Monthly Archives: June 2019

The move is aimed at reducing debt to free up cash to compete with Reliance Jio Infocomm..

Bharti Airtel and Vodafone Idea are in advanced talks to turn their proposed optic fibre network joint entity into an infrastructure investment trust (InvIT) that can attract long-term investors. The move is aimed at reducing debt to free up cash to compete with Reliance Jio Infocomm.

“The two companies are likely to announce their optic fibre combined entity by the end of this month which will be an InvIT since it has many benefits such as pushing some debt off the books of the two telcos,” said a person aware of discussions between the phone companies. “The InvIT structure is also an attractive proposition for investors such as global pension funds given the regular income and the tax benefits on the income.”

InvITs are trusts that manage income-generating infrastructure assets, similar to mutual funds, that enable participation by individual and institutional investors in return for a portion of the income.

Under the proposed merger, Vodafone Idea’s 156,000 route km of optic fibre and Airtel’s 246,000 km will result in a network of 400,000 route km, more than Mukesh Ambani-owned Jio’s 300,000 km. The Airtel-Vodafone Idea optic fibre entity is valued at Rs 35,000-40,000 crore.
“While the share in the entity will be proportionate to the assets the two sides bring, giving a larger share to Airtel, both partners are likely to have equal rights,” the person cited above added. As reported earlier by ET, Vodafone Idea had been pushing for equal rights on the basis that it had more fibre in metros and category A towns.

While Bharti Airtel has already transferred its optic fibre assets into a wholly-owned unit, Vodafone Idea said on Saturday its shareholders and creditors had approved a proposal to transfer its optic fibre assets to a wholly-owned subsidiary, Vodafone Towers. That will pave the way for the optical fibre merger with Bharti Airtel.
Vodafone Idea’s leadership had earlier said that the company will explore all possible options to optimize the fibre assets.

Bharti Airtel declined to comment while Vodafone Idea didn’t respond to an e-mail seeking comment.
“Approval of assets to InvITs potentially deleverages the balance sheet and creates an income stream for the unit holders arising from future rentals that the optic fibre company would receive from the telecom company,” said tax expert Ketan Dalal, managing partner at Katalyst Advisors. “This is possibly a key advantage of transfer to InvITs.”

The moves come close on the heels of Jio transferring its tower and fibre assets to two special purpose vehicles (SPVs) owned by Sebi-registered InvITs. In April, Jio’s parent Reliance Industries (RIL) announced the two trusts had acquired 51% each in Jio’s fibre and tower units — Jio Digital Fibre (JDFPL) and Reliance Jio Infratel (RJIPL). The trusts are sponsored by RIL’s 100% subsidiary, Reliance Industrial Investments and Holdings (RIIHL).

The new structure helped Jio slash debt on its books by Rs 1.07 lakh crore to Rs 65,000 crore in the quarter ended March by transferring this to the InvITs. Similarly, Bharti Airtel and Vodafone Idea are expected to transfer proportionate debt from their balance sheets to the InvIT.

Bharti Airtel, which posted an operating loss of Rs 89.8 crore before interest and taxes for its India operations for the quarter ended March, recorded net debt of Rs 1.08 lakh crore, driving up finance costs. Vodafone Idea posted a net loss of 4,878.3 crore for the quarter and recorded a net debt of Rs 1.18 lakh crore.

https://economictimes.indiatimes.com/industry/telecom/telecom-news/airtel-and-voda-idea-in-talks-to-turn-fibre-jv-into-infra-investment-trust/articleshow/69749134.cms

The company added that since September 2018, it has managed to make liabilities payment of over Rs 36,000 crore without availing of any fresh funding from any lender

Crisis-hit mortgage lender Dewan Housing Finance, who had defaulted on interest payment on non-convertible debentures (NCDs), informed the stock exchanges on Tuesday that it has paid off its interest obligation worth Rs 962 crore within the seven-day cure period.

“The company has made interest payments in lieu of Rs 961 crore as committed to its debenture holders. With this tranche, the company confirms full payment and will seek rating upgrades from agencies,” the company said in a media statement.

The company added that since September 2018, it has managed to make liabilities payment of over Rs 36,000 crore without availing of any fresh funding from any lender. Also, they are committed to meeting all future debt servicing obligations in a timely manner, through further asset monetisation plans as well as onboarding of a strategic partner for its business.

