The Economic Times 8 April 2018

With an eye on debt, Tata Sons set to discuss M&A plans of group cos

The board of Tata Sons, the holding company of the diversified conglomerate, will discuss the various mergers and acquisitions (M&A) plans of the Tata group, especially with regard to the debt that it will be running up, said two people with direct knowledge of the development.Directors of Tata Sons, which will provide the primary guarantee for any funding that’s needed, have sought more information from the group’s new M&A team on two key transactions, they said. This includes the divestment of Tata Teleservices’ consumer mobile business to Bharti Airtel and bids to purchase bankrupt Bhushan Steel and Bhushan Power and Steel under the insolvency resolution process.The board, aware of the opportunities for acquisitions that could be earning per share accretive in the future, want to be briefed about the debt that will pile up and whether the price is excessive. Tata is expected to assume about Rs 31,000 crore of debt in the Tata Teleservices deal. Tata Steel’s debt could rise to about Rs 90,000 crore if the Bhushan acquisitions go through.“All the acquisition and merger proposals will be discussed at the board meeting soon,” said one of the two persons cited above. A Tata Sons spokesperson said: “We do not comment on board discussions.” The move comes amid concerns expressed by senior executives of group companies that they haven’t been consulted on M&A negotiations. ET had reported March 24 that some Tata veterans were said to be disgruntled about new appointees under Tata Sons chairman N Chandrasekaran being given too free a hand to build their own teams unlike before.Some executives referred to the ejection of Cyrus Mistry as Tata Sons chairman for, among other reasons, not keeping the Tata Trusts in the loop about certain acquisitions. The philanthropic Tata Trusts, run by Ratan Tata, have a controlling stake in Tata Sons.“There is concern that why have experienced executives been kept out of such big deals and if Cyrus Mistry was criticised for not keeping the Trusts updated on the Welspun deal, how is the Bhushan Steel issue different,” a top executive told ET. “There is a concern among some top brass about a transactional culture coming in where short-term deals do not keep long-term strategy in mind.” 63672343 Another worry was the sale of Tata Consultancy Services (TCS) stock. “Tata Sons’ exposure to the funding of multiple deals when TCS is the only cash cow for the group has got the top brass worried in the Trusts and the Tata Sons board,” said a top official. Incidentally, Chandrasekaran was TCS CEO until he took over as Tata Sons chairman in February 2017.In March, Tata Sons sold a marginal 1.5% stake in TCS for Rs 9,000 crore, primarily to improve the leverage ratio of the holding company which has been purchasing stakes from group companies as part of untangling the cross-holdings among them. “TCS sale is hardly a recommended sale since it involves selling high price-earnings stocks to fund lower PE ones,”said the person cited above. “The number of rights issues Tata Sons have participated in recently, delay in sorting out the merger of Tata Teleservices with Airtel and sale of fibre assets are also concerns of the board.”The Tata Sons board has three directors nominated by Tata Trusts with a veto power, while others represent Tata Sons. “In usual circumstances, the decision usually goes to the board of the operating company, but large deals which change debt ceiling or in case an equity issue is needed, Tata Sons need to give a tacit approval,” a former Tata Sons director told ET.In the Bhushan bankruptcy process Tata Steel has offered an upfront payment of Rs 34,800 crore to lenders, along with a 12.27% in the debt-laden Bhushan Steel. It has also offered to pay salary arrears of 353 workers of Bhushan Steel and ensure continuation of employment. It has offered to pay Rs 24,500 crore for Bhushan Power and Steel against rival JSW Steel’s Rs 11,000 crore. One concern is over whether Tata Steel has offered too high a price.The board may raise questions over the debt of Tata Steel rising to around Rs 90,000 crore if it acquires the Bhushan companies, though this will increase capacity, add value-added, higher-margin auto steel to the product range and improve operating profit due to better capacity utilisation. The board may also seek details of the purchase offer by American private equity fund TPG Capital for the optic fibre business of Tata Teleservices.

