Daily Archives: July 8, 2019

The Centre is planning to liberalise the terms and conditions for the sale of Air India

The build-up to Air India privatisation has taken off in full swing with the Union Budget announcing it as the centrepiece of divestment this year. The government is targeting October as the deadline for announcing the deal.

Not leaving anything to chance after a failed attempt earlier, the government has shortlisted the potential bidders, with the Tata group on top for its interest in aviation. Sources in the know said the government would initiate talks with businesses, including Tatas, shortly for divesting its stake in the national carrier.

The proposed dialogue with potential buyers will coincide with the government procedure of issuing bid documents for expression of interest sometime this month.

“Now that the finance minister has committed in the Budget, we will start approaching prospective bidders,” said a source close to the development. While pointing out that the Tatas will be approached first, he said, “They have a history with aviation and they know how to run an airline.”

“In view of the current macroeconomic parameters, the government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more central public sector enterprises for strategic participation by the private sector,” Finance Minister Nirmala Sitharaman had said in her Budget speech on Friday.

The government will soon reconstitute the Air India Specific Alternative Mechanism (AISAM), following which a new bid document will be issued. The AISAM is charged with giving approvals at every step of the Air India divestment process, with only the blanket approval given by the Union Cabinet.

In Prime Minister Narendra Modi’s first term, the AISAM comprised then Finance Minister Arun Jaitley, Road Transport Minister Nitin Gadkari, Commerce and Civil Aviation Minister Suresh Prabhu, and Rail Minister Piyush Goyal. With Jaitley and Prabhu no longer a part of Modi’s Cabinet, the AISAM will be reconstituted to include Sitharaman and Civil Aviation Minister Hardeep Singh Puri. Jaitley has headed the AISAM since its formation in July 2017.

The Centre is planning to liberalise the terms and conditions for the sale of the national carrier. The changes would allow a potential buyer to go for a stake sale of the airline immediately after acquiring it. The revised norms would also enable merger or reverse merger of Air India with any existing business of the buyer.

At least 95 per cent stake of Air India will be up for sale, while retaining 5 per cent for the employee stock option. This is the first time the government will relax rules for strategic disinvestment, meant to prevent asset stripping. The relaxation of the rules was proposed by transaction advisor EY as multiple entities during the last sale process in 2017 had objected, saying it restricted the bidder from raising capital from the market and developing synergy with existing business.

The Centre is still pursuing the option of selling the airline’s subsidiaries before the airline itself, in order to deal with the outstanding debt of around Rs 27,000 crore.

At the previous auction, which failed to get any bidder, the government had decided to retain 24 per cent in the airline. That was believed to be one of the primary reasons for not generating any interest from buyers.

https://www.business-standard.com/article/companies/air-india-likely-to-be-privatised-by-oct-govt-to-start-talks-with-firms-119070700586_1.html

For their part, PSBs are choosing to wait for further guidelines from the regulator before zeroing in on prospective loan pools.

The benefits of the partial credit guarantee scheme for purchases of asset pools by banks from non-banking financial companies (NBFCs) could be limited to housing finance companies (HFCs) and microfinance institutions (MFIs), bankers and industry executives said.

Moreover, banks are expected to be particular about the health of the companies they buy pools from, as the Budget offers the credit guarantee to public sector banks (PSBs) against purchase of only high-rated pooled assets of financially-sound NBFCs.

For their part, PSBs are choosing to wait for further guidelines from the regulator before zeroing in on prospective loan pools. Mrutyunjay Mahapatra, managing director and chief executive officer of Syndicate Bank, told FE, “Operating guidelines will probably come later. The finance minister in her speech did not distinguish between categories of NBFCs. We are generally in the market for housing-loan pools and MSME (micro, small and medium enterprises) pools.”

Researchers at Icra say the credit guarantee scheme is more likely to benefit retail NBFCs with shorter-tenure assets. Supreeta Nijjar, vice-president, financial sector ratings, Icra, said: “These loans could be personal loans, microfinance or even CV (commercial vehicle) loans.”

 https://www.financialexpress.com/industry/banking-finance/partial-credit-guarantee-scheme-unlikely-to-help-stressed-nbfcs/1636011/

This financial year, allocation has been made to the NHAI for major works under the Bharatmala Pariyojana, entrusted to the organisation for execution

 Funds to be raised for the National Highways Authority of India (NHAI) have been hiked by 21 per cent in 2019-20 as the government prepares a blueprint for executing Bharatmala projects in a time-bound manner.

The authority has the approval to raise Rs 75,000 crore during the current year and government support of Rs 36,691 crore has been sanctioned.

In FY19, Rs 62,000 crore, a mix of debt raised from banks, toll revenue, and a road monetisation scheme, was to be raised.

This financial year, allocation has been made to the NHAI for major works under the Bharatmala Pariyojana, entrusted to the organisation for execution. The money will come from the Central Road Infrastructure Fund (CRIF), Permanent Bridges Fee Fund (PBFF), and Monetisation of National Highways Fund (MNHF).

The provision is mainly for expenditure on maintaining national highways is financed from Central Road Infrastructure Fund. The works are executed on agency basis by the Public Works Department of the States, Border Roads Organisation, National Highways & Infrastructure Development Corporation Ltd (NHIDCL) and NHAI.

While the overall allocation for NHAI has seen a rise in the last couple of years, the authority’s IEBR (Internal and Extra Budgetary Resources) has increased. IEBR is essentially is he money raised by the department itself in the form of profit, debt and equity.