DHFL had also paid about Rs 45 crore in interest and principal on certain debt instruments a day before. The company had reiterated its commitment to pay its dues within the seven-day cure period even as the credit rating agencies downgraded its commercial papers worth Rs 850 crore to default grade.

The company was expecting Rs 2,300 crore from buyers of its retail assets in Aadhar and Avanse. This, along with the securitisation of its retail lending, assets might have been used to pay off the debt.

After having met its debt obligation, the company’s main focus would be to rescale its business.

Things started going downhill for the mortgage lender when IL&FS in September 2018 defaulted on its debt obligations because of huge asset liability mismatch and fear crept in the minds of investors that housing finance companies such as DHFL and may also default on their debt obligations. Shares of DHFL tanked, despite the management ensuring everything was all right and that it was meeting all debt obligations.

Because of liquidity constraints after the IL&FS default, disbursal of loans by mortgage lenders fell drastically. Disbursal of DHFL in Q3 of FY19 saw a 95 per cent decline as it disbursed merely Rs 510 crore. In Q4, the situation worsened for DHFL with allegations levelled against the promoters of the company of siphoning off funds by an online portal resulting in an internal audit of the firm by an independent auditor.

https://www.business-standard.com/article/companies/crisis-hit-dhfl-pays-rs-961-crore-towards-ncds-inside-cure-period-119061101439_1.html

Says committed to meeting all debt servicing obligations in a timely manner

Anil Ambani, the chairman of debt-ridden Reliance Group, on Tuesday blamed “unwarranted rumour-mongering” for the sharp fall in shares of his group firms in recent weeks and said he was committed to meeting “all future debt servicing obligations in a timely manner”.

Ambani said his group had paid Rs 35,000 crore to the lenders in the 14 months between April 2018 and May 2019, largely by selling assets. “Further asset monetisation plans are at various stages of implementation,” he added.

Regulatory bodies and courts, on the other hand, had not passed any final adjudication orders on the group’s claims aggregating over Rs 30,000 crore, due for five to 10 years to various group companies, especially Reliance Infrastructure and Reliance Power and their affiliates, he said.

Ambani’s remarks come in the backdrop of the invocation of pledged shares by the lenders, impairments taken for its power company, and a delay in results announcement for its infrastructure arm. The payments made to the lenders are Rs 24,800 crore in principal and Rs 10,600 crore in interest.

In a conference call on Tuesday, Ambani pointed out that during the entire period, lenders from all categories —whether banks, mutual funds, insurance companies, provident funds or NBFCs — provided zero net additional liquidity or debt to any entity of Reliance Group.

He said unwarranted rumour-mongering, speculation, and bear hammering of all Reliance Group companies shares over the last few weeks had “caused grave damage to all our stakeholders”.

As of March 2018, the group’s consolidated debt stood at Rs 1.72 trillion. The figures as of March 2019 are not available as group companies like Reliance Infrastructure are yet to declare results for Q4FY19.

Analysts, however, remain skeptical. “One should not get carried away with these statements of debt reduction. Two group companies — RNaval and RPower — having reported FY19 numbers have not shown any debt reduction and have posted total loss of Rs 13,000 crore, with both having debt of over Rs 45,000 crore,” said SP Tulsian, chief executive officer (CEO) for sptulsian.com.

He added, “One should wait for the audited accounts of other companies for FY19 to see the debt reduction. In addition, with more than Rs 1.5 trillion debt as of September 30, 2018, Rs 35,000 crore debt reduction is not a significant task, which has been done with asset monetisation and not out of profit.”

Part of the asset monetisation that the group undertook in the last 14 months includes sale of its Mumbai power distribution business to Adani Electricity for Rs 12,700 crore in August 2018, sale of a road asset to Cube Highways for Rs 3,600 crore and a large part of its radio business to Music Broadcast for Rs 1,050 crore. The group’s commercial and home finance business also securitised its assets (loans given out) for Rs 8,000 crore.

Ambani did not take any media questions. Reliance Group Executives did not share the break-up for the Rs 35,000 crore repaid in the last 14 months. It is not clear if the road asset sale has been completed. For the radio business sale, the group has received Rs 250 crore so far.

