000cr at the end of last year. (The Hindu Business Line)

Essar Oil – Co. to invest INR 2000cr at its coal-bed methane facility in Ranigunj; West Bengal. (Business Standard)

Kingfisher Airlines – A sections of co.’s pilot are contemplating to drag the management to the labout court, according to sources. (Economic Times/PTI)

EUROPE

The German Chancellor Angela Merkel on Sunday said that she was confident that a majority of German lawmakers would back the Spanish banking aid pack of up to EUR 100b. In regards to Greece chancellor said that she would wait for the report from ‘troika’ before deciding on further steps. As Greece is seeking to renegotiate the terms of its EUR 130b rescue fund. (Reuters)

Italian Finance Minister Vittorio Grilli stated that Italy plans to reduce its public debt by 20 percent until FY2018. The nation would plan to sell public assets for about EUR 20 b (USD 24.5 b) on an annual basis for the next five years. The minister also stated that GDP would contract less than 2 percent in FY2012 vs the government’s forecast of a decline of 1.2 percent. (Bloomberg)

According to a official documents Spanish government will slash EUR 56.4b from the public deficit in the next two and a half years. The remaining EUR 8.6b shortfall will be filled by new tax measures. (FirstPost/Reuters)

GlaxoSmithKline – Co. in talks with Human Genome Sciences to acquire it for around USD 2.6b, according to sources. (Economic Times/Reuters)

BHP Billiton – Co. to put up its iron ore project in Guinea for sale, as the co. looks to dispose off non-core assets as global demand for commodities flattens. (Reuters)

Deutsche Bank – Co. has approached the ECB and Swiss authorities in order to co-operate in the Libor fixing investigation in return of leniency. (Fox Business – Dow Jones Newswires)

British Petroleum – Co. nears a USD 15b settlement deal over the Gulf oil spill. (Fox Business – Dow Jones Newswires)

NORTH AMERICA

US Retail Sales are projected to have increased by 0.2 percent in June vs -0.2 percent in May following a pickup in demand for automobiles offsetting expenditure on other goods. Median forecasts show optimism in spending by consumers increased with data to be released today. (Bloomberg)

Research in Motion – Co. has been ordered by Canadian jury to pay USD 147.2m in damages for patent infringement.  (The Financial Express)

Facebook – According to analysts co. is expected to post a net loss of USD 350.6m versus USD 137m profit in 1Q12. Co. reports its earnings on Thursday. (The Financial Express)

GLOBAL

According to a report by NPD Display Search, a research firm, shipments of LCD televisions over the globe would rise at a slower pace as compared to the previous year. Shipments are forecast to fall 1.4 percent for the 2012 period to 245 m units. Lower discretionary spending by consumers in Europe and Asia, including India, contributed to the lower shipments. Prices of LCD’s would also decline 4 percent in 2012 vs 6 percent in 2011. (Economic Times)

EQUITY UPDATE – 29 JUNE 2012

GLOBAL

Dealmaking activity declined by 2 percent in the January – March period for FY2012 on account of the euro debt crisis and volatility in the equity markets. M&A deals worth USD 450 b have taken place in the said period with European dealmaking declining 20 percent. Asia showed a 3 percent rise in activity. (Bloomberg)

ASIA

According to Jia Kang, the director of the China’s Research Institute for Fiscal Science at the Ministry of Finance, a 7.5 per cent growth for the year was attainable. As the Chinese economy could stabilize in the third quarter. (Reuters)

INDIA

According to the Reserve Bank of India (RBI), banking institutions’ borrowings from overseas sources could be affected if the country’s rating suffered a downgrade. Rating cuts of 1-in-3 was forecasted by S&P, while Moody’s and Fitch also have lowered their outlook on the country from stable to negative.  In other news RBI approved FII to invest 23 per cent in commodities exchange without seaking prior approval. (Economic Times)

