Jan
7
Satyam reveals Fraud after Fiasco
Filed Under Indian Stock Market, IT BPO KPO Services, Indian Companies, Indian Government, India Business | 1 Comment
Today is a bad day for investors of the Indian capital markets.
Till now the belief was that Satyam’s Board did a fiasco (which is paradonable if the intent was genuine) by doing things without the right process.
But today, Satyam’s chairman has revealed fraud in financial statements over the last few years, which results in over Rs5000 cr of non-existing assests. Now its a crime, not a mistake.
Read this fax letter from: Satyam_Computer_Services_Ltd_070109.pdf
Exactly a week back, we had written of two basic issues in the Satyam fiasco. Lessons From Satyam Investor Issues
The second point was this:
2. The effectiveness of Satyam’s corporate governance
What has come out very clearly from today’s news is that corporate governance was really bad at Satyam — and this is was top 5 Indian IT services companies — so you can well imagine what kind of controls may or maynot be there in smaller companies.
So this is going to put all IT companies under a very tight spot — with unplanned extra expenses in all kinds of auditing reviews. Everyone has to learn from Infosys - the leading IT services stock — about how to be fully tranparent with investors. SEBI should use Infosys reporting as a guideline.
Investors are likely to now reduce the P/E valuaiton for mid-cap and small-cap companies, because this corporate governance risk just can’t be calculated for smaller companies when a large company like Satyam can do it wrong, despite an army of auditors and market analysts.
Every investor needs to reassess his portfolio companies and check if the parts are adding to the total. This weak global economy will expose more such examples where things were hidden under rosy valuations and positive market conditions.
Dec
31
RCom Rolls Out GSM Service in 11000 Towns
Filed Under Indian Companies, India Business, Mobile Telecom, India Investment Opportunities, Tier-2 Cities | Leave a Comment
In one of the fastest network roll outs to cover one billion people, Reliance Communications (RCom) on has unveiled its nationwide GSM mobile service across 11,000 towns.
The rollout with an investment of Rs 10,000 crore, makes RCom the only national player to offer both CDMA and GSM services to customers.
- RCom plans to execute both CDMA and GSM through an integrated operation.
- RCom’s CDMA network spans more than 20,000 towns and 450,000 villages, with around 60 million subscribers.
- The plan is to double RCom’s GSM coverage from 11,000 towns and three lakh villages to 24,000 towns and six lakh villages over the next few months, involving an incremental capex of a few thousand crore rupees.
Anil Ambani of Reliance ADAG and RCom said:
“In 2003, Reliance changed the landscape of telecom in India. Year 2009 will be no different. The company is targeting 100 million subscribers to use its network. We have done in 15 months what the industry has been trying to do in 15 years. Through the GSM launch, RCom plans to rewrite the rules of the industry in terms of pricing, proposition, value added services.”
- RCom plans to procure seven million handsets for Rs 3,850 crore. For the first year of GSM operations, RCom has set a target to sell 15-20 million handsets.
- RCom will use the existing 2,500 retail stores to push its new strategy.
Quick Facts On Indian Mobile Telecom Industry:
- The Indian mobile handset market is expected to cross 100 million units this year against last years estimated size of 70-75 million units.
- The GSM market serves 75% of the about 300 million mobile customers in India, and adds approximately nine million users every month.
Dec
31
ONGC To Acquire Imperial Energy - Shareholders Approve The Deal
Filed Under Indian Companies, Energy, India Business | Leave a Comment
Indian Energy Giant — Oil and Natural Gas Corp (ONGC) — has made a timely European acquisition: Imperial Energy.
Imperial Energy is based in Leeds, UK and owns oil producing blocks in Tomsk region of western Siberia in Russia and Kastanai in north-central Kazakhstan.
The ONGC has taken control of Imperial Energy Plc for GBP 1.3 billion (USD 1.9 billion) after an overwhelming 96.8% shareholders of London-listed Imperial Energy accepted the ONGC takeover offer.
The deadline for the state-owned firm’s 12.50 pounds per share offer closed yesterday and 99,241,110 or 96.8 per cent of the shares were tendered, ONGC Videsh Ltd (OVL) informed the London Stock Exchange.