In FY18, the NHAI’s IEBR was Rs 50,532.41 crore. It went up to Rs 62,000 crore in FY19 and further up to Rs 75,000 crore in FY20.

The massive expenditure is earmarked mainly for the government’s ambitious Bharatmala programme, which envisages construction of 20,000 km of roads at an estimated investment of Rs 7 trillion.

In the first phase to be undertaken over three-five years, the project would cost Rs 5.5 trillion. The project would be funded through various sources, including Rs 2.09 trillion from the market, Rs 1.06 lakh crore through private investment and Rs 2.19 lakh crore from the central road fund or toll collection.

The average cost of constructing 1 km of road is Rs 13 crore.

Bharatmala is the largest highways project after the National Highway Development Programme (NHDP) which saw the development of about 50,000 km, and aims at improving connectivity in border and other areas.

The project that was first mooted in April 2015 aims to connect Gujarat and Rajasthan, then move to Punjab and cover Jammu & Kashmir, Himachal Pradesh, Uttarakhand followed by Uttar Pradesh and Bihar and further to Sikkim, Assam, Arunachal Pradesh, and right up to the Indo-Myanmar border in Manipur and Mizoram.

The aim is to improve the speed of traffic flow on key corridors by providing uniform four-lane roads between two identified points.

After completion of the first phase of the ongoing Bharatmala programme, the focus would shift towards developing the state road network.

https://www.business-standard.com/article/economy-policy/budget-2019-nhai-fundraising-plan-raised-by-21-to-rs-75-000-crore-119070700864_1.html

The company has appointed Axis Capital as its merchant banker to scout for investors. Last month, the company defaulted twice on its commercial papers

 Promoters of travel firm Cox & Kings, which defaulted twice last month on its commercial papers, have reached out to potential investors to divest stake and raise capital.

Sources told Moneycontrol that the promoters are willing to divest majority stake as they look to correct the cash flow mismatch that had led to the defaults. The two defaults amounted to Rs 200 crore in total.

The company has appointed Axis Capital as its merchant banker.

“The promoters are looking to divest stakes in some of the units, or could sell one or more of their products. While these are initial days, the company has received interest from some of the biggest names in the private equity space,” an executive said.

Promoters, consisting of the Kerkar family, hold 49.8 percent stake in the company. Peter Kerkar is CEO.

One of the units where the promoters could dilute stake is Cox & Kings Global Services: the visa processing arm. Sources said the company could also look to divest its India and international leisure business and also the corporate travel vertical.

The India leisure business includes outbound travel and also the MICE (Meetings, incentives, conferencing, exhibitions) segment.

A well-known brand in the travel space, Cox & Kings has a widespread network across the country, which includes its franchisees, offices and general sales agents.

“The company has a temporary cash flow problem. But getting investors shouldn’t be a problem given its legacy,” said the executive cited above.

When contacted, the company refused to comment.

The defaults

Cox & Kings first defaulted on a payment of Rs 150 crore on June 27. A day later, it defaulted on a payment of Rs 65 crore, of which Rs 15 crore was paid.

The defaults were followed by a series of downgrades by rating agencies. After the second default too, Brickworks and CARE Ratings downgraded several of the company’s instruments.

In a statement to the bourses late on July 2, it accepted that the working capital situation was “stretched in the last few months and was further impacted due to its inability to replace the short-term loans with long term loans/regular working capital lines.”

It added that it is taking “all required measures to resolve the temporary cash flow mismatch,” and will be “approaching its lenders to work out some time bound program to meet this emergency.”

It is yet not known how much the company plans to raise through the stake sale. Neither has a deadline been set, the executive stated.

https://www.moneycontrol.com/news/business/companies/exclusive-cox-kings-promoters-willing-to-divest-majority-stake-to-raise-capital-4179571.html

PNB said Bhushan Power & Steel Ltd misappropriated bank funds and manipulated its books of accounts to raise funds from consortium lender banks

PSU banking major Punjab National Bank (PNB) tanked over 9 percent intraday on July 8 after it detected an alleged fraud of more than Rs 3,800 crore by Bhushan Power & Steel Ltd (BPSL) and reported it to the Reserve Bank of India (RBI).

PNB said Bhushan Power & Steel Ltd misappropriated bank funds and manipulated its books of accounts to raise funds from consortium lender banks.

“On the basis of forensic audit investigation findings and CBI filing FIR, on suo moto basis, against the company and its directors, alleging diversion of funds from banking system, a fraud of Rs 3,805.15 crore is being reported by bank to RBI,” Punjab National Bank (PNB) said in a regulatory filing.

“It has been observed that the company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks. At present, the case is at NCLT which is in advance stage and the Bank expects good recovery in the account,” PNB added.

PNB said its domestic exposure to Bhushan Power & Steel Ltd (BPSL) stood at Rs 3,191.51 crore and overseas exposure at $49.71 million (approx Rs 345.74 crore) at Dubai branch and $38.51 million (approx. Rs.267.90 crore) at Hong Kong branch.

The stock is already down over 20 percent in the last three months. At 10:30 hours, Punjab National Bank was quoting at Rs 74.30, down Rs 7.45, or 9.11 percent. It has touched an intraday high of Rs 77.85 and an intraday low of Rs 73.30.

https://www.moneycontrol.com/news/business/markets/pnb-tanks-detection-of-fraud-bhushan-power-steel-4180281.html