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To fix the rot in judiciary, large scale reform is the only sustainable solution

The Supreme Court today is a bundle of contradictions, emitting confusing signals that only underline the depth of the divide within the higher judiciary. So much so that the otherwise passionately articulated line on the independence of judiciary is replaced by loud calls for immediate judicial reform.In an order of March 28, the Supreme Court bench of Justices Adarsh Goel and UU Lalit acknowledged the gross limitations of the existing system of selection of judges. They called for setting up a panel of experts to shortlist candidates to the higher judiciary, and also to subsequently evaluate their performance. The judge, meanwhile, continues to be part of the court, although all work has been taken off from him.“There is need to consider… whether there should be a body of full-time experts without affecting independence of judiciary, to assist in identifying, scrutinising and evaluating candidates at pre-appointment stage and to evaluate performance post appointment,” the bench observed in a matter related to delivery of speedy justice.The bench went on to observe that GoI may also “consider what changes are required in the process of evaluation of candidates at its level so that no wrong candidate is appointed,” adding that it’s important to also consider “what steps are required for ensuring righteous conduct of Judges at a late stage”.This is, perhaps, the closest a Supreme Court ruling has come to what GoI has been suggesting on forming a committee to do a shortlisting of judicial talent for selecting candidates to the higher judiciary. “Identification of candidates, scrutiny, evaluation and post-appointment performance measurements and conduct are time-consuming processes and at least some independent full-time experts are required, if timely and best appointments are to be ensured and requisite in-house oversight is to be a reality,” states the order.Confusing SignalsThe freshly ignited impeachment debate is also instructive of the issue of in-house oversight. While the Opposition’s attempt to move an impeachment motion against the Chief Justice of India (CJI) for ostensibly political reasons may be seen as unmindful of the harm it could cause to the judiciary, what’s important to note is the manner in which the higher judiciary has, of late, approached the same subject.Take the case of Allahabad High Court Judge SN Shukla. He has been recommended for impeachment by the CJI following an in-house inquiry relating to alleged malpractice in a medical college case. The letter from the CJI has put both the offices of the president and the prime minister in a quandary.To add to the confusion, the communication to the PM seeks expulsion of Allahabad Hugh Court Judge Justice Narayan Shukla while the one to the president asks for impeachment. In the past, these letters moved after informal discussions between the CJI and the PM because it would require the ruling party or coalition to initiate the exercise in Parliament.No such understanding seems to underlie the movement of papers in this case. Not just that, this a unique situation for the president, who has virtually no role in starting an impeachment process. Essentially, the move has caught the executive off guard—not knowing how to progress in this case while feeling the daily pressure of simply sitting on it even as the judge himself continues in the court.Act of ConvenienceUsually, the Supreme Court collegium conveyed such clout that a decision like this was enough for an errant judge to resign. That’s how most cases have progressed in the past. But the fissures within the Supreme Court collegium have diluted that credibility and authority.As a result, the act of sending the case to GoI appears like an act of convenience. But in throwing the ball in the government’s court without any follow-up action, the apex court has voluntarily ceded space to the executive. While the Constitution may have placed the authority to remove a judge in the realm of the legislature, it always envisaged it as a rare situation. The authority of an independent higher judiciary was meant to lay its own high standards of probity. Shukla’s case shows that not only has the threat of impeachment not worked, it has also put other key offices of the Constitution under duress, making them look helpless in a situation where they constitutionally don’t have a role.On the other hand, Opposition parties are hoping that the threat of an impeachment motion against the CJI may actually act as a deterrent against any suspected manipulation within the Supreme Court in the Ayodhya Ram Janambhoomi case. A bench led by the CJI, who is due to retire in October, is hearing a plea to move the case to a larger bench.All of this points to a complete breakdown of the principle of consensus on which the higher judiciary has always worked. Instead, there’s a deficit of trust within the higher judiciary, resulting in gaps and inconsistencies in communication with GoI, and a growing suspicion between the higher judiciary and the political system.In other words, the old consensus is broken, lines on separation of powers are blurred, and closely held rules of internal engagement are up for contest. Call it an audit or an overhaul, the truth is the judiciary is in a state of unprecedented crisis, and the only sustainable solution is large-scale reform.

