Will a new credit rating system for infrastructure projects help?

CARE expects the proposed system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects

Mumbai: Finance minister Arun Jaitley on Monday announced the formation of a new credit rating system for infrastructure projects in the country for better credit enhancement.

A new credit rating system for infrastructure projects will give “emphasis to various in-built credit enhancement structures… instead of relying upon a standard perception of risk which often result in mispriced loans,” the budget statement said.

The intent seems to be to help infrastructure projects access credit from multiple sources and at better rates. However, it is unclear how the new system would be different from the existing credit rating scale put in place by credit rating agencies. It is also unclear whether the proposed rating system would be for operational projects or under-development projects or both.

“I have not seen the details, but if I draw a comparison with the banking rating system, how will it be different? Has the existing banking rating system helped?” asked a former government official, who has been closely associated to road project financing, but did not want to be named.

There are no clear answers as of now.

D.R. Dogra, managing director and chief executive officer of Credit Analysis and Research Ltd (CARE), expects the proposed credit rating system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects. “A rating agency can help identify issues which lead to a lower rating at the pre-bid stage, which can then be addressed before private bids are invited,” said Dogra, adding that he is not aware of the details of the proposed credit rating system as it has not been discussed with rating agencies yet.

Not all are of the same view though.

A top official from another rating agency points out the new announcement speaks about credit enhancement. “Credit enhancement measures are taken only once the infrastructure projects are operational. This is the point where a refinancing can happen and bank credit can be replaced with bonds. A better rating makes the bonds market accessible in a better way,” he said. He refused to be identified as the agency is not aware what the actual fine print of the credit rating system would be.

Infrastructure consultant Vinayak Chatterjee, chairman for Feedback Infra Pvt. Ltd, is positive the new credit rating system would help the sector as the traditional rating methods do not fully take into account the risk in an infrastructure project which changes at different stages of the project life-cycle.

Even as the industry waits for details, a former rating agency official, who did not want to be named, said, “Need more clarity (on the details of the system), but mostly it would be inconsequential.”

DCB Bank buys 5.81% stake in Annapurna Microfinance

Deal values the micro lender at Rs 172 crore. 

DCB Bank Ltd has acquired a 5.81 per cent stake in Odisha­based Annapurna Microfinance Pvt Ltd for Rs 9.99 crore (about $1.5 million). 

The move strengthens the business partnership between the two companies, Murli M Natrajan, managing director and CEO at DCB Bank, said in a statement filed to stock exchanges. DCB’s microfinance initiatives help it achieve its financial inclusion goals, he added. 

DCB, formally known as Development Credit Bank, was founded in 1995. It has 176 branches in 17 states and two union territories in India. 

Gobinda Pattnaik, managing director at Annapurna Microfinance, said the transaction will help it strive forward to achieve its goal of serving the financially underserved. “This capital infusion is a mandate for growth,” he said. 

Annapurna focuses on rural locations of Odisha, Chhattisgarh and Madhya Pradesh. It has 14 branches each in Odisha and Madhya Pradesh and six in Chhattisgarh. It has half a million members and assets under management of Rs 720 crore

The latest transaction values Annapurna at Rs 172 crore. The firm had earlier also raised funding. In April last year, it secured Rs 25 crore in a Series C round of funding from Samridhi Fund, which is managed by SIDBI Venture Capital Ltd, a wholly owned subsidiary of state-run SIDBI and an existing investor in the firm. 

In 2014, the microlender raised Rs 30 crore in a Series B round of funding led by Belgian Investment Company for Developing Countries, with participation from the existing investor Incofin Investment Management's Rural Impulse Fund II.

The firm posted total income of Rs 61.61 crore for the six-month period ended September 20, 2015, up from Rs 22.69 crore a year earlier, according to its half-yearly audit report. Net profit jumped to Rs 6.85 crore from Rs 58 lakh.

Sun Capital Services

GE to sell India financial services biz to Aion, former execs

The transaction represents about USD 400 million in ending net investment and includes businesses such as auto leasing, healthcare financing and corporate lending and leasing. 

General Electric Co said it would sell its India commercial lending and leasing businesses to a consortium of former GE Capital executives and Aion Capital Partners as it looks to trim itself and focus on its industrial businesses. 

The transaction represents about USD 400 million in ending net investment and includes businesses such as auto leasing, healthcare financing and corporate lending and leasing. Employees would also be transferred to the buyer, the company said. 

Aion has partnered with former GE Capital executives Pramod Bhasin and Anil Chawla for the acquisition. Bhasin was formerly the head of GE Capital in India and Asia. Chawla was the head of the commercial business operations of GE Capital India. 

Aion is a joint venture between ICICI Venture and Apollo Global Management.