The Indian Government is to publish a draft regarding the rules of the General anti-avoidance rule (GAAR), according to Finance Secretary R.S Gujral.  The Prime Minister Manmohan Singh is expected to take two or three weeks to interpret the rules of the GAAR policy. (Business Standard)

India looks to export 2 m tonnes of surplus wheat to 17 nations which include Netherlands, Japan and Iraq. (Business Standard)

Coal India – Co. received 2 of NTPC’s de-allocated mines and another in India to commence coal extraction operations. (Business Standard)

PowerGrid Corp – Co. raised a total of around INR 4000 cr in bond issues at a coupon rate of 9.30 percent which is due in 2027. The co. plans to utilize the proceeds of the issue to finance part of its INR 20,000 cr capital expenditure plans. (Economic Times)

Cairn India – Cairn Energy is selling 66m shares in co. at a price range of INR 307.40 to 317.50, according to a source. (Reuters/FirstPost)

Private Equity firm Sequoia Capital made an investment of INR 305 cr in local search engine services provision firm, Just Dial. The investment makes it Sequoia’s third investment in the co. (Economic Times)

Out of the 34 blocks offered to oil co’s under the New Exploration Licensing Policy (NELP), only 13 blocks succeeded in drawing bids worth USD 582.3 m. The offered included eight deepwater blocks, seven shallow water blocks and 19 land exploration blocks. (Economic Times)

Birla Corp – Co. plans to set up an overseas cement, the first of its kind, in Ethiopia. (Economic Times)

NCC – Rare Investments and its related entities have increased their stake in co. by acquiring  750,000 shares (0.3 per cent). Prior to this transaction Rare Investments and entities held 7.69 per cent stake in co. (The Hindu Business Line)

EUROPE

According to the German finance minister Wolfgang Schaeuble, Germany could agree on shared liability of euro-zone debt, if path for a centralized European control was irreversible and well coordinated.  (FoxBusiness/Dow Jones Newswire)

Germany’s think tank IMK said, Germany’s economic growth to slow to 0.3 per cent in 2013 from a 0.6 per cent in 2012, due to austerity measures impacting trade partners. (Economic Times/Reuters)

Italy conducted its bond auctions of EUR 5.4 b for 5 yr and 10 yr bonds. Yields on the 10 yr bonds rose to 6.19 percent vs 6.03 percent in the auction held in May.  The 5 yr bonds yielded at 5.84 percent vs 5.66 percent. The auctions were conducted with investors keeping one eye open on the EU Summit which takes place today. (RIA Novosti)

NORTH AMERICA

US conducted an auction of its 7 year notes at an average yield of 1.075 percent vs median forecasts of yields of 1.056 percent. Bid-to-cover ratio, a gauge of demand, came in at 2.64, the lowest since October 2011. Indirect bidders which include foreign central banks, purchased 42 percent of the notes vs an average of 40.6 percent in the past 10 auctions. (Bloomberg)

Pimco’s Bill Gross stated that it would take decades for the markets and the financial system to return to normalcy after the crisis. He also stated that U.S securities would still be considered the safest instruments in the advent of the ongoing crisis in the markets. (Bloomberg)

JP Morgan – Co. to announce about USD 5b losses related to its derivative trading, during the release of its second quarter earnings, according to people familiar. In other news Citi Research cut co.’s price target to USD 43 from USD 45. (FT/Reuters)

Goldman Sachs – Price target cut by Citi Research to USD 110 from USD 145. (Reuters)

BofA – Price target cut by Citi Research to USD 8 from USD 9. (Reuters)

Morgan Stanley – Price target cut by Citi Research to USD 16 from USD 20. (Reuters)

WEEKEND EQUITY COVERAGE 23 JUNE 2012 – 24 JUNE 2012

GLOBAL

According to Bank for International Settlements, central banks of developed nations would struggle to contribute to funding to various bailout funds to aid recovery, as governments of these countries struggle to provide the required amount of capital. Post-Lehmann crisis, interest rates are almost at their lowest lows and bond and asset purchases have strained the balance sheets of central banks, which could affect capital provision in the longer term. (Bloomberg)