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China allows bonds for it's Belt & Road initiative

New Delhi: China has decided to support its Belt and Road Initiative (BRI) through bonds with an aim to give more financial momentum to the mega project which has triggered concerns over partner countries being pushed into debt traps.The Xi Jinping government aims to foster diverse financing channels for BRI projects, as part of which it has signed bilateral currency swap agreements worth $224 billion with the central banks of 24 participating governments over the first five years of BRI, according to a recent Chinese government report.For 2018, China has budgeted 15.6% more than it did in last year’s budget for spending on foreign affairs to help boost the country’s international standing.Chinese authorities recently allowed local and foreign companies as well as foreign government agencies to issue ‘Belt and Road’ bonds through the Shanghai and Shenzhen stock exchanges. The China Securities Regulatory Commission approved applications from seven domestic and foreign companies to issue a combined 50 billion yuan (about $8 billion) in such bonds, according to state news agency Xinhua.Besides, China is setting up an international Belt and Road financing centre, according to Chinese officials, who did not divulge further details. The government would also promote development of free trade areas that include BRI partner countries.The report said that China had signed more than 100 deals with 86 countries and organisations under the initiative. The deals have led to the construction of railways, ports, and oil and gas pipelines. These include a new Mombasa-Nairobi railway line in Kenya and rail projects underway connecting Hungary and Serbia, China with Laos and Thailand, and the Indonesian cities of Jakarta and Bandung.But the financing of BRI projects has also raised serious concerns. The Center for Global Development, a US-based think tank said in a recent study that BRI-linked lending had created debt sustainability problems in eight countries – Djibouti, Laos, Kyrgyzstan, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – but added that “the majority of BRI countries will likely avoid problems of debt distress due to BRI projects”.“China’s track record of managing debt distress has been problematic,” the report said. “Unlike the world’s other leading government creditors, China has not signed on to well-established rules of the road when it comes to avoiding unsustainable lending and addressing debt problems when they arise.”Chinese foreign ministry’s spokesman Geng Shuang refuted the report. “We have always highlighted that Belt and Road projects should take account of economic, social, financial, fiscal, environmental and debt sustainability. Whether ‘Belt and Road’ is good or not... only countries and people who participate in it are qualified to speak on the issue. I believe participants will make decisions based on their best interests,” he said.

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ICICI may mull road ahead for CEO Chanda Kochhar