OVL needed 90% shareholders to approve the deal, and got 96.8% approval. Imperial Energy will be delisted from from the London Stock Exchange pays in cash to the remaining 3.2% shareholders who were not in favour. The entire acquisition and subsequent delisting of Imperial Energy may take two to three weeks — which is quite fast by most standards.
ONGC Chairman R S Sharma said:
“ONGC ows the acquisition to government support, which has seen OVL in the past seven years increase its number of projects to 39 in 17 countries, from just a single project in Vietnam. This is the biggest overseas ever acquisition by OVL.”
OVL will fund the transaction through a combination of loans from the parent company (ONGC), wherein ONGC would lend USD 1 billion to fund the transaction at 5.96 % interest rate.
In 2003, OVL paid USD 1.7 billion to buy 20% stake in Exxon Mobil Corp’s Sakhalin-I field in Russia and USD 785 million for a stake in the Greater Nile project in Sudan.
Analysis & Projection: The weak UK pound and the better market capitalization of Asian companies could see more such takeovers in Energy and other sectors too.
Dec
30
Lessons From Satyam Investor Issues
Filed Under IT BPO KPO Services, Indian Stock Market, Indian Companies, India Business, Metros, India Investment Opportunities, India Real Estate | 1 Comment
The Satyam event has been on the centre stage on Indian business for the last two weeks. This year 2008 has shown us so many events in the financial space that we are primed for every kind of possibility.
The Satyam event has no precedence in the Indian business environment where most Board members unanimously vote for the agenda proposed by the Executive Chairman (who may have only a minority share holding).
Satyam stock lost almost 40% market value (falling from Rs 225 to Rs 135) over the last two week, though it has now recovered about 20% (Rs 160).
The events of the past two weeks have raised many questions, but all of them can be summarized into two basic issues:
1. The viability of Satyam’s strategy to diversify into unrelated business like Real Estate
While the debate remains hot, we did not see any projections or scenarios of how the Maytas deal would have given a better EPS for Satyam shareholders. As a Satyam shareholder, I was fine with diversification if the company leaders believe they can execute it.
Maytas has Rs12,000 crore of orders, so the order book is good, and profits can be made there. And the Indian real estate market has potential for many more players at the top-end level, who can do metro rails, airports, highways etc.
If Mukesh Ambani or Anil Ambani of Reliance starts a diversified business, the shareholders are happy that a new revenue stream will start. Its because Reliance has been diversifying into every possible industry. There is no reason to believe Satyam will fail, if the business plan is good. Raju understands the real estate business well, and Maytas looks like a healthy business.
Now whether the valuation being offered for Maytas by Satyam was fair-value is a different question, and that brings us to the second learning.
2. The effectiveness of Satyam’s corporate governance
Its likely that investors felt the valuation of $1.6 billion for Maytas for much higher, and there is no way to solve such a question expect by taking different views into account. You can’t push a valuation without the support of majority investors.
Since only 8.5% equity of Satyam was with Raju/promoters, and 61% with FIs, Satyam board should have done two things:
(a) passed the entire business plan and projections through the FIs, and got them on board, and their agreement.
(b) It would have been even better, if Satyam asked each of the three FIs to give their valuation for Maytas, and finalized an average of it as the proposed valuation.
If the above two steps we were done, its possible Satyam’s investors could have supported the deal.
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Related Stories:
- Satyam reveals Fraud after Fiasco (latest post: 7 Jan 2009
) Customers trust Satyam: Ramalinga Raju tells employees Satyam shares in demand on possible change of guard Ex-cabinet secretary Prasad to continue on Satyam board Now, Satyam board can not decide on buyback
Sep
27
RBI Guidelines For Foreign Company Set-up in India & Repatriation of Income
Filed Under Indian Companies, Indian Government, India Business | Leave a Comment
Foreign companies may set up business in India in any one of the following manners while retaining its status as a foreign company:
1. Liaison Offices - A foreign company can open a liaison office in India to look after its Indian operations, to promote its business interests, to spread awareness of the company’s products and to explore further opportunities. Liaison offices are not allowed to carry on any business or earn any income in India and all expenses are to be borne by remittances from abroad.