Public and private sector bank executives said difficulties in dealing with the group continued. Banks worry about the group’s capability to repay in the absence of clear visibility of cash flows from businesses.

https://www.business-standard.com/article/companies/rumour-mongering-hitting-reliance-group-s-interests-says-anil-ambani-119061101350_1.html

Gas production from KG D6 integrated development is expected to help reduce India’s import dependence

Mukesh Ambani-led Reliance Industries (RIL) and its partner BP Plc on Tuesday announced the sanction of the MJ project in the KG D6 block off the east coast of India. The three new projects by these companies are expected to get investments to the tune of Rs 35,000 crore.

MJ (also known as D55) is the third of the three new projects in the Block KG D6 integrated development plan. Its approval follows sanctions for the development of “R-Series” deep-water gas fields in June 2017 and for the Satellites cluster in April 2018.

The three projects are together expected to develop a total of about 3 trillion cubic feet (tcf) of discovered gas resources with a total investment of Rs 35,000 crore ($5 billion).

These projects together, when fully developed, will bring about 1 billion cubic feet a day of new domestic gas on stream, phased over 2020-2022.

According to industry sources, the use of existing infrastructure in the KG basin by the companies is expected to save at least $1.5 billion for the three projects.

Government sources said the RIL projects, along with ONGC discoveries, are expected to increase the natural gas production in India to 71.92 billion cubic meter (bcm) by 2021-22, from a mere 35.07 bcm now.

Gas production from KG D6 integrated development is expected to help reduce India’s import dependence and amount to over 10 per cent of the country’s projected gas demand in 2022.

Mukesh Ambani, chairman and managing director of RIL, said: “Bringing these three discoveries to production, as promised in 2017, by leveraging the existing infrastructure has been the primary objective of the Reliance-BP joint venture.”

He added that this will add to the increasing demand for clean fuel in the country, save foreign exchange, and reduce dependency on imported gas.

Of the three projects, the R-Series is in the execution phase.

All six wells have been drilled and gas from this project is on schedule and expected by mid-2020. MJ is expected to begin production in mid-2022, said RIL.

Bob Dudley, chief executive, BP Group, welcomed the investment decision. “We are building an important upstream business in India, helping supply the country’s growing gas market,” he said

Dudley added, “Working closely with Reliance, we are efficiently developing discovered resources, with focused exploration to give options for the future. This latest investment is a further demonstration of BP’s commitment to India and helps support India in addressing the dual challenge and moving to a low-carbon future.”

https://www.business-standard.com/article/economy-policy/ril-bp-sanction-third-phase-of-kg-d6-development-to-invest-rs-35-000-cr-119061101323_1.html

The top ten companies were once again dominated by US firms, with Apple on $309.5 billion, Google on $309 billion and Microsoft on $251 billion

US retail giant Amazon has moved past hi-tech titans Apple and Google to become the world’s most valuable brand, a key survey showed Tuesday.

The brand value of Amazon surged by 52 per cent to $315 billion, global market research agency Kantar said in its 2019 100 Top BrandZ report. Amazon jumped from third to first place to eclipse Google — which slid from first to third place with Apple holding on to the second spot.

The Seattle-based retail behemoth, founded by Jeff Bezos in his garage in 1994, topped the table thanks to key acquisitions, superior customer services and a disruptive business model, Kantar said in a statement.

“Amazon’s smart acquisitions, that have led to new revenue streams, excellent customer service provision and its ability to stay ahead of its competitors by offering a diverse ecosystem of products and services, have allowed Amazon to continuously accelerate its brand value growth,” said Kantar.

The agency, which is owned by British advertising group WPP, added that Amazon showed “little sign” of any slowdown in its growth.

The top ten companies were once again dominated by US firms, with Apple on $309.5 billion, Google on $309 billion and Microsoft on $ 251 billion.

Payments specialist Visa had the fifth biggest value at almost $178 billion, while social networking group Facebook was the sixth largest at nearly $159 billion.

For the first time, Alibaba beat Tencent to become the most valuable Chinese brand.

E-commerce leader Alibaba was the seventh biggest at $131.2 billion, up two places on the previous year.

Internet giant Tencent fell three spots to stand at number eight with a value of $130.9 billion.

In a sign of Asia’s growing importance, 23 of the top 100 brands were Asian — including 15 from China.

The leading brands have embraced “disruptive” business models to beat traditional rivals in the technology, finance and retail sectors.