MUMBAI: Some directors on the board of ICICI Bank are likely to meet soon to discuss the way ahead for chief executive officer Chanda Kochhar following new information from investigating agencies about business dealings between her husband Deepak Kochhar and Videocon Group, said two people familiar with the matter.To be sure, the board continues to back Chanda Kochhar and any decision on the future of her position still remains with her, the people said.CBI is conducting a preliminary enquiry into allegations of corruption and nepotism related to loans given to the Videocon Group, with which Deepak Kochhar had a business partnership. CBI has questioned Chanda Kochhar’s brother-inlaw Rajiv Kochhar for alleged conflict of interest after it emerged that Kochhar’s Avista Advisory also advised clients of ICICI Bank.An informal meeting, like two previous ones involving independent and nominee directors, could be convened yet again this week to take stock of developments that are said to be affecting staff morale and investor confidence, said the people, who did not want to be identified.The bank’s board met on March 28, where it reposed full faith and confidence in Kochhar, and on April 2 to review insolvency cases. Some directors were not part of both meetings and prior intimation with the agenda was not given to the stock exchanges.63674874 “Since the board’s first declaration about 10 days ago that it has faith in Chanda Kochhar, a lot has happened,” said one person. “There is some discussion about lookout circulars issued against some in the Kochhar family, there is a new member on the board, too – all these developments have to be discussed.”ICICI Bank said in an email to ET that there was no board meeting planned next week.ICICI Bank and Kochhar are facing allegations of conflict of interest, unprecedented in a private sector bank – arising out of business dealings between members of the CEO’s family and Videocon. Kochhar has maintained silence and the board has said she was not directly involved in the loans given in 2012 to Videocon, which were approved by a credit committee headed by then chairman KV Kamath.“There will always be multiple views on whether the board acted hastily or took a long time. The fact is a thorough investigation has been done and the board defends its CEO,” said another person aware of the developments.“If Chanda Kochhar personally takes a stand to step down in the larger interests of the organisation, it will be an individual call and a personal choice.”New Govt Nominee Another trigger for fresh discussions on the matter is the change of the government nominee on the ICICI Bank board. The government appointed Lok Ranjan, joint secretary in the department of financial services, to replace Amit Agrawal as its nominee director effective April 5. This raised speculation that the government was not comfortable with the developments, although it has not made its intentions clear.ICICI Bank officials called the change in the board member a routine exercise.“Joint secretary of ministry of finance, whose portfolio is inclusive banking, sits on our board, so now Mr Ranjan is in charge of inclusive banking and hence he is on our board. You shouldn’t read too much into this change,” an official said.Bank officials said Chanda Kochhar has been going about her duties stoically in the weeks since the nepotism charges levelled against her.Although the CBI and the income tax department are looking into the alleged deals by her husband and brother-in-law, top officials aware of the developments said there is no direct or indirect pressure by the board on her to quit.“She is not someone to wear her emotions on her sleeve,” said an official. “She has been going through her routine work stoically and professionally. It is admirable the way she has been coping and dealing with business matters as usual, without displaying nervousness or worry at the workplace. She is confident that there is nothing to hide and therefore she is refusing to let the critics distract her.”

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CEOs live it up closer to workplace

