Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr

Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr
The Economic Times, January 29, 2009, p13

Sanjeev Choudhary & Pramugdha Mamgain

NEW DELHI : THE family of Ramesh Chandra, chairman and promoter of cash-strapped real estate firm Unitech, may raise Rs 40 crore by selling its shares in Orissa Sponge Iron & Steel to Bhushan Steel while scrambling to make ends meet in a sector that is seeing a sharp reversal of fortune. Bhushan Steel already owns 6% in Bhubaneswar-headquartered Orissa Sponge.

Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.

The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.

After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.

“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.

The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.

Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.

Institutes can thrive only if they have freedom: Barua

Institutes can thrive only if they have freedom: Barua
The Economic Times, January 29, 2009, p5

INDIA’S top B-School, the Indian Institute of Management, Ahmedabad (IIM-A), is waging three battles. Apart from fighting economic slowdown through innovative programmes, India’s premier institute fears losing its autonomy, if recommendations of a pan-IIM board are accepted. Also, it faces uneven competition from deep-pocket foreign B-Schools if allowed entry into India. IIM-A director Samir Barua spoke to Kumar Anand & Sushmita Mohapatra to assert that “government funding at the time of setting up the IIMs should not be a reason to shackle the institutes.” Excerpts:

How long do you think will recession last?
A minimum of two-quarters of 2009. But there is a likelihood of the slowdown continuing through 2009. Recovery from economic downturn may be seen earliest by January-March 2010 and the economy will take a year-and-half to be back on track. Markets would recover before the economy and the earliest sign of market recovery may be felt by early 2010. Factors like the general elections and monsoon will also hold back or boost the market. As far as Obama package is concerned, I think sentiments of Obama victory may not lead to any major improvement in the market conditions. He can make a difference by only coming up with plans that are radically different.

The RC Bhargava Committee (appointed by the Centre to study IIM functioning) has been critical about IIMs. How do you react to that?
The committee has made general statements regarding all IIMs, including the newly setup IIM-Shillong. Not a single statement (regarding enhancing brand image, improving the quantity and quality of research papers, etc) fits in for the top three IIMs (IIM-A, IIM-B and IIM-C). The report is not backed with adequate data. So, we do not get the right picture for IIM-A. Suggesting a uniform policy for all IIMs is, therefore, not right. Further, the credibility of the pan-IIM board as suggested by committee is questionable. Conceptually, it does not make sense. The committee suggests that this 15-member board will make policies while individual IIM boards will implement them. This will make it difficult to assess failure in governance (in measuring performance). We have written to the ministry that academic institutions will thrive only if given freedom to be different. They cannot be straitjacketed. With pan-IIM board having supremacy over other boards, it will take away the autonomy of the institute.

You seem to be critical about the entry of global institutions in the Indian market. Isn’t IIM-A strong enough brand to take on global institutions?
The Centre is keen on passing the Foreign University Entry and Operation Bill that will allow the entry of the foreign universities to offer education in India. As per the bill, these institutes will enter India as deemed universities and will be at par with private B-schools, with endowments as high as 3,000 times that of IIM-A. With the strength of international brands and deep pockets, they will pay faculty more and introduce scholarship programmes to attract talented students.

Do you think slowdown will affect the upcoming IIM-A placement season?
The slowdown will impact placements across B-schools in the country. But since IIM-A is on the top of the B-school pyramid, it will be affected the least. We think sectors like manufacturing, media and insurance will gain from the loss of financial sector that usually picked up huge chunk of students from IIM-A. Our management development programme (MDP) will get impacted due to recession. It is around this time of the year that corporate houses decide on their training spends, and in the current scenario, this is likely to face the first cut.

Realty body skeptical of package benefits

Realty body skeptical of package benefits
The Economic Times, January 29, 2009, p17

CHENNAI: The Centre’s stimulus package to help the crisis-hit realty sector may not be of much use for both developers and buyers in several cities as most of the housing projects were not expected to take off before the deadline for the scheme, says an industry body. The stimulus package would definitely lift the overall sentiment, especially in the Rs 5 lakh to Rs 20 lakh budget range. However, the lower interest rates extended for loans up to Rs 20 lakh are valid only till June 2009, Confederation of Real Estate Developers' Association of India Tamil Nadu chapter secretary T Chittybabu said. “Even if the developers were to announce projects to suit budget (housing) of Rs 5 to 20 lakh, approvals from the Chennai Metropolitan Development Authority or local bodies would mean buyers and developers cannot meet the June 30 deadline.”