“Amazon’s phenomenal brand value growth of almost $108 billion in the last year demonstrates how brands are now less anchored to individual categories and regions,” said Doreen Wang, Kantar’s global head of BrandZ.

“The boundaries are blurring as technology fluency allow brands, such as Amazon, Google and Alibaba, to offer a range of services across multiple consumer touchpoints.

“Using their consumer experience and expertise, these brands are crossing over into the business services sector, creating new opportunities for brand growth.

“Disruptive ecosystem models are flourishing in regions such as Asia, where consumers are more technology-enabled and where brands are integrating themselves into every aspect of people’s daily lives.” Brand value on the key survey is calculated on the basis of the companies’ financial performance and their standing among consumers across the globe.

https://www.business-standard.com/article/pti-stories/amazon-dethrones-google-as-top-global-brand-survey-119061100304_1.html

Government moves NCLT to seek 5-year ban on Deloitte, KPMG affiliate BSR

The proposed ban, could prevent the two firms from auditing any listed or unlisted company for five years.

The central government on Monday took the unprecedented step of seeking a ban on auditors Deloitte Haskins & Sells and BSR & Co for their alleged role in helping hide bad loans at the bankrupt IL&FS Financial Services.

The government sought a five-year ban under Section 140 of the Companies Act, the first time it has invoked this provision to debar an auditor. The proposed ban, if accepted, would prevent the two firms from auditing any listed or unlisted company, including banks and non-banking financial companies (NBFCs), for five years.

The National Company Law Tribunal, where the application was moved, asked the government to dispatch the 800-page chargesheet filed by the Serious Fraud Investigation Office to the audit firms.

This, after the lawyers representing the audit firms and some of their executives accused in the case said they have not been served with the documents including the chargesheet and that they need time to prepare and respond to the ministry of corporate affairs’ (MCA) allegations.

The government lawyers conceded that they had served an electronic version of the chargesheet to BSR & Co on Monday morning and that they are yet to send the documents to Deloitte. The NCLT gave the audit firms 10 days and set the next date of hearing on June 21.

The Allegations

There have only been a few occasions where an auditor has been barred from practicing. Last year, the Securities and Exchange Board of India (Sebi) banned PwC for two years after it found the auditor guilty in the Satyam Computer fraud case. However, the ban did not extend to unlisted companies.

Last Monday, Reserve Bank of India banned EY member firm SR Batliboi from auditing commercial banks for one year starting April 1, 2020, citing lapse in statutory audit
Government representatives told the NCLT that it was the auditor’s duty to ensure that the loans and advances of an NBFC are properly secured.

They alleged that in IFIN’s case, the divergence between the net worth of the borrower and the amount borrowed was huge. For instance, one company which had borrowed Rs 385 crore had a net worth of only Rs 85 crore, while another with a net worth of Rs 9 crore had managed to borrow Rs 223 crore.
The lawyers argued that the auditors were aware of funding of defaulting borrowers for principal and interest payments.

“The loans were transferred by mere book entry and resulted in the closure of old loans. The new loans didn’t require provisioning or recognition as NPA (non-performing asset). Hence the assignment of the same was prejudicial to the interest of the company. The auditors having the knowledge of the same had not reported the same in the audit report,” the SFIO chargesheet alleged.

The Serious Fraud Investigation Office alleged that the auditors suppressed the information of various loans, inflated profits and presented a rosy picture.
“Investigations revealed that the auditors, along with their engagement teams of IFIN did not perform their duties diligently. The auditors, despite having the knowledge of the funding of the defaulting borrowers for principal and interest payments, failed to report in the auditors’ report for FY 2013-14 to FY 2017-18,” the agency alleged.

The lawyers representing Deloitte, however, argued that the firm was no longer the auditor of IFIN and hence the Section 140 of the Companies Act does not apply to them.

IFIN was audited by KPMG affiliate BSR & Co in 2018-19 and jointly by BSR and Deloitte Haskins & Sells in 2017-18. Deloitte was the sole auditor of IFIN in 2015-16 and 2016-17.

The government has also made the Reserve Bank of India (RBI), Sebi and the Institute of Chartered Accountants of India (ICAI) as respondents in the case. This, said the government, was to make sure that if these auditors are banned, the execution of the order is done effectively by the respective regulator.