2. Project Offices - The project office is the ideal method for companies to establish a business presence in India, if the object is to have a presence for a limited period of time. It is essentially a branch office set up with the limited purpose for executing a specific project. Foreign companies engaged in turnkey construction or installation normally set up a project office for their operations in India.
3. Branch Offices - Foreign companies engaged in manufacturing and trading activities outside India may open branch offices for the purpose of:
• Representing the parent company or other foreign companies in various matters in India, like acting as buying and selling agents.
• Conducting research, in which the parent company is engaged, provided the results of this research are made available to Indian companies
• Undertaking export and import trading activities.
• Promoting technical and financial collaborations between Indian and foreign companies.
4. Trading companies - Foreign companies may invest in trading companies engaged primarily in exports. Such trading companies are treated at par with domestic trading companies in accordance with the trade policy.
The RBI accords automatic approval for foreign equity up to 51 per cent for setting up trading companies engaged primarily in exports. All other proposals, which do not meet the criteria for automatic approval, can be addressed to the Foreign Investment Promotion Board, i.e. “FIPB”.
5. Wholly owned subsidiaries - Foreign companies may set up a wholly owned subsidiary, which is an Indian Company with an independent legal status, distinct from the parent foreign company.
Under the current foreign investment policy, a wholly owned subsidiary can be established either under the automatic route, if the conditions specified therein are complied with (specific high priority industries) or obtain an approval from the FIPB.
6. Joint venture companies - Foreign companies may set up a joint venture company i.e. in financial collaboration with an Indian business house/company in India, which is an Indian Company with an independent legal status, distinct from the parent foreign company.
Under the current foreign investment policy, a joint venture can be established either under the automatic route, if the conditions specified therein are complied with or obtain an approval from the FIPB.
Foreign companies intending to set up any kind of office mentioned above activities on behalf of the parent company or foreign trading companies in India for promotion of exports from India have to obtain a prior approval of the Reserve Bank by submitting an application in the prescribed form to the Central Office of Reserve Bank. On approval of such cases, permission is granted initially for a period of 3 years, subject to the condition that expenses of such office will be met exclusively out of inward remittances; such offices are not permitted to generate any income in India.
Industrial Policy:
Industrial Policy determines items/areas reserved under automatic route of approval by the RBI for Foreign Company to do business in India. Automatic approval is available through the RBI in all items/activities with the exception of a few items which are set out in Press Notes issued by the Government of India.
Besides reserved items/areas reserved by Reserve Bank of India are also notified a “List A” which specifies activities that are not covered by its Automatic Route.
To carry on business in items/areas reserved in List A, proposals are required to be approved by Foreign Investment Promotion Board, Government of India for which an application is required to be made to Secretariat for Industrial Assistance, Ministry of Commerce and Industry, Government of India, New Delhi.
Industrial licensing is mandatory in respect certain industries i.e.
- Distillation and brewing of alcoholic drinks;
- Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
- Electronic Aerospace and defense equipment of all types;
- Industrial explosives including detonating fuses, safety fuses, gun powder, nitro cellulose and matches; Hazardous chemicals;
- Drugs & Pharmaceuticals (according to modified drug policy issued in September ‘94).
The compulsory licensing provisions do not apply to the small-scale units manufacturing any of the above items reserved for exclusive manufacture in small scale sector.
Specific Industries are exclusively reserved for the public sector i.e. Arms and ammunition and allied items of defense equipment; defence aircraft and warships; Atomic energy; Railway transport.
Foreign Collaboration:
Indian Companies can also enter into Technical Collaboration Agreements with Foreign Collaborators under two routes:
” The automatic route of Reserve Bank ” Under approval of Secretariat for Industrial Assistance (SIA), Ministry of Industry, Government of India, New Delhi.
Application for foreign technical collaboration which do not conform to the parameters given in automatic route are required to be made to SIA, Ministry of Industry, Government of India, New Delhi. The extension of Foreign Technical Collaboration Agreements (including those approved by the Reserve Bank) is also required to be approved by SIA.
