'IPO market should be active in near term'
Q&A: Anshul Krishan
Abhineet Kumar / Mumbai August 28, 2009, 0:32 IST
About two months back, Goldman Sachs expected India Inc to raise $13 billion through sale of shares in the current financial year. Since then, over $7 billion has been raised through qualified institutional placements (QIPs) and some large initial public offers (IPOs). However, concerns over inflation and monsoon are building. Anshul Krishan, head of India financing group at Goldman Sachs, tells ABHINEET KUMAR that equity issues are going to continue and companies are most likely to achieve the target. Edited excerpts
Inflationary pressures are building up. Prices of oil and other commodities are surging. How are these going to impact the profitability of companies and in turn the performance of stock markets?This has become a topical question. Bear in mind that the price of oil, for example, has been hovering over $60 for a while now. The capital markets’ reaction does not suggest that this issue in itself is being given primary weightage when it comes to the expected impact on the bottom line of companies. As long as the surge in commodity prices is seen to be fairly reflecting the expected pick-up in demand through an uptick in overall economic activity, it is the latter point that is getting greater market attention.
Do you see any severe impact of monsoon on stock markets and in turn on fund-raising plans of companies?I think there is a significant level of data around this year’s monsoon that is now known broadly. There is definitely a higher degree of gravity that people have had to come to grips with over the past few weeks. And as you would recall, there were days on which this was reflected by India underperforming the region. But in terms of overall economic direction, the market seems to be taking this aspect in stride. In a wider context, once again, what appears to be really driving the capital markets is an overarching macro view about the relative outperformance of economies such as India’s and Asia’s and the trickle of evidence that the global economic malaise might have bottomed out.
To evaluate with a glass half-empty view, yes there is risk from factors such as commodity prices and inflation, from events such as an unusually weak monsoon, etc. Once any such data point starts overwhelming the broader aspects of demand and expectations of macro stability, the risk-reward trade-off starts looking quite different. Right now, most market participants are quite willing to give the benefit of doubt to the right-side risk.
IPOs are getting aggressively priced. The Adani Power IPO has not benefited investors in terms of listing gains. Will this dampen investor enthusiasm, especially in the retail segment?It is premature to draw conclusions on the Adani IPO and its impact on investor enthusiasm. That aspect of the primary market is yet to play out fully. We have had only two-three notable IPO candidates go live in this latest phase of activity. Even during much stronger market conditions, much lower over-subscription levels in the retail tranche were not unusual. Institutional activity, therefore, continues to be the primary driver. Will flat to weak after-market performance of one or two high-profile IPOs make it harder to get more retail or HNI (high networth individual) interest? Probably yes, but that doesn’t necessarily mean that a wave of IPOs cannot not get executed successfully.
Yes, pricing considerations will adjust and thresholds of acceptability may tighten but the fact is that there is fundamental appetite for new and credible stories. I personally believe that the IPO market should be quite active over the near term.
Which sectors do you expect to drive the IPO market?The power sector is clearly a highly-emphasised aspect of the Indian economic equation. It doesn’t take much to observe that the power sector story in the economy and in the capital markets is bound to continue to develop. The other sector where companies are in the wings to access the IPO market is real estate. In the same way that listed real estate companies dominated QIP issuance, the several private real estate companies that were shut out from the public market since early 2008 are now expected to revisit this option. These two sectors are therefore fairly identifiable.
In to the medium term, there are expectations that business sectors such as insurance could also see some companies try to assume a public life. There are also several attractive private candidates in telecom and related infrastructure segment. Some would be driven by regulatory factors and others by the time taken to evolve into IPO-ready candidates.
Fortis recently announced acquisition of Wockhardt hospitals. Do we expect more merger and acquisition (M&A) deals due to excess leveraging by companies?By most measures, the access to capital that an average company in India has today is better than it was nine to 12 months ago. Now, if the same company that was highly levered then has been able to navigate the environment, owing to a combination of factors — from successfully renegotiating bank covenants or maturities to sale of non-core assets — its ability today to capitalise its balance sheet and improve leverage should in theory be a lot less challenging. But yes, investors are discerning today and there are bound to be examples of companies not able to raise equity efficiently. Strategic options would therefore remain a part of the toolkit. That said, when you are talking generally about sell-side M&A being driven by virtue of being a last resort option, I expect those situations to arise but certainly not become the norm.
http://www.business-standard.com/india/news//ipo-market-should-be-active-in-near-term//368298/
Saturday, August 29, 2009
New MAT provisions to cost large firms over Rs 11,500 cr
New MAT provisions to cost large firms over Rs 11,500 cr
Abhineet Kumar & B G Shirsat / Mumbai August 22, 2009, 0:55 IST
267 firms with gross assets of over Rs 500 crore will feel the heat.