HDIL profit declines by 32% while revenue declined by 35%

HDIL’s growth slows due to real estate woes

HDIL’s growth slows due to real estate woes
The Hindu Business Line, January 29, 2009, p11

Vidya Bala BL Research Bureau

Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.

For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.

But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.

However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.

HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.

Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.

PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.

This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.

To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.

This was expected to increase supply of land and reduce high TDR prices.

The company holds one million sq ft of TDRs that it can cash in on.

Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.

This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.

However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.

NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.

The margin, nevertheless, remains good enough for a real estate business.

Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.

A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.

Pledged share sale pulls down Unitech promoter holding

Pledged share sale pulls down Unitech promoter holding
The Business Standard, January 29, 2009, p3

BS REPORTER Mumbai, 28 January

Promoter holding in Unitech, the nation’s second-largest property developer, has dropped by 7 per cent since their September disclosure after lenders sold the shares pledged with them, according to analysts.

The promoter holding in Unitech has fallen to 67.2 per cent in the December quarter compared with 74.3 per cent in the quarter ended September 30, according to the shareholding pattern disclosed by the company on the website of the National Stock Exchange.

The Sanjay Chandra-led group’s attempt to raise money to repay dues had forced the promoters to pledge shares with lenders, who, in turn, sold the shares to recover their loans. The promoters are yet to disclose the total extent of pledged shares to stock exchanges even though market regulator Securities and Exchange Board of India (Sebi) has advised companies to make such disclosures to enhance transparency.

However, Unitech sources maintain that the company is not obliged to disclose the same as the Sebi directive requires an amendment to the listing agreement of stock exchanges. Only last month, IFCI and Sicom had confirmed selling pledged shares of Unitech. The lenders did not assign any reason for the sale and neither did the company comment on the same.

Unitech has also applied to FIPB to raise $1 billion by selling shares to overseas investors. A few analysts view the move as a positive development since it will help the company lower its debt to equity ratio.

“We view any additional equity raising either at the parent or SPV level as a positive development as it will aid in getting consolidated gearing down to manageable levels,” JP Morgan said in a recent report.

Adani plans to merge SEZs

Adani plans to merge SEZs
The Business Standard, January 29, 2009, p1

RITUPARNA BHUYAN & MAULIK PATHAK New Delhi/Ahmedabad, 28 January

For the first time since its inception in 2006, the Board of Approval on special economic zones (SEZs) in its next meeting in March will take up a proposal from adeveloper to merge these tax-free industrial enclaves for exports. The Adani group has sought the board’s approval to merge its three SEZs at Mundra in Gujarat. The merger will result in lesser expenses on infrastructure, utilities and administration.

Faced with a liquidity crunch, other developers too are expected to come to the board with a similar proposal. Reliance Industries-promoted Navi Mumbai SEZ Pvt Ltd is also planning to merge its notified zones in the Navi Mumbai area. “We were given five different land parcels; hence, we had to notify them separately," said a company source. An RIL spokesperson declined to comment.

The three adjacent Adani SEZs are situated near the Mundra Port which too has been promoted by the group. While two of these are multi-product zones, the third is apower SEZ. The combined area of the three SEZs is well over 6,000 hectares.

“The Board will discuss the proposal in its next meeting. Points that would come up for discussions include how to treat the processing and non-processing zones within the SEZs,” said a government official in the know.

According to SEZ rules, each zone needs to have a separate processing area for factories and units, as well as a non-processing area for houses, schools, hospitals and shopping arcades.

The three SEZs were notified separately as the Adani group bought the land in separate tranches. Moreover, a public utility road is present between the two multi-product zones. "There was a public utility road leading to an old port of Gujarat Maritime Board due to which there was aproblem of contiguity. Hence we had to apply for notification for two different SEZs," said an Adani group executive.

Indian FIs Pitch for Auditor Rotation

Indian FIs Pitch for Auditor Rotation
The Economic Times, January 29, 2009, p1

Abhinaba Das & Dev Chatterjee, ET Bureau

MUMBAI: Weeks after the Satyam saga exposed glaring lapses in auditing practices, Indian institutional investors are seeking a rotation of auditors to ensure that auditors don’t act in “collusion” with the company promoters.

