News Update by CMA H Padmanabhan (07-01-2019)

Update of the Day 7th January 2K19


PSU buybacks, dividends may surge as deficit widens 

Fiscal deficit higher than budgeted may prompt the government to push PSUs for buybacks or higher dividends. 

The gap between government expenditure and revenues at the end of November stood at Rs 6.48 lakh crore against the budgeted Rs 6.24 lakh crore (3.3 per cent of the GDP). Going by the fiscal trend and latest data points, it looks highly likely that the deficit could be breached. 

NMDC, NHPC, Oil India, BHEL, NALCO, NLC, Cochin Shipyard, KIOCL and ONGC have already announced buybacks. IOC recently announced (December end) an interim dividend. On the day of the announcement, the stock traded at a dividend yield of 5 per cent. 

There could be more buybacks or dividends in the pipeline, allowing investors to make good returns on dividends and buybacks in the current volatile markets. 

Based on the cash reserves and debt and dividend/buyback history of PSUs, ETIG has identified more PSUs that could announce dividends or buybacks soon. 

Corporate affairs ministry to collect KYC details of companies, CAs 

In efforts to weed out unscrupulous elements, the Corporate Affairs Ministry plans to collect KYC details of companies, chartered accountants, cost accountants and company secretaries. 

A senior ministry official said the exercise would help in having a “sanitised list” of companies and professionals. 

Last year, the ministry carried out the Know Your Customer (KYC) initiative for directors to ascertain their identities as part of larger efforts to clamp down on entities that are suspected to be conduits for illicit fund flows. 

Corporate Affairs Secretary Injeti Srinivas said that KYC requirement for directors was a major step. 


ICICI Bank and ICICI Venture Funds quit race for IL&FS arm

ICICI Bank and ICICI Venture Funds Management have pulled out of the race to buy the securities and private equity businesses of Infrastructure Leasing & Financial Services (IL&FS) due to a likely conflict of interest as the bank’s chairman GC Chaturvedi is also on the recast board of the debtladen financier, two people with direct knowledge of the development said. 

“The chairman of ICICI Bank GC Chaturvedi is on the board of IL&FS now, which is raising a conflict of interest,” said a source close to the development. 

“ICICI Bank, which is one among the dozen buyers of the securities business, has pulled out after submitting the bid.” 

The IL&FS board, under its chairman Uday Kotak, has raised the issue of the conflict of interest. 

HDFC Bank, Axis Bank, and Rakesh Jhunjhunwala-owned Rare Enterprises are among those seeking to buy the securities business of IL&FS. 

ICICI Venture Funds Management Company, one of India’s largest private equity funds and the bank’s private-equity arm, has also decided against bidding for the private equity business of IL&FS, citing the same conflict of interest. IL&FS Investment Managers, the IL&FS private equity fund that manages around $2 billion, has been put on the block by the newly constituted board. 

Bankers wary of late bid by union for Reid & Taylor 

Bankers are wary of a last minute bid by an unregistered workers’ union to take over clothing brand Reid & Taylor (R&T) as they doubt that it is a front for the promoters of the company who have been declared wilful defaulters by banks. 

Last month, RTI Limited Employees Association, a newly formed association of people (AoP), representing over 200 employees of the company petitioned the NCLT to allow them to find a buyer for R&T which was facing liquidation. 

Industry watchers strike cautionary note on RBI loan breather for MSMEs

The industry is taking a cautionary stance on the recent Reserve Bank of India (RBI) announcement that permitted the loan restructuring window to MSMEs for a year. While extended repayment periods, additional capital expenditure and relaxed interest servicing requirements seem the immediate benefits that can accrue to small businesses, experts say that the flip side of this move cannot be ruled out. 

“The restructuring effort might turn detrimental to the overall credit behavior of the economy as it may promote the tendency of willful default or raise expectations of similar bail-out packages in future. It encourages other capital intensive sectors such as aviation and steel to expect funding support on similar lines. This can create higher NPAs in the longer term,” feels Gayathri Parthasarathy – Partner and Head – Financial Services at KPMG in India. 

GST ministerial panel favours Kerala levying 1% cess for 2 years

The ministerial panel under Bihar Deputy Chief Minister Sushil Modi Sunday approved levy of 1 per cent ‘calamity cess’ by Kerala for a period of two years to fund rehabilitation work in the state hit by floods. The goods and services, which will attract the 1 per cent cess, would be decided by Kerala, Modi said, adding that if any other state wants to levy the ‘calamity cess’ it has to approach the GST Council for approval. 

Besides, the Group of Ministers under Modi has also suggested to the GST Council to allow additional borrowing over the permitted limit by states hit by natural calamity. 

Cabinet to soon consider framework for monetising assets of CPSEs

The Cabinet is likely to consider this month a framework for monetisation of assets held by CPSEs which have been selected for strategic sale. 

The ‘Asset Monetisation Framework’, being drafted by the Department of Investment and Public Asset Management (DIPAM), will help the administrative ministries to fast track hiving off and sale of non-core assets of central public sector enterprises (CPSEs) under their administrative control. 

To begin with, the guidelines would be applicable for those central public sector undertakings which are likely candidates for strategic disinvestment. However, any state-owned company which wants to sell its non-core assets too can follow the framework, an official said. 

“The draft Cabinet note has been floated for inter-ministerial comments. We hope to place the asset monetisation framework before the Cabinet this month,” the official told PTI. 

Bandhan Bank in advanced talks for Gruh Finance merger 

Bandhan Banks’s talks with HDFC to either buy into or merge with Gruh Finance, a mortgage-lender for the less affluent, have reached an advanced stage, although the regulatory response to the proposal would decide the fate of the transaction, two people familiar with the matter told ET. 

“The talks regarding the deal between Bandhan Bank and Gruh Finance have reached an advanced stage,” said a source close to the development. “However, there is no clarity on whether the deal will get regulatory and stakeholders’ approvals, and within what timeframe.” 

The deal, if it were to secure regulatory approvals, could be announced soon. 

Bandhan Bank, which started operations in 2015, is exploring the M&A route to meet the regulatory guidelines on trimming promoter shareholding. The proposed transaction would help Bandhan reduce its promoter holding in the lender from the existing 82.28%. The promoters need to bring down their stake to 40%. 

PSU banks plan rationalisation of another 69 overseas offices

Public sector banks are in the process of closing or rationalising about 69 overseas operations in the next few months as part of their capital conservation exercise. Planned rationalisation of operations and examination of a total of 216 overseas operations of the public sector banks (PSBs) was undertaken last year, sources said. 

Following the review, as many as 35 overseas operations were closed while 69 are under process or being considered for rationalisation, sources said. 

Unviable foreign operations are being shut while multiple branches in same cities or nearby places are being rationalised with a view to achieve efficiency, sources said. 

As on January 31, 2018, PSBs had about 165 overseas branches, besides subsidiaries, joint ventures and representative offices. 

State Bank of India (SBI) has the largest number of overseas branches (52) followed by Bank of Baroda (50) and Bank of India (29). 

The state-owned banks have the largest number of branches in the UK (32) followed by Hong Kong and the UAE (13 each) and Singapore (12). 

Regards & Thanks 🤝

CMA H Padmanabhan