India’s chief executives can have their pick of places to live in, such as south Mumbai and the posh enclaves of south and central Delhi. Apart from that, premium Mumbai high-rises such as Sterling Apartments on Pedder Road, Samudra Mahal in Worli and NCPA Apartments in Nariman Point have been favoured haunts. However, newer housing societies are challenging the existing pecking order.“Apart from the location, gentry, privacy and living in a community of likeminded people make an address perfect for a home and not just a PIN code,” said Keki Mistry, vice-chairman and CEO of Housing Development Finance Corp. (HDFC), who currently lives at K Raheja Corp’s Vivarea in south Mumbai’s Mahalaxmi area — which has traditionally not been seen as an elite address. “For me, apart from this combination, what worked were the amenities and high recommendations from friends.”At Vivarea, a plush residential complex that occupies 14 acres and has 200 homes, Mistry’s neighbours include Aditya Birla Group financial services CEO Ajay Srinivasan, Axis Capital CEO Dharmesh Mehta and Tano India Advisors MD Hetal Gandhi and other corporate leaders. Tata Housing and Development’s newly appointed MD and CEO Sanjay Dutt recently moved into the complex, which is close to the business districts of south and central Mumbai.There are many opportunities to meet the neighbours — a night cricket match at Vivarea saw notable business heads of private equity to banking to retail batting, bowling and chasing the ball. Also on offer are high-definition screenings of Indian Premier League and international football matches, besides special movie screenings that are networkingcum-leisure opportunities.As executives make career advances, they also, at times, shift addresses. N Chandrasekaran moved from his house on Worli seaface to 33 South Condominium, a high-rise on Pedder Road, after his elevation as chairman of Tata Sons. 63675176 Many CEOs are showing preparedness to move beyond their established comfort zone of south Mumbai, which refers roughly to the stretch from Cuffe Parade to Mahim. There are many newer luxury complexes — BeauMonde Towers in Prabhadevi and Lodha Bellissimo in Mahalaxmi — emerging as an option.As the financial industry has gravitated toward Bandra Kurla Complex (BKC), so have its bosses. For instance, Uday Kotak, executive vice-chairman and MD of Kotak Mahindra Bank; Satya Narayan Bansal, CEO of Barclays Wealth’s India operations; Abbott India MD Ambati Venu; Ambit Holding group CEO Ashok Wadhwa and Roche India MD Lara Bezerra have all moved to Signature Island, a super-premium residential project at BKC.Developed by Sunteck Realty, Signature Island has about 200 homes priced from ₹30 crore to ₹175 crore with the occupants running companies in sectors ranging from finance to pharmaceuticals. Signature Island, with duplex and triplex spread over 8,000 sq ft and above is the most luxurious of the three premium buildings in BKC including Signia Isle and Signia Pearl that have apartments sized above 5,000 sq ft.Moving closer to the place of work makes sense; it cuts down on the time spent travelling between home and office.“Earlier, CEOs and professionals preferred to live only in a few south Mumbai localities,” said Knight Frank India’s former chairman Pranay Vakil, who has helped several corporate heads find their dream homes over the years. “However, new locations are emerging and getting added to their list of preferred addresses. Compelling reasons for this shift include the time these decision makers are spending on their commute to work.” Once there’s a critical mass of top-level people, then the network effect takes over. Networking becomes the easiest thing to do when someone is staying in a place where he or she bumps into another CEO every time they jog in the morning or take a stroll in the evening.This movement has been evident in the National Capital Region for several years now, with most CXOs moving closer to their workplace in Gurgaon from established locations in central Delhi.The Magnolias by DLF in Sector 42 of Gurgaon is among the most coveted residential complexes, with 580 super-luxury apartments occupied by the highest number of CEOs, Indian and expats, according to real estate analysts. The project was launched in FY09 at a base price of ₹8,000 per square foot, which has touched over ₹15,000 per sq ft, taking starting ticket size to ₹19 crore. It has duplexes and penthouses ranging from 6,500 sq ft to 12,500 sq ft. The complex is home to bosses such as Aditya Ghosh, president and whole-time director, InterGlobe Aviation, which operates IndiGo, and Sanjiv Kapoor, chief strategy and commercial officer at Tata-Singapore Airlines joint venture Vistara.Given their hectic schedules, CEOs are keen on self-sufficient solutions. Most of these new-age complexes offer inhouse sports bars, health clubs, spas, conference rooms, entertainment areas for guests, lifestyle concierge services, top-ofthe-line security and small theatres.Sure, all this doesn’t mean that south Mumbai and Lutyen’s Delhi will lose their cachet, quite the contrary. But possibilities are much broader than before. “PIN code value will not lose its appeal in India, but we must also factor in that the newer breed of CEOs and MDs have a different viewpoint on what constitutes luxury, and see value in newer, more modern luxury buildings with the latest amenities, which are rare in traditional luxury locations,” said Anuj Puri, chairman, Anarock Property Consultants.

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HDFC in talks to buy Apollo Munich insurance for Rs 1,000 crore