The biggest local investor, Life Insurance Corporation, and the state-owned reinsurance firm, General Insurance Corporation, are asking companies, where they have significant stakes, to change their statutory auditors every three years to plug possible loopholes in the audit process. A directive to this effect is being sent out to the companies concerned.

“We are hopeful that rotation of auditors will help in preventing audit scams. The Satyam fiasco has been a big learning experience for all of us and we feel it’s time that companies change auditors periodically,” a senior insurance official told ET.

Price Waterhouse, the audit arm of PricewaterhouseCoopers, has come under the scanner after Satyam Computer Services promoter B Ramalinga Raju admitted to fudging the company’s accounts for several years. Price Waterhouse, which was the auditor for Satyam, has already sacked its two auditors S Gopalakrishnan and Srinivas Talluri, who are now in a Hyderabad jail, for signing the annual accounts which were based on forged documents. Price Waterhouse has also suspended the two partners.

With institutional investors making their stand clear, pressure will now mount on the Institute of Chartered Accountants of India (ICAI), the self-regulatory body for practising chartered accountants, to come out with guidelines to make rotation of auditors mandatory. At present, only banks are required to rotate auditors, appointed from among RBI-empanelled list of audit firms.

The official said many Indian companies retain their auditors for years, which results in “collusion” between the promoters and the bookkeepers.

Investor confidence in auditors has hit an all-time low following apprehensions that many accounting firms don’t do proper due diligence before vetting their clients’ financials. India Inc has been debating the issue of rotation of auditors for quite some time.

“Two years ago, there was a plan to effect rotation of auditors. But no action was taken,” a former ICAI office-bearer told ET, asking not to be quoted. Several calls made to ICAI president Ved Jain went unanswered.

Kamal Nath at Davos: India story is intact

Kamal Nath at Davos: India story is intact
The Financial Express, January 29, 2009, Page 1

Economy Bureau
New Delhi, Jan 28

On Day One at Davos, CEOs quizzed Indian policymakers on Satyam, exchanged notes on the impact of the global economic downturn summed up by a report released by PricewaterhouseCoopers, while the consulting firm’s global CEO winged his way to India to assess the fallout from the IT firm’s case on its operations in the country.

The head of the Indian delegation, commerce & industry minister Kamal Nath, said the India story was far more broad-based than evident from the Satyam affair. He recalled the performance of the economy over the past decade to point out the huge investments from the US and Europe. Parrying questions on the Satyam scam, Nath said investors were not looking at the episode as a red flag. He said some 60% of Fortune 500 companies are invested in India due to the confidence they have in the country.

Nath also fielded queries about the World Bank ban on Wipro, the weakening of the country’s GDP growth and a possible pullout by FIIs. He said the ban was the outcome of a World Bank employee buying Wipro shares and not any wrongdoing by the IT firm. The minister insisted that India would not be hit as badly as other nations by the financial crisis.

In an interview with BBC Hardtalk, he said, “India’s growth story is based on domestic demand. It is not based on the export market entirely. We can continue to keep our domestic demand-driven growth.” On FIIs pulling out $13.5 billion from Indian stocks in 2008, Nath said it was “not because of India’s fundamentals or because India was no more attractive”.

“(The pullout) is a tribute to the Indian financial governance sector that when they needed cash, the best way they could raise that cash was by selling Indian securities, not with a hit, but with a profit,” he said. Nath said the UPA government would, in the next couple of months, kick-start a $4-billion stimulus package for the infrastructure sector.

Meanwhile, to tackle the crisis at audit arm Price Waterhouse, whose India assurance leader Thoma Mathew stepped down and two of its partners were suspended in connection with the Rs 7,800-crore fraud, PricewaterhouseCoopers global CEO Samuel DiPiazza flew to India from Davos, where he was to attend the World Economic Forum.

The overall mood at the Swiss ski resort was one of gloom. Of the 1,100 CEOs polled by the PwC annual survey, only a fifth were confident that their firm’s revenue would show a growth in the next 12 months. This confidence level was the lowest in the seven-year-old survey. In a similar poll a year ago, half the polled CEOs were confident of revenue growth. A majority of CEOs this year said they expect some recovery only over the next three years.