Sun Capital Services

India on course for recovery: IMF report

Pegs GDP growth at 7.5% for FY17; expects private investmentto pick up

New Delhi, March 2:  

In a thumbs-up to Finance Minister Arun Jaitley’s financial management, the International Monetary Fund has said that the Indian economy is on the path to recovery, helped by low crude oil prices, improving current account and fiscal deficits, as well as a sharp fall in inflation.

However, in its India: 2016 Article IV Consultation report, the IMF has pegged the country’s growth rate at 7.3 per cent this fiscal and 7.5 per cent for the next. This is marginally lower than Jaitley’s official estimate of 7.6 per cent GDP growth in 2015-16 and 7-7.75 per cent in 2016-17.

“The Indian economy is on a recovery path, helped by a large terms of trade gain (about 2.5 per cent of GDP), positive policy actions, and reduced external vulnerabilities,” said the report, which is based on the IMF’s consultations with officials from the Finance Ministry and the Reserve Bank of India.

With some uptick in industrial activity, the Washington-based international lender also expects a pick-up in private investment to help broaden the economic recovery.

The report has, however, warned that a number of economic risks remain. On the external front, it has highlighted a possible disruption from increased volatility in global markets, unexpected developments in US monetary policy and China’s slowdown.

On the domestic front, the IMF has listed the weakness in corporate financial positions and bad loans of banks, as well as the delay in reforms as risks that could weigh on growth, accelerate inflation and undermine sentiment.

“On the upside, further structural reforms could lead to stronger growth, as would a sustained period of low global energy prices,” it said.

The report also stressed the need for continued vigilance, growth-friendly fiscal consolidation, and sustained reforms to enhance the resilience of the economy and bolster potential growth.

Essential reforms

It said reform priorities include removing supply-side bottlenecks, especially in the agricultural and power sectors, and facilitating land acquisition. “Further reforms are also essential to boost employment in the formal sector, encourage female labour force participation, and enhance labour market flexibility more broadly,” said the IMF.

The report welcomed the adoption of flexible inflation targeting and the progress in enhancing monetary policy transmission, and said the RBI should be ready to tighten the monetary stance, if required, to control inflation.

Sun Capital Services

FM Jaitley defends EPF tax, says move was step to a pensioned society

Finance minister Arun Jaitley on Wednesday defended the government's intent behind taxing employee provident fund withdrawals even as the BJP's allies and rivals raised the pitch for a rollback.

The budget proposed that 40% of an individual's accumulated corpus in the employees' provident fund (EPF) and the National Pension System schemes would not be taxed at the time of withdrawal. This effectively meant that the remaining 60% of the corpus was taxable.

Jaitley said at an event organised by Rajya Sabha TV that the government's intent "was not to raise some revenue from this" but it wanted to "incentivise for a pensioned society".

Read | With the tax on EPF, how safe are your investments?

However, he said he was considering all the demands and would spell out the decision when he replied to the debate on the budget in Parliament.

Allies Shiv Sena, Akali Dal and TDP "conveyed" their message of disappointment to the BJP brass. "We had reservations about the budget proposal to slap tax, albeit partially, on provident funds. We had raised it at the appropriate platform," Anandrao Adsul, the Shiv Sena's chief whip in the Lok Sabha, told HT.

Within the Sangh Parivar too, there was disquiet. The RSS-affiliated Bharatiya Mazdoor Sangh threatened to escalate its protest. It dubbed the proposed EPF tax as "double taxation" as the gross salary of a salaried individual would already have been taxed.

"We are in discussion with stakeholders. There are many stakeholders. Now I cannot reveal many things. Our government is considering all options," labour minister Bandaru Dattatreya told the Rajya Sabha. "We are in touch with the ministry of finance. Government will also consider these issues. Up to now I can say this."

Tapan Kumar Sen of CPI-M took objection to the minister's claim, saying Dattatreya had not been consulted despite being a key stakeholder. AIADMK MP V Maitreyan said the government decision was "anti-working class".

Read | In defence of EPF tax: Govt not afraid of taking on moneybags

Naveen Patnaik's BJD, otherwise supportive of the government, was opposed to the proposal. "We heard there would be a partial rollback of the tax proposals on PF. But we want a full rollback. There should not be any tax on the PF money of the common man," the BJD's Lok Sabha leader Bhartruhari Mahtab told HT.

The move that could impact seven million private sector employees triggered howls of protest from subscribers and labour unions that termed it anti-worker. At present, withdrawal from the EPF is entirely tax-free.

The government on Tuesday moved into damage control mode, hinting that it was open to modifying the rule to tax only the interest earned on 60% of the EPF contributions made after April 1, 2016.

"We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount," the finance ministry said on Tuesday.