The country’s largest mortgage lender Housing Development Finance Corp. (HDFC) is in advanced talks to acquire Apollo Munich Health Insurance Co. for an approximate valuation of Rs 1,000 crore, said two people aware of the development.“HDFC is close to acquiring Munich Re’s health insurance venture in India with Apollo,” said one of the people cited above. “Since Ergo has a partnership with HDFC in the general insurance space, it was easier for the two to strike the deal.” HDFC Ergo General Insurance is a joint venture between HDFC and Ergo International AG, part of Germany's Munich Re group, a leading reinsurer in Europe. HDFC has a 51% stake and Ergo holds 49%.Arpwood Capital is advisor to the deal.“We are open to organic growth opportunities, whether it is at the HDFC level or at the level of any of our subsidiaries but that depends obviously on the opportunity that is available,” said Keki Mistry, vice chairman of HDFC, which raised Rs 13,000 crore through a qualified institutional placement (QIP) earlier this year.Apollo Munich is a joint venture between Chennai-based Apollo Hospitals promoted by Prathap C Reddy and his family and Munich Re. It is the second largest standalone health insurance provider in the country, with a 1.08% market share after Star Health. The company’s gross premium income grew 31% to Rs 1,446 crore in the April 2017-February 2018 period. Apollo has a 51% stake in the company while Munich Re has a 49% stake. 63675128 “As a company policy we do not comment on market speculations of this nature or regarding shareholding matters,” Apollo Munich said in an email.HDFC Ergo had considered Star Health, when the business was put on the block, for a possible acquisition, said the people cited above. A deal is expected to close in the coming weeks. HDFC Ergo has acquired the L&T General Insurance business and is now the third-largest private sector insurer in the Rs 1.5 lakh crore industry.The health insurance sector is the fastest-growing segment in the insurance space. Overall health expenditure in India is in excess of $100 billion, according to the World Health Organization, with little of it covered by insurance. India has only six pure health insurance providers, although a few have applied for licences to the regulator. These companies are looking at increasing scale by writing retail, corporate and mass insurance policies.Many new companies have introduced innovative products and are trying to be distinctive through customer experience, especially with digital channels of sales and service. “The sector needs patient and long-term growth capital to penetrate the population,” said Joydeep Roy, partner, PwC. “Retail insurance in health is highly profitable and therefore the companies that grow fast will also be highly valued and quicker IPOs can be made practical to access long-term capital.”

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Market outlook: Nifty may see weak start, but will be resilient

After gaining just short of 200 points on Thursday, the Nifty50 chose to consolidate on Friday and spent the session in a capped range, oscillating within 40 points. The benchmark index ended flat, gaining just 6.45 points, or 0.06 per cent.As we approach the new week, we expect this consolidation to spill over to Monday. Global markets have been weak following the ongoing rhetoric over tariff war between the US and China. We may face a slightly weak opening on Monday.However, going ahead, we expect resilience in the Indian market with very limited losses and relative outperformance compared with other global markets.Any extended weakness will see the 200-DMA playing out as an extremely crucial support. The 10,365 and 10,390 levels are likely to play out as immediate resistance. Supports will come in at 10,275 and 10,200.The Relative Strength Index – RSI on the daily chart stood at 52.6210 and it has marked a fresh 14-period high, which is a bullish indication. It does not show any divergence against the price.The daily MACD stays comfortably bullish while trading above the signal line. No significant formations on candles that can be read in the present context were observed.Pattern analysis showed the NIFTY crawled back above the 10,180-10,200 zone. It has not only moved past the 200-DMA mark, but has also crawled back above the important multiple pattern resistance area. Any consolidation or corrective move will see these zones play out as very important support area.Overall, global weakness is much likely to affect us as we open on Monday. At the same time, we are also likely to see resilience.Nifty will continue to trade above its major support levels and continue to remain in the overall uptrend. Any dip that the global weakness presents should be lapped up to make select purchases. Broader indices have shown improvement in relative momentum against the broader market and we will continue to see strong stock-specific outperformance. A cautiously positive outlook is advised for the day.STOCKS TO WATCH:Fresh long positions were seen being added in IDBI, ITC, CG Power, Bank of India, PTC, PC Jeweller, NTPC, HCC, Federal Bank, Jubilant Foodworks, Tata Motors and IOC. 63675363 (Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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E-way bill portal down for 2 hours

MUMBAI: The e-way bill portal was down on Sunday night for close to two hours and then went slow, leading to disruptions in cargo carriage by road.The portal blanked out at 9:30 pm and came back around 11 pm but was slow, said industry executives. E-way bill is a digital tracker of cargo transportion by road and an integral part of the goods and service tax compliance process.The e-way bill was first implemented on February 1. The portal had crashed within a few hours then leading to a halt in billing.

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