Large, capital-intensive companies will have to cough up over Rs 11,500 crore as additional tax in 2010-11 if the government enacts the proposed Direct Taxes Code in its present form.
In a big blow for such firms, the draft code says companies will have to pay the higher of a 25 per cent corporation tax and a minimum alternate tax (MAT) of 2 per cent on their gross assets. Second, the basis for computing MAT has changed from book profits (15 per cent of the book profits at present) to gross assets. Third, MAT will have to be paid in even loss-making years, with no set-off against future profits.
Capitaline data shows that there are 267 large companies (with gross assets of over Rs 500 crore) that will have to pay MAT of 2 per cent of their gross assets as that would be higher than the levy of 25 per cent corporation tax. These companies paid Rs 13,897 crore as tax last year. In 2010-11, when the code is expected to come into effect, they will have to pay around Rs 25,400 crore, at the current level of profit and gross assets.
“MAT will be an additional burden, which would make sustainability difficult, especially in recessionary periods,” Akil Hirani, managing partner, Majmudar & Co, a Mumbai-based corporate law firm, said.
Uday Ved, head of tax at KPMG India, said while the service sector companies would not be affected, the new provisions would seriously impact large capital-intensive companies in infrastructure, oil and gas, telecom, pharmaceuticals, real estate etc. What’s worse that companies which would make losses in the initial years would have to pay MAT. The code also takes away the carry-forward and MAT credit facility.
The impact on companies like Reliance Communications would be large. The country’s third largest mobile service provider will have to pay Rs 644 crore tax in 2010-11 at the same level of profit and assets against Rs 12.4 crore it paid last year.
Similarly, the additional tax liability for Infosys Technologies would be Rs 557 crore, for Hindalco (Rs 395 crore), for Bharti (Rs 384 crore) and for Tata Consultancy Services (Rs 329 crore).
“A levy on gross assets artificially tries to infuse productivity which may not be possible,” Hirani said.
The proposal to apply MAT on gross assets instead of book profit has also come under heavy criticism from industry because it is not a tax on income, which direct tax should ideally be, but a tax on capital or assets.There is a separate provision of capital gains tax if a company makes profit out of assets. But the government has argued in the code that this will help check tax evasion by companies through various deductions. Tax experts said the step would be tough for companies implementing projects with high gestation periods.“MAT would prove to be regressive for capital-intensive companies,” Mukesh Butani, head, tax practice at BMR & Associates, said. “And there is not going to be escape from MAT for any firm,” he added.
http://www.business-standard.com/india/news/new-mat-provisions-to-cost-large-firms-over-rs-11500-cr/367790/
Abhineet Kumar & B G Shirsat / Mumbai August 22, 2009, 0:55 IST
267 firms with gross assets of over Rs 500 crore will feel the heat.
Large, capital-intensive companies will have to cough up over Rs 11,500 crore as additional tax in 2010-11 if the government enacts the proposed Direct Taxes Code in its present form.
In a big blow for such firms, the draft code says companies will have to pay the higher of a 25 per cent corporation tax and a minimum alternate tax (MAT) of 2 per cent on their gross assets. Second, the basis for computing MAT has changed from book profits (15 per cent of the book profits at present) to gross assets. Third, MAT will have to be paid in even loss-making years, with no set-off against future profits.
Capitaline data shows that there are 267 large companies (with gross assets of over Rs 500 crore) that will have to pay MAT of 2 per cent of their gross assets as that would be higher than the levy of 25 per cent corporation tax. These companies paid Rs 13,897 crore as tax last year. In 2010-11, when the code is expected to come into effect, they will have to pay around Rs 25,400 crore, at the current level of profit and gross assets.
“MAT will be an additional burden, which would make sustainability difficult, especially in recessionary periods,” Akil Hirani, managing partner, Majmudar & Co, a Mumbai-based corporate law firm, said.
Uday Ved, head of tax at KPMG India, said while the service sector companies would not be affected, the new provisions would seriously impact large capital-intensive companies in infrastructure, oil and gas, telecom, pharmaceuticals, real estate etc. What’s worse that companies which would make losses in the initial years would have to pay MAT. The code also takes away the carry-forward and MAT credit facility.
The impact on companies like Reliance Communications would be large. The country’s third largest mobile service provider will have to pay Rs 644 crore tax in 2010-11 at the same level of profit and assets against Rs 12.4 crore it paid last year.
Similarly, the additional tax liability for Infosys Technologies would be Rs 557 crore, for Hindalco (Rs 395 crore), for Bharti (Rs 384 crore) and for Tata Consultancy Services (Rs 329 crore).