Sun Capital

Sumitomo Mitsui Banking Corp to sell stake in Kotak Mahindra Bank

Sumitomo Mitsui is looking to sell almost half of its stake in Kotak Mahindra Bank for around $300 million

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the union budget.

Mumbai: Japan’s Sumitomo Mitsui Banking Corp. is looking to sell almost half of its stake in private sector lender Kotak Mahindra Bank Ltd, for around $300 million (approximately Rs.2,050 crore), according to two people aware of the development.

As of 31 December, Sumitomo held a 3.58% stake in the private-sector lender, data from stock exchanges show.

“The book has been launched and the sale is expected to close overnight,” said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

Large domestic and foreign institutions have shown interest in buying the stake in block trade, he added.

Shares are being offered to buyers in a price range of Rs.611.34 to Rs.636.55 per share, according to Bloomberg. Citigroup Inc. is managing the share sale program, the report added. After the transaction, Sumitomo’s stake in the bank will fall to around 1.79%.

The Japanese bank firm had picked up a 4.5% stake in Kotak Mahindra Bank in 2010 through a preferential allotment for Rs.1,366 crore.

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the Union budget.

Also, on Monday, California Public Employees’ Retirement System (CalPERS), the largest pension fund in the US, sold a stake worth around Rs.870 crore (approximately $127 million) in Axis Bank Ltd, according to data at stock exchanges.

Foreign institutional investor (FII) Genesis Indian Investment Co. Ltd bought the stake (around 0.94%) at a price of Rs.387.5 per share.

Last month Genesis bought a stake worth Rs.318 crore in Dabur India Ltd through an open market transaction, according to information on stock exchanges. The FII bought about 12.7 million shares, or a 0.72% stake, in Dabur.

In 2015, California Public Employees’ Retirement System, had assets under management of $298 billion, according to Preqin, a private equity database.

Shares of Axis Bank closed at Rs.375.25 on the BSE, down by 2.75%.

Sun Capital

Budget 2016: Food marketing opened to MNC multi-brand retailers

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board..

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board (FIPB) route. Finance minister Arun Jaitley announced in the Budget, presented on Monday, that, “100% FDI will be allowed through the FIPB route in the marketing of food products produced and manufactured in India”.

This basically means that foreign retailers in the food sector can set up marketing outlets in the country but will have to sell food products manufactured by Indian producers. Analysts said this means that Global retailers like Marks and Spencer’s or Tesco, which have food services units, can now set up marketing outlets in the country where they can sell food products manufactured by Indian companies.

Food processing minister Harsimrat Kaur Badal said on Tuesday that 100% FDI will be permitted only in multi-brand retailing of food products, and not in all items. Also, while the extant rule on FDI in multi-brand retailing of any product mandates that at least 30% of raw materials have to be sourced from the domestic market, in food processing, a foreign retailer will have to procure 100% of raw materials from domestic sources to be eligible to bring in 100% FDI.

If a foreign retailer doesn’t wish to source the entire raw materials from the domestic market for multi-brand retailing in food products, it can still set up shop, but the FDI has to be restricted to 51%. Also, it has to fulfill the usual conditions stipulated for multi-brand retailing, food processing secretary Avinash Srivastava told FE.
Currently, rules allow foreign food firms to set up shop in the country to produce and market their products like Coca-Cola or Pepsi does. However, the new proposal opens room for any global retailer to simply market products manufactured by Indian companies.

“This can range from tying up with small domestic retailers making some specific food products, who do not have the wherewithal to expand, or having alliance with even big players. The detailed rules will be known when the department of industrial policy and promotion comes out with the guidelines,” says Harminder Sahni of Wazir Advisors, a New Delhi-based retail industry consulting firm. The new rules will now allow “foreign companies to set up up shops here and bring in a lot of technology such as cold chains” to reduce wastage and improve efficiency in farming.

The domestic consumer retail market is estimated at about R12 lakh crore, of which half consists of selling food and food products. The wastage of food from the farm before it reaches the consumer is estimated to be about 15%-20%, or about R92,000 crore, every year because of lack of storage facilities and transportation.

“Allowing 100% foreign investment in the retail of domestically-processed food will give farmers greater access to the market and also encourage food firms to innovate, so that food is available in enough quantities to feed everyone as well as fits their pockets” said Siraj Chaudhry, chairman of Cargill India, the firm that makes and sells the Leonardo range of olive oils, Gemini, NatureFresh, Sweekar, Rath and Sunflower Vanaspati.

Echoing similar sentiments, Krish Iyer, president of Walmart India, said the move would encourage the industry to produce locally rather than import food products and sell it here. “This far-reaching reform will benefit farmers, give impetus to food the processing industry and create vast employment opportunities,” Iyer said.

By Sun Capital