Nuts and Bolts-1: Registration & Incorporation
The procedure for registration of an industrial undertaking varies; it entirely depends upon whether the item proposed to be manufactured falls within the licensed, de-licensed, or small-scale sector. An application seeking an industrial license must be filed with the Ministry of Industry together with the application seeking NRI investment approval. An application in Form FC/IL - SIA must be submitted to the Ministry of Industry for grant of an industrial license.
Form FC/IL - SIA should comprise information related to the promoter and collaborator, proposed activities, items of manufacture, capital structure, borrowings, investment, foreign exchange inflow, technology transfer, if any.
There is no definite time frame as when the approval will be granted, it depends on a case-to-case basis. However, if the information supplied in Form FC / IL - SIA is precise and calls for no clarification from the Government, approval is normally obtained in 4-6 weeks.
In case of an item reserved for manufacture in the small-scale sector unit must get itself registered with the Directorate of Industries/District Industries Centre of the State Government concerned.
Capital investment made in India can be repatriated fully repatriated along-with the profits after completing certain formalities. Also, returns on the investment can be repatriated in two forms i.e.: (1) “Dividend - dividend on shares held by foreign investors is fully repatriable subject to certain formalities, and (2) “Interest - interest earned on bonds or debentures can be repatriated after paying appropriate tax.
The profit, earned by the branch doing permitted activities can be remitted after payment of the necessary taxes in India, the branch office should submit an application for remittance to the authorized person along with necessary documents/certificates etc., as prescribed.
Direct Tax Issues Tax liability in India is basically determined on two criteria viz. Scope of total income and Residential status of the taxpayer. Company that is registered outside India is treated as a Foreign Company.
Taxable income of foreign enterprises determined as per the various provisions contained in the Indian Income-tax Act, wherever a foreign enterprise belongs to a country with which India as entered into an agreement for Avoidance of Double Taxation (AADT), the tax liability determines as per the provision of the relevant AADT.
Author: Rakesh Saxena, Advocate
| The Reserve Bank of India guidelines for setting up FDI bussiness in India. Article Source: http://EzineArticles.com/?expert=Rakesh_J_Saxena |
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Sep
22
CEO beaten to death by dismissed Employees in India
Filed Under IT BPO KPO Services, Training & Education, India Business, Metros | Leave a Comment
The Chief Executive Officer of Gradiano/Graziano was on Monday beaten to death by a group of dismissed employees inside office premises after a meeting called to resolve dispute between them and the management failed. Mr LK Chaudhury, the CEO of Gradiano in Udyog Vihar of Greater Noida, was killed when the agitating workers turned violent and beat him up, Senior Superintendent of Police (Noida) R K Chaturvedi said. - Press Trust of India
According to details from the ground, the workers started throwing stones at the management and one stone crashed the skull of the CEO, Lalit Kishore Chaudhury. Many others in the company’s management are also badly injured.
This has got to be one most shocking incidents coming from corporate India in the recent times.
If Gradiano was a BPO/KPO company, the chances are they would be employing at least graduates, and that makes this most shocking on how such people can act like a mob. It also shows how the fairly accepted ‘hire-and-fire method’ of the West can backfire in India.
While this is an an exception and a rare case, companies now need to be more careful about physical security of their staff. I shudder to think if this is the treatment received to a CEO, then what will be the case if a Manager gave a bad performance appraisal to such workers.
A bad day for Indian business. Hope the criminal workers are brought to justice, and that it serves as a warning to other people. In one shot, these 200 dismissed workers have embarrassed the Indian business/professional community and put an unwanted question mark on the ethics of Indian employees. Such an incident must not repeat.
Sep
8
Indian Retail Industry: Subhiksha Wants To Sell Out
Filed Under Indian Retail Industry, India Business, India Investment Opportunities | Leave a Comment
Subhiksha to be put on the block is the news from Indian Retail Industry.
If you have been following Indian retail industry, you would have noted Subhiksha rapid growth over the last couple of years, adding hundred plus stores per quarter.
Here’s a brief Q&A with Sandeep Saxena, Managing Director of 7Avenues Private Equity and CEO of 7to9 Retail
Q: Why would Subhiksha want to sell now given the valuations aren’t great?