“A levy on gross assets artificially tries to infuse productivity which may not be possible,” Hirani said.
The proposal to apply MAT on gross assets instead of book profit has also come under heavy criticism from industry because it is not a tax on income, which direct tax should ideally be, but a tax on capital or assets.There is a separate provision of capital gains tax if a company makes profit out of assets. But the government has argued in the code that this will help check tax evasion by companies through various deductions. Tax experts said the step would be tough for companies implementing projects with high gestation periods.“MAT would prove to be regressive for capital-intensive companies,” Mukesh Butani, head, tax practice at BMR & Associates, said. “And there is not going to be escape from MAT for any firm,” he added.
http://www.business-standard.com/india/news/new-mat-provisions-to-cost-large-firms-over-rs-11500-cr/367790/
Friday, August 14, 2009
Yes Bank not to hive off investment banking
Yes Bank not to hive off i-banking arm
Abhineet Kumar / Mumbai August 13, 2009, 0:10 IST
Yes Bank, the home-grown lender that started operations five years ago, has put on hold its plan to hive off its investment banking (i-banking) division. It now plans to first start a brokerage business and consolidate its operations.
The lender had earlier planned to hive off the division to rope in some investors. “The hive-off may or may not take place in the near term,” said Aditya Sanghi, co founder and managing director, investment banking, Yes Bank. “It is not even under contemplation at this stage,” he said.
In the last five years, the bank has conducted more than 80 transactions in mergers and acquisitions, private equity syndication and capital market fund-raising.
Suzlon Energy’s acquisition of REPower and United Phosphorus’s acquisition of French firm Cerexagiri were some of the large deals that the bank’s investment banking arm worked on.
The brokerage has been a missing link and will help the bank get better valuation as and when it decides to divest.
“We, as a management team, have our strengths in execution and, like all our other businesses, are looking to build the brokerage business from scratch,” said Sanghi. The bank, he said, expected to start the business in the current financial year.
The bank did not disclose the money it planned to invest in the brokerage business. The lender, which rode piggy-back on Indian corporates’ overseas expansion in the last four-five years, now sees opportunity in inbound deals.
“That trend I would say has reversed. We now see a lot more foreign buyers looking at assets in India,” he said
There are foreign buyers who have operated in countries with 0-5 per cent growth rates for the last many years. So, their operating efficiencies are high and they sit on large unleveraged balance sheets and are fairly cash rich.
“They are the ones who recognise that their home markets will remain slow and they need to have a bigger presence in growth markets like India,” said Sanghi.
Given that valuations in India were subdued in comparison with what they were in 2006 and 2007, the potential buyers found reasonably attractive targets, he said.
http://www.business-standard.com/india/news/yes-bank-not-to-hive-off-i-banking-arm/366774/
Abhineet Kumar / Mumbai August 13, 2009, 0:10 IST
Yes Bank, the home-grown lender that started operations five years ago, has put on hold its plan to hive off its investment banking (i-banking) division. It now plans to first start a brokerage business and consolidate its operations.
The lender had earlier planned to hive off the division to rope in some investors. “The hive-off may or may not take place in the near term,” said Aditya Sanghi, co founder and managing director, investment banking, Yes Bank. “It is not even under contemplation at this stage,” he said.
In the last five years, the bank has conducted more than 80 transactions in mergers and acquisitions, private equity syndication and capital market fund-raising.
Suzlon Energy’s acquisition of REPower and United Phosphorus’s acquisition of French firm Cerexagiri were some of the large deals that the bank’s investment banking arm worked on.
The brokerage has been a missing link and will help the bank get better valuation as and when it decides to divest.
“We, as a management team, have our strengths in execution and, like all our other businesses, are looking to build the brokerage business from scratch,” said Sanghi. The bank, he said, expected to start the business in the current financial year.
The bank did not disclose the money it planned to invest in the brokerage business. The lender, which rode piggy-back on Indian corporates’ overseas expansion in the last four-five years, now sees opportunity in inbound deals.
“That trend I would say has reversed. We now see a lot more foreign buyers looking at assets in India,” he said
There are foreign buyers who have operated in countries with 0-5 per cent growth rates for the last many years. So, their operating efficiencies are high and they sit on large unleveraged balance sheets and are fairly cash rich.
“They are the ones who recognise that their home markets will remain slow and they need to have a bigger presence in growth markets like India,” said Sanghi.