Some of the senior executives in Deloitte and BSR who were part of the IFIN audit are also respondents in the case.
Sanjay Shorey, joint legal director in the ministry of corporate affairs, represented the MCA while Janak Dwarkadas, senior counsel, appeared for Deloitte.

https://economictimes.indiatimes.com/industry/banking/finance/ilfs-scam-government-moves-nclt-to-seek-5-year-ban-on-deloitte-bsr/articleshow/69727764.cms?utm_source=ETnotifications&utm_medium=autopush&utm_campaign=Finance&utm_content=10AM&utm_content=bigimage

DHFL paid Rs 10 crore in interest on four non-convertible debentures and a principal of Rs 35 crore on one of them.

Dewan Housing Finance Ltd (DHFL) has paid about Rs 45 crore in interest and principal on certain debt instruments due on Monday.

DHFL paid Rs 10 crore in interest on four non-convertible debentures (NCD) and principal of Rs 35 crore on one of them. DHFL share closed seven per cent higher at Rs 89.5 per share on BSE.

DHFL also completed sale its 9.15 per cent stake in Adhar Housing Finance Ltd to entity controlled by private equity group Blackstone. The value of DHFL stake in Ahdhar is in excess of Rs 200 crore. DHFL will use proceeds from sale of stake in Adhar Housing Finance to repay dues on debt instruments.

Wadhawan Global Capital Limited and other sellers including Kapil Wadhawan, and Dheeraj Wadhawan all forming part of Promoter & Promoter Group of DHFL have completely exited Aadhar with effect from today.

Two major credit ratings agencies – ICRA, an affiliate of Moody’s, and Standard & Poor’s local unit Crisil – last week categorised DHFL’s commercial paper at default levels for missing bond payments.

https://www.business-standard.com/article/companies/dhfl-repays-rs-45-crore-in-debt-completes-stake-sale-in-adhadar-housing-119061001217_1.html

In the last few months, many micro housing companies had already shrunk their lending operations by 40-45% in the absence of funding

Micro housing finance companies are finding it increasingly difficult to raise funds with the crisis at Dewan Housing Finance Limited (DHFL) worsening.

During the past few years, the push for affordable housing has led to the mushrooming of several micro housing finance firms, which mostly provide loans to the informal sector. The average loan size varies between Rs 5-10 lakh.

After the crisis at Infrastructure Leasing & Financial Services (IL&FS) in September 2018, the cost of funds for micro housing companies had gone up by around 100-150 basis points. And now, after the DHFL crisis, banks and financial institutions have almost stopped lending, according to the companies.

“After the IL&FS crisis, it was tough to get funding, but now it has become impossible. The problem is acute for those who are not capitalised strongly and widely leveraged,” said Anil Mehta, MD and CEO, India Shelter Finance Corporation.

In the last few months, many micro housing companies have already shrunk their lending operations by 40-45 per cent in the absence of funding.

“The immediate impact of the present crisis is further increase in cost of funds. However, the bigger problem is that the banks are not coming forward for lending,” according to C V Rao, managing director (MD) and chief executive officer (CEO), Nivara Home Finance, a recent entrant in the micro home loan market.

According to data from the National Housing Bank (NHB), there are about 100 housing finance companies (HFCs) operating in India currently. Within the past two to three years, close to 15-20 companies have come up with a focus on lending to the informal sector, where borrowers typically don’t possess the requisite documents to avail of loans from banks or bigger financial institutions.

According to a senior official at a micro housing finance company, a number of new entrant, who are not well capitalized might have to shut shops in the next six months, if the liquidity situation doesn’t improve.

In the past one year, there has been a particularly steep growth in micro housing loans, giving loans to people engaged in informal sector, and who do not possess adequate documents to avail loan from banks. A typical borrower could be an artisan, driver, domestic help or daily wage-earner. What differentiates the loan from normal housing loan is the monthly repayment cycle, along with tight monitoring of the portfolio through personal contact — a model similar to microfinance. However, unlike the microfinance model, the loan in the micro housing sector is generally granted with collateral. The interest rates charged in the loans are about 5-6 per cent higher than the prevailing market rates.

https://www.business-standard.com/article/finance/micro-housing-finance-companies-choke-on-acute-fund-crunch-post-dhfl-crisis-119061000757_1.html