A: I believe it has been reported in different places about the heavy opex costs (potentially losses) that Subhiksha has been incurring due to their large number of open store fronts. As the consumer spending has tightened in the last 6 months, I believe it creates a difficult situaiton that needs lot of cash injection to stay afloat.
Q: But aren’t all Indian retailers facing the same opex burden currently?
A: Not necessary. Those who have grown cautiously over the last couple of year, and focused on building systems and processes to manage the supply and inventory. Market reports have suggested their systems and processes had not kept pace with the pace of new store openings, which can really lead to high opex costs.
Q. What’s your take on the retail business valuation?
A: Every serious investor knows retail is a long-term business, and today’s consumer spending patterns are short-term hurdles. Valuations are based future growth prospects. While I can’t comment on specific valuation of Subhiksha without their revenue and profitability numbers, I can say with confidence having seen successful retailers in the West that those retailers who invest in systems and processes — for better customer management, inventory and supply chain management — are able to command best valuations.
To learn more about Sandeep Saxena, please visit here: http://7avenues.com/about.html
Sep
5
Sovereign Funds Invest $25bn in 2008
Filed Under India Business, India Investment Opportunities | Leave a Comment
Sovereign funds like Singapore’s Temasek Holdings and the Abu Dhabi Investment Authority have become more active and influential after investing in Wall Street and European banks that have been hit by losses from risky US mortgages.
Sovereign funds, which are estimated to hold assets worth as much as $3 trillion, have ballooned in recent years as large Asian exporting countries and oil-rich nations started putting part of their currency reserves into investment vehicles.
For example, Sovereign funds have invested $25.5 billion so far this year to buy stakes in global companies such as Citigroup and Merrill Lynch, up 66 per cent from a year earlier.
These state-backed funds took part in 22 deals, of which 10 deals worth $9.1 billion involved Singapore’s two sovereign funds, Temasek and the Government of Singapore Investment Corp, according to data up to August 28, 2008.
- Bulk of activity was in the US, where sovereign funds invested in $15.8 billion in eight transactions, 62 per cent of their global total and almost five times more than 2007 figure of $3.45 billion.
- Russia ranked second, where Dubai World may invest $5.3 billion in regional power firm OGK-1.
- $1.3 billion invested in Singapore by sovereign funds
(Report Source: Reuters)
Aug
14
India’s Biopharma Surges on Outsourcing Boom
Filed Under Healthcare, India Business | Leave a Comment
A combination of a weakened currency and an urgent need to cut costs at big pharma companies is driving a surge of drug development and manufacturing business for India.
The Wall Street Journal says bad times in Big Pharma are spurring a boom for operators in India as well as China. And about the only near-term switch that could blunt the wave would be a decision to engineer a more valuable rupee.
But one analyst cautions that many Indian developers are finding that the transition from manufacturing generic drugs to devising new therapies can be hard.
“Two years ago, we thought Reddy would do it,” said Sandeep Shenoy, a strategist at PINC Capital. “Three years back, we thought Cipla might do it. Every one of them has had problems.”
Here’s the WSJ article .
Aug
8
India Now 2nd-largest Wireless Market after China
Filed Under Emerging Sectors, India Business, India vs China, Mobile Telecom | Leave a Comment
The number of wireless subscribers in India has reached 250 million, making India the second-largest wireless market in the world, says a World Bank study titled: The Role of Mobile Phones in Sustainable Rural Poverty Reduction.
Authored by Asheeta Bhavnani, Rowena Won-Wai Chiu, Subramaniam Janakiram and Peter Silarszky, the study says India is now second only to China, with tele-density already surpassing the 25 per cent mark.
Currently, China is adding about 6-7 million new subscribers per month, India about 8-9 million and the US about 2-3 million, it notes.
The private sector is also active in India and there are a number of telecommunication companies providing mobile telephone services who have to compete for market share and meet consumer expectations. Mobile telephony has grown rapidly in India, especially during the last three years.
The study states that mobile telephony has a positive impact on economic welfare by generating GDP; job generation (both in the mobile industry and the wider economy); productivity increases; and taxation revenue with mobile operators usually being a sizeable contributor.
For more details, click here.