Given that valuations in India were subdued in comparison with what they were in 2006 and 2007, the potential buyers found reasonably attractive targets, he said.
http://www.business-standard.com/india/news/yes-bank-not-to-hive-off-i-banking-arm/366774/
Aditya Birla Nuvo in talks with PE
Aditya Birla Nuvo in talks with global PE investors
Abhineet Kumar / Mumbai August 14, 2009, 0:16 IST
Aditya Birla Nuvo is in talks with global private equity players Blackstone, Carlyle and KKR to sell shareholding in its proposed holding firm for its financial services business. The financial services holding company will house its asset management, insurance, stock broking, wealth management and private equity businesses.
Nuvo, in a joint venture with Canada's Sun Life, holds 74 per cent in its life insurance and 50 per cent in its asset management company under Birla Sun Life. It recently acquired Apollo Sindhoori from the Chennai-based Reddy family to scale up its stockbroking business. It also increased its stake in the distribution and wealth management company Birla Sun Life Distribution by buying Sun Life’s 50 per cent stake.
“The company needs equity infusion to sustain the growth momentum for the insurance, asset management and other financial services businesses,” said a leading PE player who did not wish to be identified. “The talks have been initiated but it will take at least three to four months before anything concrete comes up,” he added.
An A V Birla spokesperson said, “We do not comment on market speculation.”
The life insurance venture — Birla Sun Life — saw operating losses rise 57 per cent to Rs 686.56 crore during the year-ended March 2009, against Rs 437.60 crore in 2007-08. The market share of the fifth largest private life insurer went up to 10.4 per cent in the last financial year from 7.8 per cent in the previous year. The company is focusing on the life insurance business as it expects over half the revenue to come from this sector by the end of 2010-11, the year when Birla Sun Life Insurance is expected to break even.
The company had earlier said that the group had lined up capital expenditure of around Rs 1,000 crore during the current financial year for the business, while another Rs 800 crore will be required in 2010-11.
“The company earlier expected relaxation on the foreign direct investment norms for the insurance business to raise equity; but since it is not expected in the near term, it is looking at an alternative route for the capital infusion,” said another PE player, who confirmed the initiation of talks with the PE firms.
The company requires equity to expand because its debt is already high. At the end of the last financial year, it had Rs 4,300 crore of debt against a net worth was Rs 3,744 core. The company also had a treasury surplus of Rs 800 crore, which gives it a net gearing of 0.93. This gives Aditya Birla Nuvo little room to raise fresh debt.
http://www.business-standard.com/india/news/aditya-birla-nuvo-in-talksglobal-pe-investors/366949/
Abhineet Kumar / Mumbai August 14, 2009, 0:16 IST
Aditya Birla Nuvo is in talks with global private equity players Blackstone, Carlyle and KKR to sell shareholding in its proposed holding firm for its financial services business. The financial services holding company will house its asset management, insurance, stock broking, wealth management and private equity businesses.
Nuvo, in a joint venture with Canada's Sun Life, holds 74 per cent in its life insurance and 50 per cent in its asset management company under Birla Sun Life. It recently acquired Apollo Sindhoori from the Chennai-based Reddy family to scale up its stockbroking business. It also increased its stake in the distribution and wealth management company Birla Sun Life Distribution by buying Sun Life’s 50 per cent stake.
“The company needs equity infusion to sustain the growth momentum for the insurance, asset management and other financial services businesses,” said a leading PE player who did not wish to be identified. “The talks have been initiated but it will take at least three to four months before anything concrete comes up,” he added.
An A V Birla spokesperson said, “We do not comment on market speculation.”
The life insurance venture — Birla Sun Life — saw operating losses rise 57 per cent to Rs 686.56 crore during the year-ended March 2009, against Rs 437.60 crore in 2007-08. The market share of the fifth largest private life insurer went up to 10.4 per cent in the last financial year from 7.8 per cent in the previous year. The company is focusing on the life insurance business as it expects over half the revenue to come from this sector by the end of 2010-11, the year when Birla Sun Life Insurance is expected to break even.
The company had earlier said that the group had lined up capital expenditure of around Rs 1,000 crore during the current financial year for the business, while another Rs 800 crore will be required in 2010-11.
“The company earlier expected relaxation on the foreign direct investment norms for the insurance business to raise equity; but since it is not expected in the near term, it is looking at an alternative route for the capital infusion,” said another PE player, who confirmed the initiation of talks with the PE firms.
The company requires equity to expand because its debt is already high. At the end of the last financial year, it had Rs 4,300 crore of debt against a net worth was Rs 3,744 core. The company also had a treasury surplus of Rs 800 crore, which gives it a net gearing of 0.93. This gives Aditya Birla Nuvo little room to raise fresh debt.
http://www.business-standard.com/india/news/aditya-birla-nuvo-in-talksglobal-pe-investors/366949/
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