The effects of the downgrades of banking firms by Moody’s backfired as market investors responded by driving up values of the shares of the co’s in question. Credit default swaps on debt instruments of Morgan Stanley, Bank of America and Citigroup, all affected by the rating downgrade, saw the costs decline to lower levels. Similar scenario was observed for credit default swaps on Barclays, BNP Paribas and Societe Generale and Goldman Sachs. (Bloomberg)

ASIA

According to the New York Times, government officials are found to have raised certain economic indicators such as output, tax receipts, corporate earnings by around 1 or 2 percent to cover the nation’s slowdown in activity. Co’s are f oerced into maintaining separate accounts which show better results while power plant managers are told not to report the complete impact of the slowdown in demand for electricity. The National Bureau of Statistics in China, which compiles the data, has denied any wrongdoing. (Bloomberg)

INDIA

Government reforms likely to be announced on Monday, 25 June 2012:

  • Partial diesel price decontrol.
  • Decision on foreign supermarket chains setting up business in India.
  •  Government plans on shoring up rupee value.
  • Regulations regarding GAAR to be implemented on 1 April 2013. (The Hindu Business Line)

For the period between 1 June 2012 to 22 June 2012, FII gross purchases of equities total INR 34, 601.20cr and FII sold shares worth INR 34, 832.50cr. Net outflow at INR 231.40cr. (The Hindu Business Line)

According to a CMIE, Indian corporate profits to grow by 21.6 per cent in FY13 on account of softening input prices and steady interest rates. The think-tank sees the net profit for the manufacturing sector at 23.6 per cent, for the financial at 23.4 per cent and 13.4 per cent for non-financial services. (Financial Express)

Steel Co.’s – According to CMIE steel prices are expected to grow by 5.7 per cent in 2012-2013, on back of demand, rise in input costs and hike in excise duty. (The Hindu Business Line)

The cumulative market capitalization of the top seven co’s listed on the  Sensex declined by INR 19,398 cr. TCS, Infosys let the loss of a total of INR 9969 cr while ONGC, NTPC, Coal India, HDFC Bank also saw erosion of their market values for the period ended 22 June 2012. (Economic Times)

Suzlon Group – Co. plans to sell its stake in its manufacturing unit in China ;to China Power New Energy Development Co. for USD 60 m. (Economic Times)

EUROPE

Italian bank Monte Del Paschi is set to come up with a plan to boost capital on Tuesday and Wednesday in order to comply with regulatory norms. Having faced with a capital shortfall on the outcome of stress tests, the bank needs to raise additional capital by selling convertible bonds or using aid from the Italian government authorities. (Financial Times)

Greek Prime Minister Antonis Samaras and Finance Minister Vassilis Rapanos would miss the EU summit which involves a meeting with officials from the European Union, ECB and IMF to discuss the nation’s plans regarding its financial bailout package. Greece plans to propose to the lenders to lower or loosen the terms of the EUR 130 b bailout it plans to receive. (Reuters)

NORTH AMERICA

The spread between US 10-yr and 30 – yr Treasury notes decreased on account of the US Fed planning to extend its ‘Operation Twist’ programme. The programme involves selling short term notes and purchasing long term bonds to keep rates lower and spur growth. The yield spreads came down 2 basis points to 109 basis points from 111 bps on 15 June. (Bloomberg)

Research In Motion (RIM) – Co. plans to explore options which could involve splitting its handset manufacturing division into a separate division from its messaging network. The co. is also looking at options to divest interests in these businesses. (Reuters)

Hewlett Packard – Co. plans to cut a further 8000 jobs in Europe by 2014 and may also reduce 1000 jobs in Germany, according to sources. (Reuters)